Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 104269 November 11, 1993
DEPARTMENT OF AGRICULTURE, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, et
al., respondents.
Roy Lago Salcedo for private respondents.
VITUG, J.:
For consideration are the incidents that flow from the familiar
doctrine of non-suability of the state.
In this petition for certiorari, the Department of Agriculture seeks to
nullify the Resolution, 1 dated 27 November 1991, of the National
Labor Relations Commission (NLRC), Fifth Division, Cagayan de
Oro City, denying the petition for injunction, prohibition
and mandamus that prays to enjoin permanently the NLRC's
Regional Arbitration Branch X and Cagayan de Oro City Sheriff from
enforcing the decision 2 of 31 May 1991 of the Executive Labor
Arbiter and from attaching and executing on petitioner's property.
The Department of Agriculture (herein petitioner) and Sultan Security
Agency entered into a contract 3 on 01 April 1989 for security
services to be provided by the latter to the said governmental entity.
Save for the increase in the monthly rate of the guards, the same
terms and conditions were also made to apply to another contract,
dated 01 May 1990, between the same parties. Pursuant to their
arrangements, guards were deployed by Sultan Agency in the
various premises of the petitioner.
On 13 September 1990, several guards of the Sultan Security
Agency filed a complaint for underpayment of wages, non-payment
of 13th month pay, uniform allowances, night shift differential pay,
holiday pay and overtime pay, as well as for damages, 4 before the
Regional Arbitration Branch X of Cagayan de Oro City, docketed as
NLRC Case No. 10-09-00455-90 (or 10-10-00519-90, its original
docket number), against the Department of Agriculture and Sultan
Security Agency.
The Executive Labor Arbiter rendered a decision on 31 May finding
herein petitioner and jointly and severally liable with Sultan Security
Agency for the payment of money claims, aggregating P266,483.91,
of the complainant security guards. The petitioner and Sultan
Security Agency did not appeal the decision of the Labor Arbiter.
Thus, the decision became final and executory.
On 18 July 1991, the Labor Arbiter issued a writ of
execution. 5 commanding the City Sheriff to enforce and execute the
judgment against the property of the two respondents. Forthwith, or
on 19 July 1991, the City Sheriff levied on execution the motor
vehicles of the petitioner, i.e. one (1) unit Toyota Hi-Ace, one (1) unit
Toyota Mini Cruiser, and one (1) unit Toyota Crown. 6 These units
were put under the custody of Zacharias Roa, the property custodian
of the petitioner, pending their sale at public auction or the final
settlement of the case, whichever would come first.
A petition for injunction, prohibition and mandamus, with prayer for
preliminary writ of injunction was filed by the petitioner with the
National Labor Relations Commission (NLRC), Cagayan de Oro,
alleging, inter alia, that the writ issued was effected without the Labor
Arbiter having duly acquired jurisdiction over the petitioner, and that,
therefore, the decision of the Labor Arbiter was null and void and all
actions pursuant thereto should be deemed equally invalid and of no
legal, effect. The petitioner also pointed out that the attachment or
seizure of its property would hamper and jeopardize petitioner's
governmental functions to the prejudice of the public good.
On 27 November 1991, the NLRC promulgated its assailed
resolution; viz:
WHEREFORE, premises considered, the following orders are
issued:
1. The enforcement and execution of the judgments against
petitioner in NLRC RABX Cases Nos. 10-10-00455-90; 10-10-0481-
90 and 10-10-00519-90 are temporarily suspended for a period of
two (2) months, more or less, but not extending beyond the last
quarter of calendar year 1991 to enable petitioner to source and
raise funds to satisfy the judgment awards against it;
2. Meantime, petitioner is ordered and directed to source for funds
within the period above-stated and to deposit the sums of money
equivalent to the aggregate amount. it has been adjudged to pay
jointly and severally with respondent Sultan Security Agency with the
Regional Arbitration Branch X, Cagayan de Oro City within the same
period for proper dispositions;
3. In order to ensure compliance with this order, petitioner is likewise
directed to put up and post sufficient surety and supersedeas
bond equivalent to at least to fifty (50%) percent of the total monetary
award issued by a reputable bonding company duly accredited by
the Supreme Court or by the Regional Trial Court of Misamis
Oriental to answer for the satisfaction of the money claims in case of
failure or default on the part of petitioner to satisfy the money claims;
4. The City Sheriff is ordered to immediately release the properties of
petitioner levied on execution within ten (10) days from notice of the
posting of sufficient surety or supersedeas bond as specified above.
In the meanwhile, petitioner is assessed to pay the costs and/or
expenses incurred by the City Sheriff, if any, in connection with the
execution of the judgments in the above-stated cases upon
presentation of the appropriate claims or vouchers and receipts by
the city Sheriff, subject to the conditions specified in the NLRC
Sheriff, subject to the conditions specified in the NLRC Manual of
Instructions for Sheriffs;
5. The right of any of the judgment debtors to claim reimbursement
against each other for any payments made in connection with the
satisfaction of the judgments herein is hereby recognized pursuant to
the ruling in the Eagle Security case, (supra). In case of dispute
between the judgment debtors, the Executive Labor Arbiter of the
Branch of origin may upon proper petition by any of the parties
conduct arbitration proceedings for the purpose and thereby render
his decision after due notice and hearings;
7. Finally, the petition for injunction is Dismissed for lack of basis.
The writ of preliminary injunction previously issued is Lifted and Set
Aside and in lieu thereof, a Temporary Stay of Execution is issued
for a period of two (2) months but not extending beyond the last
quarter of calendar year 1991, conditioned upon the posting of a
surety or supersedeas bond by petitioner within ten (10) days from
notice pursuant to paragraph 3 of this disposition. The motion to
admit the complaint in intervention isDenied for lack of merit while
the motion to dismiss the petition filed by Duty Sheriff is Noted
SO ORDERED.
In this petition for certiorari, the petitioner charges the NLRC with
grave abuse of discretion for refusing to quash the writ of execution.
The petitioner faults the NLRC for assuming jurisdiction over a
money claim against the Department, which, it claims, falls under the
exclusive jurisdiction of the Commission on Audit. More importantly,
the petitioner asserts, the NLRC has disregarded the cardinal rule on
the non-suability of the State.
The private respondents, on the other hand, argue that the petitioner
has impliedly waived its immunity from suit by concluding a service
contract with Sultan Security Agency.
The basic postulate enshrined in the constitution that "(t)he State
may not be sued without its consent," 7 reflects nothing less than a
recognition of the sovereign character of the State and an express
affirmation of the unwritten rule effectively insulating it from the
jurisdiction of courts. 8 It is based on the very essence of sovereignty.
As has been aptly observed, by Justice Holmes, a sovereign is
exempt from suit, not because of any formal conception or obsolete
theory, but on the logical and practical ground that there can be no
legal right as against the authority that makes the law on which the
right depends. 9 True, the doctrine, not too infrequently, is derisively
called "the royal prerogative of dishonesty" because it grants the
state the prerogative to defeat any legitimate claim against it by
simply invoking its non-suability. 10 We have had occasion, to explain
in its defense, however, that a continued adherence to the doctrine
of non-suability cannot be deplored, for the loss of governmental
efficiency and the obstacle to the performance of its multifarious
functions would be far greater in severity than the inconvenience that
may be caused private parties, if such fundamental principle is to be
abandoned and the availability of judicial remedy is not to be
accordingly restricted. 11
The rule, in any case, is not really absolute for it does not say that
the state may not be sued under any circumstances. On the
contrary, as correctly phrased, the doctrine only conveys, "the state
may not be sued without its consent;" its clear import then is that the
State may at times be sued. 12 The States' consent may be given
expressly or impliedly. Express consent may be made through a
general law 13 or a special law. 14 In this jurisdiction, the general law
waiving the immunity of the state from suit is found in Act No. 3083,
where the Philippine government "consents and submits to be sued
upon any money claims involving liability arising from contract,
express or implied, which could serve as a basis of civil action
between private parties." 15 Implied consent, on the other hand, is
conceded when the State itself commences litigation, thus opening
itself to a counterclaim 16 or when it enters into a contract. 17 In this
situation, the government is deemed to have descended to the level
of the other contracting party and to have divested itself of its
sovereign immunity. This rule, relied upon by the NLRC and the
private respondents, is not, however, without qualification. Not all
contracts entered into by the government operate as a waiver of its
non-suability; distinction must still be made between one which is
executed in the exercise of its sovereign function and another which
is done in its proprietary capacity. 18
In the Unites States of America vs. Ruiz, 19 where the questioned
transaction dealt with improvements on the wharves in the naval
installation at Subic Bay, we held:
The traditional rule of immunity exempts a State from being sued in
the courts of another State without its consent or waiver. This rule is
a necessary consequence of the principles of independence and
equality of States. However, the rules of International Law are not
petrified; they are constantly developing and evolving. And because
the activities of states have multiplied, it has been necessary to
distinguish them between sovereign and governmental acts ( jure
imperii) and private, commercial and proprietary act ( jure
gestionisis). The result is that State immunity now extends only to
acts jure imperii. The restrictive application of State immunity is now
the rule in the United States, the United Kingdom and other states in
Western Europe.
xxx xxx xxx
The restrictive application of State immunity is proper only when the
proceedings arise out of commercial transactions of the foreign
sovereign, its commercial activities or economic affairs. Stated
differently, a state may be said to have descended to the level of an
individual and can this be deemed to have actually given its consent
to be sued only when it enters into business contracts. It does not
apply where the contracts relates to the exercise of its sovereign
functions. In this case the projects are an integral part of the naval
base which is devoted to the defense of both the United States and
the Philippines, indisputably a function of the government of the
highest order; they are not utilized for not dedicated to commercial or
business purposes.
In the instant case, the Department of Agriculture has not pretended
to have assumed a capacity apart from its being a governmental
entity when it entered into the questioned contract; nor that it could
have, in fact, performed any act proprietary in character.
But, be that as it may, the claims of private respondents, i.e. for
underpayment of wages, holiday pay, overtime pay and similar other
items, arising from the Contract for Service, clearly constitute money
claims. Act No. 3083, aforecited, gives the consent of the State to be
"sued upon any moneyed claim involving liability arising from
contract, express or implied, . . . Pursuant, however, to
Commonwealth Act ("C.A.") No. 327, as amended by Presidential be covered by the correspondent appropriation as required by law.
Decree ("P.D.") No. 1145, the money claim first be brought to the The functions and public services rendered by the State cannot be
Commission on Audit. Thus, inCarabao, Inc., vs. Agricultural allowed to be paralyzed or disrupted by the diversion of public funds
Productivity Commission, 20 we ruled: from their legitimate and specific objects, as appropriated by law. 23

(C)laimants have to prosecute their money claims against the WHEREFORE, the petition is GRANTED. The resolution, dated 27
Government under Commonwealth Act 327, stating that Act 3083 November 1991, is hereby REVERSED and SET ASIDE. The writ of
stands now merely as the general law waiving the State's immunity execution directed against the property of the Department of
from suit, subject to the general limitation expressed in Section 7 Agriculture is nullified, and the public respondents are hereby
thereof that "no execution shall issue upon any judgment rendered enjoined permanently from doing, issuing and implementing any and
by any Court against the Government of the (Philippines), and that all writs of execution issued pursuant to the decision rendered by the
the conditions provided in Commonwealth Act 327 for filing money Labor Arbiter against said petitioner.
claims against the Government must be strictly observed."
SO ORDERED.
We fail to see any substantial conflict or inconsistency between the
provisions of C.A. No. 327 and the Labor Code with respect to
money claims against the State. The Labor code, in relation to Act
No. 3083, provides the legal basis for the State liability but the
prosecution, enforcement or satisfaction thereof must still be pursued
in accordance with the rules and procedures laid down in C.A. No.
327, as amended by P.D. 1445.

