Republic of the Philippines DIAPHRAGM STOMACH, DUODENUM, PANCREAS
SUPREME COURT AND MIDTRANVERSE COLON.
Manila
THIRD DIVISION
G.R. No. 116719 January 18, 1996
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
PATRICIO AMIGO alias "BEBOT", accused-appellant.
DECISION
MELO, J.:
Initially, Patricio Amigo was charged with frustrated murder in
an Information reading as follows:
The undersigned accuses the above-named accused of
the crime of FRUSTRATED MURDER, under Art. 248, in
relation to Art. 5 of the Revised Penal Code, committed
as follows:
That on or about December 29, 1989, in the City of
Davao, Philippines, and within the jurisdiction of this
Honorable Court, the above-mentioned accused, armed
with a knife, with treachery and evident premeditation
and with intent to kill wilfully, unlawfully and feloniously
attacked, assaulted and stab with said weapon one
Benito Ng Suy, thereby inflicting injuries upon the latter,
the following injuries, to wit:
MULTIPLE STAB WOUNDS-LEFT ARM, LEFT
CHEST, ABDOMEN AND LEFT THIGH WITH
PENETRATION TO LEFT PLEURAL CAVITY,
thus performing all the acts of execution which should
have produced the crime of murder as a consequence
but nevertheless, did not produce it by reason of causes
independent of his will, that is, because of the timely and
able medical assistance immediately rendered to the said
Benito Ng Suy.
(p. 1, Rollo.)
to which he pleaded not guilty.
Subsequently, due to the death of the victim, an amended
Information was filed charging now the crime of murder, to wit:
That on or about December 29, 1989, in the City of
Davao, Philippines, and within the jurisdiction of this
Honorable Court, the above-mentioned accused, armed
with a knife, with treachery and evident premeditation
and with intent to kill wilfully, unlawfully and feloniously
attacked, assaulted and stabbed with said weapon one
Benito Ng Suy, thereby inflicting upon the latter multiple
wounds which caused his death and the consequent loss
and damage to the heirs of the victim.
(p. 3, Rollo.)
After trial on the merits, the court a quo rendered a decision,
disposing:
WHEREFORE, finding the accused Patricio Amigo guilty
beyond reasonable doubt of the crime of MURDER
punishable under Art. 248 of the Revised Penal Code,
with no modifying circumstance present, the accused is
hereby sentenced to the penalty of reclusion
 perpetua, which is the medium period of the penalty
ofreclusion temporal in its maximum to death and to pay
the cost; to indemnify the offended party the amount of
P93,214.70 as actual damages and P50,000.00 as
compensatory damages and P50,000.00 as moral
damages.
(p. 32, Rollo.)
Reversal thereof is now sought, with accused-appellant arguing
that error was committed by the trial court in imposing or
meting out the penalty of reclusion perpetua against him
despite the fact that Sec. 19 (1), Article III of the 1987
Constitution was already in effect when the offense was
committed.
The facts of the case, as briefly summarized in the brief
submitted by the Office of the Solicitor General and as borne
out by the evidence, are as follows:
On December 29, 1989, at around 1:00 P.M., after
having spent half-day at their store, located at No. 166-
A, Ramon Magsaysay Avenue, Davao City, Benito Ng Suy
was driving their gray Ford Fiera back home, situated at
the back of Car Asia, Bajada, Davao City. With him
during that time were his daughters, Jocelyn Ng Suy and
a younger one together with his two year old son, who
were all seated at the front seat beside him while a five
year old boy was also seated at the back of the said
vehicle. (TSN, April 29, 1991, pp. 3-5; TSN, March 31,
1992)
On their way home and while traversing the National
Highway of Bajada, Davao City, an orange Toyota
Tamaraw driven by one Virgilio Abogada, suddenly made
a left turn in front of the Regional Hospital, Bajada,
Davao City, without noticing the Ford Fiera coming from
the opposite direction. This Tamaraw was heading for
Sterlyn Kitchenette, which was situated at the comer of
the said hospital. (TSN, April 29, 1991, p. 4; TSN, March
31, 1992, pp. 3 and 13)
With Virgilio was Patricio Amigo alias Bebot, a vulcanizer
at Lingling's vulcanizing shop owned and operated by a
certain Galadua. He was also seated at the right front
seat beside Virgilio.
Due to the unexpected veer made by Virgilio, an
accidental head on collision occurred between the Fiera
and the Tamaraw, causing a slight damaged to the right
bumper of the latter. (TSN, March 31, 1992, p. 4)
Right after the collision, Benito immediately alighted from
the driver's seat and confronted Virgilio Abogada who
also went down from his vehicle. (TSN, April 29, 1991, p.
5)
Benito, who was a big man with a loud voice told Virgilio,
"You were not looking," to which Virgilio retorted, I did
not see you". (TSN, April 29, 1991, p. 16)
While the two drivers where having this verbal
confrontation, Patricio who was merely a passenger of
Virgilio also alighted from the front seat of the Tamaraw
and instantaneously approached Benito and advised the
latter to leave since it was merely a small and minor
accident. (TSN, April 29, 1991, pp. 16-18)
A bit irritated with the actuation exhibit by Patricio,
Benito rebuked the former and told him not to interfere,
since he had nothing to do with the accident. (ibid. p. 7)
Irked by the comment made by Benito, Patricio
sarcastically asked; "You are Chinese, is it you?" With a
ready answer Benito said; "Yes, I am a Chinese and
why?" Patricio in turn replied; So, you are a Chinese, wait
for a while," then left. (ibid. pp. 7 and 19)
Immediately thereafter, Benito ordered Jocelyn to call a
policeman, but after a lapsed of about one minute,
Patricio returned and arrogantly approached Benito,
asking the latter once again, "You are a Chinese, is it
not?" To this Benito calmly responded in the affirmative.
(ibid. pp. 7, 19-20)
Upon hearing the response, Patricio mumbled "Ah, so
you are a Chinese," and suddenly took a five inch knife
from his waist and simultaneously stabbed Benito hitting
him twice on the chest. (Ibid. p. 20)
After being hit, Benito wounded and sensing that his life
was in peril, tried to evade his assailant by pushing
Patricio away and run around the Tamaraw but Patricio
wielding the same knife and not content with the injuries
he had already inflicted, still chased Benito and upon
overtaking the latter embraced him and thrusted his knife
on the victim several times, the last of which hit Benito
on the left side of his body. (ibid. pp. 8, 10, 22)
It was at this juncture that Jocelyn who was still inside
the Ford Fiera, pleading for mercy to spare her father
tried to get out of the vehicle but it was very unfortunate
that she could not open its door. (Ibid. p. 10)
Knowing that Patricio was really determined to kill her
father by refusing to heed her pleas, Joselyn shouted for
help, since there were already several people around
witnessing that fatal incident, but to her consternation
nobody lifted a single finger to help them. (ibid. pp. 6,
10, 18, 21-22) Only after her father lay seated on the
floor of their Ford Fiera after being hit on the left side of
his body that she was able to open the door of the said
vehicle. (Ibid. p 12)
After this precise moment, her younger sister, upon
seeing their father bathing with his own blood, embraced
him, causing Patricio to cease from his ferocious assault
and noticing the presence of several people, he fled.
(Ibid. p. 22)
Thereafter, an enraged Jocelyn chased him, but since the
assailant ran faster than her, she was not able to
overtake him, thus, she instead decided to go back to
where her father was and carried him inside the
Tamaraw who bumped them and consequently brought
him to San Pedro Hospital where he was attended to at
the Emergency Room. (ibid. p 13)
While at the Emergency Room, Benito who was on a very
critical condition, due to multiple (13) stabbed wounds,
was operated by Dr. Rolando Chiu. After the operation,
he was subsequently brought to the ICU and stayed
there for three (3) weeks. (July 12, 1991, pp. 3 and 4)
In a last ditch effort to save his life, having only 10 to 20
percent survival, Benito was airlifted to Manila and was
directly confined at the Chinese General Hospital. After
three (3) weeks of confinement, Benito expired. CAUSE
OF DEATH — SEPSIS (an overwhelming infection). This
means that the infection has already circulated in the
blood all over the body. (ibid. pp. 6-7)
(pp. 59-65, Rollo.)
Accused-appellant contends that under the 1987 Constitution
and prior to the promulgation of Republic Act No. 7659, the
death penalty had been abolished and hence, the penalty that
should have been imposed for the crime of murder committed
by accused-appellant without the attendance of any modifying
circumstances, should bereclusion temporal in its medium
period or 17 years, 4 months and 1 day, to 20 years of reclusion
temporal.
Reasons out accused-appellant:
. . . Since the death penalty (or capital punishment) is
not imposable when the stabbing and killing happened,
the computation of the penalty should be regarded
from reclusion perpetua down and not from death
penalty. Indeed, the appropriate penalty is deducible
from reclusion perpetua down to reclusion temporal in its
medium period. Hence, there being no modifying
circumstances present (p. 5 Decision,ibid.), the correct
penalty should be in the medium period (Art. 64, par. 1,
Revised Penal Code) which is 17 years, 4 months and 1
day to 20 years of reclusion temporal.
(p. 10, Appellant's Brief, ff. p. 50, Rollo.)
The question raised by accused-appellant was settled by this
Court in People vs. Muñoz (170 SCRA 107 [1989]) thusly:
In People vs. Gavarra, Justice Pedro L. Yap declared for
the Court that "in view of the abolition of the death
penalty under Section 19, Article III of the 1987
Constitution, the penalty that may be imposed for
murder isreclusion temporal in its maximum period
to reclusion perpetua," thereby eliminating death as the
original maximum period. Later, without categorically
saying so, the Court, through Justice Ameurfina A.
Melencio-Herrera in People vs. Masangkay and through
Justice Andres R. Narvasa in People vs. Atencio, divided
the modified penalty into three new periods, the limits of
which were specified by Justice Edgardo L. Paras
inPeople vs. Intino, as follows: the lower half of reclusion
temporal maximum as the minimum; the upper half
of reclusion temporal maximum as the medium;
and reclusion perpetua as the maximum.
The Court has reconsidered the above cases and, after
extended discussion, come to the conclusion that the
doctrine announced therein does not reflect the intention
of the framers as embodied in Article III, Section 19(1) of
the Constitution. This conclusion is not unanimous, to be
sure. Indeed, there is much to be said of the opposite
view, which was in fact shared by many of those now
voting for its reversal. The majority of the Court,
however, is of the belief that the original interpretation
should be restored as the more acceptable reading of the
constitutional provision in question.
The advocates of the Masangkay ruling argue that the
Constitution abolished the death penalty and thereby
limited the penalty for murder to the remaining periods,
to wit, the minimum and the medium. These should now
be divided into three new periods in keeping with the
three-grade scheme intended by the legislature. Those
who disagree feel that Article III, Section 19(1) merely
prohibits the imposition of the death penalty and has not,
by reducing it to reclusion perpetua, also correspondingly
reduced the remaining penalties. These should be
maintained intact.
A reading of Section 19(1) of Article III will readily show
that here is really nothing therein which expressly
declares the abolition of the death penalty. The provision
merely says that the death penalty shall not be imposed
unless for compelling reasons involving heinous crimes
the Congress hereafter provides for it and, if already
imposed, shall be reduced to reclusion perpetua. The
language, while rather awkward, is still plain enough.
And it is a settled rule of legal hermeneutics that if the
language under consideration is plain, it is neither
necessary nor permissible to resort to extrinsic aids, like
the records of the constitutional convention, for its
interpretation.
xxx xxx xxx
The question as we see it is not whether the framers
intended to abolish the death penalty or merely to
prevent its imposition. Whatever the intention was, what
we should determine is whether or not they also meant
to require a corresponding modification in the other
periods as a result of the prohibition against the death
penalty.
It is definite that such a requirement, if there really was
one, is not at all expressed in Article III, Section 19(1) of
the Constitution or indicated therein by at least clear and
unmistakable implication. It would have been so easy,
assuming such intention, to state it categorically and
plainly, leaving no doubts as to its meaning.
One searches in vain for such a statement, express or
even implied. The writer of this opinion makes the
personal observation that this might be still another
instance where the framers meant one thing and said
another or — strangely, considering their loquacity
elsewhere — did not say enough.
The original ruling as applied in the Gavarra, Masangkay,
Atencio and Intino cases represented the unanimous
thinking of the Court as it was then constituted. All but
two members at that time still sit on the Court today. If
we have seen fit to take a second look at the doctrine on
which we were all agreed before, it is not because of a
change in the composition of this body. It is virtually the
same Court that is changing its mind after reflecting on
the question again in the light of new perspectives. And
well it might, and can, for the tenets it lays down are not
immutable. The decisions of this Court are not petrified
rules grown rigid once pronounced but vital, growing
things subject to change as all life is. While we are told
that the trodden path is best, this should not prevent us
from opening a fresh trial or exploring the other side or
testing a new idea in a spirit of continuing inquiry.
Accordingly, with the hope that "as judges, (we) will be
equal to (our) tasks," whatever that means, we hereby
reverse the current doctrine providing for three new
periods for the penalty for murder as reduced by the
Constitution. Instead, we return to our original
interpretation and hold that Article III, Section 19(1)
does not change the periods of the penalty prescribed by
Article 248 of the Revised Penal Code except only insofar
as it prohibits the imposition of the death penalty and
reduces it to reclusion perpetua. The range of the
medium and minimum penalties remains unchanged.
The Court realizes that this interpretation may lead to
certain inequities that would not have arisen under
Article 248 of the Revised Penal Code before its
modification. Thus, a person originally subject to the
death penalty and another who committed the murder
without the attendance of any modifying circumstance
will now be both punishable with the same medium
period although the former is concededly more guilty
than the latter. True enough. But that is the will not of
this Court but of the Constitution. That is a question of
wisdom, not construction. Of some relevance perhaps is
the parable in the Bible of the workman who was paid
the stipulated daily wage of one penny although he had
worked longer than others hired later in the day also paid
the same amount. When he complained because he felt
unjustly treated by the hoe jurisdiction of the court over
 the person. An appearance may be madt agree with me amendment of the law by the legislative, but surely, at this
for a penny? point, this Court can but apply the law.

The problem in any event is addressed not to this Court WHEREFORE, the appealed decision is hereby AFFIRMED.
but to the Congress. Penalties are prescribed by statute
and are essentially and exclusively legislative. As judges, SO ORDERED.
we can only interpret and apply them and have no
authority to modify them or revise their range as
determined exclusively by the legislature. We should not
encroach on this prerogative of the lawmaking body.

Coming back to the case at bar, we find that there being

no generic aggravating or mitigating circumstance
attending the commission of the offenses, the applicable
sentence is the medium period of the penalty prescribed
by Article 248 of the Revised Penal Code which,
conformably to the new doctrine here adopted and
announced, is still reclusion perpetua. This is the penalty
we imposed on all the accused-appellants for each of the
three murders they have committed in conspiracy with
the others. The award of civil indemnity for the heirs of
each of the victims is affirmed but the amount thereof is
hereby increased to P30,000.00 in line with the present
policy.

(at pp. 120-125.)

The above ruling was reiterated in People vs. Parominog (203

SCRA 673 [1991]) and in People vs. De la Cruz(216 SCRA 476
[1992]).

Finally, accused-appellant claims that the penalty of reclusion

perpetua is too cruel and harsh a penalty and pleads for
sympathy. Courts are not the forum to plead for sympathy. The
duty of courts is to apply the law, disregarding their feeling of
sympathy or pity for an accused. DURA LEX SED LEX. The
remedy is elsewhere — clemency from the executive or an
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 176579 October 9, 2012
HEIRS OF WILSON P. GAMBOA,* Petitioners,
vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE
UNDERSECRETARYJOHN P. SEVILLA, AND
COMMISSIONER RICARDO ABCEDE OF THE
PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR
AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM
OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS
DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC.,
CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS
CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC
CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
CHAIR FE BARIN OF THE SECURITIES AND EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF THE
PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-
in-Intervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the 28 June
2011 Decision filed by (1) the Philippine Stock Exchange's (PSE)
President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3)
Napoleon L. Nazareno (Nazareno ),3and ( 4) the Securities and
Exchange Commission (SEC)4 (collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion
for reconsideration on behalfofthe SEC,5 assailing the 28 June
2011 Decision. However, it subsequently filed a Consolidated
Comment on behalf of the State,6declaring expressly that it
agrees with the Court's definition of the term "capital" in Section
11, Article XII of the Constitution. During the Oral Arguments on
26 June 2012, the OSG reiterated its position consistent with
the Court's 28 June 2011 Decision.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for
mandamus.
As we emphatically stated in the 28 June 2011 Decision, the
interpretation of the term "capital" in Section 11, Article XII of
the Constitution has far-reaching implications to the national
economy. In fact, a resolution of this issue will determine
whether Filipinos are masters, or second-class citizens, in their
own country. What is at stake here is whether Filipinos or
foreigners will have effective control of the Philippine national
economy. Indeed, if ever there is a legal issue that has far-
reaching implications to the entire nation, and to future
generations of Filipinos, it is the threshold legal issue presented
in this case.
Contrary to Pangilinan’s narrow view, the serious economic
consequences resulting in the interpretation of the term
"capital" in Section 11, Article XII of the Constitution
undoubtedly demand an immediate adjudication of this
issue. Simply put, the far-reaching implications of this
issue justify the treatment of the petition as one for
mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court
deemed it wise and expedient to resolve the case although the
petition for declaratory relief could be outrightly dismissed for
being procedurally defective. There, appellant admittedly had
already committed a breach of the Public Service Act in relation
to the Anti-Dummy Law since it had been employing non-
American aliens long before the decision in a prior similar case.
However, the main issue in Luzon Stevedoring was of
transcendental importance, involving the exercise or enjoyment
of rights, franchises, privileges, properties and businesses which
only Filipinos and qualified corporations could exercise or enjoy
under the Constitution and the statutes. Moreover, the same
issue could be raised by appellant in an appropriate action.
Thus, in Luzon Stevedoring the Court deemed it necessary to
finally dispose of the case for the guidance of all concerned,
despite the apparent procedural flaw in the petition.
The circumstances surrounding the present case, such as the
supposed procedural defect of the petition and the pivotal legal
issue involved, resemble those in Luzon
Stevedoring. Consequently, in the interest of substantial justice
and faithful adherence to the Constitution, we opted to resolve
this case for the guidance of the public and all concerned
parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article
XII of the Constitution has long been settled and defined to
refer to the total outstanding shares of stock, whether voting or
non-voting. In fact, movants claim that the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership
requirement in favor of Filipino citizens in the Constitution and
various statutes, has consistently adopted this particular
definition in its numerous opinions. Movants point out that with
the 28 June 2011 Decision, the Court in effect introduced a
"new" definition or "midstream redefinition"9 of the term
"capital" in Section 11, Article XII of the Constitution.
This is egregious error.
For more than 75 years since the 1935 Constitution, the Court
has not interpreted or defined the term "capital" found in
various economic provisions of the 1935, 1973 and 1987
Constitutions. There has never been a judicial precedent
interpreting the term "capital" in the 1935, 1973 and 1987
Constitutions, until now. Hence, it is patently wrong and utterly
baseless to claim that the Court in defining the term "capital" in
its 28 June 2011 Decision modified, reversed, or set aside the
purported long-standing definition of the term "capital," which
supposedly refers to the total outstanding shares of stock,
whether voting or non-voting. To repeat, until the present case
there has never been a Court ruling categorically defining the
term "capital" found in the various economic provisions of the
1935, 1973 and 1987 Philippine Constitutions.
The opinions of the SEC, as well as of the Department of Justice
(DOJ), on the definition of the term "capital" as referring to
both voting and non-voting shares (combined total of common
and preferred shares) are, in the first place, conflicting and
inconsistent. There is no basis whatsoever to the claim that the
SEC and the DOJ have consistently and uniformly adopted a
definition of the term "capital" contrary to the definition that
this Court adopted in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the
scope of the term "capital" in Section 9, Article XIV of the 1973
Constitution was raised, that is, whether the term "capital"
includes "both preferred and common stocks." The issue was
raised in relation to a stock-swap transaction between a Filipino
and a Japanese corporation, both stockholders of a domestic
corporation that owned lands in the Philippines. Then Minister
of Justice Estelito P. Mendoza ruled that the resulting ownership
structure of the corporation would
beunconstitutional because 60% of the voting stock would be
owned by Japanese while Filipinos would own only 40% of the
voting stock, although when the non-voting stock is added,
Filipinos would own 60% of the combined voting and non-
voting stock. This ownership structure is remarkably
similar to the current ownership structure of PLDT.
Minister Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the entire
subscribed capital stock (common and preferred) while the
Japanese investors control sixty percent (60%) of the common
(voting) shares.
It is your position that x x x since Section 9, Article XIV
of the Constitution uses the word "capital," which is
construed "to include both preferred and common
shares" and "that where the law does not distinguish,
the courts shall not distinguish."
xxxx
In light of the foregoing jurisprudence, it is my opinion that
the stock-swap transaction in question may not be
constitutionally upheld. While it may be ordinary corporate
practice to classify corporate shares into common voting shares
and preferred non-voting shares, any arrangement which
attempts to defeat the constitutional purpose should be
eschewed. Thus, the resultant equity arrangement which
would place ownership of 60%11 of the common
(voting) shares in the Japanese group, while retaining
60% of the total percentage of common and preferred
shares in Filipino hands would amount to circumvention
of the principle of control by Philippine stockholders
that is implicit in the 60% Philippine nationality
requirement in the Constitution. (Emphasis supplied)
In short, Minister Mendoza categorically rejected the theory
that the term "capital" in Section 9, Article XIV of the 1973
Constitution includes "both preferred and common stocks"
treated as the same class of shares regardless of differences in
voting rights and privileges. Minister Mendoza stressed that the
60-40 ownership requirement in favor of Filipino citizens in the
Constitution is not complied with unless the corporation
"satisfies the criterion of beneficial ownership" and that
in applying the same "the primordial consideration is situs
of control."
On the other hand, in Opinion No. 23-10 dated 18 August 2010,
addressed to Castillo Laman Tan Pantaleon & San Jose, then
SEC General Counsel Vernette G. Umali-Paco applied
the Voting Control Test, that is, using only the voting stock to
determine whether a corporation is a Philippine national. The
Opinion states:
Applying the foregoing, particularly the Control Test, MLRC
is deemed as a Philippine national because: (1) sixty percent
(60%) of its outstanding capital stock entitled to vote is
owned by a Philippine national, the Trustee; and (2) at least
sixty percent (60%) of the ERF will accrue to the benefit of
Philippine nationals. Still pursuant to the Control Test,
MLRC’s investment in 60% of BFDC’s outstanding
capital stock entitled to vote shall be deemed as of
Philippine nationality, thereby qualifying BFDC to own
private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC
are both Philippine nationals, considering that: (1) sixty percent
(60%) of their respective outstanding capital stock entitled
to vote is owned by a Philippine national (i.e., by the Trustee,
in the case of MLRC; and by MLRC, in the case of BFDC); and
(2) at least 60% of their respective board of directors are
Filipino citizens. (Boldfacing and italicization supplied)
Clearly, these DOJ and SEC opinions are compatible with the
Court’s interpretation of the 60-40 ownership requirement in
favor of Filipino citizens mandated by the Constitution for
certain economic activities. At the same time, these opinions
highlight the conflicting, contradictory, and inconsistent
positions taken by the DOJ and the SEC on the definition of the
term "capital" found in the economic provisions of the
Constitution.
The opinions issued by SEC legal officers do not have the force
and effect of SEC rules and regulations because only the SEC en
banc can adopt rules and regulations. As expressly provided in
Section 4.6 of the Securities Regulation Code,12 the SEC cannot
delegate to any of its individual Commissioner or staff the
power to adopt any rule or regulation. Further, under Section
5.1 of the same Code, it is the SEC as a collegial body,
and not any of its legal officers, that is empowered to
issue opinions and approve rules and regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate
any of its functions to any department or office of the
Commission, an individual Commissioner or staff member of the
Commission exceptits review or appellate authority and its
power to adopt, alter and supplement any rule or
regulation.
The Commission may review upon its own initiative or upon the
petition of any interested party any action of any department or
office, individual Commissioner, or staff member of the
Commission.
SEC. 5. Powers and Functions of the Commission.- 5.1. The
Commission shall act with transparency and shall have the
powers and functions provided by this Code, Presidential Decree
No. 902-A, the Corporation Code, the Investment Houses Law,
the Financing Company Act and other existing laws. Pursuant
thereto the Commission shall have, among others, the following
powers and functions:
xxxx
(g) Prepare, approve, amend or repeal rules, regulations
and orders, and issue opinions and provide guidance on
and supervise compliance with such rules, regulations
and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of
the SEC in issuing opinions that have the effect of SEC rules or
regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the
Code, only the SEC en banc can "issue opinions" that have the
force and effect of rules or regulations. Section 4.6 of the Code
bars the SEC en banc from delegating to any individual
Commissioner or staff the power to adopt rules or
regulations. In short, any opinion of individual
Commissioners or SEC legal officers does not constitute
a rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only the SEC en
banc, and not any of its individual commissioners or legal staff,
is empowered to issue opinions which have the same binding
effect as SEC rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc
that can issue an
 SEC Opinion, correct? JUSTICE CARPIO:

COMMISSIONER GAITE:13 So, you combine the two (2), the SEC
officer, if delegated that power, can issue an
That’s correct, Your Honor. opinion but that opinion does not constitute
a rule or regulation, correct?
JUSTICE CARPIO:
COMMISSIONER GAITE:
Can the Commission En Banc delegate this
function to an SEC officer? Correct, Your Honor.

COMMISSIONER GAITE: JUSTICE CARPIO:

Yes, Your Honor, we have delegated it to the So, all of these opinions that you mentioned
General Counsel. they are not rules and regulations, correct?

JUSTICE CARPIO: COMMISSIONER GAITE:

It can be delegated. What cannot be delegated by They are not rules and regulations.
the Commission En Banc to a commissioner or an
individual employee of the Commission? JUSTICE CARPIO:

