EN BANC

G.R. No. 148560               November 19, 2001

JOSEPH EJERCITO ESTRADA, petitioner,

vs.
SANDIGANBAYAN (Third Division) and PEOPLE OF THE PHILIPPINES, respondents.

DECISION

BELLOSILLO, J.:

JOHN STUART MILL, in his essay On Liberty, unleashes the full fury of his pen in defense of
the rights of the individual from the vast powers of the State and the inroads of societal
pressure. But even as he draws a sacrosanct line demarcating the limits on individuality beyond
which the State cannot tread - asserting that "individual spontaneity" must be allowed to flourish
with very little regard to social interference - he veritably acknowledges that the exercise of
rights and liberties is imbued with a civic obligation, which society is justified in enforcing at all
cost, against those who would endeavor to withhold fulfillment. Thus he says -

The sole end for which mankind is warranted, individually or collectively, in interfering with the
liberty of action of any of their number, is self-protection. The only purpose for which power can
be rightfully exercised over any member of a civilized community, against his will, is to prevent
harm to others.

Parallel to individual liberty is the natural and illimitable right of the State to self-preservation.
With the end of maintaining the integrity and cohesiveness of the body politic, it behooves the
State to formulate a system of laws that would compel obeisance to its collective wisdom and
inflict punishment for non-observance.

The movement from Mill's individual liberalism to unsystematic collectivism wrought changes in
the social order, carrying with it a new formulation of fundamental rights and duties more
attuned to the imperatives of contemporary socio-political ideologies. In the process, the web of
rights and State impositions became tangled and obscured, enmeshed in threads of multiple
shades and colors, the skein irregular and broken. Antagonism, often outright collision, between
the law as the expression of the will of the State, and the zealous attempts by its members to
preserve their individuality and dignity, inevitably followed. It is when individual rights are pitted
against State authority that judicial conscience is put to its severest test.

Petitioner Joseph Ejercito Estrada, the highest-ranking official to be prosecuted under RA 7080
(An Act Defining and Penalizing the Crime of Plunder), as amended by RA 7659, wishes to
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impress upon us that the assailed law is so defectively fashioned that it crosses that thin but
distinct line which divides the valid from the constitutionally infirm. He therefore makes a
stringent call for this Court to subject the Plunder Law to the crucible of constitutionality mainly
because, according to him, (a) it suffers from the vice of vagueness; (b) it dispenses with the
"reasonable doubt" standard in criminal prosecutions; and, (c) it abolishes the element of mens
rea in crimes already punishable under The Revised Penal Code, all of which are purportedly
clear violations of the fundamental rights of the accused to due process and to be informed of
the nature and cause of the accusation against him.

Specifically, the provisions of the Plunder Law claimed by petitioner to have transgressed
constitutional boundaries are Secs. 1, par. (d), 2 and 4 which are reproduced hereunder:

Section 1. x x x x (d) "Ill-gotten wealth" means any asset, property, business, enterprise or
material possession of any person within the purview of Section Two (2) hereof, acquired by
him directly or indirectly through dummies, nominees, agents, subordinates and/or business
associates by any combination or series of the following means or similar schemes:

(1) Through misappropriation, conversion, misuse, or malversation of public funds or

raids on the public treasury;

(2) By receiving, directly or indirectly, any commission, gift, share, percentage,

kickbacks or any other form of pecuniary benefit from any person and/or entity in
connection with any government contract or project or by reason of the office or position
of the public office concerned;

(3) By the illegal or fraudulent conveyance or disposition of assets belonging to the

National Government or any of its subdivisions, agencies or instrumentalities, or
government owned or controlled corporations and their subsidiaries;
 (4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity
or any other form of interest or participation including the promise of future employment
in any business enterprise or undertaking;

(5) By establishing agricultural, industrial or commercial monopolies or other

combinations and/or implementation of decrees and orders intended to benefit particular
persons or special interests; or

(6) By taking advantage of official position, authority, relationship, connection or

influence to unjustly enrich himself or themselves at the expense and to the damage
and prejudice of the Filipino people and the Republic of the Philippines.

Section 2. Definition of the Crime of Plunder, Penalties. - Any public officer who, by himself or in
connivance with members of his family, relatives by affinity or consanguinity, business
associates, subordinates or other persons, amasses, accumulates or acquires ill-gotten wealth
through a combination or series of overt or criminal acts as described in Section 1 (d)
hereof, in the aggregate amount or total value of at least fifty million pesos (P50,000,000.00)
shall be guilty of the crime of plunder and shall be punished by reclusion perpetua to death. Any
person who participated with the said public officer in the commission of an offense contributing
to the crime of plunder shall likewise be punished for such offense. In the imposition of
penalties, the degree of participation and the attendance of mitigating and extenuating
circumstances as provided by the Revised Penal Code shall be considered by the court. The
court shall declare any and all ill-gotten wealth and their interests and other incomes and assets
including the properties and shares of stocks derived from the deposit or investment thereof
forfeited in favor of the State (underscoring supplied).

Section 4. Rule of Evidence. - For purposes of establishing the crime of plunder, it shall not be
necessary to prove each and every criminal act done by the accused in furtherance of the
scheme or conspiracy to amass, accumulate or acquire ill-gotten wealth, it being
sufficient to establish beyond reasonable doubt a pattern of overt or criminal acts
indicative of the overall unlawful scheme or conspiracy (underscoring supplied).

On 4 April 2001 the Office of the Ombudsman filed before the Sandiganbayan eight (8)
separate Informations, docketed as: (a) Crim. Case No. 26558, for violation of RA 7080, as
amended by RA 7659; (b) Crim. Cases Nos. 26559 to 26562, inclusive, for violation of Secs. 3,
par. (a), 3, par. (a), 3, par. (e) and 3, par. (e), of RA 3019 (Anti-Graft and Corrupt Practices Act),
respectively; (c) Crim. Case No. 26563, for violation of Sec. 7, par. (d), of RA 6713 (The Code
of Conduct and Ethical Standards for Public Officials and Employees); (d) Crim. Case No.
26564, for Perjury (Art. 183 of The Revised Penal Code); and, (e) Crim. Case No. 26565, for
Illegal Use Of An Alias (CA No. 142, as amended by RA 6085).

On 11 April 2001 petitioner filed an Omnibus Motion for the remand of the case to the
Ombudsman for preliminary investigation with respect to specification "d" of the charges in the
Information in Crim. Case No. 26558; and, for reconsideration/reinvestigation of the offenses
under specifications "a," "b," and "c" to give the accused an opportunity to file counter-affidavits
and other documents necessary to prove lack of probable cause. Noticeably, the grounds raised
were only lack of preliminary investigation, reconsideration/reinvestigation of offenses, and
opportunity to prove lack of probable cause. The purported ambiguity of the charges and the
vagueness of the law under which they are charged were never raised in that Omnibus
Motion thus indicating the explicitness and comprehensibility of the Plunder Law.

On 25 April 2001 the Sandiganbayan, Third Division, issued a Resolution in Crim. Case No.
26558 finding that "a probable cause for the offense of PLUNDER exists to justify the issuance
of warrants for the arrest of the accused." On 25 June 2001 petitioner's motion for
reconsideration was denied by the Sandiganbayan.

On 14 June 2001 petitioner moved to quash the Information in Crim. Case No. 26558 on the
ground that the facts alleged therein did not constitute an indictable offense since the law on
which it was based was unconstitutional for vagueness, and that the Amended Information for
Plunder charged more than one (1) offense. On 21 June 2001 the Government filed
its Opposition to the Motion to Quash, and five (5) days later or on 26 June 2001 petitioner
submitted his Reply to the Opposition. On 9 July 2001 the Sandiganbayan denied
petitioner's Motion to Quash.

As concisely delineated by this Court during the oral arguments on 18 September 2001, the
issues for resolution in the instant petition for certiorari are: (a) The Plunder Law is
unconstitutional for being vague; (b) The Plunder Law requires less evidence for proving the
predicate crimes of plunder and therefore violates the rights of the accused to due process; and,
(c) Whether Plunder as defined in RA 7080 is a malum prohibitum, and if so, whether it is within
the power of Congress to so classify it.
Preliminarily, the whole gamut of legal concepts pertaining to the validity of legislation is
predicated on the basic principle that a legislative measure is presumed to be in harmony with
the Constitution. Courts invariably train their sights on this fundamental rule whenever a
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legislative act is under a constitutional attack, for it is the postulate of constitutional adjudication.
This strong predilection for constitutionality takes its bearings on the idea that it is forbidden for
one branch of the government to encroach upon the duties and powers of another. Thus it has
been said that the presumption is based on the deference the judicial branch accords to its
coordinate branch - the legislature.

If there is any reasonable basis upon which the legislation may firmly rest, the courts must
assume that the legislature is ever conscious of the borders and edges of its plenary powers,
and has passed the law with full knowledge of the facts and for the purpose of promoting what
is right and advancing the welfare of the majority. Hence in determining whether the acts of the
legislature are in tune with the fundamental law, courts should proceed with judicial restraint and
act with caution and forbearance. Every intendment of the law must be adjudged by the courts
in favor of its constitutionality, invalidity being a measure of last resort. In construing therefore
the provisions of a statute, courts must first ascertain whether an interpretation is fairly possible
to sidestep the question of constitutionality.

In La Union Credit Cooperative, Inc. v. Yaranon we held that as long as there is some basis for
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the decision of the court, the constitutionality of the challenged law will not be touched and the
case will be decided on other available grounds. Yet the force of the presumption is not
sufficient to catapult a fundamentally deficient law into the safe environs of constitutionality. Of
course, where the law clearly and palpably transgresses the hallowed domain of the organic
law, it must be struck down on sight lest the positive commands of the fundamental law be
unduly eroded.

Verily, the onerous task of rebutting the presumption weighs heavily on the party challenging
the validity of the statute. He must demonstrate beyond any tinge of doubt that there is indeed
an infringement of the constitution, for absent such a showing, there can be no finding of
unconstitutionality. A doubt, even if well-founded, will hardly suffice. As tersely put by Justice
Malcolm, "To doubt is to sustain." And petitioner has miserably failed in the instant case to
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discharge his burden and overcome the presumption of constitutionality of the Plunder Law.

As it is written, the Plunder Law contains ascertainable standards and well-defined parameters
which would enable the accused to determine the nature of his violation. Section 2 is sufficiently
explicit in its description of the acts, conduct and conditions required or forbidden, and
prescribes the elements of the crime with reasonable certainty and particularity. Thus -

1. That the offender is a public officer who acts by himself or in connivance with
members of his family, relatives by affinity or consanguinity, business associates,
subordinates or other persons;

2. That he amassed, accumulated or acquired ill-gotten wealth through a combination or

series of the following overt or criminal acts: (a) through misappropriation, conversion,
misuse, or malversation of public funds or raids on the public treasury; (b) by receiving,
directly or indirectly, any commission, gift, share, percentage, kickback or any other
form of pecuniary benefits from any person and/or entity in connection with any
government contract or project or by reason of the office or position of the public officer;
(c) by the illegal or fraudulent conveyance or disposition of assets belonging to the
National Government or any of its subdivisions, agencies or instrumentalities of
Government owned or controlled corporations or their subsidiaries; (d) by obtaining,
receiving or accepting directly or indirectly any shares of stock, equity or any other form
of interest or participation including the promise of future employment in any business
enterprise or undertaking; (e) by establishing agricultural, industrial or commercial
monopolies or other combinations and/or implementation of decrees and orders
intended to benefit particular persons or special interests; or (f) by taking advantage of
official position, authority, relationship, connection or influence to unjustly enrich himself
or themselves at the expense and to the damage and prejudice of the Filipino people
and the Republic of the Philippines; and,

3. That the aggregate amount or total value of the ill-gotten wealth amassed,
accumulated or acquired is at least ₱50,000,000.00.

As long as the law affords some comprehensible guide or rule that would inform those who are
subject to it what conduct would render them liable to its penalties, its validity will be sustained.
It must sufficiently guide the judge in its application; the counsel, in defending one charged with
its violation; and more importantly, the accused, in identifying the realm of the proscribed
conduct. Indeed, it can be understood with little difficulty that what the assailed statute punishes
is the act of a public officer in amassing or accumulating ill-gotten wealth of at least
₱50,000,000.00 through a series or combination of acts enumerated in Sec. 1, par. (d), of the
Plunder Law.
In fact, the amended Information itself closely tracks the language of the law, indicating with
reasonable certainty the various elements of the offense which petitioner is alleged to have
committed:

"The undersigned Ombudsman, Prosecutor and OIC-Director, EPIB, Office of the Ombudsman,
hereby accuses former PRESIDENT OF THE REPUBLIC OF THE PHILIPPINES, Joseph
Ejercito Estrada, a.k.a. 'ASIONG SALONGA' and a.k.a. 'JOSE VELARDE,' together with Jose
'Jinggoy' Estrada, Charlie 'Atong' Ang, Edward Serapio, Yolanda T. Ricaforte, Alma Alfaro,
JOHN DOE a.k.a. Eleuterio Tan OR Eleuterio Ramos Tan or Mr. Uy, Jane Doe a.k.a. Delia
Rajas, and John DOES & Jane Does, of the crime of Plunder, defined and penalized under R.A.
No. 7080, as amended by Sec. 12 of R.A. No. 7659, committed as follows:

That during the period from June, 1998 to January 2001, in the Philippines, and within the
jurisdiction of this Honorable Court, accused Joseph Ejercito Estrada, THEN A PRESIDENT OF
THE REPUBLIC OF THE PHILIPPINES, by
himself AND/OR in CONNIVANCE/CONSPIRACY with his co-accused, WHO ARE MEMBERS
OF HIS FAMILY, RELATIVES BY AFFINITY OR CONSANGUINITY, BUSINESS
ASSOCIATES, SUBORDINATES AND/OR OTHER PERSONS, BY TAKING UNDUE
ADVANTAGE OF HIS OFFICIAL POSITION, AUTHORITY, RELATIONSHIP, CONNECTION,
OR INFLUENCE, did then and there willfully, unlawfully and criminally amass, accumulate and
acquire BY HIMSELF, DIRECTLY OR INDIRECTLY, ill-gotten wealth in the aggregate amount
or TOTAL VALUE of FOUR BILLION NINETY SEVEN MILLION EIGHT HUNDRED FOUR
THOUSAND ONE HUNDRED SEVENTY THREE PESOS AND SEVENTEEN
CENTAVOS (₱4,097,804,173.17), more or less, THEREBY UNJUSTLY ENRICHING HIMSELF
OR THEMSELVES AT THE EXPENSE AND TO THE DAMAGE OF THE FILIPINO PEOPLE
AND THE REPUBLIC OF THE PHILIPPINES, through ANY OR A combination OR A series of
overt OR criminal acts, OR SIMILAR SCHEMES OR MEANS, described as follows:

(a) by receiving OR collecting, directly or indirectly, on SEVERAL INSTANCES,

MONEY IN THE AGGREGATE AMOUNT OF FIVE HUNDRED FORTY-FIVE MILLION
PESOS (₱545,000,000.00), MORE OR LESS, FROM ILLEGAL GAMBLING IN THE
FORM OF GIFT, SHARE, PERCENTAGE, KICKBACK OR ANY FORM OF
PECUNIARY BENEFIT, BY HIMSELF AND/OR in connection with co-
accused CHARLIE 'ATONG' ANG, Jose 'Jinggoy' Estrada, Yolanda T. Ricaforte,
Edward Serapio, AND JOHN DOES AND JANE DOES, in consideration OF
TOLERATION OR PROTECTION OF ILLEGAL GAMBLING;

(b) by DIVERTING, RECEIVING, misappropriating, converting OR misusing DIRECTLY

OR INDIRECTLY, for HIS OR THEIR PERSONAL gain and benefit, public funds in the
amount of ONE HUNDRED THIRTY MILLION PESOS (₱130,000,000.00), more or less,
representing a portion of the TWO HUNDRED MILLION PESOS
(₱200,000,000.00) tobacco excise tax share allocated for the province of Ilocos Sur
under R.A. No. 7171, by himself and/or in connivance with co-accused Charlie 'Atong'
Ang, Alma Alfaro, JOHN DOE a.k.a. Eleuterio Ramos Tan or Mr. Uy, Jane Doe a.k.a.
Delia Rajas, AND OTHER JOHN DOES & JANE DOES; (italic supplied).

(c) by directing, ordering and compelling, FOR HIS PERSONAL GAIN AND BENEFIT,
the Government Service Insurance System (GSIS) TO PURCHASE 351,878,000
SHARES OF STOCKS, MORE OR LESS, and the Social Security System (SSS),
329,855,000 SHARES OF STOCK, MORE OR LESS, OF THE BELLE
CORPORATION IN THE AMOUNT OF MORE OR LESS ONE BILLION ONE
HUNDRED TWO MILLION NINE HUNDRED SIXTY FIVE THOUSAND SIX HUNDRED
SEVEN PESOS AND FIFTY CENTAVOS (₱1,102,965,607.50) AND MORE OR LESS
SEVEN HUNDRED FORTY FOUR MILLION SIX HUNDRED TWELVE THOUSAND
AND FOUR HUNDRED FIFTY PESOS (₱744,612,450.00), RESPECTIVELY, OR A
TOTAL OF MORE OR LESS ONE BILLION EIGHT HUNDRED FORTY SEVEN
MILLION FIVE HUNDRED SEVENTY EIGHT THOUSAND FIFTY SEVEN PESOS AND
FIFTY CENTAVOS (₱1,847,578,057.50); AND BY COLLECTING OR RECEIVING,
DIRECTLY OR INDIRECTLY, BY HIMSELF AND/OR IN CONNIVANCE WITH JOHN
DOES AND JANE DOES, COMMISSIONS OR PERCENTAGES BY REASON OF
SAID PURCHASES OF SHARES OF STOCK IN THE AMOUNT OF ONE HUNDRED
EIGHTY NINE MILLION SEVEN HUNDRED THOUSAND PESOS (₱189,700,000.00)
MORE OR LESS, FROM THE BELLE CORPORATION WHICH BECAME PART OF
THE DEPOSIT IN THE EQUITABLE-PCI BANK UNDER THE ACCOUNT NAME
'JOSE VELARDE;'

(d) by unjustly enriching himself FROM COMMISSIONS, GIFTS, SHARES,

PERCENTAGES, KICKBACKS, OR ANY FORM OF PECUNIARY BENEFITS, IN
CONNIVANCE WITH JOHN DOES AND JANE DOES, in the amount of MORE OR
LESS THREE BILLION TWO HUNDRED THIRTY THREE MILLION ONE HUNDRED
FOUR THOUSAND ONE HUNDRED SEVENTY THREE PESOS AND SEVENTEEN
 CENTAVOS (₱3,233,104,173.17) AND DEPOSITING THE SAME UNDER HIS
ACCOUNT NAME 'JOSE VELARDE' AT THE EQUITABLE-PCI BANK."

We discern nothing in the foregoing that is vague or ambiguous - as there is obviously none -
that will confuse petitioner in his defense. Although subject to proof, these factual assertions
clearly show that the elements of the crime are easily understood and provide adequate
contrast between the innocent and the prohibited acts. Upon such unequivocal assertions,
petitioner is completely informed of the accusations against him as to enable him to prepare for
an intelligent defense.

Petitioner, however, bewails the failure of the law to provide for the statutory definition of the
terms "combination" and "series" in the key phrase "a combination or series of overt or criminal
acts" found in Sec. 1, par. (d), and Sec. 2, and the word "pattern" in Sec. 4. These omissions,
according to petitioner, render the Plunder Law unconstitutional for being impermissibly vague
and overbroad and deny him the right to be informed of the nature and cause of the accusation
against him, hence, violative of his fundamental right to due process.

The rationalization seems to us to be pure sophistry. A statute is not rendered uncertain and
void merely because general terms are used therein, or because of the employment of terms
without defining them; much less do we have to define every word we use. Besides, there is no
6 

positive constitutional or statutory command requiring the legislature to define each and every
word in an enactment. Congress is not restricted in the form of expression of its will, and its
inability to so define the words employed in a statute will not necessarily result in the vagueness
or ambiguity of the law so long as the legislative will is clear, or at least, can be gathered from
the whole act, which is distinctly expressed in the Plunder Law.

Moreover, it is a well-settled principle of legal hermeneutics that words of a statute will be

interpreted in their natural, plain and ordinary acceptation and signification, unless it is evident
7 

that the legislature intended a technical or special legal meaning to those words. The intention
8 

of the lawmakers - who are, ordinarily, untrained philologists and lexicographers - to use
statutory phraseology in such a manner is always presumed. Thus, Webster's New Collegiate
Dictionary contains the following commonly accepted definition of the words "combination" and
"series:"

Combination - the result or product of combining; the act or process of combining.

To combine is to bring into such close relationship as to obscure individual characters.

Series - a number of things or events of the same class coming one after another in spatial and
temporal succession.

That Congress intended the words "combination" and "series" to be understood in their popular
meanings is pristinely evident from the legislative deliberations on the bill which eventually
became RA 7080 or the Plunder Law:

DELIBERATIONS OF THE BICAMERAL COMMITTEE ON JUSTICE, 7 May 1991

REP. ISIDRO: I am just intrigued again by our definition of plunder. We say THROUGH A
COMBINATION OR SERIES OF OVERT OR CRIMINAL ACTS AS MENTIONED IN SECTION
ONE HEREOF. Now when we say combination, we actually mean to say, if there are two or
more means, we mean to say that number one and two or number one and something else are
included, how about a series of the same act? For example, through misappropriation,
conversion, misuse, will these be included also?

REP. GARCIA: Yeah, because we say a series.

REP. ISIDRO: Series.

REP. GARCIA: Yeah, we include series.

REP. ISIDRO: But we say we begin with a combination.

REP. GARCIA: Yes.

REP. ISIDRO: When we say combination, it seems that -

REP. GARCIA: Two.

REP. ISIDRO: Not only two but we seem to mean that two of the enumerated means not twice
of one enumeration.
REP. GARCIA: No, no, not twice.

REP. ISIDRO: Not twice?

REP. GARCIA: Yes. Combination is not twice - but combination, two acts.

REP. ISIDRO: So in other words, that’s it. When we say combination, we mean, two different
acts. It cannot be a repetition of the same act.

REP. GARCIA: That be referred to series, yeah.

REP. ISIDRO: No, no. Supposing one act is repeated, so there are two.

REP. GARCIA: A series.

REP. ISIDRO: That’s not series. Its a combination. Because when we say combination or
series, we seem to say that two or more, di ba?

REP. GARCIA: Yes, this distinguishes it really from ordinary crimes. That is why, I said, that is a
very good suggestion because if it is only one act, it may fall under ordinary crime but we have
here a combination or series of overt or criminal acts. So x x x x

REP. GARCIA: Series. One after the other eh di....

SEN. TANADA: So that would fall under the term "series?"

REP. GARCIA: Series, oo.

REP. ISIDRO: Now, if it is a combination, ano, two misappropriations....

REP. GARCIA: Its not... Two misappropriations will not be combination. Series.

REP. ISIDRO: So, it is not a combination?

REP. GARCIA: Yes.

REP. ISIDRO: When you say combination, two different?

REP. GARCIA: Yes.

SEN. TANADA: Two different.

REP. ISIDRO: Two different acts.

REP. GARCIA: For example, ha...

REP. ISIDRO: Now a series, meaning, repetition...

DELIBERATIONS ON SENATE BILL NO. 733, 6 June 1989

SENATOR MACEDA: In line with our interpellations that sometimes "one" or maybe even "two"
acts may already result in such a big amount, on line 25, would the Sponsor consider deleting
the words "a series of overt or," to read, therefore: "or conspiracy COMMITTED by criminal acts
such as." Remove the idea of necessitating "a series." Anyway, the criminal acts are in the
plural.

SENATOR TANADA: That would mean a combination of two or more of the acts mentioned in
this.

THE PRESIDENT: Probably two or more would be....

SENATOR MACEDA: Yes, because "a series" implies several or many; two or more.

SENATOR TANADA: Accepted, Mr. President x x x x

THE PRESIDENT: If there is only one, then he has to be prosecuted under the particular crime.
But when we say "acts of plunder" there should be, at least, two or more.

SENATOR ROMULO: In other words, that is already covered by existing laws, Mr. President.
Thus when the Plunder Law speaks of "combination," it is referring to at least two (2) acts falling
under different categories of enumeration provided in Sec. 1, par. (d), e.g., raids on the public
treasury in Sec. 1, par. (d), subpar. (1), and fraudulent conveyance of assets belonging to the
National Government under Sec. 1, par. (d), subpar. (3).

On the other hand, to constitute a series" there must be two (2) or more overt or criminal acts
falling under the same category of enumeration found in Sec. 1, par. (d), say, misappropriation,
malversation and raids on the public treasury, all of which fall under Sec. 1, par. (d), subpar. (1).
Verily, had the legislature intended a technical or distinctive meaning for "combination" and
"series," it would have taken greater pains in specifically providing for it in the law.

As for "pattern," we agree with the observations of the Sandiganbayan that this term is
9 

sufficiently defined in Sec. 4, in relation to Sec. 1, par. (d), and Sec. 2 -

x x x x under Sec. 1 (d) of the law, a 'pattern' consists of at least a combination or series of
overt or criminal acts enumerated in subsections (1) to (6) of Sec. 1 (d). Secondly, pursuant to
Sec. 2 of the law, the pattern of overt or criminal acts is directed towards a common purpose or
goal which is to enable the public officer to amass, accumulate or acquire ill-gotten wealth. And
thirdly, there must either be an 'overall unlawful scheme' or 'conspiracy' to achieve said
common goal. As commonly understood, the term 'overall unlawful scheme' indicates a 'general
plan of action or method' which the principal accused and public officer and others conniving
with him follow to achieve the aforesaid common goal. In the alternative, if there is no such
overall scheme or where the schemes or methods used by multiple accused vary, the overt or
criminal acts must form part of a conspiracy to attain a common goal.

Hence, it cannot plausibly be contended that the law does not give a fair warning and sufficient
notice of what it seeks to penalize. Under the circumstances, petitioner's reliance on the "void-
for-vagueness" doctrine is manifestly misplaced. The doctrine has been formulated in various
ways, but is most commonly stated to the effect that a statute establishing a criminal offense
must define the offense with sufficient definiteness that persons of ordinary intelligence can
understand what conduct is prohibited by the statute. It can only be invoked against that specie
of legislation that is utterly vague on its face, i.e., that which cannot be clarified either by a
saving clause or by construction.

A statute or act may be said to be vague when it lacks comprehensible standards that men of
common intelligence must necessarily guess at its meaning and differ in its application. In such
instance, the statute is repugnant to the Constitution in two (2) respects - it violates due process
for failure to accord persons, especially the parties targeted by it, fair notice of what conduct to
avoid; and, it leaves law enforcers unbridled discretion in carrying out its provisions and
becomes an arbitrary flexing of the Government muscle. But the doctrine does not apply as
10 

against legislations that are merely couched in imprecise language but which nonetheless
specify a standard though defectively phrased; or to those that are apparently ambiguous yet
fairly applicable to certain types of activities. The first may be "saved" by proper construction,
while no challenge may be mounted as against the second whenever directed against such
activities. With more reason, the doctrine cannot be invoked where the assailed statute is clear
11 

and free from ambiguity, as in this case.

The test in determining whether a criminal statute is void for uncertainty is whether the language
conveys a sufficiently definite warning as to the proscribed conduct when measured by common
understanding and practice. It must be stressed, however, that the "vagueness" doctrine merely
12 

requires a reasonable degree of certainty for the statute to be upheld - not absolute precision or
mathematical exactitude, as petitioner seems to suggest. Flexibility, rather than meticulous
specificity, is permissible as long as the metes and bounds of the statute are clearly delineated.
An act will not be held invalid merely because it might have been more explicit in its wordings or
detailed in its provisions, especially where, because of the nature of the act, it would be
impossible to provide all the details in advance as in all other statutes.

Moreover, we agree with, hence we adopt, the observations of Mr. Justice Vicente V. Mendoza
during the deliberations of the Court that the allegations that the Plunder Law is vague and
overbroad do not justify a facial review of its validity -

The void-for-vagueness doctrine states that "a statute which either forbids or requires the doing
of an act in terms so vague that men of common intelligence must necessarily guess at its
meaning and differ as to its application, violates the first essential of due process of law." The
13 

overbreadth doctrine, on the other hand, decrees that "a governmental purpose may not be
achieved by means which sweep unnecessarily broadly and thereby invade the area of
protected freedoms." 14

A facial challenge is allowed to be made to a vague statute and to one which is overbroad
because of possible "chilling effect" upon protected speech. The theory is that "[w]hen statutes
regulate or proscribe speech and no readily apparent construction suggests itself as a vehicle
for rehabilitating the statutes in a single prosecution, the transcendent value to all society of
constitutionally protected expression is deemed to justify allowing attacks on overly broad
statutes with no requirement that the person making the attack demonstrate that his own
conduct could not be regulated by a statute drawn with narrow specificity." The possible harm
15 

to society in permitting some unprotected speech to go unpunished is outweighed by the

possibility that the protected speech of others may be deterred and perceived grievances left to
fester because of possible inhibitory effects of overly broad statutes.

This rationale does not apply to penal statutes. Criminal statutes have general in terrorem effect
resulting from their very existence, and, if facial challenge is allowed for this reason alone, the
State may well be prevented from enacting laws against socially harmful conduct. In the area of
criminal law, the law cannot take chances as in the area of free speech.

The overbreadth and vagueness doctrines then have special application only to free speech
cases. They are inapt for testing the validity of penal statutes. As the U.S. Supreme Court put it,
in an opinion by Chief Justice Rehnquist, "we have not recognized an 'overbreadth' doctrine
outside the limited context of the First Amendment." In Broadrick v. Oklahoma, the Court ruled
16  17 

that "claims of facial overbreadth have been entertained in cases involving statutes which, by
their terms, seek to regulate only spoken words" and, again, that "overbreadth claims, if
entertained at all, have been curtailed when invoked against ordinary criminal laws that are
sought to be applied to protected conduct." For this reason, it has been held that "a facial
challenge to a legislative act is the most difficult challenge to mount successfully, since the
challenger must establish that no set of circumstances exists under which the Act would be
valid." As for the vagueness doctrine, it is said that a litigant may challenge a statute on its face
18 

only if it is vague in all its possible applications. "A plaintiff who engages in some conduct that is
clearly proscribed cannot complain of the vagueness of the law as applied to the conduct of
others." 19

In sum, the doctrines of strict scrutiny, overbreadth, and vagueness are analytical tools
developed for testing "on their faces" statutes in free speech cases or, as they are called in
American law, First Amendment cases. They cannot be made to do service when what is
involved is a criminal statute. With respect to such statute, the established rule is that "one to
whom application of a statute is constitutional will not be heard to attack the statute on the
ground that impliedly it might also be taken as applying to other persons or other situations in
which its application might be unconstitutional." As has been pointed out, "vagueness
20 

challenges in the First Amendment context, like overbreadth challenges typically produce facial
invalidation, while statutes found vague as a matter of due process typically are invalidated
[only] 'as applied' to a particular defendant." Consequently, there is no basis for petitioner's
21 

claim that this Court review the Anti-Plunder Law on its face and in its entirety.

Indeed, "on its face" invalidation of statutes results in striking them down entirely on the ground
that they might be applied to parties not before the Court whose activities are constitutionally
protected. It constitutes a departure from the case and controversy requirement of the
22 

Constitution and permits decisions to be made without concrete factual settings and in sterile
abstract contexts. But, as the U.S. Supreme Court pointed out in Younger v. Harris
23  24

[T]he task of analyzing a proposed statute, pinpointing its deficiencies, and requiring correction
of these deficiencies before the statute is put into effect, is rarely if ever an appropriate task for
the judiciary. The combination of the relative remoteness of the controversy, the impact on the
legislative process of the relief sought, and above all the speculative and amorphous nature of
the required line-by-line analysis of detailed statutes, . . . ordinarily results in a kind of case that
is wholly unsatisfactory for deciding constitutional questions, whichever way they might be
decided.

For these reasons, "on its face" invalidation of statutes has been described as "manifestly
strong medicine," to be employed "sparingly and only as a last resort," and is generally
25 

disfavored. In determining the constitutionality of a statute, therefore, its provisions which are
26 

alleged to have been violated in a case must be examined in the light of the conduct with which
the defendant is charged. 27

In light of the foregoing disquisition, it is evident that the purported ambiguity of the Plunder
Law, so tenaciously claimed and argued at length by petitioner, is more imagined than real.
Ambiguity, where none exists, cannot be created by dissecting parts and words in the statute to
furnish support to critics who cavil at the want of scientific precision in the law. Every provision
of the law should be construed in relation and with reference to every other part. To be sure, it
will take more than nitpicking to overturn the well-entrenched presumption of constitutionality
and validity of the Plunder Law. A fortiori, petitioner cannot feign ignorance of what the Plunder
Law is all about. Being one of the Senators who voted for its passage, petitioner must be aware
that the law was extensively deliberated upon by the Senate and its appropriate committees by
reason of which he even registered his affirmative vote with full knowledge of its legal
implications and sound constitutional anchorage.
The parallel case of Gallego v. Sandiganbayan must be mentioned if only to illustrate and
28 

emphasize the point that courts are loathed to declare a statute void for uncertainty unless the
law itself is so imperfect and deficient in its details, and is susceptible of no reasonable
construction that will support and give it effect. In that case,
petitioners Gallego and Agoncillo challenged the constitutionality of Sec. 3, par. (e), of The Anti-
Graft and Corrupt Practices Act for being vague. Petitioners posited, among others, that the
term "unwarranted" is highly imprecise and elastic with no common law meaning or settled
definition by prior judicial or administrative precedents; that, for its vagueness, Sec. 3, par. (e),
violates due process in that it does not give fair warning or sufficient notice of what it seeks to
penalize. Petitioners further argued that the Information charged them with three (3) distinct
offenses, to wit: (a) giving of "unwarranted" benefits through manifest partiality; (b) giving of
"unwarranted" benefits through evident bad faith; and, (c) giving of "unwarranted" benefits
through gross inexcusable negligence while in the discharge of their official function and that
their right to be informed of the nature and cause of the accusation against them was violated
because they were left to guess which of the three (3) offenses, if not all, they were being
charged and prosecuted.

In dismissing the petition, this Court held that Sec. 3, par. (e), of The Anti-Graft and Corrupt
Practices Act does not suffer from the constitutional defect of vagueness. The phrases
"manifest partiality," "evident bad faith," and "gross and inexcusable negligence" merely
describe the different modes by which the offense penalized in Sec. 3, par. (e), of the statute
may be committed, and the use of all these phrases in the same Information does not mean that
the indictment charges three (3) distinct offenses.

The word 'unwarranted' is not uncertain. It seems lacking adequate or official support;
unjustified; unauthorized (Webster, Third International Dictionary, p. 2514); or without
justification or adequate reason (Philadelphia Newspapers, Inc. v. US Dept. of Justice, C.D. Pa.,
405 F. Supp. 8, 12, cited in Words and Phrases, Permanent Edition, Vol. 43-A 1978,
Cumulative Annual Pocket Part, p. 19).

The assailed provisions of the Anti-Graft and Corrupt Practices Act consider a corrupt practice
and make unlawful the act of the public officer in:

x x x or giving any private party any unwarranted benefits, advantage or preference in the
discharge of his official, administrative or judicial functions through manifest partiality, evident
bad faith or gross inexcusable negligence, x x x (Section 3 [e], Rep. Act 3019, as amended).

It is not at all difficult to comprehend that what the aforequoted penal provisions penalize is the
act of a public officer, in the discharge of his official, administrative or judicial functions, in giving
any private party benefits, advantage or preference which is unjustified, unauthorized or without
justification or adequate reason, through manifest partiality, evident bad faith or gross
inexcusable negligence.

In other words, this Court found that there was nothing vague or ambiguous in the use of the
term "unwarranted" in Sec. 3, par. (e), of The Anti-Graft and Corrupt Practices Act, which was
understood in its primary and general acceptation. Consequently, in that case, petitioners'
objection thereto was held inadequate to declare the section unconstitutional.

On the second issue, petitioner advances the highly stretched theory that Sec. 4 of the Plunder
Law circumvents the immutable obligation of the prosecution to prove beyond reasonable doubt
the predicate acts constituting the crime of plunder when it requires only proof of a pattern of
overt or criminal acts showing unlawful scheme or conspiracy -

SEC. 4. Rule of Evidence. - For purposes of establishing the crime of plunder, it shall not be
necessary to prove each and every criminal act done by the accused in furtherance of the
scheme or conspiracy to amass, accumulate or acquire ill-gotten wealth, it being sufficient to
establish beyond reasonable doubt a pattern of overt or criminal acts indicative of the overall
unlawful scheme or conspiracy.

The running fault in this reasoning is obvious even to the simplistic mind. In a criminal
prosecution for plunder, as in all other crimes, the accused always has in his favor the
presumption of innocence which is guaranteed by the Bill of Rights, and unless the State
succeeds in demonstrating by proof beyond reasonable doubt that culpability lies, the accused
is entitled to an acquittal. The use of the "reasonable doubt" standard is indispensable to
29 

command the respect and confidence of the community in the application of criminal law. It is
critical that the moral force of criminal law be not diluted by a standard of proof that leaves
people in doubt whether innocent men are being condemned. It is also important in our free
society that every individual going about his ordinary affairs has confidence that his government
cannot adjudge him guilty of a criminal offense without convincing a proper factfinder of his guilt
with utmost certainty. This "reasonable doubt" standard has acquired such exalted stature in the
realm of constitutional law as it gives life to the Due Process Clause which protects the accused
against conviction except upon proof beyond reasonable doubt of every fact necessary to
constitute the crime with which he is charged. The following exchanges between Rep. Rodolfo
30 

Albano and Rep. Pablo Garcia on this score during the deliberations in the floor of the House of
Representatives are elucidating -

DELIBERATIONS OF THE HOUSE OF REPRESENTATIVES ON RA 7080, 9 October 1990

MR. ALBANO: Now, Mr. Speaker, it is also elementary in our criminal law that what is alleged in
the information must be proven beyond reasonable doubt. If we will prove only one act and find
him guilty of the other acts enumerated in the information, does that not work against the right
of the accused especially so if the amount committed, say, by falsification is less than ₱100
million, but the totality of the crime committed is ₱100 million since there is malversation,
bribery, falsification of public document, coercion, theft?

MR. GARCIA: Mr. Speaker, not everything alleged in the information needs to be proved
beyond reasonable doubt. What is required to be proved beyond reasonable doubt is every
element of the crime charged. For example, Mr. Speaker, there is an enumeration of the things
taken by the robber in the information – three pairs of pants, pieces of jewelry. These need not
be proved beyond reasonable doubt, but these will not prevent the conviction of a crime for
which he was charged just because, say, instead of 3 pairs of diamond earrings the prosecution
proved two. Now, what is required to be proved beyond reasonable doubt is the element of the
offense.

MR. ALBANO: I am aware of that, Mr. Speaker, but considering that in the crime of plunder the
totality of the amount is very important, I feel that such a series of overt criminal acts has to be
taken singly. For instance, in the act of bribery, he was able to accumulate only ₱50,000 and in
the crime of extortion, he was only able to accumulate ₱1 million. Now, when we add the totality
of the other acts as required under this bill through the interpretation on the rule of evidence, it
is just one single act, so how can we now convict him?

MR. GARCIA: With due respect, Mr. Speaker, for purposes of proving an essential element of
the crime, there is a need to prove that element beyond reasonable doubt. For example, one
essential element of the crime is that the amount involved is ₱100 million. Now, in a series of
defalcations and other acts of corruption in the enumeration the total amount would be ₱110 or
₱120 million, but there are certain acts that could not be proved, so, we will sum up the
amounts involved in those transactions which were proved. Now, if the amount involved in
these transactions, proved beyond reasonable doubt, is ₱100 million, then there is a crime of
plunder (underscoring supplied).

It is thus plain from the foregoing that the legislature did not in any manner refashion the
standard quantum of proof in the crime of plunder. The burden still remains with the prosecution
to prove beyond any iota of doubt every fact or element necessary to constitute the crime.

The thesis that Sec. 4 does away with proof of each and every component of the crime suffers
from a dismal misconception of the import of that provision. What the prosecution needs to
prove beyond reasonable doubt is only a number of acts sufficient to form a combination or
series which would constitute a pattern and involving an amount of at least ₱50,000,000.00.
There is no need to prove each and every other act alleged in the Information to have been
committed by the accused in furtherance of the overall unlawful scheme or conspiracy to
amass, accumulate or acquire ill-gotten wealth. To illustrate, supposing that the accused is
charged in an Information for plunder with having committed fifty (50) raids on the public
treasury. The prosecution need not prove all these fifty (50) raids, it being sufficient to prove by
pattern at least two (2) of the raids beyond reasonable doubt provided only that they amounted
to at least ₱50,000,000.00. 31

A reading of Sec. 2 in conjunction with Sec. 4, brings us to the logical conclusion that "pattern of
overt or criminal acts indicative of the overall unlawful scheme or conspiracy" inheres in the very
acts of accumulating, acquiring or amassing hidden wealth. Stated otherwise, such pattern
arises where the prosecution is able to prove beyond reasonable doubt the predicate acts as
defined in Sec. 1, par. (d). Pattern is merely a by-product of the proof of the predicate acts. This
conclusion is consistent with reason and common sense. There would be no other explanation
for a combination or series of

overt or criminal acts to stash ₱50,000,000.00 or more, than "a scheme or conspiracy to amass,
accumulate or acquire ill gotten wealth." The prosecution is therefore not required to make a
deliberate and conscious effort to prove pattern as it necessarily follows with the establishment
of a series or combination of the predicate acts.

Relative to petitioner's contentions on the purported defect of Sec. 4 is his submission that
"pattern" is "a very important element of the crime of plunder;" and that Sec. 4 is "two pronged,
(as) it contains a rule of evidence and a substantive element of the crime," such that without it
the accused cannot be convicted of plunder -
JUSTICE BELLOSILLO: In other words, cannot an accused be convicted under the Plunder
Law without applying Section 4 on the Rule of Evidence if there is proof beyond reasonable
doubt of the commission of the acts complained of?

ATTY. AGABIN: In that case he can be convicted of individual crimes enumerated in the
Revised Penal Code, but not plunder.

JUSTICE BELLOSILLO: In other words, if all the elements of the crime are proved beyond
reasonable doubt without applying Section 4, can you not have a conviction under the Plunder
Law?

ATTY. AGABIN: Not a conviction for plunder, your Honor.

JUSTICE BELLOSILLO: Can you not disregard the application of Sec. 4 in convicting an
accused charged for violation of the Plunder Law?

ATTY. AGABIN: Well, your Honor, in the first place Section 4 lays down a substantive element
of the law x x x x

JUSTICE BELLOSILLO: What I said is - do we have to avail of Section 4 when there is proof
beyond reasonable doubt on the acts charged constituting plunder?

ATTY. AGABIN: Yes, your Honor, because Section 4 is two pronged, it contains a rule of
evidence and it contains a substantive element of the crime of plunder. So, there is no way by
which we can avoid Section 4.

JUSTICE BELLOSILLO: But there is proof beyond reasonable doubt insofar as the predicate
crimes charged are concerned that you do not have to go that far by applying Section 4?

ATTY. AGABIN: Your Honor, our thinking is that Section 4 contains a very important element of
the crime of plunder and that cannot be avoided by the prosecution. 32

We do not subscribe to petitioner's stand. Primarily, all the essential elements of plunder can be
culled and understood from its definition in Sec. 2, in relation to Sec. 1, par. (d), and "pattern" is
not one of them. Moreover, the epigraph and opening clause of Sec. 4 is clear and unequivocal:

SEC. 4. Rule of Evidence. - For purposes of establishing the crime of plunder x x x x

It purports to do no more than prescribe a rule of procedure for the prosecution of a criminal
case for plunder. Being a purely procedural measure, Sec. 4 does not define or establish any
substantive right in favor of the accused but only operates in furtherance of a remedy. It is only
a means to an end, an aid to substantive law. Indubitably, even without invoking Sec. 4, a
conviction for plunder may be had, for what is crucial for the prosecution is to present sufficient
evidence to engender that moral certitude exacted by the fundamental law to prove the guilt of
the accused beyond reasonable doubt. Thus, even granting for the sake of argument that Sec.
4 is flawed and vitiated for the reasons advanced by petitioner, it may simply be severed from
the rest of the provisions without necessarily resulting in the demise of the law; after all, the
existing rules on evidence can supplant Sec. 4 more than enough. Besides, Sec. 7 of RA 7080
provides for a separability clause -

Sec. 7. Separability of Provisions. - If any provisions of this Act or the application thereof to any
person or circumstance is held invalid, the remaining provisions of this Act and the application
of such provisions to other persons or circumstances shall not be affected thereby.

Implicit in the foregoing section is that to avoid the whole act from being declared invalid as a
result of the nullity of some of its provisions, assuming that to be the case although it is not
really so, all the provisions thereof should accordingly be treated independently of each other,
especially if by doing so, the objectives of the statute can best be achieved.

As regards the third issue, again we agree with Justice Mendoza that plunder is a malum in
se which requires proof of criminal intent. Thus, he says, in his Concurring Opinion -

x x x Precisely because the constitutive crimes are mala in se the element of mens rea must be
proven in a prosecution for plunder. It is noteworthy that the amended information alleges that
the crime of plunder was committed "willfully, unlawfully and criminally." It thus alleges guilty
knowledge on the part of petitioner.

In support of his contention that the statute eliminates the requirement of mens rea and that is
the reason he claims the statute is void, petitioner cites the following remarks of Senator
Tañada made during the deliberation on S.B. No. 733:
SENATOR TAÑADA . . . And the evidence that will be required to convict him would not be
evidence for each and every individual criminal act but only evidence sufficient to establish the
conspiracy or scheme to commit this crime of plunder. 33

However, Senator Tañada was discussing §4 as shown by the succeeding portion of the
transcript quoted by petitioner:

SENATOR ROMULO: And, Mr. President, the Gentleman feels that it is contained in Section 4,
Rule of Evidence, which, in the Gentleman's view, would provide for a speedier and faster
process of attending to this kind of cases?

SENATOR TAÑADA: Yes, Mr. President . . . 34

Senator Tañada was only saying that where the charge is conspiracy to commit plunder, the
prosecution need not prove each and every criminal act done to further the scheme or
conspiracy, it being enough if it proves beyond reasonable doubt a pattern of overt or ciminal
acts indicative of the overall unlawful scheme or conspiracy. As far as the acts constituting the
pattern are concerned, however, the elements of the crime must be proved and the
requisite mens rea must be shown.

Indeed, §2 provides that -

Any person who participated with the said public officer in the commission of an offense
contributing to the crime of plunder shall likewise be punished for such offense. In the imposition
of penalties, the degree of participation and the attendance of mitigating and extenuating
circumstances, as provided by the Revised Penal Code, shall be considered by the court.

The application of mitigating and extenuating circumstances in the Revised Penal Code to
prosecutions under the Anti-Plunder Law indicates quite clearly that mens rea is an element of
plunder since the degree of responsibility of the offender is determined by his criminal intent. It
is true that §2 refers to "any person who participates with the said public officer in the
commission of an offense contributing to the crime of plunder." There is no reason to believe,
however, that it does not apply as well to the public officer as principal in the crime. As Justice
Holmes said: "We agree to all the generalities about not supplying criminal laws with what they
omit, but there is no canon against using common sense in construing laws as saying what they
obviously mean." 35

Finally, any doubt as to whether the crime of plunder is a malum in se must be deemed to have
been resolved in the affirmative by the decision of Congress in 1993 to include it among the
heinous crimes punishable by reclusion perpetua to death. Other heinous crimes are punished
with death as a straight penalty in R.A. No. 7659. Referring to these groups of heinous crimes,
this Court held in People v. Echegaray: 36

The evil of a crime may take various forms. There are crimes that are, by their very nature,
despicable, either because life was callously taken or the victim is treated like an animal and
utterly dehumanized as to completely disrupt the normal course of his or her growth as a human
being . . . . Seen in this light, the capital crimes of kidnapping and serious illegal detention for
ransom resulting in the death of the victim or the victim is raped, tortured, or subjected to
dehumanizing acts; destructive arson resulting in death; and drug offenses involving minors or
resulting in the death of the victim in the case of other crimes; as well as murder, rape,
parricide, infanticide, kidnapping and serious illegal detention, where the victim is detained for
more than three days or serious physical injuries were inflicted on the victim or threats to kill him
were made or the victim is a minor, robbery with homicide, rape or intentional mutilation,
destructive arson, and carnapping where the owner, driver or occupant of the carnapped vehicle
is killed or raped, which are penalized by reclusion perpetua to death, are clearly heinous by
their very nature.

There are crimes, however, in which the abomination lies in the significance and implications of
the subject criminal acts in the scheme of the larger socio-political and economic context in
which the state finds itself to be struggling to develop and provide for its poor and
underprivileged masses. Reeling from decades of corrupt tyrannical rule that bankrupted the
government and impoverished the population, the Philippine Government must muster the
political will to dismantle the culture of corruption, dishonesty, greed and syndicated criminality
that so deeply entrenched itself in the structures of society and the psyche of the populace.
[With the government] terribly lacking the money to provide even the most basic services to its
people, any form of misappropriation or misapplication of government funds translates to an
actual threat to the very existence of government, and in turn, the very survival of the people it
governs over. Viewed in this context, no less heinous are the effects and repercussions of
crimes like qualified bribery, destructive arson resulting in death, and drug offenses involving
government officials, employees or officers, that their perpetrators must not be allowed to cause
further destruction and damage to society.
The legislative declaration in R.A. No. 7659 that plunder is a heinous offense implies that it is
a malum in se. For when the acts punished are inherently immoral or inherently wrong, they
are mala in se and it does not matter that such acts are punished in a special law, especially
37 

since in the case of plunder the predicate crimes are mainly mala in se. Indeed, it would be
absurd to treat prosecutions for plunder as though they are mere prosecutions for violations of
the Bouncing Check Law (B.P. Blg. 22) or of an ordinance against jaywalking, without regard to
the inherent wrongness of the acts.

To clinch, petitioner likewise assails the validity of RA 7659, the amendatory law of RA 7080, on
constitutional grounds. Suffice it to say however that it is now too late in the day for him to
resurrect this long dead issue, the same having been eternally consigned by People v.
Echegaray to the archives of jurisprudential history. The declaration of this Court therein that
38 

RA 7659 is constitutionally valid stands as a declaration of the State, and becomes, by

necessary effect, assimilated in the Constitution now as an integral part of it.

Our nation has been racked by scandals of corruption and obscene profligacy of officials in high
places which have shaken its very foundation. The anatomy of graft and corruption has become
more elaborate in the corridors of time as unscrupulous people relentlessly contrive more and
more ingenious ways to bilk the coffers of the government. Drastic and radical measures are
imperative to fight the increasingly sophisticated, extraordinarily methodical and economically
catastrophic looting of the national treasury. Such is the Plunder Law, especially designed to
disentangle those ghastly tissues of grand-scale corruption which, if left unchecked, will spread
like a malignant tumor and ultimately consume the moral and institutional fiber of our nation.
The Plunder Law, indeed, is a living testament to the will of the legislature to ultimately
eradicate this scourge and thus secure society against the avarice and other venalities in public
office.

These are times that try men's souls. In the checkered history of this nation, few issues of
national importance can equal the amount of interest and passion generated by petitioner's
ignominious fall from the highest office, and his eventual prosecution and trial under a virginal
statute. This continuing saga has driven a wedge of dissension among our people that may
linger for a long time. Only by responding to the clarion call for patriotism, to rise above
factionalism and prejudices, shall we emerge triumphant in the midst of ferment.

PREMISES CONSIDERED, this Court holds that RA 7080 otherwise known as the Plunder
Law, as amended by RA 7659, is CONSTITUTIONAL. Consequently, the petition to declare the
law unconstitutional is DISMISSED for lack of merit.

SO ORDERED.

Buena, and De Leon, Jr., JJ., concur.

Davide, Jr. C.J., Melo, Quisumbing, JJ., join concurring opinion of J. Mendoza.
Puno, Vitug, JJ., concurred and joins J. Mendoza's concurring opinion.
Kapunan, Pardo, Sandoval-Gutierrez, Ynares-Santiago, JJ., see dissenting opinion.
Mendoza, J., please see concurring opinion.
Panganiban J., please see separate concurring opinion.
Carpio, J., no part. Was one of the complainants before Ombudsman.
 EN BANC

G.R. No. 167324               July 17, 2007

TONDO MEDICAL CENTER EMPLOYEES ASSOCIATION, RESEARCH INSTITUTE FOR

TROPICAL MEDICINE EMPLOYEES ASSOCIATION, NATIONAL ORTHOPEDIC WORKERS
UNION, DR. JOSE R. REYES MEMORIAL HOSPITAL EMPLOYEES UNION, SAN LAZARO
HOSPITAL EMPLOYEES ASSOCIATION, ALLIANCE OF HEALTH WORKERS, INC.,
HEALTH ALLIANCE FOR DEMOCRACY, COUNCIL FOR HEALTH DEVELOPMENT,
NETWORK OPPOSED TO PRIVATIZATION, COMMUNITY MEDICINE DEVELOPMENT
FOUNDATION INC., PHILIPPINE SOCIETY OF SANITARY ENGINEERS INC., KILUSANG
MAYO UNO, GABRIELA, KILUSANG MAGBUBUKID NG PILIPINAS, KALIPUNAN NG
DAMAYAN NG MGA MARALITA, ELSA O. GUEVARRA, ARCADIO B. GONZALES, JOSE G.
GALANG, DOMINGO P. MANAY, TITO P. ESTEVES, EDUARDO P. GALOPE, REMEDIOS M.
YSMAEL, ALFREDO BACUÑATA, EDGARDO J. DAMICOG, REMEDIOS M. MALTU AND
REMEGIO S. MERCADO, Petitioners,
vs.
THE COURT OF APPEALS, EXECUTIVE SECRETARY ALBERTO G. ROMULO,
SECRETARY OF HEALTH MANUEL M. DAYRIT, SECRETARY OF BUDGET AND
MANAGEMENT EMILIA T. BONCODIN, Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the
Decision,1 promulgated by the Court of Appeals on 26 November 2004, denying a petition for
the nullification of the Health Sector Reform Agenda (HSRA) Philippines 1999-2004 of the
Department of Health (DOH); and Executive Order No. 102, "Redirecting the Functions and
Operations of the Department of Health," which was issued by then President Joseph Ejercito
Estrada on 24 May 1999.

Prior hereto, petitioners originally filed a Petition for Certiorari, Prohibition and Mandamus under
Rule 65 of the 1997 Revised Rules of Civil Procedure before the Supreme Court on 15 August
2001. However, the Supreme Court, in a Resolution dated 29 August 2001, referred the petition
to the Court of Appeals for appropriate action.

HEALTH SECTOR REFORM AGENDA (HSRA)

In 1999, the DOH launched the HSRA, a reform agenda developed by the HSRA Technical
Working Group after a series of workshops and analyses with inputs from several consultants,
program managers and technical staff possessing the adequate expertise and experience in the
health sector. It provided for five general areas of reform: (1) to provide fiscal autonomy to
government hospitals; (2) secure funding for priority public health programs; (3) promote the
development of local health systems and ensure its effective performance; (4) strengthen the
capacities of health regulatory agencies; and (5) expand the coverage of the National Health
Insurance Program (NHIP).2

Petitioners questioned the first reform agenda involving the fiscal autonomy of government
hospitals, particularly the collection of socialized user fees and the corporate restructuring of
government hospitals. The said provision under the HSRA reads:

Provide fiscal autonomy to government hospitals. Government hospitals must be allowed to

collect socialized user fees so they can reduce the dependence on direct subsidies from the
government. Their critical capacities like diagnostic equipment, laboratory facilities and medical
staff capability must be upgraded to effectively exercise fiscal autonomy. Such investment must
be cognizant of complimentary capacity provided by public-private networks. Moreover such
capacities will allow government hospitals to supplement priority public health programs.
Appropriate institutional arrangement must be introduced such as allowing them autonomy
towards converting them into government corporations without compromising their social
responsibilities. As a result, government hospitals are expected to be more competitive and
responsive to health needs.

Petitioners also assailed the issuance of a draft administrative order issued by the DOH, dated
5 January 2001, entitled "Guidelines and Procedure in the Implementation of the Corporate
Restructuring of Selected DOH Hospitals to Achieve Fiscal Autonomy, and Managerial
Flexibility to Start by January 2001;"3 and Administrative Order No. 172 of the DOH, entitled
"Policies and Guidelines on the Private Practice of Medical and Paramedical Professionals in
Government Health Facilities,"4 dated 9 January 2001, for imposing an added burden to indigent
Filipinos, who cannot afford to pay for medicine and medical services.5
Petitioners alleged that the implementation of the aforementioned reforms had resulted in
making free medicine and free medical services inaccessible to economically disadvantaged
Filipinos. Thus, they alleged that the HSRA is void for being in violation of the following
constitutional provisions:6

ART. III, SEC. 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 law.

ART II, SEC. 5. The maintenance of peace and order, the protection of life, liberty, and property,
and the promotion of the general welfare are essential for the enjoyment of all the people of the
blessings of democracy.

ART II, SEC. 9. The State shall promote a just and dynamic social order that will ensure the
prosperity and independence of the nation and free the people from poverty through policies
that provide adequate social services, promote full employment, a rising standard of living and
an improved quality of life for all.

ART II, SEC. 10. The State shall promote social justice in all phases of national development.

ART II, SEC. 11. The State values the dignity of every human person and guarantees full
respect for human rights.

ART II, SEC. 13. The State recognizes the vital role of the youth in nation-building and shall
promote and protect their physical, moral, spiritual, intellectual and social well-being x x x.

ART II, SEC. 18. The State affirms labor as a primary social economic force. It shall protect the
rights of workers and promote their welfare.

ART XV, SEC. 1. The State recognizes the Filipino family as the foundation of the nation.
Accordingly, it shall strengthen its solidarity and actively promote its total development.

ART XV, SEC. 3. The State shall defend:

xxxx

(2) the right of children to assistance, including proper care and nutrition, and special protection
from all forms of neglect, abuse, cruelty, exploitation and other conditions prejudicial to their
development.

xxxx

ART XIII, SEC. 14. The State shall protect working women by providing safe and healthful
working conditions, taking into account their maternal functions, and such facilities and
opportunities that will enhance their welfare and enable them to realize their full potential in the
service of the nation.

ART II, SEC. 15. The State shall protect and promote the right to health of the people and instill
health consciousness among them.

