G.R. No.

L-49705-09 February 8, 1979

TOMATIC ARATUC, SERGIO TOCAO, CISCOLARIO DIAZ,
FRED TAMULA, MANGONTAWAR GURO and BONIFACIO
LEGASPI, petitioners,
vs.
The COMMISSION ON ELECTIONS, REGIONAL BOARD OF
CANVASSERS for Region XII (Central Mindanao),
ABDULLAH DIMAPORO, JESUS AMPARO, ANACLETO
BADOY, et al., respondents.
Nos. L-49717-21 February 8,1979.
LINANG MANDANGAN, petitioner,
vs.
THE COMMISSION ON ELECTIONS, THE REGIONAL
BOARD OF CANVASSERS for Region XII, and ERNESTO
ROLDAN, respondents.
L-49705-09 Lino M. Patajo for petitioners.
Estanislao A. Fernandez for private respondents.
L-49717-21 Estanislao A. Fernandez for petitioner.
Lino M. Patajo for private respondent.
Office of the Solicitor General, for Public respondents.

11. Mandangan,
Linang(KB)

165,0
32

12. Diaz, Ciscolario

(KB)

159,9
77

13. Tamalu, Fred

(KB)

153,7
34

14. Legaspi
Bonifacio (KB)

148,2
00

15. Guro,
Mangontawar (KB)

139,3
86

16. Loma,
Nemesio (KB)

107,4
55

17. Macapeges,
Malamama
(Independent)

101,3
50

(Votes Of the independent candidates who actually were not

in contention omitted)" (Page 6, Record, L-49705-09.)

BARREDO, J.:
Petition in G. R. Nos. L-49705-09 for certiorari with restraining
order and preliminary injunction filed by six (6) independent
candidates for representatives to tile Interim Batasang
Pambansa who had joined together under the banner of the
Kunsensiya ng Bayan which, however, was not registered as a
political party or group under the 1976 Election Code, P.D. No.
1296, namely Tomatic Aratuc, Sorgio Tocao, Ciscolario Diaz,
Fred Tamula, Mangontawar Guro and Bonifacio Legaspi her
referred to as petitioners, to review the decision of the
respondent Commission on Election (Comelec) resolving their
appeal from the Of the respondent Regional Board of
Canvasses for Region XII regarding the canvass of the results
of the election in said region for representatives to the I.B.P.
held on April 7, 1978. Similar petition in G.R. Nos. L49717-21,
for certiorari with restraining order and preliminary injunction
filed by Linang Mandangan, abo a candidate for
representative in the same election in that region, to review
the decision of the Comelec declaring respondent Ernesto
Roldan as entitled to be proclaimed as one of the eight
winners in said election.
The instant proceedings are sequels of Our decision in G.R.
No. L- 48097, wherein Tomatic Aratuc et al. sought the
suspension of the canvass then being undertaken by
respondent dent Board in Cotabato city and in which canvass,
the returns in 1966 out of a total of 4,107 voting centers in
the whole region had already been canvassed showing partial
results as follows:
NAMES OF
CANDIDATES

NO.
OF
VOTE
S

1. Roldan, Ernesto
(KB)

225,6
74

2. Valdez,
Estanislao (KBL)

217,7
89

3. Dimporo,
Abdullah (KBL)

199,2
44

4. Tocao, Sergio
(KB)

199,0
62

5. Badoy, Anacleto
(KBL)

198,9
66

6. Amparo, Jesus
(KBL)

184,7
64

7. Pangandaman,
Sambolayan (KBL)

183,6
46

8. Sinsuat, Datu
Blah (KBL)

182,4
57

9. Baga, Tomas
(KBL)

171,6
56

10. Aratuc,
Tomatic (KB)

165,7
95

A supervening panel headed by Commissioner of Elections,

Hon- Venancio S. Duque, had conducted of the complaints of
the petitioners therein of alleged irregularities in the election
records in all the voting centers in the whole province of
Lanao del Sur, the whole City of Marawi, eight (8) towns of
Lanao del Norte, namely, Baloi, Karomatan, Matungao, Munai,
Nunungan, Pantao Ragat, Tagoloan and Tangcal, seven (7)
towns in Maguindanao, namely, Barrira, Datu Piang, Dinaig,
Matanog Parang, South Upi and Upi, ten (10) towns in North
Cotabato, namely, Carmen, Kabacan, Kidapwan, Magpet,
Matalam Midsayap, Pigcawayan, Pikit, Pres. Roxas and
Tulonan, and eleven (11) towns in Sultan Kudarat, namely,
Bagumbayan, Columbia Don Mariano Marcos, Esperanza,
Isulan, Kalamansig, Lebak, Lutayan, Palimbang, President
Quirino and Tacurong, by reason for which, petitioners had
asked that the returns from said voting centers be excluded
from the canvass. Before the start of the hearings, the
canvass was suspended but after the supervisory panel
presented its report, on May 15, 1978, the Comelec lifted its
order of suspension and directed the resumption of the
canvass to be done in Manila. This order was the one assailed
in this Court. We issued a restraining order.
After hearing the parties, the Court allowed the resumption of
the canvass but issued the following guidelines to be
observed thereat:
1. That the resumption of said canvass shall be held in the
Comelec main office in Manila starting not later than June 1,
1978;
2. That in preparation therefor, respondent Commission on
Elections shall see to it that all the material election
paragraph corresponding to all the voting center involved in
Election Nos. 78-8, 78-9, 78-10, 78-11 and 78-12 are taken
to its main office in Manila, more particularly, the ballot
boxes, with the contents, used during the said elections, the
books of voters or records of voting and the lists or records
of registered voters, on or before May 31, 1978;
3. That as soon as the corresponding records are available,
petitioners and their counsel shall be allowed to examine
the same under such security measures as the respondent
Board may determine, except the contents of the ballot
boxes which shall be opened only upon orders of either the
respondent Board or respondent Commission, after the
need therefor has become evident, the purpose of such
examination being to enable petitioners, and their counsel
to expeditiously determine which of them they would wish
to be scrutinized and passed upon by the Board as
supporting their charges of election frauds and anomalies,
petitioners and their counsel being admonished in this
connection, that no dilatory tactics should be in by them
and that only such records substantial objections should be
offered by them for the scrutiny by the Board;
4. That none of the election returns reffered to in the
petition herein shall be canvassed without first giving the
herein petitioners ample opportunity to make their specific
objections thereto, if they have any, and to show sufficient
basis for the rejection of any of the returns, and, in this
connection, the respondent Regional Board of Canvassers
should give due consideration to the points raised in the
memorandum filed by said petitioners with the Commission
on Election in the above cases dated April 26, 1978;
5. That should it appear to the board upon summary
scrutiny of the records to be offered by petitioners
indication that in the voting center actually held and/or that
election returns were prepared either before the day of the

election returns or at any other time, without regard thereto

or that there has been massive substitution of voters, or
that ballots and/or returns were prepared by the same
groups of persons or individuals or outside of the voting
centers, the Board should exclude the corresponding
returns from the canvass;
6. That appeals to the commission on Election of the Board
may be made only after all the returns in question in all the
above, the above five cases shall have been passed upon
by the Board and, accordingly, no proclamation made until
after the Commission shall have finally resolved the appeal
without prejudice to recourse to this court, if warranted as
provided by the Code and the Constitution, giving the
parties reasonable time therefor;
7. That the copies of the election returns found in the
corresponding ballot boxes shall be the one used in the
canvass;
8. That the canvass shall be conducted with utmost
dispatch, to the end that a proclamation, if feasible, may be
made not later than June 10, 1978; thus, the canvass may
be terminated as soon as it is evident that the possible
number of votes in the still uncanvassed returns with no
longer affect the general results of the elections here in
controversy;
9. That respondent Commission shall promulgate such other
directive not inconsistent with this resolution y necessary to
expedite the proceedings herein contemplated and to
accomplish the purposes herein intended. (Pp. 8-9, Record.
On June 1, 1978, upon proper motion, said guidelines were
modified:
... in the sense that the ballot boxes for the voting centers
just referred to need not be taken to Manila, EXCEPT those
of the particular voting centers as to which the petitioners
have the right to demand that the corresponding ballot
boxes be opened in order that the votes therein may be
counted because said ballots unlike the election returns,
have not been tampered with or substituted, which
instances the results of the counting shall be specified and
made known by petitioners to the Regional Board of
Canvassers not later than June 3, 1978; it being understood,
that for the purposes of the canvass, the petitioners shall
not be allowed to invoke any objection not already alleged
in or comprehend within the allegations in their complaint in
the election cases above- mentioned. (Page 8, Id.)
Thus respondent Board proceeded with the canvass, with the
herein petitioners presenting objections, most of them
supported by the report of handwriting and finger print
experts who had examined the voting records and lists of
voters in 878 voting centers, out of 2,700 which they specified
in their complaints or petitions in Election Cases 78-8, 78-9,
78-10, 78-11 and 7812 in the Comelec. In regard to 501
voting centers, the records cf. which, consisting of the voters
lists and voting records were not available- and could not be
brought to Manila, petitions asked that the results therein be
completely excluded from the canvass. On July 11, 1978,
respondent Board terminated its canvass and declared the
result of the voting to be as follows:
NAME OF
CANDIDATE

VOTE
S
OBTAI
N

VALDEZ,
Estanislao

436,0
69

DIMAPORO,
Abdullah

429,3
51

PANGANDAMA
N,
Sambolayan

406,1
06

SINSUAT, Blah

403,4
45

AMPARO,
Jesus

399,9
97

MANDANGAN,
Linang

387,0
25

BAGA, Tomas

386,3

93
BADOY,Anacle
to

374,9
33

ROLDAN,
Ernesto

275,1
41

TOCAO,
Sergio

239,9
14

ARATUC,
Tomatic

205,8
29

GURO,
Mangontawar

190,4
89

DIAZ,
Ciscolario

190,0
77

TAMULA, Fred

180,2
80

LEGASPI,
Bonifacio

174,3
96

MACAPEGES,
Malamana

160,2
71

(Pp. 11-12,
Record.)
Without loss of time, the petitioners brought the resolution of
respondent Board to the Comelec. Hearing was held on April
25, 1978, after which , the case was declared submitted for
decision. However, on August 30,1978, the Comelec issued a
resolution stating inter alia that :
In order to enable the Commission to decide the appeal
properly :
a. It will have to go deeper into the examination of the
voting records and registration records and in the case of
voting centers whose voting and registration records which
have not yet been submitted for the Commission to decide
to open the ballot boxes; and
b. To interview and get statements under oath of impartial
and disinterested persons from the area to determine
whether actual voting took place on April 7, 1978, as well as
those of the military authorities in the areas affects (Page
12). Record, L-49705-09 .)
On December 11, 1978, the Comelec required the parties "to
file their respective written comments on the reports they
shall periodically receive from the NBI-Comelec team of fingerprint and signature experts within the inextendible period of
seven (7) days from their receipt thereof". According to
counsel for Aratuc, et al., "Petitioners submitted their various
comments on the report 4, the principal gist of which was that
it would appear uniformly in all the reports submitted by the
Comelec-NBI experts that the registered voters were not the
ones who voted as shown by the fact that the thumbprints
appearing in Form 1 were different from the thumbprints of
the voters in Form 5. " But the Comelec denied a motion of
petitioners asking that the ballot boxes corresponding to the
voting centers the record of which are not available be
opened and that a date be set when the statements of
witnesses referred to in the August 30, 1978 resolution would
be taken, on the ground that in its opinion, it was no longer
necessary to proceed with such opening of ballot boxes and
taking of statements.
For his part, counsel for petitioner M in G.R. No. L-49717-21
filed with Comelec on December 19,1978 a Memorandum. To
quote from the petition:
On December 19, 1978, the KBL, through counsel, filed a
Memorandum for the Kilusang Bagong Lipunan (KBL)
Candidates on the Comelec's Resolution of December 11,
1978, a xerox copy of which is attached hereto and made a
part hereof as Annex 2, wherein they discussed the
following topics: (I) Brief History of the President Case; (II)
Summary of Our Position and Submission Before the
Honorable commission; and (III) KBL's Appeal Ad Cautelam.
And the fourth topic, because of its relevance to the case

now before this Honorable Court, we hereby quote for ready

reference:

AN, Linang

,22
6

TACAO,
Sergio

229
,12
4

DIAZ,
Ciscolario

187
,98
6

ARATUC,
Tomatic

183
,31
6

For the present, we beg to inform this Honorable

Commission that we stand by the reports and findings of
the COMELEC/NBI experts as submitted by them to the
Regional Board of Canvassers and as confirmed by the said
Regional Board of Canvassers in its Resolution of July 11,
1978, giving the 8 KBL candidates the majorities we have
already above mentioned. The Board did more than make a
summary scrutiny of the records' required by the Supreme
Court Resolution, Guideline No. 5, of May 23, 1978. Hence,
if for lack of material time we cannot file any Memorandum
within the non-extendible period of seven (7) days, we
would just stand by said COMELEC/NBI experts' reports to
the Regional Board, as confirmed by the Board (subject to
our appeal ad cautelam).

LEGASPI,
Bonifacio

178
,56
4

TAMULA,
Fred

177
,27
0

GURO,
Mangonta
war

163
,44
9

The COMELEC sent to the parties copies of the reports of

the NBI-COMELEC experts. For lack of material time due to
the voluminous reports and number of voting centers
involved, the Christmas holidays, and our impression that
the COMELEC will exercise only its appellate jurisdiction,
specially as per resolution of this Honorable Court of May
23, 1978 (in G.R. No. L-48097), we, the KBL, did not
comment any more on said reports. (Pp. 5-6, Record, L49717-21.)

LOMA,
Nemesio

129
,45
0

IV
OUR POSITION WITH RESPECT TO THE
ESOLUTION OF THE HONORABLE
COMMISSION OF DECEMBER 11, 1978
We respectfully submit that the Resolution of this case by
this Honorable Commission should be limited to the
precincts and municipalities involved in the KB'S Petitions in
Cases Nos. 78-8 to 78-12, on which evidence had been
submitted by the parties, and on which the KB submitted
the reports of their handwriting-print. Furthermore, it should
be limited by the appeal of the KB. For under the Supreme
Court Resolution of May 23, 1978, original jurisdiction was
given to the Board, with appeal to this Honorable
Commission-Considerations of other matters beyond these
would be, in our humble opinion, without jurisdiction.

On January 13, 1979, the Comelec rendered its resolution

being assailed in these cases, declaring the final result of the
canvass to be as follows:
CANDIDAT
ES

VOT
ES

VALDEZ,
Estanislao

319
,51
4

DIMAPORO
, Abdullah

289
.75
1

AMPARO,
Jesus

286
,18
0

BADOY,
Anacleto

285
,98
5

BAGA,
Tomas

271
,47
3

PANGANDA
MAN,
Sambolaya
n

271
,39
3

SINSUAT,
Blah

269
,90
5

ROLDAN,
Ernesto

268
,28
7

MANDANG

251

(Page 14,
Record, L49705-09.)
It is alleged in the Aratuc petition that:
The Comelec committee grave abuse of dicretion,
amounting to lack of jurisdiction:
1. In not pursuing further the examination of the
registration records and voting records from the other
voting centers questioned by petitioners after it found proof
of massive substitute voting in all of the voting records and
registration records examined by Comelec and NBI experts;
2. In including in the canvass returns from the voting
centers whose book of voters and voting records could not
be recovered by the Commission in spite of its repeated
efforts to retrieve said records;
3. In not excluding from the canvass returns from voting
centers showing a very high percentage of voting and in not
considering that high percentage of voting, coupled with
massive substitution of voters is proof of manufacturing of
election returns;
4. In denying petitioners' petition for the opening of the
ballot boxes from voting centers whose records are not
available for examination to determine whether or not there
had been voting in said voting centers;
5. In not Identifying the ballot boxes that had no padlocks
and especially those that were found to be empty while
they were shipped to Manila pursuant to the directive of the
Commission in compliance with the guidelines of this
Honorable Court;
6. In not excluding from the canvass returns where the
results of examination of the voting records and registration
records show that the thumbprints of the voters in CE Form
5 did not correspond to those of the registered voters as
shown in CE Form 1;
7. In giving more credence to the affidavits of chairmen and
members of the voting centers, municipal treasurers and
other election officials in the voting centers where
irregularities had been committed and not giving credence
to the affidavits of watchers of petitioners;
8. In not including among those questioned before the
Board by petitioners those included among the returns
questioned by them in their Memorandum filed with the
Commission on April 26, 1978, which Memorandum was
attached as Annex 'I' to their petition filed with this
Honorable Court G.R. No. L-48097 and which the Supreme
Court said in its Guidelines should be considered by the
Board in the course of the canvass (Guidelines No. 4). (Pp.
15-16, Record, Id.)

On the other hand, the Mandangan petition submits that the

Comelec comitted the following errors:
1. In erroneously applying the earlier case of Diaz vs.
Commission on Elections (November 29, 1971; 42 SCRA
426), and particularly the highly restrictive criterion that
when the votes obtained by the candidates with the highest
number of votes exceed the total number of highest
possible valid votes, the COMELEC ruled to exclude from the
canvass the election return reflecting such rests, under
which the COMELEC excluded 1,004 election returns,
involving around 100,000 votes, 95 % of which are for KBL
candidates, particularly the petitioner Linang Mandangan,
and which rule is so patently unfair, unjust and oppressive.
2. In not holding that the real doctrine in the Diaz Case is
not the total exclusion of election returns simply because
the total number of votes exceed the total number of
highest possible valid votes, but 'even if all the votes cast
by persons Identified as registered voters were added to the
votes cast by persons who can not be definitely ascertained
as registered or not, and granting, ad arguendo, that all of
them voted for respondent Daoas, still the resulting total is
much below the number of votes credited to the latter in
returns for Sagada, 'and that 'of the 2,188 ballots cast in
Sagada, nearly one-half (1,012) were cast by persons
definitely Identified as not registered therein or still more
than 40 % of substitute voting which was the rule followed
in the later case of Bashier/Basman (Diaz Case, November
19,1971,42 SCRA 426,432).
3. In not applying the rule and formula in the later case
of Bashier and Basman vs. Commission on
Election(February 24, 1972, 43 SCRA 238) which was the
one followed by the Regional Board of Canvassers, to wit:
In Basman vs Comelec (L-33728, Feb. 24, 1972) the
Supreme Court upheld the Supreme Court upheld the
ruling of the Commission setting the standard of 40
% excess votes to justify the exclusion of election
returns. In line with the above ruling, the Board of
Canvassers may likewise set aside election returns
with 40 % substitute votes. Likewise, where excess
voting occured and the excess was such as to
destroy the presumption of innocent mistake, the
returns was excluded.
(COMELEC'S Resolution, Annex I hereof, p. 22), which this
Honorable Court must have meant when its Resolution of
May 23, 1978 (G.R. No. 7), it referred to "massive
substitution of voters.
4. In examining, through the NBI/COMELEC experts, the
records in more than 878 voting centers examined by the
KB experts and passed upon by the Regional Board of
Canvassers which was all that was within its appellate
jurisdiction is examination of more election records to make
a total of 1,085 voting centers (COMELEC'S Resolution,
Annex 1 hereof, p. 100), being beyond its jurisdiction and a
denial of due process as far as the KBL, particularly the
petitioner Mandangan, were concerned because they were
informed of it only on December, 1978, long after the case
has been submitted for decision in September, 1978; and
the statement that the KBL acquiesced to the same is
absolutely without foundation.
5. In excluding election returns from areas where the
conditions of peace and order were allegedly unsettled or
where there was a military operation going on immediately
before and during election and where the voter turn out was
high (90 % to 100 %), and where the people had been
asked to evacuate, as a ruling without jurisdiction and in
violation of due process because no evidence was at all
submitted by the parties before the Regional Board of
Canvasssers. (Pp. 23-25, Record, L-47917-21.)
Now before discussing the merits of the foregoing
contentions, it is necessary to clarify first the nature and
extent of the Supreme Court's power of review in the
premises. The Aratuc petition is expressly predicated on the
ground that respondent Comelec "committed grave abuse of
discretion, amounting to lack of jurisdiction" in eight
specifications. On the other hand, the Mandangan petition
raises pure questions of law and jurisdiction. In other words,
both petitions invoked the Court's certiorari jurisdiction, not its
appellate authority of review.
This is as it should be. While under the Constitution of 1935,
"the decisions, orders and rulings of the Commission shall be
subject to review by the Supreme Court" (Sec. 2, first
paragraph, Article X) and pursuant to the Rules of Court, the
petition for "certiorari or review" shall be on the ground that
the Commission "has decided a question of substance not
theretofore determined by the Supreme Court, or has decided
it in a way not in accord with law or the applicable decisions of
the Supreme Court" (Sec. 3. Rule 43), and such provisions
refer not only to election contests but even to pre-

proclamation proceedings, the 1973 Constitution provides

somewhat differently thus: "Any decision, order or ruling of
the Commission may be brought to the Supreme Court on
certiorari by the aggrieved party within thirty days from his
receipt of a copy thereof" (Section 11, Article XII c), even as it
ordains that the Commission shall "be the sole judge of all
contests relating to the elections, returns and qualifications of
all members of the National Assembly and elective provincial
and city official" (Section 2(2).)
Correspondingly, the ElectionCode of 1978, which is the first
legislative constructionof the pertinent constitutional
provisions, makes the Commission also the "sole judge of all
pre-proclamation controversies" and further provides that
"any of its decisions, orders or rulings (in such contoversies)
shall be final and executory", just as in election contests, "the
decision of the Commission shall be final, and executory and
inappealable." (Section 193)
It is at once evident from these constitutional and statutory
modifications that there is a definite tendency to enhance and
invigorate the role of the Commission on Elections as the
independent constitutinal body charged with the safeguarding
of free, peaceful and honest elections. The framers of the new
Constitution must be presumed ot have definite knowledge of
what it means to make the decisions, orders and rulings of the
Commission "subject to review by the Supreme Court". And
since instead of maintaining that provision intact, it ordained
that the Commission's actuations be instead "brought to the
Supreme Court on certiorari", We cannot insist that there was
no intent to change the nature of the remedy, considering
that the limited scope of certiorari, compared to a review, is
well known in remedial law.
Withal, as already stated, the legislative construction of the
modified peritinent constitutional provision is to the effect
that the actuations of the Commission are final, executory and
even inappealable. While such construction does not exclude
the general certiorari jurisdiction of the Supreme Court which
inheres in it as the final guardian of the Constitution,
particularly, of its imperious due process mandate, it
correspondingly narrows down the scope and extent of the
inquiry the Court is supposed to undertake to what is strictly
the office of certiorari as distinguished from review. We are of
the considered opinion that the statutory modifications are
consistent with the apparent new constitional intent. Indeed,
it is obvious that to say that actuations of the Commission
may be brought to the Supreme Court on certiorari technically
connotes something less than saying that the same "shall be
subject to review by the Supreme Court", when it comes to
the measure of the Court's reviewing authority or prerogative
in the premises.
A review includes digging into the merits and unearthing
errors of judgment, while certiorari deals exclusively with
grave abuse of discretion, which may not exist even when the
decision is otherwise erroneous. certiorari implies an
indifferent disregard of the law, arbitrariness and caprice, an
omission to weight pertinent considerations, a decision
arrived at without rational deliberation. While the effecdts of
an error of judgment may not differ from that of an
indiscretion, as a matter of policy, there are matters taht by
their nature ought to be left for final determination to the
sound discretion of certain officers or entities, reserving it to
the Supreme Court to insure the faithful observance of due
process only in cases of patent arbitrariness.
Such, to Our mind, is the constitutional scheme relative to the
Commission on Elections. Conceived by the charter as the
effective instrument to preserve the sanctity of popular
suffrage, endowed with independence and all the needed
concommittant powers, it is but proper that the Court should
accord the greatest measure of presumption of regularity to
its course of action and choice of means in performing its
duties, to the end that it may achieve its designed place in
the democratic fabric of our government. Ideally, its members
should be free from all suspicions of partisan inclinations, but
the fact that actually some of them have had stints in the
arena of politics should not, unless the contrary is shown,
serve as basis for denying to its actuations the respect and
consideration that the Constitution contemplates should be
accorded to it, in the same manner that the Supreme Court
itself which from time to time may have members drawn from
the political ranks or even from military is at all times deemed
insulated from every degree or form of external pressure and
influence as well as improper internal motivations that could
arise from such background or orientation.
We hold, therefore that under the existing constitution and
statutory provisions, the certiorari jurisdiction of the Court
over orders, and decisions of the Comelec is not as broad as it
used to be and should be confined to instances of grave
abuse of discretion amounting to patent and substantial
denial of due process. Accordingly, it is in this light that We
the opposing contentions of the parties in this cases.

THE MANDANGAN CASE

Being more simple in Our view, We shall deal with the petition
in G.R. No. L-49717-21 first.
The errors assigned in this petition boil down to two main
propositions, namely, (1) that it was an error of law on the
part of respondent Comelec to have applied to the extant
circumstances hereof the ruling of this Court in Diaz vs.
Comelec 42 SCRA 426 instead of that of Bashier vs. Comelec
43 SCRA 238; and (2) that respondent Comelec exceeded its
jurisdiction and denied due process to petitioner Mandangan
in extending its inquiry beyond the election records of "the
878 voting centers examined by the KB experts and passed
upon by the Regional Board of Canvassers" and in excluding
from the canvass the returns showing 90 to 100 % voting,
from voting centers where military operations were by the
Army to be going on, to the extent that said voting centers
had to be transferred to the poblaciones the same being by
evidence.
Anent the first proposition, it must be made clear that the
Diaz and Bashier rulings are not mutually exclusive of each
other, each being an outgrowth of the basic rationale of
statistical improbability laid down in Lagumbay vs. Comelec
and , 16 SCRA 175. Whether they be apply together or
separately or which of them be applied depends on the
situation on hand. In the factual milieu of the instant case as
found by the Comelec, We see no cogent reason, and
petitioner has not shown any, why returns in voting centers
showing that the votes of the candidate obtaining highest
number of votes of the candidate obtaining the highest
number of votes exceeds the highest possible number of valid
votes cast therein should not be deemed as spurious and
manufactured just because the total number of excess votes
in said voting centers were not more than 40 %. Surely, this is
not the occasion, consider the historical antecedents relative
to the highly questionable manner in which elections have
been bad in the past in the provinces herein involved, of
which the Court has judicial notice as attested by its
numerous decisions in cases involving practically every such
election, of the Court to move a whit back from the standards
it has enunciated in those decisions.
In regard to the jurisdictional and due process points raised by
herein petitioner, it is of decisive importance to bear in mind
that under Section 168 of the Revised Election Code of 1978,
"the Commission (on Elections) shall have direct control and
supervision on over the board of canvassers" and that
relatedly, Section 175 of the same Code provides that it "shall
be the sole judge of all pre-proclamation controversies." While
nominally, the procedure of bringing to the Commission
objections to the actuations of boards of canvassers has been
quite loosely referred to in certain quarters, even by the
Commission and by this Court, such as in the guidelines of
May 23,1978 quoted earlier in this opinion, as an appeal, the
fact of the matter is that the authority of the Commission in
reviewing such actuations does not spring from any appellate
jurisdiction conferred by any specific provision of law, for
there is none such provision anywhere in the Election Code,
but from the plenary prerogative of direct control and
supervision endowed to it by the above-quoted provisions of
Section 168. And in administrative law, it is a too well settled
postulate to need any supporting citation here, that a superior
body or office having supervision and control over another
may do directly what the latter is supposed to do or ought to
have done.
Consequently, anything said in Lucman vs. Dimaporo, 33
SCRA 387, cited by petitioner, to the contrary
notwithstanding, We cannot fault respondent Comelec for its
having extended its inquiry beyond that undertaken by the
Board of Canvass On the contrary, it must be stated that
Comelec correctly and commendably asserted its statutory
authority born of its envisaged constitutional duties vis-a-vis
the preservation of the purity of elections and electoral
processes and p in doing what petitioner it should not have
done. Incidentally, it cannot be said that Comelec went further
than even what Aratuc et al. have asked, since said
complaints had impugned from the outset not only the returns
from the 878 voting centers examined by their experts but all
those mentioned in their complaints in the election cases filed
originally with the Comelec enumerated in the opening
statements hereof, hence respondent Comelec had that much
field to work on.
The same principle should apply in respect to the ruling of the
Commission regarding the voting centers affected by military
operations. It took cognizance of the fact, not considered by
the board of canvass, that said voting centers had been
transferred to the poblaciones. And, if only for purposes of
pre-proclamation proceedings, We are persuaded it did not
constitute a denial of due process for the Commission to have
taken into account, without the need or presentation of
evidence by the parties, a matter so publicly notorious as the
unsettled situation of peace and order in localities in the

provinces herein involved that their may perhaps be taken

judicial notice of, the same being capable of unquestionable
demonstration. (See 1, Rule 129)
In this connection, We may as well perhaps, say here as later
that regrettably We cannot, however, go along with the view,
expressed in the dissent of our respected Chief Justice, that
from the fact that some of the voting centers had been
transferred to the poblaciones there is already sufficient basis
for Us to rule that the Commission should have also subjected
all the returns from the other voting centers of the some
municipalities, if not provinces, to the same degree of scrutiny
as in the former. The majority of the Court feels that had the
Commission done so, it would have fallen into the error by
petitioner Mandangan about denial of due process, for it is
relatively unsafe to draw adverse conclusions as to the exact
conditions of peace and order in those other voting centers
without at list some prima facie evidence to rely on
considering that there is no allegation, much less any showing
at all that the voting centers in question are so close to those
excluded by the Comelec on as to warrant the inescapable
conclusion that the relevant circumstances by the Comelec as
obtaining in the latter were Identical to those in the former.
Premises considered the petition in G.R. Nos. L-49717-21 is
hereby dismiss for lack of merit.
THE ARATUC ET AL. PETITION
Of the eight errors assigned by herein petitioners earlier
adverted to, the seventh and the sight do not require any
extended disquisition. As to the issue of whether the elections
in the voting centers concerned were held on April 7, 1978,
the date designated by law, or earlier, to which the seventh
alleged error is addressed, We note that apparently
petitioners are not seriously pressing on it anymore, as
evidenced by the complete absence of any reference thereto
during the oral argument of their counsel and the practically
cavalier discussion thereof in the petition. In any event, We
are satisfied from a careful review of the analysis by the
Comelec in its resolution now before Us that it took pains to
consider as meticulously as the nature of the evidence
presented by both parties would permit all the contentions of
petitioners relative to the weight that should be given to such
evidence. The detailed discussion of said evidence is
contained in not less than nineteen pages (pp. 70-89) of the
resolution. In these premises, We are not prepared to hold
that Comelec acted wantonly and arbitrarily in drawing its
conclusions adverse to petitioners' position. If errors there are
in any of those conclusions, they are errors of judgment which
are not reviewable in certiorari, so long as they are founded
on substantial evidence.
As to eighth assigned error. the thrust of respondents,
comment is that the results in the voting centers mentioned in
this assignment of error had already been canvassed at the
regional canvass center in Cotabato City. Again, We cannot
say that in sustaining the board of canvassers in this regard,
Comelec gravely abused its discretion, if only because in the
guidelines set by this Court, what appears to have been
referred to is, rightly or wrongly, the resumption only of the
canvass, which does not necessarily include the setting aside
and repetition of the canvass already made in Cotabato City.
The second and fourth assignments of error concern the
voting centers the corresponding voters' record (C.E. Form 1)
and record of voting, (C.E. Form 5) of which have never been
brought to Manila because they, were not available The is not
clear as to how many are these voting centers. According to
petitioners they are 501, but in the Comelec resolution in
question, the number mentioned is only 408, and this number
is directly challenged in the petition. Under the second
assignment, it is contended that the Comelec gravely abused
its discretion in including in the canvass the election returns
from these voting centers and, somewhat alternatively, it is
alleged as fourth assignment that the petitioners motion for
the opening of the ballot boxes pertaining to said voting
centers was arbitraly denied by respondent Comelec.
The resolution under scrutiny explains the situation that
confronted the Commission in regard to the 408 voting
centers reffered to as follows :
The Commission had the option of excluding from the
canvass the election returns under category. By deciding to
exclude, the Commission would be summarily
disenfranchising the voters registered in the voting centers
affected without any basis. The Commission could also
order the inclusion in the canvass of these elections returns
under the injunction of the Supreme Court that extremes
caution must be exercised in rejecting returns unless these
are palpably irregular. The Commission chose to give prima
facie validity to the election returns mentioned and uphold
the votes cast by the voters in those areas. The Commission
held the view that the failure of some election officials to
comply with Commission orders(to submit the records)
should not parties to such official disobedience. In the case

of Lino Luna vs. Rodriguez, 39 Phil. 208, the Supreme Court

ruled that when voters have honestly cast their ballots, the
same should not be nullified because the officers appointed
under the law to direct the election and guard the purity of
the ballot have not complied with their duty. (cited in Laurel
on Elections, p. 24)

having adhered to Our guidelines of June 1, 1978, Comelec

certainly cannot be held to be guilty of having gravely abused
its discretion, in examining and passing on the returns from
the voting centers reffered to in the second and fourth
assignments of error in the canvass or in denying petitioners'
motion for the of the ballot boxes concerned.

On page 14 of the comment of the Solicitor General, however,

it is stated that:

The first, third and sixth assignment of involve related matters

and maybe discussed together. They all deal with the
inclusion in or exclusion from the canvass of returns on the
basis of the percentage of voting in specified voting centers
and the corresponding findings of the Comelec on the extent
of substitute voting therein as indicated by the result of either
SUMMAR the technical examination by experts of the signatures and
Y
thumb-prints of the voters threat.

At all events, the returns corresponding to these voting

centers were examined by the Comelec and 141 of such
returns were excluded, as follows:

INCE

TOTAL

EXCLUDED

o del Norte

30

o del Sur

342

137

21

12

412

141

indanao
Cotabato

n Kudarat
-----

INCLUDEDTo begin with, petitioners' complaint that the Comelec did not
examine and study 1,694 of the records in an the 2,775 voting
centers questioned by them is hardly accurate. To be more
30
exact, the Commission excluded a total of 1,267 returns
coming under four categories namely: 1,001 under the Diaz,
205
supra, ruling, 79 because of 90-100 % turnout of voters
despite military operations, 105 palpably manufactured owe
20
and 82 returns excluded by the board of canvass on other
grounds. Thus, 45.45 % of the of the petitioners were
6
sustained by the Comelec. In contrast, in the board of
canvassers, only 453 returns were excluded. The board was
10
reversed as to 6 of these, and 821 returns were excluded by
Comelec over and above those excluded by the board. In
other words, the Comelec almost doubled the exclusions by
271
the board.

(Page 301, Record.)

This assertion has not been denied by petitioners.
Thus, it appears that precisely use of the absence or
unavailability of the CE Forms 1 and 5 corresponding to the
more than 400 voting centers concerned in our present
discussion the Comelec examined the returns from said voting
centers to determine their trustworthiness by scrutinizing the
purported relevant data appearing on their faces, believing
that such was the next best thing that could be done to avoid
total disenfranchisement of the voters in all of them On the
Other hand, Petitioners' insist that the right thing to do was to
order the opening of the ballot boxes involved.
In connection with such opposing contentions, Comelec's
explanation in its resolution is:
... The commission had it seen fit to so order, could have
directed the opening of the ballot boxes. But the
Commission did not see the necessity of going to such
length in a that was in nature and decided that there was
sufficient bases for the revolution of the appeal. That the
Commission has discretion to determine when the ballot
boxes should be opened is implicit in the guidelines set by
the Supreme Court which states that '. . . the ballot bones
[which] shall be opened only upon orders of either the
respondent Board or respondent Commission, after the
need therefor has become evident ... ' (guideline No. 3;
emphasissupplied). Furthermore, the Court on June 1, 1978,
amended the guidelines that the "ballot boxes for the
voting centers ... need not be taken to Manila EXCEPT those
of the centers as to which the petitioners have the right to
demand that the corresponding ballot boxes be
opened ... provided that the voting centers concerned shall
be specified and made known by petitioners to the Regional
Board of Canvassers not later than June 3,1978 ... '
(Emphasis supplied). The KB, candidates did not take
advantage of the option granted them under these
guidelines.( Pp 106-107, Record.)
Considering that Comelec, if it had wished to do so, had the
facilities to Identify on its own the voting centers without CE
Forms I and 5, thereby precluding the need for the petitioners
having to specify them, and under the circumstances the
need for opening the ballot boxes in question should have
appeared to it to be quite apparent, it may be contended that
Comelec would have done greater service to the public
interest had it proceeded to order such opening, as it had
announced it had thoughts of doing in its resolution of August
30, 1978. On the other hand, We cannot really blame the
Commission too much, since the exacting tenor of the
guidelines issued by Us left it with very little elbow room, so to
speak, to use its own discretion independently of what We had
ordered. What could have saved matters altogether would
have been a timely move on the part of petitioners on or
before June 3, 1978, as contemplated in Our resolution. After
all come to think of it, that the possible outcome of the
opening of the ballot boxes would favor the petitioners was
not a certainty the contents them could conceivably
boomerang against them, such as, for example, if the ballots
therein had been found to be regular and preponderantly for
their opponents. Having in mind that significantly, petitioners
filed their motion for only on January 9, 1979, practically on
the eve of the promulgation of the resolution, We hold that by

Petitioners would give the impression by their third

assignment of error that Comelec refused to consider high
percentage of voting, coupled with mass substitute voting, as
proof that the pertinent returns had been manufactured. That
such was not the case is already shown in the above
specifications. To add more, it can be gleaned from the
resolution that in t to the 1,065 voting centers in Lanao del
Sur and Marawi City where a high percentage of voting
appeared, the returns from the 867 voting centers were
excluded by the Comelec and only 198 were included a ratio
of roughly 78 % to 22 %. The following tabulation drawn from
the figures in the resolution shows how the Comelec went
over those returns center by center and acted on them
individually:
90% 100% VOTING
MARAWI CITY AND LANAO DEL SUR
NO. OF V/C THAT V/C WITH
90% to 100%
MUNICIPALITIES
FUNCTIONED VOTING
No.
of
V/C

Exc
lud
ed

M
a
r
a
w
i
C
i
t
y

15
1

112

107

B
a
c
o
l
o
d

28

28

27

53

53

49

G
r
a
n
d
e
B
a
l
a
b
a

g
a
n
B
a
l
i
n
d
o
n
g

22

22

B
a
y
a
n
g

29

20

13

B
i
n
i
d
a
y
a
n

37

33

29

B
u
a
d
i
p
o
s
o

41

10

15

10

B
u
n
t
o
n
B
u
b
o
n
g

24

23

B
u
m
b
a
r
a
n

21
(All
exc
lud
ed)

B
u
t
i
g

35

33

32

C
a
l
a
n
o
g
a
s

23

21

21

D
i

42

39

21

38

t
s
a
a
n
R
a
m
a
i
n
G
a
n
a
s
s
i

39

38

23

L
u
m
b
a

64

63

47

L
u
m
b
a
t
a
n

30

28

17

L
u
m
b
a
y
a
n
a
g
u
e

37

33

28

M
a
d
a
l
u
m

14

13

M
a
d
a
m
b
a

20

20

M
a
g
u
i
n
g

57

55

53

M
a

59

47

B
a
y
a
b
a
o

l
a
b
a
n
g

l
t
a
n

M
a
r
a
n
t
a
o

79

63

M
a
r
u
g
o
n
g

37

M
a
s
i
u

27

26

24

P
a
g
a
y
a
w
a
n

15

13

P
i
a
g
a
p
o

39

39

36

P
o
o
n
a
B
a
y
a
b
a
o

44

44

42

P
u
a
l
a
s

23

S
a
g
u
i
a
r
a
n

36

32

21

S
u

35

31

31

35

41

32

G
u
m
a
n
d
e
r
T
a
m
p
a
r
a
n

24

21

15

T
a
r
a
k
a

31

31

31

T
u
b
a
r
a
n

23

19

19

1,2
18

1,06
5

867

T
O
T
A
L
S
:
M
a
r
a
w
i
&
L
a
n
a
o

20

20

d
e
l
S
u
r
We are convinced, apart from presuming regularity in the
performance of its duties, that there is enough showing in the
record that it did examine and study the returns and pertinent
records corresponding to all the 2775 voting centers subject
of petitioners' complaints below. In one part of its resolution
the Comelec states:
The Commission as earlier stated examined on its own the
Books of Voters (Comelec Form No. 1) and the Voters
Rewards Comelec Form No. 5) to determine for itself which
of these elections form needed further examination by the
COMELEC-NBI experts. The Commission, aware of the
nature of this pre-proclamation controversy, believes that
it can decide, using common sense and perception,
whether the election forms in controversy needed further
examination by the experts based on the presence or
absence of patent signs of irregularity. (Pp. 137-138,
Record.)
In the face of this categorical assertion of fact of the
Commission, the bare charge of petitioners that the records

pertaining to the 1,694 voting centers assailed by them

should not create any ripple of serious doubt. As We view this
point under discussion, what is more factually accurate is that
those records complained of were not examined with the aid
of experts and that Comelec passed upon the returns
concerned "using common sense and perception only." And
there is nothing basically objectionable in this. The defunct
Presidential Senate and House Electoral Tribunals examine
passed upon and voided millions of votes in several national
elections without the assistance of experts and "using" only
common sense and perception". No one ever raised any
eyebrows about such procedure. Withal, what we discern from
the resolution is that Comelec preliminary screened the
records and whatever it could not properly pass upon by
"using common sense and perception" it left to the experts to
work on. We might disagree with he Comelec as to which
voting center should be excluded or included, were We to go
over the same records Ourselves, but still a case of grave
abuse of discretion would not come out, considering that
Comelec cannot be said to have acted whimsically or
capriciously or without any rational basis, particularly if it is
considered that in many respects and from the very nature of
our respective functions, becoming candor would dictate to Us
to concede that the Commission is in a better position to
appreciate and assess the vital circumstances closely and
accurately. By and large, therefore, the first, third and sixth
assignments of error of the petitioners are not well taken.
The fifth assignment of error is in Our view moot and
academic. The Identification of the ballot boxes in defective
condition, in some instances open and allegedly empty, is at
best of secondary import because, as already discussed, the
records related thereto were after all examined, studied and
passed upon. If at all, deeper inquiry into this point would be
of real value in an electoral protest.
CONCLUSION
Before closing, it may not be amiss to state here that the
Court had initially agreed to dispose of the cases in a minute
resolution, without prejudice to an extended or reasoned out
opinion later, so that the Court's decision may be known
earlier. Considering, however, that no less than the Honorable
Chief Justice has expressed misgivings as to the propriety of
yielding to the conclusions of respondent Commission
because in his view there are strong considerations
warranting farther meticulous inquiry of what he deems to be
earmarks of seemingly traditional faults in the manner
elections are held in the municipalities and provinces herein
involved, and he is joined in this pose by two other
distinguished colleagues of Ours, the majority opted to ask for
more time to put down at least some of the important
considerations that impelled Us to see the matters in dispute
the other way, just as the minority bidded for the opportunity
to record their points of view. In this manner, all concerned
will perhaps have ample basis to place their respective
reactions in proper perspective.
In this connection, the majority feels it is but meet to advert
to the following portion of the ratiocination of respondent
Board of Canvassers adopted by respondent Commission with
approval in its resolution under question:
First of all this Board was guided by the legal doctrine that
canvassing boards must exercise "extreme caution" in
rejecting returns and they may do so only when the returns
are palpably irregular. A conclusion that an election return is
obviously manufactured or false and consequently should
be disregarded in the canvass must be approached with
extreme caution, and only upon the most convincing proof.
Any plausible explanation one which is acceptable to a
reasonable man in the light of experience and of the
probabilities of the situation, should suffice to avoid outright
nullification, with the resulting t of those who exercised
their right of suffrage. (Anni vs. Isquierdo et at L-35918,
Jude 28,1974; Villavon v. Comelec L-32008, August 31,1970;
Tagoranao v. Comelec 22 SCRA 978). In the absence of
strong evidence establishing the spuriousness of the return,
the basis rule of their being accorded prima facie status as
bona fide reports of the results of the count of the votes for
canvassing and proclamation purposes must be applied,
without prejudice to the question being tried on the merits
with the presentation of evidence, testimonial and real in
the corresponding electoral protest. (Bashier vs. Comelec L33692, 33699, 33728, 43 SCRA 238, February 24, 1972).
The decisive factor is that where it has been duly de ed
after investigation and examination of the voting and
registration records hat actual voting and election by the
registered voters had taken place in the questioned voting
centers, the election returns cannot be disregarded and
excluded with the resting disenfranchisement of the voters,
but must be accorded prima facie status as bona
fide reports of the results of the voting for canvassing and
registration purposes. Where the grievances relied upon is
the commission of irregularities and violation of the Election

Law the proper remedy is election protest. (Anni vs.

Isquierdo et al. Supra). (P. 69, Record, L-49705-09).
The writer of this opinion has taken care to personally check
on the citations to be doubly sure they were not taken out of
context, considering that most, if not all of them arose from
similar situations in the very venues of the actual milieu of the
instant cases, and We are satisfied they do fit our chosen
posture. More importantly, they actually came from the pens
of different members of the Court, already retired or still with
Us, distinguished by their perspicacity and their perceptive
prowess. In the context of the constitutional and legislative
intent expounded at the outset of this opinion and evident in
the modifications of the duties and responsibilities of the
Commission on Elections vis-a-vis the matters that have
concerned Us herein, particularly the elevation of the
Commission as the "sole judge of pre-proclamation
controversies" as well as of all electoral contests, We find the
afore-quoted doctrines compelling as they reveal through the
clouds of existing jurisprudence the pole star by which the
future should be guided in delineating and circumscribing
separate spheres of action of the Commission as it functions
in its equally important dual role just indicated bearing as
they do on the purity and sanctity of elections in this country.
In conclusion, the Court finds insufficient merit in the petition
to warrant its being given due course. Petition dismissed,
without pronouncement as to costs. Justices Fernando,
Antonio and Guerrero who are presently on official missions
abroad voted for such dismissal.
EN BANC
[G.R. Nos. 95203-05 : December 18, 1990.]
192 SCRA 363
SENATOR ERNESTO MACEDA, Petitioner, vs. ENERGY
REGULATORY BOARD (ERB); MARCELO N. FERNANDO,
ALEJANDRO B. AFURONG; REX V. TANTIONGCO; and
OSCAR E. ALA, in their collective official capacities as
Chairman
and Members
of
the Board
(ERB),
respectively; CATALINO MACARAIG, in his quadruple
official capacities as Executive Secretary, Chairman of
Philippine National Oil Company; Office of the Energy
Affairs, and with MANUEL ESTRELLA, in their respective
official capacities as Chairman and President of the
Petron Corporation; PILIPINAS SHELL PETROLEUM
CORPORATION; with CESAR BUENAVENTURA and REY
GAMBOA as chairman and President, respectively;
CALTEX PHILIPPINES with FRANCIS ABLAN, President
and Chief Executive Officer; and the Presidents of
Philippine Petroleum Dealer's Association, Caltex
Dealer's Co., Petron Dealer's Asso., Shell Dealer's Asso.
of the Phil., Liquefied Petroleum Gas Institute of the
Phils., any and all concerned gasoline and petrol
dealers or stations; and such other persons, officials,
and parties, acting for and on their behalf; or in
representation of and/or under their authority,
Respondents.
[G.R. Nos. 95119-21 : December 18, 1990.]
192 SCRA 363
OLIVER
O.
LOZANO,
Petitioner,
vs. ENERGY
REGULATORY
BOARD
(ERB),
PILIPINAS
SHELL
PETROLEUM CORPORATION, CALTEX (PHIL.), INC., and
PETRON CORPORATION, Respondents.
DECISION
SARMIENTO, J.:
The petitioners pray for injunctive relief, to stop the Energy
Regulatory Board (Board hereinafter) from implementing its
Order, dated September 21, 1990, mandating a provisional
increase in the prices of petroleum and petroleum products,
as follows:
PRODUCTS IN PESOS PER LITER
OPSF
Premium Gasoline 1.7700
Regular Gasoline 1.7700
Avturbo 1.8664
Kerosene 1.2400
Diesel Oil 1.2400
Fuel Oil 1.4900
Feedstock 1.4900
LPG 0.8487
Asphalts 2.7160
Thinners 1.7121 1
It appears that on September 10, 1990, Caltex (Philippines),
Inc., Pilipinas Shell Petroleum Corporation, and Petron

Corporation proferred separate applications with the Board for

permission to increase the wholesale posted prices of
petroleum products, as follows:
Caltex P3.2697 per liter
Shell 2.0338 per liter
Petron 2.00 per liter 2
and meanwhile, for provisional authority to increase
temporarily such wholesale posted prices pending further
proceedings.:-cralaw
On September 21, 1990, the Board, in a joint (on three
applications) Order granted provisional relief as follows:
WHEREFORE, considering the foregoing, and pursuant to
Section 8 of Executive Order No. 172, this Board hereby
grants herein applicants' prayer for provisional relief and,
accordingly, authorizes said applicants a weighted average
provisional increase of ONE PESO AND FORTY-TWO CENTAVOS
(P1.42) per liter in the wholesale posted prices of their various
petroleum products enumerated below, refined and/or
marketed by them locally. 3
The petitioners submit that the above Order had been issued
with grave abuse of discretion, tantamount to lack of
jurisdiction, and correctible by Certiorari.
The petitioner, Senator Ernesto Maceda, 4 also submits that
the same was issued without proper notice and hearing in
violation of Section 3, paragraph (e), of Executive Order No.
172; that the Board, in decreeing an increase, had created a
new source for the Oil Price Stabilization Fund (OPSF), or
otherwise that it had levied a tax, a power vested in the
legislature, and/or that it had "re-collected", by an act of
taxation, ad valorem taxes on oil which Republic Act No. 6965
had abolished.
The petitioner, Atty. Oliver Lozano, 5 likewise argues that the
Board's Order was issued without notice and hearing, and
hence, without due process of law.
The intervenor, the Trade Union of the Philippines and Allied
Services (TUPAS/FSM)-W.F.T.U., 6 argues on the other hand,
that the increase cannot be allowed since the respondents oil
companies had not exhausted their existing oil stock which
they had bought at old prices and that they cannot be allowed
to charge new rates for stock purchased at such lower rates.
The Court set the cases (in G.R. Nos. 95203-05) for hearing on
October 25, 1990, in which Senator Maceda and his counsel,
Atty. Alexander Padilla, argued. The Solicitor General, on
behalf of the Board, also presented his arguments, together
with Board Commissioner Rex Tantiangco. Attys. Federico
Alikpala, Jr. and Joselia Poblador represented the oil firms
(Petron and Caltex, respectively).
The parties were thereafter required to submit their
memorandums after which, the Court considered the cases
submitted for resolution.
On November 20, 1990, the Court ordered these cases
consolidated.
On November 27, 1990, we gave due course to both petitions.
The Court finds no merit in these petitions.
Senator Maceda and Atty. Lozano, in questioning the lack of a
hearing, have overlooked the provisions of Section 8 of
Executive Order No. 172, which we quote:
"SECTION 8. Authority to Grant Provisional Relief . The
Board may, upon the filing of an application, petition or
complaint or at any stage thereafter and without prior
hearing, on the basis of supporting papers duly verified or
authenticated, grant provisional relief on motion of a party in
the case or on its own initiative, without prejudice to a final
decision after hearing, should the Board find that the
pleadings, together with such affidavits, documents and other
evidence which may be submitted in support of the motion,
substantially support the provisional order: Provided, That the
Board shall immediately schedule and conduct a hearing
thereon within thirty (30) days thereafter, upon publication
and notice to all affected parties.: nad
As the Order itself indicates, the authority for provisional
increase falls within the above provision.
There is no merit in the Senator's contention that the
"applicable" provision is Section 3, paragraph (e) of the
Executive Order, which we quote:
(e) Whenever the Board has determined that there is a
shortage of any petroleum product, or when public interest so
requires, it may take such steps as it may consider necessary,
including the temporary adjustment of the levels of prices of
petroleum products and the payment to the Oil Price
Stabilization Fund created under Presidential Decree No. 1956
by persons or entities engaged in the petroleum industry of
such amounts as may be determined by the Board, which will
enable the importer to recover its cost of importation.

What must be stressed is that while under Executive Order

No. 172, a hearing is indispensable, it does not preclude the
Board from ordering, ex parte, a provisional increase, as it did
here, subject to its final disposition of whether or not: (1) to
make it permanent; (2) to reduce or increase it further; or (3)
to deny the application. Section 37 paragraph (e) is akin to a
temporary restraining order or a writ of preliminary
attachment issued by the courts, which are given ex parte,
and which are subject to the resolution of the main case.
Section 3, paragraph (e) and Section 8 do not negate each
other, or otherwise, operate exclusively of the other, in that
the Board may resort to one but not to both at the same time.
Section 3(e) outlines the jurisdiction of the Board and the
grounds for which it may decree a price adjustment, subject
to the requirements of notice and hearing. Pending that,
however, it may order, under Section 8, an authority to
increase provisionally, without need of a hearing, subject to
the final outcome of the proceeding. The Board, of course, is
not prevented from conducting a hearing on the grant of
provisional authority which is of course, the better
procedure however, it cannot be stigmatized later if it failed
to conduct one. As we held in Citizens' Alliance for Consumer
Protection v. Energy Regulatory Board. 7
In the light of Section 8 quoted above, public respondent
Board need not even have conducted formal hearings in these
cases prior to issuance of its Order of 14 August 1987
granting a provisional increase of prices. The Board, upon its
own discretion and on the basis of documents and evidence
submitted by private respondents, could have issued an order
granting provisional relief immediately upon filing by private
respondents of their respective applications. In this respect,
the Court considers the evidence presented by private
respondents in support of their applications i.e., evidence
showing that importation costs of petroleum products had
gone up; that the peso had depreciated in value; and that the
Oil Price Stabilization Fund (OPSF) had by then been depleted
as substantial and hence constitutive of at least prima facie
basis for issuance by the Board of a provisional relief order
granting an increase in the prices of petroleum products. 8
We do not therefore find the challenged action of the Board to
have been done in violation of the due process clause. The
petitioners may contest however, the applications at the
hearings proper.
Senator Maceda's attack on the Order in question on premises
that it constitutes an act of taxation or that it negates the
effects of Republic Act No. 6965, cannot prosper. Republic Act
No. 6965 operated to lower taxes on petroleum and petroleum
products by imposing specific taxes rather than ad valorem
taxes thereon; it is, not, however, an insurance against an "oil
hike", whenever warranted, or is it a price control mechanism
on petroleum and petroleum products. The statute had
possibly forestalled a larger hike, but it operated no more.:
nad
The Board Order authorizing the proceeds generated by the
increase to be deposited to the OPSF is not an act of taxation.
It is authorized by Presidential Decree No. 1956, as amended
by Executive Order No. 137, as follows:
SECTION 8. There is hereby created a Trust Account in the
books of accounts of the Ministry of Energy to be designated
as Oil Price Stabilization Fund (OPSF) for the purpose of
minimizing frequent price changes brought about by
exchange rate adjustments and/or changes in world market
prices of crude oil and imported petroleum products. The Oil
Price Stabilization Fund (OPSF) may be sourced from any of
the following:
a) Any increase in the tax collection from ad valorem tax or
customs duty imposed on petroleum products subject to tax
under this Decree arising from exchange rate adjustment, as
may be determined by the Minister of Finance in consultation
with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of
tax exemptions of government corporations, as may be
determined by the Minister of Finance in consultation with the
Board of Energy;
c) Any additional amount to be imposed on petroleum
products to augment the resources of the Fund through an
appropriate Order that may be issued by the Board of Energy
requiring payment by persons or companies engaged in the
business of importing, manufacturing and/or marketing
petroleum products;
d) Any resulting peso cost differentials in case the actual peso
costs paid by oil companies in the importation of crude oil and
petroleum products is less than the peso costs computed
using the reference foreign exchange rates as fixed by the
Board of Energy.
Anent claims that oil companies cannot charge new prices for
oil purchased at old rates, suffice it to say that the increase in
question was not prompted alone by the increase in world oil

prices arising from tension in the Persian Gulf. What the Court
gathers from the pleadings as well as events of which it takes
judicial notice, is that: (1) as of June 30, 1990, the OPSF has
incurred a deficit of P6.1 Billion; (2) the exchange rate has
fallen to P28.00 to $1.00; (3) the country's balance of
payments is expected to reach $1 Billion; (4) our trade deficit
is at $2.855 Billion as of the first nine months of the year.
Evidently, authorities have been unable to collect enough
taxes necessary to replenish the OPSF as provided by
Presidential Decree No. 1956, and hence, there was no
available alternative but to hike existing prices.
The OPSF, as the Court held in the aforecited CACP cases,
must not be understood to be a funding designed to
guarantee oil firms' profits although as a subsidy, or a trust
account, the Court has no doubt that oil firms make money
from it. As we held there, however, the OPSF was established
precisely to protect the consuming public from the erratic
movement of oil prices and to preclude oil companies from
taking advantage of fluctuations occurring every so often. As
a buffer mechanism, it stabilizes domestic prices by bringing
about a uniform rate rather than leaving pricing to the
caprices of the market.
In all likelihood, therefore, an oil hike would have probably
been imminent, with or without trouble in the Gulf, although
trouble would have probably aggravated it.: nad
The Court is not to be understood as having prejudged the
justness of an oil price increase amid the above premises.
What the Court is saying is that it thinks that based thereon,
the Government has made out a prima facie case to justify
the provisional increase in question. Let the Court therefore
make clear that these findings are not final; the burden,
however, is on the petitioners' shoulders to demonstrate the
fact that the present economic picture does not warrant a
permanent increase.
There is no doubt that the increase in oil prices in question
(not to mention another one impending, which the Court
understands has been under consideration by policy-makers)
spells hard(er) times for the Filipino people. The Court can not,
however, debate the wisdom of policy or the logic behind it
(unless it is otherwise arbitrary), not because the Court agrees
with policy, but because the Court is not the suitable forum
for debate. It is a question best judged by the political
leadership which after all, determines policy, and ultimately,
by the electorate, that stands to be better for it or worse off,
either in the short or long run.
At this point, the Court shares the indignation of the people
over the conspiracy of events and regrets its own
powerlessness, if by this Decision it has been powerless. The
constitutional scheme of things has simply left it with no
choice.
In fine, we find no grave abuse of discretion committed by the
respondent Board in issuing its questioned Order.
WHEREFORE, these petitions are DISMISSED. No costs.
SO ORDERED.
G.R. No. 1049

May 16, 1903

THE UNITED STATES, complainant-appellee,

vs.
FRED L. DORR, ET AL., defendants-appellants.
F.G. Waite for appellants.
Solicitor-General Araneta for appellee.
COOPER, J.:
On May 23, 1902, a complaint was filed in the Court of First
Instance of the city of Manila against Fred L. Dorr and Edward
F. O'Brien, charging them with the publication of a false and
malicious libel against Seor Benito Legarda, one of the
United States Philippine Commissioners, by placing certain
headlines or caption above an article published in the "Manila
Freedom," a newspaper in the city of Manila, of which the
defendant Fred L. Dorr was the proprietor and the defendant
Edward F. O'Brien was the editor.
The following are the headlines or caption upon which the
prosecution is based:
Traitor, seducer and perjurer. Sensational allegations
against Commissioner Legarda. Made of record and
read in English. Spanish reading waived. Wife would
have killed him. Legarda pale and nervous.