COMMISSIONER GAITE: If they are not rules and regulations, they apply
only to that particular situation and will not
Novel opinions that [have] to be decided by the constitute a precedent, correct?
En Banc...
COMMISSIONER GAITE:
JUSTICE CARPIO:
Yes, Your Honor.14 (Emphasis supplied)
What cannot be delegated, among others, is the
power to adopt or amend rules and regulations, Significantly, the SEC en banc, which is the collegial body
correct? statutorily empowered to issue rules and opinions on behalf of
the SEC, has adopted even the Grandfather Rule in determining
COMMISSIONER GAITE: compliance with the 60-40 ownership requirement in favor of
Filipino citizens mandated by the Constitution for certain
That’s correct, Your Honor. economic activities. This prevailing SEC ruling, which the SEC
correctly adopted to thwart any circumvention of the required
Filipino "ownership and control," is laid down in the 25
March 2010 SEC en banc ruling in Redmont Consolidated Mines,
Corp. v. McArthur Mining, Inc., et al.,15 to wit:
The avowed purpose of the Constitution is to place in the hands
of Filipinos the exploitation of our natural
resources. Necessarily, therefore, the Rule interpreting
the constitutional provision should not diminish that
right through the legal fiction of corporate ownership
and control. But the constitutional provision, as interpreted
and practiced via the 1967 SEC Rules, has favored foreigners
contrary to the command of the Constitution. Hence, the
Grandfather Rule must be applied to accurately
determine the actual participation, both direct and
indirect, of foreigners in a corporation engaged in a
nationalized activity or business.
Compliance with the constitutional limitation(s) on engaging in
nationalized activities must be determined by ascertaining if
60% of the investing corporation’s outstanding capital stock is
owned by "Filipino citizens", or as interpreted, by natural or
individual Filipino citizens. If such investing corporation is in
turn owned to some extent by another investing corporation,
the same process must be observed. One must not stop until
the citizenships of the individual or natural stockholders of layer
after layer of investing corporations have been established, the
very essence of the Grandfather Rule.
Lastly, it was the intent of the framers of the 1987
Constitution to adopt the Grandfather Rule. In one of the
discussions on what is now Article XII of the present
Constitution, the framers made the following exchange:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated
local or Filipino equity and foreign equity; namely, 60-40 in
Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with the
question: ‘Where do we base the equity requirement, is it on
the authorized capital stock, on the subscribed capital stock, or
on the paid-up capital stock of a corporation’? Will the
Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the
members of the team from the UP Law Center who provided us
a draft. The phrase that is contained here which we adopted
from the UP draft is ‘60 percent of voting stock.’
MR. NOLLEDO. That must be based on the subscribed capital
stock, because unless declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to an investment by
one corporation in another corporation, say, a corporation with
60-40 percent equity invests in another corporation which is
permitted by the Corporation Code, does the Committee adopt
the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the
Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied;
italicization in the original)
This SEC en banc ruling conforms to our 28 June 2011 Decision
that the 60-40 ownership requirement in favor of Filipino
citizens in the Constitution to engage in certain economic
activities applies not only to voting control of the corporation,
but also to the beneficial ownership of the corporation.
Thus, in our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60 percent
Filipinoowned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting
rights, is required. The legal and beneficial ownership of 60
percent of the outstanding capital stock must rest in the hands
of Filipino nationals in accordance with the constitutional
mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]." (Emphasis supplied)
Both the Voting Control Test and the Beneficial Ownership Test
must be applied to determine whether a corporation is a
"Philippine national."
The interpretation by legal officers of the SEC of the term
"capital," embodied in various opinions which respondents relied
upon, is merely preliminary and an opinion only of such officers.
To repeat, any such opinion does not constitute an SEC rule or
regulation. In fact, many of these opinions contain a disclaimer
which expressly states: "x x x the foregoing opinion is based
solely on facts disclosed in your query and relevant only to the
particular issue raised therein and shall not be used in the
nature of a standing rule binding upon the Commission
in other cases whether of similar or dissimilar
circumstances."16 Thus, the opinions clearly make
a caveat that they do not constitute binding precedents on any
one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the
DOJ, interpreting the law are neither conclusive nor controlling
and thus, do not bind the Court. It is hornbook doctrine that
any interpretation of the law that administrative or quasi-judicial
agencies make is only preliminary, never conclusive on the
Court. The power to make a final interpretation of the law, in
this case the term "capital" in Section 11, Article XII of the 1987
Constitution, lies with this Court, not with any other government
entity.
In his motion for reconsideration, the PSE President cites the
cases of National Telecommunications Commission v. Court of
Appeals17 and Philippine Long Distance Telephone Company v.
National Telecommunications Commission18 in arguing that the
Court has already defined the term "capital" in Section 11,
Article XII of the 1987 Constitution.19
The PSE President is grossly mistaken. In both cases of National
Telecommunications v. Court of Appeals20 andPhilippine Long
Distance Telephone Company v. National Telecommunications
Commission,21 the Court did not define the term "capital" as
found in Section 11, Article XII of the 1987 Constitution. In
fact, these two cases never mentioned, discussed or
cited Section 11, Article XII of the Constitution or any of
its economic provisions, and thus cannot serve as
precedent in the interpretation of Section 11, Article XII
of the Constitution. These two cases dealt solely with the
determination of the correct regulatory fees under Section 40(e)
and (f) of the Public Service Act, to wit:
(e) For annual reimbursement of the expenses incurred by the
Commission in the supervision of other public services and/or in
the regulation or fixing of their rates, twenty centavos for each
one hundred pesos or fraction thereof, of the capital stock
subscribed or paid, or if no shares have been issued, of the
capital invested, or of the property and equipment whichever is
higher.
(f) For the issue or increase of capital stock, twenty centavos
for each one hundred pesos or fraction thereof, of the increased
capital. (Emphasis supplied)
The Court’s interpretation in these two cases of the terms
"capital stock subscribed or paid," "capital stock" and "capital"
does not pertain to, and cannot control, the definition of the
term "capital" as used in Section 11, Article XII of the
Constitution, or any of the economic provisions of the
Constitution where the term "capital" is found. The definition of
the term "capital" found in the Constitution must not be taken
out of context. A careful reading of these two cases reveals that
the terms "capital stock subscribed or paid," "capital stock" and
"capital" were defined solely to determine the basis for
computing the supervision and regulation fees under Section
40(e) and (f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the
supreme law of the land, embodies the ideals that the
Constitution intends to achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty
God, in order to build a just and humane society, and establish
a Government that shall embody our ideals and aspirations,
promote the common good, conserve and develop our
patrimony, and secure to ourselves and our posterity, the
blessings of independence and democracy under the rule of law
and a regime of truth, justice, freedom, love, equality, and
peace, do ordain and promulgate this Constitution. (Emphasis
supplied)
Consistent with these ideals, Section 19, Article II of the 1987
Constitution declares as State policy the development of a
national economy "effectively controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and
independent national economy effectively controlled by
Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the
Constitution decrees:
Section 10. The Congress shall, upon recommendation of the
economic and planning agency, when the national interest
dictates, reserve to citizens of the Philippines or to corporations
or associations at least sixty per centum of whose capital is
owned by such citizens, or such higher percentage as Congress
may prescribe, certain areas of investments. The Congress shall
enact measures that will encourage the formation and operation
of enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the
national economy and patrimony, the State shall give
preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign
investments within its national jurisdiction and in accordance
with its national goals and priorities.23
Under Section 10, Article XII of the 1987 Constitution, Congress
may "reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned
by such citizens, or such higher percentage as Congress may
prescribe, certain areas of investments." Thus, in numerous
laws Congress has reserved certain areas of investments to
Filipino citizens or to corporations at least sixty percent of the
"capital" of which is owned by Filipino citizens. Some of these
laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A.
No. 3850; (3) Magna Carta for Micro, Small and Medium
Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping
Development Act or R.A. No. 7471; (5) Domestic Shipping
Development Act of 2004 or R.A. No. 9295; (6) Philippine
Technology Transfer Act of 2009 or R.A. No. 10055; and (7)
Ship Mortgage Decree or P.D. No. 1521.
With respect to public utilities, the 1987 Constitution specifically
ordains:
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a
longer period than fifty years. Neither shall any such franchise
or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers
of such corporation or association must be citizens of the
Philippines. (Emphasis supplied)
This provision, which mandates the Filipinization of public
utilities, requires that any form of authorization for the
operation of public utilities shall be granted only to "citizens of
the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens." "The provision is
[an express] recognition of the sensitive and vital
position of public utilities both in the national economy
and for national security."24
The 1987 Constitution reserves the ownership and operation of
public utilities exclusively to (1) Filipino citizens, or (2)
corporations or associations at least 60 percent of whose
"capital" is owned by Filipino citizens. Hence, in the case of
individuals, only Filipino citizens can validly own and operate a
public utility. In the case of corporations or associations, at least
60 percent of their "capital" must be owned by Filipino
citizens. In other words, under Section 11, Article XII of
the 1987 Constitution, to own and operate a public
utility a corporation’s capital must at least be 60 percent
owned by Philippine nationals.
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11, Article XII of
the 1987 Constitution, Congress enacted Republic Act No. 7042
or the Foreign Investments Act of 1991 (FIA), as amended,
which defined a "Philippine national" as follows:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the
Philippines; or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at
least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a corporation organized
abroad and registered as doing business in the Philippines
under the Corporation Code of which one hundred percent
(100%) of the capital stock outstanding and entitled to vote is
wholly owned by Filipinos or a trustee of funds for pension or
other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent (60%)
of the fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation and its non-
Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent
(60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens
of the Philippines and at least sixty percent (60%) of the
members of the Board of Directors of each of both corporations
must be citizens of the Philippines, in order that the corporation,
shall be considered a "Philippine national." (Boldfacing,
italicization and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine
national" as a Philippine citizen, or a domestic corporation at
least "60% of the capital stock outstanding and entitled
to vote" is owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the
meaning of such term as provided in its predecessor statute,
Executive Order No. 226 or the Omnibus Investments Code of
1987,25 which was issued by then President Corazon C. Aquino.
Article 15 of this Code states:
Article 15. "Philippine national" shall mean a citizen of the
Philippines or a diplomatic partnership or association wholly-
owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at
least sixty per cent (60%) of the capital stock
outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds for pension
or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty per cent (60%)
of the fund will accrue to the benefit of Philippine nationals:
Provided, That where a corporation and its non-Filipino
stockholders own stock in a registered enterprise, at least sixty
per cent (60%) of the capital stock outstanding and entitled to
vote of both corporations must be owned and held by the
citizens of the Philippines and at least sixty per cent (60%) of
the members of the Board of Directors of both corporations
must be citizens of the Philippines in order that the corporation
shall be considered a Philippine national. (Boldfacing,
italicization and underscoring supplied)
Under Article 48(3)26 of the Omnibus Investments Code of
1987, "no corporation x x x which is not a ‘Philippine national’ x
x x shall do business
x x x in the Philippines x x x without first securing from the
Board of Investments a written certificate to the effect that such
business or economic activity x x x would not conflict with the
Constitution or laws of the Philippines."27Thus, a "non-Philippine
national" cannot own and operate a reserved economic activity
like a public utility. This means, of course, that only a
"Philippine national" can own and operate a public utility.
In turn, the definition of a "Philippine national" under Article 15
of the Omnibus Investments Code of 1987 was a reiteration of
the meaning of such term as provided in Article 14 of
the Omnibus Investments Code of 1981,28 to wit:
Article 14. "Philippine national" shall mean a citizen of the
Philippines; or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at
least sixty per cent (60%) of the capital stock
outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds for pension
or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty per cent (60%)
of the fund will accrue to the benefit of Philippine nationals:
Provided, That where a corporation and its non-Filipino
stockholders own stock in a registered enterprise, at least sixty
per cent (60%) of the capital stock outstanding and entitled to
vote of both corporations must be owned and held by the
citizens of the Philippines and at least sixty per cent (60%) of
the members of the Board of Directors of both corporations
must be citizens of the Philippines in order that the corporation
shall be considered a Philippine national. (Boldfacing,
italicization and underscoring supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981,
"no corporation x x x which is not a ‘Philippine national’ x x x
shall do business x x x in the Philippines x x x without first
securing a written certificate from the Board of Investments to
the effect that such business or economic activity x x x
would not conflict with the Constitution or laws of the
Philippines."29 Thus, a "non-Philippine national" cannot own and
operate a reserved economic activity like a public utility. Again,
this means that only a "Philippine national" can own and
operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act
No. 518630 or the Investment Incentives Act, which took effect
on 16 September 1967, contained a similar definition of a
"Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines;
or a partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of
the Philippines of which at least sixty per cent of the
capital stock outstanding and entitled to vote is owned
and held by citizens of the Philippines; or a trustee of
funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine National and at least
sixty per cent of the fund will accrue to the benefit of Philippine
Nationals: Provided, That where a corporation and its non-
Filipino stockholders own stock in a registered enterprise, at
least sixty per cent of the capital stock outstanding and entitled
to vote of both corporations must be owned and held by the
citizens of the Philippines and at least sixty per cent of the
members of the Board of Directors of both corporations must be
citizens of the Philippines in order that the corporation shall be
considered a Philippine National. (Boldfacing, italicization and
underscoring supplied)
Under Section 3 of Republic Act No. 5455 or the Foreign
Business Regulations Act, which took effect on 30 September
1968, if the investment in a domestic enterprise by non-
Philippine nationals exceeds 30% of its outstanding capital
stock, such enterprise must obtain prior approval from the
Board of Investments before accepting such investment. Such
approval shall not be granted if the investment "would conflict
with existing constitutional provisions and laws regulating the
degree of required ownership by Philippine nationals in the
enterprise."31 A "non-Philippine national" cannot own and
operate a reserved economic activity like a public utility. Again,
this means that only a "Philippine national" can own and
operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a
"Philippine national" as a Filipino citizen, or adomestic
corporation "at least sixty percent (60%) of the capital
stock outstanding and entitled to vote"is owned by Filipino
citizens. A domestic corporation is a "Philippine national" only if
at least 60% of its voting stock is owned by Filipino citizens.
This definition of a "Philippine national" is crucial in the present
case because the FIA reiterates and clarifies Section 11, Article
XII of the 1987 Constitution, which limits the ownership and
operation of public utilities to Filipino citizens or to corporations
or associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the
Philippines, irrespective of the nature of business and area of
investment. The FIA spells out the procedures by which non-
Philippine nationals can invest in the Philippines. Among the key
features of this law is the concept of a negative list or the
Foreign Investments Negative List.32 Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine
Nationals [Foreign Investment Negative List]. - The Foreign
Investment Negative List shall have two 2 component
lists: A and B:
a. List A shall enumerate the areas of activities reserved
to Philippine nationals by mandate of the
Constitution and specific laws.
b. List B shall contain the areas of activities and enterprises
regulated pursuant to law:
1. which are defense-related activities, requiring prior clearance
and authorization from the Department of National Defense
[DND] to engage in such activity, such as the manufacture,
repair, storage and/or distribution of firearms, ammunition,
lethal weapons, military ordinance, explosives, pyrotechnics and
similar materials; unless such manufacturing or repair activity is
specifically authorized, with a substantial export component, to
a non-Philippine national by the Secretary of National Defense;
or
2. which have implications on public health and morals, such as
the manufacture and distribution of dangerous drugs; all forms
of gambling; nightclubs, bars, beer houses, dance halls, sauna
and steam bathhouses and massage clinics. (Boldfacing,
underscoring and italicization supplied)
Section 8 of the FIA enumerates the investment areas "reserved
to Philippine nationals." Foreign Investment Negative List A
consists of "areas of activities reserved to Philippine
nationals by mandate of the Constitution and specific
laws," where foreign equity participation in any
enterprise shall be limited to the maximum percentage
expressly prescribed by the Constitution and other
specific laws. In short, to own and operate a public
utility in the Philippines one must be a "Philippine
national" as defined in the FIA. The FIA is abundant
notice to foreign investors to what extent they can
invest in public utilities in the Philippines.
To repeat, among the areas of investment covered by the
Foreign Investment Negative List A is the ownership and
operation of public utilities, which the Constitution expressly
reserves to Filipino citizens and to corporations at least 60%
owned by Filipino citizens. In other words, Negative List A
of the FIA reserves the ownership and operation of
public utilities only to "Philippine nationals," defined in
Section 3(a) of the FIA as "(1) a citizen of the Philippines; x
x x or (3) a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned
and held by citizens of the Philippines; or (4) a corporation
organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred
percent (100%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of funds for
pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the benefit of
Philippine nationals."
Clearly, from the effectivity of the Investment Incentives Act of
1967 to the adoption of the Omnibus Investments Code of
1981, to the enactment of the Omnibus Investments Code of
1987, and to the passage of the present Foreign Investments
Act of 1991, or for more than four decades, the statutory
definition of the term "Philippine national" has been
uniform and consistent: it means a Filipino citizen, or a
domestic corporation at least 60% of the voting stock is
owned by Filipinos. Likewise, these same statutes have
uniformly and consistently required that only "Philippine
nationals" could own and operate public utilities in the
Philippines. The following exchange during the Oral
Arguments is revealing:
JUSTICE CARPIO:
 Counsel, I have some questions. You are aware of
the Foreign Investments Act of 1991, x x x? And
the FIA of 1991 took effect in 1991, correct?
That’s over twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of
1991 states that []only Philippine nationals can
own and operate public utilities[], correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments Act of 1991
defines a "Philippine national" either as a citizen of
the Philippines, or if it is a corporation at least
sixty percent (60%) of the voting stock is owned
by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under the
predecessor law of the Foreign Investments Act of
1991, the Omnibus Investments Act of 1987, the
same provisions apply: x x x only Philippine
nationals can own and operate a public utility and
the Philippine national, if it is a corporation, x x x
sixty percent (60%) of the capital stock of that
corporation must be owned by citizens of the
Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of
1987, under the Omnibus Investments Act of
1981, the same rules apply: x x x only a Philippine
national can own and operate a public utility and a
Philippine national, if it is a corporation, sixty
percent (60%) of its x x x voting stock, must be
owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under [the]1967
Investments Incentives Act and the Foreign
Company Act of 1968, the same rules applied,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
 So, for the last four (4) decades, x x x, the
law has been very consistent – only a
Philippine national can own and operate a
public utility, and a Philippine national, if it
is a corporation, x x x at least sixty percent
(60%) of the voting stock must be owned
by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.33 (Emphasis supplied)
Government agencies like the SEC cannot simply ignore
Sections 3(a) and 8 of the FIA which categorically prescribe that
certain economic activities, like the ownership and operation of
public utilities, are reserved to corporations "at least sixty
percent (60%) of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines." Foreign
Investment Negative List A refers to "activities reserved to
Philippine nationals by mandate of the Constitution and specific
laws." The FIA is the basic statute regulating foreign
investments in the Philippines. Government agencies
tasked with regulating or monitoring foreign investments, as
well as counsels of foreign investors, should start with the FIA
in determining to what extent a particular foreign investment is
allowed in the Philippines. Foreign investors and their counsels
who ignore the FIA do so at their own peril. Foreign investors
and their counsels who rely on opinions of SEC legal officers
that obviously contradict the FIA do so also at their own peril.
Occasional opinions of SEC legal officers that obviously
contradict the FIA should immediately raise a red flag. There
are already numerous opinions of SEC legal officers that cite the
definition of a "Philippine national" in Section 3(a) of the FIA in
determining whether a particular corporation is qualified to own
and operate a nationalized or partially nationalized business in
the Philippines. This shows that SEC legal officers are not only
aware of, but also rely on and invoke, the provisions of the FIA
in ascertaining the eligibility of a corporation to engage in
partially nationalized industries. The following are some of such
opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F.
How;
2. Opinion of 14 April 1993, addressed to Director
Angeles T. Wong of the Philippine Overseas Employment
Administration;
3. Opinion of 23 November 1993, addressed to Messrs.
Dominador Almeda and Renato S. Calma;
4. Opinion of 7 December 1993, addressed to Roco
Bunag Kapunan Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta
Buenaventura Sayoc & De Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr.
Reynaldo G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby
Rose J. Yusi and Rudyard S. Arbolado.
The SEC legal officers’ occasional but blatant disregard of the
definition of the term "Philippine national" in the FIA signifies
their lack of integrity and competence in resolving issues on the
60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution.
The PSE President argues that the term "Philippine national"
defined in the FIA should be limited and interpreted to refer to
corporations seeking to avail of tax and fiscal incentives under
investment incentives laws and cannot be equated with the
term "capital" in Section 11, Article XII of the 1987 Constitution.
Pangilinan similarly contends that the FIA and its predecessor
statutes do not apply to "companies which have not registered
and obtained special incentives under the schemes established
by those laws."
Both are desperately grasping at straws. The FIA does not grant
tax or fiscal incentives to any enterprise. Tax and fiscal
incentives to investments are granted separately under the
Omnibus Investments Code of 1987, not under the FIA. In fact,
the FIA expressly repealed Articles 44 to 56 of Book II of the
Omnibus Investments Code of 1987, which articles previously
regulated foreign investments in nationalized or partially
nationalized industries.
The FIA is the applicable law regulating foreign investments in
nationalized or partially nationalized industries. There is nothing
in the FIA, or even in the Omnibus Investments Code of 1987 or
its predecessor statutes, that states, expressly or impliedly, that
the FIA or its predecessor statutes do not apply to enterprises
not availing of tax and fiscal incentives under the Code. The FIA
and its predecessor statutes apply to investments in all domestic
enterprises, whether or not such enterprises enjoy tax and fiscal
incentives under the Omnibus Investments Code of 1987 or its
predecessor statutes. The reason is quite obvious – mere
non-availment of tax and fiscal incentives by a non-
Philippine national cannot exempt it from Section 11,
Article XII of the Constitution regulating foreign
investments in public utilities. In fact, the Board of
Investments’ Primer on Investment Policies in the
Philippines,34 which is given out to foreign investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT
INCENTIVES
Investors who do not seek incentives and/or whose chosen
activities do not qualify for incentives, (i.e., the activity is not
listed in the IPP, and they are not exporting at least 70% of
their production) may go ahead and make the investments
without seeking incentives. They only have to be guided by
the Foreign Investments Negative List (FINL).
The FINL clearly defines investment areas requiring at least
60% Filipino ownership. All other areas outside of this list are
fully open to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial
ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino
ownership required by the Constitution to engage in certain
economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the
corporation. To repeat, we held:
Mere legal title is insufficient to meet the 60 percent Filipino-
owned "capital" required in the Constitution. Full beneficial
ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent of
the outstanding capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional mandate.
Otherwise, the corporation is "considered as non-Philippine
national[s]." (Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that
where 100% of the capital stock is held by "a trustee of funds
for pension or other employee retirement or separation
benefits," the trustee is a Philippine national if "at least sixty
percent (60%) of the fund will accrue to the benefit of
Philippine nationals." Likewise, Section 1(b) of the
Implementing Rules of the FIA provides that "for stocks to be
deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights, is essential."
Since the constitutional requirement of at least 60 percent
Filipino ownership applies not only to voting control of the
corporation but also to the beneficial ownership of the
corporation, it is therefore imperative that such requirement
apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the capital
of a corporation. Under the Corporation Code, capital
stock35 consists of all classes of shares issued to stockholders,
that is, common shares as well as preferred shares, which may
have different rights, privileges or restrictions as stated in the
articles of incorporation.36
The Corporation Code allows denial of the right to vote to
preferred and redeemable shares, but disallows denial of the
right to vote in specific corporate matters. Thus, common
shares have the right to vote in the election of directors, while
preferred shares may be denied such right. Nonetheless,
preferred shares, even if denied the right to vote in the election
of directors, are entitled to vote on the following corporate
matters: (1) amendment of articles of incorporation; (2)
increase and decrease of capital stock; (3) incurring, creating or
increasing bonded indebtedness; (4) sale, lease, mortgage or
other disposition of substantially all corporate assets; (5)
investment of funds in another business or corporation or for a
purpose other than the primary purpose for which the
corporation was organized; (6) adoption, amendment and
repeal of by-laws; (7) merger and consolidation; and (8)
dissolution of corporation.37
Since a specific class of shares may have rights and privileges or
restrictions different from the rest of the shares in a
corporation, the 60-40 ownership requirement in favor of
Filipino citizens in Section 11, Article XII of the Constitution
must apply not only to shares with voting rights but also to
shares without voting rights. Preferred shares, denied the right
to vote in the election of directors, are anyway still entitled to
vote on the eight specific corporate matters mentioned
above. Thus, if a corporation, engaged in a partially
nationalized industry, issues a mixture of common and
preferred non-voting shares, at least 60 percent of the
common shares and at least 60 percent of the preferred
non-voting shares must be owned by Filipinos. Of course,
if a corporation issues only a single class of shares, at least 60
percent of such shares must necessarily be owned by
Filipinos. In short, the 60-40 ownership requirement in
favor of Filipino citizens must apply separately to each
class of shares, whether common, preferred non-voting,
preferred voting or any other class of shares. This uniform
application of the 60-40 ownership requirement in favor of
Filipino citizens clearly breathes life to the constitutional
command that the ownership and operation of public utilities
shall be reserved exclusively to corporations at least 60 percent
of whose capital is Filipino-owned. Applying uniformly the 60-40
ownership requirement in favor of Filipino citizens to each class
of shares, regardless of differences in voting rights, privileges
and restrictions, guarantees effective Filipino control of public
utilities, as mandated by the Constitution.
Moreover, such uniform application to each class of shares
insures that the "controlling interest" in public utilities always
lies in the hands of Filipino citizens. This addresses and
extinguishes Pangilinan’s worry that foreigners, owning most of
the non-voting shares, will exercise greater control over
fundamental corporate matters requiring two-thirds or majority
vote of all shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion38 a
portion of the deliberations of the Constitutional Commission to
support his claim that the term "capital" refers to the total
outstanding shares of stock, whether voting or non-voting, the
following excerpts of the deliberations reveal otherwise. It is
clear from the following exchange that the term "capital" refers
to controlling interest of a corporation, thus:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated
local or Filipino equity and foreign equity; namely, 60-40 in
Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this
question: "Where do we base the equity requirement, is it on
the authorized capital stock, on the subscribed capital stock, or
on the paid-up capital stock of a corporation"? Will the
Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the
members of the team from the UP Law Center who provided us
a draft. The phrase that is contained here which we
adopted from the UP draft is "60 percent of voting
stock."
MR. NOLLEDO. That must be based on the subscribed capital
stock, because unless declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity
invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather
rule?
MR. VILLEGAS. Yes, that is the understanding of the
Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.39
xxxx
MR. AZCUNA. May I be clarified as to that portion that was
accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the
deletion of the phrase "voting stock or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the
committee report would read: "corporations or associations at
least sixty percent of whose CAPITAL is owned by such
citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck
with 60 percent of the capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners
even if they are the minority. Let us say 40 percent of
the capital is owned by them, but it is the voting capital,
whereas, the Filipinos own the nonvoting shares. So we
can have a situation where the corporation is controlled
by foreigners despite being the minority because they
have the voting capital. That is the anomaly that would
result here.
MR. BENGZON. No, the reason we eliminated the word
"stock" as stated in the 1973 and 1935 Constitutions is
that according to Commissioner Rodrigo, there are
associations that do not have stocks. That is why we say
"CAPITAL."
MR. AZCUNA. We should not eliminate the phrase
"controlling interest."
MR. BENGZON. In the case of stock corporations, it is
assumed.40 (Boldfacing and underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in,
a "controlling interest" in the corporation.
The use of the term "capital" was intended to replace the word
"stock" because associations without stocks can operate public
utilities as long as they meet the 60-40 ownership requirement
in favor of Filipino citizens prescribed in Section 11, Article XII
of the Constitution. However, this did not change the intent of
the framers of the Constitution to reserve exclusively to
Philippine nationals the "controlling interest" in public
utilities.
During the drafting of the 1935 Constitution, economic
protectionism was "the battle-cry of the nationalists in the
Convention."41 The same battle-cry resulted in the
nationalization of the public utilities.42 This is also the same
intent of the framers of the 1987 Constitution who adopted the
exact formulation embodied in the 1935 and 1973 Constitutions
on foreign equity limitations in partially nationalized industries.
The OSG, in its own behalf and as counsel for the
State,43 agrees fully with the Court’s interpretation of the term
"capital." In its Consolidated Comment, the OSG explains that
the deletion of the phrase "controlling interest" and replacement
of the word "stock" with the term "capital" were intended
specifically to extend the scope of the entities qualified to
operate public utilities to include associations without stocks.
The framers’ omission of the phrase "controlling interest" did
not mean the inclusion of all shares of stock, whether voting or
non-voting. The OSG reiterated essentially the Court’s
declaration that the Constitution reserved exclusively to
Philippine nationals the ownership and operation of public
utilities consistent with the State’s policy to "develop a self-
reliant and independent national economy effectively
controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly
the term "capital" as the total outstanding capital stock, treated
as a single class regardless of the actual classification of
shares, grossly contravenes the intent and letter of the
Constitution that the "State shall develop a self-reliant and
independent national economyeffectively controlled by
Filipinos." We illustrated the glaring anomaly which would result
in defining the term "capital" as the total outstanding capital
stock of a corporation, treated as a single class of shares
regardless of the actual classification of shares, to wit:
Let us assume that a corporation has 100 common shares
owned by foreigners and 1,000,000 non-voting preferred shares
owned by Filipinos, with both classes of share having a par
value of one peso (P 1.00) per share. Under the broad definition
of the term "capital," such corporation would be considered
compliant with the 40 percent constitutional limit on foreign
equity of public utilities since the overwhelming majority, or
more than 99.999 percent, of the total outstanding capital stock
is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common
shares have voting rights in the election of directors, even if
they hold only 100 shares. The foreigners, with a minuscule
equity of less than 0.001 percent, exercise control over the
public utility. On the other hand, the Filipinos, holding more
than 99.999 percent of the equity, cannot vote in the election of
directors and hence, have no control over the public utility. This
starkly circumvents the intent of the framers of the Constitution,
as well as the clear language of the Constitution, to place the
control of public utilities in the hands of Filipinos. x x x
Further, even if foreigners who own more than forty percent of
the voting shares elect an all-Filipino board of directors, this
situation does not guarantee Filipino control and does not in any
way cure the violation of the Constitution. The independence of
the Filipino board members so elected by such foreign
shareholders is highly doubtful. As the OSG pointed out, quoting
Justice George Sutherland’s words in Humphrey’s Executor v.
US,44 "x x x it is quite evident that one who holds his office only
during the pleasure of another cannot be depended upon to
maintain an attitude of independence against the latter’s will."
Allowing foreign shareholders to elect a controlling majority of
the board, even if all the directors are Filipinos, grossly
circumvents the letter and intent of the Constitution and defeats
the very purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the
Constitution
The last sentence of Section 11, Article XII of the 1987
Constitution reads:
The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be
citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was
never a question on the intent of the framers of the Constitution
to limit foreign ownership, and assure majority Filipino
ownership and control of public utilities. The OSG argued,
"while the delegates disagreed as to the percentage threshold
to adopt, x x x the records show they clearly understood that
Filipino control of the public utility corporation can only be and
is obtained only through the election of a majority of the
members of the board."
Indeed, the only point of contention during the deliberations of
the Constitutional Commission on 23 August 1986 was the
extent of majority Filipino control of public utilities. This is
evident from the following exchange:
THE PRESIDENT. Commissioner Jamir is recognized.
MR. JAMIR. Madam President, my proposed amendment on
lines 20 and 21 is to delete the phrase "two thirds of whose
voting stock or controlling interest," and instead substitute the
words "SIXTY PERCENT OF WHOSE CAPITAL" so that the
sentence will read: "No franchise, certificate, or any other form
of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines at
least SIXTY PERCENT OF WHOSE CAPITAL is owned by such
citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Article on National Economy and
Patrimony, there were two previous sections in which we fixed
the Filipino equity to 60 percent as against 40 percent for
foreigners. It is only in this Section 15 with respect to public
utilities that the committee proposal was increased to two-
thirds. I think it would be better to harmonize this provision by
providing that even in the case of public utilities, the minimum
equity for Filipino citizens should be 60 percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for supporting the amendment is
based on the discussions I have had with representatives of the
Filipino majority owners of the international record carriers, and
the subsequent memoranda they submitted to me. x x x
Their second point is that under the Corporation Code, the
management and control of a corporation is vested in the board
of directors, not in the officers but in the board of directors. The
officers are only agents of the board. And they believe that with
60 percent of the equity, the Filipino majority stockholders
undeniably control the board. Only on important corporate acts
can the 40-percent foreign equity exercise a veto, x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I
also read from a memorandum by the spokesman of the
Philippine Chamber of Communications on why they would like
to maintain the present equity, I am referring to the 66 2/3.
They would prefer to have a 75-25 ratio but would settle for 66
2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario
Braid support the proposal of two-thirds rather than the 60
percent?
MS. ROSARIO BRAID. I have added a clause that will put
management in the hands of Filipino citizens.
x x x x46
While they had differing views on the percentage of Filipino
ownership of capital, it is clear that the framers of the
Constitution intended public utilities to be majority Filipino-
owned and controlled. To ensure that Filipinos control public
utilities, the framers of the Constitution approved, as additional
safeguard, the inclusion of the last sentence of Section 11,
Article XII of the Constitution commanding that "[t]he
participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers
of such corporation or association must be citizens of the
Philippines." In other words, the last sentence of Section 11,
Article XII of the Constitution mandates that (1) the
participation of foreign investors in the governing body of the
corporation or association shall be limited to their proportionate
share in the capital of such entity; and (2) all officers of the
corporation or association must be Filipino citizens.
Commissioner Rosario Braid proposed the inclusion of the
phrase requiring the managing officers of the corporation or
association to be Filipino citizens specifically to prevent
management contracts, which were designed primarily to
circumvent the Filipinization of public utilities, and to assure
Filipino control of public utilities, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we
amend this provision by adding a phrase which states: "THE
MANAGEMENT BODY OF EVERY CORPORATION OR
ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY
CITIZENS OF THE PHILIPPINES." I have with me their position
paper.
THE PRESIDENT. The Commissioner may proceed.
MS. ROSARIO BRAID. The three major international record
carriers in the Philippines, which Commissioner Romulo
mentioned – Philippine Global Communications, Eastern
Telecommunications, Globe Mackay Cable – are 40-percent
owned by foreign multinational companies and 60-percent
owned by their respective Filipino partners. All three, however,
also have management contracts with these foreign companies
– Philcom with RCA, ETPI with Cable and Wireless PLC, and
GMCR with ITT. Up to the present time, the general managers
of these carriers are foreigners. While the foreigners in these
common carriers are only minority owners, the foreign
multinationals are the ones managing and controlling their
operations by virtue of their management contracts and by
virtue of their strength in the governing bodies of these
carriers.47
xxxx
MR. OPLE. I think a number of us have agreed to ask
Commissioner Rosario Braid to propose an amendment with
respect to the operating management of public utilities, and in
this amendment, we are associated with Fr. Bernas,
Commissioners Nieva and Rodrigo. Commissioner Rosario Braid
will state this amendment now.
Thank you.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. This is still on Section 15.
MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new
section to read: ‘THE MANAGEMENT BODY OF EVERY
CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE
CONTROLLED BY CITIZENS OF THE PHILIPPINES."
This will prevent management contracts and assure
control by Filipino citizens. Will the committee assure us
that this amendment will insure that past activities such as
management contracts will no longer be possible under this
amendment?
xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is recognized.
FR. BERNAS. Will the committee accept a reformulation of the
first part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformulation will be essentially the formula of
the 1973 Constitution which reads: "THE PARTICIPATION OF
FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY
PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR
PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING
OFFICERS OF SUCH CORPORATIONS AND ASSOCIATIONS
MUST BE CITIZENS OF THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the whole thing
again?
FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS
IN THE GOVERNING BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE
SHARE IN THE CAPITAL THEREOF..." I do not have the rest of
the copy.
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING
OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST
BE CITIZENS OF THE PHILIPPINES." Is that correct?
MR. VILLEGAS. Yes.
MR. BENGZON. Madam President, I think that was said in a
more elegant language. We accept the amendment. Is that all
right with Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to the board of
directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers to the board of
directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
xxxx
The results show 29 votes in favor and none against; so the
proposed amendment is approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to vote on
Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the committee please
read Section 15?
MR. VILLEGAS. The entire Section 15, as amended, reads: "No
franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of
the Philippines or to corporations or associations organized
under the laws of the Philippines at least 60 PERCENT OF
WHOSE CAPITAL is owned by such citizens." May I request
Commissioner Bengzon to please continue reading.
MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS
IN THE GOVERNING BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE
SHARE IN THE CAPITAL THEREOF AND ALL THE EXECUTIVE
AND MANAGING OFFICERS OF SUCH CORPORATIONS OR
ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE
OR AUTHORIZATION BE EXCLUSIVE IN CHARACTER OR FOR A
PERIOD LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR
NOT MORE THAN TWENTY-FIVE YEARS. Neither shall any such
franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by
Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general
public."
VOTING
xxxx
The results show 29 votes in favor and 4 against; Section 15, as
amended, is approved.48 (Emphasis supplied)
The last sentence of Section 11, Article XII of the 1987
Constitution, particularly the provision on the limited
participation of foreign investors in the governing body of public
utilities, is a reiteration of the last sentence of Section 5, Article
XIV of the 1973 Constitution,49 signifying its importance in
reserving ownership and control of public utilities to Filipino
citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the contrary,
that (1) foreigners own 64.27% of the common shares of PLDT,
which class of shares exercises the sole right to vote in the
election of directors, and thus foreigners control PLDT; (2)
Filipinos own only 35.73% of PLDT’s common shares,
constituting a minority of the voting stock, and thus Filipinos do
not control PLDT; (3) preferred shares, 99.44% owned by
Filipinos, have no voting rights; (4) preferred shares earn only
1/70 of the dividends that common shares earn;50 (5) preferred
shares have twice the par value of common shares; and (6)
preferred shares constitute 77.85% of the authorized capital
stock of PLDT and common shares only 22.15%.
Despite the foregoing facts, the Court did not decide, and in
fact refrained from ruling on the question of whether PLDT
violated the 60-40 ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the 1987 Constitution. Such
question indisputably calls for a presentation and determination
of evidence through a hearing, which is generally outside the
province of the Court’s jurisdiction, but well within the SEC’s
statutory powers. Thus, for obvious reasons, the Court limited
its decision on the purely legal and threshold issue on the
definition of the term "capital" in Section 11, Article XII of the
Constitution and directed the SEC to apply such definition in
determining the exact percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that
ownership of common or voting shares is the sole basis in
determining foreign equity in a public utility and that any other
government rulings, opinions, and regulations inconsistent with
this declaratory relief be declared unconstitutional and a
violation of the intent and spirit of the 1987 Constitution;
6. For the Honorable Court to declare null and void all sales of
common stocks to foreigners in excess of 40 percent of the total
subscribed common shareholdings; and
7. For the Honorable Court to direct the Securities and
Exchange Commission and Philippine Stock Exchange to
require PLDT to make a public disclosure of all of its
foreign shareholdings and their actual and real
beneficial owners.
Other relief(s) just and equitable are likewise prayed for.
(Emphasis supplied)
As can be gleaned from his prayer, Gamboa clearly asks this
Court to compel the SEC to perform its statutory duty to
investigate whether "the required percentage of ownership of
the capital stock to be owned by citizens of the Philippines has
been complied with [by PLDT] as required by x x x the
Constitution."51 Such plea clearly negates SEC’s argument that it
was not impleaded.
Granting that only the SEC Chairman was impleaded in this
case, the Court has ample powers to order the SEC’s
compliance with its directive contained in the 28 June 2011
Decision in view of the far-reaching implications of this case.
In Domingo v. Scheer,52 the Court dispensed with the
amendment of the pleadings to implead the Bureau of Customs
considering (1) the unique backdrop of the case; (2) the utmost
need to avoid further delays; and (3) the issue of public interest
involved. The Court held:
The Court may be curing the defect in this case by adding the
BOC as party-petitioner. The petition should not be dismissed
because the second action would only be a repetition of the
first. InSalvador, et al., v. Court of Appeals, et al., we held that
this Court has full powers, apart from that power and authority
which is inherent, to amend the processes, pleadings,
proceedings and decisions by substituting as party-plaintiff the
real party-in-interest. The Court has the power to avoid
delay in the disposition of this case, to order its
amendment as to implead the BOC as party-respondent.
Indeed, it may no longer be necessary to do so taking
into account the unique backdrop in this case, involving
as it does an issue of public interest. After all, the Office of
the Solicitor General has represented the petitioner in the
instant proceedings, as well as in the appellate court, and
maintained the validity of the deportation order and of the
BOC’s Omnibus Resolution. It cannot, thus, be claimed by the
State that the BOC was not afforded its day in court, simply
because only the petitioner, the Chairperson of the BOC, was
the respondent in the CA, and the petitioner in the instant
recourse. In Alonso v. Villamor, we had the occasion to state:
There is nothing sacred about processes or pleadings,
their forms or contents. Their sole purpose is to
facilitate the application of justice to the rival claims of
contending parties. They were created, not to hinder and
delay, but to facilitate and promote, the administration of
justice. They do not constitute the thing itself, which courts are
always striving to secure to litigants. They are designed as the
means best adapted to obtain that thing. In other words, they
are a means to an end. When they lose the character of the one
and become the other, the administration of justice is at fault
and courts are correspondingly remiss in the performance of
their obvious duty.53(Emphasis supplied)
In any event, the SEC has expressly manifested54 that it
will abide by the Court’s decision and defer to the
Court’s definition of the term "capital" in Section 11,
Article XII of the Constitution. Further, the SEC entered
its special appearance in this case and argued during
the Oral Arguments, indicating its submission to the
Court’s jurisdiction. It is clear, therefore, that there
exists no legal impediment against the proper and
immediate implementation of the Court’s directive to
the SEC.
PLDT is an indispensable party only insofar as the other issues,
particularly the factual questions, are concerned. In other
words, PLDT must be impleaded in order to fully resolve the
issues on (1) whether the sale of 111,415 PTIC shares to First
Pacific violates the constitutional limit on foreign ownership of
PLDT; (2) whether the sale of common shares to foreigners
exceeded the 40 percent limit on foreign equity in PLDT; and
(3) whether the total percentage of the PLDT common shares
with voting rights complies with the 60-40 ownership
requirement in favor of Filipino citizens under the Constitution
for the ownership and operation of PLDT. These issues
indisputably call for an examination of the parties’ respective
evidence, and thus are clearly within the jurisdiction of the SEC.
In short, PLDT must be impleaded, and must necessarily be
heard, in the proceedings before the SEC where the factual
issues will be thoroughly threshed out and resolved.
Notably, the foregoing issues were left untouched by
the Court. The Court did not rule on the factual issues raised
by Gamboa, except the single and purely legal issue on the
definition of the term "capital" in Section 11, Article XII of the
Constitution. The Court confined the resolution of the instant
case to this threshold legal issue in deference to the fact-finding
power of the SEC.
Needless to state, the Court can validly, properly, and fully
dispose of the fundamental legal issue in this case even without
the participation of PLDT since defining the term "capital" in
Section 11, Article XII of the Constitution does not, in any way,
depend on whether PLDT was impleaded. Simply put, PLDT is
not indispensable for a complete resolution of the purely legal
question in this case.55 In fact, the Court, by treating the
petition as one for mandamus,56 merely directed the SEC to
apply the Court’s definition of the term "capital" in Section 11,
Article XII of the Constitution in determining whether PLDT
committed any violation of the said constitutional provision. The
dispositive portion of the Court’s ruling is addressed not
to PLDT but solely to the SEC, which is the
administrative agency tasked to enforce the 60-40
ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution.
Since the Court limited its resolution on the purely legal issue on
the definition of the term "capital" in Section 11, Article XII of
the 1987 Constitution, and directed the SEC to investigate any
violation by PLDT of the 60-40 ownership requirement in favor
of Filipino citizens under the Constitution,57 there is no
deprivation of PLDT’s property or denial of PLDT’s right to due
process, contrary to Pangilinan and Nazareno’s misimpression.
Due process will be afforded to PLDT when it presents proof to
the SEC that it complies, as it claims here, with Section 11,
Article XII of the Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell
disaster to our economy, as it may result in a sudden flight of
existing foreign investors to "friendlier" countries and
simultaneously deterring new foreign investors to our country.
In particular, the PSE claims that the 28 June 2011 Decision
may result in the following: (1) loss of more than P 630 billion
in foreign investments in PSE-listed shares; (2) massive
decrease in foreign trading transactions; (3) lower PSE
Composite Index; and (4) local investors not investing in PSE-
listed shares.58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral
Arguments, shared movants’ apprehension. Without providing
specific details, he pointed out the depressing state of the
Philippine economy compared to our neighboring countries
which boast of growing economies. Further, Dr. Villegas
explained that the solution to our economic woes is for the
government to "take-over" strategic industries, such as the
public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have
additional information on whether this high FDI59 countries in
East Asia have allowed foreigners x x x control [of] their public
utilities, so that we can compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these
neighbors of ours find an industry strategic, their solution is not
to "Filipinize" or "Vietnamize" or "Singaporize." Their solution
is to make sure that those industries are in the hands of
state enterprises. So, in these countries, nationalization
means the government takes over. And because their
governments are competent and honest enough to the
public, that is the solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then
foreign investments in our public utilities serve no purpose.
Obviously, there can never be foreign investments in public
utilities if, as Dr. Villegas claims, the "solution is to make sure
that those industries are in the hands of state enterprises." Dr.
Villegas’s argument that foreign investments in
telecommunication companies like PLDT are badly needed to
save our ailing economy contradicts his own theory that the
solution is for government to take over these companies. Dr.
Villegas is barking up the wrong tree since State ownership of
public utilities and foreign investments in such industries are
diametrically opposed concepts, which cannot possibly be
reconciled.
In any event, the experience of our neighboring countries
cannot be used as argument to decide the present case
differently for two reasons. First, the governments of our
neighboring countries have, as claimed by Dr. Villegas, taken
over ownership and control of their strategic public utilities like
the telecommunications industry. Second, our Constitution has
specific provisions limiting foreign ownership in public utilities
which the Court is sworn to uphold regardless of the experience
of our neighboring countries.
In our jurisdiction, the Constitution expressly reserves the
ownership and operation of public utilities to Filipino citizens, or
corporations or associations at least 60 percent of whose capital
belongs to Filipinos. Following Dr. Villegas’s claim, the
Philippines appears to be more liberal in allowing foreign
investors to own 40 percent of public utilities, unlike in other
Asian countries whose governments own and operate such
industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to
clarify the reckoning period of the application and imposition of
appropriate sanctions against PLDT if found violating Section
11, Article XII of the Constitution.1avvphi1
As discussed, the Court has directed the SEC to investigate and
determine whether PLDT violated Section 11, Article XII of the
Constitution. Thus, there is no dispute that it is only after the
SEC has determined PLDT’s violation, if any exists at the time of
the commencement of the administrative case or investigation,
that the SEC may impose the statutory sanctions against PLDT.
In other words, once the 28 June 2011 Decision becomes final,
the SEC shall impose the appropriate sanctions only if it finds
after due hearing that, at the start of the administrative case or
investigation, there is an existing violation of Section 11, Article
XII of the Constitution. Under prevailing jurisprudence, public
utilities that fail to comply with the nationality requirement
under Section 11, Article XII and the FIA can cure their
deficiencies prior to the start of the administrative case or
investigation.61
XII.
Final Word
The Constitution expressly declares as State policy the
development of an economy "effectively controlled" by
Filipinos. Consistent with such State policy, the Constitution
explicitly reserves the ownership and operation of public utilities
to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or
associations at least 60 percent of whose capital with voting
rights belongs to Filipinos. The FIA’s implementing rules
explain that "[f]or stocks to be deemed owned and held by
Philippine citizens or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full beneficial
ownership of the stocks, coupled with appropriate
voting rights is essential." In effect, the FIA clarifies,
reiterates and confirms the interpretation that the term "capital"
in Section 11, Article XII of the 1987 Constitution refers
toshares with voting rights, as well as with full
beneficial ownership. This is precisely because the right to
vote in the election of directors, coupled with full beneficial
ownership of stocks, translates to effective control of a
corporation.
Any other construction of the term "capital" in Section 11,
Article XII of the Constitution contravenes the letter and intent
of the Constitution. Any other meaning of the term "capital"
openly invites alien domination of economic activities reserved
exclusively to Philippine nationals. Therefore, respondents’
interpretation will ultimately result in handing over effective
control of our national economy to foreigners in patent violation
of the Constitution, making Filipinos second-class citizens in
their own country.
Filipinos have only to remind themselves of how this country
was exploited under the Parity Amendment, which gave
Americans the same rights as Filipinos in the exploitation of
natural resources, and in the ownership and control of public
utilities, in the Philippines. To do this the 1935 Constitution,
which contained the same 60 percent Filipino ownership and
control requirement as the present 1987 Constitution, had to be
amended to give Americans parity rights with Filipinos. There
was bitter opposition to the Parity Amendment62 and many
Filipinos eagerly awaited its expiration. In late 1968, PLDT was
one of the American-controlled public utilities that became
Filipino-controlled when the controlling American stockholders
divested in anticipation of the expiration of the Parity
Amendment on 3 July 1974.63 No economic suicide happened
when control of public utilities and mining corporations passed
to Filipinos’ hands upon expiration of the Parity Amendment.
Movants’ interpretation of the term "capital" would bring us
back to the same evils spawned by the Parity
Amendment, effectively giving foreigners parity rights
with Filipinos, but this time even without any
amendment to the present Constitution. Worse, movants’
interpretation opens up our national economy toeffective
control not only by Americans but also by all foreigners, be
they Indonesians, Malaysians or Chinese, even in the
absence of reciprocal treaty arrangements. At least the
Parity Amendment, as implemented by the Laurel-Langley
Agreement, gave the capital-starved Filipinos theoretical parity
– the same rights as Americans to exploit natural resources, and
to own and control public utilities, in the United States of
America. Here, movants’ interpretation would effectively mean
a unilateral opening up of our national economy to all
foreigners, without any reciprocal arrangements. That
would mean that Indonesians, Malaysians and Chinese nationals
could effectively control our mining companies and public
utilities while Filipinos, even if they have the capital, could not
control similar corporations in these countries.
The 1935, 1973 and 1987 Constitutions have the same 60
percent Filipino ownership and control requirement for public
utilities like PLOT. Any deviation from this requirement
necessitates an amendment to the Constitution as exemplified
by the Parity Amendment. This Court has no power to amend
the Constitution for its power and duty is only to faithfully apply
and interpret the Constitution.
WHEREFORE, we DENY the motions for
reconsideration WITH FINALITY. No further pleadings shall be
entertained.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 174689 October 22, 2007
ROMMEL JACINTO DANTES SILVERIO, petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, respondent.
DECISION
CORONA, J.:
When God created man, He made him in the likeness of
God; He created them male and female. (Genesis 5:1-2)
Amihan gazed upon the bamboo reed planted by Bathala
and she heard voices coming from inside the bamboo.
"Oh North Wind! North Wind! Please let us out!," the
voices said. She pecked the reed once, then twice. All of
a sudden, the bamboo cracked and slit open. Out came
two human beings; one was a male and the other was a
female. Amihan named the man "Malakas" (Strong) and
the woman "Maganda" (Beautiful). (The Legend of
Malakas and Maganda)
When is a man a man and when is a woman a woman? In
particular, does the law recognize the changes made by a
physician using scalpel, drugs and counseling with regard to a
person’s sex? May a person successfully petition for a change of
name and sex appearing in the birth certificate to reflect the
result of a sex reassignment surgery?
On November 26, 2002, petitioner Rommel Jacinto Dantes
Silverio filed a petition for the change of his first name and sex
in his birth certificate in the Regional Trial Court of Manila,
Branch 8. The petition, docketed as SP Case No. 02-105207,
impleaded the civil registrar of Manila as respondent.
Petitioner alleged in his petition that he was born in the City of
Manila to the spouses Melecio Petines Silverio and Anita Aquino
Dantes on April 4, 1962. His name was registered as "Rommel
Jacinto Dantes Silverio" in his certificate of live birth (birth
certificate). His sex was registered as "male."
He further alleged that he is a male transsexual, that is,
"anatomically male but feels, thinks and acts as a female" and
that he had always identified himself with girls since
childhood.1 Feeling trapped in a man’s body, he consulted
several doctors in the United States. He underwent
psychological examination, hormone treatment and breast
augmentation. His attempts to transform himself to a "woman"
culminated on January 27, 2001 when he underwent sex
reassignment surgery2 in Bangkok, Thailand. He was thereafter
examined by Dr. Marcelino Reysio-Cruz, Jr., a plastic and
reconstruction surgeon in the Philippines, who issued a medical
certificate attesting that he (petitioner) had in fact undergone
the procedure.
From then on, petitioner lived as a female and was in fact
engaged to be married. He then sought to have his name in his
birth certificate changed from "Rommel Jacinto" to "Mely," and
his sex from "male" to "female."
An order setting the case for initial hearing was published in the
People’s Journal Tonight, a newspaper of general circulation in
Metro Manila, for three consecutive weeks.3 Copies of the order
were sent to the Office of the Solicitor General (OSG) and the
civil registrar of Manila.
On the scheduled initial hearing, jurisdictional requirements
were established. No opposition to the petition was made.
During trial, petitioner testified for himself. He also presented
Dr. Reysio-Cruz, Jr. and his American fiancé, Richard P. Edel, as
witnesses.
On June 4, 2003, the trial court rendered a decision4 in favor of
petitioner. Its relevant portions read:
Petitioner filed the present petition not to evade any law
or judgment or any infraction thereof or for any unlawful
motive but solely for the purpose of making his birth
records compatible with his present sex.
The sole issue here is whether or not petitioner is entitled
to the relief asked for.
The [c]ourt rules in the affirmative.
Firstly, the [c]ourt is of the opinion that granting the
petition would be more in consonance with the principles
of justice and equity. With his sexual [re-assignment],
petitioner, who has always felt, thought and acted like a
woman, now possesses the physique of a female.
Petitioner’s misfortune to be trapped in a man’s body is
not his own doing and should not be in any way taken
against him.
Likewise, the [c]ourt believes that no harm, injury [or]
prejudice will be caused to anybody or the community in
granting the petition. On the contrary, granting the
petition would bring the much-awaited happiness on the
part of the petitioner and her [fiancé] and the realization
of their dreams.
Finally, no evidence was presented to show any cause or
ground to deny the present petition despite due notice
and publication thereof. Even the State, through the
[OSG] has not seen fit to interpose any [o]pposition.
WHEREFORE, judgment is hereby rendered GRANTING
the petition and ordering the Civil Registrar of Manila to
change the entries appearing in the Certificate of Birth of
[p]etitioner, specifically for petitioner’s first name from
"Rommel Jacinto" to MELY and petitioner’s gender from
"Male" to FEMALE. 5
On August 18, 2003, the Republic of the Philippines (Republic),
thru the OSG, filed a petition for certiorari in the Court of
Appeals.6 It alleged that there is no law allowing the change of
entries in the birth certificate by reason of sex alteration.
On February 23, 2006, the Court of Appeals7 rendered a
decision8 in favor of the Republic. It ruled that the trial court’s
decision lacked legal basis. There is no law allowing the change
of either name or sex in the certificate of birth on the ground of
sex reassignment through surgery. Thus, the Court of Appeals
granted the Republic’s petition, set aside the decision of the trial
court and ordered the dismissal of SP Case No. 02-105207.
Petitioner moved for reconsideration but it was denied.9 Hence,
this petition.
Petitioner essentially claims that the change of his name and
sex in his birth certificate is allowed under Articles 407 to 413 of
the Civil Code, Rules 103 and 108 of the Rules of Court and RA
9048.10
The petition lacks merit.
A Person’s First Name Cannot Be Changed On the
Ground of Sex Reassignment
Petitioner invoked his sex reassignment as the ground for his
petition for change of name and sex. As found by the trial
court:
Petitioner filed the present petition not to evade any law
or judgment or any infraction thereof or for any unlawful
motive but solely for the purpose of making his
birth records compatible with his present sex.
(emphasis supplied)
Petitioner believes that after having acquired the physical
features of a female, he became entitled to the civil registry
changes sought. We disagree.
The State has an interest in the names borne by individuals and
entities for purposes of identification.11 A change of name is a
privilege, not a right.12 Petitions for change of name are
controlled by statutes.13 In this connection, Article 376 of the
Civil Code provides:
ART. 376. No person can change his name or surname
without judicial authority.
This Civil Code provision was amended by RA 9048 (Clerical
Error Law). In particular, Section 1 of RA 9048 provides:
SECTION 1. Authority to Correct Clerical or Typographical
Error and Change of First Name or Nickname. – No entry
in a civil register shall be changed or corrected without a
judicial order, except for clerical or typographical errors
and change of first name or nickname which can be
corrected or changed by the concerned city or municipal
civil registrar or consul general in accordance with the
provisions of this Act and its implementing rules and
regulations.
RA 9048 now governs the change of first name.14 It vests the
power and authority to entertain petitions for change of first
name to the city or municipal civil registrar or consul general
concerned. Under the law, therefore, jurisdiction over
applications for change of first name is now primarily lodged
with the aforementioned administrative officers. The intent and
effect of the law is to exclude the change of first name from the
coverage of Rules 103 (Change of Name) and 108 (Cancellation
or Correction of Entries in the Civil Registry) of the Rules of
Court, until and unless an administrative petition for change of
name is first filed and subsequently denied.15 It likewise lays
down the corresponding venue,16 form17 and procedure. In sum,
the remedy and the proceedings regulating change of first name
are primarily administrative in nature, not judicial.
RA 9048 likewise provides the grounds for which change of first
name may be allowed:
SECTION 4. Grounds for Change of First Name or
Nickname. – The petition for change of first name or
nickname may be allowed in any of the following cases:
(1) The petitioner finds the first name or nickname to be
ridiculous, tainted with dishonor or extremely difficult to
write or pronounce;
(2) The new first name or nickname has been habitually
and continuously used by the petitioner and he has been
publicly known by that first name or nickname in the
community; or
(3) The change will avoid confusion.
Petitioner’s basis in praying for the change of his first name was
his sex reassignment. He intended to make his first name
compatible with the sex he thought he transformed himself into
through surgery. However, a change of name does not alter
one’s legal capacity or civil status.18 RA 9048 does not sanction
a change of first name on the ground of sex reassignment.
Rather than avoiding confusion, changing petitioner’s first name
for his declared purpose may only create grave complications in
the civil registry and the public interest.
Before a person can legally change his given name, he must
present proper or reasonable cause or any compelling reason
justifying such change.19 In addition, he must show that he will
be prejudiced by the use of his true and official name.20 In this
case, he failed to show, or even allege, any prejudice that he
might suffer as a result of using his true and official name.
In sum, the petition in the trial court in so far as it prayed for
the change of petitioner’s first name was not within that court’s
primary jurisdiction as the petition should have been filed with
the local civil registrar concerned, assuming it could be legally
done. It was an improper remedy because the proper remedy
was administrative, that is, that provided under RA 9048. It was
also filed in the wrong venue as the proper venue was in the
Office of the Civil Registrar of Manila where his birth certificate
is kept. More importantly, it had no merit since the use of his
true and official name does not prejudice him at all. For all
these reasons, the Court of Appeals correctly dismissed
petitioner’s petition in so far as the change of his first name was
concerned.
No Law Allows The Change of Entry In The Birth
Certificate As To Sex On the Ground of Sex
Reassignment
The determination of a person’s sex appearing in his birth
certificate is a legal issue and the court must look to the
statutes.21 In this connection, Article 412 of the Civil Code
provides:
ART. 412. No entry in the civil register shall be changed
or corrected without a judicial order.
Together with Article 376 of the Civil Code, this provision was
amended by RA 9048 in so far as clerical or typographical errors
are involved. The correction or change of such matters can now
be made through administrative proceedings and without the
need for a judicial order. In effect, RA 9048 removed from the
ambit of Rule 108 of the Rules of Court the correction of such
errors.22 Rule 108 now applies only to substantial changes and
corrections in entries in the civil register.23
Section 2(c) of RA 9048 defines what a "clerical or typographical
error" is:
SECTION 2. Definition of Terms. – As used in this Act,
the following terms shall mean:
xxx xxx xxx
(3) "Clerical or typographical error" refers to a
mistake committed in the performance of clerical
work in writing, copying, transcribing or typing an
entry in the civil register that is harmless and
innocuous, such as misspelled name or misspelled
place of birth or the like, which is visible to the
eyes or obvious to the understanding, and can be
corrected or changed only by reference to other
existing record or records: Provided,
however, That no correction must involve the
change of nationality, age, status or sex of the
petitioner. (emphasis supplied)
Under RA 9048, a correction in the civil registry involving the
change of sex is not a mere clerical or typographical error. It is
a substantial change for which the applicable procedure is Rule
108 of the Rules of Court.
The entries envisaged in Article 412 of the Civil Code and
correctable under Rule 108 of the Rules of Court are those
provided in Articles 407 and 408 of the Civil Code:24
ART. 407. Acts, events and judicial decrees concerning
the civil status of persons shall be recorded in the civil
register.
ART. 408. The following shall be entered in the civil
register:
(1) Births; (2) marriages; (3) deaths; (4) legal
separations; (5) annulments of marriage; (6) judgments
declaring marriages void from the beginning; (7)
legitimations; (8) adoptions; (9) acknowledgments of
natural children; (10) naturalization; (11) loss, or (12)
recovery of citizenship; (13) civil interdiction; (14) judicial
determination of filiation; (15) voluntary emancipation of
a minor; and (16) changes of name.
The acts, events or factual errors contemplated under Article
407 of the Civil Code include even those that occur after
birth.25 However, no reasonable interpretation of the provision
can justify the conclusion that it covers the correction on the
ground of sex reassignment.
To correct simply means "to make or set aright; to remove the
faults or error from" while to change means "to replace
something with something else of the same kind or with
something that serves as a substitute."26 The birth certificate of
petitioner contained no error. All entries therein, including those
corresponding to his first name and sex, were all correct. No
correction is necessary.
Article 407 of the Civil Code authorizes the entry in the civil
registry of certain acts (such as legitimations, acknowledgments
of illegitimate children and naturalization), events (such as
births, marriages, naturalization and deaths) and judicial
decrees (such as legal separations, annulments of marriage,
declarations of nullity of marriages, adoptions, naturalization,
loss or recovery of citizenship, civil interdiction, judicial
determination of filiation and changes of name). These acts,
events and judicial decrees produce legal consequences that
touch upon the legal capacity, status and nationality of a
person. Their effects are expressly sanctioned by the laws. In
contrast, sex reassignment is not among those acts or events
mentioned in Article 407. Neither is it recognized nor even
mentioned by any law, expressly or impliedly.
"Status" refers to the circumstances affecting the legal situation
(that is, the sum total of capacities and incapacities) of a person
in view of his age, nationality and his family membership.27
The status of a person in law includes all his personal
qualities and relations, more or less permanent in
nature, not ordinarily terminable at his own will,
such as his being legitimate or illegitimate, or his being
married or not. The comprehensive term status… include
such matters as the beginning and end of legal
personality, capacity to have rights in general, family
relations, and its various aspects, such as birth,
legitimation, adoption, emancipation, marriage, divorce,
and sometimes even succession.28 (emphasis supplied)
A person’s sex is an essential factor in marriage and family
relations. It is a part of a person’s legal capacity and civil status.
In this connection, Article 413 of the Civil Code provides:
ART. 413. All other matters pertaining to the registration
of civil status shall be governed by special laws.
But there is no such special law in the Philippines governing sex
reassignment and its effects. This is fatal to petitioner’s cause.
Moreover, Section 5 of Act 3753 (the Civil Register Law)
provides:
SEC. 5. Registration and certification of births. – The
declaration of the physician or midwife in attendance at
the birth or, in default thereof, the declaration of either
parent of the newborn child, shall be sufficient for the
registration of a birth in the civil register. Such
declaration shall be exempt from documentary stamp tax
and shall be sent to the local civil registrar not later than
thirty days after the birth, by the physician or midwife in
attendance at the birth or by either parent of the
newborn child.
In such declaration, the person above mentioned shall
certify to the following facts: (a) date and hour of birth;
(b) sex and nationality of infant; (c) names, citizenship
and religion of parents or, in case the father is not
known, of the mother alone; (d) civil status of parents;
(e) place where the infant was born; and (f) such other
data as may be required in the regulations to be issued.
xxx xxx xxx (emphasis supplied)
Under the Civil Register Law, a birth certificate is a historical
record of the facts as they existed at the time of
birth.29 Thus, the sex of a person is determined at birth, visually
done by the birth attendant (the physician or midwife) by
examining the genitals of the infant. Considering that there is
no law legally recognizing sex reassignment, the determination
of a person’s sex made at the time of his or her birth, if not
attended by error,30is immutable.31
When words are not defined in a statute they are to be given
their common and ordinary meaning in the absence of a
contrary legislative intent. The words "sex," "male" and
"female" as used in the Civil Register Law and laws concerning
the civil registry (and even all other laws) should therefore be
understood in their common and ordinary usage, there being no
legislative intent to the contrary. In this connection, sex is
defined as "the sum of peculiarities of structure and function
that distinguish a male from a female"32 or "the distinction
between male and female."33 Female is "the sex that produces
ova or bears young"34 and male is "the sex that has organs to
produce spermatozoa for fertilizing ova."35 Thus, the words
"male" and "female" in everyday understanding do not include
persons who have undergone sex reassignment. Furthermore,
"words that are employed in a statute which had at the time a
well-known meaning are presumed to have been used in that
sense unless the context compels to the contrary."36 Since the
statutory language of the Civil Register Law was enacted in the
early 1900s and remains unchanged, it cannot be argued that
the term "sex" as used then is something alterable through
surgery or something that allows a post-operative male-to-
female transsexual to be included in the category "female."
For these reasons, while petitioner may have succeeded in
altering his body and appearance through the intervention of
modern surgery, no law authorizes the change of entry as to
sex in the civil registry for that reason. Thus, there is no legal
basis for his petition for the correction or change of the entries
in his birth certificate.
Neither May Entries in the Birth Certificate As to First
Name or Sex Be Changed on the Ground of Equity
The trial court opined that its grant of the petition was in
consonance with the principles of justice and equity. It believed
that allowing the petition would cause no harm, injury or
prejudice to anyone. This is wrong.
The changes sought by petitioner will have serious and wide-
ranging legal and public policy consequences. First, even the
trial court itself found that the petition was but petitioner’s first
step towards his eventual marriage to his male fiancé. However,
marriage, one of the most sacred social institutions, is a special
contract of permanent union between a man and a
woman.37 One of its essential requisites is the legal capacity of
the contracting parties who must be a male and a female.38 To
grant the changes sought by petitioner will substantially
reconfigure and greatly alter the laws on marriage and family
relations. It will allow the union of a man with another man who
has undergone sex reassignment (a male-to-female post-
operative transsexual). Second, there are various laws which
apply particularly to women such as the provisions of the Labor
Code on employment of women,39 certain felonies under the
Revised Penal Code40 and the presumption of survivorship in
case of calamities under Rule 131 of the Rules of
Court,41 among others. These laws underscore the public policy
in relation to women which could be substantially affected if
petitioner’s petition were to be granted.
It is true that Article 9 of the Civil Code mandates that "[n]o
judge or court shall decline to render judgment by reason of the
silence, obscurity or insufficiency of the law." However, it is not
a license for courts to engage in judicial legislation. The duty of
the courts is to apply or interpret the law, not to make or
amend it.
In our system of government, it is for the legislature, should it
choose to do so, to determine what guidelines should govern
the recognition of the effects of sex reassignment. The need for
legislative guidelines becomes particularly important in this case
where the claims asserted are statute-based.
To reiterate, the statutes define who may file petitions for
change of first name and for correction or change of entries in
the civil registry, where they may be filed, what grounds may
be invoked, what proof must be presented and what procedures
shall be observed. If the legislature intends to confer on a
person who has undergone sex reassignment the privilege to
change his name and sex to conform with his reassigned sex, it
has to enact legislation laying down the guidelines in turn
governing the conferment of that privilege.
It might be theoretically possible for this Court to write a
protocol on when a person may be recognized as having
successfully changed his sex. However, this Court has no
authority to fashion a law on that matter, or on anything else.
The Court cannot enact a law where no law exists. It can only
apply or interpret the written word of its co-equal branch of
government, Congress.
Petitioner pleads that "[t]he unfortunates are also entitled to a
life of happiness, contentment and [the] realization of their
dreams." No argument about that. The Court recognizes that
there are people whose preferences and orientation do not fit
neatly into the commonly recognized parameters of social
convention and that, at least for them, life is indeed an ordeal.
However, the remedies petitioner seeks involve questions of
public policy to be addressed solely by the legislature, not by
the courts.
WHEREFORE, the petition is hereby DENIED.
Costs against petitioner.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 188302 June 27, 2012
NANCY L. TY, Petitioner,
vs.
BANCO FILIPINO SAVINGS and MORTGAGE
BANK, Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari,1 filed by Nancy
L. Ty (petitioner), to challenge the March 31, 2009
decision2 and the June 10, 2009 resolution3 of the Court of
Appeals (CA) in CA-G.R. SP No. 107104. The CA decision
dismissed the petitioner’s petition for certiorari for lack of merit.
The CA resolution denied the petitioner’s subsequent motion for
reconsideration.
THE FACTUAL ANTECEDENTS
Sometime in 1979, the Banco Filipino Savings and Mortgage
Bank (respondent) wanted to purchase real properties as new
branch sites for its expansion program. Since the General
Banking Act4 limits a bank’s real estate holdings to no more
than 50% of its capital assets, the respondent’s Board of
Directors decided to warehouse some of its existing properties
and branch sites to allow more flexibility in the opening of
branches, and to enable it to acquire new branch sites.5
The petitioner, a major stockholder and a director of the
respondent, persuaded two other major stockholders, Pedro
Aguirre and his brother Tomas Aguirre, to organize and
incorporate Tala Realty Services Corporation (Tala Realty) to
hold and purchase real properties in trust for the respondent. 6
Subsequently, Remedios A. Dupasquier prodded her brother
Tomas to endorse to her his shares in Tala Realty and she
registered them in the name of her controlled corporation, Add
International Services, Inc.7 The petitioner, Remedios, and
Pedro controlled Tala Realty through their respective nominees.8
In implementing their trust agreement, the respondent sold to
Tala Realty some of its properties. Tala Realty simultaneously
leased to the respondent the properties for 20 years, renewable
for another 20 years at the respondent’s option with a right of
first refusal in the event Tala Realty decides to sell
them.9 However, in August 1992, Tala Realty repudiated the
trust, claimed the titles for itself, and demanded payment of
rentals, deposits, and goodwill, with a threat to eject the
respondent.10
Thus, from 1995 to 1996, the respondent filed 17 complaints
against Tala Realty, the petitioner, Pedro, Remedios, and their
respective nominees for reconveyance of different properties
with 17 Regional Trial Courts (RTCs) nationwide, including Civil
Case No. 2506-MN before Branch 170 of the RTC of Malabon
(Malabon case), subject of the present case.11
The petitioner and her co-defendants moved to dismiss the
Malabon case for forum shopping and litis pendentia, citing the
16 other civil cases filed in various courts12 involving the same
facts, issues, parties, and reliefs pleaded in the respondent’s
complaint.13
The Malabon RTC denied the motion to dismiss,14 finding no
commonality in the 16 other civil cases since they involved
different causes of action. The Malabon RTC also denied15 the
subsequent motions for reconsideration and for suspension of
proceedings.16
After the petitioner and her co-defendants filed their respective
answers ad cautelam,17 the petitioner filed a motion to hold
proceedings in abeyance,18 citing the pendency with this Court
of G.R. No. 12761119 that assailed the denial of their motion to
dismiss Civil Case No. 4521 before the Batangas City RTC
(Branch 84), and also prayed for a writ of prohibition to order
the 17 RTC branches and the three CA divisions, where the
same cases were pending, to desist from further proceeding
with the trial of the cases.
The Malabon RTC granted to hold proceedings in
abeyance.20 When the Malabon RTC denied21 the respondent’s
motion for reconsideration, the respondent elevated its case to
the CA via a Rule 65 petition for certiorari.22 The CA initially
dismissed the petition,23 but on motion for reconsideration, it
modified its ruling, setting aside the RTC’s order to hold
proceedings in abeyance for mootness, due to this Court’s
dismissal of G.R. No. 127611 for late filing.24
Subsequently, the respondent moved for pre-trial.25 Tala Realty
opposed the motion and filed again a motion to suspend
proceedings,26 citing the pendency with this Court of G.R. No.
132703,27 a petition for certiorari that assailed the CA’s
affirmance28 of the dismissal order of the Iloilo City RTC (Branch
28) in Civil Case No. 22493.29
The petitioner filed her separate opposition to the respondent’s
motion for pre-trial and a motion to hold proceedings in
abeyance, stating that after the dismissal of G.R. No. 127611,
two other similar petitions have been elevated to this Court: (1)
G.R. No. 130184,30 involving the CA’s reversal of the dismissal
of Civil Case No. Q-95-24830 in the Quezon City RTC (Branch
91), and (2) G.R. No. 132703.31
The Malabon RTC granted the motion, and again ordered to
hold proceedings in abeyance.32 Six years later, the Malabon
RTC directed the parties’ counsels to inform it of the status of
the pending cases.33
In her compliance,34 the petitioner summarized this Court’s
rulings in the consolidated cases of G.R. Nos. 130184 and
139166,35 and in G.R. No. 132703,36 and reported on the other
cases involving the same parties decided by this Court, such as
G.R. Nos.
129887,37 137980,38 132051,39 137533,40 143263,41 and
142672,42 as well as the other related cases decided by this
Court, i.e., G.R. Nos. 144700,43 147997,44 167255,45 and
144705.46
On the other hand, the respondent filed its compliance with
motion to revive proceedings,47 citing the Court’s consolidated
decision in G.R. Nos. 130184 and 139166,48 and the decisions in
G.R. Nos. 144700,49 167255,50and 144705,51 commonly holding
that there existed no forum shopping, litis pendentia and res
judicata among the respondent’s reconveyance cases pending in
the other courts of justice.
In her comment to the respondent’s motion to revive
proceedings,52 the petitioner argued that the proceedings
should not be revived since all the reconveyance cases are
grounded on the same theory of implied trust which this Court
in G.R. No. 13753353 found void for being illegal as it was a
scheme to circumvent the 50% limitation on real estate
holdings under the General Banking Act.
Tala Realty, on the other hand, pointed out that it was the
court’s prerogative to suspend or not its proceedings pending
the resolution of issues by another court, in order to avoid
multiplicity of suits and prevent vexatious litigations.54
THE RTC RULING
In its May 6, 2008 order, the RTC granted the respondent’s
motion to revive proceedings, noting that res judicata is not
applicable since there are independent causes of action for each
of the properties sought to be recovered.55
When the RTC denied56 the petitioner’s motion for
reconsideration,57 she elevated her case to the CA via a Rule 65
petition for certiorari, assailing the RTC orders.58
THE CA RULING
In its March 31, 2009 decision, the CA affirmed the RTC’s
orders.59 It noted that res judicata does not apply since the
issue of validity or enforceability of the trust agreement was
raised in an ejectment case, not an action involving title or
ownership, citing the Court’s pronouncement in G.R. No.
14470560 that G.R. No. 13753361 does not put to rest all
pending litigations involving the issues of ownership between
the parties since it involved only an issue of de facto
possession.
When the CA denied62 her motion for reconsideration,63 the
petitioner filed the present petition.
THE PETITION
The petitioner argues that the CA erred in refusing to apply G.R.
No. 137533 under the principle of res judicata by conclusiveness
of judgment and stare decisis, and ignoring the November 26,
2007 minute resolution in G.R. No. 17786564 and the April 7,
2009 consolidated decision in G.R. Nos. 130088, 131469,
155171, 155201, and 16660865 that reiterated the Court’s
pronouncement in G.R. No. 137533.
THE CASE FOR THE RESPONDENT
The respondent submits that the petitioner is estopped from
amending the issues since she never raised the pendency of the
consolidated cases of G.R. Nos. 130088, 131469, 155171,
155201 and 166608 in her CA petition, which was based only on
the Court’s rulings in G.R. No. 137533 and G.R. No. 177865.
THE ISSUE
The core issues boil down to whether the Court’s ruling in G.R.
No. 137533 applies as stare decisis to the present case.
OUR RULING
We grant the petition.
The case at bar presents the same issue that the Court already
resolved on April 7, 2009 in G.R. Nos. 130088, 131469, 155171,
155201 and 166608, wherein we applied the Court’s November
22, 2002 decision in G.R. No. 137533, one of several ejectment
cases filed by Tala Realty against the respondent arising from
the same trust agreement in the reconveyance case subject of
the present petition, that the trust agreement is void and
cannot thus be enforced. We quoted therein the Court’s ruling
in G.R. No. 137533, thus:
The Bank alleges that the sale and twenty-year lease of the
disputed property were part of a larger implied trust
"warehousing agreement." Concomitant with this Court's factual
finding that the 20-year contract governs the relations between
the parties, we find the Bank's allegation of circumstances
surrounding its execution worthy of credence; the Bank and
Tala entered into contracts of sale and lease back of the
disputed property and created an implied trust "warehousing
agreement" for the reconveyance of the property. In the eyes of
the law, however, this implied trust is inexistent and void for
being contrary to law.66
An implied trust could not have been formed between the Bank
and Tala as this Court has held that "where the purchase is
made in violation of an existing statute and in evasion of its
express provision, no trust can result in favor of the party who
is guilty of the fraud."67
x x x [T]he bank cannot use the defense of nor seek
enforcement of its alleged implied trust with Tala since its
purpose was contrary to law. As admitted by the Bank, it
"warehoused" its branch site holdings to Tala to enable it to
pursue its expansion program and purchase new branch sites
including its main branch in Makati, and at the same time avoid
the real property holdings limit under Sections 25(a) and 34 of
the General Banking Act which it had already reached x x x .
Clearly, the Bank was well aware of the limitations on its real
estate holdings under the General Banking Act and that its
"warehousing agreement" with Tala was a scheme to
circumvent the limitation. Thus, the Bank opted not to put the
agreement in writing and call a spade a spade, but instead
phrased its right to reconveyance of the subject property at any
time as a "first preference to buy" at the "same transfer price".
This agreement which the Bank claims to be an implied trust is
contrary to law. Thus, while we find the sale and lease of the
subject property genuine and binding upon the parties, we
cannot enforce the implied trust even assuming the parties
intended to create it. In the words of the Court in the Ramos
case, "the courts will not assist the payor in achieving his
improper purpose by enforcing a resultant trust for him in
accordance with the 'clean hands' doctrine." The Bank cannot
thus demand reconveyance of the property based on its alleged
implied trust relationship with Tala.68(italics supplied.)
The Bank and Tala are in pari delicto, thus, no
affirmative relief should be given to one against the
other.1âwphi1 The Bank should not be allowed to dispute the
sale of its lands to Tala nor should Tala be allowed to further
collect rent from the Bank. The clean hands doctrine will not
allow the creation or the use of a juridical relation such as a
trust to subvert, directly or indirectly, the law. Neither the
Bank nor Tala came to court with clean hands; neither
will obtain relief from the court as the one who seeks
equity and justice must come to court with clean
hands.69 (emphases ours; citation omitted)
G.R. No. 137533, as reiterated in G.R. Nos. 130088, 131469,
155171, 155201 and 166608, is binding and applicable to the
present case following the salutary doctrine of stare decisis et
non quieta movere, which means "to adhere to precedents, and
not to unsettle things which are established."70 Under the
doctrine, when this Court has once laid down a principle of law
as applicable to a certain state of facts, it will adhere to that
principle, and apply it to all future cases, where facts are
substantially the same; regardless of whether the parties and
property are the same.71 The doctrine of stare decisis is based
upon the legal principle or rule involved and not upon the
judgment, which results therefrom. In this particular sense,
stare decisis differs from res judicata, which is based upon the
judgment.72
The doctrine of stare decisis is one of policy grounded on the
necessity for securing certainty and stability of judicial decisions,
thus:
Time and again, the Court has held that it is a very desirable
and necessary judicial practice that when a court has laid down
a principle of law as applicable to a certain state of facts, it will
adhere to that principle and apply it to all future cases in which
the facts are substantially the same. Stare decisis et non quieta
movere. Stand by the decisions and disturb not what is settled.
Stare decisis simply means that for the sake of certainty, a
conclusion reached in one case should be applied to those that
follow if the facts are substantially the same, even though the
parties may be different. It proceeds from the first principle of
justice that, absent any powerful countervailing considerations,
like cases ought to be decided alike. Thus, where the same
questions relating to the same event have been put forward by
the parties similarly situated as in a previous case litigated and
decided by a competent court, the rule of stare decisis is a bar
to any attempt to relitigate the same [issue].73 (italics supplied)