ART XIII, SEC. 11. The State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and other social services
available to all people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women, and children. The State shall endeavor to
provide free medical care to paupers.

EXECUTIVE ORDER NO. 102

On 24 May 1999, then President Joseph Ejercito Estrada issued Executive Order No. 102,
entitled "Redirecting the Functions and Operations of the Department of Health," which provided
for the changes in the roles, functions, and organizational processes of the DOH. Under the
assailed executive order, the DOH refocused its mandate from being the sole provider of health
services to being a provider of specific health services and technical assistance, as a result of
the devolution of basic services to local government units. The provisions for the streamlining of
the DOH and the deployment of DOH personnel to regional offices and hospitals read:

Sec. 4. Preparation of a Rationalization and Streamlining Plan. In view of the functional and
operational redirection in the DOH, and to effect efficiency and effectiveness in its activities, the
Department shall prepare a Rationalization and Streamlining Plan (RSP) which shall be the
basis of the intended changes. The RSP shall contain the following:
 a) the specific shift in policy directions, functions, programs and activities/strategies;

b) the structural and organizational shift, stating the specific functions and activities by
organizational unit and the relationship of each units;

c) the staffing shift, highlighting and itemizing the existing filled and unfilled positions;
and

d) the resource allocation shift, specifying the effects of the streamline set-up on the
agency budgetary allocation and indicating where possible, savings have been
generated.

The RSP shall [be] submitted to the Department of Budget and Management for approval
before the corresponding shifts shall be affected (sic) by the DOH Secretary.

Sec. 5. Redeployment of Personnel. The redeployment of officials and other personnel on the
basis of the approved RSP shall not result in diminution in rank and compensation of existing
personnel. It shall take into account all pertinent Civil Service laws and rules.

Section 6. Funding. The financial resources needed to implement the Rationalization and
Streamlining Plan shall be taken from funds available in the DOH, provided that the total
requirements for the implementation of the revised staffing pattern shall not exceed available
funds for Personnel Services.

Section 7. Separation Benefits. Personnel who opt to be separated from the service as a
consequence of the implementation of this Executive Order shall be entitled to the benefits
under existing laws. In the case of those who are not covered by existing laws, they shall be
entitled to separation benefits equivalent to one month basic salary for every year of service or
proportionate share thereof in addition to the terminal fee benefits to which he/she is entitled
under existing laws.

Executive Order No. 102 was enacted pursuant to Section 17 of the Local Government Code
(Republic Act No. 7160), which provided for the devolution to the local government units of
basic services and facilities, as well as specific health-related functions and responsibilities. 7

Petitioners contended that a law, such as Executive Order No. 102, which effects the
reorganization of the DOH, should be enacted by Congress in the exercise of its legislative
function. They argued that Executive Order No. 102 is void, having been issued in excess of the
President’s authority.8

Moreover, petitioners averred that the implementation of the Rationalization and Streamlining
Plan (RSP) was not in accordance with law. The RSP was allegedly implemented even before
the Department of Budget and Management (DBM) approved it. They also maintained that the
Office of the President should have issued an administrative order to carry out the streamlining,
but that it failed to do so.9

Furthermore, petitioners Elsa O. Guevarra, Arcadio B. Gonzales, Jose G. Galang, Domingo P.

Manay, Eduardo P. Galope, Remedios M. Ysmael, Alfredo U. Bacuñata and Edgardo J.
Damicog, all DOH employees, assailed the validity of Executive Order No. 102 on the ground
that they were likely to lose their jobs, and that some of them were suffering from the
inconvenience of having to travel a longer distance to get to their new place of work, while other
DOH employees had to relocate to far-flung areas. 10

Petitioners also pointed out several errors in the implementation of the RSP. Certain employees
allegedly suffered diminution of compensation,11 while others were supposedly assigned to
positions for which they were neither qualified nor suited. 12 In addition, new employees were
purportedly hired by the DOH and appointed to positions for which they were not qualified,
despite the fact that the objective of the ongoing streamlining was to cut back on costs. 13 It was
also averred that DOH employees were deployed or transferred even during the three-month
period before the national and local elections in May 2001, 14 in violation of Section 2 of the
Republic Act No. 7305, also known as "Magna Carta for Public Health Workers." 15 Petitioners,
however, failed to identify the DOH employees referred to above, much less include them as
parties to the petition.

The Court of Appeals denied the petition due to a number of procedural defects, which proved
fatal: 1) Petitioners failed to show capacity or authority to sign the certification of non-forum
shopping and the verification; 2) Petitioners failed to show any particularized interest for
bringing the suit, nor any direct or personal injury sustained or were in the immediate danger of
sustaining; 3) the Petition, brought before the Supreme Court on 15 August 1999, was filed out
of time, or beyond 60 days from the time the reorganization methods were implemented in
2000; and 4) certiorari, Prohibition and Mandamus will not lie where the President, in issuing the
assailed Executive Order, was not acting as a tribunal, board or officer exercising judicial or
quasi-judicial functions.

In resolving the substantial issues of the case, the Court of Appeals ruled that the HSRA cannot
be declared void for violating Sections 5, 9, 10, 11, 13, 15, 18 of Article II; Section 1 of Article III;
Sections 11 and 14 of Article XIII; and Sections 1 and 3(2) of Article XV, all of the 1987
Constitution, which directly or indirectly pertain to the duty of the State to protect and promote
the people’s right to health and well-being. It reasoned that the aforementioned provisions of the
Constitution are not self-executing; they are not judicially enforceable constitutional rights and
can only provide guidelines for legislation.

Moreover, the Court of Appeals held that the petitioners’ assertion that Executive Order No. 102
is detrimental to the health of the people cannot be made a justiciable issue. The question of
whether the HSRA will bring about the development or disintegration of the health sector is
within the realm of the political department.

Furthermore, the Court of Appeals decreed that the President was empowered to issue
Executive Order No. 102, in accordance with Section 17 Article VII of the 1987 Constitution. It
also declared that the DOH did not implement Executive Order No. 102 in bad faith or with
grave abuse of discretion, as alleged by the petitioners, as the DOH issued Department Circular
No. 275-C, Series of 2000, which created the different committees tasked with the
implementation of the RSP, only after both the DBM and Presidential Committee on Effective
Governance (PCEG) approved the RSP on 8 July 2000 and 17 July 2000, respectively. 1avvphi1

Petitioners filed with the Court of Appeals a Motion for Reconsideration of the Decision
rendered on 26 November 2004, but the same was denied in a Resolution dated 7 March 2005.

Hence, the present petition, where the following issues are raised:

I.

THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST ERROR IN

RULING THAT ANY QUESTION ON THE WISDOM AND EFFICACY OF THE HEALTH
SECTOR REFORM AGENDA IS NOT A JUSTICIABLE CONTROVERSY AND THAT
THE CONSTITUTIONAL PROVISIONS PROTECTING THE HEALTH OF THE
FILIPINO PEOPLE ARE NOT JUDICIALLY ENFORCEABLE;

II.

THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST ERROR IN

RULING THAT PETITIONERS’ COMPLAINT THAT EXECUTIVE ORDER NO. 102 IS
DETRIMENTAL TO THE FILIPINO IS LIKEWISE NOT A JUSTICIABLE
CONTROVERSY AND THAT THE PRESIDENT HAS THE AUTHORITY TO ISSUE
SAID ORDER; AND

III.

THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST ERROR IN

UPHOLDING TECHNICALITIES OVER AND ABOVE THE ISSUES OF
TRANSCENDENTAL IMPORTANCE RAISED IN THE PETITION BELOW. 16

The Court finds the present petition to be without merit.

Petitioners allege that the HSRA should be declared void, since it runs counter to the aspiration
and ideals of the Filipino people as embodied in the Constitution. 17 They claim that the HSRA’s
policies of fiscal autonomy, income generation, and revenue enhancement violate Sections 5, 9,
10, 11, 13, 15 and 18 of Article II, Section 1 of Article III; Sections 11 and 14 of Article XIII; and
Sections 1 and 3 of Article XV of the 1987 Constitution. Such policies allegedly resulted in
making inaccessible free medicine and free medical services. This contention is unfounded.

As a general rule, the provisions of the Constitution are considered self-executing, and do not
require future legislation for their enforcement. For if they are not treated as self-executing, the
mandate of the fundamental law can be easily nullified by the inaction of Congress. 18 However,
some provisions have already been categorically declared by this Court as non self-executing.

In Tanada v. Angara,19 the Court specifically set apart the sections found under Article II of the
1987 Constitution as non self-executing and ruled that such broad principles need legislative
enactments before they can be implemented:

By its very title, Article II of the Constitution is a "declaration of principles and state policies." x x
x. These principles in Article II are not intended to be self-executing principles ready for
enforcement through the courts. They are used by the judiciary as aids or as guides in the
exercise of its power of judicial review, and by the legislature in its enactment of laws.

In Basco v. Philippine Amusement and Gaming Corporation, 20 this Court declared that Sections
11, 12, and 13 of Article II; Section 13 of Article XIII; and Section 2 of Article XIV of the 1987
Constitution are not self-executing provisions. In Tolentino v. Secretary of Finance, 21 the Court
referred to Section 1 of Article XIII and Section 2 of Article XIV of the Constitution as moral
incentives to legislation, not as judicially enforceable rights. These provisions, which merely lay
down a general principle, are distinguished from other constitutional provisions as non self-
executing and, therefore, cannot give rise to a cause of action in the courts; they do not embody
judicially enforceable constitutional rights.22

Some of the constitutional provisions invoked in the present case were taken from Article II of
the Constitution -- specifically, Sections 5, 9, 10, 11, 13, 15 and 18 -- the provisions of which the
Court categorically ruled to be non self-executing in the aforecited case of Tañada v. Angara. 23

Moreover, the records are devoid of any explanation of how the HSRA supposedly violated the
equal protection and due process clauses that are embodied in Section 1 of Article III of the
Constitution. There were no allegations of discrimination or of the lack of due process in
connection with the HSRA. Since they failed to substantiate how these constitutional
guarantees were breached, petitioners are unsuccessful in establishing the relevance of this
provision to the petition, and consequently, in annulling the HSRA.

In the remaining provisions, Sections 11 and 14 of Article XIII and Sections 1 and 3 of Article
XV, the State accords recognition to the protection of working women and the provision for safe
and healthful working conditions; to the adoption of an integrated and comprehensive approach
to health; to the Filipino family; and to the right of children to assistance and special protection,
including proper care and nutrition. Like the provisions that were declared as non self-executory
in the cases of Basco v. Philippine Amusement and Gaming Corporation 24 and Tolentino v.
Secretary of Finance,25 they are mere statements of principles and policies. As such, they are
mere directives addressed to the executive and the legislative departments. If unheeded, the
remedy will not lie with the courts; but rather, the electorate’s displeasure may be manifested in
their votes.

The rationale for this is given by Justice Dante Tinga in his Separate Opinion in the case of
Agabon v. National Labor Relations Commission26 :

x x x However, to declare that the constitutional provisions are enough to guarantee the full
exercise of the rights embodied therein, and the realization of the ideals therein expressed,
would be impractical, if not unrealistic. The espousal of such view presents the dangerous
tendency of being overbroad and exaggerated. x x x Subsequent legislation is still needed to
define the parameters of these guaranteed rights. x x x Without specific and pertinent
legislation, judicial bodies will be at a loss, formulating their own conclusion to approximate at
least the aims of the Constitution.

The HSRA cannot be nullified based solely on petitioners’ bare allegations that it violates the
general principles expressed in the non self-executing provisions they cite herein. There are two
reasons for denying a cause of action to an alleged infringement of broad constitutional
principles: basic considerations of due process and the limitations of judicial power. 27

Petitioners also claim that Executive Order No. 102 is void on the ground that it was issued by
the President in excess of his authority. They maintain that the structural and functional
reorganization of the DOH is an exercise of legislative functions, which the President usurped
when he issued Executive Order No. 102.28 This line of argument is without basis.

This Court has already ruled in a number of cases that the President may, by executive or
administrative order, direct the reorganization of government entities under the Executive
Department.29 This is also sanctioned under the Constitution, as well as other statutes.

Section 17, Article VII of the 1987 Constitution, clearly states: "[T]he president shall have control
of all executive departments, bureaus and offices." Section 31, Book III, Chapter 10 of
Executive Order No. 292, also known as the Administrative Code of 1987 reads:

SEC. 31. Continuing Authority of the President to Reorganize his Office - The President, subject
to the policy in the Executive Office and in order to achieve simplicity, economy and efficiency,
shall have continuing authority to reorganize the administrative structure of the Office of the
President. For this purpose, he may take any of the following actions:

(1) Restructure the internal organization of the Office of the President Proper, including
the immediate offices, the Presidential Special Assistants/Advisers System and the
 Common Staff Support System, by abolishing consolidating or merging units thereof or
transferring functions from one unit to another;

(2) Transfer any function under the Office of the President to any other Department or
Agency as well as transfer functions to the Office of the President from other
Departments or Agencies; and

(3) Transfer any agency under the Office of the President to any other department or
agency as well as transfer agencies to the Office of the President from other
Departments or agencies.

In Domingo v. Zamora,30 this Court explained the rationale behind the President’s continuing
authority under the Administrative Code to reorganize the administrative structure of the Office
of the President. The law grants the President the power to reorganize the Office of the
President in recognition of the recurring need of every President to reorganize his or her office
"to achieve simplicity, economy and efficiency." To remain effective and efficient, it must be
capable of being shaped and reshaped by the President in the manner the Chief Executive
deems fit to carry out presidential directives and policies.

The Administrative Code provides that the Office of the President consists of the Office of the
President Proper and the agencies under it.31 The agencies under the Office of the President
are identified in Section 23, Chapter 8, Title II of the Administrative Code:

Sec. 23. The Agencies under the Office of the President.—The agencies under the Office of the
President refer to those offices placed under the chairmanship of the President, those under the
supervision and control of the President, those under the administrative supervision of the
Office of the President, those attached to it for policy and program coordination, and those that
are not placed by law or order creating them under any specific department. (Emphasis
provided.)

Section 2(4) of the Introductory Provisions of the Administrative Code defines the term "agency
of the government" as follows:

Agency of the Government refers to any of the various units of the Government, including a
department, bureau, office, instrumentality, or government-owned or controlled corporation, or a
local government or a distinct unit therein.

Furthermore, the DOH is among the cabinet-level departments enumerated under Book IV of
the Administrative Code, mainly tasked with the functional distribution of the work of the
President.32 Indubitably, the DOH is an agency which is under the supervision and control of the
President and, thus, part of the Office of the President. Consequently, Section 31, Book III,
Chapter 10 of the Administrative Code, granting the President the continued authority to
reorganize the Office of the President, extends to the DOH.

The power of the President to reorganize the executive department is likewise recognized in
general appropriations laws. As early as 1993, Sections 48 and 62 of Republic Act No. 7645,
the "General Appropriations Act for Fiscal Year 1993," already contained a provision stating
that:

Sec. 48. Scaling Down and Phase Out of Activities Within the Executive Branch.—The heads of
departments, bureaus and offices and agencies are hereby directed to identify their respective
activities which are no longer essential in the delivery of public services and which may be
scaled down, phased out, or abolished, subject to civil service rules and regulations. x x x.
Actual scaling down, phasing out, or abolition of activities shall be effected pursuant to Circulars
or Orders issued for the purpose by the Office of the President. (Emphasis provided.)

Sec. 62. Unauthorized Organizational Changes. Unless otherwise created by law or directed by
the President of the Philippines, no organizational unit or changes in key positions in any
department or agency shall be authorized in their respective organizational structures and be
funded form appropriations by this Act.

Again, in the year when Executive Order No. 102 was issued, "The General Appropriations Act
of Fiscal Year 1999" (Republic Act No. 8745) conceded to the President the power to make any
changes in any of the key positions and organizational units in the executive department thus:

Sec. 77. Organized Changes. Unless otherwise provided by law or directed by the President of
the Philippines, no changes in key positions or organizational units in any department or agency
shall be authorized in their respective organizational structures and funded from appropriations
provided by this Act.
Clearly, Executive Order No. 102 is well within the constitutional power of the President to
issue. The President did not usurp any legislative prerogative in issuing Executive Order No.
102. It is an exercise of the President’s constitutional power of control over the executive
department, supported by the provisions of the Administrative Code, recognized by other
statutes, and consistently affirmed by this Court.

Petitioners also pointed out several flaws in the implementation of Executive Order No. 102,
particularly the RSP. However, these contentions are without merit and are insufficient to
invalidate the executive order.

The RSP was allegedly implemented even before the DBM approved it. The facts show
otherwise. It was only after the DBM approved the Notice of Organization, Staffing and
Compensation Action on 8 July 2000,33 and after the Presidential Committee on Effective
Governance (PCEG) issued on 17 July 2000 Memorandum Circular No. 62, 34 approving the
RSP, that then DOH Secretary Alberto G. Romualdez issued on 28 July 2000 Department
Circular No. 275-C, Series of 2000, 35 creating the different committees to implement the RSP.

Petitioners also maintain that the Office of the President should have issued an administrative
order to carry out the streamlining, but that it failed to do so. Such objection cannot be given any
weight considering that the acts of the DOH Secretary, as an alter ego of the President, are
presumed to be the acts of the President. The members of the Cabinet are subject at all times
to the disposition of the President since they are merely his alter egos. 36 Thus, their acts,
performed and promulgated in the regular course of business, are, unless disapproved by the
President, presumptively acts of the President. 37 Significantly, the acts of the DOH Secretary
were clearly authorized by the President, who, thru the PCEG, issued the aforementioned
Memorandum Circular No. 62, sanctioning the implementation of the RSP.

Petitioners Elsa Odonzo Guevarra, Arcadio B. Gonzales, Jose G. Galang, Domingo P. Manay,
Eduardo P. Galope, Remedios M. Ysmael, Alfredo U. Bacuñata, and Edgardo Damicog, all
DOH employees, assailed the validity of Executive Order No. 102 on the ground that they were
likely to lose their jobs, and that some of them were suffering from the inconvenience of having
to travel a longer distance to get to their new place of work, while other DOH employees had to
relocate to far-flung areas.

In several cases, this Court regarded reorganizations of government units or departments as

valid, for so long as they are pursued in good faith—that is, for the purpose of economy or to
make bureaucracy more efficient.38 On the other hand, if the reorganization is done for the
purpose of defeating security of tenure or for ill-motivated political purposes, any abolition of
position would be invalid. None of these circumstances are applicable since none of the
petitioners were removed from public service, nor did they identify any action taken by the DOH
that would unquestionably result in their dismissal. The reorganization that was pursued in the
present case was made in good faith. The RSP was clearly designed to improve the efficiency
of the department and to implement the provisions of the Local Government Code on the
devolution of health services to local governments. While this Court recognizes the
inconvenience suffered by public servants in their deployment to distant areas, the executive
department’s finding of a need to make health services available to these areas and to make
delivery of health services more efficient and more compelling is far from being unreasonable or
arbitrary, a determination which is well within its authority. In all, this Court finds petitioners’
contentions to be insufficient to invalidate Executive Order No. 102.

Without identifying the DOH employees concerned, much less including them as parties to the
petition, petitioners went on identifying several errors in the implementation of Executive Order
No. 102. First, they alleged that unidentified DOH employees suffered from a diminution of
compensation by virtue of the provision on Salaries and Benefits found in Department Circular
No. 312, Series of 2000, issued on 23 October 2000, which reads:

2. Any employee who was matched to a position with lower salary grade (SG) shall not suffer a
reduction in salary except where his/her current salary is higher than the maximum step of the
SG of the new position, in which case he/she shall be paid the salary corresponding to the
maximum step of the SG of the new position. RATA shall no longer be received, if employee
was matched to a Non-Division Chief Position.

Incidentally, the petition shows that none of the petitioners, who are working in the DOH, were
entitled to receive RATA at the time the petition was filed. Nor was it alleged that they suffered
any diminution of compensation. Secondly, it was claimed that certain unnamed DOH
employees were matched with unidentified positions for which they were supposedly neither
qualified nor suited. New employees, again unnamed and not included as parties, were hired by
the DOH and appointed to unidentified positions for which they were purportedly not qualified,
despite the fact that the objective of the ongoing streamlining was to cut back on costs. Lastly,
unspecified DOH employees were deployed or transferred during the three-month period before
the national and local elections in May 2001, in violation of Section 2 of the Republic Act No.
7305, also known as "Magna Carta for Public Health Workers."
Petitioners’ allegations are too general and unsubstantiated by the records for the Court to pass
upon. The persons involved are not identified, details of their appointments and transfers – such
as position, salary grade, and the date they were appointed - are not given; and the
circumstances which attended the alleged violations are not specified.

Even granting that these alleged errors were adequately proven by the petitioners, they would
still not invalidate Executive Order No. 102. Any serious legal errors in laying down the
compensation of the DOH employees concerned can only invalidate the pertinent provisions of
Department Circular No. 312, Series of 2000. Likewise, any questionable appointments or
transfers are properly addressed by an appeal process provided under Administrative Order No.
94, series of 2000;39 and if the appeal is meritorious, such appointment or transfer may be
invalidated. The validity of Executive Order No. 102 would, nevertheless, remain unaffected.
Settled is the rule that courts are not at liberty to declare statutes invalid, although they may be
abused or misabused, and may afford an opportunity for abuse in the manner of application.
The validity of a statute or ordinance is to be determined from its general purpose and its
efficiency to accomplish the end desired, not from its effects in a particular case. 40

In a number of cases,41 the Court upheld the standing of citizens who filed suits, wherein the
"transcendental importance" of the constitutional question justified the granting of relief. In spite
of these rulings, the Court, in Domingo v. Carague, 42 dismissed the petition when petitioners
therein failed to show any present substantial interest. It demonstrated how even in the cases in
which the Court declared that the matter of the case was of transcendental importance, the
petitioners must be able to assert substantial interest. Present substantial interest, which will
enable a party to question the validity of the law, requires that a party sustained or will sustain
direct injury as a result of its enforcement.43 It is distinguished from a mere expectancy or future,
contingent, subordinate, or inconsequential interest. 44

In the same way, the Court, in Telecommunications & Broadcast Attorneys of the Philippines,
Inc. v. Comelec,45 ruled that a citizen is allowed to raise a constitutional question only when he
can show that he has personally suffered some actual or threatened injury as a result of the
allegedly illegal conduct of the government; the injury is fairly traceable to the challenged action;
and the injury is likely to be redressed by a favorable action. This case likewise stressed that
the rule on constitutional questions which are of transcendental importance cannot be invoked
where a party’s substantive claim is without merit. Thus, a party’s standing is determined by the
substantive merit of his case or a preliminary estimate thereof. After a careful scrutiny of the
petitioners’ substantive claims, this Court finds that the petitioners miserably failed to show any
merit to their claims.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the
assailed Decision of the Court of Appeals, promulgated on 26 November 2004, declaring both
the HSRA and Executive Order No. 102 as valid. No costs.

SO ORDERED.
 EN BANC

G.R. No. 72873 May 28, 1987

CARLOS ALONZO and CASIMIRA ALONZO, petitioners,

vs.
INTERMEDIATE APPELLATE COURT and TECLA PADUA, respondents.

Perpetuo L.B. Alonzo for petitioners.

Luis R. Reyes for private respondent.

CRUZ, J.:

The question is sometimes asked, in serious inquiry or in curious conjecture, whether we are a
court of law or a court of justice. Do we apply the law even if it is unjust or do we administer
justice even against the law? Thus queried, we do not equivocate. The answer is that we do
neither because we are a court both of law and of justice. We apply the law with justice for that
is our mission and purpose in the scheme of our Republic. This case is an illustration.

Five brothers and sisters inherited in equal pro indiviso shares a parcel of land registered in 'the
name of their deceased parents under OCT No. 10977 of the Registry of Deeds of Tarlac. 1

On March 15, 1963, one of them, Celestino Padua, transferred his undivided share of the herein petitioners for the sum of P550.00 by
way of absolute sale. 2 One year later, on April 22, 1964, Eustaquia Padua, his sister, sold her own share to the same vendees, in an
instrument denominated "Con Pacto de Retro Sale," for the sum of P 440.00. 3

By virtue of such agreements, the petitioners occupied, after the said sales, an area
corresponding to two-fifths of the said lot, representing the portions sold to them. The vendees
subsequently enclosed the same with a fence. In 1975, with their consent, their son Eduardo
Alonzo and his wife built a semi-concrete house on a part of the enclosed area. 4

On February 25, 1976, Mariano Padua, one of the five coheirs, sought to redeem the area sold
to the spouses Alonzo, but his complaint was dismissed when it appeared that he was an
American citizen .  On May 27, 1977, however, Tecla Padua, another co-heir, filed her own
5

complaint invoking the same right of redemption claimed by her brother.  6

The trial court * also dismiss this complaint, now on the ground that the right had lapsed, not having been exercised within thirty
days from notice of the sales in 1963 and 1964. Although there was no written notice, it was held that actual knowledge of the sales by
the co-heirs satisfied the requirement of the law. 7

In truth, such actual notice as acquired by the co-heirs cannot be plausibly denied. The other
co-heirs, including Tecla Padua, lived on the same lot, which consisted of only 604 square
meters, including the portions sold to the petitioners .   Eustaquia herself, who had sold her
8

portion, was staying in the same house with her sister Tecla, who later claimed redemption
petition.   Moreover, the petitioners and the private respondents were close friends and
9

neighbors whose children went to school together. 10

It is highly improbable that the other co-heirs were unaware of the sales and that they thought, as they alleged, that the area occupied
by the petitioners had merely been mortgaged by Celestino and Eustaquia. In the circumstances just narrated, it was impossible for
Tecla not to know that the area occupied by the petitioners had been purchased by them from the other. co-heirs. Especially
significant was the erection thereon of the permanent semi-concrete structure by the petitioners' son, which was done without
objection on her part or of any of the other co-heirs.

The only real question in this case, therefore, is the correct interpretation and application of the
pertinent law as invoked, interestingly enough, by both the petitioners and the private
respondents. This is Article 1088 of the Civil Code, providing as follows:

Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before
the partition, any or all of the co-heirs may be subrogated to the rights of the
purchaser by reimbursing him for the price of the sale, provided they do so
within the period of one month from the time they were notified in writing of the
sale by the vendor.

In reversing the trial court, the respondent court ** declared that the notice required by the said article
was written notice and that actual notice would not suffice as a substitute. Citing the same case of De Conejero v. Court of
Appeals 11 applied by the trial court, the respondent court held that that decision, interpreting a like rule in Article 1623, stressed the
need for written notice although no particular form was required.
Thus, according to Justice J.B.L. Reyes, who was the ponente of the Court, furnishing the co-
heirs with a copy of the deed of sale of the property subject to redemption would satisfy the
requirement for written notice. "So long, therefore, as the latter (i.e., the redemptioner) is
informed in writing of the sale and the particulars thereof," he declared, "the thirty days for
redemption start running. "

In the earlier decision of Butte v. UY, 12 " the Court, speaking through the same learned jurist, emphasized that the
written notice should be given by the vendor and not the vendees, conformably to a similar requirement under Article 1623, reading as
follows:

Art. 1623. The right of legal pre-emption or redemption shall not be exercised
except within thirty days from the notice in writing by the prospective vendor, or
by the vendors, as the case may be. The deed of sale shall not be recorded in
the Registry of Property, unless accompanied by an affidavit of the vendor that
he has given written notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of the adjoining owners.

As "it is thus apparent that the Philippine legislature in Article 1623 deliberately selected a
particular method of giving notice, and that notice must be deemed exclusive," the Court held
that notice given by the vendees and not the vendor would not toll the running of the 30-day
period.

The petition before us appears to be an illustration of the Holmes dictum that "hard cases make
bad laws" as the petitioners obviously cannot argue against the fact that there was really no
written notice given by the vendors to their co-heirs. Strictly applied and interpreted, Article 1088
can lead to only one conclusion, to wit, that in view of such deficiency, the 30 day period for
redemption had not begun to run, much less expired in 1977.

But as has also been aptly observed, we test a law by its results; and likewise, we may add, by
its purposes. It is a cardinal rule that, in seeking the meaning of the law, the first concern of the
judge should be to discover in its provisions the in tent of the lawmaker. Unquestionably, the law
should never be interpreted in such a way as to cause injustice as this is never within the
legislative intent. An indispensable part of that intent, in fact, for we presume the good motives
of the legislature, is to render justice.

Thus, we interpret and apply the law not independently of but in consonance with justice. Law
and justice are inseparable, and we must keep them so. To be sure, there are some laws that,
while generally valid, may seem arbitrary when applied in a particular case because of its
peculiar circumstances. In such a situation, we are not bound, because only of our nature and
functions, to apply them just the same, in slavish obedience to their language. What we do
instead is find a balance between the word and the will, that justice may be done even as the
law is obeyed.

As judges, we are not automatons. We do not and must not unfeelingly apply the law as it is
worded, yielding like robots to the literal command without regard to its cause and
consequence. "Courts are apt to err by sticking too closely to the words of a law," so we are
warned, by Justice Holmes again, "where these words import a policy that goes beyond
them." 13 While we admittedly may not legislate, we nevertheless have the power to interpret the law in such a way as to reflect the
will of the legislature. While we may not read into the law a purpose that is not there, we nevertheless have the right to read out of
it the reason for its enactment. In doing so, we defer not to "the letter that killeth" but to "the spirit that vivifieth," to give effect to the law
maker's will.

The spirit, rather than the letter of a statute determines its construction, hence, a
statute must be read according to its spirit or intent. For what is within the spirit
is within the letter but although it is not within the letter thereof, and that which is
within the letter but not within the spirit is not within the statute. Stated
differently, a thing which is within the intent of the lawmaker is as much within
the statute as if within the letter; and a thing which is within the letter of the
statute is not within the statute unless within the intent of the lawmakers. 14

In requiring written notice, Article 1088 seeks to ensure that the redemptioner is properly notified of the sale and
to indicate the date of such notice as the starting time of the 30-day period of redemption. Considering the
shortness of the period, it is really necessary, as a general rule, to pinpoint the precise date it is supposed to
begin, to obviate any problem of alleged delays, sometimes consisting of only a day or two.

The instant case presents no such problem because the right of redemption was invoked
not days but years after the sales were made in 1963 and 1964. The complaint was filed by
Tecla Padua in 1977, thirteen years after the first sale and fourteen years after the second sale.
The delay invoked by the petitioners extends to more than a decade, assuming of course that
there was a valid notice that tolled the running of the period of redemption.

Was there a valid notice? Granting that the law requires the notice to be written, would such
notice be necessary in this case? Assuming there was a valid notice although it was not in
writing. would there be any question that the 30-day period for redemption had expired long
before the complaint was filed in 1977?

In the face of the established facts, we cannot accept the private respondents' pretense that
they were unaware of the sales made by their brother and sister in 1963 and 1964. By requiring
written proof of such notice, we would be closing our eyes to the obvious truth in favor of their
palpably false claim of ignorance, thus exalting the letter of the law over its purpose. The
purpose is clear enough: to make sure that the redemptioners are duly notified. We are satisfied
that in this case the other brothers and sisters were actually informed, although not in writing, of
the sales made in 1963 and 1964, and that such notice was sufficient.

Now, when did the 30-day period of redemption begin?

While we do not here declare that this period started from the dates of such sales in 1963 and
1964, we do say that sometime between those years and 1976, when the first complaint for
redemption was filed, the other co-heirs were actually informed of the sale and that thereafter
the 30-day period started running and ultimately expired. This could have happened any time
during the interval of thirteen years, when none of the co-heirs made a move to redeem the
properties sold. By 1977, in other words, when Tecla Padua filed her complaint, the right of
redemption had already been extinguished because the period for its exercise had already
expired.

The following doctrine is also worth noting:

While the general rule is, that to charge a party with laches in the assertion of an
alleged right it is essential that he should have knowledge of the facts upon
which he bases his claim, yet if the circumstances were such as should have
induced inquiry, and the means of ascertaining the truth were readily available
upon inquiry, but the party neglects to make it, he will be chargeable with laches,
the same as if he had known the facts. 15

It was the perfectly natural thing for the co-heirs to wonder why the spouses Alonzo, who were not among them, should enclose a
portion of the inherited lot and build thereon a house of strong materials. This definitely was not the act of a temporary possessor or a
mere mortgagee. This certainly looked like an act of ownership. Yet, given this unseemly situation, none of the co-heirs saw fit to
object or at least inquire, to ascertain the facts, which were readily available. It took all of thirteen years before one of them chose to
claim the right of redemption, but then it was already too late.

We realize that in arriving at our conclusion today, we are deviating from the strict letter of the
law, which the respondent court understandably applied pursuant to existing jurisprudence. The
said court acted properly as it had no competence to reverse the doctrines laid down by this
Court in the above-cited cases. In fact, and this should be clearly stressed, we ourselves are not
abandoning the De Conejero and Buttle doctrines. What we are doing simply is adopting an
exception to the general rule, in view of the peculiar circumstances of this case.

The co-heirs in this case were undeniably informed of the sales although no notice in writing
was given them. And there is no doubt either that the 30-day period began and ended during
the 14 years between the sales in question and the filing of the complaint for redemption in
1977, without the co-heirs exercising their right of redemption. These are the justifications for
this exception.

More than twenty centuries ago, Justinian defined justice "as the constant and perpetual wish to
render every one his due." 16 That wish continues to motivate this Court when it assesses the facts and the law in every
case brought to it for decision. Justice is always an essential ingredient of its decisions. Thus when the facts warrants, we interpret the
law in a way that will render justice, presuming that it was the intention of the lawmaker, to begin with, that the law be dispensed with
justice. So we have done in this case.

WHEREFORE, the petition is granted. The decision of the respondent court is REVERSED and
that of the trial court is reinstated, without any pronouncement as to costs. It is so ordered.
 EN BANC

January 12, 2016

G.R. No. 215847

GOV. EXEQUIEL B. JAVIER, Petitioner,

vs.
COMMISSION ON ELECTIONS, CORNELIO P. ALDON, and RAYMUNDO T.
ROQUERO, Respondents.

DECISION

BRION, J.:

This is a petition for certiorari under Rule 65 in relation to Rule 64 of the Rules of Court, filed to
challenge the January 12, 2015 per curiam order of the Commission on
Elections (COMELEC/The Commission) en banc in SPA No. 13-254 (DC).  The Commission
1

granted the petition to disqualify the petitioner Exequiel Javier and to annul his proclamation as
the duly elected governor of Antique.

THE ANTECEDENTS

On December 3, 1985, the Batasang Pambansa enacted the Omnibus Election Code (Election
Code).  Section 261(d) and (e) of this Code prescribe the following elements of coercion as an
2

election offense:

Section 261. Prohibited Acts. - The following shall be guilty of an election offense: x x x

(d) Coercion of subordinates. -

(1) Any public officer, or any officer of any public or private corporation or association,
or any head, superior, or administrator of any religious organization, or any employer or
landowner who coerces or intimidates or compels, or in any manner influence,
directly or indirectly, any of his subordinates or members or parishioners or
employees or house helpers, tenants, overseers, farm helpers, tillers, or lease
holders to aid, campaign or vote for or against any candidate or any aspirant for
the nomination or selection of candidates.

(2) Any public officer or any officer of any commercial, industrial, agricultural, economic
or social enterprise or public or private corporation or association, or any head, superior
or administrator of any religious organization, or any employer or landowner
who dismisses or threatens to dismiss, punishes or threatens to punish by
reducing his salary, wage or compensation, or by demotion, transfer, suspension,
separation, excommunication, ejectment, or causing him annoyance in the performance
of his job or in his membership, any subordinate member or affiliate, parishioner,
employee or house helper, tenant, overseer, farm helper, tiller, or lease holder, for
disobeying or not complying with any of the acts ordered by the former to aid,
campaign or vote for or against any candidate, or any aspirant for the nomination
or selection of candidates.

(e) Threats, intimidation, terrorism, use of fraudulent device or other forms of coercion. - Any
person who, directly or indirectly, threatens, intimidates or actually causes, inflicts or produces
any violence, injury, punishment, damage, loss or disadvantage upon any person or persons or
that of the immediate members of his family, his honor or property, or uses any fraudulent
device or scheme to compel or induce the registration or refraining from registration of any
voter, or the participation in a campaign or refraining or desistance from any campaign, or the
casting of any vote or omission to vote, or any promise of such registration, campaign, vote, or
omission therefrom. (emphases supplied)

Coercion, as an election offense, is punishable by imprisonment of not less than one year but
not more than six years.  Notably, Section 68 of the Election Code provides that the
3

Commission may administratively disqualify a candidate who violates Section 261(d) or (e).

On February 20, 1995, Congress enacted Republic Act No. 7890 amending the definition of
Grave Coercion under the Revised Penal Code.  It increased the penalty for coercion committed
4
in violation of a person’s right to suffrage to prision mayor. Further, Section 3 of R.A. 7890
expressly repealed Section 26, paragraphs (d)(1) and (2) of the Election Code.

On April 3, 2012, COMELEC issued Resolution No. 9385  fixing the calendar of activities for
5

the May 2013 elections. The resolution set the election period from January 13, 2013 until June
12, 2013.

On September 3, 2012, Valderrama Municipal Vice-Mayor Christopher B. Maguad filed an

administrative complaint for Gross Misconduct/Dereliction of Duty and Abuse of Authority
against Valderrama Mayor Mary Joyce U. Roquero (Mayor Roquero). This complaint was
docketed as Administrative Case No. 05-2012.

On November 9, 2012, the Sangguniang Panlalawigan (SP) issued Resolution No. 291-

2012 recommending to Antique Governor Exequiel Javier (Gov. Javier) the preventive
suspension of Mayor Roquero.

On November 21, 2012, Mayor Roquero filed a petition for certiorari and prohibition with prayer
for the issuance of a temporary restraining order (TRO) before the Regional Trial Court (RTC),
Branch 12, Antique, against Gov. Javier and the members of the SP to restrain them from
proceeding with Administrative Case No. 05-2012. The petition was docketed as Special Civil
Action No. 12-11-86.

The case was re-raffled to the RTC, Branch 11 which issued a writ of preliminary injunction.

Gov. Javier, Vice-Governor Dimamay, and the members of the SP filed a petition
for certiorari with urgent prayer for TRO and preliminary injunction before the CA, docketed as
CA-G.R. SP-07307.

On December 18, 2012, COMELEC issued Resolution No. 9581  prohibiting any public official
6

from suspending any elective provincial, city, municipal, or barangay officer during the election
period for the May 13, 2013 elections. This resolution implements Section 261 (x)  of the
7

Election Code.

On January 15, 2013, the CA issued a TRO in CA-G.R. SP-07307.

On January 16, 2013, the RTC, Branch 11 promulgated its judgment granting certiorari and
prohibition. It ordered the SP to cease and desist from further proceeding with Administrative
Case No. 05-2012. It likewise ordered Gov. Javier to refrain from implementing SP Resolution
No. 291-2012 and from preventively suspending Mayor Roquero.

On January 23, 2013, Gov. Javier issued Executive Order No. 003, S. 2013, preventively
suspending Mayor Roquero for thirty (30) days.

On February 7, 2013, the SP of Antique issued a decision finding Mayor Roquero guilty
of Grave Misconduct in relation with Section 3(e) of R. A. 3019, the Anti-Graft and Corrupt
Practices Act, and Grave Abuse of Authority in relation with Section 5(e) of R.A. No. 6713.
The SP suspended her for four (4) months.

Mayor Roquero filed an Election Offense complaint against Gov. Javier for violating Section
261(x) of the Election Code. The case was filed before the COMELEC Law Department and
docketed as Election Offense Case (EOC) No. 13-025.

Meanwhile (or on March 15, 2013), the CA granted the writ of preliminary injunction filed by
Gov. Javier, et al., in CA-G.R. SP-07307. It enjoined Judge Nery Duremdes of the RTC, Branch
11 from conducting further proceedings in SPL Civil Action No. 12-11-86.

On March 22, 2013, private respondents Cornelio P. Aldon (Aldon) and Raymundo T.
Roquero (Roquero) also filed a petition for disqualification before the Commission against Gov.
Javier, Vice-Governor Rosie A. Dimamay, and the other members of the SP. The case was
docketed as COMELEC Special Action (SPA) No. 13-254 (DC.)

Aldon and Roquero sought to disqualify Gov. Javier and the other incumbent officials from
running in the 2013 elections on the ground that the latter committed the election offenses
of Coercion of Subordinates [Sec. 261(d)] and Threats, Intimidation, Terrorism x x x or
Other Forms of Coercion [Sec. 261(e)] by suspending Mayor Roquero. They alleged that the
suspension was political harassment calculated to intimidate the Roqueros into backing out of
the 2013 elections.8

On April 29, 2013, the Clerk of the Commission conducted a conference hearing between the
parties.
On April 30, 2013, Gov. Javier (together with the SP Members) filed a motion to dismiss with
answer ex abundante ad cautelam.

After the May 13, 2013 Elections, only Gov. Javier and SP Members Tobias M. Javier, Edgar D.
Denosta, Teopisto C. Estaris, Jr., and Victor R. Condez were proclaimed winners. Hence, the
Commission considered the disqualification cases against the losing candidates moot.

On October 3, 2014, the COMELEC Second Division issued a resolution in SPA No. 13-254
(DC) disqualifying Gov. Javier and annulling his proclamation as the Governor of Antique. The
resolution was penned by Commissioner Elias R. Yusoph.

The COMELEC held that the preventive suspension of Mayor Roquero under Executive Order
No. 003 violated the election period ban because it was not for the purpose of applying the Anti-
Graft and Corrupt Practices Act. It also considered the Commission’s findings in EOC No. 13-
025 that there was substantial evidence showing that Gov. Javier acted in bad faith when he
suspended Mayor Roquero as a form of punishment for opposing him. 9

The COMELEC ruled that Gov. Javier’s act of preventively suspending Mayor Roquero during
the election period ban fell within the contemplation of Section 261(d) of the Election Code,
which is a ground for disqualification under Section 68. It held that while Section 261(d) of the
Election Code was repealed by Republic Act No. 7890, it did not remove coercion "as a ground
per se for disqualification under [Section] 68." In fact, R.A. 7890 made Coercion (an election
offense) a felony with a higher penalty.  The COMELEC added that the general repealing
10

clause of R.A. No. 7890 cannot impliedly repeal Section 68 because the latter was "not
absolutely and irreconcilably incompatible with Article 286."11

Commissioner Luie Tito F. Guia dissented from the resolution. Commissioner Guia reasoned
that the legal basis to dismiss Gov. Javier no longer exists because Section 3 of Republic Act
No. 7890 had repealed Section 261(d) of the Election Code. Commissioner Arthur D. Lim took
no part in the vote because he did not participate in the deliberations.

With the votes tied at 1-1-1 (one voted to grant, one dissenting, and one not participating), the
case failed to obtain the necessary majority. Consequently on October 14, 2014, the COMELEC
Second Division issued an order elevating the case to the en banc for its disposition. 12

The Commission en banc agreed, as a matter of internal arrangement, to submit their

respective opinions explaining their respective votes or their concurrence with either
Commissioner Yusoph or Commissioner Guia.

Three (3) Commissioners concurred with Commissioner Yusoph: Chairman Sixto Brillantes, Jr.,
Commissioner Lucenito Tagle, and Commissioner Arthur Lim. Commissioner Christian Robert
Lim joined Commissioner Guia’s dissent. Commissioner Al A. Parreño did not participate in the
vote as he was away on official business. Thus, the vote was 4-2-1 in favor of disqualification; in
a per curiam order promulgated on January 12, 2015, the Commission en banc disqualified
Gov. Javier and annulled his proclamation as the governor of Antique.

On January 20, 2015, Gov. Javier filed the present petition for certiorari under Rule 65 in
relation with Rule 64 of the Rules of Court.

THE PETITION

The petitioner argues that the Commission en banc committed grave abuse of discretion
because: (1) its January 12, 2015 order was arrived at on the basis of an "internal arrangement;
and (2) the order did not obtain a majority vote because Commissioner Arthur Lim should not
have been allowed to participate.

The petitioner also asserts that the Commission erred in ruling that R.A. 7890 did not remove
Section 261(d) of the Election Code as a ground for administrative disqualification. Finally, the
petitioner maintains that the Commission unconstitutionally set the Election Period for the May
13, 2013 elections in violation of Article IX-C, Section 9 of the Constitution, Sec. 62 (c) of the
Local Government Code, and Section 8 of Republic Act No. 7056. 13

In its comment on the petition, COMELEC, through the Office of the Solicitor General (OSG),
counters that it did not abuse its discretion in issuing the January 12, 2015 order disqualifying
Gov. Javier. The Commission insists that the procedure observed during the proceedings was
not infirm and that there was no legal impediment for Commissioner Arthur Lim to participate in
the en banc vote.

On the alleged errors of law, the Commission insists that there was legal basis to disqualify
Gov. Javier under both Sections 261 (d) and (e) of the Election Code; the repeal of Section
261(d) by R.A. 7890 did not ipso facto remove coercion as a ground for disqualification under
Section 68 of the Election Code. It added that Section 261(e), on the other hand, has not been
repealed, either expressly or impliedly.

Finally, the Commission asserts that COMELEC Resolution No. 9581 fixing the date of the
election period is expressly authorized by Article IX, Section 9 of the Constitution and Section 8
of Republic Act No. 7056.

Based on these submissions, the following issues now confront the Court:

I.

Whether the Commission gravely abused its discretion when it issued Resolution No. 9581
fixing the 2013 election period from January 13, 2013 until June 12, 2013, for the purpose of
determining administrative and criminal liability for election offenses.

II.

Whether the Commission erred in ruling that R.A. No. 7890 did not remove coercion as a
ground for disqualification under Section 68 of the Election Code.

III.

Whether the Commission en banc committed grave abuse of discretion in issuing its Order
dated January 12, 2015, disqualifying Gov. Javier and annulling his proclamation as the
governor of Antique.

OUR RULING:

After due consideration, we resolve to grant the petition.

The COMELEC is expressly authorized to fix a different date of the election period.

The petitioner contends that the election period for the reckoning of administrative and criminal
liabilities under election laws should always be the same-90 days before and 30 days after an
election-fixed in Article IX-C, Section 9 of the Constitution and Section 8 of Republic Act No.
7056.  He argues that the Commission’s authority to fix the pre-election period refers only to the
14

period needed to properly administer and conduct orderly elections. The petitioner argues that
by extending the period for incurring criminal liability beyond the 90-day period, the Commission
encroached on the legislature’s prerogative to impute criminal and administrative liability
on mala prohibita acts. Therefore, COMELEC Resolution Nos. 9385 and 9581 were issued ultra
vires.

We do not find this argument meritorious.

No less than the Constitution authorizes the Commission to fix the dates of the election period.
Article IX-C, Section 9 provides:

Section 9. Unless otherwise fixed by the Commission in special cases, the election period
shall commence ninety days before the day of election and shall end thirty days thereafter. 15

Congress, through the Election Code, explicitly recognizes this authority:

Sec. 3. Election and campaign periods. – Unless otherwise fixed in special cases by the
Commission on Elections, which hereinafter shall be referred to as the Commission, the
election period shall commence ninety days before the day of the election and shall end thirty
days thereafter.  (emphases supplied)
16

Evidently, the 120-day period is merely the default election period. The Commission is not
precluded from fixing the length and the starting date of the election period to ensure free,
orderly, honest, peaceful, and credible elections. This is not merely a statutory but
a constitutionally granted power of the Commission.

Contrary to the petitioner’s contention, the Commission’s act of fixing the election period does
not amount to an encroachment on legislative prerogative. The Commission did not prescribe or
define the elements of election offenses. Congress already defined them through the Omnibus
Election Code, the Fair Elections Act, and other pertinent election laws.

As defined by Congress, some election offenses and prohibited acts can only be committed
during the election period. An element of these offenses (i.e., that it be committed during the
election period) is variable, as election periods are not affixed to a specific and permanent date.
Nevertheless, the definition of the offense is already complete. By fixing the date of the election
period, the Commission did not change what the offense is or how it is committed. There is thus
no intrusion into the legislative sphere.

There is also no merit in the petitioner’s argument that the extended election period only applies
to pre-election activities other than the determination of administrative or criminal liability for
violating election laws. Neither the law nor the Constitution authorizes the use of two distinct
election periods for the same election. The law does not distinguish between election offenses
and other pre-election activities in terms of the applicable election period. Where the law does
not distinguish, neither should this Court.

The Alleged Lack of Due Process

We find the petitioner’s claim – that the Commission committed grave abuse of discretion since
there was no preliminary investigation as required under Section 265 of the Omnibus Election
Code – to be misplaced. 17

SPA No. 13-254 was an administrative proceeding for disqualification and not a criminal
prosecution of an election offense. The due process requirements and the procedures for these
are not the same. Section 265 of the Election Code only applies to criminal prosecutions.
Disqualification cases are summary in nature and governed by Rule 25 of the COMELEC Rules
of Procedure.

There is likewise no merit in the petitioner’s allegation that he was denied due process because
the Commission adjudicated the issue without conducting any subsequent hearings and without
requiring the submission of position papers or memoranda, notarized witness affidavits, or other
documentary evidence aside from the annexes included in the petition and the answer.

Administrative due process cannot be fully equated with due process in its strict judicial
sense.  A formal hearing is not always necessary and the observance of technical rules of
18

procedure is not strictly applied in administrative proceedings.  The essence of administrative

19

due process is the right to be heard and to be given an opportunity to explain one’s
side.  Where the Commission hears both sides and considers their contentions, the
20

requirements of administrative due process are complied with.

As we held in Lanot v. Commission on Elections: 21

The electoral aspect of a disqualification case determines whether the offender should be
disqualified from being a candidate or from holding office. Proceedings are summary in
character and require only clear preponderance of evidence. An erring candidate may be
disqualified even without prior determination of probable cause in a preliminary investigation.
The electoral aspect may proceed independently of the criminal aspect, and vice versa.

The criminal aspect of a disqualification case determines whether there is probable cause to
charge a candidate for an election offense. The prosecutor is the COMELEC, through its Law
Department, which determines whether probable cause exists. If there is probable cause, the
COMELEC, through its Law Department, files the criminal information before the proper court.
Proceedings before the proper court demand a full-blown hearing and require proof beyond
reasonable doubt to convict. A criminal conviction shall result in the disqualification of the
offender, which may even include disqualification from holding a future public office.

Commissioner Arthur Lim’s Participation in the En Banc Voting

The petitioner further argues that the Commission committed grave abuse of discretion by
allowing Commissioner Arthur D. Lim to participate in the proceedings before the
Commission en banc. The petitioner maintains that because Commissioner Arthur Lim took no
part in the proceedings before the COMELEC Second Division, then he should have inhibited
from the en banc proceedings pursuant to the ruling in Estrella v. COMELEC.  If we disregard
22

Commissioner Arthur Lim’s vote, then the Commission would have failed to attain the necessary
majority vote of all the members of the Commission.

The petitioner’s reliance on Estrella is misplaced because the facts of this case are different
from those of the present case. Estrella involved two related election cases between the same
parties: an election protest and an action for certiorari. One party moved for Commissioner
Lantion’s inhibition which the Commission denied. However, Commissioner Lantion later
inhibited himself from the certiorari proceeding and was substituted by another
Commissioner.  The substitution order was also adopted in the election protest case. When the
23

election protest was elevated to the COMELEC en banc, Commissioner Lantion participated in

the deliberations and voted despite his prior inhibition. This Court granted certiorari and held
that Commissioner Lantion’s piecemeal voluntary inhibition was illegal and unethical.
In the present case, Commissioner Arthur Lim did not inhibit from the proceedings. If the
Commissioner had inhibited, there would have been a need to replace him pursuant to Rule 3,
Section 6 of the COMELEC Rules of Procedure  (as what happened in Estrella where there
24

was an issuance of an order designating Commissioner Borra as Commissioner Lantion’s

substitute). Commissioner Arthur Lim only abstained from voting; he did not participate in the
deliberations. When the Commission en banc, as a matter of internal arrangement, agreed
among themselves to submit their own opinion explaining their respective vote or merely their
concurrence with either Commissioner Elias R. Yusoph or Commissioner Luie Tito F. Guia’s
position on the matter, no legal or ethical impediment existed preventing him (Commissioner
Arthur Lim) from subsequently participating in the deliberations and from casting his vote.

COMELEC’s Internal Arrangement

The petitioner also maintains that the Commission gravely abused its discretion when it set
aside its own rules and resolved the case through an "internal arrangement." He submits that
the Commission should have waited for the assigned ponente to write an opinion before
agreeing to vote based on the positions of Commissioner Yusoph and Commissioner Guia. The
petitioner also claims that the assailed Order is a "midnight decision" and cites the absence of a
promulgation date on the front page and of a certification signed by the Chairman as procedural
infirmities.

The petitioner clearly refers to Rule 18 of the COMELEC Rules of Procedure which states:

Part IV
Rule 18 – Decisions

Sec. 1 Procedure in Making Decisions. – The conclusions of the Commission in any case
submitted to it for decision en banc or in Division shall be reached in consultation before the
case is assigned by raffle to a Member for the writing of the opinion of the Commission or the
Division and a certification to this effect signed by the Chairman or the Presiding Commissioner,
as the case may be, shall be incorporated in the decision. Any member who took no part,
dissented, or abstained from a decision or resolution must state the reason therefor.

Every decision shall express therein clearly and distinctly the facts and the law on which
it is based. (emphasis supplied)

To our mind, the essence of this provision is: (1) that decisions of the Commission, whether in
Division or en banc, must be reached in consultation; and (2) that the decisions must state their
factual and legal bases. Moreover, Rule 18, Section 1 must be read together with the other
provisions of the COMELEC Rules of Procedure, particularly the following related portions:

Rule 1 – Introductory Provisions

Sec. 3. Construction – These rules shall be liberally construed in order to promote the
effective and efficient implementation of the objectives of ensuring the holding of free, orderly,
honest, peaceful and credible elections and to achieve just, expeditious and inexpensive
determination and disposition of every action and proceeding brought before the Commission.

Sec. 4. Suspension of the Rules – In the interest of justice and in order to obtain speedy
disposition of all matters pending before the Commission, these rules or any portion thereof
may be suspended by the Commission.

The COMELEC Rules specifically authorize the Commission to suspend the strict application of
its rules in the interest of justice and the speedy disposition of cases. In this case, the
Commission suspended Rule 18, Section 1. The Commission, as a body, dispensed with the
preparation of another ponencia and opted to vote on the legal positions of Commissioners
Yusoph and Guia. Nevertheless, the decision was evidently reached through consultation. Then
Chairman Sixto Brillantes, Jr., Commissioner Lucenito Tagle, and Commissioner Arthur Lim
concurred with Commissioner Yusoph. Commissioner Christian Robert Lim joined
Commissioner Guia’s dissent. Chairman Brillantes, Jr. and Commissioner Arthur Lim also wrote
separate concurring opinions. The Court does not see any arbitrariness or infirmity in this
internal arrangement that would have deprived the petitioner of due process.

Moreover, the Commission resorted to this arrangement because, as the petitioner pointed out,
three Commissioners were retiring soon. There was a need to resolve the cases because the
impending vacancies would have resulted in further delay. Contrary to the petitioner’s
insinuations, "midnight decisions" are not illegal. Judges and other quasi-judicial officers cannot
sit back, relax, and refuse to do their work just because they are nearing retirement or are near
the end of their term. As civil servants, they are expected to diligently carry out their duties until
their separation from service. Thus, the Commission’s suspension of its rules and use of an
internal arrangement to expedite its internal proceedings is not at all unusual in collegial bodies.
We note that the vote was divided and dissents were filed, thereby indicating the absence of
any malicious departure from the usual procedures in arriving at the Commission’s ruling on the
case.

Absence of a Promulgated Date and Failure to Serve Advance Copy

With respect to the absence of a promulgation date on the first page of the assailed order, this
Court directs the petitioner’s attention to the last page stating that the Order was "Given this
12th day of January 2015, Manila, Philippines.”  Promulgation is the process by which a
25

decision is published, officially announced, made known to the public, or delivered to the clerk
of court for filing, coupled with notice to the parties or their counsel.  The order was evidently
26

promulgated on January 12, 2015.

The Commission does not deny that it failed to serve an advance copy of the order to the
petitioner as required under Rule 18, Section 5  of its Rules. But as we previously held in the
27

cases of Lindo v. COMELEC  and Pimping v. COMELEC,  this kind of procedural lapse does
28 29

not affect the validity of the order and is insufficient to warrant the grant of a writ of certiorari in
the absence of any grave abuse of discretion prejudicing the rights of the parties.

Repeal of Section 261 (d) of Batas Pambansa Blg. 881 by Republic Act No. 7890

No less than the Constitution empowers the Commission to decide all questions affecting
elections except those involving the right to vote.  It is the sole arbiter of all issues involving
30

elections. Hence, unless tainted with grave abuse of discretion, simple errors of judgment
committed by COMELEC cannot be reviewed even by this Court. 31

An error of judgment is one that the court may commit in the exercise of its jurisdiction;  they 32

only involve errors in the court or tribunal’s appreciation of the facts and the law.  An error of
33

jurisdiction is one where the act complained of was issued by the court without or in excess of
its jurisdiction, or with grave abuse of discretion tantamount to lack or excess of jurisdiction. 34

A review of the October 3, 2014 COMELEC Second Division resolution (penned by

Commissioner Yusoph), however, showed that the main thrust of this resolution ‒to which four
Commissioners concurred in when the case was elevated to the en banc – is faulty.  It 35

considered the repeal of Section 261(d) by R.A. No.7890 to be an implied one, which is contrary
to the wordings of R.A. 7890.

For clarity, we reproduce the pertinent provisions of R.A. No. 7890, thus:

SECTION 1. Article 286, Section Three, Chapter Two, Title Nine of Act No. 3815, as amended,
is hereby further amended to read as follows:

“ART. 286. Grave Coercions. – The penalty of prision correccional and a fine not exceeding Six
thousand pesos shall be imposed upon any person who, without any authority of law, shall, by
means of violence, threats or intimidation, prevent another from doing something not prohibited
by law, or compel him to do something against his will, whether it be right or wrong.

“If the coercion be committed in violation of the exercise of the right of suffrage, or for the
purpose of compelling another to perform any religious act, to prevent him from exercising such
right or from so doing such act, the penalty next higher in degree shall be imposed."

SEC. 2. Section 261, Paragraphs (d)(1) and (2), Article XXII of Batas Pambansa Blg. 881 is
hereby repealed.