When the state gives its consent to be sued, it does thereby

necessarily consent to unrestrained execution against it. tersely put,
when the State waives its immunity, all it does, in effect, is to give the
other party an opportunity to prove, if it can, that the State has a
liability. 21 In Republic vs. Villasor 22 this Court, in nullifying 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, has explained, thus

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 the
claimant's action "only up to the completion of proceedings anterior
to the stage of execution" and that the power of the Courts ends
when the judgment is rendered, since government funds and
properties may not be seized under writs or execution or
garnishment to satisfy such judgments, is based on obvious
considerations of public policy. Disbursements of public funds must

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-32166 October 18, 1977
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,
vs.
HON. MAXIMO A. MACEREN CFI, Sta. Cruz, Laguna, JOSE
BUENAVENTURA, GODOFREDO REYES, BENJAMIN
REYES, NAZARIO AQUINO and CARLO DEL
ROSARIO, accused-appellees.
Office of the Solicitor General for appellant.
Rustics F. de los Reyes, Jr. for appellees.
AQUINO, J.:t.hqw because electric current is not an obnoxious or poisonous
This is a case involving the validity of a 1967 regulation,
penalizing electro fishing in fresh water fisheries, promulgated
by the Secretary of Agriculture and Natural Resources and the
Commissioner of Fisheries under the old Fisheries Law and
the law creating the Fisheries Commission.
On March 7, 1969 Jose Buenaventura, Godofredo Reyes,
Benjamin Reyes, Nazario Aquino and Carlito del Rosario were
charged by a Constabulary investigator in the municipal court
of Sta. Cruz, Laguna with having violated Fisheries
Administrative Order No. 84-1.
It was alleged in the complaint that the five accused in the
morning of March 1, 1969 resorted to electro fishing in the
waters of Barrio San Pablo Norte, Sta. Cruz by "using their
own motor banca, equipped with motor; with a generator
colored green with attached dynamo colored gray or
somewhat white; and electrocuting device locally known as
sensored with a somewhat webbed copper wire on the tip or
other end of a bamboo pole with electric wire attachment
which was attached to the dynamo direct and with the use of
these devices or equipments catches fish thru electric current,
which destroy any aquatic animals within its cuffed reach, to
the detriment and prejudice of the populace" (Criminal Case
No. 5429).
Upon motion of the accused, the municipal court quashed the
complaint. The prosecution appealed. The Court of First
Instance of Laguna affirmed the order of dismissal (Civil Case
No. SC-36). The case is now before this Court on appeal by
the prosecution under Republic Act No. 5440.
The lower court held that electro fishing cannot be penalize
substance as contemplated in section I I of the Fisheries Law
and that it is not a substance at all but a form of energy
conducted or transmitted by substances. The lower court
further held that, since the law does not clearly prohibit electro
fishing, the executive and judicial departments cannot consider
it unlawful.
As legal background, it should be stated that section 11 of the this order, rivers, lakes and other bodies of fresh waters are
Fisheries Law prohibits "the use of any obnoxious or included.
poisonous substance" in fishing.
(b) Electro Fishing. Electro fishing is the catching of fish
Section 76 of the same law punishes any person who uses an with the use of electric current. The equipment used are of
obnoxious or poisonous substance in fishing with a fine of not many electrical devices which may be battery or generator-
more than five hundred pesos nor more than five thousand, operated and from and available source of electric current.
and by imprisonment for not less than six months nor more
(c) 'Persons' includes firm, corporation, association, agent or
than five years.
employee.
It is noteworthy that the Fisheries Law does not expressly
(d) 'Fish' includes other aquatic products.
punish .electro fishing." Notwithstanding the silence of the law,
the Secretary of Agriculture and Natural Resources, upon the SEC. 2. Prohibition. It shall be unlawful for any person to
recommendation of the Commissioner of Fisheries, engage in electro fishing or to catch fish by the use of electric
promulgated Fisheries Administrative Order No. 84 (62 O.G. current in any portion of the Philippine waters except for
1224), prohibiting electro fishing in all Philippine waters. The research, educational and scientific purposes which must be
order is quoted below: +.wph!1 covered by a permit issued by the Secretary of Agriculture and
Natural Resources which shall be carried at all times.
SUBJECT: PROHIBITING ELECTRO FISHING IN ALL
WATERS +.wph!1 SEC. 3. Penalty. Any violation of the provisions of this
Administrative Order shall subject the offender to a fine of not
OF THE PHILIPPINES.
exceeding five hundred pesos (P500.00) or imprisonment of
Pursuant to Section 4 of Act No. 4003, as amended, and not extending six (6) months or both at the discretion of the
Section 4 of R.A. No. 3512, the following rules and regulations Court.
regarding the prohibition of electro fishing in all waters of the
SEC. 4. Repealing Provisions. All administrative orders
Philippines are promulgated for the information and guidance
or parts thereof inconsistent with the provisions of this
of all concerned.+.wph!1
Administrative Order are hereby revoked.
SECTION 1. Definition. Words and terms used in this
SEC. 5. Effectivity. This Administrative Order shall take
Order 11 construed as follows:
effect six (60) days after its publication in the Office Gazette.
(a) Philippine waters or territorial waters of the Philippines'
On June 28, 1967 the Secretary of Agriculture and Natural
includes all waters of the Philippine Archipelago, as defined in
Resources, upon the recommendation of the Fisheries
the t between the United States and Spain, dated respectively
Commission, issued Fisheries Administrative Order No. 84-1,
the tenth of December, eighteen hundred ninety eight and the
amending section 2 of Administrative Order No. 84, by
seventh of November, nineteen hundred. For the purpose of
restricting the ban against electro fishing to fresh water
fisheries (63 O.G. 9963).
Thus, the phrase "in any portion of the Philippine waters"
found in section 2, was changed by the amendatory order to
read as follows: "in fresh water fisheries in the Philippines,
such as rivers, lakes, swamps, dams, irrigation canals and
other bodies of fresh water."
The Court of First Instance and the prosecution (p. 11 of brief)
assumed that electro fishing is punishable under section 83 of
the Fisheries Law (not under section 76 thereof), which
provides that any other violation of that law "or of any rules
and regulations promulgated thereunder shall subject the
offender to a fine of not more than two hundred pesos (P200),
or in t for not more than six months, or both, in the discretion of
the court."
That assumption is incorrect because 3 of the aforequoted
Administrative Order No. 84 imposes a fm of not exceeding
P500 on a person engaged in electro fishing, which amount
the 83. It seems that the Department of Fisheries prescribed
their own penalty for swift fishing which penalty is less than the
severe penalty imposed in section 76 and which is not
Identified to the at penalty imposed in section 83.
Had Administrative Order No. 84 adopted the fighter penalty
prescribed in on 83, then the crime of electro fishing would be
within the exclusive original jurisdiction of the inferior court
(Sec. 44 [f], Judiciary Law; People vs. Ragasi, L-28663,
September 22,
We have discussed this pre point, not raised in the briefs,
because it is obvious that the crime of electro fishing which is
punishable with a sum up to P500, falls within the concurrent
original jurisdiction of the inferior courts and the Court of First
instance (People vs. Nazareno, L-40037, April 30, 1976, 70
SCRA 531 and the cases cited therein).
And since the instant case was filed in the municipal court of
Sta. Cruz, Laguna, a provincial capital, the order of d rendered
by that municipal court was directly appealable to the Court,
not to the Court of First Instance of Laguna (Sec. 45 and last
par. of section 87 of the Judiciary Law; Esperat vs. Avila, L-
25992, June 30, 1967, 20 SCRA 596).
It results that the Court of First Instance of Laguna had no
appellate jurisdiction over the case. Its order affirming the
municipal court's order of dismissal is void for lack of motion.
This appeal shall be treated as a direct appeal from the
municipal court to this Court. (See People vs. Del Rosario, 97
Phil. 67).
In this appeal, the prosecution argues that Administrative
Orders Nos. 84 and 84-1 were not issued under section 11 of
the Fisheries Law which, as indicated above, punishes fishing
by means of an obnoxious or poisonous substance. This
contention is not well-taken because, as already stated, the
Penal provision of Administrative Order No. 84 implies that
electro fishing is penalized as a form of fishing by means of an
obnoxious or poisonous substance under section 11.
The prosecution cites as the legal sanctions for the prohibition
against electro fishing in fresh water fisheries (1) the rule-
making power of the Department Secretary under section 4 of
the Fisheries Law; (2) the function of the Commissioner of
Fisheries to enforce the provisions of the Fisheries Law and
the regulations Promulgated thereunder and to execute the
rules and regulations consistent with the purpose for the
creation of the Fisheries Commission and for the development
of fisheries (Sec. 4[c] and [h] Republic Act No. 3512; (3) the
declared national policy to encourage, Promote and conserve
our fishing resources (Sec. 1, Republic Act No. 3512), and (4)
section 83 of the Fisheries Law which provides that "any other
violation of" the Fisheries Law or of any rules and regulations
promulgated thereunder "shall subject the offender to a fine of
not more than two hundred pesos, or imprisonment for not
more than six months, or both, in the discretion of the court."
As already pointed out above, the prosecution's reference to
section 83 is out of place because the penalty for electro
fishing under Administrative order No. 84 is not the same as
the penalty fixed in section 83.
We are of the opinion that the Secretary of Agriculture and
Natural Resources and the Commissioner of Fisheries
exceeded their authority in issuing Fisheries Administrative
Orders Nos. 84 and 84-1 and that those orders are not
warranted under the Fisheries Commission, Republic Act No.
3512.
The reason is that the Fisheries Law does not expressly
prohibit electro fishing. As electro fishing is not banned under
that law, the Secretary of Agriculture and Natural Resources
and the Commissioner of Fisheries are powerless to penalize
it. In other words, Administrative Orders Nos. 84 and 84-1, in
penalizing electro fishing, are devoid of any legal basis.
Had the lawmaking body intended to punish electro fishing, a
penal provision to that effect could have been easily embodied
in the old Fisheries Law.
That law punishes (1) the use of obnoxious or poisonous
substance, or explosive in fishing; (2) unlawful fishing in
deepsea fisheries; (3) unlawful taking of marine molusca, (4)
illegal taking of sponges; (5) failure of licensed fishermen to
report the kind and quantity of fish caught, and (6) other
violations.
Nowhere in that law is electro fishing specifically punished.
Administrative Order No. 84, in punishing electro fishing, does
not contemplate that such an offense fails within the category
of "other violations" because, as already shown, the penalty
for electro fishing is the penalty next lower to the penalty for
fishing with the use of obnoxious or poisonous substances,
fixed in section 76, and is not the same as the penalty for
"other violations" of the law and regulations fixed in section 83
of the Fisheries Law.
The lawmaking body cannot delegate to an executive official
the power to declare what acts should constitute an offense. It
can authorize the issuance of regulations and the imposition of
the penalty provided for in the law itself. (People vs. Exconde
101 Phil. 11 25, citing 11 Am. Jur. 965 on p. 11 32).
Originally, Administrative Order No. 84 punished electro
fishing in all waters. Later, the ban against electro fishing was
confined to fresh water fisheries. The amendment created the
impression that electro fishing is not condemnable per se. It
could be tolerated in marine waters. That circumstances
strengthens the view that the old law does not eschew all
forms of electro fishing.
However, at present, there is no more doubt that electro
fishing is punishable under the Fisheries Law and that it
cannot be penalized merely by executive revolution because
Presidential Decree No. 704, which is a revision and
consolidation of all laws and decrees affecting fishing and
fisheries and which was promulgated on May 16, 1975 (71
O.G. 4269), expressly punishes electro fishing in fresh water
and salt water areas.
That decree provides: +.wph!1
SEC. 33. Illegal fishing, dealing in illegally caught fish or
fishery/aquatic products. It shall he unlawful for any person
to catch, take or gather or cause to be caught, taken or
gathered fish or fishery/aquatic products in Philippine waters
with the use of explosives, obnoxious or poisonous substance,
or by the use of electricity as defined in paragraphs (1), (m)
and (d), respectively, of Section 3 hereof: ...
The decree Act No. 4003, as amended, Republic Acts Nos.
428, 3048, 3512 and 3586, Presidential Decrees Nos. 43, 534
and 553, and all , Acts, Executive Orders, rules and