It bears stressing that the basic facts of the present case and
those of G.R. No. 137533 and G.R. Nos. 130088, 131469,
155171, 155201 and 166608 are the same. Clearly, in light of
G.R. No. 137533 and G.R. Nos. 130088, 131469, 155171,
155201 and 166608, which the Court follows as precedents, the
present action for reconveyance cannot prosper. It is the
Court's duty to apply the previous rulings in G.R. No. 137533
and in G.R. Nos. 130088, 131469, 155171, 155201 and 166608
to the present case. Once a case has been decided one
way, any other case involving exactly the same point at
issue, as in the present case, should be decided in the
same manner.74

WHEREFORE, the petition is GRANTED. The assailed decision

and resolution of the Court of Appeals in CA-G.R. SP No.
107104 are hereby REVERSED and SET ASIDE. Civil Case No.
2506-MN before Branch 170 of the Regional Trial Court of
Malabon, Metro Manila is hereby DISMISSED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 134284, December 1, 2000.
AYALA CORPORATION, petitioner.
vs.
ROSA-DIANA REALTY AND DEVELOPMENT
CORPORATION, respondent.
DE LEON, J.:
Before us is a petition for review on certiorari seeking the
reversal of a decision rendered by the Court of Appeals in C.A.
G.R. C.V. No. 4598 entitled "Ayala Corporation vs. Rosa-Diana
Realty and Development Corporation, ‘ dismissing Ayala
Corporation’s petition for lack of merit.
The facts of the case are not in dispute:
Petitioner Ayala Corporation (herein-after referred to as Ayala)
was the registration owner of a parcel of land located in Alfaro
Street, Salcedo Village, Makati City with an area of 840 square
meters, more or less and covered by Transfer Certificate of Title
(TCT) No. 233435 of the Register of Deeds of Rizal.
On April 20, 1976, Ayala sold the lot to Manuel Sy married to
Vilma Po and Sy Ka Kieng married to Rosa Chan. The Deed of
Sale executed between Ayala and the buyers contained Special
conditions of sale and Deed Restrictions. Among the Special
Conditions of Sale were.
a. The vendee shall build on the lot and submit the
building plans to the vendor before September 30,
1976 for the latter’s approval.
b. The construction of the building shall start on or
before March 30, 1977 and completed before
1979. Before such completion, neither no the title
released even if the purchase price shall have
been fully paid.
c. There shall be no resale of the property.
The Deed Restrictions, on the other hand, contained the
stipulation that the gross floor area of the building to be
constructed shall not be more than five (5) times the lot area
and the total height shall not exceed forty two (42) meters. The
restrictions were to expire in the year 2025.
Manuel Sy and Sy Ka Kieng failed to construct the building in
violation of the Special Conditions of Sale. Notwithstanding the
violation, Manuel Sy anf Sy Ka Kieng, in April 1989, were able to
sell the lot to respondent Rosa-Diana Realty and Development
Corporation (hereinafter referred to as Rosa-Diana) with Ayala’s
approval. As a consideration for Ayala to release the Certificate
of title of the subject property, Rosa Diana, on July 27, 1989
executed an Undertaking, together with the buildings plans for
a condominium project, known as "The Peak", Ayala released
title to the lot, thereby enabling Rosa-Diana t register the deed
of sale in its favor and obtain Certificate of Title No. 165720 in
its name. The title carried as encumbrances the special
conditions of sale and the deed restrictions. Rosa-Diana’s
building plans as approved by Ayala were ‘subject to strict
compliance of cautionary notices appearing on the building
plans and to the restrictions encumbering the Lot regarding the
use and occupancy of the same.’
Thereafter, Rosa-Diana submitted to the building official of
Makati another set of building plans for "The Peak" which Rosa-
Diana submitted to Ayala for approval envisioned a 24-meter
high, seven (7) storey condominium project with a gross floor
area of 3,968.56 square meters, the building plans which Rosa-
Diana submitted to the building official of Makati, contemplated
a 91.65 meter high, 38 storey condominium building with a
gross floor area of 23,305.09 square meters.1 Needless to say,
while the first set of building plans complied with the deed
restrictions, the latter set seceded the same.
During the construction of Rosa-Diana’s condominium project,
Ayala filed an action with the Regional Trial Court (RTC) of
Makati, Branch 139 for specific performance, with application
for a writ of preliminary injunction/temporary restraining order
against Rosa-Diana Realty seeking to compel the latter to
comply with the contractual obligations under the deed of
restrictions annotated on its title as well as with the building
plans it submitted to the latter. In the alternative, Ayala prayed
for rescission of the sale of the subject lot to Rosa-Diana Realty.
The lower court denied Ayala’s prayer for injunctive relief, thus
enabling Rosa-Diana to complete the construction of the
building. Undeterred, Ayala tried to cause the annotation of a
notice of lis pendens on Rosa-Diana’s title. The Register of
Deeds of Makati, however, refused registration of the notice of
lis pendens on the ground that the case pending before the trial
court, being an action for specific performance and/or
rescission, is an action in personal which does not involve the
title, use or possession of the property.2 The Land Registration
Authority (LRA) reversed the ruling of the Register of Deeds
saying that an action for specific performance or recession may
be classified as a proceeding of any kind in court directly
affecting title to the land or the use or occupation thereof for
which a notice of lis pendens may be held proper.3 The decision
of the LRA, however, was overturned by the Court of Appeals in
C.A. G.R. S.P. No. 29157. In G.R. No. 112774, We affirmed the
ruling of the CA on February 16, 1994 saying.
We agree with respondent court that the notice of
lis pendens is not proper in this instance. The case
before the trial court is a personal action since the
cause of action thereof arises primarily from the
alleged violation of the Deed of Restriction.
In the meantime, Ayala completed its presentation of evidence
before the trial court. Rosa-Diana filed a Demurrer to Evidence
averring that Ayala failed to establish its right to the relief
sought in-as much as (a) Ayala admittedly does not enforce the
deed restrictions uniformly and strictly (b) Ayala has lost its
right/power to enforce the restrictions due to its own acts and
omissions; and (c) the deed restrictions are no longer valid and
effective against lot buyers in Ayala’s controlled subdivision.
The trial court sustained Rosa-Diana’s Demurrer to Evidence
saying that Ayala was guilty of abandonment and/or estoppel
due to its failure to enforce the terms of deed of restrictions and
special conditions of sale against Manuel Sy and Sy Ka Kieng.
The trial court noted that notwithstanding the violation of the
special conditions of sale, Manuel Sy and Sy Ka Kieng were able
to transfer the title to Rosa-Diana with the approval of Ayala.
The trial court added that Ayala’s failure to enforce the
restrictions with respect to Trafalgar, Shellhouse, Eurovilla, LPL
Plaza, Parc Regent, LPL Mansion and Leronville, which are
located within Salcedo Village, shows that Ayala discriminated
against those which it wants to have the obligation enforced.
The trial court then concluded that for Ayala to discriminatory
choose which obligor would be made to follow certain
conditions and which should not, did not seem fair and legal.
The Court of Appeals affirmed the ruling of the trial court saying
that the "appeal is seated by the doctrine of the law of the case
in C.A. G.R. S.P. No. 29157" where it was stated that
xxx Ayala is bared from enforcing the Deed of Restriction in
question pursuant to the doctrine of waiver and estoppel. Under
the terms of the deed of sale, the vendee Sy Ka Kieng assumed
faithful compliance with the special conditions of sale and with
the Salcedo Village Deed of Restrictions. One of the conditions
was that a building would be constructed within one year.
However, Sy Ka Kieng failed to construct the building as
required under the Deed Sale. Ayala did nothing to enforce the
terms of the contract. In fact, it even agreed to the sale of the
lot by Sy Ka Kieng in favor of petitioner Realty in 1989 or
thirteen (13) years later. We, therefore, see no justifiable
reason for Ayala to attempt to enforce the terms of the
conditions of sale against the petitioner.
xxx
The Court of Appeals also cited C.A. G.R. C.V. No. 46488
entitled, "Ayala Corporation vs. Ray Burton Development
Corporation’ which relied on C.A. G.R. S.P. No. 29157 in ruling
that Ayala is barred from enforcing the deed restrictions in
dispute. Upon a motion for reconsideration filed by herein
petitioner, the Court of Appeals clarified that "the citation of the
decision in Ayala Corporation vs. Ray Burton Development
Corporation, Ca G.R. C.V. No. 46488, February 27, 1996, was
made not because said decision is res judicata to the case at
bar but rather because it is precedential under the doctrine
of stare decisis."
Upon denial of said motion for reconsideration, Ayala filed the
present appeal.
Ayala contends that the pronouncement of the Court of Appeals
in C.A. G.R. S.P. No. 29157 that it is estopped from enforcing
the deed restrictions is merely obiter dicta inasmuch as the only
issue raised in the aforesaid case was the propriety of a lis
pendens annotation on Rosa-Diana’s certificate of title.
Ayala avers that Rosa-Diana presented no evidence whatsoever
on Ayala’s supposed waiver or estoppel in C.A. G.R. S.P. No.
29157. Ayala likewise pointed out that at the time C.A. G.R. S.P.
No. 29157 was on appeal, the issues of the validity and
continued viability of the deed of restrictions and their
enforceability by Ayala were joined and then being tried before
the trial court.
Petitioner’s assignment of errors in the present appeal may
essentially be summarized as follows:
I. The Court of Appeals acted in manner not in
accord with law and the applicable decisions of the
Supreme Court in holding that the doctrine of the
law of the case, or stare decisis, operated to
dismiss Ayala’s appeal.
II. The Court of Appeals erred as a matter of law and
departed from the accepted and usual course of
judicial proceedings when it failed to expressly
pass upon the specific errors assigned in Ayala’s
appeal.
A discussion on the distinctions between law of the case, stare
decisis and obiter dicta is in order.
The doctrine of the law of the case has certain affinities with,
but is clearly distinguishable from, the doctrines of res judicata
and stare decisis, principally on the ground that the rule of the
law of the case operates only in the particular case and only as
a rule of policy and not as one of law.4 At variance with the
doctrine of stare decisis, the ruling adhered to in the particular
case under the doctrine of the law of the case need not be
followed as a precedent in subsequent litigation between other
parties, neither by the appellate court which made the decision
followed on a subsequent appeal in the same case, nor by any
other court. The ruling covered by the doctrine of the law of the
case is adhered to in the single case where it arises, but is not
carried into other cases as a precedent.5 On the other hand,
under the doctrine of stare decisis, once a point of law has been
established by the court, that point of law will, generally, be
followed by the same court and by all courts of lower rank in
subsequent cases where the same legal issue is
raised.6 Stare decisis proceeds from the first principle of justice
that, absent powerful countervailing considerations, like cases
ought to be decided alike.7
The Court of Appeals, in ruling against petitioner Ayala
Corporation stated that the appeal is ‘sealed’ by the doctrine of
the law of the case, referring to G.R. No. 112774 entitled "Ayala
Corporation, petitioner vs. Courts of Appeals, et
al., respondents". The Court of Appeals likewise made reference
to C.A. G.R. C.V. No. 46488 entitled, "Ayala Corporation vs. Ray
Burton Development Corporation, Inc." in ruling against
petitioner saying that it is jurisprudentially under the doctrine
of stare decisis.
It must be pointed out that the only issue that was raised
before the Court of Appeals in C.A. G.R. S.P. No. 29157 was
whether or not the annotation of lis pendens is proper. The
Court of Appeals, in its decision, in fact stated "the principal
issue to be resolved is: whether or not an action for specific
performance, or in the alternative, rescission of deed of sale to
enforce the deed of restrictions governing the use of property,
is a real or personal action, or one that affects title thereto and
its use or occupation thereof.8
In the aforesaid decision, the Court of Appeals even justified the
cancellation of the notice of lis pendens on the ground that
Ayala had ample protection should it succeed in proving its
allegations regarding the violation of the deed of
restrictions, without unduly curtailing the right of the petitioner
to fully enjoy its property in the meantime that there is as yet
no decision by the trial court.9
From the foregoing, it is clear that the Court of Appeals was
aware that the issue as to whether petitioner is estopped from
enforcing the deed of restrictions has yet to be resolved by the
trial court. Though it did make a pronouncement that the
petitioner is estopped from enforcing the deed of restrictions, it
also mentioned at the same time that this particular issue has
yet to be resolved by the trial court. Notably, upon appeal to
this Court, We have affirmed the ruling of the Court of Appeals
only as regards the particular issue of the propriety of the
cancellation of the notice of lis pendens.
We see no reason then, how the law of the case or stare
decisis can be held to be applicable in the case at bench. If at
all, the pronouncement made by the Court of Appeals that
petitioner Ayala is barred from enforcing the deed of restrictions
can only be considered as obiter dicta. As earlier mentioned the
only issue before the Court of Appeals at the time was the
propriety of the annotation of the lis pendens. The additional
pronouncement of the Court of Appeals that Ayala is estopped
from enforcing the deed of restrictions even as it recognized
that this said issue is being tried before the trial court was not
necessary to dispose of the issue as to the propriety of the
annotation of the lis pendens. A dictum is an opinion of a judge
which does not embody the resolution or determination of the
court, and made without argument, or full consideration of the
point, not the proffered deliberate opinion of the judge
himself.10 It is not necessarily limited to issues essential to the
decision but may also include expressions of opinion which are
not necessary to support the decision reached by the court.
Mere dicta are not binding under the doctrine of stare decisis11.
While the Court of Appeals did not err in ruling that the present
petition is not barred by C.A. G.R. C.V. No. 46488 entitled
"Ayala Corporation vs. Ray Burton Development Inc." under the
doctrine of res judicata, neither, however, can the latter case be
cited as presidential under the doctrine of stare decisis. It must
be pointed out that at the time the assailed decision was
rendered, C.A. G.R. C.V. No. 46488 was on appeal with this
Court. Significantly, in the decision. We have rendered in Ayala
Corporation vs. Ray Burton Development Corporation12 which
became final and executory on July 5, 1999 we have clearly
stated that "An examination of the decision in the said Rosa-
Diana case reveals that the sole issue raised before the
appellate court was the propriety of the lis pendens annotation.
However, the appellate court went beyond the sole issue and
made factual findings bereft of any basis in the record to
inappropriately rule that AYALA is in estoppel and has waived its
right to enforce the subject restrictions. Such ruling was
immaterial to the annotation of the lis pendens. The finding of
estoppel was thus improper and made in excess of jurisdiction."
Coming now to the merits of the case, petitioner avers that the
Court of Appeals departed from the usual course of judicial
proceedings when it failed to expressly pass upon the specific
errors assigned in its appeal. Petitioner reiterates its contention
that law and evidence do not support the trial court’s findings
that Ayala has waived its right to enforce the deed of
restrictions.
We find merit in the petition.
It is basic that findings of fact of the trial court and the Court of
Appeals are conclusive upon the Supreme Court when
supported by substantial evidence.13 We are constrained,
however, to review the trial court'’ findings of fact, which the
Court of Appeals chose not to pass upon, in as much as there is
ample evidence on record to show that certain facts were
overlooked which would affect the disposition of the case.
In its assailed decision of February 4, 1994, the trial court, ruled
in favor of respondent Rosa-Diana Realty on the ground that
Ayala had not acted fairly when it did not institute an action
against the original vendees despite the latter’s violation of the
Special Conditions of Sale but chose instead to file an action
against herein respondent Rosa-Diana. The trial court added
that although the 38-storey building of Rosa-Diana is beyond
the total height restriction, it was not violative of the National
Building Code. According to the trial court the construction of
the 38 storey building known as "The Peak" has not been
shown to have been prohibited by law and neither is it against
public policy.
It bears emphasis that as complainant, Ayala had the
prerogative to initiate an action against violators of the deed
restrictions. That Rosa-Diana had acted in bad faith is
manifested by the fact that it submitted two sets of building
plans, one which was in conformity with the deed restrictions
submitted to Ayala and MACEA, and the other, which exceeded
the height requirement in the deed restrictions to the Makati
building official for the purpose of procuring a building permit
from the latter. Moreover, the violation of the deed restrictions
committed by respondent can hardly be denominated as a
minor violation. It should be pointed out that the original
building plan which was submitted to and approved by
petitioner Ayala Corporation, envisioned a twenty four (24)
meter high, seven (7) storey condominium whereas the
respondent’s building plan which was submitted to and
approved by the building official of Makati is that of a thirty
eight (38) storey, 91.65 meters high, building. At present, the
Peak building of respondent which actually stands at 133.65
meters with a total gross floor area of 23,305.09 square meters,
seriously violates the dimensions indicated in the building plans
submitted by Rosa-Diana to petitioner Ayala for approval in as
much as the Peak building exceeds the approved height limit by
about 109 meters and the allowable gross floor area under the
applicable deed restrictions by about 19,105 square meters.
Clearly, there was a gross violation of the deed restrictions and
evident bad faith by the respondent.
It may not be amiss to mention that the deed restrictions were
revised in a general membership meeting of the association of
lot owners in Makati Central Business District the Makati
Commercial Estate Association, Inc. (MACEA).
Whereby direct height restrictions were abolished in lieu of floor
area limits. Respondent, however, did not vote for the approval
of this revision during the General Membership meeting, which
was held on July 11, 1990 at the Manila Polo Clud Pavilion,
Makati, and Metro Manila. Hence, respondent continues to be
bound by the original deed restrictions applicable to Lot 7, Block
1 and annotated on its title to said lot. In any event,
assumingarguendo that respondent voted for the approval of
direct height restrictions in lieu of floor area limits, the total
floor area of its Peak building would still be violative of the floor
area limits to the extent of about 9,865 square meters of
allowable floor area under the MACEA revised restrictions.
Respondent Rosa-Diana avers that there is nothing illegal or
unlawful in the building plans which it used in the construction
of the Peak condominium ‘inasmuch as it bears
the imprimatur of the building official of Makati, who is tasked
to determine whether building and construction plans are in
accordance with the law, notably, the National Building Code."
Respondent Rosa-Diana, however, misses the point inasmuch as
it has freely consented to be bound by the deed restrictions
when it entered into a contract of sale with spouses Manuel Sy
and Sy Ka Kieng. While respondent claims that it was under the
impression that Ayala was no longer enforcing the deed
restrictions, the Undertaking14 it executed belies this same
claim. In said Undertaking, respondent agreed to ‘construct and
complete the construction of the house on said lot as required
under the special condition of sale." Respondent likewise bound
itself to abide and comply with x x x the condition of the
rescission of the scale by Ayala Land, Inc. on the grounds
therein stated x x x.
Contractual obligations between parties have the force of law
between them and absent any allegation that the same are
contrary to law, morals, good custom, public order or public
policy, they must be complied with in good faith. Hence, Article
1159 of the New Civil Code provides.
"Obligations arising from contracts have the force
of law between the contracting parties and should
be complied with in good faith."
Respondent Rosa-Diana insists that the trial court had already
ruled that the undertaking executed by its Chairman and
President cannot validly bind Rosa-Diana and hence, it should
not be held bound by the deed restrictions.
We agree with petitioner Ayala’s observation that respondent
Rosa-Diana’s special and affirmative defenses before the trial
court never mentioned any allegation that its president and
chairman were not authorized to execute the Undertaking. It
was inappropriate therefore for the trial court to rule that in the
absence of any authority or confirmation from the Board of
Directors of respondent Rosa-Diana, its Chairman and the
President cannot validly enter into an undertaking relative to the
construction of the building on the lot within one year from July
27, 1989 and in accordance with the deed restrictions,
Curiously, while the trial court stated that it cannot be
presumed that the Chairman and the President can validly bind
respondent Rosa-Diana to enter into the aforesaid Undertaking
in the absence of any authority or confirmation from the Board
of Directors, the trial court held that the ordinary presumption
of regularity of business transactions is applicable as regards
the Deed of Sale which was executed by Manuel Sy and Sy Ka
Kieng and respondent Rosa-Diana. In the light of the fact that
respondent Rosa-Diana never alleged in its Answer that its
president and chairman were not authorized to execute the
Undertaking, the aforesaid ruling of the trial court is without
factual and legal basis and suppressing to say the least.
The fact alone that respondent Rosa-Diana conveniently
prepared two sets of building plans –with one set which fully
conformed to the Deed Restrictions and another in gross
violation of the same – should have cautioned the trial court to
conclude that respondent Rose-Diana was under the erroneous
impression that the Deed Restrictions were no longer
enforceable and that it never intended to be bound by the
Undertaking signed by its President and Chairman. We reiterate
that contractual obligations have the force of law between
parties and unless the same is contrary to public policy morals
and good customs, they must be complied by the parties in
good faith.
Petitioners, in its Petition, prays that judgement be rendered:
a. ordering Rosa-Diana Realty and Development
Corporation to comply with its contractual
obligations in the construction of the Peak by
removing, or closing down and prohibiting Rosa-
Diana from using, selling, leasing or otherwise
disposing, of the portions of areas thereof
constructed beyond or in excess of the approved
height, as shown by the building plans submitted
to, and approved by, Ayala, including any other
portion of the building constructed not in
accordance with the said building plans, during the
effectivity of the Deed Restrictions;
b. Alternatively, in the event specific performance
has become impossible;
1. ordering the cancellation and recession of the April
20, 1976 Deed of Sale by Ayala in favor of the
original vendees thereof as well as the subsequent
Deed of Sale executed by such original vendees in
favor of Rosa-Diana, and ordering Rosa-Diana to
return Ayala Lot 7, Block 1 of Salcedo Village;
2. ordering the cancellation of Transfer Certificate of
Title No. 165720 (in the name of Rosa-Diana) and
directing the office of the Register of Deeds of
Makati to issue a new title over the lot in the
name of Ayala; and
3. Ordering Rosa-Diana to pay Ayala attorney’s fees
in the amount of P500, 000.00, exemplary
damages in the amount of P5, 000,000.00 and the
costs of suit.
It must be noted that during the trial respondent Rosa-Diana
was able to complete the construction of The Peak as a building
with a height of thirty-eight (38) floors or 133.65 meters.
Having been completed for a number of years already, it would
be reasonable to assume that it is now fully tenanted.
Consequently, the remedy of specific performance by
respondent is no longer feasible. However, neither can we grant
petitioner’s prayer for the cancellation and rescission of the April
20, 1976 Deed of Sale by petitioner Ayala in favor of respondent
Rosa-Diana inasmuch as the resale of the property by the
original vendees, spouses Manuel Sy and Ka Kieng to comply
with their obligation to construct a building within one year from
April 20, 1976, has effectively waived its right to rescind the
sale of the subject lot to the original vendees.
Faced with the same question as to the proper remedy available
to petitioner in the case of "Ayala Corporation vs. Ray Burton
Development Inc., ‘ a case which is on all fours with the case at
bench, we ruled therein that the party guilty of violating the
deed restrictions may only be held alternatively liable for
substitute performance of its obligation, that is, for the payment
of damages. In the aforesaid case it was observed that the
Consolidated and Revised Deed Restrictions (CRDR) imposed
development charges on constructions which exceed the
estimated Gross Limits permitted under the original Deed
Restrictions but which are within the limits of the
CRDR’s.1âwphi1.nêt
The pertinent portion of the Deed of Restrictions reads:
3. DEVELOPMENT CAHRGE For building construction within the
Gross Floor Area limits defined under Paragraphs C-2.1 to C-2.4
above, but which will result in a Gross Floor Area exceeding
certain standards defined in Paragraphs C-3.1-C below, the
OWNER shall pay MACEA, prior to the construction of any new
building a DEVELOPMENT CHARGE as a contribution to a trust
fund to be administered by MACEA. This trust fund shall be
used to improve facilities and utilities in Makati Central District.
3.1 The amount of the development charge that shall be due
from the OWNER shall be computed as follows:
DEVELOPMENT
CAHRGE = A x (B-C-D)
Where:
A – is equal to the a Area Assessment which shall be set at Five
Hundred Pesos (P500.00) until December 31, 1990. Each
January 1st thereafter, such amount shall increase by ten
percent (10%) over the immediately preceding year; provided
that beginning 1995 and at the end of every successive five-
year period thereafter, the increase in the Area Assessment
shall be reviewed and adjusted by the VENDOR to correspond
to the accumulated increase in the construction cost index
during the immediately preceding five years as based on the
weighted average of wholesale price and wage indices of the
National Census and Statistics Office and the Bureau of Labor
Statistics.
B – Is equal to the Gross Floor Area of the completed or
expanded building in square meters.
C – is equal to the estimated Gross Floor Area permitted under
the original deed restrictions, derived by multiplying the lot area
by the effective original FAR shown below for each location.
We then ruled in the aforesaid case that the development;
charges are a fair measure of compensatory damages which
therein respondent Ray Burton Development Inc. is liable to
Ayala Corporation. The dispositive portion of the decision in the
said case, which is squarely applicable to the case at bar, reads
as, follows:
WHEREFORE, premises considered, the assailed Decision of the
Court of Appeals dated February 27, 1996, in CA G.R. C.V. No.
46488, and its Resolution dated October 7, 1996 are hereby
REVERSED and SET ASIDE, and in lieu thereof judgement is
hereby rendered finding that:
1. The Deed Restrictions are valid and petitioner
AYALA is not estopped from enforcing them
against lot owners who have not yet adopted the
Consolidated and Revised Deed Restrictions.
2. Having admitted that the Consolidated and
Revised Deed Restrictions are the applicable Deed
Restrictions to Ray Burton Development
Corporation, RBDC should be, and is bound by the
same.
3. Considering that Ray Burton Development
Corporation’s Trafalgar plaza exceeds the floor
area limits of the Deed Restrictions, RBDC is
hereby ordered to pay development charges as
computed under the provisions of the consolidated
and Revised Deed Restrictions currently in force.
4. Ray Burton Development corporation is further
ordered to pay AYALA exemplary damages in the
amount of P2, 500,000.00 attorney’s fees in the
amount of P250,000.00
SO ORDERED:

There is no reason why the same rule should not be followed in

the case at bar, the remedies of specific performance and/or
rescission prayed for by petitioner no longer being feasible. In
accordance with the peculiar circumstances of the case at bar,
the development charges would certainly be a fair measure of
compensatory damages to petitioner Ayala.

Exemplary damages in the sum of P2, 500,000.00 as prayed for

by petitioner are also in order inasmuch as respondent Rosa-
Diana was in evident bad faith when it submitted a set of
building plans in conformity with the deed restrictions to
petitioner Ayala for the sole purpose of obtaining title to the
property, but only to prepare and later on submit another set of
buildings plans which are in gross violation of the Deed
Restrictions. Petitioner Ayala is likewise entitled to an award of
attorney’s fees in the sum of P250, 000.00.

WHEREFORE, the assailed Decision of the Court of Appeals

dated December 4, 1997 and its Resolution dated June 19,
1998, C.A. G.R. C.V. No. 4598, are REVERSED and SET ASIDE.
In lieu thereof, judgement is rendered.