SEC. 3. All other election laws, decrees, executive orders rules and regulations, or parts thereof
inconsistent with the provisions of this Act are hereby repealed.

xxxx

A repeal may be express or implied.  An express repeal is one wherein a statute declares,
36

usually in its repealing clause, that a particular and specific law, identified by its number or title,
is repealed.  An implied repeal, on the other hand, transpires when a substantial conflict exists
37

between the new and the prior laws. In the absence of an express repeal, a subsequent law
cannot be construed as repealing a prior law unless an irreconcilable inconsistency and
repugnancy exist in the terms of the new and the old laws. 38

In the present case, it is clear that R.A. No. 7890 expressly repealed Section 261, paragraphs
(d)(1) and (2) of the Omnibus Election Code. The COMELEC Second Division’s October 3,
2014 resolution, however, treated this repeal as merely an implied one. Commissioner Yusoph
reasoned out as follows:
Moreover, the general repealing clause in Section 3 of RA 7890 cannot impliedly
repeal Section 68 because the latter is not absolutely and irreconcilably incompatible with
Article 286, as amended by RA 7890. Meaning, a case for disqualification due to coercion under
Section 68 can very well stand apart from the criminal case for coercion under Article 286, as
amended. This is so because Section 68 involves an administrative proceeding intended to
disqualify a candidate whereas Article 286, supra, involves a criminal proceeding intended to
penalize coercion. Both laws, therefore, can be given effect without nullifying the other, hence
the inapplicability of implied repeal.

To firm up our stance against implied repeal of coercion as a ground for disqualification, the
following pronouncements of the Supreme Court are guiding:

“Implied repeal by irreconcilable inconsistency takes place when the two statutes cover the
same subject matter; they are so clearly inconsistent and incompatible with each other that they
cannot be reconciled or harmonized; and both cannot be given effect, that is, that one law
cannot be enforced without nullifying the other."

“Well-settled is the rule is statutory construction that implied repeals are disfavored. In order to

effect a repeal by implication, the latter 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. x x x x" 39

We point out that this resolution and the dissenting opinion of Commissioner Guia became the
basis of the internal arrangement reached upon by the Commission en banc whereby the
commissioners agreed to submit their respective opinions explaining their votes or their
concurrence with either Commissioner Yusoph or Guia.

As earlier stated, the vote was 4-2-1 in favor of disqualification; in a per curiam order
promulgated on January 12, 2015, the Commission en banc disqualified Gov. Javier and
annulled his proclamation as the governor of Antique. Chairman Brillantes and Commissioner
Arthur Lim wrote their own opinions concurring with the position of Commissioner Yusoph, while
Commissioner Tagle submitted his vote concurring with the opinions of Commissioner Yusoph
and Chairman Brillantes.

In his Separate Opinion, Chairman Brillantes agreed with Commissioner Yusoph that the repeal
of Section 261(d) by R.A. No. 7890 was merely implied, and made the following disquisition:

xxxx

The Supreme Court, in a long line of cases, has constantly disfavored and struck down the use
of repeal by implication. Pursuant to jurisprudence, well entrenched is the rule that an implied
repeal is disfavored. The apparently conflicting provisions of a law or two laws should be
harmonized as much as possible, so that each shall be effective. For a law to operate to repeal
another law, the two laws must actually be inconsistent. The former must be so repugnant as to
be irreconcilable with the latter act. Stated plainly, a petition for disqualification on the ground of
coercion shall be taken differently and distinctly from coercion punishable under the RPC for the
two can very well stand independently from each other. x x x Therefore, unless proven that the
two are inconsistent and would render futile the application and enforcement of the other, only
then that a repeal by implication will be preferred. x x x x40

A law that has been expressly repealed ceases to exist and becomes inoperative from the
moment the repealing law becomes effective.  The discussion on implied repeals by the
41

Yusoph resolution, (and the concurring opinion of Chairman Brillantes, Jr.), including the
concomitant discussions on the absence of irreconcilable provisions between the two laws,
were thus misplaced. The harmonization of laws can only be had when the repeal is implied, not
when it is express, as in this case.

The COMELEC’s reasoning that coercion remains to be a ground for disqualification under
Section 68 of the Election Code despite the passage of R.A. No. 7890 is erroneous. To the
point of our being repetitive, R.A. No. 7890 expressly repealed Section 261 d(1) and (2) of
Batas Pambansa Blg. 881, rendering these provisions inoperative. The effect of this repeal is
to remove Section 261(d) from among those listed as ground for disqualification under Section
68 of the Omnibus Election Code.

In his Memorandum/Concurring Opinion, Commissioner Arthur Lim stated that the petition for
disqualification is anchored not only on violation of Section 261 (d), but also on the violation of
Section 261(e) in relation to Section 68 of the OEC. We point out, however, that the COMELEC
Second Division’s October 3, 2014 resolution in SPA No. 13-254 (disqualifying Gov. Javier and
annulling his proclamation as the Governor of Antique) was premised solely on violation of
Section 261(d) of the OEC; it did not find that Gov. Javier – even by substantial evidence -
violated the provisions of Section 261(e). For clarity and accuracy, we quote the pertinent
portions of the COMELEC’s (Second Division) October 3, 2014 resolution:

Ineluctably, the act of Gov. Javier in preventively suspending Mayor Roquero during the
Election period ban falls within the contemplation of Section 261(d) of the Election Code which
is a ground for disqualification under Section 68, Election Code. That is, Gov. Javier issued
Executive Order No. 003 suspending Mayor Roquero to coerce, intimidate, compel, or influence
the latter to collaborate with or campaign for the former, or to punish the latter for having
manifested political opposition against the former. For that, he must be disqualified. 42

With the express repeal of Section 261(d), the basis for disqualifying Javier no longer existed.
As we held in Jalosjos, Jr. v. Commission on Elections,  [t]he jurisdiction of the COMELEC to
43

disqualify candidates is limited to those enumerated in Section 68 of the Omnibus Election

Code. All other election offenses are beyond the ambit of COMELEC jurisdiction. They are
criminal and not administrative in nature.  Pursuant to sections 265 and 268 of the Omnibus
44

Election Code, the power of the COMELEC is confined to the conduct of preliminary
investigation on the alleged election offenses for the purpose of prosecuting the alleged
offenders before the regular courts of justice.45

There is grave abuse of discretion justifying the issuance of the writ of certiorari when there is
such capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction,  where power is exercised arbitrarily or in a despotic manner by reason of passion,
46

prejudice, or personal hostility amounting to an evasion of positive duty, or to virtual refusal to

perform the duty enjoined, or to act at all in contemplation of law, as where the power is
exercised in an arbitrary and despotic manner by reason of passion and hostility. 47

To our mind, the COMELEC gravely abused its discretion when it disqualified Gov. Javier based
on a provision of law that had already been expressly repealed. Its stubborn insistence that R.A.
No. 7890 merely impliedly repealed Section 261 (d) despite the clear wordings of the law,
amounted to an arbitrary and whimsical exercise of judgment.

WHEREFORE, premises considered, we hereby GRANT the petition and SET ASIDE the

January 12, 2015 per curiam order of the Commission on Elections en banc in SPA No. 13-254
(DC).

SO ORDERED.
 EN BANC

G.R. No. 212719, June 25, 2019

INMATES OF THE NEW BILIBID PRISON, MUNTINLUPA CITY, NAMELY:

VENANCIO A. ROXAS, SATURNINO V. PARAS, EDGARDO G. MANUEL,
HERMINILDO V. CRUZ, ALLAN F. TEJADA, ROBERTO C. MARQUEZ, JULITO P.
MONDEJAR, ARMANDO M. CABUANG, JONATHAN O. CRISANTO, EDGAR
ECHENIQUE, JANMARK SARACHO, JOSENEL ALVARAN, AND CRISENCIO
NERI, JR., PETITIONERS, v. SECRETARY LEILA M. DE LIMA, DEPARTMENT
OF JUSTICE; AND SECRETARY MANUEL A. ROXAS II, DEPARTMENT OF THE
INTERIOR AND LOCAL GOVERNMENT, RESPONDENTS.

ATTY. RENE A.V. SAGUISAG, SR., PETITIONER-INTERVENOR,

WILLIAM M. MONTINOLA, FORTUNATO P. VISTO, AND ARESENIO C.

CABANILLA, PETITIONERS-INTERVENORS,

[G.R. No. 214637]

REYNALDO D. EDAGO, PETER R. TORIDA, JIMMY E. ACLAO, WILFREDO V.

OMERES, PASCUA B. GALLADAN, VICTOR M. MACOY, JR., EDWIN C.
TRABUNCON, WILFREDO A. PATERNO, FEDERICO ELLIOT, AND ROMEO R.
MACOLBAS, PETITIONERS, v. SECRETARY LEILA M. DE LIMA, DEPARTMENT
OF JUSTICE; SECRETARY MANUEL A. ROXAS II, DEPARTMENT OF THE
INTERIOR AND LOCAL GOVERNMENT; ACTING DIRECTOR FRANKLIN JESUS
B. BUCAYU, BUREAU OF CORRECTIONS; AND JAIL CHIEF SUPERINTENDENT
DIONY DACANAY MAMARIL, BUREAU OF JAIL MANAGEMENT AND
PENOLOGY, RESPONDENTS.

DECISION

PERALTA, J.:

The sole issue for resolution in these consolidated cases 1 is the legality of Section 4,
Rule 1 of the Implementing Rules and Regulations (IRR) of Republic Act (R.A.) No.
10592,2 which states:

SECTION 4. Prospective Application. - Considering that these Rules provide for new
procedures and standards of behavior for the grant of good conduct time allowance
as provided in Section 4 of Rule V hereof and require the creation of a
Management, Screening and Evaluation Committee (MSEC) as provided in Section 3
of the same Rule, the grant of good conduct time allowance under Republic Act No.
10592 shall be prospective in application.

The grant of time allowance of study, teaching and mentoring and of special time
allowance for loyalty shall also be prospective in application as these privileges are
likewise subject to the management, screening and evaluation of the MSEC. 3
The Case

On May 29, 2013, then President Benigno S. Aquino III signed into law R.A. No.
10592, amending Articles 29, 94, 97, 98 and 99 of Act No. 3815, or the Revised
Penal Code (RPC).4 For reference, the modifications are underscored as follows:
ART. 29. Period of preventive imprisonment deducted from term of imprisonment.
— Offenders or accused who have undergone preventive imprisonment shall be
credited in the service of their sentence consisting of deprivation of liberty, with the
full time during which they have undergone preventive imprisonment if the
detention prisoner agrees voluntarily in writing after being informed of the
effects thereof and with the assistance of counsel to abide by the same
disciplinary rules imposed upon convicted prisoners, except in the following cases:

1. When they are recidivists, or have been convicted previously twice or more times
of any crime; and

2. When upon being summoned for the execution of their sentence they have failed
to surrender voluntarily.

If the detention prisoner does not agree to abide by the same disciplinary rules
imposed upon convicted prisoners, he shall do so in writing with the assistance
of a counsel and shall be credited in the service of his sentence with four-fifths of
the time during which he has undergone preventive imprisonment.

Credit for preventive imprisonment for the penalty of reclusion

perpetua shall be deducted from thirty (30) years.

Whenever an accused has undergone preventive imprisonment for a period equal to

the possible maximum imprisonment of the offense charged to which he may be
sentenced and his case is not yet terminated, he shall be released immediately
without prejudice to the continuation of the trial thereof or the proceeding on
appeal, if the same is under review. Computation of preventive imprisonment
for purposes of immediate release under this paragraph shall be the actual
period of detention with good conduct time allowance:  Provided, however,
That if the accused is absent without justifiable cause at any stage of the
trial, the court may motu proprio order the rearrest of the
accused: Provided, finally, That recidivists, habitual delinquents, escapees
and persons charged with heinous crimes are excluded from the coverage
of this Act. In case the maximum penalty to which the accused may be sentenced
is destierro, he shall be released after thirty (30) days of preventive imprisonment.

ART. 94. Partial extinction of criminal liability — Criminal liability is extinguished

partially:

1. By conditional pardon;

2. By commutation of the sentence; and

3. For good conduct allowances which the culprit may earn while he is undergoing
preventive imprisonment or serving his sentence.

ART. 97. Allowance for good conduct. - The good conduct of any offender

qualified for credit for preventive imprisonment pursuant to Article 29 of
this Code, or of any convicted prisoner in any penal institution, rehabilitation
or detention center or any other local jail shall entitle him to the following
deductions from the period of his sentence:

1. During the first two years of (his) imprisonment, he shall be allowed a deduction
of twenty days for each month of good behavior during detention;

2. During the third to the fifth year, inclusive, of his imprisonment, he shall be
allowed a deduction of twenty-three days for each month of good
behavior during detention;

3. During the following years until the tenth year, inclusive, of his imprisonment, he
shall be allowed a deduction of twenty-five days for each month of good
behavior during detention;

4. During the eleventh and successive years of his imprisonment, he shall be

allowed a deduction of thirty days for each month of good behavior during
detention; and

5. At any time during the period of imprisonment, he shall be allowed

another deduction of fifteen days, in addition to numbers one to four
hereof, for each month of study, teaching or mentoring service time
rendered.

An appeal by the accused shall not deprive him of entitlement to the above
allowances for good conduct.

ART. 98. Special time allowance for loyalty. - A deduction of one fifth of the period
of his sentence shall be granted to any prisoner who, having evaded his
preventive imprisonment or the service of his sentence under the circumstances
mentioned in Article 158 of this Code, gives himself up to the authorities within 48
hours following the issuance of a proclamation announcing the passing away of the
calamity or catastrophe referred to in said article. A deduction of two-fifths of
the period of his sentence shall be granted in case said prisoner chose to
stay in the place of his confinement notwithstanding the existence of a
calamity or catastrophe enumerated in Article 158 of this Code.

This Article shall apply to any prisoner whether undergoing preventive

imprisonment or serving sentence.

ART. 99. Who grants time allowances. - Whenever lawfully justified, the Director

of the Bureau of Corrections, the Chief of the Bureau of Jail Management
and Penology and/or the Warden of a provincial, district, municipal or city
jail shall grant allowances for good conduct. Such allowances once granted shall
not be revoked. (Emphases ours)
Pursuant to the amendatory law, an IRR was jointly issued by respondents
Department of Justice (DOJ) Secretary Leila M. De Lima and Department of the
Interior and Local Government (DILG) Secretary Manuel A. Roxas II on March 26,
2014 and became effective on April 18, 2014.5 Petitioners and intervenors assail
the validity of its Section 4, Rule 1 that directs the prospective application of the
grant of good conduct time allowance (GCTA), time allowance for study, teaching
and mentoring (TASTM), and special time allowance for loyalty (STAL) mainly on
the ground that it violates Article 22 of the RPC. 6

G.R. No. 212719

On June 18, 2014, a Petition for Certiorari and Prohibition (with Prayer for the
Issuance of a Preliminary Injunction) 7 was filed against respondents DOJ Secretary
De Lima and DILG Secretary Roxas by Atty. Michael J. Evangelista acting as the
attorney-in-fact8 of convicted prisoners in the New Bilibid Prison (NBP), namely:
Venancio A. Roxas, Saturnino V. Paras, Edgardo G. Manuel, Herminildo V. Cruz,
Allan F. Tejada, Roberto C. Marquez, Julito P. Mondejar, Armando M. Cabuang,
Jonathan O. Crisanto, Edgar Echenique, Janmark Saracho, Josenel Alvaran, and
Crisencio Neri, Jr. (Roxas et al.). Petitioners filed the case as real parties-in-interest
and as representatives of their member organizations and the organizations'
individual members, as a class suit for themselves and in behalf of all who are
similarly situated. They contend that the provisions of R.A. No. 10592 are penal in
nature and beneficial to the inmates; hence, should be given retroactive effect in
accordance with Article 22 of the RPC. For them, the IRR contradicts the law it
implements. They are puzzled why it would be complex for the Bureau of
Corrections (BUCOR) and the Bureau of Jail Management and Penology (BJMP) to
retroactively apply the law when the prisoners' records are complete and the
distinctions between the pertinent provisions of the RPC and R.A. No. 10592 are
easily identifiable. Petitioners submit that the simple standards added by the new
law, which are matters of record, and the creation of the Management, Screening
and Evaluation Committee (MSEC) should not override the constitutional guarantee
of the rights to liberty and due process of law aside from the principle that penal
laws beneficial to the accused are given retroactive effect.

Almost a month after, or on July 11, 2014, Atty. Rene A.V. Saguisag, Sr. filed a
Petition (In Intervention).9 He incorporates by reference the Roxas et al. petition,
impleads the same respondents, and adds that nowhere from the legislative history
of R.A. No. 10592 that it intends to be prospective in character. On July 22, 2014,
the Court resolved to grant the leave to intervene and require the adverse parties
to comment thereon.10

Another Petition-in-Intervention11 was filed on October 21, 2014. This time, the

Free Legal Assistance Group (FLAG) served as counsel for William M. Montinola,
Fortunato P. Visto, and Arsenio C. Cabanilla (Montinola et al.), who are also
inmates of the NBP. The petition argues that Section 4, Rule I of the IRR is facially
void for being contrary to the equal protection clause of the 1987 Constitution; it
discriminates, without any reasonable basis, against those who would have been
benefited from the retroactive application of the law; and is also ultra vires, as it
was issued beyond the authority of respondents to promulgate. In a Resolution
dated November 25, 2014, We required the adverse parties to comment on the
petition-in-intervention.12

On January 30, 2015, the Office of the Solicitor General (OSG) filed a Consolidated
Comment13 to the Petition of Roxas et al. and Petition-in-Intervention of Atty.
Saguisag, Sr. More than two years later, or on July 7, 2017, it filed a Comment 14 to
the Petition-in-Intervention of Montinola et al.

G.R. No. 214637

On October 24, 2014, a Petition for Certiorari and Prohibition15 was filed by

Reynaldo D. Edago, Peter R. Torida, Jimmy E. Aclao, Wilfredo V. Omeres, Pascua B.
Galladan, Victor M. Macoy, Jr., Edwin C. Trabuncon, Wilfredo A. Paterno, Federico
Elliot, and Romeo R. Macolbas (Edago et al.), who are all inmates at the Maximum
Security Compound of the NBP, against DOJ Secretary De Lima, DILG Secretary
Roxas, BUCOR Acting Director Franklin Jesus B. Bucayu, and BJMP Chief
Superintendent (Officer-in-Charge) Diony Dacanay Mamaril. The grounds of the
petition are as follows:
A.

SECTION 4, RULE I OF THE IRR PROVIDING FOR A PROSPECTIVE APPLICATION OF

THE PROVISIONS OF R.A. 10592 WAS ISSUED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND THEREBY
VOID AND ILLEGAL FOR BEING CONTRARY AND ANATHEMA TO R.A. 10592.

a. R.A. 10592 does not state that its provisions shall have
prospective application.

b. Section 4 of the IRR of R.A. 10592 is contrary to Article 22 of

the Revised Penal Code providing that penal laws that are
beneficial to the accused shall have retroactive application.

c. Section 4, Rule I of the IRR contravenes public policy and the

intent of Congress when it enacted R.A. 10592.

B.

SECTION 4, RULE I OF THE IRR WAS ISSUED BY RESPONDENTS WITH GRAVE

ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
BECAUSE IT IS PATENTLY UNCONSTITUTIONAL.

a. Section 4, Rule I of the IRR violates the Equal Protection Clause

of the Constitution.

b. Section 4, Rule I of the IRR violates substantive due process. 16

Per Resolution17 dated November 11, 2014, respondents were ordered to file their
comment to the petition. In compliance, BJMP Chief Mamaril filed a Comment 18 on
December 10, 2014, while the OSG did the same on February 9, 2015 19 in behalf of
all the respondents.

Subsequently, Edago et al. filed a Motion with Leave of Court to File and Admit
Reply,20 attaching therein said Reply. On July 28, 2015, We granted the motion and
noted the Reply.21

The Court's Ruling

The petition is granted.

Procedural Matters

Actual case or controversy

Respondents contend that the petition of Edago et al. did not comply with all the
elements of justiciability as the requirement of an actual case or controversy vis-a-
vis the requirement of ripeness has not been complied with. For them, the claimed
injury of petitioners has not ripened to an actual case requiring this Court's
intervention: First, the MSEC has not been constituted yet so there is effectively no
authority or specialized body to screen, evaluate and recommend any applications
for time credits based on R.A. No. 10592. Second, none of petitioners has applied
for the revised credits, making their claim of injury premature, if not anticipatory.
And third, the prison records annexed to the petition are neither signed nor
certified by the BUCOR Director which belie the claim of actual injury resulting from
alleged extended incarceration. What petitioners did was they immediately filed this
case after obtaining their prison records and computing the purported application of
the revised credits for GCTA under R.A. No. 10592.

We disagree.

It is well settled that no question involving the constitutionality or validity of a law

or governmental act may be heard and decided unless the following requisites for
judicial inquiry are present: (a) there must be an actual case or controversy calling
for the exercise of judicial power; (b) the person challenging the act must have the
standing to question the validity of the subject act or issuance; (c) the question of
constitutionality must be raised at the earliest opportunity; and (d) the issue of
constitutionality must be the very lis mota of the case.22 As to the requirement of
actual case or controversy, the Court stated in Province of North Cotabato, et al. v.
Gov't of the Rep. of the Phils. Peace Panel on Ancestral Domain (GRP), et al.:23
The power of judicial review is limited to actual cases or controversies. Courts
decline to issue advisory opinions or to resolve hypothetical or feigned problems, or
mere academic questions. The limitation of the power of judicial review to actual
cases and controversies defines the role assigned to the judiciary in a tripartite
allocation of power, to assure that the courts will not intrude into areas committed
to the other branches of government.

An actual case or controversy involves a conflict of legal rights, an assertion of

opposite legal claims, susceptible of judicial resolution as distinguished from a
hypothetical or abstract difference or dispute. There must be a contrariety of legal
rights that can be interpreted and enforced on the basis of existing law and
jurisprudence, x x x.

Related to the requirement of an actual case or controversy is the requirement of

ripeness. A question is ripe for adjudication when the act being challenged has had
a direct adverse effect on the individual challenging it. For a case to be considered
ripe for adjudication, it is a prerequisite that something had then been
accomplished or performed by either branch before a court may come into the
picture, and the petitioner must allege the existence of an immediate or threatened
injury to itself as a result of the challenged action. He must show that he has
sustained or is immediately in danger of sustaining some direct injury as a result of
the act complained of.24
There is an actual case or controversy in the case at bar because there is a
contrariety of legal rights that can be interpreted and enforced on the basis of
existing law and jurisprudence. Respondents stand for the prospective application
of the grant of GCTA, TASTM, and STAL while petitioners and intervenors view that
such provision violates the Constitution and Article 22 of the RPC. The legal issue
posed is ripe for adjudication as the challenged regulation has a direct adverse
effect on petitioners and those detained and convicted prisoners who are similarly
situated. There exists an immediate and/or threatened injury and they have
sustained or are immediately in danger of sustaining direct injury as a result of the
act complained of. In fact, while the case is pending, petitioners are languishing in
jail. If their assertion proved to be true, their illegal confinement or detention in the
meantime is oppressive. With the prisoners' continued incarceration, any delay in
resolving the case would cause them great prejudice. Justice demands that they be
released soonest, if not on time.

There is no need to wait and see the actual organization and operation of the
MSEC. Petitioners Edago et al. correctly invoked Our ruling in Pimentel, Jr. v. Hon.
Aguirre.25 There, We dismissed the novel theory that people should wait for the
implementing evil to befall on them before they could question acts that are illegal
or unconstitutional, and held that "[by] the mere enactment of the questioned law
or the approval of the challenged action, the dispute is said to have ripened into a
judicial controversy even without any other overt act." Similar to Pimentel, Jr., the
real issue in this case is whether the Constitution and the RPC are contravened by
Section 4, Rule 1 of the IRR, not whether they are violated by the acts
implementing it. Concrete acts are not necessary to render the present controversy
ripe.26 An actual case may exist even in the absence of tangible instances when the
assailed IRR has actually and adversely affected petitioners. The mere issuance of
the subject IRR has led to the ripening of a judicial controversy even without any
other overt act. If this Court cannot await the adverse consequences of the law in
order to consider the controversy actual and ripe for judicial intervention, 27 the
same can be said for an IRR. Here, petitioners need not wait for the creation of the
MSEC and be individually rejected in their applications. They do not need to actually
apply for the revised credits, considering that such application would be an exercise
in futility in view of respondents' insistence that the law should be prospectively
applied. If the assailed provision is indeed unconstitutional and illegal, there is no
better time than the present action to settle such question once and for all. 28

Legal standing

We do not subscribe to respondents' supposition that it is the Congress which may

claim any injury from the alleged executive encroachment of the legislative function
to amend, modify or repeal laws and that the challenged acts of respondents have
no direct adverse effect on petitioners, considering that based on records, there
was no GCTA granted to them.
It is a general rule that every action must be prosecuted or defended in the name
of the real party-in-interest, who stands to be benefited or injured by the judgment
in the suit, or the party entitled to the avails of the suit.

Jurisprudence defines interest as "material interest, an interest in issue and to be

affected by the decree, as distinguished from mere interest in the question
involved, or a mere incidental interest. By real interest is meant a present
substantial interest, as distinguished from a mere expectancy or a future,
contingent, subordinate, or consequential interest." "To qualify a person to be a
real party-in-interest in whose name an action must be prosecuted, he must appear
to be the present real owner of the right sought to be enforced."

"Legal standing" or locus standi calls for more than just a generalized grievance.
The concept has been defined as a personal and substantial interest in the case
such that the party has sustained or will sustain direct injury as a result of the
governmental act that is being challenged. The gist of the question of standing is
whether a party alleges such personal stake in the outcome of the controversy as to
assure that concrete adverseness which sharpens the presentation of issues upon
which the court depends for illumination of difficult constitutional questions.

A party challenging the constitutionality of a law, act, or statute must show "not
only that the law is invalid, but also that he has sustained or is in immediate, or
imminent danger of sustaining some direct injury as a result of its enforcement,
and not merely that he suffers thereby in some indefinite way." It must [be] shown
that he has been, or is about to be, denied some right or privilege to which he is
lawfully entitled, or that he is about to be subjected to some burdens or penalties
by reason of the statute complained of.29
In this case, petitioners are directly affected by Section 4, Rule 1 of the IRR
because they are prisoners currently serving their respective sentences at the NBP.
They have a personal stake in the outcome of this case as their stay in prison will
potentially be shortened (if the assailed provision of the IRR is declared unlawful
and void) or their dates of release will be delayed (if R.A. No. 10592 is applied
prospectively). It is erroneous to assert that the questioned provision has no direct
adverse effect on petitioners since there were no GCTAs granted to them. There is
none precisely because of the prospective application of R.A. No. 10592. It is a
proof of the act complained of rather than an evidence that petitioners lack legal
standing. Further, the submission of certified prison records is immaterial in
determining whether or not petitioners' rights were breached by the IRR because,
to repeat, the possible violation was already fait accompli by the issuance of the
IRR. The prison records were merely furnished to show that respondents have
prospectively applied R.A. No. 10592 and that petitioners will be affected thereby.

Propriety of legal remedy:

Respondents argue that the petitions for certiorari and prohibition, as well as the

petitions-in-intervention, should be dismissed because such petitions are proper
only against a tribunal, board or officer exercising judicial or quasi-judicial
functions. Section 4, Rule 1 of the IRR is an administrative issuance of respondents
made in the exercise of their rule-making or quasi-legislative functions.

True, a petition for certiorari and prohibition is not an appropriate remedy to assail

the validity of the subject IRR as it was issued in the exercise of respondents' rule-
making or quasi-legislative function. Nevertheless, the Court has consistently held
that "petitions for certiorari and prohibition are appropriate remedies to raise
constitutional issues and to review, prohibit or nullify the acts of legislative and
executive officials."30 In Araullo v. Aquino III,31 former Associate Justice, now Chief
Justice, Lucas P. Bersamin, explained the remedies of certiorari and prohibition,
thus:
What are the remedies by which the grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
Government may be determined under the Constitution?

The present Rules of Court uses two special civil actions for determining and
correcting grave abuse of discretion amounting to lack or excess of jurisdiction.
These are the special civil actions for certiorari and prohibition, and both are
governed by Rule 65. A similar remedy of certiorari exists under Rule 64, but the
remedy is expressly applicable only to the judgments and final orders or resolutions
of the Commission on Elections and the Commission on Audit.

The ordinary nature and function of the writ of certiorari in our present system are
aptly explained in Delos Santos v. Metropolitan Bank and Trust Company:
In the common law, from which the remedy of certiorari evolved, the writ
of certiorari was issued out of Chancery, or the King's Bench, commanding agents
or officers of the inferior courts to return the record of a cause pending before
them, so as to give the party more sure and speedy justice, for the writ would
enable the superior court to determine from an inspection of the record whether the
inferior court's judgment was rendered without authority. The errors were of such a
nature that, if allowed to stand, they would result in a substantial injury to the
petitioner to whom no other remedy was available. If the inferior court acted
without authority, the record was then revised and corrected in matters of law. The
writ of certiorari was limited to cases in which the inferior court was said to be
exceeding its jurisdiction or was not proceeding according to essential requirements
of law and would lie only to review judicial or quasi-judicial acts.

The concept of the remedy of certiorari in our judicial system remains much the
same as it has been in the common law. In this jurisdiction, however, the exercise
of the power to issue the writ of certiorari is largely regulated by laying down the
instances or situations in the Rules of Court in which a superior court may issue the
writ of certiorari to an inferior court or officer. Section 1, Rule 65 of the Rules of
Court compellingly provides the requirements for that purpose, viz.:

xxxx

The sole office of the writ of certiorari is the correction of errors of jurisdiction,
which includes the commission of grave abuse of discretion amounting to lack of
jurisdiction. In this regard, mere abuse of discretion is not enough to warrant the
issuance of the writ. The abuse of discretion must be grave, which means either
that the judicial or quasi-judicial power was exercised in an arbitrary or despotic
manner by reason of passion or personal hostility, or that the respondent judge,
tribunal or board evaded a positive duty, or virtually refused to perform the duty
enjoined or to act in contemplation of law, such as when such judge, tribunal or
board exercising judicial or quasi-judicial powers acted in a capricious or whimsical
manner as to be equivalent to lack of jurisdiction.
Although similar to prohibition in that it will lie for want or excess of
jurisdiction, certiorari is to be distinguished from prohibition by the fact that it is a
corrective remedy used for the re-examination of some action of an inferior
tribunal, and is directed to the cause or proceeding in the lower court and not to
the court itself, while prohibition is a preventative remedy issuing to restrain future
action, and is directed to the court itself. The Court expounded on the nature and
function of the writ of prohibition in Holy Spirit Homeowners Association, Inc. v.
Defensor:
A petition for prohibition is also not the proper remedy to assail an IRR issued in
the exercise of a quasi-legislative function. Prohibition is an extraordinary writ
directed against any tribunal, corporation, board, officer or person, whether
exercising judicial, quasi-judicial or ministerial functions, ordering said entity or
person to desist from further proceedings when said proceedings are without or in
excess of said entity's or person's jurisdiction, or are accompanied with grave abuse
of discretion, and there is no appeal or any other plain, speedy and adequate
remedy in the ordinary course of law. Prohibition lies against judicial or ministerial
functions, but not against legislative or quasi-legislative functions. Generally, the
purpose of a writ of prohibition is to keep a lower court within the limits of its
jurisdiction in order to maintain the administration of justice in orderly channels.
Prohibition is the proper remedy to afford relief against usurpation of jurisdiction or
power by an inferior court, or when, in the exercise of jurisdiction in handling
matters clearly within its cognizance the inferior court transgresses the bounds
prescribed to it by the law, or where there is no adequate remedy available in the
ordinary course of law by which such relief can be obtained. Where the principal
relief sought is to invalidate an IRR, petitioners' remedy is an ordinary action for its
nullification, an action which properly falls under the jurisdiction of the Regional
Trial Court. In any case, petitioners' allegation that "respondents are performing or
threatening to perform functions without or in excess of their jurisdiction" may
appropriately be enjoined by the trial court through a writ of injunction or a
temporary restraining order.
With respect to the Court, however, the remedies of certiorari and prohibition are
necessarily broader in scope and reach, and the writ of certiorari or prohibition may
be issued to correct errors of jurisdiction committed not only by a tribunal,
corporation, board or officer exercising judicial, quasi-judicial or ministerial
functions but also to set right, undo and restrain any act of grave abuse of
discretion amounting to lack or excess of jurisdiction by any branch or
instrumentality of the Government, even if the latter does not exercise judicial,
quasi-judicial or ministerial functions. This application is expressly authorized by
the text of the second paragraph of Section 1, supra.

Thus, petitions for certiorari and prohibition are appropriate remedies to raise

constitutional issues and to review and/or prohibit or nullify the acts of legislative
and executive officials.

Necessarily, in discharging its duty under Section 1, supra, to set right and undo
any act of grave abuse of discretion amounting to lack or excess of jurisdiction by
any branch or instrumentality of the Government, the Court is not at all precluded
from making the inquiry provided the challenge was properly brought by interested
or affected parties. The Court has been thereby entrusted expressly or by
necessary implication with both the duty and the obligation of determining, in
appropriate cases, the validity of any assailed legislative or executive action. This
entrustment is consistent with the republican system of checks and balances. 32
In view of the foregoing, We shall proceed to discuss the substantive issues raised
herein so as to finally resolve the question on the validity of Section 4, Rule 1 of the
IRR, which is purely legal in nature. This is also because of the public importance of
the issues raised,33 and the interest of substantial justice,34 not to mention the
absence of any dispute as to any underlying fact.35

Hierarchy of courts

Respondents contend that the petition for certiorari and prohibition, as well as the

petitions-in-intervention, should still be dismissed for failure to observe the rule on
hierarchy of courts. According to them, this Court's jurisdiction over actions
assailing the validity of administrative issuances is primarily appellate in nature by
virtue of Section 5(2)(a), Article VIII of the Constitution. 36 An action assailing the
validity of an administrative issuance is one that is incapable of pecuniary
estimation, which, under Batas Pambansa Bilang (B.P. Blg.) 129, the Regional Trial
Court (RTC) has exclusive original jurisdiction. Further, a petition for declaratory
relief filed before the RTC, pursuant to Section 1, Rule 63 of the Rules, is the proper
remedy to question the validity of the IRR.37

Indeed, under Section 19(1) of B.P. Blg. 129, the question presented here is a
matter incapable of pecuniary estimation, which exclusively and originally pertained
to the proper RTC.38 Fundamentally, there is no doubt that this consolidated case
captioned as petition for certiorari and prohibition seeks to declare the
unconstitutionality and illegality of Section 4 Rule 1 of the IRR; thus, partaking the
nature of a petition for declaratory relief over which We only have appellate
jurisdiction pursuant to Section 5(2)(a), Article VIII of the Constitution. In
accordance with Section 1, Rule 63 of the Rules, the special civil action of
declaratory relief falls under the exclusive jurisdiction of the RTC.

Nevertheless, the judicial policy has been to entertain a direct resort to this Court in
exceptional and compelling circumstances, such as cases of national interest and of
serious implications, and those of transcendental importance and of first
impression.39 As the petitions clearly and specifically set out special and important
reasons therefor, We may overlook the Rules. Here, petitioners Edago et al. are
correct in asserting that R.A. No. 10592 and its IRR affect the entire correctional
system of the Philippines. Not only the social, economic, and moral well-being of
the convicts and detainees are involved but also their victims and their own
families, the jails, and the society at large. The nationwide implications of the
petitions, the extensive scope of the subject matter, the upholding of public policy,
and the repercussions on the society are factors warranting direct recourse to Us.
Yet more than anything, there is an urgent necessity to dispense substantive justice
on the numerous affected inmates. It is a must to treat this consolidated case with
a circumspect leniency, granting petitioners the fullest opportunity to establish the
merits of their case rather than lose their liberty on the basis of technicalities. 40 It
need not be said that while this case has been pending, their right to liberty is on
the line. An extended period of detention or one that is beyond the period allowed
by law violates the accused person's right to liberty. 41 Hence, We shunt the rigidity
of the rules of procedure so as not to deprive such birthright. 42 The Court zealously
guards against the curtailment of a person's basic constitutional and natural right to
liberty.43 The right to liberty, which stands second only to life in the hierarchy of
constitutional rights, cannot be lightly taken away. 44 At its core, substantive due
process guarantees a right to liberty that cannot be taken away or unduly
constricted, except through valid causes provided by law. 45

Substantive Issues

Every new law has a prospective effect. Under Article 22 of the RPC, however, a
penal law that is favorable or advantageous to the accused shall be given
retroactive effect if he is not a habitual criminal. These are the rules, the exception,
and the exception to the exception on the effectivity of laws. 46

In criminal law, the principle favorabilia sunt amplianda adiosa restrigenda (penal

laws which are favorable to the accused are given retroactive effect) is well
entrenched.47 It has been sanctioned since the old Penal Code.48
x x x as far back as the year 1884, when the Penal Code took effect in these
Islands until the 31st of December, 1931, the principle underlying our laws granting
to the accused in certain cases an exception to the general rule that laws shall not
be retroactive when the law in question favors the accused, has evidently been
carried over into the Revised Penal Code at present in force in the Philippines
through article 22 x x x. This is an exception to the general rule that all laws are
prospective, not retrospective, variously contained in the following maxims: Lex
prospicit, non respicit (the law looks forward, not backward); lex defuturo, judex de
proeterito (the law provides for the future, the judge for the past); and adopted in
a modified form with a prudent limitation in our Civil Code (article 3). Conscience
and good law justify this exception, which is contained in the well-known
aphorism: Favorabilia sunt amplianda, odiosa restringenda. As one distinguished
author has put it, the exception was inspired by sentiments of humanity, and
accepted by science.49
According to Mr. Chief Justice Manuel Araullo, the principle is "not as a right" of the
offender, "but founded on the very principles on which the right of the State to
punish and the commination of the penalty are based, and regards it not as an
exception based on political considerations, but as a rule founded on principles of
strict justice."50

Further, case law has shown that the rule on retroactivity under Article 22 of the
RPC applies to said Code51 and its amendments,52 as well as to special laws,53 such
as Act No. 2126,54 Presidential Decree No. 603,55 R.A. No. 7636,56 R.A. No.
8293,57 R.A. No. 8294,58 R.A. No. 9344,59 and R.A. No. 10586,60 to cite a few.

But what exactly is a penal law?

A penal provision or statute has been consistently defined by jurisprudence as

follows:
A penal provision defines a crime or provides a punishment for one. 61

Penal laws and laws which, while not penal in nature, have provisions defining
offenses and prescribing penalties for their violation. 62

Properly speaking, a statute is penal when it imposes punishment for an offense

committed against the state which, under the Constitution, the Executive has the
power to pardon. In common use, however, this sense has been enlarged to include
within the term "penal statutes" all statutes which command or prohibit certain
acts, and establish penalties for their violation, and even those which, without
expressly prohibiting certain acts, impose a penalty upon their commission. 63

Penal laws are those acts of the Legislature which prohibit certain acts and establish
penalties for their violations; or those that define crimes, treat of their nature, and
provide for their punishment.64
The "penal laws" mentioned in Article 22 of the RPC refer to substantive laws, not
procedural rules.65 Moreover, the mere fact that a law contains penal provisions
does not make it penal in nature.66

In the case at bar, petitioners assert that Article 22 of the RPC applies because R.A.
No. 10592 is a penal law. They claim that said law has become an integral part of
the RPC as Articles 29, 94, 97, 98 and 99 thereof. Edago et al. further argue that if
an amendment to the RPC that makes the penalties more onerous or prejudicial to
the accused cannot be applied retroactively for being an ex post facto law, a law
that makes the penalties lighter should be considered penal laws in accordance with
Article 22 of the RPC.

We concur.

While R.A. No. 10592 does not define a crime/offense or

provide/prescribe/establish a penalty 67 as it addresses the rehabilitation
component68 of our correctional system, its provisions have the purpose and effect
of diminishing the punishment attached to the crime. The further reduction on the
length of the penalty of imprisonment is, in the ultimate analysis, beneficial to the
detention and convicted prisoners alike; hence, calls for the application of Article 22
of the RPC.

The prospective application of the beneficial provisions of R.A. No. 10592 actually
works to the disadvantage of petitioners and those who are similarly situated. It
precludes the decrease in the penalty attached to their respective crimes and
lengthens their prison stay; thus, making more onerous the punishment for the
crimes they committed. Depriving them of time off to which they are justly entitled
as a practical matter results in extending their sentence and increasing their
punishment.69 Evidently, this transgresses the clear mandate of Article 22 of the
RPC.

In support of the prospective application of the grant of GCTA, TASTM, and STAL,
respondents aver that a careful scrutiny of R.A. No. 10592 would indicate the need
for "new procedures and standards of behavior" to fully implement the law by the
BUCOR (as to persons serving their sentences after conviction) and the BJMP (as to
accused who are under preventive detention). It is alleged that the amendments
introduced are substantial and of utmost importance that they may not be
implemented without a thorough revision of the BUCOR and the BJMP operating
manuals on jail management. In particular, the establishment of the MSEC is said
to be an administrative mechanism to address the policy and necessity that the
BUCOR superintendents and the BJMP jail wardens must follow uniform guidelines
in managing, screening and evaluating the behavior or conduct of prisoners prior to
their recommendation to the heads of the two bureaus on who may be granted
time allowances.

Respondents fail to persuade Us.

Except for the benefits of TASTM and the STAL granted to a prisoner who chose to
stay in the place of his confinement despite the existence of a calamity or
catastrophe enumerated in Article 158 of the RPC, the provisions of R.A. No. 10592
are mere modifications of the RPC that have been implemented by the BUCOR prior
to the issuance of the challenged IRR. In view of this, the claim of "new procedures
and standards of behavior" for the grant of time allowances is untenable.

It appears that even prior to February 1, 1916 when Act No. 2557 was
enacted,70 prisoners have already been entitled to deduct the period of preventive
imprisonment from the service of their sentences. In addition, good conduct time
allowance has been in existence since August 30, 1906 upon the passage of Act No.
1533.71 Said law provided for the diminution of sentences imposed upon convicted
prisoners in consideration of good conduct and diligence. 72 Under Act No. 1533 and
subsequently under Article 97 of the RPC, the time allowance may also apply to
detention prisoners if they voluntarily offer in writing to perform such labor as may
be assigned to them.73 Such prerequisite was removed by R.A. No. 10592.

Subject to the review, and in accordance with the rules and regulations, as may be
prescribed by the Secretary of Public Instruction, the wardens or officers in charge
of Insular or provincial jails or prisons were mandated to make and keep such
records and take such further actions as may be necessary to carry out the
provisions of Act No. 1533.74 When the RPC took effect on January 1, 1932,75 the
Director of Prisons was empowered to grant allowances for good conduct whenever
lawfully justified.76 With the effectivity of R.A. No. 10592 on June 6, 2013, such
authority is now vested on the Director of the BUCOR, the Chief of the BJMP and/or
the Warden of a provincial, district, municipal or city jail. 77

Under the IRR of R.A. No. 10592, the MSECs are established to act as the
recommending body for the grant of GCTA and TASTM. 78 They are tasked to
manage, screen and evaluate the behavior and conduct of a detention or convicted
prisoner and to monitor and certify whether said prisoner has actually studied,
taught or performed mentoring activities.79 The creation of the MSEC, however,
does not justify the prospective application of R.A. No. 10592. Nowhere in the
amendatory law was its formation set as a precondition before its beneficial
provisions are applied. What R.A. No. 10592 only provides is that the Secretaries of
the DOJ and the DILG are authorized to promulgate rules and regulations on
the classification system for good conduct and time allowances, as may be
necessary to implement its provisions.80 Clearly, respondents went outside the
bounds of their legal mandate when they provided for rules beyond what was
contemplated by the law to be enforced.
Indeed, administrative IRRs adopted by a particular department of the Government
under legislative authority must be in harmony with the provisions of the law, and
should be for the sole purpose of carrying the law's general provisions into effect.
The law itself cannot be expanded by such IRRSs, because an administrative
agency cannot amend an act of Congress.81
The contention of Edago et al. stands undisputed that, prior to the issuance of the
assailed IRR and even before the enactment of R.A. No. 10592, a Classification
Board had been handling the functions of the MSEC and implementing the
provisions of the RPC on time allowances. While there is a noble intent to
systematize and/or institutionalize existing set-up, the administrative and
procedural restructuring should not in any way prejudice the substantive rights of
current detention and convicted prisoners.

Furthermore, despite various amendments to the law, the standard of behavior in

granting GCTA remains to be "good conduct." In essence, the definition of what
constitutes "good conduct" has been invariable through the years, thus:
Act No. 1533: "not been guilty of a violation of discipline or any of the rules of the
prison, and has labored with diligence and fidelity upon all such tasks as have been
assigned to him."82

BUCOR Operating Manual dated March 30, 2000: "displays good behavior and who
has no record of breach of discipline or violation of prison rules and regulations." 83

IRR of R.A. No. 10592: "the conspicuous and satisfactory behavior of a detention or

convicted prisoner consisting of active involvement in rehabilitation programs,
productive participation in authorized work activities or accomplishment of
exemplary deeds coupled with faithful obedience to all prison/jail rules and
regulations"84
Among other data, an inmate's prison record contains information on his behavior
or conduct while in prison.85 Likewise, the certificate/diploma issued upon successful
completion of an educational program or course (i.e., elementary, secondary and
college education as well as vocational training) forms part of the record. 86 These
considered, the Court cannot but share the same sentiment of Roxas et al. It is
indeed perplexing why it is complex for respondents to retroactively apply R.A. No.
10592 when all that the MSEC has to do is to utilize the same standard of behavior
for the grant of time allowances and refer to existing prison records.

WHEREFORE, the consolidated petitions are GRANTED. Section 4, Rule 1 of the

Implementing Rules and Regulations of Republic Act No. 10592
is DECLARED invalid insofar as it provides for the prospective application of the
grant of good conduct time allowance, time allowance for study, teaching and
mentoring, and special time allowance for loyalty. The Director General of the
Bureau of Corrections and the Chief of the Bureau of Jail Management and Penology
are REQUIRED to RE-COMPUTE with reasonable dispatch the time allowances due
to petitioners and all those who are similarly situated and, thereafter,
to CAUSE their immediate release from imprisonment in case of full service of
sentence, unless they are being confined thereat for any other lawful cause.

This Decision is IMMEDIATELY EXECUTORY.

SO ORDERED.
(Precedent to G.R. No 239965 July 24, 2018 – Shirley Cortado Petition <<<CAN’T FIND)

EN BANC

December 5, 2017

G.R. No. 217874

OPHELIA HERNAN, Petitioner,
vs.
THE HONORABLE SANDIGANBAYAN,, Respondent

DECISION

PERALTA, J.:

Before the Court is a special civil action for certiorari under Rule 65 of the Rules of Court
seeking to reverse and set aside the Resolution  dated February 2, 2015 and Decision  dated
1 2

November 13, 2009 of the Sandiganbayan 2nd Division which affirmed, with modification, the
Decision dated June 28, 2002 of the Regional Trial Court (RTC), Branch 7, Baguio City
convicting petitioner of the crime of malversation of public funds in Criminal Case No. 15722-R.

The antecedent facts are as follows:

In October 1982, petitioner Ophelia Hernan joined the Department of Transportation and
Communication (DOTC), Cordillera Administrative Region (CAR) in Baguio City wherein she
served as an accounting clerk. In September 1984, she was promoted to the position of
Supervising Fiscal Clerk by virtue of which she was designated as cashier, disbursement and
collection officer.  As such, petitioner received cash and other collections from customers and
3

clients for the payment of telegraphic transfers, toll foes, and special message fees. The
collections she received were deposited at the bank account of the DOTC at the Land Bank of
the Philippines (LBP), Baguio City Branch.4

On December 17, 1996, Maria Imelda Lopez, an auditor of the Commission on

Audit (COA), conducted a cash examination of the accounts handled by petitioner as instructed
by her superior, Sherelyn Narag. As a result, Lopez came across deposit slips dated September
19, 1996 and November 29, 1996 bearing the amounts of ₱11,300.00 and ₱81,348.20,
rcspectively.  Upon close scrutiny, she noticed that said deposit slips did not bear a stamp of
5

receipt by the LBP nor was it machine validated. Suspicious about what she found, she and
Narag verified all the reports and other documents turned-over to them by petitioner.  On the
6

basis of said findings, Narag sent a letter to the LBP to confirm the remittances made by
petitioner. After adding all the deposits made and upon checking with the teller's blotter,
Nadelline Orallo, the resident auditor of LBP, found that no deposits were made by petitioner for
the account of DOTC on September 19, 1996 for the amount of ₱11,300.00 and November 29,
1996 for the amount of ₱81,340.20. 7

Thereafter, the LBP's officer-in-charge, Rebecca R. Sanchez, instructed the bank's teller,
Catalina Ngaosi, to conduct their own independent inquiry. It was discovered that on September
19, 1996, the only deposit in favor of the DOTC was that made by its Ifugao office in the
Lagawe branch of the LBP.  This prompted Lopez to write to petitioner informing her that the
8

two (2) aforesaid remittances were not acknowledged by the bank. The auditors then found that
petitioner duly accounted for the ₱81,348.20 remittance but not for the ₱11,300.00. Dissatisfied
with petitioner's explanation as to the whereabouts of the said remittance, Narag reported the
matter to the COA Regional Director who, in turn wrote to the LBP for confirmation. The LBP
then denied receiving any ₱11,300.00 deposit on September 19, 1996 from petitioner for the
account of the DOTC.  Thus, the COA demanded that she pay the said amount. Petitioner,
9

however, refused. Consequently, the COA filed a complaint for malversation of public funds
against petitioner with the Office of the Ombudsman for Luzon which, after due investigation,
recommended her indictment for the loss of ₱11,300.00.  Accordingly, petitioner was charged
10

before the RTC of Baguio City in an Information, the accusatory portion of which reads:

That on or about September 16, 1996, or sometime prior or subsequent thereto, in the City of
Baguio, Philippines, and within the jurisdiction of this Honourable Court, the above-named
accused, a public officer, being then the Disbursing Officer of the Department of Transportation
and Communications, Baguio City, and as such an accountable officer, entrusted with and
responsible for the amount of ₱1 1,300.00 which accused received and collected for the DOTC,
and intended for deposit under the account of DOTC with the Land Bank of the Philippines-
Baguio City, by reason of her position, while in the performance of her official functions, taking
advantage of her position, did then and there, wilfully, feloniously, and unlawfully misappropriate
or consent, or through abandonment or negligence, permit other persons to take such amount
of ₱11,300.00 to the damage and prejudice of the government.

CONTRARY TO LAW. 11

Upon arraignment on July 31, 1998, petitioner pleaded not guilty to the offense charged. Hence,
trial on the merits ensued.

To establish its case, the prosecution presented the testimonies of two (2) COA auditors,
namely, Maria Lopez and Sherelyn Narag as well as three (3) LBP employees, namely,
Rebecca Sanchez, Catalina Ngaosi, and Nadelline Orallo.  In response, the defense presented
12

the lone testimony of petitioner, which can be summarized as follows:

On September 19, 1996, petitioner and her supervisor, Cecilia Paraiso, went to the LBP Baguio
branch and personally deposited the exact amount of ₱11,300.00 with accomplished deposit
slips in six (6) copies.  Since there were many clients who came ahead of her, she decided to
13

go with her usual arrangement of leaving the money with the teller and telling her that she would
just come back to retrieve the deposit slip. Thus, she handed the money to Teller No. 2, whom
she identified as Catalina Ngaosi. Upon her return at around 3 o'clock in the afternoon, she
retrieved four (4) copies of the deposit slip from Ngaosi. She noticed that the same had no
acknowledgment mark on it. Being contented with the initials of the teller on the deposit slips,
she returned to her office and kept them in her vault. It was only during the cash count
conducted by auditor Lopez when she found out that the said amount was not remitted to the
account of the LBP. When demand was made on her to return the amount, she requested that
she be allowed to pay only after investigation of a complaint of Estafa that she would file with
the National Bureau of Investigation against some personnel of the bank, particularly Catalina
Ngaosi.  The complaint, however, was eventually dismissed.
14 15

After trial, the RTC found petitioner guilty beyond reasonable doubt of the crime charged in the
Information. The dispositive portion of the decision states:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered convicting accused
Ophelia Hernan of Malversation and hereby sentences her, after applying the Indeterminate
Sentence Law, to suffer imprisonment from 7 years, 4 months, and 1 day of prision
mayor medium period, as minimum, to 11 years, 6 months and 21 days of prision mayor as
maximum period to reclusion temporal maximum period, as maximum, and to pay a fine of
₱11,300.00.

Accused Ophelia Hernan is further sentenced to suffer the penalty of perpetual special
disqualification.

Likewise, accused Ophelia Hernan is hereby ordered to pay back to the government the amount
of ₱11,300.00 plus legal interest thereon at the rate of 12% per annum to be computed from the
date of the filing of the Information up to the time the same is actually paid.

Costs against the accused.

SO ORDERED. 16

Erroneously, petitioner appealed to the Court of Appeals (CA), which affirmed her conviction but
modified the penalty imposed. Upon motion, however, the CA set aside its decision on the
finding that it has no appellate jurisdiction over the case. Instead, it is the Sandiganbayan which
has exclusive appellate jurisdiction over petitioner occupying a position lower than Salary Grade
27.  Petitioner's new counsel, Atty. Leticia Gutierrez Hayes-Allen, then appealed the case to the
17

Sandiganbayan. In a Decision dated November 13, 2009, the Sandiganbayan affirmed the
RTC's judgment of conviction but modified the penalty imposed, the dispositive opinion of which
reads:

WHEREFORE, in view of all the foregoing, the appealed decision is hereby AFFIRMED, with
the modifications that the indeterminate penalty to be imposed on the accused should be from 6
years and 1 day of prision mayor as minimum, to 11 years, 6 months, and 21 days of prision
mayor as maximum, together with the accessory penalties under Article 42 of the Revised
Penal Code, and that interest of only 6% shall be imposed on the amount of ₱11,300.00 to be
restored by the accused.

SO ORDERED. 18
Petitioner filed a Motion for Reconsideration dated December 21, 2009 alleging that during the
trial before the RTC, her counsel was unable to elicit many facts which would show her
innocence. Said counsel principally failed to present certain witnesses and documents that
would supposedly acquit her from the crime charged. The Sandiganbayan, however, denied the
motion in a Resolution dated August 31, 2010 on the ground that evidence not formally offered
before the court below cannot be considered on appeal. 19

On June 26, 2013, the Resolution denying petitioner's Motion for Reconsideration became final
and executory and was recorded in the Book of Entries of Judgments.  On July 26, 2013,
20

petitioner's new counsel, Atty. Meshack Macwes, filed an Urgent Motion to Reopen the Case
with Leave of Court and with Prayer to Stay the Execution.  In a Resolution  dated December 4,
21 22

2013, however, the Sandiganbayan denied the motion and directed the execution of the
judgment of conviction. It noted the absence of the following requisites for the reopening of a
case: (1) the reopening must be before finality of a judgment of conviction; (2) the order is
issued by the judge on his own initiative or upon motion; (3) the order is issued only after a
hearing is conducted; (4) the order intends to prevent a miscarriage of justice; and (5) the
presentation of additional and/or further evidence should be terminated within thirty (30) days
from the issuance of the order. 23

Unfazed, petitioner filed on January 9, 2014 a Petition for Reconsideration with Prayer for
Recall of Entry of Judgment in lieu of the Prayer for Stay of Execution of Judgment praying for a
reconsideration of the Sandiganbayan' s recent Resolution, that the case be reopened for
further reception of evidence, and the recall of the Entry of Judgment dated June 26, 2013.  In a
24

Resolution dated February 2, 2015, the Sandiganbayan denied the petition for lack of merit.
According to the said court, the motion is clearly a third motion for reconsideration, which is a
prohibited pleading under the Rules of Court. Also, the grounds raised therein were merely a
rehash of those raised in the two previous motions. The claims that the accused could not
contact her counsel on whom she merely relied on for appropriate remedies to be filed on her
behalf, and that she has additional evidence to present, were already thoroughly discussed in
the August 31, 2010 and December 4, 2013 Resolutions. Moreover, the cases relied upon by
petitioner are not on point.
25

On May 14, 2015, petitioner filed the instant petition invoking the following arguments:

I.

THE SANDIGANBA YAN GRAVELY ERRED AS IT ACTED WITH GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN CONCLUDING
THAT THE MOTION TO REOPEN WAS FILED OUT OF TIME CONSIDERING TI-IE
EXTRAORDINARY AND EXCEPTIONAL CIRCUMSTANCES SURROUNDING THE CASE.

II.

THE SANDIGANBA YAN GRAVELY ERRED AS IT ACTED WITH GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN FINDING THAT
THE EVIDENCE INTENDED TO BE PRESENTED BY PETITIONER SHOULD HER MOTTON
FOR REOPENING BE GRANTED, WAS PASSED UPON BY THE TRIAL COURT.

III.

THE SANDIGANBA YAN GRAVELY ERRED AS IT ACTED WITH GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN PRONOUNCING
THAT THE MOTION TO REOPEN AND THE PETITION FOR RECONSIDERATION FILED BY
PETITIONER ARE CONSIDERED AS THE SECOND AND THIRD MOTIONS TO THE DENIAL
OF THE DECISION.

Petitioner posits that her counsel, Atty. Hayes-Allen, never received the August 31, 2010
Resolution of the Sandiganbayan denying her Motion for Reconsideration. This is because
notice thereof was erroneously sent to said counsel's previous office at Poblacion, La Trinidad,
Benguet, despite the fact that it was specifically indicated in the Motion for Reconsideration that
the new office is at the Public Attorney's Office of Tayug, Pangasinan, following her counsel's
appointment as public attorney. Thus, since her counsel was not properly notified of the subject
resolution, the entry of judgment is premature.  In support of her assertion, she cites Our ruling
26

in People v. Chavez,  wherein We held that an entry of judgment without receipt of the
27

resolution is premature.

Petitioner also claims that during trial, she could not obtain the necessary evidence for her
defense due to the fact that the odds were against her. Because of this, she asks the Court to
relax the strict application of the rules and consider remanding the case to the lower court for
further reception of evidence.  In particular, petitioner seeks the reception of an affidavit of a
28

certain John L. Ziganay, an accountant at the Depaiiment of Science and

Technology (DOST), who previously worked at the DOTC and COA, as well as two (2) deposit
slips. According to petitioner, these pieces of evidence would show that the ₱11,300.00
deposited at the Lagawe branch of the LBP was actually the deposit made by petitioner and not
by a certain Lanie Cabacungan, as the prosecution suggests. This is because the ₱11,300.00
deposit made by Cabacungan consists of two (2) different amounts, which, if proper accounting
procedure is followed, shall be recorded in the bank statement as two (2) separate amounts and
not their total sum of ₱11,300.00.  Thus, the Sandiganbayan's denial of petitioner's motion to
29

reopen the case is capricious, despotic, and whimsical since the admission of her additional
evidence will prevent a miscarriage.