The article over and above which the headlines were placed
was a report of certain judicial proceedings had in the Court of
First Instance of the city of Manila, in the criminal case of the
United States vs. Valdez for the offense of libel,1 and the
report was a copy taken from a document prepared by the
attorney for Valdez, in which the offer was made, as a
defense, to prove the truth of the material allegations
contained in and which were the basis of the complaint
against Valdez. The facts offered to be proven were published
in the "Miau," a newspaper of which Valdez was editor, and
related to Seor Legarda, the prosecuting witness in the
Valdez case as well as in this case.
At that time, under the libel law, the truth of the libelous
matter was inadmissible as evidence. The judge of the Court
of First Instance excluded the proof tendered in the document,
but permitted it to be filed in the case, and the copy was
taken from it by one Vogel, the city reporter of the "Manila
Freedom." The report was handed by the reporter to the
defendant O'Brien, the editor of the paper, and the headlines
were written by O'Brien, and the report with the headlines
thus prepared was published in the "Manila Freedom" of date
April 16, 1902.
The report seems to have been regarded by the prosecuting
attorney as privileged matter under section 7 of the Libel Act,
and, as before stated, the prosecution is based upon the
matter contained in the headlines.
On August 25, 1902, the defendants were tried and found
guilty of the offense charged in the complaint, and each was
sentenced to six months' imprisonment at hard labor and a
fine of $1,000, United States currency. From this judgment the
defendants have appealed to this court.
A demurrer was filed to the complaint, based upon the ground
that the facts charged in the complaint did not constitute a
public offense. This demurrer was overruled by the trial court,
and an exception to the ruling taken by the defendants.
During the course of the proceedings a motion was made by
the defendants asking that they be granted a trial by jury, as
provided for in Article III, section 2, of the Constitution of the
United States, and under the sixth amendment to the
Constitution, which motion was denied by the court, and an
exception was also taken to this ruling.
Before entering into a discussion of the case upon its merits, it
will be necessary to consider the questions of a preliminary
nature which have been raised in the assignment of errors
and brief of counsel for the appellants.
The questions submitted may be embraced within the
following propositions:
(1) That by the treaty of peace between the United States and
Spain, ratified on the 11th day of April, 1899, the Philippine
Islands became a part of the United States;
(2) And being a part thereof, they are subject to the provisions
of section 2, Article III, of the Constitution, and to the
provisions contained in the sixth amendment to the
Constitution, by which in all criminal cases a trial by jury is
guaranteed;
(3) That Congress can exercise no power over the person or
property of a citizen beyond what the Constitution confers,
nor deny any right guaranteed to them by the Constitution.
Stated in its simple form, the proposition made is that the
provisions of the Constitution of the United States relating to
jury trials are in force in the Philippine Islands.
The determination of this question involves the consideration
of the political status of these Islands, the power of Congress
under the Constitution, and the nature of the constitutional
provisions relating to jury trials.
The political status of the Philippine Islands has been defined
to a large extent by the decision of the Supreme Court of the

United States in the case of Downes vs. Bidwell (182 U. S.,

244), in which case the status of Puerto Rico was directly
involved.
The question in that case was whether merchandise brought
into the port of New York from Puerto Rico, after the
ratification of the treaty of peace with Spain and since the
passage of the Foraker Act, is exempt from duty, and involved
the question whether the revenue clauses of the Constitution
extend of their own force to the newly acquired territories
from Spain, and whether the act is in contravention of the
uniformity clause of the Constitution.

there may not be inherent, although unexpressed,

principles which are the basis of all free government
which can not be with impunity transcended. But this
does not suggest that every express limitation of the
Constitution which is applicable has not force, but
only signifies that even in cases where there is no
direct command of the Constitution which applies,
there may nevertheless be restrictions of so
fundamental a nature that they can not be
transgressed, although not expressed in so many
words in the Constitution.2
He also says:

The conclusion was reached that the act in question was not
unconstitutional. In the consideration of the case an
exhaustive review was made of the powers of Congress to
govern the territories belonging to the United States, under
the power to acquire territory by treaty and the incidental
right to govern such territory, and under the clause of section
3, Article IV, of the Constitution, which vests Congress with
the power to dispose of and make all needful rules and
regulations respecting the territory or other property of the
United States. This review was made in the light of the opinion
of contemporaries, the practical construction placed upon the
Constitution by Congress, and the decisions of the Supreme
Court of the United States upon questions arising thereunder.
Distinctions were found to exist in the application of the
Constitution depending upon the relation which was borne to
the National Government whether by a State or by the
territories which belonged to certain States at the time of the
adoption of the Constitution, and which were situated within
the acknowledged limits of the United States, and such
territory as might be acquired by the establishment of a
disputed line; or by those which were acquired by cession
from foreign powers and to which the Constitution was
extended by the treaty under which they were ceded,
sanctioned by Congress, or to which the Constitution was
expressly extended by Congressional act; or by those
territories acquired from a foreign power by treaty, which
have not been incorporated as a part of the United States nor
to which has been extended the Constitution by act of
Congress.
The following conclusions are deducible from the decision in
that case:
1. That Puerto Rico (to which the Philippines is equally
situated) did not by the act of cession from Spain to the
United States become incorporated in the United States as a
part of it, but became territory pertaining to and belonging to
the United States.
2. That as to such territory Congress may establish a
temporary government, and in so doing it is not subject to all
the restrictions of the Constitution.
3. That the determination of what these restrictions are and
what particular provisions of the Constitution are applicable to
such territories involves an inquiry into the situation of the
territory and its relation to the United States.
4. That the uniformity provided for in the revenue clause of
the Constitution is not one of those restrictions upon Congress
in its government of the territory of Puerto Rico.
What is the character of these restrictions and how are they to
be ascertained and determined? And to what extent is the
Constitution in force and effect in these Islands?
Both Mr. Justice Brown, in delivering the majority opinion, and
Mr. Justice White, in delivering the concurring opinion, refer to
these constitutional restrictions.
In formulating certain propositions as his conclusions, Justice
White uses the following language:
Whilst, therefore, there is no express or implied
limitation on Congress, in exercising its power to
create local governments for any and all of the
territories, by which that body is restrained from the
widest latitude of discretion, it does not follow that

Undoubtedly, there are general prohibitions in the

Constitution in favor of the liberty and property of the
citizen which are not mere regulations as to the form
and manner in which a conceded power may be
exercised, but which are an absolute denial of all
authority under any circumstances or conditions to
do particular acts. In the nature of things, limitations
of this character can not be under any circumstances
transcended, because of the complete absence of
power.
The distinction which exists between the two
characters of restrictions, those which regulate a
granted power and those which withdraw all
authority on a particular subject, has in effect been
always conceded, even by those who most
strenuously insisted on the erroneous principle that
the Constitution did not apply to Congress in
legislating for the territories, and was not operative
in such districts of country.
Mr. Justice Brown in this connection quotes the following
language used by Mr. Justice Bradley in the case of the
Mormon Church vs. United States (136 U. S., 1):
Doubtless Congress, in legislating for the Territories,
would be subject to those fundamental limitations in
favor of personal rights which are formulated in the
Constitution and its amendments; but those
limitations would exist rather by inference and the
general spirit of the Constitution from which
Congress derives all its powers than by and express
and direct application of its provisions.3
Again he says:
There are certain principles of natural justice
inherent in the Anglo-Saxon character which need no
expression in constitutions or statutes to give them
effect, or to secure dependencies against legislation
manifestly hostile to their real interest.4
The case of the American Insurance Company vs. Canter (1
Pet., 511) is a very interesting and instructive case which well
illustrates the difference in the application of constitutional
provisions to territories which are a part and within the United
States, and to those acquired from a foreign power by cession
which have not been incorporated into the United States, nor
have had by act of Congress the Constitution extended to
them.
Florida was ceded by Spain to the United States, as was also
the Philippines.
The status of the Philippines at the present time is very similar
to that of Florida at the date of the act passed by the
legislative council of Florida, the constitutionality of which was
considered in the case of the American Insurance Company
vs. Canter. The statement of the case and the decision is
taken from the opinion of Justice Brown in the case of Downes
vs. Bidwell, and is as follows:
This case originated in the district court of South
Carolina for the possession of 356 bales of cotton,
which had been wrecked on the coast of Florida,
abandoned to the insurance companies, and
subsequently brought to Charleston. Canter claimed

the cotton as bona fide purchaser at a marshal's sale

at Key West by virtue of a decree of a territorial court
consisting of a notary and five jurors, proceeding
under an act of the governor and legislative council
of Florida. The case turned upon the question
whether the sale by that court was effectual to divest
the interest of the underwriters. The district judge
pronounced the proceedings a nullity, and rendered a
decree from which both parties appealed to the
circuit court. The circuit court reversed the decree of
the district court upon the ground that the
proceedings of the court at Key West were legal, and
transferred the property to Canter, the alleged
purchaser.
The opinion of the circuit court was delivered by Mr. Justice
Johnson of the Supreme Court, and is published in full in a
note in Peter's Reports. It was argued that the Constitution
vested the admiralty jurisdiction exclusively in the General
Government; that the legislature of Florida had exercise an
illegal power in organizing this court, and that its decrees
were void. On the other hand, it was insisted that this was a
court of separate and distinct jurisdiction from the courts of
the United States, and as such its acts were not to be
reviewed in a foreign tribunal, such as was the court of
South California; "that the district of Florida was not part of
the United States, but only an acquisition or dependency,
and as such the Constitution per se had not binding effect
in or over it." "It becomes," said the court, "indispensable to
the solution of these difficulties, that we should conceive a
just idea of the relation in which Florida stands to the United
States. . . . And, first, it is obvious that there is a material
distinction between the territory now under consideration
and that which is acquired from the aborigines (whether by
purchase or conquest) within the acknowledged limits of the
United States, as also that which is acquired by the
establishment of a disputed line. As to both these, there can
be no question that the sovereignty of the State or territory
within which it lies, and of the United States, immediately
attach, producing a complete subjection to all the laws and
institutions of the two governments, local and general,
unless modified by treaty. The question now to be
considered relates to territories previously subject to the
acknowledged jurisdiction of another sovereign, such as
was Florida to the crown of Spain. And on this subject we
have the most explicit proof that the understanding of our
public functionaries is that the government and laws of the
United States do not extend to such territory by the mere
act of cession. For, in the act of Congress of March 30,
1822, section 9, we have an enumeration of the acts of
Congress which are to be held in force in the territory; and
in the tenth section an enumeration, in the nature of a bill
of rights, of privileges and immunities, which could not be
denied to the inhabitants of the territory if they came under
the Constitution by the mere act of cession. . . . These
States, this territory, and future States to be admitted into
the Union are the sole objects of the Constitution; there is
no express provision whatever made in the Constitution for
the acquisition or government of territories beyond those
limits." He further held that the right of acquiring territory
was altogether incidental to the treaty-making power; that
their government was left to Congress; that the territory of
Florida did "not stand in the relation of a State to the United
States;" that the acts establishing a territorial government
were the constitution of Florida; that while under these acts
the territorial legislature could enact nothing inconsistent
with what Congress had made inherent and permanent in
the territorial government, it had not done so in organizing
the court at Key West.5
Justice Brown further cites from the opinion of Chief Justice
Marshall in this case, in which the latter held "that the judicial
clause of the Constitution, above quoted, did not apply to
Florida; that the judges of the superior courts of Florida held
their office for four years; that 'these courts are not
constitutional courts in which the judicial power conferred by
the Constitution on the General Government can be
deposited;' that they are legislative courts, created in virtue of
the general right of sovereignty which exists in the
government,' or in virtue of the territorial clause of the
Constitution; that the jurisdiction with which they are invested
is not a part of judicial power of the Constitution, but is
conferred by Congress, in the exercise of those general
powers which that body possesses over the territories of the
United States; and that in legislating for them Congress

exercises the combined powers of the general and of State

governments. The act of the territorial legislature, creating the
court in question, was held not to be 'inconsistent with the
laws and Constitution of the United States,' and the decree of
the circuit was affirmed."6
Remarking upon this case, Justice Brown says:
As the only judicial power vested in Congress is to create
courts whose judges shall hold their offices during good
behavior, it necessarily follows that, if Congress authorizes
the creation of courts and the appointment of judges for
limited time, it must act independently of the Constitution,
and upon territory which is not part of the United States
within the meaning of the Constitution.7
The act of Congress of July 1, 1902, entitled "An Act
temporarily to provide for the administration of the affairs of
civil government in the Philippine Islands, and for other
purposes," in section 5 extends to the Philippine Islands
nearly all the provisions of the Constitution known as the Bill
of Rights. But there was excepted from it the provisions of the
Constitution relating to jury trials contained in section 2,
Article III, and in the sixth amendment.
It becomes necessary for us to determine whether these
provisions of the Constitution of the United States relating to
trials by jury are in force in the Philippine Islands. It is difficult
to determine from the general statements contained in these
decisions what are "these fundamental limitations in favor of
personal rights which are formulated in the Constitution and
its amendments and which exist by inference.
It seems fairly deducible from all that has been said upon this
subject that such provisions are negative in character rather
than of a direct positive or affirmative nature, denying to
Congress the power to pass laws in contravention with such
principles of the Constitution.
If this is their nature and this be the true distinction, it can not
be said that either Congress or the Philippine Commission
have passed any laws which would come within the inhibition
of the Constitution, or which tend to impair the right to trial by
jury in these Islands.
All that can be said is that, in extending the various provisions
of the Bill of Rights here, Congress has failed to extend those
provisions guaranteeing the right to trial by jury.
We will now turn to the consideration of the question as to
whether a violation of the right to a jury trial falls within the
inhibition arising from the existence of those fundamental
limitations in favor of personal rights mentioned in the
decisions.
There are a number of cases cited in Downes vs. Bidwell
establishing the right to trial by jury in territories of the United
States, but these decisions have all arisen in cases relating to
territories which were a part of the United States and had
been incorporated as a part thereof and to which Congress
had expressly extended the Constitution.
In Webster vs. Reid (11 How., 437) it was held that the law of
the Territory of Iowa which prohibited the trial by jury of
certain at law, founded on contract to recover payment for
services, was void; but, as it is said, this case is of little value
as bearing upon the question of the extension of the
Constitution to that Territory, inasmuch as the organic law of
the Territory of Iowa enacted by Congress by its express
provision extended to Iowa the laws of the United States,
including the ordinance of 1787 (which provided expressly for
jury trials), so far as they were applicable; and the case was
put upon this ground.
In Callem vs. Wilson (127 U. S., 540) the defendant had been
convicted without jury trial, in the District of Columbia, but the
district of Columbia was not only within and a part of the
United States but had formed a part of the original States of
Virgina and Maryland.

In the case of Springville vs. Thomas (166 U. S., 707) it was

held that a verdict returned by less that the whole number of
jurors was invalid, because in contravention of the seventh
amendment to the Constitution and the act of Congress of
April 7, 1874, which provide that no party shall be deprived of
the right of trial by jury in cases cognizable at common law.
This is, as stated by Mr. Justice Brown, "obviously true with
respect to Utah, since the organic act of that Territory had
expressly extended to it in the Constitution and laws of the
United States."8

the constituted authorities, or the lack of the qualification of

the people of the country or an extensive portion of it to
perform jury service, and should refuse to enact any law for
jury trials, the criminal laws in such event must remain
unenforced and a state of anarchy would be the result. In such
the case question assumes very much the nature of a political
question, and the judicial department might well hesitate to
interfere indirectly with Congress in the exercise of its
judgment, and in the exercise of its broad discretion in the
government of a territory so situated.

The other decisions cited by counsel for the appellants can all
be traced to the same principle; that is, that where Congress
has extended the laws and the Constitution to the territories,
then Congress would be inhibited by the Constitution from
enacting a law depriving persons living in such territories from
the right to trial by jury.

It is contended, also, by counsel for the defendants, that

Congress could not lawfully authorize the Philippine
Commission to enact the libel law passed by it on October 24,
1901, under which the defendants have been convicted. The
objection to the law is based upon the three branches,
executive, legislative, and judicial, and that the powers of
legislation vested in Congress to make laws can not be
delegated by that department to the judgment, wisdom, or
patriotism of any other body or authority.

The only case which we have been able to discover arising

under an act of Congress, and which deprived a party of the
right to a trial by jury at a place where the Constitution had
not been extended by express provision, in the case of In re
Ross (140 U. S., 453). This was a case in which the American
consular tribunal in Japan, created by act of Congress under
treaty with the Government of Japan and vested with
jurisdiction, to be exercised and enforced in accordance with
the laws of the United States, to try Americans, had, in the
exercise of this jurisdiction, convicted the defendant of the
crime of murder, and he was sentenced by that court to the
penalty of death.
It was held that "the guaranties it (the Constitution) affords
against accusation of capital or infamous crimes, except by
indictment or presentment by a grand jury, and for an
impartial trial by a jury when thus accused, apply only to
citizens and others within the United States, or who are
brought there for trial for alleged offenses committed
elsewhere, and not to residents and temporary sojourners
abroad."9

While the authorities cited in support of the general

proposition maintain the doctrine, there are well-known
exceptions to the general rule not referred to in these
decisions, for the reason that the decision of the case did not
require their consideration. A well-known exception is that of
municipal corporations, upon which the powers of legislation
are commonly bestowed.
The case in question forms an exception to this general rule
equally well established. Congress, in the exercise of its power
to make rules and regulations for the government of the
territories, has often delegated the power of legislation to the
territorial government. The case of American Insurance
Company, vs. Canter (1 Pet., 511), before cited, originated
under an act of the governor and legislative council of Florida,
organizing a court and vesting in it admiralty jurisdiction, and
in which the jurisdiction of the court was sustained by the
Supreme Court of the United States.

It seems from this decision that the powers of Congress to

enact a law which would deprive a person of the right to a
trial by jury is expressly recognized, and that such legislation
does not come within the fundamental limitations in favor of
personal rights, for this act of Congress which operated upon
citizens of the United States abroad is recognized as a valid
act of Congress.

Speaking of the power of Congress in creating territorial

governments, it is said in the case of De Lima vs. Bidwell (182
U. S., 1) that "the power to establish territorial government
has been too long exercised by Congress and acquiesced in by
the Supreme Court to be deemed an unsettled question."

The act is save from the constitutional inhibition by reason

that in such country the Constitution of the United States does
not extend, and is not in force there, but the decision in this
case nevertheless establishes the doctrine that there is not
upon Congress an absolute and total inhibition under any and
all circumstances to enact a law in which a person is deprived
of the right to a trial by jury.

1. That while the Philippine Islands constitute territory which

has been acquired by and belongs to the United States, there
is a difference between such territory and the territories which
are a part of the United States with reference to the
Constitution of the United States.

It may be further observed that if it should be held that the

constitutional provision guaranteeing the right to trial by jury
has been introduced here by the simple act of cession, there
is no law in existence to give such provision effect.
Trial by jury was unknown to the law in force in these Islands
prior to the date of cession, nor has the Philippine Commission
passed any law which would give it effect. Such provisions of
a constitution as those relating to trial by jury can hardly be
regarded as self-executing. It is necessary that there should
be some legislation carrying them into effect, such as laws
prescribing the qualifications of persons for jury duty, for the
organization of juries and provisions of a like character.
Suppose the Constitution has been extended here by force of
the cession of territory and that it should be held that there
could be no legal conviction for crime in the Philippines on
account of the absence of the law prescribing the
qualifications of jurors or for the organization of juries, and
Congress, in the exercise of its sound judgment, after a
careful examination of the conditions prevailing in such
territory and in the exercise of its undoubted right to govern
the territory, should reach the conclusion that an efficient
territorial government could not be conducted in which
convictions for crime are dependent upon the verdict of juries,
by reason of the hostility of the inhabitants of such country to

We reach the conclusion in this case:

2. That the Constitution was not extended here by the terms

of the treaty of Paris, under which the Philippine Islands were
acquired from Spain. By the treaty the status of the ceded
territory was to be determined by Congress.
3. That the mere fact of cession of the Philippines to the
United States did not extend the Constitution here, except
such parts as fall within the general principles of fundamental
limitations in favor of personal rights formulated in the
Constitution and its amendments, and which exist rather by
inference and the general spirit of the Constitution, and
except those express provisions of the Constitution which
prohibit Congress from passing laws in their contravention
under any circumstances; that the provisions contained in the
Constitution relating to jury trials do not fall within either of
these exceptions, and, consequently, the right to trial by jury
has not been extended here by the mere act of the cession of
the territory.
4. That Congress has passed no law extending here the
provision of the Constitution relating to jury trials, nor were
any laws in existence in the Philippine Islands, at the date of
their cession, for trials by jury, and consequently there is no
law in the Philippine Islands entitling the defendants in this
case to such trial; that the Court of First Instance committed
no error in overruling their application for a trial by jury.

We also reach the conclusion that the Philippine Commission

is a body expressly recognized and sanctioned by act of
Congress, having the power to pass laws, and has the power
to pass the libel law under which the defendants were
convicted.

statement, speech, argument, or debate in the course of

the same, except upon proof of malice in making such
report, which shall not be implied from the mere fact of
publication.
Section 8 reads as follows:

We will now pass to the third assignment of error, which is

that the headlines or caption of the article charged to be
libelous were legitimate deductions from a previous report of
a public judicial proceeding and were insufficient to constitute
the offense of libel.
The testimony shows that the defendant Fred L. Dorr was the
proprietor, and that the defendant Edward F. O'Brien was the
editor, of the "Manila Freedom;" that the article upon which
the complaint is founded was published in the issue of that
paper on the 16th of April, 1902; that the privileged
statements or report of the judicial proceedings, the headlines
of which are the basis of the prosecution, arose on the trial of
the case of the United States vs. Valdez, in the Court of First
Instance in the city of Manila, in which case Valdez was
charged with the offense of libel, the complaining witness in
that case being Seor Legarda, who was also the complaining
witness in this case; that counsel for the defendant Valdez
prepared a written statement of certain facts and offered to
prove the truth of these statements if permitted by the court.
A copy of this statement was made by the reporter of the
"Manila Freedom" one Vogel which, having been
presented to the defendant O'Brien, the editor, the latter
prepared the headlines or caption set forth in the complaint.
The attorney for the defendants, under his assignments of
errors, makes the proposition that the headlines or caption
was a legitimate deduction from the privileged report of the
judicial proceedings, and as such was itself a privileged
publication. This proposition is succinctly made and is easily
understood; no material facts are in dispute; our law of libel is
contained in the few sections in which the law upon this
subject is concisely and clearly stated, and renders it
unnecessary to refer to textbooks or decisions of the courts of
other jurisdictions. Thus the labors of the court have been
simplified in the determination of the case.
Section 1 of Act No. 277, Philippine Commission, gives the
following definition of libel:
A libel is a malicious defamation, expressed either in
writing, printing, or by signs or pictures, or the like, or
public theatrical exhibitions, tending to blacken the memory
of one who is dead, or to impeach the honesty, virtue, or
reputation, or publish the alleged or natural defects of one
who is alive and thereby expose him to public hatred,
contempt, or ridicule.
Did the matter contained in these headlines or caption have a
tendency to impeach the honesty, virtue, and reputation of
the injured party? We need not to stop discuss this question.
What is a malicious defamation? These appears equally plain,
for section 3 is as follows:
An Injurious publication is presumed to have been malicious
if no justifiable motive for making it is shown.
No attempt has been made by the defendants to show a
justifiable motive, and the established presumption of law that
the publication was malicious must prevail. Nor has there
been any attempt made to show the truth of the matter
contained in the headlines.
But it is attempted to bring the headlines or caption within the
exception of privileged matter.
Section 7 of the act defines this character of privileged matter
as follows:
No reporter, editor, or proprietor of any newspaper is liable
to any prosecution for a fair and true report of any judicial,
legislative, or other public official proceedings, or of any

Libelous remarks or comments connected with

matter privileged by the last section receive no
privilege by reason of being so connected.
It follows, therefore, that the matter is libelous; that it was a
malicious publication as defined by law. The only question
that remains to be considered is, Were those headlines or
caption "remarks" or "comments" on the privileged matter?
The word "comment" is defined by Webster as a "remark,
observation, or criticism; gossip, discourse, talk; a note or
observation intended to explain, illustrate or criticize the
meaning of a writing, book, etc. Explanation, annotation,
exposition."
The word "remark" is defined by him as "an expression in
speech or writing of something remarked or noticed. The
mention of that which is worthy of attention of notice. A
casual observation, comment, or statement."
The headlines or caption comes within the definition of
"remarks" as given by Webster, in that it is "the mention of
that which is worthy of attention or notice," and they also fall
within the definition of the word "comment" defined as "a
note or observation intended to explain."
The defendants' counsel denominates the character of the
headlines or caption as a "legitimate deduction from the
privileged report."
The word "deduction" is defined by Webster as "that which is
deduced, or drawn from premises by a process of reason;
inference; acquisition."
It seems from these definitions that the word "deduction"
conveys about the same meaning as the words "comment"
and "remark"; at least it would be as objectionable to make
injurious deductions as to make injurious comments or
remarks.
To say that the headlines or caption is not a remark or
comment but an "epitome" or "index" of what is contained in
the privileged article is simply a play upon words, and it is
useless to follow this line of argument further.
The intention of the statute, as shown in sections 7 and 8, is
that the privileged matter should be a fair and true report,
and must stand alone as such. If headlines or captions are
used, the matter contained in them must not be remarks or
comments of a libelous nature.
If by any process additional significance is added, either by
display letters or by the arrangement of catchwords, under
whatever name they may be designated, it comes within the
denunciation of the statute.
That the headlines were not a part of the report prepared by
Vogel, the reporter who was present in the court and who
made a copy of the report, is shown in the testimony.
The defendant O'Brien, who, so far as the testimony shows,
knew nothing about the matter contained in the report except
that acquired by reading of it after it was delivered to him,
made the headlines or caption
It is said that it is the common practice in the United States to
make such headlines in display letters to render the necessary
assistance to the reader in determining whether he cares to
read the article.

It is immaterial what the real intention of those who write

such headlines may be; if such caption and headlines are
libelous, the writer must hear the consequences.

Arellano, C.J., Torres and Mapa, JJ., concur.

The law declares the motive of the writer, in the absence of

proof of justifiable motive and the truth of the matter, to be
malicious.

MARIA ELENA MALAGA, doing business under the name

B.E. CONSTRUCTION; JOSIELEEN NAJARRO, doing
business under the name BEST BUILT CONSTRUCTION;
JOSE N. OCCEA, doing business under the name THE
FIRM OF JOSE N. OCCEA; and the ILOILO BUILDERS
CORPORATION, Petitioners, v. MANUEL R. PENACHOS,
JR., ALFREDO MATANGGA, ENRICO TICAR AND TERESITA
VILLANUEVA, in their respective capacities as Chairman
and Members of the Pre-qualification Bids and Awards
Committee (PBAC)-BENIGNO PANISTANTE, in his
capacity as President of Iloilo State College of
Fisheries, as well as in their respective personal
capacities; and HON. LODRIGIO L.
LEBAQUIN, Respondents.

The decisions of some of the courts of the United States have

held than index of words contained in the privileged matter,
when fairly and truly made, will partake of the nature of the
article indexed; but, as we have shown, our laws does not
permit this. Nor it is possible to reach the conclusion that the
words contained in the headlines are a fair index. No idea can
be gathered from these headlines of the real nature of what is
contained in the published article.
The privileged report was a written statement prepared by the
attorney in the Valdez case, in which an offer was made to
prove the truth of certain statements regarded as material in
the defense of the case and which was by the court excluded.
This was the general nature of the matter contained in the
report. Can anyone, by reading the headlines or caption, form
any conception as to the real nature of the document to which
the headlines have been prefixed?
It is also said that the headlines in this case are not worse
than the matter contained in the report. This may be admitted
as true, but in the eyes of the law there is a distinction. The
injurious matter contained in the report is regarded by the law
as protected by a privilege which should be extended to the
report of judicial proceedings, but here the privilege ends.
It is unnecessary to inquire why this distinction should be
made. It is sufficient that the law so makes it.
It is stated that there is not a word contained in the headlines
or caption which is not found in the privileged report. We have
attempted to show that this is immaterial. But this statement
is in fact incorrect. The sentences "sensational allegations
against Commissioner Legarda, made of record and read in
English; Spanish reading waived; wife would have killed him;
Legarda pale and nervous," are not found in the report. Nor
can the sentence "Legarda pale and nervous" even be
deduced from anything contained in the report, nor does it
appear from the testimony to have been in fact true. When
the statement in writing was offered and read before the
court, according to the testimony in the case, Seor Legarda
was not at that time present in court.
We will notice briefly the character of the caption and
headlines, the effect of which can well be imagined.
The copy of the "Manila Freedom" containing the article is
attached to the record. An examination of it shows that the
words "traitor, seducer, and perjurer" were printed in large
display letters, and were of a size sufficient in the use of these
words to cover a space equal to that of three columns across
the paper. They were placed at the top of the first page of the
paper. The other words were in smaller type, but much larger
than the ordinary type. It is hard to conceive language
stronger than that contained in the three words, "traitor,
seducer, and perjurer."
No more effectual means could be adopted to destroy the
good name and fame of a person. More significant words can
not be found in the English language to impeach the honesty,
reputation, and virtue. By skillful selection the sting of the
entire document has been placed in the caption and headlines
in such a manner that in a literal sense "he who runs may
read."
We conclude that the publication of the caption and headlines
in the "Manila Freedom," upon which the information is based,
constituted the offense of libel; that the judgment is sustained
by the evidence; that the defendants, Fred L. Dorr, and
Edward F. O'Brien, are guilty of the offense charged in the
information; that no error was committed in the trial of the
case prejudicial to the rights of the defendants, and that the
judgment of the Court of First Instance should be affirmed,
with costs against the defendants. It is so ordered.

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

Salas, Villareal & Velasco, for Petitioners.

Virgilio A. Sindico for Respondents.

SYLLABUS

1. ADMINISTRATIVE LAW; GOVERNMENT INSTRUMENTALITY,

DEFINED. The 1987 Administrative Code defines a
government instrumentality as follows: Instrumentality refers
to any agency of the National Government, not integrated
within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term
includes regulatory agencies, chartered institutions, and
government-owned or controlled corporations. (Sec. 2 (5)
Introductory Provisions).
2. ID.; CHARTERED INSTITUTION; DEFINED; APPLICATION IN
CASE AT BAR. The 1987 Administrative Code describes a
chartered institution thus: Chartered institution refers to
any agency organized or operating under a special charter,
and vested by law with functions relating to specific
constitutional policies or objectives. This term includes the
state universities and colleges, and the monetary authority of
the state. (Sec. 2 (12) Introductory Provisions). It is clear from
the above definitions that ISCOF is a chartered institution and
is therefore covered by P.D. 1818. There are also indications in
its charter that ISCOF is a government instrumentality. First, it
was created in pursuance of the integrated fisheries
development policy of the State, a priority program of the
government to effect the socio-economic life of the nation.
Second, the Treasurer of the Republic of the Philippines shall
also be the ex-officio Treasurer of the state college with its
accounts and expenses to be audited by the Commission on
Audit or its duly authorized representative. Third, heads of
bureaus and offices of the National Government are
authorized to loan or transfer to it, upon request of the
president of the state college, such apparatus, equipment, or
supplies and even the services of such employees as can be
spared without serious detriment to public service. Lastly, an
additional amount of P1.5M had been appropriated out of the
funds of the National Treasury and it was also decreed in its
charter that the funds and maintenance of the state college
would henceforth be included in the General Appropriations
Law. (Presidential Decree No. 1523)
3. ID.; PROHIBITION OF ANY COURT FROM ISSUING
INJUNCTION IN CASES INVOLVING INFRASTRUCTURE PROJECTS
OF GOVERNMENT (P.D. 1818); POWER OF THE COURTS TO
RESTRAIN APPLICATION. In the case of Datiles and Co. v.
Sucaldito, (186 SCRA 704) this Court interpreted a similar
prohibition contained in P.D. 605, the law after which P.D.
1818 was patterned. It was there declared that the prohibition
pertained to the issuance of injunctions or restraining orders
by courts against administrative acts in controversies
involving facts or the exercise of discretion in technical cases.
The Court observed that to allow the courts to judge these
matters would disturb the smooth functioning of the
administrative machinery. Justice Teodoro Padilla made it
clear, however, that on issues definitely outside of this
dimension and involving questions of law, courts could not be
prevented by P.D. No. 605 from exercising their power to
restrain or prohibit administrative acts. We see no reason why
the above ruling should not apply to P.D. 1818. There are at
least two irregularities committed by PBAC that justified
injunction of the bidding and the award of the project.

4. ID.; POLICIES AND GUIDELINES PRESCRIBED FOR

GOVERNMENT INFRASTRUCTURE (PD 1594); RULES
IMPLEMENTING THEREOF, NOT SUFFICIENTLY COMPLIED WITH
IN CASE AT BAR. Under the Rules Implementing P.D. 1594,
prescribing policies and guidelines for government
infrastructure contracts, PBAC shall provide prospective
bidders with the Notice to Pre-qualification and other relevant
information regarding the proposed work. Prospective
contractors shall be required to file their ARC-Contractors
Confidential Application for Registration & Classifications &
the PRE-C2 Confidential Pre-qualification Statement for the
Project (prior to the amendment of the rules, this was referred
to as Pre-C1) not later than the deadline set in the published
Invitation to Bid, after which date no PRE-C2 shall be
submitted and received. Invitations to Bid shall be advertised
for at least three times within a reasonable period but in no
case less than two weeks in at least two newspapers of
general circulations. (IB 13 1.2-19, Implementing Rules and
Regulations of P.D. 1594 as amended) PBAC advertised the
pre-qualification deadline as December 2, 1988, without
stating the hour thereof, and announced that the opening of
bids would be at 3 oclock in the afternoon of December 12,
1988. This scheduled was changed and a notice of such
change was merely posted at the ISCOF bulletin board. The
notice advanced the cut-off time for the submission of prequalification documents to 10 oclock in the morning of
December 2, 1988, and the opening of bids to 1 oclock in the
afternoon of December 12, 1988. The new schedule caused
the pre-disqualification of the petitioners as recorded in the
minutes of the PBAC meeting held on December 6, 1988.
While it may be true that there were fourteen contractors who
were pre-qualified despite the change in schedule, this fact
did not cure the defect of the irregular notice. Notably, the
petitioners were disqualified because they failed to meet the
new deadline and not because of their expired licenses. (B.E.
& Best Builts licenses were valid until June 30, 1989. [Ex. P &
O respectively: both were marked on December 28, 1988]) We
have held that where the law requires a previous
advertisement before government contracts can be awarded,
non-compliance with the requirement will, as a general rule,
render the same void and of no effect. (Caltex Phil. v. Delgado
Bros., 96 Phil. 368) The fact that an invitation for bids has
been communicated to a number of possible bidders is not
necessarily sufficient to establish compliance with the
requirements of the law if it is shown that other possible
bidders have not been similarly notified.
5. ID.; ID.; ID.; PURPOSE THEREOF; CASE AT BAR. The
purpose of the rules implementing P.D. 1594 is to secure
competitive bidding and to prevent favoritism, collusion and
fraud in the award of these contracts to the detriment of the
public. This purpose was defeated by the irregularities
committed by PBAC. It has been held that the three principles
in public bidding are the offer to the public, an opportunity for
competition and a basis for exact comparison of bids. A
regulation of the matter which excludes any of these factors
destroys the distinctive character of the system and thwarts
the purpose of its adoption. (Hannan v. Board of Education, 25
Okla. 372) In the case at bar, it was the lack of proper notice
regarding the pre-qualification requirement and the bidding
that caused the elimination of petitioners B.E. and Best Built.
It was not because of their expired licenses, as private
respondents now claim. Moreover, the plans and
specifications which are the contractors guide to an
intelligent bid, were not issued on time, thus defeating the
guaranty that contractors be placed on equal footing when
they submit their bids. The purpose of competitive bidding is
negated if some contractors are informed ahead of their rivals
of the plans and specifications that are to be the subject of
their bids.
6. ID.; ID.; ID.; EFFECT OF NON-COMPLIANCE THEREOF. It
has been held in a long line of cases that a contract granted
without the competitive bidding required by law is void, and
the party to whom it is awarded cannot benefit from it. It has
not been shown that the irregularities committed by PBAC
were induced by or participated in by any of the contractors.
Hence, liability shall attach only to the private respondents for
the prejudice sustained by the petitioners as a result of the
anomalies described above.
7. CIVIL LAW; NOMINAL DAMAGES; AWARD THEREOF, WHEN
AVAILABLE. As there is no evidence of the actual loss
suffered by the petitioners, compensatory damage may not
be awarded to them. Moral damages do not appear to be due
either. Even so, the Court cannot close its eyes to the evident
bad faith that characterized the conduct of the private
respondents, including the irregularities in the announcement
of the bidding and their efforts to persuade the ISCOF
president to award the project after two days from receipt of
the restraining order and before they moved to lift such order.
For such questionable acts, they are liable in nominal

damages at least in accordance with Article 2221 of the Civil

Code, which states: Art. 2221. Nominal damages are
adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant may be vindicated
or, recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him. These damages are to be
assessed against the private respondents in the amount of
P10,000.00 each, to be paid separately for each of petitioners
B.E. Construction and Best Built Construction.

DECISION
CRUZ, J.:
This controversy involves the extent and applicability of P.D.
1818, which prohibits any court from issuing injunctions in
cases involving infrastructure projects of the
government.chanrobles.com.ph : virtual law library
The facts are not disputed.
The Iloilo State College of Fisheries (henceforth ISCOF)
through its Pre-qualification, Bids and Awards Committee
(henceforth PBAC) caused the publication in the November
25, 26, 28, 1988 issues of the Western Visayas Daily an
Invitation to Bid for the construction of the Micro Laboratory
Building at ISCOF. The notice announced that the last day for
the submission of pre-qualification requirements (PRE C-1) **
was December 2, 1988, and that the bids would be received
and opened on December 12, 1988, 3 oclock in the
afternoon. 1
Petitioners Maria Elena Malaga and Josieleen Najarro,
respectively doing business under the name of the B.E.
Construction and Best Built Construction, submitted their prequalification documents at two oclock in the afternoon of
December 2, 1988. Petitioner Jose Occea submitted his own
PRE-C1 on December 5, 1988. All three of them were not
allowed to participate in the bidding because their documents
were considered late, having been submitted after the cut-off
time of ten oclock in the morning of December 2, 1988.
On December 12, 1988, the petitioners filed a complaint with
the Regional Trial Court of Iloilo against the chairman and
members of PBAC in their official and personal capacities. The
plaintiffs claimed that although they had submitted their PREC1 on time, the PBAC refused without just cause to accept
them. As a result, they were not included in the list of prequalified bidders, could not secure the needed plans and
other documents, and were unable to participate in the
scheduled bidding.
In their prayer, they sought the resetting of the December 12,
1988 bidding and the acceptance of their PRE-C1 documents.
They also asked that if the bidding had already been
conducted, the defendants be directed not to award the
project pending resolution of their complaint.
On the same date, Judge Lodrigio L. Lebaquin issued a
restraining order prohibiting PBAC from conducting the
bidding and awarding the project. 2
On December 16, 1988, the defendants filed a motion to lift
the restraining order on the ground that the Court was
prohibited from issued restraining orders, preliminary
injunctions and preliminary mandatory injunctions by P.D.
1818.chanroblesvirtualawlibrary
The decree reads pertinently as follows:chanrob1es virtual
1aw library
Section 1. No Court in the Philippines shall have jurisdiction to
issue any restraining order, preliminary injunction, or
preliminary infrastructure project, or a mining, fishery, forest
or other natural resource development project of the
government, or any public utility operated by the government,
including among others public utilities for the transport of the
goods and commodities, stevedoring and arrastre contracts,
to prohibit any person or persons, entity or government
official from proceeding with, or continuing the execution or
implementation of any such project, or the operation of such
public utility, or pursuing any lawful activity necessary for
such execution, implementation or operation.
The movants also contended that the question of the
propriety of a preliminary injunction had become moot and
academic because the restraining order was received late, at
2 oclock in the afternoon of December 12, 1988, after the
bidding had been conducted and closed at eleven thirty in the

morning of that date.

by P.D. 1818.

In their opposition of the motion, the plaintiffs argued against

the applicability of P.D. 1818, pointing out that while ISCOF
was a state college, it had its own charter and separate
existence and was not part of the national government or of
any local political subdivision. Even if P.D. 1818 were
applicable, the prohibition presumed a valid and legal
government project, not one tainted with anomalies like the
project at bar.

Regarding the schedule for pre-qualification, the private

respondents insist that PBAC posted on the ISCOF bulletin
board an announcement that the deadline for the submission
of pre-qualifications documents was at 10 oclock of
December 2, 1988, and the opening of bids would be held at 1
oclock in the afternoon of December 12, 1988. As of ten
oclock in the morning of December 2, 1988, B.E. construction
and Best Built construction had filed only their letters of
intent. At two oclock in the afternoon, B.E., and Best Built
filed through their common representative, Nenette Garuello,
their pre-qualification documents which were admitted but
stamped "submitted late." The petitioners were informed of
their disqualification on the same date, and the
disqualification became final on December 6, 1988. Having
failed to take immediate action to compel PBAC to pre-qualify
them despite their notice of disqualification, they cannot now
come to this Court to question the binding proper in which
they had not participated.

They also cited Filipinas Marble Corp. v. IAC, 3 where the Court
allowed the issuance of a writ of preliminary injunction despite
a similar prohibition found in P.D. 385. The Court therein
stated that:chanrob1es virtual 1aw library
The government, however, is bound by basic principles of
fairness and decency under the due process clauses of the Bill
of Rights. P.D. 385 was never meant to protect officials of
government-lending institutions who take over the
management of a borrower corporation, lead that corporation
to bankruptcy through mismanagement or misappropriation of
its funds, and who, after ruining it, use the mandatory
provisions of the decree to avoid the consequences of their
misleads (p. 188, Emphasis supplied).
On January 2, 1989, the trial court lifted the restraining order
and denied the petition for preliminary injunction. It declared
that the building sought to be construed at the ISCOF was an
infrastructure project of the government falling within the
coverage of P.D. 1818. Even if it were not, the petition for the
issuance of a writ of preliminary injunction would still fail
because the sheriffs return showed that PBAC was served a
copy of the restraining order after the bidding sought to be
restrained had already been held. Furthermore, the members
of the PBAC could not be restrained from awarding the project
because the authority to do so was lodged in the President of
the ISCOF, who was not a party to the case. 4

In the petitioners Reply, they raise as an additional

irregularity the violation of the rule that where the estimate
project cost is from P1M to P5M, the issuance of plans,
specifications and proposal book forms should made thirty
days before the date of bidding. 7 They point out that these
forms were issued only on December 2, 1988, and not at the
latest on November 12, 1988, the beginning of the 30-day
period prior to the scheduled bidding.
In their Rejoinder, the private respondents aver that the
documents of B.E. and Best Built were received although filed
late and were reviewed by the Award Committee, which
discovered that the contractors had expired licenses. B.E.s
temporary certificate of Renewal of Contractors License was
valid only until September 30, 1988, while Best Builts license
was valid only up to June 30, 1988.chanrobles lawlibrary :
rednad

In the petition now before us, it is reiterated that P.D. 1818

does not cover the ISCOF because of its separate and distinct
corporate personality. It is also stressed again that the
prohibition under P.D. 1818 could not apply to the present
controversy because the project was vitiated with
irregularities, to wit:chanrobles.com : virtual law library

The Court has considered the arguments of the parties in light

of their testimonial and documentary evidence and the
applicable laws and jurisprudence. It finds for the petitioners.

1. The invitation to bid as published fixed the deadline of

submission of pre-qualification document on December 2,
1988 without indicating any time, yet after 10:00 oclock of
the given late, the PBAC already refused to accept petitioners
documents.

Instrumentality refers to any agency of the National

Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions, and governmentowned or controlled corporations. (Sec. 2 (5) Introductory
Provisions).

2. The time and date of bidding was published as December

12, 1988 at 3:00 p.m. yet it was held at 10:00 oclock in the
morning.
3. Private respondents, for the purpose of inviting bidders to
participate, issued a mimeographed "Invitation to Bid" form,
which by law (P.D. 1594 and Implementing Rules, Exh. B-1) is
to contain the particulars of the project subject of bidding for
the purpose of.

The 1987 Administrative Code defines a government

instrumentality as follows:chanrob1es virtual 1aw library

The same Code describes a chartered institution

thus:chanrob1es virtual 1aw library

(ii) for PBAC to have a uniform basis for evaluating the bids;

Chartered institution refers to any agency organized or

operating under a special charter, and vested by law with
functions relating to specific constitutional policies or
objectives. This term includes the state universities and
colleges, and the monetary authority of the state. (Sec. 2 (12)
Introductory Provisions).

(iii) to prevent collusion between a bidder and the PBAC, by

opening to all the particulars of a project.

It is clear from the above definitions that ISCOF is a chartered

institution and is therefore covered by P.D. 1818.

Additionally, the Invitation to Bid prepared by the respondents

and the Itemized Bill of Quantities therein were left blank. 5
And although the project in question was a "Construction," the
private respondents used an Invitation to Bid form for
"Materials." 6

There are also indications in its charter that ISCOF is a

government instrumentality. First, it was created in pursuance
of the integrated fisheries development policy of the State, a
priority program of the government of effect the socioeconomic life of the nation. Second, the Treasurer of the
Republic of the Philippines also be the ex-officio Treasurer of
the state college with its accounts and expenses to be audited
by the Commission on Audit or its duly authorized
representative. Third, heads of bureaus and offices of the
National Government are authorized to loan or transfer to it,
upon request of the president of the state college, such
apparatus, equipment, or supplies and even the services of
such employees as can be spared without serious detriment
to public service. Lastly, an additional amount of P1.5M had
been appropriated out of the funds of the National Treasury
and it was also decreed in its charter that the funds and
maintenance of the state college would henceforth be
included in the General Appropriations Law. 8

(i) enabling bidders to make an intelligent and accurate bids;

The petitioners also point out that the validity of the writ of
preliminary injunction had not yet become moot and
academic because even if the bids had been opened before
the restraining order was issued, the project itself had not yet
been awarded. The ISCOF president was not an indispensable
party because the signing of the award was merely a
ministerial function which he could perform only upon the
recommendation of the Award Committee. At any rate, the
complaint had already been duly amended to include him as a
party defendant.
In their Comment, the private respondents maintain that since
the members of the board of trustees of the ISCOF are all
government officials under Section 7 of P.D. 1523 and since
the operations and maintenance of the ISCOF are provided for
in the General Appropriations Law, it is should be considered a
government institution whose infrastructure project is covered

Nevertheless, it does not automatically follow that ISCOF is

covered by the prohibition in the said decree.
In the case of Datiles and Co. v. Sucaldito, 9 this Court

interpreted a similar prohibition contained in P.D. 605, the law

after which P.D. 1818 was patterned. It was there declared
that the prohibition pertained to the issuance of injunctions or
restraining orders by courts against administrative acts in
controversies involving facts or the exercise of discretion in
technical cases. The Court observed that to allow the courts to
judge these matters would disturb the smooth functioning of
the administrative machinery. Justice Teodoro Padilla made it
clear, however, that on issues definitely outside of this
dimension and involving questions of law, courts could not be
prevented by P.D. No. 605 from exercising their power to
restrain or prohibit administrative acts.
We see no reason why the above ruling should not apply to
P.D. 1818.
There are at least two irregularities committed by PBAC that
justified injunction of the bidding and the award of the
project.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
First, PBAC set deadlines for the filing of the PRE-C1 and the
opening of bids and then changed these deadlines without
prior notice to prospective participants.
Under the Rules Implementing P.D. 1594, prescribing policies
and guidelines for government infrastructure contracts, PBAC
shall provide prospective bidders with the Notice of Prequalification and other relevant information regarding the
proposed work. Prospective contractors shall be required to
file their ARC-Contractors Confidential Application for
Registration & Classifications & the PRE-C2 Confidential Prequalification Statement for the Project (prior to the
amendment of the rules, this was referred to as PRE-C1) not
later than the deadline set in the published Invitation to Bid,
after which date no PRE-C2 shall be submitted and received.
Invitations to Bid shall be advertised for at least three times
within a reasonable period but in no case less than two weeks
in at least two newspapers of general circulations. 10
PBAC advertised the pre-qualification deadline as December
2, 1988, without stating the hour thereof, and announced that
the opening of bids would be at 3 oclock in the afternoon of
December 12, 1988. This schedule was changed and a notice
of such change was merely posted at the ISCOF bulletin
board. The notice advanced the cut-off time for the
submission of pre-qualification documents to 10 oclock in the
morning of December 2, 1988, and the opening of bids to 1
oclock in the afternoon of December 12, 1988.
The new schedule caused the pre-disqualification of the
petitioners as recorded in the minutes of the PBAC meeting
held on December 6, 1988. While it may be true that there
were fourteen contractors who were pre-qualified despite the
change in schedule, this fact did not cure the defect of the
irregular notice. Notably, the petitioners were disqualified
because they failed to meet the new deadline and not
because of their expired licenses. ***
We have held that where the law requires a previous
advertisement before government contracts can be awarded,
non-compliance with the requirement will, as a general rule,
render the same void and of no effect 11 The facts that an
invitation for bids has been communicated to a number of
possible bidders is not necessarily sufficient to establish
compliance with the requirements of the law if it is shown that
other public bidders have not been similarly notified. 12
Second, PBAC was required to issue to pre-qualified applicants
the plans, specifications and proposal book forms for the
project to be bid thirty days before the date of bidding if the
estimate project cost was between P1M and P5M. PBAC has
not denied that these forms were issued only on December 2,
1988, or only ten days before the bidding scheduled for
December 12, 1988. At the very latest, PBAC should have
issued them on November 12, 1988, or 30 days before the
scheduled bidding.
It is apparent that the present controversy did not arise from
the discretionary acts of the administrative body nor does it
involve merely technical matters. What is involved here is
non-compliance with the procedural rules on bidding which
required strict observance. The purpose of the rules
implementing P.D. 1594 is to secure competitive bidding and
to prevent favoritism, collusion and fraud in the award of
these contracts to the detriment of the public. This purpose
was defeated by the irregularities committed by
PBAC.chanrobles law library : red
It has been held that the three principles in public bidding are
the offer to the public, an opportunity for competition and a
basis for exact comparison of bids. A regulation of the matter

which excludes any of these factors destroys the distinctive

character of the system and thwarts and purpose of its
adoption. 13
In the case at bar, it was the lack of proper notice regarding
the pre-qualification requirement and the bidding that caused
the elimination of petitioners B.E. and Best Built. It was not
because of their expired licenses, as private respondents now
claim. Moreover, the plans and specifications which are the
contractors guide to an intelligent bid, were not issued on
time, thus defeating the guaranty that contractors be placed
on equal footing when they submit their bids. The purpose of
competitive bidding is negated if some contractors are
informed ahead of their rivals of the plans and specifications
that are to be the subject of their bids.
P.D. 1818 was not intended to shield from judicial scrutiny
irregularities committed by administrative agencies such as
the anomalies above described. Hence, the challenged
restraining order was not improperly issued by the respondent
judge and the writ of preliminary injunction should not have
been denied. We note from Annex Q of the private
respondents memorandum, however, that the subject project
has already been "100% completed as to the Engineering
Standard." This fait accompli has made the petition for a writ
of preliminary injunction moot and academic.
We come now to the liabilities of the private respondents.
It has been held in a long line of cases that a contract granted
without the competitive bidding required by law is void, and
the party to whom it is awarded cannot benefit from it. 14 It
has not been shown that the irregularities committed by PBAC
were induced by or participated in by any of the contractors.
Hence, liability shall attach only to the private respondents for
the prejudice sustained by the petitioners as a result of the
anomalies described above.
As there is no evidence of the actual loss suffered by the
petitioners, compensatory damage may not be awarded to
them. Moral damages do not appear to be due either. Even so,
the Court cannot close its eyes to the evident bad faith that
characterized the conduct of the private respondents,
including the irregularities in the announcement of the bidding
and their efforts to persuade the ISCOF president to award the
project after two days from receipt of the restraining order
and before they moved to lift such order. For such
questionable acts, they are liable in nominal damages at least
in accordance with Article 2221 of the Civil Code, which
states:jgc:chanrobles.com.ph
"Art. 2221. Nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by
the defendant may be vindicated or, recognized, and not for
the purpose of indemnifying the plaintiff for any loss suffered
by him.
These damages are to assessed against the private
respondents in the amount of P10,000.00 each, to be paid
separately for each of petitioners B.E. Construction and Best
Built Construction. The other petitioner, Occea Builders, is
not entitled to relief because it admittedly submitted its prequalification documents on December 5, 1988, or three days
after the deadline.chanrobles virtual lawlibrary
WHEREFORE, judgment is hereby rendered: a) upholding the
restraining order dated December 12, 1988, as not covered by
the prohibition in P.D. 1818; b) ordering the chairman and the
members of the PBAC board of trustees, namely Manuel R.
Penachos, Jr., Alfredo Matangga, Enrico Ticar, and Teresita
Villanueva, to each pay separately to petitioners Maria Elena
Malaga and Josieleen Najarro nominal damages P10,000.00
each; and c) removing the said chairman and members from
the PBAC board of trustees, or whoever among them is still
incumbent therein, for their malfeasance in office. Costs
against PBAC.
Let a copy of this decision be sent to the Office of the
Ombudsman.
SO ORDERED.
G.R. No. 135945

March 7, 2001

THE UNITED RESIDENTS OF DOMINICAN HILL, INC.,

represented by its President RODRIGO S. MACARIO,
SR., petitioner,
vs.
COMMISSION ON THE SETTLEMENT OF LAND
PROBLEMS, represented by its Commissioner, RUFINO