a. orderings respondent Rosa-Diana Realty and

Development Corporation to pay development
charges as computed under the provisions of the
consolidated and Revised Deed Restrictions
currently in force; and
b. ordering respondent Rosa-Diana Realty and
Development Corporation to pay petitioner Ayala
Corporation exemplary damages in the sum of
P2,500,00.00, attorney’s fees in the sum of
P250,000.00 and the costs of the suit.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 115455 August 25, 1994
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER
OF INTERNAL REVENUE, respondents.
G.R. No. 115525 August 25, 1994
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary;
ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of
Internal Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 August 25, 1994
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE;
THE COMMISSIONERS OF THE BUREAU OF INTERNAL
REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 August 25, 1994
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING
CO., INC.; PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as
Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary;
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115754 August 25, 1994
CHAMBER OF REAL ESTATE AND BUILDERS
ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL
REVENUE, respondent.
G.R. No. 115781 August 25, 1994
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A.
RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE
T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO,
JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON,
RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE
CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF
ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND
NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., PHILIPPINE BIBLE SOCIETY, INC.,
and WIGBERTO TAÑADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF
FINANCE, THE COMMISSIONER OF INTERNAL REVENUE
and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 August 25, 1994
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE, and COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115873 August 25, 1994
COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 August 25, 1994
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION,
INC., and ASSOCIATION OF PHILIPPINE BOOK-
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue and HON.
GUILLERMO PARAYNO, JR., in his capacity as the
Commissioner of Customs, respondents.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners in
G.R. No. 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner
R.S. Roco.
Villaranza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in G.R.
No. 115754.
Salonga, Hernandez & Allado for Freedon From Debts Coalition,
Inc. & Phil. Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices for
petitioners in G.R. No. 115873.
R.B. Rodriguez & Associates for petitioners in G.R. No. 115931.
Reve A.V. Saguisag for MABINI.
MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross
selling price or gross value in money of goods or properties
sold, bartered or exchanged or of the gross receipts from the
sale or exchange of services. Republic Act No. 7716 seeks to
widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue
Code.
These are various suits for certiorari and prohibition, challenging
the constitutionality of Republic Act No. 7716 on various
grounds summarized in the resolution of July 6, 1994 of this
Court, as follows:
I. Procedural Issues:
 A. Does Republic Act No. 7716 violate Art. VI, § 24
of the Constitution?
B. Does it violate Art. VI, § 26(2) of the
Constitution?
C. What is the extent of the power of the
Bicameral Conference Committee?
II. Substantive Issues:
A. Does the law violate the following provisions in
the Bill of Rights (Art. III)?
1. §1
2. § 4
3. § 5
4. § 10
B. Does the law violate the following other
provisions of the Constitution?
1. Art. VI, § 28(1)
2. Art. VI, § 28(3)
These questions will be dealt in the order they are stated above.
As will presently be explained not all of these questions are
judicially cognizable, because not all provisions of the
Constitution are self executing and, therefore, judicially
enforceable. The other departments of the government are
equally charged with the enforcement of the Constitution,
especially the provisions relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic Act
No. 7716, or the Expanded Value-Added Tax Law, Congress
violated the Constitution because, although H. No. 11197 had
originated in the House of Representatives, it was not passed by
the Senate but was simply consolidated with the Senate version
(S. No. 1630) in the Conference Committee to produce the bill
which the President signed into law. The following provisions of
the Constitution are cited in support of the proposition that
because Republic Act No. 7716 was passed in this manner, it
did not originate in the House of Representatives and it has not
thereby become a law:
Art. VI, § 24: All appropriation, revenue or tariff
bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall
originate exclusively in the House of
Representatives, but the Senate may propose or
concur with amendments.
Id., § 26(2): No bill passed by either House shall
become a law unless it has passed three readings
on separate days, and printed copies thereof in its
final form have been distributed to its Members
three days before its passage, except when the
President certifies to the necessity of its immediate
enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and
the yeasand nays entered in the Journal.
It appears that on various dates between July 22, 1992 and
August 31, 1993, several bills 1 were introduced in the House of
Representatives seeking to amend certain provisions of the
National Internal Revenue Code relative to the value-added tax
or VAT. These bills were referred to the House Ways and Means
Committee which recommended for approval a substitute
measure, H. No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX
(VAT) SYSTEM TO WIDEN ITS TAX BASE AND
ENHANCE ITS ADMINISTRATION, AMENDING FOR
THESE PURPOSES SECTIONS 99, 100, 102, 103,
104, 105, 106, 107, 108 AND 110 OF TITLE IV,
112, 115 AND 116 OF TITLE V, AND 236, 237 AND
238 OF TITLE IX, AND REPEALING SECTIONS 113
AND 114 OF TITLE V, ALL OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED
The bill (H. No. 11197) was considered on second reading
starting November 6, 1993 and, on November 17, 1993, it was
approved by the House of Representatives after third and final
reading.
It was sent to the Senate on November 23, 1993 and later
referred by that body to its Committee on Ways and Means.
On February 7, 1994, the Senate Committee submitted its
report recommending approval of S. No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX
(VAT) SYSTEM TO WIDEN ITS TAX BASE AND
ENHANCE ITS ADMINISTRATION, AMENDING FOR
THESE PURPOSES SECTIONS 99, 100, 102, 103,
104, 105, 107, 108, AND 110 OF TITLE IV, 112 OF
TITLE V, AND 236, 237, AND 238 OF TITLE IX,
AND REPEALING SECTIONS 113, 114 and 116 OF
TITLE V, ALL OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES
It was stated that the bill was being submitted "in substitution
of Senate Bill No. 1129, taking into consideration P.S. Res. No.
734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of the bill
(S. No. 1630). It finished debates on the bill and approved it on
second reading on March 24, 1994. On the same day, it
approved the bill on third reading by the affirmative votes of 13
of its members, with one abstention.
H. No. 11197 and its Senate version (S. No. 1630) were then
referred to a conference committee which, after meeting four
times (April 13, 19, 21 and 25, 1994), recommended that
"House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of the
bill as reconciled and approved by the conferees."
The Conference Committee bill, entitled "AN ACT
RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION AND FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES," was thereafter approved by the House of
Representatives on April 27, 1994 and by the Senate on May 2,
1994. The enrolled bill was then presented to the President of
the Philippines who, on May 5, 1994, signed it. It became
Republic Act No. 7716. On May 12, 1994, Republic Act No. 7716
was published in two newspapers of general circulation and, on
May 28, 1994, it took effect, although its implementation was
suspended until June 30, 1994 to allow time for the registration
of business entities. It would have been enforced on July 1,
1994 but its enforcement was stopped because the Court, by
the vote of 11 to 4 of its members, granted a temporary
restraining order on June 30, 1994.
First. Petitioners' contention is that Republic Act No. 7716 did
not "originate exclusively" in the House of Representatives as
required by Art. VI, §24 of the Constitution, because it is in fact
the result of the consolidation of two distinct bills, H. No. 11197
and S. No. 1630. In this connection, petitioners point out that
although Art. VI, SS 24 was adopted from the American Federal
Constitution, 2 it is notable in two respects: the verb "shall
originate" is qualified in the Philippine Constitution by the word
"exclusively" and the phrase "as on other bills" in the American
version is omitted. This means, according to them, that to be
considered as having originated in the House, Republic Act No.
7716 must retain the essence of H. No. 11197.
This argument will not bear analysis. To begin with, it is not the
law — but the revenue bill — which is required by the
Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a
bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the
whole. The possibility of a third version by the conference
committee will be discussed later. At this point, what is
important to note is that, as a result of the Senate action, a
distinct bill may be produced. To insist that a revenue statute —
and not only the bill which initiated the legislative process
culminating in the enactment of the law — must substantially be
the same as the House bill would be to deny the Senate's power
not only to "concur with amendments" but also to "propose
amendments." It would be to violate the coequality of legislative
power of the two houses of Congress and in fact make the
House superior to the Senate.
The contention that the constitutional design is to limit the
Senate's power in respect of revenue bills in order to
compensate for the grant to the Senate of the treaty-ratifying
power 3 and thereby equalize its powers and those of the House
overlooks the fact that the powers being compared are
different. We are dealing here with the legislative power which
under the Constitution is vested not in any particular chamber
but in the Congress of the Philippines, consisting of "a Senate
and a House of Representatives." 4 The exercise of the treaty-
ratifying power is not the exercise of legislative power. It is the
exercise of a check on the executive power. There is, therefore,
no justification for comparing the legislative powers of the
House and of the Senate on the basis of the possession of such
nonlegislative power by the Senate. The possession of a similar
power by the U.S. Senate 5 has never been thought of as giving
it more legislative powers than the House of Representatives.
In the United States, the validity of a provision (§ 37) imposing
an ad valorem tax based on the weight of vessels, which the
U.S. Senate had inserted in the Tariff Act of 1909, was upheld
against the claim that the provision was a revenue bill which
originated in the Senate in contravention of Art. I, § 7 of the
U.S. Constitution. 6 Nor is the power to amend limited to adding
a provision or two in a revenue bill emanating from the House.
The U.S. Senate has gone so far as changing the whole of bills
following the enacting clause and substituting its own versions.
In 1883, for example, it struck out everything after the enacting
clause of a tariff bill and wrote in its place its own measure, and
the House subsequently accepted the amendment. The U.S.
Senate likewise added 847 amendments to what later became
the Payne-Aldrich Tariff Act of 1909; it dictated the schedules of
the Tariff Act of 1921; it rewrote an extensive tax revision bill in
the same year and recast most of the tariff bill of 1922. 7 Given,
then, the power of the Senate to propose amendments, the
Senate can propose its own version even with respect to bills
which are required by the Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was passed not in
substitution of H. No. 11197 but of another Senate bill (S. No.
1129) earlier filed and that what the Senate did was merely to
"take [H. No. 11197] into consideration" in enacting S. No.
1630. There is really no difference between the Senate
preserving H. No. 11197 up to the enacting clause and then
writing its own version following the enacting clause (which, it
would seem, petitioners admit is an amendment by
substitution), and, on the other hand, separately presenting a
bill of its own on the same subject matter. In either case the
result are two bills on the same subject.
Indeed, what the Constitution simply means is that the initiative
for filing revenue, tariff, or tax bills, bills authorizing an increase
of the public debt, private bills and bills of local application must
come from the House of Representatives on the theory that,
elected as they are from the districts, the members of the
House can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who are elected
at large, are expected to approach the same problems from the
national perspective. Both views are thereby made to bear on
the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the bill from the
House, so long as action by the Senate as a body is withheld
pending receipt of the House bill. The Court cannot, therefore,
understand the alarm expressed over the fact that on March 1,
1993, eight months before the House passed H. No. 11197, S.
No. 1129 had been filed in the Senate. After all it does not
appear that the Senate ever considered it. It was only after the
Senate had received H. No. 11197 on November 23, 1993 that
the process of legislation in respect of it began with the referral
to the Senate Committee on Ways and Means of H. No. 11197
and the submission by the Committee on February 7, 1994 of S.
No. 1630. For that matter, if the question were simply the
priority in the time of filing of bills, the fact is that it was in the
House that a bill (H. No. 253) to amend the VAT law was first
filed on July 22, 1992. Several other bills had been filed in the
House before S. No. 1129 was filed in the Senate, and H. No.
11197 was only a substitute of those earlier bills.
Second. Enough has been said to show that it was within the
power of the Senate to propose S. No. 1630. We now pass to
the next argument of petitioners that S. No. 1630 did not pass
three readings on separate days as required by the
Constitution 8 because the second and third readings were done
on the same day, March 24, 1994. But this was because on
February 24, 1994 9 and again on March 22, 1994, 10 the
President had certified S. No. 1630 as urgent. The presidential
certification dispensed with the requirement not only of printing
but also that of reading the bill on separate days. The phrase
"except when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, § 26(2) qualifies the two
stated conditions before a bill can become a law: (i) the bill has
passed three readings on separate days and (ii) it has been
printed in its final form and distributed three days before it is
finally approved.
In other words, the "unless" clause must be read in relation to
the "except" clause, because the two are really coordinate
clauses of the same sentence. To construe the "except" clause
as simply dispensing with the second requirement in the
"unless" clause (i.e., printing and distribution three days before
final approval) would not only violate the rules of grammar. It
would also negate the very premise of the "except" clause: the
necessity of securing the immediate enactment of a bill which is
certified in order to meet a public calamity or emergency. For if
it is only the printing that is dispensed with by presidential
certification, the time saved would be so negligible as to be of
any use in insuring immediate enactment. It may well be
doubted whether doing away with the necessity of printing and
distributing copies of the bill three days before the third reading
would insure speedy enactment of a law in the face of an
emergency requiring the calling of a special election for
President and Vice-President. Under the Constitution such a law
is required to be made within seven days of the convening of
Congress in emergency session. 11
That upon the certification of a bill by the President the
requirement of three readings on separate days and of printing
and distribution can be dispensed with is supported by the
weight of legislative practice. For example, the bill defining
the certiorari jurisdiction of this Court which, in consolidation
with the Senate version, became Republic Act No. 5440, was
passed on second and third readings in the House of
Representatives on the same day (May 14, 1968) after the bill
had been certified by the President as urgent. 12
There is, therefore, no merit in the contention that presidential
certification dispenses only with the requirement for the printing
of the bill and its distribution three days before its passage but
not with the requirement of three readings on separate days,
also.
It is nonetheless urged that the certification of the bill in this
case was invalid because there was no emergency, the
condition stated in the certification of a "growing budget deficit"
not being an unusual condition in this country.
It is noteworthy that no member of the Senate saw fit to
controvert the reality of the factual basis of the certification. To
the contrary, by passing S. No. 1630 on second and third
readings on March 24, 1994, the Senate accepted the
President's certification. Should such certification be now
reviewed by this Court, especially when no evidence has been
shown that, because S. No. 1630 was taken up on second and
third readings on the same day, the members of the Senate
were deprived of the time needed for the study of a vital piece
of legislation?
The sufficiency of the factual basis of the suspension of the writ
of habeas corpus or declaration of martial law under Art. VII, §
18, or the existence of a national emergency justifying the
delegation of extraordinary powers to the President under Art.
VI, § 23(2), is subject to judicial review because basic rights of
individuals may be at hazard. But the factual basis of
presidential certification of bills, which involves doing away with
procedural requirements designed to insure that bills are duly
considered by members of Congress, certainly should elicit a
different standard of review.
Petitioners also invite attention to the fact that the President
certified S. No. 1630 and not H. No. 11197. That is because S.
No. 1630 was what the Senate was considering. When the
matter was before the House, the President likewise certified H.
No. 9210 the pending in the House.
Third. Finally it is contended that the bill which became Republic
Act No. 7716 is the bill which the Conference Committee
prepared by consolidating H. No. 11197 and S. No. 1630. It is
claimed that the Conference Committee report included
provisions not found in either the House bill or the Senate bill
and that these provisions were "surreptitiously" inserted by the
Conference Committee. Much is made of the fact that in the last
two days of its session on April 21 and 25, 1994 the Committee
met behind closed doors. We are not told, however, whether
the provisions were not the result of the give and take that
often mark the proceedings of conference committees.
Nor is there anything unusual or extraordinary about the fact
that the Conference Committee met in executive sessions. Often
the only way to reach agreement on conflicting provisions is to
meet behind closed doors, with only the conferees present.
Otherwise, no compromise is likely to be made. The Court is not
about to take the suggestion of a cabal or sinister motive
attributed to the conferees on the basis solely of their "secret
meetings" on April 21 and 25, 1994, nor read anything into the
incomplete remarks of the members, marked in the transcript of
stenographic notes by ellipses. The incomplete sentences are
probably due to the stenographer's own limitations or to the
incoherence that sometimes characterize conversations. William
Safire noted some such lapses in recorded talks even by recent
past Presidents of the United States.
In any event, in the United States conference committees had
been customarily held in executive sessions with only the
conferees and their staffs in attendance. 13 Only in November
1975 was a new rule adopted requiring open sessions. Even
then a majority of either chamber's conferees may vote in
public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of a
Conference Committee, it has been explained:
Under congressional rules of procedure,
conference committees are not expected to make
any material change in the measure at issue,
either by deleting provisions to which both houses
have already agreed or by inserting new
provisions. But this is a difficult provision to
enforce. Note the problem when one house
amends a proposal originating in either house by
striking out everything following the enacting
clause and substituting provisions which make it
an entirely new bill. The versions are now
altogether different, permitting a conference
committee to draft essentially a new bill. . . . 15
The result is a third version, which is considered an
"amendment in the nature of a substitute," the only
requirement for which being that the third version be germane
to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power of a
conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the
Senate bill. 17 If the committee can propose an amendment
consisting of one or two provisions, there is no reason why it
cannot propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such
amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the
approval of both houses of Congress to become valid as an act
of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is
thus without any basis. 18
Nonetheless, it is argued that under the respective Rules of the
Senate and the House of Representatives a conference
committee can only act on the differing provisions of a Senate
bill and a House bill, and that contrary to these Rules the
Conference Committee inserted provisions not found in the bills
submitted to it. The following provisions are cited in support of
this contention:
Rules of the Senate
Rule XII:
§ 26. In the event that the Senate does not agree
with the House of Representatives on the
provision of any bill or joint
resolution, the differences shall be settled by a
conference committee of both Houses which shall
meet within ten days after their composition.
The President shall designate the members of the
conference committee in accordance with
subparagraph (c), Section 3 of Rule III.
Each Conference Committee Report shall contain a
detailed and sufficiently explicit statement of the
changes in or amendments to the subject
measure, and shall be signed by the conferees.
The consideration of such report shall not be in
order unless the report has been filed with the
Secretary of the Senate and copies thereof have
been distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
§ 85. Conference Committee Reports. — In the
event that the House does not agree with the
Senate on the amendments to any bill or joint
resolution, the differences may be settled by
conference committees of both Chambers.
The consideration of conference committee
reports shall always be in order, except when the
journal is being read, while the roll is being called
or the House is dividing on any question. Each of
the pages of such reports shall be signed by the
conferees. Each report shall contain a detailed,
sufficiently explicit statement of the changes in or
amendments to the subject measure.
The consideration of such report shall not be in
order unless copies thereof are distributed to the
Members: Provided, That in the last fifteen days of
each session period it shall be deemed sufficient
that three copies of the report, signed as above
provided, are deposited in the office of the
Secretary General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference committee
to a consideration of conflicting provisions. But Rule XLIV, § 112
of the Rules of the Senate is cited to the effect that "If there is
no Rule applicable to a specific case the precedents of the
Legislative Department of the Philippines shall be resorted to,
and as a supplement of these, the Rules contained in Jefferson's
Manual." The following is then quoted from the Jefferson's
Manual:
The managers of a conference must confine
themselves to the differences committed to them.
. . and may not include subjects not within
disagreements, even though germane to a
question in issue.
Note that, according to Rule XLIX, § 112, in case there is no
specific rule applicable, resort must be to the legislative
practice. The Jefferson's Manual is resorted to only as
supplement. It is common place in Congress that conference
committee reports include new matters which, though germane,
have not been committed to the committee. This practice was
admitted by Senator Raul S. Roco, petitioner in G.R. No.
115543, during the oral argument in these cases. Whatever,
then, may be provided in the Jefferson's Manual must be
considered to have been modified by the legislative practice. If
a change is desired in the practice it must be sought in
Congress since this question is not covered by any constitutional
provision but is only an internal rule of each house. Thus, Art.
VI, § 16(3) of the Constitution provides that "Each House may
determine the rules of its proceedings. . . ."
This observation applies to the other contention that the Rules
of the two chambers were likewise disregarded in the
preparation of the Conference Committee Report because the
Report did not contain a "detailed and sufficiently explicit
statement of changes in, or amendments to, the subject
measure." The Report used brackets and capital letters to
indicate the changes. This is a standard practice in bill-drafting.
We cannot say that in using these marks and symbols the
Committee violated the Rules of the Senate and the House.
Moreover, this Court is not the proper forum for the
enforcement of these internal Rules. To the contrary, as we
have already ruled, "parliamentary rules are merely procedural
and with their observance the courts have no concern." 19 Our
concern is with the procedural requirements of the Constitution
for the enactment of laws. As far as these requirements are
concerned, we are satisfied that they have been faithfully
observed in these cases.
Nor is there any reason for requiring that the Committee's
Report in these cases must have undergone three readings in
each of the two houses. If that be the case, there would be no
end to negotiation since each house may seek modifications of
the compromise bill. The nature of the bill, therefore, requires
that it be acted upon by each house on a "take it or leave it"
basis, with the only alternative that if it is not approved by both
houses, another conference committee must be appointed. But
then again the result would still be a compromise measure that
may not be wholly satisfying to both houses.
Art. VI, § 26(2) must, therefore, be construed as referring only
to bills introduced for the first time in either house of Congress,
not to the conference committee report. For if the purpose of
requiring three readings is to give members of Congress time to
study bills, it cannot be gainsaid that H. No. 11197 was passed
in the House after three readings; that in the Senate it was
considered on first reading and then referred to a committee of
that body; that although the Senate committee did not report
out the House bill, it submitted a version (S. No. 1630) which it
had prepared by "taking into consideration" the House bill; that
for its part the Conference Committee consolidated the two bills
and prepared a compromise version; that the Conference
Committee Report was thereafter approved by the House and
the Senate, presumably after appropriate study by their
members. We cannot say that, as a matter of fact, the members
of Congress were not fully informed of the provisions of the bill.
The allegation that the Conference Committee usurped the
legislative power of Congress is, in our view, without warrant in
fact and in law.
Fourth. Whatever doubts there may be as to the formal validity
of Republic Act No. 7716 must be resolved in its favor. Our
cases 20 manifest firm adherence to the rule that an enrolled
copy of a bill is conclusive not only of its provisions but also of
its due enactment. Not even claims that a proposed
constitutional amendment was invalid because the requisite
votes for its approval had not been obtained 21 or that certain
provisions of a statute had been "smuggled" in the printing of
the bill 22 have moved or persuaded us to look behind the
proceedings of a coequal branch of the government. There is no
reason now to depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute. In
fact in one case 23 we "went behind" an enrolled bill and
consulted the Journal to determine whether certain provisions
of a statute had been approved by the Senate in view of the
fact that the President of the Senate himself, who had signed
the enrolled bill, admitted a mistake and withdrew his signature,
so that in effect there was no longer an enrolled bill to consider.
But where allegations that the constitutional procedures for the
passage of bills have not been observed have no more basis
than another allegation that the Conference Committee
"surreptitiously" inserted provisions into a bill which it had
prepared, we should decline the invitation to go behind the
enrolled copy of the bill. To disregard the "enrolled bill" rule in
such cases would be to disregard the respect due the other two
departments of our government.
Fifth. An additional attack on the formal validity of Republic Act
No. 7716 is made by the Philippine Airlines, Inc., petitioner in
G.R. No. 11582, namely, that it violates Art. VI, § 26(1) which
provides that "Every bill passed by Congress shall embrace only
one subject which shall be expressed in the title thereof." It is
contended that neither H. No. 11197 nor S. No. 1630 provided
for removal of exemption of PAL transactions from the payment
of the VAT and that this was made only in the Conference
Committee bill which became Republic Act No. 7716 without
reflecting this fact in its title.
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE VALUE- ADDED
TAX (VAT) SYSTEM, WIDENING ITS TAX BASE
AND ENHANCING ITS ADMINISTRATION, AND
FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
Among the provisions of the NIRC amended is § 103, which
originally read:
§ 103. Exempt transactions. — The following shall
be exempt from the value-added tax:
....
(q) Transactions which are exempt under special
laws or international agreements to which the
Philippines is a signatory. Among the transactions
exempted from the VAT were those of PAL
because it was exempted under its franchise (P.D.
No. 1590) from the payment of all "other taxes . .
. now or in the near future," in consideration of
the payment by it either of the corporate income
tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, § 103 of
the NIRC now provides:
§ 103. Exempt transactions. — The following shall
be exempt from the value-added tax:
....
(q) Transactions which are exempt under special
laws, except those granted under Presidential
Decree Nos. 66, 529, 972, 1491, 1590. . . .
The effect of the amendment is to remove the exemption
granted to PAL, as far as the VAT is concerned.
The question is whether this amendment of § 103 of the NIRC
is fairly embraced in the title of Republic Act No. 7716, although
no mention is made therein of P.D. No. 1590 as among those
which the statute amends. We think it is, since the title states
that the purpose of the statute is to expand the VAT system,
and one way of doing this is to widen its base by withdrawing
some of the exemptions granted before. To insist that P.D. No.
1590 be mentioned in the title of the law, in addition to § 103 of
the NIRC, in which it is specifically referred to, would be to
insist that the title of a bill should be a complete index of its
content.
The constitutional requirement that every bill passed by
Congress shall embrace only one subject which shall be
expressed in its title is intended to prevent surprise upon the
members of Congress and to inform the people of pending
legislation so that, if they wish to, they can be heard regarding
it. If, in the case at bar, petitioner did not know before that its
exemption had been withdrawn, it is not because of any defect
in the title but perhaps for the same reason other statutes,
although published, pass unnoticed until some event somehow
calls attention to their existence. Indeed, the title of Republic
Act No. 7716 is not any more general than the title of PAL's own
franchise under P.D. No. 1590, and yet no mention is made of
its tax exemption. The title of P.D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO
PHILIPPINE AIRLINES, INC. TO ESTABLISH,
OPERATE, AND MAINTAIN AIR-TRANSPORT
SERVICES IN THE PHILIPPINES AND BETWEEN
THE PHILIPPINES AND OTHER COUNTRIES.
The trend in our cases is to construe the constitutional
requirement in such a manner that courts do not unduly
interfere with the enactment of necessary legislation and to
consider it sufficient if the title expresses the general subject of
the statute and all its provisions are germane to the general
subject thus expressed. 24
It is further contended that amendment of petitioner's franchise
may only be made by special law, in view of § 24 of P.D. No.
1590 which provides:
This franchise, as amended, or any section or
provision hereof may only be modified, amended,
or repealed expressly by a special law or decree
that shall specifically modify, amend, or repeal this
franchise or any section or provision thereof.
This provision is evidently intended to prevent the amendment
of the franchise by mere implication resulting from the
enactment of a later inconsistent statute, in consideration of the
fact that a franchise is a contract which can be altered only by
consent of the parties. Thus in Manila Railroad Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress, which
provided for the payment of tax on certain goods and articles
imported into the Philippines, did not amend the franchise of
plaintiff, which exempted it from all taxes except those
mentioned in its franchise. It was held that a special law cannot
be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716 expressly
amends PAL's franchise (P.D. No. 1590) by specifically
excepting from the grant of exemptions from the VAT PAL's
exemption under P.D. No. 1590. This is within the power of
Congress to do under Art. XII, § 11 of the Constitution, which
provides that the grant of a franchise for the operation of a
public utility is subject to amendment, alteration or repeal by
Congress when the common good so requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press
Freedom, Freedom of
Thought and Religious
Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No.
115544, is a nonprofit organization of newspaper publishers
established for the improvement of journalism in the Philippines.
On the other hand, petitioner in G.R. No. 115781, the Philippine
Bible Society (PBS), is a nonprofit organization engaged in the
printing and distribution of bibles and other religious articles.
Both petitioners claim violations of their rights under § § 4 and
5 of the Bill of Rights as a result of the enactment of the VAT
Law.
The PPI questions the law insofar as it has withdrawn the
exemption previously granted to the press under § 103 (f) of
the NIRC. Although the exemption was subsequently restored
by administrative regulation with respect to the circulation
income of newspapers, the PPI presses its claim because of the
possibility that the exemption may still be removed by mere
revocation of the regulation of the Secretary of Finance. On the
other hand, the PBS goes so far as to question the Secretary's
power to grant exemption for two reasons: (1) The Secretary of
Finance has no power to grant tax exemption because this is
vested in Congress and requires for its exercise the vote of a
majority of all its members 26 and (2) the Secretary's duty is to
execute the law.
§ 103 of the NIRC contains a list of transactions exempted from
VAT. Among the transactions previously granted exemption
were:
(f) Printing, publication, importation or sale of
books and any newspaper, magazine, review, or
bulletin which appears at regular intervals with
fixed prices for subscription and sale and which is
devoted principally to the publication of
advertisements.
Republic Act No. 7716 amended § 103 by deleting ¶ (f) with the
result that print media became subject to the VAT with respect
to all aspects of their operations. Later, however, based on a
memorandum of the Secretary of Justice, respondent Secretary
of Finance issued Revenue Regulations No. 11-94, dated June
27, 1994, exempting the "circulation income of print media
pursuant to § 4 Article III of the 1987 Philippine Constitution
guaranteeing against abridgment of freedom of the press,
among others." The exemption of "circulation income" has left
income from advertisements still subject to the VAT.
It is unnecessary to pass upon the contention that the
exemption granted is beyond the authority of the Secretary of
Finance to give, in view of PPI's contention that even with the
exemption of the circulation revenue of print media there is still
an unconstitutional abridgment of press freedom because of the
imposition of the VAT on the gross receipts of newspapers from
advertisements and on their acquisition of paper, ink and
services for publication. Even on the assumption that no
exemption has effectively been granted to print media
transactions, we find no violation of press freedom in these
cases.
To be sure, we are not dealing here with a statute that on its
face operates in the area of press freedom. The PPI's claim is
simply that, as applied to newspapers, the law abridges press
freedom. Even with due recognition of its high estate and its
importance in a democratic society, however, the press is not
immune from general regulation by the State. It has been held:
The publisher of a newspaper has no immunity
from the application of general laws. He has no
special privilege to invade the rights and liberties
of others. He must answer for libel. He may be
punished for contempt of court. . . . Like others,
he must pay equitable and nondiscriminatory
taxes on his business. . . . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption
previously granted to print media transactions involving
printing, publication, importation or sale of newspapers,
Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass
media the law discriminates against print media by giving
broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a differential
treatment of the press by the law, much less any censorial
motivation for its enactment. If the press is now required to pay
a value-added tax on its transactions, it is not because it is
being singled out, much less targeted, for special treatment but
only because of the removal of the exemption previously
granted to it by law. The withdrawal of exemption is all that is
involved in these cases. Other transactions, likewise previously
granted exemption, have been delisted as part of the scheme to
expand the base and the scope of the VAT system. The law
would perhaps be open to the charge of discriminatory
treatment if the only privilege withdrawn had been that granted
to the press. But that is not the case.
The situation in the case at bar is indeed a far cry from those
cited by the PPI in support of its claim that Republic Act No.
7716 subjects the press to discriminatory taxation. In the cases
cited, the discriminatory purpose was clear either from the
background of the law or from its operation. For example,
in Grosjean v. American Press Co., 28 the law imposed a license
tax equivalent to 2% of the gross receipts derived from
advertisements only on newspapers which had a circulation of
more than 20,000 copies per week. Because the tax was not
based on the volume of advertisement alone but was measured
by the extent of its circulation as well, the law applied only to
the thirteen large newspapers in Louisiana, leaving untaxed four
papers with circulation of only slightly less than 20,000 copies a
week and 120 weekly newspapers which were in serious
competition with the thirteen newspapers in question. It was
well known that the thirteen newspapers had been critical of
Senator Huey Long, and the Long-dominated legislature of
Louisiana respondent by taxing what Long described as the
"lying newspapers" by imposing on them "a tax on lying." The
effect of the tax was to curtail both their revenue and their
circulation. As the U.S. Supreme Court noted, the tax was "a
deliberate and calculated device in the guise of a tax to limit the
circulation of information to which the public is entitled in virtue
of the constitutional guaranties." 29 The case is a classic
illustration of the warning that the power to tax is the power to
destroy.
In the other case 30 invoked by the PPI, the press was also
found to have been singled out because everything was exempt
from the "use tax" on ink and paper, except the press.
Minnesota imposed a tax on the sales of goods in that state. To
protect the sales tax, it enacted a complementary tax on the
privilege of "using, storing or consuming in that state tangible
personal property" by eliminating the residents' incentive to get
goods from outside states where the sales tax might be lower.
The Minnesota Star Tribune was exempted from both taxes
from 1967 to 1971. In 1971, however, the state legislature
amended the tax scheme by imposing the "use tax" on the cost
of paper and ink used for publication. The law was held to have
singled out the press because (1) there was no reason for
imposing the "use tax" since the press was exempt from the
sales tax and (2) the "use tax" was laid on an "intermediate
transaction rather than the ultimate retail sale." Minnesota had
a heavy burden of justifying the differential treatment and it
failed to do so. In addition, the U.S. Supreme Court found the
law to be discriminatory because the legislature, by again
amending the law so as to exempt the first $100,000 of paper
and ink used, further narrowed the coverage of the tax so that
"only a handful of publishers pay any tax at all and even fewer
pay any significant amount of tax." 31 The discriminatory
purpose was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it
was held that a law which taxed general interest magazines but
not newspapers and religious, professional, trade and sports
journals was discriminatory because while the tax did not single
out the press as a whole, it targeted a small group within the
press. What is more, by differentiating on the basis of contents
(i.e., between general interest and special interests such as
religion or sports) the law became "entirely incompatible with
the First Amendment's guarantee of freedom of the press."
These cases come down to this: that unless justified, the
differential treatment of the press creates risks of suppression
of expression. In contrast, in the cases at bar, the statute
applies to a wide range of goods and services. The argument
that, by imposing the VAT only on print media whose gross
sales exceeds P480,000 but not more than P750,000, the law
discriminates 33 is without merit since it has not been shown
that as a result the class subject to tax has been unreasonably
narrowed. The fact is that this limitation does not apply to the
press along but to all sales. Nor is impermissible motive shown
by the fact that print media and broadcast media are treated
differently. The press is taxed on its transactions involving
printing and publication, which are different from the
transactions of broadcast media. There is thus a reasonable
basis for the classification.
The cases canvassed, it must be stressed, eschew any
suggestion that "owners of newspapers are immune from any
forms of ordinary taxation." The license tax in the Grosjean case
was declared invalid because it was "one single in kind, with a
long history of hostile misuse against the freedom of the
press." 34 On the other hand, Minneapolis Star acknowledged
that "The First Amendment does not prohibit all regulation of
the press [and that] the States and the Federal Government can
subject newspapers to generally applicable economic
regulations without creating constitutional problems." 35
What has been said above also disposes of the allegations of
the PBS that the removal of the exemption of printing,
publication or importation of books and religious articles, as well
as their printing and publication, likewise violates freedom of
thought and of conscience. For as the U.S. Supreme Court
unanimously held in Jimmy Swaggart Ministries v. Board of
Equalization, 36 the Free Exercise of Religion Clause does not
prohibit imposing a generally applicable sales and use tax on
the sale of religious materials by a religious organization.
This brings us to the question whether the registration provision
of the law, 37 although of general applicability, nonetheless is
invalid when applied to the press because it lays a prior
restraint on its essential freedom. The case ofAmerican Bible
Society v. City of Manila 38 is cited by both the PBS and the PPI
in support of their contention that the law imposes censorship.
There, this Court held that an ordinance of the City of Manila,
which imposed a license fee on those engaged in the business
of general merchandise, could not be applied to the appellant's
sale of bibles and other religious literature. This Court relied
on Murdock v. Pennsylvania, 39 in which it was held that, as a
license fee is fixed in amount and unrelated to the receipts of
the taxpayer, the license fee, when applied to a religious sect,
was actually being imposed as a condition for the exercise of
the sect's right under the Constitution. For that reason, it was
held, the license fee "restrains in advance those constitutional
liberties of press and religion and inevitably tends to suppress
their exercise." 40
But, in this case, the fee in § 107, although a fixed amount
(P1,000), is not imposed for the exercise of a privilege but only
for the purpose of defraying part of the cost of registration. The
registration requirement is a central feature of the VAT system.
It is designed to provide a record of tax credits because any
person who is subject to the payment of the VAT pays an input
tax, even as he collects an output tax on sales made or services
rendered. The registration fee is thus a mere administrative fee,
one not imposed on the exercise of a privilege, much less a
constitutional right.
For the foregoing reasons, we find the attack on Republic Act
No. 7716 on the ground that it offends the free speech, press
and freedom of religion guarantees of the Constitution to be
without merit. For the same reasons, we find the claim of the
Philippine Educational Publishers Association (PEPA) in G.R. No.
115931 that the increase in the price of books and other
educational materials as a result of the VAT would violate the
constitutional mandate to the government to give priority to
education, science and technology (Art. II, § 17) to be
untenable.
B. Claims of
Regressivity, Denial of
 Due Process, Equal
Protection, and
Impairment
of Contracts
There is basis for passing upon claims that on its face the
statute violates the guarantees of freedom of speech, press and
religion. The possible "chilling effect" which it may have on the
essential freedom of the mind and conscience and the need to
assure that the channels of communication are open and
operating importunately demand the exercise of this Court's
power of review.
There is, however, no justification for passing upon the claims
that the law also violates the rule that taxation must be
progressive and that it denies petitioners' right to due process
and that equal protection of the laws. The reason for this
different treatment has been cogently stated by an eminent
authority on constitutional law thus: "[W]hen freedom of the
mind is imperiled by law, it is freedom that commands a
momentum of respect; when property is imperiled it is the
lawmakers' judgment that commands respect. This dual
standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does set
up a hierarchy of values within the due process clause." 41
Indeed, the absence of threat of immediate harm makes the
need for judicial intervention less evident and underscores the
essential nature of petitioners' attack on the law on the grounds
of regressivity, denial of due process and equal protection and
impairment of contracts as a mere academic discussion of the
merits of the law. For the fact is that there have even been no
notices of assessments issued to petitioners and no
determinations at the administrative levels of their claims so as
to illuminate the actual operation of the law and enable us to
reach sound judgment regarding so fundamental questions as
those raised in these suits.
Thus, the broad argument against the VAT is that it is
regressive and that it violates the requirement that "The rule of
taxation shall be uniform and equitable [and] Congress shall
evolve a progressive system of taxation." 42Petitioners in G.R.
No. 115781 quote from a paper, entitled "VAT Policy Issues:
Structure, Regressivity, Inflation and Exports" by Alan A. Tait of
the International Monetary Fund, that "VAT payment by low-
income households will be a higher proportion of their incomes
(and expenditures) than payments by higher-income
households. That is, the VAT will be regressive." Petitioners
contend that as a result of the uniform 10% VAT, the tax on
consumption goods of those who are in the higher-income
bracket, which before were taxed at a rate higher than 10%,
has been reduced, while basic commodities, which before were
taxed at rates ranging from 3% to 5%, are now taxed at a
higher rate.
Just as vigorously as it is asserted that the law is regressive, the
opposite claim is pressed by respondents that in fact it
distributes the tax burden to as many goods and services as
possible particularly to those which are within the reach of
higher-income groups, even as the law exempts basic goods
and services. It is thus equitable. The goods and properties
subject to the VAT are those used or consumed by higher-
income groups. These include real properties held primarily for
sale to customers or held for lease in the ordinary course of
business, the right or privilege to use industrial, commercial or
scientific equipment, hotels, restaurants and similar places,
tourist buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than P500,000,
are exempted. This, according to respondents, removes from
the coverage of the law some 30,000 business establishments.
On the other hand, an occasional paper 43 of the Center for
Research and Communication cities a NEDA study that the VAT
has minimal impact on inflation and income distribution and that
while additional expenditure for the lowest income class is only
P301 or 1.49% a year, that for a family earning P500,000 a
year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the VAT is
regressive in the sense that it will hit the "poor" and middle-
income group in society harder than it will the "rich," as the
Cooperative Union of the Philippines (CUP) claims in G.R. No.
115873, is largely an academic exercise. On the other hand, the
CUP's contention that Congress' withdrawal of exemption of
producers cooperatives, marketing cooperatives, and service
cooperatives, while maintaining that granted to electric
cooperatives, not only goes against the constitutional policy to
promote cooperatives as instruments of social justice (Art. XII,
§ 15) but also denies such cooperatives the equal protection of
the law is actually a policy argument. The legislature is not
required to adhere to a policy of "all or none" in choosing the
subject of taxation.44
Nor is the contention of the Chamber of Real Estate and
Builders Association (CREBA), petitioner in G.R. 115754, that
the VAT will reduce the mark up of its members by as much as
85% to 90% any more concrete. It is a mere allegation. On the
other hand, the claim of the Philippine Press Institute, petitioner
in G.R. No. 115544, that the VAT will drive some of its members
out of circulation because their profits from advertisements will
not be enough to pay for their tax liability, while purporting to
be based on the financial statements of the newspapers in
question, still falls short of the establishment of facts by
evidence so necessary for adjudicating the question whether the
tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts to
enforce. What Congress is required by the Constitution to do is
to "evolve a progressive system of taxation." This is a directive
to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and
the reduction of social, economic and political inequalities (Art.
XIII, § 1), or for the promotion of the right to "quality
education" (Art. XIV, § 1). These provisions are put in the
Constitution as moral incentives to legislation, not as judicially
enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have laid
to rest the questions now raised against the VAT. There similar
arguments made against the original VAT Law (Executive Order
No. 273) were held to be hypothetical, with no more basis than
newspaper articles which this Court found to be "hearsay and
[without] evidentiary value." As Republic Act No. 7716 merely
expands the base of the VAT system and its coverage as
provided in the original VAT Law, further debate on the
desirability and wisdom of the law should have shifted to
Congress.
Only slightly less abstract but nonetheless hypothetical is the
contention of CREBA that the imposition of the VAT on the sales
and leases of real estate by virtue of contracts entered into prior
to the effectivity of the law would violate the constitutional
provision that "No law impairing the obligation of contracts shall
be passed." It is enough to say that the parties to a contract
cannot, through the exercise of prophetic discernment, fetter
the exercise of the taxing power of the State. For not only are
existing laws read into contracts in order to fix obligations as
between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate
of the legal order. The policy of protecting contracts against
impairment presupposes the maintenance of a government
which retains adequate authority to secure the peace and good
order of society. 46
In truth, the Contract Clause has never been thought as a
limitation on the exercise of the State's power of taxation save
only where a tax exemption has been granted for a valid
consideration. 47 Such is not the case of PAL in G.R. No.
115852, and we do not understand it to make this claim.
Rather, its position, as discussed above, is that the removal of
its tax exemption cannot be made by a general, but only by a
specific, law.
The substantive issues raised in some of the cases are
presented in abstract, hypothetical form because of the lack of
a concrete record. We accept that this Court does not only
adjudicate private cases; that public actions by "non-
Hohfeldian" 48 or ideological plaintiffs are now cognizable
provided they meet the standing requirement of the
Constitution; that under Art. VIII, § 1, ¶ 2 the Court has a
"special function" of vindicating constitutional rights.
Nonetheless the feeling cannot be escaped that we do not have
before us in these cases a fully developed factual record that
alone can impart to our adjudication the impact of
actuality 49 to insure that decision-making is informed and well
grounded. Needless to say, we do not have power to render
advisory opinions or even jurisdiction over petitions for
declaratory judgment. In effect we are being asked to do what
the Conference Committee is precisely accused of having done
in these cases — to sit as a third legislative chamber to review
legislation.
We are told, however, that the power of judicial review is not so
much power as it is duty imposed on this Court by the
Constitution and that we would be remiss in the performance of
that duty if we decline to look behind the barriers set by the
principle of separation of powers. Art. VIII, § 1, ¶ 2 is cited in
support of this view:
Judicial power includes the duty of the courts of
justice to settle actual controversies involving
rights which are legally demandable and
enforceable, and to determine whether or not
there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the
Government.
To view the judicial power of review as a duty is nothing new.
Chief Justice Marshall said so in 1803, to justify the assertion of
this power in Marbury v. Madison:
It is emphatically the province and duty of the
judicial department to say what the law is. Those
who apply the rule to particular cases must of
necessity expound and interpret that rule. If two
laws conflict with each other, the courts must
decide on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v.
Electoral Commission:
And when the judiciary mediates to allocate
constitutional boundaries, it does not assert any
superiority over the other departments; it does not
in reality nullify or invalidate an act of the
legislature, but only asserts the solemn and sacred
obligation assigned to it by the Constitution to
determine conflicting claims of authority under the
Constitution and to establish for the parties in an
actual controversy the rights which that
instrument secures and guarantees to them. 51
This conception of the judicial power has been affirmed in
several
cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to
justify this Court's intervention in what is essentially a case that
at best is not ripe for adjudication. That duty must still be
performed in the context of a concrete case or controversy, as
Art. VIII, § 5(2) clearly defines our jurisdiction in terms of
"cases," and nothing but "cases." That the other departments of WHEREFORE, the petitions in these cases are DISMISSED.
the government may have committed a grave abuse of
discretion is not an independent ground for exercising our Bidin, Quiason, and Kapunan, JJ., concur.
power. Disregard of the essential limits imposed by the case
and controversy requirement can in the long run only result in
undermining our authority as a court of law. For, as judges,
what we are called upon to render is judgment according to
law, not according to what may appear to be the opinion of the
day.

_______________________________

In the preceeding pages we have endeavored to discuss, within

limits, the validity of Republic Act No. 7716 in its formal and
substantive aspects as this has been raised in the various cases
before us. To sum up, we hold:

(1) That the procedural requirements of the Constitution have

been complied with by Congress in the enactment of the
statute;

(2) That judicial inquiry whether the formal requirements for the
enactment of statutes — beyond those prescribed by the
Constitution — have been observed is precluded by the principle
of separation of powers;

(3) That the law does not abridge freedom of speech,

expression or the press, nor interfere with the free exercise of
religion, nor deny to any of the parties the right to an
education; and

(4) That, in view of the absence of a factual foundation of

record, claims that the law is regressive, oppressive and
confiscatory and that it violates vested rights protected under
the Contract Clause are prematurely raised and do not justify
the grant of prospective relief by writ of prohibition.
 Republic of the Philippines First the facts.
SUPREME COURT
Manila On July 3, 1993, R.A. No. 7653 (the New Central Bank Act) took
effect. It abolished the old Central Bank of the Philippines, and
EN BANC created a new BSP.

G.R. No. 148208 December 15, 2004 On June 8, 2001, almost eight years after the effectivity of
R.A. No. 7653, petitioner Central Bank (now BSP) Employees
CENTRAL BANK (now Bangko Sentral ng Pilipinas) Association, Inc., filed a petition for prohibition against BSP and
EMPLOYEES ASSOCIATION, INC., petitioner, the Executive Secretary of the Office of the President, to
vs. restrain respondents from further implementing the
BANGKO SENTRAL NG PILIPINAS and the EXECUTIVE last proviso in Section 15(c), Article II of R.A. No. 7653, on the
SECRETARY, respondents. ground that it is unconstitutional.

Article II, Section 15(c) of R.A. No. 7653 provides:

Section 15. Exercise of Authority - In the exercise of its

DECISION authority, the Monetary Board shall:

xxx xxx xxx

(c) establish a human resource management system

PUNO, J.:
Can a provision of law, initially valid,
become subsequently unconstitutional, on the ground that
its continuedoperation would violate the equal protection of
the law? We hold that with the passage of the subsequent laws
amending the charter of seven (7) other governmental financial
institutions (GFIs), the continued operation of the last proviso of
Section 15(c), Article II of Republic Act (R.A.) No. 7653,
constitutes invidious discrimination on the2,994 rank-and-file
employees of the Bangko Sentral ng Pilipinas (BSP).
I.
The Case
which shall govern the selection, hiring, appointment,
transfer, promotion, or dismissal of all personnel. Such
system shall aim to establish professionalism and
excellence at all levels of the Bangko Sentral in
accordance with sound principles of management.
A compensation structure, based on job evaluation
studies and wage surveys and subject to the Board's
approval, shall be instituted as an integral component of
the Bangko Sentral's human resource development
program: Provided, That the Monetary Board shall make
its own system conform as closely as possible with the
principles provided for under Republic Act No. 6758
[Salary Standardization Act].Provided, however, That
compensation and wage structure of employees
 whose positions fall under salary grade 19 and
below shall be in accordance with the rates
prescribed under Republic Act No. 6758. [emphasis
supplied]
The thrust of petitioner's challenge is that the
above proviso makes an unconstitutional cut between two
classes of employees in the BSP, viz: (1) the BSP officers or
those exempted from the coverage of the Salary
Standardization Law (SSL) (exempt class); and (2) the rank-
and-file (Salary Grade [SG] 19 and below), or those not
exempted from the coverage of the SSL (non-exempt class). It
is contended that this classification is "a classic case of class
legislation," allegedly not based on substantial distinctions which
make real differences, but solely on the SG of the BSP
personnel's position. Petitioner also claims that it is not germane
to the purposes of Section 15(c), Article II of R.A. No. 7653, the
most important of which is to establish professionalism and
excellence at all levels in the BSP.1 Petitioner offers the
following sub-set of arguments:
a. the legislative history of R.A. No. 7653 shows that the
questioned proviso does not appear in the original and
amended versions of House Bill No. 7037, nor in the
original version of Senate Bill No. 1235; 2
b. subjecting the compensation of the BSP rank-and-file
employees to the rate prescribed by the SSL actually
defeats the purpose of the law3 of establishing
professionalism and excellence at all levels in the
BSP; 4 (emphasis supplied)
c. the assailed proviso was the product of amendments
introduced during the deliberation of Senate Bill No.
1235, without showing its relevance to the objectives of
the law, and even admitted by one senator as
discriminatory against low-salaried employees of the
BSP;5
d. GSIS, LBP, DBP and SSS personnel are all exempted
from the coverage of the SSL; thus within the class of
rank-and-file personnel of government financial
institutions (GFIs), the BSP rank-and-file are also
discriminated upon;6 and
e. the assailed proviso has caused the demoralization
among the BSP rank-and-file and resulted in the gross
disparity between their compensation and that of the BSP
officers'.7
In sum, petitioner posits that the classification is not
reasonable but arbitrary and capricious, and violates the equal
protection clause of the Constitution.8 Petitioner also stresses:
(a) that R.A. No. 7653 has a separability clause, which will allow
the declaration of the unconstitutionality of the proviso in
question without affecting the other provisions; and (b) the
urgency and propriety of the petition, as some 2,994 BSP
rank-and-file employeeshave been prejudiced since
1994 when the proviso was implemented. Petitioner concludes
that: (1) since the inequitable proviso has no force and effect of
law, respondents' implementation of such amounts to lack of
jurisdiction; and (2) it has no appeal nor any other plain, speedy
and adequate remedy in the ordinary course except through
this petition for prohibition, which this Court should take
cognizance of, considering the transcendental importance of the
legal issue involved.9
Respondent BSP, in its comment,10 contends that the provision
does not violate the equal protection clause and can stand the
constitutional test, provided it is construed in harmony with
other provisions of the same law, such as "fiscal and
administrative autonomy of BSP," and the mandate of the
Monetary Board to "establish professionalism and excellence at
all levels in accordance with sound principles of management."
The Solicitor General, on behalf of respondent Executive
Secretary, also defends the validity of the provision. Quite
simplistically, he argues that the classification is based on actual
and real differentiation, even as it adheres to the enunciated
policy of R.A. No. 7653 to establish professionalism and
excellence within the BSP subject to prevailing laws and policies
of the national government.11
II.
Issue
Thus, the sole - albeit significant - issue to be resolved in this
case is whether the last paragraph of Section 15(c), Article II of
R.A. No. 7653, runs afoul of the constitutional mandate that "No
person shall be. . . denied the equal protection of the laws."12
III.
Ruling
A. UNDER THE PRESENT STANDARDS OF EQUAL
PROTECTION,
SECTION 15(c), ARTICLE II OF R.A. NO. 7653 IS VALID.
Jurisprudential standards for equal protection challenges
indubitably show that the classification created by the
questioned proviso, on its face and in its operation, bears no
constitutional infirmities.
It is settled in constitutional law that the "equal protection"
clause does not prevent the Legislature from establishing
classes of individuals or objects upon which different rules shall
operate - so long as the classification is not unreasonable. As
held in Victoriano v. Elizalde Rope Workers' Union,13 and
reiterated in a long line of cases:14
The guaranty of equal protection of the laws is not a
guaranty of equality in the application of the laws upon
all citizens of the state. It is not, therefore, a
requirement, in order to avoid the constitutional
prohibition against inequality, that every man, woman
and child should be affected alike by a statute. Equality
of operation of statutes does not mean indiscriminate
operation on persons merely as such, but on persons
according to the circumstances surrounding them. It
guarantees equality, not identity of rights. The
Constitution does not require that things which are
different in fact be treated in law as though they were
the same. The equal protection clause does not forbid
discrimination as to things that are different. It does not
prohibit legislation which is limited either in the object to
which it is directed or by the territory within which it is to
operate.
The equal protection of the laws clause of the
Constitution allows classification. Classification in law, as
in the other departments of knowledge or practice, is the
grouping of things in speculation or practice because
they agree with one another in certain particulars. A law
is not invalid because of simple inequality. The very idea
of classification is that of inequality, so that it goes
without saying that the mere fact of inequality in no
manner determines the matter of constitutionality. All
that is required of a valid classification is that it be
reasonable, which means that the classification should be
based on substantial distinctions which make for real
differences, that it must be germane to the purpose of
the law; that it must not be limited to existing conditions
only; and that it must apply equally to each member of
the class. This Court has held that the standard is
 satisfied if the classification or distinction is based on a
reasonable foundation or rational basis and is not
palpably arbitrary.
In the exercise of its power to make classifications for
the purpose of enacting laws over matters within its
jurisdiction, the state is recognized as enjoying a wide
range of discretion. It is not necessary that the
classification be based on scientific or marked differences
of things or in their relation. Neither is it necessary that
the classification be made with mathematical nicety.
Hence, legislative classification may in many cases
properly rest on narrow distinctions, for the equal
protection guaranty does not preclude the legislature
from recognizing degrees of evil or harm, and legislation
is addressed to evils as they may appear. (citations
omitted)
Congress is allowed a wide leeway in providing for a valid
classification.15 The equal protection clause is not infringed by
legislation which applies only to those persons falling within a
specified class.16 If the groupings are characterized by
substantial distinctions that make real differences, one class
may be treated and regulated differently from another.17 The
classification must also be germane to the purpose of the law
and must apply to all those belonging to the same class.18
In the case at bar, it is clear in the legislative deliberations that
the exemption of officers (SG 20 and above) from the SSL was
intended to address the BSP's lack of competitiveness in terms
of attracting competent officers and executives. It was not
intended to discriminate against the rank-and-file. If the end-
result did in fact lead to a disparity of treatment between the
officers and the rank-and-file in terms of salaries and benefits,
the discrimination or distinction has a rational basis and is not
palpably, purely, and entirely arbitrary in the legislative
sense. 19
That the provision was a product of amendments introduced
during the deliberation of the Senate Bill does not detract from
its validity. As early as 1947 and reiterated in subsequent
cases,20 this Court has subscribed to the conclusiveness of an
enrolled bill to refuse invalidating a provision of law, on the
ground that the bill from which it originated contained no such
provision and was merely inserted by the bicameral conference
committee of both Houses.
Moreover, it is a fundamental and familiar teaching that all
reasonable doubts should be resolved in favor of the
constitutionality of a statute.21 An act of the legislature,
approved by the executive, is presumed to be within
constitutional limitations.22 To justify the nullification of a law,
there must be a clear and unequivocal breach of the
Constitution, not a doubtful and equivocal breach.23
B. THE ENACTMENT, HOWEVER, OF SUBSEQUENT LAWS -
EXEMPTING ALL OTHER RANK-AND-FILE EMPLOYEES
OF GFIs FROM THE SSL - RENDERS THE CONTINUED
APPLICATION OF THE CHALLENGED PROVISION
A VIOLATION OF THE EQUAL PROTECTION CLAUSE.
While R.A. No. 7653 started as a valid measure well within the
legislature's power, we hold that the enactment of
subsequent laws exempting all rank-and-file employees
of other GFIs leeched all validity out of the
challenged proviso.
1. The concept of relative constitutionality.
The constitutionality of a statute cannot, in every instance, be
determined by a mere comparison of its provisions with
applicable provisions of the Constitution, since the statute may
be constitutionally valid as applied to one set of facts and
invalid in its application to another.24
A statute valid at one time may become void at another time
because of altered circumstances.25 Thus, if a statute in its
practical operation becomes arbitrary or confiscatory, its
validity, even though affirmed by a former adjudication, is open
to inquiry and investigation in the light of changed
conditions.26
Demonstrative of this doctrine is Vernon Park Realty v. City
of Mount Vernon,27 where the Court of Appeals of New York
declared as unreasonable and arbitrary a zoning ordinance
which placed the plaintiff's property in a residential district,
although it was located in the center of a business area. Later
amendments to the ordinance then prohibited the use of the
property except for parking and storage of automobiles, and
service station within a parking area. The Court found the
ordinance to constitute an invasion of property rights which was
contrary to constitutional due process. It ruled:
While the common council has the unquestioned right to
enact zoning laws respecting the use of property in
accordance with a well-considered and comprehensive
plan designed to promote public health, safety and
general welfare, such power is subject to the
constitutional limitation that it may not be exerted
arbitrarily or unreasonably and this is so whenever the
zoning ordinance precludes the use of the property for
any purpose for which it is reasonably adapted. By the
same token, an ordinance valid when adopted will
nevertheless be stricken down as invalid when, at
a later time, its operation under changed
conditions proves confiscatory such, for instance, as
when the greater part of its value is destroyed, for which
the courts will afford relief in an appropriate
case.28 (citations omitted, emphasis supplied)
In the Philippine setting, this Court declared the continued
enforcement of a valid law as unconstitutional as a consequence
of significant changes in circumstances. Rutter v.
Esteban29 upheld the constitutionality of the moratorium law -
its enactment and operation being a valid exercise by the State
of its police power30 - but also ruled that the continued
enforcement of the otherwise valid law would be
unreasonable and oppressive. It noted the subsequent
changes in the country's business, industry and agriculture.
Thus, the law was set aside because its continued operation
would be grossly discriminatory and lead to the oppression of
the creditors. The landmark ruling states:31
The question now to be determined is, is the period
of eight (8) years which Republic Act No. 342 grants to
debtors of a monetary obligation contracted before the
last global war and who is a war sufferer with a claim
duly approved by the Philippine War Damage
Commission reasonable under the present
circumstances?
It should be noted that Republic Act No. 342 only
extends relief to debtors of prewar obligations who
suffered from the ravages of the last war and who filed a
claim for their losses with the Philippine War Damage
Commission. It is therein provided that said obligation
shall not be due and demandable for a period of eight (8)
years from and after settlement of the claim filed by the
debtor with said Commission. The purpose of the law is
to afford to prewar debtors an opportunity to rehabilitate
themselves by giving them a reasonable time within
which to pay their prewar debts so as to prevent them
from being victimized by their creditors. While it is
admitted in said law that since liberation conditions have
gradually returned to normal, this is not so with regard to
those who have suffered the ravages of war and so it
was therein declared as a policy that as to them the debt
moratorium should be continued in force (Section 1).
 But we should not lose sight of the fact that these
obligations had been pending since 1945 as a result of
the issuance of Executive Orders Nos. 25 and 32 and at
present their enforcement is still inhibited because of the
enactment of Republic Act No. 342 and would continue
to be unenforceable during the eight-year period granted
to prewar debtors to afford them an opportunity to
rehabilitate themselves, which in plain language means
that the creditors would have to observe a vigil of at
least twelve (12) years before they could effect a
liquidation of their investment dating as far back as 1941.
his period seems to us unreasonable, if not oppressive.
While the purpose of Congress is plausible, and should
be commended, the relief accorded works injustice to
creditors who are practically left at the mercy of the
debtors. Their hope to effect collection becomes
extremely remote, more so if the credits are unsecured.
And the injustice is more patent when, under the law,
the debtor is not even required to pay interest during the
operation of the relief, unlike similar statutes in the
United States.
xxx xxx xxx
In the face of the foregoing observations, and consistent
with what we believe to be as the only course dictated by
justice, fairness and righteousness, we feel that the only
way open to us under the present circumstances is
to declare that the continued operation and
enforcement of Republic Act No. 342 at the
present time is unreasonable and oppressive, and
should not be prolonged a minute longer, and,
therefore, the same should be declared null and
void and without effect. (emphasis supplied, citations
omitted)
2. Applicability of the equal protection clause.
In the realm of equal protection, the U.S. case of Atlantic
Coast Line R. Co. v. Ivey32 is illuminating. The Supreme Court
of Florida ruled against the continued application of statutes
authorizing the recovery of double damages plus attorney's fees
against railroad companies, for animals killed on unfenced
railroad right of way without proof of negligence. Competitive
motor carriers, though creating greater hazards, were not
subjected to similar liability because they were not yet in
existence when the statutes were enacted. The Court ruled
that the statutes became invalid as denying "equal protection of
the law," in view of changed conditions since their
enactment.
In another U.S. case, Louisville & N.R. Co. v. Faulkner,33 the
Court of Appeals of Kentucky declared unconstitutional a
provision of a statute which imposed a duty upon a railroad
company of proving that it was free from negligence in the
killing or injury of cattle by its engine or cars. This,
notwithstanding that the constitutionality of the
statute, enacted in 1893, had been previously sustained.
Ruled the Court:
The constitutionality of such legislation was sustained
because it applied to all similar corporations and had for
its object the safety of persons on a train and the
protection of property…. Of course, there were no
automobiles in those days.
The subsequent inauguration and development of
transportation by motor vehicles on the public highways
by common carriers of freight and passengers created
even greater risks to the safety of occupants of the
vehicles and of danger of injury and death of domestic
animals. Yet, under the law the operators of that mode
of competitive transportation are not subject to the same
extraordinary legal responsibility for killing such animals
on the public roads as are railroad companies for killing
them on their private rights of way.
 The Supreme Court, speaking through Justice Brandeis in
Nashville, C. & St. L. Ry. Co. v. Walters, 294 U.S. 405, 55
S.Ct. 486, 488, 79 L.Ed. 949, stated, "A statute valid
when enacted may become invalid by change in
the conditions to which it is applied. The police
power is subject to the constitutional limitation that it
may not be exerted arbitrarily or unreasonably." A
number of prior opinions of that court are cited in
support of the statement. The State of Florida for many
years had a statute, F.S.A. § 356.01 et seq. imposing
extraordinary and special duties upon railroad
companies, among which was that a railroad company
was liable for double damages and an attorney's fee for
killing livestock by a train without the owner having to
prove any act of negligence on the part of the carrier in
the operation of its train. In Atlantic Coast Line Railroad
Co. v. Ivey, it was held that the changed conditions
brought about by motor vehicle transportation rendered
the statute unconstitutional since if a common carrier by
motor vehicle had killed the same animal, the owner
would have been required to prove negligence in the
operation of its equipment. Said the court, "This certainly
is not equal protection of the law."34 (emphasis supplied)
Echoes of these rulings resonate in our case law, viz:
[C]ourts are not confined to the language of the statute
under challenge in determining whether that statute has
any discriminatory effect. A statute nondiscriminatory
on its face may be grossly discriminatory in its
operation. Though the law itself be fair on its face and
impartial in appearance, yet, if it is applied and
administered by public authority with an evil eye and
unequal hand, so as practically to make unjust and illegal
discriminations between persons in similar circumstances,
material to their rights, the denial of equal justice is still
within the prohibition of the Constitution.35 (emphasis
supplied, citations omitted)
[W]e see no difference between a law which denies
equal protection and a law which permits of such
denial. A law may appear to be fair on its face and
impartial in appearance, yet, if it permits of unjust and
illegal discrimination, it is within the constitutional
prohibition….. In other words, statutes may be adjudged
unconstitutional because of their effect in operation…. If
a law has the effect of denying the equal protection of
the law it is unconstitutional. ….36 (emphasis supplied,
citations omitted
3. Enactment of R.A. Nos. 7907 + 8282 + 8289 + 8291
+ 8523 + 8763
+ 9302 = consequential unconstitutionality of
challenged proviso.
According to petitioner, the last proviso of Section 15(c), Article
II of R.A. No. 7653 is also violative of the equal protection
clause because after it was enacted, the charters of the GSIS,
LBP, DBP and SSS were also amended, but the personnel of the
latter GFIs were all exempted from the coverage of the
SSL.37 Thus, within the class of rank-and-file personnel of GFIs,
the BSP rank-and-file are also discriminated upon.
Indeed, we take judicial notice that after the new BSP charter
was enacted in 1993, Congress also undertook the amendment
of the charters of the GSIS, LBP, DBP and SSS, and three other
GFIs, from 1995 to 2004, viz:
1. R.A. No. 7907 (1995) for Land Bank of the Philippines
(LBP);
2. R.A. No. 8282 (1997) for Social Security System (SSS);
 3. R.A. No. 8289 (1997) for Small Business Guarantee
and Finance Corporation, (SBGFC);
4. R.A. No. 8291 (1997) for Government Service
Insurance System (GSIS);
5. R.A. No. 8523 (1998) for Development Bank of the
Philippines (DBP);
6. R.A. No. 8763 (2000) for Home Guaranty Corporation
(HGC);38 and
7. R.A. No. 9302 (2004) for Philippine Deposit Insurance
Corporation (PDIC).
It is noteworthy, as petitioner points out, that the
subsequent charters of the seven other GFIs share this
common proviso: a blanket exemption of all their
employees from the coverage of the SSL, expressly or
impliedly, as illustrated below:
1. LBP (R.A. No. 7907)
Section 10. Section 90 of [R.A. No. 3844] is hereby
amended to read as follows:
Section 90. Personnel. -
xxx xxx xxx
All positions in the Bank shall be governed by a
compensation, position classification system and
qualification standards approved by the Bank's Board of
Directors based on a comprehensive job analysis and
audit of actual duties and responsibilities. The
compensation plan shall be comparable with the
prevailing compensation plans in the private sector and
shall be subject to periodic review by the Board no more
than once every two (2) years without prejudice to yearly
merit reviews or increases based on productivity and
profitability. The Bank shall therefore be exempt
from existing laws, rules and regulations on
compensation, position classification and
qualification standards. It shall however endeavor to
make its system conform as closely as possible with the
principles under Republic Act No. 6758. (emphasis
supplied)
xxx xxx xxx
2. SSS (R.A. No. 8282)
Section 1. [Amending R.A. No. 1161, Section 3(c)]:
xxx xxx xxx
(c)The Commission, upon the recommendation of the
SSS President, shall appoint an actuary and such other
personnel as may [be] deemed necessary; fix their
reasonable compensation, allowances and other benefits;
prescribe their duties and establish such methods and
procedures as may be necessary to insure the efficient,
honest and economical administration of the provisions
and purposes of this Act: Provided, however, That the
personnel of the SSS below the rank of Vice President
shall be appointed by the SSS President: Provided,
further, That the personnel appointed by the SSS
President, except those below the rank of assistant
manager, shall be subject to the confirmation by the
Commission; Provided further, That the personnel of the
SSS shall be selected only from civil service eligibles and
be subject to civil service rules and regulations: Provided,
finally, That the SSS shall be exempt from the
 provisions of Republic Act No. 6758 and Republic
Act No. 7430. (emphasis supplied)
3. SBGFC (R.A. No. 8289)
Section 8. [Amending R.A. No. 6977, Section 11]:
xxx xxx xxx
The Small Business Guarantee and Finance Corporation
shall:
xxx xxx xxx
(e) notwithstanding the provisions of Republic Act
No. 6758, and Compensation Circular No. 10,
series of 1989 issued by the Department of Budget and
Management, the Board of Directors of SBGFC shall
have the authority to extend to the employees and
personnel thereof the allowance and fringe
benefits similar to those extended to and
currently enjoyed by the employees and personnel
of other government financial
institutions. (emphases supplied)
4. GSIS (R.A. No. 8291)
Section 1. [Amending Section 43(d)].
xxx xxx xxx
Sec. 43. Powers and Functions of the Board of Trustees.
- The Board of Trustees shall have the following powers
and functions:
xxx xxx xxx
(d) upon the recommendation of the President and
General Manager, to approve the GSIS' organizational
and administrative structures and staffing pattern, and to
establish, fix, review, revise and adjust the appropriate
compensation package for the officers and employees of
the GSIS with reasonable allowances, incentives,
bonuses, privileges and other benefits as may be
necessary or proper for the effective management,
operation and administration of the GSIS, which shall
be exempt from Republic Act No. 6758, otherwise
known as the Salary Standardization Law and
Republic Act No. 7430, otherwise known as the
Attrition Law. (emphasis supplied)
xxx xxx xxx
5. DBP (R.A. No. 8523)
Section 6. [Amending E.O. No. 81, Section 13]:
Section 13. Other Officers and Employees. - The Board of
Directors shall provide for an organization and staff of
officers and employees of the Bank and upon
recommendation of the President of the Bank, fix their
remunerations and other emoluments. All positions in the
Bank shall be governed by the compensation, position
classification system and qualification standards
approved by the Board of Directors based on a
comprehensive job analysis of actual duties and
responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans in the
private sector and shall be subject to periodic review by
the Board of Directors once every two (2) years, without
prejudice to yearly merit or increases based on the
Bank's productivity and profitability. The Bank shall,
therefore, be exempt from existing laws, rules,
and regulations on compensation, position
 classification and qualification standards. The
Bank shall however, endeavor to make its system
conform as closely as possible with the principles
under Compensation and Position Classification
Act of 1989 (Republic Act No. 6758, as
amended). (emphasis supplied)
6. HGC (R.A. No. 8763)
Section 9. Powers, Functions and Duties of the Board of
Directors. - The Board shall have the following powers,
functions and duties:
xxx xxx xxx
(e) To create offices or positions necessary for the
efficient management, operation and administration of
the Corporation: Provided, That all positions in the Home
Guaranty Corporation (HGC) shall be governed by a
compensation and position classification system and
qualifications standards approved by the Corporation's
Board of Directors based on a comprehensive job
analysis and audit of actual duties and
responsibilities: Provided, further, That the
compensation plan shall be comparable with the
prevailing compensation plans in the private
sector and which shall be exempt from Republic
Act No. 6758, otherwise known as the Salary
Standardization Law, and from other laws, rules
and regulations on salaries and
compensations; and to establish a Provident Fund and
determine the Corporation's and the employee's
contributions to the Fund; (emphasis supplied)
xxx xxx xxx
7. PDIC (R.A. No. 9302)
Section 2. Section 2 of [Republic Act No. 3591, as amended] is
hereby further amended to read:
xxx xxx xxx
3.
xxx xxx xxx
A compensation structure, based on job evaluation
studies and wage surveys and subject to the Board's
approval, shall be instituted as an integral component of
the Corporation's human resource development
program: Provided, That all positions in the Corporation
shall be governed by a compensation, position
classification system and qualification standards
approved by the Board based on a comprehensive job
analysis and audit of actual duties and
responsibilities. The compensation plan shall be
comparable with the prevailing compensation
plans of other government financial
institutions and shall be subject to review by the Board
no more than once every two (2) years without prejudice
to yearly merit reviews or increases based on productivity
and profitability. The Corporation shall therefore be
exempt from existing laws, rules and regulations
on compensation, position classification and
qualification standards. It shall however endeavor to
make its system conform as closely as possible with the
principles under Republic Act No. 6758, as amended.
(emphases supplied)
Thus, eleven years after the amendment of the BSP
charter, the rank-and-file of seven other GFIs were
granted the exemption that was specifically denied to
the rank-and-file of the BSP. And as if to add insult to
petitioner's injury, even the Securities and Exchange
Commission (SEC) was granted the same blanket exemption
from the SSL in 2000!39
The prior view on the constitutionality of R.A. No. 7653
was confined to an evaluation of its classification
between the rank-and-file and the officers of the
BSP, found reasonable because there were substantial
distinctions that made real differences between the two classes.
The above-mentioned subsequent enactments,
however, constitute significant changes in
circumstancethat considerably alter the reasonability of
the continued operation of the last proviso of Section
15(c), Article II of Republic Act No. 7653, thereby
exposing the proviso to more serious scrutiny. This time,
the scrutiny relates to the constitutionality of the classification -
albeit made indirectly as a consequence of the passage of eight
other laws - between the rank-and-file of the BSP and the
seven other GFIs. The classification must not only be
reasonable, but must also apply equally to all members of
the class. Theproviso may be fair on its face and impartial in
appearance but it cannot be grossly discriminatory in its
operation, so as practically to make unjust distinctions
between persons who are without differences.40
Stated differently, the second level of inquiry deals with the
following questions: Given that Congress chose to exempt other
GFIs (aside the BSP) from the coverage of the SSL, can the
exclusion of the rank-and-file employees of the BSP stand
constitutional scrutiny in the light of the fact that Congress did
not exclude the rank-and-file employees of the other GFIs? Is
Congress' power to classify so unbridled as to sanction unequal
and discriminatory treatment, simply because the inequity
manifested itself, not instantly through a single overt act, but
gradually and progressively, through seven separate acts of
Congress? Is the right to equal protection of the law bounded in
time and space that: (a) the right can only be invoked against a
classification made directly and deliberately, as opposed to a
discrimination that arises indirectly, or as a consequence of
several other acts; and (b) is the legal analysis confined to
determining the validity within the parameters of the statute or
ordinance (where the inclusion or exclusion is articulated),
thereby proscribing any evaluation vis-à-vis the grouping, or the
lack thereof, among several similar enactments made over a
period of time?
In this second level of scrutiny, the inequality of treatment
cannot be justified on the mere assertion that each exemption
(granted to the seven other GFIs) rests "on a policy
determination by the legislature." All legislative enactments
necessarily rest on a policy determination - even those
that have been declared to contravene the Constitution. Verily,
if this could serve as a magic wand to sustain the validity of a
statute, then no due process and equal protection challenges
would ever prosper. There is nothing inherently sacrosanct in a
policy determination made by Congress or by the Executive; it
cannot run riot and overrun the ramparts of protection of the
Constitution.
In fine, the "policy determination" argument may support the
inequality of treatment between the rank-and-file and the
officers of the BSP, but it cannot justify the inequality of
treatment between BSP rank-and-file and other GFIs' who are
similarly situated. It fails to appreciate that what is at issue in
the second level of scrutiny is not the declared policy of
each law per se, but the oppressive results of Congress'
inconsistent and unequal policy towards the BSP rank-and-
file and those of the seven other GFIs. At bottom, the second
challenge to the constitutionality of Section 15(c), Article II of
Republic Act No. 7653 is premised precisely on the
irrational discriminatory policy adopted by Congress in
its treatment of persons similarly situated. In the field of
equal protection, the guarantee that "no person shall be …
denied the equal protection of the laws" includes the prohibition
against enacting laws that allow invidious
discrimination, directly or indirectly. If a law has the effect of
denying the equal protection of the law, or permits such denial,
it is unconstitutional.41
It is against this standard that the disparate treatment of the
BSP rank-and-file from the other GFIs cannot stand judicial
scrutiny. For as regards the exemption from the coverage of the
SSL, there exist no substantial distinctions so as to differentiate,
the BSP rank-and-file from the other rank-and-file of the seven
GFIs. On the contrary, our legal history shows that GFIs
have long been recognized as comprising one distinct
class, separate from other governmental entities.
Before the SSL, Presidential Decree (P.D.) No. 985
(1976) declared it as a State policy (1) to provide equal pay for
substantially equal work, and (2) to base differences in pay
upon substantive differences in duties and responsibilities, and
qualification requirements of the positions. P.D. No. 985 was
passed to address disparities in pay among similar or
comparable positions which had given rise to dissension among
government employees.But even then, GFIs and
government-owned and/or controlled corporations
(GOCCs) were already identified as a distinct class
among government employees. Thus, Section 2 also
provided, "[t]hat notwithstanding a standardized salary system
established for all employees, additional financial incentives may
be established by government corporation and financial
institutions for their employees to be supported fully from their
corporate funds and for such technical positions as may be
approved by the President in critical government agencies."42
The same favored treatment is made for the GFIs and the
GOCCs under the SSL. Section 3(b) provides that one of the
principles governing the Compensation and Position
Classification System of the Government is that: "[b]asic
compensation for all personnel in the government and
government-owned or controlled corporations and financial
institutions shall generally be comparable with those in the
private sector doing comparable work, and must be in
accordance with prevailing laws on minimum wages."
Thus, the BSP and all other GFIs and GOCCs were under the
unified Compensation and Position Classification System of the
SSL,43 but rates of pay under the SSL were determined on the
basis of, among others, prevailing rates in the private sector for
comparable work. Notably, the Compensation and Position
Classification System was to be governed by the following
principles: (a) just and equitable wages, with the ratio of
compensation between pay distinctions maintained at equitable
levels;44 and (b) basic compensation generally comparable with
the private sector, in accordance with prevailing laws on
minimum wages.45 Also, the Department of Budget and
Management was directed to use, as guide for preparing the
Index of Occupational Services, the Benchmark Position
Schedule, and the following factors:46
(1) the education and experience required to perform the
duties and responsibilities of the positions;
(2) the nature and complexity of the work to be
performed;
(3) the kind of supervision received;
(4) mental and/or physical strain required in the
completion of the work;
(5) nature and extent of internal and external
relationships;
(6) kind of supervision exercised;
(7) decision-making responsibility;
 (8) responsibility for accuracy of records and reports;
(9) accountability for funds, properties and equipment;
and
(10) hardship, hazard and personal risk involved in the
job.
The Benchmark Position Schedule enumerates the position titles
that fall within Salary Grades 1 to 20.
Clearly, under R.A. No. 6758, the rank-and-file of all GFIs were
similarly situated in all aspects pertaining to compensation and
position classification, in consonance with Section 5, Article IX-B
of the 1997 Constitution.47
Then came the enactment of the amended charter of the
BSP, implicitly exempting the Monetary Board from the SSL by
giving it express authority to determine and institute its own
compensation and wage structure. However, employees whose
positions fall under SG 19 and below were specifically limited to
the rates prescribed under the SSL.
Subsequent amendments to the charters of other GFIs
followed. Significantly, each government financial institution
(GFI) was not only expressly authorized to determine and
institute its own compensation and wage structure, but also
explicitly exempted - without distinction as to salary
grade or position - all employees of the GFI from the
SSL.
It has been proffered that legislative deliberations justify the
grant or withdrawal of exemption from the SSL, based on the
perceived need "to fulfill the mandate of the institution
concerned considering, among others, that: (1) the GOCC or
GFI is essentially proprietary in character; (2) the GOCC or GFI
is in direct competition with their[sic] counterparts in the private
sector, not only in terms of the provisions of goods or services,
but also in terms of hiring and retaining competent personnel;
and (3) the GOCC or GFI are or were [sic] experiencing
difficulties filling up plantilla positions with competent personnel
and/or retaining these personnel. The need for the scope of
exemption necessarily varies with the particular circumstances
of each institution, and the corresponding variance in the
benefits received by the employees is merely incidental."
The fragility of this argument is manifest. First, the BSP is
the central monetary authority,48 and the banker of the
government and all its political subdivisions.49 It has the
sole power and authority to issue currency;50provide policy
directions in the areas of money, banking, and credit; and
supervise banks and regulate finance companies and non-bank
financial institutions performing quasi-banking
functions, including the exempted GFIs.51 Hence, the
argument that the rank-and-file employees of the seven GFIs
were exempted because of the importance of their institution's
mandate cannot stand any more than an empty sack can stand.
Second, it is certainly misleading to say that "the need for the
scope of exemption necessarily varies with the particular
circumstances of each institution." Nowhere in the deliberations
is there a cogent basis for the exclusion of the BSP rank-and-file
from the exemption which was granted to the rank-and-file of
the other GFIs and the SEC. As point in fact, the BSP and the
seven GFIs are similarly situated in so far as Congress deemed
it necessary for these institutions to be exempted from the SSL.
True, the SSL-exemption of the BSP and the seven GFIs was
granted in the amended charters of each GFI, enacted
separately and over a period of time. But it bears emphasis
that, while each GFI has a mandate different and distinct from
that of another, the deliberations show that the raison d'être of
the SSL-exemption was inextricably linked to and for the most
part based on factors common to the eight GFIs, i.e., (1) the
pivotal role they play in the economy; (2) the necessity of hiring
and retaining qualified and effective personnel to carry out the
GFI's mandate; and (3) the recognition that the compensation
package of these GFIs is not competitive, and fall substantially
below industry standards. Considering further that (a) the BSP
was the first GFI granted SSL exemption; and (b) the
subsequent exemptions of other GFIs did not distinguish
between the officers and the rank-and-file; it is patent that the
classification made between the BSP rank-and-file and
those of the other seven GFIs was inadvertent, and NOT
intended, i.e., it was not based on any substantial distinction
vis-à-vis the particular circumstances of each GFI. Moreover,
the exemption granted to two GFIs makes express reference
to allowance and fringe benefits similar to those extended to
and currently enjoyed by the employees and personnel of other
GFIs,52 underscoring that GFIs are a particular class within the
realm of government entities.
It is precisely this unpremeditated discrepancy in treatment of
the rank-and-file of the BSP - made manifest and glaring with
each and every consequential grant of blanket exemption from
the SSL to the other GFIs - that cannot be rationalized or
justified. Even more so, when the SEC - which is not a GFI -
was given leave to have a compensation plan that "shall be
comparable with the prevailing compensation plan in the [BSP]
and other [GFIs],"53 then granted a blanket exemption from the
SSL, and its rank-and-file endowed a more preferred treatment
than the rank-and-file of the BSP.
The violation to the equal protection clause becomes even more
pronounced when we are faced with this undeniable truth: that
if Congress had enacted a law for the sole purpose of
exempting the eight GFIs from the coverage of the SSL, the
exclusion of the BSP rank-and-file employees would have been
devoid of any substantial or material basis. It bears no moment,
therefore, that the unlawful discrimination was not a direct
result arising from one law. "Nemo potest facere per alium quod
non potest facere per directum." No one is allowed to do
indirectly what he is prohibited to do directly.
It has also been proffered that "similarities alone are not
sufficient to support the conclusion that rank-and-file employees
of the BSP may be lumped together with similar employees of
the other GOCCs for purposes of compensation, position
classification and qualification standards. The fact that certain
persons have some attributes in common does not automatically
make them members of the same class with respect to a
legislative classification." Cited is the ruling in Johnson v.
Robinson:54 "this finding of similarity ignores that a common
characteristic shared by beneficiaries and nonbeneficiaries alike,
is not sufficient to invalidate a statute when other
characteristics peculiar to only one group rationally explain the
statute's different treatment of the two groups."
The reference to Johnson is inapropos. In Johnson, the US
Court sustained the validity of the classification as there
were quantitative and qualitative distinctions, expressly
recognized by Congress, which formed a rational basis
for the classification limiting educational benefits to military
service veterans as a means of helping them readjust to civilian
life. The Court listed the peculiar characteristics as follows:
First, the disruption caused by military service is
quantitatively greater than that caused by alternative
civilian service. A conscientious objector performing
alternative service is obligated to work for two years.
Service in the Armed Forces, on the other hand, involves
a six-year commitment…
xxx xxx xxx
Second, the disruptions suffered by military veterans and
alternative service performers are qualitatively different.
Military veterans suffer a far greater loss of personal
 freedom during their service careers. Uprooted from
civilian life, the military veteran becomes part of the
military establishment, subject to its discipline and
potentially hazardous duty. Congress was acutely aware
of the peculiar disabilities caused by military service, in
consequence of which military servicemen have a special
need for readjustment benefits…55 (citations omitted)
In the case at bar, it is precisely the fact that as regards the
exemption from the SSL, there are no characteristics
peculiar only to the seven GFIs or their rank-and-file so
as to justify the exemption which BSP rank-and-file
employees were denied (not to mention the anomaly of the
SEC getting one). The distinction made by the law is not only
superficial,56 but also arbitrary. It is not based on substantial
distinctions that make real differences between the BSP rank-
and-file and the seven other GFIs.
Moreover, the issue in this case is not - as the dissenting
opinion of Mme. Justice Carpio-Morales would put it - whether
"being an employee of a GOCC or GFI is reasonable and
sufficient basis for exemption" from R.A. No. 6758. It is
Congress itself that distinguished the GFIs from other
government agencies, not once but eight times, through the
enactment of R.A. Nos. 7653, 7907, 8282, 8289, 8291, 8523,
8763, and 9302. These laws may have created a "preferred
sub-class within government employees," but the present
challenge is not directed at the wisdom of these laws. Rather, it
is a legal conundrum involving the exercise of legislative power,
the validity of which must be measured not only by looking at
the specific exercise in and by itself (R.A. No. 7653), but also as
to the legal effects brought about by seven separate exercises -
albeit indirectly and without intent.
Thus, even if petitioner had not alleged "a comparable change
in the factual milieu as regards the compensation, position
classification and qualification standards of the employees of
the BSP (whether of the executive level or of the rank-and-file)
since the enactment of the new Central Bank Act" is of no
moment. In GSIS v. Montesclaros,57 this Court resolved the
issue of constitutionality notwithstanding that claimant had
manifested that she was no longer interested in pursuing the
case, and even when the constitutionality of the said provision
was not squarely raised as an issue, because the issue involved
not only the claimant but also others similarly situated and
whose claims GSIS would also deny based on the
challenged proviso. The Court held that social justice and public
interest demanded the resolution of the constitutionality of
the proviso. And so it is with the challenged proviso in the case
at bar.
It bears stressing that the exemption from the SSL is
a "privilege" fully within the legislative prerogative to give or
deny. However, its subsequent grant to the rank-and-file of the
seven other GFIs and continued denial to the BSP rank-and-file
employees breached the latter's right to equal protection. In
other words, while the granting of a privilege per se is a matter
of policy exclusively within the domain and prerogative of
Congress, the validity or legality of the exercise of this
prerogative is subject to judicial review.58 So when the
distinction made is superficial, and not based on substantial
distinctions that make real differences between those included
and excluded, it becomes a matter of arbitrariness that this
Court has the duty and the power to correct.59 As held in the
United Kingdom case of Hooper v. Secretary of State for
Work and Pensions,60 once the State has chosen to confer
benefits, "discrimination" contrary to law may occur where
favorable treatment already afforded to one group is refused to
another, even though the State is under no obligation to
provide that favorable treatment. 61
The disparity of treatment between BSP rank-and-file and the
rank-and-file of the other seven GFIs definitely bears the
unmistakable badge of invidious discrimination - no one can,
with candor and fairness, deny the discriminatory character of
the subsequent blanket and total exemption of the seven other
GFIs from the SSL when such was withheld from the
BSP. Alikes are being treated as unalikes without any
rational basis.
Again, it must be emphasized that the equal protection clause
does not demand absolute equality but it requires that all
persons shall be treated alike, under like circumstances
and conditions both as to privileges conferred and
liabilities enforced. Favoritism and undue preference cannot
be allowed. For the principle is that equal protection and
security shall be given to every person under circumstances
which, if not identical, are analogous. If law be looked upon in
terms of burden or charges, those that fall within a class should
be treated in the same fashion; whatever restrictions cast on
some in the group is equally binding on the rest.62
In light of the lack of real and substantial distinctions that would
justify the unequal treatment between the rank-and-file of BSP
from the seven other GFIs, it is clear that the enactment of the
seven subsequent charters has rendered the continued
application of the challenged proviso anathema to the equal
protection of the law, and the same should be declared as an
outlaw.
IV.
Equal Protection Under International Lens
In our jurisdiction, the standard and analysis of equal
protection challenges in the main have followed the"rational
basis" test, coupled with a deferential attitude to legislative
classifications63 and a reluctance to invalidate a law unless there
is a showing of a clear and unequivocal breach of the
Constitution. 64
A. Equal Protection in the United States
In contrast, jurisprudence in the U.S. has gone beyond
the static "rational basis" test. Professor Gunther highlights
the development in equal protection jurisprudential analysis, to
wit: 65
Traditionally, equal protection supported only minimal
judicial intervention in most contexts. Ordinarily, the
command of equal protection was only that government
must not impose differences in treatment "except upon
some reasonable differentiation fairly related to the
object of regulation." The old variety of equal
protection scrutiny focused solely on the means used
by the legislature: it insisted merely that the classification
in the statute reasonably relates to the legislative
purpose. Unlike substantive due process, equal
protection scrutiny was not typically concerned with
identifying "fundamental values" and restraining
legislative ends. And usually the rational
classification requirement was readily satisfied: the
courts did not demand a tight fit between classification
and purpose; perfect congruence between means and
ends was not required.
xxx xxx xxx
[From marginal intervention to major cutting
edge: The Warren Court's "new equal protection" and
the two-tier approach.]
From its traditional modest role, equal
protection burgeoned into a major intervention
tool during the Warren era, especially in the 1960s.
The Warren Court did not abandon the deferential
ingredients of the old equal protection: in most areas of
economic and social legislation, the demands imposed by
equal protection remained as minimal as ever…But the
Court launched an equal protection revolution by finding
large new areas for strict rather than deferential scrutiny.
A sharply differentiated two-tier approachevolved by
the late 1960s: in addition to the deferential "old" equal
protection, a "new" equal protection, connoting strict
scrutiny, arose…. The intensive review associated with
the new equal protection imposed two demands - a
demand not only as to means but also one as to
ends. Legislation qualifying for strict scrutiny required a
far closer fit between classification and statutory purpose
than the rough and ready flexibility traditionally tolerated
by the old equal protection: means had to be shown
"necessary" to achieve statutory ends, not merely
"reasonably related" ones. Moreover, equal
protection became a source of ends scrutiny as well:
legislation in the areas of the new equal protection had
to be justified by "compelling" state interests, not merely
the wide spectrum of "legitimate" state ends.
The Warren Court identified the areas appropriate
for strict scrutiny by searching for two
characteristics: the presence of a "suspect"
classification; or an impact on "fundamental" rights or
interests. In the category of "suspect classifications," the
Warren Court's major contribution was to intensify the
strict scrutiny in the traditionally interventionist area of
racial classifications. But other cases also suggested that
there might be more other suspect categories as well:
illegitimacy and wealth for example. But it was the
'fundamental interests" ingredient of the new equal
protection that proved particularly dynamic, open-ended,
and amorphous….. [Other fundamental interests included
voting, criminal appeals, and the right of interstate travel
….]
xxx xxx xxx
The Burger Court and Equal Protection.
The Burger Court was reluctant to expand the scope
of the new equal protection, although its best
established ingredient retains vitality. There was
also mounting discontent with the rigid two-tier
formulations of the Warren Court's equal protection
doctrine. It was prepared to use the clause as an
interventionist tool without resorting to the strict
language of the new equal protection…. [Among the
fundamental interests identified during this time were
voting and access to the ballot, while "suspect"
classifications included sex, alienage and illegitimacy.]
xxx xxx xxx
Even while the two-tier scheme has often been adhered
to in form, there has also been an increasingly noticeable
resistance to the sharp difference between deferential
"old" and interventionist "new" equal protection. A
number of justices sought formulations that would blur
the sharp distinctions of the two-tiered approach or that
would narrow the gap between strict scrutiny and
deferential review. The most elaborate attack came from
Justice Marshall, whose frequently stated position was
developed most elaborately in his dissent in
the Rodriguez case: 66
The Court apparently seeks to establish [that] equal
protection cases fall into one of two neat categories
which dictate the appropriate standard of review - strict
scrutiny or mere rationality. But this (sic) Court's
[decisions] defy such easy categorization. A principled
reading of what this Court has done reveals that it has
applied a spectrum of standards in reviewing
discrimination allegedly violative of the equal protection
clause. This spectrum clearly comprehends variations in
the degree of care with which Court will scrutinize
particular classification, depending, I believe, on the
constitutional and societal importance of the interests
adversely affected and the recognized invidiousness of
the basis upon which the particular classification is
drawn.
Justice Marshall's "sliding scale" approach describes
many of the modern decisions, although it is a
formulation that the majority refused to embrace. But
the Burger Court's results indicate at least two
significant changes in equal protection
law: First, invocation of the "old" equal protection
formula no longer signals, as it did with the Warren
Court, an extreme deference to legislative classifications
and a virtually automatic validation of challenged
statutes. Instead, several cases, even while voicing the
minimal "rationality" "hands-off" standards of the old
equal protection, proceed to find the statute
unconstitutional.Second, in some areas the modern
Court has put forth standards for equal protection
review that, while clearly more intensive than the
deference of the "old" equal protection, are less
demanding than the strictness of the "new" equal
protection. Sex discrimination is the best established
example of an"intermediate" level of review. Thus,
in one case, the Court said that "classifications by gender
must serve important governmental objectives and
must be substantially related to achievement of those
objectives." That standard is "intermediate" with respect
to both ends and means: where ends must be
"compelling" to survive strict scrutiny and merely
"legitimate" under the "old" mode, "important" objectives
are required here; and where means must be
"necessary" under the "new" equal protection, and
merely "rationally related" under the "old" equal
protection, they must be "substantially related" to survive
the "intermediate" level of review. (emphasis supplied,
citations omitted)
B. Equal Protection in Europe
The United Kingdom and other members of the European
Community have also gone forward in discriminatory
legislation and jurisprudence. Within the United Kingdom
domestic law, the most extensive list of protected grounds can
be found in Article 14 of the European Convention on
Human Rights (ECHR). It prohibits discrimination on grounds
such as "sex, race, colour, language, religion, political or other
opinion, national or social origin, association with a national
minority, property, birth or other status." This list is illustrative
and not exhaustive. Discrimination on the basis of race,
sex and religion is regarded as grounds that require
strict scrutiny. A further indication that certain forms of
discrimination are regarded as particularly suspect under the
Covenant can be gleaned from Article 4, which, while allowing
states to derogate from certain Covenant articles in times of
national emergency, prohibits derogation by measures that
discriminate solely on the grounds of "race, colour, language,
religion or social origin."67
Moreover, the European Court of Human Rights has
developed a test of justification which varies with the ground of
discrimination. In the Belgian Linguistics case68 the European
Court set the standard of justification at a low level:
discrimination would contravene the Convention only if it had no
legitimate aim, or there was no reasonable relationship of
proportionality between the means employed and the aim
sought to be realised.69 But over the years, the European
Court has developed a hierarchy of grounds covered by
Article 14 of the ECHR, a much higher level of
justification being required in respect of those regarded
as "suspect" (sex, race, nationality, illegitimacy, or
sexual orientation) than of others. Thus, in Abdulaziz, 70 the
European Court declared that:
. . . [t]he advancement of the equality of the sexes is
today a major goal in the member States of the Council
of Europe. This means that very weighty reasons would
have to be advanced before a difference of treatment on
the ground of sex could be regarded as compatible with
the Convention.
And in Gaygusuz v. Austria,71 the European Court held
that "very weighty reasons would have to be put forward
before the Court could regard a difference of treatment based
exclusively on the ground of nationality as compatible with the
Convention."72 The European Court will then permit States
a very much narrower margin of appreciation in relation
to discrimination on grounds of sex, race, etc., in the application
of the Convention rights than it will in relation to distinctions
drawn by states between, for example, large and small land-
owners. 73
C. Equality under International Law
The principle of equality has long been recognized under
international law. Article 1 of the Universal Declaration of
Human Rights proclaims that all human beings are born
free and equal in dignity and rights. Non-discrimination,
together with equality before the law and equal protection of
the law without any discrimination, constitutes basic principles
in the protection of human rights. 74
Most, if not all, international human rights
instruments include some prohibition on discrimination and/or
provisions about equality.75 The general international provisions
pertinent to discrimination and/or equality are the International
Covenant on Civil and Political Rights (ICCPR);76 the
International Covenant on Economic, Social and Cultural Rights
(ICESCR); the International Convention on the Elimination of all
Forms of Racial Discrimination (CERD);77 the Convention on the
Elimination of all Forms of Discrimination against Women
(CEDAW); and the Convention on the Rights of the Child (CRC).
In the broader international context, equality is also
enshrined in regional instruments such as the American
Convention on Human Rights;78 the African Charter on Human
and People's Rights;79 the European Convention on Human
Rights;80 the European Social Charter of 1961 and revised Social
Charter of 1996; and the European Union Charter of Rights (of
particular importance to European states). Even the Council of
the League of Arab States has adopted the Arab Charter on
Human Rights in 1994, although it has yet to be ratified by the
Member States of the League.81
The equality provisions in these instruments do not
merely function as traditional "first generation" rights,
commonly viewed as concerned only with constraining
rather than requiring State action. Article 26 of the ICCPR
requires "guarantee[s]" of "equal and effective protection
against discrimination" while Articles 1 and 14 of the American
and European Conventions oblige States Parties "to ensure ...
the full and free exercise of [the rights guaranteed] ... without
any discrimination" and to "secure without discrimination" the
enjoyment of the rights guaranteed.82 These provisions impose
a measure of positive obligation on States Parties to take
steps to eradicate discrimination.
In the employment field, basic detailed minimum standards
ensuring equality and prevention of discrimination, are laid
down in the ICESCR83 and in a very large number of
Conventions administered by the International Labour
Organisation, a United Nations body. 84 Additionally, many of
the other international and regional human rights instruments
have specific provisions relating to employment.85
The United Nations Human Rights Committee has also
gone beyond the earlier tendency to view the prohibition
against discrimination (Article 26) as confined to the ICCPR
rights.86 In Broeks87 and Zwaan-de Vries,88 the issue before
the Committee was whether discriminatory provisions in the
Dutch Unemployment Benefits Act (WWV) fell within the scope
of Article 26. The Dutch government submitted that
discrimination in social security benefit provision was not within
the scope of Article 26, as the right was contained in the
ICESCR and not the ICCPR. They accepted that Article 26 could
go beyond the rights contained in the Covenant to other civil
and political rights, such as discrimination in the field of
taxation, but contended that Article 26 did not extend to the
social, economic, and cultural rights contained in ICESCR. The
Committee rejected this argument. In its view, Article 26
applied to rights beyond the Covenant including the rights in
other international treaties such as the right to social security
found in ICESCR:
Although Article 26 requires that legislation should
prohibit discrimination, it does not of itself contain any
obligation with respect to the matters that may be
provided for by legislation. Thus it does not, for example,
require any state to enact legislation to provide for social
security. However, when such legislation is adopted in
the exercise of a State's sovereign power, then such
legislation must comply with Article 26 of the Covenant.89
Breaches of the right to equal protection occur directly or
indirectly. A classification may be struck down if it has
the purpose or effect of violating the right to equal
protection. International law recognizes that discrimination
may occur indirectly, as the Human Rights Committee90 took
into account the definitions of discrimination adopted by CERD
and CEDAW in declaring that:
. . . "discrimination" as used in the [ICCPR] should be
understood to imply any distinction, exclusion, restriction
or preference which is based on any ground such
as race, colour, sex, language, religion, political or other
opinion, national or social origin, property, birth or other
status, and which has thepurpose or effect of
nullifying or impairing the recognition, enjoyment
or exercise by all persons, on an equal footing, of all
rights and freedoms. 91 (emphasis supplied)
Thus, the two-tier analysis made in the case at bar of
the challenged provision, and its conclusion of
unconstitutionality by subsequent operation, are in
cadence and in consonance with the progressive trend
of other jurisdictions and in international law. There
should be no hesitation in using the equal protection clause as a
major cutting edge to eliminate every conceivable irrational
discrimination in our society. Indeed, the social justice
imperatives in the Constitution, coupled with the special status
and protection afforded to labor, compel this approach.92
Apropos the special protection afforded to labor under our
Constitution and international law, we held in International
School Alliance of Educators v. Quisumbing: 93
That public policy abhors inequality and discrimination is
beyond contention. Our Constitution and laws reflect the
policy against these evils. The Constitution in the Article
on Social Justice and Human Rights exhorts Congress to
"give highest priority to the enactment of measures that
protect and enhance the right of all people to human
dignity, reduce social, economic, and political
inequalities." The very broad Article 19 of the Civil Code
requires every person, "in the exercise of his rights and
in the performance of his duties, [to] act with justice,
give everyone his due, and observe honesty and good
faith."
International law, which springs from general principles
of law, likewise proscribes discrimination. General
principles of law include principles of equity, i.e., the
general principles of fairness and justice, based on the
test of what is reasonable. The Universal Declaration of
Human Rights, the International Covenant on Economic,
Social, and Cultural Rights, the International Convention
on the Elimination of All Forms of Racial Discrimination,
the Convention against Discrimination in Education, the
Convention (No. 111) Concerning Discrimination in
Respect of Employment and Occupation - all embody the
general principle against discrimination, the very
antithesis of fairness and justice. The Philippines,
through its Constitution, has incorporated this principle
as part of its national laws.
In the workplace, where the relations between capital
and labor are often skewed in favor of capital, inequality
and discrimination by the employer are all the more
reprehensible.
The Constitution specifically provides that labor is entitled
to "humane conditions of work." These conditions are not
restricted to the physical workplace - the factory, the
office or the field - but include as well the manner by
which employers treat their employees.
The Constitution also directs the State to promote
"equality of employment opportunities for all." Similarly,
the Labor Code provides that the State shall "ensure
equal work opportunities regardless of sex, race or
creed." It would be an affront to both the spirit and letter
of these provisions if the State, in spite of its primordial
obligation to promote and ensure equal employment
opportunities, closes its eyes to unequal and
discriminatory terms and conditions of employment.
xxx xxx xxx
Notably, the International Covenant on Economic, Social,
and Cultural Rights, in Article 7 thereof, provides:
The States Parties to the present Covenant recognize the
right of everyone to the enjoyment of just and
[favorable] conditions of work, which ensure, in
particular:
a. Remuneration which provides all workers, as a
minimum, with:
i. Fair wages and equal remuneration for
work of equal value without distinction of
any kind, in particular women being
guaranteed conditions of work not inferior
to those enjoyed by men, with equal pay
for equal work;
xxx xxx xxx
The foregoing provisions impregnably institutionalize in
this jurisdiction the long honored legal truism of "equal
pay for equal work." Persons who work with substantially
equal qualifications, skill, effort and responsibility, under
similar conditions, should be paid similar salaries.
(citations omitted)
Congress retains its wide discretion in providing for a valid
classification, and its policies should be accorded recognition
and respect by the courts of justice except when they run afoul
of the Constitution.94 The deference stops where the
classification violates a fundamental right, or prejudices
persons accorded special protection by the
Constitution. When these violations arise, this Court must
discharge its primary role as the vanguard of constitutional
guaranties, and require a stricter and more exacting
adherence to constitutional limitations. Rational basis
should not suffice.
Admittedly, the view that prejudice to persons accorded special
protection by the Constitution requires a stricter judicial scrutiny
finds no support in American or English jurisprudence.
Nevertheless, these foreign decisions and authorities are not per
se controlling in this jurisdiction. At best, they are persuasive
and have been used to support many of our decisions.95 We
should not place undue and fawning reliance upon them and
regard them as indispensable mental crutches without which we
cannot come to our own decisions through the employment of
our own endowments. We live in a different ambience and must
decide our own problems in the light of our own interests and
needs, and of our qualities and even idiosyncrasies as a people,
and always with our own concept of law and justice.96 Our laws
must be construed in accordance with the intention of our own
lawmakers and such intent may be deduced from the language
of each law and the context of other local legislation related
thereto. More importantly, they must be construed to serve our
own public interest which is the be-all and the end-all of all our
laws. And it need not be stressed that our public interest is
distinct and different from others.97
In the 2003 case of Francisco v. House of Representatives, this
Court has stated that: "[A]merican jurisprudence and
authorities, much less the American Constitution, are of dubious
application for these are no longer controlling within our
jurisdiction and have only limited persuasive merit insofar as
Philippine constitutional law is concerned....[I]n resolving
constitutional disputes, [this Court] should not be beguiled by
foreign jurisprudence some of which are hardly applicable
because they have been dictated by different constitutional
settings and needs."98 Indeed, although the Philippine
Constitution can trace its origins to that of the United States,
their paths of development have long since diverged. 99
Further, the quest for a better and more "equal" world calls for
the use of equal protection as a tool of effective judicial
intervention.
Equality is one ideal which cries out for bold attention
and action in the Constitution. The Preamble proclaims
"equality" as an ideal precisely in protest against crushing
inequities in Philippine society. The command to promote
social justice in Article II, Section 10, in "all phases of
national development," further explicitated in Article XIII,
are clear commands to the State to take affirmative
action in the direction of greater equality.… [T]here is
thus in the Philippine Constitution no lack of doctrinal
support for a more vigorous state effort towards
achieving a reasonable measure of equality.100
Our present Constitution has gone further in guaranteeing vital
social and economic rights to marginalized groups of society,
including labor.101 Under the policy of social justice, the law
bends over backward to accommodate the interests of the
working class on the humane justification that those with less
privilege in life should have more in law.102 And the obligation to
afford protection to labor is incumbent not only on the
legislative and executive branches but also on the judiciary to
translate this pledge into a living reality.103 Social justice calls
for the humanization of laws and the equalization of social and
economic forces by the State so that justice in its rational and
objectively secular conception may at least be approximated.104
V.
A Final Word
Finally, concerns have been raised as to the propriety of a ruling
voiding the challenged provision. It has been proffered that the
remedy of petitioner is not with this Court, but with Congress,
which alone has the power to erase any inequity perpetrated by
R.A. No. 7653. Indeed, a bill proposing the exemption of the
BSP rank-and-file from the SSL has supposedly been filed.
Under most circumstances, the Court will exercise judicial
restraint in deciding questions of constitutionality, recognizing
the broad discretion given to Congress in exercising its
legislative power. Judicial scrutiny would be based on the
"rational basis" test, and the legislative discretion would be
given deferential treatment. 105
But if the challenge to the statute is premised on the
denial of a fundamental right, or the perpetuation of
prejudice against persons favored by the Constitution
with special protection, judicial scrutiny ought to be
more strict. A weak and watered down view would call for the
abdication of this Court's solemn duty to strike down any law
repugnant to the Constitution and the rights it enshrines. This is
true whether the actor committing the unconstitutional act is a
private person or the government itself or one of its
instrumentalities. Oppressive acts will be struck down regardless
of the character or nature of the actor. 106
Accordingly, when the grant of power is qualified,
conditional or subject to limitations, the issue on whether
or not the prescribed qualifications or conditions have
been met, or the limitations respected, is justiciable or
non-political, the crux of the problem being one of
legality or validity of the contested act, not its wisdom.
Otherwise, said qualifications, conditions or limitations -
particularly those prescribed or imposed by the
Constitution - would be set at naught. What is more, the
judicial inquiry into such issue and the settlement thereof
are the main functions of courts of justice under the
Presidential form of government adopted in our 1935
Constitution, and the system of checks and balances, one
of its basic predicates. As a consequence,We have
neither the authority nor the discretion to decline
passing upon said issue, but are under the
ineluctable obligation - made particularly more
exacting and peremptory by our oath, as members
of the highest Court of the land, to support and
defend the Constitution - to settle it. This explains
why, in Miller v. Johnson, it was held that courts have a
"duty, rather than a power", to determine whether
another branch of the government has "kept within
constitutional limits." Not satisfied with this postulate, the
court went farther and stressed that, if the Constitution
provides how it may be amended - as it is in our 1935
Constitution - "then, unless the manner is followed, the
judiciary as the interpreter of that constitution, will
declare the amendment invalid." In fact, this very Court -
speaking through Justice Laurel, an outstanding authority
on Philippine Constitutional Law, as well as one of the
highly respected and foremost leaders of the Convention
that drafted the 1935 Constitution - declared, as early as
July 15, 1936, that "(i)n times of social disquietude or
political excitement, the great landmarks of the
Constitution are apt to be forgotten or marred, if not
entirely obliterated. In cases of conflict, the judicial
department is the only constitutional organ which can be
called upon to determine the proper allocation of powers
between the several departments" of the
government.107 (citations omitted; emphasis supplied)
In the case at bar, the challenged proviso operates on the basis
of the salary grade or officer-employee status. It is akin to a
distinction based on economic class and status, with the
higher grades as recipients of a benefit specifically withheld
from the lower grades. Officers of the BSP now receive higher
compensation packages that are competitive with the industry,
while the poorer, low-salaried employees are limited to the rates
prescribed by the SSL. The implications are quite disturbing:
BSP rank-and-file employees are paid the strictly regimented
rates of the SSL while employees higher in rank - possessing
higher and better education and opportunities for career Davide, Jr., C.J., Quisumbing, Ynares-Santiago, Sandoval-
advancement - are given higher compensation packages to Gutierrez, Austria-Martinez, Azcuna, Tinga, and Chico-Nazario,
entice them to stay. Considering that majority, if not all, JJ., concur.
the rank-and-file employees consist of people whose
status and rank in life are less and limited, especially in Panganiban, Carpio, Carpio-Morales, and Garcia, JJ., see
terms of job marketability, it is they - and not the dissenting.
officers - who have the real economic and Corona, and Callejo, Sr., JJ., on leave.
financial need for the adjustment This is in accord with the
policy of the Constitution "to free the people from poverty,
provide adequate social services, extend to them a decent
standard of living, and improve the quality of life for all."108 Any
act of Congress that runs counter to this
constitutional desideratum deserves strict scrutiny by
this Court before it can pass muster.

To be sure, the BSP rank-and-file employees merit

greater concern from this Court. They represent the more
impotent rank-and-file government employees who, unlike
employees in the private sector, have no specific right to
organize as a collective bargaining unit and negotiate for better
terms and conditions of employment, nor the power to hold a
strike to protest unfair labor practices. Not only are they
impotent as a labor unit, but their efficacy to lobby in Congress
is almost nil as R.A. No. 7653 effectively isolated them from the
other GFI rank-and-file in compensation. These BSP rank-
and-file employees represent the politically powerless
and they should not be compelled to seek a political
solution to their unequal and iniquitous
treatment. Indeed, they have waited for many years for the
legislature to act. They cannot be asked to wait some more for
discrimination cannot be given any waiting time. Unless the
equal protection clause of the Constitution is a mere platitude, it
is the Court's duty to save them from reasonless discrimination.

IN VIEW WHEREOF, we hold that the continued operation

and implementation of the last proviso of Section 15(c), Article
II of Republic Act No. 7653 is unconstitutional.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 197676 February 4, 2014
REMMAN ENTERPRISES, INC. and CHAMBER OF REAL
ESTATE AND BUILDERS'ASSOCIATION, Petitioners,
vs.
PROFESSIONAL REGULATORY BOARD OF REAL ESTATE
SERVICE and PROFESSIONAL REGULATION
COMMISSION, Respondents.
DECISION
VILLARAMA, JR., J.:
Assailed in this petition for review under Rule 45 is the
Decision1 dated July 12, 2011 of the Regional Trial Court (RTC)
of Manila, Branch 42 denying the petition to declare as
unconstitutional Sections 28(a), 29 and 32 of Republic Act
(R.A.) No. 9646.
R.A. No. 9646, otherwise known as the "Real Estate Service Act
of the Philippines" was signed into law on June 29, 2009 by
President Gloria Macapagal-Arroyo. It aims to professionalize
the real estate service sector under a regulatory scheme of
licensing, registration and supervision of real estate service
practitioners (real estate brokers, appraisers, assessors,
consultants and salespersons) in the country. Prior to its
enactment, real estate service practitioners were under the
supervision of the Department of Trade and Industry (DTI)
through the Bureau of Trade Regulation and Consumer
Protection (BTRCP), in the exercise of its consumer regulation
functions. Such authority is now transferred to the Professional
Regulation Commission (PRC) through the Professional
Regulatory Board of Real Estate Service (PRBRES) created
under the new law.
The implementing rules and regulations (IRR) of R.A. No. 9646
were promulgated on July 21, 2010 by the PRC and PRBRES
under Resolution No. 02, Series of 2010.
On December 7, 2010, herein petitioners Remman Enterprises,
Inc. (REI) and the Chamber of Real Estate and Builders’
Association (CREBA) instituted Civil Case No. 10-124776 in the
Regional Trial Court of Manila, Branch 42. Petitioners sought to
declare as void and unconstitutional the following provisions of
R.A. No. 9646:
SEC. 28. Exemptions from the Acts Constituting the Practice of
Real Estate Service. – The provisions of this Act and its rules
and regulations shall not apply to the following:
(a) Any person, natural or juridical, who shall directly perform
by himself/herself the acts mentioned in Section 3 hereof with
reference to his/her or its own property, except real estate
developers;
xxxx
SEC. 29. Prohibition Against the Unauthorized Practice of Real
Estate Service. – No person shall practice or offer to practice
real estate service in the Philippines or offer himself/herself as
real estate service practitioner, or use the title, word, letter,
figure or any sign tending to convey the impression that one is
a real estate service practitioner, or advertise or indicate in any
manner whatsoever that one is qualified to practice the
profession, or be appointed as real property appraiser or
assessor in any national government entity or local government
unit, unless he/she has satisfactorily passed the licensure
examination given by the Board, except as otherwise provided
in this Act, a holder of a valid certificate of registration, and
professional identification card or a valid special/temporary
permit duly issued to him/her by the Board and the
Commission, and in the case of real estate brokers and private
appraisers, they have paid the required bond as hereto
provided.
xxxx
SEC. 32. Corporate Practice of the Real Estate Service. – (a) No
partnership or corporation shall engage in the business of real
estate service unless it is duly registered with the Securities and
Exchange Commission (SEC), and the persons authorized to act
for the partnership or corporation are all duly registered and
licensed real estate brokers, appraisers or consultants, as the
case may be. The partnership or corporation shall regularly
submit a list of its real estate service practitioners to the
Commission and to the SEC as part of its annual reportorial
requirements. There shall at least be one (1) licensed real
estate broker for every twenty (20) accredited salespersons.
(b) Divisions or departments of partnerships and corporations
engaged in marketing or selling any real estate development
project in the regular course of business must be headed by
full-time registered and licensed real estate brokers.
(c) Branch offices of real estate brokers, appraisers or
consultants must be manned by a duly licensed real estate
broker, appraiser or consultant as the case may be.
In case of resignation or termination from employment of a real
estate service practitioner, the same shall be reported by the
employer to the Board within a period not to exceed fifteen (15)
days from the date of effectivity of the resignation or
termination.
Subject to the provisions of the Labor Code, a corporation or
partnership may hire the services of registered and licensed real
estate brokers, appraisers or consultants on commission basis
to perform real estate services and the latter shall be deemed
independent contractors and not employees of such
corporations. (Emphasis and underscoring supplied.)
According to petitioners, the new law is constitutionally infirm
because (1) it violates Article VI, Section 26 (1) of the 1987
Philippine Constitution which mandates that "[e]very bill passed
by Congress shall embrace only one subject which shall be
expressed in the title thereof"; (2) it is in direct conflict with
Executive Order (E.O.) No. 648 which transferred the exclusive
jurisdiction of the National Housing Authority (NHA) to regulate
the real estate trade and business to the Human Settlements
Commission, now the Housing and Land Use Regulatory Board
(HLURB), which authority includes the issuance of license to sell
of subdivision owners and developers pursuant to Presidential
Decree (P.D.) No. 957; (3) it violates the due process clause as
it impinges on the real estate developers’ most basic ownership
rights, the right to use and dispose property, which is enshrined
in Article 428 of the Civil Code; and (4) Section 28(a) of R.A.
No. 9646 violates the equal protection clause as no substantial
distinctions exist between real estate developers and the
exempted group mentioned since both are property owners
dealing with their own property.
Additionally, petitioners contended that the lofty goal of
nurturing and developing a "corps of technically competent,
reasonable and respected professional real estate service
practitioners" is not served by curtailing the right of real estate
developers to conduct their business of selling properties. On
the contrary, these restrictions would have disastrous effects on
the real estate industry as the additional cost of commissions
would affect the pricing and affordability of real estate
packages. When that happens, petitioners claimed that the
millions of jobs and billions in revenues that the real estate
industry generates for the government will be a thing of the
past.
After a summary hearing, the trial court denied the prayer for
issuance of a writ of preliminary injunction.
On July 12, 2011, the trial court rendered its Decision2 denying
the petition. The trial court held that the assailed provisions are
relevant to the title of the law as they are intended to regulate
the practice of real estate service in the country by ensuring
that those who engage in it shall either be a licensed real estate
broker, or under the latter’s supervision. It likewise found no
real discord between E.O. No. 648 and R.A. No. 9646 as the
latter does not render nugatory the license to sell granted by
the HLURB to real estate developers, which license would still
subsist. The only difference is that by virtue of the new law, real
estate developers will now be compelled to hire the services of
one licensed real estate broker for every twenty salespersons to
guide and supervise the coterie of salespersons under the
employ of the real estate developers.
On the issue of due process, the trial court said that the
questioned provisions do not preclude property owners from
using, enjoying, or disposing of their own property because they
can still develop and sell their properties except that they have
to secure the services of a licensed real estate broker who shall
oversee the actions of the unlicensed real estate practitioners
under their employ. Since the subject provisions merely
prescribe the requirements for the regulation of the practice of
real estate services, these are consistent with a valid exercise of
the State’s police power. The trial court further ruled that
Section 28(a) does not violate the equal protection clause
because the exemption of real estate developers was anchored
on reasonable classification aimed at protecting the buying
public from the rampant misrepresentations often committed by
unlicensed real estate practitioners, and to prevent
unscrupulous and unethical real estate practices from flourishing
considering the large number of consumers in the regular
course of business compared to isolated sale transactions made
by private individuals selling their own property.
Hence, this appeal on the following questions of law:
1. Whether there is a justiciable controversy for this
Honorable Court to adjudicate;
2. Whether [R.A. No. 9646] is unconstitutional for
violating the "one title-one subject" rule under Article VI,
Section 26 (1) of the Philippine Constitution;
3. Whether [R.A. No. 9646] is in conflict with PD 957, as
amended by EO 648, with respect to the exclusive
jurisdiction of the HLURB to regulate real estate
developers;
4. Whether Sections 28(a), 29, and 32 of [R.A. No.
9646], insofar as they affect the rights of real estate
developers, are unconstitutional for violating substantive
due process; and
5. Whether Section 28(a), which treats real estate
developers differently from other natural or juridical
persons who directly perform acts of real estate service
with reference to their own property, is unconstitutional
for violating the equal protection clause.3
The Court’s Ruling
The petition has no merit.
Justiciable Controversy
The Constitution4 requires as a condition precedent for the
exercise of judicial power the existence of an actual controversy
between litigants. An actual case or controversy involves a
conflict of legal rights, an assertion of opposite legal claims
susceptible to judicial resolution.5 The controversy must be
justiciable – definite and concrete – touching on the legal
relations of parties having adverse legal interests, which may be
resolved by a court of law through the application of a law.6 In
other words, the pleadings must show an active antagonistic
assertion of a legal right, on the one hand, and a denial thereof
on the other; that is, it must concern a real and not a merely
theoretical question or issue. There ought to be an actual and
substantial controversy admitting of specific relief through a
decree conclusive in nature, as distinguished from an opinion
advising what the law would be upon a hypothetical state of
facts.7 An actual case is ripe for adjudication when the act being
challenged has a direct adverse effect on the individual
challenging it.8
There is no question here that petitioners who are real estate
developers are entities directly affected by the prohibition on
performing acts constituting practice of real estate service
without first complying with the registration and licensing
requirements for brokers and agents under R.A. No. 9646. The
possibility of criminal sanctions for disobeying the mandate of
the new law is likewise real. Asserting that the prohibition
violates their rights as property owners to dispose of their
properties, petitioners challenged on constitutional grounds the
implementation of R.A. No. 9646 which the respondents
defended as a valid legislation pursuant to the State’s police
power. The Court thus finds a justiciable controversy that calls
for immediate resolution.
No Violation of One-Title One-Subject Rule
Section 26(1), Article VI of the Constitution states:
SEC. 26 (1). Every bill passed by the Congress shall embrace
only one subject which shall be expressed in the title thereof.
In Fariñas v. The Executive Secretary,9 the Court explained the
provision as follows:
The proscription is aimed against the evils of the so-called
omnibus bills and log-rolling legislation as well as surreptitious
and/or unconsidered encroaches. The provision merely calls for
all parts of an act relating to its subject finding expression in its
title.
To determine whether there has been compliance with the
constitutional requirement that the subject of an act shall be
expressed in its title, the Court laid down the rule that –
Constitutional provisions relating to the subject matter and titles
of statutes should not be so narrowly construed as to cripple or
impede the power of legislation. The requirement that the
subject of an act shall be expressed in its title should receive a
reasonable and not a technical construction. It is sufficient if the
title be comprehensive enough reasonably to include the
general object which a statute seeks to effect, without
expressing each and every end and means necessary or
convenient for the accomplishing of that object. Mere details
need not be set forth. The title need not be an abstract or index
of the Act.10 (Emphasis supplied.)
The Court has previously ruled that the one-subject requirement
under the Constitution is satisfied if all the parts of the statute
are related, and are germane to the subject matter expressed in
the title, or as long as they are not inconsistent with or foreign
to the general subject and title.11 An act having a single general
subject, indicated in the title, may contain any number of
provisions, no matter how diverse they may be, so long as they
are not inconsistent with or foreign to the general subject, and
may be considered in furtherance of such subject by providing
for the method and means of carrying out the general object.12
It is also well-settled that the "one title-one subject" rule does
not require the Congress to employ in the title of the enactment
language of such precision as to mirror, fully index or catalogue
all the contents and the minute details therein. The rule is
sufficiently complied with if the title is comprehensive enough as
to include the general object which the statute seeks to
effect.13 Indeed, this Court has invariably adopted a liberal
rather than technical construction of the rule "so as not to
cripple or impede legislation."14
R.A. No. 9646 is entitled "An Act Regulating the Practice of Real
Estate Service in the Philippines, Creating for the Purpose a
Professional Regulatory Board of Real Estate Service,
Appropriating Funds Therefor and For Other Purposes." Aside
from provisions establishing a regulatory system for the
professionalization of the real estate service sector, the new law
extended its coverage to real estate developers with respect to
their own properties. Henceforth, real estate developers are
prohibited from performing acts or transactions constituting real
estate service practice without first complying with registration
and licensing requirements for their business, brokers or agents,
appraisers, consultants and salespersons.
Petitioners point out that since partnerships or corporations
engaged in marketing or selling any real estate development
project in the regular course of business are now required to be
headed by full-time, registered and licensed real estate brokers,
this requirement constitutes limitations on the property rights
and business prerogatives of real estate developers which are
not all reflected in the title of R.A. No. 9646. Neither are real
estate developers, who are already regulated under a different
law, P.D. No. 957, included in the definition of real estate
service practitioners.
We hold that R.A. No. 9646 does not violate the one-title, one-
subject rule.
The primary objective of R.A. No. 9646 is expressed as follows:
SEC. 2. Declaration of Policy. – The State recognizes the vital
role of real estate service practitioners in the social, political,
economic development and progress of the country by
promoting the real estate market, stimulating economic activity
and enhancing government income from real property-based
transactions. Hence, it shall develop and nurture through proper
and effective regulation and supervision a corps of technically
competent, responsible and respected professional real estate
service practitioners whose standards of practice and service
shall be globally competitive and will promote the growth of the
real estate industry.
We find that the inclusion of real estate developers is germane
to the law’s primary goal of developing "a corps of technically
competent, responsible and respected professional real estate
service practitioners whose standards of practice and service
shall be globally competitive and will promote the growth of the
real estate industry." Since the marketing aspect of real estate
development projects entails the performance of those acts and
transactions defined as real estate service practices under
Section 3(g) of R.A. No. 9646, it is logically covered by the
regulatory scheme to professionalize the entire real estate
service sector.
No Conflict Between R.A. No. 9646
and P.D. No. 957, as amended by E.O. No. 648
Petitioners argue that the assailed provisions still cannot be
sustained because they conflict with P.D. No. 957 which
decreed that the NHA shall have "exclusive jurisdiction to
regulate the real estate trade and business." Such jurisdiction
includes the authority to issue a license to sell to real estate
developers and to register real estate dealers, brokers or
salesmen upon their fulfillment of certain requirements under
the law. By imposing limitations on real estate developers’
property rights, petitioners contend that R.A. No. 9646
undermines the licenses to sell issued by the NHA (now the
HLURB) to real estate developers allowing them to sell
subdivision lots or condominium units directly to the public.
Because the HLURB has been divested of its exclusive
jurisdiction over real estate developers, the result is an implied
repeal of P.D. No. 957 as amended by E.O. No. 648, which is
not favored in law.
It is a well-settled rule of statutory construction that repeals by
implication are not favored. In order to effect a repeal by
implication, the later statute must be so irreconcilably
inconsistent and repugnant with the existing law that they
cannot be made to reconcile and stand together. The clearest
case possible must be made before the inference of implied
repeal may be drawn, for inconsistency is never presumed.
There must be a showing of repugnance clear and convincing in
character. The language used in the later statute must be such
as to render it irreconcilable with what had been formerly
enacted. An inconsistency that falls short of that standard does
not suffice.15 Moreover, the failure to add a specific repealing
clause indicates that the intent was not to repeal any existing
law, unless an irreconcilable inconsistency and repugnancy exist
in the terms of the new and old laws.16
There is nothing in R.A. No. 9646 that repeals any provision of
P.D. No. 957, as amended by E.O. No. 648. P.D. No. 957,
otherwise known as "The Subdivision and Condominium Buyers’
Protective Decree,"17 vested the NHA with exclusive jurisdiction
to regulate the real estate trade and business in accordance
with its provisions. It empowered the NHA to register, approve
and monitor real estate development projects and issue licenses
to sell to real estate owners and developers. It further granted
the NHA the authority to register and issue/revoke licenses of
brokers, dealers and salesmen engaged in the selling of
subdivision lots and condominium units.
E.O. No. 648, issued on February 7, 1981, reorganized the
Human Settlements Regulatory Commission (HSRC) and
transferred the regulatory functions of the NHA under P.D. 957
to the HSRC. Among these regulatory functions were the (1)
regulation of the real estate trade and business; (2) registration
of subdivision lots and condominium projects; (3) issuance of
license to sell subdivision lots and condominium units in the
registered units; (4) approval of performance bond and the
suspension of license to sell; (5) registration of dealers, brokers
and salesman engaged in the business of selling subdivision lots
or condominium units; and (6) revocation of registration of
dealers, brokers and salesmen.18
E.O. No. 90, issued on December 17, 1986, renamed the HSRC
as the Housing and Land Use Regulatory Board (HLURB) and
was designated as the regulatory body for housing and land
development under the Housing and Urban Development
Coordinating Council (HUDCC). To date, HLURB continues to
carry out its mandate to register real estate brokers and
salesmen dealing in condominium, memorial parks and
subdivision projects pursuant to Section 11 of P.D. No. 957,
which reads:
SECTION 11. Registration of Dealers, Brokers and Salesmen. –
No real estate dealer, broker or salesman shall engage in the
business of selling subdivision lots or condominium units unless
he has registered himself with the Authority in accordance with
the provisions of this section.
If the Authority shall find that the applicant is of good repute
and has complied with the applicable rules of the Authority,
including the payment of the prescribed fee, he shall register
such applicant as a dealer, broker or salesman upon filing a
bond, or other security in lieu thereof, in such sum as may be
fixed by the Authority conditioned upon his faithful compliance
with the provisions of this Decree: Provided, that the
registration of a salesman shall cease upon the termination of
his employment with a dealer or broker.
Every registration under this section shall expire on the thirty-
first day of December of each year. Renewal of registration for
the succeeding year shall be granted upon written application
therefore made not less than thirty nor more than sixty days
before the first day of the ensuing year and upon payment of
the prescribed fee, without the necessity of filing further
statements or information, unless specifically required by the
Authority. All applications filed beyond said period shall be
treated as original applications.
The names and addresses of all persons registered as dealers,
brokers, or salesmen shall be recorded in a Register of Brokers,
Dealers and Salesmen kept in the Authority which shall be open
to public inspection.
On the other hand, Section 29 of R.A. No. 9646 requires as a
condition precedent for all persons who will engage in acts
constituting real estate service, including advertising in any
manner one’s qualifications as a real estate service practitioner,
compliance with licensure examination and other registration
requirements including the filing of a bond for real estate
brokers and private appraisers. While Section 11 of P.D. No. 957
imposes registration requirements for dealers, brokers and
salespersons engaged in the selling of subdivision lots and
condominium units, Section 29 of R.A. No. 9646 regulates all
real estate service practitioners whether private or government.
While P.D. No. 957 seeks to supervise brokers and dealers who
are engaged in the sale of subdivision lots and condominium
units, R.A. No. 9646 aims to regulate the real estate service
sector in general by professionalizing their ranks and raising the
level of ethical standards for licensed real estate professionals.
There is no conflict of jurisdiction because the HLURB
supervises only those real estate service practitioners engaged
in the sale of subdivision lots and condominium projects,
specifically for violations of the provisions of P.D. No. 957, and
not the entire real estate service sector which is now under the
regulatory powers of the PRBRES. HLURB’s supervision of
brokers and dealers to effectively implement the provisions of
P.D. No. 957 does not foreclose regulation of the real estate
service as a profession. Real estate developers already
regulated by the HLURB are now further required to comply
with the professional licensure requirements under R.A. No.
9646, as provided in Sections 28, 29 and 32. Plainly, there is no
inconsistency or contradiction in the assailed provisions of R.A.
No. 9646 and P.D. No. 957, as amended.
The rule is that every statute must be interpreted and brought
into accord with other laws in a way that will form a uniform
system of jurisprudence. The legislature is presumed to have
known existing laws on the subject and not to have enacted
conflicting laws.19 Congress, therefore, could not be presumed
to have intended Sections 28, 29 and 32 of R.A. No. 9646 to run
counter to P.D. No. 957.
No Violation of Due Process
Petitioners contend that the assailed provisions of R.A. No. 9646
are unduly oppressive and infringe the constitutional rule
against deprivation of property without due process of law.
They stress that real estate developers are now burdened by
law to employ licensed real estate brokers to sell, market and
dispose of their properties. Despite having invested a lot of
money, time and resources in their projects, petitioners aver
that real estate developers will still have less control in
managing their business and will be burdened with additional
expenses.
The contention has no basis. There is no deprivation of property
as no restriction on their use and enjoyment of property is
caused by the implementation of R.A. No. 9646. If petitioners as
property owners feel burdened by the new requirement of
engaging the services of only licensed real estate professionals
in the sale and marketing of their properties, such is an
unavoidable consequence of a reasonable regulatory measure.
Indeed, no right is absolute, and the proper regulation of a
profession, calling, business or trade has always been upheld as
a legitimate subject of a valid exercise of the police power of
the State particularly when their conduct affects the execution
of legitimate governmental functions, the preservation of the
State, public health and welfare and public morals.20 In any
case, where the liberty curtailed affects at most the rights of
property, the permissible scope of regulatory measures is
certainly much wider. To pretend that licensing or accreditation
requirements violate the due process clause is to ignore the
settled practice, under the mantle of police power, of regulating
entry to the practice of various trades or professions.21
Here, the legislature recognized the importance of
professionalizing the ranks of real estate practitioners by
increasing their competence and raising ethical standards as
real property transactions are "susceptible to manipulation and
corruption, especially if they are in the hands of unqualified
persons working under an ineffective regulatory system." The
new regulatory regime aimed to fully tap the vast potential of
the real estate sector for greater contribution to our gross
domestic income, and real estate practitioners "serve a vital role
in spearheading the continuous flow of capital, in boosting
investor confidence, and in promoting overall national
progress."22
We thus find R.A. No. 9646 a valid exercise of the State’s police
power. As we said in another case challenging the
constitutionality of a law granting discounts to senior citizens:
The law is a legitimate exercise of police power which, similar to
the power of eminent domain, has general welfare for its
object. Police power is not capable of an exact definition, but
has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough
room for an efficient and flexible response to conditions and
circumstances, thus assuring the greatest benefits. Accordingly,
it has been described as "the most essential, insistent and the
least limitable of powers, extending as it does to all the great
public needs." It is "[t]he power vested in the legislature by the
constitution to make, ordain, and establish all manner of
wholesome and reasonable laws, statutes, and ordinances,
either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare
of the commonwealth, and of the subjects of the same."
For this reason, when the conditions so demand as determined
by the legislature, property rights must bow to the primacy of
police power because property rights, though sheltered by due
process, must yield to general welfare.
Police power as an attribute to promote the common good
would be diluted considerably if on the mere plea of petitioners
that they will suffer loss of earnings and capital, the questioned
provision is invalidated. Moreover, in the absence of evidence
demonstrating the alleged confiscatory effect of the provision in
question, there is no basis for its nullification in view of the
presumption of validity which every law has in its
favor.23 (Emphasis supplied.)
No Violation of Equal Protection Clause
Section 28 of R.A. No. 9646 exempts from its coverage natural
and juridical persons dealing with their own property, and other
persons such as receivers, trustees or assignees in insolvency or
bankruptcy proceedings. However, real estate developers are
specifically mentioned as an exception from those enumerated
therein. Petitioners argue that this provision violates the equal
protection clause because it unjustifiably treats real estate
developers differently from those exempted persons who also
own properties and desire to sell them. They insist that no
substantial distinctions exist between ordinary property owners
and real estate developers as the latter, in fact, are more
capable of entering into real estate transactions and do not
need the services of licensed real estate brokers.1âwphi1 They
assail the RTC decision in citing the reported fraudulent
practices as basis for the exclusion of real estate developers
from the exempted group of persons under Section 28(a).
We sustain the trial court’s ruling that R.A. No. 9646 does not
violate the equal protection clause.
In Ichong v. Hernandez,24 the concept of equal protection was
explained as follows:
The equal protection of the law clause is against undue favor
and individual or class privilege, as well as hostile discrimination
or the oppression of inequality. It is not intended to prohibit
legislation, which is limited either in the object to which it is
directed or by territory within which it is to operate. It does not
demand absolute equality among residents; it merely requires
that all persons shall be treated alike, under like circumstances
and conditions both as to privileges conferred and liabilities
enforced. The equal protection clause is not infringed by
legislation which applies only to those persons falling within
such class, and reasonable grounds exists for making a
distinction between those who fall within such class and those
who do not. (2 Cooley, Constitutional Limitations, 824-825).25
Although the equal protection clause of the Constitution does
not forbid classification, it is imperative that the classification
should be based on real and substantial differences having a
reasonable relation to the subject of the particular
legislation.26 If classification is germane to the purpose of the
law, concerns all members of the class, and applies equally to
present and future conditions, the classification does not violate
the equal protection guarantee.27
R.A. No. 9646 was intended to provide institutionalized
government support for the development of "a corps of highly
respected, technically competent, and disciplined real estate
service practitioners, knowledgeable of internationally accepted
standards and practice of the profession."28 Real estate
developers at present constitute a sector that hires or employs
the largest number of brokers, salespersons, appraisers and
consultants due to the sheer number of products (lots, houses
and condominium units) they advertise and sell nationwide. As
early as in the ‘70s, there has been a proliferation of errant
developers, operators or sellers who have reneged on their
representation and obligations to comply with government
regulations such as the provision and maintenance of
subdivision roads, drainage, sewerage, water system and other
basic requirements. To protect the interest of home and lot
buyers from fraudulent acts and manipulations perpetrated by
these unscrupulous subdivision and condominium sellers and
operators, P.D. No. 957 was issued to strictly regulate housing
and real estate development projects. Hence, in approving R.A.
No. 9646, the legislature rightfully recognized the necessity of
imposing the new licensure requirements to all real estate
service practitioners, including and more importantly, those real
estate service practitioners working for real estate developers.
Unlike individuals or entities having isolated transactions over
their own property, real estate developers sell lots, houses and
condominium units in the ordinary course of business, a
business which is highly regulated by the State to ensure the
health and safety of home and lot buyers.
The foregoing shows that substantial distinctions do exist
between ordinary property owners exempted under Section
28(a) and real estate developers like petitioners, and the
classification enshrined in R.A. No. 9646 is reasonable and
relevant to its legitimate purpose. The Court thus rules that R.A.
No. 9646 is valid and constitutional.