Finally, petitioner denies the Sandiganbayan's ruling that her motion to reopen and petition for
reconsideration are considered as a second and third motion for reconsideration, and are thus,
prohibited pleadings. This is because the additional evidence she seeks to introduce were not
available during the trial of her case.

The petition is devoid of merit.

At the outset, the Court notes that as pointed out by respondent Office of the Special
Prosecutor, petitioner's resort to a petition for certiorari under Rule 65 of the Rules of Court is an
improper remedy. In determining the appropriate remedy or remedies available, a party
aggrieved by a cou1i order, resolution or decision must first correctly identify the nature of the
order, resolution or decision he intends to assail.  It bears stressing that the extraordinary
30

remedy of certiorari can be availed of only if there is no appeal or any other plain, speedy, and
adequate remedy in the ordinary course of law.  If the Order or Resolution sought to be
31

assailed is in the nature of a final order, the remedy of the aggrieved party would be to file a
petition for review on certiorari under Rule 45 of the Rules of Court. Otherwise, the appropriate
remedy would be to file a petition for certiorari under Rule 65.  Petitioner, in the instant case,
32

seeks to assail the Sandiganbayan's Resolutions dated December 4, 2013 and February 2,
2015 wherein said court denied her motion to reopen the malversation case against her. Said
resolutions are clearly final orders that dispose the proceedings completely. The instant petition
for certiorari under Rule 65 is, therefore, improper.

Even if We assume the propriety of petitioner's chosen action, the Court still cannot grant the
reliefs she prays for, specifically: (1) the reversal of the Sandiganbayan's December 4, 2013
and February 2, 2015 Resolutions denying her motion to reopen and petition for
reconsideration; (2) the reopening of the case for further reception of evidence; and (3) the
recall of the Entry of Judgment dated June 26, 2013. 33

First of all, there is no merit in petitioner's claim that since her counsel was not properly notified
of the August 31, 2010 Resolution as notice thereof was erroneously sent to her old office
address, the entry of judgment is premature. As the Court sees it, petitioner has no one but
herself to blame. Time and again, the Court has held that in the absence of a proper and
adequate notice to the court of a change of address, the service of the order or resolution of a
court upon the parties must be made at the last address of their counsel on record.  It is the
34

duty of the party and his counsel to device a system for the receipt of mail intended for them,
just as it is the duty of the counsel to inform the court officially of a change in his address.  If
35

counsel moves to another address without informing the court of that change, such omission or
neglect is inexcusable and will not stay the finality of the decision. The court cannot be expected
to take judicial notice of the new address of a lawyer who has moved or to ascertain on its own
whether or not the counsel of record has been changed and who the new counsel could
possibly be or where he probably resides or holds office. 36

Here, it is undisputed that petitioner's counsel failed to inform the court of the change in her
office address from Poblacion, La Trinidad, Benguet, to the Public Attorney's Office in Tayug,
Pangasinan. The fact that said new address was indicated in petitioner's Motion for
Reconsideration does not suffice as "proper and adequate notice" to the court. As previously
stated, courts cannot be expected to take notice of every single time the counsel of a party
changes address. Besides, it must be noted that petitioner even expressly admitted having
received the subject resolution "sometime in September or October 2010."  Easily, she could
37

have informed her counsel of the same. As respondent posits, it is not as if petitioner had no
knowledge of the whereabouts of her counsel considering that at the time of the filing of her
Motion for Reconsideration, said counsel was already with the PA0.  Moreover, the Court
38

cannot permit petitioner's reliance on the Chavez case because there, petitioner did not receive
the resolution of the Court of Appeals through no fault or negligence on his paii.  Here,
39

however, petitioner's non-receipt of the subject resolution was mainly attributable not only to her
counsel's negligence but hers, as well. Thus, the Court deems it necessary to remind litigants,
who are represented by counsel, that they should not expect that all they need to do is sit back,
relax and await the outcome of their case. They should give the necessary assistance to their
counsel for what is at stake is their interest in the case. It is, therefore, their responsibility to
check the status of their case from time to time. 40

To recall, petitioner, on December 21, 2009, filed her Motion for Reconsideration seeking a
reversal of the Sandiganbayan's November 13, 2009 Decision which affirmed the RTC's ruling
convicting her of the crime of malversation. In a Resolution dated August 31, 2010, the
Sandiganbayan denied petitioner's Motion for Reconsideration. Said resolution became final in
the absence of any pleading filed thereafter, and hence, was recorded in the Book of Entries of
Judgments on June 26, 2013. Subsequently, on July 12, 2013, petitioner, through her new
counsel, filed an Urgent Motion to Reopen the Case with Leave of Court and with Prayer to
Stay the Execution, which was denied through the Sandiganbayan's Resolution dated
December 4, 2013.  Undeterred, petitioner filed her Petition for Reconsideration with Prayer for
41

Recall of Entry of Judgment in lieu of the Prayer for the Stay of Execution of Judgement on
January 9, 2014 which was likewise denied in the Sandiganbayan's February 2, 2015
Resolution.

It seems, therefore, that petitioner waited almost an entire three (3) year period from the denial
of her Motion for Reconsideration to act upon the malversation case against her through the
filing of her urgent motion to reopen. In fact, her filing of said motion may very well be prompted
only by her realization that the case has finally concluded by reason of the entry of judgment.
Stated otherwise, the Court is under the impression that had she not heard of the recording of
the August 31, 2010 Resolution in the Book of Entries of Judgments on June 26, 2013,
petitioner would not even have inquired about the status of her case. As respondent puts it, the
urgent motion to reopen appears to have been filed as a substitute for the lost remedy of an
appeal via a petition for review on certiorari before the Court.  On this inexcusable negligence
42

alone, the Court finds sufficient basis to deny the instant petition.

Second of all, petitioner's claim that the Sandiganbayan's denial of her motion to reopen the
case is capricious, despotic, and whimsical since the admission of her additional evidence will
prevent a miscarriage has no legal nor factual leg to stand on. Section 24, Rule 119 and
existing jurisprudence provide for the following requirements for the reopening a case: (l) the
reopening must be before the finality of a judgment of conviction; (2) the order is issued by the
judge on his own initiative or upon motion; (3) the order is issued only after a hearing is
conducted; (4) the order intends to prevent a miscarriage of justice; and (5) the presentation of
additional and/or further evidence should be terminated within thirty days from the issuance of
the order. 43

But as the Sandiganbayan ruled, the absence of the first requisite that the reopening must be
before the finality of a judgment of conviction already cripples the motion.  The records of the
1âwphi1

case clearly reveal that the August 3l, 2010 Resolution of the Sandiganbayan denying
petitioner's Motion for Reconsideration had already become final and executory and, in fact,
was already recorded in the Entry Book of Judgments on June 26, 2013. Moreover, petitioner's
supposed predicament about her former counsel failing to present witnesses and documents
should have been advanced before the trial court.  It is the trial court, and neither the
44

Sandiganbayan nor the Court, which receives evidence and rules over exhibits formally
offered.  Thus, it was, indeed, too late in the day to advance additional allegations for petitioner
45

had all the opportunity to do so in the lower court. An appellate court will generally not disturb
the trial court's assessment of factual matters except only when it clearly overlooked certain
facts or where the evidence fails to substantiate the lower court's findings or when the disputed
decision is based on a misapprehension of facts. 46

Ultimately, it bears stressing that the Court does not find that the Sandiganbayan acted in a
capricious, despotic, or whimsical manner when it denied petitioner's motion to reopen
especially in view of the fact that the rulings it seeks to refute are legally sound and
appropriately based on the evidences presented by the parties. On this score, the elements of
malversation of public funds under Article 217 of the Revised Penal Code (RPC) are: (1) that
the offender is a public officer; (2) that he had the custody or control of funds or property by
reason of the duties of his office; (3) that those funds or property were public funds or prope1iy
for which he was accountable; and (4) that he appropriated, took, misappropriated or consented
or, through abandonment or negligence, permitted another person to take them. This article
establishes a presumption that when a public officer fails to have duly forthcoming any public
funds with which he is chargeable, upon demand by any duly authorized officer, it shall
be prima facie evidence that he has put such missing funds to personal uses. 47

As duly found by the trial court, and affinned by the Sandiganbayan, petitioner's defense that
she, together with her supervisor Cecilia Paraiso, went to the LBP and handed the subject
₱11,300.00 deposit to the teller Ngaosi and, thereafter, had no idea as to where the money
went failed to overcome the presumption of law. For one, Paraiso was never presented to
corroborate her version. For another, when questioned about the subject deposit, not only did
petitioner fail to make the same readily available, she also could not satisfactorily explain its
whereabouts. Indeed, in the crime of malversation, all that is necessary for conviction is
sufficient proof that the accountable officer had received public funds, that she did not have
them in her possession when demand therefor was made, and that she could not satisfactorily
explain her failure to do so.48 Thus, even if it is assumed that it was somebody else who
misappropriated the said amount, petitioner may still be held liable for malversation. The Comi
quotes, with approval, the trial court's ruling, viz.:
Even if the claim of Hernan, i.e., that she actually left the amount of ₱11,300.00 and the
corresponding deposit slip with the Bank Teller Ngaosi and she came back to retrieve
the deposit slip later, is to be believed and then it came out that the said ₱11,300.00 was
not credited to the account of DOTC with the Land Bank and was in fact missing, still
accused Hernan should be convicted of malversation because in this latter situation she
permits through her inexcusable negligence another person to take the money. And this
is still malversation under Article 217. 49

Said ruling was, in fact, duly reiterated by the Sandiganbayan in its Decision, thus:

Shifting our gaze to the possibility that it was the bank teller Catalina Ngaosi who
misappropriated the amount and should therefore be held liable, as the accused would want to
poltray, the Court doubts the tenability of that position. As consistently ruled by jurisprudence, a
public officer may be held liable for malversation even if he does not use public property or
funds under his custody for his personal benefit, but consents to the taking thereof by another
person, or, through abandonment or negligence, permitted such taking. The accused, by her
negligence, simply created the opportunity for the misappropriation. Even her
justification that her deposits which were not machine-validated were nonetheless
acknowledged by the bank cannot fortify her defense. On the contrary, it all the more
emphasizes her propensity for negligence each time that she accepted deposit slips
which were not machinevalidated, her only proof of receipt of her deposits.  50

In view of the foregoing, the Court agrees with the Sandiganbayan's finding that petitioner's
motion to reopen and petition for reconsideration are practically second and third motions for
reconsideration from its Decision dated November 13, 2009. Under the rules, the motions are
already prohibited pleadings under Section 5, Rule 37 of the Rules of Court due to the fact that
the grounds raised in the petition for reconsideration are merely a rehash of those raised in the
two (2) previous motions filed before it. These grounds were already thoroughly discussed by
the Sandiganbayan in its subject resolutions. Hence, as duly noted by the Sandiganbayan, in
the law of pleading, courts are called upon to pierce the form and go into the substance, not to
be misled by a false or wrong name given to a pleading because the title thereof is not
controlling and the court should be guided by its averments.  Thus, the fact that the pleadings
51

filed by petitioner are entitled Urgent Motion to Reopen the Case with Leave of Court and with
Prayer to Stay Execution and Petition for Reconsideration with Prayer for Recall of Entry of
Judgment in lieu of the Prayer for Stay of Execution of Judgment does not exempt them from
the application of the rules on prohibited pleadings.

Let it be remembered that the doctrine of finality of judgment is grounded on the fundamental
principle of public policy and sound practice that, at the risk of occasional error, the judgment of
courts and the award of quasi-judicial agencies must become final on some definite date fixed
by law. The only exceptions to the general rule are the correction of clerical errors, the so-
called nunc pro tune entries which cause no prejudice to any party, void judgments, and
whenever circumstances transpire after the finality of the decision which render its execution
unjust and inequitable.  None of the exceptions is present in this case.
52

Indeed, every litigation must come to an end once a judgment becomes final, executory and
unappealable. Just as a losing party has the right to file an appeal within the prescribed period,
the winning party also has the correlative right to enjoy the finality of the resolution of his case
by the execution and satisfaction of the judgment, which is the "life of the law." To frustrate it by
dilatory schemes on the part of the losing party is to frustrate all the efforts, time and
expenditure of the courts. It is in the interest of justice that this Court should write finis to this
litigation.
53

The foregoing notwithstanding, the Court finds that it is still necessary to reopen the instant
case and recall the Entry of Judgment dated June 26, 2013 of the Sandiganbayan, not for
further reception of evidence, however, as petitioner prays for, but in order to modify the penalty
imposed by said court. The general rule is that a judgment that has acquired finality becomes
immutable and unalterable, and may no longer be modified in any respect even if the
modification is meant to correct erroneous conclusions of fact or law and whether it will be made
by the court that rendered it or by the highest court of the land.  When, however, circumstances
54

transpire after the finality of the decision rendering its execution unjust and inequitable, the
Court may sit en bane and give due regard to such exceptional circumstance warranting the
relaxation of the doctrine of immutability. The same is in line with Section 3(c),  Rule II of the
55

Internal Rules of the Supreme Court, which provides that cases raising novel questions of law
are acted upon by the Court en bane. To the Court, the recent passage of Republic
Act (R.A.) No. 10951 entitled An Act Adjusting the Amount or the Value of Property and
Damage on which a Penalty is Based and the Fines Imposed Under the Revised Penal Code
Amending for the Purpose Act No. 3815 Otherwise Known as the "Revised Penal Code" as
Amended which accordingly reduced the penalty applicable to the crime charged herein is an
example of such exceptional circumstance. Section 40 of said Act provides:
SEC. 40. Article 217 of the same Act, as amended by Republic Act. No. 1060, is hereby further
amended to read as follows:

ART. 217. Malversation of public funds or property; Presumption of malversation. - Any public

officer who, by reason of the duties of his office, is accountable for public funds or property,
shall appropriate the same, or shall take or misappropriate or shall consent, through
abandonment or negligence, shall permit any other person to take such public funds, or
property, wholly or partially, or shall otherwise be guilty of the misappropriation or malversation
of such funds or property, shall suffer:

1. The penalty of pnswn correccional in its medium and maximum periods, if the amount
involved in the misappropriation or malversation docs not exceed Forty thousand pesos
(₱40,000.00).

xxxx

In all cases, persons guilty of malversation shall also suffer the penalty of perpetual special
disqualification and a fine equal to the amount of the funds malversed or equal to the total value
of the property embezzled.

Pursuant to the aforequoted provision, therefore, We have here a novel situation wherein the
judgment convicting the accused, petitioner herein, has already become final and executory and
yet the penalty imposed thereon has been reduced by virtue of the passage of said law.
Because of this, not only must petitioner's sentence be modified respecting the settled rule on
the retroactive effectivity of laws, the sentencing being favorable to the accused,  she may even
56

apply for probation,  as long as she does not possess any ground for disqualification,  in view of
57 58

recent legislation on probation, or R.A. No. 10707 entitled An Act Amending Presidential Decree
No. 968, otherwise known as the "Probation Law of 1976," As Amended. allowing an accused to
apply for probation in the event that she is sentenced to serve a maximum term of imprisonment
of not more than six (6) years when a judgment of conviction imposing a non-probationable
penalty is appealed or reviewed, and such judgment is modified through the imposition of a
probationable penalty. 59

Thus, in order to effectively avoid any injustice that petitioner may suffer as well as a possible
multiplicity of suits arising therefrom, the Court deems it proper to reopen the instant case and
recall the Entry of Judgment dated June 26, 2013 of the Sandiganbayan, which imposed the
penalty of six (6) years and one (1) day of prision mayor, as minimum, to eleven (11) years, six
(6) months, and twenty-one (21) days of prision mayor, as maximum. Instead, since the amount
involved herein is ₱11,300.00, which does not exceed ₱40,000.00, the new penalty that should
be imposed is prision correccional in its medium and maximum periods, which has a prison term
of two (2) years, four (4) months, and one (1) day, to six (6) years. The Court, however, takes
note of the presence of the mitigating circumstance of voluntary surrender appreciated by the
Sandiganbayan in favor of petitioner.  Hence, taking into consideration the absence of any
60

aggravating circumstance and the presence of one (1) mitigating circumstance, the range of the
penalty that must be imposed as the maximum term should be prision correccional medium
to prision correccional maximum in its minimum period, or from two (2) years, four (4) months,
and one (1) day, to three (3) years, six (6) months, and twenty (20) days, in accordance with
Article 64  of the RPC. Applying the Indeterminate Sentence Law, the range of the minimum
61

term that should be imposed upon petitioners is anywhere within the period of arresto
mayor, maximum to prision correccional minimum with a range of four (4) months and one (1)
day to two (2) years and four (4) months. Accordingly, petitioner is sentenced to suffer the
indeterminate penalty of six (6) months of arresto mayor, as minimum, to three (3) years, six (6)
months, and twenty (20) days prision correccional, as maximum.

On a final note, judges, public prosecutors, public attorneys, private counsels, and such other
officers of the law are hereby advised to similarly apply the provisions of RA No. 10951
whenever it is, by reason of justice and equity, called for by the facts of each case. Hence, said
recent legislation shall find application in cases where the imposable penalties of the affected
crimes such as theft, qualified theft, estafa, robbery with force upon things, malicious mischief,
malversation, and such other crimes, the penalty of which is dependent upon the value of the
object in consideration thereof, have been reduced, as in the case at hand, taking into
consideration the presence of existing circumstances attending its commission. For as long as it
is favorable to the accused, said recent legislation shall find application regardless of whether
its effectivity comes after the time when the judgment of conviction is rendered and even if
service of sentence has already begun. The accused, in these applicable instances, shall be
entitled to the benefits of the new law warranting him to serve a lesser sentence, or to his
release, if he has already begun serving his previous sentence, and said service already
accomplishes the term of the modified sentence. In the latter case, moreover, the Court, in the
interest of justice and expediency, further directs the appropriate filing of an action before the
Court that seeks the reopening of the case rather than an original petition filed for a similar
purpose.
Indeed, when exceptional circumstances exist, such as the passage of the instant amendatory
law imposing penalties more lenient and favorable to the accused, the Court shall not hesitate
to direct the reopening of a final and immutable judgment, the objective of which is to correct not
so much the findings of guilt but the applicable penalties to be imposed.

Henceforth: (1) the Directors of the National Penitentiary and Correctional Institution for Women
are hereby ordered to determine if there are accused serving final sentences similarly situated
as the accused in this particular case and if there are, to coordinate and communicate with the
Public Attorney's Office and the latter, to represent and file the necessary pleading before this
Court in behalf of these convicted accused in light of this Court's pronouncement; (2) For those
cases where the accused are undergoing preventive imprisonment, either the cases against
them are non-bailable or cannot put up the bail in view of the penalties imposable under the old
law, their respective counsels are hereby ordered to file the necessary pleading before the
proper courts, whether undergoing trial in the RTC or undergoing appeal in the appellate courts
and apply for bail, for their provisional liberty; (3) For those cases where the accused are
undergoing preventive imprisonment pending trial or appeal, their respective counsels are
hereby ordered to file the necessary pleading if the accused have already served the minimum
sentence of the crime charged against them based on the penalties imposable under the new
law, R.A. No. 10951, for their immediate release in accordance with A.M. No. 12-11-2-SC or
the Guidelines For Decongesting Holding Jails By Enforcing The Rights Of Accused Persons To
Bail And To Speedy Trial; 62 and (4) Lastly, all courts, including appellate courts, are hereby
ordered to give priority to those cases covered by R.A. No. 10951 to avoid any prolonged
imprisonment.

WHEREFORE, premises considered, the instant petition is DENIED. The Resolution dated

February 2, 2015 and Decision dated November 13, 2009 of the Sandiganbayan 2nd Division
are AFFIRMED with MODIFICATION. Petitioner is hereby sentenced to suffer the indeterminate
penalty of six (6) months of arresto mayor, as minimum term, to three (3) years, six (6) months,
and twenty (20) days prision correccional, as maximum term.

Let copies of this Decision be furnished to the Office of the Court Administrator (OCA) for
dissemination to the First and Second Level courts, and also to the Presiding Justices of the
appellate courts, the Department of Justice, Office of the Solicitor General, Public Attorney's
Office, Prosecutor General's Office, the Directors of the National Penitentiary and Correctional
Institution for Women, and the Integrated Bar of the Philippines for their information, guidance,
and appropriate action.

Likewise, let the Office of the President, the Senate of the Philippines, and the House of
Representatives, be furnished copies of this Decision for their information.

SO ORDERED.
 THIRD DIVISION

April 5, 2017

G.R. No. 222743

MEDICARD PHILIPPINES, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

REYES,, J.:

This appeal by Petition for Review  seeks to reverse and set aside the Decision  dated
1 2

September 2, 2015 and Resolution  dated January 29, 2016 of the Court of Tax Appeals (CTA)
3

en bane in CTA EB No. 1224, affirming with modification the Decision  dated June 5, 2014 and
4

the Resolution  dated September 15, 2014.in CTA Case No. 7948 of the CTA Third Division,
5

ordering petitioner Medicard Philippines, Inc. (MEDICARD), to pay respondent Commissioner of

Internal Revenue (CIR) the deficiency

Value-Added Tax. (VAT) assessment in the aggregate amount of ₱220,234,609.48, plus 20%
interest per annum starting January 25, 2007, until fully paid, pursuant to Section 249(c)  of the
6

National Internal Revenue Code (NIRC) of 1997.

The Facts

MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and
medical insurance coverage to its clients. Individuals enrolled in its health care programs pay an
annual membership fee and are entitled to various preventive, diagnostic and curative medical
services provided by duly licensed physicians, specialists and other professional technical staff
participating in the group practice health delivery system at a hospital or clinic owned, operated
or accredited by it. 7

MEDICARD filed its First, Second, and Third Quarterly VAT Returns through Electronic Filing
and Payment System (EFPS) on April 20, 2006, July 25, 2006 and October 20, 2006,
respectively, and its Fourth Quarterly VAT Return on January 25, 2007. 8

Upon finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT
Returns, the CIR informed MEDICARD and issued a Letter Notice (LN) No. 122-VT-06-00-
00020 dated

September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice
(PAN) against MEDICARD for deficiency VAT. A Memorandum dated December 10, 2007 was
likewise issued recommending the issuance of a Formal Assessment Notice (FAN) against
MEDICARD.  On. January 4, 2008, MEDICARD received CIR's FAN dated December' 10, 2007
9

for alleged deficiency VAT for taxable year 2006 in the total amount of Pl 96,614,476.69,10
inclusive of penalties.  11

According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts without
any deduction under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005.
Citing Commissioner of Internal Revenue v. Philippine Health Care Providers, Inc.,   the CIR
12

argued that since MEDICARD. does not actually provide medical and/or hospital services, but
merely arranges for the same, its services are not VAT exempt. 13

MEDICARD argued that: (1) the services it render is not limited merely to arranging for the
provision of medical and/or hospital services by hospitals and/or clinics but include actual and
direct rendition of medical and laboratory services; in fact, its 2006 audited balance sheet shows
that it owns x-ray and laboratory facilities which it used in providing medical and laboratory
services to its members; (2) out of the ₱l .9 Billion membership fees, ₱319 Million was received
from clients that are registered with the Philippine Export Zone Authority (PEZA) and/or Bureau
of Investments; (3) the processing fees amounting to ₱l 1.5 Million should be excluded from
gross receipts because P5.6 Million of which represent advances for professional fees due from
clients which were paid by MEDICARD while the remainder was already previously subjected to
VAT; (4) the professional fees in the amount of Pl 1 Million should also be excluded because it
represents the amount of medical services actually and directly rendered by MEDICARD and/or
its subsidiary company; and (5) even assuming that it is liable to pay for the VAT, the 12% VAT
rate should not be applied on the entire amount but only for the period when the 12% VAT rate
was already in effect, i.e., on February 1, 2006. It should not also be held liable for surcharge
and deficiency interest because it did not pass on the VAT to its members. 14

On February 14, 2008, the CIR issued a Tax Verification Notice authorizing Revenue Officer
Romualdo Plocios to verify the supporting documents of MEDICARD's Protest. MEDICARD also
submitted additional supporting documentary evidence in aid of its Protest thru a letter dated
March 18, 2008. 15

On June 19, 2009, MEDICARD received CIR's Final Decision on Disputed Assessment dated
May 15, 2009, denying MEDICARD's protest, to wit:

IN VIEW HEREOF, we deny your letter protest and hereby reiterate in toto assessment of
deficiency [VAT] in total sum of ₱196,614,476.99. It is requested that you pay said deficiency
taxes immediately. Should payment be made later, adjustment has to be made to impose
interest until date of payment. This is olir final decision. If you disagree, you may take an appeal
to the [CTA] within the period provided by law, otherwise, said assessment shall become final,
executory and demandable.  16

On July 20, 2009, MEDICARD proceeded to file a petition for review before the CT A, reiterating
its position before the tax authorities. 
17

On June 5, 2014, the CTA Division rendered a Decision  affirming with modifications the CIR's
18

deficiency VAT assessment covering taxable year 2006, viz.:

WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against

[MEDICARD] covering taxable year 2006 ·is hereby AFFIRMED WITH
MODIFICATIONS. Accordingly, [MEDICARD] is ordered to pay [CIR] the amount of P223,l
73,208.35, inclusive of the twenty-five percent (25%) surcharge imposed under -Section 248(A)
(3) of the NIRC of 1997, as amended, computed as follows:

Basic Deficiency VAT ₱l78,538,566.68

Add: 25% Surcharge 44,634,641.67

Total ₱223.173.208.35

In addition, [MEDICARD] is ordered to pay:

a. Deficiency interest at the rate of twenty percent (20%) per annum on the basis
deficiency VAT of Pl 78,538,566.68 computed from January 25, 2007 until full payment
thereof pursuant to Section 249(B) of the NIRC of 1997, as amended; and

b. Delinquency interest at the rate of twenty percent (20%) per annum on the total
amount of ₱223,173,208.35 representing basic deficiency VAT of ₱l78,538,566.68 and·
25% surcharge of ₱44,634,64 l .67 and on the 20% deficiency interest which have
accrued as afore-stated in (a), computed from June 19, 2009 until full payment thereof
pursuant to Section 249(C) of the NIRC of 1997.

SO ORDERED. 19

The CTA Division held that: (1) the determination of deficiency VAT is not limited to the
issuance of Letter of Authority (LOA) alone as the CIR is granted vast powers to perform
examination and assessment functions; (2) in lieu of an LOA, an LN was issued to MEDICARD
informing it· of the discrepancies between its ITRs and VAT Returns and this procedure is
authorized under Revenue Memorandum Order (RMO) No. 30-2003 and 42-2003; (3)
MEDICARD is estopped from questioning the validity of the assessment on the ground of lack
of LOA since the assessment issued against MEDICARD contained the requisite legal and
factual bases that put MEDICARD on notice of the deficiencies and it in fact availed of the
remedies provided by law without questioning the nullity of the assessment; (4) the amounts
that MEDICARD earmarked , and eventually paid to doctors, hospitals and clinics cannot be
excluded from · the computation of its gross receipts under the provisions of RR No. 4-2007
because the act of earmarking or allocation is by itself an act of ownership and management
over the funds by MEDICARD which is beyond the contemplation of RR No. 4-2007; (5)
MEDICARD's earnings from its clinics and laboratory facilities cannot be excluded from its gross
receipts because the operation of these clinics and laboratory is merely an incident to
MEDICARD's main line of business as HMO and there is no evidence that MEDICARD
segregated the amounts pertaining to this at the time it received the premium from its members;
and (6) MEDICARD was not able to substantiate the amount pertaining to its January 2006
income and therefore has no basis to impose a 10% VAT rate. 20

Undaunted, MEDICARD filed a Motion for Reconsideration but it was denied. Hence,
MEDICARD elevated the matter to the CTA en banc.

In a Decision  dated September 2, 2015, the CTA en banc partially granted the petition only
21

insofar as the 10% VAT rate for January 2006 is concerned but sustained the findings of the
CTA Division in all other matters, thus:

WHEREFORE, in view thereof, the instant Petition for Review is hereby PARTIALLY

GRANTED. Accordingly, the Decision date June 5, 2014 is hereby MODIFIED, as follows:

"WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against

[MEDICARD] covering taxable year 2006 is hereby AFFIRMED WITH

MODIFICATIONS. Accordingly, [MEDICARD] is ordered to pay [CIR] the amount of
₱220,234,609.48, inclusive of the 25% surcharge imposed under Section 248(A)(3) of the NIRC
of 1997, as amended, computed as follows:

Basic Deficiency VAT ₱76,187,687.58

Add: 25% Surcharge 44,046,921.90

Total ₱220,234.609.48

In addition, [MEDICARD] is ordered to pay:

(a) Deficiency interest at the rate of 20% per annum on the basic deficiency VAT of ₱l
76,187,687.58 computed from January 25, 2007 until full payment thereof pursuant to
Section 249(B) of the NIRC of 1997, as amended; and

(b) Delinquency interest at the rate of 20% per annum on the total amount of
₱220,234,609.48 (representing basic deficiency VAT of ₱l76,187,687.58 and 25%
surcharge of ₱44,046,921.90) and on the deficiency interest which have accrued as
afore-stated in (a), computed from June 19, 2009 until full payment thereof pursuant to
Section 249(C) of the NIRC of 1997, as amended."

SO ORDERED. 22

Disagreeing with the CTA en bane's decision, MEDICARD filed a motion for reconsideration but
it was denied.  Hence, MEDICARD now seeks recourse to this Court via a petition for review
23

on certiorari.

The Issues

l. WHETHER THE ABSENCE OF THE LOA IS FATAL; and

2. WHETHER THE AMOUNTS THAT MEDICARD EARMARKED AND EVENTUALLY

PAID TO THE MEDICAL SERVICE PROVIDERS SHOULD STILL FORM PART OF ITS
GROSS RECEIPTS FOR VAT PURPOSES. 24

Ruling of the Court

The petition is meritorious.

The absence of an LOA violated

MEDICARD's right to due process

An LOA is the authority given to the appropriate revenue officer assigned to perform
assessment functions. It empowers or enables said revenue officer to examine the books of
account and other accounting records of a taxpayer for the purpose of collecting the correct
amount of tax.   An LOA is premised on the fact that the examination of a taxpayer who has
25

already filed his tax returns is a power that statutorily belongs only to the CIR himself or his duly
authorized representatives. Section 6 of the NIRC clearly provides as follows:
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement. –

(A) Examination of Return and Determination of Tax Due.- After a return has been filed as
required under the provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examinationof any taxpayer and the assessment of the
correct amount of tax: Provided, however, That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer.

x x x x (Emphasis and underlining ours)

Based on the afore-quoted provision, it is clear that unless authorized by the CIR himself or by
his duly authorized representative, through an LOA, an examination of the taxpayer cannot
ordinarily be undertaken. The circumstances contemplated under Section 6 where the taxpayer
may be assessed through best-evidence obtainable, inventory-taking, or surveillance among
others has nothing to do with the LOA. These are simply methods of examining the taxpayer in
order to arrive at .the correct amount of taxes. Hence, unless undertaken by the CIR himself or
his duly authorized representatives, other tax agents may not validly conduct any of these kinds
of examinations without prior authority.

With the advances in information and communication technology, the Bureau of Internal
Revenue (BIR) promulgated RMO No. 30-2003 to lay down the policies and guidelines once its
then incipient centralized Data Warehouse (DW) becomes fully operational in conjunction with
its Reconciliation of Listing for Enforcement System (RELIEF System).  This system can detect
26

tax leaks by matching the data available under the BIR's Integrated Tax System (ITS) with data
gathered from third-party sources. Through the consolidation and cross-referencing of third-
party information, discrepancy reports on sales and purchases can be generated to uncover
under declared income and over claimed purchases of Goods and services.

Under this RMO, several offices of the BIR are tasked with specific functions relative to the
RELIEF System, particularly with regard to LNs. Thus, the Systems Operations Division (SOD)
under the Information Systems Group (ISG) is responsible for: (1) coming up with the List of
Taxpayers with discrepancies within the threshold amount set by management for the issuance
of LN and for the system-generated LNs; and (2) sending the same to the taxpayer and to the
Audit Information, Tax Exemption and Incentives Division (AITEID). After receiving the LNs, the
AITEID under the Assessment

Service (AS), in coordination with the concerned offices under the ISG, shall be responsible for
transmitting the LNs to the investigating offices [Revenue District Office (RDO)/Large Taxpayers
District Office (LTDO)/Large Taxpayers Audit and Investigation Division (LTAID)]. At the level of
these investigating offices, the appropriate action on the LN s issued to taxpayers with RELIEF
data discrepancy would be determined.

RMO No. 30-2003 was supplemented by RMO No. 42-2003, which laid down the "no-contact-
audit approach" in the CIR's exercise of its ·power to authorize any examination of taxpayer
arid the assessment of the correct amount of tax. The no-contact-audit approach includes the
process of computerized matching of sales and purchases data contained in the Schedules of
Sales and Domestic Purchases and Schedule of Importation submitted by VAT taxpayers under
the RELIEF System pursuant to RR No. 7-95, as amended by RR Nos. 13-97, 7-99 and 8-2002.
This may also include the matching of data from other information or returns filed by the
taxpayers with the BIR such as Alphalist of Payees subject to Final or Creditable Withholding
Taxes.

Under this policy, even without conducting a detailed examination of taxpayer's books and
records, if the computerized/manual matching of sales and purchases/expenses appears to
reveal discrepancies, the same shall be communicated to the concerned taxpayer through the
issuance of LN. The LN shall serve as a discrepancy notice to taxpayer similar to a Notice for
Informal Conference to the concerned taxpayer. Thus, under the RELIEF System, a revenue
officer may begin an examination of the taxpayer even prior to the issuance of an LN or even in
the absence of an LOA with the aid of a computerized/manual matching of taxpayers':
documents/records. Accordingly, under the RELIEF System, the presumption that the tax
returns are in accordance with law and are presumed correct since these are filed under the
penalty of perjury  are easily rebutted and the taxpayer becomes instantly burdened to explain
27

a purported discrepancy.

Noticeably, both RMO No. 30-2003 and RMO No. 42-2003 are silent on the statutory
requirement of an LOA before any investigation or examination of the taxpayer may be
conducted. As provided in the RMO No. 42-2003, the LN is merely similar to a Notice for
Informal Conference. However, for a Notice of Informal Conference, which generally precedes
the issuance of an assessment notice to be valid, the same presupposes that the revenue
officer who issued the same is properly authorized in the first place.
With this apparent lacuna in the RMOs, in November 2005, RMO No. 30-2003, as
supplemented by RMO No. 42-2003, was amended by RMO No. 32-2005 to fine tune existing
procedures in handing assessments against taxpayers'· issued LNs by reconciling various
revenue issuances which conflict with the NIRC. Among the objectives in the issuance of RMO
No. 32-2005 is to prescribe procedure in the resolution of LN discrepancies, conversion of LNs
to LOAs and assessment and collection of deficiency taxes.

IV. POLICIES AND GUIDELINES

xxxx

8. In the event a taxpayer who has been issued an LN refutes the discrepancy shown in
the LN, the concerned taxpayer will be given an opportunity to reconcile its records with those
of the BIR within

One Hundred and Twenty (120) days from the date of the issuance of the LN. However, the
subject taxpayer shall no longer be entitled to the abatement of interest and penalties after the
lapse of the sixty (60)-day period from the LN issuance.

9. In case the above discrepancies remained unresolved at the end of the One Hundred
and Twenty (120)-day period, the revenue officer (RO) assigned to handle the LN shall
recommend the issuance of [LOA) to replace the LN. The head of the concerned
investigating office shall submit a summary list of LNs for conversion to LAs (using the herein
prescribed format in Annex "E" hereof) to the OACIR-LTS I ORD for the preparation of the
corresponding LAs with the notation "This LA cancels LN_________ No. "

xxxx

V. PROCEDURES

xxxx

B. At the Regional Office/Large Taxpayers Service

xxxx

7. Evaluate the Summary List of LNs for Conversion to LAs submitted by the RDO x x x prior to
approval.

8. Upon approval of the above list, prepare/accomplish and sign the corresponding LAs.

xxxx

Decision 11 G.R. No. 222743

xxxx

10. Transmit the approved/signed LAs, together with the duly accomplished/approved Summary
List of LNs for conversion to LAs, to the concerned investigating offices for the encoding of the
required information x x x and for service to the concerned taxpayers.

xxxx

C. At the RDO x x x

xxxx

11. If the LN discrepancies remained unresolved within One Hundred and Twenty (120) days
from issuance thereof, prepare a summary list of said LN s for conversion to LAs x x x.

xxxx

16. Effect the service of the above LAs to the concerned taxpayers. 28

In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and FAN
against MED ICARD. Therefore no LOA was also served on MEDICARD. The LN that was
issued earlier was also not converted into an LOA contrary to the above quoted provision.
Surprisingly, the CIR did not even dispute the applicability of the above provision of RMO 32-
2005 in the present case which is clear and unequivocal on the necessity of an LOA for the·
assessment proceeding to be valid. Hence, the CTA's disregard of MEDICARD's right to due
process warrant the reversal of the assailed decision and resolution.

In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc. ,  the Court said that:
29

Clearly, there must be a grant of authority before any revenue officer can conduct an
examination or assessment. Equally important is that the revenue officer so authorized must not
go beyond the authority given. In the absence of such an authority, the assessment or
examination is a nullity.  (Emphasis and underlining ours)
30

The Court cannot convert the LN into the LOA required under the law even if the same was
issued by the CIR himself. Under RR No. 12-2002, LN is issued to a person found to have
underreported sales/receipts per data generated under the RELIEF system. Upon receipt of the
LN, a taxpayer may avail of the BIR's Voluntary Assessment and Abatement Program. If a
taxpayer fails or refuses to avail of the said program, the BIR may avail of administrative and
criminal .remedies, particularly closure, criminal action, or audit and investigation. Since the law
specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously
issued LN to an LOA, the absence thereof cannot be simply swept under the rug, as the CIR
would have it. In fact Revenue Memorandum Circular No. 40-2003 considers an LN as a notice
of audit or investigation only for the purpose of disqualifying the taxpayer from amending his
returns.

The following differences between an LOA and LN are crucial. First, an LOA addressed to a
revenue officer is specifically required under the NIRC before an examination of a taxpayer may
be had while an LN is not found in the NIRC and is only for the purpose of notifying the taxpayer
that a discrepancy is found based on the BIR's RELIEF System. Second, an LOA is valid only
for 30 days from date of issue while an LN has no such limitation. Third, an LOA gives the
revenue officer only a period of 10days from receipt of LOA to conduct his examination of the
taxpayer whereas an LN does not contain such a limitation.  Simply put, LN is entirely different
31

and serves a different purpose than an LOA. Due process demands, as recognized under RMO
No. 32-2005, that after an LN has serve its purpose, the revenue officer should have properly
secured an LOA before proceeding with the further examination and assessment of the
petitioner. Unfortunarely, this was not done in this case.

Contrary to the ruling of the CTA en banc, an LOA cannot be dispensed with just because none
of the financial books or records being physically kept by MEDICARD was examined. To begin
with, Section 6 of the NIRC requires an authority from the CIR or from his duly authorized
representatives before an examination "of a taxpayer" may be made. The requirement of
authorization is therefore not dependent on whether the taxpayer may be required to physically
open his books and financial records but only on whether a taxpayer is being subject to
examination.

The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts
much easier and faster. The ease by which the BIR's revenue generating objectives is achieved
is no excuse however for its non-compliance with the statutory requirement under Section 6 and
with its own administrative issuance. In fact, apart from being a statutory requirement, an LOA is
equally needed even under the BIR's RELIEF System because the rationale of requirement is
the same whether or not the CIR conducts a physical examination of the taxpayer's records: to
prevent undue harassment of a taxpayer and level the playing field between the government' s
vast resources for tax assessment, collection and enforcement, on one hand, and the solitary
taxpayer's dual need to prosecute its business while at the same time responding to the BIR
exercise of its statutory powers. The balance between these is achieved by ensuring that any
examination of the taxpayer by the BIR' s revenue officers is properly authorized in the first
place by those to whom the discretion to exercise the power of examination is given by the
statute.

That the BIR officials herein were not shown to have acted unreasonably is beside the point
because the issue of their lack of authority was only brought up during the trial of the case.
What is crucial is whether the proceedings that led to the issuance of VAT deficiency
assessment against MEDICARD had the prior approval and authorization from the CIR or her
duly authorized representatives. Not having authority to examine MEDICARD in the first place,
the assessment issued by the CIR is inescapably void.

At any rate, even if it is assumed that the absence of an LOA is not fatal, the Court still partially
finds merit in MEDICARD's substantive arguments.

The amounts earmarked and

eventually paid by MEDICARD to
the medical service providers do not
form part of gross receipts.for VAT
purposes
MEDICARD argues that the CTA en banc seriously erred in affirming the ruling of the CT A
Division that the gross receipts of an HMO for VAT purposes shall be the total amount of money
or its equivalent actually received from members undiminished by any amount paid or payable
to the owners/operators of hospitals, clinics and medical and dental practitioners. MEDICARD
explains that its business as an HMO involves two different although interrelated contracts. One
is between a corporate client and MEDICARD, with the corporate client's employees being
considered as MEDICARD members; and the other is between the health care
institutions/healthcare professionals and MED ICARD.

Under the first, MEDICARD undertakes to make arrangements with healthcare

institutions/healthcare professionals for the coverage of MEDICARD members under specific
health related services for a specified period of time in exchange for payment of a more or less
fixed membership fee. Under its contract with its corporate clients, MEDICARD expressly
provides that 20% of the membership fees per individual, regardless of the amount involved,
already includes the VAT of 10%/20% excluding the remaining 80o/o because MED ICARD
would earmark this latter portion for medical utilization of its members. Lastly, MEDICARD also
assails CIR's inclusion in its gross receipts of its earnings from medical services which it actually
and directly rendered to its members.

Since an HMO like MEDICARD is primarily engaged m arranging for coverage or designated
managed care services that are needed by plan holders/members for fixed prepaid membership
fees and for a specified period of time, then MEDICARD is principally engaged in the sale of
services. Its VAT base and corresponding liability is, thus, determined under Section 108(A)  of32

the Tax Code, as amended by Republic Act No. 9337.

Prior to RR No. 16-2005, an HMO, like a pre-need company, is treated for VAT purposes as a
dealer in securities whose gross receipts is the amount actually received as contract price
without allowing any deduction from the gross receipts.  This restrictive tenor changed under
33

RR No. 16-2005. Under this RR, an HMO's gross receipts and gross receipts in general were
defined, thus:

Section 4.108-3. xxx

xxxx

HMO's gross receipts shall be the total amount of money or its equivalent representing the
service fee actually or constructively received during the taxable period for the services
performed or to be performed for another person, excluding the value-added tax. The
compensation for their services representing their service fee, is presumed to be the
total amount received as enrollment fee from their members plus other charges received.

Section 4.108-4. x x x. "Gross receipts" refers to the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including the
amount charged for materials supplied with the services and deposits applied as payments for
services rendered, and advance payments actually or constructively received during the
taxable period for the services performed or to be performed for another person, excluding
the VAT. 34

In 2007, the BIR issued RR No. 4-2007 amending portions of RR No. 16-2005, including the
definition of gross receipts in general.
35

According to the CTA en banc, the entire amount of membership fees should form part of
MEDICARD's gross receipts because the exclusions to the gross receipts under RR No. 4-2007
does not apply to MEDICARD. What applies to MEDICARD is the definition of gross receipts of
an HMO under RR No. 16-2005 and not the modified definition of gross receipts in general
under the RR No. 4-2007.

The CTA en banc overlooked that the definition of gross receipts under. RR No. 16-2005 merely
presumed that the amount received by an HMO as membership fee is the HMO's compensation
for their services. As a mere presumption, an HMO is, thus, allowed to establish that a portion of
the amount it received as membership fee does NOT actually compensate it but some other
person, which in this case are the medical service providers themselves. It is a well-settled
principle of legal hermeneutics that words of a statute will be interpreted in their natural, plain
and ordinary acceptation and signification, unless it is evident that the legislature intended a
technical or special legal meaning to those words. The Court cannot read the word "presumed"
in any other way.

It is notable in this regard that the term gross receipts as elsewhere mentioned as the tax base
under the NIRC does not contain any specific definition.  Therefore, absent a statutory
36

definition, this Court has construed the term gross receipts in its plain and ordinary meaning,
that is, gross receipts is understood as comprising the entire receipts without any
deduction.  Congress, under Section 108, could have simply left the term gross receipts
37
similarly undefined and its interpretation subjected to ordinary acceptation,. Instead of doing so,
Congress limited the scope of the term gross receipts for VAT purposes only to the amount that
the taxpayer received for the services it performed or to the amount it received as advance
payment for the services it will render in the future for another person.

In the proceedings ·below, the nature of MEDICARD's business and the extent of the services it
rendered are not seriously disputed. As an HMO, MEDICARD primarily acts as an intermediary
between the purchaser of healthcare services (its members) and the healthcare providers (the
doctors, hospitals and clinics) for a fee. By enrolling membership with MED ICARD, its
members will be able to avail of the pre-arranged medical services from its accredited
healthcare providers without the necessary protocol of posting cash bonds or deposits prior to
being attended to or admitted to hospitals or clinics, especially during emergencies, at any given
time. Apart from this, MEDICARD may also directly provide medical, hospital and laboratory
services, which depends upon its member's choice.

Thus, in the course of its business as such, MED ICARD members can either avail of medical
services from MEDICARD's accredited healthcare providers or directly from MEDICARD. In the
former, MEDICARD members obviously knew that beyond the agreement to pre-arrange the
healthcare needs of its ·members, MEDICARD would not actually be providing the actual
healthcare service. Thus, based on industry practice, MEDICARD informs its would-be member
beforehand that 80% of the amount would be earmarked for medical utilization and only the
remaining 20% comprises its service fee. In the latter case, MEDICARD's sale of its services is
exempt from VAT under Section 109(G).

The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the
NIRC that would extend the definition of gross receipts even to amounts that do not only pertain
to the services to be performed: by another person, other than the taxpayer, but even to
amounts that were indisputably utilized not by MED ICARD itself but by the medical service
providers.

It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a
statute shall be considered surplusage or superfluous, meaningless, void and insignificant. To
this end, a construction which renders every word operative is preferred over that which makes
some words idle and nugatory. This principle is expressed in the maxim Ut magisvaleat quam
pereat, that is, we choose the interpretation which gives effect to the whole of the statute – it’s
every word.

In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, the Court
38

adopted the principal object and purpose object in determining whether the MEDICARD therein
is engaged in the business of insurance and therefore liable for documentary stamp tax. The
Court held therein that an HMO engaged in preventive, diagnostic and curative medical services
is not engaged in the business of an insurance, thus:

To summarize, the distinctive features of the cooperative are the rendering of service, its
extension, the bringing of physician and patient together, the preventive features, the
regularization of service as well as payment, the substantial reduction in cost by quantity
purchasing in short, getting the medical job done and paid for; not, except incidentally to
these features, the indemnification for cost after .the services is rendered. Except the
last, these are not distinctive or generally characteristic of the insurance
arrangement. There is, therefore, a substantial difference between contracting in this way for
the rendering of service, even on the contingency that it be needed, and contracting merely to
stand its cost when or after it is rendered.  (Emphasis ours)
39

In sum, the Court said that the main difference between an HMO arid an insurance company is
that HMOs undertake to provide or arrange for the provision of medical services through
participating physicians while insurance companies simply undertake to indemnify the insured
for medical expenses incurred up to a pre-agreed limit. In the present case, the VAT is a tax on
the value added by the performance of the service by the taxpayer. It is, thus, this service and
the value charged thereof by the taxpayer that is taxable under the NIRC.

To be sure, there are pros and cons in subjecting the entire amount of membership fees to
VAT.  But the Court's task however is not to weigh these policy considerations but to determine
40

if these considerations in favor of taxation can even be implied from the statute where the CIR
purports to derive her authority. This Court rules that they cannot because the language of the
NIRC is pretty straightforward and clear. As this Court previously ruled:

What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition
of taxes, not the similar doctrine as applied to tax exemptions. The rule in the interpretation of
tax laws is that a statute will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. A tax cannot be imposed without clear and express words
for that purpose. Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions of a
taxing act are not to be extended by implication. In answering the question of who is subject
to tax statutes, it is basic that in case of doubt, such statutes are to be construed most strongly
against the government and in favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes expressly and clearly import. As
burdens, taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax
laws.   (Citation omitted and emphasis and underlining ours)
41

For this Court to subject the entire amount of MEDICARD's gross receipts without exclusion, the
authority should have been reasonably founded from the language of the statute. That language
is wanting in this case. In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial. Our tax authorities fill in the details that
Congress may not have the opportunity or competence to provide. The regulations these
authorities issue are relied upon by taxpayers, who are certain that these will be followed by the
courts. Courts, however, will not uphold these authorities' interpretations when dearly absurd,
erroneous or improper.  The CIR's interpretation of gross receipts in the present case is
42

patently erroneous for lack of both textual and non-textual support.

As to the CIR's argument that the act of earmarking or allocation is by itself an act of ownership
and management over the funds, the Court does not agree.  On the contrary, it is MEDICARD's
1âwphi1

act of earmarking or allocating 80% of the amount it received as membership fee at the time of
payment that weakens the ownership imputed to it. By earmarking or allocating 80% of the
amount, MEDICARD unequivocally recognizes that its possession of the funds is not in the
concept of owner but as a mere administrator of the same. For this reason, at most,
MEDICARD's right in relation to these amounts is a mere inchoate owner which would ripen into
actual ownership if, and only if, there is underutilization of the membership fees at the end of the
fiscal year. Prior to that, MEDI CARD is bound to pay from the amounts it had allocated as an
administrator once its members avail of the medical services of MEDICARD's healthcare
providers.

Before the Court, the parties were one in submitting the legal issue of whether the amounts
MEDICARD earmarked, corresponding to 80% of its enrollment fees, and paid to the medical
service providers should form part of its gross receipt for VAT purposes, after having paid the
VAT on the amount comprising the 20%. It is significant to note in this regard that MEDICARD
established that upon receipt of payment of membership fee it actually issued two official
receipts, one pertaining to the VAT able portion, representing compensation for its services, and
the other represents the non-vatable portion pertaining to the amount earmarked for medical
utilization.: Therefore, the absence of an actual and physical segregation of the amounts
pertaining to two different kinds · of fees cannot arbitrarily disqualify MEDICARD from rebutting
the presumption under the law and from proving that indeed services were rendered by its
healthcare providers for which it paid the amount it sought to be excluded from its gross
receipts.

With the foregoing discussions on the nullity of the assessment on due process grounds and
violation of the NIRC, on one hand, and the utter lack of legal basis of the CIR's position on the
computation of MEDICARD's gross receipts, the Court finds it unnecessary, nay useless, to
discuss the rest of the parties' arguments and counter-arguments.

In fine, the foregoing discussion suffices for the reversal of the assailed decision and resolution
of the CTA en banc grounded as it is on due process violation. The Court likewise rules that for
purposes of determining the VAT liability of an HMO, the amounts earmarked and actually spent
for medical utilization of its members should not be included in the computation of its gross
receipts.

WHEREFORE, in consideration of the foregoing disquisitions, the petition is

hereby GRANTED. The Decision dated September 2, 2015 and Resolution dated January 29,
2016 issued by the Court of Tax Appeals en bane in CTA EB No. 1224 are REVERSED and
SET ASIDE. The definition of gross receipts under Revenue Regulations Nos. 16-2005 and 4-
2007, in relation to Section 108(A) of the National Internal Revenue Code, as amended by
Republic Act No. 9337, for purposes of determining its Value-Added Tax liability, is hereby
declared to EXCLUDE the eighty percent (80%) of the amount of the contract price earmarked
as fiduciary funds for the medical utilization of its members. Further, the Value-Added Tax
deficiency assessment issued against Medicard Philippines, Inc. is hereby declared
unauthorized for having been issued without a Letter of Authority by the Commissioner of
Internal Revenue or his duly authorized representatives.

SO ORDERED.
 THIRD DIVISION

G.R. Nos. 167274-75               September 11, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
FORTUNE TOBACCO CORPORATION, Respondent.

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

G.R. No. 192576

FORTUNE TOBACCO CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

VELASCO, JR., J.:

Fortune Tobacco Corporation (FTC), as petitioner in G.R. No. 192576, 1 assails and seeks the
reversal of the Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010, as
effectively reiterated in a Resolution of June 11, 2010, both rendered in C.T.A. EB No. 530
entitled Fortune Tobacco Corporation v. Commissioner of Internal Revenue. The assailed
issuances affirmed the Resolution of the CTA First Division dated June 4, 2009, denying the
Motion for Issuance of Additional Writ of Execution filed by herein petitioner in CTA Case Nos.
6365, 6383 & 6612, and the Resolution dated August 10, 2009 which denied its Motion for
Reconsideration.

The present appellate proceedings traces its origin from and finds context in the July 21, 2008
Decision2 of the Court in G.R. Nos. 167274-75, an appeal thereto interposed by the
Commissioner of Internal Revenue (BIR Commissioner) from the consolidated Decision and
Resolution issued by the Court of Appeals on September 28, 2004 and March 1, 2005,
respectively, in CA-G.R. SP Nos. 80675 and 83165. The decretal part of the July 21, 2008
Decision reads:

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No.
80675, dated 28 September 2004,and its Resolution, dated 1 March 2005, are AFFIRMED. No
pronouncement as to costs.

SO ORDERED.3 (Emphasis supplied.)

The antecedent facts, as summarized by the CTA in its adverted March 12, 2010 Decision, are
as follows:

FTC (herein petitioner Fortune Tobacco Corporation) is engaged in manufacturing or producing

cigarette brands with tax rate classification based on net retail price prescribed as follows:

Brand Tax Rate

Champion M 100 ₱1.00
Salem M 100 ₱1.00
Salem M King ₱1.00
Camel F King ₱1.00
Camel Lights Box 20’s ₱1.00
Camel Filters Box 20’s ₱1.00
 Winston F King ₱5.00
Winston Lights ₱5.00

Prior to January 1, 1997, the aforesaid cigarette brands were subject to ad-valorem tax under
Section 142 of the 1977 Tax Code, as amended. However, upon the effectivity of Republic Act
(R.A.) No. 8240on January 1, 1997, a shift from ad valorem tax system to the specific tax
system was adopted imposing excise taxes on cigarette brands under Section 142 thereof, now
renumbered as Section 145 of the 1997 Tax Code, stating the following pertinent provision:

The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of
R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1,
1996. x x x The rates of excise tax on cigars and cigarettes under paragraphs (1), (2), (3) and
(4) hereof, shall be increased by twelve percent (12%) on January 1, 2000.

Upon the Commissioner’s recommendation, the Secretary of Finance, issued Revenue

Regulations (RR) No. 17-99 dated December 16,1999 for the purpose of implementing the
provision for a 12% increase of excise tax on, among others, cigars and cigarettes packed by
machines by January 1, 2000. RR No. 17-99 provides that the new specific tax rate for any
existing brand of cigars, cigarettes packed by machine x x x shall not be lower than the excise
tax that is actually being paid prior to January 1, 2000.

FTC paid excise taxes on all its cigarettes manufactured and removed from its place of
production for the following period:

PERIOD PAYMENT
January 1, 2000 to ₱585,705,250.00
January 31, 2000
February 1, 2000 to ₱19,366,783,535.00
December 31,
2001
January 1, 2002 to ₱11,359,578,560.00
December 31,
2002

FTC subsequently sought administrative redress for refund before the Commissioner on the
following dates:

PERIOD ADMINISTRATIVE AMOUNT

FILING OF CLAIM CLAIMED
January 1, 2000 to February 7, 2000 ₱35,651,410.00
January 31, 2000
February 1, 2000 Various claims filed ₱644,735,615.00
to December 31, from
2001 March 21, 2000 –
January 28, 2002
January 1, 2002 to February 3, 2003 ₱355,385,920.00
December 31,
2002

(CTA En Banc Decision,

Annex "A," Petition, pp. 2-4)

2. Since the claim for refund was not acted upon, petitioner filed on December 11, 2001
and January 30, 2002, respectively, Petitions for Review before the Court of Tax
Appeals (CTA) docketed as CTA Case Nos. 6365 and 6383 questioning the validity of
Revenue Regulations No.17-99 with claims for refund in the amounts ₱35,651,410.00
and ₱644,735,615.00, respectively.

These amounts represented overpaid excise taxes for the periods from January 1, 2000
to January 31, 2000 and February 1, 2000 to December 31, 2001, respectively (Ibid.,
pp. 4-5).

3. In separate Decision dated October 21, 2002, the CTA in Division ordered the
Commissioner of Internal Revenue (respondent herein) to refund to petitioner the
erroneously paid excise taxes in the amounts of ₱35,651,410.00 for the period covering
January 1, 2000 to January 31, 2000 (CTA Case No. 6365) and ₱644,735,615.00 for
the period February 1, 2000 to December 31, 2001 (CTA Case No.6383) (Ibid.).

4. Respondent filed a motion for reconsideration of the Decision dated October 21, 2002
covering CTA Case Nos. 6365 and 6383which was granted in the Resolution dated July
15, 2003.

5. Subsequently, petitioner filed another petition docketed as CTA Case No. 6612
questioning the validity of Revenue Regulations No.17-99 with a prayer for the refund of
overpaid excise tax amounting to₱355,385,920.00, covering the period from January 1,
2002 to December 31, 2002 (Ibid., p. 5).

6. Petitioner thereafter filed a consolidated Motion for Reconsideration of the Resolution

dated July 15, 2003 (Ibid., pp. 5-6).

7. The CTA in Division issued Resolution dated November 4,2003 which reversed the
Resolution dated July 15, 2003 and ordered respondent to refund to petitioner the
amounts of 35,651,410.00 for the period covering January 1 to January 31, 2000 and
₱644,735,615.00 for the period covering February 1, 2000 to December 31, 2001, or in
the aggregate amount of ₱680,387,025.00, representing erroneously paid excise taxes
(Ibid., p. 6).