V. MIJARES; MARIO PADILAN, PONCIANO BASILAN,

HIPOLITO ESLAVA, WILLIAM LUMPISA, PACITO MOISES,
DIONISIO ANAS, NOLI DANGLA, NAPOLEON
BALESTEROS, ELSIE MOISES, SEBIO LACWASAN, BEN
FLORES, DOMINGO CANUTAB, MARCELINO GABRIANO,
TINA TARNATE, ANDREW ABRAZADO, DANNY LEDDA,
FERNANDO DAYAO, JONATHAN DE LA PENA, JERRY
PASSION, PETER AGUINSOD, and LOLITA
DURAN, respondents.
DE LEON, JR., J.:
Before us is a petition for prohibition and declaratory relief
seeking the annulment of a status quo order1 dated
September 29, 1998 issued by the public respondent
Commission on the Settlement of Land Problems (COSLAP, for
brevity) in COSLAP Case No. 98-253.
The facts are:
The property being fought over by the parties is a 10.36hectare property in Baguio City called Dominican Hills,
formerly registered in the name of Diplomat Hills, Inc. It
appeared that the property was mortgaged to the United
Coconut Planters Bank (UCPB) which eventually foreclosed the
mortgage thereon and acquired the same as highest bidder.
On April 11, 1983, it was donated to the Republic of the
Philippines by UCPB through its President, Eduardo Cojuangco.
The deed of donation stipulated that Dominican Hills would be
utilized for the "priority programs, projects, activities in
human settlements and economic development and
governmental purposes" of the Ministry of Human
Settlements.
On December 12, 1986, the then President Corazon C. Aquino
issued Executive Order No. 85 abolishing the Office of Media
Affairs and the Ministry of Human Settlements. All agencies
under the latter's supervision as well as all its assets,
programs and projects, were transferred to the Presidential
Management Staff (PMS).2
On October 18, 1988, the PMS received an application from
petitioner UNITED RESIDENTS OF DOMINICAN HILL, INC.
(UNITED, for brevity), a community housing association
composed of non-real property owning residents of Baguio
City, to acquire a portion of the Dominican Hills property. On
February 2, 1990, PMS Secretary Elfren Cruz referred the
application to the HOME INSURANCE GUARANTY
CORPORATION (HIGC). HIGC consented to act as originator for
UNITED.3 Accordingly, on May 9, 1990, a Memorandum of
Agreement was signed by and among the PMS, the HIGC, and
UNITED. The Memorandum of Agreement called for the PMS to
sell the Dominican Hills property to HIGC which would, in turn,
sell the same to UNITED. The parties agreed on a selling price
of P75.00 per square meter.
Thus, on June 12, 1991, HIGC sold 2.48 hectares of the
property to UNITED. The deed of conditional sale provided
that ten (10) per cent of the purchase price would be paid
upon signing, with the balance to be amortized within one
year from its date of execution. After UNITED made its final
payment on January 31, 1992, HIGC executed a Deed of
Absolute Sale dated July 1, 1992.
Petitioner alleges that sometime in 1993, private respondents
entered the Dominican Hills property allocated to UNITED and
constructed houses thereon. Petitioner was able to secure a
demolition order from the city mayor.4
Unable to stop the razing of their houses, private respondents,
under the name DOMINICAN HILL BAGUIO RESIDENTS
HOMELESS ASSOCIATION (ASSOCIATION, for brevity) filed an
action5 for injunction docketed as Civil Case No. 3316-R, in the
Regional Trial Court of Baguio City, Branch 4. Private
respondents were able to obtain a temporary restraining order
but their prayer for a writ of preliminary injunction was later
denied in an Order dated March 18, 1996.6
While Civil Case No. 3316-R was pending, the ASSOCIATION,
this time represented by the Land Reform Beneficiaries
Association, Inc. (BENEFICIARIES, for brevity), filed Civil Case
No. 3382-R before Branch 61 of the same court. The

complaint7 prayed for damages, injunction and annulment of

the said Memorandum of Agreement between UNITED and
HIGC. Upon motion of UNITED, the trial court in an Order
dated May 27, 1996 dismissed Civil Case No. 3382-R.8 The
said Order of dismissal is currently on appeal with the Court of
Appeals.9
Demolition Order No. 1-96 was subsequently implemented by
the Office of the City Mayor and the City Engineer's Office of
Baguio City. However, petitioner avers that private
respondents returned and reconstructed the demolished
structures.
To forestall the re-implementation of the demolition order,
private respondents filed on September 29, 1998 a
petition10 for annulment of contracts with prayer for a
temporary restraining order, docketed as COSLAP Case No.
98-253, in the Commission on the Settlement of Land
Problems (COSLAP) against petitioner, HIGC, PMS, the City
Engineer's Office, the City Mayor, as well as the Register of
Deeds of Baguio City. On the very same day, public
respondent COSLAP issued the contested order requiring the
parties to maintain the status quo.
Without filing a motion for reconsideration from the
aforesaid status quo order, petitioner filed the instant petition
questioning the jurisdiction of the COSLAP.
The issues we are called upon to resolve are:
1
IS THE COMMISSION ON THE SETTLEMENT OF LAND
PROBLEMS [COSLAP] CREATED UNDER EXECUTIVE ORDER
NO. 561 BY THE OFFICE OF THE PHILIPPINES [sic]
EMPOWERED TO HEAR AND TRY A PETITION FOR
ANNULMENT OF CONTRACTS WITH PRAYER FOR A
TEMPORARY RESTRAINING ORDER AND THUS, ARROGATE
UNTO ITSELF THE POWER TO ISSUE STATUS QUO ORDER
AND CONDUCT A HEARING THEREOF [sic]?
2
ASSUMING THAT THE COMMISSION ON THE SETTLEMENT OF
LAND PROBLEMS [COSLAP] HAS JURISDICTION ON THE
MATTER, IS IT EXEMPTED FROM OBSERVING A CLEAR CASE
OF FORUM SHOPPING ON THE PART OF THE PRIVATE
RESPONDENTS?
To the extent that the instant case is denominated as one for
declaratory relief, we initially clarify that we do not possess
original jurisdiction to entertain such petitions.11 Such is
vested in the Regional Trial Courts.12Accordingly, we shall limit
our review to ascertaining if the proceedings before public
respondent COSLAP are without or in excess, of its
jurisdiction. In this wise, a recounting of the history of the
COSLAP may provide useful insights into the extent of its
powers and functions.
The COSLAP was created by virtue of Executive Order No. 561
dated September 21, 1979. Its forerunner was the Presidential
Action Committee on Land Problems (PACLAP) founded on July
31, 1970 by virtue of Executive Order No. 251. As originally
conceived, the committee was tasked "to expedite and
coordinate the investigation and resolution of land disputes,
streamline and shorten administrative procedures, adopt bold
and decisive measures to solve land problems, and/or
recommend other solutions." It was given the power to issue
subpoenas duces tecum and ad testificandum and to call
upon any department, office, agency or instrumentality of the
government, including government owned or controlled
corporations and local government units, for assistance in the
performance of its functions. At the time, the PACLAP did not
exercise quasi-judicial functions.
On March 19, 1971, Executive Order No. 305 was issued
reconstituting the PACLAP.13 The committee was given
exclusive jurisdiction over all cases involving public lands and
other lands of the public domain and accordingly was tasked:

1. To investigate, coordinate, and resolve expeditiously land

disputes, streamline administrative procedures, and in
general, to adopt bold and decisive measures to solve
problems involving public lands and lands of the public
domain;
2. To coordinate and integrate the activities of all
government agencies having to do with public lands or
lands of the public domain;

or dispute referred to the Commission: Provided, that

the Commission may, in the following cases, assume
jurisdiction and resolve land problems or disputes which
are critical and explosive in nature considering, for
instance, the large number of the parties involved, the
presence or emergence of social tension or unrest, or
other similar critical situations requiring immediate
action:
(a) Between occupants/squatters and pasture lease
agreement holders or timber concessionaires;

3. To study and review present policies as embodied in land

laws and administrative rules and regulations, in relation to
the needs for land of the agro-industrial sector and small
farmers, with the end in view to evolving and
recommending new laws and policies and establishing
priorities in the grant of public land, and the simplification
of processing of land applications in order to relieve the
small man from the complexities of existing laws, rules and
regulations;

(b) Between occupants/squatters and government

reservation grantees;
(c) Between occupants/squatters and public land
claimants or applicants;
(d) Petitions for classification, release and/or
subdivision of lands of the public domain; and

4. To evolve and implement a system for the speedy

investigation and resolution of land disputes;
5. To receive all complaints of settlers and small farmers,
involving public lands or other lands of the public domain;
6. To look into the conflicts between Christians and nonChristians, between corporations and small settlers and
farmers; cause the speedy settlement of such conflicts in
accordance with priorities or policies established by the
Committee; and
7. To perform such other functions as may be assigned to it
by the President.
Thereafter, the PACLAP was reorganized pursuant to
Presidential Decree No. 832 dated November 27, 1975.14Its
jurisdiction was revised thus:
xxx

xxx

xxx

2. Refer for immediate action any land problem or dispute

brought to the attention of the PACLAP, to any member
agency having jurisdiction thereof: Provided, that when the
Executive Committee decides to act on a case, its
resolution, order or decision thereon, shall have the force
and effect of a regular administrative resolution, order or
decision, and shall be binding upon the parties therein
involved and upon the member agency having jurisdiction
thereof;
xxx

xxx

xxx

Notably, the said Presidential Decree No. 832 did not contain
any provision for judicial review of the resolutions, orders or
decisions of the PACLAP.
On September 21, 1979, the PACLAP was abolished and its
functions transferred to the present Commission on the
Settlement of Land Problems by virtue of Executive Order No.
561. This reorganization, effected in line with Presidential
Decree No. 1416, brought the COSLAP directly under the
Office of the President.15 It was only at this time that a
provision for judicial review was made from resolutions, orders
or decisions of the said agency, as embodied in section 3(2)
thereof, to wit:
Powers and functions. The Commission shall have
the following powers and functions:
1. Coordinate the activities, particularly the investigation
work, of the various government offices and agencies
involved in the settlement of land problems or disputes,
and streamline administrative procedures to relieve
small settlers and landholders and members of cultural
minorities of the expense and time-consuming delay
attendant to the solution of such problems or disputes;
2. Refer and follow-up for immediate action by the
agency having appropriate jurisdiction any land problem

(e) Other similar land problems of grave urgency and

magnitude.
The Commission shall promulgate such rules of procedure
as will insure expeditious resolution and action on the above
cases. The resolution, order or decision of the Commission
on any of the foregoing cases shall have the force and
effect of a regular administrative resolution, order or
decision and shall be binding upon the parties therein and
upon the agency having jurisdiction over the same. Said
resolution, order or decision shall become final and
executory within thirty (30) days from its promulgation and
shall be appealable by certiorari only to the Supreme Court.
xxx

xxx

xxx

In the performance of its functions and discharge of its

duties, the Commission is authorized, through the
Commission, to issue subpoena and subpoena duces
tecum for the appearance of witnesses and the production
of records, books and documents before it. It may also call
upon any ministry, office, agency or instrumentality of the
National Government, including government-owned or
controlled corporations, and local governments for
assistance. This authority is likewise, conferred upon the
provincial offices as may be established pursuant to Section
5 of this Executive Order.
In Baaga v. Commission on the Settlement of Land
Problems,16 we characterized the COSLAP's jurisdiction as
being general in nature, as follows:
Petitioners also contend in their petition that the COSLAP
itself has no jurisdiction to resolve the protest and counterprotest of the parties because its power to resolve land
problems is confined to those cases "which are critical and
explosive in nature."

This contention is devoid of merit. It is true that Executive

Order No. 561 provides that the COSLAP may take
cognizance of cases which are "critical and explosive in
nature considering, for instance, the large number of parties
involved, the presence or emergence of social tension or
unrest, or other similar critical situations requiring
immediate action." However, the use of the word "may"
does not mean that the COSLAP's jurisdiction is merely
confined to the above mentioned cases. The provisions of
the said Executive Order are clear that the COSLAP was
created as a means of providing a more effective
mechanism for the expeditious settlement of land problems
in general, which are frequently the source of conflicts
among settlers, landowners and cultural minorities. Besides,
the COSLAP merely took over from the abolished PACLAP
whose functions, including its jurisdiction, power and
authority to act on, decide and resolve land disputes (Sec.
2, P.D. No. 832) were all assumed by it. The said Executive
Order No. 561 containing said provision, being enacted only
on September 21, 1979, cannot affect the exercise of
jurisdiction of the PACLAP Provincial Committee of
Koronadal on September 29, 1978. Neither can it affect the
decision of the COSLAP which merely affirmed said exercise
of jurisdiction.
Given the facts of the case, it is our view that the COSLAP is
not justified in assuming jurisdiction over the controversy. As
matters stand, it is not the judiciary's place to question the
wisdom behind a law;17 our task is to interpret the law. We feel
compelled to observe, though, that by reason of the
ambiguous terminology employed in Executive Order No. 561,
the power to assume jurisdiction granted to the COSLAP
provides an ideal breeding ground for forum shopping, as we
shall explain subsequently. Suffice it to state at this stage that
the COSLAP may not assume jurisdiction over cases which are
already pending in the regular courts.
The reason is simple. Section 3(2) of Executive Order 561
speaks of any resolution, order or decision of the COSLAP as
having the "force and effect of a regular
administrative resolution, order or decision." The qualification
places an unmistakable emphasis on
the administrative character of the COSLAP's determination,
amplified by the statement that such resolutions, orders or
decisions "shall be binding upon the parties therein and upon
the agency having jurisdiction over the same." An agency is
defined by statute as "any of the various units of the
Government, including a department, bureau, office,
instrumentality, or government-owned or controlled
corporation, or a local government or a distinct unit
therein."18 A department, on the other hand, "refers to
an executive department created by law." 19 Whereas, a
bureau is understood to refer "to any principal subdivision of
any department."20 In turn, an office "refers, within the
framework of governmental organization, to any major
functional unit of a department or bureau including regional
offices. It may also refer to any position held or occupied by
individual persons, whose functions are defined by law or
regulation."21 An instrumentality is deemed to refer "to any
agency of the National Government, not integrated within the
department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate
powers, administering special funds and enjoying operational
autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and governmentowned or controlled corporations."22 Applying the principle in
statutory construction of ejusdem generis, i.e., "where general
words follow an enumeration or persons or things, by words of
a particular and specific meaning, such general words are not
to be construed in their widest extent, but are to be held as
applying only to persons or things of the same kind or class as
those specifically mentioned,"23 section 3(2) of Executive
Order 561 patently indicates that the COSLAP's dispositions
are binding on administrative or executive agencies. The
history of the COSLAP itself bolsters this view. Prior
enactments enumerated its member agencies among which it
was to exercise a coordinating function.
The COSLAP discharges quasi-judicial functions:
"Quasi-judicial function" is a term which applies to the
actions, discretion, etc. of public administrative officers or
bodies, who are required to investigate facts, or ascertain
the existence of facts, hold hearings, and draw conclusions

from them, as a basis for their official action and to exercise

discretion of a judicial nature."24
However, it does not depart from its basic nature as an
administrative agency, albeit one that exercises quasi-judicial
functions. Still, administrative agencies are not considered
courts; they are neither part of the judicial system nor are
they deemed judicial tribunals.25 The doctrine of separation of
powers observed in our system of government reposes the
three (3) great powers into its three (3) branches the
legislative, the executive, and the judiciary each
department being co-equal and coordinate, and supreme in its
own sphere. Accordingly, the executive department may not,
by its own fiat, impose the judgment of one of its own
agencies, upon the judiciary. Indeed, under the expanded
jurisdiction of the Supreme Court, it is empowered "to
determine whether or not there has been grave abuse of
discretion amounting to lack of or excess of jurisdiction on the
part of any branch or instrumentality of the Government." 26
There is an equally persuasive reason to grant the petition. As
an additional ground for the annulment of the assailed status
quo order of COSLAP, UNITED accuses private respondents of
engaging in forum shopping. Forum shopping exists when a
party "repetitively avail[s] of several judicial remedies in
different courts, simultaneously or successively, all
substantially founded on the same transactions and the same
essential facts and circumstances, and all raising substantially
the same issues either pending in, or already resolved
adversely by some other court." 27 In this connection, Supreme
Court Administrative Circular No. 04-94 dated February 8,
1994 provides:
Revised Circular No. 28-91, dated February 8, 1994, applies
to and governs the filing of petitions in the Supreme Court
and the Court of Appeals and is intended to prevent the
multiple filing of petitions or complaints involving the same
issues in other tribunals or agencies as a form of forum
shopping.
Complementary thereto and for the same purpose, the
following requirements, in addition to those in pertinent
provisions of the Rules of Court and existing circulars, shall
be strictly complied with in the filing of complaints,
petitions, applications or other initiatory pleadings in all
courts and agencies other than the Supreme Court and the
Court of Appeals and shall be subject to the sanctions
provided hereunder.
1. The plaintiff, petitioner, applicant or principal part
seeking relief in the complaint, petition, application or other
initiatory pleading shall certify under oath in such original
pleading, or in a sworn certification annexed thereto and
simultaneously filed therewith, to the truth of the following
facts and undertakings: (a) he has not theretofore
commenced any other action or proceeding involving the
same issues in the Supreme Court, the Court of Appeals, or
any other tribunal or agency; (b) to the best of his
knowledge, no such action or proceedings is pending in the
Supreme Court, the Court of Appeals, or any other tribunal
or agency; (c) if there is any such action or proceeding
which is either pending or may have been terminated, he
must state the status thereof; and (d) if he should
thereafter learn that a similar action or proceeding has been
filed or is pending before the Supreme Court, the Court of
Appeals or any other tribunal or agency, he undertakes to
report that fact within five (5) days therefrom to the court or
agency wherein the original pleading and sworn certification
contemplated herein have been filed.
The complaint and other initiatory pleadings referred to and
subject of this Circular are the original civil complaint,
counterclaim, cross-claim, third (fourth, etc.) party
complaint, or complaint-in-intervention, petition, or
application wherein a party asserts his claim for relief.
2. Any violation of this Circular shall be a cause for the
dismissal of the complaint, petition, application or other
initiatory pleading, upon motion and after hearing.
However, any clearly willful and deliberate forum shopping
by any other party and his counsel through the filing of
multiple complaints or other initiatory pleadings to obtain
favorable action shall be a ground for the summary

dismissal thereof and shall constitute contempt of court.

Furthermore, the submission of a false certification or noncompliance with the undertakings therein, as provided in
Paragraph 1 hereof, shall constitute indirect contempt of
court, without prejudice to disciplinary proceedings against
the counsel and the filing of a criminal action against the
part. [emphasis supplied]
xxx

xxx

xxx

The said Administrative Circular's use of the auxiliary verb

"shall" imports "an imperative obligation . . . inconsistent with
the idea of discretion."28 Hence, compliance therewith is
mandatory.29
It bears stressing that there is a material distinction between
the requirement of submission of the certification against
forum shopping from the undertakings stated therein.
Accordingly,
x x x [f]ailure to comply with this requirement cannot be
excused by the fact that plaintiff is not guilty of forum
shopping. The Court of Appeals, therefore, erred in
concluding that Administrative Circular No. 04-94 did not
apply to private respondent's case merely because her
complaint was not based on petitioner's cause of action.
The Circular applies to any complaint, petition, application,
or other initiatory pleading, regardless of whether the party
filing it has actually committed forum shopping. Every party
filing a complaint or any other initiatory pleading is required
to swear under oath that he has not committed nor will he
commit forum shopping. Otherwise, we would have an
absurd situation where the parties themselves would be the
judge of whether their actions constitute a violation of said
Circular, and compliance therewith would depend on their
belief that they might or might not have violated the
requirement. Such interpretation of the requirement would
defeat the very purpose of Circular 04-94.
Indeed, compliance with the certification against forum
shopping is separate from, and independent of, the
avoidance of forum shopping itself. Thus, there is a
difference in the treatment in terms of imposable
sanctions between failure to comply with the certification
requirement and violation of the prohibition against forum
shopping. The former is merely a cause for the dismissal,
without prejudice, of the complaint or initiatory pleading,
while the latter is a ground for summary dismissal thereof
and constitutes direct contempt.30
A scrutiny of the pleadings filed before the trial courts and the
COSLAP sufficiently establishes private respondents'
propensity for forum shopping. We lay the premise that the
certification against forum shopping must be executed by the
plaintiff or principal party, and not by his counsel. 31 Hence,
one can deduce that the certification is a
peculiar personal representation on the part of the principal
party, an assurance given to the court or other tribunal that
there are no other pending cases involving basically the same
parties, issues and causes of action. In the case at bar, private
respondents' litany of omissions range from failing to submit
the required certification against forum shopping to filing a
false certification, and then to forum shopping itself. First, the
petition filed before the COSLAP conspicuously lacked a
certification against forum shopping. Second, it does not
appear from the record that the ASSOCIATION informed
Branch 4 of the Regional Trial Court of Baguio City before
which Civil Case No. 3316-R was pending, that another action,
Civil Case No. 3382-R, was filed before Branch 61 of the same
court. Another group of homeless residents of Dominican Hill,
the LAND REFORM BENEFICIARIES ASSOCIATION, INC. initiated
the latter case. The aforesaid plaintiff, however, does not
hesitate to admit that it filed the second case in
representation of private respondent, as one of its affiliates. In
the same manner, the certification against forum shopping
accompanying the complaint in Civil Case No. 3382-R does
not mention the pendency of Civil Case No. 3316-R. In fact,
the opposite assurance was given, that there was no action
pending before any other tribunal. Another transgression is
that both branches of the trial court do not appear to have
been notified of the filing of the subject COSLAP Case No. 98253.

It is evident from the foregoing facts that private respondents,

in filing multiple petitions, have mocked our attempts to
eradicate forum shopping and have thereby upset the orderly
administration of justice. They sought recourse from three (3)
different tribunals in order to obtain the writ of injunction they
so desperately desired. "The willful attempt by private
respondents to obtain a preliminary injunction in another
court after it failed to acquire the same from the original court
constitutes grave abuse of the judicial process." 32
In this connection, we expounded on forum shopping in Viva
Productions, Inc. v. Court of Appeals33 that:
Private respondent's intention to engage in forum shopping
becomes manifest with undoubted clarity upon the
following considerations. Notably, if not only to ensure the
issuance of an injunctive relief, the significance of the
action for damages before the Makati court would be nil.
What damages against private respondent would there be
to speak about if the Paraaque court already enjoins the
performance of the very same act complained of in
the Makati court? Evidently, the action for damages is
premature if not for the preliminary injunctive relief sought.
Thus, we find grave abuse of discretion on the part of
the Makati court, being a mere co-equal of the Paraaque
court, in not giving due deference to the latter before which
the issue of the alleged violation of the sub-judice rule had
already been raised and submitted. In such instance,
the Makati court, if it was wary of dismissing the action
outrightly under Administrative Circular No. 04-94, should
have, at least, ordered the consolidation of its case with
that of the Paraaque court, which had first acquired
jurisdiction over the related case x x x, or it should have
suspended the proceedings until the Paraaque court may
have ruled on the issue x x x.
xxx

xxx

xxx

Thus, while we might admit that the causes of action before

the Makati court and the Paraaque court are distinct, and
that private respondent cannot seek civil indemnity in the
contempt proceedings, the same being in the nature of
criminal contempt, we nonetheless cannot ignore private
respondent's intention of seeking exactly identical reliefs
when it sought the preliminary relief of injunction in
the Makati court. As earlier indicated, had private
respondent been completely in good faith there would have
been no hindrance in filing the action for damages with the
regional trial court of Paraaque and having it consolidated
with the contempt proceedings before Branch 274, so that
the same issue on the alleged violation of the sub
judice rule will not have to be passed upon twice, and there
would be no possibility of having two courts of concurrent
jurisdiction making two conflicting resolutions.
Yet from another angle, it may be said that when
the Paraaque court acquired jurisdiction over the said
issue, it excluded all other courts of concurrent jurisdiction
from acquiring jurisdiction over the same. To hold otherwise
would be to risk instances where courts of concurrent
jurisdiction might have conflicting orders. This will create
havoc and result in an extremely disordered administration
of justice. Therefore, even on the assumption that
the Makati court may acquire jurisdiction over the subject
matter of the action for damages, without prejudice to the
application of Administrative Circular No. 04-94, it cannot
nonetheless acquire jurisdiction over the issue of whether or
not petitioner has violated the sub judice rule. At best,
the Makati court may hear the case only with respect to the
alleged injury suffered by private
respondent afterthe Paraaque court shall have ruled
favorably on the said issue.
We also noted several indications of private respondents' bad
faith. The complaint filed in Civil Case No. 3316-R was
prepared by the ASSOCIATION's counsel, Atty. Conrado
Villamor Catral, Jr. whereas the complaint filed in Civil Case
No. 3382-R was signed by a different lawyer, Atty. Thomas S.
Tayengco. With regard to the petition filed with the COSLAP,
the same was signed by private respondents individually. As
to the latter case, we noted that the petition itself could not
have been prepared by ordinary laymen, inasmuch as it

exhibits familiarity with statutory provisions and legal

concepts, and is written in a lawyerly style.

WHEREAS, one of the five anti-poverty measures for social

justice is asset reform;

In the same manner, the plaintiffs in the three (3) different

cases were made to appear as dissimilar: in Civil Case No.
3316-R, the plaintiff was ASSOCIATION of which private
respondent Mario Padilan was head, while the plaintiff in Civil
Case No. 3382-R was the BENEFICIARIES. Before the COSLAP,
private respondents themselves were the petitioners, led
again by Padilan.34 Private respondents also attempted to vary
their causes of action: in Civil Case No. 3382-R and COSLAP
Case No. 98-253, they seek the annulment of the
Memorandum of Agreement executed by and among UNITED,
the PMS, and HIGC as well as the transfer certificates of title
accordingly issued to petitioner. All three (3) cases sought to
enjoin the demolition of private respondents' houses.

WHEREAS, asset reforms covers [sic] agrarian reform, urban

land reform, and ancestral domain reform;

It has been held that forum shopping is evident where the

elements of litis pendentia or res judicata are present. Private
respondents' subterfuge comes to naught, for the effects
of res judicata or litis pendentia may not be avoided by
varying the designation of the parties or changing the form of
the action or adopting a different mode of presenting one's
case.35
In view of the foregoing, all that remains to be done is the
imposition of the proper penalty. A party's willful and
deliberate act of forum shopping is punishable by summary
dismissal of the actions filed.36 The summary dismissal of both
COSLAP Case No. 98-253 and Civil Case No. 3316-R is
therefore warranted under the premises. We shall refrain from
making any pronouncement on Civil Case No. 3382-R, the
dismissal of which was elevated on appeal to the Court of
Appeals where it is still pending.
WHEREFORE, the petition is hereby GRANTED. The status
quo order dated September 29, 1998 issued in COSLAP Case
No. 98-253 by respondent Commission On The Settlement Of
Land Problems (COSLAP) is hereby SET ASIDE; and the
petition filed in COSLAP Case No. 98-253 and the complaint in
Civil Case No. 3316-R are hereby DISMISSED for lack of
jurisdiction and forum shopping. Costs against private
respondents.
SO ORDERED.
G.R. No. 166052

August 29, 2007

ANAK MINDANAO PARTY-LIST GROUP, as represented by

Rep. Mujiv S. Hataman, and MAMALO DESCENDANTS
ORGANIZATION, INC., as represented by its Chairman
Romy Pardi, Petitioners,
vs.
THE EXECUTIVE SECRETARY, THE HON. EDUARDO R.
ERMITA, and THE SECRETARY OF AGRARIAN/LAND
REFORM, THE HON. RENE C. VILLA, Respondents.
DECISION
CARPIO MORALES, J.:
Petitioners Anak Mindanao Party-List Group (AMIN) and
Mamalo Descendants Organization, Inc. (MDOI) assail the
constitutionality of Executive Order (E.O.) Nos. 364 and 379,
both issued in 2004, via the present Petition for Certiorari and
Prohibition with prayer for injunctive relief.
E.O. No. 364, which President Gloria Macapagal-Arroyo issued
on September 27, 2004, reads:
EXECUTIVE ORDER NO. 364
TRANSFORMING THE DEPARTMENT OF AGRARIAN REFORM
INTO THE DEPARTMENT OF LAND REFORM
WHEREAS, one of the five reform packages of the Arroyo
administration is Social Justice and Basic [N]eeds;

WHEREAS, urban land reform is a concern of the Presidential

Commission [for] the Urban Poor (PCUP) and ancestral domain
reform is a concern of the National Commission on Indigenous
Peoples (NCIP);
WHEREAS, another of the five reform packages of the Arroyo
administration is Anti-Corruption and Good Government;
WHEREAS, one of the Good Government reforms of the Arroyo
administration is rationalizing the bureaucracy by
consolidating related functions into one department;
WHEREAS, under law and jurisprudence, the President of the
Philippines has broad powers to reorganize the offices under
her supervision and control;
NOW[,] THEREFORE[,] I, Gloria Macapagal-Arroyo, by the
powers vested in me as President of the Republic of the
Philippines, do hereby order:
SECTION 1. The Department of Agrarian Reform is hereby
transformed into the Department of Land Reform. It shall be
responsible for all land reform in the country, including
agrarian reform, urban land reform, and ancestral domain
reform.
SECTION 2. The PCUP is hereby placed under the supervision
and control of the Department of Land Reform. The Chairman
of the PCUP shall be ex-officio Undersecretary of the
Department of Land Reform for Urban Land Reform.
SECTION 3. The NCIP is hereby placed under the supervision
and control of the Department of Land Reform. The Chairman
of the NCIP shall be ex-officio Undersecretary of the
Department of Land Reform for Ancestral Domain Reform.
SECTION 4. The PCUP and the NCIP shall have access to the
services provided by the Departments Finance, Management
and Administrative Office; Policy, Planning and Legal Affairs
Office, Field Operations and Support Services Office, and all
other offices of the Department of Land Reform.
SECTION 5. All previous issuances that conflict with this
Executive Order are hereby repealed or modified accordingly.
SECTION 6. This Executive Order takes effect immediately.
(Emphasis and underscoring supplied)
E.O. No. 379, which amended E.O. No. 364 a month later or on
October 26, 2004, reads:
EXECUTIVE ORDER NO. 379
AMENDING EXECUTIVE ORDER NO. 364 ENTITLED
TRANSFORMING THE DEPARTMENT OF AGRARIAN REFORM
INTO THE DEPARTMENT OF LAND REFORM
WHEREAS, Republic Act No. 8371 created the National
Commission on Indigenous Peoples;
WHEREAS, pursuant to the Administrative Code of 1987, the
President has the continuing authority to reorganize the
administrative structure of the National Government.
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President
of the Republic of the Philippines, by virtue of the powers
vested in me by the Constitution and existing laws, do hereby
order:
Section 1. Amending Section 3 of Executive Order No. 364.
Section 3 of Executive Order No. 364, dated September 27,
2004 shall now read as follows:

"Section 3. The National Commission on Indigenous Peoples

(NCIP) shall be an attached agency of the Department of Land
Reform."
Section 2. Compensation. The Chairperson shall suffer no
diminution in rank and salary.
Section 3. Repealing Clause. All executive issuances, rules
and regulations or parts thereof which are inconsistent with
this Executive Order are hereby revoked, amended or
modified accordingly.
Section 4. Effectivity. This Executive Order shall take effect
immediately. (Emphasis and underscoring in the original)
Petitioners contend that the two presidential issuances are
unconstitutional for violating:
- THE CONSTITUTIONAL PRINCIPLES OF SEPARATION
OF POWERS AND OF THE RULE OF LAW[;]
- THE CONSTITUTIONAL SCHEME AND POLICIES FOR
AGRARIAN REFORM, URBAN LAND REFORM,
INDIGENOUS PEOPLES RIGHTS AND ANCESTRAL
DOMAIN[; AND]
- THE CONSTITUTIONAL RIGHT OF THE PEOPLE AND
THEIR ORGANIZATIONS TO EFFECTIVE AND
REASONABLE PARTICIPATION IN DECISION-MAKING,
INCLUDING THROUGH ADEQUATE CONSULTATION[.]1
By Resolution of December 6, 2005, this Court gave due
course to the Petition and required the submission of
memoranda, with which petitioners and respondents complied
on March 24, 2006 and April 11, 2006, respectively.
The issue on the transformation of the Department of Agrarian
Reform (DAR) into the Department of Land Reform (DLR)
became moot and academic, however, the department having
reverted to its former name by virtue of E.O. No. 456 2 which
was issued on August 23, 2005.
The Court is thus left with the sole issue of the legality of
placing the Presidential Commission3 for the Urban Poor
(PCUP) under the supervision and control of the DAR, and the
National Commission on Indigenous Peoples (NCIP) under the
DAR as an attached agency.
Before inquiring into the validity of the reorganization,
petitioners locus standi or legal standing, inter alia,4becomes
a preliminary question.
The Office of the Solicitor General (OSG), on behalf of
respondents, concedes that AMIN5 has the requisite legal
standing to file this suit as member 6 of Congress.
Petitioners find it impermissible for the Executive to intrude
into the domain of the Legislature. They posit that an act of
the Executive which injures the institution of Congress causes
a derivative but nonetheless substantial injury, which can be
questioned by a member of Congress.7 They add that to the
extent that the powers of Congress are impaired, so is the
power of each member thereof, since his office confers a right
to participate in the exercise of the powers of that institution.8
Indeed, a member of the House of Representatives has
standing to maintain inviolate the prerogatives, powers and
privileges vested by the Constitution in his office.9
The OSG questions, however, the standing of MDOI, a
registered peoples organization
of Teduray and Lambangian tribesfolk of (North) Upi and
South Upi in the province of Maguindanao.
As co-petitioner, MDOI alleges that it is concerned with the
negative impact of NCIPs becoming an attached agency of
the DAR on the processing of ancestral domain claims. It fears
that transferring the NCIP to the DAR would affect the
processing of ancestral domain claims filed by its members.

Locus standi or legal standing has been defined as a personal

and substantial interest in a case such that the party has
sustained or will sustain direct injury as a result of the
governmental act that is being challenged. The gist of the
question of standing is whether a party alleges such personal
stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of
issues upon which the court depends for illumination of
difficult constitutional questions.10
It has been held that a party who assails the constitutionality
of a statute must have a direct and personal interest. It must
show not only that the law or any governmental act is invalid,
but also that it sustained or is in immediate danger of
sustaining some direct injury as a result of its enforcement,
and not merely that it suffers thereby in some indefinite way.
It must show that it has been or is about to be denied some
right or privilege to which it is lawfully entitled or that it is
about to be subjected to some burdens or penalties by reason
of the statute or act complained of.11
For a concerned party to be allowed to raise a constitutional
question, it must show that (1) it has personally suffered some
actual or threatened injury as a result of the allegedly illegal
conduct of the government, (2) the injury is fairly traceable to
the challenged action, and (3) the injury is likely to be
redressed by a favorable action.12
An examination of MDOIs nebulous claims of "negative
impact" and "probable setbacks"13 shows that they are too
abstract to be considered judicially cognizable. And the line of
causation it proffers between the challenged action and
alleged injury is too attenuated.
Vague propositions that the implementation of the assailed
orders will work injustice and violate the rights of its members
cannot clothe MDOI with the requisite standing. Neither would
its status as a "peoples organization" vest it with the legal
standing to assail the validity of the executive orders.14
La Bugal-Blaan Tribal Association, Inc. v. Ramos,15 which
MDOI cites in support of its claim to legal standing, is
inapplicable as it is not similarly situated with the therein
petitioners who alleged personal and substantial injury
resulting from the mining activities permitted by the assailed
statute. And so is Cruz v. Secretary of Environment and
Natural Resources,16 for the indigenous peoples leaders and
organizations were not the petitioners therein, who
necessarily had to satisfy the locus standi requirement, but
were intervenors who sought and were allowed to be
impleaded, not to assail but to defend the constitutionality of
the statute.
Moreover, MDOI raises no issue of transcendental importance
to justify a relaxation of the rule on legal standing. To be
accorded standing on the ground of transcendental
importance, Senate of the Philippines v. Ermita17requires that
the following elements must be established: (1) the public
character of the funds or other assets involved in the case, (2)
the presence of a clear case of disregard of a constitutional or
statutory prohibition by the public respondent agency or
instrumentality of government, and (3) the lack of any other
party with a more direct and specific interest in raising the
questions being raised. The presence of these elements MDOI
failed to establish, much less allege.
Francisco, Jr. v. Fernando18 more specifically declares that the
transcendental importance of the issues raised must relate to
the merits of the petition.
This Court, not being a venue for the ventilation of
generalized grievances, must thus deny adjudication of the
matters raised by MDOI.
Now, on AMINs position. AMIN charges the Executive
Department with transgression of the principle of separation
of powers.
Under the principle of separation of powers, Congress, the
President, and the Judiciary may not encroach on fields
allocated to each of them. The legislature is generally limited
to the enactment of laws, the executive to the enforcement of

laws, and the judiciary to their interpretation and application

to cases and controversies. The principle presupposes mutual
respect by and between the executive, legislative and judicial
departments of the government and calls for them to be left
alone to discharge their duties as they see fit. 19
AMIN contends that since the DAR, PCUP and NCIP were
created by statutes,20 they can only be transformed, merged
or attached by statutes, not by mere executive orders.
While AMIN concedes that the executive power is vested in
the President21 who, as Chief Executive, holds the power of
control of all the executive departments, bureaus, and
offices,22 it posits that this broad power of control including
the power to reorganize is qualified and limited, for it cannot
be exercised in a manner contrary to law, citing the
constitutional duty23 of the President to ensure that the laws,
including those creating the agencies, be faithfully executed.
AMIN cites the naming of the PCUP as a presidential
commission to be clearly an extension of the President, and
the creation of the NCIP as an "independent agency under the
Office of the President."24 It thus argues that since the
legislature had seen fit to create these agencies at separate
times and with distinct mandates, the President should
respect that legislative disposition.
In fine, AMIN contends that any reorganization of these
administrative agencies should be the subject of a statute.
AMINs position fails to impress.
The Constitution confers, by express provision, the power of
control over executive departments, bureaus and offices in
the President alone. And it lays down a limitation on the
legislative power.
The line that delineates the Legislative and Executive power is
not indistinct. Legislative power is "the authority, under the
Constitution, to make laws, and to alter and repeal them." The
Constitution, as the will of the people in their original,
sovereign and unlimited capacity, has vested this power in the
Congress of the Philippines. The grant of legislative power to
Congress is broad, general and comprehensive. The legislative
body possesses plenary power for all purposes of civil
government. Any power, deemed to be legislative by usage
and tradition, is necessarily possessed by Congress, unless
the Constitution has lodged it elsewhere. In fine, except as
limited by the Constitution, either expressly or impliedly,
legislative power embraces all subjects and extends to
matters of general concern or common interest.
While Congress is vested with the power to enact laws, the
President executes the laws. The executive power is vested in
the President. It is generally defined as the power to enforce
and administer the laws. It is the power of carrying the laws
into practical operation and enforcing their due observance.
As head of the Executive Department, the President is the
Chief Executive. He represents the government as a whole
and sees to it that all laws are enforced by the officials and
employees of his department. He has control over the
executive department, bureaus and offices. This means that
he has the authority to assume directly the functions of the
executive department, bureau and office, or interfere with the
discretion of its officials. Corollary to the power of control, the
President also has the duty of supervising and enforcement of
laws for the maintenance of general peace and public order.
Thus, he is granted administrative power over bureaus and
offices under his control to enable him to discharge his duties
effectively.25 (Italics omitted, underscoring supplied)
The Constitutions express grant of the power of control in the
President justifies an executive action to carry out
reorganization measures under a broad authority of law.26
In enacting a statute, the legislature is presumed to have
deliberated with full knowledge of all existing laws and
jurisprudence on the subject.27 It is thus reasonable to
conclude that in passing a statute which places an agency
under the Office of the President, it was in accordance with

existing laws and jurisprudence on the Presidents power to

reorganize.
In establishing an executive department, bureau or office, the
legislature necessarily ordains an executive agencys position
in the scheme of administrative structure. Such determination
is primary,28 but subject to the Presidents continuing
authority to reorganize the administrative structure. As far as
bureaus, agencies or offices in the executive department are
concerned, the power of control may justify the President to
deactivate the functions of a particular office. Or a law may
expressly grant the President the broad authority to carry out
reorganization measures.29 The Administrative Code of 1987 is
one such law:30
SEC. 30. Functions of Agencies under the Office of the
President. Agencies under the Office of the President
shall continue to operate and function in accordance with
their respective charters or laws creating them, except as
otherwise provided in this Code or by law.
SEC. 31. Continuing Authority of the President to Reorganize
his Office. The President, subject to the policy in the
Executive Office and in order to achieve simplicity,
economy and efficiency, shall have continuing authority to
reorganize the administrative structure of the Office of the
President. For this purpose, he may take any of the following
actions:
(1) Restructure the internal organization of the Office of the
President Proper, including the immediate Offices, the
Presidential Special Assistants/Advisers System and the
Common Staff Support System, by abolishing,
consolidating, or merging units thereof or transferring
functions from one unit to another;
(2) Transfer any function under the Office of the President to
any other Department or Agency as well as transfer
functions to the Office of the President from other
Departments and Agencies; and
(3) Transfer any agency under the Office of the President to
any other department or agency as well as transfer
agencies to the Office of the President from other
departments or agencies.31 (Italics in the original; emphasis
and underscoring supplied)
In carrying out the laws into practical operation, the President
is best equipped to assess whether an executive agency
ought to continue operating in accordance with its charter or
the law creating it. This is not to say that the legislature is
incapable of making a similar assessment and appropriate
action within its plenary power. The Administrative Code of
1987 merely underscores the need to provide the President
with suitable solutions to situations on hand to meet the
exigencies of the service that may call for the exercise of the
power of control.
x x x The law grants the President this power in recognition of
the recurring need of every President to reorganize his office
"to achieve simplicity, economy and efficiency." The Office of
the President is the nerve center of the Executive Branch. To
remain effective and efficient, the Office of the President must
be capable of being shaped and reshaped by the President in
the manner he deems fit to carry out his directives and
policies. After all, the Office of the President is the command
post of the President. This is the rationale behind the
Presidents continuing authority to reorganize the
administrative structure of the Office of the President. 32
The Office of the President consists of the Office of the
President proper and the agencies under it.33 It is not disputed
that PCUP and NCIP were formed as agencies under the Office
of the President.34 The "Agencies under the Office of the
President" refer to those offices placed under the
chairmanship of the President, those under the supervision
and control of the President, those under the administrative
supervision of the Office of the President, those attached to
the Office for policy and program coordination, and those that
are not placed by law or order creating them under any
special department.35

As thus provided by law, the President may transfer any

agency under the Office of the President to any other
department or agency, subject to the policy in the Executive
Office and in order to achieve simplicity, economy and
efficiency. Gauged against these guidelines,36 the challenged
executive orders may not be said to have been issued with
grave abuse of discretion or in violation of the rule of law.
The references in E.O. 364 to asset reform as an anti-poverty
measure for social justice and to rationalization of the
bureaucracy in furtherance of good government 37 encapsulate
a portion of the existing "policy in the Executive Office." As
averred by the OSG, the President saw it fit to streamline the
agencies so as not to hinder the delivery of crucial social
reforms.38
The consolidation of functions in E.O. 364 aims to attain the
objectives of "simplicity, economy and efficiency" as gathered
from the provision granting PCUP and NCIP access to the
range of services provided by the DARs technical offices and
support systems.39
The characterization of the NCIP as an independent agency
under the Office of the President does not remove said body
from the Presidents control and supervision with respect to its
performance of administrative functions. So it has been
opined:
That Congress did not intend to place the NCIP under the
control of the President in all instances is evident in the IPRA
itself, which provides that the decisions of the NCIP in the
exercise of its quasi-judicial functions shall be appealable to
the Court of Appeals, like those of the National Labor Relations
Commission (NLRC) and the Securities and Exchange
Commission (SEC). Nevertheless, the NCIP, although
independent to a certain degree, was placed by Congress
"under the office of the President" and, as such, is still subject
to the Presidents power of control and supervision granted
under Section 17, Article VII of the Constitution with respect to
its performance of administrative functions[.]40 (Underscoring
supplied)
In transferring the NCIP to the DAR as an attached agency, the
President effectively tempered the exercise of presidential
authority and considerably recognized that degree of
independence.
The Administrative Code of 1987 categorizes administrative
relationships into (1) supervision and control, (2)
administrative supervision, and (3) attachment.41 With respect
to the third category, it has been held that an attached
agency has a larger measure of independence from the
Department to which it is attached than one which is under
departmental supervision and control or administrative
supervision. This is borne out by the "lateral relationship"
between the Department and the attached agency. The
attachment is merely for "policy and program
coordination."42 Indeed, the essential autonomous character of
a board is not negated by its attachment to a commission. 43
AMIN argues, however, that there is an anachronism of sorts
because there can be no policy and program coordination
between conceptually different areas of reform. It claims that
the new framework subsuming agrarian reform, urban land
reform and ancestral domain reform is fundamentally
incoherent in view of the widely different contexts.44 And it
posits that it is a substantive transformation or reorientation
that runs contrary to the constitutional scheme and policies.
AMIN goes on to proffer the concept of "ordering the
law"45 which, so it alleges, can be said of the Constitutions
distinct treatment of these three areas, as reflected in
separate provisions in different parts of the Constitution. 46It
argues that the Constitution did not intend an over-arching
concept of agrarian reform to encompass the two other areas,
and that how the law is ordered in a certain way should not be
undermined by mere executive orders in the guise of
administrative efficiency.
The Court is not persuaded.

The interplay of various areas of reform in the promotion of

social justice is not something implausible or unlikely. 47 Their
interlocking nature cuts across labels and works against a
rigid pigeonholing of executive tasks among the members of
the Presidents official family. Notably, the Constitution
inhibited from identifying and compartmentalizing the
composition of the Cabinet. In vesting executive power in one
person rather than in a plural executive, the evident intention
was to invest the power holder with energy. 48
AMIN takes premium on the severed treatment of these
reform areas in marked provisions of the Constitution. It is a
precept, however, that inferences drawn from title, chapter or
section headings are entitled to very little weight. 49 And so
must reliance on sub-headings,50 or the lack thereof, to
support a strained deduction be given the weight of helium.
Secondary aids may be consulted to remove, not to create
doubt.51 AMINs thesis unsettles, more than settles the order
of things in construing the Constitution. Its interpretation fails
to clearly establish that the so-called "ordering" or
arrangement of provisions in the Constitution was consciously
adopted to imply a signification in terms of government
hierarchy from where a constitutional mandate can per se be
derived or asserted. It fails to demonstrate that the "ordering"
or layout was not simply a matter of style in constitutional
drafting but one of intention in government structuring. With
its inherent ambiguity, the proposed interpretation cannot be
made a basis for declaring a law or governmental act
unconstitutional.
A law has in its favor the presumption of constitutionality. For
it to be nullified, it must be shown that there is a clear and
unequivocal breach of the Constitution. The ground for nullity
must be clear and beyond reasonable doubt. 52 Any reasonable
doubt should, following the universal rule of legal
hermeneutics, be resolved in favor of the constitutionality of a
law.53
Ople v. Torres54 on which AMIN relies is unavailing. In that
case, an administrative order involved a system of
identification that required a "delicate adjustment of various
contending state policies" properly lodged in the legislative
arena. It was declared unconstitutional for dealing with a
subject that should be covered by law and for violating the
right to privacy.
In the present case, AMIN glaringly failed to show how the
reorganization by executive fiat would hamper the exercise of
citizens rights and privileges. It rested on the ambiguous
conclusion that the reorganization jeopardizes economic,
social and cultural rights. It intimated, without expounding,
that the agendum behind the issuances is to weaken the
indigenous peoples rights in favor of the mining industry. And
it raised concerns about the possible retrogression in DARs
performance as the added workload may impede the
implementation of the comprehensive agrarian reform
program.lavvphil
AMIN has not shown, however, that by placing the NCIP as an
attached agency of the DAR, the President altered the nature
and dynamics of the jurisdiction and adjudicatory functions of
the NCIP concerning all claims and disputes involving rights of
indigenous cultural communities and
indigenous peoples. Nor has it been shown, nay alleged, that
the reorganization was made in bad faith.55
As for the other arguments raised by AMIN which pertain to
the wisdom or soundness of the executive decision, the Court
finds it unnecessary to pass upon them. The raging debate on
the most fitting framework in the delivery of social services is
endless in the political arena. It is not the business of this
Court to join in the fray. Courts have no judicial power to
review cases involving political questions and, as a rule, will
desist from taking cognizance of speculative or hypothetical
cases, advisory opinions and cases that have become moot.56
Finally, a word on the last ground proffered for declaring the
unconstitutionality of the assailed issuances that they
violate Section 16, Article XIII of the Constitution 57 on the

peoples right to participate in decision-making through

adequate consultation mechanisms.
The framers of the Constitution recognized that the
consultation mechanisms were already operating without the
States action by law, such that the role of the State would be
mere facilitation, not necessarily creation of these
consultation mechanisms. The State provides the support, but
eventually it is the people, properly organized in their
associations, who can assert the right and pursue the
objective. Penalty for failure on the part of the government to
consult could only be reflected in the ballot box and would not
nullify government action.58
WHEREFORE, the petition is DISMISSED. Executive Order Nos.
364 and 379 issued on September 27, 2004 and October 26,
2004, respectively, are declared not unconstitutional.
SO ORDERED.
G.R. No. 97149 March 31, 1992
FIDENCIO Y. BEJA, SR., petitioner,
vs.
COURT OF APPEALS, HONORABLE REINERIO O. REYES,
in his capacity as Secretary of the Department of
Transportation and Communications; COMMODORE
ROGELIO A. DAYAN, in his capacity as General Manager
of the Philippine Ports Authority; DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS,
ADMINISTRATIVE ACTION BOARD; and JUSTICE ONOFRE
A. VILLALUZ, in his capacity as Chairman of the
Administrative Action Board, DOTC, respondents.

ROMERO, J.:
The instant petition for certiorari questions the jurisdiction of
the Secretary of the Department of Transportation and
Communications (DOTC) and/or its Administrative Action
Board (AAB) over administrative cases involving personnel
below the rank of Assistant General Manager of the Philippine
Ports Authority (PPA), an agency attached to the said
Department.
Petitioner Fidencio Y. Beja, Sr. 1 was first employed by the PPA
as arrastre supervisor in 1975. He became Assistant Port
Operations Officer in 1976 and Port Operations Officer in
1977. In February 1988, as a result of the reorganization of
the PPA, he was appointed Terminal Supervisor.
On October 21, 1988, the PPA General Manager, Rogelio A.
Dayan, filed Administrative Case No. 11-04-88 against
petitioner Beja and Hernando G. Villaluz for grave dishonesty,
grave misconduct, willful violation of reasonable office rules
and regulations and conduct prejudicial to the best interest of
the service. Beja and Villaluz allegedly erroneously assessed
storage fees resulting in the loss of P38,150.77 on the part of
the PPA. Consequently, they were preventively suspended for
the charges. After a preliminary investigation conducted by
the district attorney for Region X, Administrative Case No. 1104-88 was "considered closed for lack of merit."
On December 13, 1988, another charge sheet, docketed as
Administrative Case No. 12-01-88, was filed against Beja by
the PPA General Manager also for dishonesty, grave
misconduct, violation of reasonable office rules and
regulations, conduct prejudicial to the best interest of the
service and for being notoriously undesirable. The charge
consisted of six (6) different specifications of administrative
offenses including fraud against the PPA in the total amount of
P218,000.00. Beja was also placed under preventive
suspension pursuant to Sec. 41 of P.D. No. 807.
The case was redocketed as Administrative Case No. PPA-AAB1-049-89 and thereafter, the PPA general manager indorsed it
to the AAB for "appropriate action." At the scheduled hearing,
Beja asked for continuance on the ground that he needed
time to study the charges against him. The AAB proceeded to
hear the case and gave Beja an opportunity to present

evidence. However, on February 20, 1989, Beja filed a petition

for certiorari with preliminary injunction before the Regional
Trial Court of Misamis Oriental. 2 Two days later, he filed with
the AAB a manifestation and motion to suspend the hearing of
Administrative Case No. PPA-AAB-1-049-89 on account of the
pendency of the certiorari proceeding before the court. AAB
denied the motion and continued with the hearing of the
administrative case.
Thereafter, Beja moved for the dismissal of the certiorari case
below and proceeded to file before this Court a petition
for certiorari with preliminary injunction and/or temporary
restraining order. The case was docketed as G.R. No. 87352
captioned "Fidencio Y. Beja v. Hon. Reinerio 0. Reyes, etc., et
al." In the en banc resolution of March 30, 1989, this Court
referred the case to the Court of Appeals for "appropriate
action." 3 G.R. No. 87352 was docketed in the Court of Appeals
as CA-G.R. SP No. 17270.
Meanwhile, a decision was rendered by the AAB in
Administrative Case No. PPA-AAB-049-89. Its dispositive
portion reads:
WHEREFORE, judgment is hereby rendered, adjudging the
following, namely:
a) That respondents Geronimo Beja, Jr. and Hernando
Villaluz are exonerated from the charge against them;
b) That respondent Fidencio Y. Beja be dismissed from the
service;
c) That his leave credits and retirement benefits are
declared forfeited;
d) That he be disqualified from re-employment in the
government service;
e) That his eligibility is recommended to be cancelled.
Pasig, Metro Manila, February 28, 1989.
On December 10, 1990, after appropriate proceedings, the
Court of Appeals also rendered a decision 4 in CA-G.R. SP No.
17270 dismissing the petition for certiorari for lack of merit.
Hence, Beja elevated the case back to this Court through an
"appeal by certiorari with preliminary injunction and/or
temporary restraining order."
We find the pleadings filed in this case to be sufficient bases
for arriving at a decision and hence, the filing of memoranda
has been dispensed with.
In his petition, Beja assails the Court of Appeals for having
"decided questions of substance in a way probably not in
accord with law or with the applicable decisions" of this
Court. 5 Specifically, Beja contends that the Court of Appeals
failed to declare that: (a) he was denied due process; (b) the
PPA general manager has no power to issue a preventive
suspension order without the necessary approval of the PPA
board of directors; (c) the PPA general manager has no power
to refer the administrative case filed against him to the DOTCAAB, and (d) the DOTC Secretary, the Chairman of the DOTCAAB and DOTC-AAB itself as an adjudicatory body, have no
jurisdiction to try the administrative case against him. Simply
put, Beja challenges the legality of the preventive suspension
and the jurisdiction of the DOTC Secretary and/or the AAB to
initiate and hear administrative cases against PPA personnel
below the rank of Assistant General Manager.
Petitioner anchors his contention that the PPA general
manager cannot subject him to a preventive suspension on
the following provision of Sec. 8, Art. V of Presidential Decree
No. 857 reorganizing the PPA:
(d) the General Manager shall, subject to the approval of
the Board, appoint and remove personnel below the rank of
Assistant General Manager. (Emphasis supplied.)

Petitioner contends that under this provision, the PPA Board of

Directors and not the PPA General Manager is the "proper
disciplining authority. 6
As correctly observed by the Solicitor General, the petitioner
erroneously equates "preventive suspension" as a remedial
measure with "suspension" as a penalty for administrative
dereliction. The imposition of preventive suspension on a
government employee charged with an administrative offense
is subject to the following provision of the Civil Service Law,
P.D. No. 807:
Sec. 41. Preventive Suspension. The proper disciplining
authority may preventively suspend any subordinate officer
or employee under his authority pending an investigation, if
the charge against such officer or employee involves
dishonesty, oppression or grave misconduct, or neglect in
the performance of duty, or if there are reasons to believe
that the respondent is guilty of charges which would
warrant his removal from the service.
Imposed during the pendency of an administrative
investigation, preventive suspension is not a penalty in itself.
It is merely a measure of precaution so that the employee
who is charged may be separated, for obvious reasons, from
the scene of his alleged misfeasance while the same is being
investigated. 7 Thus, preventive suspension is distinct from
the administrative penalty of removal from office such as the
one mentioned in Sec. 8(d) of P.D. No 857. While the former
may be imposed on a respondent during the investigation of
the charges against him, the latter is the penalty which may
only be meted upon him at the termination of the
investigation or the final disposition of the case.
The PPA general manager is the disciplining authority who
may, by himself and without the approval of the PPA Board of
Directors, subject a respondent in an administrative case to
preventive suspension. His disciplinary powers are sanctioned,
not only by Sec. 8 of P.D. No. 857 aforequoted, but also by
Sec. 37 of P.D. No. 807 granting heads of agencies the
"jurisdiction to investigate and decide matters involving
disciplinary actions against officers and employees" in the
PPA.
Parenthetically, the period of preventive suspension is limited.
It may be lifted even if the disciplining authority has not finally
decided the administrative case provided the ninety-day
period from the effectivity of the preventive suspension has
been exhausted. The employee concerned may then be
reinstated. 8 However, the said ninety-day period may be
interrupted. Section 42 of P.D. No. 807 also mandates that any
fault, negligence or petition of a suspended employee may
not be considered in the computation of the said period. Thus,
when a suspended employee obtains from a court of justice a
restraining order or a preliminary injunction inhibiting
proceedings in an administrative case, the lifespan of such
court order should be excluded in the reckoning of the
permissible period of the preventive suspension. 9
With respect to the issue of whether or not the DOTC
Secretary and/or the AAB may initiate and hear administrative
cases against PPA Personnel below the rank of Assistant
General Manager, the Court qualifiedlyrules in favor of
petitioner.
The PPA was created through P.D. No. 505 dated July 11, 1974.
Under that Law, the corporate powers of the PPA were vested
in a governing Board of Directors known as the Philippine Port
Authority Council. Sec. 5(i) of the same decree gave the
Council the power "to appoint, discipline and remove, and
determine the composition of the technical staff of the
Authority and other personnel."
On December 23, 1975, P.D. No. 505 was substituted by P.D.
No. 857, See. 4(a) thereof created the Philippine Ports
Authority which would be "attached" to the then Department
of Public Works, Transportation and Communication. When
Executive Order No. 125 dated January 30, 1987 reorganizing
the Ministry of Transportation and Communications was
issued, the PPA retained its "attached" status. 10 Even
Executive Order No. 292 or the Administrative Code of 1987
classified the PPA as an agency "attached" to the Department

of Transportation and Communications (DOTC). Sec. 24 of

Book IV, Title XV, Chapter 6 of the same Code provides that
the agencies attached to the DOTC "shall continue to operate
and function in accordance with the respective charters or
laws creating them, except when they conflict with this Code."
Attachment of an agency to a Department is one of the three
administrative relationships mentioned in Book IV, Chapter 7
of the Administrative Code of 1987, the other two being
supervision and control and administrative supervision.
"Attachment" is defined in Sec. 38 thereof as follows:
(3) Attachment. (a) This refers to the lateral relationship
between the Department or its equivalent and the attached
agency or corporation for purposes of policy and program
coordination. The coordination shall be accomplished by
having the department represented in the governing board
of the attached agency or corporation, either as chairman or
as a member, with or without voting rights, if this is
permitted by the charter; having the attached corporation or
agency comply with a system of periodic reporting which
shall reflect the progress of programs and projects; and
having the department or its equivalent provide general
policies through its representative in the board, which shall
serve as the framework for the internal policies of the
attached corporation or agency;
(b) Matters of day-to-day administration or all those
pertaining to internal operations shall he left to the discretion
or judgment of the executive officer of the agency or
corporation. In the event that the Secretary and the head of
the board or the attached agency or corporation strongly
disagree on the interpretation and application of policies, and
the Secretary is unable to resolve the disagreement, he shall
bring the matter to the President for resolution and direction;
(c) Government-owned or controlled corporations attached to
a department shall submit to the Secretary concerned their
audited financial statements within sixty (60) days after the
close of the fiscal year; and
(d) Pending submission of the required financial statements,
the corporation shall continue to operate on the basis of the
preceding year's budget until the financial statements shall
have been submitted. Should any government-owned or
controlled corporation incur an operation deficit at the close
of its fiscal year, it shall be subject to administrative
supervision of the department; and the corporation's
operating and capital budget shall be subject to the
department's examination, review, modification and
approval. (emphasis supplied.)
An attached agency has a larger measure of independence
from the Department to which it is attached than one which is
under departmental supervision and control or administrative
supervision. This is borne out by the "lateral relationship"
between the Department and the attached agency. The
attachment is merely for "policy and program coordination."
With respect to administrative matters, the independence of
an attached agency from Departmental control and
supervision is further reinforced by the fact that even an
agency under a Department's administrative supervision is
free from Departmental interference with respect to
appointments and other personnel actions "in accordance
with the decentralization of personnel functions" under the
Administrative Code of 1987. 11 Moreover, the Administrative
Code explicitly provides that Chapter 8 of Book IV on
supervision and control shall not apply to chartered
institutions attached to a Department. 12
Hence, the inescapable conclusion is that with respect to the
management of personnel, an attached agency is, to a certain
extent, free from Departmental interference and control. This
is more explicitly shown by P.D. No. 857 which provides:
Sec. 8. Management and Staff. a) The President shall,
upon the recommendation of the Board, appoint the
General Manager and the Assistant General Managers.
(b) All other officials and employees of the Authority shall
be selected and appointed on the basis of merit and fitness
based on a comprehensive and progressive merit system to

be established by the Authority immediately upon its

organization and consistent with Civil Service rules and
regulations. The recruitment, transfer, promotion, and
dismissal of all personnel of the Authority, including
temporary workers, shall be governed by such merit
system.
(c) The General Manager shall, subject to the approval of
the Board, determine the staffing pattern and the number of
personnel of the Authority, define their duties and
responsibilities, and fix their salaries and emoluments. For
professional and technical positions, the General Manager
shall recommend salaries and emoluments that are
comparable to those of similar positions in other
government-owned corporations, the provisions of existing
rules and regulations on wage and position classification
notwithstanding.
(d) The General Manager shall, subject to the approval by
the Board, appoint and remove personnel below the rank of
Assistant General Manager.
xxx xxx xxx
(emphasis supplied.)
Although the foregoing section does not expressly provide for
a mechanism for an administrative investigation of personnel,
by vesting the power to remove erring employees on the
General Manager, with the approval of the PPA Board of
Directors, the law impliedly grants said officials the power to
investigate its personnel below the rank of Assistant Manager
who may be charged with an administrative offense. During
such investigation, the PPA General Manager, as earlier
stated, may subject the employee concerned to preventive
suspension. The investigation should be conducted in
accordance with the procedure set out in Sec. 38 of P.D. No.
807. 13 Only after gathering sufficient facts may the PPA
General Manager impose the proper penalty in accordance
with law. It is the latter action which requires the approval of
the PPA Board of Directors. 14
From an adverse decision of the PPA General Manager and the
Board of Directors, the employee concerned mayelevate the
matter to the Department Head or Secretary. Otherwise, he
may appeal directly to the Civil Service Commission. The
permissive recourse to the Department Secretary is
sanctioned by the Civil Service Law (P.D. No. 807) under the
following provisions:
Sec. 37. Disciplinary Jurisdiction. (a) The Commission
shall decide upon appeal all administrative disciplinary
cases involving the imposition of a penalty of suspension for
more than thirty days, or fine in an amount exceeding thirty
days salary, demotion in rank or salary or transfer, removal
or dismissal from office. A complaint may be filed directly
with the Commission by a private citizen against a
government official or employee in which case it may hear
and decide the case or it may deputize any department or
agency or official or group of officials to conduct the
investigation. The results of the investigation shall be
submitted to the Commission with recommendation as to
the penalty to be imposed or other action to be taken.
(b) The heads of departments, agencies and
instrumentalities, provinces, cities and municipalities shall
have jurisdiction to investigate and decide matters
involving disciplinary action against officers and employees
under their jurisdiction. The decisions shall be final in case
the penalty imposed is suspension for not more than thirty
days or fine in an amount not exceeding thirty days'
salary. In case the decision rendered by a bureau or office
head is appealable to the Commission, the same may be
initially appealed to the department and finally to the
Commission and pending appeal, the same shall be
executory except when the penalty is removal, in which
case the same shall be executory only after confirmation by
the department head.
xxx xxx xxx
(Emphasis supplied.)