Since every law is presumed valid, the presumption of

constitutionality can be overcome only by the clearest showing
that there was indeed an infraction of the Constitution, and only
when such a conclusion is reached by the required majority may
the Court pronounce, in the discharge of the duty it cannot
escape, that the challenged act must be struck down.29

Indeed, "all presumptions are indulged in favor of

constitutionality; one who attacks a statute, alleging
unconstitutionality must prove its invalidity beyond a reasonable
doubt; that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived
which supports the statute, it will be upheld, and the challenger
must negate all possible bases; that the courts are not
concerned with the wisdom, justice, policy, or expediency of a
statute; and that a liberal interpretation of the constitution in
favor of the constitutionality of legislation should be adopted."30

WHEREFORE, the petition is DENIED. The Decision dated July

12, 2011 of the Regional Trial Court of Manila, Branch 42 in Civil
Case No. 10-124776 is hereby AFFIRMED and UPHELD.

No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
EN BANC
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS)
OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO
ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT
OF FINANCE CESAR PURISIMA; and HONORABLE
COMMISSIONER OF INTERNAL REVENUE GUILLERMO
PARAYNO, JR., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA,
JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM,
JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEÑA III,
Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V.
PURISIMA, SECRETARY OF FINANCE, GUILLERMO L.
PARAYNO, JR., COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented
by its President, ROSARIO ANTONIO; PETRON DEALERS’
ASSOCIATION represented by its President, RUTH E. BARBIBI;
ASSOCIATION OF CALTEX DEALERS’ OF THE PHILIPPINES
represented by its President, MERCEDITAS A. GARCIA;
ROSARIO ANTONIO doing business under the name and style of
"ANB NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ
doing business under the name and style of "SHELL GATE – N.
DOMINGO"; BETHZAIDA TAN doing business under the name
and style of "ADVANCE SHELL STATION"; REYNALDO P.
MONTOYA doing business under the name and style of "NEW
LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing
business under the name and style of "RED FIELD SHELL
SERVICE STATION"; DONICA CORPORATION represented by its
President, DESI TOMACRUZ; RUTH E. MARBIBI doing business
under the name and style of "R&R PETRON STATION"; PETER
M. UNGSON doing business under the name and style of
"CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN
SHEILA A. LEE doing business under the name and style of
"NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P.
POSADAS doing business under the name and style of
"STARCARGA ENTERPRISES"; ADORACION MAÑEBO doing
business under the name and style of "CMA MOTORISTS
CENTER"; SUSAN M. ENTRATA doing business under the name
and style of "LEONA’S GASOLINE STATION and SERVICE
CENTER"; CARMELITA BALDONADO doing business under the
name and style of "FIRST CHOICE SERVICE CENTER";
MERCEDITAS A. GARCIA doing business under the name and
style of "LORPED SERVICE CENTER"; RHEAMAR A. RAMOS
doing business under the name and style of "RJRAM PTT GAS
STATION"; MA. ISABEL VIOLAGO doing business under the
name and style of "VIOLAGO-PTT SERVICE CENTER";
MOTORISTS’ HEART CORPORATION represented by its Vice-
President for Operations, JOSELITO F. FLORDELIZA;
MOTORISTS’ HARVARD CORPORATION represented by its Vice-
President for Operations, JOSELITO F. FLORDELIZA;
MOTORISTS’ HERITAGE CORPORATION represented by its Vice-
President for Operations, JOSELITO F. FLORDELIZA;
PHILIPPINE STANDARD OIL CORPORATION represented by its
Vice-President for Operations, JOSELITO F. FLORDELIZA;
ROMEO MANUEL doing business under the name and style of
"ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III
doing business under the name and style of "TRUE SERVICE
STATION", Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the
Department of Finance and GUILLERMO L. PARAYNO,
JR., in his capacity as Commissioner of Internal
Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,
EMMANUEL JOEL J. VILLANUEVA, RODOLFO G. PLAZA,
DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN,
BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA,
JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S.
HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO,
TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO
Q. AGBAYANI and TEODORO A. CASIÑO, Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of
Finance, GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of Internal Revenue, and EDUARDO R.
ERMITA, in his capacity as Executive
Secretary, Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive
Secretary; HON. MARGARITO TEVES, in his capacity as
Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity
as the OIC Commissioner of the Bureau of Internal Revenue;
and HON. ALEXANDER AREVALO, in his capacity as the OIC
Commissioner of the Bureau of Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the
interest of all, should be borne by everyone, and the more man
enjoys the advantages of society, the more he ought to hold
himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal
allocation for education, increased emoluments for health
workers, and wider coverage for full value-added tax benefits …
these are the reasons why Republic Act No. 9337 (R.A. No.
9337)1 was enacted. Reasons, the wisdom of which, the Court
even with its extensive constitutional power of review, cannot
probe. The petitioners in these cases, however, question not
only the wisdom of the law, but also perceived constitutional
infirmities in its passage.
Every law enjoys in its favor the presumption of
constitutionality. Their arguments notwithstanding, petitioners
failed to justify their call for the invalidity of the law. Hence,
R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely,
House Bill Nos. 3555 and 3705, and Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on
January 7, 2005. The House Committee on Ways and Means
approved the bill, in substitution of House Bill No. 1468, which
Representative (Rep.) Eric D. Singson introduced on August 8,
2004. The President certified the bill on January 7, 2005 for
immediate enactment. On January 27, 2005, the House of
Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House
Bill No. 3105 introduced by Rep. Salacnib F. Baterina, and
House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its
"mother bill" is House Bill No. 3555. The House Committee on
Ways and Means approved the bill on February 2, 2005. The
President also certified it as urgent on February 8, 2005. The
House of Representatives approved the bill on second and third
reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means
approved Senate Bill No. 19504 on March 7, 2005, "in
substitution of Senate Bill Nos. 1337, 1838 and 1873, taking
into consideration House Bill Nos. 3555 and 3705." Senator
Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill
Nos. 1838 and 1873 were both sponsored by Sens. Franklin M.
Drilon, Juan M. Flavier and Francis N. Pangilinan. The President
certified the bill on March 11, 2005, and was approved by the
Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the
request of the House of Representatives for a committee
conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing
Provisions of House Bill No. 3555, House Bill No. 3705, and
Senate Bill No. 1950, "after having met and discussed in full
free and conference," recommended the approval of its report,
which the Senate did on May 10, 2005, and with the House of
Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House
and Senate version was transmitted to the President, who
signed the same into law on May 24, 2005. Thus, came R.A. No.
9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said
date came, the Court issued a temporary restraining order,
effective immediately and continuing until further orders,
enjoining respondents from enforcing and implementing the
law.
Oral arguments were held on July 14, 2005. Significantly, during
the hearing, the Court speaking through Mr. Justice Artemio V.
Panganiban, voiced the rationale for its issuance of the
temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your
presentation, let me just tell you a little background. You know
when the law took effect on July 1, 2005, the Court issued a
TRO at about 5 o’clock in the afternoon. But before that, there
was a lot of complaints aired on television and on radio. Some
people in a gas station were complaining that the gas prices
went up by 10%. Some people were complaining that their
electric bill will go up by 10%. Other times people riding in
domestic air carrier were complaining that the prices that they’ll
have to pay would have to go up by 10%. While all that was
being aired, per your presentation and per our own
understanding of the law, that’s not true. It’s not true that the
e-vat law necessarily increased prices by 10% uniformly isn’t it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : It’s not, because, Your Honor, there is an
Executive Order that granted the Petroleum companies some
subsidy . . . interrupted
J. PANGANIBAN : That’s correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper
the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating
measures would be the elimination of the Excise Tax and the
import duties. That is why, it is not correct to say that the VAT
as to petroleum dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for
increasing the retail price by 10% to cover the E-Vat tax. If you
consider the excise tax and the import duties, the Net Tax
would probably be in the neighborhood of 7%? We are not
going into exact figures I am just trying to deliver a point that
different industries, different products, different services are hit
differently. So it’s not correct to say that all prices must go up
by 10%.
ATTY. BANIQUED : You’re right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline
companies, Mr. Counsel, are at present imposed a Sales Tax of
3%. When this E-Vat law took effect the Sales Tax was also
removed as a mitigating measure. So, therefore, there is no
justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people
were complaining on that first day, were being increased
arbitrarily by 10%. And that’s one reason among many others
this Court had to issue TRO because of the confusion in the
implementation. That’s why we added as an issue in this case,
even if it’s tangentially taken up by the pleadings of the parties,
the confusion in the implementation of the E-vat. Our people
were subjected to the mercy of that confusion of an across the
board increase of 10%, which you yourself now admit and I
think even the Government will admit is incorrect. In some
cases, it should be 3% only, in some cases it should be 6%
depending on these mitigating measures and the location and
situation of each product, of each service, of each company,
isn’t it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So that’s one reason why we had to
issue a TRO pending the clarification of all these and we wish
the government will take time to clarify all these by means of a
more detailed implementing rules, in case the law is upheld by
this Court. . . .6
The Court also directed the parties to file their respective
Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA
GURO Party List, et al., filed a petition for prohibition on May
27, 2005. They question the constitutionality of Sections 4, 5
and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties,
Section 5 imposes a 10% VAT on importation of goods, and
Section 6 imposes a 10% VAT on sale of services and use or
lease of properties. These questioned provisions contain a
uniformproviso authorizing the President, upon recommendation
of the Secretary of Finance, to raise the VAT rate to 12%,
effective January 1, 2006, after any of the following conditions
have been satisfied, to wit:
. . . That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the
rate of value-added tax to twelve percent (12%), after any of
the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).
Petitioners argue that the law is unconstitutional, as it
constitutes abandonment by Congress of its exclusive authority
to fix the rate of taxes under Article VI, Section 28(2) of the
1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a
petition for certiorari likewise assailing the constitutionality of
Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the
President to increase the VAT rate to 12%, on the ground that it
amounts to an undue delegation of legislative power, petitioners
also contend that the increase in the VAT rate to 12%
contingent on any of the two conditions being satisfied violates
the due process clause embodied in Article III, Section 1 of the
Constitution, as it imposes an unfair and additional tax burden
on the people, in that: (1) the 12% increase is ambiguous
because it does not state if the rate would be returned to the
original 10% if the conditions are no longer satisfied; (2) the
rate is unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year; and (3) the increase in
the VAT rate, which is supposed to be an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP
of the previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by
authority granted to the President by the Bicameral Conference
Committee is a violation of the "no-amendment rule" upon last
reading of a bill laid down in Article VI, Section 26(2) of the
Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005,
by the Association of Pilipinas Shell Dealers, Inc.,et al., assailing
the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC,
requiring that the input tax on depreciable goods shall be
amortized over a 60-month period, if the acquisition, excluding
the VAT components, exceeds One Million Pesos (P1,
000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a
70% limit on the amount of input tax to be credited against the
output tax; and
3) Section 12, amending Section 114 (c) of the NIRC,
authorizing the Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs, to deduct a 5%
final withholding tax on gross payments of goods and services,
which are subject to 10% VAT under Sections 106 (sale of
goods and properties) and 108 (sale of services and use or
lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional
for being arbitrary, oppressive, excessive, and confiscatory.
Petitioners’ argument is premised on the constitutional right of
non-deprivation of life, liberty or property without due process
of law under Article III, Section 1 of the Constitution. According
to petitioners, the contested sections impose limitations on the
amount of input tax that may be claimed. Petitioners also argue
that the input tax partakes the nature of a property that may
not be confiscated, appropriated, or limited without due process
of law. Petitioners further contend that like any other property
or property right, the input tax credit may be transferred or
disposed of, and that by limiting the same, the government gets
to tax a profit or value-added even if there is no profit or value-
added.
Petitioners also believe that these provisions violate the
constitutional guarantee of equal protection of the law under
Article III, Section 1 of the Constitution, as the limitation on the
creditable input tax if: (1) the entity has a high ratio of input
tax; or (2) invests in capital equipment; or (3) has several
transactions with the government, is not based on real and
substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but
progressive, violative of Article VI, Section 28(1) of the
Constitution, and that it is the smaller businesses with higher
input tax to output tax ratio that will suffer the consequences
thereof for it wipes out whatever meager margins the
petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep.
Francis Joseph G. Escudero filed this petition forcertiorari on
June 30, 2005. They question the constitutionality of R.A. No.
9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue
delegation of legislative power, in violation of Article VI, Section
28(2) of the Constitution;
2) The Bicameral Conference Committee acted without
jurisdiction in deleting the no pass on provisions present in
Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections
27, 28, 34, 116, 117, 119, 121, 125,7 148, 151, 236, 237 and
288, which were present in Senate Bill No. 1950, violates Article
VI, Section 24(1) of the Constitution, which provides that all
appropriation, revenue or tariff bills shall originate exclusively in
the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a
petition for certiorari and prohibition on July 20, 2005, alleging
unconstitutionality of the law on the ground that the limitation
on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, thus
violating the principle that tax collection and revenue should be
solely allocated for public purposes and expenditures. Petitioner
Garcia further claims that allowing these establishments to pass
on the tax to the consumers is inequitable, in violation of Article
VI, Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a Comment in
behalf of respondents. Preliminarily, respondents contend that
 R.A. No. 9337 enjoys the presumption of constitutionality and
petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235
SCRA
630 (1994), respondents argue that the procedural issues raised
by petitioners, i.e., legality of the bicameral proceedings,
exclusive origination of revenue measures and the power of the
Senate concomitant thereto, have already been settled. With
regard to the issue of undue delegation of legislative power to
the President, respondents contend that the law is complete
and leaves no discretion to the President but to increase the
rate to 12% once any of the two conditions provided therein
arise.
Respondents also refute petitioners’ argument that the increase
to 12%, as well as the 70% limitation on the creditable input
tax, the 60-month amortization on the purchase or importation
of capital goods exceedingP1,000,000.00, and the 5% final
withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the
constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor
of the government’s fiscal reform agenda. A reform in the
value-added system of taxation is the core revenue measure
that will tilt the balance towards a sustainable macroeconomic
environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the
Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108 of the NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general
principles and concepts of value-added tax (VAT), as the
confusion and inevitably, litigation, breeds from a fallacious
notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the
sale, barter, exchange or lease of goods or properties and
services.8 Being an indirect tax on expenditure, the seller of
goods or services may pass on the amount of tax paid to the
buyer,9 with the seller acting merely as a tax collector.10 The
burden of VAT is intended to fall on the immediate buyers and
ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly
liable on the transaction or business it engages in, without
transferring the burden to someone else.11 Examples are
individual and corporate income taxes, transfer taxes, and
residence taxes.12
In the Philippines, the value-added system of sales taxation has
long been in existence, albeit in a different mode. Prior to 1978,
the system was a single-stage tax computed under the "cost
deduction method" and was payable only by the original sellers.
The single-stage system was subsequently modified, and a
mixture of the "cost deduction method" and "tax credit method"
was used to determine the value-added tax payable.13 Under
the "tax credit method," an entity can credit against or subtract
from the VAT charged on its sales or outputs the VAT paid on
its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued
Executive Order No. 273, that the VAT system was rationalized
by imposing a multi-stage tax rate of 0% or 10% on all sales
using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded
VAT Law,16 R.A. No. 8241 or the Improved VAT Law,17 R.A. No.
8424 or the Tax Reform Act of 1997,18 and finally, the presently
beleaguered R.A. No. 9337, also referred to by respondents as
the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the
Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the
Bicameral Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in
Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the
House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount
of input tax to be credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No.
1950 regarding other kinds of taxes in addition to the value-
added tax.
Petitioners now beseech the Court to define the powers of the
Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation
and discipline are intrinsic in any legislative body for, as
unerringly elucidated by Justice Story, "[i]f the power did not
exist, it would be utterly impracticable to transact the
business of the nation, either at all, or at least with
decency, deliberation, and order."19Thus, Article VI, Section
16 (3) of the Constitution provides that "each House may
determine the rules of its proceedings." Pursuant to this
inherent constitutional power to promulgate and implement its
own rules of procedure, the respective rules of each house of
Congress provided for the creation of a Bicameral Conference
Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of
Representatives provides as follows:
Sec. 88. Conference Committee. – In the event that the House
does not agree with the Senate on the amendment to any bill or
joint resolution, the differences may be settled by the
conference committees of both chambers.
In resolving the differences with the Senate, the House panel
shall, as much as possible, adhere to and support the House
Bill. If the differences with the Senate are so substantial that
they materially impair the House Bill, the panel shall report such
fact to the House for the latter’s appropriate action.
Sec. 89. Conference Committee Reports. – . . . Each report shall
contain a detailed, sufficiently explicit statement of the changes
in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the
Conference Committee Report prior to the voting thereon. The
House shall vote on the Conference Committee Report in the
same manner and procedure as it votes on a bill on third and
final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the
House of Representatives on the provision of any bill or joint
resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten (10)
days after their composition. The President shall designate the
members of the Senate Panel in the conference committee with
the approval of the Senate.
Each Conference Committee Report shall contain a detailed and
sufficiently explicit statement of the changes in, or amendments
to the subject measure, and shall be signed by a majority of the
members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate
provisions and a reconciled version thereof with the explanatory
statement of the conference committee shall be attached to the
report.
...
The creation of such conference committee was apparently in
response to a problem, not addressed by any constitutional
provision, where the two houses of Congress find themselves in
disagreement over changes or amendments introduced by the
other house in a legislative bill. Given that one of the most basic
powers of the legislative branch is to formulate and implement
its own rules of proceedings and to discipline its members, may
the Court then delve into the details of how Congress complies
with its internal rules or how it conducts its business of passing
legislation? Note that in the present petitions, the issue is not
whether provisions of the rules of both houses creating the
bicameral conference committee are unconstitutional, but
whether the bicameral conference committee has
strictly complied with the rules of both houses, thereby
remaining within the jurisdiction conferred upon it by
Congress.
In the recent case of Fariñas vs. The Executive Secretary,20 the
Court En Banc, unanimously reiterated and emphasized its
adherence to the "enrolled bill doctrine," thus, declining therein
petitioners’ plea for the Court to go behind the enrolled copy of
the bill. Assailed in said case was Congress’s creation of two
sets of bicameral conference committees, the lack of records of
said committees’ proceedings, the alleged violation of said
committees of the rules of both houses, and the disappearance
or deletion of one of the provisions in the compromise bill
submitted by the bicameral conference committee. It was
argued that such irregularities in the passage of the law nullified
R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the
Speaker of the House and the Senate President and the
certification of the Secretaries of both Houses of Congress that
it was passed are conclusive of its due enactment. A review of
cases reveals the Court’s consistent adherence to the rule. The
Court finds no reason to deviate from the salutary rule
in this case where the irregularities alleged by the
petitioners mostly involved the internal rules of
Congress, e.g., creation of the 2nd or 3rd Bicameral
Conference Committee by the House. This Court is not
the proper forum for the enforcement of these internal
rules of Congress, whether House or Senate.
Parliamentary rules are merely procedural and with
their observance the courts have no concern. Whatever
doubts there may be as to the formal validity of Rep. Act
No. 9006 must be resolved in its favor. The Court
reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of
expression, all deny to the courts the power to inquire
into allegations that, in enacting a law, a House of
Congress failed to comply with its own rules, in the
absence of showing that there was a violation of a
constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun, it was held: "At any rate,
courts have declared that ‘the rules adopted by deliberative
bodies are subject to revocation, modification or waiver at the
pleasure of the body adopting them.’And it has been said
that "Parliamentary rules are merely procedural, and
with their observance, the courts have no concern. They
may be waived or disregarded by the legislative body."
Consequently, "mere failure to conform to
parliamentary usage will not invalidate the action
(taken by a deliberative body) when the requisite
number of members have agreed to a particular
measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present
cases, where petitioners allege irregularities committed by the
conference committee in introducing changes or deleting
provisions in the House and Senate bills. Akin to
the Fariñas case,22 the present petitions also raise an issue
regarding the actions taken by the conference committee on
matters regarding Congress’ compliance with its own internal
rules. As stated earlier, one of the most basic and inherent
power of the legislature is the power to formulate rules for its
proceedings and the discipline of its members. Congress is the
best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of
its conference committee if it believes that said members
violated any of its rules of proceedings. Even the expanded
jurisdiction of this Court cannot apply to questions regarding
only the internal operation of Congress, thus, the Court is wont
to deny a review of the internal proceedings of a co-equal
branch of government.
Moreover, as far back as 1994 or more than ten years ago, in
the case of Tolentino vs. Secretary of Finance,23the Court
already made the pronouncement that "[i]f a change is
desired in the practice [of the Bicameral Conference
Committee] it must be sought in Congress since this
question is not covered by any constitutional provision
but is only an internal rule of each house." 24 To date, products including (amending Sec.
Congress has not seen it fit to make such changes adverted to petroleum products 108 of NIRC)
by the Court. It seems, therefore, that Congress finds the (amending Sec. 107
practices of the bicameral conference committee to be very of NIRC); and 12%
useful for purposes of prompt and efficient legislative action. VAT on sale of
services and use or
Nevertheless, just to put minds at ease that no blatant lease of properties
irregularities tainted the proceedings of the bicameral and a reduced rate
conference committees, the Court deems it necessary to dwell for certain services
on the issue. The Court observes that there was a necessity for including power
a conference committee because a comparison of the provisions generation
of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill (amending Sec. 108
No. 1950 on the other, reveals that there were indeed of NIRC)
disagreements. As pointed out in the petitions, said With regard to the "no pass-on" provision
disagreements were as follows: No similar Provides that the Provides that the
provision VAT imposed on VAT imposed on
House Bill No. House Bill Senate Bill No. power generation sales of electricity
3555 No.3705 1950 and on the sale of by generation
With regard to "Stand-By Authority" in favor of petroleum products companies and
President shall be absorbed by services of
Provides for 12% Provides for 12% Provides for a generation transmission
VAT on every sale VAT in general on single rate of 10% companies or sellers, companies and
of goods or sales of goods or VAT on sale of respectively, and distribution
properties properties and goods or shall not be passed companies, as well
(amending Sec. reduced rates for properties on to consumers as those of
106 of NIRC); sale of certain locally (amending Sec. franchise grantees
12% VAT on manufactured goods 106 of NIRC), 10% of electric utilities
importation of and petroleum VAT on sale of shall not apply to
goods (amending products and raw services including residential
Sec. 107 of materials to be used sale of electricity
NIRC); and 12% in the manufacture by generation end-users. VAT
VAT on sale of thereof (amending companies, shall be absorbed
services and use Sec. 106 of NIRC); transmission and by generation,
or lease of 12% VAT on distribution transmission, and
properties importation of goods companies, and distribution
(amending Sec. and reduced rates use or lease of companies.
108 of NIRC) for certain imported properties
 With regard to 70% limit on input tax credit percentag
Provides that the No similar provision Provides that the excise tax
input tax credit input tax credit for
for capital goods capital goods on The disagreements between the provisions in the House bills
on which a VAT which a VAT has and the Senate bill were with regard to (1) what rate of VAT is
has been paid been paid shall be to be imposed; (2) whether only the VAT imposed on electricity
shall be equally equally distributed generation, transmission and distribution companies should not
distributed over 5 over 5 years or the be passed on to consumers, as proposed in the Senate bill, or
years or the depreciable life of both the VAT imposed on electricity generation, transmission
depreciable life of such capital and distribution companies and the VAT imposed on sale of
such capital goods; the input petroleum products should not be passed on to consumers, as
goods; the input tax credit for proposed in the House bill; (3) in what manner input tax credits
tax credit for goods and services should be limited; (4) and whether the NIRC provisions on
goods and other than capital corporate income taxes, percentage, franchise and excise taxes
services other goods shall not should be amended.
than capital goods exceed 90% of the
shall not exceed output VAT. There being differences and/or disagreements on the foregoing
5% of the total provisions of the House and Senate bills, the Bicameral
amount of such Conference Committee was mandated by the rules of both
goods and houses of Congress to act on the same by settling said
services; and for differences and/or disagreements. The Bicameral Conference
persons engaged Committee acted on the disagreeing provisions by making the
in retail trading of following changes:
goods, the
allowable input 1. With regard to the disagreement on the rate of VAT to be
tax credit shall imposed, it would appear from the Conference Committee
not exceed 11% Report that the Bicameral Conference Committee tried to bridge
of the total the gap in the difference between the 10% VAT rate proposed
amount of goods by the Senate, and the various rates with 12% as the highest
purchased. VAT rate proposed by the House, by striking a compromise
With regard to amendments to be made to NIRC provisionswhereby
regardingthe present 10% VAT rate would be retained until
income and excise taxes certain conditions arise, i.e., the value-added tax collection as a
No similar provision No similar provision percentage
Provided for amendmentsof gross domestic product (GDP) of the previous
to severalyear
NIRCexceeds 2 4/5%, or National Government deficit as a
provisionspercentage
regarding of GDP of the previous year exceeds 1½%, when
the President, upon recommendation of the Secretary of
corporate income,
Finance shall raise the rate of VAT to 12% effective January 1,
2006.
2. With regard to the disagreement on whether only the VAT
imposed on electricity generation, transmission and distribution
companies should not be passed on to consumers or whether
both the VAT imposed on electricity generation, transmission
and distribution companies and the VAT imposed on sale of
petroleum products may be passed on to consumers, the
Bicameral Conference Committee chose to settle such
disagreement by altogether deleting from its Report any no
pass-on provision.
3. With regard to the disagreement on whether input tax credits
should be limited or not, the Bicameral Conference Committee
decided to adopt the position of the House by putting a
limitation on the amount of input tax that may be credited
against the output tax, although it crafted its own language as
to the amount of the limitation on input tax credits and the
manner of computing the same by providing thus:
(A) Creditable Input Tax. – . . .
...
Provided, The input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction
for depreciation is allowed under this Code, shall be spread
evenly over the month of acquisition and the fifty-nine (59)
succeeding months if the aggregate acquisition cost for such
goods, excluding the VAT component thereof, exceeds one
million Pesos (P1,000,000.00): PROVIDED, however, that if the
estimated useful life of the capital good is less than five (5)
years, as used for depreciation purposes, then the input VAT
shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. – If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall
be paid by the VAT-registered person. If the input tax exceeds
the output tax, the excess shall be carried over to the
succeeding quarter or quarters: PROVIDED that the input tax
inclusive of input VAT carried over from the previous quarter
that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT
any input tax attributable to zero-rated sales by a VAT-
registered person may at his option be refunded or credited
against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the
NIRC on corporate income tax, franchise, percentage and excise
taxes, the conference committee decided to include such
amendments and basically adopted the provisions found in
Senate Bill No. 1950, with some changes as to the rate of the
tax to be imposed.
Under the provisions of both the Rules of the House of
Representatives and Senate Rules, the Bicameral Conference
Committee is mandated to settle the differences between the
disagreeing provisions in the House bill and the Senate bill. The
term "settle" is synonymous to "reconcile" and
"harmonize."25 To reconcile or harmonize disagreeing
provisions, the Bicameral Conference Committee may then (a)
adopt the specific provisions of either the House bill or Senate
bill, (b) decide that neither provisions in the House bill or the
provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive
at a compromise between the disagreeing provisions.
In the present case, the changes introduced by the Bicameral
Conference Committee on disagreeing provisions were meant
only to reconcile and harmonize the disagreeing provisions for it
did not inject any idea or intent that is wholly foreign to the
subject embraced by the original provisions.
The so-called stand-by authority in favor of the President,
whereby the rate of 10% VAT wanted by the Senate is retained
until such time that certain conditions arise when the 12% VAT
wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT
proposed by the two houses of Congress. Nevertheless, such
compromise is still totally within the subject of what rate of VAT
should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the
transcripts of the proceedings of the Bicameral Conference
Committee held on May 10, 2005, Sen. Ralph Recto, Chairman
of the Senate Panel, explained the reason for deleting the no
pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill
simple. And we were thinking that no sector should be a
beneficiary of legislative grace, neither should any sector be
discriminated on. The VAT is an indirect tax. It is a pass on-
tax. And let’s keep it plain and simple. Let’s not confuse the bill
and put a no pass-on provision. Two-thirds of the world have a
VAT system and in this two-thirds of the globe, I have yet to
see a VAT with a no pass-though provision. So, the thinking of
the Senate is basically simple, let’s keep the VAT
simple.26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no
pass-on provision "never really enjoyed the support of either
House."27
With regard to the amount of input tax to be credited against
output tax, the Bicameral Conference Committee came to a
compromise on the percentage rate of the limitation or cap on
such input tax credit, but again, the change introduced by the
Bicameral Conference Committee was totally within the intent of
both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the
subject revenue bill in the House of Representatives, one of the
major objectives was to "plug a glaring loophole in the tax
policy and administration by creating vital restrictions on the
claiming of input VAT tax credits . . ." and "[b]y introducing
limitations on the claiming of tax credit, we are capping a major
leakage that has placed our collection efforts at an apparent
disadvantage."28
As to the amendments to NIRC provisions on taxes other than
the value-added tax proposed in Senate Bill No. 1950, since said
provisions were among those referred to it, the conference
committee had to act on the same and it basically adopted the
version of the Senate.
Thus, all the changes or modifications made by the Bicameral
Conference Committee were germane to subjects of the
provisions referred
to it for reconciliation. Such being the case, the Court does not
see any grave abuse of discretion amounting to lack or excess
of jurisdiction committed by the Bicameral Conference
Committee. In the earlier cases of Philippine Judges Association
vs. Prado29 and Tolentino vs. Secretary of Finance,30 the Court
recognized the long-standing legislative practice of giving said
conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in
the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include
in its report an entirely new provision that is not found either in
the House bill or in the Senate bill. If the committee can
propose an amendment consisting of one or two provisions,
there is no reason why it cannot propose several provisions,
collectively considered as an "amendment in the nature of a
substitute," so long as such amendment is germane to the
subject of the bills before the committee. After all, its report
was not final but needed the approval of both houses of
Congress to become valid as an act of the legislative
department. The charge that in this case the Conference
Committee acted as a third legislative chamber is thus
without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of
the Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members
three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a
public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall
be taken immediately thereafter, and the yeas and nays entered
in the Journal.
Petitioners’ argument that the practice where a bicameral
conference committee is allowed to add or delete provisions in
the House bill and the Senate bill after these had passed three
readings is in effect a circumvention of the "no amendment
rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to
convince the Court to deviate from its ruling in
the Tolentino case that:
Nor is there any reason for requiring that the Committee’s
Report in these cases must have undergone three readings in
each of the two houses. If that be the case, there would be no
end to negotiation since each house may seek modification of
the compromise bill. . . .
Art. VI. § 26 (2) must, therefore, be construed as
referring only to bills introduced for the first time in
either house of Congress, not to the conference
committee report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule"
refers only to the procedure to be followed by each
house of Congress with regard to bills initiated in each
of said respective houses, before said bill is transmitted
to the other house for its concurrence or amendment.
Verily, to construe said provision in a way as to proscribe any
further changes to a bill after one house has voted on it would
lead to absurdity as this would mean that the other house of
Congress would be deprived of its constitutional power to
amend or introduce changes to said bill. Thus, Art. VI, Sec. 26
(2) of the Constitution cannot be taken to mean that the
introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in bills
that have been acted upon by both houses of Congress is
prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the
Constitution on Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments made
regarding the NIRC provisions on corporate income taxes and
percentage, excise taxes. Petitioners refer to the following
provisions, to wit:
Section 27 Rates of Income Tax on Domestic Corporation
28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers of Garag
119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of
the NIRC did not at all originate from the House. They aver that
House Bill No. 3555 proposed amendments only regarding
Sections 106, 107, 108, 110 and 114 of the NIRC, while House
Bill No. 3705 proposed amendments only to Sections 106,
107,108, 109, 110 and 111 of the NIRC; thus, the other
sections of the NIRC which the Senate amended but which
amendments were not found in the House bills are not intended
to be amended by the House of Representatives. Hence, they
argue that since the proposed amendments did not originate
from the House, such amendments are a violation of Article VI,
Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private
bills shall originate exclusively in the House of Representatives
but the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House
Bill Nos. 3555 and 3705 that initiated the move for amending
provisions of the NIRC dealing mainly with the value-added tax.
Upon transmittal of said House bills to the Senate, the Senate
came out with Senate Bill No. 1950 proposing amendments not
only to NIRC provisions on the value-added tax but also
amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with
the value- added tax, which is the only kind of tax being
amended in the House bills, still within the purview of the
constitutional provision authorizing the Senate to propose or
concur with amendments to a revenue bill that originated from
the House?
The foregoing question had been squarely answered in
the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law – but the revenue bill –
which is required by the Constitution to "originate exclusively" in
the House of Representatives. It is important to emphasize this,
because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a
rewriting of the whole. . . . At this point, what is important to
note is that, as a result of the Senate action, a distinct bill may
be produced. To insist that a revenue statute – and not
only the bill which initiated the legislative process
culminating in the enactment of the law – must
substantially be the same as the House bill would be to
deny the Senate’s power not only to "concur with
amendments" but also to "propose amendments." It
would be to violate the coequality of legislative power of the
two houses of Congress and in fact make the House superior to
the Senate.
…
…Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version
even with respect to bills which are required by the
Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative
for filing revenue, tariff or tax bills, bills authorizing an increase
of the public debt, private bills and bills of local application must
come from the House of Representatives on the theory that,
elected as they are from the districts, the members of the
House can be expected to be more sensitive to the local
needs and problems. On the other hand, the senators,
who are elected at large, are expected to approach the
same problems from the national perspective. Both
views are thereby made to bear on the enactment of
such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively
originated in the House of Representatives, the Senate was
acting within its
constitutional power to introduce amendments to the House bill
when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, excise and franchise taxes.
Verily, Article VI, Section 24 of the Constitution does not contain
any prohibition or limitation on the extent of the amendments
that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the
NIRC provisions that had not been touched in the House bills
are still in furtherance of the intent of the House in initiating the
subject revenue bills. The Explanatory Note of House Bill No.
1468, the very first House bill introduced on the floor, which
was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the
urgent and daunting task of solving the country’s serious
financial problems. To do this, government expenditures must
be strictly monitored and controlled and revenues must be
significantly increased. This may be easier said than done, but
our fiscal authorities are still optimistic the government will be
operating on a balanced budget by the year 2009. In fact,
several measures that will result to significant expenditure
savings have been identified by the administration. It is
supported with a credible package of revenue measures
that include measures to improve tax administration
and control the leakages in revenues from income taxes
and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill
No. 3555, declared that:
In the budget message of our President in the year 2005, she
reiterated that we all acknowledged that on top of our agenda
must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector
deficit and eventually achieve a balanced budget by the year
2009, we need to seize windows of opportunities which
might seem poignant in the beginning, but in the long
run prove effective and beneficial to the overall status
of our economy. One such opportunity is a review of
existing tax rates, evaluating the relevance given our
present conditions.34(Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from
the House of Representatives is to bring in sizeable revenues for
the government
to supplement our country’s serious financial problems, and
improve tax administration and control of the leakages in
revenues from income taxes and value-added taxes. As these
house bills were transmitted to the Senate, the latter,
approaching the measures from the point of national
perspective, can introduce amendments within the purposes of
those bills. It can provide for ways that would soften the impact
of the VAT measure on the consumer, i.e., by distributing the
burden across all sectors instead of putting it entirely on the
shoulders of the consumers. The sponsorship speech of Sen.
Ralph Recto on why the provisions on income tax on
corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and
Means will raise P64.3 billion in additional revenues annually
even while by mitigating prices of power, services and
petroleum products.
However, not all of this will be wrung out of VAT. In fact,
only P48.7 billion amount is from the VAT on twelve goods and
services. The rest of the tab – P10.5 billion- will be picked by
corporations.
What we therefore prescribe is a burden sharing between
corporate Philippines and the consumer. Why should the latter
bear all the pain? Why should the fiscal salvation be only on the
burden of the consumer?
The corporate world’s equity is in form of the increase in the
corporate income tax from 32 to 35 percent, but up to 2008
only. This will raise P10.5 billion a year. After that, the rate will
slide back, not to its old rate of 32 percent, but two notches
lower, to 30 percent.
Clearly, we are telling those with the capacity to pay,
corporations, to bear with this emergency provision that will be
in effect for 1,200 days, while we put our fiscal house in order.
This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We
intend to keep the length of their sacrifice brief. We would like
to assure them that not because there is a light at the end of
the tunnel, this government will keep on making the tunnel
long.
The responsibility will not rest solely on the weary shoulders of
the small man. Big business will be there to share the burden.35
As the Court has said, the Senate can propose amendments and
in fact, the amendments made on provisions in the tax on
income of corporations are germane to the purpose of the
house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other
percentage and excise taxes germane to the reforms to the VAT
system, as these sections would cushion the effects of VAT on
consumers. Considering that certain goods and services which
were subject to percentage tax and excise tax would no longer
be VAT-exempt, the consumer would be burdened more as they
would be paying the VAT in addition to these taxes. Thus, there
is a need to amend these sections to soften the impact of VAT.
Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to
zero the present excise tax on bunker fuel, to lessen the effect
of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise
tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil
products, so as not to destroy the VAT chain, we will however
bring down the excise tax on socially sensitive products such as
diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions
of giving to the left hand what was taken from the right. Rather,
these sprang from our concern of softening the impact of VAT,
so that the people can cushion the blow of higher prices they
will have to pay as a result of VAT.36
The other sections amended by the Senate pertained to matters
of tax administration which are necessary for the
implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane
to the subject matter and purposes of the house bills, which is
to supplement our country’s fiscal deficit, among others. Thus,
the Senate acted within its power to propose those
amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108 of the NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et
al., and Escudero, et al. contend in common that Sections 4, 5
and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC giving the President the stand-by
authority to raise the VAT rate from 10% to 12% when a
certain condition is met, constitutes undue delegation of the
legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby
further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and
collected on every sale, barter or exchange of goods or
properties, a value-added tax equivalent to ten percent (10%)
of the gross selling price or gross value in money of the goods
or properties sold, bartered or exchanged, such tax to be paid
by the seller or transferor:provided, that the President,
upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the
following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby
further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. – There shall be levied, assessed and collected
on every importation of goods a value-added tax equivalent to
ten percent (10%) based on the total value used by the Bureau
of Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges, such
tax to be paid by the importer prior to the release of such goods
from customs custody: Provided, That where the customs duties
are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost
plus excise taxes, if any: provided, further, that the
President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate
of value-added tax to twelve percent (12%) after any of
the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby
further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or
Lease of Properties –
(A) Rate and Base of Tax. – There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of
gross receipts derived from the sale or exchange of
services: provided, that the President, upon the
recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent
(1 ½%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the
President to increase the VAT rate is a virtual abdication by
Congress of its exclusive power to tax because such delegation
is not within the purview of Section 28 (2), Article VI of the
Constitution, which provides:
The Congress may, by law, authorize the President to fix within
specified limits, and may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development
program of the government.
They argue that the VAT is a tax levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services, which cannot be included within the
purview of tariffs under the exempted delegation as the latter
refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed on goods
or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend
that delegating to the President the legislative power to tax is
contrary to republicanism. They insist that accountability,
responsibility and transparency should dictate the actions of
Congress and they should not pass to the President the decision
to impose taxes. They also argue that the law also effectively
nullified the President’s power of control, which includes the
authority to set aside and nullify the acts of her subordinates
like the Secretary of Finance, by mandating the fixing of the tax
rate by the President upon the recommendation of the
Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample
powers to cause, influence or create the conditions provided by
the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and
revolting the situation that the imposition of the 12% rate
would be subject to the whim of the Secretary of Finance, an
unelected bureaucrat, contrary to the principle of no taxation
without representation. They submit that the Secretary of
Finance is not mandated to give a favorable recommendation
and he may not even give his recommendation. Moreover, they
allege that no guiding standards are provided in the law on
what basis and as to how he will make his recommendation.
They claim, nonetheless, that any recommendation of the
Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter, such
that, ultimately, it is the President who decides whether to
impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is
instructive.
The principle of separation of powers ordains that each of the
three great branches of government has exclusive cognizance of
and is supreme in matters falling within its own constitutionally
allocated sphere.37 A logical
corollary to the doctrine of separation of powers is the principle
of non-delegation of powers, as expressed in the Latin
maxim: potestas delegata non delegari potest which means
"what has been delegated, cannot be delegated."38 This
doctrine is based on the ethical principle that such as delegated
power constitutes not only a right but a duty to be performed
by the delegate through the instrumentality of his own
judgment and not through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the
Constitution provides that "the Legislative power shall be vested
in the Congress of the Philippines which shall consist of a
Senate and a House of Representatives." The powers which
Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been
described as theauthority to make a complete law –
complete as to the time when it shall take effect and as
to whom it shall be applicable – and to determine the
expediency of its enactment.40 Thus, the rule is that in order
that a court may be justified in holding a statute
unconstitutional as a delegation of legislative power, it must
appear that the power involved is purely legislative in nature –
that is, one appertaining exclusively to the legislative
department. It is the nature of the power, and not the liability
of its use or the manner of its exercise, which determines the
validity of its delegation.
Nonetheless, the general rule barring delegation of legislative
powers is subject to the following recognized limitations or
exceptions:
(1) Delegation of tariff powers to the President under Section 28
(2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under
Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a
showing that the delegation itself is valid. It is valid only if the
law (a) is complete in itself, setting forth therein the policy to be
executed, carried out, or implemented by the delegate;41 and
(b) fixes a standard — the limits of which are sufficiently
determinate and determinable — to which the delegate must
conform in the performance of his functions.42 A sufficient
standard is one which defines legislative policy, marks its limits,
maps out its boundaries and specifies the public agency to
apply it. It indicates the circumstances under which the
legislative command is to be effected.43 Both tests are intended
to prevent a total transference of legislative authority to the
delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P.
Laurel, expounded on the concept and extent of delegation of
power in this wise:
In testing whether a statute constitutes an undue delegation of
legislative power or not, it is usual to inquire whether the
statute was complete in all its terms and provisions when it left
the hands of the legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature.
...
‘The true distinction’, says Judge Ranney, ‘is between
the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be,
and conferring an authority or discretion as to its
execution, to be exercised under and in pursuance of
the law. The first cannot be done; to the latter no valid
objection can be made.’
...
It is contended, however, that a legislative act may be made to
the effect as law after it leaves the hands of the legislature. It is
true that laws may be made effective on certain contingencies,
as by proclamation of the executive or the adoption by the
people of a particular community. In Wayman vs. Southard, the
Supreme Court of the United States ruled that the legislature
may delegate a power not legislative which it may itself
rightfully exercise. The power to ascertain facts is such a
power which may be delegated. There is nothing
essentially legislative in ascertaining the existence of
facts or conditions as the basis of the taking into effect
of a law. That is a mental process common to all
branches of the government. Notwithstanding the apparent
tendency, however, to relax the rule prohibiting delegation of
legislative authority on account of the complexity arising from
social and economic forces at work in this modern industrial
age, the orthodox pronouncement of Judge Cooley in his work
on Constitutional Limitations finds restatement in Prof.
Willoughby's treatise on the Constitution of the United States in
the following language — speaking of declaration of legislative
power to administrative agencies: The principle which
permits the legislature to provide that the
administrative agent may determine when the
circumstances are such as require the application of a
law is defended upon the ground that at the time this
authority is granted, the rule of public policy, which is
the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it is its
duty to do, determines that, under given circumstances,
certain executive or administrative action is to be taken,
and that, under other circumstances, different or no
action at all is to be taken. What is thus left to the
administrative official is not the legislative
determination of what public policy demands, but
simply the ascertainment of what the facts of the case
require to be done according to the terms of the law by
which he is governed. The efficiency of an Act as a
declaration of legislative will must, of course, come from
Congress, but the ascertainment of the contingency
upon which the Act shall take effect may be left to such
agencies as it may designate. The legislature, then, may
provide that a law shall take effect upon the happening
of future specified contingencies leaving to some other
person or body the power to determine when the
specified contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the
Constitution to make laws and to alter and repeal them; the test
is the completeness of the statute in all its terms and provisions
when it leaves the hands of the legislature. To determine
whether or not there is an undue delegation of legislative
power, the inquiry must be directed to the scope and
definiteness of the measure enacted. The legislative does
not abdicate its functions when it describes what job
must be done, who is to do it, and what is the scope of
his authority. For a complex economy, that may be the only
way in which the legislative process can go forward. A
distinction has rightfully been made between delegation
of power to make the laws which necessarily involves a
discretion as to what it shall be, which constitutionally
may not be done, and delegation of authority or
discretion as to its execution to be exercised under and
in pursuance of the law, to which no valid objection can
be made. The Constitution is thus not to be regarded as
denying the legislature the necessary resources of flexibility and
practicability. (Emphasis supplied).48
Clearly, the legislature may delegate to executive officers or
bodies the power to determine certain facts or conditions, or
the happening of contingencies, on which the operation of a
statute is, by its terms, made to depend, but the legislature
must prescribe sufficient standards, policies or limitations on
their authority.49 While the power to tax cannot be delegated to
executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to
them, including the power to determine the existence of facts
on which its operation depends.50
The rationale for this is that the preliminary ascertainment of
facts as basis for the enactment of legislation is not of itself a
legislative function, but is simply ancillary to legislation. Thus,
the duty of correlating information and making
recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may
delegate to others to perform. Intelligent legislation on the
complicated problems of modern society is impossible in the
absence of accurate information on the part of the legislators,
and any reasonable method of securing such information is
proper.51 The Constitution as a continuously operative charter of
government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that
it make for itself detailed determinations which it has declared
to be prerequisite to application of legislative policy to particular
facts and circumstances impossible for Congress itself properly
to investigate.52
In the present case, the challenged section of R.A. No. 9337 is
the common proviso in Sections 4, 5 and 6 which reads as
follows:
That the President, upon the recommendation of the Secretary
of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).
The case before the Court is not a delegation of legislative
power. It is simply a delegation of ascertainment of facts upon
which enforcement and administration of the increase rate
under the law is contingent. The legislature has made the
operation of the 12% rate effective January 1, 2006, contingent
upon a specified fact or condition. It leaves the entire operation
or non-operation of the 12% rate upon factual matters outside
of the control of the executive.
No discretion would be exercised by the President. Highlighting
the absence of discretion is the fact that the wordshall is used in
the common proviso. The use of the word shall connotes a
mandatory order. Its use in a statute denotes an imperative
obligation and is inconsistent with the idea of
discretion.53 Where the law is clear and unambiguous, it must
be taken to mean exactly what it says, and courts have no
choice but to see to it that the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately
impose the 12% rate upon the existence of any of the
conditions specified by Congress. This is a duty which cannot be
evaded by the President. Inasmuch as the law specifically uses
the word shall, the exercise of discretion by the President does
not come into play. It is a clear directive to impose the 12%
VAT rate when the specified conditions are present. The time of
taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person or body
other than the legislature itself.
The Court finds no merit to the contention of
petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the President’s power of control over the
Secretary of Finance by mandating the fixing of the tax rate by
the President upon the recommendation of the Secretary of
Finance. The Court cannot also subscribe to the position of
petitioners
Pimentel, et al. that the word shall should be interpreted to
mean may in view of the phrase "upon the recommendation of
the Secretary of Finance." Neither does the Court find
persuasive the submission of petitioners Escudero, et al. that
any recommendation by the Secretary of Finance can easily be
brushed aside by the President since the former is a mere alter
ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of
the President, it simply means that as head of the Department
of Finance he is the assistant and agent of the Chief Executive.
The multifarious executive and administrative functions of the
Chief Executive are performed by and through the executive
departments, and the acts of the secretaries of such
departments, such as the Department of Finance, performed
and promulgated in the regular course of business, are, unless
disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The Secretary of
Finance, as such, occupies a political position and holds office in
an advisory capacity, and, in the language of Thomas Jefferson,
"should be of the President's bosom confidence" and, in the
language of Attorney-General Cushing, is "subject to the
direction of the President."55
In the present case, in making his recommendation to the
President on the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the
President or even her subordinate. In such instance, he is not
subject to the power of control and direction of the President.
He is acting as the agent of the legislative department, to
determine and declare the event upon which its expressed will
is to take effect.56The Secretary of Finance becomes the means
or tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to
gather data and information and has a much broader
perspective to properly evaluate them. His function is to gather
and collate statistical data and other pertinent information and
verify if any of the two conditions laid out by Congress is
present. His personality in such instance is in reality but a
projection of that of Congress. Thus, being the agent of
Congress and not of the President, the President cannot alter or
modify or nullify, or set aside the findings of the Secretary of
Finance and to substitute the judgment of the former for that of
the latter.
Congress simply granted the Secretary of Finance the authority
to ascertain the existence of a fact, namely, whether by
December 31, 2005, the value-added tax collection as a
percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (24/5%) or the national
government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1½%). If either of these
two instances has occurred, the Secretary of Finance, by
legislative mandate, must submit such information to the
President. Then the 12% VAT rate must be imposed by the
President effective January 1, 2006. There is no undue
delegation of legislative power but only of the discretion
as to the execution of a law. This is constitutionally
permissible.57 Congress does not abdicate its functions or
unduly delegate power when it describes what job must be
done, who must do it, and what is the scope of his authority; in
our complex economy that is frequently the only way in which
the legislative process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et
al. that delegating to the President the legislative power to tax
is contrary to the principle of republicanism, the same deserves
scant consideration. Congress did not delegate the power to tax
but the mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task
of the President is to simply execute the legislative policy. That
Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret
the law.59
The insinuation by petitioners Pimentel, et al. that the President
has ample powers to cause, influence or create the conditions
to bring about either or both the conditions precedent does not
deserve any merit as this argument is highly speculative. The
Court does not rule on allegations which are manifestly
conjectural, as these may not exist at all. The Court deals with
facts, not fancies; on realities, not appearances. When the
Court acts on appearances instead of realities, justice and law
will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and
Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the
VAT rate imposes an unfair and additional tax burden on the
people. Petitioners also argue that the 12% increase, dependent
on any of the 2 conditions set forth in the contested provisions,
is ambiguous because it does not state if the VAT rate would be
returned to the original 10% if the rates are no longer satisfied.
Petitioners also argue that such rate is unfair and unreasonable,
as the people are unsure of the applicable VAT rate from year
to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No.
9337, if any of the two conditions set forth therein are satisfied,
the President shall increase the VAT rate to 12%. The
provisions of the law are clear. It does not provide for a return
to the 10% rate nor does it empower the President to so revert
if, after the rate is increased to 12%, the VAT collection goes
below the 24/5 of the GDP of the previous year or that the
national government deficit as a percentage of GDP of the
previous year does not exceed 1½%.
Therefore, no statutory construction or interpretation is needed.
Neither can conditions or limitations be introduced where none
is provided for. Rewriting the law is a forbidden ground that
only Congress may tread upon.60
Thus, in the absence of any provision providing for a return to
the 10% rate, which in this case the Court finds none,
petitioners’ argument is, at best, purely speculative. There is no
basis for petitioners’ fear of a fluctuating VAT rate because the
law itself does not provide that the rate should go back to 10%
if the conditions provided in Sections 4, 5 and 6 are no longer
present. The rule is that where the provision of the law is clear
and unambiguous, so that there is no occasion for the court's
seeking the legislative intent, the law must be taken as it is,
devoid of judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which
was allegedly an incentive to the President to raise the VAT
collection to at least 2 4/5 of the GDP of the previous year,
should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection
is not the only condition. There is another condition, i.e., the
national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).
Respondents explained the philosophy behind these alternative
conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have
economic or fiscal meaning. If VAT/GDP is less than 2.8%, it
means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the
function of the tax collection. Therefore, there is no value to
increase it to 12% because such action will also be ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5%
or less means the fiscal condition of government has reached a
relatively sound position or is towards the direction of a
balanced budget position. Therefore, there is no need to
increase the VAT rate since the fiscal house is in a relatively
healthy position. Otherwise stated, if the ratio is more than
1.5%, there is indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President
to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for which
the law was passed, which in this case, is mainly to raise
revenue. In fact, fiscal adequacy dictated the need for a raise in
revenue.
The principle of fiscal adequacy as a characteristic of a sound
tax system was originally stated by Adam Smith in his Canons of
Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and
to keep out of the pockets of the people as little as possible
over and above what it brings into the public treasury of the
state.63
It simply means that sources of revenues must be adequate to
meet government expenditures and their variations.64
The dire need for revenue cannot be ignored. Our country is in
a quagmire of financial woe. During the Bicameral Conference
Committee hearing, then Finance Secretary Purisima bluntly
depicted the country’s gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself
in right now. We are in a position where 90 percent of our
revenue is used for debt service. So, for every peso of revenue
that we currently raise, 90 goes to debt service. That’s interest
plus amortization of our debt. So clearly, this is not a
sustainable situation. That’s the first fact.
The second fact is that our debt to GDP level is way out of line
compared to other peer countries that borrow money from that
international financial markets. Our debt to GDP is
approximately equal to our GDP. Again, that shows you that this
is not a sustainable situation.
The third thing that I’d like to point out is the environment that
we are presently operating in is not as benign as what it used to
be the past five years.
What do I mean by that?
In the past five years, we’ve been lucky because we were
operating in a period of basically global growth and low interest
rates. The past few months, we have seen an inching up, in
fact, a rapid increase in the interest rates in the leading
economies of the world. And, therefore, our ability to borrow at
reasonable prices is going to be challenged. In fact, ultimately,
the question is our ability to access the financial markets.
When the President made her speech in July last year, the
environment was not as bad as it is now, at least based on the
forecast of most financial institutions. So, we were assuming
that raising 80 billion would put us in a position where we can
then convince them to improve our ability to borrow at lower
rates. But conditions have changed on us because the interest
rates have gone up. In fact, just within this room, we tried to
access the market for a billion dollars because for this year
alone, the Philippines will have to borrow 4 billion dollars. Of
that amount, we have borrowed 1.5 billion. We issued last
January a 25-year bond at 9.7 percent cost. We were trying to
access last week and the market was not as favorable and up to
now we have not accessed and we might pull back because the
conditions are not very good.
So given this situation, we at the Department of Finance believe
that we really need to front-end our deficit reduction. Because it
is deficit that is causing the increase of the debt and we are in
what we call a debt spiral. The more debt you have, the more
deficit you have because interest and debt service eats and eats
more of your revenue. We need to get out of this debt spiral.
And the only way, I think, we can get out of this debt spiral is
really have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping
for rescue from an inevitable catastrophe. Whether the law is
indeed sufficient to answer the state’s economic dilemma is not
for the Court to judge. In theFariñas case, the Court refused to
consider the various arguments raised therein that dwelt on the
wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act),
pronouncing that:
. . . policy matters are not the concern of the Court.
Government policy is within the exclusive dominion of the
political branches of the government. It is not for this Court to
look into the wisdom or propriety of legislative determination.
Indeed, whether an enactment is wise or unwise, whether it is
based on sound economic theory, whether it is the best means
to achieve the desired results, whether, in short, the legislative
discretion within its prescribed limits should be exercised in a
particular manner are matters for the judgment of the
legislature, and the serious conflict of opinions does not suffice
to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the
purpose of Congress or the executive policy, given that it is not
for the judiciary to "pass upon questions of wisdom, justice or
expediency of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et
al. argue that Section 8 of R.A. No. 9337, amending Sections
110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending
Section 114 (C) of the NIRC are arbitrary, oppressive, excessive
and confiscatory. Their argument is premised on the
constitutional right against deprivation of life, liberty of property
without due process of law, as embodied in Article III, Section 1
of the Constitution.
Petitioners also contend that these provisions violate the
constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection
clauses are invoked, considering that they are not fixed rules
but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the
NIRC imposes a limitation on the amount of input tax that may
be credited against the output tax. It states, in part:
"[P]rovided, that the input tax inclusive of the input VAT carried
over from the previous quarter that may be credited in every
quarter shall not exceed seventy percent (70%) of the output
VAT: …"
Input Tax is defined under Section 110(A) of the NIRC, as
amended, as the value-added tax due from or paid by a VAT-
registered person on the importation of goods or local purchase
of good and services, including lease or use of property, in the
course of trade or business, from a VAT-registered person,
and Output Tax is the value-added tax due on the sale or lease
of taxable goods or properties or services by any person
registered or required to register under the law.
Petitioners claim that the contested sections impose limitations
on the amount of input tax that may be claimed. In effect, a
portion of the input tax that has already been paid cannot now
be credited against the output tax.
Petitioners’ argument is not absolute. It assumes that the input
tax exceeds 70% of the output tax, and therefore, the input tax
in excess of 70% remains uncredited. However, to the extent
that the input tax is less than 70% of the output tax, then
100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a
business’s books of accounts and remains creditable in the
succeeding quarter/s. This is explicitly allowed by Section
110(B), which provides that "if the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter
or quarters." In addition, Section 112(B) allows a VAT-
registered person to apply for the issuance of a tax credit
certificate or refund for any unused input taxes, to the extent
that such input taxes have not been applied against the output
taxes. Such unused input tax may be used in payment of his
other internal revenue taxes.
The non-application of the unutilized input tax in a given
quarter is not ad infinitum, as petitioners exaggeratedly
contend. Their analysis of the effect of the 70% limitation is
incomplete and one-sided. It ends at the net effect that there
will be unapplied/unutilized inputs VAT for a given quarter. It
does not proceed further to the fact that such
unapplied/unutilized input tax may be credited in the
subsequent periods as allowed by the carry-over provision of
Section 110(B) or that it may later on be refunded through a tax
credit certificate under Section 112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to
comprehend the operation of the 70% limitation on the input
tax. According to petitioner, the limitation on the creditable
input tax in effect allows VAT-registered establishments to
retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public
purposes and expenditures
As earlier stated, the input tax is the tax paid by a person,
passed on to him by the seller, when he buys goods. Output tax
meanwhile is the tax due to the person when he sells goods. In
computing the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged
by the seller are equal to the input taxes that he paid and
passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the
person shall be liable for the excess, which has to be paid to the
Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess
shall be carried over to the succeeding quarter or quarters.
Should the input taxes result from zero-rated or effectively zero-
rated transactions, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other
internal revenue taxes, at the taxpayer’s option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation
on the input tax. Thus, a person can credit his input tax only up
to the extent of 70% of the output tax. In layman’s term, the
value-added taxes that a person/taxpayer paid and passed on
to him by a seller can only be credited up to 70% of the value-
added taxes that is due to him on a taxable transaction. There
is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a
seller, and the seller will subsequently remit such input tax to
the BIR. The party directly liable for the payment of the tax is
the seller.71 What only needs to be done is for the
person/taxpayer to apply or credit these input taxes, as
evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also
argue that the input tax partakes the nature of a property that
may not be confiscated, appropriated, or limited without due
process of law.
The input tax is not a property or a property right within the
constitutional purview of the due process clause. A VAT-
registered person’s entitlement to the creditable input tax is a
mere statutory privilege.
The distinction between statutory privileges and vested rights
must be borne in mind for persons have no vested rights in
statutory privileges. The state may change or take away rights,
which were created by the law of the state, although it may not
take away property, which was vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid
at every level of distribution are not recoverable from the taxes
payable, although it becomes part of the cost, which is
deductible from the gross revenue. When Pres. Aquino issued
E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was
then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered persons
against the output tax was introduced.73 This was adopted by
the Expanded VAT Law (R.A. No. 7716),74 and The Tax Reform
Act of 1997 (R.A. No. 8424).75 The right to credit input tax as
against the output tax is clearly a privilege created by law, a
privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and
confiscatory, Section 8 of R.A. No. 9337, amending Section
110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on goods purchased or imported in
a calendar month for use in trade or business for which
deduction for depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for
such goods, excluding the VAT component thereof, exceeds
One million pesos (P1,000,000.00): Provided, however, That if
the estimated useful life of the capital goods is less than five (5)
years, as used for depreciation purposes, then the input VAT
shall be spread over such a shorter period: Provided, finally,
That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser,
lessee or license upon payment of the compensation, rental,
royalty or fee.
The foregoing section imposes a 60-month period within which
to amortize the creditable input tax on purchase or importation
of capital goods with acquisition cost of P1 Million pesos,
exclusive of the VAT component. Such spread out only poses a
delay in the crediting of the input tax. Petitioners’ argument is
without basis because the taxpayer is not permanently deprived
of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-
out of the creditable input tax in this case amounts to a 4-year
interest-free loan to the government.76 In the same breath,
Congress also justified its move by saying that the provision was
designed to raise an annual revenue of 22.6 billion.77 The
legislature also dispelled the fear that the provision will fend off
foreign investments, saying that foreign investors have other
tax incentives provided by law, and citing the case of China,
where despite a 17.5% non-creditable VAT, foreign investments
were not deterred.78 Again, for whatever is the purpose of the
60-month amortization, this involves executive economic policy
and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on
payments made by the government for taxable transactions,
Section 12 of R.A. No. 9337, which amended Section 114 of the
NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Value-added Tax. – The Government or any
of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the value-
added tax imposed in Sections 106 and 108 of this Code, deduct
and withhold a final value-added tax at the rate of five percent
(5%) of the gross payment thereof: Provided, That the payment
for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at
the time of payment. For purposes of this Section, the payor or
person in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the month
the withholding was made.
Section 114(C) merely provides a method of collection, or as
stated by respondents, a more simplified VAT withholding
system. The government in this case is constituted as a
withholding agent with respect to their payments for goods and
services.
Prior to its amendment, Section 114(C) provided for different
rates of value-added taxes to be withheld -- 3% on gross
payments for purchases of goods; 6% on gross payments for
services supplied by contractors other than by public works
contractors; 8.5% on gross payments for services supplied by
public work contractors; or 10% on payment for the lease or
use of properties or property rights to nonresident owners.
Under the present Section 114(C), these different rates, except
for the 10% on lease or property rights payment to
nonresidents, were deleted, and a uniform rate of 5% is
applied.
The Court observes, however, that the law the used the
word final. In tax usage, final, as opposed to creditable, means
full. Thus, it is provided in Section 114(C): "final value-added
tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424
(The Tax Reform Act of 1997), the concept of final withholding
tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. – Under the final withholding tax
system the amount of income tax withheld by the withholding
agent is constituted as full and final payment of the income
tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding
agent. Thus, in case of his failure to withhold the tax or in case
of underwithholding, the deficiency tax shall be collected from
the payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable
withholding tax system, taxes withheld on certain income
payments are intended to equal or at least approximate the tax
due of the payee on said income. … Taxes withheld on income
payments covered by the expanded withholding tax (referred to
in Sec. 2.57.2 of these regulations) and compensation income
(referred to in Sec. 2.78 also of these regulations) are creditable
in nature.
As applied to value-added tax, this means that taxable
transactions with the government are subject to a 5% rate,
which constitutes as full payment of the tax payable on the
transaction. This represents the net VAT payable of the seller.
The other 5% effectively accounts for the standard input VAT
(deemed input VAT), in lieu of the actual input VAT directly or
attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision.
It is clear that Congress intended to treat differently taxable
transactions with the government.80 This is supported by the
fact that under the old provision, the 5% tax withheld by the
government remains creditable against the tax liability of the
seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Creditable Value-added Tax. – The
Government or any of its political subdivisions, instrumentalities
or agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on account
of each purchase of goods from sellers and services rendered
by contractors which are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and
withhold the value-added tax due at the rate of three percent
(3%) of the gross payment for the purchase of goods and six
percent (6%) on gross receipts for services rendered by
contractors on every sale or installment payment which shall
becreditable against the value-added tax liability of the
seller or contractor: Provided, however, That in the case of
government public works contractors, the withholding rate shall
be eight and one-half percent (8.5%): Provided, further, That
the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For this purpose, the
payor or person in control of the payment shall be considered
as the withholding agent.
The valued-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the month
the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the
word creditable exhibits Congress’s intention to treat
transactions with the government differently. Since it has not
been shown that the class subject to the 5% final withholding
tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are
not the only ones subjected to the 5% final withholding tax. It
applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable,
as petitioners believe. Revenue Regulations No. 14-2005 or the
Consolidated Value-Added Tax Regulations 2005 issued by the
BIR, provides that should the actual input tax exceed 5% of
gross payments, the excess may form part of the cost. Equally,
should the actual input tax be less than 5%, the difference is
treated as income.81
Petitioners also argue that by imposing a limitation on the
creditable input tax, the government gets to tax a profit or
value-added even if there is no profit or value-added.
Petitioners’ stance is purely hypothetical, argumentative, and
again, one-sided. The Court will not engage in a legal joust
where premises are what ifs, arguments, theoretical and facts,
uncertain. Any disquisition by the Court on this point will only
be, as Shakespeare describes life in Macbeth,82 "full of sound
and fury, signifying nothing."
What’s more, petitioners’ contention assumes the proposition
that there is no profit or value-added. It need not take an
astute businessman to know that it is a matter of exception that
a business will sell goods or services without profit or value-
added. It cannot be overstressed that a business is created
precisely for profit.
The equal protection clause under the Constitution means that
"no person or class of persons shall be deprived of the same
protection of laws which is enjoyed by other persons or other
classes in the same place and in like circumstances."83
The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the
kind of property, the rates to be levied, or the amounts to be
raised, the methods of assessment, valuation and collection, the
State’s power is entitled to presumption of validity. As a rule,
the judiciary will not interfere with such power absent a clear
showing of unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input
tax if the entity has a high ratio of input tax, or invests in capital
equipment, or has several transactions with the government, is
not based on real and substantial differences to meet a valid
classification.
The argument is pedantic, if not outright baseless. The law does
not make any classification in the subject of taxation, the kind
of property, the rates to be levied or the amounts to be raised,
the methods of assessment, valuation and collection.
Petitioners’ alleged distinctions are based on variables that bear
different consequences. While the implementation of the law
may yield varying end results depending on one’s profit margin
and value-added, the Court cannot go beyond what the
legislature has laid down and interfere with the affairs of
business.
The equal protection clause does not require the universal
application of the laws on all persons or things without
distinction. This might in fact sometimes result in unequal
protection. What the clause requires is equality among equals
as determined according to a valid classification. By
classification is meant the grouping of persons or things similar
to each other in certain particulars and different from all others
in these same particulars.85
Petitioners brought to the Court’s attention the introduction of
Senate Bill No. 2038 by Sens. S.R. Osmeña III and Ma. Ana
Consuelo A.S. – Madrigal on June 6, 2005, and House Bill No.
4493 by Rep. Eric D. Singson. The proposed legislation seeks to
amend the 70% limitation by increasing the same to 90%. This,
according to petitioners, supports their stance that the 70%
limitation is arbitrary and confiscatory. On this score, suffice it
to say that these are still proposed legislations. Until Congress
amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate.
Different articles may be taxed at different amounts provided
that the rate is uniform on the same class everywhere with all
people at all times.86
In this case, the tax law is uniform as it provides a standard
rate of 0% or 10% (or 12%) on all goods and services. Sections
4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
108, respectively, of the NIRC, provide for a rate of 10% (or
12%) on sale of goods and properties, importation of goods,
and sale of services and use or lease of properties. These same
sections also provide for a 0% rate on certain sales and
transaction.
Neither does the law make any distinction as to the type of
industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid on
purchase of capital goods or the 5% final withholding tax by the
government. It must be stressed that the rule of uniform
taxation does not deprive Congress of the power to classify
subjects of taxation, and only demands uniformity within the
particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a
threshold margin. The VAT rate of 0% or 10% (or 12%) does
not apply to sales of goods or services with gross annual sales
or receipts not exceedingP1,500,000.00.88 Also, basic marine
and agricultural food products in their original state are still not
subject to the tax,89 thus ensuring that prices at the grassroots
level will remain accessible. As was stated in Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on
sales of goods or services by persons engaged in business with
an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its
application. Likewise exempt from the tax are sales of farm and
marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT,
are expected to be relatively lower and within the reach of the
general public.
It is admitted that R.A. No. 9337 puts a premium on businesses
with low profit margins, and unduly favors those with high profit
margins. Congress was not oblivious to this. Thus, to equalize
the weighty burden the law entails, the law, under Section 116,
imposed a 3% percentage tax on VAT-exempt persons under
Section 109(v), i.e., transactions with gross annual sales and/or
receipts not exceeding P1.5 Million. This acts as a equalizer
because in effect, bigger businesses that qualify for VAT
coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion
the impact of the imposition of the tax on those previously
exempt. Excise taxes on petroleum products91 and natural
gas92 were reduced. Percentage tax on domestic carriers was
removed.93 Power producers are now exempt from paying
franchise tax.94
Aside from these, Congress also increased the income tax rates
of corporations, in order to distribute the burden of taxation.
Domestic, foreign, and non-resident corporations are now
subject to a 35% income tax rate, from a previous
32%.95 Intercorporate dividends of non-resident foreign
corporations are still subject to 15% final withholding tax but
the tax credit allowed on the corporation’s domicile was
increased to 20%.96 The Philippine Amusement and Gaming
Corporation (PAGCOR) is not exempt from income taxes
anymore.97 Even the sale by an artist of his works or services
performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the
burden of taxation, which would otherwise rest largely on the
consumers. It cannot therefore be gainsaid that R.A. No. 9337
is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable
input tax is anything but regressive. It is the smaller business
with higher input tax-output tax ratio that will suffer the
consequences.
Progressive taxation is built on the principle of the taxpayer’s
ability to pay. This principle was also lifted from Adam
Smith’s Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the
support of the government, as nearly as possible, in proportion
to their respective abilities; that is, in proportion to the revenue
which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the
resources of the person affected.98
The VAT is an antithesis of progressive taxation. By its very
nature, it is regressive. The principle of progressive taxation has
no relation with the VAT system inasmuch as the VAT paid by
the consumer or business for every goods bought or services
enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income,
whether big or small. The disparity lies in the income earned by
a person or profit margin marked by a business, such that the
higher the income or profit margin, the smaller the portion of
the income or profit that is eaten by VAT. A converso, the lower
the income or profit margin, the bigger the part that the VAT
eats away. At the end of the day, it is really the lower income
group or businesses with low-profit margins that is always
hardest hit.
Nevertheless, the Constitution does not really prohibit the
imposition of indirect taxes, like the VAT. What it simply
provides is that Congress shall "evolve a progressive system of
taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it simply
provides is that Congress shall ‘evolve a progressive system of
taxation.’ The constitutional provision has been interpreted to
mean simply that ‘direct taxes are . . . to be preferred [and] as
much as possible, indirect taxes should be minimized.’ (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. 1977)) Indeed, the mandate to Congress is not to
prescribe, but to evolve, a progressive tax system. Otherwise,
sales taxes, which perhaps are the oldest form of indirect taxes,
would have been prohibited with the proclamation of Art. VIII,
§17 (1) of the 1973 Constitution from which the present Art. VI,
§28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay.
In the case of the VAT, the law minimizes the regressive effects
of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the
NIRC), while granting exemptions to other transactions. (R.A.
No. 7716, §4 amending §103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government.
In this case, it is just an enema, a first-aid measure to
resuscitate an economy in distress. The Court is neither blind
nor is it turning a deaf ear on the plight of the masses. But it
does not have the panacea for the malady that the law seeks to
remedy. As in other cases, the Court cannot strike down a law
as unconstitutional simply because of its yokes.
ills; We should not forget that the Constitution has judiciously
allocated the powers of government to three distinct and
separate compartments; and that judicial interpretation has
tended to the preservation of the independence of the three,
and a zealous regard of the prerogatives of each, knowing full
well that one is not the guardian of the others and that, for
official wrong-doing, each may be brought to account, either by
impeachment, trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as
it still holds true now. All things considered, there is no raison
d'être for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional,
the petitions in G.R. Nos. 168056, 168207, 168461, 168463,
and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full
enforcement and implementation of R.A. No. 9337, the
temporary restraining order issued by the Court on July 1, 2005
is LIFTED upon finality of herein decision.
SO ORDERED.