8. In its Decision dated December 4, 2003, the CTA in Division in Case No. 6612
declared RR No. 17-99 invalid and contrary to Section 145 of the 1997 National Internal
Revenue Code (NIRC). The Court ordered respondent to refund to petitioner the
amount of ₱355,385,920.00 representing overpaid excise taxes for the period covering
January 1, 2002 to December 21, 2002 (Ibid.)

9. Respondent filed a motion for reconsideration of the Decision dated December 4,

2003 but this was denied in the Resolution dated March 17, 2004 (Ibid.)

10. On December 10, 2003, respondent Commissioner filed a Petition for Review with
the Court of Appeals (CA) questioning the CTA Resolution dated November 4, 2003
which was issued in CTA Case Nos. 6365 and 6383. The case was docketed as CA-
G.R. SP No.80675 (Ibid.).

11. On April 28, 2004, respondent Commissioner filed another appeal before the CA
questioning the CTA Decision dated December 4, 2003 issued in CTA Case No. 6612.
The case was docketed as CA-G.R. SP No. 83165 (Ibid., p. 7).

12. Thereafter, petitioner filed a Consolidated Motion for Execution Pending Appeal
before the CTA for CTA Case Nos. 6365 and 6383 and an Amended Motion for
Execution Pending Appeal for CTA Case No. 6612 (Ibid.).

13. The motions were denied in the CTA Resolutions dated August 2, 2004 and August
3, 2004, respectively. The CTA in Division pointed out that Section 12, Rule 43 of
the1997 Rules of Civil Procedure should be interpreted with Section 18 of R.A. 1125
which provides that CTA rulings become final and conclusive only where there is no
perfected appeal. Considering that respondent filed an appeal with the CA, the CTA in
Division’s rulings granting the amounts of ₱355,385,920.00 and ₱680,387,025.00 were
not yet final and executory (Ibid.).

14. In the consolidated CA Decision dated September 28,2004 issued in CA-G.R. SP

Nos. 80675 (CTA Case Nos. 6365 and6383) and 83165 (CTA Case No. 6612), the
appellate court denied respondent’s petitions and affirmed petitioner’s refund claims in
the amounts of ₱680,387,025.00 (CTA Case Nos. 6365 and 6383) and₱355,385,920.00
(CTA Case No. 6612), respectively (Ibid., p. 8).

15. Respondent filed a motion for reconsideration of the CA Decision dated September
28, 2004 but this was denied in the CA’s Resolution dated March 1, 2005 (Ibid.).

16. Respondent, filed a Petition for Review on Certiorari docketed as G.R. Nos. 167274-
75 on May 4, 2005 before the Honorable Court. On June 22, 2005, a Supplemental
Petition for Review was filed and the petitions were consolidated (Ibid.).

17. In its Decision dated July 21, 2008 in G.R. Nos. 167274-75, the Honorable Court
affirmed the findings of the CA granting petitioner’s claim for refund. The dispositive
portion of said Decision reads:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP
No.80675, dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED.
No pronouncement as to costs.

SO ORDERED.

Commissioner of Internal
Revenue vs. Fortune Tobacco
Corporation, 559 SCRA 160
(2008)

18. On January 23, 2009, petitioner filed a motion for execution praying for the issuance of a
writ of execution of the Decision of the Honorable Court in G.R. Nos. 167274-75 dated July 21,
2008 which was recorded in the Book of Entries of Judgments on November 6, 2008(Ibid., p.
10).

Petitioner’s prayer was for the CTA to order the BIR to pay/refund the amounts adjudged by the
CTA, as follows:

a) CTA Case No. 6612 under the Decision 04 December 2003 – the amount of Three
Hundred Fifty Five Million Three Hundred Eighty Five Thousand Nine Hundred Twenty
Pesos (₱355,385,920.00).

b) CTA Case Nos. 6365 and 6383 under the Decisions dated 21 October 2002 and
Resolution dated 04 November 2003 – the amount of Six Hundred Eighty Million Three
Hundred Eighty Seven Thousand Twenty Five Pesos (₱680,387,025.00).

(Petition, p. 11)

19. On April 14, 2009, the CTA issued a Writ of Execution, which reads:

You are hereby ORDERED TO REFUND in favor of the petitioner FORTUNE TOBACCO
CORPORATION, pursuant to the Supreme Court Decision in the above-entitled case (SC G.R.
167274-75),dated July 21, 2008, which has become final and executory on November 6, 2008,
by virtue of the Entry of Judgment by the Supreme Court on said dated, which reads as follows:

xxxx

the amounts of ₱35,651,410.00 (C.T.A Case No. 6365) and ₱644,735,615.00 (C.T.A Case No.
6383) or a total of ₱680,387,025.00 representing petitioners’ erroneously paid excise taxes for
the periods January 1-31, 2000 and February 1, 2000 to December 31, 2001,respectively under
CA G.R. SP No. 80675 (C.T.A. Case No. 6365 and C.T.A. Case No. 6383).

(CTA – 1st Division

Resolution dated June 04,
2009, pp. 2-3)

20. On April 21, 2009, petitioner filed a motion for the issuance of an additional writ of
execution praying that the CTA order the Commissioner of Internal Revenue to pay
petitioner the amount of Three Hundred Fifty-Five Million Three Hundred Eighty Five
Thousand Nine Hundred Twenty Pesos (₱355,385,920.00) representing the amount of
tax to be refunded in C.T.A. Case No. 6612 under its Decision dated December 4, 2003
and affirmed by the Honorable Court in its Decision dated July 21, 2008 (Petition, p. 12,
CTA Decision dated March 12, 2010, supra, p. 10).

21. In the CTA Resolution dated June 4, 2009, the CTA denied petitioner’s Motion for
the Issuance of Additional Writ of Execution (Ibid., p. 11).

22. Petitioner filed a motion for reconsideration of the Resolution dated June 4, 2009,
but this was denied in the CTA Resolution dated August 10, 2009 (Ibid.).

The dispositive portion of the Resolution reads:

WHEREFORE, premises considered, the instant" Motion for Reconsideration" is hereby

DENIED for lack of merit.

23. Aggrieved by the Decision, petitioner filed a petition for review before the CTA En
Banc docketed as CTA EB Case No. 530,raising the following arguments, to wit:
 The Honorable Court of Tax Appeals seriously erred contrary to law and jurisprudence
when it held in the assailed decision and resolution that petitioner Fortune Tobacco
Corporation is not entitled to the writ of execution covering the decision in CTA Case
No. 6612.

The Decision of the Court of Tax Appeals in CTA Case Nos. 6365, 6383 and 6612 has
become final and executory.

The Decision of the Honorable Supreme Court in GR Nos. 167274-75 covers both CA
GR SP No. 80675 and 83165.

24. The CTA En Banc, in the Decision dated March 12, 2010,dismissed said petition for
review. The dispositive portion of said Decision reads:

WHEREFORE, premises considered, the Petition for Review is DISMISSED. The

Resolutions dated June 4,2009 and August 10, 2009 are AFFIRMED.

SO ORDERED.

(Annex "A," Petition, p. 16)

25. Petitioner filed a Motion for Leave to file Motion for Reconsideration with attached
Motion for Reconsideration but this was denied in the CTA En Banc’s Resolution dated
June 11, 2010. The dispositive portion of said Resolution reads:

WHEREFORE, premises considered, petitioner’s Motion for Leave to file attached Motion for
Reconsideration and its Motion for Reconsideration are hereby DENIED for lack of merit.

SO ORDERED.4 (Emphasis supplied.)

Undeterred by the rebuff from the CTA, petitioner FTC has come to this Court via a petition for
review, the recourse docketed as G.R. 192576,thereat praying in essence that an order issue
(a) directing the CTA to issue an additional writ of execution directing the Bureau of Internal
Revenue(BIR) to pay FTC the amount of tax refund (₱355,385,920.00) as adjudged in CTA
Case No. 6612 and (b) clarifying that the Court’s Decision in G.R. Nos. 167274-75 applies to
the affirmatory ruling of the CA in CA G.R. S₱80675 and CA G.R. SP No. 83165. FTC
predicates its instant petition on two (2) stated grounds, viz.:

The Decision of the Honorable Supreme Court in S.C. GR Nos.167274-75, which has become
final and executory, affirmed the Decision of the Court of Tax Appeals in CTA Case Nos. 6365,
6383 and 6612 and to the Decision of the Court of Appeals in CA G.R. SP No. 80675 and
CAG.R. SP No. 83165.

II

The writ of execution prayed for and pertaining to CTA Case No.6612 and CA G.R. SP No.
83165 is consistent with the decision of the Supreme Court in GR Nos. 167274-75.

The petition is meritorious. But before delving on the merits of this recourse, certain undisputed
predicates have to be laid and basic premises restated to explain the consolidation of G.R. Nos.
167274-75 and G.R. No.192576, thus:

1. As may be recalled, FTC filed before the CTA three (3) separate petitions for refund
covering three different periods involving varying amounts as hereunder indicated:

a) CTA Case No. 6365 (Jan. 1 to Jan. 31, 2000) for ₱35,651,410.00;

b) CTA Case No. 6383 (Feb. 1, 2000 to Dec. 31, 2001) for ₱644,735,615.00;
and

c) CTA Case No. 6612 (Jan. 1 to Dec. 31, 2002) for 355,385,92

In three (3) separate decisions/resolutions, the CTA found the claims for refund for the
amounts aforestated valid and thus ordered the payment thereof.

2. From the adverse ruling of the CTA in the three (3) cases, the BIR Commissioner
went to the CA on a petition for review assailing in CA-G.R.SP No. 80675 the CTA
decision/resolution pertaining to consolidated CTA Case Nos. 6365 & 6383. A similar
 petition, docketed as CA G.R. SP No.83165, was subsequently filed assailing the CTA
decision/resolution on CTA Case No. 6612.

3. Eventually, the CA, by Decision dated September 4, 2004, denied the

Commissioner’s consolidated petition for review. The appellate Court also denied the
Commissioner’s motion for reconsideration on March 1,2005.

4. It is upon the foregoing state of things that the Commissioner came to this Court in
G.R. Nos. 167274-75 to defeat FTC’s claim for refund thus granted initially by the CTA
and then by the CA in CA-G.R. SP No. 80675and CA-G.R. SP No. 83165.

By Decision dated July 21, 2008, the Court found against the Commissioner, disposing as
follows:

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No.
80675, dated 28 September 2004,and its Resolution, dated 1 March 2005, are AFFIRMED. No
pronouncement as to costs.

SO ORDERED.5 (Emphasis supplied.)

From the foregoing narration, two critical facts are at once apparent. First , the BIR
Commissioner came to this Court on a petition for review in G.R. Nos. 167274-75 to set aside
the consolidated decision of the CA in CA-G.R. SP No. 80675 and CA-G.R. SP No. 83165.
Second, while the Court’s Decision dated July 21, 2008 in G.R. Nos. 167274-75 denied the
Commissioner’s petition for review, necessarily implying that the CA’s appealed consolidated
decision is affirmed in toto, the fallo of that decidendi makes no mention or even alludes to the
appealed CA decision in CA-G.R. No. 83165, albeit the main decision’s recital of facts made
particular reference to that appealed CA decision. In fine, there exists an apparent in
consistency between the dispositive portion and the body of the main decision, which ideally
should have been addressed before the finality of the said decision.

Owing to the foregoing aberration, but cognizant of the fact that the process of clarifying the
dispositive portion in G.R. Nos. 167274-75 should be acted upon in the main case, the Court, by
Resolution6 dated February 25,2013 ordered the consolidation of this petition (G.R. No. 192576)
with G.R. Nos. 167274-75, to be assigned to any of the members of the Division who
participated in the rendition of the decision.

Now to the crux of the controversy.

Petitioner FTC posits that the CTA should have issued the desired additional writ of execution in
CTA Case No. 6612 since the body of the Decision of this Court in G.R. Nos. 167274-75
encompasses both CA G.R. Case No. 80675 which covers CTA Case Nos. 6365 and 6383 and
CA G.R. Case No. 83165 which embraces CTA Case No. 6612. While the fallo of the Decision
dated July 21, 2008 in G.R. Case Nos. 167274-75 did not indeed specifically mention CA G.R.
SP No. 83165, petitioner FTC would nonetheless maintain that such a slip is but an inadvertent
omission in the fallo. For the text of the July 21, 2008 Decision, FTC adds, clearly reveals that
said CA case was intended to be included in the disposition of the case.

Respondent Commissioner, on the other hand, argues that per the CTA, no reversible error
may be attributed to the tax court in rejecting, without more, the prayer for the additional writ of
execution pertaining to CTA Case No. 6612, subject of CA G.R. SP No. 83165. For the
purpose, the Commissioner cited a catena of cases on the limits of a writ of execution. It is
pointed out that such writ must conform to the judgment to be executed; its enforcement may
not vary the terms of the judgment it seeks to enforce, nor go beyond its terms. As further
asseverated, "whatever may be found in the body of the decision can only be considered as
part of the reasons or conclusions of the court and while they may serve as guide or
enlightenment to determine the ratio decidendi, what is controlling is what appears in the
dispositive part of the decision." 7

Respondent Commissioner’s posture on the tenability of the CTA’s assailed denial action is
correct. As it were, CTA did no more than simply apply established jurisprudence that a writ of
execution issued by the court of origin tasked to implement the final decision in the case
handled by it cannot go beyond the contents of the dispositive portion of the decision sought to
be implemented. The execution of a judgment is purely a ministerial phase of adjudication. The
executing court is without power its own, to tinker let alone vary the explicit wordings of the
dispositive portion, as couched.

But the state of things under the premises ought not to remain uncorrected. And the BIR cannot
plausibly raise a valid objection for such approach. That bureau knew where it was coming from
when it appealed, first before the CA then to this Court, the award of refund to FTC and the
rationale underpinning the award. It cannot plausibly, in all good faith, seek refuge on the basis
of slip on the formulation of the fallo of a decision to evade a duty. On the other hand, FTC has
discharged its burden of establishing its entitlement to the tax refund in the total amount
indicated in its underlying petitions for refund filed with the CTA. The successive favorable
rulings of the tax court, the appellate court and finally this Court in G.R. Nos. 167274-75 say as
much. Accordingly, the Court, in the higher interest of justice and orderly proceedings should
make the corresponding clarification on the fallo of its July 21, 2008 Decision in G.R. Case
Nos.162274-75. It is an established rule that when the dispositive portion of a judgment, which
has meanwhile become final and executory, contains a clerical error or an ambiguity arising
from a inadvertent omission, such error or ambiguity may be clarified by reference to the body
of the decision itself.

After a scrutiny of the body of the aforesaid July 21, 2008 Decision, the Court finds it necessary
to render a judgment nunc pro tunc and address an error in the fallo of said decision. The office
of a judgment nunc pro tunc is to record some act of the court done at a former time which was
not then carried into the record, and the power of a court to make such entries is restricted to
placing upon the record evidence of judicial action which has actually been taken. 9 The object of
a judgment nunc pro tunc is not the rendering of a new judgment and the ascertainment and
determination of new rights, but is one placing in proper form on the record, that has been
previously rendered, to make it speak the truth, so as to make it show what the judicial action
really was, not to correct judicial errors, such as to render a judgment which the court ought to
have rendered, in place of the one it did erroneously render, not to supply non-action by the
court, however erroneous the judgment may have been. 10 The Court would thus have the record
reflect the deliberations and discussions had on the issue. In this particular case it is a
correction of a clerical, not a judicial error. The body of the decision in question is clear proof
that the fallo must be corrected, to properly convey the ruling of this Court.

We thus declare that the dispositive portion of said decision should be clarified to include CA
G.R. SP No. 83165 which affirmed the December 4,2003 Decision of the Court of Tax Appeals
in CTA Case No. 6612, for the following reasons, heretofore summarized:

1. The petition for review on certiorari in G.R. Nos. 167274-75filed by respondent CIR
sought the reversal of the September 28, 2004Decision of the Court of Appeals
rendered in the consolidated cases of CA-G.R. SP No. 80675 and CA-G.R. SP No.
83165, thus:Hence, this petition for review on certiorari under Rule 45 of the Rules of
Court which seeks the nullification of the Court of Appeals’ (1)Decision promulgated on
September 28, 2004 in CA-G.R. SP No. 80675and CA-G.R. SP No. 83165, both entitled
"Commissioner of Internal Revenue vs. Fortune Tobacco Corporation," denying the
CIR’s petition and affirming the assailed decisions and resolutions of the Court of Tax
Appeals (CTA) in CTA Cases Nos. 6365, 6383 and 6612; and (2)Resolution dated
March 1, 2005 denying petitioner’s motion for reconsideration of the said decision." 11

Earlier on, it was made clear that respondent CIR questioned the Decision of the CTA
dated October 21, 2002 in CTA Case Nos. 6365 and 6383 in CA G.R. SP No. 80675
before the Court of Appeals. In CA G.R. SP No. 83165, the Commissioner also assailed
the Decision of the CTA dated December 4, 2003 in CTA Case No. 66l2 also before the
same appellate court. The two CA cases were later consolidated. Since the appellate
court rendered its September 28, 2004 Decision in the consolidated cases of CAG.R.
SP Nos. 80675 and 83165, what reached and was challenged before this Court in G.R.
Nos. 167274-75 is the ruling of the Court of Appeals in both cases. When this Court
rendered its July 21, 2008 Decision, the ruling necessarily embraced both CA G.R. SP
Case Nos. 80675 and 83165 and adjudicated the respective rights of the parties. Clearly
then, there was indeed an inadvertence in not specifying in the fallo of our July 21,
2008Decision that the September 28, 2004 CA Decision included not only CAG.R. SP
No. 80675 but also CA G.R. SP No. 83165 since the two cases were merged prior to the
issuance of the September 28, 2004 Decision.

Given the above perspective, the inclusion of CA G.R. SP Case No.83165 in the fallo of
the Decision dated July 21, 2008 is very much in order and is in keeping with the
imperatives of fairness.

2. The very contents of the body of the Decision dated July 21,2008 rendered by this
Court in G.R. Nos. 167274-75 undoubtedly reveal that both CA G.R. SP No. 80675 and
CA G.R. SP No. 83165 were the subject matter of the petition therein. And as FTC
would point out at every turn, the Court’s Decision passed upon and decided the merits
of the September 28,2004 Decision of the Court of Appeals in the consolidated cases of
CA G.R.SP Case Nos. 80675 and 83165 and necessarily CA G.R. SP No. 83165 was
included in our disposition of G.R. Nos. 167274-75. We quote the pertinent portions of
the said decision:

The following undisputed facts, summarized by the Court of Appeals, are quoted in the
assailed Decision dated 28 September 2004:
 CAG.R. SP No. 80675

xxxx

Petitioner FTC is the manufacturer/producer of, among others, the following cigarette
brands, with tax rate classification based on net retail price prescribed by Annex "D" to
R.A. No. 4280, to wit:

Brand Tax Rate

Champion M 100 ₱1.00
Salem M 100 ₱1.00
Salem M King ₱1.00
Camel F King ₱1.00
Camel Lights Box 20’s ₱1.00
Camel Filters Box 20’s ₱1.00
Winston F Kings ₱5.00
Winston Lights ₱5.00

Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad
valorem tax pursuant to then Section142 of the Tax Code of 1977, as amended. However, on
January 1, 1997,R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT)system
to the specific tax system was made and subjecting the aforesaid cigarette brands to specific
tax under Section 142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent
provisions of which are quoted thus:

xxxx

The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof,
shall be increased by twelve percent (12%) on January 1, 2000. (Emphasis supplied.)

xxxx

To implement the provisions for a twelve percent (12%) increase of excise tax on, among
others, cigars and cigarettes packed by machines by January 1, 2000, the Secretary of Finance,
xxx issued Revenue Regulations [RR] No. 17-99, dated December 16, 1999, which provides the
increase on the applicable tax rates on cigar and cigarettes x x x.

[tax rates deleted]

Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof,
"(t)hat the new specific tax rate for any existing brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquor shall not be lower than the excise tax that is actually
being paid prior to January 1, 2000."

For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all
brands manufactured and removed in the total amounts of ₱585,705,250.00.

On February 7, 2000, petitioner filed with respondent’s Appellate Division a claim for refund or
tax credit of its purportedly overpaid excise tax for the month of January 2000 in the amount of
₱35,651,410.00.

On June 21, 2001, petitioner filed with respondent’s Legal Service a letter dated June 20, 2001
reiterating all the claims for refund/tax credit of its overpaid excise taxes filed on various dates,
including the present claim for the month of January 2000 in the amount of ₱35,651,410.00.

As there was no action on the part of the respondent, petitioner filed the instant petition for
review with this Court on December 11, 2001,in order to comply with the two-year period for
filing a claim for refund.

xxxx

CA G.R. SP No. 83165

The petition contains essentially similar facts, except that the said case questions the CTA’s
December 4, 2003 decision in CTA Case No.6612 granting respondent’s claim for refund of the
amount of ₱355,385,920.00 representing erroneously or illegally collected specific taxes
covering the period January 1, 2002 to December 31, 2002, as well as its March 17, 2004
Resolution denying a reconsideration thereof.

xxxx

However, on consolidated motions for reconsideration filed by the respondent in CTA Case
Nos. 6363 and 6383, the July 15, 2002 resolution was set aside, and the Tax Court ruled, this
time with a semblance of finality, that the respondent is entitled to the refund claimed. Hence, in
are solution dated November 4, 2003, the tax court reinstated its December 21, 2002 Decision
and disposed as follows:

WHEREFORE, our Decisions in CTA Case Nos.6365 and 6383 are hereby REINSTATED.
Accordingly, respondent is hereby ORDERED to REFUND petitioner the total amount of
₱680,387,025.00 representing erroneously paid excise taxes for the period January 1, 2000 to
January 31, 2000 and February 1,2000 to December 31, 2001.

SO ORDERED.

Meanwhile, on December 4, 2003, the CTA rendered a decision in CTA Case No. 6612 granting
the prayer for the refund of the amount of ₱355,385,920.00 representing overpaid excise tax for
the period covering January 1, 2002 to December 31, 2002. The tax court disposed of the case
as follows:

IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED. Accordingly, respondent
is hereby ORDERED to REFUND to petitioner the amount of ₱355,385,920.00 representing
overpaid excise tax for the period covering January 1, 2002 to December 31, 2002.

SO ORDERED.

Petitioner sought reconsideration of the decision, but the same was denied in a Resolution
dated March 17, 2004.  (Emphasis supplied; citations omitted.)
1âwphi1

The Commissioner appealed the aforesaid decisions of the CTA. The petition questioning the
grant of refund in the amount of ₱680,387,025.00 was docketed as CA-G.R. SP No. 80675,
whereas that assailing the grant of refund in the amount of ₱355,385,920.00 was docketed as
CA-G.R. SP No. 83165. The petitions were consolidated and eventually denied by the CA. The
appellate court also denied reconsideration in its Resolution dated 1 March 2005.

In its Memorandum 22 dated November 2006, filed on behalf of the Commissioner, the Office of
the Solicitor General (OSG) seeks to convince the Court that the literal interpretation given by
the CTA and the CA of Section 145 of the Tax Code of 1997 (Tax Code) would lead to a lower
tax imposable on 1 January 2000 than that imposable during the transition period. Instead of an
increase of 12% in the tax rate effective on 1 January 2000 as allegedly mandated by the Tax
Code, the appellate court’s ruling would result in a significant decrease in the tax rate by as
much as 66%.

xxxx

Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and must,
therefore, be construed strictly against the taxpayer, such as Fortune Tobacco. In its
Memorandum dated 10 November 2006, Fortune Tobacco argues that the CTA and the CA
merely followed the letter of the law when they ruled that the basis for the 12% increase in the
tax rate should be the net retail price of the cigarettes in the market as outlined in paragraph C,
sub par. (1)-(4), Section 145 of the Tax Code. The Commissioner allegedly has gone beyond
his delegated rule-making power when he promulgated, enforced and implemented RR No. 17-
99,which effectively created a separate classification for cigarettes based on the excise tax
"actually being paid prior to January 1, 2000."

xxxx

This entire controversy revolves around the interplay between Section 145 of the Tax Code and
RR 17-99. The main issue is an inquiry into whether the revenue regulation has exceeded the
allowable limits of legislative delegation.

xxxx

Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the
Secretary of Finance to promulgate rules and regulations for the effective implementation of the
Tax Code, interprets the above-quoted provision and reflects the 12% increase in excise taxes
in the following manner:
[table on tax rates deleted]

This table reflects Section 145 of the Tax Code insofar as it mandates a 12% increase effective
on 1 January 2000 based on the taxes indicated under paragraph C, sub-paragraph (1)-(4).
However, RR No.17-99 went further and added that "The new specific tax rate for any existing
brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented liquor shall
not be lower than the excise tax that is actually being paid prior to January 1, 2000."

Parenthetically, Section 145 states that during the transition period ,i.e., within the next three (3)
years from the effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not
be lower than the tax due from each brand on 1 October 1996. This qualification, however, is
conspicuously absent as regards the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on 1 January 2000. Clearly and
unmistakably, Section 145mandates a new rate of excise tax for cigarettes packed by machine
due to the 12% increase effective on 1 January 2000 without regard to whether the revenue
collection starting from this period may turn out to be lower than that collected prior to this date.

By adding the qualification that the tax due after the 12% increase becomes effective shall not
be lower than the tax actually paid prior to 1January 2000, RR No. 17-99 effectively imposes a
tax which is the higher amount between the ad valorem tax being paid at the end of the three
(3)-year transition period and the specific tax under paragraph C, sub-paragraph (1)-(4), as
increased by 12%—a situation not supported by the plain wording of Section 145 of the Tax
Code.

This is not the first time that national revenue officials had ventured in the area of unauthorized
administrative legislation.

In Commissioner of Internal Revenue v. Reyes, respondent was not informed in writing of the
law and the facts on which the assessment of estate taxes was made pursuant to Section 228
of the 1997 Tax Code, as amended by Republic Act (R.A.) No. 8424. She was merely notified of
the findings by the Commissioner, who had simply relied upon the old provisions of the law and
RR No. 12-85 which was based on the old provision of the law. The Court held that in case of
discrepancy between the law as amended and the implementing regulation based on the old
law, the former necessarily prevails. The law must still be followed, even though the existing tax
regulation at that time provided for a different procedure.

xxxx

In the case at bar, the OSG’s argument that by 1 January 2000, the excise tax on cigarettes
should be the higher tax imposed under the specific tax system and the tax imposed under the

ad valorem tax system plus the 12% increase imposed by paragraph 5, Section 145 of the Tax
Code, is an unsuccessful attempt to justify what is clearly an impermissible incursion into the
limits of administrative legislation. Such an interpretation is not supported by the clear language
of the law and is obviously only meant to validate the OSG’s thesis that Section 145 of the Tax
Code is ambiguous and admits of several interpretations.

The contention that the increase of 12% starting on 1 January 2000 does not apply to the
brands of cigarettes listed under Annex "D" is likewise unmeritorious, absurd even. Paragraph
8, Section 145of the Tax Code simply states that, "The classification of each brand of cigarettes
based on its average net retail price as of October 1, 1996, as set forth in Annex ‘D’, shall
remain in force until revised by Congress." This declaration certainly does not lend itself to the
interpretation given to it by the OSG. As plainly worded, the average net retail prices of the
listed brands under Annex "D," which classify cigarettes according to their net retail price into
low, medium or high, obviously remain the bases for the application of the increase in excise tax
rates effective on 1 January 2000.

The foregoing leads us to conclude that RR No. 17-99 is indeed indefensibly flawed. The
Commissioner cannot seek refuge in his claim that the purpose behind the passage of the Tax
Code is to generate additional revenues for the government. Revenue generation has
undoubtedly been a major consideration in the passage of the Tax Code. However, as borne by
the legislative record, the shift from the ad valorem system to the specific tax system is likewise
meant to promote fair competition among the players in the industries concerned, to ensure an
equitable distribution of the tax burden and to simplify tax administration by classifying
cigarettes x x x into high, medium and low- priced based on their net retail price and accordingly
graduating tax rates.

xxxx
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No.
80675, dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No
pronouncement as to costs.

SO ORDERED.12

The July 21, 2008 Decision in G.R. Nos. 167274-75 brings into sharp focus the following facts
and proceedings:

1. It specifically mentioned CA G.R. SP No. 80675 and CA G.R.SP No. 83165 as the
subject matter of the decision on p. 2 and p. 7,respectively.

2. It traced the history of CTA Case Nos. 6365 and 6383 from the time the CTA
peremptorily resolved the twin refund suits to the appeal of the decisions thereat to the
Court of Appeals via a petition docketed as CA-G.R. SP No. 80675 and eventually to
this Court in G.R. Nos. 167274-75. It likewise narrated the events connected with CTA
Case No. 6612 to the time the decision in said case was appealed to the Court of
Appeals in CA-G.R.SP No. 83165, consolidated with CA G.R. SP No. 80675 and later
decided by the appellate court. It cited the appeal from the CA decision by the BIR
Commissioner to this Court in G.R. Nos. 167274-75.

3. It resolved in the negative the main issue presented in both CA-G.R. SP No. 80675
and CA-G.R. SP No. 83165 as to whether or not the last paragraph of Section 1 of
Revenue Regulation No. 17-99 is in accordance with the pertinent provisions of
Republic Act No. 8240, now incorporated in Section 145 of the Tax Code of 1997.

4. The very disposition in the fallo in G.R. Case Nos. 167274-75 that "the petition is
denied" and that the "Decision of the Court of Appeals x x x dated 28 September 2004
and its Resolution dated 1 March 2005 are affirmed" reflects an intention that CA G.R.
SP No. 83165 should have been stated therein, being one of the cases subject of the
September 28, 2004 CA Decision.

The legality of Revenue Regulation No. 17-99 is the only determinative issue resolved by the
July 21, 2008 Decision which was the very same issue resolved by the CA in the consolidated
CA-G.R. SP Nos.80675 and 83165 and exactly the same issue in CTA Nos. 6365, 6383 and
6612.

From the foregoing cogent reasons, We conclude that CA-G.R. SP No. 83165 should be
included in the fallo of the July 21, 2008 decision.
1âwphi1

It is established jurisprudence that "the only portion of the decision which becomes the subject
of execution and determines what is ordained is the dispositive part, the body of the decision
being considered as the reasons or conclusions of the Court, rather than its adjudication." 13

In the case of Ong Ching Kian Chung v. China National Cereals Oil and Foodstuffs Import and
Export Corporation, the Court noted two (2)exceptions to the rule that the fallo prevails over the
body of the opinion, viz:

(a) where there is ambiguity or uncertainty, the body of the opinion may be referred to
for purposes of construing the judgment because the dispositive part of a decision must
find support from the decision’s ratio decidendi;

(b) where extensive and explicit discussion and settlement of the issue is found in the
body of the decision.14

Both exceptions obtain in the present case. We find that there is an ambiguity in the fallo of Our
July 21, 2008 Decision in G.R. Nos. 167274-75 considering that the propriety of the CA holding
in CA-G.R. SP No.83165 formed part of the core issues raised in G.R. Case Nos. 167274-75,
but unfortunately was left out in the all-important decretal portion of the judgment. The fallo of
Our July 21, 2008 Decision should, therefore, be correspondingly corrected.

For sure, the CTA cannot, as the Commissioner argues, be faulted for denying petitioner FTC’s
Motion for Additional Writ of Execution filed in CTA Case Nos. 6365, 6383 and 6612 and for
denying petitioner’s Motion for Reconsideration for it has no power nor authority to deviate from
the wording of the dispositive portion of Our July 21, 2008 Decision in G.R. Nos. 167274-75. To
reiterate, the CTA simply followed the all too familiar doctrine that "when there is a conflict
between the dispositive portion of the decision and the body thereof, the dispositive portion
controls irrespective what appears in the body of the decision." 15 Veering away from the fallo
might even be viewed as irregular and may give rise to a charge of breach of the Code of
Judicial Conduct. Nevertheless, it behooves this Court for reasons articulated earlier to grant
relief to petitioner FTC by way of clarifying Our July 21, 2008 Decision. This corrective step
constitutes, in the final analysis, a continuation of the proceedings in G.R. Case Nos. 167274-
75. And it is the right thing to do under the premises. If the BIR, or other government taxing
agencies for that matter, expects taxpayers to observe fairness, honesty, transparency and
accountability in paying their taxes, it must, to borrow from BPI Family Savings Bank, Inc. v
Court of Appeals16 hold itself against the same standard in refunding excess payments or illegal
exactions. As a necessary corollary, when the taxpayer’s entitlement to are fund stands
undisputed, the State should not misuse technicalities and legalisms, however exalted, to keep
money not belonging to it.17 As we stressed in G.R. Nos. 167274-75, the government is not
exempt from the application of solutio indebiti, a basic postulate proscribing one, including the
State, from enriching himself or herself at the expense of another. 18 So it must be here.

WHEREFORE, the petition is GRANTED. The dispositive portion of the Court’s July 21, 2008
Decision in G.R. Nos. 167274-75 is corrected to reflect the inclusion of CA G.R. SP No. 83165
therein. As amended, the fallo of the aforesaid decision shall read:

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in the
consolidated cases of CA- G.R. SP No. 80675 and 83165 dated 28 September 2004, and its
Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.

The Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010 and the
Resolution dated June 11, 2010 in CTA EB No. 530 entitled "Fortune Tobacco Corporation vs.
Commissioner of Internal Revenue" as well as the Resolutions dated June 4, 2009 and August
10, 2009which denied the Motion for Issuance of Additional Writ of Execution of the CTA First
Division in CTA Cases Nos. 6365, 6383 and 6612 are SETASIDE. The CTA is ORDERED to
issue a writ of execution directing the respondent CIR to pay petitioner Fortune Tobacco
Corporation the amount of tax refund of ₱355,385,920.00 as adjudged in CTA Case No. 6612.

SO ORDERED.
 FIRST DIVISION

G.R. No. 176832               May 21, 2009

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

vs.
MARIAN T. VICENCIO Respondent.

DECISION

PUNO, CJ.:

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to
reverse and set aside the Decision 2 of the Court of Appeals (CA) in CA-GR SP No. 74790 which
set aside the Decision3 of the Employees’ Compensation Commission (ECC) in ECC Case No.
GM-14245-702. The ECC denied respondent Marian T. Vicencio’s (Mrs. Vicencio’s) claim for
the death benefits of her husband, the late Judge Honorato S. Vicencio (Judge Vicencio).

The facts are established.

Judge Vicencio entered government service in 1964 as a Legal Researcher of the Development
Bank of the Philippines (DBP). In 1966, after passing the bar examinations, he became an
Assistant Attorney. He rose from the ranks until he was promoted to Senior Bank Attorney,
which position he held until his retirement from DBP in 1985.

In 1987, Judge Vicencio re-entered government service as Assistant Fiscal for the City of
Manila. In 1992, he was appointed as Judge of Branch 27, Metropolitan Trial Court of Manila. In
1999, he was appointed as Regional Trial Court (RTC) Judge of Branch 17, Manila and served
as such until his death in 2001.

Records4 show that on November 30, 2000, Judge Vicencio suffered loss of consciousness due
to pericardial effusion. He was admitted at the Makati Medical Center where he was diagnosed
with Adenocarcinoma of the Left Lung with Metastases to Pedicardium. He underwent
intravenous chemotherapy. He was confined from November 30, 2000 to May 7, 2001.

On May 31, 2001, Judge Vicencio died. Per his Death Certificate, 5 the immediate cause of his
death was Cardiopulmonary Arrest, and the antecedent cause was T/C Fatal Arrythmia. No
underlying cause of death was indicated in his Death Certificate. He was survived by his wife,
respondent Mrs. Vicencio, and daughter, Mary Joy Celine Vicencio.

Respondent Mrs. Vicencio applied for the death benefits of her late husband with petitioner
Government Service Insurance System (GSIS) but her application was denied by Mr. Marcelino
S. Alejo, Manager of the GSIS Employees Compensation Department, on the ground that the
illness which caused Judge Vicencio’s death is not considered an occupational disease and
there is no showing that his work as RTC Judge has increased his risk of contracting said
ailment.6 Respondent Mrs. Vicencio filed a motion for reconsideration, but the same was
denied.7

On June 17, 2002, respondent Mrs. Vicencio appealed to the ECC but the same was
dismissed.8

Respondent Mrs. Vicencio filed a petition for review under Rule 43 of the Rules of Court with the
CA. The CA reversed and set aside the Decision of the ECC as follows:

WHEREFORE, premises considered, this Petition is GRANTED. The Decision of the

Employees Compensation Commission, dated November 6, 2002, in ECC Case No. GM-
14245-702 is hereby REVERSED and SET ASIDE. The GSIS is ORDERED to grant the claim
for the death benefits of Judge Honorato S. Vicencio under the Employees Compensation Act.
No costs.9

Petitioner GSIS filed a motion for reconsideration, but the same was denied by the CA in its
Resolution dated February 26, 2007.10

Hence, this Petition.

The sole issue is whether or not respondent Mrs. Vicencio’s claim for death benefits under
Presidential Decree No. 626 (P.D. No. 626), as amended, is compensable.
Petitioner GSIS argues that based on the medical records in this case, Judge Vicencio’s
underlying cause of death was Adenocarcinoma of the Lungs with Metastases. According to
petitioner GSIS, the cause of death stated in his Death Certificate, Cardiopulmonary Arrest T/C
Fatal Arrythmia, was a mere complication of his lung cancer. However, the attending physician
did not fill up the portion on the Death Certificate to indicate that the underlying cause (which
was left in blank) was Adenocarcinoma of the Lungs with Metastases. Adenocarcinoma of the
Lungs is not an occupational disease listed under the law. Pursuant to Annex "A" of the
Amended Rules on Employees’ Compensation, lung cancer is occupational only with respect to
vinyl chloride workers and plastic workers. According to petitioner GSIS, respondent Mrs.
Vicencio failed to show by substantial evidence that the risk of contracting the same was
increased by his working conditions.

On the one hand, respondent Mrs. Vicencio contends that per the Death Certificate of her
husband, the cause of his death was Cardiopulmonary Arrest T/C Fatal Arrythmia. According to
respondent Mrs. Vicencio, the CA correctly found that the requisites for cardiovascular disease
to be compensable under paragraph (r) of ECC Resolution No. 432 11 were satisfied; hence, the
death of her husband is compensable.

Respondent Mrs. Vicencio adds that assuming only lung cancer was the cause of death of her
husband, the same is still compensable. She argues that the CA correctly held that the nature of
work and the corresponding difficulties brought about by Judge Vicencio’s duties and work
contributed to the development of his illness.

We affirm the decision of the CA.

P.D. No. 626, as amended, defines compensable sickness as "any illness definitely accepted as
an occupational disease listed by the Commission, or any illness caused by employment
subject to proof by the employee that the risk of contracting the same is increased by the
working conditions." Under Section 1 (b), Rule III, of the Amended Rules on Employees'
Compensation, for the sickness and the resulting disability or death to be compensable, the
same must be an "occupational disease" included in the list provided (Annex "A"), with the
conditions set therein satisfied; otherwise, the claimant must show proof that the risk of
contracting it is increased by the working conditions. Otherwise stated, for sickness and the
resulting death of an employee to be compensable, the claimant must show either: (1) that it is
a result of an occupational disease listed under Annex "A" of the Amended Rules on
Employees' Compensation with the conditions set therein satisfied; or (2) if not so listed, that the
risk of contracting the disease is increased by the working conditions.

First, we hold that the CA correctly considered Cardiopulmonary Arrest T/C Fatal Arrythmia in
this case a cardiovascular disease – a listed disease under Annex "A" of the Amended Rules on
Employees’ Compensation.

The Death Certificate of Judge Vicencio clearly indicates that the cause of his death is
Cardiopulmonary Arrest T/C Fatal Arrythmia. Whether, however, the same was a mere
complication of his lung cancer as contended by petitioner GSIS or related to an underlying
cardiovascular disease is not established by the records of this case and, thus, remains
uncertain.

It must be remembered that P.D. No. 626, as amended, is a social legislation whose primordial
purpose is to provide meaningful protection to the working class against the hazards of
disability, illness and other contingencies resulting in the loss of income. Thus, the official
agents charged by law to implement social justice guaranteed by the Constitution should adopt
a liberal attitude in favor of the employee in deciding claims for compensability especially where
there is some basis in the facts for inferring a work-connection with the illness or injury, as the
case may be. It is only this kind of interpretation that can give meaning and substance to the
compassionate spirit of the law as embodied in Article 4 of the New Labor Code which states
that all doubts in the implementation and interpretation of the provisions of the Labor Code
including their implementing rules and regulations should be resolved in favor of labor. 12

Guided by this policy, we therefore hold that Cardiopulmonary Arrest T/C Fatal Arrythmia, the
cause of death stated in Judge Vicencio’s Death Certificate, should be considered as a
cardiovascular disease - a listed disease under Annex "A" of the Amended Rules on
Employees’ Compensation. 1avvphi1

Considering the stress and pressures of work inherent in the duties of a judge and it was
established that Judge Vicencio was doing work in his office a few days immediately before the
moment of his cardiac arrest,13 we sustain the findings of the CA that the requisites for
cardiovascular disease to be compensable under paragraph (r) of ECC Resolution No. 432 are
satisfied in the case at bar.
Granting, however, that the only cause of Judge Vicencio’s death is lung cancer, we are still one
with the CA in its finding that the working conditions of the late Judge Vicencio contributed to
the development of his lung cancer.

It is true that under Annex "A" of the Amended Rules on Employees’ Compensation, lung
cancer is occupational only with respect to vinyl chloride workers and plastic workers. However,
this will not bar a claim for benefits under the law if the complainant can adduce substantial
evidence that the risk of contracting the illness is increased or aggravated by the working
conditions to which the employee is exposed to.

It is well-settled that the degree of proof required under P.D. No. 626 is merely substantial
evidence, which means, "such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion." What the law requires is a reasonable work-connection and
not a direct causal relation. It is enough that the hypothesis on which the workman's claim is
based is probable. Medical opinion to the contrary can be disregarded especially where there is
some basis in the facts for inferring a work-connection. Probability, not certainty, is the
touchstone.14 It is not required that the employment be the sole factor in the growth,
development or acceleration of a claimant’s illness to entitle him to the benefits provided for. It is
enough that his employment contributed, even if to a small degree, to the development of the
disease.15

The late Judge Vicencio was a frontline officer in the administration of justice, being the most
visible living representation of this country's legal and judicial system. 16 It is undisputed that
throughout his noble career from Fiscal to Metropolitan Trial Court Judge, and, finally, to RTC
Judge, his work dealt with stressful daily work hours, and constant and long-term contact with
voluminous and dusty records. We also take judicial notice that Judge Vicencio’s workplace at
the Manila City Hall had long been a place with sub-standard offices of judges and prosecutors
overflowing with records of cases covered up in dust and are poorly ventilated. All these, taken
together, necessarily contributed to the development of his lung illness.

The case of Dator v. Employees’ Compensation Commission17 should be instructive:

Until now the cause of cancer is not known. Despite this fact, however, the Employees'
Compensation Commission has listed some kinds of cancer as compensable. There is no
reason why cancer of the lungs should not be considered as a compensable disease. The
deceased worked as a librarian for about 15 years. During all that period she was exposed to
dusty books and other deleterious substances in the library under unsanitary conditions.
(eiomphasis added)

On a final note, it bears stressing that the late Judge Vicencio worked in the government for a
total of 37 years.18 He is survived by his wife, respondent Mrs. Vicencio, and a daughter.  Their
lavvphil.net

claim for death benefits has been pending since 2001. As the public agency charged by law in
implementing P.D. No. 626, petitioner GSIS should not lose sight of the fact that the
constitutional guarantee of social justice towards labor demands a liberal attitude in favor of the
employee in deciding claims for compensability.

IN VIEW WHEREOF, the petition is DENIED. The decision of the Court of Appeals is affirmed.
No costs.

SO ORDERED.
 EN BANC

G.R. No. 168964             January 23, 2006

BANGKO SENTRAL NG PILIPINAS, Petitioner,

vs.
COMMISSION ON AUDIT & RECARREDO S. VALENZUELA, Respondents.

DECISION

YNARES-SANTIAGO, J.:

The instant petition for certiorari seeks to set aside the December 29, 2003 Judgment 1 of the
Commission on Audit (COA) in Decision No. 2003-163, which allowed the release of respondent
Recarredo S. Valenzuela’s retirement benefits; as well as its July 21, 2005 Resolution 2 denying
petitioner Bangko Sentral Ng Pilipinas’ (BSP) motion for reconsideration.

On March 1, 1990, respondent was employed by the defunct Air Transportation Unit (ATU) of
BSP’s Security Investigation and Transportation Department (SITD). As such, he assumed
direct accountability over the spare parts and equipment of BSP’s aircrafts. 3 On July 20, 1993,
he executed a certification4 in his capacity as Administrative Services Officer II/Property Supply
Officer, assuming responsibility over all the properties issued to the outgoing Chief Aircraft
Maintenance Officer/PSO. Upon respondent’s retirement on June 30, 1994, however, BSP
refused to release his P291,555.00 retirement benefits for failure to settle his property
accountabilities. According to BSP’s Administrative Services Department (ASD), respondent’s
remaining unaccounted spare parts consist of 1,314 pieces worth P1,007,263.59. 5

Respondent filed a complaint6 with the Human Resources Management Department (HRMD) of

BSP against ASD for the bank’s refusal to release his retirement benefits, but HRMD denied the
same.7

On appeal8 by respondent to the COA, the latter rendered a decision allowing the release of the
retirement benefits. It held that retirement gratuities cannot be withheld, deducted or applied to
the indebtedness of an employee to the government without his/her consent. The dispositive
portion thereof, reads:

Wherefore, premises considered, the instant claim is given due course and the payment of the
subject amounts to the herein petitioner may now be allowed without prejudice to any action for
recovery of claimant’s accountabilities, if warranted. 9

BSP filed a motion for reconsideration contending that since respondent (1) assumed
responsibility effective September 19, 1992, over all the properties under the custody of the
former Aircraft Maintenance Chief; 10 and (2) affixed his signature11 in the list of unaccounted
properties,12 as of February 28, 1995, he thereby admitted his indebtedness to BSP. Invoking
the case of Villanueva v. Tantuico, Jr.,13 BSP averred that compensation should take place
between it and respondent since they are both creditors and debtors in their own right.

On July 21, 2005, the COA denied BSP’s motion for reconsideration. 14 Hence, BSP filed the
instant petition.

The issue to be resolved is whether or not BSP may validly withhold respondent’s retirement
benefits and unilaterally apply the same to his indebtedness to the government.

The Court rules in the negative.

In Cruz v. Tantuico,15 it was held that retirement benefits accruing to a public officer may not,
without his consent, be withheld and applied to his indebtedness to the government. In the said
case, the National Treasurer withheld a portion of the petitioner’s retirement benefits to answer
for losses arising from her encashment of falsified treasury warrants. In setting aside the
directive of the Treasurer, the Court explained that –

x x x no negligence attended the petitioner’s encashment of the treasury warrants. Even

assuming that she could be held liable for non-compliance with or violation of some rule or
regulation, this Court agrees with the petitioner that Section 624 of the Revised Administrative
Code cannot be construed to authorize a deduction of the value of the treasury warrants from
her retirement benefits. Said section provides:

Section 624. Retention of salary for satisfaction of indebtedness. – When any person is

indebted to the Government of the Philippine Islands (or Government of the United States), the
Insular Auditor may direct the proper officer to withhold the payment of any money due him or
his estate, the same to be applied in satisfaction of such indebtedness.

The Solicitor General, in his comment, is in agreement with the petitioner that her retirement
pay may not be withheld by administrative fiat to answer for the shortage incurred while in office
[Rollo, p. 99.] This has also been the interpretation applied by the respondent COA Acting
Secretary in similar cases [Rollo, pp. 62-63.]

That the retirement pay accruing to a public officer may not be withheld and applied to his
indebtedness to the government is settled x x x.

The case of Cruz,16 citing Hunt v. Hernandez, explained the reason for such policy in this wise:

x x x we are of the opinion that the exemption should be liberally construed in favor of the
pensioner. Pension in this case is a bounty flowing from the graciousness of the Government
intended to reward past services and, at the same time, to provide the pensioner with the
means with which to support himself and his family. Unless otherwise clearly provided, the
pension should inure wholly to the benefit of the pensioner x x x.

The above ruling was reiterated in Tantuico, Jr. v. Domingo,17 and Government Service

Insurance System v. Commission on Audit,18 where the Court held that benefits under
retirement laws cannot be withheld regardless of the employee’s monetary liability to the
government. Retirement laws are liberally interpreted in favor of the retiree because the
intention is to provide for the retiree’s sustenance and comfort when he is no longer capable of
earning his livelihood.19

Moreover, compensation or set off between respondent’s retirement benefits and his alleged
liability to BSP cannot be allowed under Section 21, Chapter 4, Subtitle-B (Commission on
Audit), Book V of the Revised Administrative Code of 1987, which provides:

Sec. 21. Retention of Money for Satisfaction of Indebtedness to the Government. – When any
person is indebted to any government agency, the Commission may direct the proper officer to
withhold the payment of any money due such person or his estate to be applied in satisfaction
of his indebtedness.

The aforequoted provision originated from Section 624 of the Revised Administrative Code of
1917. In construing Section 624, the Court held in Villanueva v. Tantuico, Jr.,20 that the
"indebtedness" contemplated therein pertains to one that is acknowledged by the employee or
one that is adjudged by the court. Absent any of these two circumstances, no compensation
under Article 1278 of the Civil Code may be had, thus –

While Section 624 of the Revised Administrative Code does indeed authorize the set-off of a
person's indebtedness to the Government against "any money due him or his estate to be
applied in satisfaction of such indebtedness," that indebtedness must be one that is admitted by
the alleged debtor or pronounced by final judgment of a competent court. In such a case, the
person and the Government are in their own right both debtors and creditors of each other, and
compensation takes place by operation of law in accordance with Article 1278 of the Civil Code.
Absent, however, any such categorical admission by an obligor or final adjudication, no legal
compensation can take place, as this Court has already had occasion to rule in an early case.
Unless admitted by a debtor himself, the conclusion that he is in truth indebted to the
Government cannot be definitely and finally pronounced by a Government auditor, no matter
how convinced he may be from his examination of the pertinent records of the validity of that
conclusion. Such a declaration, that a government employee or officer is indeed indebted to the
Government, if it is to have binding authority, may only be made by a court. That determination
is after all, plainly a judicial, not an administrative function. No executive officer or administrative
body possesses such a power.

In the same vein, Section 265 of the Government Accounting and Auditing Manual explicitly
limits the power of COA to retain the retirement benefits of a government employee for the
purpose of satisfying his indebtedness only to instances where (1) the employee admits his
indebtedness and consents to such retention; or (2) a competent court so directs, thus –

Sec. 265. Retention of salary for the satisfaction of indebtedness to the government. – When
any person is indebted to the Government of the Philippines or to any government-owned or
controlled corporation or to any other self-governing board, commission or agency of the
government, the COA may direct the proper officer to withhold the payment of any money due
him or his estate, the same to be applied in satisfaction of such indebtedness (Sec. 37, PD
114521). However, the retention of the retirement gratuity of a person to satisfy his
indebtedness to the government may be resorted to only if the person admits his
indebtedness and consents to the retention or when a competent court so directs.
(Emphasis supplied)
The COA correctly debunked the averment that respondent admitted his indebtedness when he
issued a certification assuming responsibility over the properties turned over by the former
Aircraft Maintenance Chief.22 To warrant the application of set off under Article 1278 of the Civil
Code, the debtor’s admission of his obligation must be clear and categorical and not one which
merely arise by inference or implication from the customary execution of official documents in
assuming the responsibilities of a predecessor, as in the instant case. Neither would
respondent’s signature in the list of unaccounted properties as of February 28, 1995 operate as
an acknowledgement of an obligation. Suffice it to state that said signature alone hardly
satisfies the requisite open and direct recognition of an obligation that would justify the
diminution of retirement benefits. There must be an independent evidence showing the
employee’s intention to unmistakably recognize his indebtedness which was never shown in the
present controversy. On the contrary, respondent categorically stated in his February 9, 1999
letter to the BSP that he never admitted any indebtedness nor consented to the retention of his
benefits by the bank.23

Furthermore, even assuming that the February 28, 1995 list of unaccounted items bearing the
signature of respondent can be construed as an admission of indebtedness, still, said purported
admission cannot extend to the alleged unlocated 1,314 spare parts/furnitures/tools with an
acquisition cost of P1,007,263.59, for which respondent is being held responsible. This is so
because the latter items were never shown to be included in the February 28, 1995 inventory
signed by respondent. From the initial 10,120 items with a total acquisition cost of
P47,802,136.82, respondent’s alleged accountability was trimmed down to 1,314 spare
parts/furnitures/tools with an acquisition cost of P1,007,263.59. 24 It is doubtful, however, whether
the latter items are included in the February 28, 1995 list inasmuch as BSP never reconciled
these inventories. Hence, the amount allegedly owed by respondent to BSP are contestable
and inconclusive. It cannot thus qualify as a "debt" for compensation or set off to be operative
under Article 127925 of the Civil Code. At best, said amount is a mere "claim" that would not
make one a creditor of the other. As explained by the Court in E.G.V. Realty Dev’t. Corp. v.
Court of Appeals:26

Compensation or offset takes place by operation of law when two (2) persons, in their own right,
are creditor and debtor of each other. For compensation to take place, a distinction must be
made between a debt and a mere claim. A debt is a claim which has been formally passed upon
by the highest authority to which it can in law be submitted and has been declared to be a debt.
A claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and must pass
thru the process prescribed by law before it develops into what is properly called a debt.

Nevertheless, while the BSP cannot directly proceed against respondent’s retirement benefits, it
can seek restoration of its claim by means of a proper court action for its recovery. Verily, there
is no prohibition against enforcing a final monetary judgment against respondent’s other assets
and properties.27

The P291,555.00 retirement gratuity due respondent consists of unused leave credits
(P39,555.00), separation incentive benefits (P112,000.00), and the amount due under the
provident fund (P140,000.00). 28 We find no merit in BSP’s claim that separation incentive
benefits cannot be interpreted as part of respondent’s retirement benefits. The grant thereof in
favor of retirees is authorized by Republic Act No. 7653 or "The New Central Bank Act," in
addition to the existing gratuities enjoyed by the employees. Section 134 thereof provides:

SEC. 134. Separation Benefits. – Pursuant to Section 15 of this Act, the Monetary Board is
authorized to provide separation incentives, and all those who shall retire or be separated from
service on account of reorganization under the proceeding section shall be entitled to such
incentives, which shall be in addition to all gratuities and benefits to which they may be entitled
under existing laws. (Emphasis added)

As to the provident fund, BSP cannot successfully assert a paramount lien thereon because the
provision invoked by it contemplate of losses arising from "offenses" and "debts." Section 5,
Article IV of the Rules and Regulations Governing The Bangko Sentral Ng Pilipinas Provident
Fund, states:

Section 5 – Bank’s Lien

The Bank shall have a first and paramount lien upon the amount to which the erring member is
entitled as stated in the preceding Section to cover all losses, costs, and expenses which the
Bank may sustain through his dishonesty, defalcation, theft, embezzlement or falsification and
other similar offenses.

The same lien shall also apply for any amount due to a member to cover any debt due to the
Bank or the Fund.29
In the instant case, respondent was neither found guilty of any offense nor conclusively
established to be indebted to BSP. Hence, the latter’s assertion of first and paramount lien over
the amount due respondent under the provident fund, must fail.

WHEREFORE, the petition is DENIED. The December 29, 2003 Judgment of the Commission
on Audit in Decision No. 2003-163 which allowed the release of respondent Recarredo S.
Valenzuela’s retirement benefits; and its July 21, 2005 Resolution denying petitioner Bangko
Sentral Ng Pilipinas’ motion for reconsideration are AFFIRMED.

SO ORDERED.
 EN BANC

G.R. No. 138381             November 10, 2004

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,

vs.
COMMISSION ON AUDIT, respondent.

G.R. No. 141625             November 10, 2004

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,

vs.
ALFREDO D. PINEDA, DANIEL GO, FELINO BULANDUS, FELICIMO J. FERRARIS, JR.,
BEN HUR PORLUCAS, LUIS HIPONIA, MARIA LUISA A. FERNANDEZ, VICTORINA
JOVEN, CORAZON S. ALIWANAG, SILVER L. MARTINES, SR., RENATO PEREZ, LOLITA
CAYLAN, DOUGLAS VALLEJO and LETICIA ALMAZAN, on their own behalf and on
behalf of all GSIS retirees with all of whom they share a common and general
interest, respondents.

RESOLUTION

YNARES-SANTIAGO, J.:

On April 16, 2002, the Court promulgated a decision on these two consolidated cases partially
granting the petition in G.R. No. 138381 ("first petition") thereby reversing the Commission on
Audit’s (COA) disallowance of certain fringe benefits granted to GSIS employees. As a result,
the Court ordered the refund of amounts representing fringe benefits corresponding to those
allowed in the first petition in favor of the respondents in G.R. No. 141625 ("second petition").

The benefits which the Court ordered to be refunded included increases in longevity pay,
children’s allowance and management contribution to the Provident Fund as well as premiums
for group personal accident insurance. On the other hand, the Court affirmed the COA
disallowance of loyalty and service cash award as well as housing allowance in excess of that
approved by the COA. Amounts corresponding to these benefits were previously deducted by
GSIS from respondents’ retirement benefits in view of the COA disallowance in the first petition.
COA did not seek reconsideration of the judgment ordering said refund, which thus became
final and executory.

On August 7, 2002, the respondents in the second petition, all GSIS retirees, filed a motion for
amendatory and clarificatory judgment ("amendatory motion"). They averred that we did not
1 

categorically resolve the issue raised in the second petition, namely: whether or not the GSIS
may lawfully deduct any amount from their retirement benefits in light of Section 39 of Republic
Act No. 8291.

According to respondents, said provision of law clearly states that no amount whatsoever could
be legally deducted from retirement benefits, even those amounts representing COA
disallowances. They posit that we should have ordered refund not only of benefits allowed in the
first petition, but all amounts claimed, regardless of whether or not these were allowed by the
COA. These include items which were correctly disallowed by the COA in the first petition, as
well as disallowed benefits under the second petition. The latter consists of initial payment of
productivity bonus, accelerated implementation of the new salary schedule effective August 1,
1995, 1995 mid-year financial assistance and increase in clothing, rice and meal allowances.
Respondents further insist that we should have awarded damages in their favor, citing the
GSIS’ alleged bad faith in making the deductions.