It is, therefore, clear that the transmittal of the complaint by

the PPA General Manager to the AAB was premature. The PPA
General Manager should have first conducted an
investigation, made the proper recommendation for the
imposable penalty and sought its approval by the PPA Board
of Directors. It was discretionary on the part of the herein
petitioner to elevate the case to the then DOTC Secretary
Reyes. Only then could the AAB take jurisdiction of the case.
The AAB, which was created during the tenure of Secretary
Reyes under Office Order No. 88-318 dated July 1, 1988, was
designed to act, decide and recommend to him "all cases of
administrative malfeasance, irregularities, grafts and acts of
corruption in the Department." Composed of a Chairman and
two (2) members, the AAB came into being pursuant to
Administrative Order No. 25 issued by the President on May
25, 1987. 15 Its special nature as a quasijudicial administrative body notwithstanding, the AAB is not
exempt from the observance of due process in its
proceedings. 16 We are not satisfied that it did so in this case
the respondents protestation that petitioner waived his right
to be heard notwithstanding. It should be observed that
petitioner was precisely questioning the AAB's jurisdiction
when it sought judicial recourse.
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED insofar as it upholds the power of the PPA General
Manager to subject petitioner to preventive suspension and
REVERSED insofar as it validates the jurisdiction of the DOTC
and/or the AAB to act on Administrative Case No. PPA-AAB-1049-89 and rules that due process has been accorded the
petitioner.
The AAB decision in said case is hereby declared NULL and
VOID and the case in REMANDED to the PPA whose General
Manager shall conduct with dispatch its reinvestigation.
The preventive suspension of petitioner shall continue unless
after a determination of its duration, it is found that he had
served the total of ninety (90) days in which case he shall be
reinstated immediately.
SO ORDERED.
G.R. No. 120319 October 6, 1995
LUZON DEVELOPMENT BANK, petitioner,
vs.
ASSOCIATION OF LUZON DEVELOPMENT BANK
EMPLOYEES and ATTY. ESTER S. GARCIA in her capacity
as VOLUNTARY ARBITRATOR, respondents.

ROMERO, J.:
From a submission agreement of the Luzon Development
Bank (LDB) and the Association of Luzon Development Bank
Employees (ALDBE) arose an arbitration case to resolve the
following issue:
Whether or not the company has violated the Collective
Bargaining Agreement provision and the Memorandum of
Agreement dated April 1994, on promotion.
At a conference, the parties agreed on the submission of their
respective Position Papers on December 1-15, 1994. Atty.
Ester S. Garcia, in her capacity as Voluntary Arbitrator,
received ALDBE's Position Paper on January 18, 1995. LDB, on
the other hand, failed to submit its Position Paper despite a
letter from the Voluntary Arbitrator reminding them to do so.
As of May 23, 1995 no Position Paper had been filed by LDB.
On May 24, 1995, without LDB's Position Paper, the Voluntary
Arbitrator rendered a decision disposing as follows:
WHEREFORE, finding is hereby made that the Bank has not
adhered to the Collective Bargaining Agreement provision
nor the Memorandum of Agreement on promotion.

Hence, this petition for certiorari and prohibition seeking to

set aside the decision of the Voluntary Arbitrator and to
prohibit her from enforcing the same.
In labor law context, arbitration is the reference of a labor
dispute to an impartial third person for determination on the
basis of evidence and arguments presented by such parties
who have bound themselves to accept the decision of the
arbitrator as final and binding.
Arbitration may be classified, on the basis of the obligation on
which it is based, as either compulsory or voluntary.
Compulsory arbitration is a system whereby the parties to a
dispute are compelled by the government to forego their right
to strike and are compelled to accept the resolution of their
dispute through arbitration by a third party. 1The essence of
arbitration remains since a resolution of a dispute is arrived at
by resort to a disinterested third party whose decision is final
and binding on the parties, but in compulsory arbitration, such
a third party is normally appointed by the government.
Under voluntary arbitration, on the other hand, referral of a
dispute by the parties is made, pursuant to a voluntary
arbitration clause in their collective agreement, to an
impartial third person for a final and binding
resolution. 2Ideally, arbitration awards are supposed to be
complied with by both parties without delay, such that once
an award has been rendered by an arbitrator, nothing is left to
be done by both parties but to comply with the same. After
all, they are presumed to have freely chosen arbitration as the
mode of settlement for that particular dispute. Pursuant
thereto, they have chosen a mutually acceptable arbitrator
who shall hear and decide their case. Above all, they have
mutually agreed to de bound by said arbitrator's decision.
In the Philippine context, the parties to a Collective Bargaining
Agreement (CBA) are required to include therein provisions for
a machinery for the resolution of grievances arising from the
interpretation or implementation of the CBA or company
personnel policies. 3 For this purpose, parties to a CBA shall
name and designate therein a voluntary arbitrator or a panel
of arbitrators, or include a procedure for their selection,
preferably from those accredited by the National Conciliation
and Mediation Board (NCMB). Article 261 of the Labor Code
accordingly provides for exclusive original jurisdiction of such
voluntary arbitrator or panel of arbitrators over (1) the
interpretation or implementation of the CBA and (2) the
interpretation or enforcement of company personnel policies.
Article 262 authorizes them, but only upon agreement of the
parties, to exercise jurisdiction over other labor disputes.
On the other hand, a labor arbiter under Article 217 of the
Labor Code has jurisdiction over the following enumerated
cases:
. . . (a) Except as otherwise provided under this Code the
Labor Arbiters shall have original and exclusive jurisdiction
to hear and decide, within thirty (30) calendar days after
the submission of the case by the parties for decision
without extension, even in the absence of stenographic
notes, the following cases involving all workers, whether
agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those
cases that workers may file involving wages, rates of pay,
hours of work and other terms and conditions of
employment;
4. Claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this
Code, including questions involving the legality of strikes
and lockouts;

6. Except claims for Employees Compensation, Social

Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relations, including those
of persons in domestic or household service, involving an
amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for
reinstatement.
xxx xxx xxx
It will thus be noted that the jurisdiction conferred by law on a
voluntary arbitrator or a panel of such arbitrators is quite
limited compared to the original jurisdiction of the labor
arbiter and the appellate jurisdiction of the National Labor
Relations Commission (NLRC) for that matter. 4 The state of
our present law relating to voluntary arbitration provides that
"(t)he award or decision of the Voluntary Arbitrator . . . shall
be final and executory after ten (10) calendar days from
receipt of the copy of the award or decision by the
parties," 5 while the "(d)ecision, awards, or orders of the Labor
Arbiter are final and executory unless appealed to the
Commission by any or both parties within ten (10) calendar
days from receipt of such decisions, awards, or
orders." 6 Hence, while there is an express mode of appeal
from the decision of a labor arbiter, Republic Act No. 6715 is
silent with respect to an appeal from the decision of a
voluntary arbitrator.
Yet, past practice shows that a decision or award of a
voluntary arbitrator is, more often than not, elevated to the
Supreme Court itself on a petition for certiorari, 7 in effect
equating the voluntary arbitrator with the NLRC or the Court
of Appeals. In the view of the Court, this is illogical and
imposes an unnecessary burden upon it.
In Volkschel Labor Union, et al. v. NLRC, et al., 8 on the settled
premise that the judgments of courts and awards of quasijudicial agencies must become final at some definite time, this
Court ruled that the awards of voluntary arbitrators determine
the rights of parties; hence, their decisions have the same
legal effect as judgments of a court. In Oceanic Bic Division
(FFW), et al. v. Romero, et al., 9 this Court ruled that "a
voluntary arbitrator by the nature of her functions acts in a
quasi-judicial capacity." Under these rulings, it follows that the
voluntary arbitrator, whether acting solely or in a panel,
enjoys in law the status of a quasi-judicial agency but
independent of, and apart from, the NLRC since his decisions
are not appealable to the latter. 10
Section 9 of B.P. Blg. 129, as amended by Republic Act No.
7902, provides that the Court of Appeals shall exercise:
xxx xxx xxx
(B) Exclusive appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial
Courts and quasi-judicial agencies, instrumentalities, boards
or commissions, including the Securities and Exchange
Commission, the Employees Compensation Commission and
the Civil Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in accordance
with the Constitution, the Labor Code of the Philippines
under Presidential Decree No. 442, as amended, the
provisions of this Act, and of subparagraph (1) of the third
paragraph and subparagraph (4) of the fourth paragraph of
Section 17 of the Judiciary Act of 1948.
xxx xxx xxx
Assuming arguendo that the voluntary arbitrator or the panel
of voluntary arbitrators may not strictly be considered as a
quasi-judicial agency, board or commission, still both he and
the panel are comprehended within the concept of a "quasijudicial instrumentality." It may even be stated that it was to
meet the very situation presented by the quasi-judicial
functions of the voluntary arbitrators here, as well as the
subsequent arbitrator/arbitral tribunal operating under the
Construction Industry Arbitration Commission, 11 that the
broader term "instrumentalities" was purposely included in
the above-quoted provision.

An "instrumentality" is anything used as a means or

agency. 12 Thus, the terms governmental "agency" or
"instrumentality" are synonymous in the sense that either of
them is a means by which a government acts, or by which a
certain government act or function is performed. 13 The word
"instrumentality," with respect to a state, contemplates an
authority to which the state delegates governmental power
for the performance of a state function. 14 An individual
person, like an administrator or executor, is a judicial
instrumentality in the settling of an estate, 15 in the same
manner that a sub-agent appointed by a bankruptcy court is
an instrumentality of the court, 16 and a trustee in bankruptcy
of a defunct corporation is an instrumentality of the state. 17
The voluntary arbitrator no less performs a state function
pursuant to a governmental power delegated to him under
the provisions therefor in the Labor Code and he falls,
therefore, within the contemplation of the term
"instrumentality" in the aforequoted Sec. 9 of B.P. 129. The
fact that his functions and powers are provided for in the
Labor Code does not place him within the exceptions to said
Sec. 9 since he is a quasi-judicial instrumentality as
contemplated therein. It will be noted that, although the
Employees Compensation Commission is also provided for in
the Labor Code, Circular No. 1-91, which is the forerunner of
the present Revised Administrative Circular No. 1-95, laid
down the procedure for the appealability of its decisions to the
Court of Appeals under the foregoing rationalization, and this
was later adopted by Republic Act No. 7902 in amending Sec.
9 of B.P. 129.
A fortiori, the decision or award of the voluntary arbitrator or
panel of arbitrators should likewise be appealable to the Court
of Appeals, in line with the procedure outlined in Revised
Administrative Circular No. 1-95, just like those of the quasijudicial agencies, boards and commissions enumerated
therein.
This would be in furtherance of, and consistent with, the
original purpose of Circular No. 1-91 to provide a uniform
procedure for the appellate review of adjudications of all
quasi-judicial entities 18 not expressly excepted from the
coverage of Sec. 9 of B.P. 129 by either the Constitution or
another statute. Nor will it run counter to the legislative
intendment that decisions of the NLRC be reviewable directly
by the Supreme Court since, precisely, the cases within the
adjudicative competence of the voluntary arbitrator are
excluded from the jurisdiction of the NLRC or the labor arbiter.
In the same vein, it is worth mentioning that under Section 22
of Republic Act No. 876, also known as the Arbitration Law,
arbitration is deemed a special proceeding of which the court
specified in the contract or submission, or if none be specified,
the Regional Trial Court for the province or city in which one of
the parties resides or is doing business, or in which the
arbitration is held, shall have jurisdiction. A party to the
controversy may, at any time within one (1) month after an
award is made, apply to the court having jurisdiction for an
order confirming the award and the court must grant such
order unless the award is vacated, modified or corrected. 19
In effect, this equates the award or decision of the voluntary
arbitrator with that of the regional trial court. Consequently, in
a petition for certiorari from that award or decision, the Court
of Appeals must be deemed to have concurrent jurisdiction
with the Supreme Court. As a matter of policy, this Court shall
henceforth remand to the Court of Appeals petitions of this
nature for proper disposition.
ACCORDINGLY, the Court resolved to REFER this case to the
Court of Appeals.
SO ORDERED.
G.R. No. 102976 October 25, 1995
IRON AND STEEL AUTHORITY, petitioner,
vs.
THE COURT OF APPEALS and MARIA CRISTINA
FERTILIZER CORPORATION, respondents.

FELICIANO, J.:
Petitioner Iron and Steel Authority ("ISA") was created by
Presidential Decree (P.D.) No. 272 dated 9 August 1973 in
order, generally, to develop and promote the iron and steel
industry in the Philippines. The objectives of the ISA are
spelled out in the following terms:
Sec. 2. Objectives The Authority shall have the
following objectives:
(a) to strengthen the iron and steel industry of the
Philippines and to expand the domestic and export
markets for the products of the industry;
(b) to promote the consolidation, integration and
rationalization of the industry in order to increase
industry capability and viability to service the domestic
market and to compete in international markets;
(c) to rationalize the marketing and distribution of steel
products in order to achieve a balance between
demand and supply of iron and steel products for the
country and to ensure that industry prices and profits
are at levels that provide a fair balance between the
interests of investors, consumers suppliers, and the
public at large;
(d) to promote full utilization of the existing capacity of
the industry, to discourage investment in excess
capacity, and in coordination, with appropriate
government agencies to encourage capital investment
in priority areas of the industry;
(e) to assist the industry in securing adequate and lowcost supplies of raw materials and to reduce the
excessive dependence of the country on imports of iron
and steel.
The list of powers and functions of the ISA included the
following:
Sec. 4. Powers and Functions. The authority shall
have the following powers and functions:
xxx xxx xxx
(j) to initiate expropriation of land required for basic
iron and steel facilities for subsequent resale and/or
lease to the companies involved if it is shown that such
use of the State's power is necessary to implement the
construction of capacity which is needed for the
attainment of the objectives of the Authority;
xxx xxx xxx
(Emphasis supplied)
P.D. No. 272 initially created petitioner ISA for a term of five
(5) years counting from 9 August 1973. 1 When ISA's original
term expired on 10 October 1978, its term was extended for
another ten (10) years by Executive Order No. 555 dated 31
August 1979.
The National Steel Corporation ("NSC") then a wholly owned
subsidiary of the National Development Corporation which is
itself an entity wholly owned by the National Government,
embarked on an expansion program embracing, among other
things, the construction of an integrated steel mill in Iligan
City. The construction of such a steel mill was considered a
priority and major industrial project of the Government.
Pursuant to the expansion program of the NSC, Proclamation
No. 2239 was issued by the President of the Philippines on 16
November 1982 withdrawing from sale or settlement a large
tract of public land (totalling about 30.25 hectares in area)
located in Iligan City, and reserving that land for the use and
immediate occupancy of NSC.

Since certain portions of the public land subject matter

Proclamation No. 2239 were occupied by a non-operational
chemical fertilizer plant and related facilities owned by private
respondent Maria Cristina Fertilizer Corporation ("MCFC"),
Letter of Instruction (LOI), No. 1277, also dated 16 November
1982, was issued directing the NSC to "negotiate with the
owners of MCFC, for and on behalf of the Government, for the
compensation of MCFC's present occupancy rights on the
subject land." LOI No. 1277 also directed that should NSC and
private respondent MCFC fail to reach an agreement within a
period of sixty (60) days from the date of LOI No. 1277,
petitioner ISA was to exercise its power of eminent domain
under P.D. No. 272 and to initiate expropriation proceedings in
respect of occupancy rights of private respondent MCFC
relating to the subject public land as well as the plant itself
and related facilities and to cede the same to the NSC. 2
Negotiations between NSC and private respondent MCFC did
fail. Accordingly, on 18 August 1983, petitioner ISA
commenced eminent domain proceedings against private
respondent MCFC in the Regional Trial Court, Branch 1, of
Iligan City, praying that it (ISA) be places in possession of the
property involved upon depositing in court the amount of
P1,760,789.69 representing ten percent (10%) of the declared
market values of that property. The Philippine National Bank,
as mortgagee of the plant facilities and improvements
involved in the expropriation proceedings, was also impleaded
as party-defendant.
On 17 September 1983, a writ of possession was issued by
the trial court in favor of ISA. ISA in turn placed NSC in
possession and control of the land occupied by MCFC's
fertilizer plant installation.
The case proceeded to trial. While the trial was ongoing,
however, the statutory existence of petitioner ISA expired on
11 August 1988. MCFC then filed a motion to dismiss,
contending that no valid judgment could be rendered against
ISA which had ceased to be a juridical person. Petitioner ISA
filed its opposition to this motion.
In an Order dated 9 November 1988, the trial court granted
MCFC's motion to dismiss and did dismiss the case. The
dismissal was anchored on the provision of the Rules of Court
stating that "only natural or juridical persons or entities
authorized by law may be parties in a civil case." 3 The trial
court also referred to non-compliance by petitioner ISA with
the requirements of Section 16, Rule 3 of the Rules of Court. 4
Petitioner ISA moved for reconsideration of the trial court's
Order, contending that despite the expiration of its term, its
juridical existence continued until the winding up of its affairs
could be completed. In the alternative, petitioner ISA urged
that the Republic of the Philippines, being the real party-ininterest, should be allowed to be substituted for petitioner ISA.
In this connection, ISA referred to a letter from the Office of
the President dated 28 September 1988 which especially
directed the Solicitor General to continue the expropriation
case.
The trial court denied the motion for reconsideration, stating,
among other things that:
The property to be expropriated is not for public use or
benefit [__] but for the use and benefit [__] of NSC, a
government controlled private corporation engaged in
private business and for profit, specially now that the
government, according to newspaper reports, is offering for
sale to the public its [shares of stock] in the National Steel
Corporation in line with the pronounced policy of the
present administration to disengage the government from
its private business ventures. 5 (Brackets supplied)
Petitioner went on appeal to the Court of Appeals. In a
Decision dated 8 October 1991, the Court of Appeals affirmed
the order of dismissal of the trial court. The Court of Appeals
held that petitioner ISA, "a government regulatory agency
exercising sovereign functions," did not have the same rights
as an ordinary corporation and that the ISA, unlike
corporations organized under the Corporation Code, was not
entitled to a period for winding up its affairs after expiration of
its legally mandated term, with the result that upon expiration

of its term on 11 August 1987, ISA was "abolished and [had]

no more legal authority to perform governmental functions."
The Court of Appeals went on to say that the action for
expropriation could not prosper because the basis for the
proceedings, the ISA's exercise of its delegated authority to
expropriate, had become ineffective as a result of the
delegate's dissolution, and could not be continued in the
name of Republic of the Philippines, represented by the
Solicitor General:
It is our considered opinion that under the law, the
complaint cannot prosper, and therefore, has to be
dismissed without prejudice to the refiling of a new
complaint for expropriation if the Congress sees it fit."
(Emphases supplied)
At the same time, however, the Court of Appeals held that it
was premature for the trial court to have ruled that the
expropriation suit was not for a public purpose, considering
that the parties had not yet rested their respective cases.
In this Petition for Review, the Solicitor General argues that
since ISA initiated and prosecuted the action for expropriation
in its capacity as agent of the Republic of the Philippines, the
Republic, as principal of ISA, is entitled to be substituted and
to be made a party-plaintiff after the agent ISA's term had
expired.
Private respondent MCFC, upon the other hand, argues that
the failure of Congress to enact a law further extending the
term of ISA after 11 August 1988 evinced a "clear legislative
intent to terminate the juridical existence of ISA," and that the
authorization issued by the Office of the President to the
Solicitor General for continued prosecution of the
expropriation suit could not prevail over such negative intent.
It is also contended that the exercise of the eminent domain
by ISA or the Republic is improper, since that power would be
exercised "not on behalf of the National Government but for
the benefit of NSC."
The principal issue which we must address in this case is
whether or not the Republic of the Philippines is entitled to be
substituted for ISA in view of the expiration of ISA's term. As
will be made clear below, this is really the only issue which we
must resolve at this time.
Rule 3, Section 1 of the Rules of Court specifies who may be
parties to a civil action:
Sec. 1. Who May Be Parties. Only natural
or juridical persons or entities authorized by
law may be parties in a civil action.
Under the above quoted provision, it will be seen that those
who can be parties to a civil action may be broadly
categorized into two (2) groups:
(a) those who are recognized as persons under the
law whether natural, i.e., biological persons, on the
one hand, or juridical person such as corporations, on
the other hand; and
(b) entities authorized by law to institute actions.
Examination of the statute which created petitioner ISA shows
that ISA falls under category (b) above. P.D. No. 272, as
already noted, contains express authorization to ISA to
commence expropriation proceedings like those here
involved:
Sec. 4. Powers and Functions. The Authority shall
have the following powers and functions:
xxx xxx xxx
(j) to initiate expropriation of land required for basic
iron and steel facilities for subsequent resale and/or
lease to the companies involved if it is shown that
such use of the State's power is necessary to
implement the construction of capacity which is

needed for the attainment of the objectives of the

Authority;
xxx xxx xxx
(Emphasis supplied)
It should also be noted that the enabling statute of ISA
expressly authorized it to enter into certain kinds of
contracts "for and in behalf of the Government" in the
following terms:
xxx xxx xxx
(i) to negotiate, and when necessary, to enter into
contracts for and in behalf of the government, for the
bulk purchase of materials, supplies or services for any
sectors in the industry, and to maintain inventories of
such materials in order to insure a continuous and
adequate supply thereof and thereby reduce operating
costs of such sector;
xxx xxx xxx
(Emphasis supplied)
Clearly, ISA was vested with some of the powers or attributes
normally associated with juridical personality. There is,
however, no provision in P.D. No. 272 recognizing ISA as
possessing general or comprehensive juridical personality
separate and distinct from that of the Government. The ISA in
fact appears to the Court to be a non-incorporated agency or
instrumentality of the Republic of the Philippines, or more
precisely of the Government of the Republic of the Philippines.
It is common knowledge that other agencies or
instrumentalities of the Government of the Republic are cast
in corporate form, that is to say, are incorporated
agencies or instrumentalities, sometimes with and at other
times without capital stock, and accordingly vested with a
juridical personality distinct from the personality of the
Republic. Among such incorporated agencies or
instrumentalities are: National Power Corporation; 6 Philippine
Ports Authority; 7 National Housing Authority; 8 Philippine
National Oil Company; 9 Philippine National Railways; 10 Public
Estates Authority; 11 Philippine Virginia Tobacco
Administration, 12 and so forth. It is worth noting that the term
"Authority" has been used to designate both incorporated and
non-incorporated agencies or instrumentalities of the
Government.
We consider that the ISA is properly regarded as an agent or
delegate of the Republic of the Philippines. The Republic itself
is a body corporate and juridical person vested with the full
panoply of powers and attributes which are compendiously
described as "legal personality." The relevant definitions are
found in the Administrative Code of 1987:
Sec. 2. General Terms Defined. Unless the specific words
of the text, or the context as a whole, or a particular
statute, require a different meaning:
(1) Government of the Republic of the Philippines refers to
the corporate governmental entity through which the
functions of government are exercised throughout the
Philippines, including, save as the contrary appears from
the context, the various arms through which political
authority is made effective in the Philippines, whether
pertaining to the autonomous regions, the provincial, city,
municipal or barangay subdivisions or other forms of local
government.
xxx xxx xxx
(4) Agency of the Government refers to any of the various
units of the Government, including a department,
bureau, office, instrumentality, or government-owned or
controlled corporation, or a local government or a distinct
unit therein.
xxx xxx xxx

(10) Instrumentality refers to any agency of the National

Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and governmentowned or controlled corporations.
xxx xxx xxx
(Emphases supplied)
When the statutory term of a non-incorporated agency
expires, the powers, duties and functions as well as the assets
and liabilities of that agency revert back to, and are reassumed by, the Republic of the Philippines, in the absence of
special provisions of law specifying some other disposition
thereof such as, e.g., devolution or transmission of such
powers, duties, functions, etc. to some other identified
successor agency or instrumentality of the Republic of the
Philippines. When the expiring agency is an incorporated one,
the consequences of such expiry must be looked for, in the
first instance, in the charter of that agency and, by way of
supplementation, in the provisions of the Corporation Code.
Since, in the instant case, ISA is a non-incorporated agency or
instrumentality of the Republic, its powers, duties, functions,
assets and liabilities are properly regarded as folded back into
the Government of the Republic of the Philippines and hence
assumed once again by the Republic, no special statutory
provision having been shown to have mandated succession
thereto by some other entity or agency of the Republic.
The procedural implications of the relationship between an
agent or delegate of the Republic of the Philippines and the
Republic itself are, at least in part, spelled out in the Rules of
Court. The general rule is, of course, that an action must be
prosecuted and defended in the name of the real party in
interest. (Rule 3, Section 2) Petitioner ISA was, at the
commencement of the expropriation proceedings, a real party
in interest, having been explicitly authorized by its enabling
statute to institute expropriation proceedings. The Rules of
Court at the same time expressly recognize the role of
representative parties:
Sec. 3. Representative Parties. A trustee of an expressed
trust, a guardian, an executor or administrator, or a party
authorized by statute may sue or be sued without joining
the party for whose benefit the action is presented or
defended; but the court may, at any stage of the
proceedings, order such beneficiary to be made a
party. . . . . (Emphasis supplied)
In the instant case, ISA instituted the expropriation
proceedings in its capacity as an agent or delegate or
representative of the Republic of the Philippines pursuant to
its authority under P.D. No. 272. The present expropriation suit
was brought on behalf of and for the benefit of the Republic as
the principal of ISA. Paragraph 7 of the complaint stated:
7. The Government, thru the plaintiff ISA,
urgently needs the subject parcels of land
for the construction and installation of iron
and steel manufacturing facilities that are
indispensable to the integration of the iron
and steel making industry which is vital to
the promotion of public interest and welfare.
(Emphasis supplied)
The principal or the real party in interest is thus the
Republic of the Philippines and not the National Steel
Corporation, even though the latter may be an
ultimate user of the properties involved should the
condemnation suit be eventually successful.
From the foregoing premises, it follows that the Republic of
the Philippines is entitled to be substituted in the
expropriation proceedings as party-plaintiff in lieu of ISA, the
statutory term of ISA having expired. Put a little differently,
the expiration of ISA's statutory term did not by itself require
or justify the dismissal of the eminent domain proceedings.

It is also relevant to note that the non-joinder of the Republic

which occurred upon the expiration of ISA's statutory term,
was not a ground for dismissal of such proceedings since a
party may be dropped or added by order of the court, on
motion of any party or on the court's own initiative at any
stage of the action and on such terms as are just. 13 In the
instant case, the Republic has precisely moved to take over
the proceedings as party-plaintiff.
In E.B. Marcha Transport Company, Inc. v. Intermediate
Appellate Court, 14 the Court recognized that the Republic may
initiate or participate in actions involving its agents. There the
Republic of the Philippines was held to be a proper party to
sue for recovery of possession of property although the "real"
or registered owner of the property was the Philippine Ports
Authority, a government agency vested with a separate
juridical personality. The Court said:
It can be said that in suing for the recovery of the rentals,
the Republic of the Philippines acted as principal of the
Philippine Ports Authority, directly exercising the
commission it had earlier conferred on the latter as its
agent. . . . 15 (Emphasis supplied)
In E.B. Marcha, the Court also stressed that to require the
Republic to commence all over again another proceeding,
as the trial court and Court of Appeals had required, was to
generate unwarranted delay and create needless repetition
of proceedings:
More importantly, as we see it, dismissing the complaint
on the ground that the Republic of the Philippines is not
the proper party would result in needless delay in the
settlement of this matter and also in derogation of the
policy against multiplicity of suits. Such a decision would
require the Philippine Ports Authority to refile the very
same complaint already proved by the Republic of the
Philippines and bring back as it were to square
one. 16 (Emphasis supplied)
As noted earlier, the Court of Appeals declined to permit the
substitution of the Republic of the Philippines for the ISA upon
the ground that the action for expropriation could not prosper
because the basis for the proceedings, the ISA's exercise of its
delegated authority to expropriate, had become legally
ineffective by reason of the expiration of the statutory term of
the agent or delegated i.e., ISA. Since, as we have held above,
the powers and functions of ISA have reverted to the Republic
of the Philippines upon the termination of the statutory term
of ISA, the question should be addressed whether fresh
legislative authority is necessary before the Republic of the
Philippines may continue the expropriation proceedings
initiated by its own delegate or agent.
While the power of eminent domain is, in principle, vested
primarily in the legislative department of the government, we
believe and so hold that no new legislative act is necessary
should the Republic decide, upon being substituted for ISA, in
fact to continue to prosecute the expropriation proceedings.
For the legislative authority, a long time ago, enacted a
continuing or standing delegation of authority to the President
of the Philippines to exercise, or cause the exercise of, the
power of eminent domain on behalf of the Government of the
Republic of the Philippines. The 1917 Revised Administrative
Code, which was in effect at the time of the commencement
of the present expropriation proceedings before the Iligan
Regional Trial Court, provided that:
Sec. 64. Particular powers and duties of the President
of the Philippines. In addition to his general
supervisory authority, the President of the Philippines
shall have such other specific powers and duties as are
expressly conferred or imposed on him by law, and
also, in particular, the powers and duties set forth in
this Chapter.

Government of the Philippines; and to direct the

Secretary of Justice, where such act is deemed
advisable, to cause the condemnation proceedings to
be begun in the court having proper jurisdiction.
(Emphasis supplied)
The Revised Administrative Code of 1987 currently in force
has substantially reproduced the foregoing provision in the
following terms:
Sec. 12. Power of eminent domain. The President
shall determine when it is necessary or
advantageous to exercise the power of eminent
domain in behalf of the National Government,
and direct the Solicitor General, whenever he deems
the action advisable, to institute expopriation
proceedings in the proper court. (Emphasis supplied)
In the present case, the President, exercising the power
duly delegated under both the 1917 and 1987 Revised
Administrative Codes in effect made a determination that it
was necessary and advantageous to exercise the power of
eminent domain in behalf of the Government of the
Republic and accordingly directed the Solicitor General to
proceed with the suit. 17
It is argued by private respondent MCFC that, because
Congress after becoming once more the depository of primary
legislative power, had not enacted a statute extending the
term of ISA, such non-enactment must be deemed a
manifestation of a legislative design to discontinue or abort
the present expropriation suit. We find this argument much
too speculative; it rests too much upon simple silence on the
part of Congress and casually disregards the existence of
Section 12 of the 1987 Administrative Code already quoted
above.
Other contentions are made by private respondent MCFC,
such as, that the constitutional requirement of "public use" or
"public purpose" is not present in the instant case, and that
the indispensable element of just compensation is also
absent. We agree with the Court of Appeals in this connection
that these contentions, which were adopted and set out by
the Regional Trial Court in its order of dismissal, are premature
and are appropriately addressed in the proceedings before the
trial court. Those proceedings have yet to produce a decision
on the merits, since trial was still on going at the time the
Regional Trial Court precipitously dismissed the expropriation
proceedings. Moreover, as a pragmatic matter, the Republic
is, by such substitution as party-plaintiff, accorded an
opportunity to determine whether or not, or to what extent,
the proceedings should be continued in view of all the
subsequent developments in the iron and steel sector of the
country including, though not limited to, the partial
privatization of the NSC.
WHEREFORE, for all the foregoing, the Decision of the Court of
Appeals dated 8 October 1991 to the extent that it affirmed
the trial court's order dismissing the expropriation
proceedings, is hereby REVERSED and SET ASIDE and the
case is REMANDED to the court a quo which shall allow the
substitution of the Republic of the Philippines for petitioner
Iron and Steel Authority and for further proceedings consistent
with this Decision. No pronouncement as to costs.
SO ORDERED.
G.R. No. 134990

April 27, 2000

MANUEL M. LEYSON JR., petitioner,

vs.
OFFICE OF THE OMBUDSMAN, TIRSO ANTIPORDA,
Chairman, UCPB and CIIF Oil Mills, and OSCAR A.
TORRALBA, President, CIIF Oil Mills, respondents.

Among such special powers and duties shall be:

xxx xxx xxx
(h) To determine when it is necessary or advantageous
to exercise the right of eminent domain in behalf of the

BELLOSILLO, J.:
On 7 February 1996 International Towage and Transport
Corporation (ITTC), a domestic corporation engaged in the

lighterage or shipping business, entered into a one (1)-year

contract with Legaspi Oil Company, Inc. (LEGASPI OIL),
Granexport Manufacturing Corporation (GRANEXPORT) and
United Coconut Chemicals, Inc. (UNITED COCONUT),
comprising the Coconut Industry Investment Fund (CIIF)
companies, for the transport of coconut oil in bulk through MT
Transasia. The majority shareholdings of these CIIF companies
are owned by the United Coconut Planters Bank (UCPB) as
administrator of the CIIF. Under the terms of the contract,
either party could terminate the agreement provided a three
(3)-month advance notice was given to the other party.
However, in August 1996, or prior to the expiration of the
contract, the CIIF companies with their new President,
respondent Oscar A. Torralba, terminated the contract without
the requisite advance notice. The CIIF companies engaged the
services of another vessel, MT Marilag, operated by Southwest
Maritime Corporation.
On 11 March 1997 petitioner Manuel M. Leyson Jr., Executive
Vice President of ITTC, filed with public respondent Office of
the Ombudsman a grievance case against respondent Oscar
A. Torralba. The following is a summary of the irregularities
and corrupt practices allegedly committed by respondent
Torralba: (a) breach of contract - unilateral cancellation of
valid and existing contract; (b) bad faith - falsification of
documents and reports to stop the operation of MT Transasia;
(c) manipulation - influenced their insurance to disqualify MT
Transasia; (d) unreasonable denial of requirement imposed;
(e) double standards and inconsistent in favor of MT Marilag;
(f) engaged and entered into a contract with Southwest
Maritime Corp. which is not the owner of MT Marilag, where
liabilities were waived and whose paid-up capital is only
P250,000.00; and, (g) overpricing in the freight rate causing
losses of millions of pesos to Cocochem.1
On 2 January 1998 petitioner charged respondent Tirso
Antiporda, Chairman of UCPB and CIIF Oil Mills, and
respondent Oscar A. Torralba with violation of The Anti-Graft
and Corrupt Practices Act also before the Ombudsman
anchored on the aforementioned alleged irregularities and
corrupt practices.
On 30 January 1998 public respondent dismissed the
complaint based on its finding that
The case is a simple case of breach of contract with
damages which should have been filed in the regular
court. This Office has no jurisdiction to determine the
legality or validity of the termination of the contract
entered into by CIIF and ITTC. Besides the entities
involved are private corporations (over) which this
Office has no jurisdiction.2
On 4 June 1998 reconsideration of the dismissal of the
complaint was denied. The Ombudsman was unswayed in his
finding that the present controversy involved breach of
contract as he also took into account the circumstance that
petitioner had already filed a collection case before the
Regional Trial Court of Manila-Br. 15, docketed as Civil Case
No. 97-83354. Moreover, the Ombudsman found that the filing
of the motion for reconsideration on 31 March 1998 was
beyond the inextendible period of five (5) days from notice of
the assailed resolution on 19 March 1998. 3
Petitioner now imputes grave abuse of discretion on public
respondent in dismissing his complaint. He submits that
inasmuch as Philippine Coconut Producers
Federation, Inc. (COCOFED) v. PCGG4 and Republic
v. Sandiganbayan5 have declared that the coconut levy funds
are public funds then, conformably with Quimpo v.
Tanodbayan,6 corporations formed and organized from those
funds or whose controlling stocks are from those funds should
be regarded as government owned and/or controlled
corporations. As in the present case, since the funding or
controlling interest of the companies being headed by private
respondents was given or owned by the CIIF as shown in the
certification of their Corporate Secretary, 7 it follows that they
are government owned and/or controlled corporations.
Corollarily, petitioner asserts that respondents Antiporda and
Torralba are public officers subject to the jurisdiction of the
Ombudsman.

Petitioner alleges next that public respondent's conclusion

that his complaint refers to a breach of contract is whimsical,
capricious and irresponsible amounting to a total disregard of
its main point, i. e., whether private respondents violated The
Anti-Graft and Corrupt Practices Act when they entered into a
contract with Southwest Maritime Corporation which was
grossly disadvantageous to the government in general and to
the CIIF in particular. Petitioner admits that his motion for
reconsideration was filed out of time. Nonetheless, he
advances that public respondent should have relaxed its rules
in the paramount interest of justice; after all, the delay was
just a matter of days and he, a layman not aware of
technicalities, personally filed the complaint.
Private respondents counter that the CIIF companies were
duly organized and are existing by virtue of the Corporation
Code. Their stockholders are private individuals and entities.
In addition, private respondents contend that they are not
public officers as defined under The Anti-Graft and Corrupt
Practices Act but are private executives appointed by the
Boards of Directors of the CIIF companies. They asseverate
that petitioner's motion for reconsideration was filed through
the expert assistance of a learned counsel. They then charge
petitioner with forum shopping since he had similarly filed a
case for collection of a sum of money plus damages before
the trial court.
The Office of the Solicitor General maintains that the
Ombudsman approved the recommendation of the
investigating officer to dismiss the complaint because he
sincerely believed there was no sufficient basis for the
criminal indictment of private respondents.
We find no grave abuse of discretion committed by the
Ombudsman. COCOFED v. PCGG referred to in Republic
v. Sandiganbayan reviewed the history of the coconut levy
funds. These funds actually have four (4) general classes: (a)
the Coconut Investment Fund created under R. A. No.
6260;8 (b) the Coconut Consumers Stabilization Fund created
under P. D. No. 276;9 (c) the Coconut Industry Development
Fund created under P. D. No. 582; 10 and, (d) the Coconut
Industry Stabilization Fund created under P. D. No. 1841. 11
The various laws relating to the coconut industry were
codified in 1976. On 21 October of that year, P. D. No.
961 12 was promulgated. On 11 June 1978 it was amended by
P. D. No. 1468 13 by inserting a new provision authorizing the
use of the balance of the Coconut Industry Development Fund
for the acquisition of "shares of stocks in corporations
organized for the purpose of engaging in the establishment
and operation of industries . . . commercial activities and
other allied business undertakings relating to coconut and
other palm oil indust(ries)." 14From this fund thus created, or
the CIIF, shares of stock in what have come to be known as
the "CIIF companies" were purchased.
We then stated in COCOFED that the coconut levy funds were
raised by the State's police and taxing powers such that the
utilization and proper management thereof were certainly the
concern of the Government. These funds have a public
character and are clearly affected with public interest.
Quimpo v. Tanodbayan involved the issue as to whether
PETROPHIL was a government owned or controlled
corporation the employees of which fell within the
jurisdictional purview of the Tanodbayan for purposes of The
Anti-Graft and Corrupt Practices Act. We upheld the
jurisdiction of the Tanodbayan on the ratiocination that
While it may be that PETROPHIL was not originally "created"
as a government-owned or controlled corporation, after it
was acquired by PNOC, which is a government-owned or
controlled corporation, PETROPHIL became a subsidiary of
PNOC and thus shed-off its private status. It is now funded
and owned by the government as, in fact, it was acquired to
perform functions related to government programs and
policies on oil, a vital commodity in the economic life of the
nation. It was acquired not temporarily but as a permanent
adjunct to perform essential government or governmentrelated functions, as the marketing arm of the PNOC to
assist the latter in selling and distributing oil and petroleum
products to assure and maintain an adequate and stable
domestic supply.

But these jurisprudential rules invoked by petitioner in support

of his claim that the CIIF companies are government owned
and/or controlled corporations are incomplete without
resorting to the definition of "government owned or controlled
corporation" contained in par. (13), Sec. 2, Introductory
Provisions of the Administrative Code of 1987, i. e., any
agency organized as a stock or non-stock corporation vested
with functions relating to public needs whether governmental
or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or,
where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock. The
definition mentions three (3) requisites, namely, first, any
agency organized as a stock or non-stock corporation; second,
vested with functions relating to public needs whether
governmental or proprietary in nature; and, third, owned by
the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of
its capital stock.
In the present case, all three (3) corporations comprising the
CIIF companies were organized as stock
corporations.1wphi1 The UCPB-CIIF owns 44.10% of the
shares of LEGASPI OIL, 91.24% of the shares of GRANEXPORT,
and 92.85% of the shares of UNITED COCONUT. 15 Obviously,
the below 51% shares of stock in LEGASPI OIL removes this
firm from the definition of a government owned or controlled
corporation. Our concern has thus been limited to
GRANEXPORT and UNITED COCONUT as we go back to the
second requisite. Unfortunately, it is in this regard that
petitioner failed to substantiate his contentions. There is no
showing that GRANEXPORT and/or UNITED COCONUT was
vested with functions relating to public needs whether
governmental or proprietary in nature unlike PETROPHIL in
Quimpo. The Court thus concludes that the CIIF companies
are, as found by public respondent, private corporations not
within the scope of its jurisdiction.
With the foregoing conclusion, we find it unnecessary to
resolve the other issues raised by petitioner.
A brief note on private respondents' charge of forum
shopping. Executive Secretary v. Gordon 16 is instructive that
forum shopping consists of filing multiple suits involving the
same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a
favorable judgment. It is readily apparent that the present
charge will not prosper because the cause of action
herein, i. e., violation of The Anti-Graft and Corrupt Practices
Act, is different from the cause of action in the case pending
before the trial court which is collection of a sum of money
plus damages.
WHEREFORE, the petition is DISMISSED. The Resolution of
public respondent Office of the Ombudsman of 30 January
1998 which dismissed the complaint of petitioner Manuel M.
Leyson Jr., as well as its Order of 4 June 1998 denying his
motion for reconsideration, is AFFIRMED. Costs against
petitioner.1wphi1.nt
SO ORDERED.
G.R. No. 163072

April 2, 2009

MANILA INTERNATIONAL AIRPORT

AUTHORITY, Petitioner,
vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG
PASAY, CITY MAYOR OF PASAY, CITY TREASURER OF
PASAY, and CITY ASSESSOR OF PASAY, Respondents.
DECISION
CARPIO, J.:
This is a petition for review on certiorari1 of the
Decision2 dated 30 October 2002 and the Resolution dated 19
March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.
The Facts
Petitioner Manila International Airport Authority (MIAA)
operates and administers the Ninoy Aquino International
Airport (NAIA) Complex under Executive Order No. 903 (EO
903),3 otherwise known as the Revised Charter of the Manila
International Airport Authority. EO 903 was issued on 21 July
1983 by then President Ferdinand E. Marcos. Under Sections

34 and 225 of EO 903, approximately 600 hectares of land,

including the runways, the airport tower, and other airport
buildings, were transferred to MIAA. The NAIA Complex is
located along the border between Pasay City and Paraaque
City.
On 28 August 2001, MIAA received Final Notices of Real
Property Tax Delinquency from the City of Pasay for the
taxable years 1992 to 2001. MIAAs real property tax
delinquency for its real properties located in NAIA Complex,
Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is
tabulated as follows:
TAX
DECL
ARATIO
N

TAXAB
LE
YEAR

A71830834
6

TAX DUE

PENALTY

TOTAL

19972001

243,522,855
.00

123,351,728
.18

366,874,583.
18

A71830522
4

19922001

113,582,466
.00

71,159,414.
98

184,741,880.
98

A71910084
3

19922001

54,454,800.
00

34,115,932.
20

88,570,732.2
0

A71910014
0

19922001

1,632,960.0
0

1,023,049.4
4

2,656,009.44

A71910013
9

19922001

6,068,448.0
0

3,801,882.8
5

9,870,330.85

A71830540
9

19922001

59,129,520.
00

37,044,644.
28

96,174,164.2
8

A71830541
0

19922001

20,619,720.
00

12,918,254.
58

33,537,974.5
8

A71830541
3

19922001

7,908,240.0
0

4,954,512.3
6

12,862,752.3
6

A71830541
2

19922001

18,441,981.
20

11,553,901.
13

29,995,882.3
3

A71830541
1

19922001

109,946,736
.00

68,881,630.
13

178,828,366.
13

A71830524
5

19922001

7,440,000.0
0

4,661,160.0
0

12,101,160.0
0

P642,747,72
6.20

P373,466,11
0.13

P1,016,213,8
36.33

GRAND TOTAL

On 24 August 2001, the City of Pasay, through its City

Treasurer, issued notices of levy and warrants of levy for the
NAIA Pasay properties. MIAA received the notices and
warrants of levy on 28 August 2001. Thereafter, the City
Mayor of Pasay threatened to sell at public auction the NAIA
Pasay properties if the delinquent real property taxes remain
unpaid.
On 29 October 2001, MIAA filed with the Court of Appeals a
petition for prohibition and injunction with prayer for

preliminary injunction or temporary restraining order. The

petition sought to enjoin the City of Pasay from imposing real
property taxes on, levying against, and auctioning for public
sale the NAIA Pasay properties.
On 30 October 2002, the Court of Appeals dismissed the
petition and upheld the power of the City of Pasay to impose
and collect realty taxes on the NAIA Pasay properties. MIAA
filed a motion for reconsideration, which the Court of Appeals
denied. Hence, this petition.
The Court of Appeals Ruling
The Court of Appeals held that Sections 193 and 234 of
Republic Act No. 7160 or the Local Government Code, which
took effect on 1 January 1992, withdrew the exemption from
payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled
corporations, except local water districts, cooperatives duly
registered under Republic Act No. 6938, non-stock and nonprofit hospitals and educational institutions. Since MIAA is a
government-owned corporation, it follows that its tax
exemption under Section 21 of EO 903 has been withdrawn
upon the effectivity of the Local Government Code.
The Issue
The issue raised in this petition is whether the NAIA Pasay
properties of MIAA are exempt from real property tax.
The Courts Ruling
The petition is meritorious.
In ruling that MIAA is not exempt from paying real property
tax, the Court of Appeals cited Sections 193 and 234 of the
Local Government Code which read:
SECTION 193. Withdrawal of Tax Exemption Privileges.
Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or
controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.
SECTION 234. Exemptions from Real Property Tax. The
following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines
or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration
or otherwise to a taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly
and exclusively used by local water districts and
government owned or controlled corporations engaged in
the supply and distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered cooperatives
as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environment protection.
Except as provided herein, any exemption from payment of
real property tax previously granted to, or presently enjoyed
by, all persons, whether natural or juridical, including all
government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
The Court of Appeals held that as a government-owned
corporation, MIAAs tax exemption under Section 21 of EO 903
has already been withdrawn upon the effectivity of the Local
Government Code in 1992.
In Manila International Airport Authority v. Court of
Appeals6 (2006 MIAA case), this Court already resolved the
issue of whether the airport lands and buildings of MIAA are
exempt from tax under existing laws. The 2006 MIAA case
originated from a petition for prohibition and injunction which
MIAA filed with the Court of Appeals, seeking to restrain the
City of Paraaque from imposing real property tax on, levying
against, and auctioning for public sale the airport lands and
buildings located in Paraaque City. The only difference
between the 2006 MIAA case and this case is that the 2006
MIAA case involved airport lands and buildings located in
Paraaque City while this case involved airport lands and
buildings located in Pasay City. The 2006 MIAA case and this
case raised the same threshold issue: whether the local
government can impose real property tax on the airport lands,
consisting mostly of the runways, as well as the airport
buildings, of MIAA. In the 2006 MIAA case, this Court held:
To summarize, MIAA is not a government-owned or controlled
corporation under Section 2(13) of the Introductory Provisions

of the Administrative Code because it is not organized as a

stock or non-stock corporation. Neither is MIAA a governmentowned or controlled corporation under Section 16, Article XII
of the 1987 Constitution because MIAA is not required to meet
the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing
essential public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local
Government Code. The exception to the exemption in Section
234(a) does not apply to MIAA because MIAA is not a taxable
entity under the Local Government Code. Such exception
applies only if the beneficial use of real property owned by the
Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the
State or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or
for the development of the national wealth.
The term "ports x x x constructed by the State"
includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public
use or public service, the Airport Lands and Buildings
are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the
Republic and thus exempt from real estate tax under Section
234(a) of the Local Government Code.7 (Emphasis in the
original)
The definition of "instrumentality" under Section 2(10) of the
Introductory Provisions of the Administrative Code of 1987
uses the phrase "includes x x x government-owned or
controlled corporations" which means that a government
"instrumentality" may or may not be a "government-owned or
controlled corporation." Obviously, the term government
"instrumentality" is broader than the term "governmentowned or controlled corporation." Section 2(10) provides:
SEC. 2. General Terms Defined. x x x
(10) Instrumentality refers to any agency of the national
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and governmentowned or controlled corporations.
The term "government-owned or controlled corporation" has a
separate definition under Section 2(13)8 of the Introductory
Provisions of the Administrative Code of 1987:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers to
any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of
its capital stock: Provided, That government-owned or
controlled corporations may further be categorized by the
department of Budget, the Civil Service Commission, and the
Commission on Audit for the purpose of the exercise and
discharge of their respective powers, functions and
responsibilities with respect to such corporations.
The fact that two terms have separate definitions means that
while a government "instrumentality" may include a
"government-owned or controlled corporation," there may be
a government "instrumentality" that will not qualify as a
"government-owned or controlled corporation."
A close scrutiny of the definition of "government-owned or
controlled corporation" in Section 2(13) will show that MIAA
would not fall under such definition. MIAA is a government
"instrumentality" that does not qualify as a
"government-owned or controlled corporation." As
explained in the 2006 MIAA case:
A government-owned or controlled corporation must be
"organized as a stock or non-stock corporation." MIAA is not
organized as a stock or non-stock corporation. MIAA is not a
stock corporation because it has no capital stock divided into
shares. MIAA has no stockholders or voting shares. x x x

Section 3 of the Corporation Code defines a stock corporation

as one whose "capital stock is divided into shares and x x
x authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.
xxx
MIAA is also not a non-stock corporation because it has no
members. Section 87 of the Corporation Code defines a nonstock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even if
we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part
of their income to their members. Section 11 of the MIAA
Charter mandates MIAA to remit 20% of its annual gross
operating income to the National Treasury. This prevents MIAA
from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock
corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for
public use.
Since MIAA is neither a stock nor a non-stock corporation,
MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with corporate
powers to perform efficiently its governmental functions. MIAA
is like any other government instrumentality, the only
difference is that MIAA is vested with corporate powers. x x x
When the law vests in a government instrumentality
corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental
but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, police authority and
the levying of fees and charges. At the same time, MIAA
exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order."9
Thus, MIAA is not a government-owned or controlled
corporation but a government instrumentality which is exempt
from any kind of tax from the local governments. Indeed, the
exercise of the taxing power of local government units is
subject to the limitations enumerated in Section 133 of the
Local Government Code.10 Under Section 133(o)11 of the Local
Government Code, local government units have no power to
tax instrumentalities of the national government like the
MIAA. Hence, MIAA is not liable to pay real property tax for the
NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are
properties of public dominion intended for public use, and as
such are exempt from real property tax under Section 234(a)
of the Local Government Code. However, under the same
provision, if MIAA leases its real property to a taxable person,
the specific property leased becomes subject to real property
tax.12 In this case, only those portions of the NAIA Pasay
properties which are leased to taxable persons like private
parties are subject to real property tax by the City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the
Decision dated 30 October 2002 and the Resolution dated 19
March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.
We DECLARE the NAIA Pasay properties of the Manila
International Airport Authority EXEMPT from real property tax
imposed by the City of Pasay. We declare VOID all the real
property tax assessments, including the final notices of real
property tax delinquencies, issued by the City of Pasay on the
NAIA Pasay properties of the Manila International Airport
Authority, except for the portions that the Manila International
Airport Authority has leased to private parties.
No costs.
SO ORDERED.
G.R. No. 171182

August 23, 2012

UNIVERSITY OF THE PHILIPPINES, JOSE V. ABUEVA,

RAUL P. DE GUZMAN, RUBEN P. ASPIRAS, EMMANUEL P.
BELLO, WILFREDO P. DAVID, CASIANO S. ABRIGO, and
JOSEFINA R. LICUANAN,Petitioners,
vs.
HON. AGUSTIN S. DIZON, his capacity as Presiding
Judge of the Regional Trial Court of Quezon City,

Branch 80, STERN BUILDERS, INC., and SERVILLANO

DELA CRUZ, Respondents.
DECISION
BERSAMIN, J.:
Trial judges should not immediately issue writs of execution or
garnishment against the Government or any of its
subdivisions, agencies and instrumentalities to enforce money
judgments.1 They should bear in mind that the primary
jurisdiction to examine, audit and settle all claims of any sort
due from the Government or any of its subdivisions, agencies
and instrumentalities pertains to the Commission on Audit
(COA) pursuant to Presidential Decree No. 1445 (Government
Auditing Code of the Philippines).
The Case
On appeal by the University of the Philippines and its then
incumbent officials (collectively, the UP) is the decision
promulgated on September 16, 2005,2 whereby the Court of
Appeals (CA) upheld the order of the Regional Trial Court
(RTC), Branch 80, in Quezon City that directed the
garnishment of public funds amounting to P16,370,191.74
belonging to the UP to satisfy the writ of execution issued to
enforce the already final and executory judgment against the
UP.
Antecedents
On August 30, 1990, the UP, through its then President Jose V.
Abueva, entered into a General Construction Agreement with
respondent Stern Builders Corporation (Stern Builders),
represented by its President and General Manager Servillano
dela Cruz, for the construction of the extension building and
the renovation of the College of Arts and Sciences Building in
the campus of the University of the Philippines in Los Baos
(UPLB).3
In the course of the implementation of the contract, Stern
Builders submitted three progress billings corresponding to
the work accomplished, but the UP paid only two of the
billings. The third billing worth P273,729.47 was not paid due
to its disallowance by the Commission on Audit (COA). Despite
the lifting of the disallowance, the UP failed to pay the billing,
prompting Stern Builders and dela Cruz to sue the UP and its
co-respondent officials to collect the unpaid billing and to
recover various damages. The suit, entitled Stern Builders
Corporation and Servillano R. Dela Cruz v. University of the
Philippines Systems, Jose V. Abueva, Raul P. de Guzman,
Ruben P. Aspiras, Emmanuel P. Bello, Wilfredo P. David,
Casiano S. Abrigo, and Josefina R. Licuanan,was docketed as
Civil Case No. Q-93-14971 of the Regional Trial Court in
Quezon City (RTC).4
After trial, on November 28, 2001, the RTC rendered its
decision in favor of the plaintiffs,5 viz:
Wherefore, in the light of the foregoing, judgment is hereby
rendered in favor of the plaintiff and against the defendants
ordering the latter to pay plaintiff, jointly and severally, the
following, to wit:
1. P 503,462.74 amount of the third billing, additional
accomplished work and retention money
2. P 5,716,729.00 in actual damages
3. P 10,000,000.00 in moral damages
4. P 150,000.00 and P 1,500.00 per appearance as
attorneys fees; and
5. Costs of suit.
SO ORDERED.
Following the RTCs denial of its motion for reconsideration on
May 7, 2002,6 the UP filed a notice of appeal on June 3,
2002.7 Stern Builders and dela Cruz opposed the notice of
appeal on the ground of its filing being belated, and moved for
the execution of the decision. The UP countered that the
notice of appeal was filed within the reglementary period
because the UPs Office of Legal Affairs (OLS) in Diliman,
Quezon City received the order of denial only on May 31,
2002. On September 26, 2002, the RTC denied due course to
the notice of appeal for having been filed out of time and
granted the private respondents motion for execution.8
The RTC issued the writ of execution on October 4, 2002,9 and
the sheriff of the RTC served the writ of execution and notice
of demand upon the UP, through its counsel, on October 9,
2002.10 The UP filed an urgent motion to reconsider the order
dated September 26, 2002, to quash the writ of execution
dated October 4, 2002, and to restrain the
proceedings.11 However, the RTC denied the urgent motion on
April 1, 2003.12
On June 24, 2003, the UP assailed the denial of due course to
its appeal through a petition for certiorari in the Court of
Appeals (CA), docketed as CA-G.R. No. 77395. 13

On February 24, 2004, the CA dismissed the petition

for certiorari upon finding that the UPs notice of appeal had
been filed late,14 stating:

Development Bank of the Philippines, Commonwealth Branch,

Quezon City in favor of the plaintiff.