regulations or parts thereof inconsistent with it (Sec. 49, P. D.
No. 704).
The inclusion in that decree of provisions defining and
penalizing electro fishing is a clear recognition of the
deficiency or silence on that point of the old Fisheries Law. It is
an admission that a mere executive regulation is not legally
adequate to penalize electro fishing.
Note that the definition of electro fishing, which is found in
section 1 (c) of Fisheries Administrative Order No. 84 and
which is not provided for the old Fisheries Law, is now found in
section 3(d) of the decree. Note further that the decree penalty
electro fishing by "imprisonment from two (2) to four (4) years",
a punishment which is more severe than the penalty of a time
of not excluding P500 or imprisonment of not more than six
months or both fixed in section 3 of Fisheries Administrative
Order No. 84.
An examination of the rule-making power of executive officials
and administrative agencies and, in particular, of the Secretary
of Agriculture and Natural Resources (now Secretary of
Natural Resources) under the Fisheries Law sustains the view
that he ex his authority in penalizing electro fishing by means
of an administrative order.
Administrative agent are clothed with rule-making powers
because the lawmaking body finds it impracticable, if not
impossible, to anticipate and provide for the multifarious and
complex situations that may be encountered in enforcing the
law. All that is required is that the regulation should be
germane to the defects and purposes of the law and that it
should conform to the standards that the law prescribes
(People vs. Exconde 101 Phil. 1125; Director of Forestry vs.
Mu;oz, L-24796, June 28, 1968, 23 SCRA 1183, 1198;
Geukeko vs. Araneta, 102 Phil. 706, 712).
The lawmaking body cannot possibly provide for all the details
in the enforcement of a particular statute (U.S. vs. Tupasi
Molina, 29 Phil. 119, 125, citing U.S. vs. Grimaud 220 U.S.
506; Interprovincial Autobus Co., Inc. vs. Coll. of Internal
Revenue, 98 Phil. 290, 295-6).
The grant of the rule-making power to administrative agencies
is a relaxation of the principle of separation of powers and is
an exception to the nondeleption of legislative, powers.
Administrative regulations or "subordinate legislation
calculated to promote the public interest are necessary
because of "the growing complexity of modem life, the
multiplication of the subjects of governmental regulations, and
the increased difficulty of administering the law" Calalang vs.
Williams, 70 Phil. 726; People vs. Rosenthal and Osme;a, 68
Phil. 328).
Administrative regulations adopted under legislative authority
by a particular department must be in harmony with the
provisions of the law, and should be for the sole purpose of
carrying into effect its general provisions. By such regulations,
of course, the law itself cannot be extended. (U.S. vs. Tupasi
Molina, supra). An administrative agency cannot amend an act
of Congress (Santos vs. Estenzo, 109 Phil. 419, 422; Teoxon
vs. Members of the d of Administrators, L-25619, June 30,
1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-
28952, December 29, 1971, 42 SCRA 660; Deluao vs.
Casteel, L-21906, August 29, 1969, 29 SCRA 350).
The rule-making power must be confined to details for
regulating the mode or proceeding to carry into effect the law
as it his been enacted. The power cannot be extended to
amending or expanding the statutory requirements or to
embrace matters not covered by the statute. Rules that
subvert the statute cannot be sanctioned. (University of Santo
Tomas vs. Board of Tax A 93 Phil. 376, 382, citing 12 C.J.
845-46. As to invalid regulations, see of Internal Revenue vs.
Villaflor 69 Phil. 319, Wise & Co. vs. Meer, 78 Phil. 655, 676;
Del March vs. Phil. Veterans Administrative, L-27299, June 27,
1973, 51 SCRA 340, 349).
There is no question that the Secretary of Agriculture and
Natural Resources has rule-making powers. Section 4 of the
Fisheries law provides that the Secretary "shall from time to
time issue instructions, orders, and regulations consistent" with
that law, "as may be and proper to carry into effect the
provisions thereof." That power is now vested in the Secretary
of Natural Resources by on 7 of the Revised Fisheries law,
Presidential December No. 704.
Section 4(h) of Republic Act No. 3512 empower the Co of
Fisheries "to prepare and execute upon the approval of the
Secretary of Agriculture and Natural Resources, forms
instructions, rules and regulations consistent with the purpose"
of that enactment "and for the development of fisheries."
Section 79(B) of the Revised Administrative Code provides
that "the Department Head shall have the power to
promulgate, whenever he may see fit do so, all rules,
regulates, orders, memorandums, and other instructions, not
contrary to law, to regulate the proper working and harmonious
and efficient administration of each and all of the offices and
dependencies of his Department, and for the strict
enforcement and proper execution of the laws relative to
matters under the jurisdiction of said Department; but none of
said rules or orders shall prescribe penalties for the violation
thereof, except as expressly authorized by law."
Administrative regulations issued by a Department Head in
conformity with law have the force of law (Valerie vs. Secretary
of culture and Natural Resources, 117 Phil. 729, 733; Antique
Sawmills, Inc. vs. Zayco, L- 20051, May 30, 1966, 17 SCRA
316). As he exercises the rule-making power by delegation of
the lawmaking body, it is a requisite that he should not
transcend the bound demarcated by the statute for the
exercise of that power; otherwise, he would be improperly
exercising legislative power in his own right and not as a
surrogate of the lawmaking body.
Article 7 of the Civil Code embodies the basic principle that
administrative or executive acts, orders and regulations shall
be valid only when they are not contrary to the laws or the
Constitution."
As noted by Justice Fernando, "except for constitutional
officials who can trace their competence to act to the
fundamental law itself, a public office must be in the statute
relied upon a grant of power before he can exercise it."
"department zeal may not be permitted to outrun the authority
conferred by statute." (Radio Communications of the
Philippines, Inc. vs. Santiago, L-29236, August 21, 1974, 58
SCRA 493, 496-8).
"Rules and regulations when promulgated in pursuance of the
procedure or authority conferred upon the administrative
agency by law, partake of the nature of a statute, and
compliance therewith may be enforced by a penal sanction
provided in the law. This is so because statutes are usually
couched in general terms, after expressing the policy,
purposes, objectives, remedies and sanctions intended by the
legislature. The details and the manner of carrying out the law
are oftentimes left to the administrative agency entrusted with
its enforcement. In this sense, it has been said that rules and
regulations are the product of a delegated power to create new
or additional legal provisions that have the effect of law." The
rule or regulation should be within the scope of the statutory
authority granted by the legislature to the administrative
agency. (Davis, Administrative Law, p. 194, 197, cited in
Victories Milling Co., Inc. vs. Social Security Commission, 114
Phil. 555, 558).
In case of discrepancy between the basic law and a rule or
regulation issued to implement said law, the basic law prevails
because said rule or regulation cannot go beyond the terms
and provisions of the basic law (People vs. Lim, 108 Phil.
1091).
This Court in its decision in the Lim case, supra, promulgated
on July 26, 1960, called the attention of technical men in the
executive departments, who draft rules and regulations, to the
importance and necessity of closely following the legal
provisions which they intend to implement so as to avoid any
possible misunderstanding or confusion.
The rule is that the violation of a regulation prescribed by an
executive officer of the government in conformity with and
based upon a statute authorizing such regulation constitutes
an offense and renders the offender liable to punishment in
accordance with the provisions of the law (U.S. vs. Tupasi
Molina, 29 Phil. 119, 124).
In other words, a violation or infringement of a rule or
regulation validly issued can constitute a crime punishable as
provided in the authorizing statute and by virtue of the latter
(People vs. Exconde 101 Phil. 1125, 1132).
It has been held that "to declare what shall constitute a crime
and how it shall be punished is a power vested exclusively in
the legislature, and it may not be delegated to any other body
or agency" (1 Am. Jur. 2nd, sec. 127, p. 938; Texas Co. vs.
Montgomery, 73 F. Supp. 527).
In the instant case the regulation penalizing electro fishing is
not strictly in accordance with the Fisheries Law, under which
the regulation was issued, because the law itself does not
expressly punish electro fishing.
The instant case is similar to People vs. Santos, 63 Phil. 300.
The Santos case involves section 28 of Fish and Game
Administrative Order No. 2 issued by the Secretary of
Agriculture and Natural Resources pursuant to the
aforementioned section 4 of the Fisheries Law.
Section 28 contains the proviso that a fishing boat not licensed
under the Fisheries Law and under the said administrative
order may fish within three kilometers of the shoreline of
islands and reservations over which jurisdiction is exercised by
naval and military reservations authorities of the United States
only upon receiving written permission therefor, which
permission may be granted by the Secretary upon
recommendation of the military or naval authorities concerned.
A violation of the proviso may be proceeded against under
section 45 of the Federal Penal Code.
Augusto A. Santos was prosecuted under that provision in the
Court of First Instance of Cavite for having caused his two
fishing boats to fish, loiter and anchor without permission from
the Secretary within three kilometers from the shoreline of
Corrigidor Island.
This Court held that the Fisheries Law does not prohibit boats
not subject to license from fishing within three kilometers of the
shoreline of islands and reservations over which jurisdiction is
exercised by naval and military authorities of the United
States, without permission from the Secretary of Agriculture
and Natural Resources upon recommendation of the military
and naval authorities concerned.
As the said law does not penalize the act mentioned in section
28 of the administrative order, the promulgation of that
provision by the Secretary "is equivalent to legislating on the
matter, a power which has not been and cannot be delegated
to him, it being expressly reserved" to the lawmaking body.
"Such an act constitutes not only an excess of the regulatory
power conferred upon the Secretary but also an exercise of a
legislative power which he does not have, and therefore" the
said provision "is null and void and without effect". Hence, the
charge against Santos was dismiss.
A penal statute is strictly construed. While an administrative
agency has the right to make ranks and regulations to carry
into effect a law already enacted, that power should not be
confused with the power to enact a criminal statute. An
administrative agency can have only the administrative or
policing powers expressly or by necessary implication
conferred upon it. (Glustrom vs. State, 206 Ga. 734, 58
Second 2d 534; See 2 Am. Jr. 2nd 129-130).
Where the legislature has delegated to executive or
administrative officers and boards authority to promulgate
rules to carry out an express legislative purpose, the rules of
administrative officers and boards, which have the effect of
extending, or which conflict with the authority granting statute,
do not represent a valid precise of the rule-making power but
constitute an attempt by an administrative body to legislate
(State vs. Miles, Wash. 2nd 322, 105 Pac. 2nd 51).
In a prosecution for a violation of an administrative order, it
must clearly appear that the order is one which falls within the
scope of the authority conferred upon the administrative body,
and the order will be scrutinized with special care. (State vs.
Miles supra).
The Miles case involved a statute which authorized the State
Game Commission "to adopt, promulgate, amend and/or
repeal, and enforce reasonable rules and regulations
governing and/or prohibiting the taking of the various classes
of game.
Under that statute, the Game Commission promulgated a rule
that "it shall be unlawful to offer, pay or receive any reward,
prize or compensation for the hunting, pursuing, taking, killing
or displaying of any game animal, game bird or game fish or
any part thereof."
Beryl S. Miles, the owner of a sporting goods store, regularly
offered a ten-down cash prize to the person displaying the
largest deer in his store during the open for hunting such game
animals. For that act, he was charged with a violation of the
rule Promulgated by the State Game Commission.
It was held that there was no statute penalizing the display of
game. What the statute penalized was the taking of game. If
the lawmaking body desired to prohibit the display of game, it
could have readily said so. It was not lawful for the
administrative board to extend or modify the statute. Hence,
the indictment against Miles was quashed. The Miles case is
similar to this case.
WHEREFORE, the lower court's decision of June 9, 1970 is Republic of the Philippines
set aside for lack of appellate jurisdiction and the order of SUPREME COURT
dismissal rendered by the municipal court of Sta. Cruz, Manila
Laguna in Criminal Case No. 5429 is affirmed. Costs de oficio. EN BANC
SO ORDERED.