GSIS filed a comment to respondents’ amendatory motion, as directed by the Court in a

2 

resolution dated September 3, 2002. GSIS posited that the other benefits not passed upon in
the main judgment should be understood by respondents as having been impliedly denied by
this Court. It also sought clarification of our decision insofar as it declared that there was no
identity of subject matter between the COA proceedings, from which the first petition stemmed,
and respondents’ claim under the second petition, which emanated from an order of the GSIS
Board of Trustees ("Board"). As for the damages claimed by respondents, GSIS insists that it
made the deductions in good faith for these were done in accordance with COA directives.
Respondents filed a reply to the comment of GSIS on September 9, 2002.
3 

Meanwhile, respondents filed a second motion, this time for leave to file a motion for
discretionary and partial execution ("motion for execution"). They prayed that GSIS be ordered
4 

to effect the refund, as finally adjudged in our decision, pending resolution of their amendatory
motion as to the other deducted amounts. We granted the motion for execution on September
3, 2002.

Subsequently, on December 26, 2002, counsel for respondents, Atty. Agustin Sundiam, filed a
motion for entry and enforcement of attorney’s lien ("motion for charging lien") and a
5 

supplement to this motion on January 10, 2003. He sought entry of a charging lien in the
6 

records of this case pursuant to Section 37 of Rule 138. He prayed for an order directing the
GSIS to deduct, as his professional fees, 15% from respondents’ refund vouchers since the
GSIS was already in the process of releasing his clients’ checks in compliance with our
judgment in the first petition. The payment scheme was allegedly authorized by the Board of
Directors of his clients, the GSIS Retirees Association, Inc. (GRIA), through a board
resolution that he has attached to the motion.
7 

Atty. Sundiam’s motion for charging lien was opposed by petitioner GSIS on the ground that it
was through its efforts, and not Atty. Sundiam’s, that the retirees were able to obtain a
refund. Meanwhile, the GRIA confirmed the payment scheme it adopted with Atty. Sundiam and
8 

prayed for its approval. 9

Thereafter, on January 10, 2003, respondents filed another manifestation and motion as well as
supplement thereto, claiming that GSIS was deducting new and unspecified sums from the
amount it was refunding to respondents. These new deductions purportedly pertain to another
set of COA disallowances. 10

On January 21, 2003, respondents again filed a motion praying for the inclusion in the
11 

refundable amount of dividends on the management contribution to the Provident Fund ("motion
for payment of dividends"). Respondents claimed that the contribution, which amounted to Fifty
Million Pesos (P50M), was retained by GSIS for more than five years and thus earned a
considerable sum of income while under its control. GSIS declared and paid dividends on said
contribution to incumbent officials and employees, but refused to extend the same benefits to
respondents/retirees.

On March 6, 2003, GSIS filed a joint comment to respondents’ two foregoing motions
12 

contending that the new deductions are legitimate. The deductions pertain to car loan
arrearages, disallowed employees’ compensation claims and the like. As for the dividends on
the Provident Fund contributions, respondents are not entitled to the same because while the
first petition was pending, the contributions were not actually remitted to the fund but were
withheld by COA pursuant to its earlier disallowance.

On October 2, 2003, respondents filed another motion for an order to compel the GSIS to pay
13 

dividends on the Provident Fund contributions pending resolution of their other motions. They
also sought refund of Permanent Partial Disability (PPD) benefits that GSIS supposedly paid to
some of the respondents, but once again arbitrarily deducted from the amount which the Court
ordered to be refunded.

In a minute resolution dated November 11, 2003, we denied the last motion for lack of merit.
14 

We likewise denied with finality respondents’ motion for reconsideration from the denial of said
motion. 15

We now resolve the matters raised by the parties.

On the amendatory motion, it must be clarified that the question raised before this Court in the
second petition was the issue of the Board’s jurisdiction to resolve respondents’ claim for refund
of amounts representing deductions from their retirement benefits. What was assailed in the
second petition was the appellate court’s ruling that the Board had jurisdiction over respondents’
claim since there was no identity of subject matter between the proceedings then pending
before the COA and the petition brought by respondents before the Board. The Court of
Appeals did not rule on the main controversy of whether COA disallowances could be deducted
from retirement benefits because the Board ordered the dismissal of respondents’ claim for
alleged lack of jurisdiction, before it could even decide on the principal issue.

Consequently, the only matter that was properly elevated to this Court was the issue of whether
or not the Board had jurisdiction over respondents’ demands. We did not resolve the issue of
whether or not the deductions were valid under Section 39 of RA 8291, for the simple reason
that the Board, as well as the appellate court, did not tackle the issue. The doctrine of primary
jurisdiction would ordinarily preclude us from resolving the matter, which calls for a ruling to be
16 

first made by the Board. It is the latter that is vested by law with exclusive and original
jurisdiction to settle any dispute arising under RA 8291, as well as other matters related
thereto.17

However, both the GSIS and respondents have extensively discussed the merits of the case in
their respective pleadings and did not confine their arguments to the issue of jurisdiction.
Respondents, in fact, submit that we should resolve the main issue on the ground that it is a
purely legal question. Respondents further state that a remand of the case to the Board would
merely result in unnecessary delay and needless expense for the parties. They thus urge the
Court to decide the main question in order to finally put an end to the controversy.

Indeed, the principal issue pending before the Board does not involve any factual question, as it
concerns only the correct application of the last paragraph of Section 39, RA 8291. The parties
agreed that the lone issue is whether COA disallowances could be legally deducted from
retirement benefits on the ground that these were respondents’ monetary liabilities to the GSIS
under the said provision. There is no dispute that the amounts deducted by GSIS represented
COA disallowances. Thus, the only question left for the Board to decide is whether the
deductions are allowed under RA 8291.

Under certain exceptional circumstances, we have taken cognizance of questions of law even in
the absence of an initial determination by a lower court or administrative body. In China Banking
Corporation v. Court of Appeals, the Court held:
18 

At the outset, the Court’s attention is drawn to the fact that since the filing of this suit
before the trial court, none of the substantial issues have been resolved. To avoid and
gloss over the issues raised by the parties, as what the trial court and respondent Court
of Appeals did, would unduly prolong this litigation involving a rather simple case of
foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the
rules, i.e., to assist the parties in obtaining just, speedy and inexpensive determination
of every action or proceeding. The Court, therefore, feels that the central issues of the
case, albeit unresolved by the courts below, should now be settled specially as they
involved pure questions of law. Furthermore, the pleadings of the respective parties on
file have amply ventilated their various positions and arguments on the matter
necessitating prompt adjudication.

In Roman Catholic Archbishop of Manila v. Court of Appeals, the Court likewise held that the
19 

remand of a case is not necessary where the court is in a position to resolve the dispute based
on the records before it. The Court will decide actions on the merits in order to expedite the
settlement of a controversy and if the ends of justice would not be subserved by a remand of
the case.

Here, the primary issue calls for an application of a specific provision of RA 8291 as well as
relevant jurisprudence on the matter. No useful purpose will indeed be served if we remand the
matter to the Board, only for its decision to be elevated again to the Court of Appeals and
subsequently to this Court. Hence, we deem it sound to rule on the merits of the controversy
rather than to remand the case for further proceedings.

The last paragraph of Section 39, RA 8291 specifically provides:

SEC. 39. Exemption from Tax, Legal Process and Lien.-

xxxxxxxxx

The funds and/or the properties referred to herein as well as the benefits, sums or
monies corresponding to the benefits under this Act shall be exempt from attachment,
garnishment, execution, levy or other processes issued by the courts, quasi-judicial
agencies or administrative bodies including Commission on Audit (COA) disallowances
and from all financial obligations of the members, including his pecuniary accountability
arising from or caused or occasioned by his exercise or performance of his official
functions or duties, or incurred relative to or in connection with his position or work
except when his monetary liability, contractual or otherwise, is in favor of the GSIS.

It is clear from the above provision that COA disallowances cannot be deducted from benefits
under RA 8291, as the same are explicitly made exempt by law from such deductions.
Retirement benefits cannot be diminished by COA disallowances in view of the clear mandate
of the foregoing provision. It is a basic rule in statutory construction that if a statute is clear,
plain and free from ambiguity, it must be given its literal meaning and applied without
interpretation. This is what is known as plain-meaning rule or verba legis. 20

Accordingly, the GSIS’ interpretation of Section 39 that COA disallowances have become
monetary liabilities of respondents to the GSIS and therefore fall under the exception stated in
the law is wrong. No interpretation of the said provision is necessary given the clear language of
the statute. A meaning that does not appear nor is intended or reflected in the very language of
the statute cannot be placed therein by construction. 21

Moreover, if we are to accept the GSIS’ interpretation, then it would be unnecessary to single
out COA disallowances as among those from which benefits under RA 8291 are exempt. In
such a case, the inclusion of COA disallowances in the enumeration of exemptions would be a
mere surplusage since the GSIS could simply consider COA disallowances as monetary
liabilities in its favor. Such a construction would empower the GSIS to withdraw, at its option, an
exemption expressly granted by law. This could not have been the intention of the statute.

That retirement pay accruing to a public officer may not be withheld and applied to his
indebtedness to the government has been settled in several cases. In Cruz v. Tantuico, Jr., the 22 

Court, citing Hunt v. Hernandez, explained the reason for such policy thus:
23 

x x x we are of the opinion that the exemption should be liberally construed in favor of
the pensioner. Pension in this case is a bounty flowing from the graciousness of the
Government intended to reward past services and, at the same time, to provide the
pensioner with the means with which to support himself and his family. Unless otherwise
clearly provided, the pension should inure wholly to the benefit of the pensioner. It is
true that the withholding and application of the amount involved was had under section
624 of the Administrative Code and not by any judicial process, but if the gratuity could
not be attached or levied upon execution in view of the prohibition of section 3 of Act
No. 4051, the appropriation thereof by administrative action, if allowed, would lead to
the same prohibited result and enable the respondents to do indirectly what they can not
do directly under section 3 of Act No. 4051. Act No. 4051 is a later statute having been
approved on February 21, 1933, whereas the Administrative Code of 1917 which
embodies section 624 relied upon by the respondents was approved on March 10 of
that year. Considering section 3 of Act No. 4051 as an exception to the general authority
granted in section 624 of the Administrative Code, antagonism between the two
provisions is avoided. (Underscoring supplied)

The above ruling was reiterated in Tantuico, Jr. v. Domingo, where the Court similarly declared
24 

that benefits under retirement laws cannot be withheld regardless of the petitioner’s monetary
liability to the government.

The policy of exempting retirement benefits from attachment, levy and execution, as well as
unwarranted deductions, has been embodied in a long line of retirement statutes. Act No.
4051, which provides for the payment of gratuity to officers and employees of the Insular
25 

Government upon retirement due to reorganization, expressly provides in its Section 3 that
"(t)he gratuity provided for in this Act shall not be attached or levied upon execution."

The law which established the GSIS, Commonwealth Act No. 186 ("CA No. 186"), went further
26 

by providing as follows:

SEC. 23. Exemptions from legal process and liens. – No policy of life insurance issued
under this Act, or the proceeds thereof, except those corresponding to the annual
premium thereon in excess of five hundred pesos per annum, when paid to any member
thereunder, shall be liable to attachment, garnishment, or other process, or to be seized,
taken, appropriated, or applied by any legal or equitable process or operation of law to
pay any debt or liability of such member, or his beneficiary, or any other person who
may have a right thereunder, either before or after payment; nor shall the proceeds
thereof, when not made payable to a named beneficiary, constitute a part of the estate
of the member for payment of his debt.

Presidential Decree No. 1146, which amended CA No. 186, likewise contained a provision
27 

exempting benefits from attachment, garnishment, levy or other processes. However, the
exemption was expressly made inapplicable to "obligations of the member to the System, or to
the employer, or when the benefits granted are assigned by the member with the authority of
the System." 28

The latest GSIS enactment, RA 8291, provides for a more detailed and wider range of
29 

exemptions under Section 39. Aside from exempting benefits from judicial processes, it likewise
unconditionally exempts benefits from quasi-judicial and administrative processes, including
COA disallowances, as well as all financial obligations of the member. The latter includes any
pecuniary accountability of the member which arose out of the exercise or performance of his
official functions or duties or incurred relative to his position or work. The only exception to such
pecuniary accountability is when the same is in favor of the GSIS.

Thus, "monetary liability in favor of GSIS" refers to indebtedness of the member to the System
other than those which fall under the categories of pecuniary accountabilities exempted under
the law. Such liability may include unpaid social insurance premiums and balances on loans
obtained by the retiree from the System, which do not arise in the performance of his duties and
are not incurred relative to his work. The general policy, as reflected in our retirement laws and
jurisprudence, is to exempt benefits from all legal processes or liens, but not from outstanding
obligations of the member to the System. This is to ensure maintenance of the GSIS’ fund
reserves in order to guarantee fulfillment of all its obligations under RA 8291.

Notwithstanding the foregoing, however, we find it necessary to nonetheless differentiate

between those benefits which were properly disallowed by the COA and those which were not.

Anent the benefits which were improperly disallowed, the same rightfully belong to respondents
without qualification. As for benefits which were justifiably disallowed by the COA, the same
were erroneously granted to and received by respondents who now have the obligation to return
the same to the System.

It cannot be denied that respondents were recipients of benefits that were properly disallowed
by the COA. These COA disallowances would otherwise have been deducted from their
salaries, were it not for the fact that respondents retired before such deductions could be
effected. The GSIS can no longer recover these amounts by any administrative means due to
the specific exemption of retirement benefits from COA disallowances. Respondents resultantly
retained benefits to which they were not legally entitled which, in turn, gave rise to an obligation
on their part to return the amounts under the principle of solutio indebiti.

Under Article 2154 of the Civil Code, if something is received and unduly delivered through
30 

mistake when there is no right to demand it, the obligation to return the thing arises. Payment by
reason of mistake in the construction or application of a doubtful or difficult question of law also
comes within the scope of solutio indebiti. 31

In the instant case, the confusion about the increase and payment of benefits to GSIS
employees and executives, as well as its subsequent disallowance by the COA, arose on
account of the application of RA 6758 or the Salary Standardization Law and its implementing
rules, CCC No. 10. The complexity in the application of these laws is manifested by the several
cases that have reached the Court since its passage in 1989. The application of RA 6758 was
32 

made even more difficult when its implementing rules were nullified for non-
publication. Consequently, the delivery of benefits to respondents under an erroneous
33 

interpretation of RA 6758 gave rise to an actionable obligation for them to return the same.

While the GSIS cannot directly proceed against respondents’ retirement benefits, it can
nonetheless seek restoration of the amounts by means of a proper court action for its recovery.
Respondents themselves submit that this should be the case, although any judgment rendered
34 

therein cannot be enforced against retirement benefits due to the exemption provided in Section
39 of RA 8291. However, there is no prohibition against enforcing a final monetary judgment
against respondents’ other assets and properties. This is only fair and consistent with basic
principles of due process.

As such, a proper accounting of the amounts due and refundable is in order. In rendering such
accounting, the parties must observe the following guidelines:

(1) All deductions from respondents’ retirement benefits should be refunded except
those amounts which may properly be defined as "monetary liability to the GSIS";

(2) Any other amount to be deducted from retirement benefits must be agreed upon by
and between the parties; and

(3) Refusal on the part of respondents to return disallowed benefits shall give rise to a
right of action in favor of GSIS before the courts of law.

Conformably, any fees due to Atty. Sundiam for his professional services may be charged
against respondents’ retirement benefits. The arrangement, however, must be covered by a
proper agreement between him and his clients under (2) above.

As to whether respondents are entitled to dividends on the provident fund contributions, the
same is not within the issues raised before the Court. The second petition refers only to the
legality of the deductions made by GSIS from respondents’ retirement benefits. There are
factual matters that need to be threshed out in determining respondents’ right to the payment of
dividends, in view of the GSIS’ assertion that the management contributions were not actually
remitted to the fund. Thus, the payment of dividends should be the subject of a separate claim
where the parties can present evidence to prove their respective assertions. The Court is in no
position to resolve the matter since the material facts that would prove or disprove the claim are
not on record.

In the interest of clarity, we reiterate herein our ruling that there is no identity of subject matter
between the COA proceedings, from which the first petition stemmed, and respondents’ claim of
refund before the Board. While the first petition referred to the propriety of the COA
disallowances per se, respondents’ claim before the Board pertained to the legality of deducting
the COA disallowances from retirement benefits under Section 39 of RA 8291.

Finally, on respondents claim that the GSIS acted in bad faith when it deducted the COA
disallowances from their retirement benefits, except for bare allegations, there is no proof or
evidence of the alleged bad faith and partiality of the GSIS. Moreover, the latter cannot be
faulted for taking measures to ensure recovery of the COA disallowances since respondents
have already retired and would be beyond its administrative reach. The GSIS merely acted
upon its best judgment and chose to err in the side of prudence rather than suffer the
consequence of not being able to account for the COA disallowances. It concededly erred in
taking this recourse but it can hardly be accused of malice or bad faith in doing so.

WHEREFORE, in view of the foregoing, the April 16, 2002 Decision in G.R. Nos. 138381 and
141625 is AMENDED. In addition to the refund of amounts corresponding to benefits allowed in
G.R. No. 138381, the GSIS is ordered to REFUND all deductions from retirement benefits
EXCEPT amounts representing monetary liability of the respondents to the GSIS as well as all
other amounts mutually agreed upon by the parties.

SO ORDERED.
 THIRD DIVISION

G.R. No. 148311. March 31, 2005

IN THE MATTER OF THE ADOPTION OF STEPHANIE NATHY ASTORGA GARCIA

HONORATO B. CATINDIG, petitioner.

DECISION

SANDOVAL-GUTIERREZ, J.:

May an illegitimate child, upon adoption by her natural father, use the surname of her natural
mother as her middle name? This is the issue raised in the instant case.

The facts are undisputed.

On August 31, 2000, Honorato B. Catindig, herein petitioner, filed a petition1 to adopt his minor
illegitimate child Stephanie Nathy Astorga Garcia. He alleged therein, among others, that
Stephanie was born on June 26, 1994; 2 that her mother is Gemma Astorga Garcia; that
Stephanie has been using her mother’s middle name and surname; and that he is now a
widower and qualified to be her adopting parent. He prayed that Stephanie’s middle name
Astorga be changed to "Garcia," her mother’s surname, and that her surname "Garcia" be
changed to "Catindig," his surname.

On March 23, 2001,3 the trial court rendered the assailed Decision granting the adoption, thus:

"After a careful consideration of the evidence presented by the petitioner, and in the absence of
any opposition to the petition, this Court finds that the petitioner possesses all the qualifications
and none of the disqualification provided for by law as an adoptive parent, and that as such he
is qualified to maintain, care for and educate the child to be adopted; that the grant of this
petition would redound to the best interest and welfare of the minor Stephanie Nathy Astorga
Garcia. The Court further holds that the petitioner’s care and custody of the child since her birth
up to the present constitute more than enough compliance with the requirement of Article 35 of
Presidential Decree No. 603.

WHEREFORE, finding the petition to be meritorious, the same is GRANTED. Henceforth,

Stephanie Nathy Astorga Garcia is hereby freed from all obligations of obedience and
maintenance with respect to her natural mother, and for civil purposes, shall henceforth be the
petitioner’s legitimate child and legal heir. Pursuant to Article 189 of the Family Code of the
Philippines, the minor shall be known as STEPHANIE NATHY CATINDIG.

Upon finality of this Decision, let the same be entered in the Local Civil Registrar concerned
pursuant to Rule 99 of the Rules of Court.

Let copy of this Decision be furnished the National Statistics Office for record purposes.

SO ORDERED."4

On April 20, 2001, petitioner filed a motion for clarification and/or reconsideration 5 praying that
Stephanie should be allowed to use the surname of her natural mother (GARCIA) as her middle
name.

On May 28, 2001,6 the trial court denied petitioner’s motion for reconsideration holding that
there is no law or jurisprudence allowing an adopted child to use the surname of his biological
mother as his middle name.

Hence, the present petition raising the issue of whether an illegitimate child may use the
surname of her mother as her middle name when she is subsequently adopted by her natural
father.

Petitioner submits that the trial court erred in depriving Stephanie of a middle name as a
consequence of adoption because: (1) there is no law prohibiting an adopted child from having
a middle name in case there is only one adopting parent; (2) it is customary for every Filipino to
have as middle name the surname of the mother; (3) the middle name or initial is a part of the
name of a person; (4) adoption is for the benefit and best interest of the adopted child, hence,
her right to bear a proper name should not be violated; (5) permitting Stephanie to use the
middle name "Garcia" (her mother’s surname) avoids the stigma of her illegitimacy; and; (6) her
continued use of "Garcia" as her middle name is not opposed by either the Catindig or Garcia
families.

The Republic, through the Office of the Solicitor General (OSG), agrees with petitioner that
Stephanie should be permitted to use, as her middle name, the surname of her natural mother
for the following reasons:

First, it is necessary to preserve and maintain Stephanie’s filiation with her natural mother
because under Article 189 of the Family Code, she remains to be an intestate heir of the latter.
Thus, to prevent any confusion and needless hardship in the future, her relationship or proof of
that relationship with her natural mother should be maintained.

Second, there is no law expressly prohibiting Stephanie to use the surname of her natural
mother as her middle name. What the law does not prohibit, it allows.

Last, it is customary for every Filipino to have a middle name, which is ordinarily the surname of
the mother. This custom has been recognized by the Civil Code and Family Code. In fact, the
Family Law Committees agreed that "the initial or surname of the mother should immediately
precede the surname of the father so that the second name, if any, will be before the surname
of the mother."7

We find merit in the petition.

Use Of Surname Is Fixed By Law –

For all practical and legal purposes, a man's name is the designation by which he is known and
called in the community in which he lives and is best known. It is defined as the word or
combination of words by which a person is distinguished from other individuals and, also, as the
label or appellation which he bears for the convenience of the world at large addressing him, or
in speaking of or dealing with him.8 It is both of personal as well as public interest that every
person must have a name.

The name of an individual has two parts: (1) the given or proper name and (2) the surname or
family name. The given or proper name is that which is given to the individual at birth or at
baptism, to distinguish him from other individuals. The surname or family name is that which
identifies the family to which he belongs and is continued from parent to child. The given name
may be freely selected by the parents for the child, but the surname to which the child is entitled
is fixed by law.9

Thus, Articles 364 to 380 of the Civil Code provides the substantive rules which regulate the use
of surname10 of an individual whatever may be his status in life, i.e., whether he may be
legitimate or illegitimate, an adopted child, a married woman or a previously married woman, or
a widow, thus:

"Art. 364. Legitimate and legitimated children shall principally use the surname of the father.

Art. 365. An adopted child shall bear the surname of the adopter.

xxx

Art. 369. Children conceived before the decree annulling a voidable marriage shall principally
use the surname of the father.

Art. 370. A married woman may use:

(1) Her maiden first name and surname and add her husband's surname, or

(2) Her maiden first name and her husband's surname or

(3) Her husband's full name, but prefixing a word indicating that she is his wife, such as ‘Mrs.’

Art. 371. In case of annulment of marriage, and the wife is the guilty party, she shall resume her
maiden name and surname. If she is the innocent spouse, she may resume her maiden name
and surname. However, she may choose to continue employing her former husband's surname,
unless:

(1) The court decrees otherwise, or

(2) She or the former husband is married again to another person.

Art. 372. When legal separation has been granted, the wife shall continue using her name
and surname employed before the legal separation.

Art. 373. A widow may use the deceased husband's surname as though he were still living, in
accordance with Article 370.

Art. 374. In case of identity of names and surnames, the younger person shall be obliged to
use such additional name or surname as will avoid confusion.

Art. 375. In case of identity of names and surnames between ascendants and descendants, the
word ‘Junior’ can be used only by a son. Grandsons and other direct male descendants shall
either:

(1) Add a middle name or the mother's surname,

(2) Add the Roman numerals II, III, and so on.

x x x"

Law Is Silent As To The Use Of

Middle Name –

As correctly submitted by both parties, there is no law regulating the use of a middle name.
Even Article 17611 of the Family Code, as amended by Republic Act No. 9255, otherwise known
as "An Act Allowing Illegitimate Children To Use The Surname Of Their Father," is silent as to
what middle name a child may use.

The middle name or the mother’s surname is only considered in Article 375(1), quoted above, in
case there is identity of names and surnames between ascendants and descendants, in which
case, the middle name or the mother’s surname shall be added.

Notably, the law is likewise silent as to what middle name an adoptee may use. Article 365
of the Civil Code merely provides that "an adopted child shall bear the surname of the adopter."
Also, Article 189 of the Family Code, enumerating the legal effects of adoption, is likewise silent
on the matter, thus:

"(1) For civil purposes, the adopted shall be deemed to be a legitimate child of the

adopters and both shall acquire the reciprocal rights and obligations arising from the
relationship of parent and child, including the right of the adopted to use the surname of the
adopters;

x x x"

However, as correctly pointed out by the OSG, the members of the Civil Code and Family Law
Committees that drafted the Family Code recognized the Filipino custom of adding the
surname of the child’s mother as his middle name. In the Minutes of the Joint Meeting of the
Civil Code and Family Law Committees, the members approved the suggestion that the initial
or surname of the mother should immediately precede the surname of the father, thus

"Justice Caguioa commented that there is a difference between the use by the wife of the
surname and that of the child because the father’s surname indicates the family to which he
belongs, for which reason he would insist on the use of the father’s surname by the child
but that, if he wants to, the child may also use the surname of the mother.

Justice Puno posed the question: If the child chooses to use the surname of the mother, how
will his name be written? Justice Caguioa replied that it is up to him but that his point is that it
should be mandatory that the child uses the surname of the father and permissive in the
case of the surname of the mother.

Prof. Baviera remarked that Justice Caguioa’s point is covered by the present Article 364, which
reads:

Legitimate and legitimated children shall principally use the surname of the father.

Justice Puno pointed out that many names change through no choice of the person himself
precisely because of this misunderstanding. He then cited the following example: Alfonso Ponce
Enrile’s correct surname is Ponce since the mother’s surname is Enrile but everybody calls him
Atty. Enrile. Justice Jose Gutierrez David’s family name is Gutierrez and his mother’s surname
is David but they all call him Justice David.
Justice Caguioa suggested that the proposed Article (12) be modified to the effect that it
shall be mandatory on the child to use the surname of the father but he may use the
surname of the mother by way of an initial or a middle name. Prof. Balane stated that they
take note of this for inclusion in the Chapter on Use of Surnames since in the proposed Article
(10) they are just enumerating the rights of legitimate children so that the details can be covered
in the appropriate chapter.

xxx

Justice Puno remarked that there is logic in the simplification suggested by Justice Caguioa that
the surname of the father should always be last because there are so many traditions like the
American tradition where they like to use their second given name and the Latin tradition, which
is also followed by the Chinese wherein they even include the Clan name.

xxx

Justice Puno suggested that they agree in principle that in the Chapter on the Use of
Surnames, they should say that initial or surname of the mother should immediately
precede the surname of the father so that the second name, if any, will be before the
surname of the mother. Prof. Balane added that this is really the Filipino way. The
Committee approved the suggestion."12 (Emphasis supplied)

In the case of an adopted child, the law provides that "the adopted shall bear the surname of
the adopters."13 Again, it is silent whether he can use a middle name. What it only expressly
allows, as a matter of right and obligation, is for the adoptee to bear the surname of the adopter,
upon issuance of the decree of adoption. 14

The Underlying Intent of

Adoption Is In Favor of the

Adopted Child –

Adoption is defined as the process of making a child, whether related or not to the adopter,
possess in general, the rights accorded to a legitimate child. 15 It is a juridical act, a proceeding in
rem which creates between two persons a relationship similar to that which results from
legitimate paternity and filiation.16 The modern trend is to consider adoption not merely as an
act to establish a relationship of paternity and filiation, but also as an act which endows the
child with a legitimate status.17 This was, indeed, confirmed in 1989, when the Philippines, as
a State Party to the Convention of the Rights of the Child initiated by the United Nations,
accepted the principle that adoption is impressed with social and moral responsibility,
and that its underlying intent is geared to favor the adopted child.18 Republic Act No. 8552,
otherwise known as the "Domestic Adoption Act of 1998,"19 secures these rights and privileges
for the adopted.20

One of the effects of adoption is that the adopted is deemed to be a legitimate child of the
adopter for all intents and purposes pursuant to Article 189 21 of the Family Code and Section
1722 Article V of RA 8552.23

Being a legitimate child by virtue of her adoption, it follows that Stephanie is entitled to
all the rights provided by law to a legitimate child without discrimination of any kind,
including the right to bear the surname of her father and her mother, as discussed
above. This is consistent with the intention of the members of the Civil Code and Family Law
Committees as earlier discussed. In fact, it is a Filipino custom that the initial or surname of the
mother should immediately precede the surname of the father.

Additionally, as aptly stated by both parties, Stephanie’s continued use of her mother’s surname
(Garcia) as her middle name will maintain her maternal lineage. It is to be noted that Article
189(3) of the Family Code and Section 1824, Article V of RA 8552 (law on adoption) provide that
the adoptee remains an intestate heir of his/her biological parent. Hence, Stephanie can well
assert or claim her hereditary rights from her natural mother in the future.

Moreover, records show that Stephanie and her mother are living together in the house built by
petitioner for them at 390 Tumana, San Jose, Baliuag, Bulacan. Petitioner provides for all their
needs. Stephanie is closely attached to both her mother and father. She calls them "Mama" and
"Papa". Indeed, they are one normal happy family. Hence, to allow Stephanie to use her
mother’s surname as her middle name will not only sustain her continued loving relationship
with her mother but will also eliminate the stigma of her illegitimacy.

Liberal Construction of
Adoption Statutes In Favor Of

Adoption –

It is a settled rule that adoption statutes, being humane and salutary, should be liberally
construed to carry out the beneficent purposes of adoption. 25 The interests and welfare of the
adopted child are of primary and paramount consideration, 26 hence, every reasonable
intendment should be sustained to promote and fulfill these noble and compassionate
objectives of the law.27

Lastly, Art. 10 of the New Civil Code provides that:

"In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking
body intended right and justice to prevail."

This provision, according to the Code Commission, "is necessary so that it may tip the scales in
favor of right and justice when the law is doubtful or obscure. It will strengthen the determination
of the courts to avoid an injustice which may apparently be authorized by some way of
interpreting the law."28

Hence, since there is no law prohibiting an illegitimate child adopted by her natural father, like
Stephanie, to use, as middle name her mother’s surname, we find no reason why she should
not be allowed to do so.

WHEREFORE, the petition is GRANTED. The assailed Decision is partly MODIFIED in the
sense that Stephanie should be allowed to use her mother’s surname "GARCIA" as her middle
name.

Let the corresponding entry of her correct and complete name be entered in the decree of
adoption.

SO ORDERED.
 EN BANC

JULY 3, 2018

G.R. No. 199802

CONGRESSMAN HERMILANDO I. MANDANAS; MAYOR EFREN B. DIONA; MAYOR

ANTONINO A. AURELIO; KAGA WAD MARIOILAGAN;BARANGAY CHAIR PERLITO
MANALO; BARANGA Y CHAIR MEDEL MEDRANO;BARANGAY KAGA WAD CRIS
RAMOS; BARANGA Y KAGA WAD ELISA D. BALBAGO, and ATTY. JOSE MALVAR
VILLEGAS, Petitioners
vs.
EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR.; SECRETARY CESAR PURISIMA,
Department of Finance; SECRETARY FLORENCIO H. ABAD, Department of Budget and
Management; COMMISSIONER KIM JACINTO-HENARES, Bureau of Internal Revenue;
and NATIONAL TREASURER ROBERTO TAN, Bureau of the Treasury, Respondents

G.R. No. 208488

HONORABLE ENRIQUE T. GARCIA, JR., in his personal and official capacity as

Representative of the 2nd District of the Province of Bataan, Petitioner
vs.
HONORABLE [PAQUITO) N. OCHOA, JR., Executive Secretary; HONORABLE CESAR V.
PURISIMA, Secretary, Department of Finance; HONORABLE FLORENCIO H. ABAD,
Secretary, Department of Budget and Management; HONORABLE KIM S. JACINTO-
HENARES, Commissioner, Bureau of Internal Revenue; and HONORABLE ROZZANO
RUFINO B. BIAZON, Commissioner, Bureau of Customs, Respondents

DECISION

BERSAMIN, J.:

The petitioners hereby challenge the manner in which the just share in the national taxes of the
local government units (LGUs) has been computed.

Antecedents

One of the key features of the 1987 Constitution is its push towards decentralization of
government and local autonomy. Local autonomy has two facets, the administrative and the
fiscal. Fiscal autonomy means that local governments have the power to create their own
sources of revenue in addition to their equitable share in the national taxes released by the
National Government, as well as the power to allocate their resources in accordance with their
own priorities.  Such autonomy is as indispensable to the viability of the policy of
1

decentralization as the other.

Implementing the constitutional mandate for decentralization and local autonomy, Congress
enacted Republic Act No. 7160, otherwise known as the Local Government Code (LGC), in
order to guarantee the fiscal autonomy of the LGUs by specifically providing that:

SECTION 284. Allotment of Internal Revenue Taxes. - Local government units shall have a
share in the national internal revenue taxes based on the collection of the third fiscal year
preceding the current fiscal year as follows:

(a) On the first year of the effectivity of this Code, thirty percent (30%); (b) On the second year,
thirty-five percent (35%); and

(c) On the third year and thereafter, forty percent (40%).

Provided, That in the event that the National Government incurs an unmanageable public sector
deficit, the President of the Philippines is hereby authorized, upon the recommendation of
Secretary of Finance, Secretary of Interior and Local Government, and Secretary of Budget and
Management, and subject to consultation with the presiding officers of both Houses of Congress
and the presidents of the "liga", to make the necessary adjustments in the internal revenue
allotment of local government units but in no case shall the allotment be less than thirty percent
(30%) of the collection of national internal revenue taxes of the third fiscal year preceding the
current fiscal year: Provided, further, That in the first year of the effectivity of this Code, the local
government units shall, in addition to the thirty percent (30%) internal revenue allotment which
shall include the cost of devolved functions for essential public services, be entitled to receive
the amount equivalent to the cost of devolved personal services.
The share of the LGUs, heretofore known as the Internal Revenue Allotment (IRA), has been
regularly released to the LGUs. According to the implementing rules and regulations of the
LGC, the IRA is determined on the basis of the actual collections of the National Internal
Revenue Taxes (NIRTs) as certified by the Bureau of Internal Revenue (BIR). 2

G.R. No. 199802 (Mandanas, et al.) is a special civil action for certiorari, prohibition

and mandamus assailing the manner the General Appropriations Act (GAA) for FY 2012
computed the IRA for the LGUs.

Mandanas, et al. allege herein that certain collections of NIR Ts by the Bureau of Customs
(BOC) - specifically: excise taxes, value added taxes (VATs) and documentary stamp taxes
(DSTs) - have not been included in the base amounts for the computation of the IRA; that such
taxes, albeit collected by the BOC, should form part of the base from which the IRA should be
computed because they constituted NIRTs; that, consequently, the release of the additional
amount of ₱60,750,000,000.00 to the LGUs as their IRA for FY 2012 should be ordered; and
that for the same reason the LGUs should also be released their unpaid IRA for FY 1992 to FY
2011, inclusive, totaling ₱438,103,906,675.73.

In G.R. No. 208488, Congressman Enrique Garcia, Jr., the lone petitioner, seeks the writ
of mandamus to compel the respondents thereat to compute the just share of the LGUs on the
basis of all national taxes. His petition insists on a literal reading of Section 6, Article X of the
1987 Constitution. He avers that the insertion by Congress of the words internal revenue in the
phrase national taxes found in Section 284 of the LGC caused the diminution of the base for
determining the just share of the LGUs, and should be declared unconstitutional; that,
moreover, the exclusion of certain taxes and accounts pursuant to or in accordance with special
laws was similarly constitutionally untenable; that the VA Ts and excise taxes collected by the
BOC should be included in the computation of the IRA; and that the respondents should
compute the IRA on the basis of all national tax collections, and thereafter distribute any
shortfall to the LGUs.

It is noted that named as common respondents were the then incumbent Executive Secretary,
Secretary of Finance, the Secretary of the Department of Budget and Management (DBM), and
the Commissioner of Internal Revenue. In addition, Mandanas, et al. impleaded the National
Treasurer, while Garcia added the Commissioner of Customs.

The cases were consolidated on October 22, 2013.   In the meanwhile, Congressman Garcia,
3

Jr. passed away. Jose Enrique Garcia III, who was subsequently elected to the same
congressional post, was substituted for Congressman Garcia, Jr. as the petitioner in G.R. No.
208488 under the resolution promulgated on August 23, 2016. 4

In response to the petitions, the several respondents, represented by the Office of the Solicitor
General (OSG), urged the dismissal of the petitions upon procedural and substantive
considerations.

Anent the procedural considerations, the OSG argues that the petitions are procedurally
defective because, firstly, mandamus does not lie in order to achieve the reliefs sought because
Congress may not be compelled to appropriate the sums allegedly illegally withheld for to do so
will violate the doctrine of separation of powers; and, secondly, mandamus does not also lie to
compel the DBM to release the amounts to the LGUs because such disbursements will be
contrary to the purposes specified in the GAA; that Garcia has no clear legal right to sustain his
suit for mandamus; that the filing of Garcia's suit violates the doctrine of hierarchy of courts; and
that Garcia's petition seeks declaratory relief but the Court cannot grant such relief in the
exercise of its original jurisdiction.

On the substantive considerations, the OSG avers that Article 284 of the LGC is consistent with
the mandate of Section 6, Article X of the 1987 Constitution to the effect that the LGUs shall
have a just share in the national taxes; that the determination of the just share is within the
discretion of Congress; that the limitation under the LGC of the basis for the just share in the
NIRTs was within the powers granted to Congress by the 1987 Constitution; that the LGUs have
been receiving their just share in the national taxes based on the correct base amount; that
Congress has the authority to exclude certain taxes from the base amount in computing the
IRA; that there is a distinction between the VA Ts, excise taxes and DSTs collected by the BIR,
on one hand, and the VA Ts, excise taxes and DSTs collected by the BOC, on the other,
thereby warranting their different treatment; and that Development Budget Coordination
Committee (DBCC) Resolution No. 2003-02 dated September 4, 2003 has limited the base
amount for the computation of the IRA to the "cash collections based on the BIR data as
reconciled with the Bureau of Treasury;" and that the collection of such national taxes by the
BOC should be excluded.

Issues

The issues for resolution are limited to the following, namely:

 I.

Whether or not Mandamus is the proper vehicle to assail the constitutionality of the relevant
provisions of the GAA and the LGC;

II.

Whether or not Section 284 of the LGC is unconstitutional for being repugnant to Section 6,
Article X of the 1987 Constitution;

III.

Whether or not the existing shares given to the LGUs by virtue of the GAA is consistent with the
constitutional mandate to give LGUs a 'just share" to national taxes following Article X, Section
6 of the 1987 Constitution;

IV.

Whether or not the petitioners are entitled to the reliefs prayed for.

Simply stated, the petitioners raise the novel question of whether or not the exclusion of certain
national taxes from the base amount for the computation of the just share of the LGUs in the
national taxes is constitutional.

Ruling of the Court

The petitions are partly meritorious.

I
Mandamus is an improper remedy

Mandanas, et al. seek the writs of certiorari, prohibition and mandamus, while Garcia prays for

the writ of mandamus. Both groups of petitioners impugn the validity of Section 284 of the LGC.

The remedy of mandamus is defined in Section 3, Rule 65 of the Rules of Court, which

provides:

Section 3. Petition for mandamus. - When any tribunal, corporation, board, officer 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 and
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 respondent, immediately or at some other time to be specified by
the court, 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 respondent.

The petition shall also contain a sworn certification of non-forum shopping as provided in the
third paragraph of section 3, Rule 46.

For the writ of mandamus to issue, the petitioner must show that the act sought to be performed
or compelled is ministerial on the part of the respondent. An act is ministerial when it does not
require the exercise of judgment and the act is performed pursuant to a legal mandate. The
burden of proof is on the mandamus petitioner to show that he is entitled to the performance of
a legal right, and that the respondent has a corresponding duty to perform the act. The writ
of mandamus may not issue to compel an official to do anything that is not his duty to do, or that
is his duty not to do, or to obtain for the petitioner anything to which he is not entitled by law. 
5

Considering that its determination of what constitutes the just share of the LGUs in the national
taxes under the 1987 Constitution is an entirely discretionary power, Congress cannot be
compelled by writ of mandamus to act either way. The discretion of Congress thereon, being
exclusive, is not subject to external direction; otherwise, the delicate balance underlying our
system of government may be unduly disturbed. This conclusion should at once then demand
the dismissal of the Garcia petition in G.R. No. 208488, but we do not dismiss it. Garcia has
attributed the non-release of some portions of their IRA balances to an alleged congressional
indiscretion - the diminution of the base amount for computing the LGU's just share. He has
asserted that Congress altered the constitutional base not only by limiting the base to the NIRTs
instead of including therein all national taxes, but also by excluding some national taxes and
revenues that only benefitted a few LGUs to the detriment of the rest of the LGUs.
Garcia's petition, while dubbed as a petition for mandamus, is also a petition
for certiorari because it alleges that Congress thereby committed grave abuse of discretion
amounting to lack or excess of jurisdiction. It is worth reminding that the actual nature of every
action is determined by the allegations in the body of the pleading or the complaint itself, not by
the nomenclature used to designate the same.   Moreover, neither should the prayer for relief be
6

controlling; hence, the courts may still grant the proper relief as the facts alleged in the
pleadings and the evidence introduced may warrant even without a prayer for specific remedy. 7

In this regard, Garcia's allegation of the unconstitutionality of the insertion by Congress of the
words internal revenue in the phrase national taxes justifies treating his petition as one
for certiorari. It becomes our duty, then, to assume jurisdiction over his petition. In Araullo v.
Aquino III,  the Court has emphatically opined that the Court's certiorari jurisdiction under the
8

expanded judicial power as stated in the second paragraph of Section 1, Article VIII of the
Constitution can be asserted:

xxxx to set right and undo any act of grave abuse of discretion amounting to lack or excess of
jurisdiction by any branch or instrumentality of the Government, the Court is not at all precluded
from making the inquiry provided the challenge was properly brought by interested or affected
parties. The Court has been thereby entrusted expressly or by necessary implication with both
the duty and the obligation of determining, in appropriate cases, the validity of any assailed
legislative or executive action. This entrustment is consistent with the republican system of
checks and balances.  9

Further, observing that one of the reliefs being sought by Garcia is identical to the main relief
sought by Mandanas, et al., the Court should rightly dwell on the substantive arguments posited
by Garcia to the extent that they are relevant to the ultimate resolution of these consolidated
suits.

II.
Municipal corporations and their relationship with Congress

The correct resolution and fair disposition of the issues interposed for our consideration require
a review of the basic principles underlying our system of local governments, and of the extent of
the autonomy granted to the LGUs by the 1987 Constitution.

Municipal corporations are now commonly known as local governments. They are the bodies
politic established by law partly as agencies of the State to assist in the civil governance of the
country. Their chief purpose has been to regulate and administer the local and internal affairs of
the cities, municipalities or districts. They are legal institutions formed by charters from the
sovereign power, whereby the populations within communities living within prescribed areas
have formed themselves into bodies politic and corporate, and assumed their corporate names
with the right of continuous succession and for the purposes and with the authority of
subordinate self-government and improvement and the local administration of the affairs of the
State. 
10

Municipal corporations, being the mere creatures of the State, are subject to the will of
Congress, their creator. Their continued existence and the grant of their powers are dependent
on the discretion of Congress. On this matter, Judge John F. Dillon of the State of Iowa in the
United States of America enunciated in Merriam v. Moody's Executors  the rule of statutory
11

construction that came to be oft-mentioned as Dillon's Rule, to wit:

[A] municipal corporation possesses and can exercise the following powers and no others: First,
those granted in express words; second, those necessarily implied or necessarily incident to the
powers expressly granted; third, those absolutely essential to the declared objects and
purposes of the corporation-not simply convenient but indispensible; fourth, any fair doubt as to
the existence of a power is resolved by the courts against the corporation-against the existence
of the powers. 12

The formulation of Dillon's Rule has since undergone slight modifications. Judge Dillon himself
introduced some of the modifications through his post-Merriam writings with the objective of
alleviating the original formulation's harshness. The word fairly was added to the
second proviso; the word absolutely was deleted from the third proviso; and the
words reasonable and substantial were added to the fourth proviso, thusly:

x x x second, those necessarily or fairly implied in or incident to the powers expressly granted;

third, those essential to x x x. Any fair, reasonable, doubt. 
13

The modified Dillon's Rule has been followed in this jurisdiction, and has remained despite both
the 1973 Constitution and the 1987 Constitution mandating autonomy for local governments.
This has been made evident in several rulings of the Court, one of which was that handed down
in Magtajas v. Pryce Properties Corporation, lnc.:  14
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.

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, which 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. [Bold
underscoring supplied for emphasis]

Also, in the earlier ruling in Ganzon v. Court of Appeals,   the Court has pointed out that the
15

1987 Constitution, in mandating autonomy for the LGUs, did not intend to deprive Congress of
its authority and prerogatives over the LGUs.

Nonetheless, the LGC has tempered the application of Dillon's Rule in the Philippines by
providing a norm of interpretation in favor of the LGUs in its Section 5(a), to wit:

xxxx

(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 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; [Bold
underscoring supplied for emphasis]

xxxx

III.
The extent of local autonomy in the Philippines

Regardless, there remains no question that Congress possesses and wields plenary power to
control and direct the destiny of the LGUs, subject only to the Constitution itself, for Congress,
just like any branch of the Government, should bow down to the majesty of the Constitution,
which is always supreme.

The 1987 Constitution limits Congress' control over the LGUs by ordaining in Section 25 of its
Article II that: "The State shall ensure the autonomy of local governments." The autonomy of the
LGUs as thereby ensured does not contemplate the fragmentation of the Philippines into a
collection of mini-states,   or the creation of imperium in imperio.   The grant of autonomy
16 17

simply means that Congress will allow the LGUs to perform certain functions and exercise
certain powers in order not for them to be overly dependent on the National Government subject
to the limitations that the 1987 Constitution or Congress may impose.   Local autonomy
18
recognizes the wholeness of the Philippine society in its ethnolinguistic, cultural, and even
religious diversities. 19

The constitutional mandate to ensure local autonomy refers to decentralization.  In its broad or
20

general sense, decentralization has two forms in the Philippine setting, namely: the
decentralization of power and the decentralization of administration. The decentralization of
power involves the abdication of political power in favor of the autonomous LGUs as to grant
them the freedom to chart their own destinies and to shape their futures with minimum
intervention from the central government. This amounts to self-immolation because the
autonomous LGUs thereby become accountable not to the central authorities but to their
constituencies. On the other hand, the decentralization of administration occurs when the
central government delegates administrative powers to the LGUs as the means of broadening
the base of governmental powers and of making the LGUs more responsive and accountable in
the process, and thereby ensure their fullest development as self-reliant communities and more
effective partners in the pursuit of the goals of national development and social progress. This
form of decentralization further relieves the central government of the burden of managing local
affairs so that it can concentrate on national concerns. 21

Two groups of LGUs enjoy decentralization in distinct ways. The decentralization of power has
been given to the regional units (namely, the Autonomous Region for Muslim Mindanao [ARMM]
and the constitutionally-mandated Cordillera Autonomous Region [CAR]). The other group of
LGUs (i.e., provinces, cities, municipalities and barangays) enjoy the decentralization of
administration.  The distinction can be reasonably understood. The provinces, cities,
22

municipalities and barangays are given decentralized administration to make governance at the
local levels more directly responsive and effective. In turn, the economic, political and social
developments of the smaller political units are expected to propel social and economic growth
and development.   In contrast, the regional autonomy of the ARMM and the CAR aims to
23

permit determinate groups with common traditions and shared social-cultural characteristics to
freely develop their ways of life and heritage, to exercise their rights, and to be in charge of their
own affairs through the establishment of a special governance regime for certain member
communities who choose their own authorities from within themselves, and exercise the
jurisdictional authority legally accorded to them to decide their internal community affairs.  24

It is to be underscored, however, that the decentralization of power in favor of the regional units
is not unlimited but involves only the powers enumerated by Section 20, Article X of the 1987
Constitution and by the acts of Congress. For, with various powers being devolved to the
regional units, the grant and exercise of such powers should always be consistent with and
limited by the 1987 Constitution and the national laws.   In other words, the powers are
25

guardedly, not absolutely, abdicated by the National Government.

Illustrative of the limitation is what transpired in Serna v. Commission on Elections,  where the
26

Court struck down Section 19, Article VI of Republic Act No. 9054 (An Act to Strengthen and
Expand the Organic Act for the Autonomous Region in Muslim Mindanao, Amending for the
Purpose Republic Act No. 6734, entitled "An Act Providing for the Autonomous Region in
Muslim Mindanao," as Amended) insofar as the provision granted to the ARMM the power to
create provinces and cities, and consequently declared as void Muslim Mindanao Autonomy Act
No. 201 creating the Province of Shariff Kabunsuan for being contrary to Section 5, Article VI
and Section 20, Article X of the 1987 Constitution, as well as Section 3 of the Ordinance
appended to the 1987 Constitution. The Court clarified therein that only Congress could create
provinces and cities. This was because the creation of provinces and cities necessarily entailed
the creation of legislative districts, a power that only Congress could exercise pursuant to
Section 5, Article VI of the 1987 Constitution and Section 3 of the Ordinance appended to the
Constitution; as such, the ARMM would be thereby usurping the power of Congress to create
legislative districts and national offices.
27

The 1987 Constitution has surely encouraged decentralization by mandating that a system of
decentralization be instituted through the LGC in order to enable a more responsive and
accountable local government structure.  It has also delegated the power to tax to the LGUs by
28

authorizing them to create their own sources of income that would make them self-reliant.  It 29

further ensures that each and every LGU will have a just share in national taxes as well in the
development of the national wealth. 30

The LGC has further delineated in its Section 3 the different operative principles of
decentralization to be adhered to consistently with the constitutional policy on local
autonomy, viz.:

Sec. 3. Operative Principles of Decentralization-

The formulation and implementation of policies and measures on local autonomy shall be
guided by the following operative principles:
 (a) There shall be an effective allocation among the different local government
units of their respective powers, functions, responsibilities, and resources;

(b) There shall be established in every local government unit an accountable,

efficient, and dynamic organizational structure and operating mechanism that
will meet the priority needs and service requirements of its communities;

(c) Subject to civil service law, rules and regulations, local officials and
employees paid wholly or mainly from local funds shall be appointed or
removed, according to merit and fitness, by the appropriate appointing authority;

(d) The vesting of duty, responsibility, and accountability in local government

units shall be accompanied with provision for reasonably adequate resources to
discharge their powers and effectively carry out their functions: hence, they shall
have the power to create and broaden their own sources of revenue and the
right to a just share in national taxes and an equitable share in the proceeds of
the utilization and development of the national wealth within their respective
areas;

(e) Provinces with respect to component cities and municipalities, and cities and
municipalities with respect to component barangays, shall ensure that the acts
of their component units are within the scope of their prescribed powers and
functions;

(f) Local government units may group themselves, consolidate or coordinate

their efforts, services, and resources commonly beneficial to them;

(g) The capabilities of local government units, especially the municipalities and
barangays, shall be enhanced by providing them with opportunities to participate
actively in the implementation of national programs and projects;

(h) There shall be a continuing mechanism to enhance local autonomy not only
by legislative enabling acts but also by administrative and organizational
reforms;

(i) Local government units shall share with the national government the
responsibility in the management and maintenance of ecological balance within
their territorial jurisdiction, subject to the provisions of this Code and national
policies;

(j) Effective mechanisms for ensuring the accountability of local government

units to their respective constituents shall be strengthened in order to upgrade
continually the quality of local leadership;

(k) The realization of local autonomy shall be facilitated through improved

coordination of national government policies and programs an extension of
adequate technical and material assistance to less developed and deserving
local government units;

(l) The participation of the private sector in local governance, particularly in the
delivery of basic services, shall be encouraged to ensure the viability of local
autonomy as an alternative strategy for sustainable development; and

(m) The national government shall ensure that decentralization contributes to

the continuing improvement of the performance of local government units and
the quality of community life.

Based on the foregoing delineation, decentralization can be considered as the decision by the
central government to empower its subordinates, whether geographically or functionally
constituted, to exercise authority in certain areas. It involves decision-making by subnational
units, and is typically a delegated power, whereby a larger government chooses to delegate
authority to more local governments.  It is also a process, being the set of policies, electoral or
31

constitutional reforms that transfer responsibilities, resources or authority from the higher to the
lower levels of government.  It is often viewed as a shift of authority towards local governments
32

and away from the central government, with total government authority over society and
economy imagined as fixed. 33

As a system of transferring authority and power from the National Government to the LGUs,
decentralization in the Philippines may be categorized into four, namely: (1) political
decentralization or devolution; (2) administrative decentralization or deconcentration; (3) fiscal
decentralization; and (4) policy or decision-making decentralization.
Political decentralization or devolution occurs when there is a transfer of powers,
responsibilities, and resources from the central government to the LOU s for the performance of
certain functions. It is a more liberal form of decentralization because there is an actual transfer
of powers and responsibilities. It aims to grant greater autonomy to the LGUs in cognizance of
their right to self-government, to make them self-reliant, and to improve their administrative and
technical capabilities.  It is an act by which the National Government confers power and
34

authority upon the various LGUs to perform specific functions and responsibilities.  It
35

encompasses reforms to open sub-national representation and policies to "devolve political

authority or electoral capacities to sub-national actors. "  Section 16 to Section 19 of the LGC
36

characterize political decentralization in the LGC as different LGUs empowered to address the
different needs of their constituents. In contrast, devolution in favor of the regional units is more
expansive because they are given the authority to regulate a wider array of subjects, including
personal, family and property relations.

Administrative decentralization or deconcentration involves the transfer of functions or the

delegation of authority and responsibility from the national office to the regional and local
offices.   Consistent with this concept, the LGC has created the Local School Boards,  the Local
37 38

Health Boards  and the Local Development Councils,  and has transferred some of the
39 40

authority from the agencies of the National Government, like the Department of Education and
the Department of Health, to such bodies to better cope up with the needs of particular
localities.

Fiscal decentralization means that the LGUs have the power to create their own sources of
revenue in addition to their just share in the national taxes released by the National
Government. It includes the power to allocate their resources in accordance with their own
priorities. It thus extends to the preparation of their budgets, so that the local officials have to
work within the constraints of their budgets. The budgets are not formulated at the national level
and imposed on local governments, without regard as to whether or not they are relevant to
local needs and resources. Hence, the necessity of a balancing of viewpoints and the
harmonization of proposals from both local and national officials, who in any case are partners
in the attainment of national goals, is recognized and addressed. 41

Fiscal decentralization emanates from a specific constitutional mandate that is expressed in

several provisions of Article X (Local Government) of the 1987 Constitution, specifically: Section
5;  Section 6;  and Section 7.
42 43 44

The constitutional authority extended to each and every LGU to create its own sources of
income and revenue has been formalized from Section 128 to Section 133 of the LGC. To
implement the LGUs' entitlement to the just share in the national taxes, Congress has enacted
Section 284 to Section 288 of the LGC. Congress has further enacted Section 289 to Section
294 of the LGC to define the share of the LGUs in the national wealth. Indeed, the requirement
for the automatic release to the LGUs of their just share in the national taxes is but the
consequence of the constitutional mandate for fiscal decentralization.  45

For sure, fiscal decentralization does not signify the absolute freedom of the LGUs to create
their own sources of revenue and to spend their revenues unrestrictedly or upon their individual
whims and caprices. Congress has subjected the LGUs' power to tax to the guidelines set in
Section 130 of the LGC and to the limitations stated in Section 133 of the LGC. The concept of
local fiscal autonomy does not exclude any manner of intervention by the National Government
in the form of supervision if only to ensure that the local programs, fiscal and otherwise, are
consistent with the national goals. 46

Lastly, policy- or decision-making decentralization exists if at least one sub-national tier of

government has exclusive authority to make decisions on at least one policy issue. 47

In fine, certain limitations are and can be imposed by Congress in all the forms of
decentralization, for local autonomy, whether as to power or as to administration, is not
absolute. The LGUs remain to be the tenants of the will of Congress subject to the guarantees
that the Constitution itself imposes.

IV.
Section 284 of the LGC deviates from the plain language
of Section 6 of Article X of the 1987 Constitution

Section 6, Article X the 1987 Constitution textually commands the allocation to the LGUs of
a just share in the national taxes, viz.:

Section 6. Local government units shall have a just share, as determined by law, in the national
taxes which shall be automatically released to them.
Section 6, when parsed, embodies three mandates, namely: (1) the LGUs shall have a just
share in the national taxes; (2) the just share shall be determined by law; and (3) the just
share shall be automatically released to the LGUs. 48

Congress has sought to carry out the second mandate of Section 6 by enacting Section 284,
Title III (Shares of Local Government Units in the Proceeds of National Taxes), of the LGC,
which is again quoted for ready reference:

Section 284. Allotment of Internal Revenue Taxes. - Local government units shall have a share
in the national internal revenue taxes based on the collection of the third fiscal year preceding
the current fiscal year as follows:

(a) On the first year of the effectivity of this Code, thirty percent (30%);

(b) On the second year, thirty-five percent (35%); and

(c) On the third year and thereafter, forty percent (40%).

Provided, That in the event that the national government incurs an unmanageable public sector
deficit, the President of the Philippines is hereby authorized, upon the recommendation of
Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and
Management, and subject to consultation with the presiding officers of both Houses of Congress
and the presidents of the "liga", to make the necessary adjustments in the internal. revenue
allotment of local government units but in no case shall the allotment be less than thirty percent
(30%) of the collection of national internal revenue taxes of the third fiscal year preceding the
current fiscal year: Provided, further, That in the first year of the effectivity of this Code, the local
government units shall, in addition to the thirty percent (30%) internal revenue allotment which
shall include the cost of devolved functions for essential public services, be entitled to receive
the amount equivalent to the cost of devolved personal services.

There is no issue as to what constitutes the LGUs' just share expressed in percentages of the

national taxes (i.e., 30%, 35% and 40% stipulated in subparagraphs (a), (b), and (c) of Section
284 ). Yet, Section 6, supra, mentions national taxes as the source of the just share of the LGUs
while Section 284 ordains that the share of the LG Us be taken from national internal revenue
taxes instead.

Has not Congress thereby infringed the constitutional provision?

Garcia contends that Congress has exceeded its constitutional boundary by limiting to the
NIRTs the base from which to compute the just share of the LGUs.

We agree with Garcia's contention.