Records clearly show that petitioners received a copy of the

Decision dated November 28, 2001 and January 7, 2002, thus,
they had until January 22, 2002 within which to file their
appeal. On January 16, 2002 or after the lapse of nine (9)
days, petitioners through their counsel Atty. Nolasco filed a
Motion for Reconsideration of the aforesaid decision, hence,
pursuant to the rules, petitioners still had six (6) remaining
days to file their appeal. As admitted by the petitioners in
their petition (Rollo, p. 25), Atty. Nolasco received a copy of
the Order denying their motion for reconsideration on May 17,
2002, thus, petitioners still has until May 23, 2002 (the
remaining six (6) days) within which to file their appeal.
Obviously, petitioners were not able to file their Notice of
Appeal on May 23, 2002 as it was only filed on June 3, 2002.

The UP was served on January 3, 2005 with the order of

December 21, 2004 directing DBP to release the garnished
funds.33

In view of the said circumstances, We are of the belief and so

holds that the Notice of Appeal filed by the petitioners was
really filed out of time, the same having been filed seventeen
(17) days late of the reglementary period. By reason of which,
the decision dated November 28, 2001 had already become
final and executory. "Settled is the rule that the perfection of
an appeal in the manner and within the period permitted by
law is not only mandatory but jurisdictional, and failure to
perfect that appeal renders the challenged judgment final and
executory. This is not an empty procedural rule but is
grounded on fundamental considerations of public policy and
sound practice." (Rams Studio and Photographic Equipment,
Inc. vs. Court of Appeals, 346 SCRA 691, 696). Indeed, Atty.
Nolasco received the order of denial of the Motion for
Reconsideration on May 17, 2002 but filed a Notice of Appeal
only on June 3, 3003. As such, the decision of the lower
court ipso facto became final when no appeal was perfected
after the lapse of the reglementary period. This procedural
caveat cannot be trifled with, not even by the High Court. 15
The UP sought a reconsideration, but the CA denied the UPs
motion for reconsideration on April 19, 2004.16
On May 11, 2004, the UP appealed to the Court by petition for
review on certiorari (G.R. No. 163501).
On June 23, 2004, the Court denied the petition for
review.17 The UP moved for the reconsideration of the denial of
its petition for review on August 29, 2004,18 but the Court
denied the motion on October 6, 2004.19 The denial became
final and executory on November 12, 2004.20
In the meanwhile that the UP was exhausting the available
remedies to overturn the denial of due course to the appeal
and the issuance of the writ of execution, Stern Builders and
dela Cruz filed in the RTC their motions for execution despite
their previous motion having already been granted and
despite the writ of execution having already issued. On June
11, 2003, the RTC granted another motion for execution filed
on May 9, 2003 (although the RTC had already issued the writ
of execution on October 4, 2002).21
On June 23, 2003 and July 25, 2003, respectively, the sheriff
served notices of garnishment on the UPs depository banks,
namely: Land Bank of the Philippines (Buendia Branch) and
the Development Bank of the Philippines (DBP),
Commonwealth Branch.22 The UP assailed the garnishment
through an urgent motion to quash the notices of
garnishment;23 and a motion to quash the writ of execution
dated May 9, 2003.24
On their part, Stern Builders and dela Cruz filed their ex parte
motion for issuance of a release order.25
On October 14, 2003, the RTC denied the UPs urgent motion
to quash, and granted Stern Builders and dela Cruzs ex parte
motion for issuance of a release order.26
The UP moved for the reconsideration of the order of October
14, 2003, but the RTC denied the motion on November 7,
2003.27
On January 12, 2004, Stern Builders and dela Cruz again
sought the release of the garnished funds.28 Despite the UPs
opposition,29 the RTC granted the motion to release the
garnished funds on March 16, 2004.30 On April 20, 2004,
however, the RTC held in abeyance the enforcement of the
writs of execution issued on October 4, 2002 and June 3, 2003
and all the ensuing notices of garnishment, citing Section 4,
Rule 52, Rules of Court, which provided that the pendency of a
timely motion for reconsideration stayed the execution of the
judgment.31
On December 21, 2004, the RTC, through respondent Judge
Agustin S. Dizon, authorized the release of the garnished
funds of the UP,32 to wit:
WHEREFORE, premises considered, there being no more legal
impediment for the release of the garnished amount in
satisfaction of the judgment award in the instant case, let the
amount garnished be immediately released by the

SO ORDERED.

On January 6, 2005, Stern Builders and dela Cruz moved to

cite DBP in direct contempt of court for its non-compliance
with the order of release.34
Thereupon, on January 10, 2005, the UP brought a petition
for certiorari in the CA to challenge the jurisdiction of the RTC
in issuing the order of December 21, 2004 (CA-G.R. CV No.
88125).35 Aside from raising the denial of due process, the UP
averred that the RTC committed grave abuse of discretion
amounting to lack or excess of jurisdiction in ruling that there
was no longer any legal impediment to the release of the
garnished funds. The UP argued that government funds and
properties could not be seized by virtue of writs of execution
or garnishment, as held in Department of Agriculture v.
National Labor Relations Commission,36 and citing Section 84
of Presidential Decree No. 1445 to the effect that "revenue
funds shall not be paid out of any public treasury or
depository except in pursuance of an appropriation law or
other specific statutory authority;" and that the order of
garnishment clashed with the ruling in University of the
Philippines Board of Regents v. Ligot-Telan37 to the effect that
the funds belonging to the UP were public funds.
On January 19, 2005, the CA issued a temporary restraining
order (TRO) upon application by the UP.38
On March 22, 2005, Stern Builders and dela Cruz filed in the
RTC their amended motion for sheriffs assistance to
implement the release order dated December 21, 2004,
stating that the 60-day period of the TRO of the CA had
already lapsed.39 The UP opposed the amended motion and
countered that the implementation of the release order be
suspended.40
On May 3, 2005, the RTC granted the amended motion for
sheriffs assistance and directed the sheriff to proceed to the
DBP to receive the check in satisfaction of the judgment.41
The UP sought the reconsideration of the order of May 3,
2005.42
On May 16, 2005, DBP filed a motion to consign the check
representing the judgment award and to dismiss the motion to
cite its officials in contempt of court.43
On May 23, 2005, the UP presented a motion to withhold the
release of the payment of the judgment award. 44
On July 8, 2005, the RTC resolved all the pending
matters,45 noting that the DBP had already delivered to the
sheriff Managers Check No. 811941 for P 16,370,191.74
representing the garnished funds payable to the order of
Stern Builders and dela Cruz as its compliance with the RTCs
order dated December 21, 2004.46 However, the RTC directed
in the same order that Stern Builders and dela Cruz should not
encash the check or withdraw its amount pending the final
resolution of the UPs petition for certiorari, to wit:47
To enable the money represented in the check in question (No.
00008119411) to earn interest during the pendency of the
defendant University of the Philippines application for a writ of
injunction with the Court of Appeals the same may now be
deposited by the plaintiff at the garnishee Bank (Development
Bank of the Philippines), the disposition of the amount
represented therein being subject to the final outcome of the
case of the University of the Philippines et al., vs. Hon. Agustin
S. Dizon et al., (CA G.R. 88125) before the Court of Appeals.
Let it be stated herein that the plaintiff is not authorized to
encash and withdraw the amount represented in the check in
question and enjoy the same in the fashion of an owner
during the pendency of the case between the parties before
the Court of Appeals which may or may not be resolved in
plaintiffs favor.
With the end in view of seeing to it that the check in question
is deposited by the plaintiff at the Development Bank of the
Philippines (garnishee bank), Branch Sheriff Herlan Velasco is
directed to accompany and/or escort the plaintiff in making
the deposit of the check in question.
SO ORDERED.
On September 16, 2005, the CA promulgated its assailed
decision dismissing the UPs petition for certiorari, ruling that
the UP had been given ample opportunity to contest the
motion to direct the DBP to deposit the check in the name of
Stern Builders and dela Cruz; and that the garnished funds
could be the proper subject of garnishment because they had
been already earmarked for the project, with the UP holding
the funds only in a fiduciary capacity,48 viz:

Petitioners next argue that the UP funds may not be seized for
execution or garnishment to satisfy the judgment award.
Citing Department of Agriculture vs. NLRC, University of the
Philippines Board of Regents vs. Hon. Ligot-Telan, petitioners
contend that UP deposits at Land Bank and the Development
Bank of the Philippines, being government funds, may not be
released absent an appropriations bill from Congress.
The argument is specious. UP entered into a contract with
private respondents for the expansion and renovation of the
Arts and Sciences Building of its campus in Los Baos,
Laguna. Decidedly, there was already an appropriations
earmarked for the said project. The said funds are retained by
UP, in a fiduciary capacity, pending completion of the
construction project.
We agree with the trial Court [sic] observation on this score:
"4. Executive Order No. 109 (Directing all National
Government Agencies to Revert Certain Accounts Payable to
the Cumulative Result of Operations of the National
Government and for Other Purposes) Section 9. Reversion of
Accounts Payable, provides that, all 1995 and prior years
documented accounts payable and all undocumented
accounts regardless of the year they were incurred shall be
reverted to the Cumulative Result of Operations of the
National Government (CROU). This shall apply to accounts
payable of all funds, except fiduciary funds, as long as the
purpose for which the funds were created have not been
accomplished and accounts payable under foreign assisted
projects for the duration of the said project. In this regard,
the Department of Budget and Management issued JointCircular No. 99-6 4.0 (4.3) Procedural Guidelines which
provides that all accounts payable that reverted to the
CROU may be considered for payment upon determination
thru administrative process, of the existence, validity and
legality of the claim. Thus, the allegation of the defendants
that considering no appropriation for the payment of any
amount awarded to plaintiffs appellee the funds of
defendant-appellants may not be seized pursuant to a writ
of execution issued by the regular court is misplaced. Surely
when the defendants and the plaintiff entered into the
General Construction of Agreement there is an amount
already allocated by the latter for the said project which is
no longer subject of future appropriation." 49
After the CA denied their motion for reconsideration on
December 23, 2005, the petitioners appealed by petition for
review.
Matters Arising During the Pendency of the Petition
On January 30, 2006, Judge Dizon of the RTC (Branch 80)
denied Stern Builders and dela Cruzs motion to withdraw the
deposit, in consideration of the UPs intention to appeal to the
CA,50 stating:
Since it appears that the defendants are intending to file a
petition for review of the Court of Appeals resolution in CAG.R. No. 88125 within the reglementary period of fifteen (15)
days from receipt of resolution, the Court agrees with the
defendants stand that the granting of plaintiffs subject
motion is premature.
Let it be stated that what the Court meant by its Order dated
July 8, 2005 which states in part that the "disposition of the
amount represented therein being subject to the final
outcome of the case of the University of the Philippines, et.
al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before
the Court of Appeals) is that the judgment or resolution of said
court has to be final and executory, for if the same will still be
elevated to the Supreme Court, it will not attain finality yet
until the highest court has rendered its own final judgment or
resolution.51
However, on January 22, 2007, the UP filed an Urgent
Application for A Temporary Restraining Order and/or A Writ of
Preliminary Injunction,52 averring that on January 3, 2007,
Judge Maria Theresa dela Torre-Yadao (who had meanwhile
replaced Judge Dizon upon the latters appointment to the CA)
had issued another order allowing Stern Builders and dela
Cruz to withdraw the deposit,53 to wit:
It bears stressing that defendants liability for the payment of
the judgment obligation has become indubitable due to the
final and executory nature of the Decision dated November
28, 2001. Insofar as the payment of the [sic] judgment
obligation is concerned, the Court believes that there is
nothing more the defendant can do to escape liability. It is
observed that there is nothing more the defendant can do to
escape liability. It is observed that defendant U.P. System had
already exhausted all its legal remedies to overturn, set aside
or modify the decision (dated November 28, 2001( rendered
against it. The way the Court sees it, defendant U.P. Systems
petition before the Supreme Court concerns only with the
manner by which said judgment award should be satisfied. It
has nothing to do with the legality or propriety thereof,

although it prays for the deletion of [sic] reduction of the

award of moral damages.
It must be emphasized that this Courts finding, i.e., that there
was sufficient appropriation earmarked for the project, was
upheld by the Court of Appeals in its decision dated
September 16, 2005. Being a finding of fact, the Supreme
Court will, ordinarily, not disturb the same was said Court is
not a trier of fact. Such being the case, defendants
arguments that there was no sufficient appropriation for the
payment of the judgment obligation must fail.
While it is true that the former Presiding Judge of this Court in
its Order dated January 30, 2006 had stated that:
Let it be stated that what the Court meant by its Order dated
July 8, 2005 which states in part that the "disposition of the
amount represented therein being subject to the final
outcome of the case of the University of the Philippines, et.
al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before
the Court of Appeals) is that the judgment or resolution of said
court has to be final and executory, for if the same will still be
elevated to the Supreme Court, it will not attain finality yet
until the highest court has rendered its own final judgment or
resolution.
it should be noted that neither the Court of Appeals nor the
Supreme Court issued a preliminary injunction enjoining the
release or withdrawal of the garnished amount. In fact, in its
present petition for review before the Supreme Court, U.P.
System has not prayed for the issuance of a writ of
preliminary injunction. Thus, the Court doubts whether such
writ is forthcoming.
The Court honestly believes that if defendants petition
assailing the Order of this Court dated December 31, 2004
granting the motion for the release of the garnished amount
was meritorious, the Court of Appeals would have issued a
writ of injunction enjoining the same. Instead, said appellate
court not only refused to issue a wit of preliminary injunction
prayed for by U.P. System but denied the petition, as well.54
The UP contended that Judge Yadao thereby effectively
reversed the January 30, 2006 order of Judge Dizon
disallowing the withdrawal of the garnished amount until after
the decision in the case would have become final and
executory.
Although the Court issued a TRO on January 24, 2007 to
enjoin Judge Yadao and all persons acting pursuant to her
authority from enforcing her order of January 3, 2007, 55 it
appears that on January 16, 2007, or prior to the issuance of
the TRO, she had already directed the DBP to forthwith
release the garnished amount to Stern Builders and dela
Cruz; 56 and that DBP had forthwith complied with the order on
January 17, 2007 upon the sheriffs service of the order of
Judge Yadao.57
These intervening developments impelled the UP to file in this
Court a supplemental petition on January 26, 2007,58 alleging
that the RTC (Judge Yadao) gravely erred in ordering the
immediate release of the garnished amount despite the
pendency of the petition for review in this Court.
The UP filed a second supplemental petition59 after the RTC
(Judge Yadao) denied the UPs motion for the redeposit of the
withdrawn amount on April 10, 2007,60 to wit:
This resolves defendant U.P. Systems Urgent Motion to
Redeposit Judgment Award praying that plaintiffs be directed
to redeposit the judgment award to DBP pursuant to the
Temporary Restraining Order issued by the Supreme Court.
Plaintiffs opposed the motion and countered that the
Temporary Restraining Order issued by the Supreme Court has
become moot and academic considering that the act sought
to be restrained by it has already been performed. They also
alleged that the redeposit of the judgment award was no
longer feasible as they have already spent the same.
It bears stressing, if only to set the record straight, that this
Court did not in its Order dated January 3, 2007 (the
implementation of which was restrained by the Supreme
Court in its Resolution dated January 24, 2002) direct that
that garnished amount "be deposited with the garnishee bank
(Development Bank of the Philippines)". In the first place,
there was no need to order DBP to make such deposit, as the
garnished amount was already deposited in the account of
plaintiffs with the DBP as early as May 13, 2005. What the
Court granted in its Order dated January 3, 2007 was
plaintiffs motion to allow the release of said deposit. It must
be recalled that the Court found plaintiffs motion meritorious
and, at that time, there was no restraining order or
preliminary injunction from either the Court of Appeals or the
Supreme Court which could have enjoined the release of
plaintiffs deposit. The Court also took into account the
following factors:
a) the Decision in this case had long been final and
executory after it was rendered on November 28, 2001;

b) the propriety of the dismissal of U.P. Systems appeal was

upheld by the Supreme Court;
c) a writ of execution had been issued;
d) defendant U.P. Systems deposit with DBP was garnished
pursuant to a lawful writ of execution issued by the Court;
and
e) the garnished amount had already been turned over to
the plaintiffs and deposited in their account with DBP.
The garnished amount, as discussed in the Order dated
January 16, 2007, was already owned by the plaintiffs, having
been delivered to them by the Deputy Sheriff of this Court
pursuant to par. (c), Section 9, Rule 39 of the 1997 Rules of
Civil Procedure. Moreover, the judgment obligation has
already been fully satisfied as per Report of the Deputy
Sheriff.
Anent the Temporary Restraining Order issued by the
Supreme Court, the same has become functus oficio, having
been issued after the garnished amount had been released to
the plaintiffs. The judgment debt was released to the plaintiffs
on January 17, 2007, while the Temporary Restraining Order
issued by the Supreme Court was received by this Court on
February 2, 2007. At the time of the issuance of the
Restraining Order, the act sought to be restrained had already
been done, thereby rendering the said Order ineffectual.
After a careful and thorough study of the arguments advanced
by the parties, the Court is of the considered opinion that
there is no legal basis to grant defendant U.P. Systems
motion to redeposit the judgment amount. Granting said
motion is not only contrary to law, but it will also render this
Courts final executory judgment nugatory. Litigation must end
and terminate sometime and somewhere, and it is essential to
an effective administration of justice that once a judgment
has become final the issue or cause involved therein should
be laid to rest. This doctrine of finality of judgment is
grounded on fundamental considerations of public policy and
sound practice. In fact, nothing is more settled in law than
that once a judgment attains finality it thereby becomes
immutable and unalterable. It may no longer be modified in
any respect, even if the modification is meant to correct what
is perceived to be an erroneous conclusion of fact or law, and
regardless of whether the modification is attempted to be
made by the court rendering it or by the highest court of the
land.
WHEREFORE, premises considered, finding defendant U.P.
Systems Urgent Motion to Redeposit Judgment Award devoid
of merit, the same is hereby DENIED.
SO ORDERED.
Issues
The UP now submits that:
I
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN
DISMISSING THE PETITION, ALLOWING IN EFFECT THE
GARNISHMENT OF UP FUNDS, WHEN IT RULED THAT FUNDS
HAVE ALREADY BEEN EARMARKED FOR THE CONSTRUCTION
PROJECT; AND THUS, THERE IS NO NEED FOR FURTHER
APPROPRIATIONS.
II
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN
ALLOWING GARNISHMENT OF A STATE UNIVERSITYS FUNDS IN
VIOLATION OF ARTICLE XIV, SECTION 5(5) OF THE
CONSTITUTION.
III
IN THE ALTERNATIVE, THE UNIVERSITY INVOKES EQUITY AND
THE REVIEW POWERS OF THIS HONORABLE COURT TO
MODIFY, IF NOT TOTALLY DELETE THE AWARD OF P 10
MILLION AS MORAL DAMAGES TO RESPONDENTS.
IV
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING
THE IMMEDIATE RELEASE OF THE JUDGMENT AWARD IN ITS
ORDER DATED 3 JANUARY 2007 ON THE GROUND OF EQUITY
AND JUDICIAL COURTESY.
V
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING
THE IMMEDIATE RELEASE OF THE JUDGMENT AWARD IN ITS
ORDER DATED 16 JANUARY 2007 ON THE GROUND THAT
PETITIONER UNIVERSITY STILL HAS A PENDING MOTION FOR
RECONSIDERATION OF THE ORDER DATED 3 JANUARY 2007.
VI
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN NOT
ORDERING THE REDEPOSIT OF THE GARNISHED AMOUNT TO
THE DBP IN VIOLATION OF THE CLEAR LANGUAGE OF THE
SUPREME COURT RESOLUTION DATED 24 JANUARY 2007.

The UP argues that the amount earmarked for the

construction project had been purposely set aside only for the
aborted project and did not include incidental matters like the
awards of actual damages, moral damages and attorneys
fees. In support of its argument, the UP cited Article 12.2 of
the General Construction Agreement, which stipulated that no
deductions would be allowed for the payment of claims,
damages, losses and expenses, including attorneys fees, in
case of any litigation arising out of the performance of the
work. The UP insists that the CA decision was inconsistent
with the rulings in Commissioner of Public Highways v. San
Diego61 and Department of Agriculture v. NLRC62 to the effect
that government funds and properties could not be seized
under writs of execution or garnishment to satisfy judgment
awards.
Furthermore, the UP contends that the CA contravened
Section 5, Article XIV of the Constitution by allowing the
garnishment of UP funds, because the garnishment resulted in
a substantial reduction of the UPs limited budget allocated for
the remuneration, job satisfaction and fulfillment of the best
available teachers; that Judge Yadao should have exhibited
judicial courtesy towards the Court due to the pendency of the
UPs petition for review; and that she should have also
desisted from declaring that the TRO issued by this Court had
become functus officio.
Lastly, the UP states that the awards of actual damages
of P 5,716,729.00 and moral damages of P 10 million should
be reduced, if not entirely deleted, due to its being
unconscionable, inequitable and detrimental to public service.
In contrast, Stern Builders and dela Cruz aver that the petition
for review was fatally defective for its failure to mention the
other cases upon the same issues pending between the
parties (i.e., CA-G.R. No. 77395 and G.R No. 163501); that the
UP was evidently resorting to forum shopping, and to delaying
the satisfaction of the final judgment by the filing of its
petition for review; that the ruling in Commissioner of Public
Works v. San Diego had no application because there was an
appropriation for the project; that the UP retained the funds
allotted for the project only in a fiduciary capacity; that the
contract price had been meanwhile adjusted
to P 22,338,553.25, an amount already more than sufficient to
cover the judgment award; that the UPs prayer to reduce or
delete the award of damages had no factual basis, because
they had been gravely wronged, had been deprived of their
source of income, and had suffered untold miseries,
discomfort, humiliation and sleepless years; that dela Cruz
had even been constrained to sell his house, his equipment
and the implements of his trade, and together with his family
had been forced to live miserably because of the wrongful
actuations of the UP; and that the RTC correctly declared the
Courts TRO to be already functus officio by reason of the
withdrawal of the garnished amount from the DBP.
The decisive issues to be considered and passed upon are,
therefore:
(a) whether the funds of the UP were the proper subject of
garnishment in order to satisfy the judgment award; and (b)
whether the UPs prayer for the deletion of the awards of
actual damages of P 5,716,729.00, moral damages
of P 10,000,000.00 and attorneys fees of P 150,000.00
plus P 1,500.00 per appearance could be granted despite the
finality of the judgment of the RTC.
Ruling
The petition for review is meritorious.
I.
UPs funds, being government funds,
are not subject to garnishment
The UP was founded on June 18, 1908 through Act 1870 to
provide advanced instruction in literature, philosophy, the
sciences, and arts, and to give professional and technical
training to deserving students.63 Despite its establishment as
a body corporate,64 the UP remains to be a "chartered
institution"65 performing a legitimate government function. It
is an institution of higher learning, not a corporation
established for profit and declaring any dividends.66 In
enacting Republic Act No. 9500 (The University of the
Philippines Charter of 2008), Congress has declared the UP as
the national university67 "dedicated to the search for truth and
knowledge as well as the development of future leaders." 68
Irrefragably, the UP is a government
instrumentality,69 performing the States constitutional
mandate of promoting quality and accessible education. 70 As a
government instrumentality, the UP administers special funds
sourced from the fees and income enumerated under Act No.
1870 and Section 1 of Executive Order No. 714, 71 and from the
yearly appropriations, to achieve the purposes laid down by
Section 2 of Act 1870, as expanded in Republic Act No.
9500.72 All the funds going into the possession of the UP,
including any interest accruing from the deposit of such funds

in any banking institution, constitute a "special trust fund,"

the disbursement of which should always be aligned with the
UPs mission and purpose,73 and should always be subject to
auditing by the COA.74
Presidential Decree No. 1445 defines a "trust fund" as a fund
that officially comes in the possession of an agency of the
government or of a public officer as trustee, agent or
administrator, or that is received for the fulfillment of some
obligation.75 A trust fund may be utilized only for the "specific
purpose for which the trust was created or the funds
received."76
The funds of the UP are government funds that are public in
character. They include the income accruing from the use of
real property ceded to the UP that may be spent only for the
attainment of its institutional objectives.77Hence, the funds
subject of this action could not be validly made the subject of
the RTCs writ of execution or garnishment. The adverse
judgment rendered against the UP in a suit to which it had
impliedly consented was not immediately enforceable by
execution against the UP,78 because suability of the State did
not necessarily mean its liability.79
A marked distinction exists between suability of the State and
its liability. As the Court succinctly stated in Municipality of
San Fernando, La Union v. Firme:80
A distinction should first be made between suability and
liability. "Suability depends on the consent of the state to be
sued, liability on the applicable law and the established facts.
The circumstance that a state is suable does not necessarily
mean that it is liable; on the other hand, it can never be held
liable if it does not first consent to be sued. Liability is not
conceded by the mere fact that the state has allowed itself to
be sued. When the state does waive its sovereign immunity, it
is only giving the plaintiff the chance to prove, if it can, that
the defendant is liable.
Also, in Republic v. Villasor,81 where the issuance of an alias
writ of execution directed against the funds of the Armed
Forces of the Philippines to satisfy a final and executory
judgment was nullified, the Court said:
xxx The universal rule that where the State gives its consent
to be sued by private parties either by general or special law,
it may limit claimants action "only up to the completion of
proceedings anterior to the stage of execution" and that the
power of the Courts ends when the judgment is rendered,
since government funds and properties may not be seized
under writs of execution or garnishment to satisfy such
judgments, is based on obvious considerations of public
policy. Disbursements of public funds must be covered by the
corresponding appropriation as required by law. The functions
and public services rendered by the State cannot be allowed
to be paralyzed or disrupted by the diversion of public funds
from their legitimate and specific objects, as appropriated by
law.
The UP correctly submits here that the garnishment of its
funds to satisfy the judgment awards of actual and moral
damages (including attorneys fees) was not validly made if
there was no special appropriation by Congress to cover the
liability. It was, therefore, legally unwarranted for the CA to
agree with the RTCs holding in the order issued on April 1,
2003 that no appropriation by Congress to allocate and set
aside the payment of the judgment awards was necessary
because "there (were) already an appropriations (sic)
earmarked for the said project." 82The CA and the RTC thereby
unjustifiably ignored the legal restriction imposed on the trust
funds of the Government and its agencies and
instrumentalities to be used exclusively to fulfill the purposes
for which the trusts were created or for which the funds were
received except upon express authorization by Congress or by
the head of a government agency in control of the funds, and
subject to pertinent budgetary laws, rules and regulations. 83
Indeed, an appropriation by Congress was required before the
judgment that rendered the UP liable for moral and actual
damages (including attorneys fees) would be satisfied
considering that such monetary liabilities were not covered by
the "appropriations earmarked for the said project." The
Constitution strictly mandated that "(n)o money shall be paid
out of the Treasury except in pursuance of an appropriation
made by law."84
II
COA must adjudicate private respondents claim
before execution should proceed
The execution of the monetary judgment against the UP was
within the primary jurisdiction of the COA. This was expressly
provided in Section 26 of Presidential Decree No. 1445, to wit:
Section 26. General jurisdiction. - The authority and powers of
the Commission shall extend to and comprehend all matters
relating to auditing procedures, systems and controls, the
keeping of the general accounts of the Government, the
preservation of vouchers pertaining thereto for a period of ten

years, the examination and inspection of the books, records,

and papers relating to those accounts; and the audit and
settlement of the accounts of all persons respecting funds or
property received or held by them in an accountable capacity,
as well as the examination, audit, and settlement of all debts
and claims of any sort due from or owing to the Government
or any of its subdivisions, agencies and instrumentalities. The
said jurisdiction extends to all government-owned or
controlled corporations, including their subsidiaries, and other
self-governing boards, commissions, or agencies of the
Government, and as herein prescribed, including non
governmental entities subsidized by the government, those
funded by donations through the government, those required
to pay levies or government share, and those for which the
government has put up a counterpart fund or those partly
funded by the government.
It was of no moment that a final and executory decision
already validated the claim against the UP. The settlement of
the monetary claim was still subject to the primary jurisdiction
of the COA despite the final decision of the RTC having already
validated the claim.85 As such, Stern Builders and dela Cruz as
the claimants had no alternative except to first seek the
approval of the COA of their monetary claim.
On its part, the RTC should have exercised utmost caution,
prudence and judiciousness in dealing with the motions for
execution against the UP and the garnishment of the UPs
funds. The RTC had no authority to direct the immediate
withdrawal of any portion of the garnished funds from the
depository banks of the UP. By eschewing utmost caution,
prudence and judiciousness in dealing with the execution and
garnishment, and by authorizing the withdrawal of the
garnished funds of the UP, the RTC acted beyond its
jurisdiction, and all its orders and issuances thereon were void
and of no legal effect, specifically: (a) the order Judge Yadao
issued on January 3, 2007 allowing Stern Builders and dela
Cruz to withdraw the deposited garnished amount; (b) the
order Judge Yadao issued on January 16, 2007 directing DBP to
forthwith release the garnish amount to Stern Builders and
dela Cruz; (c) the sheriffs report of January 17, 2007
manifesting the full satisfaction of the writ of execution; and
(d) the order of April 10, 2007 deying the UPs motion for the
redeposit of the withdrawn amount. Hence, such orders and
issuances should be struck down without exception.
Nothing extenuated Judge Yadaos successive violations of
Presidential Decree No. 1445. She was aware of Presidential
Decree No. 1445, considering that the Court circulated to all
judges its Administrative Circular No. 10-2000, 86 issued on
October 25, 2000, enjoining them "to observe utmost caution,
prudence and judiciousness in the issuance of writs of
execution to satisfy money judgments against government
agencies and local government units" precisely in order to
prevent the circumvention of Presidential Decree No. 1445, as
well as of the rules and procedures of the COA, to wit:
In order to prevent possible circumvention of the rules
and procedures of the Commission on Audit, judges are
hereby enjoined to observe utmost caution, prudence
and judiciousness in the issuance of writs of execution
to satisfy money judgments against government
agencies and local government units.
Judges should bear in mind that in Commissioner of Public
Highways v. San Diego (31 SCRA 617, 625 1970), this Court
explicitly stated:
"The universal rule that where the State gives its consent to
be sued by private parties either by general or special law, it
may limit claimants action only up to the completion of
proceedings anterior to the stage of execution and that the
power of the Court ends when the judgment is rendered, since
government funds and properties may not be seized under
writs of execution or garnishment to satisfy such judgments, is
based on obvious considerations of public policy.
Disbursements of public funds must be covered by the
corresponding appropriation as required by law. The functions
and public services rendered by the State cannot be allowed
to be paralyzed or disrupted by the diversion of public funds
from their legitimate and specific objects, as appropriated by
law.
Moreover, it is settled jurisprudence that upon
determination of State liability, the prosecution,
enforcement or satisfaction thereof must still be
pursued in accordance with the rules and procedures
laid down in P.D. No. 1445, otherwise known as the
Government Auditing Code of the Philippines
(Department of Agriculture v. NLRC, 227 SCRA 693,
701-02 1993 citing Republic vs. Villasor, 54 SCRA 84
1973). All money claims against the Government must
first be filed with the Commission on Audit which must
act upon it within sixty days. Rejection of the claim will
authorize the claimant to elevate the matter to the

Supreme Court on certiorari and in effect, sue the

State thereby (P.D. 1445, Sections 49-50).
However, notwithstanding the rule that government
properties are not subject to levy and execution unless
otherwise provided for by statute (Republic v. Palacio, 23
SCRA 899 1968; Commissioner of Public Highways v. San
Diego, supra) or municipal ordinance (Municipality of Makati v.
Court of Appeals, 190 SCRA 206 1990), the Court has, in
various instances, distinguished between government funds
and properties for public use and those not held for public
use. Thus, in Viuda de Tan Toco v. Municipal Council of Iloilo
(49 Phil 52 1926, the Court ruled that "where property of a
municipal or other public corporation is sought to be
subjected to execution to satisfy judgments recovered against
such corporation, the question as to whether such property is
leviable or not is to be determined by the usage and purposes
for which it is held." The following can be culled from Viuda de
Tan Toco v. Municipal Council of Iloilo:
1. Properties held for public uses and generally
everything held for governmental purposes are not
subject to levy and sale under execution against such
corporation. The same rule applies to funds in the
hands of a public officer and taxes due to a municipal
corporation.
2. Where a municipal corporation owns in its proprietary
capacity, as distinguished from its public or government
capacity, property not used or used for a public purpose but
for quasi-private purposes, it is the general rule that such
property may be seized and sold under execution against the
corporation.
3. Property held for public purposes is not subject to execution
merely because it is temporarily used for private purposes. If
the public use is wholly abandoned, such property becomes
subject to execution.
This Administrative Circular shall take effect immediately and
the Court Administrator shall see to it that it is faithfully
implemented.
Although Judge Yadao pointed out that neither the CA nor the
Court had issued as of then any writ of preliminary injunction
to enjoin the release or withdrawal of the garnished amount,
she did not need any writ of injunction from a superior court
to compel her obedience to the law. The Court is disturbed
that an experienced judge like her should look at public laws
like Presidential Decree No. 1445 dismissively instead of
loyally following and unquestioningly implementing them.
That she did so turned her court into an oppressive bastion of
mindless tyranny instead of having it as a true haven for the
seekers of justice like the UP.
III
Period of appeal did not start without effective
service of decision upon counsel of record;
Fresh-period rule announced in
Neypes v. Court of Appeals
can be given retroactive application
The UP next pleads that the Court gives due course to its
petition for review in the name of equity in order to reverse or
modify the adverse judgment against it despite its finality. At
stake in the UPs plea for equity was the return of the amount
of P 16,370,191.74 illegally garnished from its trust funds.
Obstructing the plea is the finality of the judgment based on
the supposed tardiness of UPs appeal, which the RTC
declared on September 26, 2002. The CA upheld the
declaration of finality on February 24, 2004, and the Court
itself denied the UPs petition for review on that issue on May
11, 2004 (G.R. No. 163501). The denial became final on
November 12, 2004.
It is true that a decision that has attained finality becomes
immutable and unalterable, and cannot be modified in any
respect,87 even if the modification is meant to correct
erroneous conclusions of fact and law, and whether the
modification is made by the court that rendered it or by this
Court as the highest court of the land.88 Public policy dictates
that once a judgment becomes final, executory and
unappealable, the prevailing party should not be deprived of
the fruits of victory by some subterfuge devised by the losing
party. Unjustified delay in the enforcement of such judgment
sets at naught the role and purpose of the courts to resolve
justiciable controversies with finality.89 Indeed, all litigations
must at some time end, even at the risk of occasional errors.
But the doctrine of immutability of a final judgment has not
been absolute, and has admitted several exceptions, among
them: (a) the correction of clerical errors; (b) the so-called
nunc pro tunc entries that cause no prejudice to any party; (c)
void judgments; and (d) whenever circumstances transpire
after the finality of the decision that render its execution
unjust and inequitable.90 Moreover, in Heirs of Maura So v.
Obliosca,91 we stated that despite the absence of the
preceding circumstances, the Court is not precluded from

brushing aside procedural norms if only to serve the higher

interests of justice and equity. Also, in Gumaru v. Quirino State
College,92 the Court nullified the proceedings and the writ of
execution issued by the RTC for the reason that respondent
state college had not been represented in the litigation by the
Office of the Solicitor General.
We rule that the UPs plea for equity warrants the Courts
exercise of the exceptional power to disregard the declaration
of finality of the judgment of the RTC for being in clear
violation of the UPs right to due process.
Both the CA and the RTC found the filing on June 3, 2002 by
the UP of the notice of appeal to be tardy. They based their
finding on the fact that only six days remained of the UPs
reglementary 15-day period within which to file the notice of
appeal because the UP had filed a motion for reconsideration
on January 16, 2002 vis--vis the RTCs decision the UP
received on January 7, 2002; and that because the denial of
the motion for reconsideration had been served upon Atty.
Felimon D. Nolasco of the UPLB Legal Office on May 17, 2002,
the UP had only until May 23, 2002 within which to file the
notice of appeal.
The UP counters that the service of the denial of the motion
for reconsideration upon Atty. Nolasco was defective
considering that its counsel of record was not Atty. Nolasco of
the UPLB Legal Office but the OLS in Diliman, Quezon City;
and that the period of appeal should be reckoned from May
31, 2002, the date when the OLS received the order. The UP
submits that the filing of the notice of appeal on June 3, 2002
was well within the reglementary period to appeal.
We agree with the submission of the UP.
Firstly, the service of the denial of the motion for
reconsideration upon Atty. Nolasco of the UPLB Legal Office
was invalid and ineffectual because he was admittedly not the
counsel of record of the UP. The rule is that it is on the counsel
and not the client that the service should be made. 93
That counsel was the OLS in Diliman, Quezon City, which was
served with the denial only on May 31, 2002. As such, the
running of the remaining period of six days resumed only on
June 1, 2002,94 rendering the filing of the UPs notice of appeal
on June 3, 2002 timely and well within the remaining days of
the UPs period to appeal.
Verily, the service of the denial of the motion for
reconsideration could only be validly made upon the OLS in
Diliman, and no other. The fact that Atty. Nolasco was in the
employ of the UP at the UPLB Legal Office did not render the
service upon him effective. It is settled that where a party has
appeared by counsel, service must be made upon such
counsel.95 Service on the party or the partys employee is not
effective because such notice is not notice in law.96 This is
clear enough from Section 2, second paragraph, of Rule 13,
Rules of Court, which explicitly states that: "If any party has
appeared by counsel, service upon him shall be made upon
his counsel or one of them, unless service upon the party
himself is ordered by the court. Where one counsel appears
for several parties, he shall only be entitled to one copy of any
paper served upon him by the opposite side." As such, the
period to appeal resumed only on June 1, 2002, the date
following the service on May 31, 2002 upon the OLS in
Diliman of the copy of the decision of the RTC, not from the
date when the UP was notified.97
Accordingly, the declaration of finality of the judgment of the
RTC, being devoid of factual and legal bases, is set aside.
Secondly, even assuming that the service upon Atty. Nolasco
was valid and effective, such that the remaining period for the
UP to take a timely appeal would end by May 23, 2002, it
would still not be correct to find that the judgment of the RTC
became final and immutable thereafter due to the notice of
appeal being filed too late on June 3, 2002.
In so declaring the judgment of the RTC as final against the
UP, the CA and the RTC applied the rule contained in the
second paragraph of Section 3, Rule 41 of the Rules of Court
to the effect that the filing of a motion for reconsideration
interrupted the running of the period for filing the appeal; and
that the period resumed upon notice of the denial of the
motion for reconsideration. For that reason, the CA and the
RTC might not be taken to task for strictly adhering to the rule
then prevailing.
However, equity calls for the retroactive application in the
UPs favor of the fresh-period rule that the Court first
announced in mid-September of 2005 through its ruling in
Neypes v. Court of Appeals,98 viz:
To standardize the appeal periods provided in the Rules and to
afford litigants fair opportunity to appeal their cases, the
Court deems it practical to allow a fresh period of 15 days
within which to file the notice of appeal in the Regional Trial
Court, counted from receipt of the order dismissing a motion
for a new trial or motion for reconsideration.

The retroactive application of the fresh-period rule, a

procedural law that aims "to regiment or make the appeal
period uniform, to be counted from receipt of the order
denying the motion for new trial, motion for reconsideration
(whether full or partial) or any final order or resolution," 99 is
impervious to any serious challenge. This is because there are
no vested rights in rules of procedure.100 A law or regulation is
procedural when it prescribes rules and forms of procedure in
order that courts may be able to administer justice.101 It does
not come within the legal conception of a retroactive law, or is
not subject of the general rule prohibiting the retroactive
operation of statues, but is given retroactive effect in actions
pending and undetermined at the time of its passage without
violating any right of a person who may feel that he is
adversely affected.
We have further said that a procedural rule that is amended
for the benefit of litigants in furtherance of the administration
of justice shall be retroactively applied to likewise favor
actions then pending, as equity delights in equality.102 We may
even relax stringent procedural rules in order to serve
substantial justice and in the exercise of this Courts equity
jurisdiction.103 Equity jurisdiction aims to do complete justice
in cases where a court of law is unable to adapt its judgments
to the special circumstances of a case because of the
inflexibility of its statutory or legal jurisdiction.104
It is cogent to add in this regard that to deny the benefit of
the fresh-period rule to the UP would amount to injustice and
absurdity injustice, because the judgment in question was
issued on November 28, 2001 as compared to the judgment in
Neypes that was rendered in 1998; absurdity, because parties
receiving notices of judgment and final orders issued in the
year 1998 would enjoy the benefit of the fresh-period rule but
the later rulings of the lower courts like that herein would
not.105
Consequently, even if the reckoning started from May 17,
2002, when Atty. Nolasco received the denial, the UPs filing
on June 3, 2002 of the notice of appeal was not tardy within
the context of the fresh-period rule. For the UP, the fresh
period of 15-days counted from service of the denial of the
motion for reconsideration would end on June 1, 2002, which
was a Saturday. Hence, the UP had until the next working day,
or June 3, 2002, a Monday, within which to appeal,
conformably with Section 1 of Rule 22, Rules of Court, which
holds that: "If the last day of the period, as thus computed,
falls on a Saturday, a Sunday, or a legal holiday in the place
where the court sits, the time shall not run until the next
working day."
IV
Awards of monetary damages,
being devoid of factual and legal bases,
did not attain finality and should be deleted
Section 14 of Article VIII of the Constitution prescribes that
express findings of fact and of law should be made in the
decision rendered by any court, to wit:
Section 14. No decision shall be rendered by any court without
expressing therein clearly and distinctly the facts and the law
on which it is based.
No petition for review or motion for reconsideration of a
decision of the court shall be refused due course or denied
without stating the legal basis therefor.
Implementing the constitutional provision in civil actions is
Section 1 of Rule 36, Rules of Court, viz:
Section 1. Rendition of judgments and final orders. A
judgment or final order determining the merits of the case
shall be in writing personally and directly prepared by the
judge, stating clearly and distinctly the facts and the law on
which it is based, signed by him, and filed with the clerk of the
court. (1a)
The Constitution and the Rules of Court apparently delineate
two main essential parts of a judgment, namely: the body and
the decretal portion. Although the latter is the controlling
part,106 the importance of the former is not to be lightly
regarded because it is there where the court clearly and
distinctly states its findings of fact and of law on which the
decision is based. To state it differently, one without the other
is ineffectual and useless. The omission of either inevitably
results in a judgment that violates the letter and the spirit of
the Constitution and the Rules of Court.
The term findings of fact that must be found in the body of the
decision refers to statements of fact, not to conclusions of
law.107 Unlike in pleadings where ultimate facts alone need to
be stated, the Constitution and the Rules of Court require not
only that a decision should state the ultimate facts but also
that it should specify the supporting evidentiary facts, for they
are what are called the findings of fact.
The importance of the findings of fact and of law cannot be
overstated. The reason and purpose of the Constitution and

the Rules of Court in that regard are obviously to inform the

parties why they win or lose, and what their rights and
obligations are. Only thereby is the demand of due process
met as to the parties. As Justice Isagani A. Cruz explained
in Nicos Industrial Corporation v. Court of Appeals:108
It is a requirement of due process that the parties to a
litigation be informed of how it was decided, with an
explanation of the factual and legal reasons that led to the
conclusions of the court. The court cannot simply say that
judgment is rendered in favor of X and against Y and just
leave it at that without any justification whatsoever for its
action. The losing party is entitled to know why he lost, so he
may appeal to a higher court, if permitted, should he believe
that the decision should be reversed. A decision that does not
clearly and distinctly state the facts and the law on which it is
based leaves the parties in the dark as to how it was reached
and is especially prejudicial to the losing party, who is unable
to pinpoint the possible errors of the court for review by a
higher tribunal.
Here, the decision of the RTC justified the grant of actual and
moral damages, and attorneys fees in the following terse
manner, viz:
xxx The Court is not unmindful that due to defendants
unjustified refusal to pay their outstanding obligation to
plaintiff, the same suffered losses and incurred expenses as
he was forced to re-mortgage his house and lot located in
Quezon City to Metrobank (Exh. "CC") and BPI Bank just to
pay its monetary obligations in the form of interest and
penalties incurred in the course of the construction of the
subject project.109
The statement that "due to defendants unjustified refusal to
pay their outstanding obligation to plaintiff, the same suffered
losses and incurred expenses as he was forced to re-mortgage
his house and lot located in Quezon City to Metrobank (Exh.
"CC") and BPI Bank just to pay its monetary obligations in the
form of interest and penalties incurred in the course of the
construction of the subject project" was only a conclusion of
fact and law that did not comply with the constitutional and
statutory prescription. The statement specified no detailed
expenses or losses constituting the P 5,716,729.00 actual
damages sustained by Stern Builders in relation to the
construction project or to other pecuniary hardships. The
omission of such expenses or losses directly indicated that
Stern Builders did not prove them at all, which then
contravened Article 2199, Civil Code, the statutory basis for
the award of actual damages, which entitled a person to an
adequate compensation only for such pecuniary loss suffered
by him as he has duly proved. As such, the actual damages
allowed by the RTC, being bereft of factual support, were
speculative and whimsical. Without the clear and distinct
findings of fact and law, the award amounted only to an ipse
dixit on the part of the RTC,110 and did not attain finality.
There was also no clear and distinct statement of the factual
and legal support for the award of moral damages in the
substantial amount of P 10,000,000.00. The award was thus
also speculative and whimsical. Like the actual damages, the
moral damages constituted another judicial ipse dixit, the
inevitable consequence of which was to render the award of
moral damages incapable of attaining finality. In addition, the
grant of moral damages in that manner contravened the law
that permitted the recovery of moral damages as the means
to assuage "physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury." 111 The
contravention of the law was manifest considering that Stern
Builders, as an artificial person, was incapable of experiencing
pain and moral sufferings.112 Assuming that in granting the
substantial amount of P 10,000,000.00 as moral damages, the
RTC might have had in mind that dela Cruz had himself
suffered mental anguish and anxiety. If that was the case,
then the RTC obviously disregarded his separate and distinct
personality from that of Stern Builders.113 Moreover, his moral
and emotional sufferings as the President of Stern Builders
were not the sufferings of Stern Builders. Lastly, the RTC
violated the basic principle that moral damages were not
intended to enrich the plaintiff at the expense of the
defendant, but to restore the plaintiff to his status quo ante as
much as possible. Taken together, therefore, all these
considerations exposed the substantial amount
of P 10,000,000.00 allowed as moral damages not only to be
factually baseless and legally indefensible, but also to be
unconscionable, inequitable and unreasonable.
Like the actual and moral damages, the P 150,000.00,
plus P 1,500.00 per appearance, granted as attorneys fees
were factually unwarranted and devoid of legal basis. The
general rule is that a successful litigant cannot recover
attorneys fees as part of the damages to be assessed against
the losing party because of the policy that no premium should
be placed on the right to litigate.114 Prior to the effectivity of
the present Civil Code, indeed, such fees could be recovered

only when there was a stipulation to that effect. It was only

under the present Civil Code that the right to collect
attorneys fees in the cases mentioned in Article 2208115 of the
Civil Code came to be recognized.116 Nonetheless, with
attorneys fees being allowed in the concept of actual
damages,117 their amounts must be factually and legally
justified in the body of the decision and not stated for the first
time in the decretal portion.118 Stating the amounts only in the
dispositive portion of the judgment is not enough;119 a
rendition of the factual and legal justifications for them must
also be laid out in the body of the decision.120
That the attorneys fees granted to the private respondents
did not satisfy the foregoing requirement suffices for the Court
to undo them.121 The grant was ineffectual for being contrary
to law and public policy, it being clear that the express
findings of fact and law were intended to bring the case within
the exception and thereby justify the award of the attorneys
fees. Devoid of such express findings, the award was a
conclusion without a premise, its basis being improperly left to
speculation and conjecture.122
Nonetheless, the absence of findings of fact and of any
statement of the law and jurisprudence on which the awards
of actual and moral damages, as well as of attorneys fees,
were based was a fatal flaw that invalidated the decision of
the RTC only as to such awards. As the Court declared in
Velarde v. Social Justice Society,123 the failure to comply with
the constitutional requirement for a clear and distinct
statement of the supporting facts and law "is a grave abuse of
discretion amounting to lack or excess of jurisdiction" and that
"(d)ecisions or orders issued in careless disregard of the
constitutional mandate are a patent nullity and must be struck
down as void."124 The other item granted by the RTC
(i.e., P 503,462.74) shall stand, subject to the action of the
COA as stated herein.
WHEREFORE, the Court GRANTS the petition for review on
certiorari; REVERSES and SETS ASIDE the decision of the
Court of Appeals under review; ANNULS the orders for the
garnishment of the funds of the University of the Philippines
and for the release of the garnished amount to Stern Builders
Corporation and Servillano dela Cruz; and DELETES from the
decision of the Regional Trial Court dated November 28, 2001
for being void only the awards of actual damages
of P 5,716,729.00, moral damages of P 10,000,000.00, and
attorney's fees of P150,000.00, plus P 1,500.00 per
appearance, in favor of Stern Builders Corporation and
Servillano dela Cruz.

(deducted at P50.00 per month from January to May 1996,

P100.00 per month from June 1996 and P200.00 from
November 1997), refund of deduction for Mutual Benefits Aids
System at the rate of P50.00 a month, and attorneys fees; in
the total amount of P1,184,763.12 broken down as follows per
attached computation of the Computation and [E]xamination
Unit of this Commission, which computation forms part of this
Decision:
1. JOSE SABALAS
2. TIRSO DOMASIAN

76,262.70

3. JUAN TAPEL

80,546.03

4. DINDO MURING

80,546.03

5. ALEXANDER ALLORDE

80,471.78

6. WILFREDO ESCOBAR

80,160.63

7. FERDINAND VELASQUEZ

78,595.53

8. ANTHONY GONZALES

76,869.97

9. SAMUEL ESCARIO

80,509.78

10. PEDRO FAILORINA

80,350.87

11. MATEO TANELA

70,590.58

12. JOB SABALAS

59,362.40

13. ANDRES DACANAYAN

77,403.73

14. EDDIE OLIVAR

77,403.73

P1,077,057.38

The Court ORDERS Stem Builders Corporation and Servillano

dela Cruz to redeposit the amount of P16,370,191.74 within
10 days from receipt of this decision.
Costs of suit to be paid by the private respondents.

P77,983.62

plus 10% attorneys fees

107,705.74

SO ORDERED.
G.R. No. 185918

April 18, 2012

LOCKHEED DETECTIVE AND WATCHMAN AGENCY,

INC., Petitioner,
vs.
UNIVERSITY OF THE PHILIPPINES, Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, as amended, assailing the
August 20, 2008 Amended Decision1 and December 23, 2008
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No.
91281.
The antecedent facts of the case are as follows:
Petitioner Lockheed Detective and Watchman Agency, Inc.
(Lockheed) entered into a contract for security services with
respondent University of the Philippines (UP).
In 1998, several security guards assigned to UP filed separate
complaints against Lockheed and UP for payment of
underpaid wages, 25% overtime pay, premium pay for rest
days and special holidays, holiday pay, service incentive leave
pay, night shift differentials, 13th month pay, refund of cash
bond, refund of deductions for the Mutual Benefits Aids
System (MBAS), unpaid wages from December 16-31, 1998,
and attorneys fees.
On February 16, 2000, the Labor Arbiter rendered a decision
as follows:
WHEREFORE, premises considered, respondents Lockheed
Detective and Watchman Agency, Inc. and UP as job
contractor and principal, respectively, are hereby declared to
be solidarily liable to complainants for the following claims of
the latter which are found meritorious.
Underpaid wages/salaries, premium pay for work on rest day
and special holiday, holiday pay, 5 days service incentive
leave pay, 13th month pay for 1998, refund of cash bond

GRAND TOTAL AWARD

P1,184,763.12

Third party respondent University of the Philippines is hereby

declared to be liable to Third Party Complainant and cross
claimant Lockheed Detective and Watchman Agency for the
unpaid legislated salary increases of the latters security
guards for the years 1996 to 1998, in the total amount of
P13,066,794.14, out of which amount the amounts due
complainants here shall be paid.
The other claims are hereby DISMISSED for lack of merit
(night shift differential and 13th month pay) or for having
been paid in the course of this proceedings (salaries for
December 15-31, 1997 in the amount of P40,140.44).
The claims of Erlindo Collado, Rogelio Banjao and Amor
Banjao are hereby DISMISSED as amicably settled for and in
consideration of the amounts of P12,315.72, P12,271.77 and
P12,819.33, respectively.
SO ORDERED.3
Both Lockheed and UP appealed the Labor Arbiters decision.
By Decision4 dated April 12, 2002, the NLRC modified the
Labor Arbiters decision. The NLRC held:
WHEREFORE, the decision appealed from is hereby modified
as follows:
1. Complainants claims for premium pay for work on
rest day and special holiday, and 5 days service
incentive leave pay, are hereby dismissed for lack of
basis.
2. The respondent University of the Philippines is still
solidarily liable with Lockheed in the payment of the
rest of the claims covering the period of their service
contract.