G.R. No. 122156 February 3, 1997

MANILA PRINCE HOTEL petitioner,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, MANILA HOTEL
CORPORATION, COMMITTEE ON PRIVATIZATION and OFFICE
OF THE GOVERNMENT CORPORATE COUNSEL, respondents.

BELLOSILLO, J.:

The FiIipino First Policy enshrined in the 1987 Constitution, i.e., in

the grant of rights, privileges, and concessions covering the national
economy and patrimony, the State shall give preference to qualified
Filipinos, 1 is in oked by petitioner in its bid to acquire 51% of the
shares of the Manila Hotel Corporation (MHC) which owns the
historic Manila Hotel. Opposing, respondents maintain that the
provision is not self-executing but requires an implementing
legislation for its enforcement. Corollarily, they ask whether the 51%
shares form part of the national economy and patrimony covered by
the protective mantle of the Constitution.

The controversy arose when respondent Government Service

Insurance System (GSIS), pursuant to the privatization program of
the Philippine Government under Proclamation No. 50 dated 8
December 1986, decided to sell through public bidding 30% to 51%
of the issued and outstanding shares of respondent MHC. The
winning bidder, or the eventual "strategic partner," is to provide
management expertise and/or an international marketing/reservation
system, and financial support to strengthen the profitability and
performance of the Manila Hotel. 2 In a close bidding held on 18
September 1995 only two (2) bidders participated: petitioner Manila
Prince Hotel Corporation, a Filipino corporation, which offered to buy
51% of the MHC or 15,300,000 shares at P41.58 per share, and
Renong Berhad, a Malaysian firm, with ITT-Sheraton as its hotel
operator, which bid for the same number of shares at P44.00 per
share, or P2.42 more than the bid of petitioner.
Pertinent provisions of the bidding rules prepared by respondent
GSIS state
I. EXECUTION OF THE NECESSARY CONTRACTS WITH
GSIS/MHC
1. The Highest Bidder must comply with the conditions set forth
below by October 23, 1995 (reset to November 3, 1995) or the
Highest Bidder will lose the right to purchase the Block of Shares
and GSIS will instead offer the Block of Shares to the other Qualified
Bidders:
a. The Highest Bidder must negotiate and execute with the
GSIS/MHC the Management Contract, International
Marketing/Reservation System Contract or other type of contract
specified by the Highest Bidder in its strategic plan for the Manila
Hotel. . . .
b. The Highest Bidder must execute the Stock Purchase and Sale
Agreement with GSIS . . . .
K. DECLARATION OF THE WINNING BIDDER/STRATEGIC
PARTNER
The Highest Bidder will be declared the Winning Bidder/Strategic
Partner after the following conditions are met:
a. Execution of the necessary contracts with GSIS/MHC not later
than October 23, 1995 (reset to November 3, 1995); and
b. Requisite approvals from the GSIS/MHC and COP (Committee on
Privatization)/OGCC (Office of the Government Corporate Counsel)
are obtained. 3
Pending the declaration of Renong Berhad as the winning
bidder/strategic partner and the execution of the necessary
contracts, petitioner in a letter to respondent GSIS dated 28
September 1995 matched the bid price of P44.00 per share tendered
by Renong Berhad. 4 In a subsequent letter dated 10 October 1995
petitioner sent a manager's check issued by Philtrust Bank for Thirty-
three Million Pesos (P33.000.000.00) as Bid Security to match the
bid of the Malaysian Group, Messrs. Renong Berhad . . . 5 which
respondent GSIS refused to accept.
On 17 October 1995, perhaps apprehensive that respondent GSIS
has disregarded the tender of the matching bid and that the sale of
51% of the MHC may be hastened by respondent GSIS and
consummated with Renong Berhad, petitioner came to this Court on
prohibition and mandamus. On 18 October 1995 the Court issued a
temporary restraining order enjoining respondents from perfecting
and consummating the sale to the Malaysian firm.
On 10 September 1996 the instant case was accepted by the
Court En Banc after it was referred to it by the First Division. The
case was then set for oral arguments with former Chief Justice
Enrique M. Fernando and Fr. Joaquin G. Bernas, S.J., as amici
curiae.
In the main, petitioner invokes Sec. 10, second par., Art. XII, of the
1987 Constitution and submits that the Manila Hotel has been
identified with the Filipino nation and has practically become a
historical monument which reflects the vibrancy of Philippine heritage
and culture. It is a proud legacy of an earlier generation of Filipinos
who believed in the nobility and sacredness of independence and its
power and capacity to release the full potential of the Filipino
people. To all intents and purposes, it has become a part of the
national patrimony. 6 Petitioner also argues that since 51% of the
shares of the MHC carries with it the ownership of the business of
the hotel which is owned by respondent GSIS, a government-owned
and controlled corporation, the hotel business of respondent GSIS
being a part of the tourism industry is unquestionably a part of the
national economy. Thus, any transaction involving 51% of the shares
of stock of the MHC is clearly covered by the term national economy,
to which Sec. 10, second par., Art. XII, 1987 Constitution, applies. 7
It is also the thesis of petitioner that since Manila Hotel is part of the
national patrimony and its business also unquestionably part of the
national economy petitioner should be preferred after it has matched
the bid offer of the Malaysian firm. For the bidding rules mandate
that if for any reason, the Highest Bidder cannot be awarded the
Block of Shares, GSIS may offer this to the other Qualified Bidders
that have validly submitted bids provided that these Qualified Bidders
are willing to match the highest bid in terms of price per share. 8
Respondents except. They maintain that: First, Sec. 10, second par.,
Art. XII, of the 1987 Constitution is merely a statement of principle
and policy since it is not a self-executing provision and requires
implementing legislation(s) . . . Thus, for the said provision to
Operate, there must be existing laws "to lay down conditions under
which business may be done." 9
Second, granting that this provision is self-executing, Manila Hotel
does not fall under the term national patrimony which only refers to
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 all marine wealth in its territorial
sea, and exclusive marine zone as cited in the first and second
paragraphs of Sec. 2, Art. XII, 1987 Constitution. According to
respondents, while petitioner speaks of the guests who have slept in
the hotel and the events that have transpired therein which make the
hotel historic, these alone do not make the hotel fall under
the patrimony of the nation. What is more, the mandate of the
Constitution is addressed to the State, not to respondent GSIS which
possesses a personality of its own separate and distinct from the
Philippines as a State.
Third, granting that the Manila Hotel forms part of the national
patrimony, the constitutional provision invoked is still inapplicable
since what is being sold is only 51% of the outstanding shares of the
corporation, not the hotel building nor the land upon which the
building stands. Certainly, 51% of the equity of the MHC cannot be
considered part of the national patrimony. Moreover, if the
disposition of the shares of the MHC is really contrary to the
Constitution, petitioner should have questioned it right from the
beginning and not after it had lost in the bidding.
Fourth, the reliance by petitioner on par. V., subpar. J. 1., of the
bidding rules which provides that if for any reason, the Highest
Bidder cannot be awarded the Block of Shares, GSIS may offer this
to the other Qualified Bidders that have validly submitted bids
provided that these Qualified Bidders are willing to match the highest
bid in terms of price per share, is misplaced. Respondents postulate
that the privilege of submitting a matching bid has not yet arisen
since it only takes place if for any reason, the Highest Bidder cannot
be awarded the Block of Shares. Thus the submission by petitioner
of a matching bid is premature since Renong Berhad could still very
well be awarded the block of shares and the condition giving rise to
the exercise of the privilege to submit a matching bid had not yet
taken place.
Finally, the prayer for prohibition grounded on grave abuse of
discretion should fail since respondent GSIS did not exercise its
discretion in a capricious, whimsical manner, and if ever it did abuse
its discretion it was not so patent and gross as to amount to an
evasion of a positive duty or a virtual refusal to perform a duty
enjoined by law. Similarly, the petition for mandamus should fail as
petitioner has no clear legal right to what it demands and
respondents do not have an imperative duty to perform the act
required of them by petitioner.
We now resolve. A constitution is a system of fundamental laws for
the governance and administration of a nation. It is supreme,
imperious, absolute and unalterable except by the authority from
which it emanates. It has been defined as the fundamental and
paramount law of the nation. 10 It prescribes the permanent
framework of a system of government, assigns to the different
departments their respective powers and duties, and establishes
certain fixed principles on which government is founded. The
fundamental conception in other words is that it is a supreme law to
which all other laws must conform and in accordance with which all
private rights must be determined and all public authority
administered.11 Under the doctrine of constitutional supremacy, if a
law or contract violates any norm of the constitution that law or
contract whether promulgated by the legislative or by the executive
branch or entered into by private persons for private purposes is null
and void and without any force and effect. Thus, since the
Constitution is the fundamental, paramount and supreme law of the
nation, it is deemed written in every statute and contract.
Admittedly, some constitutions are merely declarations of policies
and principles. Their provisions command the legislature to enact
laws and carry out the purposes of the framers who merely establish
an outline of government providing for the different departments of
the governmental machinery and securing certain fundamental and
inalienable rights of citizens. 12 A provision which lays down a
general principle, such as those found in Art. II of the 1987
Constitution, is usually not self-executing. But a provision which is
complete in itself and becomes operative without the aid of
supplementary or enabling legislation, or that which supplies
sufficient rule by means of which the right it grants may be enjoyed
or protected, is self-executing. Thus a constitutional provision is self-
executing if the nature and extent of the right conferred and the
liability imposed are fixed by the constitution itself, so that they can
be determined by an examination and construction of its terms, and
there is no language indicating that the subject is referred to the
legislature for action. 13
As against constitutions of the past, modern constitutions have been
generally drafted upon a different principle and have often become in
effect extensive codes of laws intended to operate directly upon the
people in a manner similar to that of statutory enactments, and the
function of constitutional conventions has evolved into one more like
that of a legislative body. Hence, unless it is expressly provided that
a legislative act is necessary to enforce a constitutional mandate, the
presumption now is that all provisions of the constitution are self-
executing If the constitutional provisions are treated as requiring
legislation instead of self-executing, the legislature would have the
power to ignore and practically nullify the mandate of the
fundamental law. 14 This can be cataclysmic. That is why the
prevailing view is, as it has always been, that
. . . in case of doubt, the Constitution should be considered self-
executing rather than non-self-executing . . . . Unless the contrary is
clearly intended, the provisions of the Constitution should be
considered self-executing, as a contrary rule would give the
legislature discretion to determine when, or whether, they shall be
effective. These provisions would be subordinated to the will of the
lawmaking body, which could make them entirely meaningless by
simply refusing to pass the needed implementing statute. 15
Respondents argue that Sec. 10, second par., Art. XII, of the 1987
Constitution is clearly not self-executing, as they quote from
discussions on the floor of the 1986 Constitutional Commission
MR. RODRIGO. Madam President, I am asking this question as the
Chairman of the Committee on Style. If the wording of
"PREFERENCE" is given to QUALIFIED FILIPINOS," can it be
understood as a preference to qualified Filipinos vis-a-vis Filipinos
who are not qualified. So, why do we not make it clear? To qualified
Filipinos as against aliens?
THE PRESIDENT. What is the question of Commissioner Rodrigo?
Is it to remove the word "QUALIFIED?".
MR. RODRIGO. No, no, but say definitely "TO QUALIFIED
FILIPINOS" as against whom? As against aliens or over aliens?
MR. NOLLEDO. Madam President, I think that is understood. We
use the word "QUALIFIED" because the existing laws or prospective
laws will always lay down conditions under which business may be
done. For example, qualifications on the setting up of other financial
structures, et cetera (emphasis supplied by respondents)
MR. RODRIGO. It is just a matter of style.
MR. NOLLEDO Yes, 16
Quite apparently, Sec. 10, second par., of Art XII is couched in such
a way as not to make it appear that it is non-self-executing but simply
for purposes of style. But, certainly, the legislature is not precluded
from enacting other further laws to enforce the constitutional
provision so long as the contemplated statute squares with the
Constitution. Minor details may be left to the legislature without
impairing the self-executing nature of constitutional provisions.
In self-executing constitutional provisions, the legislature may still
enact legislation to facilitate the exercise of powers directly granted
by the constitution, further the operation of such a provision,
prescribe a practice to be used for its enforcement, provide a
convenient remedy for the protection of the rights secured or the
determination thereof, or place reasonable safeguards around the
exercise of the right. The mere fact that legislation may supplement
and add to or prescribe a penalty for the violation of a self-executing
constitutional provision does not render such a provision ineffective
in the absence of such legislation. The omission from a constitution
of any express provision for a remedy for enforcing a right or liability
is not necessarily an indication that it was not intended to be self-
executing. The rule is that a self-executing provision of the
constitution does not necessarily exhaust legislative power on the
subject, but any legislation must be in harmony with the constitution,
further the exercise of constitutional right and make it more
available. 17 Subsequent legislation however does not necessarily
mean that the subject constitutional provision is not, by itself, fully
enforceable.
Respondents also argue that the non-self-executing nature of Sec.
10, second par., of Art. XII is implied from the tenor of the first and
third paragraphs of the same section which undoubtedly are not self-
executing. 18 The argument is flawed. If the first and third paragraphs
are not self-executing because Congress is still to enact measures to
encourage the formation and operation of enterprises fully owned by
Filipinos, as in the first paragraph, and the State still needs
legislation to regulate and exercise authority over foreign
investments within its national jurisdiction, as in the third paragraph,
then a fortiori, by the same logic, the second paragraph can only be
self-executing as it does not by its language require any legislation in
order to give preference to qualified Filipinos in the grant of rights,
privileges and concessions covering the national economy and
patrimony. A constitutional provision may be self-executing in one
part and non-self-executing in another. 19
Even the cases cited by respondents holding that certain
constitutional provisions are merely statements of principles and
policies, which are basically not self-executing and only placed in the
Constitution as moral incentives to legislation, not as judicially
enforceable rights are simply not in point. Basco v. Philippine
Amusements and Gaming Corporation 20 speaks of constitutional
provisions on personal dignity, 21 the sanctity of family life, 22 the vital
role of the youth in nation-building 23 the promotion of social
justice, 24 and the values of education. 25 Tolentino v. Secretary of
Finance 26 refers to the constitutional provisions on social justice and
human rights 27 and on education. 28 Lastly,Kilosbayan,
Inc. v. Morato 29 cites provisions on the promotion of general
welfare, 30 the sanctity of family life, 31 the vital role of the youth in
nation-building 32 and the promotion of total human liberation and
development. 33 A reading of these provisions indeed clearly shows
that they are not judicially enforceable constitutional rights but merely
guidelines for legislation. The very terms of the provisions manifest
that they are only principles upon which the legislations must be
based.Res ipsa loquitur.
On the other hand, Sec. 10, second par., Art. XII of the of the 1987
Constitution is a mandatory, positive command which is complete in
itself and which needs no further guidelines or implementing laws or
rules for its enforcement. From its very words the provision does not
require any legislation to put it in operation. It is per se judicially
enforceable When our Constitution mandates that [i]n the grant of
rights, privileges, and concessions covering national economy and
patrimony, the State shall give preference to qualified Filipinos, it
means just that qualified Filipinos shall be preferred. And when
our Constitution declares that a right exists in certain specified
circumstances an action may be maintained to enforce such right
notwithstanding the absence of any legislation on the subject;
consequently, if there is no statute especially enacted to enforce
such constitutional right, such right enforces itself by its own inherent
potency and puissance, and from which all legislations must take
their bearings. Where there is a right there is a remedy. Ubi jus ibi
remedium.
As regards our national patrimony, a member of the 1986
Constitutional Commission 34 explains
The patrimony of the Nation that should be conserved and
developed refers not only to out rich natural resources but also to the
cultural heritage of out race. It also refers to our intelligence in arts,
sciences and letters. Therefore, we should develop not only our
lands, forests, mines and other natural resources but also the mental
ability or faculty of our people.
We agree. In its plain and ordinary meaning, the term patrimony
pertains to heritage. 35 When the Constitution speaks of national
patrimony, it refers not only to the natural resources of the
Philippines, as the Constitution could have very well used the
term natural resources, but also to the cultural heritage of the
Filipinos.
Manila Hotel has become a landmark a living testimonial of
Philippine heritage. While it was restrictively an American hotel when