Although the power of Congress to make laws is plenary in nature, congressional lawmaking
remains subject to the limitations stated in the 1987 Constitution.  The phrase national internal
49

revenue taxes engrafted in Section 284 is undoubtedly more restrictive than the term national
taxes written in Section 6. As such, Congress has actually departed from the letter of the 1987
Constitution stating that national taxes should be the base from which the just share of the LGU
comes. Such departure is impermissible. Verba legis non est recedendum (from the words of a
statute there should be no departure).   Equally impermissible is that Congress has also thereby
50

curtailed the guarantee of fiscal autonomy in favor of the LGUs under the 1987 Constitution.

Taxes are the enforced proportional contributions exacted by the State from persons and
properties pursuant to its sovereignty in order to support the Gove1nment and to defray all the
public needs. Every tax has three elements, namely: (a) it is an enforced proportional
contribution from persons and properties; (b) it is imposed by the State by virtue of its
sovereignty; and (c) it is levied for the support of the Government.  Taxes are classified into
51

national and local. National taxes are those levied by the National Government, while local
taxes are those levied by the LGUs. 52

What the phrase national internal revenue taxes as used in Section 284 included are all the
taxes enumerated in Section 21 of the National Internal Revenue Code (NIRC), as amended by
R.A. No. 8424, viz.:

Section 21. Sources of Revenue. - The following taxes, fees and charges are deemed to be
national internal revenue taxes:

(a) Income tax;

(b) Estate and donor's taxes;

 (c) Value-added tax;

(d) Other percentage taxes;

(e) Excise taxes;

(f) Documentary stan1p taxes; and

(g) Such other taxes as arc or hereafter may be imposed and collected by the
Bureau of Internal Revenue.

In view of the foregoing enumeration of what are the national internal revenue taxes, Section
284 has effectively deprived the LGUs from deriving their just share from other national taxes,
like the customs duties.

Strictly speaking, customs duties are also taxes because they are exactions whose proceeds
become public funds. According to Garcia v. Executive Secretary,  customs duties is the
53

nomenclature given to taxes imposed on the importation and exportation of commodities and
merchandise to or from a foreign country. Although customs duties have either or both the
generation of revenue and the regulation of economic or social activity as their moving
purposes, it is often difficult to say which of the two is the principal objective in a particular
instance, for, verily, customs duties, much like internal revenue taxes, are rarely designed to
achieve only one policy objective.  We further note that Section 102(00) of R.A. No.
54

10863 (Customs Modernization and Tariff Act) expressly includes all fees and charges imposed
under the Act under the blanket term of taxes.

It is clear from the foregoing clarification that the exclusion of other national taxes like customs
duties from the base for determining the just share of the LG Us contravened the express
constitutional edict in Section 6, Article X the 1987 Constitution.

Still, the OSG posits that Congress can manipulate, by law, the base of the allocation of the just
share in the national taxes of the LGUs.

The position of the OSG cannot be sustained. Although it has the primary discretion to
determine and fix the just share of the LGUs in the national taxes (e.g., Section 284 of the
LGC), Congress cannot disobey the express mandate of Section 6, Article X of the 1987
Constitution for the just share of the LGUs to be derived from the national taxes. The phrase as
determined by law in Section 6 follows and qualifies the phrase just share, and cannot be
construed as qualifying the succeeding phrase in the national taxes. The intent of the people in
respect of Section 6 is really that the base for reckoning the just share of the LGUs should
includes all national taxes. To read Section 6 differently as requiring that the just share of LGUs
in the national taxes shall be determined by law is tantamount to the unauthorized revision of
the 1987 Constitution.

V.
Congress can validly exclude taxes that will constitute the base amount for
the computation of the IRA only if a Constitutional provision allows such exclusion

Garcia submits that even assuming that the present version of Section 284 of the LGC is
constitutionally valid, the implementation thereof has been erroneous because Section 284
does not authorize any exclusion or deduction from the collections of the NIRTs for purposes of
the computation of the allocations to the LGUs. He further submits that the exclusion of certain
NIRTs diminishes the fiscal autonomy granted to the LGUs. He claims that the following NIRTs
have been illegally excluded from the base for determining the fair share of the LGUs in the
IRA, to wit:

(1) NIRTs collected by the cities and provinces and divided exclusively among the LGUs
of the Autonomous Region for Muslim Mindanao (ARMM), the regional government and
the central government, pursuant to Section 15  in relation to Section 9,  Article IX of
55 56

R.A. No. 9054 (An Act to Strengthen and Expand the Organic Act for the Autonomous
Region in Muslim Mindanao, amending for the purpose Republic Act No. 6734, entitled
An Act providing for an Organic Act for the Autonomous Region in Muslim Mindanao);

(2) The shares in the excise taxes on mineral products of the different LG Us, as
provided in Section 287 of the NIRC  in relation to Section 290 of the LGC;
57 58

(3) The shares of the relevant LGUs in the franchise taxes paid by Manila Jockey Club,
Inc.  and Philippine Racing Club, Inc.;
59 60

(4) The shares of various municipalities in VAT collections under R.A. No. 7643 (An Act
to Empower the Commissioner of Internal Revenue to Require the Payment of the
 Value Added Tax Every Month and to Allow Local Government Units to Share in VAT
Revenue, Amending for this Purpose Certain Sections of the National Internal Revenue
Code) as embodied in Section 283 of the NIRC; 61

(5) The shares of relevant LGUs in the proceeds of the sale and conversion of former
military bases in accordance with R.A. No. 7227 (Bases Conversion and Development
Act of 1992);62

(6) The shares of different LGUs in the excise taxes imposed on locally manufactured
Virginia tobacco products as provided in Section 3 of R.A. No. 7171 (An Act to Promote
the Development of the Farmers in the Virginia Tobacco Producing Provinces), and as
now provided in Section 289 of the NIRC; 63

(7) The shares of different LGUs in the incremental revenues from Burley and native
tobacco products under Section 8 of R.A. No. 8240 (An Act Amending Sections 138,
140 and 142 of the National Internal Revenue Code as Amended and for Other
Purposes) and as now provided in Section 288 of the NIRC;  and
64

(8) The share of the Commission of Audit (COA) in the NIRTs as provided in Section
24p) of P.D. No. 1445 (Government Auditing Code of the Philippines)   in relation to
65

Section 284 of the NIRC. 66

Garcia insists that the foregoing taxes and revenues should have been included by Congress
and, by extension, the BIR in the base for computing the IRA on the strength of the cited
provisions; that the LGC did not authorize such exclusion; and that the continued exclusion has
undermined the fiscal autonomy guaranteed by the 1987 Constitution.

The insistence of Garcia is valid to an extent.

An examination of the above-enumerated laws confirms that the following have been excluded
from the base for reckoning the just share of the LGUs as required by Section 6, Article X of the
1987 Constitution, namely:

(a) The share of the affected LGUs in the proceeds of the sale and conversion of former military
bases in accordance with R.A. No. 7227;

(b) The share of the different LGUs in the excise taxes imposed on locally manufactured
Virginia tobacco products as provided for in Section 3, R.A. No. 7171, and as now provided in
Section 289 of the NIRC;

(c) The share of the different LGU s in incremental revenues from Burley and native tobacco
products under Section 8 of R.A. No. 8240, and as now provided for in Section 288 of the NIRC;

(d) The share of the COA in the NIRTs as provided in Section 24(3) of P.D. No. 1445  in relation
67

to Section 284 of the NIRC;

(e) The shares of the different LGUs in the excise taxes on mineral products, as provided in
Section 287 of the NIRC in relation to Section 290 of the LGC;

(f) The NIRTs collected by the cities and provinces and divided exclusively among the LGUs of
the ARMM, the regional government and the central government, pursuant to Section 15  in 68

relation to Section 9,  Article IX of R. A. No. 9054; and

69

(g) The shares of the relevant LG Us in the franchise taxes paid by Manila Jockey Club, Inc.,
and the Philippine Racing Club, Inc.

Anent the share of the affected LG Us in the proceeds of the sale and conversion of the former
military bases pursuant to R.A. No. 7227, the exclusion is warranted for the reason that such
proceeds do not come from a tax, fee or exaction imposed on the sale and conversion.

As to the share of the affected LGUs in the excise taxes imposed on locally manufactured
Virginia tobacco products under R.A. No. 7171 (now Section 289 of the NIRC); the share of the
affected LGUs in incremental revenues from Burley and native tobacco products under Section
8, R.A. No. 8240 (now Section 288 of the NIRC); the share of the COA in the NIRTs pursuant to
Section 24(3) of P.D. No. 1445 in relation to Section 284 of the NIRC; and the share of the host
LGUs in the franchise taxes paid by the Manila Jockey Club, Inc., and Philippine Racing Club,
Inc., under Section 6 of R.A. No. 6631 and Section 8 of R:A. No. 6632, respectively, the
exclusion is also justified. Although such shares involved national taxes as defined under the
NIRC, Congress had the authority to exclude them by virtue of their being taxes imposed for
special purposes. A reading of Section 288 and Section 289 of the NIRC and Section 24(3) of
P.D. No. 1445 in relation to Section 284 of the NIRC reveals that all such taxes are levied and
collected for a special purpose.   The same is true for the franchise taxes paid under Section 6
70

of R.A. No. 6631 and Section 8 of R.A. No. 6632, inasmuch as certain percentages of the
franchise taxes go to different beneficiaries. The exclusion conforms to Section 29(3), Article VI
of the 1987 Constitution, which states:

Section 29. x x x

xxxx

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purpose only. If the purpose for which a special fund was
created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general
funds of the Government. [Bold emphasis supplied]

The exclusion of the share of the different LGUs in the excise taxes imposed on mineral
products pursuant to Section 287 of the NIRC in relation to Section 290 of the LGC is premised
on a different constitutional provision. Section 7, Article X of the 1987 Constitution allows
affected LGUs to have an equitable share in the proceeds of the utilization of the nation's
national wealth "within their respective areas," to wit:

Section 7. Local governments shall be entitled to an equitable share in the proceeds of the
utilization and development of the national wealth within their respective areas, in the manner
provided by law, including sharing the same with the inhabitants by way of direct benefits.

This constitutional provision is implemented by Section 287 of the NIRC and Section 290 of the
LGC thusly:

SEC. 287. Shares of Local Government Units in the Proceeds from the Development and
Utilization of the National Wealth. - Local Government units shall have an equitable share in the
proceeds derived from the utilization and development of the national wealth, within their
respective areas, including sharing the same with the inhabitants by way of direct benefits.

(A) Amount of Share of Local Government Units. - Local government units shall, in addition to
the internal revenue allotment, have a share of forty percent (40'Yo) of the gross collection
derived by the national government from the preceding fiscal year from excise taxes on mineral
products, royalties, and such other taxes, fees or charges, including related surcharges,
interests or fines, and from its share in any co-production, joint venture or production sharing
agreement in the utilization and development of the national wealth within their territorial
jurisdiction.

(B) Share of the Local Governments from Any Government Agency or Government-owned or -
Controlled Corporation. - Local Government Units shall have a share, based on the preceding
fiscal year, from the proceeds derived by any government agency or government-owned or
controlled corporation engaged in the utilization and development of the national wealth based
on the following formula, whichever will produce a higher share for the local government unit:

(1) One percent (l %) of the gross sales or receipts of the preceding calendar year, or

(2) Forty percent (40%) of the excise taxes on mineral products, royalties, and such other taxes,
fees or charges, including related surcharges, interests or fines the government agency or
government-owned or -controlled corporations would have paid if it were not otherwise exempt.
[Bold emphasis supplied]

SEC. 290. Amount of Share of Local Government Units. - Local government units shall, in
addition to the internal revenue allotment, have a share of forty percent ( 40%) of the gross
collection derived by the national government from the preceding fiscal year from mining taxes,
royalties, forestry and fishery charges, and such other taxes, fees, or charges, including related
surcharges, interests, or fines, and from its share in any co-production, joint venture or
production sharing agreement in the utilization and development of the national wealth within
their territorial jurisdiction. [Bold emphasis supplied]

Lastly, the NIRTs collected by the provinces and cities within the ARMM whose portions are
distributed to the ARMM's provincial, city and regional governments are also properly excluded
for such taxes are intended to truly enable a sustainable and feasible autonomous region as
guaranteed by the 1987 Constitution. The mandate under Section 15 to Section 21, Article X of
the 1987 Constitution is to allow the separate development of peoples with distinctive cultures
and traditions in the autonomous areas.  The grant of autonomy to the autonomous regions
71

includes the right of self-determination-which in turn ensures the right of the peoples residing
therein to the necessary level of autonomy that will guarantee the support of their own cultural
identities, the establishment of priorities by their respective communities' internal decision-
making processes and the management of collective matters by themselves.  As such, the
72
NIRTs collected by the provinces and cities within the ARMM will ensure local autonomy and
their very existence with a continuous supply of funding sourced from their very own areas. The
ARMM will become self-reliant and dynamic consistent with the dictates of the 1987
Constitution.

The shares of the municipalities in the VATs collected pursuant to R.A. No. 7643 should be
included in determining the base for computing the just share because such VATs are national
taxes, and nothing can validly justify their exclusion.

In recapitulation, the national taxes to be included in the base for computing the just share the
LGUs shall henceforth be, but shall not be limited to, the following:

1. The NIRTs enumerated in Section 21 of the NIRC, as amended, to be inclusive of the VA Ts,
excise taxes, and DSTs collected by the BIR and the BOC, and their deputized agents;

2. Tariff and customs duties collected by the BOC;

3. 50% of the VATs collected in the ARMM, and 30% of all other national taxes collected in the
ARMM; the remaining 50% of the VA Ts and 70% of the collections of the other national taxes
in the ARMM shall be the exclusive share of the ARMM pursuant to Section 9 and Section 15 of
R.A. No. 9054;

4. 60% of the national taxes collected from the exploitation and development of the national
wealth; the remaining 40% will exclusively accrue to the host LGUs pursuant to Section 290 of
the LGC;

5. 85% of the excise taxes collected from locally manufactured Virginia and other tobacco
products; the remaining 15% shall accrue to the special purpose funds pursuant created in R.A.
No. 7171 and R.A. No. 7227;

6. The entire 50% of the national taxes collected under Section 106, Section 108 and Section
116 of the NIRC in excess of the increase in collections for the immediately preceding year; and

7. 5% of the franchise taxes in favor of the national government paid by franchise holders in
accordance with Section 6 of R.A. No. 6631 and Section 8 of R.A. No. 6632.

VI.
Entitlement to the reliefs sought

The petitioners' prayer for the payment of the arrears of the LGUs' just share on the theory that
the computation of the base amount had been unconstitutional all along cannot be granted.

It is true that with our declaration today that the IRA is not in accordance with the constitutional
determination of the just share of the LGUs in the national taxes, logic demands that the LGUs
should receive the difference between the just share they should have received had the LGC
properly reckoned such just share from all national taxes, on the one hand, and the share -
represented by the IRA- the LGUs have actually received since the effectivity of the IRA under
the LGC, on the other. This puts the National Government in arrears as to the just share of the
LGUs. A legislative or executive act declared void for being unconstitutional cannot give rise to
any right or obligation. 
73

Yet, the Court has conceded in Arau/lo v. Aquino III that:

74

x x x the generality of the rule makes us ponder whether rigidly applying the rule may at
times be impracticable or wasteful. Should we not recognize the need to except from the
rigid application of the rule the instances in which the void law or executive act produced
an almost irreversible result?

The need is answered by the doctrine of operative fact. The doctrine, definitely not a novel one,
has been exhaustively explained in De Agbayani v. Philippine National Bank:

The decision now on appeal reflects the orthodox view that an unconstitutional act, for that
matter an executive order or a municipal ordinance likewise suffering from that infirmity, cannot
be the source of any legal rights or duties. Nor can it justify any official act taken under it. Its
repugnancy to the fundamental law once judicially declared results in its being to all intents and
purposes a mere scrap of paper. As the new Civil Code puts it: 'When the courts declare a law
to be inconsistent with the Constitution, the former shall be void and the latter shall govern.'
Administrative or executive acts, orders and regulations shall be valid only when they are not
contrary to the laws of the Constitution. It is understandable why it should be so, the
Constitution being supreme and paramount. Any legislative or executive act contrary to its terms
cannot survive.
Such a view has support in logic and possesses the merit of simplicity. It may not
however be sufficiently realistic. It does not admit of doubt that prior to the declaration of
nullity such challenged legislative or executive act must have been in force and had to
be complied with. This is so as until after the judiciary, in an appropriate case, declares
its invalidity, it is entitled to obedience and respect. Parties may have acted under it and
may have changed their positions. What could be more fitting than that in a subsequent
litigation regard be had to what has been done while such legislative or executive act
was in operation and presumed to be valid in all respects. It is now accepted as a
doctrine that prior to its being nullified, its existence as a fact must be reckoned with.
This is merely to reflect awareness that precisely because the judiciary is the
governmental organ which has the final say on whether or not a legislative or executive
measure is valid, a period of time may have elapsed before it can exercise the power of
judicial review that may lead to a declaration of nullity. It would be to deprive the law of
its quality of fairness and justice then, if there be no recognition of what had transpired
prior to such adjudication.

In the language of an American Supreme Court decision: ‘The actual existence of a statute,
prior to such a determination [of unconstitutionality], 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 relations, individual and corporate, and
particular conduct, private and official.'

The doctrine of operative fact recognizes the existence of the law or executive act prior to the
determination of its unconstitutionality as an operative fact that produced consequences that
cannot always be erased, ignored or disregarded. In short, it nullifies the void law or executive
act but sustains its effects. It provides an exception to the general rule that a void or
unconstitutional law produces no effect.  But its use must be subjected to great scrutiny and
75

circumspection, and it cannot be invoked to validate an unconstitutional law or executive act,

but is resorted to only as a matter of equity and fair play.   It applies only to cases where
76

extraordinary circumstances exist, and only when the extraordinary circumstances have met the
stringent conditions that will permit its application.

Conformably with the foregoing pronouncements in Araullo v. Aquino III, the effect of our

declaration through this decision of the unconstitutionality of Section 284 of the LGC and its
related laws as far as they limited the source of the just share of the LGUs to the NIRTs is
prospective. It cannot be otherwise.

VII.
Automatic release of the LGUs' just share in the National Taxes

Section 6, Article X of the 1987 Constitution commands that the just share of the LGUs in
national taxes shall be automatically released to them. The term automatic connotes something
mechanical, spontaneous and perfunctory; and, in the context of this case, the LGUs are not
required to perform any act or thing in order to receive their just share in the national taxes.
77

Before anything, we must highlight that the 1987 Constitution includes several provisions that
actually deal with and authorize the automatic release of funds by the National Government.

To begin with, Section 3 of Article VIII favors the Judiciary with the automatic and regular
release of its appropriations:

Section 3. The Judiciary shall enjoy fiscal autonomy. Appropriations for the Judiciary may not be
reduced by the legislature below the amount appropriated for the previous year and, after
approval, shall be automatically and regularly released.

Then there is Section 5 of Article IX(A), which contains the common provision in favor of the
Constitutional Commissions:

Section 5. The Commission shall enjoy fiscal autonomy. Their approved annual appropriations
shall be automatically and regularly released.

Section 14 of Article XI extends to the Office of the Ombudsman a similar privilege:

Section 14. The Office of the Ombudsman shall enjoy fiscal autonomy. Its approved annual
appropriations shall be automatically and regularly released.

Section 17(4) of Article XIII replicates the privilege in favour of the Commission on Human
Rights:
Section 17(4) The approved annual appropriations of the Commission shall be automatically
and regularly released.

The foregoing constitutional provisions share two aspects. The first relates to the grant of fiscal
autonomy, and the second concerns the automatic release of funds.   The common
78

denominator of the provisions is that the automatic release of the appropriated amounts is
predicated on the approval of the annual appropriations of the offices or agencies concerned.

Directly contrasting with the foregoing provisions is Section 6, Article X of the 1987 Constitution
because the latter provision forthrightly ordains that the "(l)ocal government units shall have a
just share, as determined by law, in the national taxes which shall be automatically released
to them." Section 6 does not mention of appropriation as a condition for the automatic release
of the just share to the LGUs. This is because Congress not only already determined the just
share through the LGC's fixing the percentage of the collections of the NIRTs to constitute
such fair share subject to the power of the President to adjust the same in order to manage
public sector deficits subject to limitations on the adjustments, but also explicitly authorized such
just share to be "automatically released" to the LGUs in the proportions and regularity set under
Section 285  of the LGC without need of annual appropriation. To operationalize the automatic
79

release without need of appropriation, Section 286 of the LGC clearly provides that the
automatic release of the just share directly to the provincial, city, municipal or barangay
treasurer, as the case may be, shall be "without need of any further action," viz.:

Section 286. Automatic Release of Shares. - (a) The share of each local government unit
shall be released, without need of any further action; directly to the provincial, city,
municipal or barangay treasurer, as the case may be, on a quarterly basis within five (5)
days after the end of each quarter, and which shall not be subject to any lien or holdback
that may be imposed by the National Government for whatever purpose. x x x (Bold
emphasis supplied)

The 1987 Constitution is forthright and unequivocal in ordering that the just share of the LGUs in
the national taxes shall be automatically released to them. With Congress having established
the just share through the LGC, it seems to be beyond debate that the inclusion of the just
share of the LGUs in the annual GAAs is unnecessary, if not superfluous. Hence, the just
share of the LGUs in the national taxes shall be released to them without need of yearly
appropriation.

1. DECLARES the phrase "internal revenue" appearing in Section 284 of Republic Act No.
7160 (Local Government Code) UNCONSTITUTIONAL, and DELETES the phrase from
Section 284.

Section 284, as hereby modified, shall henceforth read as follows:

Section 284. Allotment of Taxes. - Local government units shall have a share in the national
taxes based on the collection of the third fiscal year preceding the current fiscal year as follows:

(a) On the first year of the effectivity of this Code, thirty percent (30%);

(b) On the second year, thirty-five percent (35%); and

(c) On the third year and thereafter, forty percent (40%).

Provided, That in the event that the national government incurs an unmanageable public sector
deficit, the President of the Philippines is hereby authorized, upon the recommendation of
Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and
Management, and subject to consultation with the presiding officers of both Houses of Congress
and the presidents of the "liga", to make the necessary adjustments in the allotment of local
government units but in no case shall the allotment be less than thirty percent (30%) of the
collection of national taxes of the third fiscal year preceding the current fiscal year; Provided,
further, That in the first year of the effectivity of this Code, the local government units shall, in
addition to the thirty percent (30%) allotment which shall include the cost of devolved functions
for essential public services, be entitled to receive the amount equivalent to the cost of devolved
personal services.

The phrase "internal revenue" is likewise hereby DELETED from the related sections of

Republic Act No. 7160 (Local Government Code), specifically Section 285, Section 287, and
Section 290, which provisions shall henceforth read as follows:

Section 285. Allocation to Local Government Units. - The share of local government units in the
allotment shall be collected in the following manner:

(a) Provinces - Twenty-three percent (23%);

 (b) Cities - Twenty-three percent (23%);

(c) Municipalities - Thirty-four percent (34%); and

(d) Barangays - Twenty percent (20%)

Provided, however, That the share of each province, city, and municipality shall be determined
on the basis of the following formula:

(a) Population -- Fifty percent (50%);

(b) Land Area-· Twenty-five percent (25%); and

(c) Equal sharing--Twenty-five percent (25%)

Provided, further. That the share of each barangay with a population of not less than one
hundred (100) inhabitants shall not be less than Eighty thousand (₱80,000.00) per
annum chargeable against the twenty percent (20%) share of the barangay from the allotment,
and the balance to be allocated on the basis of the following formula:

(a) On the first year of the effoctivity of this Code:

(1) Population - Forty percent (40%); and

(2) Equal sharing - Sixty percent (50%)

(b) On the second year:

(1) Population - Fifty percent (50%); and

(2) Equal sharing - Fifty percent (50%)

(c) On the third year and thereafter.

(1) Population - Sixty percent (60%); and

(2) Equal sharing - Forty percent (40%).

Provided, finally, That the financial requirements of barangays created by local government
units after the effectivity of this Code shall be the responsibility of the local government unit
concerned.

xxxx

Sectfon 287. Local Development Projects. - Each local government unit shall appropriate in its
annual budget no less than twenty percent (20%) of its annual allotment for development
projects. Copies of the development plans of local government units shall be furnished the
Department of Interior and Local Government.

xxxx

Section 290. Amount of Share of Local Government Units. - Local government units shall, in
addition to the allotment, have a share of forty percent (40%) of the gross collection derived by
the national government from the preceding fiscal year from mining taxes, royalties, forestry and
fishery charges, and such other taxes, fees, or charges, including related surcharges, interests,
or fines, and from its share in any co-production, joint venture or production sharing agreement
in the utilization and development of the national wealth within their territorial jurisdiction.

Article 378, Article 379, Article 380, Article 382, Article 409, Article 461, and related provisions
of the Implementing Rules and Regulations of R.A. No. 7160 are hereby MODIFIED to reflect
the deletion of the phrase "internal revenue" as directed herein.

Henceforth, any mention of "Internal Revenue Allotment" or "IRA" in Republic Act No.
7160 (Local Government Code) and its Implementing Rules and Regulations shall be
understood as pertaining to the allotment of the Local Government Units derived from the
national taxes;

2. ORDERS the SECRETARY OF THE DEPARTMENT OF FINANCE; the SECRETARY OF

THE DEPARTMENT OF BUDGET AND MANAGEMENT; the COMMISSIONER OF
INTERNAL REVENUE; the COMMISSIONER OF CUSTOMS; and the NATIONAL
TREASURER to include ALL COLLECTIONS OF NATIONAL TAXES in the computation of the
base of the just share of the Local Government Units according to the ratio provided in the now-
modified Section 284 of Republic Act No. 7160 (Local Government Code) except those accruing
to special purpose funds and special allotments for the utilization and development of the
national wealth.

For this purpose, the collections of national taxes for inclusion in the base of the just share the
Local Government Units shall include, but shall not be limited to, the following:

(a) The national internal revenue taxes enumerated in Section 21 of the National

Internal Revenue Code, as amended, collected by the Bureau of Internal Revenue and
the Bureau of Customs;

(b) Tariff and customs duties collected by the Bureau of Customs;

(c) 50% of the value-added taxes collected in the Autonomous Region in Muslim
Mindanao, and 30% of all other national tax collected in the Autonomous Region in
Muslim Mindanao.

The remaining 50% of the collections of value-added taxes and 70% of the collections of
the other national taxes in the Autonomous Region in Muslim Mindanao shall be the
exclusive share of the Autonomous Region in Muslim Mindanao pursuant to Section 9
and Section 15 of Republic Act No. 9054.

(d) 60% of the national taxes collected from the exploitation and development of the
national wealth.

The remaining 401% of the national taxes collected from the exploitation and
development of the national wealth shall exclusively accrue to the host Local
Government Units pursuant to Section 290 of Republic Act No. 7160 (Local
Government Code);

(e) 85% of the excise taxes collected from locally manufactured Virginia and other
tobacco products.

The remaining 15% shall accrue to the special purpose funds created by Republic Act
No. 7171 and Republic Act No. 7227;

(f) The entire 50% of the national taxes collected under Sections 106, 108 and 116 of
the NIRC as provided under Section 283 of the NIRC; and

(g) 5% of the 25% franchise taxes given to the National Government under Section 6 of
Republic Act No. 6631 and Section 8 of Republic Act No. 6632.

3. DECLARES that:

(a) The apportionment of the 25% of the franchise taxes collected from the Manila
Jockey Club and Philippine Racing Club, Inc. - that is, five percent (5%) to the National
Government; five percent (5%) to the host municipality or city; seven percent (7%) to the
Philippine Charity Sweepstakes Office; six percent (6%) to the Anti-Tuberculosis
Society; and two percent (2%) to the White Cross pursuant to Section 6 of Republic Act
No. 6631 and Section 8 of Republic Act No. 6632 - is VALID;

(b) Section 8 and Section 12 of Republic Act No. 7227

are VALID; and, ACCORDINGLY, the proceeds from the sale of the former military
bases converted to alienable lands thereunder are EXCLUDED from the computation of
the national tax allocations of the Local Government Units; and

(c) Section 24(3) of Presidential Decree No. 1445, in relation to Section 284 of the
National Internal Revenue Code, apportioning one-half of one percent (1/2of1%) of
national tax collections as the auditing fee of the Commission on Audit is VALID;

4. DIRECTS the Bureau of Internal Revenue and the Bureau of Customs and their deputized
collecting agents to certify all national tax collections, pursuant to Article 3 78 of the
Implementing Rules and Regulations of R.A. No. 7160;

5. DISMISSES the claims of the Local Government Units for the settlement by the National
Government of arrears in the just share on the ground that this decision shall
have PROSPECTIVE APPLICATION; and
6. COMMANDS the AUTOMATIC RELEASE WITHOUT NEED OF FURTHER ACTION of the
just shares of the Local Government Units in the national taxes, through their respective
provincial, city, municipal, or barangay treasurers, as the case may be, on a quarterly basis but
not beyond five (5) days from the end of each quarter, as directed in Section 6, Article X of the
1987 Constitution and Section 286 of Republic Act No. 7160 (Local Government Code), and
operationalized by Article 383 of the Implementing Rules and Regulations of RA 7160.

Let a copy of this decision be furnished to the President of the Republic of the Philippines, the
President of the Senate, and the Speaker of the House of Representatives for their information
and guidance.

SO ORDERED.
 SECOND DIVISION
[ G.R. No. 224825, October 17, 2018 ]
CITY OF CAGAYAN DE ORO, PETITIONER, V. CAGAYAN ELECTRIC POWER &
LIGHT CO., INC. (CEPALCO), RESPONDENT.

DECISION

A. REYES, JR., J.:

Ordinances, like laws, enjoy a presumption of validity. However, this presumption may be
rendered naught by a clear demonstration that the ordinance is irreconcilable with a
constitutional or legal provision, that it runs afoul of morality or settled public policy, that it
prohibits trade, or that it is oppressive, discriminatory, or unreasonable. [1] Thus, unless
invalidity or unreasonableness is ostensibly apparent,[2] one seeking a judicial declaration of
the invalidity of an ordinance is duty-bound to adduce evidence that is convincingly
indicative of its infirmities or defects. Courts must exercise the highest degree of
circumspection when called upon to strike down an ordinance; for, to invalidate legislation
on baseless suppositions would be, to borrow the words of a former Chief Justice, "an
affront to the wisdom not only of the legislature that passed it, but also of the executive
that approved it.[3] "

In this petition for review on certiorari,[4] the City of Cagayan de Oro (petitioner) seeks the
reversal of the Court of Appeals' (CA) Decision[5] dated June 10, 2015 in CA-G.R. CV No.
02771-MIN, which set aside the Resolution[6] dated February 8, 2008 of Branch 17 of the
Regional Trial Court of Cagayan de Oro City (Cagayan RTC) in Civil Case No. 2005-206.

The Factual Antecedents

On January 24, 2005, the petitioner, through its local legislative council, enacted Ordinance
No. 9527-2005,[7] which imposed an annual Mayor's Permit Fee of Five Hundred Pesos
(P500.00) on every electric or telecommunications post belonging to public utility
companies operating in the city.[8] The ordinance reads:

AN ORDINANCE IMPOSING A MAYOR'S PERMIT FEE ON ELECTRIC AND/OR

TELECOMMUNICATION POLES/POSTS OWNED BY PUBLIC UTILITY COMPANIES WHICH
ARE ERECTED ON GOVERNMENT AND/OR PRIVATE LOTS ALONG GOVERNMENT STREETS,
ROADS, HIGHWAYS AND/OR ALLEYS AT THE RATE OF FIVE HUNDRED PESOS (P500.00)
PER POST PER YEAR, AND FOR OTHER PURPOSES

BE IT ORDAINED by the City Council (Sangguniang Panlungsod) of the City of Cagayan de

Oro in session assembled that:

Whereas, electric and/or telecommunication poles, posts and towers are sprouting
everywhere in the City;

Whereas, such poles or posts pose hazard to traffic and safety of the public if they are not
well maintained, and even as nuisance to the panorama or skyline of the City;

Whereas, it is for this reason that the City Government imposes some form of regulation
thereon;

Whereas, the City Government under the Local Government Code is vested with authority
to impose regulatory fees and charges for activities and undertakings being done in the
City;

BE IT ORDAINED by the City Council (Sangguniang Panlungsod) that:

SECTION 1. There shall be imposed a Mayor's Permit Fee on electric and/or

telecommunication poles/posts owned by public utility companies which are erected on
government and/or private lots along government streets, roads, highways and/or alleys at
the rate of Five Hundred Pesos (P500.00) per post per year.
SECTION 2. For this purpose, the City Engineer shall conduct a regular inventory of all
electric and telecommunication poles, posts and towers in the City, indicating the
respective owners thereof, and submit the same to the City Treasurer for purposes of
imposing the fee under this Ordinance.

SECTION 3. The provision of Section 1 hereof shall not apply to poles, posts or towers
erected or owned by the national government, its instrumentalities and other local
government units.

SECTION 4. The pertinent provisions of Ordinance No. 8847-2003, otherwise known as the
2003 Revenue Code, covering the imposition of Mayor's Permit Fee and other appropriate
administrative provisions thereof shall apply in the imposition of the fee under this
Ordinance.

SECTION 5. This Ordinance shall take effect after 15 days following its publication in a local
newspaper of general circulation for at least three (3) consecutive issues.

UNANIMOUSLY APPROVED.[9]

The respondent, Cagayan Electric Power & Light Co., Inc. (CEPALCO) is a public utility
engaged in the distribution of electric power and the owner of an estimated 17,000 utility
poles erected within Cagayan de Oro City. The ordinance entailed that the electricity
distributor would have to pay an annual Mayor's Permit Fee of P8,500,000.00.[10]

CEPALCO thus filed a Petition for Declaratory Relief with Damages & Prayer for Temporary
Restraining Order & Preliminary Injunction[11] dated September 30, 2005 before the
Cagayan RTC assailing the ordinance's validity. CEPALCO contended that the imposition, in
the guise of police power, was unlawful for violating the fundamental principle that fees,
charges, and other impositions shall not be unjust, excessive, oppressive, or confiscatory.
[12]
 Additionally, CEPALCO argued that, assuming the imposition was a valid regulatory fee,
it violated the legislative franchise that specifically exempted the electricity distributor
from taxes or fees assessed by Cagayan de Oro City.[13]

On November 7, 2005, the city filed its Answer with Affirmative/Special Defenses and
Compulsory Counterclaim.[14] It countered that the ordinance was a valid exercise of its
powers vested by the applicable provisions of the Constitution, the Local Government
Code, and other laws. Also, the city maintained that Section 9 of CEPALCO's legislative
franchise expressly subjected the latter to taxes, duties, fees, or charges.[15]

On May 5, 2006, pending the determination of the ordinance's validity, the Cagayan RTC
issued a writ of preliminary injunction.[16]

The RTC's Ruling

On February 8, 2008, the Cagayan RTC issued a Resolution dismissing the petition for
declaratory relief due to CEPALCO's failure to exhaust administrative remedies.
The fallo reads:

WHEREFORE, premises considered, the Court hereby dismissed the petition for failure of
petitioner CEPALCO to exhaust administrative remedies pursuant to Sec. 187, RA 7160 and
for being time-barred under the circumstances. The writ of preliminary injunction issued on
May 5, 2006 is hereby dissolved.

SO ORDERED.

The Cagayan RTC stated that it found the tax excessive, but could not interfere with the
decision-making of the government agency concerned. It declared that the issue on
excessiveness was a question best addressed to the sound discretion of the city council of
Cagayan de Oro. Nonetheless, for CEPALCO's neglect to appeal the ordinance to the
Secretary of Justice, the trial court dismissed the case and ruled that the electricity
distributor failed to exhaust administrative remedies.[17]

Aggrieved, CEPALCO elevated the case to the CA.[18]

 The CA's Ruling

On June 10, 2015, the CA promulgated the herein assailed decision granting
CEPALCO's appeal. The dispositive portion reads:

WHEREFORE, the Appeal is GRANTED. The assailed Resolution dated February 8,

2008 of the Regional Trial Court, Branch 17, Cagayan de Oro City is
hereby REVERSED and SET ASIDE. The City Ordinance No. 9527-2005 is declared
void.

SO ORDERED.

The CA declared the ordinance void for being exorbitant and unreasonable. It held that,
since the city failed to include a discussion on how the members of the city council arrived
at the amount of P500.00 per pole, CEPALCO could not be appraised of the logistics of and
reasons behind the imposition. According to the CA, the city should have explained how
the sum would be accounted for, stating the probable expenses of regulating and
inspecting each of the poles.[19] The appellate court additionally held that the doctrine of
exhaustion of administrative remedies was inapplicable considering the case involved a
regulatory fee and not a tax measure.[20]

The foregoing ultimately led to the filing of the instant petition before this Court.

The Issues

In its petition, the petitioner raises issues that may be summed up as: (1) whether or not
CEPALCO should have exhausted administrative remedies by challenging Ordinance No.
9527-2005 before the Secretary of Justice prior to instituting the present action; and (2)
whether or not the amount of the Mayor's Permit Fee is excessive, unreasonable, and
exorbitant.

This Court's Ruling

The petition is partly meritorious.

Anent the issue on exhaustion of administrative remedies, petitioner argued that CEPALCO
should have raised the ordinance's alleged excessiveness before the Secretary of Justice
because it imposes a tax.[21] Hence, the city maintained that the case should have been
dismissed at the first instance for failure to exhaust administrative remedies.[22]

CEPALCO countered that the doctrine of exhaustion of administrative remedies applies

only to taxes and other revenue measures, and not to regulatory fees.[23]

Before delving into the parties' arguments, the Court deems it necessary to ascertain the
nature of the Mayor's Permit Fee.

Unlike the national government, local government units have no inherent power to tax.
[24]
 They merely derive the power from Article X, Section 5 of the 1987 Constitution.
[25]
 Consistent with this provision, the Local Government Code was enacted to give each
local government unit the power to create its own sources of revenue and to levy taxes,
fees, and charges subject to statutory guidelines and limitations.[26]

The term "taxes" has been defined by case law as "the enforced proportional contributions
from persons and property levied by the state for the support of government and for all
public needs.[27]" While, under the Local Government Code, a "fee" is defined as "any
charge fixed by law or ordinance for the regulation or inspection of a business or activity.
[28]
"

From the foregoing jurisprudential and statutory definitions, it can be gleaned that
the purpose of an imposition will determine its nature as either a tax or a fee. If the
purpose is primarily revenue, or if revenue is at least one of the real and substantial
purposes, then the exaction is properly classified as an exercise of the power to tax.[29] On
the other hand, if the purpose is primarily to regulate, then it is deemed an exercise of
police power in the form of a fee, even though revenue is incidentally generated. [30] Stated
otherwise, if generation of revenue is the primary purpose, the imposition is a tax but, if
regulation is the primary purpose, the imposition is properly categorized as a regulatory
fee.[31]

In Smart Communications, Inc. v. Municipality of Malvar,[32] the Municipality of Malvar

enacted Ordinance No. 18, entitled "An Ordinance Regulating the Establishment of Special
Projects." By reason of the ordinance, Smart was assessed P389,950.00 on a
telecommunications tower that it erected within the municipality. This prompted Smart to
challenge the validity of the ordinance and the consequent assessment before the RTC of
Batangas. When the case reached the Court, one of the issues raised was: whether the
ordinance imposed a tax or a fee. The Court was able to address the issue after a simple
reading of the ordinance's whereas clauses, which revealed that the primary purpose of
the ordinance was to regulate cell sites or telecommunications towers, including Smart's.
Thus, since the whereas clauses showed that the ordinance served a regulatory purpose, it
was ruled that the case involved a fee and not a tax.

In the case at bar, the CA, adhering to the course of action taken in Smart Communications,
concluded that the Mayor's Permit Fee serves a regulatory purpose.[33] The appellate court
properly took into account the whereas clauses of the ordinance, which read:

Whereas, electric and/or telecommunication poles, posts and towers are sprouting
everywhere in the City;

Whereas, such poles or posts pose hazard to traffic and safety of the public if they are not
well maintained, and even as nuisance to the panorama or skyline of the City;

Whereas, it is for this reason that the City Government imposes some form of
regulation thereon;

Whereas, the City Government under the Local Government Code is vested with authority
to impose regulatory fees and charges for activities and undertakings being done in the
City; (Emphasis and underscoring supplied)[34]

A cursory reading of the whereas clauses makes it is apparent that the purpose of the
ordinance is to regulate the construction and maintenance of electric and
telecommunications posts erected within Cagayan de Oro City.

On account of the foregoing, it is clear that the ordinance in this case serves a regulatory
purpose and is, hence, an exercise of police power. Nowhere in the text of the ordinance is
it shown that it was enacted to raise revenue. On the contrary, the third whereas clause
expressly states the city's need to impose some form of regulation on the construction of
electric and telecommunications poles. As in Smart Communications, the fee is not
imposed on the structure itself, but on the activity subject of government regulation, which
is the installation and establishment of utility posts. Thus, it can be concluded without
argument that the ordinance imposes a fee since it was enacted pursuant to the city's
police power and serves to regulate, not to raise revenue.

Proceeding to the question of non-exhaustion, the Court rules that ordinances that impose
regulatory fees do not need to be challenged before the Secretary of Justice.

To be sure, this is not a novel issue. Section 187 of the Local Government Code, which
outlines the administrative procedure for questioning the constitutionality or legality of a
tax ordinance or revenue measure, does not find application in cases where the imposition
is in the nature of a regulatory fee.[35] The provision requires that an appeal of a tax
ordinance or revenue measure should be made to the Secretary of Justice within thirty (30)
days from the effectivity of the ordinance,[36] viz:

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue
Measures; Mandatory Public Hearings. - The procedure for approval of local tax ordinances
and revenue measures shall be in accordance with the provisions of this Code: Provided,
That public hearings shall be conducted for the purpose prior to the enactment
thereof: Provided, further, That any question on the constitutionality or legality of tax
ordinances or revenue measures may be raised on appeal within thirty (30) days from the
effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60)
days from the date of receipt of the appeal x x x. (Emphasis and underscoring supplied)

It can be gleaned from the provision that review by the Secretary of Justice is mandatory
only when what is being questioned is a tax ordinance or revenue measure. Section 187
does not require the same from parties who assail ordinances imposing regulatory fees.
Stated otherwise, the procedure found in Section 187 must be followed when an ordinance
imposes a tax; the institution of an action in court without complying with the
requirements of the provision will lead to the dismissal of the case on the ground of non-
exhaustion of administrative remedies.[37] However, when an ordinance imposes a fee,
direct recourse to the courts may be had without prior protest before the Secretary of
Justice. Simply put, fees are not subject to the procedure outlined under Section 187.

CEPALCO additionally argued that, assuming that the ordinance does not impose a tax, it is
still a revenue measure, which Section 187 expressly subjects to the exhaustion doctrine.[38]

The argument is speculative.

For clarity, that portion of Section 187 referred to by CEPALCO, as quoted above, states:

x x x Provided, further, That any question on the constitutionality or legality of tax

ordinances or revenue measures may be raised on appeal within thirty (30) days from the
effectivity thereof to the Secretary of Justice x x x (Emphasis and underscoring supplied)

To be consistent with the rule that the imposition's purpose determines whether it is a tax
or a fee,[39] the Court rules that the word "or," which the legislature placed in between the
phrases "tax ordinances" and "revenue measures," should not be used in its regular
disjunctive sense.

Ordinarily, the use of "or" connects a series of words or propositions indicating that the
various members of the enumeration are to be taken separately.[40] The term usually
signifies disassociation and independence of one thing from each of the other things
enumerated.[41]

However, jurisprudence has given the word another interpretation. In Gonzales v. GJH
Land, Inc.,[42] the Court ruled:

To clarify, the word "or" x x x was intentionally used by the legislature to particularize that
[an antecedent phrase is the equivalent of a subsequent phrase]. This interpretation is
supported by San Miguel Corp. v. Municipal Council, wherein the Court held that :

The word "or" may be used as the equivalent of "that is to say" and gives that which
precedes it the same significance as that which follows it. It is not always disjunctive and is
sometimes interpretative or expository of the preceding word.[43] (Citations omitted)

Hence, the word "or" in Section 187 should be used in a non disjunctive sense. It should be
construed in a way that the phrase "revenue measures" is read as another way of
expressing "tax ordinances." Both refer to one and the same thing. After all, the Court has
consistently held that a tax ordinance is primarily designed to raise revenue.[44]

Considering the foregoing, there was no procedural barrier preventing CEPALCO from
instituting the instant petition for declaratory relief before the RTC at the first instance.

On the issue of the ordinance's substantive validity, petitioner maintained that the CA
erred when it declared the fee exorbitant and unreasonable. The city posited that CEPALCO
had the burden to prove the unreasonableness of the exaction.[45] Since the electricity
distributor failed to present any evidence on the propriety of the amount, the city
continued, the ordinance should be upheld, as it enjoys the presumption of validity.[46]
CEPALCO, on the other hand, submitted that the CA correctly declared the ordinance void,
the amount of the Mayor's Permit Fee being unjust, excessive, oppressive, and
confiscatory.[47] Since it owns 17,000 poles, more or less, the amount it will have to pay
annually as its Mayor's Permit Fee alone will reach P8,500,000.00. [48] This, as argued by the
electricity distributor, is by all reasonable and judicious standards shockingly
unconscionable considering it is substantially in excess of the costs of regulation and
inspection.[49]

The city's contention is impressed with merit.

At the outset, it is apt to state that the Court takes judicial notice of the practice of
regulating the construction and installation of utility poles, which are not only eyesores
when ill-maintained but, just as well, pose a serious threat to the safety of the general
public. Local governments such as the petitioner, as well as the cities of Bacoor [50] and
Angeles[51] and the Municipality of Kalibo,[52] curb the indiscriminate erection and
establishment of electricity and telecommunications poles by levying regulatory fees from
service providers that use such poles as an indispensable part of their business. These fees
are imposed pursuant to the delegated legislative power of local government units,
exercised through duly enacted ordinances.

Few things are more established in this jurisdiction than the requisites of a valid ordinance.
In order for an ordinance to be valid in substance, it (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.[53]

Equally established, however, is the presumption of validity in favor of all laws, which
extends to ordinances.[54]

Nonetheless, the presumption, being just that, may be set aside when invalidity or
unreasonableness (1) appears on the face of the ordinance; or (2) is established by proper
evidence.[55]

In Balacuit v. Court of First Instance,[56] the Court, without examining matters of fact, struck
down a Butuan City ordinance requiring theaters to sell tickets to children (between seven
[7] and twelve [12] years of age) at half price. In that case, the ordinance was merely
examined under the lens of police power, sans the need to take into account facts showing
invalidity. The Court nullified the ordinance because, on its face, it offended the
elementary tenets of due process.

More recently, in City of Manila v. Hon. Laguio, Jr.,[57] the Court annulled an ordinance
prohibiting the establishment of certain businesses such as clubs, parlors, and inns, which
were considered "houses of ill-repute." The ordinance was invalidated, inter alia, because
it failed to meet the requisites for a valid exercise of police power, as it substantially
curtailed property and personal rights of Manila's citizenry. Again, no evidence on extrinsic
facts was needed to show the ordinance's invalidity; all the Court needed to do was analyze
it in the light of the extent of a municipal corporation's police power and settled due
process precepts.

The ordinances in Balacuit and Laguio, Jr. served as prime examples of facially apparent

invalidity. In those cases, the Court did not need to make any fact-based appraisals to reach
the conclusion that, as a matter of law, the ordinances had to be struck down. Their
provisions were merely scrutinized against settled jurisprudential doctrines on the police
power of local government units; save for the ordinances themselves and the
circumstances of their enactment, nothing needed to be proved.

On the other hand, in Morcoin Co., Ltd. v. City of Manila,[58] an ordinance that sought to
regulate coin-operated apparatuses, such as juke boxes and pinball machines, was held to
be invalid only after an examination of proof showing unreasonableness. The Court in that
case struck down an ordinance, which imposed an annual license fee of P300.00 on every
coin-operated contraption, after a juke box operator was able to show that his machines
had a yearly income of only around P211.00. It was held that such a showing of
excessiveness invariably warranted the nullification of the ordinance.

Unlike in Balacuit and Laguio, Jr., the alleged invalidity of the ordinance involved here is
not apparent on its face. CEPALCO has not shown that the Mayor's Permit Fee ostensibly
contravenes any constitutional or statutory provision or settled public policy, or is per
se unreasonable, oppressive, discriminatory, or in restraint of trade. Hence, it is only logical
that the Court adheres to the methodology used in Morcoin, and thus evaluate the
ordinance in the light of the evidence presented by CEPALCO to reach a conclusive
determination of the fee's excessiveness.

CEPALCO contended that the ordinance was null and void due to the unjust, excessive, and
confiscatory nature of the Mayor's Permit Fee.[59] In line with this contention, the electricity
distributor now bears the burden of showing that the ordinance violates Sections 130, 147,
and 186 of the Local Government Code.

Section 130 lays down several underlying axioms that must be adhered to by all fiscal
impositions levied by municipal corporations, thus:

Section 130. Fundamental Principles. - The following fundamental principles shall govern

the exercise of the taxing and other revenue-raising powers of local government units:

xxxx

(b) Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as practicable on the taxpayer's ability to pay;

(2) be levied and collected only for public purposes;

(3) not be unjust, excessive, oppressive, or confiscatory;

(4) not be contrary to law, public policy, national economic policy, or in the restraint of
trade; (Emphasis and underscoring supplied) x x x x

The tenor of paragraph (b) (3) of Section 130 is reiterated in Section 186, which reads:

Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may
exercise the power to levy taxes, fees or charges on any base or subject not otherwise
specifically enumerated herein or taxed under the provisions of the National Internal
Revenue Code, as amended, or other applicable laws: Provided, That the taxes, fees, or
charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared
national policy x x x. (Emphasis and underscoring supplied)

On the other hand, Section 147, when read in conjunction with Section 151, [60] places a
general limitation on the amount levied by regulatory fees imposed by cities, thus:

Section 147. Fees and Charges. - The municipality may impose and collect such reasonable
fees and charges on business and occupation and, except as reserved to the province in
Section 139 of this Code, on the practice of any profession or calling, commensurate with
the cost of regulation, inspection and licensing before any person may engage in such
business or occupation, or practice such profession or calling. (Emphasis and underscoring
supplied)

It can be gleaned from the foregoing that if a regulatory fee produces revenue in excess of
the cost of the regulation, inspection, and licensing, it will be considered excessive, and
hence fail the test of judicial scrutiny.[61]

Thus, the Court is faced with the question:

Whether or not the amount of P500.00 collected annually on a per post basis violated Sec.
147 of the Local Government Code, which provides that fees must be commensurate with
the cost of regulation, inspection, and licensing[62]

For CEPALCO's failure to establish excessiveness, the Court rules in the negative. A
judicious perusal of the record fails to reveal anything definitively showing the ordinance’s
unreasonable, excessive, oppressive, or confiscatory nature; hence, because it enjoys the
presumption of validity, the Court is constrained to reverse the decision of the CA.

The presumption of validity is a corollary of the presumption of constitutionality, a legal

theory of common-law origin developed by courts to deal with cases challenging the
constitutionality of statutes.[63]

The presumption of constitutionality, in its most basic sense, only means that courts, in
passing upon the validity of a law, will afford some deference to the statute and charge the
party assailing it with the burden of showing that the act is incompatible with the
constitution.[64] The doctrine comes into operation when a party comes to court praying
that a law be set aside for being unconstitutional.[65] In effect, it places a heavy burden on
the act's assailant to prove invalidity beyond reasonable doubt;[66] it commands the clearest
showing of a constitutional infraction.[67] Thus, before a law may be stn1ck down as
unconstitutional, courts must be certain that there exists a clear and unequivocal breach of
the constitution, and not one that is speculative or argumentative.[68] To doubt, it has been
said, is to sustain.[69]

The United States Supreme Court expressed the rationale for the presumption in Ogden v.
Saunders,[70] thus: "it is but a decent respect due to the wisdom, the integrity, and the
patriotism of the legislative body by which any law is passed to presume in favor of its
validity x x x.[71]”

For the same reason, the presumption extends to legislative acts of local governments, as
well. Thus, ordinances too are presumed constitutional,[72] and, in addition, they are also
presumed consistent with the law. This is necessary because one of the requisites of a valid
ordinance is that it does not contravene any statute. [73] An ordinance that is incompatible
with the law is ultra vires and hence null and void.[74] To this end, when an action assailing
an ordinance is brought before a court, the judge must, as a rule, presume that the
ordinance is valid and therefore charge the plaintiff with the burden of showing otherwise.
In U.S. v. Salaveria,[75] the Court, speaking through Justice Malcolm, laid down the basis for
the presumption in this wise:

The presumption is all in favor of validity x x x. The action of the elected representatives of
the people cannot be lightly set aside. The councilors must, in the very nature of things, be
familiar with the necessities of their particular municipality and with all the facts and
circumstances which surround the subject and necessitate action. The local legislative
body, by enacting the ordinance, has in effect given notice that the regulations are
essential to the well-being of the people x x x.[76]

In the case at bar, the CA annulled Ordinance No. 9527-2005 for being exorbitant,
unreasonable, and for lacking a basis. The appellate court held that the ordinance's
enactment was tainted with legal infirmities. According to the CA, the city council should
not have enacted the ordinance without divulging the method it used to arrive at the
amount of the Mayor's Permit Fee. The city should have justified the ordinance by making
known the parameters, guidelines, and computations it employed to set the fee at
P500.00. In addition, it was ruled that the city was bound to explain how it would account
for the proceeds collected by reason of the ordinance thus stating the probable expenses
for the regulation and inspection of utility poles. This, the CA held, was necessary to inform
electricity distributors like CEPALCO of the reasons of the fee. On this logic, the appellate
court struck down the ordinance.

By holding that the city council should have explained the reasons for the ordinance's
enactment, the CA effectively reversed the presumption of validity. In essence, the
appellate court shifted the burden to Cagayan de Oro to show that the ordinance was
reasonable and that the amount of the Mayor's Permit Fee was not excessive. Verily, no
law requires that local governments justify the ordinances they pass by setting forth the
grounds for their enactment. Thus, the CA's nullification of the ordinance was done in a
manner contrary to principles established in jurisprudence.

After a meticulous scrutiny of the records, the Court finds that, in the proceedings a quo,
the ordinance was never shown to be violative of the rule that fees must be commensurate
with the cost of regulation, inspection, and licensing.

A review of the proceedings before the trial court shows that the allegation of the fee's
unreasonableness was never substantiated. In fact, the memorandum[77] CEPALCO filed
before the trial court is bereft of any allegations showing the impropriety of the amount
exacted by the ordinance. Besides the self-serving statement that the sum of P500.00 was
disproportionate to the cost of regulation and inspection of utility poles, CEPALCO showed
nothing tending to prove the fee's excessiveness. The electricity distributor simply
maintained that the amount was confiscatory,[78] and prayed that the ordinance be struck
down for being unlawful and unjustified. The RTC, for its part, never ruled that the
ordinance was void because the amount of the Mayor's Permit Fee was excessive. Instead,
it dismissed the case for failure to exhaust administrative remedies.[79] Moreover, according
to the trial court, the city had the discretion to determine the amount of the exaction.[80]

So, too, the record is devoid of any indication that the fee's excessiveness was
established on appeal. CEPALCO never pointed out the particulars of the fee's
unreasonableness. While it stated that the ordinance only ordered the inspection and
inventory of electric poles erected in the city,[81] it never even bothered to allege, much less
prove, the cost of such inspection and inventory. It merely argued that the simple and
repetitive work that would be undertaken by reason of the ordinance would require
minimal expenses on the city's part.[82] The CA agreed. However, the appellate court never
stated why it found the amount excessive. Instead, as mentioned earlier, the CA simply
held that the city should have discussed the amount's basis so that public utility companies
would be informed of the rationale of the fee's imposition and how the funds levied by the
ordinance would be accounted for.[83]

Being a public utility engaged in the distribution of electricity and the owner of around
17,000 poles, CEPALCO could have certainly adduced evidence on maintenance, inspection,
and inventory expenses. As an electricity distributor, CEPALCO is charged with keeping its
utility posts well-preserved and in good condition. Necessarily, the cost of maintaining and
inspecting such posts is well within its cognizance. Clearly, it had proof of such costs in its
possession. Thus, CEPALCO could have easily showed that the annual exaction of P500.00
per post was in excess of the cost of regulation and, therefore, fee is excessive and
unreasonable.

However, CEPALCO failed to do so. It simply maintained that the annual payment of
P8,500,000.00 was, "by any fairly judicious standards, shocking to the conscience of man.
[84]
" The electricity distributor could have compared the fee with the annual costs it incurs
on the preservation and inventory of its posts or, as in Morcoin, showed that the annual
fee imposed on a single pole was greater than the same pole's yearly income. This would
have readily shown the fee's alleged excessiveness. The record, nevertheless, fails to reveal
that the imposition was not commensurate with the actual cost of regulation and
inspection. Besides CEPALCO's bare, self-serving, and unsubstantiated allegations, nothing
even remotely suggests the fee's excessiveness.

Without evidence indicating that the amount of the Mayor's Permit Fee is
disproportionate to the cost of regulation, inspection, and licensing of utility poles
located in Cagayan de Oro City, the Court cannot agree with the CA's invalidation of the
ordinance.

Local governments are allowed wide discretion in determining the rates of imposable fees.
In the absence of proof of unreasonableness, courts are bound to respect the judgment of
the local authorities. Any undue interference with their sound discretion will imperatively
warrant review and correction.
In this case, as the party assailing the ordinance, it was CEPALCO's responsibility to prove
the amount's excessiveness; it had the burden to show that the fee was not commensurate
with the cost of regulation, inspection, and licensing. Nevertheless, for the reasons
discussed above, it failed to dismantle the presumption of validity because it never
established that the city council abused its discretion in setting the amount of the fee at
P500.00.

Thus, the CA erred in declaring the ordinance invalid. Courts, as a rule, must refrain from
interfering with legislative acts, lest they stray into the realm of policy decision-making.
[85]
 The public interest is best served by allowing the political processes to operate without
undue interference.[86]

On a final note, the Court deems it appropriate to reiterate its ruling in Victorias Milling
Co., Inc. v. Municipality of Victorias,[87] to wit:

An ordinance carries with it the presumption of validity. The question of reasonableness

though is open to judicial inquiry. Much should be left thus to the discretion of municipal
authorities. Courts will go slow in writing off an ordinance as unreasonable unless the
amount is so excessive as to be prohibitive, arbitrary, unreasonable, oppressive, or
confiscatory. x x x

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated June 10,
2015 in CA-G.R. CV No. 02771-MIN is REVERSED and SET ASIDE. City Ordinance No. 9527-
2005 of Cagayan de Oro City is hereby declared valid and constitutional.