Let us not be overly influenced by the plea that for every wrong
there is a remedy, and that the judiciary should stand ready to
afford relief. There are undoubtedly many wrongs the judicature
may not correct, for instance, those involving political questions.
...

Let us likewise disabuse our minds from the notion that the
judiciary is the repository of remedies for all political or social
 Republic of the Philippines State to the LGUs. Each political subdivision is there by vested
SUPREME COURT with such powers subject to constitutional and statutory
Manila limitations.

EN BANC In particular, the Local Government Code (LGC) has expressly

empowered the LGUs to enact and adopt ordinances to regulate
G.R. No. 159110 December 10, 2013 vehicular traffic and to prohibit illegal parking within their
jurisdictions. Now challenged before the Court are the
VALENTINO L. LEGASPI, Petitioner, constitutionality and validity of one such ordinance on the
vs. ground that the ordinance constituted a contravention of the
CITY OF CEBU, T.C. (TITO) SAYSON AND RICARDO guaranty of due process under the Constitution by authorizing
HAPITAN, Respondents. the immobilization of offending vehicles through the clamping of
tires. The challenge originated in the Regional Trial Court (RTC)
x---------------x at the instance of the petitioners – vehicle owners who had
borne the brunt of the implementation of the ordinance –with
G.R. No. 159692 the RTC declaring the ordinance unconstitutional, but it has now
reached the Court as a consolidated appeal taken in due course
BIENVENIDO P. JABAN, SR., and BIENVENIDO DOUGLAS LUKE by the petitioners after the Court of Appeals (CA) reversed the
BRADBURY JABAN, Petitioners, judgment of the RTC.
vs.
COURT OF APPEALS, CITY OF CEBU, CITY MAYOR ALVIN Antecedents
GARCIA, SANGUNIANG PANLUNSOD OF CITY OF CEBU,
HON. RENATO V. OSMEÑA, AS PRESIDING OFFICER OF On January 27, 1997 the Sangguniang Panlungsod of the City of
THE SANGGUNIANG PANLUNSOD and CITOM Cebu enacted Ordinance No. 1664toauthorizethetraffic enforcers
CHAIRMAN ALAN GAVIOLA, AS CITOM CHIEF, CITOM of Cebu City to immobilize any motor vehicle violating the
TRAFFIC ENFORCER E. A. ROMERO, and LITO parking restrictions and prohibitions defined in Ordinance No.
GILBUENA, Respondents. 801 (Traffic Code of Cebu City).1 The pertinent provisions of
Ordinance No. 1664 read:
DECISION
Section 1. POLICY–It is the policy of the government of the City
BERSAMIN, J.: of Cebu to immobilize any motor vehicle violating any provision
of any City Ordinance on Parking Prohibitions or Restrictions,
The goal of the decentralization of powers to the local more particularly Ordinance No. 801, otherwise known as the
government units (LGUs) is to ensure the enjoyment by each of Traffic Code of Cebu City, as amended, in order to have a
the territorial and political subdivisions of the State of a genuine smooth flow of vehicular traffic in all the streets in the City of
and meaningful local autonomy. To attain the goal, the National Cebu at all times.
Legislature has devolved the three great inherent powers of the
Section 2. IMMOBILIZATION OF VEHICLES–Any vehicle found
violating any provision of any existing ordinance of the City of
Cebu which prohibits, regulates or restricts the parking of
vehicles shall be immobilized by clamping any tire of the said
violating vehicle with the use of a denver boot vehicle
immobilizer or any other special gadget designed to immobilize
motor vehicles. For this particular purpose, any traffic enforcer
of the City (regular PNP Personnel or Cebu City Traffic Law
Enforcement Personnel) is hereby authorized to immobilize any
violating vehicleas hereinabove provided.
Section 3. PENALTIES–Any motor vehicle, owner or driver
violating any ordinance on parking prohibitions, regulations
and/or restrictions, as may be providedunder Ordinance No.
801, as amended, or any other existing ordinance, shall be
penalized in accordance with the penalties imposed in the
ordinance so violated, provided that the vehicle immobilizer may
not be removed or released without its owner or driver paying
first to the City Treasurer of Cebu City through the Traffic
Violations Bureau (TVB) all the accumulated penalties for all
prior traffic law violations that remain unpaid or unsettled, plus
the administrative penalty of Five Hundred Pesos (P500.00) for
the immobilization of the said vehicle, and receipts of such
payments presented to the concerned personnel of the bureau
responsible for the release of the immobilized vehicle, unless
otherwise ordered released by any of the following officers:
a) Chairman, CITOM
b) Chairman, Committee on Police, Fire and Penology
c) Asst. City Fiscal Felipe Belciña
3.1 Any person who tampers or tries to release an immobilized
or clamped motor vehicle by destroying the denver boot vehicle
immobilizer or other such special gadgets, shall be liable for its
loss or destruction and shall be prosecuted for such loss or
destruction under pain or penalty under the Revised Penal Code
and any other existing ordinance of the City of Cebu for the
criminal act, in addition to his/her civil liabilities under the Civil
Code of the Philippines; Provided that any such act may not be
compromised nor settled amicably extrajudicially.
3.2 Any immobilized vehicle which is unattended and constitute
an obstruction to the free flow of traffic or a hazard thereof
shall be towed to the city government impounding area for
safekeeping and may be released only after the provision of
Section 3 hereof shall have been fully complied with.
3.3 Any person who violates any provision of this ordinance
shall, upon conviction, be penalized with imprisonment of not
less than one (1)month nor more than six (6) months or of a
fine of not less than Two Thousand Pesos(P2,000.00)nor more
than Five Thousand Pesos(P5,000.00), or both such
imprisonment and fine at the discretion of the court.2
On July 29, 1997, Atty. Bienvenido Jaban (Jaban,Sr.) and his
son Atty. Bienvenido Douglas Luke Bradbury Jaban (Jaban,Jr.)
brought suit in the RTC in Cebu City against the City of Cebu,
then represented by Hon. Alvin Garcia, its City Mayor, the
Sangguniang Panlungsod of Cebu City and its Presiding Officer,
Hon. Renato V. Osmeña, and the chairman and operatives or
officers of the City Traffic Operations Management
(CITOM),seeking the declaration of Ordinance No. 1644 as
unconstitutional for being in violation of due process and for
being contrary to law, and damages.3 Their complaint alleged
that on June 23, 1997, Jaban Sr. had properly parked his car in
a paying parking area on Manalili Street, Cebu City to get
certain records and documents fromhis office;4that upon his
return after less than 10 minutes, he had found his car being
immobilized by a steel clamp, and a notice being posted on the
car to the effect that it would be a criminal offense to break the
clamp;5 that he had been infuriated by the immobilization of his
car because he had been thereby rendered unable to meet an
important client on that day; that his car was impounded for
three days, and was informed at the office of the CITOM that he
had first to payP4,200.00as a fine to the City Treasurer of Cebu
City for the release of his car;6that the fine was imposed
without any court hearing and without due process of law, for
he was not even told why his car had been immobilized; that he
had undergone a similar incident of clamping of his car on the
early morning of November 20, 1997 while his car was parked
properly in a parking lot in front of the San Nicolas Pasil Market
in Cebu City without violating any traffic regulation or causing
any obstruction; that he was compelled to
payP1,500.00(itemized as P500.00 for the clamping
andP1,000.00for the violation) without any court hearing and
final judgment; that on May 19, 1997, Jaban, Jr. parked his car
in a very secluded place where there was no sign prohibiting
parking; that his car was immobilized by CITOM operative Lito
Gilbuena; and that he was compelled to pay the total sum
of P1,400.00for the release of his car without a court hearing
and a final judgment rendered by a court of justice.7
On August 11, 1997, Valentino Legaspi (Legaspi) likewise sued
in the RTC the City of Cebu,T.C. Sayson, Ricardo Hapitan and
John Does to demand the delivery of personal property,
declaration of nullity of the Traffic Code of Cebu City, and
damages.8 He averred that on the morning of July 29, 1997, he
had left his car occupying a portion of the sidewalk and the
street outside the gate of his house to make way for the vehicle
of the anayexterminator who had asked to be allowed to unload
his materials and equipment from the front of the residence
inasmuch as his daughter’s car had been parked in the carport,
with the assurance that the unloading would not take too
long;9 that while waiting for the anay exterminator to finish
unloading, the phone in his office inside the house had rung,
impelling him to go into the house to answer the call; that after
a short while, his son-in-law informed him that unknown
persons had clamped the front wheel of his car;10 that he
rushed outside and found a traffic citation stating that his car
had been clamped by CITOM representatives with a warning
that the unauthorized removal of the clamp would subject the
remover to criminal charges;11 and that in the late afternoon a
group headed by Ricardo Hapitan towed the car even if it was
not obstructing the flow of traffic.12
In separate answers for the City of Cebu and its co-
defendants,13 the City Attorney of Cebu presented similar
defenses, essentially stating that the traffic enforcers had only
upheld the law by clamping the vehicles of the plaintiffs;14 and
that Ordinance No. 1664 enjoyed the presumption of
constitutionality and validity.15
The cases were consolidated before Branch 58 of the RTC,
which, after trial, rendered on January 22, 1999 its decision
declaring Ordinance No. 1664 as null and void upon the
following ratiocination:
In clear and simple phrase, the essence of due process was
expressed by Daniel Webster as a "law which hears before it
condemns". In another case[s], "procedural due process is that
which hears before it condemns, which proceeds upon inquiry
and renders judgment only after trial." It contemplate(s)notice
and opportunity to be heard before judgment is rendered
affecting ones (sic) person or property." In both procedural and
substantive due process, a hearing is always a pre-requisite,
hence, the taking or deprivation of one’s life, liberty or property
must be done upon and with observance of the "due process"
clause of the Constitution and the non-observance or violation
thereof is, perforce, unconstitutional.
Under Ordinance No. 1664, when a vehicle is parked in a
prohibited, restrycted (sic) or regulated area in the street or
along the street, the vehicle is immobilized by clamping any tire
of said vehicle with the use of a denver boot vehicle immobilizer
or any other special gadget which immobilized the motor
vehicle. The violating vehicle is immobilized, thus, depriving its
owner of the use thereof at the sole determination of any traffic
enforcer or regular PNP personnel or Cebu City Traffic Law
Enforcement Personnel. The vehicle immobilizer cannot be
removed or released without the owner or driver paying first to
the City Treasurer of Cebu through the Traffic Violations Bureau
all the accumulated penalties of all unpaid or unsettled traffic
law violations, plus the administrative penalty of P500.00 and,
further, the immobilized vehicle shall be released only upon
presentation of the receipt of said payments and upon release
order by the Chairman, CITOM, or Chairman, Committee on
Police, Fire and Penology, or Asst. City Fiscal Felipe Belcina. It
should be stressed that the owner of the immobilized vehicle
shall have to undergo all these ordeals at the mercy of the
Traffic Law Enforcer who, as the Ordinance in question
mandates, is the arresting officer, prosecutor, Judge and
collector. Otherwise stated, the owner of the immobilized motor
vehicle is deprived of his right to the use of his/her vehicle and
penalized without a hearing by a person who is not legally or
duly vested with such rights, power or authority. The Ordinance
in question is penal in nature, and it has been held;
xxxx
WHEREFORE, premised (sic) considered, judgment is hereby
rendered declaring Ordinance No.1664unconstitutional and
directing the defendant City of Cebu to pay the plaintiff
Valentino Legaspi the sum ofP110,000.00 representing the
value of his car, and to all the plaintiffs, Valentino L. Legaspi,
Bienvenido P. Jaban and Bienvenido Douglas Luke Bradbury
Jaban, the sum of P100,000.00 each or P300,000.00 all as
nominal damages and another P100,000.00 each orP300,000.00
all as temperate or moderate damages. With costs against
defendant City of Cebu.
SO ORDERED.16 (citations omitted)
The City of Cebu and its co-defendants appealed to the CA,
assigning the following errors to the RTC, namely: (a) the RTC
erred in declaring that Ordinance No. 1664 was
unconstitutional; (b) granting, arguendo, that Ordinance No.
1664 was unconstitutional, the RTC gravely erred in holding
that any violation prior to its declaration as being
unconstitutional was irrelevant; (c) granting, arguendo, that
Ordinance No. 1664 was unconstitutional, the RTC gravely erred
in awarding damages to the plaintiffs; (d) granting, arguendo,
that the plaintiffs were entitled to damages, the damages
awarded were excessive and contrary to law; and (e) the
decision of the RTC was void, because the Office of the Solicitor
General (OSG) had not been notified of the proceedings.
On June 16, 2003, the CA promulgated its assailed
decision,17overturning the RTCand declaring Ordinance No.
1664 valid, to wit:
The principal thrust of this appeal is the constitutionality of
Ordinance 1664. Defendants-appellants contend that the
passage of Ordinance 1664is in accordance with the police
powers exercised by the City of Cebu through the Sangguniang
Panlungsod and granted by RA 7160, otherwise known as the
Local Government Code. A thematic analysis of the law on
municipal corporations confirms this view. As in previous
legislation, the Local Government Code delegates police powers
to the local governments in two ways. Firstly, it enumerates the
subjects on which the Sangguniang Panlungsod may exercise
these powers. Thus, with respect to the use of public streets,
Section 458 of the Code states:
Section 458 (a) The sangguniang panlungsod, as the legislative
branch of the city, x x x shall x x x
(5) (v) Regulate the use of streets, avenues, alleys, sidewalks,
bridges, park and other public places and approve the
construction, improvement, repair and maintenance of the
same; establish bus and vehicle stops and terminals or regulate
the use of the same by privately owned vehicles which serve
the public; regulate garages and the operation of conveyances
for hire; designate stands to be occupied by public vehicles
when not in use; regulate the putting up of signs, signposts,
awnings and awning posts on the streets; and provide for the
lighting, cleaning and sprinkling of streets and public places;
(vi) Regulate traffic on all streets and bridges; prohibit
encroachments or obstacles thereon and, when necessary in the
interest of public welfare, authorize the removal of
encroachments and illegal constructions in public places.It then
makes a general grant of the police power. The scope of the
legislative authority of the local government is set out in Section
16, to wit:
Section 16. General Welfare. –Every local government unit shall
exercise the powers expressly granted, those necessarily
implied therefrom, as well as powers necessary, appropriate, or
incidental for its efficient and effective governance, and those
which are essential to the promotion of the general welfare.
This provision contains what is traditionally known as the
general welfare clause. As expounded in United States vs.
Salaveria, 39 Phil 102, the general welfare clause has two
branches. One branch attaches itself to the main trunk of
municipal authority, and relates to such ordinances and
regulations as may be necessary to carry into effect and
discharge the powers and duties conferred upon the municipal
council by law. The second branch of the clause is much more
independent of the specific functions of the council, and
authorizes such ordinances as shall seem necessary and proper
to provide for health, safety, prosperity and convenience of the
municipality and its inhabitants.
In a vital and critical way, the general welfare clause
complements the more specific powers granted a local
government. It serves as a catch-all provision that ensures that
the local government will be equipped to meet any local
contingency that bears upon the welfare of its constituents but
has not been actually anticipated. So varied and protean are the
activities that affect the legitimate interests of the local
inhabitants that it is well-nigh impossible to say beforehand
what may or may not be done specifically through law. To
ensure that a local government can react positively to the
people’s needs and expectations, the general welfare clause has
been devised and interpreted to allow the local legislative
council to enact such measures as the occasion requires.
Founded on clear authority and tradition, Ordinance 1664 may
be deemed a legitimate exercise of the police powers of the
Sangguniang Panlungsod of the City of Cebu. This local law
authorizes traffic enforcers to immobilize and tow for
safekeeping vehicles on the streets that are illegally parked and
to release them upon payment of the announced penalties. As
explained in the preamble, it has become necessary to resort to
these measures because of the traffic congestion caused by
illegal parking and the inability of existing penalties to curb it.
The ordinance is designed to improve traffic conditions in the
City of Cebu and thus shows a real and substantial relation to
the welfare, comfort and convenience of the people of Cebu.
The only restrictions to an ordinance passed under the general
welfare clause, as declared in Salaveria, is that the regulation
must be reasonable, consonant with the general powers and
purposes of the corporation, consistent with national laws and
policies, and not unreasonable or discriminatory. The measure
in question undoubtedly comes within these parameters.
Upon the denial of their respective motions for reconsideration
on August 4, 2003, the Jabans and Legaspi came to the Court
via separate petitions for review on certiorari. The appeals were
consolidated.
Issues
Based on the submissions of the parties, the following issues
are decisive of the challenge, to wit:
1. Whether Ordinance No. 1664was enacted within the ambit of
the legislative powers of the City of Cebu; and
2. Whether Ordinance No. 1664complied with the requirements
for validity and constitutionality, particularly the limitations set
by the Constitution and the relevant statutes.
Ruling
The petitions for review have nomerit.
A.
Tests for a valid ordinance
In City of Manila v. Laguio, Jr.,18 the Court restatesthe tests of a
valid ordinance thusly:
The tests of a valid ordinance are well established. A long line of
decisions has held that for an ordinance to be valid, it must not
only be within the corporate powers of the local government
unit to enact and must be passed according to the procedure
prescribed by law, it must also conform to the following
substantive requirements: (1) must not contravene the
Constitution or any statute; (2) must not be unfair or
oppressive;(3) must not be partial or discriminatory; (4) must
not prohibit but may regulate trade; (5) must be general and
consistent with public policy; and (6) must not be
unreasonable.19
As jurisprudence indicates, the tests are divided into the formal
(i.e., whether the ordinance was enacted within the corporate
powers of the LGU, and whether it was passed in accordance
with the procedure prescribed by law), and the substantive
(i.e.,involving inherent merit, like the conformity of the
ordinance with the limitations under the Constitution and the
statutes, as well as with the requirements of fairness and
reason, and its consistency with public policy).
B.
Compliance of Ordinance No. 1664
with the formal requirements
Was the enactment of Ordinance No. 1664 within the corporate
powers of the LGU of the City of Cebu?
The answer is in the affirmative. Indeed, with no issues being
hereby raised against the formalities attendant to the
enactment of Ordinance No. 1664, we presume its full
compliance with the test in that regard. Congress enacted the
LGC as the implementing law for the delegation to the various
LGUs of the State’s great powers, namely: the police power, the
power of eminent domain, and the power of taxation. The LGC
was fashioned to delineate the specific parameters and
limitations to be complied with by each LGU in the exercise of
these delegated powers with the view of making each LGU a
fully functioning subdivision of the State subject to the
constitutional and statutory limitations.
In particular, police power is regarded as "the most essential,
insistent and the least limitable of powers, extending as it does
‘to all the great public needs.’"20 It is unquestionably "the power
vested in the legislature by the constitution, to make, ordain
and establish all manner of wholesome and reasonable laws,
statutes and ordinances, either with penalties or without, not
repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subject of
the same."21 According to Cooley: "[The police power]
embraces the whole system of internal regulation by which the
state seeks not only to preserve the public order and to prevent
offences against itself, but also to establish for the intercourse
of citizens with citizens, those rules of good manners and good
neighborhood which are calculated to prevent the conflict of
rights and to insure to each the uninterrupted enjoyment of his
own, so far as it is reasonably consistent with the right
enjoyment of rights by others."22
In point is the exercise by the LGU of the City of Cebu of
delegated police power. In Metropolitan Manila Development
Authorityv. Bel-Air Village Association,Inc.,23 the Court cogently
observed:
It bears stressing that police power is lodged primarily in the
National Legislature. It cannot be exercised by any group or
body of individuals not possessing legislative power. The
National Legislature, however, may delegate this power to the
President and administrative boards as well as the lawmaking
bodies of municipal corporations or local government units.
Once delegated, the agents can exercise only such legislative
powers as are conferred on them by the national lawmaking
body. (emphasis supplied)
The CA opined, and correctly so, that vesting cities like the City
of Cebu with the legislative power to enact traffic rules and
regulations was expressly done through Section 458 of the LGC,
and also generally by virtue of the General Welfare Clause
embodied in Section 16 of the LGC.24Section 458of the LGC
relevantly states: Section 458. Powers, Duties, Functions and
Composition. –(a) The sangguniang panlungsod, as the
legislative body of the city, shall enact ordinances, approve
resolutions and appropriate funds for the general welfare of the
city and its inhabitants pursuant to Section 16 of this Code and
in the proper exercise of the corporate powers of the city as
provided for under Section 22 of this Code, and shall:
xxxx
(5) Approve ordinances which shall ensure the efficient and
effective delivery of the basic services and facilities as provided
for under Section 17 of this Code, and in addition to said
services and facilities, shall:
xxxx
(v) Regulate the use of streets, avenues, alleys, sidewalks,
bridges, parks and other public places and approve the
construction, improvement repair and maintenance of the same;
establish bus and vehicle stops and terminals or regulate the
use of the same by privately-owned vehicles which serve the
public; regulate garages and operation of conveyances for
hire;designate stands to be occupied by public vehicles when
not in use; regulate the putting up of signs, signposts, awnings
and awning posts on the streets; and provide for the lighting,
cleaning and sprinkling of streets and public places;(vi) Regulate
traffic on all streets and bridges; prohibit encroachments or
obstacles thereon and, when necessary in the interest of public
welfare, authorize the removal of encroachments and illegal
constructions in public places;(emphasis supplied)The foregoing
delegation reflected the desire of Congress to leave to the cities
themselves the task of confronting the problem of traffic
congestions associated with development and progress because
they were directly familiar with the situations in their respective
jurisdictions. Indeed, the LGUs would be in the best position to
craft their traffic codes because of their familiarity with the
conditions peculiar to their communities. With the broad latitude
in this regard allowed to the LGUs of the cities ,their traffic
regulations must be held valid and effective unless they
infringed the constitutional limitations and statutory safeguards.
C.
Compliance of Ordinance No. 1664
with the substantive requirements
The first substantive requirement for a valid ordinance is the
adherence to the constitutional guaranty of due process of law.
The guaranty is embedded in Article III, Section 1 of the
Constitution, which ordains:
Section 1. No person shall be deprived of life, liberty or property
without due process of law, nor shall any person be denied the
equal protection of the laws.4
The guaranty of due process of law is a constitutional safeguard
against any arbitrariness on the part of the Government,
whether committed by the Legislature, the Executive, or the
Judiciary. It is a protection essential to every inhabitant of the
country, for, as a commentator on Constitutional Law has vividly
written:25
x x x. If the law itself unreasonably deprives a person of his life,
liberty, or property, he is denied the protection of due process.
If the enjoyment of his rights is conditioned on an unreasonable
requirement, due process is likewise violated. Whatsoever be
the source of such rights, be it the Constitution itself or merely
a statute, its unjustified withholding would also be a violation of
due process. Any government act that militates against the
ordinary norms of justice or fair play is considered an infraction
of the great guaranty of due process; and this is true whether
the denial involves violation merely of the procedure prescribed
by the law or affects the very validity of the law itself.
In City of Manila v. Laguio, Jr.,26 the Court expounded on the
aspects of the guaranty of due process of law as a limitation on
the acts of government, viz:
This clause has been interpreted as imposing two separate
limits on government, usually called "procedural due process"
and "substantive due process."
Procedural due process, as the phrase implies, refers to the
procedures that the government must follow before it deprives
a person of life, liberty, or property. Classic procedural due
process issues are concerned with that kind of notice and what
form of hearing the government must provide when it takes a
particular action.
Substantive due process, as that phrase connotes, asks whether
the government has an adequate reason for taking away a
person’s life, liberty, or property. In other words, substantive
due process looks to whether there is sufficient justification for
the government’s action. Case law in the United States (U.S.)
tells us that whether there is such a justification depends very
much on the level of scrutiny used. For example, if a law is in
an area where only rational basis review is applied, substantive
due process is met so long as the law is rationally related to a
legitimate government purpose. But if it is an area where strict
scrutiny is used, such as for protecting fundamental rights, then
the government will meet substantive due process only if it can
prove that the law is necessary to achieve a compelling
government purpose.
The police power granted to local government units must
always be exercised with utmost observance of the rights of the
people to due process and equal protection of the law. Such
power cannot be exercised whimsically, arbitrarily or
despotically as its exercise is subject to a qualification, limitation
or restriction demanded by the respect and regard due to the
prescription of the fundamental law, particularly those forming
part of the Bill of Rights. Individual rights, it bears emphasis,
may be adversely affected only to the extent that may fairly be
required by the legitimate demands of public interest or public
welfare. Due process requires the intrinsic validity of the law in
interfering with the rights of the person to his life, liberty and
property.27
The Jabans contend that Ordinance No. 1664, by leaving the
confiscation and immobilization of the motor vehicles to the
traffic enforcers or the regular personnel of the Philippine
National Police (PNP) instead of to officials exercising judicial
authority, was violative of the constitutional guaranty of due
process; that such confiscation and immobilization should only
be after a hearing on the merits by courts of law; and that the
immobilization and the clamping of the cars and motor vehicles
by the police or traffic enforcers could be subject to abuse.
On his part, Legaspi likewise contends that Ordinance No. 1664
violated the constitutional guaranty of due process for being
arbitrary and oppressive; and that its provisions conferring upon
the traffic enforcers the absolute discretion to be the enforcers,
prosecutors, judges and collectors all at the same time were
vague and ambiguous.28 He reminds that the grant of police
powers for the general welfare under the LGC was not unlimited
but subject to constitutional limitations;29and that these
consolidated cases should not be resolved differently from the
resolution of a third case assailing the validity of Ordinance
No.1664 (Astillero case), in which the decision of the same RTC
declaring Ordinance No.1664 as unconstitutional had attained
finality following the denial of due course to the appeal of the
City of Cebu and its co-defendants.
Judged according to the foregoing enunciation of the guaranty
of due process of law, the contentions of the petitioners cannot
be sustained. Even under strict scrutiny review, Ordinance No.
1664 met the substantive tests of validity and constitutionality
by its conformity with the limitations under the Constitution and
the statutes, as well as with the requirements of fairness and
reason, and its consistency with public policy.
To us, the terms encroachment and obstacles used in Section
458 of the LGC, supra, were broad enough to include illegally
parked vehicles or whatever else obstructed the streets, alleys
and sidewalks, which were precisely the subject of Ordinance
No. 1664 in a vowedly aiming to ensure "a smooth flow of
vehicular traffic in all the streets in the City of Cebu at all times"
(Section 1). This aim was borne out by its Whereas Clauses, viz:
WHEREAS, the City of Cebu enacted the Traffic Code
(Ordinance No. 801) as amended, provided for Parking
Restrictions and Parking Prohibitions in the streets of Cebu City;
WHEREAS, despite the restrictions and prohibitions of parking
on certain streets of Cebu City, violations continued unabated
due, among others, to the very low penalties imposed under the
Traffic Code of Cebu City;
WHEREAS, City Ordinance 1642 was enacted in order to
address the traffic congestions caused by illegal parkings in the
streets of Cebu City;
WHEREAS, there is a need to amend City Ordinance No.1642 in
order to fully address and solve the problem of illegal parking
and other violations of the Traffic Code of Cebu
City;30 (emphasis supplied)
Considering that traffic congestions were already retarding the
growth and progress in the population and economic centers of
the country, the plain objective of Ordinance No. 1664 was to
serve the public interest and advance the general welfare in the
City of Cebu. Its adoption was, therefore, in order to fulfill the
compelling government purpose of immediately addressing the
burgeoning traffic congestions caused by illegally parked
vehicles obstructing the streets of the City of Cebu.
Legaspi’s attack against the provisions of Ordinance No. 1664
for being vague and ambiguous cannot stand scrutiny. As can
be readily seen, its text was for thright and unambiguous in all
respects. There could be no confusion on the meaning and
coverage of the ordinance. But should there be any vagueness
and ambiguity in the provisions, which the OSG does not
concede,31 there was nothing that a proper application of the
basic rules of statutory construction could not justly rectify.
The petitioners further assert that drivers or vehicle owners
affected by Ordinance No. 1664 like themselves were not
accorded the opportunity to protest the clamping, towing, and
impounding of the vehicles, or even to be heard and to explain
their side prior to the immobilization of their vehicles; and that
the ordinance was oppressive and arbitrary for that reason.
The adverse assertions against Ordinance No. 1664 are
unwarranted.
Firstly, Ordinance No. 1664 was far from oppressive and
arbitrary. Any driver or vehicle owner whose vehicle was
immobilized by clamping could protest such action of a traffic
enforcer or PNP personnel enforcing the ordinance. Section 3 of
Ordinance No. 1664, supra, textually afforded an administrative
escape in the form of permitting the release of the immobilized
vehicle upon a protest directly made to the Chairman of CITOM;
or to the Chairman of the Committee on Police, Fire and
Penology of the City of Cebu; or to Asst. City Prosecutor Felipe
Belciña–officials named in the ordinance itself. The release
could be ordered by any of such officials even without the
payment of the stipulated fine. That none of the petitioners,
albeit lawyers all, resorted to such recourse did not diminish the
fairness and reasonableness of the escape clause written in the
ordinance. Secondly, the immobilization of a vehicle by clamping
pursuant to the ordinance was not necessary if the driver or
vehicle owner was around at the time of the apprehension for
illegal parking or obstruction. In that situation, the enforcer
would simply either require the driver to move the vehicle or
issue a traffic citation should the latter persist in his violation.
The clamping would happen only to prevent the transgress or
from using the vehicle itself to escape the due sanctions. And,
lastly, the towing away of the immobilized vehicle was not
equivalent to a summary impounding, but designed to prevent
the immobilized vehicle from obstructing traffic in the vicinity of
the apprehension and thereby ensure the smooth flow of traffic.
The owner of the towed vehicle would not be deprived of his
property.
In fine, the circumstances set forth herein indicate that
Ordinance No. 1664 complied with the elements of fairness and
reasonableness.
Did Ordinance No. 1664 meet the requirements of procedural
due process?
Notice and hearing are the essential requirements of procedural
due process. Yet, there are many instances under our laws in
which the absence of one or both of such requirements is not
necessarily a denial or deprivation of due process. Among the
instances are the cancellation of the passport of a person being
sought for the commission of a crime, the preventive
suspension of a civil servant facing administrative charges, the
distraint of properties to answer for tax delinquencies, the
padlocking of restaurants found to be unsanitary or of theaters
showing obscene movies, and the abatement of nuisance per
se.32 Add to them the arrest of a person in flagrante delicto.33
The clamping of the petitioners’ vehicles pursuant to Ordinance
No. 1664 (and of the vehicles of others similarly situated) was
of the same character as the aforecited established exceptions
dispensing with notice and hearing. As already said, the
immobilization of illegally parked vehicles by clamping the tires
was necessary because the transgressors were not around at
the time of apprehension. Under such circumstance, notice and
hearing would be superfluous. Nor should the lack of a trial-type
hearing prior to the clamping constitute a breach of procedural
due process, forgiving the transgressors the chance to reverse
the apprehensions through a timely protest could equally satisfy
the need for a hearing. In other words, the prior intervention of
a court of law was not indispensable to ensure a compliance
with the guaranty of due process.
To reiterate, the clamping of the illegally parked vehicles was a SO ORDERED.
fair and reasonable way to enforce the ordinance against its
transgressors; otherwise, the transgressors would evade liability
by simply driving away.