it first opened in 1912, it immediately evolved to be truly Filipino,
Formerly a concourse for the elite, it has since then become the
venue of various significant events which have shaped Philippine
history. It was called the Cultural Center of the 1930's. It was the site
of the festivities during the inauguration of the Philippine
Commonwealth. Dubbed as the Official Guest House of the
Philippine Government. it plays host to dignitaries and official visitors
who are accorded the traditional Philippine hospitality. 36
The history of the hotel has been chronicled in the book The Manila
Hotel: The Heart and Memory of a City. 37During World War II the
hotel was converted by the Japanese Military Administration into a
military headquarters. When the American forces returned to
recapture Manila the hotel was selected by the Japanese together
with Intramuros as the two (2) places fro their final stand. Thereafter,
in the 1950's and 1960's, the hotel became the center of political
activities, playing host to almost every political convention. In 1970
the hotel reopened after a renovation and reaped numerous
international recognitions, an acknowledgment of the Filipino talent
and ingenuity. In 1986 the hotel was the site of a failed coup d'
etatwhere an aspirant for vice-president was "proclaimed" President
of the Philippine Republic.
For more than eight (8) decades Manila Hotel has bore mute witness
to the triumphs and failures, loves and frustrations of the Filipinos; its
existence is impressed with public interest; its own historicity
associated with our struggle for sovereignty, independence and
nationhood. Verily, Manila Hotel has become part of our national
economy and patrimony. For sure, 51% of the equity of the MHC
comes within the purview of the constitutional shelter for it comprises
the majority and controlling stock, so that anyone who acquires or
owns the 51% will have actual control and management of the hotel.
In this instance, 51% of the MHC cannot be disassociated from the
hotel and the land on which the hotel edifice stands. Consequently,
we cannot sustain respondents' claim that theFilipino First
Policy provision is not applicable since what is being sold is only
51% of the outstanding shares of the corporation, not the Hotel
building nor the land upon which the building stands. 38
The argument is pure sophistry. The term qualified Filipinos as used
in Our Constitution also includes corporations at least 60% of which
is owned by Filipinos. This is very clear from the proceedings of the
1986 Constitutional Commission
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I would like to introduce an amendment to the Nolledo
amendment. And the amendment would consist in substituting the
words "QUALIFIED FILIPINOS" with the following: "CITIZENS OF
THE PHILIPPINES OR CORPORATIONS OR ASSOCIATIONS
WHOSE CAPITAL OR CONTROLLING STOCK IS WHOLLY
OWNED BY SUCH CITIZENS.
xxx xxx xxx
MR. MONSOD. Madam President, apparently the proponent is
agreeable, but we have to raise a question. Suppose it is a
corporation that is 80-percent Filipino, do we not give it preference?
MR. DAVIDE. The Nolledo amendment would refer to an individual
Filipino. What about a corporation wholly owned by Filipino citizens?
MR. MONSOD. At least 60 percent, Madam President.
MR. DAVIDE. Is that the intention?
MR. MONSOD. Yes, because, in fact, we would be limiting it if we
say that the preference should only be 100-percent Filipino.
MR: DAVIDE. I want to get that meaning clear because "QUALIFIED
FILIPINOS" may refer only to individuals and not to juridical
personalities or entities.
39
MR. MONSOD. We agree, Madam President.
xxx xxx xxx
MR. RODRIGO. Before we vote, may I request that the amendment
be read again.
MR. NOLLEDO. The amendment will read: "IN THE GRANT OF
RIGHTS, PRIVILEGES AND CONCESSIONS COVERING THE
NATIONAL ECONOMY AND PATRIMONY, THE STATE SHALL
GIVE PREFERENCE TO QUALIFIED FILIPINOS." And the word
"Filipinos" here, as intended by the proponents, will include not only
individual Filipinos but also Filipino-controlled entities or entities fully-
controlled by Filipinos. 40
The phrase preference to qualified Filipinos was explained thus
MR. FOZ. Madam President, I would like to request Commissioner
Nolledo to please restate his amendment so that I can ask a
question.
MR. NOLLEDO. "IN THE GRANT OF RIGHTS, PRIVILEGES AND
CONCESSIONS COVERING THE NATIONAL ECONOMY AND
PATRIMONY, THE STATE SHALL GIVE PREFERENCE TO
QUALIFIED FILIPINOS."
MR FOZ. In connection with that amendment, if a foreign enterprise
is qualified and a Filipino enterprise is also qualified, will the Filipino
enterprise still be given a preference?
MR. NOLLEDO. Obviously.
MR. FOZ. If the foreigner is more qualified in some aspects than the
Filipino enterprise, will the Filipino still be preferred?
MR. NOLLEDO. The answer is "yes."
MR. FOZ. Thank you, 41
Expounding further on the Filipino First Policy provision
Commissioner Nolledo continues
MR. NOLLEDO. Yes, Madam President. Instead of "MUST," it will be
"SHALL THE STATE SHALL GlVE PREFERENCE TO
QUALIFIED FILIPINOS. This embodies the so-called "Filipino First"
policy. That means that Filipinos should be given preference in the
grant of concessions, privileges and rights covering the national
patrimony. 42
The exchange of views in the sessions of the Constitutional
Commission regarding the subject provision was still further clarified
by Commissioner Nolledo 43
Paragraph 2 of Section 10 explicitly mandates the "Pro-Filipino" bias
in all economic concerns. It is better known as the FILIPINO FIRST
Policy . . . This provision was never found in previous Constitutions .
...
The term "qualified Filipinos" simply means that preference shall be
given to those citizens who can make a viable contribution to the
common good, because of credible competence and efficiency. It
certainly does NOT mandate the pampering and preferential
treatment to Filipino citizens or organizations that are incompetent or
inefficient, since such an indiscriminate preference would be counter
productive and inimical to the common good.
In the granting of economic rights, privileges, and concessions, when
a choice has to be made between a "qualified foreigner" end a
"qualified Filipino," the latter shall be chosen over the former."
Lastly, the word qualified is also determinable. Petitioner was so
considered by respondent GSIS and selected as one of
the qualified bidders. It was pre-qualified by respondent GSIS in
accordance with its own guidelines so that the sole inference here is
that petitioner has been found to be possessed of proven
management expertise in the hotel industry, or it has significant
equity ownership in another hotel company, or it has an overall
management and marketing proficiency to successfully operate the
Manila Hotel. 44
The penchant to try to whittle away the mandate of the Constitution
by arguing that the subject provision is not self-executory and
requires implementing legislation is quite disturbing. The attempt to
violate a clear constitutional provision by the government itself
is only too distressing. To adopt such a line of reasoning is to
renounce the duty to ensure faithfulness to the Constitution. For,
even some of the provisions of the Constitution which evidently need
implementing legislation have juridical life of their own and can be
the source of a judicial remedy. We cannot simply afford the
government a defense that arises out of the failure to enact further
enabling, implementing or guiding legislation. In fine, the discourse of
Fr. Joaquin G. Bernas, S.J., on constitutional government is apt
The executive department has a constitutional duty to implement
laws, including the Constitution, even before Congress acts
provided that there are discoverable legal standards for executive
action. When the executive acts, it must be guided by its own
understanding of the constitutional command and of applicable laws.
The responsibility for reading and understanding the Constitution and
the laws is not the sole prerogative of Congress. If it were, the
executive would have to ask Congress, or perhaps the Court, for an
interpretation every time the executive is confronted by a
constitutional command. That is not how constitutional government
operates. 45
Respondents further argue that the constitutional provision is
addressed to the State, not to respondent GSIS which by itself
possesses a separate and distinct personality. This argument again
is at best specious. It is undisputed that the sale of 51% of the MHC
could only be carried out with the prior approval of the State acting
through respondent Committee on Privatization. As correctly pointed
out by Fr. Joaquin G. Bernas, S.J., this fact alone makes the sale of
the assets of respondents GSIS and MHC a "state action." In
constitutional jurisprudence, the acts of persons distinct from the
government are considered "state action" covered by the
Constitution (1) when the activity it engages in is a "public
function;" (2) when the government is so significantly involved with
the private actor as to make the government responsible for his
action; and, (3) when the government has approved or authorized
the action. It is evident that the act of respondent GSIS in selling
51% of its share in respondent MHC comes under the second and
third categories of "state action." Without doubt therefore the
transaction. although entered into by respondent GSIS, is in fact a
transaction of the State and therefore subject to the constitutional
command. 46
When the Constitution addresses the State it refers not only to the
people but also to the government as elements of the State. After all,
government is composed of three (3) divisions of power
legislative, executive and judicial. Accordingly, a constitutional
mandate directed to the State is correspondingly directed to the
three(3) branches of government. It is undeniable that in this case
the subject constitutional injunction is addressed among others to the
Executive Department and respondent GSIS, a government
instrumentality deriving its authority from the State.
It should be stressed that while the Malaysian firm offered the higher
bid it is not yet the winning bidder. The bidding rules expressly
provide that the highest bidder shall only be declared the winning
bidder after it has negotiated and executed the necessary contracts,
and secured the requisite approvals. Since the "Filipino First
Policy provision of the Constitution bestows preference on qualified
Filipinos the mere tending of the highest bid is not an assurance that
the highest bidder will be declared the winning bidder. Resultantly,
respondents are not bound to make the award yet, nor are they
under obligation to enter into one with the highest bidder. For in
choosing the awardee respondents are mandated to abide by the
dictates of the 1987 Constitution the provisions of which are
presumed to be known to all the bidders and other interested parties.
Adhering to the doctrine of constitutional supremacy, the subject
constitutional provision is, as it should be, impliedly written in the
bidding rules issued by respondent GSIS, lest the bidding rules be
nullified for being violative of the Constitution. It is a basic principle in
constitutional law that all laws and contracts must conform with the
fundamental law of the land. Those which violate the Constitution
lose their reason for being.
Paragraph V. J. 1 of the bidding rules provides that [if] for any
reason the Highest Bidder cannot be awarded the Block of Shares,
GSIS may offer this to other Qualified Bidders that have validly
submitted bids provided that these Qualified Bidders are willing to
match the highest bid in terms of price per
share. 47 Certainly, the constitutional mandate itself is reason
enough not to award the block of shares immediately to the foreign
bidder notwithstanding its submission of a higher, or even the
highest, bid. In fact, we cannot conceive of a stronger reason than
the constitutional injunction itself.
In the instant case, where a foreign firm submits the highest bid in a
public bidding concerning the grant of rights, privileges and
concessions covering the national economy and patrimony, thereby
exceeding the bid of a Filipino, there is no question that the Filipino
will have to be allowed to match the bid of the foreign entity. And if
the Filipino matches the bid of a foreign firm the award should go to
the Filipino. It must be so if we are to give life and meaning to
the Filipino First Policy provision of the 1987 Constitution. For, while
this may neither be expressly stated nor contemplated in the bidding
rules, the constitutional fiat is, omnipresent to be simply disregarded.
To ignore it would be to sanction a perilous skirting of the basic law.
This Court does not discount the apprehension that this policy may
discourage foreign investors. But the Constitution and laws of the
Philippines are understood to be always open to public scrutiny.
These are given factors which investors must consider when
venturing into business in a foreign jurisdiction. Any person therefore
desiring to do business in the Philippines or with any of its agencies
or instrumentalities is presumed to know his rights and obligations
under the Constitution and the laws of the forum.
The argument of respondents that petitioner is now estopped from
questioning the sale to Renong Berhad since petitioner was well
aware from the beginning that a foreigner could participate in the
bidding is meritless. Undoubtedly, Filipinos and foreigners alike were
invited to the bidding. But foreigners may be awarded the sale only if
no Filipino qualifies, or if the qualified Filipino fails to match the
highest bid tendered by the foreign entity. In the case before us,
while petitioner was already preferred at the inception of the bidding
because of the constitutional mandate, petitioner had not yet
matched the bid offered by Renong Berhad. Thus it did not have the
right or personality then to compel respondent GSIS to accept its
earlier bid. Rightly, only after it had matched the bid of the foreign
firm and the apparent disregard by respondent GSIS of petitioner's
matching bid did the latter have a cause of action.
Besides, there is no time frame for invoking the constitutional
safeguard unless perhaps the award has been finally made. To insist
on selling the Manila Hotel to foreigners when there is a Filipino
group willing to match the bid of the foreign group is to insist that
government be treated as any other ordinary market player, and
bound by its mistakes or gross errors of judgment, regardless of the
consequences to the Filipino people. The miscomprehension of the
Constitution is regrettable. Thus we would rather remedy the
indiscretion while there is still an opportunity to do so than let the
government develop the habit of forgetting that the Constitution lays
down the basic conditions and parameters for its actions.
Since petitioner has already matched the bid price tendered by
Renong Berhad pursuant to the bidding rules, respondent GSIS is
left with no alternative but to award to petitioner the block of shares
of MHC and to execute the necessary agreements and documents to
effect the sale in accordance not only with the bidding guidelines and
procedures but with the Constitution as well. The refusal of
respondent GSIS to execute the corresponding documents with
petitioner as provided in the bidding rules after the latter has
matched the bid of the Malaysian firm clearly constitutes grave
abuse of discretion.
The Filipino First Policy is a product of Philippine nationalism. It is
embodied in the 1987 Constitution not merely to be used as a
guideline for future legislation but primarily to be enforced; so must it
be enforced. This Court as the ultimate guardian of the Constitution
will never shun, under any reasonable circumstance, the duty of
upholding the majesty of the Constitution which it is tasked to
defend. It is worth emphasizing that it is not the intention of this Court
to impede and diminish, much less undermine, the influx of foreign
investments. Far from it, the Court encourages and welcomes more
business opportunities but avowedly sanctions the preference for
Filipinos whenever such preference is ordained by the Constitution.
The position of the Court on this matter could have not been more
appropriately articulated by Chief Justice Narvasa
As scrupulously as it has tried to observe that it is not its function to
substitute its judgment for that of the legislature or the executive
about the wisdom and feasibility of legislation economic in nature,
the Supreme Court has not been spared criticism for decisions
perceived as obstacles to economic progress and development . . .
in connection with a temporary injunction issued by the Court's First
Division against the sale of the Manila Hotel to a Malaysian Firm and
its partner, certain statements were published in a major daily to the
effect that injunction "again demonstrates that the Philippine legal
system can be a major obstacle to doing business here.
Let it be stated for the record once again that while it is no business
of the Court to intervene in contracts of the kind referred to or set
itself up as the judge of whether they are viable or attainable, it is its
bounden duty to make sure that they do not violate the Constitution
or the laws, or are not adopted or implemented with grave abuse of
discretion amounting to lack or excess of jurisdiction. It will never
shirk that duty, no matter how buffeted by winds of unfair and ill-
informed criticism. 48
Privatization of a business asset for purposes of enhancing its
business viability and preventing further losses, regardless of the
character of the asset, should not take precedence over non-material
values. A commercial, nay even a budgetary, objective should not be
pursued at the expense of national pride and dignity. For the
Constitution enshrines higher and nobler non-material values.
Indeed, the Court will always defer to the Constitution in the proper
governance of a free society; after all, there is nothing so sacrosanct
in any economic policy as to draw itself beyond judicial review when
the Constitution is involved. 49
Nationalism is inherent, in the very concept of the Philippines being a
democratic and republican state, with sovereignty residing in the
Filipino people and from whom all government authority emanates.
In nationalism, the happiness and welfare of the people must be the
goal. The nation-state can have no higher purpose. Any
interpretation of any constitutional provision must adhere to such
basic concept. Protection of foreign investments, while laudible, is
merely a policy. It cannot override the demands of nationalism. 50
The Manila Hotel or, for that matter, 51% of the MHC, is not just any
commodity to be sold to the highest bidder solely for the sake of
privatization. We are not talking about an ordinary piece of property
in a commercial district. We are talking about a historic relic that has
hosted many of the most important events in the short history of the
Philippines as a nation. We are talking about a hotel where heads of
states would prefer to be housed as a strong manifestation of their
desire to cloak the dignity of the highest state function to their official
visits to the Philippines. Thus the Manila Hotel has played and
continues to play a significant role as an authentic repository of
twentieth century Philippine history and culture. In this sense, it has
become truly a reflection of the Filipino soul a place with a history
of grandeur; a most historical setting that has played a part in the
shaping of a country. 51