The Financial Analyst is hereby ordered to recompute the

awards of the complainants in accordance with the foregoing
modifications.
SO ORDERED.5
The complaining security guards and UP filed their respective
motions for reconsideration. On August 14, 2002, however,
the NLRC denied said motions.
As the parties did not appeal the NLRC decision, the same
became final and executory on October 26, 2002.6 A writ of
execution was then issued but later quashed by the Labor
Arbiter on November 23, 2003 on motion of UP due to
disputes regarding the amount of the award. Later, however,
said order quashing the writ was reversed by the NLRC by
Resolution7 dated June 8, 2004, disposing as follows:
WHEREFORE, premises considered, we grant this instant
appeal. The Order dated 23 November 2003 is hereby
reversed and set aside. The Labor Arbiter is directed to issue a
Writ of Execution for the satisfaction of the judgment award in
favor of Third-Party complainants.
SO ORDERED.8
UP moved to reconsider the NLRC resolution. On December
28, 2004, the NLRC upheld its resolution but with modification
that the satisfaction of the judgment award in favor of
Lockheed will be only against the funds of UP which are not
identified as public funds.
The NLRC order and resolution having become final, Lockheed
filed a motion for the issuance of an alias writ of execution.
The same was granted on May 23, 2005.9
On July 25, 2005, a Notice of Garnishment 10 was issued to
Philippine National Bank (PNB) UP Diliman Branch for the
satisfaction of the award of P12,142,522.69 (inclusive of
execution fee).
In a letter11 dated August 9, 2005, PNB informed UP that it has
received an order of release dated August 8, 2005 issued by
the Labor Arbiter directing PNB UP Diliman Branch to release
to the NLRC Cashier, through the assigned NLRC Sheriff Max L.
Lago, the judgment award/amount of P12,142,522.69. PNB
likewise reminded UP that the bank only has 10 working days
from receipt of the order to deliver the garnished funds and
unless it receives a notice from UP or the NLRC before the
expiry of the 10-day period regarding the issuance of a court
order or writ of injunction discharging or enjoining the
implementation and execution of the Notice of Garnishment
and Writ of Execution, the bank shall be constrained to cause
the release of the garnished funds in favor of the NLRC.
On August 16, 2005, UP filed an Urgent Motion to Quash
Garnishment.12 UP contended that the funds being subjected
to garnishment at PNB are government/public funds. As
certified by the University Accountant, the subject funds are
covered by Savings Account No. 275-529999-8, under the
name of UP System Trust Receipts, earmarked for Student
Guaranty Deposit, Scholarship Fund, Student Fund,
Publications, Research Grants, and Miscellaneous Trust
Account. UP argued that as public funds, the subject PNB
account cannot be disbursed except pursuant to an
appropriation required by law. The Labor Arbiter, however,
dismissed the urgent motion for lack of merit on August 30,
2005.13
On September 2, 2005, the amount of P12,062,398.71 was
withdrawn by the sheriff from UPs PNB account. 14
On September 12, 2005, UP filed a petition for certiorari
before the CA based on the following grounds:
I.
The concept of "solidary liability" by an indirect employer
notwithstanding, respondent NLRC gravely abused its
discretion in a manner amounting to lack or excess of
jurisdiction by misusing such concept to justify the
garnishment by the executing Sheriff of public/government
funds belonging to UP.
II.
Respondents NLRC and Arbiter LORA acted without
jurisdiction or gravely abused their discretion in a manner
amounting to lack or excess of jurisdiction when, by means
of an Alias Writ of Execution against petitioner UP, they
authorized respondent Sheriff to garnish UPs public funds.
Similarly, respondent LORA gravely abused her discretion
when she resolved petitioners Motion to Quash Notice of
Garnishment addressed to, and intended for, the NLRC, and
when she unilaterally and arbitrarily disregarded an official
Certification that the funds garnished are
public/government funds, and thereby allowed respondent
Sheriff to withdraw the same from PNB.
III.
Respondents gravely abused their discretion in a manner
amounting to lack or excess of jurisdiction when they,

despite prior knowledge, effected the execution that caused

paralyzation and dislocation to petitioners governmental
functions.15
On March 12, 2008, the CA rendered a decision16 dismissing
UPs petition for certiorari. Citing Republic v.
COCOFED,17 which defines public funds as moneys belonging
to the State or to any political subdivisions of the State, more
specifically taxes, customs, duties and moneys raised by
operation of law for the support of the government or the
discharge of its obligations, the appellate court ruled that the
funds sought to be garnished do not seem to fall within the
stated definition.
On reconsideration, however, the CA issued the assailed
Amended Decision. It held that without departing from its
findings that the funds covered in the savings account sought
to be garnished do not fall within the classification of public
funds, it reconsiders the dismissal of the petition in light of the
ruling in the case of National Electrification Administration v.
Morales18 which mandates that all money claims against the
government must first be filed with the Commission on Audit
(COA).
Lockheed moved to reconsider the amended decision but the
same was denied in the assailed CA Resolution dated
December 23, 2008. The CA cited Manila International Airport
Authority v. Court of Appeals19 which held that UP ranks with
MIAA, a government instrumentality exercising corporate
powers but not organized as a stock or non-stock corporation.
While said corporations are government instrumentalities,
they are loosely called government corporate entities but not
government-owned and controlled corporations in the strict
sense.
Hence this petition by Lockheed raising the following
arguments:
1. RESPONDENT UP IS A GOVERNMENT ENTITY WITH A
SEPARATE AND DISTINCT PERSONALITY FROM THE
NATIONAL GOVERNMENT AND HAS ITS OWN CHARTER
GRANTING IT THE RIGHT TO SUE AND BE SUED. IT
THEREFORE CANNOT AVAIL OF THE IMMUNITY FROM SUIT
OF THE GOVERNMENT. NOT HAVING IMMUNITY FROM SUIT,
RESPONDENT UP CAN BE HELD LIABLE AND EXECUTION
CAN THUS ENSUE.
2. MOREOVER, IF THE COURT LENDS IT ASSENT TO THE
INVOCATION OF THE DOCTRINE OF STATE IMMUNITY, THIS
WILL RESULT [IN] GRAVE INJUSTICE.
3. FURTHERMORE, THE PROTESTATIONS OF THE
RESPONDENT ARE TOO LATE IN THE DAY, AS THE
EXECUTION PROCEEDINGS HAVE ALREADY BEEN
TERMINATED.20
Lockheed contends that UP has its own separate and distinct
juridical entity from the national government and has its own
charter. Thus, it can be sued and be held liable. Moreover,
Executive Order No. 714 entitled "Fiscal Control and
Management of the Funds of UP" recognizes that "as an
institution of higher learning, UP has always granted full
management and control of its affairs including its financial
affairs."21 Therefore, it cannot shield itself from its private
contractual liabilities by simply invoking the public character
of its funds. Lockheed also cites several cases wherein it was
ruled that funds of public corporations which can sue and be
sued were not exempt from garnishment.
Lockheed likewise argues that the rulings in the NEA and MIAA
cases are inapplicable. It contends that UP is not similarly
situated with NEA because the jurisdiction of COA over the
accounts of UP is only on a post-audit basis. As to
the MIAA case, the liability of MIAA pertains to the real estate
taxes imposed by the City of Paranaque while the obligation of
UP in this case involves a private contractual obligation.
Lockheed also argues that the declaration in MIAA specifically
citing UP was mere obiter dictum.
Lockheed moreover submits that UP cannot invoke state
immunity to justify and perpetrate an injustice. UP itself
admitted its liability and thus it should not be allowed to
renege on its contractual obligations. Lockheed contends that
this might create a ruinous precedent that would likely affect
the relationship between the public and private sectors.
Lastly, Lockheed contends that UP cannot anymore seek the
quashal of the writ of execution and notice of garnishment as
they are already fait accompli.
For its part, UP contends that it did not invoke the doctrine of
state immunity from suit in the proceedings a quo and in fact,
it did not object to being sued before the labor department. It
maintains, however, that suability does not necessarily mean
liability. UP argues that the CA correctly applied the NEA ruling
when it held that all money claims must be filed with the COA.
As to alleged injustice that may result for invocation of state
immunity from suit, UP reiterates that it consented to be sued
and even participated in the proceedings below. Lockheed

cannot now claim that invocation of state immunity, which UP

did not invoke in the first place, can result in injustice.
On the fait accompli argument, UP argues that Lockheed
cannot wash its hands from liability for the consummated
garnishment and execution of UPs trust fund in the amount
of P12,062,398.71. UP cites that damage was done to UP and
the beneficiaries of the fund when said funds, which were
earmarked for specific educational purposes, were misapplied,
for instance, to answer for the execution fee of P120,123.98
unilaterally stipulated by the sheriff. Lockheed, being the
party which procured the illegal garnishment, should be held
primarily liable. The mere fact that the CA set aside the writ of
garnishment confirms the liability of Lockheed to reimburse
and indemnify in accordance with law.
The petition has no merit.
We agree with UP that there was no point for Lockheed in
discussing the doctrine of state immunity from suit as this was
never an issue in this case. Clearly, UP consented to be sued
when it participated in the proceedings below. What UP
questions is the hasty garnishment of its funds in its PNB
account.
This Court finds that the CA correctly applied the NEA case.
Like NEA, UP is a juridical personality separate and distinct
from the government and has the capacity to sue and be
sued. Thus, also like NEA, it cannot evade execution, and its
funds may be subject to garnishment or levy. However, before
execution may be had, a claim for payment of the judgment
award must first be filed with the COA. Under Commonwealth
Act No. 327,22 as amended by Section 26 of P.D. No. 1445, 23 it
is the COA which has primary jurisdiction to examine, audit
and settle "all debts and claims of any sort" due from or owing
the Government or any of its subdivisions, agencies and
instrumentalities, including government-owned or controlled
corporations and their subsidiaries. With respect to money
claims arising from the implementation of Republic Act No.
6758,24 their allowance or disallowance is for COA to decide,
subject only to the remedy of appeal by petition for certiorari
to this Court.251wphi1
We cannot subscribe to Lockheeds argument that NEA is not
similarly situated with UP because the COAs jurisdiction over
the latter is only on post-audit basis. A reading of the
pertinent Commonwealth Act provision clearly shows that it
does not make any distinction as to which of the government
subdivisions, agencies and instrumentalities, including
government-owned or controlled corporations and their
subsidiaries whose debts should be filed before the COA.
As to the fait accompli argument of Lockheed, contrary to its
claim that there is nothing that can be done since the funds of
UP had already been garnished, since the garnishment was
erroneously carried out and did not go through the proper
procedure (the filing of a claim with the COA), UP is entitled to
reimbursement of the garnished funds plus interest of 6% per
annum, to be computed from the time of judicial demand to
be reckoned from the time UP filed a petition for certiorari
before the CA which occurred right after the withdrawal of the
garnished funds from PNB.
WHEREFORE, the petition for review on certiorari is DENIED
for lack of merit. Petitioner Lockheed Detective and Watchman
Agency, Inc. is ordered to REIMBURSE respondent University
of the Philippines the amount of P12,062,398.71 plus interest
of 6% per annum, to be computed from September 12, 2005
up to the finality of this Decision, and 12% interest on the
entire amount from date of finality of this Decision until fully
paid.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 175352
DANTE V. LIBAN, REYNALDO M. BERNARDO, and
SALVADOR M. VIARI, Petitioners,
vs.
RICHARD J. GORDON, Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition to declare Senator Richard J. Gordon
(respondent) as having forfeited his seat in the Senate.
The Facts

Petitioners Dante V. Liban, Reynaldo M. Bernardo, and

Salvador M. Viari (petitioners) filed with this Court a Petition to
Declare Richard J. Gordon as Having Forfeited His Seat in the
Senate. Petitioners are officers of the Board of Directors of the
Quezon City Red Cross Chapter while respondent is Chairman
of the Philippine National Red Cross (PNRC) Board of
Governors.
During respondents incumbency as a member of the Senate
of the Philippines,1 he was elected Chairman of the PNRC
during the 23 February 2006 meeting of the PNRC Board of
Governors. Petitioners allege that by accepting the
chairmanship of the PNRC Board of Governors, respondent has
ceased to be a member of the Senate as provided in Section
13, Article VI of the Constitution, which reads:
SEC. 13. No Senator or Member of the House of
Representatives may hold any other office or employment in
the Government, or any subdivision, agency, or
instrumentality thereof, including government-owned or
controlled corporations or their subsidiaries, during his term
without forfeiting his seat. Neither shall he be appointed to
any office which may have been created or the emoluments
thereof increased during the term for which he was elected.
Petitioners cite Camporedondo v. NLRC,2 which held that the
PNRC is a government-owned or controlled corporation.
Petitioners claim that in accepting and holding the position of
Chairman of the PNRC Board of Governors, respondent has
automatically forfeited his seat in the Senate, pursuant
to Flores v. Drilon,3 which held that incumbent national
legislators lose their elective posts upon their appointment to
another government office.
In his Comment, respondent asserts that petitioners have no
standing to file this petition which appears to be an action for
quo warranto, since the petition alleges that respondent
committed an act which, by provision of law, constitutes a
ground for forfeiture of his public office. Petitioners do not
claim to be entitled to the Senate office of respondent. Under
Section 5, Rule 66 of the Rules of Civil Procedure, only a
person claiming to be entitled to a public office usurped or
unlawfully held by another may bring an action for quo
warranto in his own name. If the petition is one for quo
warranto, it is already barred by prescription since under
Section 11, Rule 66 of the Rules of Civil Procedure, the action
should be commenced within one year after the cause of the
public officers forfeiture of office. In this case, respondent has
been working as a Red Cross volunteer for the past 40 years.
Respondent was already Chairman of the PNRC Board of
Governors when he was elected Senator in May 2004, having
been elected Chairman in 2003 and re-elected in 2005.
Respondent contends that even if the present petition is
treated as a taxpayers suit, petitioners cannot be allowed to
raise a constitutional question in the absence of any claim
that they suffered some actual damage or threatened injury
as a result of the allegedly illegal act of respondent.
Furthermore, taxpayers are allowed to sue only when there is
a claim of illegal disbursement of public funds, or that public
money is being diverted to any improper purpose, or where
petitioners seek to restrain respondent from enforcing an
invalid law that results in wastage of public funds.
Respondent also maintains that if the petition is treated as
one for declaratory relief, this Court would have no jurisdiction
since original jurisdiction for declaratory relief lies with the
Regional Trial Court.
Respondent further insists that the PNRC is not a governmentowned or controlled corporation and that the prohibition under
Section 13, Article VI of the Constitution does not apply in the
present case since volunteer service to the PNRC is neither an
office nor an employment.
In their Reply, petitioners claim that their petition is neither an
action for quo warranto nor an action for declaratory relief.
Petitioners maintain that the present petition is a taxpayers
suit questioning the unlawful disbursement of funds,
considering that respondent has been drawing his salaries
and other compensation as a Senator even if he is no longer
entitled to his office. Petitioners point out that this Court has

jurisdiction over this petition since it involves a legal or

constitutional issue which is of transcendental importance.
The Issues
Petitioners raise the following issues:
1. Whether the Philippine National Red Cross (PNRC) is a
government- owned or controlled corporation;
2. Whether Section 13, Article VI of the Philippine
Constitution applies to the case of respondent who is
Chairman of the PNRC and at the same time a Member of
the Senate;
3. Whether respondent should be automatically removed as
a Senator pursuant to Section 13, Article VI of the Philippine
Constitution; and
4. Whether petitioners may legally institute this petition
against respondent.4
The substantial issue boils down to whether the office of the
PNRC Chairman is a government office or an office in a
government-owned or controlled corporation for purposes of
the prohibition in Section 13, Article VI of the Constitution.
The Courts Ruling

xxxx
10. It is respectfully submitted that in accepting the position
of Chairman of the Board of Governors of the PNRC on
February 23, 2006, respondent has automatically forfeited
his seat in the House of Senate and, therefore, has long
ceased to be a Senator, pursuant to the ruling of this
Honorable Court in the case of FLORES, ET AL. VS. DRILON
AND GORDON, G.R. No. 104732, x x x
11. Despite the fact that he is no longer a senator,
respondent continues to act as such and still performs the
powers, functions and duties of a senator, contrary to the
constitution, law and jurisprudence.
12. Unless restrained, therefore, respondent will continue to
falsely act and represent himself as a senator or member of
the House of Senate, collecting the salaries, emoluments
and other compensations, benefits and privileges
appertaining and due only to the legitimate senators, to the
damage, great and irreparable injury of the Government
and the Filipino people.5 (Emphasis supplied)
Thus, petitioners are alleging that by accepting the position of
Chairman of the PNRC Board of Governors, respondent has
automatically forfeited his seat in the Senate. In short,
petitioners filed an action for usurpation of public office
against respondent, a public officer who allegedly committed
an act which constitutes a ground for the forfeiture of his
public office. Clearly, such an action is for quo warranto,
specifically under Section 1(b), Rule 66 of the Rules of Court.

We find the petition without merit.

Petitioners Have No Standing to File this Petition
A careful reading of the petition reveals that it is an action for
quo warranto. Section 1, Rule 66 of the Rules of Court
provides:
Section 1. Action by Government against individuals. An
action for the usurpation of a public office, position or
franchise may be commenced by a verified petition brought in
the name of the Republic of the Philippines against:
(a) A person who usurps, intrudes into, or unlawfully holds
or exercises a public office, position or franchise;
(b) A public officer who does or suffers an act which by
provision of law, constitutes a ground for the forfeiture of
his office; or
(c) An association which acts as a corporation within the
Philippines without being legally incorporated or without
lawful authority so to act. (Emphasis supplied)
Petitioners allege in their petition that:
4. Respondent became the Chairman of the PNRC when he
was elected as such during the First Regular LuncheonMeeting of the Board of Governors of the PNRC held on
February 23, 2006, the minutes of which is hereto attached
and made integral part hereof as Annex "A."
5. Respondent was elected as Chairman of the PNRC Board
of Governors, during his incumbency as a Member of the
House of Senate of the Congress of the Philippines, having
been elected as such during the national elections last May
2004.
6. Since his election as Chairman of the PNRC Board of
Governors, which position he duly accepted, respondent has
been exercising the powers and discharging the functions
and duties of said office, despite the fact that he is still a
senator.
7. It is the respectful submission of the petitioner[s] that by
accepting the chairmanship of the Board of Governors of
the PNRC, respondent has ceased to be a Member of the
House of Senate as provided in Section 13, Article VI of the
Philippine Constitution, x x x

Quo warranto is generally commenced by the Government as

the proper party plaintiff. However, under Section 5, Rule 66
of the Rules of Court, an individual may commence such an
action if he claims to be entitled to the public office allegedly
usurped by another, in which case he can bring the action in
his own name. The person instituting quo warranto
proceedings in his own behalf must claim and be able to show
that he is entitled to the office in dispute, otherwise the action
may be dismissed at any stage.6 In the present case,
petitioners do not claim to be entitled to the Senate office of
respondent. Clearly, petitioners have no standing to file the
present petition.
Even if the Court disregards the infirmities of the petition and
treats it as a taxpayers suit, the petition would still fail on the
merits.
PNRC is a Private Organization Performing Public Functions
On 22 March 1947, President Manuel A. Roxas signed Republic
Act No. 95,7 otherwise known as the PNRC Charter. The PNRC
is a non-profit, donor-funded, voluntary, humanitarian
organization, whose mission is to bring timely, effective, and
compassionate humanitarian assistance for the most
vulnerable without consideration of nationality, race, religion,
gender, social status, or political affiliation. 8 The PNRC
provides six major services: Blood Services, Disaster
Management, Safety Services, Community Health and
Nursing, Social Services and Voluntary Service.9
The Republic of the Philippines, adhering to the Geneva
Conventions, established the PNRC as a voluntary
organization for the purpose contemplated in the Geneva
Convention of 27 July 1929.10 The Whereas clauses of the
PNRC Charter read:
WHEREAS, there was developed at Geneva, Switzerland, on
August 22, 1864, a convention by which the nations of the
world were invited to join together in diminishing, so far lies
within their power, the evils inherent in war;
WHEREAS, more than sixty nations of the world have ratified
or adhered to the subsequent revision of said convention,
namely the "Convention of Geneva of July 29 [sic], 1929 for
the Amelioration of the Condition of the Wounded and Sick of
Armies in the Field" (referred to in this Charter as the Geneva
Red Cross Convention);

WHEREAS, the Geneva Red Cross Convention envisages the

establishment in each country of a voluntary organization to
assist in caring for the wounded and sick of the armed forces
and to furnish supplies for that purpose;
WHEREAS, the Republic of the Philippines became an
independent nation on July 4, 1946 and proclaimed its
adherence to the Geneva Red Cross Convention on February
14, 1947, and by that action indicated its desire to participate
with the nations of the world in mitigating the suffering
caused by war and to establish in the Philippines a voluntary
organization for that purpose as contemplated by the Geneva
Red Cross Convention;
WHEREAS, there existed in the Philippines since 1917 a
Charter of the American National Red Cross which must be
terminated in view of the independence of the Philippines;
and
WHEREAS, the volunteer organizations established in the
other countries which have ratified or adhered to the Geneva
Red Cross Convention assist in promoting the health and
welfare of their people in peace and in war, and through their
mutual assistance and cooperation directly and through their
international organizations promote better understanding and
sympathy among the peoples of the world. (Emphasis
supplied)
The PNRC is a member National Society of the International
Red Cross and Red Crescent Movement (Movement), which is
composed of the International Committee of the Red Cross
(ICRC), the International Federation of Red Cross and Red
Crescent Societies (International Federation), and the National
Red Cross and Red Crescent Societies (National Societies). The
Movement is united and guided by its seven Fundamental
Principles:
1. HUMANITY The International Red Cross and Red
Crescent Movement, born of a desire to bring assistance
without discrimination to the wounded on the battlefield,
endeavors, in its international and national capacity, to
prevent and alleviate human suffering wherever it may be
found. Its purpose is to protect life and health and to ensure
respect for the human being. It promotes mutual
understanding, friendship, cooperation and lasting peace
amongst all peoples.
2. IMPARTIALITY It makes no discrimination as to
nationality, race, religious beliefs, class or political opinions.
It endeavors to relieve the suffering of individuals, being
guided solely by their needs, and to give priority to the
most urgent cases of distress.
3. NEUTRALITY In order to continue to enjoy the
confidence of all, the Movement may not take sides in
hostilities or engage at any time in controversies of a
political, racial, religious or ideological nature.
4. INDEPENDENCE The Movement is independent. The
National Societies, while auxiliaries in the humanitarian
services of their governments and subject to the laws of
their respective countries, must always maintain their
autonomy so that they may be able at all times to act in
accordance with the principles of the Movement.
5. VOLUNTARY SERVICE It is a voluntary relief movement
not prompted in any manner by desire for gain.
6. UNITY There can be only one Red Cross or one Red
Crescent Society in any one country. It must be open to all.
It must carry on its humanitarian work throughout its
territory.
7. UNIVERSALITY The International Red Cross and Red
Crescent Movement, in which all Societies have equal status
and share equal responsibilities and duties in helping each
other, is worldwide. (Emphasis supplied)
The Fundamental Principles provide a universal standard of
reference for all members of the Movement. The PNRC, as a
member National Society of the Movement, has the duty to

uphold the Fundamental Principles and ideals of the

Movement. In order to be recognized as a National Society,
the PNRC has to be autonomous and must operate in
conformity with the Fundamental Principles of the
Movement.11
The reason for this autonomy is fundamental. To be accepted
by warring belligerents as neutral workers during international
or internal armed conflicts, the PNRC volunteers must not be
seen as belonging to any side of the armed conflict. In the
Philippines where there is a communist insurgency and a
Muslim separatist rebellion, the PNRC cannot be seen as
government-owned or controlled, and neither can the PNRC
volunteers be identified as government personnel or as
instruments of government policy. Otherwise, the insurgents
or separatists will treat PNRC volunteers as enemies when the
volunteers tend to the wounded in the battlefield or the
displaced civilians in conflict areas.
Thus, the PNRC must not only be, but must also be seen to be,
autonomous, neutral and independent in order to conduct its
activities in accordance with the Fundamental Principles. The
PNRC must not appear to be an instrument or agency that
implements government policy; otherwise, it cannot merit the
trust of all and cannot effectively carry out its mission as a
National Red Cross Society.12 It is imperative that the PNRC
must be autonomous, neutral, and independent in relation to
the State.
To ensure and maintain its autonomy, neutrality, and
independence, the PNRC cannot be owned or controlled by the
government. Indeed, the Philippine government does not own
the PNRC. The PNRC does not have government assets and
does not receive any appropriation from the Philippine
Congress.13 The PNRC is financed primarily by contributions
from private individuals and private entities obtained through
solicitation campaigns organized by its Board of Governors, as
provided under Section 11 of the PNRC Charter:
SECTION 11. As a national voluntary organization, the
Philippine National Red Cross shall be financed primarily by
contributions obtained through solicitation campaigns
throughout the year which shall be organized by the Board of
Governors and conducted by the Chapters in their respective
jurisdictions. These fund raising campaigns shall be conducted
independently of other fund drives by other organizations.
(Emphasis supplied)
The government does not control the PNRC. Under the PNRC
Charter, as amended, only six of the thirty members of the
PNRC Board of Governors are appointed by the President of
the Philippines. Thus, twenty-four members, or four-fifths
(4/5), of the PNRC Board of Governors are not appointed by
the President. Section 6 of the PNRC Charter, as amended,
provides:
SECTION 6. The governing powers and authority shall be
vested in a Board of Governors composed of thirty members,
six of whom shall be appointed by the President of the
Philippines, eighteen shall be elected by chapter delegates in
biennial conventions and the remaining six shall be selected
by the twenty-four members of the Board already chosen. x x
x.
Thus, of the twenty-four members of the PNRC Board,
eighteen are elected by the chapter delegates of the PNRC,
and six are elected by the twenty-four members already
chosen a select group where the private sector members
have three-fourths majority. Clearly, an overwhelming
majority of four-fifths of the PNRC Board are elected or chosen
by the private sector members of the PNRC.
The PNRC Board of Governors, which exercises all corporate
powers of the PNRC, elects the PNRC Chairman and all other
officers of the PNRC. The incumbent Chairman of PNRC,
respondent Senator Gordon, was elected, as all PNRC
Chairmen are elected, by a private sector-controlled PNRC
Board four-fifths of whom are private sector members of the
PNRC. The PNRC Chairman is not appointed by the President
or by any subordinate government official.

Under Section 16, Article VII of the Constitution,14 the

President appoints all officials and employees in the Executive
branch whose appointments are vested in the President by
the Constitution or by law. The President also appoints those
whose appointments are not otherwise provided by law. Under
this Section 16, the law may also authorize the "heads of
departments, agencies, commissions, or boards" to appoint
officers lower in rank than such heads of departments,
agencies, commissions or boards.15 In Rufino v. Endriga,16 the
Court explained appointments under Section 16 in this wise:
Under Section 16, Article VII of the 1987 Constitution, the
President appoints three groups of officers. The first group
refers to the heads of the Executive departments,
ambassadors, other public ministers and consuls, officers of
the armed forces from the rank of colonel or naval captain,
and other officers whose appointments are vested in the
President by the Constitution. The second group refers to
those whom the President may be authorized by law to
appoint. The third group refers to all other officers of the
Government whose appointments are not otherwise provided
by law.
Under the same Section 16, there is a fourth group of lowerranked officers whose appointments Congress may by law
vest in the heads of departments, agencies, commissions, or
boards. x x x
xxx
In a department in the Executive branch, the head is the
Secretary. The law may not authorize the Undersecretary,
acting as such Undersecretary, to appoint lower-ranked
officers in the Executive department. In an agency, the power
is vested in the head of the agency for it would be
preposterous to vest it in the agency itself. In a commission,
the head is the chairperson of the commission. In a board, the
head is also the chairperson of the board. In the last three
situations, the law may not also authorize officers other than
the heads of the agency, commission, or board to appoint
lower-ranked officers.
xxx
The Constitution authorizes Congress to vest the power to
appoint lower-ranked officers specifically in the "heads" of the
specified offices, and in no other person. The word "heads"
refers to the chairpersons of the commissions or boards and
not to their members, for several reasons.
The President does not appoint the Chairman of the PNRC.
Neither does the head of any department, agency,
commission or board appoint the PNRC Chairman. Thus, the
PNRC Chairman is not an official or employee of the Executive
branch since his appointment does not fall under Section 16,
Article VII of the Constitution. Certainly, the PNRC Chairman is
not an official or employee of the Judiciary or Legislature. This
leads us to the obvious conclusion that the PNRC Chairman is
not an official or employee of the Philippine Government. Not
being a government official or employee, the PNRC Chairman,
as such, does not hold a government office or employment.
Under Section 17, Article VII of the Constitution,17 the
President exercises control over all government offices in the
Executive branch. If an office is legally not under the
control of the President, then such office is not part of
the Executive branch. In Rufino v. Endriga,18 the Court
explained the Presidents power of control over all
government offices as follows:
Every government office, entity, or agency must fall under the
Executive, Legislative, or Judicial branches, or must belong to
one of the independent constitutional bodies, or must be a
quasi-judicial body or local government unit. Otherwise, such
government office, entity, or agency has no legal and
constitutional basis for its existence.
The CCP does not fall under the Legislative or Judicial
branches of government. The CCP is also not one of the
independent constitutional bodies. Neither is the CCP a quasijudicial body nor a local government unit. Thus, the CCP must
fall under the Executive branch. Under the Revised

Administrative Code of 1987, any agency "not placed by law

or order creating them under any specific department" falls
"under the Office of the President."
Since the President exercises control over "all the executive
departments, bureaus, and offices," the President necessarily
exercises control over the CCP which is an office in the
Executive branch. In mandating that the President "shall have
control of all executive . . . offices," Section 17, Article VII of
the 1987 Constitution does not exempt any executive office
one performing executive functions outside of the
independent constitutional bodies from the Presidents
power of control. There is no dispute that the CCP performs
executive, and not legislative, judicial, or quasi-judicial
functions.
The Presidents power of control applies to the acts or
decisions of all officers in the Executive branch. This is true
whether such officers are appointed by the President or by
heads of departments, agencies, commissions, or boards. The
power of control means the power to revise or reverse the
acts or decisions of a subordinate officer involving the
exercise of discretion.
In short, the President sits at the apex of the Executive
branch, and exercises "control of all the executive
departments, bureaus, and offices." There can be no instance
under the Constitution where an officer of the Executive
branch is outside the control of the President. The Executive
branch is unitary since there is only one President vested with
executive power exercising control over the entire Executive
branch. Any office in the Executive branch that is not under
the control of the President is a lost command whose
existence is without any legal or constitutional basis.
(Emphasis supplied)
An overwhelming four-fifths majority of the PNRC Board are
private sector individuals elected to the PNRC Board by the
private sector members of the PNRC. The PNRC Board
exercises all corporate powers of the PNRC. The PNRC is
controlled by private sector individuals. Decisions or actions of
the PNRC Board are not reviewable by the President. The
President cannot reverse or modify the decisions or actions of
the PNRC Board. Neither can the President reverse or modify
the decisions or actions of the PNRC Chairman. It is the PNRC
Board that can review, reverse or modify the decisions or
actions of the PNRC Chairman. This proves again that the
office of the PNRC Chairman is a private office, not a
government office.1avvphi1
Although the State is often represented in the governing
bodies of a National Society, this can be justified by the need
for proper coordination with the public authorities, and the
government representatives may take part in decision-making
within a National Society. However, the freely-elected
representatives of a National Societys active members must
remain in a large majority in a National Societys governing
bodies.19
The PNRC is not government-owned but privately owned. The
vast majority of the thousands of PNRC members are private
individuals, including students. Under the PNRC Charter, those
who contribute to the annual fund campaign of the PNRC are
entitled to membership in the PNRC for one year. Thus, any
one between 6 and 65 years of age can be a PNRC member
for one year upon contributing P35, P100, P300, P500
or P1,000 for the year.20 Even foreigners, whether residents or
not, can be members of the PNRC. Section 5 of the PNRC
Charter, as amended by Presidential Decree No. 1264, 21 reads:
SEC. 5. Membership in the Philippine National Red Cross shall
be open to the entire population in the Philippines regardless
of citizenship. Any contribution to the Philippine National Red
Cross Annual Fund Campaign shall entitle the contributor to
membership for one year and said contribution shall be
deductible in full for taxation purposes.
Thus, the PNRC is a privately owned, privately funded, and
privately run charitable organization. The PNRC is not a
government-owned or controlled corporation.

Petitioners anchor their petition on the 1999 case of

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

Sec. 16. The Congress shall not, except by general law,

provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled
corporations may be created or established by special
charters in the interest of the common good and subject to
the test of economic viability.

SEC. 2. General Terms Defined. x x x

In short, Congress cannot enact a law creating a private

corporation with a special charter. Such legislation would be
unconstitutional. Private corporations may exist only under a
general law. If the corporation is private, it must necessarily
exist under a general law. Stated differently, only corporations
created under a general law can qualify as private
corporations. Under existing laws, the general law is the
Corporation Code, except that the Cooperative Code governs
the incorporation of cooperatives.

(13) Government-owned or controlled corporation refers to

any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either
wholly, or where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of
its capital stock: Provided, That government-owned or
controlled corporations may be further categorized by the
Department of the Budget, the Civil Service Commission, and
the Commission on Audit for purposes of the exercise and
discharge of their respective powers, functions and
responsibilities with respect to such corporations.(Boldfacing
and underscoring supplied)
A government-owned or controlled corporation must be
owned by the government, and in the case of a stock
corporation, at least a majority of its capital stock must be
owned by the government. In the case of a non-stock
corporation, by analogy at least a majority of the members
must be government officials holding such membership by
appointment or designation by the government. Under this
criterion, and as discussed earlier, the government does not
own or control PNRC.
The PNRC Charter is Violative of the Constitutional Proscription
against the Creation of Private Corporations by Special Law
The 1935 Constitution, as amended, was in force when the
PNRC was created by special charter on 22 March 1947.
Section 7, Article XIV of the 1935 Constitution, as amended,
reads:
SEC. 7. The Congress shall not, except by general law, provide
for the formation, organization, or regulation of private
corporations, unless such corporations are owned or
controlled by the Government or any subdivision or
instrumentality thereof.
The subsequent 1973 and 1987 Constitutions contain similar
provisions prohibiting Congress from creating private
corporations except by general law. Section 1 of the PNRC
Charter, as amended, creates the PNRC as a "body corporate
and politic," thus:
SECTION 1. There is hereby created in the Republic of the
Philippines a body corporate and politic to be the voluntary
organization officially designated to assist the Republic of the
Philippines in discharging the obligations set forth in the
Geneva Conventions and to perform such other duties as are
inherent upon a National Red Cross Society. The national
headquarters of this Corporation shall be located in
Metropolitan Manila. (Emphasis supplied)
In Feliciano v. Commission on Audit,23 the Court explained the
constitutional provision prohibiting Congress from creating
private corporations in this wise:
We begin by explaining the general framework under the
fundamental law. The Constitution recognizes two classes of
corporations. The first refers to private corporations created
under a general law. The second refers to government-owned
or controlled corporations created by special charters. Section
16, Article XII of the Constitution provides:

The Constitution emphatically prohibits the creation of private

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

The Constitution authorizes Congress to create governmentowned or controlled corporations through special charters.
Since private corporations cannot have special charters, it
follows that Congress can create corporations with special
charters only if such corporations are government-owned or
controlled.24 (Emphasis supplied)
In Feliciano, the Court held that the Local Water Districts are
government-owned or controlled corporations since they exist
by virtue of Presidential Decree No. 198, which constitutes
their special charter. The seed capital assets of the Local
Water Districts, such as waterworks and sewerage facilities,
were public property which were managed, operated by or
under the control of the city, municipality or province before
the assets were transferred to the Local Water Districts. The
Local Water Districts also receive subsidies and loans from the
Local Water Utilities Administration (LWUA). In fact, under the
2009 General Appropriations Act,25 the LWUA has a budget
amounting to P400,000,000 for its subsidy
requirements.26 There is no private capital invested in
the Local Water Districts. The capital assets and operating
funds of the Local Water Districts all come from the
government, either through transfer of assets, loans,
subsidies or the income from such assets or funds.
The government also controls the Local Water Districts
because the municipal or city mayor, or the provincial
governor, appoints all the board directors of the Local Water
Districts. Furthermore, the board directors and other
personnel of the Local Water Districts are government
employees subject to civil service laws and anti-graft laws.
Clearly, the Local Water Districts are considered governmentowned or controlled corporations not only because of their
creation by special charter but also because the government
in fact owns and controls the Local Water Districts.
Just like the Local Water Districts, the PNRC was created
through a special charter. However, unlike the Local Water
Districts, the elements of government ownership and control
are clearly lacking in the PNRC. Thus, although the PNRC is
created by a special charter, it cannot be considered a
government-owned or controlled corporation in the absence of
the essential elements of ownership and control by the
government. In creating the PNRC as a corporate entity,
Congress was in fact creating a private corporation. However,
the constitutional prohibition against the creation of private
corporations by special charters provides no exception even
for non-profit or charitable corporations. Consequently, the
PNRC Charter, insofar as it creates the PNRC as a private
corporation and grants it corporate powers, 27 is void for being
unconstitutional. Thus, Sections
1,28 2,29 3,304(a),31 5,32 6,33 7,34 8,35 9,36 10,37 11,38 12,39 and
1340 of the PNRC Charter, as amended, are void.
The other provisions41 of the PNRC Charter remain valid as
they can be considered as a recognition by the State that the
unincorporated PNRC is the local National Society of the
International Red Cross and Red Crescent Movement, and thus
entitled to the benefits, exemptions and privileges set forth in

the PNRC Charter. The other provisions of the PNRC Charter

implement the Philippine Governments treaty obligations
under Article 4(5) of the Statutes of the International Red
Cross and Red Crescent Movement, which provides that to be
recognized as a National Society, the Society must be "duly
recognized by the legal government of its country on the basis
of the Geneva Conventions and of the national legislation as a
voluntary aid society, auxiliary to the public authorities in the
humanitarian field."
In sum, we hold that the office of the PNRC Chairman is not a
government office or an office in a government-owned or
controlled corporation for purposes of the prohibition in
Section 13, Article VI of the 1987 Constitution. However, since
the PNRC Charter is void insofar as it creates the PNRC as a
private corporation, the PNRC should incorporate under the
Corporation Code and register with the Securities and
Exchange Commission if it wants to be a private corporation.
WHEREFORE, we declare that the office of the Chairman of the
Philippine National Red Cross is not a government office or an
office in a government-owned or controlled corporation for
purposes of the prohibition in Section 13, Article VI of the
1987 Constitution. We also declare that Sections 1, 2, 3, 4(a),
5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine
National Red Cross, or Republic Act No. 95, as amended by
Presidential Decree Nos. 1264 and 1643, are VOID because
they create the PNRC as a private corporation or grant it
corporate powers.
SO ORDERED.
G.R. No. 191109

July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the

PHILIPPINE RECLAMATION AUTHORITY (PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, on pure questions of law,
assailing the January 8, 2010 Order 1 of the Regional Trial
Court, Branch 195, Parafiaque City (RTC), which ruled that
petitioner Philippine Reclamation Authority (PRA) is a
government-owned and controlled corporation (GOCC), a
taxable entity, and, therefore, . not exempt from payment of
real property taxes. The pertinent portion of the said order
reads:
In view of the finding of this court that petitioner is not
exempt from payment of real property taxes, respondent
Paraaque City Treasurer Liberato M. Carabeo did not act xxx
without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack or in excess of jurisdiction in
issuing the warrants of levy on the subject properties.
WHEREFORE, the instant petition is dismissed. The Motion for
Leave to File and Admit Attached Supplemental Petition is
denied and the supplemental petition attached thereto is not
admitted.
The Public Estates Authority (PEA) is a government
corporation created by virtue of Presidential Decree (P.D.) No.
1084 (Creating the Public Estates Authority, Defining its
Powers and Functions, Providing Funds Therefor and For Other
Purposes) which took effect on February 4,
1977 to provide a coordinated, economical and efficient
reclamation of lands, and the administration and operation of
lands belonging to, managed and/or operated by, the
government with the object of maximizing their utilization and
hastening their development consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No.
525 issued by then President Ferdinand Marcos, PEA was
designated as the agency primarily responsible for

integrating, directing and coordinating all reclamation projects

for and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo
issued E.O. No. 380 transforming PEA into PRA, which shall
perform all the powers and functions of the PEA relating to
reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of
the foreshore and offshore areas of Manila Bay, including
those located in Paraaque City, and was issued Original
Certificates of Title (OCT Nos. 180, 202, 206, 207, 289, 557,
and 559) and Transfer Certificates of Title (TCT Nos. 104628,
7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.
On February 19, 2003, then Paraaque City Treasurer Liberato
M. Carabeo (Carabeo) issued Warrants of Levy on PRAs
reclaimed properties (Central Business Park and Barangay San
Dionisio) located in Paraaque City based on the assessment
for delinquent real property taxes made by then Paraaque
City Assessor Soledad Medina Cue for tax years 2001 and
2002.
On March 26, 2003, PRA filed a petition for prohibition with
prayer for temporary restraining order (TRO) and/or writ of
preliminary injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order
denying PRAs petition for the issuance of a temporary
restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the
latter not to proceed with the public auction of the subject
reclaimed properties on April 7, 2003. In response, Carabeo
sent a letter stating that the public auction could not be
deferred because the RTC had already denied PRAs TRO
application.
On April 25, 2003, the RTC denied PRAs prayer for the
issuance of a writ of preliminary injunction for being moot and
academic considering that the auction sale of the subject
properties on April 7, 2003 had already been consummated.
On August 3, 2009, after an exchange of several pleadings
and the failure of both parties to arrive at a compromise
agreement, PRA filed a Motion for Leave to File and Admit
Attached Supplemental Petition which sought to declare as
null and void the assessment for real property taxes, the levy
based on the said assessment, the public auction sale
conducted on April 7, 2003, and the Certificates of Sale issued
pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing
PRAs petition. In ruling that PRA was not exempt from
payment of real property taxes, the RTC reasoned out that it
was a GOCC under Section 3 of P.D. No. 1084. It was
organized as a stock corporation because it had an authorized
capital stock divided into no par value shares. In fact, PRA
admitted its corporate personality and that said properties
were registered in its name as shown by the certificates of
title. Therefore, as a GOCC, local tax exemption is withdrawn
by virtue of Section 193 of Republic Act (R.A.) No. 7160 Local
Government Code (LGC) which was the prevailing law in 2001
and 2002 with respect to real property taxation. The RTC also
ruled that the tax exemption claimed by PRA under E.O. No.
654 had already been expressly repealed by R.A. No. 7160
and that PRA failed to comply with the procedural
requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing
the January 8, 2010 RTC Order based on the following
GROUNDS
I
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT
PETITIONER IS LIABLE TO PAY REAL PROPERTY TAX ON THE
SUBJECT RECLAIMED LANDS CONSIDERING

THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF

THE NATIONAL GOVERNMENT AND IS, THEREFORE, EXEMPT
FROM PAYMENT OF REAL PROPERTY TAX UNDER SECTIONS
234(A) AND 133(O) OF REPUBLIC ACT 7160 OR THE LOCAL
GOVERNMENT CODE VIS--VIS MANILA INTERNATIONAL
AIRPORT AUTHORITY V. COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER
THAT RECLAIMED LANDS ARE PART OF THE PUBLIC DOMAIN
AND, HENCE, EXEMPT FROM REAL PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the
Introductory Provisions of the Administrative Code. Neither is
it a GOCC under Section 16, Article XII of the 1987
Constitution because it is not required to meet the test of
economic viability. Instead, PRA is a government
instrumentality vested with corporate powers and performing
an essential public service pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. Although it
has a capital stock divided into shares, it is not authorized to
distribute dividends and allotment of surplus and profits to its
stockholders. Therefore, it may not be classified as a stock
corporation because it lacks the second requisite of a stock
corporation which is the distribution of dividends and
allotment of surplus and profits to the stockholders.
It insists that it may not be classified as a non-stock
corporation because it has no members and it is not organized
for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service,
or similar purposes, like trade, industry, agriculture and like
chambers as provided in Section 88 of the Corporation Code.
Moreover, PRA points out that it was not created to compete
in the market place as there was no competing reclamation
company operated by the private sector. Also, while PRA is
vested with corporate powers under P.D. No. 1084, such
circumstance does not make it a corporation but merely an
incorporated instrumentality and that the mere fact that an
incorporated instrumentality of the National Government
holds title to real property does not make said instrumentality
a GOCC. Section 48, Chapter 12, Book I of the Administrative
Code of 1987 recognizes a scenario where a piece of land
owned by the Republic is titled in the name of a department,
agency or instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of
the National Government, it is exempt from payment of real
property tax except when the beneficial use of the real
property is granted to a taxable person. PRA claims that based
on Section 133(o) of the LGC, local governments cannot tax
the national government which delegate to local governments
the power to tax.
It explains that reclaimed lands are part of the public domain,
owned by the State, thus, exempt from the payment of real
estate taxes. Reclaimed lands retain their inherent potential
as areas for public use or public service. While the subject
reclaimed lands are still in its hands, these lands remain
public lands and form part of the public domain. Hence, the
assessment of real property taxes made on said lands, as well
as the levy thereon, and the public sale thereof on April 7,
2003, including the issuance of the certificates of sale in favor
of the respondent Paraaque City, are invalid and of no force
and effect.
On the other hand, the City of Paraaque (respondent) argues
that PRA since its creation consistently represented itself to be
a GOCC. PRAs very own charter (P.D. No. 1084) declared it to
be a GOCC and that it has entered into several thousands of
contracts where it represented itself to be a GOCC. In fact,
PRA admitted in its original and amended petitions and pretrial brief filed with the RTC of Paraaque City that it was a
GOCC.
Respondent further argues that PRA is a stock corporation
with an authorized capital stock divided into 3 million no par
value shares, out of which 2 million shares have been
subscribed and fully paid up. Section 193 of the LGC of 1991
has withdrawn tax exemption privileges granted to or

presently enjoyed by all persons, whether natural or juridical,

including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the
payment of real property tax.
THE COURTS RULING
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a GOCC as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to
any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x.
On the other hand, Section 2(10) of the Introductory
Provisions of the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. x x x
From the above definitions, it is clear that a GOCC must be
"organized as a stock or non-stock corporation" while an
instrumentality is vested by law with corporate powers.
Likewise, when the law makes a government instrumentality
operationally autonomous, the instrumentality remains part of
the National Government machinery although not integrated
with the department framework.
When the law vests in a government instrumentality
corporate powers, the instrumentality does not necessarily
become a corporation. Unless the government instrumentality
is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental
but also corporate powers.
Many government instrumentalities are vested with corporate
powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency
or instrumentality is deemed a GOCC. Examples are the
Mactan International Airport Authority, the Philippine Ports
Authority, the University of the Philippines, and Bangko
Sentral ng Pilipinas. All these government instrumentalities
exercise corporate powers but they are not organized as stock
or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These
government instrumentalities are sometimes loosely called
government corporate entities. They are not, however, GOCCs
in the strict sense as understood under the Administrative
Code, which is the governing law defining the legal
relationship and status of government entities. 2
Correlatively, Section 3 of the Corporation Code defines a
stock corporation as one whose "capital stock is divided into
shares and x x x authorized to distribute to the holders of
such shares dividends x x x." Section 87 thereof defines a
non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or
officers." Further, Section 88 provides that non-stock
corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers."

Two requisites must concur before one may be classified as a

stock corporation, namely: (1) that it has capital stock divided
into shares; and (2) that it is authorized to distribute dividends
and allotments of surplus and profits to its stockholders. If
only one requisite is present, it cannot be properly classified
as a stock corporation. As for non-stock corporations, they
must have members and must not distribute any part of their
income to said members.3
In the case at bench, PRA is not a GOCC because it is neither a
stock nor a non-stock corporation. It cannot be considered as
a stock corporation because although it has a capital stock
divided into no par value shares as provided in Section 74 of
P.D. No. 1084, it is not authorized to distribute dividends,
surplus allotments or profits to stockholders. There is no
provision whatsoever in P.D. No. 1084 or in any of the
subsequent executive issuances pertaining to PRA,
particularly, E.O. No. 525,5 E.O. No. 6546 and EO No. 7987 that
authorizes PRA to distribute dividends, surplus allotments or
profits to its stockholders.
PRA cannot be considered a non-stock corporation either
because it does not have members. A non-stock corporation
must have members.8 Moreover, it was not organized for any
of the purposes mentioned in Section 88 of the Corporation
Code. Specifically, it was created to manage all government
reclamation projects.
Furthermore, there is another reason why the PRA cannot be
classified as a GOCC. Section 16, Article XII of the 1987
Constitution provides as follows:
Section 16. The Congress shall not, except by general law,
provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled
corporations may be created or established by special
charters in the interest of the common good and subject to
the test of economic viability.
The fundamental provision above authorizes Congress to
create GOCCs through special charters on two conditions: 1)
the GOCC must be established for the common good; and 2)
the GOCC must meet the test of economic viability. In this
case, PRA may have passed the first condition of common
good but failed the second one - economic viability.
Undoubtedly, the purpose behind the creation of PRA was not
for economic or commercial activities. Neither was it created
to compete in the market place considering that there were
no other competing reclamation companies being operated by
the private sector. As mentioned earlier, PRA was created
essentially to perform a public service considering that it was
primarily responsible for a coordinated, economical and
efficient reclamation, administration and operation of lands
belonging to the government with the object of maximizing
their utilization and hastening their development consistent
with the public interest. Sections 2 and 4 of P.D. No. 1084
reads, as follows:
Section 2. Declaration of policy. It is the declared policy of the
State to provide for a coordinated, economical and efficient
reclamation of lands, and the administration and operation of
lands belonging to, managed and/or operated by the
government, with the object of maximizing their utilization
and hastening their development consistent with the public
interest.
Section 4. Purposes. The Authority is hereby created for the
following purposes:
(a) To reclaim land, including foreshore and
submerged areas, by dredging, filling or other
means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds of
lands, buildings, estates and other forms of real
property, owned, managed, controlled and/or
operated by the government.
(c) To provide for, operate or administer such
services as may be necessary for the efficient,

economical and beneficial utilization of the above

properties.
The twin requirement of common good and economic viability
was lengthily discussed in the case of Manila International
Airport Authority v. Court of Appeals,9 the pertinent portion of
which reads:
Third, the government-owned or controlled corporations
created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the
Constitution.
The first condition is that the government-owned or controlled
corporation must be established for the common good. The
second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section
16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law,
provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled
corporations may be created or established by special
charters in the interest of the common good and subject to
the test of economic viability.
The Constitution expressly authorizes the legislature to create
"government-owned or controlled corporations" through
special charters only if these entities are required to meet the
twin conditions of common good and economic viability. In
other words, Congress has no power to create governmentowned or controlled corporations with special charters unless
they are made to comply with the two conditions of common
good and economic viability. The test of economic viability
applies only to government-owned or controlled corporations
that perform economic or commercial activities and need to
compete in the market place. Being essentially economic
vehicles of the State for the common good meaning for
economic development purposes these government-owned
or controlled corporations with special charters are usually
organized as stock corporations just like ordinary private
corporations.
In contrast, government instrumentalities vested with
corporate powers and performing governmental or public
functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the
common good, services that every modern State must provide
its citizens. These instrumentalities need not be economically
viable since the government may even subsidize their entire
operations. These instrumentalities are not the "governmentowned or controlled corporations" referred to in Section 16,
Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the
legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or
public functions. Congress has plenary authority to create
government instrumentalities vested with corporate powers
provided these instrumentalities perform essential
government functions or public services. However, when the
legislature creates through special charters corporations that
perform economic or commercial activities, such entities
known as "government-owned or controlled corporations"
must meet the test of economic viability because they
compete in the market place.
This is the situation of the Land Bank of the Philippines and
the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive
their incometo meet operating expenses solely from
commercial transactions in competition with the private
sector. The intent of the Constitution is to prevent the creation
of government-owned or controlled corporations that cannot
survive on their own in the market place and thus merely
drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic
viability, explained to the Constitutional Commission the
purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is

really that when the government creates a corporation, there
is a sense in which this corporation becomes exempt from the
test of economic performance. We know what happened in the
past. If a government corporation loses, then it makes its
claim upon the taxpayers' money through new equity
infusions from the government and what is always invoked is
the common good. That is the reason why this year, out of a
budget of P115 billion for the entire government, about P28
billion of this will go into equity infusions to support a few
government financial institutions. And this is all taxpayers'
money which could have been relocated to agrarian reform, to
social services like health and education, to augment the
salaries of grossly underpaid public employees. And yet this is
all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY"
together with the "common good," this becomes a restraint on
future enthusiasts for state capitalism to excuse themselves
from the responsibility of meeting the market test so that they
become viable. And so, Madam President, I reiterate, for the
committee's consideration and I am glad that I am joined in
this proposal by Commissioner Foz, the insertion of the
standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST,"
together with the common good.1wphi1
Father Joaquin G. Bernas, a leading member of the
Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase
"in the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they
must show capacity to function efficiently in business and that
they should not go into activities which the private sector can
do better. Moreover, economic viability is more than financial
viability but also includes capability to make profit and
generate benefits not quantifiable in financial terms.
Clearly, the test of economic viability does not apply to
government entities vested with corporate powers and
performing essential public services. The State is obligated to
render essential public services regardless of the economic
viability of providing such service. The non-economic viability
of rendering such essential public service does not excuse the
State from withholding such essential services from the
public.
However, government-owned or controlled corporations with
special charters, organized essentially for economic or
commercial objectives, must meet the test of economic
viability. These are the government-owned or controlled
corporations that are usually organized under their special
charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines.
These are the government-owned or controlled corporations,
along with government-owned or controlled corporations
organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in
Section 2(10) of the Administrative Code. [Emphases
supplied]
This Court is convinced that PRA is not a GOCC either under
Section 2(3) of the Introductory Provisions of the
Administrative Code or under Section 16, Article XII of the
1987 Constitution. The facts, the evidence on record and
jurisprudence on the issue support the position that PRA was
not organized either as a stock or a non-stock corporation.
Neither was it created by Congress to operate commercially
and compete in the private market. Instead, PRA is a
government instrumentality vested with corporate powers and
performing an essential public service pursuant to Section
2(10) of the Introductory Provisions of the Administrative
Code. Being an incorporated government instrumentality, it is
exempt from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the
subject reclaimed lands managed by PRA. On the other hand,
Section 234(a) of the LGC, in relation to its Section 133(o),
exempts PRA from paying realty taxes and protects it from the
taxing powers of local government units.

Sections 234(a) and 133(o) of the LGC provide, as follows:

SEC. 234. Exemptions from Real Property Tax The following
are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a
taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the
Republic of the Philippines (the Republic) is exempt from real
property tax unless the beneficial use thereof has been
granted to a taxable person. In this case, there is no proof
that PRA granted the beneficial use of the subject reclaimed
lands to a taxable entity. There is no showing on record either
that PRA leased the subject reclaimed properties to a private
taxable entity.
This exemption should be read in relation to Section 133(o) of
the same Code, which prohibits local governments from
imposing "taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x." The
Administrative Code allows real property owned by the
Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be
exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real
property to an agency or instrumentality of the national
government. This happens when the title of the real property
is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption,
unless "the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person."10
The rationale behind Section 133(o) has also been explained
in the case of the Manila International Airport Authority,11 to
wit:
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the power
to tax. While the 1987 Constitution now includes taxation as
one of the powers of local governments, local governments
may only exercise such power "subject to such guidelines and
limitations as the Congress may provide."
When local governments invoke the power to tax on national
government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never
presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax
national government instrumentalities.
Another rule is that a tax exemption is strictly construed
against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is
construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v. Macaraig,
Jr.:

The reason for the rule does not apply in the case of
exemptions running to the benefit of the government itself or
its agencies. In such case the practical effect of an exemption
is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For
these reasons, provisions granting exemptions to government
agencies may be construed liberally, in favor of non taxliability of such agencies.
There is, moreover, no point in national and local
governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from
one government pocket to another.
There is also no reason for local governments to tax national
government instrumentalities for rendering essential public
services to inhabitants of local governments. The only
exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential
public services for sound and compelling policy
considerations. There must be express language in the law
empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is
resolved against local governments.
Thus, Section 133 of the Local Government Code states that
"unless otherwise provided" in the Code, local governments
cannot tax national government instrumentalities. As this
Court held in Basco v. Philippine Amusements and Gaming
Corporation:
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National
policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the
power to tax as "a tool for regulation." (U.S. v. Sanchez, 340
US 42)
The power to tax which was called by Justice Marshall as the
"power to destroy" (McCulloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it. [Emphases
supplied]
The Court agrees with PRA that the subject reclaimed lands
are still part of the public domain, owned by the State and,
therefore, exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as
follows:
Section 2. All lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces of potential
energy, fisheries, forests or timber, wildlife, flora and fauna,
and other natural resources are owned by the State. With the
exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control
and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production,
joint venture, or production-sharing agreements with Filipino
citizens, or corporations or associations at least 60 per

centum of whose capital is owned by such citizens. Such

agreements may be for a period not exceeding twenty-five
years, renewable for not more than twenty-five years, and
under such terms and conditions as may provided by law. In
cases of water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of waterpower,
beneficial use may be the measure and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties
belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others
of similar character;
(2) Those which belong to the State, without being
for public use, and are intended for some public
service or for the development of the national
wealth. [Emphases supplied]
Here, the subject lands are reclaimed lands, specifically
portions of the foreshore and offshore areas of Manila Bay. As
such, these lands remain public lands and form part of the
public domain. In the case of Chavez v. Public Estates
Authority and AMARI Coastal Development Corporation, 12 the
Court held that foreshore and submerged areas irrefutably
belonged to the public domain and were inalienable unless
reclaimed, classified as alienable lands open to disposition
and further declared no longer needed for public service. The
fact that alienable lands of the public domain were transferred
to the PEA (now PRA) and issued land patents or certificates of
title in PEAs name did not automatically make such lands
private. This Court also held therein that reclaimed lands
retained their inherent potential as areas for public use or
public service.
As the central implementing agency tasked to undertake
reclamation projects nationwide, with authority to sell
reclaimed lands, PEA took the place of DENR as the
government agency charged with leasing or selling reclaimed
lands of the public domain. The reclaimed lands being leased
or sold by PEA are not private lands, in the same manner that
DENR, when it disposes of other alienable lands, does not
dispose of private lands but alienable lands of the public
domain. Only when qualified private parties acquire these
lands will the lands become private lands. In the hands of the
government agency tasked and authorized to dispose of
alienable of disposable lands of the public domain, these
lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall
hold lands of the public domain" as well as "any and all kinds
of lands." PEA can hold both lands of the public domain and
private lands. Thus, the mere fact that alienable lands of the
public domain like the Freedom Islands are transferred to PEA
and issued land patents or certificates of title in PEA's name
does not automatically make such lands private. 13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I,
Book III of the Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private
Dominion of the Government.(1)The President shall have the power to reserve for
settlement or public use, and for specific public purposes, any
of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter
remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are
reserved lands for public use. They are properties of public
dominion. The ownership of such lands remains with the State
unless they are withdrawn by law or presidential proclamation
from public use.

Under Section 2, Article XII of the 1987 Constitution, the

foreshore and submerged areas of Manila Bay are part of the
"lands of the public domain, waters x x x and other natural
resources" and consequently "owned by the State." As such,
foreshore and submerged areas "shall not be alienated,"
unless they are classified as "agricultural lands" of the public
domain. The mere reclamation of these areas by PEA does not
convert these inalienable natural resources of the State into
alienable or disposable lands of the public domain. There
must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or disposable
and open to disposition or concession. Moreover, these
reclaimed lands cannot be classified as alienable or
disposable if the law has reserved them for some public or
quasi-public use.
As the Court has repeatedly ruled, properties of public
dominion are not subject to execution or foreclosure
sale.14 Thus, the assessment, levy and foreclosure made on
the subject reclaimed lands by respondent, as well as the
issuances of certificates of title in favor of respondent, are
without basis.
WHEREFORE, the petition is GRANTED. The January 8, 2010
Order of the Regional Trial Court, Branch 195, Paraaque City,
is REVERSED and SET ASIDE. All reclaimed properties owned
by the Philippine Reclamation Authority are hereby declared
EXEMPT from real estate taxes. All real estate tax
assessments, including the final notices of real estate tax
delinquencies, issued by the City of Paraaque on the subject
reclaimed properties; the assailed auction sale, dated April 7,
2003; and the Certificates of Sale subsequently issued by the
Paraaque City Treasurer in favor of the City of Paraaque, are
all declared VOID.
SO ORDERED.
G.R. No. 167807

December 6, 2011

MANOLITO AGRA, EDMUNDO P. AGUILAR, IMELDA I.