Finally, Legaspi’s position, that the final decision of the RTC

rendered in the Astillero case declaring Ordinance No. 1664
unconstitutional bound the City of Cebu, thereby precluding
these consolidated appeals from being decided differently, is
utterly untenable. For one, Legaspi undeservedly extends too
much importance to an irrelevant decision of the RTC–
irrelevant, because the connection between that case to these
cases was not at all shown. For another, he ignores that it
should be the RTC that had improperly acted for so deciding the
Astillero case despite the appeals in these cases being already
pending in the CA. Being the same court in the three cases, the
RTC should have anticipated that in the regular course of
proceedings the outcome of the appeal in these cases then
pending before the CA would ultimately be elevated to and
determined by no less than the Court itself. Such anticipation
should have made it refrain from declaring Ordinance No. 1664
unconstitutional, for a lower court like itself, appreciating its
position in the "interrelation and operation of the integrated
judicial system of the nation," should have exercised a
"becoming modesty" on the issue of the constitutionality of the
same ordinance that the Constitution required the majority vote
of the Members of the Court sitting en bane to
determine.34 Such "becoming modesty" also forewarned that
any declaration of unconstitutionality by an inferior court was
binding only on the parties, but that a declaration of
unconstitutionality by the Court would be a precedent binding
on all. 35

WHEREFORE, the Court DENIES the pet1t10ns for review

on certiorari for their lack of merit; AFFIRMS the decision
promulgated on June 16, 2003 by the Court of Appeals; and
ORDERS the petitioners to pay the costs of suit.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 111097 July 20, 1994
MAYOR PABLO P. MAGTAJAS & THE CITY OF CAGAYAN
DE ORO, petitioners,
vs.
PRYCE PROPERTIES CORPORATION, INC. & PHILIPPINE
AMUSEMENT AND GAMING CORPORATION,respondents.
Aquilino G. Pimentel, Jr. and Associates for petitioners.
R.R. Torralba & Associates for private respondent.
CRUZ, J.:
There was instant opposition when PAGCOR announced the
opening of a casino in Cagayan de Oro City. Civic organizations
angrily denounced the project. The religious elements echoed
the objection and so did the women's groups and the youth.
Demonstrations were led by the mayor and the city legislators.
The media trumpeted the protest, describing the casino as an
affront to the welfare of the city.
The trouble arose when in 1992, flush with its tremendous
success in several cities, PAGCOR decided to expand its
operations to Cagayan de Oro City. To this end, it leased a
portion of a building belonging to Pryce Properties Corporation,
Inc., one of the herein private respondents, renovated and
equipped the same, and prepared to inaugurate its casino there
during the Christmas season.
The reaction of the Sangguniang Panlungsod of Cagayan de Oro
City was swift and hostile. On December 7, 1992, it enacted
Ordinance No. 3353 reading as follows:
ORDINANCE NO. 3353
AN ORDINANCE PROHIBITING THE ISSUANCE OF
BUSINESS PERMIT AND CANCELLING EXISTING
BUSINESS PERMIT TO ANY ESTABLISHMENT FOR
THE USING AND ALLOWING TO BE USED ITS
PREMISES OR PORTION THEREOF FOR THE
OPERATION OF CASINO.
BE IT ORDAINED by the Sangguniang Panlungsod
of the City of Cagayan de Oro, in session
assembled that:
Sec. 1. — That pursuant to the policy of the city
banning the operation of casino within its
territorial jurisdiction, no business permit shall be
issued to any person, partnership or corporation
for the operation of casino within the city limits.
Sec. 2. — That it shall be a violation of existing
business permit by any persons, partnership or
corporation to use its business establishment or
portion thereof, or allow the use thereof by others
for casino operation and other gambling activities.
Sec. 3. — PENALTIES. — Any violation of such
existing business permit as defined in the
preceding section shall suffer the following
penalties, to wit:
 a) Suspension of the WHEREAS, on October 14, 1992, the City Council
business permit for passed another Resolution No. 2673, reiterating its
sixty (60) days for the policy against the establishment of CASINO;
first offense and a fine
of P1,000.00/day WHEREAS, subsequently, thereafter, it likewise
passed Ordinance No. 3353, prohibiting the
b) Suspension of the issuance of Business Permit and to cancel existing
business permit for Six Business Permit to any establishment for the using
(6) months for the and allowing to be used its premises or portion
second offense, and a thereof for the operation of CASINO;
fine of P3,000.00/day
WHEREAS, under Art. 3, section 458, No. (4), sub
c) Permanent paragraph VI of the Local Government Code of
revocation of the 1991 (Rep. Act 7160) and under Art. 99, No. (4),
business permit and Paragraph VI of the implementing rules of the
imprisonment of One Local Government Code, the City Council as the
(1) year, for the third Legislative Body shall enact measure to suppress
and subsequent any activity inimical to public morals and general
offenses. welfare of the people and/or regulate or prohibit
such activity pertaining to amusement or
Sec. 4. — This Ordinance shall take effect ten (10) entertainment in order to protect social and moral
days from publication thereof. welfare of the community;

Nor was this all. On January 4, 1993, it adopted a sterner NOW THEREFORE,
Ordinance No. 3375-93 reading as follows:
BE IT ORDAINED by the City Council in session
ORDINANCE NO. 3375-93 duly assembled that:

AN ORDINANCE PROHIBITING THE OPERATION Sec. 1. — The operation of gambling CASINO in

OF CASINO AND PROVIDING PENALTY FOR
VIOLATION THEREFOR.
WHEREAS, the City Council established a policy as
early as 1990 against CASINO under its Resolution
No. 2295;
the City of Cagayan de Oro is hereby prohibited.
Sec. 2. — Any violation of this Ordinance shall be
subject to the following penalties:
a) Administrative fine of P5,000.00 shall be
imposed against the proprietor, partnership or
corporation undertaking the operation, conduct,
 maintenance of gambling CASINO in the City and
closure thereof;
b) Imprisonment of not less than six (6) months
nor more than one (1) year or a fine in the
amount of P5,000.00 or both at the discretion of
the court against the manager, supervisor, and/or
any person responsible in the establishment,
conduct and maintenance of gambling CASINO.
Sec. 3. — This Ordinance shall take effect ten (10)
days after its publication in a local newspaper of
general circulation.
Pryce assailed the ordinances before the Court of Appeals,
where it was joined by PAGCOR as intervenor and supplemental
petitioner. Their challenge succeeded. On March 31, 1993, the
Court of Appeals declared the ordinances invalid and issued the
writ prayed for to prohibit their enforcement. 1 Reconsideration
of this decision was denied on July 13, 1993. 2
Cagayan de Oro City and its mayor are now before us in this
petition for review under Rule 45 of the Rules of Court. 3 They
aver that the respondent Court of Appeals erred in holding that:
1. Under existing laws, the Sangguniang
Panlungsod of the City of Cagayan de Oro does
not have the power and authority to prohibit the
establishment and operation of a PAGCOR
gambling casino within the City's territorial limits.
2. The phrase "gambling and other prohibited
games of chance" found in Sec. 458, par. (a), sub-
par. (1) — (v) of R.A. 7160 could only mean
"illegal gambling."
3. The questioned Ordinances in effect annul P.D.
1869 and are therefore invalid on that point.
4. The questioned Ordinances are discriminatory
to casino and partial to cockfighting and are
therefore invalid on that point.
5. The questioned Ordinances are not reasonable,
not consonant with the general powers and
purposes of the instrumentality concerned and
inconsistent with the laws or policy of the State.
6. It had no option but to follow the ruling in the
case of Basco, et al. v. PAGCOR, G.R. No. 91649,
May 14, 1991, 197 SCRA 53 in disposing of the
issues presented in this present case.
PAGCOR is a corporation created directly by P.D. 1869 to help
centralize and regulate all games of chance, including casinos
on land and sea within the territorial jurisdiction of the
Philippines. In Basco v. Philippine Amusements and Gaming
Corporation, 4 this Court sustained the constitutionality of the
decree and even cited the benefits of the entity to the national
economy as the third highest revenue-earner in the
government, next only to the BIR and the Bureau of Customs.
Cagayan de Oro City, like other local political subdivisions, is
empowered to enact ordinances for the purposes indicated in
the Local Government Code. It is expressly vested with the
police power under what is known as the General Welfare
Clause now embodied in Section 16 as follows:
Sec. 16. — General Welfare. — Every local
government unit shall exercise the powers
expressly granted, those necessarily implied
therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and
 effective governance, and those which are appropriate penalties
essential to the promotion of the general welfare. for habitual
Within their respective territorial jurisdictions, local drunkenness in public
government units shall ensure and support, places, vagrancy,
among other things, the preservation and mendicancy,
enrichment of culture, promote health and safety, prostitution,
enhance the right of the people to a balanced establishment and
ecology, encourage and support the development maintenance of houses
of appropriate and self-reliant scientific and of ill
technological capabilities, improve public morals, repute,gambling and
enhance economic prosperity and social justice, other prohibited games
promote full employment among their residents, of chance, fraudulent
maintain peace and order, and preserve the devices and ways to
comfort and convenience of their inhabitants. obtain money or
property, drug
In addition, Section 458 of the said Code specifically declares addiction, maintenance
that: of drug dens, drug
pushing, juvenile
Sec. 458. — Powers, Duties, Functions and delinquency, the
Compensation. — (a) The Sangguniang printing, distribution or
Panlungsod, as the legislative body of the city, exhibition of obscene
shall enact ordinances, approve resolutions and or pornographic
appropriate funds for the general welfare of the materials or
city and its inhabitants pursuant to Section 16 of publications, and such
this Code and in the proper exercise of the other activities inimical
corporate powers of the city as provided for under to the welfare and
Section 22 of this Code, and shall: morals of the
inhabitants of the city;
(1) Approve ordinances and pass resolutions
necessary for an efficient and effective city This section also authorizes the local government units to
government, and in this connection, shall: regulate properties and businesses within their territorial limits
in the interest of the general welfare. 5
xxx xxx xxx
The petitioners argue that by virtue of these provisions, the
(v) Enact ordinances Sangguniang Panlungsod may prohibit the operation of casinos
intended to prevent, because they involve games of chance, which are detrimental to
suppress and impose the people. Gambling is not allowed by general law and even by
the Constitution itself. The legislative power conferred upon
local government units may be exercised over all kinds of
gambling and not only over "illegal gambling" as the
respondents erroneously argue. Even if the operation of casinos
may have been permitted under P.D. 1869, the government of
Cagayan de Oro City has the authority to prohibit them within
its territory pursuant to the authority entrusted to it by the Local
Government Code.
It is submitted that this interpretation is consonant with the
policy of local autonomy as mandated in Article II, Section 25,
and Article X of the Constitution, as well as various other
provisions therein seeking to strengthen the character of the
nation. In giving the local government units the power to
prevent or suppress gambling and other social problems, the
Local Government Code has recognized the competence of such
communities to determine and adopt the measures best
expected to promote the general welfare of their inhabitants in
line with the policies of the State.
The petitioners also stress that when the Code expressly
authorized the local government units to prevent and suppress
gambling and other prohibited games of chance, like craps,
baccarat, blackjack and roulette, it meant allforms of gambling
without distinction. Ubi lex non distinguit, nec nos distinguere
debemos. 6 Otherwise, it would have expressly excluded from
the scope of their power casinos and other forms of gambling
authorized by special law, as it could have easily done. The fact
that it did not do so simply means that the local government
units are permitted to prohibit all kinds of gambling within their
territories, including the operation of casinos.
The adoption of the Local Government Code, it is pointed out,
had the effect of modifying the charter of the PAGCOR. The
Code is not only a later enactment than P.D. 1869 and so is
deemed to prevail in case of inconsistencies between them.
More than this, the powers of the PAGCOR under the decree are
expressly discontinued by the Code insofar as they do not
conform to its philosophy and provisions, pursuant to Par. (f) of
its repealing clause reading as follows:
(f) All general and special laws, acts, city charters,
decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof
which are inconsistent with any of the provisions
of this Code are hereby repealed or modified
accordingly.
It is also maintained that assuming there is doubt regarding the
effect of the Local Government Code on P.D. 1869, the doubt
must be resolved in favor of the petitioners, in accordance with
the direction in the Code calling for its liberal interpretation in
favor of the local government units. Section 5 of the Code
specifically provides:
Sec. 5. Rules of Interpretation. — In the
interpretation of the provisions of this Code, the
following rules shall apply:
(a) Any provision on a power of a local
government unit shall be liberally interpreted in its
favor, and in case of doubt, any question thereon
shall be resolved in favor of devolution of powers
and of the lower local government unit. Any fair
and reasonable doubt as to the existence of the
power shall be interpreted in favor of the local
government unit concerned;
xxx xxx xxx
(c) The general welfare provisions in this Code
shall be liberally interpreted to give more powers
to local government units in accelerating economic
development and upgrading the quality of life for
 the people in the community; . . . (Emphasis
supplied.)
Finally, the petitioners also attack gambling as intrinsically
harmful and cite various provisions of the Constitution and
several decisions of this Court expressive of the general and
official disapprobation of the vice. They invoke the State policies
on the family and the proper upbringing of the youth and, as
might be expected, call attention to the old case of U.S. v.
Salaveria, 7 which sustained a municipal ordinance prohibiting
the playing of panguingue. The petitioners decry the immorality
of gambling. They also impugn the wisdom of P.D. 1869 (which
they describe as "a martial law instrument") in creating PAGCOR
and authorizing it to operate casinos "on land and sea within
the territorial jurisdiction of the Philippines."
This is the opportune time to stress an important point.
The morality of gambling is not a justiciable issue. Gambling is
not illegal per se. While it is generally considered inimical to the
interests of the people, there is nothing in the Constitution
categorically proscribing or penalizing gambling or, for that
matter, even mentioning it at all. It is left to Congress to deal
with the activity as it sees fit. In the exercise of its own
discretion, the legislature may prohibit gambling altogether or
allow it without limitation or it may prohibit some forms of
gambling and allow others for whatever reasons it may consider
sufficient. Thus, it has prohibited jueteng and monte but
permits lotteries, cockfighting and horse-racing. In making such
choices, Congress has consulted its own wisdom, which this
Court has no authority to review, much less reverse. Well has it
been said that courts do not sit to resolve the merits of
conflicting theories. 8 That is the prerogative of the political
departments. It is settled that questions regarding the wisdom,
morality, or practicibility of statutes are not addressed to the
judiciary but may be resolved only by the legislative and
executive departments, to which the function belongs in our
scheme of government. That function is exclusive. Whichever
way these branches decide, they are answerable only to their
own conscience and the constituents who will ultimately judge
their acts, and not to the courts of justice.
The only question we can and shall resolve in this petition is the
validity of Ordinance No. 3355 and Ordinance No. 3375-93 as
enacted by the Sangguniang Panlungsod of Cagayan de Oro
City. And we shall do so only by the criteria laid down by law
and not by our own convictions on the propriety of gambling.
The tests of a valid ordinance are well established. A long line of
decisions 9 has held that to be valid, an ordinance must conform
to the following substantive requirements:
1) It must not contravene the constitution or any
statute.
2) It must not be unfair or oppressive.
3) It must not be partial or discriminatory.
4) It must not prohibit but may regulate trade.
5) It must be general and consistent with public
policy.
6) It must not be unreasonable.
We begin by observing that under Sec. 458 of the Local
Government Code, local government units are authorized to
prevent or suppress, among others, "gambling
and other prohibited games of chance." Obviously, this
provision excludes games of chance which are not prohibited
but are in fact permitted by law. The petitioners are less than
accurate in claiming that the Code could have excluded such
games of chance but did not. In fact it does. The language of
the section is clear and unmistakable. Under the rule of noscitur
a sociis, a word or phrase should be interpreted in relation to,
or given the same meaning of, words with which it is
associated. Accordingly, we conclude that since the word
"gambling" is associated with "and other prohibited games of
chance," the word should be read as referring to only illegal
gambling which, like the other prohibited games of chance,
must be prevented or suppressed.
We could stop here as this interpretation should settle the
problem quite conclusively. But we will not. The vigorous efforts
of the petitioners on behalf of the inhabitants of Cagayan de
Oro City, and the earnestness of their advocacy, deserve more
than short shrift from this Court.
The apparent flaw in the ordinances in question is that they
contravene P.D. 1869 and the public policy embodied therein
insofar as they prevent PAGCOR from exercising the power
conferred on it to operate a casino in Cagayan de Oro City. The
petitioners have an ingenious answer to this misgiving. They
deny that it is the ordinances that have changed P.D. 1869 for
an ordinance admittedly cannot prevail against a statute. Their
theory is that the change has been made by the Local
Government Code itself, which was also enacted by the national
lawmaking authority. In their view, the decree has been, not
really repealed by the Code, but merely "modified pro tanto" in
the sense that PAGCOR cannot now operate a casino over the
objection of the local government unit concerned. This
modification of P.D. 1869 by the Local Government Code is
permissible because one law can change or repeal another law.
It seems to us that the petitioners are playing with words. While
insisting that the decree has only been "modifiedpro tanto,"
they are actually arguing that it is already dead, repealed and
useless for all intents and purposes because the Code has shorn
PAGCOR of all power to centralize and regulate casinos. Strictly
speaking, its operations may now be not only prohibited by the
local government unit; in fact, the prohibition is not only
discretionary but mandated by Section 458 of the Code if the
word "shall" as used therein is to be given its accepted
meaning. Local government units have now no choice but to
prevent and suppress gambling, which in the petitioners' view
includes both legal and illegal gambling. Under this
construction, PAGCOR will have no more games of chance to
regulate or centralize as they must all be prohibited by the local
government units pursuant to the mandatory duty imposed
upon them by the Code. In this situation, PAGCOR cannot
continue to exist except only as a toothless tiger or a white
elephant and will no longer be able to exercise its powers as a
prime source of government revenue through the operation of
casinos.
It is noteworthy that the petitioners have cited only Par. (f) of
the repealing clause, conveniently discarding the rest of the
provision which painstakingly mentions the specific laws or the
parts thereof which are repealed (or modified) by the Code.
Significantly, P.D. 1869 is not one of them. A reading of the
entire repealing clause, which is reproduced below, will disclose
the omission:
Sec. 534. Repealing Clause. — (a) Batas
Pambansa Blg. 337, otherwise known as the
"Local Government Code," Executive Order No.
112 (1987), and Executive Order No. 319 (1988)
are hereby repealed.
(b) Presidential Decree Nos. 684, 1191, 1508 and
such other decrees, orders, instructions,
memoranda and issuances related to or
concerning the barangay are hereby repealed.
(c) The provisions of Sections 2, 3, and 4 of
Republic Act No. 1939 regarding hospital fund;
Section 3, a (3) and b (2) of Republic Act. No.
 5447 regarding the Special Education Fund;
Presidential Decree No. 144 as amended by
Presidential Decree Nos. 559 and 1741;
Presidential Decree No. 231 as amended;
Presidential Decree No. 436 as amended by
Presidential Decree No. 558; and Presidential
Decree Nos. 381, 436, 464, 477, 526, 632, 752,
and 1136 are hereby repealed and rendered of no
force and effect.
(d) Presidential Decree No. 1594 is hereby
repealed insofar as it governs locally-funded
projects.
(e) The following provisions are hereby repealed
or amended insofar as they are inconsistent with
the provisions of this Code: Sections 2, 16, and 29
of Presidential Decree No. 704; Sections 12 of
Presidential Decree No. 87, as amended; Sections
52, 53, 66, 67, 68, 69, 70, 71, 72, 73, and 74 of
Presidential Decree No. 463, as amended; and
Section 16 of Presidential Decree No. 972, as
amended, and
(f) All general and special laws, acts, city charters,
decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof
which are inconsistent with any of the provisions
of this Code are hereby repealed or modified
accordingly.
Furthermore, it is a familiar rule that implied repeals are not
lightly presumed in the absence of a clear and unmistakable
showing of such intention. In Lichauco & Co. v. Apostol, 10 this
Court explained:
The cases relating to the subject of repeal by
implication all proceed on the assumption that if
the act of later date clearly reveals an intention on
the part of the lawmaking power to abrogate the
prior law, this intention must be given effect; but
there must always be a sufficient revelation of this
intention, and it has become an unbending rule of
statutory construction that the intention to repeal
a former law will not be imputed to the Legislature
when it appears that the two statutes, or
provisions, with reference to which the question
arises bear to each other the relation of general to
special.
There is no sufficient indication of an implied repeal of P.D.
1869. On the contrary, as the private respondent points out,
PAGCOR is mentioned as the source of funding in two later
enactments of Congress, to wit, R.A. 7309, creating a Board of
Claims under the Department of Justice for the benefit of
victims of unjust punishment or detention or of violent crimes,
and R.A. 7648, providing for measures for the solution of the
power crisis. PAGCOR revenues are tapped by these two
statutes. This would show that the PAGCOR charter has not
been repealed by the Local Government Code but has in fact
been improved as it were to make the entity more responsive to
the fiscal problems of the government.
It is a canon of legal hermeneutics that instead of pitting one
statute against another in an inevitably destructive
confrontation, courts must exert every effort to reconcile them,
remembering that both laws deserve a becoming respect as the
handiwork of a coordinate branch of the government. On the
assumption of a conflict between P.D. 1869 and the Code, the
proper action is not to uphold one and annul the other but to
give effect to both by harmonizing them if possible. This is
possible in the case before us. The proper resolution of the
problem at hand is to hold that under the Local Government
Code, local government units may (and indeed must) prevent
and suppress all kinds of gambling within their territories except
only those allowed by statutes like P.D. 1869. The exception
reserved in such laws must be read into the Code, to make both
the Code and such laws equally effective and mutually
complementary.
This approach would also affirm that there are indeed two kinds
of gambling, to wit, the illegal and those authorized by law.
Legalized gambling is not a modern concept; it is probably as
old as illegal gambling, if not indeed more so. The petitioners'
suggestion that the Code authorizes them to prohibit all kinds of
gambling would erase the distinction between these two forms
of gambling without a clear indication that this is the will of the
legislature. Plausibly, following this theory, the City of Manila
could, by mere ordinance, prohibit the Philippine Charity
Sweepstakes Office from conducting a lottery as authorized by
R.A. 1169 and B.P. 42 or stop the races at the San Lazaro
Hippodrome as authorized by R.A. 309 and R.A. 983.
In light of all the above considerations, we see no way of
arriving at the conclusion urged on us by the petitioners that
the ordinances in question are valid. On the contrary, we find
that the ordinances violate P.D. 1869, which has the character
and force of a statute, as well as the public policy expressed in
the decree allowing the playing of certain games of chance
despite the prohibition of gambling in general.
The rationale of the requirement that the ordinances should not
contravene a statute is obvious. Municipal governments are only
agents of the national government. Local councils exercise only
delegated legislative powers conferred on them by Congress as
the national lawmaking body. The delegate cannot be superior
to the principal or exercise powers higher than those of the
latter. It is a heresy to suggest that the local government units
can undo the acts of Congress, from which they have derived
their power in the first place, and negate by mere ordinance the
mandate of the statute.
Municipal corporations owe their origin to, and
derive their powers and rights wholly from the
legislature. It breathes into them the breath of
life, without which they cannot exist. As it creates,
so it may destroy. As it may destroy, it may
abridge and control. Unless there is some
constitutional limitation on the right, the
legislature might, by a single act, and if we can
suppose it capable of so great a folly and so great
a wrong, sweep from existence all of the municipal
corporations in the State, and the corporation
could not prevent it. We know of no limitation on
the right so far as to the corporation themselves
are concerned. They are, so to phrase it, the mere
tenants at will of the legislature. 11
This basic relationship between the national legislature and the
local government units has not been enfeebled by the new
provisions in the Constitution strengthening the policy of local
autonomy. Without meaning to detract from that policy, we
here confirm that Congress retains control of the local
government units although in significantly reduced degree now
than under our previous Constitutions. The power to create still
includes the power to destroy. The power to grant still includes
the power to withhold or recall. True, there are certain notable
innovations in the Constitution, like the direct conferment on
the local government units of the power to tax, 12which cannot
now be withdrawn by mere statute. By and large, however, the
national legislature is still the principal of the local government
units, which cannot defy its will or modify or violate it.
The Court understands and admires the concern of the
petitioners for the welfare of their constituents and their
apprehensions that the welfare of Cagayan de Oro City will be
endangered by the opening of the casino. We share the view
that "the hope of large or easy gain, obtained without special
effort, turns the head of the workman" 13 and that "habitual
gambling is a cause of laziness and ruin." 14 In People v.
Gorostiza, 15 we declared: "The social scourge of gambling must
be stamped out. The laws against gambling must be enforced
to the limit." George Washington called gambling "the child of
avarice, the brother of iniquity and the father of mischief."
Nevertheless, we must recognize the power of the legislature to
decide, in its own wisdom, to legalize certain forms of gambling,
as was done in P.D. 1869 and impliedly affirmed in the Local
Government Code. That decision can be revoked by this Court
only if it contravenes the Constitution as the touchstone of all
official acts. We do not find such contravention here.

We hold that the power of PAGCOR to centralize and regulate

all games of chance, including casinos on land and sea within
the territorial jurisdiction of the Philippines, remains unimpaired.
P.D. 1869 has not been modified by the Local Government
Code, which empowers the local government units to prevent or
suppress only those forms of gambling prohibited by law.

Casino gambling is authorized by P.D. 1869. This decree has the

status of a statute that cannot be amended or nullified by a
mere ordinance. Hence, it was not competent for the
Sangguniang Panlungsod of Cagayan de Oro City to enact
Ordinance No. 3353 prohibiting the use of buildings for the
operation of a casino and Ordinance No. 3375-93 prohibiting
the operation of casinos. For all their praiseworthy motives,
these ordinances are contrary to P.D. 1869 and the public policy
announced therein and are therefore ultra vires and void.

WHEREFORE, the petition is DENIED and the challenged

decision of the respondent Court of Appeals is AFFIRMED, with
costs against the petitioners. It is so ordered.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-63915 April 24, 1985
LORENZO M. TAÑADA, ABRAHAM F. SARMIENTO, and
MOVEMENT OF ATTORNEYS FOR BROTHERHOOD,
INTEGRITY AND NATIONALISM, INC.
[MABINI], petitioners,
vs.
HON. JUAN C. TUVERA, in his capacity as Executive
Assistant to the President, HON. JOAQUIN VENUS, in his
capacity as Deputy Executive Assistant to the President ,
MELQUIADES P. DE LA CRUZ, in his capacity as Director,
Malacañang Records Office, and FLORENDO S. PABLO, in
his capacity as Director, Bureau of Printing, respondents.
ESCOLIN, J.:
Invoking the people's right to be informed on matters of public
concern, a right recognized in Section 6, Article IV of the 1973
Philippine Constitution, 1 as well as the principle that laws to be
valid and enforceable must be published in the Official Gazette
or otherwise effectively promulgated, petitioners seek a writ of
mandamus to compel respondent public officials to publish,
and/or cause the publication in the Official Gazette of various
presidential decrees, letters of instructions, general orders,
proclamations, executive orders, letter of implementation and
administrative orders.
Specifically, the publication of the following presidential
issuances is sought:
a] Presidential Decrees Nos. 12, 22, 37, 38, 59,
64, 103, 171, 179, 184, 197, 200, 234, 265, 286,
298, 303, 312, 324, 325, 326, 337, 355, 358, 359,
360, 361, 368, 404, 406, 415, 427, 429, 445, 447,
473, 486, 491, 503, 504, 521, 528, 551, 566, 573,
574, 594, 599, 644, 658, 661, 718, 731, 733, 793,
800, 802, 835, 836, 923, 935, 961, 1017-1030,
1050, 1060-1061, 1085, 1143, 1165, 1166, 1242,
1246, 1250, 1278, 1279, 1300, 1644, 1772, 1808,
1810, 1813-1817, 1819-1826, 1829-1840, 1842-
1847.
b] Letter of Instructions Nos.: 10, 39, 49, 72, 107,
108, 116, 130, 136, 141, 150, 153, 155, 161, 173,
180, 187, 188, 192, 193, 199, 202, 204, 205, 209,
211-213, 215-224, 226-228, 231-239, 241-245,
248, 251, 253-261, 263-269, 271-273, 275-283,
285-289, 291, 293, 297-299, 301-303, 309, 312-
315, 325, 327, 343, 346, 349, 357, 358, 362, 367,
370, 382, 385, 386, 396-397, 405, 438-440, 444-
445, 473, 486, 488, 498, 501, 399, 527, 561, 576,
587, 594, 599, 600, 602, 609, 610, 611, 612, 615,
641, 642, 665, 702, 712-713, 726, 837-839, 878-
879, 881, 882, 939-940, 964,997,1149-1178,1180-
1278.
c] General Orders Nos.: 14, 52, 58, 59, 60, 62, 63,
64 & 65.
d] Proclamation Nos.: 1126, 1144, 1147, 1151,
1196, 1270, 1281, 1319-1526, 1529, 1532, 1535,
1538, 1540-1547, 1550-1558, 1561-1588, 1590-
1595, 1594-1600, 1606-1609, 1612-1628, 1630-
1649, 1694-1695, 1697-1701, 1705-1723, 1731-
1734, 1737-1742, 1744, 1746-1751, 1752, 1754,
1762, 1764-1787, 1789-1795, 1797, 1800, 1802-
1804, 1806-1807, 1812-1814, 1816, 1825-1826,
 1829, 1831-1832, 1835-1836, 1839-1840, 1843-
1844, 1846-1847, 1849, 1853-1858, 1860, 1866,
1868, 1870, 1876-1889, 1892, 1900, 1918, 1923,
1933, 1952, 1963, 1965-1966, 1968-1984, 1986-
2028, 2030-2044, 2046-2145, 2147-2161, 2163-
2244.
e] Executive Orders Nos.: 411, 413, 414, 427,
429-454, 457- 471, 474-492, 494-507, 509-510,
522, 524-528, 531-532, 536, 538, 543-544, 549,
551-553, 560, 563, 567-568, 570, 574, 593, 594,
598-604, 609, 611- 647, 649-677, 679-703, 705-
707, 712-786, 788-852, 854-857.
f] Letters of Implementation Nos.: 7, 8, 9, 10, 11-
22, 25-27, 39, 50, 51, 59, 76, 80-81, 92, 94, 95,
107, 120, 122, 123.
g] Administrative Orders Nos.: 347, 348, 352-354,
360- 378, 380-433, 436-439.
The respondents, through the Solicitor General, would have this
case dismissed outright on the ground that petitioners have no
legal personality or standing to bring the instant petition. The
view is submitted that in the absence of any showing that
petitioners are personally and directly affected or prejudiced by
the alleged non-publication of the presidential issuances in
question 2 said petitioners are without the requisite legal
personality to institute this mandamus proceeding, they are not
being "aggrieved parties" within the meaning of Section 3, Rule
65 of the Rules of Court, which we quote:
SEC. 3. Petition for Mandamus.—When any
tribunal, corporation, board or person unlawfully
neglects the performance of an act which the law
specifically enjoins as a duty resulting from an
office, trust, or station, or unlawfully excludes
another from the use a rd enjoyment of a right or
office to which such other is entitled, and there is
no other plain, speedy and adequate remedy in
the ordinary course of law, the person aggrieved
thereby may file a verified petition in the proper
court alleging the facts with certainty and praying
that judgment be rendered commanding the
defendant, immediately or at some other specified
time, to do the act required to be done to Protect
the rights of the petitioner, and to pay the
damages sustained by the petitioner by reason of
the wrongful acts of the defendant.
Upon the other hand, petitioners maintain that since the subject
of the petition concerns a public right and its object is to compel
the performance of a public duty, they need not show any
specific interest for their petition to be given due course.
The issue posed is not one of first impression. As early as the
1910 case of Severino vs. Governor General, 3 this Court held
that while the general rule is that "a writ of mandamus would
be granted to a private individual only in those cases where he
has some private or particular interest to be subserved, or some
particular right to be protected, independent of that which he
holds with the public at large," and "it is for the public officers
exclusively to apply for the writ when public rights are to be
subserved [Mithchell vs. Boardmen, 79 M.e., 469],"
nevertheless, "when the question is one of public right and the
object of the mandamus is to procure the enforcement of a
public duty, the people are regarded as the real party in interest
and the relator at whose instigation the proceedings are
instituted need not show that he has any legal or special
interest in the result, it being sufficient to show that he is a
citizen and as such interested in the execution of the laws
[High, Extraordinary Legal Remedies, 3rd ed., sec. 431].
Thus, in said case, this Court recognized the relator Lope
Severino, a private individual, as a proper party to the
mandamus proceedings brought to compel the Governor
General to call a special election for the position of municipal
president in the town of Silay, Negros Occidental. Speaking for
this Court, Mr. Justice Grant T. Trent said:
We are therefore of the opinion that the weight of
authority supports the proposition that the relator
is a proper party to proceedings of this character
when a public right is sought to be enforced. If
the general rule in America were otherwise, we
think that it would not be applicable to the case at
bar for the reason 'that it is always dangerous to
apply a general rule to a particular case without
keeping in mind the reason for the rule, because,
if under the particular circumstances the reason
for the rule does not exist, the rule itself is not
applicable and reliance upon the rule may well
lead to error'
No reason exists in the case at bar for applying
the general rule insisted upon by counsel for the
respondent. The circumstances which surround
this case are different from those in the United
States, inasmuch as if the relator is not a proper
party to these proceedings no other person could
be, as we have seen that it is not the duty of the
law officer of the Government to appear and
represent the people in cases of this character.
The reasons given by the Court in recognizing a private citizen's
legal personality in the aforementioned case apply squarely to
the present petition. Clearly, the right sought to be enforced by
petitioners herein is a public right recognized by no less than
the fundamental law of the land. If petitioners were not allowed
to institute this proceeding, it would indeed be difficult to
conceive of any other person to initiate the same, considering
that the Solicitor General, the government officer generally
empowered to represent the people, has entered his
appearance for respondents in this case.
Respondents further contend that publication in the Official
Gazette is not a sine qua non requirement for the effectivity of
laws where the laws themselves provide for their own effectivity
dates. It is thus submitted that since the presidential issuances
in question contain special provisions as to the date they are to
take effect, publication in the Official Gazette is not
indispensable for their effectivity. The point stressed is
anchored on Article 2 of the Civil Code:
Art. 2. Laws shall take effect after fifteen days
following the completion of their publication in the
Official Gazette, unless it is otherwise provided, ...
The interpretation given by respondent is in accord with this
Court's construction of said article. In a long line of
decisions, 4 this Court has ruled that publication in the Official
Gazette is necessary in those cases where the legislation itself
does not provide for its effectivity date-for then the date of
publication is material for determining its date of effectivity,
which is the fifteenth day following its publication-but not when
the law itself provides for the date when it goes into effect.
Respondents' argument, however, is logically correct only
insofar as it equates the effectivity of laws with the fact of
publication. Considered in the light of other statutes applicable
to the issue at hand, the conclusion is easily reached that said
Article 2 does not preclude the requirement of publication in the
Official Gazette, even if the law itself provides for the date of its
effectivity. Thus, Section 1 of Commonwealth Act 638 provides
as follows:
 Section 1. There shall be published in the Official
Gazette [1] all important legisiative acts and
resolutions of a public nature of the, Congress of
the Philippines; [2] all executive and
administrative orders and proclamations, except
such as have no general applicability; [3] decisions
or abstracts of decisions of the Supreme Court and
the Court of Appeals as may be deemed by said
courts of sufficient importance to be so published;
[4] such documents or classes of documents as
may be required so to be published by law; and
[5] such documents or classes of documents as
the President of the Philippines shall determine
from time to time to have general applicability and
legal effect, or which he may authorize so to be
published. ...
The clear object of the above-quoted provision is to give the
general public adequate notice of the various laws which are to
regulate their actions and conduct as citizens. Without such
notice and publication, there would be no basis for the
application of the maxim "ignorantia legis non excusat." It
would be the height of injustice to punish or otherwise burden a
citizen for the transgression of a law of which he had no notice
whatsoever, not even a constructive one.
Perhaps at no time since the establishment of the Philippine
Republic has the publication of laws taken so vital significance
that at this time when the people have bestowed upon the
President a power heretofore enjoyed solely by the legislature.
While the people are kept abreast by the mass media of the
debates and deliberations in the Batasan Pambansa—and for
the diligent ones, ready access to the legislative records—no
such publicity accompanies the law-making process of the
President. Thus, without publication, the people have no means
of knowing what presidential decrees have actually been
promulgated, much less a definite way of informing themselves
of the specific contents and texts of such decrees. As the
Supreme Court of Spain ruled: "Bajo la denominacion generica
de leyes, se comprenden tambien los reglamentos, Reales
decretos, Instrucciones, Circulares y Reales ordines dictadas de
conformidad con las mismas por el Gobierno en uso de su
potestad. 5
The very first clause of Section I of Commonwealth Act 638
reads: "There shall be published in the Official Gazette ... ." The
word "shall" used therein imposes upon respondent officials an
imperative duty. That duty must be enforced if the
Constitutional right of the people to be informed on matters of
public concern is to be given substance and reality. The law
itself makes a list of what should be published in the Official
Gazette. Such listing, to our mind, leaves respondents with no
discretion whatsoever as to what must be included or excluded
from such publication.
The publication of all presidential issuances "of a public nature"
or "of general applicability" is mandated by law. Obviously,
presidential decrees that provide for fines, forfeitures or
penalties for their violation or otherwise impose a burden or.
the people, such as tax and revenue measures, fall within this
category. Other presidential issuances which apply only to
particular persons or class of persons such as administrative and
executive orders need not be published on the assumption that
they have been circularized to all concerned. 6
It is needless to add that the publication of presidential
issuances "of a public nature" or "of general applicability" is a
requirement of due process. It is a rule of law that before a
person may be bound by law, he must first be officially and
specifically informed of its contents. As Justice Claudio
Teehankee said in Peralta vs. COMELEC 7:
In a time of proliferating decrees, orders and
letters of instructions which all form part of the
 law of the land, the requirement of due process
and the Rule of Law demand that the Official
Gazette as the official government repository
promulgate and publish the texts of all such
decrees, orders and instructions so that the people
may know where to obtain their official and
specific contents.
The Court therefore declares that presidential issuances of
general application, which have not been published, shall have
no force and effect. Some members of the Court, quite
apprehensive about the possible unsettling effect this decision
might have on acts done in reliance of the validity of those
presidential decrees which were published only during the
pendency of this petition, have put the question as to whether
the Court's declaration of invalidity apply to P.D.s which had
been enforced or implemented prior to their publication. The
answer is all too familiar. In similar situations in the past this
Court had taken the pragmatic and realistic course set forth
in Chicot County Drainage District vs. Baxter Bank 8 to wit:
The courts below have proceeded on the theory
that the Act of Congress, having been found to be
unconstitutional, was not a law; that it was
inoperative, conferring no rights and imposing no
duties, and hence affording no basis for the
challenged decree. Norton v. Shelby County, 118
U.S. 425, 442; Chicago, 1. & L. Ry. Co. v. Hackett,
228 U.S. 559, 566. It is quite clear, however, that
such broad statements as to the effect of a
determination of unconstitutionality must be taken
with qualifications. The actual existence of a
statute, prior to such a determination, is an
operative fact and may have consequences which
cannot justly be ignored. The past cannot always
be erased by a new judicial declaration. The effect
of the subsequent ruling as to invalidity may have
to be considered in various aspects-with respect to
particular conduct, private and official. Questions
of rights claimed to have become vested, of
status, of prior determinations deemed to have
finality and acted upon accordingly, of public
policy in the light of the nature both of the statute
and of its previous application, demand
examination. These questions are among the most
difficult of those which have engaged the attention
of courts, state and federal and it is manifest from
numerous decisions that an all-inclusive statement
of a principle of absolute retroactive invalidity
cannot be justified.
Consistently with the above principle, this Court in Rutter vs.
Esteban 9 sustained the right of a party under the Moratorium
Law, albeit said right had accrued in his favor before said law
was declared unconstitutional by this Court.
Similarly, the implementation/enforcement of presidential
decrees prior to their publication in the Official Gazette is "an
operative fact which may have consequences which cannot be
justly ignored. The past cannot always be erased by a new
judicial declaration ... that an all-inclusive statement of a
principle of absolute retroactive invalidity cannot be justified."
From the report submitted to the Court by the Clerk of Court, it
appears that of the presidential decrees sought by petitioners to
be published in the Official Gazette, only Presidential Decrees
Nos. 1019 to 1030, inclusive, 1278, and 1937 to 1939, inclusive,
have not been so published. 10 Neither the subject matters nor
the texts of these PDs can be ascertained since no copies
thereof are available. But whatever their subject matter may be,
it is undisputed that none of these unpublished PDs has ever
been implemented or enforced by the government. In Pesigan
vs. Angeles, 11 the Court, through Justice Ramon Aquino, ruled
that "publication is necessary to apprise the public of the
contents of [penal] regulations and make the said penalties
binding on the persons affected thereby. " The cogency of this
holding is apparently recognized by respondent officials
considering the manifestation in their comment that "the
government, as a matter of policy, refrains from prosecuting
violations of criminal laws until the same shall have been
published in the Official Gazette or in some other publication,
even though some criminal laws provide that they shall take
effect immediately.

WHEREFORE, the Court hereby orders respondents to publish in

the Official Gazette all unpublished presidential issuances which
are of general application, and unless so published, they shall
have no binding force and effect.

SO ORDERED.