This Court cannot extract rhyme nor reason from the determined
efforts of respondents to sell the historical landmark this Grand
Old Dame of hotels in Asia to a total stranger. For, indeed, the
conveyance of this epic exponent of the Filipino psyche to alien
hands cannot be less than mephistophelian for it is, in whatever
manner viewed, a veritable alienation of a nation's soul for some
pieces of foreign silver. And so we ask: What advantage, which
cannot be equally drawn from a qualified Filipino, can be gained by
the Filipinos Manila Hotel and all that it stands for is sold to a
non-Filipino? How much of national pride will vanish if the nation's
cultural heritage is entrusted to a foreign entity? On the other hand,
how much dignity will be preserved and realized if the national
patrimony is safekept in the hands of a qualified, zealous and well-
meaning Filipino? This is the plain and simple meaning of the Filipino
First Policy provision of the Philippine Constitution. And this Court,
heeding the clarion call of the Constitution and accepting the duty of
being the elderly watchman of the nation, will continue to respect and
protect the sanctity of the Constitution.

WHEREFORE, respondents GOVERNMENT SERVICE

INSURANCE SYSTEM, MANILA HOTEL CORPORATION,
COMMITTEE ON PRIVATIZATION and OFFICE OF THE
GOVERNMENT CORPORATE COUNSEL are directed to CEASE
and DESIST from selling 51% of the shares of the Manila Hotel
Corporation to RENONG BERHAD, and to ACCEPT the matching
bid of petitioner MANILA PRINCE HOTEL CORPORATION to
purchase the subject 51% of the shares of the Manila Hotel
Corporation at P44.00 per share and thereafter to execute the
necessary clearances and to do such other acts and deeds as may
be necessary for purpose.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 163609 November 27, 2008
SPS. BUENAVENTURA JAYME AND ROSARIO
JAYME, petitioners,
vs.
RODRIGO APOSTOL, FIDEL LOZANO, ERNESTO
SIMBULAN, MAYOR FERNANDO Q. MIGUEL,
MUNICIPALITY OF KORONADAL (NOW CITY OF
KORONADAL), PROVINCE OF SOUTH COTABATO,
represented by the MUNICIPAL TREASURER and/or
MUNICIPAL MAYOR FERNANDO Q. MIGUEL, and THE
FIRST INTEGRATED BONDING AND INSURANCE
COMPANY, INC., respondents.
DECISION
REYES, R.T., J.:
MAY a municipal mayor be held solidarily liable for the
negligent acts of the driver assigned to him, which resulted in
the death of a minor pedestrian?
Challenged in this petition for review on certiorari is the
Decision1 of the Court of Appeals (CA) which reversed and set
aside the decision of the Regional Trial Court (RTC),
Polomolok, Cotabato City, Branch 39, insofar as defendant
Mayor Fernando Q. Miguel is concerned. The CA absolved
Mayor Miguel from any liability since it was not he, but the
Municipality of Koronadal, that was the employer of the
negligent driver.
The Facts
On February 5, 1989, Mayor Miguel of Koronadal, South
Cotabato was on board the Isuzu pick-up truck driven by Fidel
Lozano, an employee of the Municipality of Koronadal.2 The
pick-up truck was registered under the name of Rodrigo
Apostol, but it was then in the possession of Ernesto
Simbulan.3 Lozano borrowed the pick-up truck from Simbulan
to bring Miguel to Buayan Airport at General Santos City to
catch his Manila flight.4
The pick-up truck accidentally hit Marvin C. Jayme, a minor,
who was then crossing the National Highway in Poblacion,
Polomolok, South Cotabato.5 The intensity of the collision sent
Marvin some fifty (50) meters away from the point of impact, a
clear indication that Lozano was driving at a very high speed
at the time of the accident.6
Marvin sustained severe head injuries with subdural
hematoma and diffused cerebral contusion.7 He was initially
treated at the Howard Hubbard Memorial Hospital.8 Due to the
seriousness of his injuries, he was airlifted to the Ricardo
Limso Medical Center in Davao City for more intensive
treatment.9Despite medical attention, Marvin expired six (6)
days after the accident.10
Petitioners spouses Buenaventura and Rosario Jayme, the
parents of Marvin, filed a complaint for damages with the RTC
against respondents.11 In their complaint, they prayed that all
respondents be held solidarily liable for their loss. They
pointed out that that proximate cause of Marvin's death was
Lozano's negligent and reckless operation of the vehicle. They
prayed for actual, moral, and exemplary damages, attorney's
fees, and litigation expenses.
In their respective Answers, all respondents denied liability for
Marvin's death. Apostol and Simbulan averred that Lozano
took the pick-up truck without their consent. Likewise, Miguel
and Lozano pointed out that Marvin's sudden sprint across the
highway made it impossible to avoid the accident. Yet, Miguel
denied being on board the vehicle when it hit Marvin. The
Municipality of Koronadal adopted the answer of Lozano and
Miguel. As for First Integrated Bonding and Insurance
Company, Inc., the vehicle insurer, it insisted that its liability is
contributory and is only conditioned on the right of the insured.
Since the insured did not file a claim within the prescribed
period, any cause of action against it had prescribed.
RTC Disposition
On January 25, 1999, the RTC rendered judgment in favor of
spouses Jayme, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the defendant
Municipality of Koronadal cannot be held liable for the
damages incurred by other defendant (sic) being an agency of
the State performing a (sic) governmental functions. The same
with defendant Hermogenes Simbulan, not being the owner of
the subject vehicle, he is absolved of any liability. The
complaint against defendant First Integrated Bonding
Insurance Company, Inc. is hereby ordered dismissed there
being no cause of action against said insurance company.
However, defendants Fidel Lozano, Rodrigo Apostol, and
Mayor Fernando Miguel of Koronadal, South Cotabato, are
hereby ordered jointly and severally to pay the plaintiff (sic) the
following sums:
1. One Hundred Seventy Three Thousand One Hundred One
and Forty Centavos (P173,101.40) Pesos as actual damages
with legal interest of 12% per annum computed from February
11, 1989 until fully paid;
2. Fifty Thousand (P50,000.00) Pesos as moral damages;
3. Twenty Thousand (P20,000.00) Pesos as exemplary
damages;
4. Twenty Thousand (P20,000.00) Pesos as Attorney's fees;
5. Fifty Thousand (P50,000.00) Pesos for the death of Marvin
Jayme;
6. Three Thousand (P3,000.00) as litigation expenses; and
7. To pay the cost of this suit.
SO ORDERED.12
Dissatisfied with the RTC ruling, Mayor Miguel interposed an
appeal to the CA.
CA Disposition
In his appeal, Mayor Miguel contended that the RTC erred in
ruling that he was Lozano's employer and, hence, solidarily
liable for the latter's negligent act. Records showed that the
Municipality of Koronadal was the driver's true and lawful
employer. Mayor Miguel also denied that he did not exercise
due care and diligence in the supervision of Lozano. The
incident, although unfortunate, was unexpected and cannot be
attributed to him.
On October 22, 2003, the CA granted the appeal, disposing as
follows:
WHEREFORE, the Decision appealed from is REVERSED
and SET ASIDE, insofar as defendant-appellant Mayor
Fernando Q. Miguel is concerned, and the complaint against
him is DISMISSED.
IT IS SO ORDERED.13
The CA held that Mayor Miguel should not be held liable for
damages for the death of Marvin Jayme. Said the appellate
court:
Moreover, plaintiffs-appellees admitted that Mayor Miguel was
not the employer of Lozano. Thus, paragraph 9 of the
complaint alleged that the Municipality of Koronadal was
the employer of both Mayor Miguel and Lozano. Not being
the employer of Lozano, Mayor Miguel could not thus be held
liable for the damages caused by the former. Mayor Miguel
was a mere passenger in the Isuzu pick-up at the time of
the accident.14 (Emphasis supplied)
The CA also reiterated the settled rule that it is the registered
owner of a vehicle who is jointly and severally liable with the
driver for damages incurred by passengers or third persons as
a consequence of injuries or death sustained in the operation
of the vehicle.
Issues
The spouses Jayme have resorted to the present recourse
and assign to the CA the following errors:
I.
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT MAYOR FERNANDO MIGUEL CANNOT BE
HELD LIABLE FOR THE DEATH OF MARVIN JAYME WHICH
CONCLUSION IS CONTRARY TO LAW AND THE SETTLED
PRONOUNCEMENTS OF THIS HONORABLE TRIBUNAL;
II.
THE FINDINGS OF FACTS OF THE HONORABLE COURT
OF APPEALS ARE CONTRARY TO THE FINDINGS OF THE
TRIAL COURT AND ARE CONTRADICTED BY THE
EVIDENCE ON RECORD; MOREOVER, THE
CONCLUSIONS DRAWN BY THE HONORABLE COURT OF
APPEALS ARE ALL BASED ON CONJECTURES AND
SURMISES AND AGAINST ACCEPTED COURSE OF
JUDICIAL PROCEEDINGS WHICH URGENTLY CALL FOR
AN EXERCISE OF THIS HONORABLE COURT'S
SUPERVISION.15
Our Ruling
The doctrine of vicarious liability or imputed liability finds
no application in the present case.
Spouses Jayme contend, inter alia, that vicarious liability
attaches to Mayor Miguel. He was not a mere passenger, but
instead one who had direct control and supervision over
Lozano during the time of the accident. According to
petitioners, the element of direct control is not negated by the
fact that Lozano's employer was the Municipality of Koronadal.
Mayor Miguel, being Lozano's superior, still had control over
the manner the vehicle was operated.
Article 218016 of the Civil Code provides that a person is not
only liable for one's own quasi-delictual acts, but also for those
persons for whom one is responsible for. This liability is
popularly known as vicarious or imputed liability. To sustain
claims against employers for the acts of their employees, the
following requisites must be established: (1) That the
employee was chosen by the employer personally or through
another; (2) That the service to be rendered in accordance
with orders which the employer has the authority to give at all
times; and (3) That the illicit act of the employee was on the
occasion or by reason of the functions entrusted to him.17
Significantly, to make the employee liable under paragraphs 5
and 6 of Article 2180, it must be established that the injurious
or tortuous act was committed at the time the employee was
performing his functions.18
Furthermore, the employer-employee relationship cannot be
assumed. It is incumbent upon the plaintiff to prove the
relationship by preponderant evidence. In Belen v.
Belen,19 this Court ruled that it was enough for defendant to
deny an alleged employment relationship. The defendant is
under no obligation to prove the negative averment. This Court
said:
It is an old and well-settled rule of the courts that the burden of
proving the action is upon the plaintiff, and that if he fails
satisfactorily to show the facts upon which he bases his claim,
the defendant is under no obligation to prove his exceptions.
This rue is in harmony with the provisions of Section 297 of the
Code of Civil Procedure holding that each party must prove his
own affirmative allegations, etc.20
In resolving the present controversy, it is imperative to find out
if Mayor Miguel is, indeed, the employer of Lozano and
therefore liable for the negligent acts of the latter. To
determine the existence of an employment relationship, We
rely on the four-fold test. This involves: (1) the employer's
power of selection; (2) payment of wages or other
remuneration; (3) the employer's right to control the method of
doing the work; and (4) the employer's right of suspension or
dismissal.21
Applying the foregoing test, the CA correctly held that it was
the Municipality of Koronadal which was the lawful employer of
Lozano at the time of the accident. It is uncontested that
Lozano was employed as a driver by the municipality. That he
was subsequently assigned to Mayor Miguel during the time of
the accident is of no moment. This Court has, on several
occasions, held that an employer-employee relationship still
exists even if the employee was loaned by the employer to
another person or entity because control over the employee
subsists.22 In the case under review, the Municipality of
Koronadal remains to be Lozano's employer notwithstanding
Lozano's assignment to Mayor Miguel.
Spouses Jayme argued that Mayor Miguel had at least
supervision and control over Lozano and how the latter
operated or drove the Isuzu pick-up during the time of the
accident. They, however, failed to buttress this claim.
Even assuming arguendo that Mayor Miguel had authority to
give instructions or directions to Lozano, he still can not be
held liable. In Benson v. Sorrell,23 the New England Supreme
Court ruled that mere giving of directions to the driver does not
establish that the passenger has control over the vehicle.
Neither does it render one the employer of the driver. This
Court, in Soliman, Jr. v. Tuazon,24ruled in a similar vein, to wit:
x x x The fact that a client company may give instructions or
directions to the security guards assigned to it, does not, by
itself, render the client responsible as an employer of the
security guards concerned and liable for their wrongful acts
and omissions. Those instructions or directions are ordinarily
no more than requests commonly envisaged in the contract for
services entered into with the security agency. x x
x25 (Emphasis supplied)
Significantly, no negligence may be imputed against a fellow
employee although the person may have the right to control
the manner of the vehicle's operation.26 In the absence of an
employer-employee relationship establishing vicarious liability,
the driver's negligence should not be attributed to a fellow
employee who only happens to be an occupant of the
vehicle.27 Whatever right of control the occupant may have
over the driver is not sufficient by itself to justify an application
of the doctrine of vicarious liability. Handley v. Lombardi28 is
instructive on this exception to the rule on vicarious liability:
Plaintiff was not the master or principal of the driver of the
truck, but only an intermediate and superior employee or
agent. This being so, the doctrine of respondeat superior or
qui facit per alium is not properly applicable to him. His power
to direct and control the driver was not as master, but only by
virtue of the fact that they were both employed by Kruse, and
the further fact that as Kruse's agent he was delegated Kruse's
authority over the driver. x x x
In the case of actionable negligence, the rule is well settled
both in this state and elsewhere that the negligence of a
subordinate employee or subagent is not to be imputed to a
superior employee or agent, but only to the master or principal.
(Hilton v. Oliver, 204 Cal. 535 [61 A. L. R. 297, 269 Pac.
425; Guild v. Brown, 115 Cal. App. 374 [1 Pac. (2d) 528; Ellis
v. Southern Ry. Co., 72 S. C. 464 [2 L. R. A. (N. S.) 378, 52 S.
E. 228; Thurman v. Pittsburg & M. Copper Co., 41 Mont. 141
[108 Pac. 588]; 2 Cor. Jur., p. 829; and see the elaborate note
in 61 A. L. R. 277, and particularly that part commencing at p.
290.) We can see no logical reason for drawing any distinction
in this regard between actionable negligence and contributory
negligence. x x x29
The rule was reiterated in Bryant v. Pacific Elec. Ry. Co.[30