AMERICA, EVELYN R. CONCEPCION, DIOSDADO A.
CORSIGA, PERCIVAL G. CRISOSTOMO, CESAR E.
FAELDON, MA. REGINA C. FILOTEO, ZARINA O.
HIPOLITO, JANICE F. MABILOG, ROBERTO MARTINEZ,
JONATHAN MENDROS, NORMAN MIRASOL, EDRICK V.
MOZO, LORENZO A. PENOLIAR, LOURDES QUINTERO,
GLORIA GUDELIA SAMBO, DEMOSTHENES V. ERENO,
RHONEIL LIBUNAO, ILUGEN P. MABANSAG, JOSEPHINE
MAGBOO, MADELEINE ANN B. BAUTISTA, ULYSSES C.
BIBON, ANGELINA RAMOS, EDUARDO M. SUMAYOD,
DOMINGO TAMAYO, HERACLEA M. AFABLE, ANNA LISSA
CREENCIA, CHONA O. DELA CRUZ, MERCY NANETTE C.
IBOY, JEAN A. LUPANGO, MARIE DELA O. NA-OBRE,
PERLA LUZ OCAMPO, ROUCHELLEJANE PAYURAN,
ABIGAIL E. PORMENTO, THERESITA A. RIVERA,
MILAGROS ROBLES, JOSEPHINE ROSILLO, ARSENIA M.
SACDALAN, PRECILA TUBIO, IRENE H. VIRAY, WILFREDO
O. BUCSIT, BONIFACIO DAVID, ROSARIO P. DIZON,
EXEQUIEL EVALE, JR., RONALD M. MANALO, HENRIETTA
A. MARAMOT, FELICISIMO U. PULA, JONAS F. SALVADOR,
ERNESTO SILVANO, JR., ENRICO G. VELGADO, FEDERICO
VILLAR, JR., ARNEL C. ABEN, ABDULMALIK
BACARAMAN, VIRGINIA BORJA, ANTONIO CARANDANG,
JR., RINA RIEL DOLINA, MANOLITO FAJARDO, ARVIN B.
GARDUQUE, CAYETANO JUAREZ, MA. SHERYL
LABONETE, HERCONIDA T. LAZARO, MARITESS
MARTINEZ, AURELIO L. MENDOZA, ARNEL M. NOGOT,
GERARDO G. POMOY, DENCIO RAMOS, CORAZON
TAGUDIN, ANAFEL B. TIO, AGATONA S. ZALATAR,
MARGIE EULALIA CALMA, RENEE D. MELLA, ARLIQUIN
AMERICA, DEANNA B. AYSON, GERALDINE J. CALICA,
CHESTER FERNANDEZ, LUISA I. HERNANDEZ, CYNTHIA
E. LISONDRA, ALONA S. LLVATA, CLAIRE P. QUETUA,
ROSEMARIE S. QUINTOS, RUTH S. RAMIREZ, LINO
VERMUDO, JR., ROLANDO R. APOLONIO, CELIA I.
ACCAD, MA. ALMA AYOS, PAMELA CASTILLO, ARNOLD
DUPA, LAURENCE FELICIANO, LEANDRO P. LIBRANDO,
MARILOU B. LOPEZ, AMELITA P. LUCERO, ESTERBELLE T.
SIBALA, JONA ANDAL, ANDRES RATIO, MA. THERESA Q.
MALLANO, DANILO P. LIGUA, JOY ABOGADO, VIRGINIA C.
STA. ANA, ALBERNARD BAUTISTA, JUBANE DE PEDRO,
PAUL DINDO C. DELA CRUZ, ALEJO B. INCISO, SHERWIN
MAADA, JESUS T. OBIDOS, JOEL B. ARELLANO,

ALFREDO CABRERA, MARY LYNN E. GELLOR, JOHN

JOSEPH M. MAGTULOY, MICHELLE MONTEMAYOR, RHINA
ANGUE, NORBERTO BAYAGA, JR., JUSTINO CALVEZ,
EDWIN CONCEPCION, ALAN JOSEPH IBE, CESAR
JACINTO, JOSERITA MADRID, IRENE MARTIN, GINA T.
QUINDO, RENATO SUBIJANO, NIELMA E. VERZOSA, ALL
NATIONAL ELECTRIFICATION ADMINISTRATION
EMPLOYEES, REPRESENTED BY REGINA
FILOTEO, Petitioners,
vs.
COMMISSION ON AUDIT, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a special civil action via certiorari under Rule 65 in
relation to Rule 64 of the 1997 Revised Rules of Civil
Procedure from the Decision1 of the Commission on Audit
(COA) No. 2003-134 dated October 9, 2003, which denied the
grant of rice allowance to employees of the National
Electrification Administration (NEA) who were hired after June
30, 1989 (petitioners) and COAs Resolution2 No. 2005-010
dated February 24, 2005, which likewise denied petitioners
Motion for Reconsideration.
On July 1, 1989, Republic Act No. 6758 (the Compensation and
Position Classification Act of 1989) took effect, Section 12 of
which provides:
Sec. 12. Consolidation of Allowances and Compensation. All
allowances, except for representation and transportation
allowances; clothing and laundry allowances; subsistence
allowance of marine officers and crew on board government
vessels and hospital personnel; hazard pay; allowances of
foreign service personnel stationed abroad; and such other
additional compensation not otherwise specified herein as
may be determined by the DBM, shall be deemed included in
the standardized salary rates herein prescribed. Such other
additional compensation, whether in cash or in kind, being
received by incumbents only as of July 1, 1989 not integrated
into the standardized salary rates shall continue to be
authorized.
Existing additional compensation of any national government
official or employee paid from local funds of a local
government unit shall be absorbed into the basic salary of
said official or employee and shall be paid by the National
Government. (Emphasis ours.)
Pursuant to its authority to implement Republic Act No. 6758
under Section 23 thereof, the Department of Budget and
Management (DBM) on October 2, 1989 issued Corporate
Compensation Circular No. 10 (DBM-CCC No. 10), otherwise
known as the "Implementing Rules and Regulations of R.A. No.
6758." Paragraph 5.5 of DBM-CCC No. 10 reads:
5.5 The following allowances/fringe benefits authorized to
GOCCs/GFIs pursuant to the aforementioned issuances are
not likewise to be integrated into the basic salary and
allowed to be continued only for incumbents of positions as
of June 30, 1989 who are authorized and actually receiving
said allowances/benefits as of said date, at the same terms
and conditions prescribed in said issuances[:]
5.5.1 Rice Subsidy;
5.5.2 Sugar Subsidy;
5.5.3 Death Benefits other than those granted by the
GSIS;
5.5.4 Medical/dental/optical allowances/benefits;
5.5.5 Childrens Allowance;
5.5.6 Special Duty Pay/Allowance;
5.5.7 Meal Subsidy;

5.5.8 Longevity Pay; and

dated January 25, 1995. Portions of the Indorsement read as

follows:

5.5.9 Tellers Allowance. (Emphasis added.)

A group of NEA employees who were hired after October 31,
19893 claimed that they did not receive meal, rice, and
childrens allowances. Thus, on July 23, 1999, they filed a
special civil action for mandamus against NEA and its Board of
Administrators before the Regional Trial Court (RTC), Branch
88, Quezon City, docketed as SP. Civil Action No. Q-99-38275,
alleging violation of their right to the equal protection clause
under the Constitution.
On December 15, 1999, the RTC rendered its Decision 4 in their
favor, disposing of the case in the following manner:
WHEREFORE, foregoing considered, the petition is hereby
GRANTED directing the respondent NEA, its Board of
Administrators to forthwith settle the claims of the petitioners
and other employees similarly situated and extend to them
the benefits and allowances to which they are entitled but
which until now they have been deprived of as enumerated
under Section 5 of DBM CCC No. 10 and their inclusion in the
Provident Funds Membership, retroactive from the date of
their appointments up to the present or until their separation
from the service.5
At the instance of the complainants, the Branch Clerk of Court
of RTC Branch 88, Quezon City, Lily D. Labarda, issued a
CERTIFICATION6 dated January 24, 2000, which states:
This is to certify that the Decision dated December 16,
19997 of the above-entitled case which reads the dispositive
portion:
xxxx
is now final and executory.
This certification [is] issued upon the request of Ms. Blesilda B.
Aguilar for whatever legal purpose/s it may serve. 8
Afterwards, the Presiding Judge of RTC Branch 88, Quezon City
issued a Writ of Execution9 in SP. Civil Action No. Q-99-38275
on February 22, 2000.10 Thereafter, the RTC issued a Notice of
Garnishment against the funds of NEA with Development Bank
of the Philippines (DBP) to the extent of P16,581,429.00.11
NEA questioned before the Court of Appeals the Orders of the
lower court, and the case was docketed as CA-G.R. SP No.
62919. On July 4, 2002, the Court of Appeals rendered a
Decision12 declaring null and void the December 11, 2000
Resolution as well as the January 8, 2001 Order of the RTC,
and ordering the implementation of a writ of execution
against the funds of NEA. Thus, NEA filed a Petition for Review
on Certiorariwith this Court, docketed as G.R. No. 154200.
Meanwhile, the RTC held in abeyance the execution of its
December 15, 1999 Decision pending resolution of this Court
of the review on certiorari in National Electrification
Administration v. Morales.13
On July 24, 2007, this Court reversed and set aside the Court
of Appeals decision and described the subsequent events
relating to the case in this manner14 :
Meanwhile, in a letter dated June 28, 2000, former DBM
Secretary Benjamin E. Diokno informed NEA Administrator
Conrado M. Estrella III of the denial of the NEA request for a
supplemental budget on the ground that the claims under R.A.
No. 6758 which the RTC had ordered to be settled cannot be
paid because Morales, et al. are not "incumbents of positions
as of July 1, 1989 who are actually receiving and enjoying
such benefits."
Moreover, in an Indorsement dated March 23, 2000, the
Commission on Audit (COA) advised NEA against making
further payments in settlement of the claims of Morales, et al.
Apparently, COA had already passed upon claims similar to
those of Morales, et al. in its earlier "Decision No. 95-074"

This Office concurs with the above view. The court may
have exceeded its jurisdiction when it entertained the
petition for the entitlement of the after-hired
employees which had already been passed upon by
this Commission in COA Decision No. 95-074 dated
January 25, 1995. There, it was held that: "the adverse
action of this Commission sustaining the disallowance made
by the Auditor, NEA, on the payment of fringe benefits
granted to NEA employees hired from July 1, 1989 to
October 31, 1989 is hereby reconsidered. Accordingly,
subject disallowance is lifted."
Thus, employees hired after the extended date of
October 31, 1989, pursuant to the above COA decision
cannot defy that decision by filing a petition for
mandamus in the lower court. Presidential Decree No.
1445 and the 1987 Constitution prescribe that the only
mode for appeal from decisions of this Commission is
on certiorari to the Supreme Court in the manner
provided by law and the Rules of Court. Clearly, the
lower court had no jurisdiction when it entertained the
subject case of mandamus. And void decisions of the
lower court can never attain finality, much less be
executed. Moreover, COA was not made a party
thereto, hence, it cannot be compelled to allow the
payment of claims on the basis of the questioned
decision.
PREMISES CONSIDERED, the auditor of NEA should post-audit
the disbursement vouchers on the bases of this Commission's
decision particularly the above-cited COA Decision No. 94-074
[sic] and existing rules and regulations, as if there is no
decision of the court in the subject special civil action for
mandamus. At the same time, management should be
informed of the intention of this Office to question the validity
of the court decision before the Supreme Court through the
Office of the Solicitor General.
Parenthetically, the records at hand do not indicate when
Morales, et al. were appointed. Even the December [15], 1999
RTC Decision is vague for it merely states that they were
appointed after June 30, 1989, which could mean that they
were appointed either before the cut-off date of October 31,
1989 or after. Thus, there is not enough basis for this Court to
determine that the foregoing COA Decision No. 95-074
adversely affects Morales, et al.. Moreover, the records do not
show whether COA actually questioned the December 16,
1999 RTC Decision before this Court.15
The Court ruled that respondents therein could not proceed
against the funds of NEA "because the December [15], 1999
RTC Decision sought to be satisfied is not a judgment for a
specific sum of money susceptible of execution by
garnishment; it is a special judgment requiring petitioners to
settle the claims of respondents in accordance with existing
regulations of the COA."16 The Court further held as follows:
In its plain text, the December [15], 1999 RTC Decision merely
directs petitioners to "settle the claims of [respondents] and
other employees similarly situated." It does not require
petitioners to pay a certain sum of money to respondents. The
judgment is only for the performance of an act other than the
payment of money, implementation of which is governed by
Section 11, Rule 39 of the Rules of Court, which provides:
Section 11. Execution of special judgments. - When a
judgment requires the performance of any act other than
those mentioned in the two preceding sections, a certified
copy of the judgment shall be attached to the writ of
execution and shall be served by the officer upon the party
against whom the same is rendered, or upon any other person
required thereby, or by law, to obey the same, and such party
or person may be punished for contempt if he disobeys such
judgment.
xxxx
Garnishment is proper only when the judgment to be enforced
is one for payment of a sum of money.

The RTC exceeded the scope of its judgment when, in its

February 22, 2000 Writ of Execution, it directed petitioners to
"extend to [respondents] the benefits and allowances to which
they are entitled but which until now they have been deprived
of as enumerated under Sec. 5 of DBM CCC No. 10 and x x x
to cause their inclusion in the Provident Fund Membership."
Worse, it countenanced the issuance of a notice of
garnishment against the funds of petitioners with DBP to the
extent of P16,581,429.00 even when no such amount was
awarded in its December 16, 1999 Decision.
However, in its subsequent Orders dated May 17, 2000 and
January 8, 2001, the RTC attempted to set matters right by
directing the parties to now await the outcome of the legal
processes for the settlement of respondents claims.
That is only right.
Without question, petitioner NEA is a GOCC -- a juridical
personality separate and distinct from the government, with
capacity to sue and be sued. As such GOCC, petitioner NEA
cannot evade execution; its funds may be garnished or levied
upon in satisfaction of a judgment rendered against it.
However, before execution may proceed against it, a claim for
payment of the judgment award must first be filed with the
COA.
Under Commonwealth Act No. 327, as amended by Section 26
of P.D. No. 1445, it is the COA which has primary jurisdiction
to examine, audit and settle "all debts and claims of any sort"
due from or owing the Government or any of its subdivisions,
agencies and instrumentalities, including government-owned
or controlled corporations and their subsidiaries. With respect
to money claims arising from the implementation of R.A. No.
6758, their allowance or disallowance is for COA to decide,
subject only to the remedy of appeal by petition
for certiorari to this Court.
All told, the RTC acted prudently in halting implementation of
the writ of execution to allow the parties recourse to the
processes of the COA. It may be that the tenor of the March
23, 2000 Indorsement issued by COA already spells doom for
respondents claims; but it is not for this Court to preempt the
action of the COA on the post-audit to be conducted by it per
its Indorsement dated March 23, 2000.
In fine, it was grave error for the CA to reverse the RTC and
direct immediate implementation of the writ of execution
through garnishment of the funds of petitioners,
WHEREFORE, the petition is GRANTED. The July 4, 2002
Decision of the Court of Appeals is REVERSED andSET
ASIDE. The Resolution dated December 11, 2000 and Order
dated January 8, 2001 of the Regional Trial Court, Branch 88,
Quezon City in Special Civil Action No. Q-99-38275
are REINSTATED.17
Meantime, the Civil Service Commission issued Resolution No.
001295 dated June 1, 200118 and interpreted Section 12 of
Republic Act No. 6758 in this manner:
Material to the resolution of this instant request is Section 12
of SSL x x x.
xxxx
The Commission, x x x is of the view that this provision of law
does not imply that such other additional compensation not
integrated into the salary rates shall not be received by
employees appointed after July 1, 1989. The word "only"
before the phrase "as of July 1, 1989" does not refer to
incumbents but qualifies what additional compensation can be
continued together with the qualifying words "not integrated
into the standardized rates shall continue to be authorized."
The correct interpretation therefore is that, additional
compensation being received by employees not integrated
into the standardized rates as of July 1, 1989 shall continue to
be authorized and received/enjoyed by said employees,
whether or not said employee was appointed prior to or after
July 1, 1989.

A different interpretation will result in the creation of two

classes of employees, i.e., one class receiving less pay than
another class for substantially equal work. Said interpretation
will violate Section 2 of the SSL which provides, thus:
xxxx
Additionally, this interpretation will also violate the
constitutional precept that no person shall be denied the
equal protection of law (Section 1, Article III of the 1987
Constitution). Applying this precept the Supreme Court
declared that "equal protection of the law is against unde
favor on an individual or class (Tiu vs. Court of Appeals, GR
No. 127410, January 20, 1999).19
The Office of the Government Corporate Counsel (OGCC), in
response to the request of then NEA Administrator Manuel
Luis S. Sanchez, issued on August 14, 2001 its Opinion No.
157, s. 200120 declaring that the RTC decision, not having
been appealed, had become the law of the case which must
now be applied. The pertinent portion of such opinion reads:
HON. MANUEL LUIS S. SANCHEZ
Administrator
National Electrification Administration
NEA Road, Diliman, Quezon City
Re: Request for legal opinion on the propriety and applicability
to NEA employees hired after July 1, 1989 of OGCC Opinion
NO. 086, s. 2001
xxxx
Pursuant to law, subject Decision became final and executory
fifteen (15) days after its rendition, there being no appeal or
motion for reconsideration filed in the interim, as certified to
by Atty. Lily D. Labarda, Branch 88, Quezon City, on January
24, 2000.
The foregoing considered, this Office therefore cannot opine
otherwise save to uphold the supremacy and finality of the
aforequoted Decision of the Court on the matter. Its judgment
is now res judicata, hence, the controlling legal rule, as far as
Petitioners NEA employees are concerned, is that they must
be extended the benefits and allowances "to which they are
entitled but which until now they have been deprived of as
enumerated under Section 5 of DBM CCC No. 101 x x x,
retroactive from the date of their appointments up to the
present or until their separation from the service." This is the
law of the case which must now be applied. At any rate, we
have stated in OGCC Opinion No. 086, S. 2001 that even
employees hired after July 1, 1989 may receive the subject
benefits provided there is determination by the DBM that the
same have not been actually integrated into their basic
salaries.
Hence, your query is therefore answered in the affirmative. 21
Pursuant to the above opinion in its favor, the NEA Board of
Administrators issued Resolution No. 29 on August 9,
200122 approving the entitlement to rice, medical, children,
meal, and other related allowances to NEA employees hired
after October 31, 1989,23 and the payment of these benefits,
chargeable to its Personnel Services Savings. This resolution
was the outcome of the meeting of the NEA Board of
Administrators on the same date, and reads:
RESOLUTION NO. 29
xxxx
RESOLVED THEREFORE TO APPROVE, as it hereby approves,
the entitlement to rice, medical, children, meal and other
related allowances of NEA employees hired after October 31,
1989 and payment of these benefits;
RESOLVED FURTHER TO CONFIRM, as it hereby confirms, the
initial appropriation and payment of One Million Six Hundred
Forty Six Thousand One Hundred Twenty Seven Pesos and

Thirty Centavos (P1,646,127.30) for this purpose chargeable

against the Personnel Services Savings.24

DBM was directed to establish and administer and which shall

be applied for all government entities.

Thus, NEA granted the questioned allowances to its

employees who were not receiving these benefits/allowances,
including rice allowance amounting to P1,865,811.84 covering
the period January to August 2001.25

xxxx

However, the resident auditor of COA, Carmelita M. Agullana

(Agullana), did not allow the payment of rice allowance for the
period January to August 2001 to NEA employees who were
not incumbents as of June 30, 1989, under Notice of
Disallowance26 No. 2001-004-101 dated September 6, 2001.
Agullana indicated the "Facts and/or Reasons for
Disallowance" as follows:
Payment of Rice Allowance for the period January, 2001 to
August, 2001 to employees who were not incumbents as of
June 30, 1989 not allowed pursuant to RA #6758 as
implemented by Corporate Compensation Circular No. 10
prescribing the Rules and Regulations for the Implementation
of the Revised Compensation and Position Classification
System for Government-Owned and/or Controlled
Corporations (GOCCs) and Financial Institutions (GFIs)
specifically Sections 5.4 and 5.5 thereof. x x x.27
NEA, through then Acting Administrator Francisco G. Silva, and
assisted by counsel, appealed Agullanas disallowance to the
COA on September 27, 2001,28 arguing that the disallowance
had no basis in law and in fact, and that the subject
disbursement was anchored on a court decision that had
become final and executory.
The COA denied the appeal from the disallowance in a
Decision29 dated October 9, 2003 (Decision No. 2003-134).
The COA stated that:
The Director of x x x Corporate Audit Office II recommended
the affirmance of the subject disallowance contending that
Section 12 of Republic Act (RA) No. 6758 (Salary
Standardization Law) x x x remains applicable on the matter
since Department of Budget and Management-Corporate
Compensation Circular No. 10, s. 1989 (DBM-CCC No. 10) was
declared ineffective by the Supreme Court in the case of De
Jesus, et al. vs. COA, et al. (G.R. No. 109023, August 13, 1998)
due to its non-publication in the Official Gazette or in a
newspaper of general circulation. She pointed out that the
alleged discriminatory effect and violation of the policy to
provide equal pay for substantially equal work in the abovequoted provision have been sufficiently considered in
Philippine Ports Authority vs. COA, 214 SCRA 653 and later
confirmed in Philippine International Trading Corporation vs.
COA, G.R. No. 132593, June 25, 1999, wherein the Supreme
Court ruled that:
"x x x we must mention that this Court has confirmed in
Philippine Ports Authority vs. Commission on Audit the
legislative intent to protect incumbents who are receiving
salaries and allowances over and above those authorized by
RA 6758 to continue to receive the same even after RA 6758
took effect. In reserving the benefit to incumbents, the
legislature has manifested its intent to gradually phase out
this privilege without upsetting the policy of non-diminution of
pay and consistent with the rule that laws should only be
applied prospectively in the spirit of fair play."
She also conformed to the OGCC Opinion No. 52, s. 1999
dated March 22, 1999, edifying the implication of the De Jesus
Case which enunciated thusly:
"Notwithstanding the ruling in the De Jesus Case, the
applicable law is still Section 12 of R.A. No. 6758 which allows
additional compensation being received by incumbents as of
July 1, 1989 not integrated into the standard rates to
continue. The recent nullification of DBM-CCC No. 10 applies
favorably only to those incumbent employees (hired prior to
July 1, 1989) and does not in any way change the position or
situation of those employees hired after the cut-off date. With
the issuance of R.A. 6758, employees hired after July 1, 1989
must follow the revised and unified compensation and
position classification system in the government, for which the

The new hirees having accepted their employment, aware of

such a condition that they are not entitled to additional
benefits and allowances, they would be estopped from
complaining."
Moreover, the Director noted that when the rice allowance to
the claimants was granted in the year 2001, the DBM had
already published CCC No. 10.
Anent the contention that the subject decision of the RTC has
become the law of the case which must be applied, she
stressed that the said doctrine is one of the policies only and
will be disregarded when compelling circumstances call for a
redetermination of the point of law. As cited in Blacks Law
Dictionary, 6th Edition, 1990, "the doctrine is merely a rule of
procedure and does not go to the power of the court, and will
not be adhered to where its application will result in unjust
decision."
xxxx
PREMISES CONSIDERED, the instant appeal is hereby DENIED
and the disallowance in the total amount of P1,865,811.84 is
accordingly affirmed.30
NEA filed a Motion for Reconsideration of the said Decision,
but this was denied in COA Decision No. 2005-01031dated
February 24, 2005, the pertinent portions of which read:
After a careful re-evaluation, this Commission finds herein
motion devoid of merit, the issues raised therein being a mere
reiteration of the previous arguments of the movant in his
appeal and which were already considered and passed upon
by this Commission in the assailed decision.
WHEREFORE, there being no new and material evidence
adduced as would warrant a reversal or modification of the
decision herein sought to be reconsidered, the instant motion
for reconsideration has to be, as it is hereby, denied with
finality.32
Thus, petitioners came to this Court questioning the COAs
decision and resolution on the disallowance of their rice
subsidy.
Petitioners claim that the COAs reliance on DBM-CCC No. 10
is totally misplaced, alleging that this interpretation had been
"squarely debunked" by the Supreme Court in a number of
cases, including Cruz v. Commission on Audit. 33 Furthermore,
petitioners claim that in a similar case involving Opinion No.
086, s. 2001 of the OGCC, it wrote: "[It] is our considered
opinion that employees of COA, whether appointed before or
after July 1, 1989, are entitled to the benefits enumerated
under Section 5.5 of DBM-CCC No. 10 x x x."34
We quote portions of Opinion No. 086, s. 2001 of the OGCC
below:
Please be informed that our Office had previously rendered
legal opinions involving the same issue upon the request of
some of our client corporations similarly situated. In our
Opinion No. 55, Series of 2000, we stated:
"At the outset we would like to clarify that the amount of the
standardized salary vis--vis the pre-SSL salary (plus
allowance) is not conclusively determinant of whether or not a
certain allowance is deemed integrated into the former.
Section 12 of R.A. 6758 expressly provides:
xxxx
The law is thus clear. The general rule is that all allowances
are deemed included in the standardized rates set forth in
R.A. 6758. This is consistent with the primary intent of the Act

to eliminate wage inequities. The law, however, admits of

certain exceptions and as stated in the second sentence of
the aforecited provision, such other additional compensation
in cash or in kind not integrated into the standardized rates
being received by incumbents as of July 1, 1989 shall continue
to be authorized. It is our view, however, that a government
agency, in this case NDC, does not have discretion to
determine what allowances received by incumbent employees
prior to SSL are deemed included or integrated in the
standardized rates. It is the DBM which has the mandate and
authority under the SSL to determine what additional
compensation shall be integrated and it is precisely why it
issued NCC No. 10."
The foregoing opinion is consistent with our Opinion No. 52,
Series of 1999, wherein we opined:
"x x x Nonetheless, as Section 12 of RA 6758 expressly
provides that such additional compensation, whether in cash
or in kind, being received by incumbent employees as of July
1, 1989 not integrated to the standardized salary rates as
may be determined by the DBM shall continue to be
authorized, the question becomes a matter of fact, on
whether or not the aforementioned allowances have been
integrated into the salaries of employees."35(Emphases in the
quoted text.)
Petitioners claim that "the Civil Service Commission, the Office
of the Government Corporate Counsel and the highest court of
the land, the Supreme Court, chose not to distinguish the
entitlement of benefits to those hired before and after October
31, 1989 (or in this case, July [1], 1989)," while "the COA
sweepingly does so by just a wave of the hand."36 To support
this claim, petitioners erroneously cite Javier v. Philippine Ports
Authority, CA-G.R. No. 67937, March 12, 2002, as a decision
by this Court, but said decision was rendered by the Court of
Appeals.
Petitioners argue that assuming that they are not entitled to
the rice allowance in question, they should not be required to
refund the amounts received, on grounds of fairness and
equity. In connection with this, petitioners allege as follows:
Prior to December 31, 2003, NEA consists of 720 employees
more or less who received the rice allowance. Upon [the]
restructuring of NEA in December 2003, all NEA employees
were legally terminated. Out of 720 employees, only 320
employees are now left with to operate NEA. Most of the (sic)
them are rehired while minority of them are newly hired. Thus,
the refund of P1,865,811.84, shall be shouldered by those
who remained as NEA employees. Secondly, those who
received the said rice allowance accepted it in good faith
believing that they are entitled to it as a matter of law. 37
In its Comment38 dated September 21, 2005, COAs lone
argument is that "[t]he assailed COA decision is not tainted
with grave abuse of discretion. The disallowance of payment
for the rice [subsidy] by the COA is in accord with the law and
the rules." COA maintains that the law on the matter, Section
12 of Republic Act No. 6758, is clear, as its last sentence
provides reservation of certain allowances to incumbents. COA
argues in this wise:
The Supreme Court in Philippine Ports Authority vs.
Commission on Audit confirmed the legislative intent to
protect incumbents who are receiving salaries and/or
allowances over and above those authorized by R.A. 6758 to
continue to receive the same even after the law took effect. In
reserving the benefit to incumbents, the legislature has
manifested its intent to gradually phase out this privilege
without upsetting the policy of non-diminution of pay and
consistent with the rule that laws should only be applied
prospectively in the spirit of fairness and justice.
Thus, pursuant to its authority under Section 23 of R.A. No.
6758, the DBM x x x issued on October 2, 1989, DBM-CCC No.
10. Section 5.5 of DBM-CCC No. 10 enumerated the various
allowances/fringe benefits authorized to GOCCs/GFIs which
are not to be integrated into the basic salary and allowed to
be continued only for incumbents of positions as of June 30,
1989 who are authorized and actually receiving said

allowances/benefits as of said date. Among these was the rice

subsidy/allowance.
Hence, in light of the effectivity of DBM-CCC No. 10 on March
16, 1999 following its reissuance (in its entirety on February
15, 1999) and publication in the Official Gazette on March 1,
1999, the disallowance by the COA of the rice allowance for
the period beginning January 2001 up to August 2001 is not
tainted with grave abuse of discretion but in accord with the
law and the rules.39
Petitioners, in their Reply,40 anchor their petition on their
allegation that the RTC Decision had already become final and
executory, could no longer be disturbed, and must be
respected by the parties. To support their claim, they cite
Arcenas v. Court of Appeals41 wherein this Court held:
For, it is a fundamental rule that when a final judgment
becomes executory, it thereby becomes immutable and
unalterable. The judgment may no longer be modified in any
respect, even if the modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and
regardless of whether the modification is attempted to be
made by the court rendering it or by the highest Court of the
land. The only recognized exceptions are the correction of
clerical errors or the making of so-called nunc pro tunc entries
which cause no prejudice to any party, and, of course, where
the judgment is void. Any amendment or alteration which
substantially affects a final and executory judgment is null
and void for lack of jurisdiction, including the entire
proceedings held for that purpose.42 (Emphasis ours.)
Petitioners likewise cite Panado v. Court of Appeals 43 wherein
the Court held that "[i]t is axiomatic that final and executory
judgments can no longer be attacked by any of the parties or
be modified, directly or indirectly, even by the highest court of
the land."44 From the foregoing jurisprudence, petitioners
conclude that the acts of COA in disallowing the claims and
ordering refund of benefits already received clearly constitute
grave abuse of discretion amounting to lack of jurisdiction
inasmuch as said acts frustrated the final and executory
decision of the trial court.
The pivotal issues as determined by the COA are:
1. Whether or not the immutability of final decision
doctrine must prevail over the exclusive jurisdiction
of [the COA] to audit and settle disbursements of
funds; and
2. Whether or not the NEA employees hired after
June 30, 1989 are entitled to rice allowance. 45
The COA resolved these issues in this manner:
As to the first issue, the immutability rule applies only when
the decision is promulgated by a court possessed of
jurisdiction to hear and decide the case. Undoubtedly, the
petition in the guise of a case for mandamus is a money claim
falling within the original and exclusive jurisdiction of this
Commission. Noting the propensity of the lower courts in
taking cognizance of cases filed by claimants in violation of
such primary jurisdiction, the Supreme Court issued
Administrative Circular 10-2000 dated October 23, 2000
enjoining judges of lower courts to exercise caution in order to
prevent "possible circumvention of the rules and procedures
of the Commission on Audit" and reiterating the basic rule
that: "All money claims against the Government must be filed
with the Commission on Audit which shall act upon it within
sixty days. Rejection of the claim will authorize the claimant to
elevate the matter to the Supreme Court on certiorari and in
effect sue the State thereby."
Under the doctrine of primary jurisdiction, when an
administrative body is clothed with original and exclusive
jurisdiction, courts are utterly without power and authority to
exercise concurrently such jurisdiction. Accordingly, all the
proceedings of the court in violation of that doctrine and all
orders and decisions reached thereby are null and void. It will
be noted in the cited Supreme Court Circular that money
claims are cognizable by the COA and its decision is

appealable only to the Supreme Court. The lower courts have

nothing to do with such genus of transactions.
Anent the issue of entitlement to rice allowance by employees
hired after June 30, 1989, this Commission is left with no
option but to affirm the disallowance in the face of the explicit
provisions of DBM-CCC No. 10. After its publication on March
9, 1999 in the Official Gazette, rice allowance was allowed
only for incumbents as of July 1, 1989. Obviously, there is no
violation of the equal protection clause as cited in the PITC
case, supra, because whatever increments the incumbents
are enjoying over those of non-incumbents are transitory, for
the same law provides that such difference shall be deducted
from the salary increase the former should receive under
Section 17. Thus, the equalization or standardization of what
the two categories of employees will be receiving in terms of
benefits is ensured.
PREMISES CONSIDERED, the instant appeal is hereby DENIED
and the disallowance in the total amount of P1,865,811.84 is
accordingly affirmed.46
We agree with the findings of the COA.
In National Electrification Administration v. Morales, the order
of garnishment against the NEA funds to implement the RTC
Decision was in issue, and we said that the COA had exclusive
jurisdiction to decide on the allowance or disallowance of
money claims arising from the implementation of Republic Act
No. 6758. We observed therein that "the RTC acted prudently
in halting implementation of the writ of execution to allow the
parties recourse to the processes of the COA."47 In fact, we
even stated there that "it is not for this Court to preempt the
action of the COA on the post-audit to be conducted by it per
its Indorsement dated March 23, 2000." 48
We find that the COA had ruled in accordance with law and
jurisprudence, and we see no reason to reverse its decision.
Section 5.5 of DBM-CCC No. 10 is clear that rice subsidy is one
of the benefits that will be granted to employees of
GOCCs49 or GFIs50 only if they are "incumbents" as of July 1,
1989. We reproduce the first paragraph of Section 5.5 below:
5.5 The following allowances/fringe benefits authorized to
GOCCs/GFIs pursuant to the aforementioned issuances are not
likewise to be integrated into the basic salary and allowed to
be continued only for incumbents of positions as of June 30,
1989 who are authorized and actually receiving said
allowances/benefits as of said date, at the same terms and
conditions prescribed in said issuances[:]
5.5.1 Rice Subsidy; x x x.

51

We have defined an incumbent as "a person who is in present

possession of an office; one who is legally authorized to
discharge the duties of an office."52 There is no question that
petitioners were not incumbents as of June 30, 1989. We have
likewise characterized NEA as a GOCC in National
Electrification Administration v. Morales. Thus, Section 5.5
quoted above, issued pursuant to the authority given to the
DBM under Section 12 of Republic Act No. 6758, was correctly
applied by the COA.
We find our pronouncements in Philippine National Bank v.
Palma53 to be applicable and conclusive on this issue now
before us:
During these tough economic times, this Court understands,
and in fact sympathizes with, the plight of ordinary
government employees. Whenever legally possible, it has
bent over backwards to protect labor and favor it with
additional economic advantages. In the present case,
however, the Salary Standardization Law clearly provides that
the claimed benefits shall continue to be granted only to
employees who were "incumbents" as of July 1, 1989. Hence,
much to its regret, the Court has no authority to reinvent or
modify the law to extend those benefits even to employees
hired after that date.1awphil
xxxx

Stare Decisis
The doctrine "stare decisis et non quieta movere (Stand by
the decisions and disturb not what is settled)" is firmly
entrenched in our jurisprudence. Once this Court has laid
down a principle of law as applicable to a certain state of
facts, it would adhere to that principle and apply it to all
future cases in which the facts are substantially the same as
in the earlier controversy.
The precise interpretation and application of the assailed
provisions of RA 6758, namely those in Section 12, have long
been established in Philippine Ports Authority v. COA. The
essential pronouncements in that case have further been
fortified by Manila International Airport Authority v.
COA, Philippine International Trading Corporation v. COA,
and Social Security System v. COA.
This Court has consistently held in those cases that
allowances or fringe benefits, whether or not integrated into
the standardized salaries prescribed by RA 6758,
should continue to be enjoyed by employees who (1) were
incumbents and (2) were receiving those benefits as of July 1,
1989.
In Philippine Ports Authority v. COA, the x x x Court said that
the intention of the framers of that law was to phase out
certain allowances and privileges gradually, without upsetting
the principle of non-diminution of pay. The intention of Section
12 to protect incumbents who were already receiving those
allowances on July 1, 1989, when RA 6758 took effect was
emphasized thus:
"An incumbent is a person who is in present possession of an
office.
"The consequential outcome, under sections 12 and 17, is
that if the incumbent resigns or is promoted to a higher
position, his successor is no longer entitled to his
predecessors RATA privilege x x x or to the transition
allowance."
Finally, to explain what July 1, 1989 pertained to, we held in
the same case as follows:
"x x x. The date July 1, 1989 becomes crucial only to
determine that as of said date, the officer was
an incumbentand was receiving the RATA, for purposes of
entitling him to its continued grant. x x x."
In Philippine International Trading Corporation v. COA, this
Court confirmed the legislative intention in this wise:
"x x x [T]here was no intention on the part of the legislature to
revoke existing benefits being enjoyed by incumbents of
government positions at the time of the passage of RA 6758
by virtue of Sections 12 and 17 thereof. x x x."
The Court stressed that in reserving the benefits to
incumbents alone, the legislatures intention was not only to
adhere to the policy of non-diminution of pay, but also to be
consistent with the prospective application of laws and the
spirit of fairness and justice.
xxxx
In consonance with stare decisis, there should be no more
misgivings about the proper application of Section 12. In the
present case, the payment of benefits to employees hired
after July 1, 1989, was properly withheld, because the law
clearly mandated that those benefits should be reserved only
to incumbents who were already enjoying them before its
enactment. Withholding them from the others ensured that
the compensation of the incumbents would not be diminished
in the course of the latters continued employment with the
government agency.54 (Emphasis ours, citations
omitted.)1avvphi1
As petitioners were hired after June 30, 1989, the COA was
correct in disallowing the grant of the benefit to them, as they

were clearly not entitled to it. As quoted above, we have

repeatedly held that under Section 12 of Republic Act No.
6758, the only requirements for the continuous grant of
allowances and fringe benefits on top of the standardized
salary rates for employees of GOCCs and GFIs are as follows:
(1) the employee must be an incumbent as of July 1, 1989;
and (2) the allowance or benefit was not consolidated in the
standardized salary rate as prescribed by Republic Act No.
6758.55
We hereby reiterate our ruling in Philippine National Bank v.
Palma as regards Section 12 of Republic Act No. 6758, as
follows:

faith under the honest belief that LWUA Board Resolution No.
313 authorized such payment. At the time petitioners
received the additional allowances and bonuses, the Court
had not yet decided Baybay Water District. Petitioners had no
knowledge that such payment was without legal basis. Thus,
being in good faith, petitioners need not refund the
allowances and bonuses they received but disallowed by the
COA.59 (Emphasis supplied.)
As in the cases above quoted, we cannot countenance the
refund of the rice subsidies given to petitioners by NEA for the
period January to August 2001 at this late time, especially
since they were given by the government agency to its
employees in good faith.

In sum, we rule thus:

1. Under Section 12 of RA 6758, additional compensation
already being received by the employees of petitioner, but
not integrated into the standardized salary rates -enumerated in Section 5.5 of DBM-CC[C] No. 10, like "rice
subsidy, sugar subsidy, death benefits other than those
granted by the GSIS," and so on -- shall continue to be
given.

WHEREFORE, premises considered, the petition is hereby

PARTIALLY GRANTED. COA Decision No. 2003-134 dated
October 9, 2003 and COA Resolution No. 2005-010 dated
February 24, 2005 are hereby AFFIRMED with the
CLARIFICATION that the petitioners shall no longer be required
to refund the rice subsidies for the period January to August
2001, which they had received from NEA but were later
disallowed by the COA.

2. However, the continuation of the grant shall be available

only to those "incumbents" already receiving it on July 1,
1989.

SO ORDERED.

3. Thus, in PPA v. COA, this Court held that PPA employees

already receiving the RATA granted by LOI No. 97 should
continue to receive them, provided they were already
"incumbents" on or before July 1, 1989.

TRADE AND INVESTMENT DEVELOPMENT CORPORATION

OF THE PHILIPPINES, Petitioner,
vs.
MA. ROSARIO S. MANALANG-DEMIGILIO, Respondent.

4. PITC v. COA held that in enacting RA 6758, Congress was

adhering to the policy of non-diminution of existing pay.
Hence, if a benefit was not yet existing when the law took
effect on July 1, 1989, there was nothing to continue and no
basis for applying the policy.
5. Neither would Cruz v. COA be applicable. In those cases,
the COA arbitrarily set a specific date, October 31, 1989; RA
6758 had not made a distinction between those hired
before and those after that date. In the present case, the
law itself set July 1, 1989, as the date when employees
should be "incumbents," because that was when RA 6758
took effect. It was not an arbitrarily chosen date; there was
sufficient reason for setting it as the cutoff point. 56
Notwithstanding our ruling above, however, we take up as
another matter the refund ordered by the COA on the rice
subsidy that petitioners had already received. As regards the
refund, we rule in favor of petitioners and will not require
them to return the amounts anymore.
This is because, to begin with, the officials and administrators
of NEA themselves had believed that their employees were
entitled to the allowances, and this was covered by Resolution
No. 29 of the NEA Board of Administrators. The petitioners
thus received in good faith the rice subsidy together with
other allowances provided in said Resolution. For reasons of
equity and fairness, therefore, and considering their long wait
for this matter to be resolved with finality, we will no longer
require a refund from these public servants.
Our pronouncements on refund in De Jesus v. Commission on
Audit,57 wherein we cited Blaquera v. Hon. Alcala,58 are
applicable:
Considering, however, that all the parties here acted in good
faith, we cannot countenance the refund of subject incentive
benefits for the year 1992, which amounts the petitioners
have already received. Indeed, no indicia of bad faith can be
detected under the attendant facts and circumstances. The
officials and chiefs of offices concerned disbursed such
incentive benefits in the honest belief that the amounts given
were due to the recipients and the latter accepted the same
with gratitude, confident that they richly deserve such
benefits.
This ruling in Blaquera applies to the instant case. Petitioners
here received the additional allowances and bonuses in good

G.R. No. 176343

September 18, 2012

DECISION
BERSAMIN, J.:
The issuance by the proper disciplining authority of an order
of preventive suspension for 90 days of a civil service officer
or employee pending investigation of her administrative case
is authorized provided that a formal charge is served to her
and the charge involves dishonesty, oppression, grave
misconduct, or neglect in the performance of duty, or if there
are reasons to believe that she is guilty of the charge as to
warrant her removal from the service. Proof showing that the
respondent officer or employee may unduly influence the
witnesses against her or may tamper the documentary
evidence on file at her office is not a prerequisite before she
may be preventively suspended.
Antecedents
Trade and Investment Development Corporation of the
Philippines (TIDCORP) is a wholly owned government
corporation whose primary purpose is to guarantee foreign
loans, in whole or in part, granted to any domestic entity,
enterprise or corporation organized or licensed to engage in
business in the Philippines.1
On May 13, 2003, the Board of Directors of TIDCORP formally
charged Maria Rosario Manalang-Demigillo (Demigillo), then a
Senior Vice-President in TIDCORP, with grave misconduct,
conduct prejudicial to the best interest of the service,
insubordination, and gross discourtesy in the course of official
duties. The relevant portions of the formal charge read:
After a thorough study, evaluation, and deliberation, the
Board finds merit to the findings and recommendation of the
Investigating Committee on the existence of a probable cause
for Grave Misconduct, Conduct Prejudicial to the Best Interest
of the Service, Insubordination, and Gross Discourtesy in the
Course of Official Duties. However and to avoid any suspicion
of partiality in the conduct of the investigation, the Board
hereby refers this case to the Office of the Government
Corporate Counsel to conduct a formal investigation on the
following:
1) The incident during the Credit Committee Meeting on 06
March 2002 where you allegedly engaged yourself in a verbal
tussle with Mr. Joel C. Valdes, President and CEO. Allegedly,

you raised your voice, got angry, shouted at Mr. Valdes and
were infuriated by his remarks such as "are we talking of
apples and apples here?", "everybody should focus on the
issues at hand" and "out of the loop";
2) The incident during the Reorganization Meeting on 18 July
2002 where you appeared to have been rude and arrogant in
the way you answered Mr. Valdes to some questions like "Ano
gusto mo? Bibigay ko personally sa iyosasabihan ko
personally ikaw?", "You know Joel alam natin sa isat-isa
thatI dont know how to term itthere is no love lost no?",
"Ang ibig sabihin kung may galit ka" "Lets be candid you
know" "What is the opportunity? Let me seepakita ko
sayo lahat ang aking ano" and "Anong output tell me?";
3) The incident during the Planning Session on 05 August
2002. Records show that you reacted to the statement of Mr.
Valdes urging everybody to give support to the Marketing
Group in this manner "But of course, we would not want to
be the whipping boy!" Records also show that in the same
meeting, you used arrogant and threatening remarks to the
President and CEO like "dont cause division to hide your
inefficiency and gastos! If you push me to the wall, I have
goods on you too", "You want me to charge you to the
Ombudsman?", "May humihingi ng documents sa akin,
sabayan ko na sila", "Now Im fighting you openly"and "I am
threatening you";
4) The incident involving your Memorandum to Mr. Valdes
dated 19 September 2002, the pertinent portions of which
read, as follows:
"I am repulsed and nauseated by the information that
yesterday, 18 September 2002 at the OPCOM meeting, you
claim to have talked to me or consulted me about the car you
caused to be purchased for the Corporate Auditor Ms. Maria
Bautista.
I have never talked to you about your desire to give Ms.
Bautista a car.
This is a brazen lie, a fabrication. Such moral turpitude! How
low, how base, how desperate!
Accordingly, as you have given me no (sic), I am taking you to
task for this and all the illegal acts you have done and are
doing against me and TIDCORP."
It appears that the said Memorandum was circulated even to
those who were not privy to the cause of the issuance of such
statement.
5) The incident where you assisted and made it appear to be
acting as counsel of Mr. Vicente C. Uy in the case involving the
latter relative to the conduct of the APEC Capacity Building for
Trade and Investment Insurance Training Program in April
2002;
6) The incident on 13 November 2002 where you allegedly
urged and induced officials and employees at the 3rd floor of
TIDCORP to proceed to the Office of the President and CEO to
give support to EVP Jane Tambanillo who was allegedly then
being forced to resign by Mr. Valdes. This caused not only a
commotion but disturbance and disruption of the office work
at both 3rd and 4th floors;
7) The incident on 13 November 2002 where you allegedly
shouted at Atty. Jane Laragan and berated Mr. Valdes in front
of officers and employees whom you gathered as per
allegation number 6; and
8) Relative to allegation number 7, your stubborn refusal to
obey the order of Mr. Valdes to go back to work as it was only
9:30 a.m. and instead challenged him to be the one to bring
you down to the 3rd floor instead of asking the guard to do so.
Pursuant to Section 16, Rule II of the Uniform Rules on
Administrative Cases in the Civil Service and in the spirit of
justice, fair play, and due process, you are hereby given the
opportunity to submit additional evidence to what you have

already submitted during the preliminary investigation, if any

to the Board, through the OGCC, within seventy two (72)
hours from receipt of this Memorandum.
In this regard, you are informed of your right to be assisted by
a counsel of your choice and to indicate in your answer
whether or not you elect a formal investigation. Nevertheless,
and in accordance with the aforecited provision of the Uniform
Rules on Administrative Cases in the Civil Service, any
requests for clarification, bills of particulars or motion to
dismiss which are obviously designed to delay the
administrative proceeding shall not be entertained. If any of
these pleadings are interposed, the same shall be considered
as an answer and shall be evaluated as such.
Finally, and after considering Section 19 of the same Rules,
which gives authority to the disciplining body to issue an
order of preventive suspension, you are hereby preventively
suspended for a period of ninety (90) days from receipt
hereof.
Let a copy of this memorandum and the complete records of
the case be forwarded immediately to the Office of the
Government Corporate Counsel (OGCC) for appropriate
action.2
TIDCORP referred the charge to the Office of the Government
Corporate Counsel (OGCC) for formal investigation and
reception of evidence. Pending the investigation, TIDCORP
placed Demigillo under preventive suspension for 90 days. 3
Demigillo assailed her preventive suspension in the Civil
Service Commission (CSC),4 which issued on January 21, 2004
Resolution No. 040047 declaring her preventive suspension to
be "not in order."5 The CSC stated that under Section 19(2),
Rule II, of the Uniform Rules on
Administrative Cases in the Civil Service (Uniform Rules), a
civil service officer like Demigillo might be preventively
suspended by the disciplining authority only if any of the two
grounds were present, to wit: (1) there was a possibility that
the civil service employee might unduly influence or
intimidate potential witnesses against him; or (2) there was a
possibility that the civil service employee might tamper the
documentary evidence on file in her office.6 According to the
CSC, TIDCORP did not prove with substantial evidence the
existence of any of such grounds, explaining thus:
xxx. As the party claiming affirmative evidence, that is,
Demigillos possibility of influencing potential witnesses or
tampering with evidence, TIDCORP is bound to prove the
same by substantial evidence. However, it failed to. TIDCORP
claims that its witnesses "refused to issue any sworn
statement during the preliminary investigation in deference to
their immediate superior x x x and that the same witnesses,
however, intimated that they may be compelled to tell the
truth if called to testify during the investigation." On the basis
of these statements, it is clear that the witnesses refusal to
execute sworn statement is by reason of their "deference" to
Demigillo not on account of her "intimidation or influence."
Further, the fact that said witnesses "will be compelled to tell
the truth" is not because of Demigillos continued presence or
absence in the office but because they are bound by their
oath to tell the truth during the investigation. Under these
circumstances, it is not difficult to ascertain that the order of
preventive suspension is not necessary.
Anent the potential tampering of documents by Demigillo, the
Commission similarly finds the same remote. There is no
showing that the documentary evidence of the case leveled
against her were in her possession or custody as would
otherwise justify the imposition of preventive suspension. As
borne by the evidence on record, the acts complained of
against Demigillo constitute verbal tussles between her and
President Valdes which were all recorded and documented by
the TIDCORP. In this situation, there is no chance of
Demigillos tampering with documents.
From the foregoing disquisition, the Commission finds that the
preventive suspension of Demigillo for ninety (90) days was
improvidently made because the possibility of
exerting/influencing possible witnesses or tampering with

documents, which is the evil sought to be avoided in this

case, does not exist.7

the commission or coercion or compulsion upon one to do

what is against his will.

Upon denial of its motion for reconsideration by the

CSC,8 TIDCORP appealed to the Court of Appeals
(CA),9submitting the sole issue of:

We agree with the findings of the CSC that respondents

possibility to exert undue influence or pressure on the
witnesses against her is remote. The purpose of preventive
suspension is to avoid the possibility on the part of the person
charged of a certain offense, to exert influence or undue
pressure on the potential witnesses against her. In Gloria vs.
Court of Appeals, the High Court said that preventive
suspension pending investigation is a measure intended to
enable the disciplining authority to investigate charges
against respondent by preventing the latter from intimidating
or in any way influencing witnesses against him. And as
correctly pointed out by the CSC, the possibility of exerting
influence or pressure on the potential witnesses does not exist
in this case because the complainant or the person who
stands to be a witness for the government is influential, so to
speak, as he holds the highest position in TIDCORP. It is really
difficult to imagine that a person who occupies the highest
position in an organization could be influenced or intimidated
by his subordinate. The president of the organization has
greater degree of control in the organization, and to claim that
he could be intimated or influenced by his subordinate is
baseless and unbelievable. Considering that Valdes was
President of TIDCROP and a primary witness against
respondent who is his mere subordinate, we find no valid
ground for petitioner to impose preventive suspension against
respondent.

WHETHER OR NOT THE CSC ERRED IN SO HOLDING THE

PREVENTIVE SUSPENSION OF APPELLANT DEMIGILLO WAS
NOT IN ORDER.10
On November 7, 2006, the CA promulgated its decision
affirming the CSC,11 holding and ruling as follows:
The main issue in this case is whether or not respondent
Demigillo was validly placed under preventive suspension on
the ground that she could possibly influence or intimidate
potential witnesses or tamper the evidence on record in her
office, thus, affecting the investigation of the case against her.
Petitioner argues that the preventive suspension imposed
against respondent Demigillo is valid as it is in accordance
with the CSC rules and regulations and Section 51, Chapter 6,
Title I (A), Book V of Executive Order No. 292 which states that
"the proper disciplining authority may preventively suspend
any subordinate officer or employee under his authority
pending an investigation, if the charge against such officer or
employee involves dishonesty, oppression or grave
misconduct, or neglect in the performance of duty, or if there
are reasons to believe that the respondent is guilty of charges
which would warrant his removal from the service", hence, the
CSC erred in holding the same not in order. Further, petitioner
contends that since the provision of the Administrative Code
of 1987 on preventive suspension does not set any condition
on its imposition, the provision in the Uniform Rules on
Administrative Cases in the Civil Service promulgated by the
CSC should be stricken out as it is not found in the law itself.
We are not persuaded.
We agree with the CSC Resolution No. 040047 which cited
Section 19 (paragraph 2), Rule II, Uniform Rules on
Administrative Cases in the Civil Service as basis in ruling
against the order of preventive suspension against herein
respondent. The pertinent portion of the provision reads, as
follows:
An order of preventive suspension may be issued to
temporarily remove the respondent from the scene of his
misfeasance or malfeasance and to preclude the possibility of
exerting undue influence or pressure on the witnesses against
him or tampering of documentary evidence on file with his
Office.
Based on the aforequoted provision, any of the two grounds:
(1) to preclude the possibility of exerting undue influence or
pressure on the witnesses against him; or (2) tampering of
documentary evidence on file with his office, can be validly
invoked by the disciplining authority to justify the imposition
of the preventive suspension. As correctly pointed out by
respondent in her motion for leave to file and admit attached
comment, and comment to amended petition for review,
under Section 19 (paragraph 2), Rule II, of the Uniform Rules
of Administrative Cases in the Civil Service (URACCS),
preventive suspension is warranted in order to preclude the
respondent from exerting "undue influence" on the witnesses
against her. But in this case, TIDCORP failed to prove the
possibility of respondent exerting undue influence on the
witnesses, but instead CSC found TIDCORP to have admitted
unequivocally that it is because of the witnesses deference or
respect for respondent that they did not execute sworn
statements. Indeed, the esteem or respect given is not undue
influence; it even negates any wrongdoing on the part of
respondent. Indeed, the alleged incidents being harped about
by TIDCORP do not in any way prove undue influence of
respondent on the witnesses. The incidents involved mere
verbal tussles between Mr. Joel Valdes, TIDCORP President and
CEO, respondent Demigillo and Jane Larangon, who had
already executed her affidavit even before respondents
preventive suspension. In brief, TIDCORP failed to prove
undue influence as there is nothing in those incidents showing

Moreover, as correctly pointed out by the CSC in its resolution,

as the party claiming affirmative relief, TIDCORP is bound to
prove the basis thereof, i.e. respondents possibility of
influencing potential witnesses or tampering with the
evidence, by substantial evidence, which it failed to do. There
is no showing that the documentary evidence against
respondent are in her possession or custody. The acts
complained of against respondent arose out of the verbal
tussles between her and President Valdes which were all
recorded and documented by TIDCORP. In this situation, there
is no chance for respondents tampering with the documents.
As regards the argument that since the provision of the
Administrative Code of 1987 on preventive suspension does
not set any condition on its imposition, the provision in the
Uniform Rules on Administrative Cases in the Civil Service
promulgated by the CSC should be stricken out as it is not
found in the law itself, we rule in the negative.
We agree with respondent that the aforequoted argument of
petitioner is misplaced and unfounded. Section 12 (2),
Chapter 3, Tile I (A) of Book V of the Revised Administrative
Code, provides that among the powers and functions of the
Civil Service Commission is to prescribe, amend and enforce
rules and regulations for carrying into effect the provisions of
the Civil Service Law and other pertinent laws. It is on the
basis of this grant of power to the CSC that CSC Resolution
No. 991936, otherwise known as the Uniform Rules on
Administrative Cases in the Civil Service was promulgated.
Indeed, the rule-making power of the administrative body is
intended to enable it to implement the policy of the law and to
provide for the more effective enforcement of its provisions.
Through the exercise of this power of subordinate legislation,
it is possible for the administrative body to transmit "the
active power of the state from its source to the point of
application," that is, apply the law and so fulfill the mandate
of the legislature. It is an elementary rule in administrative
law that administrative regulations and policies enacted by
administrative bodies to interpret the law which they are
entrusted to enforce, have the force of law, are entitled to
great respect, and have in their favor a presumption of
legality.
Furthermore, Section 10 of Rule 43 of the 1997 Rules of Civil
Procedure, provides that the findings of fact of the court or
agency concerned, when supported by substantial evidence,
shall be binding on the Court of Appeals. Indeed,
jurisprudence is replete with the rule that findings of fact of
quasi-judicial agencies which have acquired expertise
because their jurisdiction is confined to specific matters are
generally accorded not only respect, but at times even finality
if such findings are supported by substantial evidence.