and again in Sichterman v. Hollingshead Co.31
In Swanson v. McQuown,32 a case involving a military officer
who happened to be riding in a car driven by a subordinate
later involved in an accident, the Colorado Supreme Court
adhered to the general rule that a public official is not liable for
the wrongful acts of his subordinates on a vicarious basis
since the relationship is not a true master-servant
situation.33 The court went on to rule that the only exception is
when they cooperate in the act complained of, or direct or
encourage it.34
In the case at bar, Mayor Miguel was neither Lozano's
employer nor the vehicle's registered owner. There existed no
causal relationship between him and Lozano or the vehicle
used that will make him accountable for Marvin's death. Mayor
Miguel was a mere passenger at the time of the accident.
Parenthetically, it has been held that the failure of a passenger
to assist the driver, by providing him warnings or by serving as
lookout does not make the passenger liable for the latter's
negligent acts.35The driver's duty is not one that may be
delegated to others.36
As correctly held by the trial court, the true and lawful
employer of Lozano is the Municipality of Koronadal.
Unfortunately for Spouses Jayme, the municipality may not be
sued because it is an agency of the State engaged in
governmental functions and, hence, immune from suit. This
immunity is illustrated in Municipality of San Fernando, La
Union v. Firme,37 where this Court held:
It has already been remarked that municipal corporations are
suable because their charters grant them the competence to
sue and be sued. Nevertheless, they are generally not liable
for torts committed by them in the discharge of governmental
functions and can only be held answerable only if it can be
shown that they were acting in proprietary capacity. In
permitting such entities to be sued, the State merely gives the
claimant the right to show that the defendant was not acting in
governmental capacity when the injury was committed or that
the case comes under the exceptions recognized by law.
Failing this, the claimant cannot recover.38
Verily, liability attaches to the registered owner, the negligent
driver and his direct employer. The CA observation along this
line are worth restating:
Settled is the rule that the registered owner of a vehicle is
jointly and severally liable with the driver for damages incurred
by passengers and third persons as a consequence of injuries
or death sustained in the operation of said vehicles.
Regardless of who the actual owner of the vehicle is, the
operator of record continues to be the operator of the vehicle
as regards the public and third persons, and as such is directly
and primarily responsible for the consequences incident (sic)
to its operation x x x.39
The accidental death of Marvin Jayme is a tragic loss for his
parents. However, justice demands that only those liable
under our laws be held accountable for Marvin's demise.
Justice can not sway in favor of petitioners simply to assuage
their pain and loss. The law on the matter is clear: only the
negligent driver, the driver's employer, and the registered
owner of the vehicle are liable for the death of a third person
resulting from the negligent operation of the vehicle.
WHEREFORE, the petition is DENIED and the appealed
Decision AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 71977 February 27, 1987
DEMETRIO G. DEMETRIA, M.P., AUGUSTO S.
SANCHEZ, M.P., ORLANDO S. MERCADO, M.P.,
HONORATO Y. AQUINO, M.P., ZAFIRO L. RESPICIO,
M.P., DOUGLAS R. CAGAS, M.P., OSCAR F. SANTOS,
M.P., ALBERTO G. ROMULO, M.P., CIRIACO R.
ALFELOR, M.P., ISIDORO E. REAL, M.P., EMIGDIO L.
LINGAD, M.P., ROLANDO C. MARCIAL, M.P., PEDRO
M. MARCELLANA, M.P., VICTOR S. ZIGA, M.P., and
ROGELIO V. GARCIA. M.P., petitioners,
vs.
HON. MANUEL ALBA in his capacity as the
MINISTER OF THE BUDGET and VICTOR
MACALINGCAG in his capacity as the TREASURER
OF THE PHILIPPINES, respondents.
FERNAN, J.:
Assailed in this petition for prohibition with prayer for a
writ of preliminary injunction is the constitutionality of the
first paragraph of Section 44 of Presidential Decree No.
1177, otherwise known as the "Budget Reform Decree of
1977."
Petitioners, who filed the instant petition as concerned
citizens of this country, as members of the National
Assembly/Batasan Pambansa representing their millions
of constituents, as parties with general interest common
to all the people of the Philippines, and as taxpayers
whose vital interests may be affected by the outcome of
the reliefs prayed for" 1 listed the grounds relied upon in
this petition as follows:
A. SECTION 44 OF THE 'BUDGET REFORM DECREE
OF 1977' INFRINGES UPON THE FUNDAMENTAL LAW
BY AUTHORIZING THE ILLEGAL TRANSFER OF
PUBLIC MONEYS.
B. SECTION 44 OF PRESIDENTIAL DECREE NO. 1177
IS REPUGNANT TO THE CONSTITUTION AS IT FAILS
TO SPECIFY THE OBJECTIVES AND PURPOSES FOR
WHICH THE PROPOSED TRANSFER OF FUNDS ARE
TO BE MADE.
C. SECTION 44 OF PRESIDENTIAL DECREE NO. 1177
ALLOWS THE PRESIDENT TO OVERRIDE THE
SAFEGUARDS, FORM AND PROCEDURE
PRESCRIBED BY THE CONSTITUTION IN
APPROVING APPROPRIATIONS.
D. SECTION 44 OF THE SAME DECREE AMOUNTS
TO AN UNDUE DELEGATION OF LEGISLATIVE
POWERS TO THE EXECUTIVE.
E. THE THREATENED AND CONTINUING TRANSFER
OF FUNDS BY THE PRESIDENT AND THE
IMPLEMENTATION THEREOF BY THE BUDGET
MINISTER AND THE TREASURER OF THE
PHILIPPINES ARE WITHOUT OR IN EXCESS OF
THEIR AUTHORITY AND JURISDICTION. 2
Commenting on the petition in compliance with the Court
resolution dated September 19, 1985, the Solicitor
General, for the public respondents, questioned the legal
standing of petitioners, who were allegedly merely
begging an advisory opinion from the Court, there being
no justiciable controversy fit for resolution or
determination. He further contended that the provision
under consideration was enacted pursuant to Section
16[5], Article VIII of the 1973 Constitution; and that at any
rate, prohibition will not lie from one branch of the
government to a coordinate branch to enjoin the
performance of duties within the latter's sphere of
responsibility.
On February 27, 1986, the Court required the petitioners
to file a Reply to the Comment. This, they did, stating,
among others, that as a result of the change in the
administration, there is a need to hold the resolution of
the present case in abeyance "until developments arise
to enable the parties to concretize their respective
stands." 3
Thereafter, We required public respondents to file a
rejoinder. The Solicitor General filed a rejoinder with a
motion to dismiss, setting forth as grounds therefor the
abrogation of Section 16[5], Article VIII of the 1973
Constitution by the Freedom Constitution of March 25,
1986, which has allegedly rendered the instant petition
moot and academic. He likewise cited the "seven pillars"
enunciated by Justice Brandeis in Ashwander v.
TVA, 297 U.S. 288 (1936) 4 as basis for the petition's
dismissal.
In the case of Evelio B. Javier v. The Commission on
Elections and Arturo F. Pacificador, G.R. Nos. 68379-81,
September 22, 1986, We stated that:
The abolition of the Batasang Pambansa and the
disappearance of the office in dispute between the
petitioner and the private respondents both of whom
have gone their separate ways could be a convenient
justification for dismissing the case. But there are larger
issues involved that must be resolved now, once and for
all, not only to dispel the legal ambiguities here raised.
The more important purpose is to manifest in the clearest
possible terms that this Court will not disregard and in
effect condone wrong on the simplistic and tolerant
pretext that the case has become moot and academic.
The Supreme Court is not only the highest arbiter of legal
questions but also the conscience of the government.
The citizen comes to us in quest of law but we must also
give him justice. The two are not always the same. There
are times when we cannot grant the latter because the
issue has been settled and decision is no longer possible
according to the law. But there are also times when
although the dispute has disappeared, as in this case, it
nevertheless cries out to be resolved. Justice demands
that we act then, not only for the vindication of the
outraged right, though gone, but also for the guidance of
and as a restraint upon the future.
It is in the discharge of our role in society, as above-
quoted, as well as to avoid great disservice to national
interest that We take cognizance of this petition and thus
deny public respondents' motion to dismiss. Likewise
noteworthy is the fact that the new Constitution, ratified
by the Filipino people in the plebiscite held on February
2, 1987, carries verbatim section 16[5], Article VIII of the
1973 Constitution under Section 24[5], Article VI. And
while Congress has not officially reconvened, We see no
cogent reason for further delaying the resolution of the
case at bar.
The exception taken to petitioners' legal standing
deserves scant consideration. The case of Pascual v.
Secretary of Public Works, et al., 110 Phil. 331, is
authority in support of petitioners' locus standi. Thus:
Again, it is well-settled that the validity of a statute may
be contested only by one who will sustain a direct injury
in consequence of its enforcement. Yet, there are many
decisions nullifying at the instance of taxpayers, laws
providing for the disbursement of public funds, upon the
theory that the expenditure of public funds by an officer of
the state for the purpose of administering
an unconstitutional actconstitutes a misapplication of
such funds which may be enjoined at the request of a
taxpayer. Although there are some decisions to the
contrary, the prevailing view in the United States is stated
in the American Jurisprudence as follows:
In the determination of the degree of interest essential to
give the requisite standing to attack the constitutionality
of a statute, the general rule is that not only persons
individually affected, but also taxpayers have sufficient
interest in preventing the illegal expenditures of moneys
raised by taxation and may therefore question the
constitutionality of statutes requiring expenditure of public
moneys. [ 11 Am. Jur. 761, Emphasis supplied. ]
Moreover, in Tan v. Macapagal, 43 SCRA 677
and Sanidad v. Comelec, 73 SCRA 333, We said that as
regards taxpayers' suits, this Court enjoys that open
discretion to entertain the same or not.
The conflict between paragraph 1 of Section 44 of
Presidential Decree No. 1177 and Section 16[5], Article
VIII of the 1973 Constitution is readily perceivable from a
mere cursory reading thereof. Said paragraph 1 of
Section 44 provides:
The President shall have the authority to transfer any
fund, appropriated for the different departments, bureaus,
offices and agencies of the Executive Department, which
are included in the General Appropriations Act, to any
program, project or activity of any department, bureau, or
office included in the General Appropriations Act or
approved after its enactment.
On the other hand, the constitutional provision under
consideration reads as follows:
Sec. 16[5]. No law shall be passed authorizing any
transfer of appropriations, however, the President, the
Prime Minister, the Speaker, the Chief Justice of the
Supreme Court, and the heads of constitutional commis
ions may by law be authorized to augment any item in
the general appropriations law for their respective offices
from savings in other items of their respective
appropriations.
The prohibition to transfer an appropriation for one item
to another was explicit and categorical under the 1973
Constitution. However, to afford the heads of the different
branches of the government and those of the
constitutional commissions considerable flexibility in the
use of public funds and resources, the constitution
allowed the enactment of a law authorizing the transfer of
funds for the purpose of augmenting an item from
savings in another item in the appropriation of the
government branch or constitutional body concerned.
The leeway granted was thus limited. The purpose and
conditions for which funds may be transferred were
specified, i.e. transfer may be allowed for the purpose of
augmenting an item and such transfer may be made only
if there are savings from another item in the appropriation
of the government branch or constitutional body.
Paragraph 1 of Section 44 of P.D. No. 1177 unduly over
extends the privilege granted under said Section 16[5]. It
empowers the President to indiscriminately transfer funds
from one department, bureau, office or agency of the
Executive Department to any program, project or activity
of any department, bureau or office included in the
General Appropriations Act or approved after its
enactment, without regard as to whether or not the funds
to be transferred are actually savings in the item from
which the same are to be taken, or whether or not the
transfer is for the purpose of augmenting the item to
which said transfer is to be made. It does not only
completely disregard the standards set in the
fundamental law, thereby amounting to an undue
delegation of legislative powers, but likewise goes
beyond the tenor thereof. Indeed, such constitutional
infirmities render the provision in question null and void.
"For the love of money is the root of all evil: ..." and
money belonging to no one in particular, i.e. public funds,
provide an even greater temptation for misappropriation
and embezzlement. This, evidently, was foremost in the
minds of the framers of the constitution in meticulously
prescribing the rules regarding the appropriation and
disposition of public funds as embodied in Sections 16
and 18 of Article VIII of the 1973 Constitution. Hence, the
conditions on the release of money from the treasury
[Sec. 18(1)]; the restrictions on the use of public funds for
public purpose [Sec. 18(2)]; the prohibition to transfer an
appropriation for an item to another [See. 16(5) and the
requirement of specifications [Sec. 16(2)], among others,
were all safeguards designed to forestall abuses in the
expenditure of public funds. Paragraph 1 of Section 44
puts all these safeguards to naught. For, as correctly
observed by petitioners, in view of the unlimited authority
bestowed upon the President, "... Pres. Decree No. 1177
opens the floodgates for the enactment of unfunded
appropriations, results in uncontrolled executive
expenditures, diffuses accountability for budgetary
performance and entrenches the pork barrel system as
the ruling party may well expand [sic] public money not
on the basis of development priorities but on political and
personal expediency."5 The contention of public
respondents that paragraph 1 of Section 44 of P.D. 1177
was enacted pursuant to Section 16(5) of Article VIII of
the 1973 Constitution must perforce fall flat on its face.
Another theory advanced by public respondents is that
prohibition will not lie from one branch of the government
against a coordinate branch to enjoin the performance of
duties within the latter's sphere of responsibility.
Thomas M. Cooley in his "A Treatise on the
Constitutional Limitations," Vol. 1, Eight Edition, Little,
Brown and Company, Boston, explained:
... The legislative and judicial are coordinate departments
of the government, of equal dignity; each is alike
supreme in the exercise of its proper functions, and
cannot directly or indirectly, while acting within the limits
of its authority, be subjected to the control or supervision
of the other, without an unwarrantable assumption by that
other of power which, by the Constitution, is not
conferred upon it. The Constitution apportions the powers
of government, but it does not make any one of the three
departments subordinate to another, when exercising the
trust committed to it. The courts may declare legislative
enactments unconstitutional and void in some cases, but
not because the judicial power is superior in degree or
dignity to the legislative. Being required to declare what
the law is in the cases which come before them, they
must enforce the Constitution, as the paramount law,
whenever a legislative enactment comes in conflict with
it. But the courts sit, not to review or revise the legislative
action, but to enforce the legislative will, and it is only
where they find that the legislature has failed to keep
within its constitutional limits, that they are at liberty to
disregard its action; and in doing so, they only do what
every private citizen may do in respect to the mandates
of the courts when the judges assumed to act and to
render judgments or decrees without jurisdiction. "In
exercising this high authority, the judges claim no judicial
supremacy; they are only the administrators of the public
will. If an act of the legislature is held void, it is not
because the judges have any control over the legislative
power, but because the act is forbidden by the
Constitution, and because the will of the people, which is
therein declared, is paramount to that of their
representatives expressed in any law." [Lindsay v.
Commissioners, & c., 2 Bay, 38, 61; People v. Rucker, 5
Col. 5; Russ v. Com., 210 Pa. St. 544; 60 Atl. 169, 1
L.R.A. [N.S.] 409, 105 Am. St. Rep. 825] (pp. 332-334).
Indeed, where the legislature or the executive branch is
acting within the limits of its authority, the judiciary cannot
and ought not to interfere with the former. But where the
legislature or the executive acts beyond the scope of its
constitutional powers, it becomes the duty of the judiciary
to declare what the other branches of the government
had assumed to do as void. This is the essence of
judicial power conferred by the Constitution "in one
Supreme Court and in such lower courts as may be
established by law" [Art. VIII, Section 1 of the 1935
Constitution; Art. X, Section 1 of the 1973 Constitution
and which was adopted as part of the Freedom
Constitution, and Art. VIII, Section 1 of the 1987
Constitution] and which power this Court has exercised in
many instances. *
Public respondents are being enjoined from acting under
a provision of law which We have earlier mentioned to be
constitutionally infirm. The general principle relied upon
cannot therefore accord them the protection sought as
they are not acting within their "sphere of responsibility"
but without it.
The nation has not recovered from the shock, and worst,
the economic destitution brought about by the plundering
of the Treasury by the deposed dictator and his cohorts.
A provision which allows even the slightest possibility of a
repetition of this sad experience cannot remain written in
our statute books.
WHEREFORE, the instant petition is granted. Paragraph
1 of Section 44 of Presidential Decree No. 1177 is hereby
declared null and void for being unconstitutional.
SO ORDER RED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 182967 April 6, 2011
PHILIPPINE NATIONAL RAILWAYS, Petitioner,
vs.
KANLAON CONSTRUCTION ENTERPRISES CO.,
INC. Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the 26 February 2008
Decision2 and 26 May 2008 Resolution3 of the Court of
Appeals in CA-G.R. CV No. 70205. In its 26 February
2008 Decision, the Court of Appeals affirmed the 12
December 2000 Decision,4 as amended by the 22
February 2001 Order,5 of the Regional Trial Court of
Quezon City, Branch 221 (trial court), directing petitioner
Philippine National Railways (PNR) to pay respondent
Kanlaon Construction Enterprises Co., Inc. (Kanlaon) the
remaining balance of the contracts and to release the
retention money. In its 26 May 2008 Resolution, the
Court of Appeals denied PNRs motion for
reconsideration.
The Facts
In July 1990, PNR and Kanlaon entered into contracts for because of the COA orders suspending the release of
the repair of three PNR station buildings and passenger payment to Kanlaon.
shelters, namely: 1) College Station
In its 12 December 2000 Decision, the trial court ruled in
for P2,316,568.41;6 2) Bian Station
favor of Kanlaon. The dispositive portion of the 12
for P2,547,978.63;7 and 3) Buendia Station
December 2000 Decision reads:
for P1,820,534.40.8 The total cost of the three projects
was P6,685,081.44. By November 1990, Kanlaon alleged WHEREFORE, premises considered, judgment is hereby
that it had already completed the three projects.9 rendered in favor of the plaintiff [Kanlaon] and against the
herein defendants [PNR and COA]. Accordingly,
On 30 June 1994, Kanlaon sent a demand letter to PNR
defendant PNR is ordered to pay the plaintiff the
requesting for the release of the retention money in the
following amount[s]:
amount of P333,894.07.10
1. P333,894.07 representing the unreleased retention
In a letter dated 12 July 1994,11 PNR denied Kanlaons
money plus legal interest at 12% per annum computed
demand because of the 24 January 1994 Notices of
from the date of the first written demand; [and]
Suspension12 issued by the Commission on Audit (COA).
2. P531,652.72 representing the unpaid contract price for
On 8 November 1994, Kanlaon filed a complaint for
the completed projects plus legal interest of 12% per
collection of sum of money plus damages against
annum computed from the date of the first written
PNR.13Kanlaon sought to recover from PNR a total
demand.
of P865,906.79 consisting of the remaining balance of
the three projects in the amount of P531,652.7214 and the Defendant COA is absolved of any liability for actual
retention money in the amount of P334,254.07. In its damages or moral damages.
amended complaint dated 17 August 1995, Kanlaon
impleaded the COA.15 However, both defendant PNR and defendant COA are
solidarily liable for reasonable attorneys fees in the
In its answer, PNR admitted the existence of the three amount of P50,000.00 and cost of suit.
contracts but alleged that Kanlaon did not comply with
the conditions of the contract. PNR also alleged that SO ORDERED.16
Kanlaon did not complete the projects and that PNR did On 28 December 2000, COA appealed. On 9 January
not have any unpaid balance. PNR added that it had a 2001, PNR filed a motion for reconsideration.
valid ground to refuse the release of the retention money
In its 22 February 2001 Order, the trial court modified its
12 December 2000 Decision and fixed the interest rate
from twelve percent to six percent per annum from the
date of the first written demand.
PNR and COA appealed to the Court of Appeals.
In its 26 February 2008 Decision, the Court of Appeals
affirmed the trial courts 12 December 2000 Decision, as
amended by its 22 February 2001 Order.
PNR filed a motion for reconsideration.
In its 26 May 2008 Resolution, the Court of Appeals
denied PNRs motion.
The Ruling of the Trial Court
The trial court found that Kanlaon completed the projects
and that it was entitled to payment in full of the contract
price, as well as the release of the retention money. The
trial court declared the PNR ledger, which was the only
documentary evidence presented by PNR to show that
the projects were not completed, to be self-serving and
unverified. The trial court declared that PNR failed to
present any credible and substantial evidence that
Kanlaon failed to complete the projects. Moreover, the
trial court stated that COA suspended payment because
PNR failed to comply with certain conditions and not
because Kanlaon did not complete the projects. The trial
court also took judicial notice of the fact that the PNR
stations at College, Bian and Buendia are fully
operational and have been continuously used by PNR
and the riding public. The trial court absolved COA from
actual and moral damages because there was no
contractual relations between COA and Kanlaon and it
was not shown that COA acted in bad faith or with malice
or gross negligence when it issued the Notices of
Suspension.
The Ruling of the Court of Appeals
The Court of Appeals sustained the trial courts ruling that
PNR was liable for the remaining balance of the contract
price and the retention money. The Court of Appeals
agreed with the trial court that the preponderance of
evidence leaned in favor of Kanlaons claim against PNR
and that there was nothing on record which supports
PNRs allegation that Kanlaon failed to complete the
project. The Court of Appeals said the only reason PNR
refused to pay Kanlaon was because of COAs Notices of
Suspension and not Kanlaons non-completion of the
projects. However, the Court of Appeals held that COA is
not liable for attorneys fees and costs of the suit for lack
of factual and legal bases.
The Issues
PNR raises the following issues:
I. The Court of Appeals erred in finding that the projects
were completed.
II. The Court of Appeals erred in affirming the 12
December 2000 Decision of the trial court, as modified by
the Order dated February 22, 2001.
III. The Court of Appeals erred in ruling that interest
should be reckoned from the date of respondents first
written demand.17
The Ruling of the Court
The petition is meritorious.
The Court notes that one of the reasons the COA issued
the Notices of Suspension was because the contracts did
not contain a Certificate of Availability of Funds as
required under Sections 85 and 86 of Presidential Decree
No. 1445.18 Kanlaon does not dispute the absence of a
Certificate of Availability of Funds.
The Administrative Code of 1987, a more recent law, also
contains the same provisions. Sections 46, 47, and 48,
Chapter 8, Subtitle B, Title I, Book V of the Administrative
Code of 1987 provide:
SECTION 46. Appropriation Before Entering into
Contract.
1. No contract involving the expenditure of public funds
shall be entered into unless there is an appropriation
therefor, the unexpended balance of which, free of other
obligations, is sufficient to cover the proposed
expenditure; and
2. Notwithstanding this provision, contracts for the
procurement of supplies and materials to be carried in
stock may be entered into under regulations of the
Commission provided that when issued, the supplies and
materials shall be charged to the proper appropriations
account.
SECTION 47. Certificate Showing Appropriation to Meet
Contract. Except in the case of a contract for personal
service, for supplies for current consumption or to be
carried in stock not exceeding the estimated consumption
for three (3) months, or banking transactions of
government-owned or controlled banks, no contract
involving the expenditure of public funds by any
government agency shall be entered into or
authorized unless the proper accounting official of
the agency concerned shall have certified to the
officer entering into the obligation that funds have
been duly appropriated for the purpose and that the
amount necessary to cover the proposed contract for
the current calendar year is available for expenditure
on account thereof, subject to verification by the auditor
concerned. The certificate signed by the proper
accounting official and the auditor who verified it, shall be
attached to and become an integral part of the proposed
contract, and the sum so certified shall not thereafter be
available for expenditure for any other purpose until the
obligation of the government agency concerned under
the contract is fully extinguished.
SECTION 48. Void Contract and Liability of Officer.
Any contract entered into contrary to the
requirements of the two (2) immediately preceding
sections shall be void, and the officer or officers
entering into the contract shall be liable to the
Government or other contracting party for any
consequent damage to the same extent as if the
transaction had been wholly between private parties.
(Emphasis supplied)
Thus, the Administrative Code of 1987 expressly
prohibits the entering into contracts involving the
expenditure of public funds unless two prior requirements
are satisfied. First, there must be an appropriation law
authorizing the expenditure required in the contract.
Second, there must be attached to the contract a
certification by the proper accounting official and auditor
that funds have been appropriated by law and such funds
are available. Failure to comply with any of these two
requirements renders the contract void.
In several cases,19 the Court had the occasion to apply
these provisions of the Administrative Code of 1987 and
the Government Auditing Code of the Philippines. In
these cases, the Court clearly ruled that the two
requirements the existence of appropriation and the
attachment of the certification are "conditions sine qua
non for the execution of government contracts."
In COMELEC v. Quijano-Padilla,20 we stated:
It is quite evident from the tenor of the language of the
law that the existence of appropriations and the
availability of funds are indispensable pre-requisites to or
conditions sine qua non for the execution of government
contracts. The obvious intent is to impose such
conditions as a priori requisites to the validity of the
proposed contract.21
The law expressly declares void a contract that fails to
comply with the two requirements, namely, an
appropriation law funding the contract and a certification
of appropriation and fund availability.22 The clear purpose
of these requirements is to insure that government
contracts are never signed unless supported by the
corresponding appropriation law and fund availability.23
The three contracts between PNR and Kanlaon do not
comply with the requirement of a certification of
appropriation and fund availability. Even if a certification
of appropriation is not applicable to PNR if the funds
used are internally generated, still a certificate of fund
availability is required. Thus, the three contracts between
PNR and Kanlaon are void for violation of Sections 46,
47, and 48, Chapter 8, Subtitle B, Title I, Book V of the
Administrative Code of 1987, as well as Sections 85, 86,
and 87 of the Government Auditing Code of the
Philippines.1avvphi1
However, Kanlaon is not left without recourse. The law
itself affords it the remedy. Section 48 of the
Administrative Code of 1987 provides that "the officer or
officers entering into the contract shall be liable to the
Government or other contracting party for any
consequent damage to the same extent as if the
transaction had been wholly between private
parties."24 Kanlaon could go after the officers who signed
the contract and hold them personally liable.
WHEREFORE, we GRANT the petition.
We REVERSE and SET ASIDE the 26 February 2008
Decision and 26 May 2008 Resolution of the Court of
Appeals in CA-G.R. CV No. 70205.
SO ORDERED.