WHEREFORE, the instant petition is DENIED. The assailed

Resolutions dated January 21, 2004 and June 7, 2004, issued
by the Civil Service Commission, are AFFIRMED.
SO ORDERED.12
Hence, TIDCORP has appealed to the Court.13
Issue
The sole issue concerns the validity of TIDCORPs 90-day
preventive suspension of Demigillo.
Ruling
We grant the petition, and hold that the 90-day preventive
suspension order issued against Demigillo was valid.
The Revised Administrative Code of 1987 (RAC) embodies the
major structural, functional and procedural principles and
rules of governance of government agencies and
constitutional bodies like the CSC. Section 1, Chapter 1,
Subtitle A, Title I, Book V, of the RAC states that the CSC is the
central personnel agency of the government. Section 51 and
Section 52, Chapter 6, Subtitle A, Title I, Book V of the RAC
respectively contain the rule on preventive suspension of a
civil service officer or employee pending investigation, and
the duration of the preventive suspension, viz:
Section 51. Preventive Suspension. The proper disciplining
authority may preventively suspend any subordinate officer or
employee under his authority pending an investigation, if the
charge against such officer or employee involves dishonesty,
oppression or grave misconduct, or neglect in the
performance of duty, or if there are reasons to believe that
the respondent is guilty of charges which would warrant his
removal from the service.
Section 52. Lifting of Preventive Suspension Pending
Administrative Investigation. When the administrative case
against the officer or employee under preventive suspension
is not finally decided by the disciplining authority within the
period of ninety (90) days after the date of suspension of the
respondent who is not a presidential appointee, the
respondent shall be automatically reinstated in the service:
Provided, That when the delay in the disposition of the case is
due to the fault, negligence or petition of the respondent, the
period of delay shall not be counted in computing the period
of suspension herein provided.
Under Section 51, supra, the imposition of preventive
suspension by the proper disciplining authority is authorized
provided the charge involves dishonesty, oppression, or grave
misconduct, or neglect in the performance of duty, or if there
are reasons to believe that the respondent is guilty of charges
which would warrant his removal from the service. Section 51
nowhere states or implies that before a preventive suspension
may issue there must be proof that the subordinate may
unduly influence the witnesses against him or may tamper the
documentary evidence on file in her office.
In Gloria v. Court of Appeals,14 several public school teachers
were preventively suspended for 90 days while being
investigated for the charge of grave misconduct, among
others. Citing Section 51 of the RAC, the Court sustained the
imposition of the 90-day preventive suspension pending
investigation of the charges, saying:
The preventive suspension of civil service employees charged
with dishonesty, oppression or grave misconduct, or neglect
of duty is authorized by the Civil Service Law. It cannot,
therefore, be considered "unjustified," even if later the
charges are dismissed so as to justify the payment of salaries
to the employee concerned. It is one of those sacrifices which
holding a public office requires for the public good xxx.15
Pursuant to its rule-making authority, the CSC promulgated
the Uniform Rules on August 31, 1999. Section 19 and Section
20 of Rule II of the Uniform Rules defined the guidelines in the

issuance of an order of preventive suspension and the

duration of the suspension, to wit:
Section 19. Preventive Suspension. Upon petition of the
complainant or motu proprio, the proper disciplining authority
may issue an order of preventive suspension upon service of
the Formal Charge, or immediately thereafter to any
subordinate officer or employee under his authority pending
an investigation, if the charge involves:
a. dishonesty;
b. oppression;
c. grave misconduct;
d. neglect in the performance of duty; or
e. if there are reasons to believe that the respondent
is guilty of charges which would warrant his removal
from the service.
An order of preventive suspension may be issued to
temporarily remove the respondent from the scene of his
misfeasance or malfeasance and to preclude the possibility of
exerting undue influence or pressure on the witnesses against
him or tampering of documentary evidence on file with his
Office.
In lieu of preventive suspension, for the same purpose, the
proper disciplining authority or head of office may reassign
respondent to other unit of the agency during the formal
hearings.
Section 20. Duration of Preventive Suspension. When the
administrative case against an officer or employee under
preventive suspension is not finally decided by the disciplining
authority within the period of ninety (90) days after the date
of his preventive suspension, unless otherwise provided by
special law, he shall be automatically reinstated in the
service; provided that, when the delay in the disposition of the
case is due to the fault, negligence or petition of the
respondent, the period of delay should not be included in the
counting of the 90 calendar days period of preventive
suspension. Provided further that should the respondent be on
Maternity/Paternity leave, said preventive suspension shall be
deferred or interrupted until such time that said leave has
been fully enjoyed.
It is clear from Section 19, supra, that before an order of
preventive suspension pending an investigation may validly
issue, only two prerequisites need be shown, namely: (1) that
the proper disciplining authority has served a formal charge to
the affected officer or employee; and (2) that the charge
involves either dishonesty, oppression, grave misconduct,
neglect in the performance of duty, or if there are reasons to
believe that the respondent is guilty of the charges which
would warrant her removal from the service. Proof showing
that the subordinate officer or employee may unduly influence
the witnesses against her or may tamper the documentary
evidence on file in her office is not among the prerequisites.
Preventing the subordinate officer or employee from
influencing the witnesses and tampering the documentary
evidence under her custody are mere purposes for which an
order of preventive suspension may issue as reflected under
paragraph 2 of Section 19, supra. This is apparent in the
phrase "for the same purpose" found in paragraph 3 of
Section 19. A "purpose" cannot be considered and understood
as a "condition." A purpose means "reason for which
something is done or exists," while a condition refers to a
"necessary requirement for something else to happen;" or is a
"restriction, qualification."16 The two terms have different
meanings and implications, and one cannot substitute for the
other.
In Gloria v. Court of Appeals,17 we stated that preventive
suspension pending investigation "is a measure intended to
enable the disciplining authority to investigate charges
against respondent by preventing the latter from intimidating
or in any way influencing witnesses against him." As such,

preventing the subordinate officer or employee from

intimidating the witnesses during investigation or from
tampering the documentary evidence in her office is a
purpose, not a condition, for imposing preventive suspension,
as shown in the use of the word "intended."
Relevantly, CSC Resolution No. 030502, which was issued on
May 5, 2003 for the proper enforcement of preventive
suspension pending investigation, provides in part as follows:
WHEREAS, Sections 51 and 52, Chapter 6, Subtitle A, Title I,
Book V of the Administrative Code of 1987, set out the
controlling standards on the imposition of preventive
suspension, as follows:
xxxx
WHEREAS, in order to effectuate the afore-quoted provisions
of law, the Civil Service Commission, as the central personnel
agency of the government empowered, inter alia, with the
promulgation, amendment and enforcement of rules and
regulations intended to carry out into effect the provisions of
the Civil Service Law and other pertinent laws, adopted
Sections 19, 20, and 21 of the Uniform Rules on
Administrative Cases in the Civil Service (CSC Memorandum
Circular No. 19, s. 1999), to wit:
xxxx
4. The imposition of preventive suspension shall be confined
to the well-defined instances set forth under the pertinent
provisions of the Administrative Code of 1987 and the Local
Government Code of 1991. Both of these laws decree that
recourse may be had to preventive suspension where the
formal charge involves any of the following administrative
offenses, or under the circumstances specified in paragraph
(e) herein:
a. Dishonesty;
b. Oppression;

and the charge involves the offenses enumerated therein. The

resolution considers an order of preventive suspension as null
and void if the order was not premised on any of the
mentioned grounds, or if the order was issued without a
formal charge. As in the case of Section 19, the resolution
does not include as a condition for issuing an order of
preventive suspension that there must be proof adduced
showing that the subordinate officer or employee may unduly
influence the witnesses against her or tamper the
documentary evidence in her custody.
Consequently, the CSC and the CA erred in making the
purpose of preventive suspension a condition for its
issuance.1wphi1 Although, as a rule, we defer to the
interpretation by administrative agencies like the CSC of their
own rules, especially if the interpretation is affirmed by the
CA, we withhold deference if the interpretation is palpably
erroneous,18 like in this instance.
We hold that TIDCORPs issuance against Demigillo of the
order for her 90-day preventive suspension pending the
investigation was valid and lawful.
WHEREFORE, we GRANT the petition for review
on certiorari; SET ASIDE the decision of the Court of Appeals
promulgated on November 7, 2006, and DECLARE AS
VALID the order for the preventive suspension for 90 days
of MA. ROSARIO S. MANALANG-DEMIGILIO pending her
investigation for grave misconduct.
The respondent shall pay the costs of suit.
SO ORDERED.
G.R. No. 80767

April 22, 1991

BOY SCOUTS OF THE PHILIPPINES, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION,
FORTUNATO ESGUERRA, ROBERTO MALABORBOR,
ESTANISLAO MISA, VICENTE EVANGELISTA, and
MARCELINO GARCIA, respondents.
Julio O. Lopez for petitioner.

c. Grave Misconduct;
d. Neglect in the performance of duty; or

FELICIANO, J.:

e. If there are reasons to believe that the respondent

is guilty of the charge/s, which would warrant his
removal from the service.

This Petition for Certiorari is directed at (1) the

Decision,1 dated 27 February 1987, and (2) the
Resolution2 dated 16 October 1987, both issued by the
National Labor Relations Commission ("NLRC") in Case No.
1637-84.

xxxx
a. A declaration by a competent authority that an order of
preventive suspension is null and void on its face entitles the
respondent official or employee to immediate reinstatement
and payment of back salaries corresponding to the period of
the unlawful preventive suspension.
The phrase "null and void on its face" in relation to a
preventive suspension order imports any of the following
circumstances:
i) The order was issued by one who is not authorized by law;
ii) The order was not premised on any of the grounds or
causes warranted by law;
iii) The order of suspension was without a formal charge; or
iv) While lawful in the sense that it is based on the
enumerated grounds, the duration of the imposed preventive
suspension has exceeded the prescribed periods, in which
case the payment of back salaries shall correspond to the
excess period only.
CSC Resolution No. 030502 apparently reiterates the rule
stated in Section 19 of the Uniform Rules, supra, that for a
preventive suspension to issue, there must be a formal charge

Private respondents Fortunato C. Esquerra, Roberto O.

Malaborbor, Estanislao M. Misa, Vicente N. Evangelista and
Marcelino P. Garcia, had all been rank-and-file employees of
petitioner Boy Scouts of the Philippines ("BSP"). At the time of
termination of their services in February 1985, private
respondents were stationed at the BSP Camp in Makiling, Los
Baos, Laguna.
The events which led to such termination of services are as
follows:
On 19 October 1984, the Secretary-General of petitioner BSP
issued Special Orders Nos. 80, 81, 83, 84 and 85 addressed
separately to the five (5) private respondents, informing them
that on 20 November 1984, they were to be transferred from
the BSP Camp in Makiling to the BSP Land Grant in Asuncion,
Davao del Norte. These Orders were opposed by private
respondents who, on 4 November 1984, appealed the matter
to the BSP National President.
On 6 November 1984, petitioner BSP conducted a pre-transfer
briefing at its National Headquarters in Manila. Private
respondents were in attendance during the briefing and they
were there assured that their transfer to Davao del Norte
would not involve any diminution in salary, and that each of
them would receive a relocation allowance equivalent to one
(1) month's basic pay. This assurance, however, failed to
persuade private respondents to abandon their opposition to
the transfer orders issued by the BSP Secretary-General.
On 13 November 1984, a complaint3
(docketed as NLRC Case No. 16-84J) for illegal transfer was
filed with the then Ministry of Labor and Employment, SubRegional Arbitration Branch IV, San Pablo City, Laguna. Private
respondents there sought to enjoin implementation of Special
Orders Nos. 80, 81, 83, 84 and 85, alleging, among other

things, that said orders were "indubitable and irrefutable

action[s] prejudicial not only to [them] but to [their] families
and [would] seriously affect [their] economic stability and
solvency considering the present cost of living."
On 21 November 1984 (or the day immediately following the
date of scheduled transfer), the BSP Camp Manager in
Makiling issued a Memorandum requiring the five (5) private
respondents to explain why they should not be charged
administratively for insubordination. The Memorandum was a
direct result of the refusal by private respondents, two (2)
days earlier, to accept from petitioner BSP their respective
boat tickets to Davao del Norte and their relocation
allowances.
Meanwhile, in a letter of the same date, the BSP National
President informed private respondents that their refusal to
comply with the Special Orders was not sufficiently justified
and constituted rank disobedience. Memoranda subsequently
issued by the BSP Secretary-General stressed that such
refusal as well as the explanations proffered therefor, were
unacceptable and could altogether result in termination of
employment with petitioner BSP. These warnings
notwithstanding, private respondents continued pertinaciously
to disobey the disputed transfer orders.
Petitioner BSP consequently imposed a five-day suspension on
the five (5) private respondents, in the latter part of January
1985. Subsequently, by Special Order dated 12 February 1985
issued by the BSP Secretary-General, private respondents'
services were ordered terminated effective 15 February 1985.
On 22 February 1985, private respondents amended their
original complaint to include charges of illegal dismissal and
unfair labor practice against petitioner BSP.4
The Labor Arbiter thereafter proceeded to hear the complaint.
In a decision5 dated 31 July 1985, the Labor Arbiter ordered
the dismissal of private respondents' complaint for lack of
merit.
On 27 February 1987, however, the ruling of the Labor Arbiter
was reversed by public respondent, NLRC, which held that
private respondents had been illegally dismissed by petitioner
BSP. The dispositive portion of the NLRC decision read:
WHEREFORE, premises considered the Decision appealed
from is hereby SET ASIDE and a new one entered ordering
the respondent-appellee [petitioner BSP] to reinstate the
complainants-appellants [private respondents] to their
former positions without loss of seniority rights and other
benefits appurtenant thereto and with full backwages from
the time they were illegally dismissed from the service up
to the date of their actual reinstatement.
SO ORDERED.
The Court notes at the outset that in the Position Paper 6 filed
by petitioner BSP with the Labor Arbiter, it was alleged in the
second paragraph thereof, that petitioner is a "civic service,
non-stock and non-profit organization, relying mostly [on]
government and public support, existing under and by virtue
of Commonwealth Act No. 111, as amended, by Presidential
Decree No. 460 . . . " A similar allegation was contained in the
Brief for Appellee7 and in the Petition8 and Memorandum9 filed
by petitioner BSP with public respondent NLRC and this Court,
respectively. The same allegation, moreover, appeared in the
Comment10 (also treated as the Memorandum) submitted to
this Court by the Solicitor General on behalf of public
respondent NLRC; for their part, private respondents stated in
their Appeal Memorandum11 with the NLRC that petitioner BSP
is "by mandate of law a Public Corporation," a statement
reiterated by them in their Memorandum12 before this Court.
In a Resolution dated 9 August 1989, this Court required the
parties and the Office of the Government Corporate Counsel
to file a comment on the question of whether or not petitioner
BSP is in fact a government-owned or controlled corporation.
Petitioner, private respondents, the Office of the Solicitor
General and the Office of the Government Corporate Counsel
filed their respective comments.
The central issue is whether or not the BSP is embraced within
the Civil Service as that term is defined in Article IX (B) (2) (1)
of the 1987 Constitution which reads as follows:
The Civil Service embraces all branches, subdivisions,
instrumentality mentalities and agencies of the
Government, including government-owned or controlled
corporations with original charters.
xxx

xxx

xxx

The answer to the central issue will determine whether or not

private respondent NLRC had jurisdiction to render the
Decision and Resolution which are here sought to be nullified.
The responses of the parties, on the one hand, and of the
Office of the Solicitor General and the Office of the
Government Corporate Counsel, upon the other hand, in

compliance with the Resolution of this Court of 9 August 1989,

present a noteworthy uniformity. Petitioner BSP and private
respondents submit substantially the same view "that the BSP
is a purely private organization". In contrast, the Solicitor
General and the Government Corporate Counsel take much
the same position, that is, that the BSP is a "public
corporation' or a "quasi-public corporation" and, as well, a
"government controlled corporation." Petitioner BSP's
compliance with our Resolution invokes the following
provisions of its Constitution and By-laws:
The Boy Scouts of the Philippines declares that it is an
independent, voluntary, non-political, non-sectarian and
non-governmental organization, with obligations towards
nation building and with international orientation.
The BSP, petitioner stresses, does not receive any monetary
or financial subsidy from the Government whether on the
national or local level.13 Petitioner declares that it is a "purely
private organization" directed and controlled by its National
Executive Board the members of which are, it is said, all
"voluntary scouters," including seven (7) Cabinet
Secretaries.14
Private respondents submitted a supplementary
memorandum arguing that while petitioner BSP was created
as a public corporation, it had lost that status when Section 2
of Commonwealth Act No. 111 as amended by P.D. No. 460
conferred upon it the powers which ordinary private
corporations organized under the Corporation Code have:
Sec. 2. The said corporation shall have perpetual succession
with power to sue and be sued; to hold such real and
personal estate as shall be necessary for corporate
purposes, and to receive real and personal property by gift,
devise, or bequest; to adopt a seal, and to alter or destroy
the same at pleasure; to have offices and conduct its
business and affairs in the City of Manila and in the several
provinces; to make and adopt by-laws, rules and regulations
not inconsistent with the laws of the Philippines, and
generally to do all such acts and things (including the
establishment of regulations for the election of associates
and successors: as may be necessary to carry into effect
the provisions of the Act and promote the purposes of said
corporation.
Private respondents also point out that the BSP is registered
as a private employer with the Social Security System and
that all its staff members and employees are covered by the
Social Security Act, indicating that the BSP had lost its
personality or standing as a public corporation. It is further
alleged that the BSP's assets and liabilities, official
transactions and financial statements have never been
subjected to audit by the government auditing office, i.e., the
Commission on Audit, being audited rather by the private
auditing firm of Sycip Gorres Velayo and Co. Private
respondents finally state that the appointments of BSP officers
and staff were not approved or confirmed by the Civil Service
Commission.
The views of the Office of the Solicitor General and the Office
of the Government Corporate Counsel on the above issue
appeared to be generally similar. The Solicitor General's
Office, although it had appeared for the NLRC and filed a
Comment on the latter's behalf on the merits of the Petition
for Certiorari, submitted that the BSP is a government-owned
or controlled corporation, having been created by virtue of
Commonwealth Act No. 111 entitled "An Act to Create a Public
Corporation to be known as the Boy Scouts of the Philippines
and to Define its Powers and Purposes." The Solicitor General
stressed that the BSP was created in order to "promote,
through organization, and cooperation with other agencies the
ability of boys to do things for themselves and others, to train
them in scoutcraft, and to teach them patriotism, courage,
self-reliance, and kindred virtues, using the methods which
are now in common use by boy scouts."5 He further noted that
the BSP's objectives and purposes are "solely of a benevolent
character and not for pecuniary profit by its members. 16 The
Solicitor General also underscored the extent of government
participation in the BSP under its charter as reflected in the
composition of its governing body:
The governing body of the said corporation shall consist of a
National Executive Board composed of (a) the President of
the Philippines or his representative; (b) the charter and life
members of the Boy Scouts of the Philippines; (c) the
Chairman of the Board of Trustees of the Philippine Scouting
Foundation; (d) the Regional Chairman of the Scout Regions
of the Philippines; (e) the Secretary of Education and
Culture, the Secretary of Social Welfare, the Secretary of
National Defense, the Secretary of Labor, the Secretary of
Finance, the Secretary of Youth and Sports, and the
Secretary of local Government and Community
Development; (f) an equal number of individuals from the
private sector; (g) the National President of the Girl Scouts
of the Philippines; (h) one Scout of Senior age from each

Scout Region to represent the boy membership; and (i)

three representatives of the cultural minorities. Except for
the Regional Chairman who shall be elected by the Regional
Scout Councils during their annual meetings, and the Scouts
of their respective regions, all members of the National
Executive Board shall be either by appointment or cooption,
subject to ratification and confirmation by the Chief Scout,
who shall be the Head of State. . . .17 (Emphasis supplied)
The Government Corporate Counsel, like the Solicitor General,
describes the BSP as a "public corporation" but, unlike the
Solicitor General, suggests that the BSP is more of a "quasi
corporation" than a "public corporation." The BSP, unlike most
public corporations which are created for a political purpose,
is not vested with political or governmental powers to be
exercised for the public good or public welfare in connection
with the administration of civil government. The Government
Corporate Counsel submits, more specifically, that the BSP
falls within the ambit of the term "government-owned or
controlled corporation" as defined in Section 2 of P.D. No.
2029 (approved on 4 February 1986) which reads as follows:
A government-owned or controlled corporation is a stock
or a non-stock corporation, whether performing
governmental or proprietary functions, which is directly
chartered by special law or if organized under the general
corporation law is owned or controlled by the government
directly, or indirectly through a parent corporation or
subsidiary corporation, to the extent of at least a majority of
its outstanding capital stock or its outstanding voting
capital stock.
xxx

xxx

xxx

(Emphasis supplied)
Examining the relevant statutory provisions and the
arguments outlined above, the Court considers that the
following need to be considered in arriving at the appropriate
legal characterization of the BSP for purposes of determining
whether its officials and staff members are embraced in the
Civil Service. Firstly, BSP's functions as set out in its statutory
charter do have a public aspect. BSP's functions do relate to
the fostering of the public virtues of citizenship and patriotism
and the general improvement of the moral spirit and fiber of
our youth. The social value of activities like those to which the
BSP dedicates itself by statutory mandate have in fact, been
accorded constitutional recognition. Article II of the 1987
Constitution includes in the "Declaration of Principles and
State Policies," the following:
Sec. 13. The State recognizes the vital role of the youth in
nation-building and shall promote and protect their
physical, moral, spiritual, intellectual, and social well-being.
It shall inculcate in the youth patriotism and nationalism,
and encourage their involvement in public and civic affairs.
At the same time, BSP's sanctions do not relate to the
governance of any part of territory of the Philippines; BSP is
not a public corporation in the same sense that municipal
corporations or local governments are public corporations.
BSP's functions can not also be described as proprietary
functions in the same sense that the functions or activities of
government-owned or controlled corporations like the
National Development Company or the National Steel
Corporation can be described as proprietary or "business-like"
in character. Nevertheless, the public character of BSP's
functions and activities must be conceded, for they pertain to
the educational, civic and social development of the youth
which constitutes a very substantial and important part of the
nation.
The second aspect that the Court must take into account
relates to the governance of the BSP. The composition of the
National Executive Board of the BSP includes, as noted from
Section 5 of its charter quoted earlier, includes seven (7)
Secretaries of Executive Departments. The seven (7)
Secretaries (now six [6] in view of the abolition of the
Department of Youth and Sports and merger thereof into the
Department of Education, Culture and Sports) by themselves
do not constitute a majority of the members of the National
Executive Board. We must note at the same time that the
appointments of members of the National Executive Board,
except only the appointments of the Regional Chairman and
Scouts of Senior age from the various Scout Regions, are
subject to ratification and confirmation by the Chief Scout,
who is the President of the Philippines. Vacancies to the Board
are filled by a majority vote of the remaining members
thereof, but again subject to ratification and confirmation by
the Chief Scout.18 We must assume that such confirmation or
ratification involves the exercise of choice or discretion on the
part of ratifying or confirming power. It does appears therefore
that there is substantial governmental (i.e., Presidential)
participation or intervention in the choice of the majority of
the members of the National Executive Board of the BSP.

The third aspect relates to the character of the assets and

funds of the BSP. The original assets of the BSP were acquired
by purchase or gift or other equitable arrangement with the
Boy Scouts of America, of which the BSP was part before the
establishment of the Commonwealth of the Philippines. The
BSP charter, however, does not indicate that such assets were
public or statal in character or had originated from the
Government or the State. According to petitioner BSP, its
operating funds used for carrying out its purposes and
programs, are derived principally from membership dues paid
by the Boy Scouts themselves and from property rentals. In
this respect, the BSP appears similar to private non-stock,
non-profit corporations, although its charter expressly
envisages donations and contributions to it from the
Government and any of its agencies and
instrumentalities.19 We note only that BSP funds have not
apparently heretofore been regarded as public funds by the
Commission on Audit, considering that such funds have not
been audited by the Commission.
While the BSP may be seen to be a mixed type of entity,
combining aspects of both public and private entities, we
believe that considering the character of its purposes and its
functions, the statutory designation of the BSP as "a public
corporation" and the substantial participation of the
Government in the selection of members of the National
Executive Board of the BSP, the BSP, as presently constituted
under its charter, is a government-controlled corporation
within the meaning of Article IX. (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the
Administrative Code of 1987 designates the BSP as one of the
attached agencies of the Department of Education, Culture
and Sports ("DECS").20 An "agency of the Government" is
defined as referring to any of the various units of the
Government including a department, bureau, office,
instrumentality, government-owned or-controlled corporation,
or local government or distinct unit therein. 21 "Government
instrumentality" is in turn defined in the 1987 Administrative
Code in the following manner:
Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy usually through a charter. This term
includes regulatory agencies, chartered institutions and
government-owned or controlled corporations.22 (Emphasis
supplied)
The same Code describes a "chartered institution" in the
following terms:
Chartered institution refers to any agency organized or
operating under a special charter, and vested by law with
functions relating to specific constitutional policies or
objectives. This term includes the state universities and
colleges, and the monetary authority of the
State.23 (Emphasis supplied)
We believe that the BSP is appropriately regarded as "a
government instrumentality" under the 1987 Administrative
Code.
It thus appears that the BSP may be regarded as both a
"government controlled corporation with an original charter"
and as an "instrumentality" of the Government within the
meaning of Article IX (B) (2) (1) of the Constitution. It follows
that the employees of petitioner BSP are embraced within the
Civil Service and are accordingly governed by the Civil Service
Law and Regulations.
It remains only to note that even before the effectivity of the
1987 Constitution employees of the BSP already fell within the
scope of the Civil Service. In National Housing Corporation v.
Juco,24 decided in 1985, the Court, speaking through Mr.
Justice Gutierrez, held:
There should no longer be any question at this time
that employees of government-owned or controlled
corporations are governed by the civil service law and civil
service rules and regulations.
Section 1, Article XII-B of the [19731 Constitution
specifically provides:
The Civil Service embraces every branch, agency,
subdivision and instrumentality of the Government,
including every government-owned or controlled
corporation. . . .
The 1935 Constitution had a similar provision in its Section
1, Article XII which stated:
A Civil Service embracing all branches and subdivisions of
the Government shall be provided by law.1wphi1
The inclusion of "government-owned or controlled
corporations" within the embrace of the civil service shows
a deliberate effort of the framers to plug an earlier loophole

which allowed government-owned or controlled

corporations to avoid the full consequences of the all
encompassing coverage of the civil service system. The
same explicit intent is shown by the addition of "agency"
and "instrumentality" to branches and subdivisions of the
Government. All offices and firms of the government are
covered. The amendments introduced in 1973 are not idle
exercises or meaningless gestures. They carry the strong
message that civil service coverage is broad and allembracing insofar as employment in the government in any
of its governmental or corporate arms is concerned. 25
The complaint in NLRC Case No. 1637-84 having been filed on
13 November 1984, when the 1973 Constitution was still in
force, our ruling in Juco applies in the case at bar.26
In view of the foregoing, we hold that both the Labor Arbiter
and public respondent NLRC had no jurisdiction over the
complaint filed by private respondents in NLRC Case No.
1637-84; neither labor agency had before it any matter which
could validly have been passed upon by it in the exercise of
original or appellate jurisdiction. The appealed Decision and
Resolution in this case, having been rendered without
jurisdiction, vested no rights and imposed no liabilities upon
any of the parties here involved. That neither party had
expressly raised the issue of jurisdiction in the pleadings
poses no obstacle to this ruling of the Court, which may motu
proprio take cognizance of the issue of existence or absence
of jurisdiction and pass upon the same.27
ACCORDINGLY, the Decision of the Labor Arbiter dated 31 July
1985, and the Decision dated 27 February 1987 and
Resolution dated 16 October 1987, issued by public
respondent NLRC, in NLRC Case No. 1637-84, are hereby SET
ASIDE. All other orders and resolutions rendered in this case
by the Labor Arbiter and the NLRC are likewise SET ASIDE. No
pronouncement as to costs.
G.R. No. 143672

April 24, 2003

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
GENERAL FOODS (PHILS.), INC., respondent.
CORONA, J.:
Petitioner Commissioner of Internal Revenue (Commissioner)
assails the resolution1 of the Court of Appeals reversing the
decision2 of the Court of Tax Appeals which in turn denied the
protest filed by respondent General Foods (Phils.), Inc.,
regarding the assessment made against the latter for
deficiency taxes.
The records reveal that, on June 14, 1985, respondent
corporation, which is engaged in the manufacture of
beverages such as "Tang," "Calumet" and "Kool-Aid," filed its
income tax return for the fiscal year ending February 28,
1985. In said tax return, respondent corporation claimed as
deduction, among other business expenses, the amount
of P9,461,246 for media advertising for "Tang."
On May 31, 1988, the Commissioner disallowed 50% or
P4,730,623 of the deduction claimed by respondent
corporation. Consequently, respondent corporation was
assessed deficiency income taxes in the amount of P2,635,
141.42. The latter filed a motion for reconsideration but the
same was denied.
On September 29, 1989, respondent corporation appealed to
the Court of Tax Appeals but the appeal was dismissed:
With such a gargantuan expense for the advertisement of a
singular product, which even excludes "other advertising
and promotions" expenses, we are not prepared to accept
that such amount is reasonable "to stimulate the current
sale of merchandise" regardless of Petitioners explanation
that such expense "does not connote unreasonableness
considering the grave economic situation taking place after
the Aquino assassination characterized by capital fight,
strong deterioration of the purchasing power of the
Philippine peso and the slacking demand for consumer
products" (Petitioners Memorandum, CTA Records, p. 273).
We are not convinced with such an explanation. The
staggering expense led us to believe that such expenditure
was incurred "to create or maintain some form of good will
for the taxpayers trade or business or for the industry or

profession of which the taxpayer is a member." The term

"good will" can hardly be said to have any precise
signification; it is generally used to denote the benefit
arising from connection and reputation (Words and Phrases,
Vol. 18, p. 556 citing Douhart vs. Loagan, 86 III. App. 294).
As held in the case of Welch vs. Helvering, efforts to
establish reputation are akin to acquisition of capital assets
and, therefore, expenses related thereto are not business
expenses but capital expenditures. (Atlas Mining and
Development Corp. vs. Commissioner of Internal
Revenue, supra). For sure such expenditure was meant not
only to generate present sales but more for future and
prospective benefits. Hence, "abnormally large
expenditures for advertising are usually to be spread over
the period of years during which the benefits of the
expenditures are received" (Mertens, supra, citing Colonial
Ice Cream Co., 7 BTA 154).
WHEREFORE, in all the foregoing, and finding no error in the
case appealed from, we hereby RESOLVE to DISMISS the
instant petition for lack of merit and ORDER the Petitioner
to pay the respondent Commissioner the assessed amount
of P2,635,141.42 representing its deficiency income tax
liability for the fiscal year ended February 28, 1985." 3
Aggrieved, respondent corporation filed a petition for review
at the Court of Appeals which rendered a decision reversing
and setting aside the decision of the Court of Tax Appeals:
Since it has not been sufficiently established that the item it
claimed as a deduction is excessive, the same should be
allowed.
WHEREFORE, the petition of petitioner General Foods
(Philippines), Inc. is hereby GRANTED. Accordingly, the
Decision, dated 8 February 1994 of respondent Court of Tax
Appeals is REVERSED and SET ASIDE and the letter, dated
31 May 1988 of respondent Commissioner of Internal
Revenue is CANCELLED.
SO ORDERED.4
Thus, the instant petition, wherein the Commissioner presents
for the Courts consideration a lone issue: whether or not the
subject media advertising expense for "Tang" incurred by
respondent corporation was an ordinary and necessary
expense fully deductible under the National Internal Revenue
Code (NIRC).
It is a governing principle in taxation that tax exemptions
must be construed in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority;5 and he who
claims an exemption must be able to justify his claim by the
clearest grant of organic or statute law. An exemption from
the common burden cannot be permitted to exist upon vague
implications.6
Deductions for income tax purposes partake of the nature of
tax exemptions; hence, if tax exemptions are strictly
construed, then deductions must also be strictly construed.
We then proceed to resolve the singular issue in the case at
bar. Was the media advertising expense for "Tang" paid or
incurred by respondent corporation for the fiscal year ending
February 28, 1985 "necessary and ordinary," hence, fully
deductible under the NIRC? Or was it a capital expenditure,
paid in order to create "goodwill and reputation" for
respondent corporation and/or its products, which should have
been amortized over a reasonable period?
Section 34 (A) (1), formerly Section 29 (a) (1) (A), of the NIRC
provides:
(A) Expenses.(1) Ordinary and necessary trade, business or professional
expenses.(a) In general.- There shall be allowed as deduction from
gross income all ordinary and necessary expenses paid or

incurred during the taxable year in carrying on, or which are

directly attributable to, the development, management,
operation and/or conduct of the trade, business or exercise
of a profession.
Simply put, to be deductible from gross income, the subject
advertising expense must comply with the following
requisites: (a) the expense must be ordinary and necessary;
(b) it must have been paid or incurred during the taxable
year; (c) it must have been paid or incurred in carrying on the
trade or business of the taxpayer; and (d) it must be
supported by receipts, records or other pertinent papers. 7
The parties are in agreement that the subject advertising
expense was paid or incurred within the corresponding
taxable year and was incurred in carrying on a trade or
business. Hence, it was necessary. However, their views
conflict as to whether or not it was ordinary. To be deductible,
an advertising expense should not only be necessary but also
ordinary. These two requirements must be met.
The Commissioner maintains that the subject advertising
expense was not ordinary on the ground that it failed the two
conditions set by U.S. jurisprudence: first, "reasonableness" of
the amount incurred and second, the amount incurred must
not be a capital outlay to create "goodwill" for the product
and/or private respondents business. Otherwise, the expense
must be considered a capital expenditure to be spread out
over a reasonable time.
We agree.
There is yet to be a clear-cut criteria or fixed test for
determining the reasonableness of an advertising expense.
There being no hard and fast rule on the matter, the right to a
deduction depends on a number of factors such as but not
limited to: the type and size of business in which the taxpayer
is engaged; the volume and amount of its net earnings; the
nature of the expenditure itself; the intention of the taxpayer
and the general economic conditions. It is the interplay of
these, among other factors and properly weighed, that will
yield a proper evaluation.
In the case at bar, the P9,461,246 claimed as media
advertising expense for "Tang" alone was almost one-half of
its total claim for "marketing expenses." Aside from that,
respondent-corporation also claimed P2,678,328 as "other
advertising and promotions expense" and another
P1,548,614, for consumer promotion.
Furthermore, the subject P9,461,246 media advertising
expense for "Tang" was almost double the amount of
respondent corporations P4,640,636 general and
administrative expenses.
We find the subject expense for the advertisement of a single
product to be inordinately large. Therefore, even if it is
necessary, it cannot be considered an ordinary expense
deductible under then Section 29 (a) (1) (A) of the NIRC.
Advertising is generally of two kinds: (1) advertising to
stimulate the current sale of merchandise or use of services
and (2) advertising designed to stimulate the future sale of
merchandise or use of services. The second type involves
expenditures incurred, in whole or in part, to create or
maintain some form of goodwill for the taxpayers trade or
business or for the industry or profession of which the
taxpayer is a member. If the expenditures are for the
advertising of the first kind, then, except as to the question of
the reasonableness of amount, there is no doubt such
expenditures are deductible as business expenses. If,
however, the expenditures are for advertising of the second
kind, then normally they should be spread out over a
reasonable period of time.
We agree with the Court of Tax Appeals that the subject
advertising expense was of the second kind. Not only was the
amount staggering; the respondent corporation itself also
admitted, in its letter protest8 to the Commissioner of Internal
Revenues assessment, that the subject media expense was
incurred in order to protect respondent corporations brand
franchise, a critical point during the period under review.

The protection of brand franchise is analogous to the

maintenance of goodwill or title to ones property. This is a
capital expenditure which should be spread out over a
reasonable period of time.9
Respondent corporations venture to protect its brand
franchise was tantamount to efforts to establish a reputation.
This was akin to the acquisition of capital assets and therefore
expenses related thereto were not to be considered as
business expenses but as capital expenditures. 10
True, it is the taxpayers prerogative to determine the amount
of advertising expenses it will incur and where to apply
them.11 Said prerogative, however, is subject to certain
considerations. The first relates to the extent to which the
expenditures are actually capital outlays; this necessitates an
inquiry into the nature or purpose of such expenditures. 12 The
second, which must be applied in harmony with the first,
relates to whether the expenditures are ordinary and
necessary. Concomitantly, for an expense to be considered
ordinary, it must be reasonable in amount. The Court of Tax
Appeals ruled that respondent corporation failed to meet the
two foregoing limitations.
We find said ruling to be well founded. Respondent
corporation incurred the subject advertising expense in order
to protect its brand franchise. We consider this as a capital
outlay since it created goodwill for its business and/or
product. The P9,461,246 media advertising expense for the
promotion of a single product, almost one-half of petitioner
corporations entire claim for marketing expenses for that
year under review, inclusive of other advertising and
promotion expenses of P2,678,328 and P1,548,614 for
consumer promotion, is doubtlessly unreasonable.
It has been a long standing policy and practice of the Court to
respect the conclusions of quasi-judicial agencies such as the
Court of Tax Appeals, a highly specialized body specifically
created for the purpose of reviewing tax cases. The CTA, by
the nature of its functions, is dedicated exclusively to the
study and consideration of tax problems. It has necessarily
developed an expertise on the subject. We extend due
consideration to its opinion unless there is an abuse or
improvident exercise of authority.13 Since there is none in the
case at bar, the Court adheres to the findings of the CTA.
Accordingly, we find that the Court of Appeals committed
reversible error when it declared the subject media
advertising expense to be deductible as an ordinary and
necessary expense on the ground that "it has not been
established that the item being claimed as deduction is
excessive." It is not incumbent upon the taxing authority to
prove that the amount of items being claimed is
unreasonable. The burden of proof to establish the validity of
claimed deductions is on the taxpayer.14 In the present case,
that burden was not discharged satisfactorily.
WHEREFORE, premises considered, the instant petition is
GRANTED. The assailed decision of the Court of Appeals is
hereby REVERSED and SET ASIDE. Pursuant to Sections 248
and 249 of the Tax Code, respondent General Foods (Phils.),
Inc. is hereby ordered to pay its deficiency income tax in the
amount of P2,635,141.42, plus 25% surcharge for late
payment and 20% annual interest computed from August 25,
1989, the date of the denial of its protest, until the same is
fully paid.
SO ORDERED.
G.R. No. 141658

March 18, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
THE PHILIPPINE AMERICAN ACCIDENT INSURANCE
COMPANY, INC., THE PHILIPPINE AMERICAN ASSURANCE
COMPANY, INC., and THE PHILIPPINE AMERICAN
GENERAL INSURANCE CO., INC.,Respondents.
DECISION
CARPIO, J.:

The Case
Before the Court is a petition for review1 assailing the
Decision2 of 7 January 2000 of the Court of Appeals in CA-G.R.
SP No. 36816. The Court of Appeals affirmed the Decision 3 of
5 January 1995 of the Court of Tax Appeals ("CTA") in CTA
Cases Nos. 2514, 2515 and 2516. The CTA ordered the
Commissioner of Internal Revenue ("petitioner") to refund a
total of P29,575.02 to respondent companies ("respondents").
Antecedent Facts
Respondents are domestic corporations licensed to transact
insurance business in the country. From August 1971 to
September 1972, respondents paid the Bureau of Internal
Revenue under protest the 3% tax imposed on lending
investors by Section 195-A4 of Commonwealth Act No. 466
("CA 466"), as amended by Republic Act No. 6110 ("RA 6110")
and other laws. CA 466 was the National Internal Revenue
Code ("NIRC") applicable at the time.
Respondents paid the following amounts: P7,985.25 from
Philippine American ("PHILAM") Accident Insurance
Company; P7,047.80 from PHILAM Assurance Company;
and P14,541.97 from PHILAM General Insurance Company.
These amounts represented 3% of each companys interest
income from mortgage and other loans. Respondents also
paid the taxes required of insurance companies under CA 466.
On 31 January 1973, respondents sent a letter-claim to
petitioner seeking a refund of the taxes paid under protest.
When respondents did not receive a response, each
respondent filed on 26 April 1973 a petition for review with
the CTA. These three petitions, which were later consolidated,
argued that respondents were not lending investors and as
such were not subject to the 3% lending investors tax under
Section 195-A.
The CTA archived respondents case for several years while
another case with a similar issue was pending before the
higher courts. When respondents case was reinstated, the
CTA ruled that respondents were entitled to their refund.
The Ruling of the Court of Tax Appeals
The CTA held that respondents are not taxable as lending
investors because the term "lending investors" does not
embrace insurance companies. The CTA traced the history of
the tax on lending investors, as follows:
Originally, a person who was engaged in lending money at
interest was taxed as a money lender. [Sec. 1464(x), Rev.
Adm. Code] The term money lenders was defined as
including "all persons who make a practice of lending
money for themselves or others at interest." [Sec. 1465(v),
id.] Under this law, an insurance company was not
considered a money lender and was not taxable as such. To
quote from an old BIR Ruling:
"The lending of money at interest by insurance
companies constitutes a necessary incident of their
regular business. For this reason, insurance companies
are not liable to tax as money lenders or real estate
brokers for making or negotiating loans secured by real
property. (Ruling, February 28, 1920; BIR 135.2)" (The
Internal Revenue Law, Annotated, 2nd ed., 1929, by B.L.
Meer, page 143)
The same rule has been applied to banks.
"For making investments on salary loans, banks will not be
required to pay the money lenders tax imposed by this
subsection, for the reason that money lending is considered
a mere incident of the banking business. [See Ruling No. 43,
(October 8, 1926) 25 Off. Gaz. 1326)" (The Internal Revenue
Law, Annotated, id.)
The term "money lenders" was later changed to "lending
investors" but the definition of the term remains the same.
[Sec. 1464(x), Rev. Adm. Code, as finally amended by Com.

Act No. 215, and Sec. 1465(v) of the same Code, as finally
amended by Act No. 3963] The same law is embodied in the
present National Internal Revenue Code (Com. Act No. 466)
without change, except in the amount of the tax. [See Secs.
182(A) (3) (dd) and 194(u), National Internal Revenue
Code.]
It is a well-settled rule that an administrative interpretation
of a law which has been followed and applied for a long
time, and thereafter the law is re-enacted without
substantial change, such administrative interpretation is
deemed to have received legislative approval. In short, the
administrative interpretation becomes part of the law as it
is presumed to carry out the legislative purpose. 5
The CTA held that the practice of lending money at interest is
part of the insurance business. CA 466 already taxes the
insurance business. The CTA pointed out that the law
recognizes and even regulates this practice of lending money
by insurance companies.
The CTA observed that CA 466 also treated differently
insurance companies from lending investors in regard to fixed
taxes. Under Section 182(A)(3)(gg), insurance companies
were subject to the same fixed tax as banks and finance
companies. The CTA reasoned that insurance companies were
grouped with banks and finance companies because the
latters lending activities were also integral to their business.
In contrast, lending investors were taxed at a different fixed
tax under Section 182(A)(3)(dd) of CA 466. The CTA stated
that "insurance companies xxx had never been required by
respondent [CIR] to pay the fixed tax imposed on lending
investors xxx."6
The dispositive portion of the Decision of 5 January 1995 of
the Court of Tax Appeals ("CTA Decision") reads:
WHEREFORE, premises considered, petitioners Philippine
American Accident Insurance Co., Philippine American
Assurance Co., and Philippine American General Insurance
Co., Inc. are not taxable on their lending transactions
independently of their insurance business. Accordingly,
respondent is hereby ordered to refund to petitioner[s] the
sum of P7,985.25, P7,047.80 and P14,541.97 in CTA Cases
No. 2514, 2515 and 2516, respectively representing the
fixed and percentage taxes when (sic) paid by petitioners as
lending investor from August 1971 to September 1972.
No pronouncement as to cost.
SO ORDERED.7
Dissatisfied, petitioner elevated the matter to the Court of
Appeals.8
The Ruling of the Court of Appeals
The Court of Appeals ruled that respondents are not taxable
as lending investors. In its Decision of 7 January 2000 ("CA
Decision"), the Court of Appeals affirmed the ruling of the CTA,
thus:
WHEREFORE, premises considered, the petition is
DISMISSED, hereby AFFIRMING the decision, dated
January 5, 1995, of the Court of Tax Appeals in CTA
Cases Nos. 2514, 2515 and 2516.
SO ORDERED.9
Petitioner appealed the CA Decision to this Court.
The Issues
Petitioner raises the sole issue:
WHETHER RESPONDENT INSURANCE COMPANIES ARE
SUBJECT TO THE 3% PERCENTAGE TAX AS LENDING
INVESTORS UNDER SECTIONS 182(A)(3)(DD) AND

195-A, RESPECTIVELY IN RELATION TO SECTION

194(U), ALL OF THE NIRC.10

(3) Other fixed taxes. The following fixed taxes shall be

collected as follows, the amount stated being for the whole
year, when not otherwise specified;

The Ruling of the Court

xxx
The petition lacks merit.
(dd) Lending investors
On the Additional Issue Raised by Petitioner
Section 182(A)(3)(dd) of CA 466 imposes an annual fixed
tax on lending investors, depending on their location. 11 The
sole question before the CTA was whether respondents were
subject to the percentage tax on lending investors under
Section 195-A. Petitioner raised for the first time the issue of
the fixed tax in the Petition for Review12 petitioner filed before
the Court of Appeals.
Ordinarily, a party cannot raise for the first time on appeal an
issue not raised in the trial court.13 The Court of Appeals
should not have taken cognizance of the issue on
respondents supposed liability under Section 182(A)(3)(dd).
However, we cannot entirely fault the Court of Appeals or
petitioner. Even if the percentage tax on lending investors was
the sole issue before it, the CTA ordered petitioner to refund
to the PHILAM companies "the fixed and percentage taxes
[t]hen paid by petitioners as lending investor."14 Although the
amounts for refund consisted only of what respondents paid
as percentage taxes, the CTA Decision also ordered the refund
to respondents of the fixed tax on lending investors.
Respondents in their pleadings deny any liability under
Section 182(A)(3)(dd), on the same ground that they are not
lending investors.
The question of whether respondents should pay the fixed tax
under Section 182(A)(3)(dd) revolves around the same issue
of whether respondents are taxable as lending investors. In
similar circumstances, the Court has held that an appellate
court may consider an unassigned error if it is closely related
to an error that was properly assigned.15 This rule properly
applies to the present case. Thus, we shall consider and rule
on the issue of whether respondents are subject to the fixed
tax under Section 182(A)(3)(dd).
Whether Insurance Companies are Taxable as Lending
Investors
Invoking Sections 195-A and 182(A)(3)(dd) in relation to
Section 194(u) of CA 466, petitioner argues that insurance
companies are subject to two fixed taxes and two percentage
taxes. Petitioner alleges that:
As a lending investor, an insurance company is subject to
an annual fixed tax of P500.00 and another P500.00 under
Section 182 (A)(3)(dd) and (gg) of the Tax Code. As an
underwriter, an insurance company is subject to the 3% tax
of the total premiums collected and another 3% on the
gross receipts as a lending investor under Sections 255 and
195-A, respectively of the same Code. xxx 16
Petitioner also contends that the refund granted to
respondents is in the nature of a tax exemption, and cannot
be allowed unless granted explicitly and categorically.
The rule that tax exemptions should be construed strictly
against the taxpayer presupposes that the taxpayer is clearly
subject to the tax being levied against him. Unless a statute
imposes a tax clearly, expressly and unambiguously, what
applies is the equally well-settled rule that the imposition of a
tax cannot be presumed.17Where there is doubt, tax laws must
be construed strictly against the government and in favor of
the taxpayer.18This is because taxes are burdens on the
taxpayer, and should not be unduly imposed or presumed
beyond what the statutes expressly and clearly import. 19
Section 182(A)(3)(dd) of CA 466 also provides:
Sec. 182. Fixed taxes. (A) On business xxx
xxx

1. In chartered cities and first class municipalities, five

hundred pesos;
2. In second and third class municipalities, two hundred
and fifty pesos;
3. In fourth and fifth class municipalities and municipal
districts, one hundred and twenty-five pesos; Provided,
That lending investors who do business as such in more
than one province shall pay a tax of five hundred pesos.
Section 195-A of CA 466 provides:
Sec. 195-A. Percentage tax on dealers in securities; lending
investors. Dealers in securities and lending investors shall
pay a tax equivalent to three per centum on their gross
income.
Neither Section 182(A)(3)(dd) nor Section 195-A mentions
insurance companies. Section 182(A)(3)(dd) provides for the
taxation of lending investors in different localities. Section
195-A refers to dealers in securities and lending investors. The
burden is thus on petitioner to show that insurance companies
are lending investors for purposes of taxation.
In this case, petitioner does not dispute that respondents are
in the insurance business. Petitioner merely alleges that the
definition of lending investors under CA 466 is broad enough
to encompass insurance companies. Petitioner insists that
because of Section 194(u), the two principal activities of the
insurance business, namely, underwriting and investment, are
separately taxable.20
Section 194(u) of CA 466 states:
(u) "Lending investor" includes all persons who make
a practice of lending money for themselves or others
at interest.
xxx
As can be seen, Section 194(u) does not tax the practice of
lending per se. It merely defines what lending investors are.
The question is whether the lending activities of insurance
companies make them lending investors for purposes of
taxation.
We agree with the CTA and Court of Appeals that it does not.
Insurance companies cannot be considered lending investors
under CA 466, as amended.
Definition of Lending
Investors under CA 466 Does
Not Include Insurance
Companies.
The definition in Section 194(u) of CA 466 is not broad enough
to include the business of insurance companies. The
Insurance Code of 197821 is very clear on what constitutes an
insurance company. It provides that an insurer or insurance
company "shall include all individuals, partnerships,
associations or corporations xxx engaged as principals in the
insurance business, excepting mutual benefit
associations."22 More specifically, respondents fall under the
category of insurance corporations as defined in Section 185
of the Insurance Code, thus:
SECTION 185. Corporations formed or organized to save any
person or persons or other corporations harmless from loss,
damage, or liability arising from any unknown or future or
contingent event, or to indemnify or to compensate any

person or persons or other corporations for any such loss,

damage, or liability, or to guarantee the performance of or
compliance with contractual obligations or the payment of
debts of others shall be known as "insurance corporations."
Plainly, insurance companies and lending investors are
different enterprises in the eyes of the law. Lending investors
cannot, for a consideration, hold anyone harmless from loss,
damage or liability, nor provide compensation or indemnity for
loss. The underwriting of risks is the prerogative of insurers,
the great majority of which are incorporated insurance
companies23 like respondents.
Granting of Mortgage and other Loans are Investment
Practices that are Part of the Insurance Business.
True, respondents granted mortgage and other kinds of loans.
However, this was not done independently of respondents
insurance business. The granting of certain loans is one of
several means of investment allowed to insurance companies.
No less than the Insurance Code mandates and regulates this
practice.24
Unlike the practice of lending investors, the lending activities
of insurance companies are circumscribed and strictly
regulated by the State. Insurance companies cannot freely
lend to "themselves or others" as lending investors can,25 nor
can insurance companies grant simply any kind of loan. Even
prior to 1978, the Insurance Code prescribed strict rules for
the granting of loans by insurance companies. 26 These
provisions on mortgage, collateral and policy loans were
reiterated in the Insurance Code of 1978 and are still in force
today.
Petitioner concedes that respondents investment practices
are as much a part of the insurance business as the task of
underwriting. Nevertheless, petitioner argues that such
investment practices are separately taxable under CA 466.
The CTA and the Court of Appeals found that the investment
of premiums and other funds received by respondents
through the granting of mortgage and other loans was
necessary to respondents business and hence, should not be
taxed separately.
Insurance companies are required by law to possess and
maintain substantial legal reserves to meet their obligations
to policyholders.27 This obviously cannot be accomplished
through the collection of premiums alone, as the legal
reserves and capital and surplus insurance companies are
obligated to maintain run into millions of pesos. As such, the
creation of "investment income" has long been held to be
generally, if not necessarily, essential to the business of
insurance.28
The creation of investment income in the manner sanctioned
by the laws on insurance is thus part of the business of
insurance, and the fruits of these investments are essentially
income from the insurance business. This is particularly true if
the invested assets are held either as reserved funds to
provide for policy obligations or as capital and surplus to
provide an extra margin of safety which will be attractive to
insurance buyers.29
The Court has also held that when a company is taxed on its
main business, it is no longer taxable further for engaging in
an activity or work which is merely a part of, incidental to and
is necessary to its main business.30Respondents already paid
percentage and fixed taxes on their insurance business. To
require them to pay percentage and fixed taxes again for an
activity which is necessarily a part of the same business, the
law must expressly require such additional payment of tax.
There is, however, no provision of law requiring such
additional payment of tax.
Sections 195-A and 182(A)(3)(dd) of CA 466 do not require
insurance companies to pay double percentage and fixed
taxes. They merely tax lending investors, not lending
activities. Respondents were not transformed into lending
investors by the mere fact that they granted loans, as these
investments were part of, incidental and necessary to their
insurance business.

Different Tax Treatment of

Insurance Companies and
Lending Investors.
Section 182(A)(3) of CA 466 accorded different tax treatments
to lending investors and insurance companies. The relevant
portions of Section 182 state:
Sec. 182. Fixed taxes. (A) On business xxx
(3) Other fixed taxes. The following fixed taxes shall be
collected as follows, the amount stated being for the whole
year, when not otherwise specified;
xxx
(dd) Lending investors
1. In chartered cities and first class municipalities, five
hundred pesos;
2. In second and third class municipalities, two hundred
and fifty pesos;
3. In fourth and fifth class municipalities and municipal
districts, one hundred and twenty-five pesos; Provided,
That lending investors who do business as such in more
than one province shall pay a tax of five hundred pesos.
xxx
(gg) Banks, insurance companies, finance and investment
companies doing business in the Philippines and franchise
grantees, five hundred pesos.
xxx (Emphasis supplied.)
The separate provisions on lending investors and insurance
companies demonstrate an intention to treat these businesses
differently. If Congress intended insurance companies to be
taxed as lending investors, there would be no need for Section
182(A)(3)(gg). Section 182(A)(3)(dd) would have been
sufficient. That insurance companies were included with
banks, finance and investment companies also supports the
CTAs conclusion that insurance companies had more in
common with the latter enterprises than with lending
investors. As the CTA pointed out, banks also regularly lend
money at interest, but are not taxable as lending investors.
We find no merit in petitioners contention that Congress
intended to subject respondents to two percentage taxes and
two fixed taxes. Petitioners argument goes against the
doctrine of strict interpretation of tax impositions.
Petitioners argument is likewise not in accord with existing
jurisprudence. In Commissioner of Internal Revenue v.
Michel J. Lhuillier Pawnshop, Inc.,31 the Court ruled that
the different tax treatment accorded to pawnshops and
lending investors in the NIRC of 1977 and the NIRC of 1986
showed "the intent of Congress to deal with both subjects
differently." The same reasoning applies squarely to the
present case.
Even the current tax law does not treat insurance companies
as lending investors. Under Section 108(A)32 of the NIRC of
1997, lending investors and non-life insurance companies,
except for their crop insurances, are subject to value-added
tax ("VAT"). Life insurance companies are exempt from VAT,
but are subject to percentage tax under Section 123 of the
NIRC of 1997.
Indeed, the fact that Sections 195-A and 182(A)(3)(dd) of CA
466 failed to mention insurance companies already implies
the latters exclusion from the coverage of these provisions.
When a statute enumerates the things upon which it is to
operate, everything else by implication must be excluded
from its operation and effect.33

Definition of Lending
Investors in CA 466 is Not
New.
Petitioner does not dispute that it issued a ruling in 1920 to
the effect that the lending of money at interest was a
necessary incident of the insurance business, and that
insurance companies were thus not subject to the tax on
money lenders. Petitioner argues only that the 1920 ruling
does not apply to the instant case because RA 6110
introduced the definition of lending investors to CA 466 only in
1969.
The subject definition was actually introduced much earlier, at
a time when lending investors were still referred to as money
lenders. Sections 45 and 46 of the Internal Revenue Law of
191434 ("1914 Tax Code") state:
SECTION 45. Amount of Tax on Business. Fixed
taxes on business shall be collected as follows, the
amount stated being for the whole year, when not
otherwise specified:
xxx
(x) Money lenders, eighty pesos;
xxx

As can be seen, the definitions of "money lender" under the

1914 Tax Code and "lending investor" under CA 466 are
identical. The term "money lender" was merely changed to
"lending investor" when Act No. 3963 amended the Revised
Administrative Code in 1932.35 This same definition of lending
investor has since appeared in Section 194(u) of CA 466 and
later tax laws.
Note that insurance companies were not included among the
businesses subject to an annual fixed tax under the 1914 Tax
Code.36 That Congress later saw the need to introduce Section
182(A)(3)(gg) in CA 466 bolsters our view that there was no
legislative intent to tax insurance companies as lending
investors. If insurance companies were already taxed as
lending investors, there would have been no need for a
separate provision specifically requiring insurance companies
to pay fixed taxes.
The Court Accords Great
Weight to the Factual Findings
of the CTA.
Dedicated exclusively to the study and consideration of tax
problems, the CTA has necessarily developed an expertise in
the subject of taxation that this Court has recognized time
and again. For this reason, the findings of fact of the CTA,
particularly when affirmed by the Court of Appeals, are
generally conclusive on this Court absent grave abuse of
discretion or palpable error,37 which are not present in this
case.

SECTION 46. Words and Phrases Defined. In

applying the provisions of the preceding section
words and phrases shall be taken in the sense and
extension indicated below:

WHEREFORE, we DENY the instant petition and AFFIRM the

Decision of 7 January 2000 of the Court of Appeals in CA-G.R.
SP No. 36816.

xxx

SO ORDERED.

"Money lender" includes all persons who make a

practice of lending money for themselves or
others at interest. (Emphasis supplied)