SO ORDERED.
 SECOND DIVISION

G.R. No. 191761               November 14, 2012

CAGAYAN ELECTRIC POWER AND LIGHT CO., INC., Petitioner,

vs.
CITY OF CAGAYAN DE ORO, Respondent.

DECISION

CARPIO, J.:

The Case

G.R. No. 191761 is a petition for review assailing the Decision promulgated on 28 May 2009 as
1  2 

well as the Resolution promulgated on 24 March 2010 by the Court of Appeals (appellate court)
3 

in CA-G.R. CV No. 01105-Min. The appellate court affirmed the 8 January 2007 Decision of 4 

Branch 18 of the Regional Trial Court of Misamis Oriental (trial court) in Civil Case No. 2005-
207.

The trial court upheld the validity of the City of Cagayan de Oro’s Ordinance No. 9503-2005 and
denied Cagayan Electric Power and Light Co., Inc.’s (CEPALCO) claim of exemption from the
said ordinance.

The Facts

The appellate court narrated the facts as follows:

On January 10, 2005, the Sangguniang Panlungsod of Cagayan de Oro (City Council) passed
Ordinance No. 9503-2005 imposing a tax on the lease or rental of electric and/or
telecommunication posts, poles or towers by pole owners to other pole users at ten percent
(10%) of the annual rental income derived from such lease or rental.

The City Council, in a letter dated 15 March 2005, informed appellant Cagayan Electric Power
and Light Company, Inc. (CEPALCO), through its President and Chief Operation Manager, Ms.
Consuelo G. Tion, of the passage of the subject ordinance.

On September 30, 2005, appellant CEPALCO, purportedly on pure question of law, filed a
petition for declaratory relief assailing the validity of Ordinance No. 9503-2005 before the
Regional Trial Court of Cagayan de Oro City, Branch 18, on the ground that the tax imposed by
the disputed ordinance is in reality a tax on income which appellee City of Cagayan de Oro may
not impose, the same being expressly prohibited by Section 133(a) of Republic Act No. 7160
(R.A. 7160) otherwise known as the Local Government Code (LGC) of 1991. CEPALCO argues
that, assuming the City Council can enact the assailed ordinance, it is nevertheless exempt
from the imposition by virtue of Republic Act No. 9284 (R.A. 9284) providing for its franchise.
CEPALCO further claims exemplary damages of PhP200,000.00 alleging that the passage of
the ordinance manifests malice and bad faith of the respondent-appellee towards it.

In its Answer, appellee raised the following affirmative defenses: (a) the enactment and
implementation of the subject ordinance was a valid and lawful exercise of its powers pursuant
to the 1987 Constitution, the Local Government Code, other applicable provisions of law, and
pertinent jurisprudence; (b) non-exemption of CEPALCO because of the express withdrawal of
the exemption provided by Section 193 of the LGC; (c) the subject ordinance is legally
presumed valid and constitutional; (d) prescription of respondent-appellee’s action pursuant to
Section 187 of the LGC; (e) failure of respondent-appellee to exhaust administrative remedies
under the Local Government Code; (f) CEPALCO’s action for declaratory relief cannot prosper
since no breach or violation of the subject ordinance was yet committed by the City.5

Ordinance No. 9503-2005 reads:

ORDINANCE IMPOSING A TAX ON THE LEASE OR RENTAL OF ELECTRIC AND/OR

TELECOMMUNICATION POSTS, POLES OR TOWERS BY POLE OWNERS TO OTHER
POLE USERS AT THE RATE OF TEN (10) PERCENT OF THE ANNUAL RENTAL INCOME
DERIVED THEREFROM AND FOR OTHER PURPOSES BE IT ORDAINED by the City Council
(Sangguniang Panlungsod) of the City of Cagayan de Oro in session assembled that:

SECTION 1. - Whenever used in this Ordinance, the following terms shall be construed as:
 a. Electric companies include all public utility companies whether corporation or
cooperative engaged in the distribution and sale of electricity;

b. Telecommunication companies refer to establishments or entities that are holders of

franchise through an Act of Congress to engage, maintain, and operate
telecommunications, voice and data services, under existing Philippine laws, rules and
regulations;

c. Pole User includes any person, natural or juridical, including government agencies
and entities that use and rent poles and towers for the installation of any cable, wires,
service drops and other attachments;

d. Pole Owner includes electric and telecommunication company or corporation that

owns poles, towers and other accessories thereof.

SECTION 2. - There shall be imposed a tax on the lease or rental of electric and/or
telecommunication posts, poles or towers by pole owners to other pole users at the rate of ten
(10) percent of the annual rental income derived therefrom.

SECTION 3. - The tax imposed herein shall not be passed on by pole owners to the bills of pole
users in the form of added rental rates.

SECTION 4. (a) Pole owners herein defined engaged in the business of renting their posts,
poles and/or towers shall secure a separate business permit therefor as provided under Article
(P), Section 62(a) of Ordinance No. 8847-2003, otherwise known as the Cagayan de Oro City
Revenue Code of 2003.

(b) Pertinent provisions of Ordinance No. 8847-2003, covering situs of the tax, payment of taxes
and administrative provisions shall apply in the imposition of the tax under this Ordinance.

SECTION 5. - This Ordinance shall take effect after 15 days following its publication in a local
newspaper of general circulation for at least three (3) consecutive issues.

UNANIMOUSLY APPROVED. 6

Ordinance No. 9503-2005 was unanimously approved by the City Council of Cagayan de Oro
on 10 January 2005.

The Trial Court’s Ruling

On 8 January 2007, the trial court rendered its Decision in favor of the City of Cagayan de Oro.
7 

The trial court identified three issues for its resolution: (1) whether Ordinance No. 9503-2005 is
valid; (2) whether CEPALCO should be exempted from tax; and (3) whether CEPALCO’s action
is barred for non-exhaustion of administrative remedies and for prescription.

In ruling for the validity of Ordinance No. 9503-2005, the trial court rejected CEPALCO’s claim
that the ordinance is an imposition of income tax prohibited by Section 133(a) of the Local
Government Code. The trial court reasoned that since CEPALCO’s business of leasing its posts
8 

to pole users is what is directly taxed, the tax is not upon the income but upon the privilege to
engage in business. Moreover, Section 143(h), in relation to Section 151, of the Local
Government Code authorizes a city to impose taxes, fees and charges on any business which
is not specified as prohibited under Section 143(a) to (g) and which the city council may deem
proper to tax.

The trial court also rejected CEPALCO’s claim of exemption from tax. The trial court noted that
Republic Act (R.A.) Nos. 3247, 3570 and 6020, which previously granted CEPALCO’s
9  10  11 

franchise, expressly stated that CEPALCO would pay a three percent franchise tax in lieu of all
assessments of whatever authority. However, there is no similar provision in R.A. No. 9284,
which gave CEPALCO its current franchise.

Finally, the trial court found that CEPALCO’s action is barred by prescription as it failed to raise
an appeal to the Secretary of Justice within the thirty-day period provided in Section 187 of the
Local Government Code.

The dispositive portion of the trial court’s decision reads:

WHEREFORE, it is crystal clear that Petitioner CEPALCO failed not only in proving its
allegations that City Ordinance 9503-2005 is illegal and contrary to law, and that [it] is exempted
from the imposition of tax, but also in convincing the Court that its action is not barred for non-
exhaustion of administrative remedy [sic] and by prescription. Hence, the instant petition is
DENIED.
SO ORDERED. 12

CEPALCO filed a brief with the appellate court and raised the following errors of the trial court:

A. The lower court manifestly erred in concluding that the instant action is barred for
non-exhaustion of administrative remedies and by prescription.

B. The lower court gravely erred in finding that Ordinance No. 9503-2005 of the City of
Cagayan de Oro does not partake of the nature of an income tax.

C. The lower court gravely erred in finding that Ordinance No. 9503-2005 of the City of
Cagayan de Oro is valid.

D. The lower court seriously erred in finding that herein appellant is not exempted from
payment of said tax. 13

The Appellate Court’s Ruling

On 28 May 2009, the appellate court rendered its Decision and affirmed the trial court’s
14 

decision.

The appellate court stated that CEPALCO failed to file a timely appeal to the Secretary of
Justice, and did not exhaust its administrative remedies. The appellate court agreed with the
trial court’s ruling that the assailed ordinance is valid and declared that the subject tax is a
license tax for the regulation of business in which CEPALCO is engaged. Finally, the appellate
court found that CEPALCO’s claim of tax exemption rests on a strained interpretation of R.A.
No. 9284.

In a Resolution dated 24 March 2010, the appellate court denied CEPALCO’s motion for
15 

reconsideration for lack of merit. The resolution also denied CEPALCO’s 3 August 2009
supplemental motion for reconsideration for being filed out of time.

CEPALCO filed the present petition for review before this Court on 27 May 2010.

The Issues

CEPALCO enumerated the following reasons for warranting review:

1. In spite of its patent illegality, a City Ordinance passed in violation or in excess of the
city’s delegated power to tax was upheld;

2. In a case involving pure questions of law, the Court of Appeals still insisted on a
useless administrative remedy before resort to the court may be made; and

3. Recent legislation affirming CEPALCO’s tax exemptions was disregarded. 16

In a Resolution dated 6 July 2011, this Court required both parties to discuss whether the
17 

amount of tax imposed by Section 2 of Ordinance No. 9503-2005 complies with or violates, as
the case may be, the limitation set by Section 151, in relation to Sections 137 and 143(h), of the
Local Government Code.

The Court’s Ruling

Failure to Exhaust Administrative Remedies

Ordinance No. 9503-2005 is a local revenue measure. As such, the Local Government Code
applies.

SEC. 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures;
Mandatory Public Hearings. – The procedure for approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of this Code: Provided, That public
hearings shall be conducted for the purpose prior to the enactment thereof: Provided, further,
That any question on the constitutionality or legality of tax ordinances or revenue measures may
be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice
who shall render a decision within sixty (60) days from the date of receipt of the appeal:
Provided, however, That such appeal shall not have the effect of suspending the effectivity of
the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided,
finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day
period without the Secretary of Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction.
SEC. 188. Publication of Tax Ordinances and Revenue Measures. – Within ten (10) days after
their approval, certified true copies of all provincial, city, and municipal tax ordinances or
revenue measures shall be published in full for three (3) consecutive days in a newspaper of
local circulation: Provided, however, That in provinces, cities and municipalities where there are
no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and
publicly accessible places.

The Sangguniang Panlungsod of Cagayan de Oro approved Ordinance No. 9503-2005 on 10

January 2005. Section 5 of said ordinance provided that the "Ordinance shall take effect after
15 days following its publication in a local newspaper of general circulation for at least three (3)
consecutive issues." Gold Star Daily published Ordinance No. 9503-2005 on 1 to 3 February
2005. Ordinance No. 9503-2005 thus took effect on 19 February 2005. CEPALCO filed its
petition for declaratory relief before the Regional Trial Court on 30 September 2005, clearly
beyond the 30-day period provided in Section 187. CEPALCO did not file anything before the
Secretary of Justice. CEPALCO ignored our ruling in Reyes v. Court of Appeals on the18 

mandatory nature of the statutory periods:

Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a
tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity
thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an
aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60
days, a party could already proceed to seek relief in court. These three separate periods are
clearly given for compliance as a prerequisite before seeking redress in a competent court.
Such statutory periods are set to prevent delays as well as enhance the orderly and speedy
discharge of judicial functions. For this reason the courts construe these provisions of statutes
as mandatory.

A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax
is the most effective instrument to raise needed revenues to finance and support the myriad
activities of local government units for the delivery of basic services essential to the promotion
of the general welfare and enhancement of peace, progress, and prosperity of the people.
Consequently, any delay in implementing tax measures would be to the detriment of the public.
It is for this reason that protests over tax ordinances are required to be done within certain time
frames. In the instant case, it is our view that the failure of petitioners to appeal to the Secretary
of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause.

As in Reyes, CEPALCO’s failure to appeal to the Secretary of Justice within the statutory period
of 30 days from the effectivity of the ordinance should have been fatal to its cause. However, we
relax the application of the rules in view of the more substantive matters.

City of Cagayan de Oro’s Power to Create Sources of Revenue

vis-a-vis CEPALCO’s Claim of Exemption

Section 5, Article X of the 1987 Constitution provides that "each local government unit shall
have the power to create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the
local government." The Local Government Code supplements the Constitution with Sections
151 and 186:

SEC. 151. Scope of Taxing Powers. ‒ Except as otherwise provided in this Code, the city may
levy the taxes, fees and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes.

SEC. 186. Power to Levy Other Taxes, Fees or Charges. ‒ Local government units may
exercise the power to levy taxes, fees or charges on any base or subject not otherwise
specifically enumerated herein or taxed under the provisions of the National Internal Revenue
Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall
not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy:
Provided, further, That the ordinance levying such taxes, fees, or charges shall not be enacted
without any prior public hearing conducted for the purpose.

Although CEPALCO does not question the authority of the Sangguniang Panlungsod of
Cagayan de Oro to impose a tax or to enact a revenue measure, CEPALCO insists that
Ordinance No. 9503-2005 is an imposition of an income tax which is prohibited by Section
133(a) of the Local Government Code. Unfortunately for CEPALCO, we agree with the ruling of
19 
the trial and appellate courts that Ordinance No. 9503-2005 is a tax on business. CEPALCO’s
act of leasing for a consideration the use of its posts, poles or towers to other pole users falls
under the Local Government Code’s definition of business. Business is defined by Section
131(d) of the Local Government Code as "trade or commercial activity regularly engaged in as a
means of livelihood or with a view to profit." In relation to Section 131(d), Section 143(h) of the
20  21 

Local Government Code provides that the city may impose taxes, fees, and charges on any
business which is not specified in Section 143(a) to (g) and which the sanggunian concerned
22 

may deem proper to tax.

In contrast to the express statutory provisions on the City of Cagayan de Oro’s power to tax,
CEPALCO’s claim of tax exemption of the income from its poles relies on a strained
interpretation. Section 1 of R.A. No. 9284 added Section 9 to R.A. No. 3247, CEPALCO’s
23 

franchise:

SEC. 9. Tax Provisions. ‒ The grantee, its successors or assigns, shall be subject to the
payment of all taxes, duties, fees or charges and other impositions applicable to private electric
utilities under the National Internal Revenue Code (NIRC) of 1997, as amended, the Local
Government Code and other applicable laws: Provided, That nothing herein shall be construed
as repealing any specific tax exemptions, incentives, or privileges granted under any relevant
law: Provided, further, That all rights, privileges, benefits and exemptions accorded to existing
and future private electric utilities by their respective franchises shall likewise be extended to the
grantee.

The grantee shall file the return with the city or province where its facility is located and pay the
taxes due thereon to the Commissioner of Internal Revenue or his duly authorized
representative in accordance with the NIRC and the return shall be subject to audit by the
Bureau of Internal Revenue.

The Local Government Code withdrew tax exemption privileges previously given to natural or
juridical persons, and granted local government units the power to impose franchise tax, thus:
24 

SEC. 137. Franchise Tax. – Notwithstanding any exemption granted by any law or other special
law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar
year based on the incoming receipt, or realized, within its territorial jurisdiction.

xxxx

SEC. 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.

SEC. 534. Repealing Clause. – x x x.

(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 hornbook doctrine that tax exemptions are strictly construed against the claimant. For this
reason, tax exemptions must be based on clear legal provisions. The separate opinion in PLDT
v. City of Davao is applicable to the present case, thus:
25 

Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point
to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption
from a common burden. Any doubt whether a tax exemption exists is resolved against the
taxpayer. Tax exemptions cannot arise by mere implication, much less by an implied re-
enactment of a repealed tax exemption clause.

CEPALCO’s claim of exemption under the "in lieu of all taxes" clause must fail in light of Section
193 of the Local Government Code as well as Section 9 of its own franchise.

Ordinance No. 9503-2005’s Compliance with

the Local Government Code

In our Resolution dated 6 July 2011, we asked both parties to discuss whether the amount of
26 

tax imposed by Section 2 of Ordinance No. 9503-2005 complies with or violates, as the case
may be, the limitation set by Section 151, in relation to Sections 137 and 143(h), of the Local
Government Code.
CEPALCO argues that Ordinance No. 9503-2005 should be invalidated because the City of
Cagayan de Oro exceeded its authority in enacting it. CEPALCO argued thus:

5. Thus, the taxes imposable under either Section 137 or Section 143(h) are not
unbridled but are restricted as to the amount which may be imposed. This is the first
limitation. Furthermore, if it is a city which imposes the same, it can impose only up to
one-half of what the province or municipality may impose. This is the second limitation.

6. Let us now examine Ordinance No. 9503-2005 of the respondent City of Cagayan de
Oro in the light of the twin limitations mentioned above.

7. Ordinance No. 9503-2005 of the respondent City of Cagayan de Oro imposes a tax
on the lease or rental of electric and/or telecommunication posts, poles or towers by
pole owners to other pole users "at the rate of ten (10) percent of the annual rental
income derived therefrom."

8. With respect to Section 137, considering that the tax allowed provinces "shall not
exceed fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction," the tax imposed by Ordinance No. 9503-2005 "at the rate of ten (10)
percent of the annual rental income derived therefrom" is too much. There is a whale of
a difference between the allowable 50% of 1% and the 10% tax imposed by the
respondent. To illustrate: assuming that the gross annual receipt is Php100, the
maximum tax that a province may impose under Section 137 (50% of 1%) shall be
Php0.5 or only fifty centavos. Therefore, the maximum tax that the City may impose
shall only be one-half of this, which is Php0.25 or only twenty-five centavos. But the
questioned Ordinance imposes a tax amounting to 10% of the gross annual receipt of
Php100, which is Php10, or Ten Pesos. This a whooping [sic] 40 times more than that
allowed for the province! The violation made by respondent city of its delegated taxing
authority is all too patent.

9. With respect to Section 143(h), the rate of tax which the municipality may impose
"shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar
year." On the other hand, the tax imposed by Ordinance No. 9503-2005 is "at the rate of
ten (10) percent of the annual rental income derived therefrom." Again, it is obvious that
the respondent City’s questioned tax ordinance is way too much. Using the same tax
base of Php100 to illustrate, let us compute:

Under Section 143(h), the maximum tax that a municipality may impose is 2% of Php100, which
is Php2 or Two Pesos. Therefore, the maximum tax that the City may impose shall be one-half
of this, which is Php1 or One Peso. But the tax under Ordinance No. 9503-2005 is Php10, or
Ten Pesos. This is a whooping [sic] 10 times more than that allowed for the municipality! As in
the earlier instance discussed above, the violation made by the respondent city of its delegated
taxing authority is all too patent. (Boldfacing and underscoring in the original)
27 

The interpretation of the City of Cagayan de Oro is diametrically opposed to that of CEPALCO.
The City of Cagayan de Oro points out that under Section 151 of the Local Government Code,
cities not only have the power to levy taxes, fees and charges which the provinces or
municipalities may impose, but the maximum rate of taxes imposable by cities may exceed the
maximum rate of taxes imposable by provinces or municipalities by as much as 50%. The City
of Cagayan de Oro goes on to state:

6. Thus, Section 30 of City of Cagayan de Oro’s Ordinance No. 8847-2003, otherwise

known as the Revenue Code of Cagayan de Oro, imposes a franchise tax on the gross
receipts realized from the preceding year by a business enjoying a franchise, at the rate
of 75% of 1%. The increase of 25% over that which is prescribed under Section 137 of
the LGC is in accordance with Section 151 thereof prescribing the allowable increase on
the rate of tax on the businesses duly identified and enumerated under Section 143 of
the LGC or those defined and categorized in the preceding sections thereof;

7. Section 143 of the LGC prescribes the rate of taxes on the identified categories of
business enumerated therein which were determined to be existing at the time of its
enactment. On the other hand, Section 151 of the LGC prescribes the allowable rate of
increase over the rate of taxes imposed on businesses identified under Section 143 and
the preceding sections thereof. It is [City of Cagayan de Oro’s humble opinion that the
allowable rate of increase provided under Section 151 of the LGC applies only to those
businesses identified and enumerated under Section 143 thereof. Thus, it is respectfully
submitted by City of Cagayan de Oro that the 2% limitation prescribed under Section
143(h) applies only to the tax rates on the businesses identified thereunder and does
not apply to those that may thereafter be deemed taxable under Section 186 of the
LGC, such as the herein assailed Ordinance No. 9503-2005. On the same vein, it is the
respectful submission of City of Cagayan de Oro that the limitation under Section 151 of
 the LGC likewise does not apply in our particular instance, otherwise it will run counter
to the intent and purpose of Section 186 of the LGC;

8. Be it strongly emphasized here that CEPALCO is differently situated vis-á-vis the rest
of the businesses identified under Section 143 of the LGC. The imposition of a tax "xxx
on the lease or rental of electric and/or telecommunications posts, poles or towers by
pole owners to other pole users at the rate of ten (10%) of the annual rental income
derived therefrom" as provided under Section 2 of the questioned Ordinance No. 9503-
2005 is based on a reasonable classification, to wit: (a) It is based on substantial
distinctions which make a real difference; (b) these are germane to the purpose of the
law; (c) the classification applies not only to the present conditions but also to future
conditions which are substantially identical to those of the present; and (d) the
classification applies only to those belonging to the same class;

9. Furthermore, Section 186 of the LGC allow [sic] local government units to exercise
their taxing power to levy taxes, fees or charges on any base or subject not otherwise
specifically enumerated in the preceding sections, more particularly Section 143 thereof,
or under the provisions of the National Internal Revenue Code, as long as they are not
unjust, excessive, oppressive, confiscatory or contrary to declared national policy.
Moreover, a public hearing is required before the Ordinance levying such taxes, fees or
charges can be enacted;

10. It is respectfully submitted by City of Cagayan de Oro that the tax rate imposed
under Section 2 of the herein assailed Ordinance is not unjust, excessive, oppressive,
confiscatory or contrary to a declared national policy;

11. A reading of Section 143 of the LGC reveals that it has neither identified the
operation of a business engaged in leasing nor prescribed its tax rate. Moreover, a
Lessor, in any manner, is not included among those defined as Contractor under
Section 131(h) of the LGC. However, a Lessor, in its intended general application in City
of Cagayan de Oro (one who rents out real estate properties), was identified,
categorized and included as one of the existing businesses operating in the city, and
thus falling under the provisions of Ordinance No. 8847-2003 (the Revenue Code of
Cagayan de Oro) and, therefore, imposed only a tax rate of 2% on their gross annual
receipts;

12. While the herein assailed Ordinance similarly identifies that the base of the tax
imposed therein are receipts and/or revenue derived from rentals of poles and posts,
CEPALCO cannot be considered under the definition of Lessor under the spirit, essence
and intent of Section 58(h) of the Revenue Code of Cagayan de Oro, because the same
refers only to "Real Estate Lessors, Real Estate Dealers and Real Estate Developers."
Thus, CEPALCO should be, as it has been, categorized as a (Distinct) Lessor where it
enjoys not only a tremendous and substantial edge but also an absolute advantage in
the rental of poles, posts and/or towers to other telecommunication and cable TV
companies and the like over and above all others in view of its apparent monopoly by
allowing the use of their poles, posts and/or towers by, leasing them out to,
telecommunication and cable TV companies operating within the city and suburbs.
Furthermore, CEPALCO has neither competition in this field nor does it expect one
since there are no other persons or entities who are engaged in this particular business
activity;

xxxx 28

CEPALCO is mistaken when it states that a city can impose a tax up to only one-half of what
the province or city may impose. A more circumspect reading of the Local Government Code
could have prevented this error. Section 151 of the Local Government Code states that, subject
to certain exceptions, a city may exceed by "not more than 50%" the tax rates allowed to
provinces and municipalities. A province may impose a franchise tax at a rate "not exceeding
29 

50% of 1% of the gross annual receipts." Following Section 151, a city may impose a franchise
30 

tax of up to 0.0075 (or 0.75%) of a business’ gross annual receipts for the preceding calendar
year based on the incoming receipt, or realized, within its territorial jurisdiction. A municipality
may impose a business tax at a rate not exceeding "two percent of gross sales or
receipts." Following Section 151, a city may impose a business tax of up to 0.03 (or 3%) of a
31 

business’ gross sales or receipts of the preceding calendar year.

CEPALCO also erred when it equates Section 137’s "gross annual receipts" with Ordinance No.
9503-2005’s "annual rental income." Section 2 of Ordinance No. 9503-2005 imposes "a tax on
the lease or rental of electric and/or telecommunication posts, poles or towers by pole owners to
other pole users at the rate of ten (10) percent of the annual rental income derived therefrom,"
and not on CEPALCO’s gross annual receipts. Thus, although the tax rate of 10% is definitely
higher than that imposable by cities as franchise or business tax, the tax base of annual rental
income of "electric and/or telecommunication posts, poles or towers by pole owners to other
pole users" is definitely smaller than that used by cities in the computation of franchise or
business tax. In effect, Ordinance No. 9503-2005 wants a slice of a smaller pie.

However, we disagree with the City of Cagayan de Oro’s submission that Ordinance No. 9503-
2005 is not subject to the limits imposed by Sections 143 and 151 of the Local Government
Code. On the contrary, Ordinance No. 9503-2005 is subject to the limitation set by Section
143(h). Section 143 recognizes separate lines of business and imposes different tax rates for
different lines of business. Let us suppose that one is a brewer of liquor and, at the same time,
a distributor of articles of commerce. The brewery business is subject to the rates established in
Section 143(a) while the distribution business is subject to the rates established in Section
143(b). The City of Cagayan de Oro’s imposition of a tax on the lease of poles falls under
Section 143(h), as the lease of poles is CEPALCO’s separate line of business which is not
covered by paragraphs (a) to (g) of Section 143. The treatment of the lease of poles as a
separate line of business is evident in Section 4(a) of Ordinance No. 9503-2005. The City of
Cagayan de Oro required CEPALCO to apply for a separate business permit. 1âwphi1

More importantly, because "any person, who in the course of trade or business x x x leases
goods or properties x x x shall be subject to the value-added tax," the imposable tax rate
32 

should not exceed two percent of gross receipts of the lease of poles of the preceding calendar
year. Section 143(h) states that "on any business subject to x x x value-added x x x tax under
the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent
(2%) of gross sales or receipts of the preceding calendar year" from the lease of goods or
properties. Hence, the 10% tax rate imposed by Ordinance No. 9503-2005 clearly violates
Section 143(h) of the Local Government Code.

Finally, in view of the lack of a separability clause, we declare void the entirety of Ordinance No.
9503-2005. Any payment made by reason of the tax imposed by Ordinance No. 9503-2005
should, therefore, be refunded to CEPALCO. Our ruling, however, is made without prejudice to
the enactment by the City of Cagayan de Oro of a tax ordinance that complies with the limits set
by the Local Government Code.

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-G.R. CV
No. 01105-Min promulgated on 28 May 2009 and the Resolution promulgated on 24 March
2010 are REVERSED and SET ASIDE Ordinance No. 9503-2005 is declared void.

SO ORDERED.
 THIRD DIVISION
[ G.R. No. 194388, November 07, 2018 ]
METROPOLITAN WATERWORKS SEWERAGE SYSTEM,
PETITIONER, VS. THE LOCAL GOVERNMENT OF QUEZON
CITY, CITY TREASURER OF QUEZON CITY, CITY ASSESSOR
OF QUEZON CITY, SANGGUNIANG PANLUNGSOD NG
QUEZON CITY, AND CITY MAYOR OF QUEZON CITY,
RESPONDENTS.

DECISION

LEONEN, J.:

A government instrumentality exercising corporate powers is not liable for the

payment of real property taxes on its properties unless it is alleged and proven
that the beneficial use of its properties been extended to a taxable person.

This resolves a Petition for Review on Certiorari [1] assailing the October 19,
2010 Decision[2] of the Court of Appeals in CA-G.R. SP No. 100733, which held
that the Local Government of Quezon City may assess real property taxes on
Metropolitan Waterworks and Sewerage System's properties located in Quezon
City.

On June 19, 1971, Congress enacted Republic Act No. 6234, [3] creating the
Metropolitan Waterworks and Sewerage System. Under the law, it was
mandated "to insure an uninterrupted and adequate supply and distribution of
potable water for domestic and other purposes and the proper operation and
maintenance of sewerage systems."[4] It was granted the power to exercise
supervision and control over all waterworks and sewerage systems within Metro
Manila, Rizal, and a portion of Cavite.[5]

It was initially created as a corporation without capital stock. On March 29,

1974, then President Ferdinand Marcos issued Presidential Decree No. 425,
[6]
 authorizing it to have an authorized capital stock of P1,000,000,000.00,
divided into 10,000,000 shares at a par value of P100.00 each. Presidential
Decree No. 425 further mandated that all shares of stock shall only be
subscribed by the government. The stocks should not be "transferred,
negotiated, pledged, mortgaged or otherwise given as security for the payment
of any obligation."[7]

Sometime in July 2007, Metropolitan Waterworks and Sewerage System

received several Final Notices of Real Property Tax Delinquency from the Local
Government of Quezon City, covering various taxable years, in the total amount
of P237,108,043.83 on the real properties owned by Metropolitan Waterworks
and Sewerage System in Quezon City. The Local Government of Quezon City
warned it that failure to pay would result in the issuance of warrants of levy
against its properties.[8]

On August 7, 2007, the Treasurer's Office of Quezon City issued Warrants of

Levy on the properties due to Metropolitan Waterworks and Sewerage System's
failure to pay.[9]

On September 10, 2007, the Local Government of Quezon City had a Notice of
Sale of Delinquent Real Properties published, which stated that the real
properties would be sold at a public auction on September 27, 2007. The list
included properties owned by Metropolitan Waterworks and Sewerage System.
[10]

On September 26, 2007, Metropolitan Waterworks and Sewerage System filed

before the Court of Appeals a Petition for Certiorari and Prohibition with Prayer
for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary
Injunction.[11] It argued that its real properties in Quezon City were exclusively
devoted to public use, and thus, were exempt from real property tax. [12]

The Court of Appeals issued a Temporary Restraining Order on September 27,

2007, enjoining the Local Government of Quezon City from proceeding with the
scheduled auction of the properties. On November 14, 2007, the Court of
Appeals conducted oral arguments. On December 19, 2007, it issued a Writ of
Preliminary Injunction.[13]

On October 19, 2010, the Court of Appeals rendered a Decision [14] denying the
Petition for lack of merit and lifting the Writ of Preliminary Injunction.

According to the Court of Appeals, Metropolitan Waterworks and Sewerage

System need not exhaust administrative remedies since the issue involved a
purely legal question.[15] It noted, however, that the Petition should have been
first filed before the Regional Trial Court, which shares concurrent jurisdiction
with the Court of Appeals over petitions for certiorari and prohibition.
[16]
 Nonetheless, it proceeded to resolve the case on its merits. [17]

The Court of Appeals found that since Metropolitan Waterworks and Sewerage
System was not a municipal corporation, it could not invoke the immunity
granted in Section 133(o) of the Local Government Code. [18] In particular, it
found that even if Metropolitan Waterworks and Sewerage System was an
instrumentality of the government, it was not performing a purely
governmental function. As such, it cannot invoke immunity from real property
taxation.[19]

The Court of Appeals likewise found that the taxed properties were not part of
the public dominion, but were even made the subject of concession agreements
between Metropolitan Waterworks and Sewerage System and private
concessionaires due to its privatization in 1997. It concluded that since the
properties were held by Metropolitan Waterworks and Sewerage System in the
exercise of its proprietary functions, they were still subject to real property tax.
[20]

The dispositive portion of the Court of Appeals October 19, 2010 Decision
stated:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered
by us DENYING the instant petition for lack of merit. The Writ of Preliminary
Injunction issued herein is hereby ordered LIFTED.

SO ORDERED.[21] (Emphasis in the original)

On November 9, 2010, Warrants of Levy were issued by the Quezon City
Treasurer over Metropolitan Waterworks and Sewerage System's properties.
[22]
 Hence, on November 18, 2010, Metropolitan Waterworks and Sewerage
System filed its Petition for Certiorari with Prayer for the Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction [23] before this
Court.

On December 14, 2010, petitioner filed a Very Urgent Reiteratory Motion for
Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction.
[24]

Acting on this Motion, this Court resolved to Issue a Temporary Restraining

Order on January 26, 2011.[25]

Respondents filed a Consolidated Motions to Dismiss [26] and a Motion for

Extension of Time to File Comment.[27] In its April 11, 2011 Resolution,[28] this
Court resolved to deny the Consolidated Motions to Dismiss but to grant the
Motion for Extension of Time to file comment. Respondents, thus, filed their
Comment[29] on April 19, 2011.

While the Petition was pending, however, respondent City Treasurer of Quezon
City submitted a Manifestation[30] stating that he intended to auction petitioner's
Lot Nos. 1, 2, and 3 of Block PCS-8998, located in Barangay Pasong Putik,
Quezon City on July 7, 2011. He reasoned that these properties were not
included among those covered in this Court's January 26, 2011 Temporary
Restraining Order.[31]

Petitioner filed a Counter-Manifestation Ad Cautelam,[32] arguing that while

these properties were not included among the properties covered by the
January 26, 2011 Temporary Restraining Order, they fall under the same or
similar category as those properties that were covered. It contends that if these
properties were auctioned, the issue in the Petition would be rendered moot. [33]

In its September 7, 2011 Resolution,[34] this Court issued a Temporary

Restraining Order preventing respondents from proceeding with the auction of
petitioner's Lot Nos. 1, 2, and 3 of Block PCS-8998.

The patties subsequently submitted their respective memoranda [35] before this

Court.

Petitioner maintains that it is a government instrumentality exempt from real

property taxation under Section 133(o)[36] of the Local Government Code. In
particular, it argues that it is a regulatory body mandated to oversee the
operations of its two (2) private concessionaires, the Manila Water Company,
Inc. and the Maynilad Water Services, Inc. It points out that Republic Act No.
6234, Section 18, as amended by Presidential Decree No. 425, [37] expressly
exempts it from the payment of real property taxes.[38]

Citing Manila International Airport Authorities v. Court of

Appeals[39] and Philippine Fisheries Development Authority v. Central Board of
Assessment Appeals,[40] petitioner argues that it is exempt from taxation as it is
an instrumentality of the government holding properties of the public dominion.
It likewise cites Republic Act No. 10149,[41] passed on July 26, 2010, which lists
petitioner as one of the government instrumentalities with corporate powers. [42]

Respondents, on the other hand, point out that petitioner failed to observe the
principle of the hierarchy of courts when it filed the case directly before the
Court of Appeals, instead of the Regional Trial Court, which exercises
concurrent jurisdiction in petitions for certiorari.[43]

They maintain that petitioner holds properties in the exercise of its proprietary
functions, and thus, are susceptible to real property tax.[44] They point out that
tax exemption granted in Republic Act No. 6234, Section 18 has since been
repealed by Section 234[45] of the Local Government Code.[46] They likewise
assert that petitioner has since recognized its tax liabilities when it paid
respondents a down payment of P30,000,000.00, and when it committed to pay
the balance not later than April 2011.[47]

This Court is asked to resolve a pure question of law: whether a local

government unit may assess real property taxes on petitioner Metropolitan
Waterworks and Sewerage System, a government entity.

Before this issue can be resolved, however, this Court will first pass upon the
issue of whether or not petitioner Metropolitan Waterworks and Sewerage
System violated the principle of hierarchy of courts in directly bringing the case
to the Court of Appeals instead of to the Regional Trial Court.

The principle of the hierarchy of courts is a judicial policy designed to restrain

direct resort to this Court if relief can be granted or obtained from the lower
courts. As this Court explained in Aala v. Uy:[48]
The doctrine on hierarchy of courts is a practical judicial policy designed to
restrain parties from directly resorting to this Court when relief may be
obtained before the lower courts. The logic behind this policy is grounded on the
need to prevent "inordinate demands upon the Court's time and attention which
are better devoted to those matters within its exclusive jurisdiction," as well as
to prevent the congestion of the Court's dockets. Hence, for this Court to be
able to "satisfactorily perform the functions assigned to it by the fundamental
charter[,]" it must remain as a "court of last resort." This can be achieved by
relieving the Court of the "task of dealing with causes in the first instance." [49]
This Court shares concurrent jurisdiction in the issuance of writs of certiorari,
prohibition, mandamus, quo warranto, and habeas corpus with the Regional
Trial Court and the Court of Appeals.[50] As it stated in Aala, the principle of the
hierarchy of courts prevents parties from randomly selecting which among
these forums their actions will be directed. Diocese of Bacolod v. Commission
on Elections[51] likewise explained the rationale behind this Court's adherence to
the principle:
Trial courts do not only determine the facts from the evaluation of the evidence
presented before them. They are likewise competent to determine issues of law
which may include the validity of an ordinance, statute, or even an executive
issuance in relation to the Constitution. To effectively perform these functions,
they are territorially organized into regions and then into branches. Their writs
generally reach within those territorial boundaries. Necessarily, they mostly
perform the all-important task of inferring the facts from the evidence as these
are physically presented before them. In many instances, the facts occur within
their territorial jurisdiction, which properly present the 'actual case' that makes
ripe a determination of the constitutionality of such action. The consequences,
of course, would be national in scope. There are, however, some cases where
resort to courts at their level would not be practical considering their decisions
could still be appealed before the higher courts, such as the Court of Appeals.

The Court of Appeals is primarily designed as an appellate court that reviews

the determination of facts and law made by the trial courts. It is collegiate in
nature. This nature ensures more standpoints in the review of the actions of the
trial court. But the Court of Appeals also has original jurisdiction over most
special civil actions. Unlike the trial courts, its writs can have a nationwide
scope. It is competent to determine facts and, ideally, should act on
constitutional issues that may not necessarily be novel unless there are factual
questions to determine.

This court, on the other hand, leads the judiciary by breaking new ground or
further reiterating in the light of new circumstances or in the light of some
confusions of bench or bar existing precedents. Rather than a court of first
instance or as a repetition of the actions of the Court of Appeals, this court
promulgates these doctrinal devices in order that it truly performs that role.
[52]
 (Citation omitted)
Respondents assail petitioner's direct resort of its Petition for Certiorari to the
Court of Appeals, arguing that the Petition should have been filed before the
Regional Trial Court, which shares concurrent jurisdiction.

The doctrine of the hierarchy of courts, however, is often invoked in direct

resorts to this Court. Hence, the exceptions to the rule are more tailored to the
specific functions and discretion of this Court:
Immediate resort to this Court may be allowed when any of the following
grounds are present: (1) when genuine issues of constitutionality are raised
that must be addressed immediately; (2) when the case involves
transcendental importance; (3) when the case is novel; (4) when the
constitutional issues raised are better decided by this Court; (5) when time is of
the essence; (6) when the subject of review involves acts of a constitutional
organ; (7) when there is no other plain, speedy, adequate remedy in the
ordinary course of law; (8) when the petition includes questions that may affect
public welfare, public policy, or demanded by the broader interest of justice; (9)
when the order complained of was a patent nullity; and (10) when the appeal
was considered as an inappropriate remedy.[53]
It is doubtful whether the Court of Appeals could apply the same rationale when
the doctrine of the hierarchy of courts is invoked. In any case, it has full
discretion on whether to give due course to any petition for certiorari directly
filed before it. In this case, it allowed petitioner's direct resort to it on the
ground that the issue presented was a pure question of law. No error can be
ascribed to it for passing upon the issue.

II
Under the Local Government Code, local government units are granted the
power to levy taxes on real property not otherwise exempted under the law:
Section 232. Power to Levy Real Property Tax. - A province or city or a
municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted.
The Local Government Code provides two (2) specific limitations on local
government units' power of taxation. The first is Section 133(o), which
provides:
Section 133. Common Limitations on the Taxing Powers of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
the following:

....

(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units.
The first limitation provides a general rule, that is, that local government units
cannot levy any taxes, fees, or charges of any kind on the national government
or its agencies and instrumentalities. The provision, however, also provides for
an exception: "[u]nless otherwise provided herein." The implication, therefore,
is that while a government agency or instrumentality is generally tax-exempt,
the Local Government Code may provide for instances when it could be taxable.

The second limitation is provided for under Section 234 of the Local
Government Code, which enumerates the properties that are specifically
exempted from the payment of real property taxes:
Section 234. Exemptions from Real Property Tax. - The following are exempted
from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant

thereto, mosques, non-profit or religious cemeteries and all lands, buildings,
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or -controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental
protection.

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or - controlled corporations are
hereby withdrawn upon the effectivity of this Code.
The second limitation likewise provides for its own exceptions. Under Section
234(a), the general rule is that any real property owned by the Republic or its
political subdivisions is exempt from the payment of real property tax "except
when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person." The implication is that real property, even if
owned by the Republic or any of its political subdivisions, may still be subject to
real property tax if the beneficial use of the real property was granted to a
taxable person.
Petitioner claims that it is an instrumentality of the Republic; thus, its real
properties should be exempt from real property tax. Respondents, on the other
hand, claim that petitioner is a government-owned and -controlled corporation
whose tax exemptions have since been withdrawn with the effectivity of the
Local Government Code.

This is not the first time that this Court has been confronted with this issue.

In Manila International Airport Authority v. Court of Appeals,[54] this Court was

confronted with the issue of whether Parañaque City could levy real property
taxes on airport lands and buildings. To resolve this issue, it first had to
determine whether the Manila International Airport Authority, a government
entity with its own charter, was considered an "instrumentality" or a
"government-owned and -controlled corporation."

Citing Section 2(10) of the Administrative Code,[55] this Court defined a

government "instrumentality" as an "agency of the National Government, not
integrated within the department framework vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter." Government instrumentalities are exempt from any kind of
taxation from local government for the following reasons:
There is . . . no point in national and local governments taxing each other,
unless a sound and compelling policy requires such transfer of public funds from
one government pocket to another.

There is also no reason for local governments to tax national government

instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express language in
the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local
governments.[56]
A "government-owned and -controlled corporation," on the other hand, is
defined under Section 2(13) of the Administrative Code, thus:
(13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one
(51) per cent of its capital stock[.]
The entity must also meet the two (2) conditions prescribed under Article XII,
Section 16 of the Constitution:
ARTICLE XII
National Economy and Patrimony

Section 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic
viability.
This Court determined that the Manila International Airport Authority was not a
government-owned and controlled corporation since it was not organized as a
stock or non-stock corporation. It was likewise unnecessary to subject it to the
test of economic viability since it was not created to compete in the
marketplace.

Although the Manila International Airport Authority was granted corporate

powers, it also exercised governmental powers of eminent domain, police
authority, and levying of charges and fees. The proper nomenclature for it,
therefore, was that of a government instrumentality exercising corporate
powers, sometimes loosely referred to as "government corporate entity." As a
government instrumentality, it is exempt from local taxes under Section 133(o)
[57]
 of the Local Government Code.
Manila International Airport Authority likewise held that airport lands and
buildings are properties of public dominion owned by the Republic. These
properties have been determined to be intended for public use as they are used
by the public for domestic and international air travel. Even if the titles to the
properties were in Manila International Airport Authority's name, it only held
them in trust for the Republic since the properties cannot be conveyed without
the President's signature on the deed of conveyance. Manila International
Airport Authority, however, clarified that portions of the Republic's properties
that are leased to taxable persons may be subjected to real property tax:
The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real
property is transferred to an agency or instrumentality even as the Republic
remains the owner of the real property. Such arrangement does not result in
the loss of the tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax exemption only if
the "beneficial use thereof has been granted, for consideration or otherwise, to
a taxable person." MIAA, as a government instrumentality, is not a taxable
person under Section 133(o) of the Local Government Code. Thus, even if we
assume that the Republic has granted to MIAA the beneficial use of the Airport
Lands and Buildings, such fact does not make these real properties subject to
real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land area
occupied by hangars that MIAA leases to private corporations is subject to real
estate tax. In such a case, MIAA has granted the beneficial use of such land
area for a consideration to a taxable person and therefore such land area is
subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the
Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as
well as those parts of the hospital leased to private individuals are not exempt
from such taxes. On the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes.[58]
Philippine Fisheries Development Authority v. Court of Appeals[59] was
confronted with the same issue when the City of Iloilo levied real property taxes
on Iloilo Fishing Port Complex, which was operated by the Philippine Fisheries
Development Authority.

Applying the parameters set by Manila International Airport Authority, this

Court determined that the Philippine Fisheries Development Authority was a
government instrumentality exercising corporate powers, not a government-
owned and controlled corporation. Thus, it was exempt from the payment of
real property taxes on the Iloilo Fishing Port Complex, except for those portions
that were leased to private entities. Philippine Fisheries Development
Authority further clarified that:
Notwithstanding said tax delinquency on the leased portions of the [Iloilo
Fishing Port Complex], the latter or any part thereof, being a property of public
domain, cannot be sold at public auction. This means that the City of Iloilo has
to satisfy the tax delinquency through means other than the sale at public
auction of the [Iloilo Fishing Port Complex].[60]
In Government Service Insurance System v. City Treasurer of Manila,[61] this
Court likewise applied Manila International Airport Authority and held that the
Government Service Insurance System was a government instrumentality
whose properties, being owned by the Republic, cannot be assessed for real
property taxes:
While perhaps not of governing sway in all fours inasmuch as what were
involved in Manila International Airport Authority, e.g., airfields and runways,
are properties of the public dominion and, hence, outside the commerce of
man, the rationale underpinning the disposition in that case is squarely
applicable to GSIS, both MIAA and GSIS being similarly situated. First, while
created under CA 186 as a non-stock corporation, a status that has remained
unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in
the context of the afore quoted Sec. 193 of the LGC, a GOCC following the
teaching of Manila International Airport Authority, for, like MIAA, GSIS' capital
is not divided into unit shares. Also, GSIS has no members to speak of. And by
members, the reference is to those who, under Sec. 87 of the Corporation
Code, make up the non-stock corporation, and not to the compulsory members
of the system who are government employees. Its management is entrusted to
a Board of Trustees whose members are appointed by the President.

Second, the subject properties under GSIS's name are likewise owned by the
Republic. The GSIS is but a mere trustee of the subject properties which have
either been ceded to it by the Government or acquired for the enhancement of
the system. This particular property arrangement is clearly shown by the fact
that the disposal or conveyance of said subject properties are either done by or
through the authority of the President of the Philippines. Specifically, in the case
of the Concepcion Arroceros property, it was transferred, conveyed, and ceded
to this Court on April 27, 2005 through a presidential proclamation,
Proclamation No. 835. Pertinently, the text of the proclamation announces that
the Concepcion-Arroceros property was earlier ceded to the GSIS on October
13, 1954 pursuant to Proclamation No. 78 for office purposes and had since
been titled to GSIS which constructed an office building thereon. Thus, the
transfer on April27, 2005 of the Concepcion-Arroceros property to this Court by
the President through Proclamation No. 835. This illustrates the nature of the
government ownership of the subject GSIS properties, as indubitably shown in
the last clause of Presidential Proclamation No. 835:
WHEREAS, by virtue of the Public Land Act (Commonwealth Act No. 141, as
amended), Presidential Decree No. 1455, and the Administrative Code of 1987,
the President is authorized to transfer any government property that is no
longer needed by the agency to which it belongs to other branches or agencies
of the government.[62]
Manila International Airport Authority remains good law and was applied in the
fairly recent Mactan-Cebu International Airport Authority v. City of Lapu-Lapu,
[63]
 where this Court concluded that the Mactan-Cebu International Airport
Authority, being a government instrumentality, cannot be levied real property
tax except on portions leased to taxable persons:
MCIAA, with its many similarities to the MIAA, should be classified as a
government instrumentality, as its properties are being used for public
purposes, and should be exempt from real estate taxes. This is not to derogate
in any way the delegated authority of local government units to collect realty
taxes, but to uphold the fundamental doctrines of uniformity in taxation and
equal protection of the laws, by applying all the jurisprudence that have
exempted from said taxes similar authorities, agencies, and instrumentalities,
whether covered by the 2006 MIAA ruling or not. [64]
Thus, according to the parameters set by Manila International Airport Authority,
a government instrumentality is exempt from the local government unit's levy
of real property tax. The government instrumentality must not have been
organized as a stock or non-stock corporation, even though it exercises
corporate powers, administers special funds, and enjoys operational autonomy,
usually through its charter. Its properties are exempt from real property tax
because they are properties of the public dominion: held in trust for the
Republic, intended for public use, and cannot be the subject of levy,
encumbrance, or disposition.

A government-owned and controlled corporation, on the other hand,

is not exempt from real property taxes due to the passage of the Local
Government Code, which now provides:
Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or - controlled corporations are
hereby withdrawn upon the effectivity of this Code.[65] (Emphasis supplied)
Guided by these parameters, this Court now determines whether petitioner is a
government instrumentality exercising corporate powers or a government-
owned and controlled corporation.

III

Petitioner was created in 1971 by Republic Act No. 6234, initially without any
capital stock. Its Charter merely stated:
Section 2. Creation, Name, Domicile and Jurisdiction. -

(a) There is hereby created a government corporation to be known as the

Metropolitan Waterworks and Sewerage System, hereinafter referred to as the
System, which shall be organized within thirty days after the approval of this
Act.[66]
Under its Charter, petitioner was explicitly declared exempt from the payment
of real property taxes:
Section 18. Tax Exemption. - All articles imported by the Metropolitan
Waterworks and Sewerage System or the local governments for the exclusive
use of their waterworks and sewerage systems particularly machineries,
equipment, pipes, fire hydrants, and those related to, or connected with, the
construction, maintenance, and operation of dams, reservoirs, conduits,
aqueducts, tunnels, purification plants, water mains, pumping stations; or of
artesian wells and springs within their territorial jurisdictions, shall be exempt
from the imposition of import duties and other taxes. [67]
In 1974, however, Presidential Decree No. 425 amended the Charter and
converted petitioner into a stock corporation:
Section 2-A. Capital Stock of the System. - The System is hereby authorized a
capital stock of one billion pesos divided into ten million shares at a par value of
one hundred pesos each, which shares shall not be transferred, negotiated,
pledged, mortgaged or otherwise given as security for the payment of any
obligation. The shares shall be subscribed and paid for by the Government of
the Philippines[.]
Petitioner is an attached agency of the Department of Public Works and
Highways,[68] but exercises corporate functions and maintains operational
autonomy as it was granted the following attributes, powers and functions:
(a) To exist and have continuous succession under its corporate name for a
term of fifty (50) years from and after the date of the approval of this Act,
notwithstanding any provision of law to the contrary: Provided, however, That
at the end of the said period, the System shall automatically continue to exist
for another fifty (50) years, unless otherwise provided by law;

(b) To prescribe its by laws;

(c) To adopt and use a seal and alter it at its pleasure;

(d) To sue and be sued;

(e) To establish the basic and broad policies and goals of the System;

(f) To construct, maintain, and operate dams, reservoirs, conduits, aqueducts,

tunnels, purification plants, water mains, pipes, fire hydrants, pumping stations,
machineries and other waterworks for the purpose of supplying water to the
inhabitants of its territory, for domestic and other purposes; and to purity,
regulate and control the use, as well as prevent the wastage of water;

(g) To construct, maintain, and operate such sanitary sewerages as may be

necessary for the proper sanitation and other uses of the cities and towns
comprising the System;

(h) To fix periodically water rates and sewerage service fees as the System may
deem just and equitable in accordance with the standards outlined in Section 12
of this Act;

(i) To construct, develop, maintain and operate such artesian wells and springs
as may be needed in its operation within its territory;

(j) To acquire, purchase, hold, transfer, sell, lease, rent, mortgage, encumber,
and otherwise dispose of real and personal property, including rights and
franchises, consistent with the purpose for which the System is created and
reasonably required for the transaction of the lawful business of the same;

(k) To construct works across, over, through and/or alongside any stream,
watercourse, canal, ditch, flume, street, avenue, highway or railway, whether
public or private, as the location of said works may require: Provided, That such
works be constructed in such manner as to afford security to life and property;
and Provided, further, That the stream, watercourse, canal, ditch, flume, street,
avenue, highway, railway, so crossed or intersected be restored as near as
possible to their former state, or in a manner not to impair unnecessary their
usefulness. Every person or entity whose right-of-way or property is lawfully
crossed or intersected by said works shall not obstruct any such crossing or
intersection and shall grant the System or its representatives the proper
authority to execute such work. The System is hereby given the right-of-way to
locate, construct and maintain such works over and throughout the lands,
including any street, avenue, or highway owned by the Republic of the
Philippines or any of its branches and political subdivisions, and is given right of
immediate entry and to prosecute any undertaking thereon without any further
requirement or restriction other than due notice to the office or entity
concerned. The System, or its representatives, may also enter upon private
property in the lawful performance or prosecution of its business or purposes,
including the construction of water mains and distribution pipes thereon,
provided that the owner of such private property shall be compensated as
follows:

(1) In case the land shall be acquired by purchase, the fair market value
thereof, which shall be the value of the land based on the tax declaration that is
valid and effective at the time of the filing of the complaint for eminent domain
or of the taking of said land by the System, whichever is earlier; and

(2) In addition, the owner shall be compensated for the improvements such as
houses, buildings, structures, or agricultural crops and the like, if any, actually
damaged during the construction, operation, and maintenance of such works on
the land, in amounts based on the value of such improvements appearing on
the tax declaration that is valid and effective and/or the prevailing valuation of
such agricultural crops and the like made by the appropriate appraisal body
authorized by law at the time of the filing of the said complaint for eminent
domain or of the taking of said improvements by the System, whichever is
earlier; Provided, further, That any action for compensation and/or damages
under (1) and (2) above, shall be filed within five years from the date the right-
of-way, pipelines structures or other facilities shall have been established;
Provided, finally, That after the said period of five years, no suit shall be
brought to question said right-of-way, pipelines, structures or other facilities
nor the amounts of compensation and/or damages involve.

(l) To exercise the right of eminent domain for the purpose for which the
System is created;

(m) To contract indebtedness in any currency and issue bonds to finance

projects now authorized for the National Waterworks and Sewerage Authority
under existing laws and as may hereafter be expressly authorized by law with
the approval of the President of the Philippines upon the recommendation of the
Secretary of Finance;

(n) To approve, regulate, and supervise the establishment, operation and

maintenance of waterworks and deepwells within its jurisdiction operated for
commercial, industrial and governmental purposes and to fix just and equitable
rates or fees that may be charged to customers thereof;

(o) To assist in the establishment, operation and maintenance of waterworks

and sewerage systems within its jurisdiction under cooperative basis;

(p) To approve and regulate the establishment and construction of waterworks

and sewerage systems in privately owned subdivisions within its jurisdiction;

(q) To have exclusive and sole right to test, mount, dismount and remount
water meters within its jurisdiction;

(r) To render annual reports to the President of the Philippines and the
Presiding Officers of the two Houses of Congress not later than January thirty-
first of every year;
(s) In the prosecution and maintenance of its projects and plants, the System
shall adopt measures to prevent environmental pollution and shall enhance the
conservation, development and maximum utilization of national resources,
including the improvement and beautification of its reservoirs, filter plants, and
other areas to promote tourism and related purposes, and shall provide for the
necessary corporate funds therefor.[69]
To be categorized as a government-owned and -controlled corporation, a
government agency must meet the two (2) requirements prescribed in Article
XII, Section 16 of the Constitution:[70] common good and economic viability.

In 1995, Congress passed Republic Act No. 8041, or the National Water Crisis
Act of 1995, which reorganized petitioner and privatized the "financing,
construction, repair, rehabilitation, improvement and operation of water supply,
treatment and distribution facilities and projects, including sewerage
projects."[71] Any proposal by a private concessionaire "to undertake private
sector infrastructure or development projects related to water supply,
treatment, distribution and disposal under a [Build-Operate and-Transfer],
Build-and-Transfer (BT), Build-Lease-and-Transfer (BLT), Build-Own-and-
Operate (BOO), Build-Transfer-and-Operate (BTO), Contract-Add-and-Operate
(CAO), Develop-Operate-and-Transfer (DOT), Rehabilitate-Own-and-Transfer
(ROT), Rehabilitate-Own-and-Operate (ROO), or other similar contractual
arrangements or schemes"[72] is evaluated and assessed for its "technical,
operational, financial and economic viability, as well as the environmental
impact."[73]

Petitioner was created by Congress with the mandate to provide potable water
to Metro Manila, Rizal, and a portion of Cavite. Undoubtedly, its creation was for
the benefit of the common good. With the passing of the National Water Crisis
Act of 1995 and petitioner's subsequent privatization, any contract that
petitioner undertakes with private concessionaires must be assessed for its
market competitiveness or, otherwise stated, for economic viability.

Properties of the public dominion are properties "devoted to public use and to
be made available to the public in general. They are outside the commerce of
man and cannot be disposed of or even leased"[74] by the government agency to
private parties. Manila International Airport Authority added:
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance,
levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties of
public dominion are subject to encumbrances, foreclosures and auction sale.
This will happen if the City of Parañaque can foreclose and compel the auction
sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.
[75]

Under its Charter, petitioner is given the power to "acquire, purchase, hold,
transfer, sell, lease, rent, mortgage, encumber, and otherwise dispose" [76] of its
real property. Properties held by petitioner under the exercise of this power,
therefore, cannot be considered properties of the public dominion.

Held against the parameters of Manila International Airport Authority, this Court
cannot but conclude that petitioner is a government owned and controlled
corporation. Under the Local Government Code, only its machinery and
equipment actually, directly, and exclusively used in the supply and distribution
of water can be exempt from the levy of real property taxes. [77] Its powers,
functions, and attributes are more akin to that of the National Power
Corporation, which was previously held by this Court as a taxable entity:
To be sure, the ownership by the National Government of its entire capital stock
does not necessarily imply that petitioner is not engaged in business. Section 2
of Pres. Decree No. 2029 classifies government-owned or controlled
corporations (GOCCs) into those performing governmental functions and those
performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock
corporation, whether performing governmental or proprietary functions, which
is directly chartered by special law or if organized under the general corporation
law is owned or controlled by the government directly, or indirectly through a
parent corporation or subsidiary corporation, to the extent of at least a majority
of its outstanding voting capital stock . . ."
Governmental functions are those pertaining to the administration of
government, and as such, are treated as absolute obligation on the part of the
state to perform while proprietary functions are those that are undertaken only
by way of advancing the general interest of society, and are merely optional on
the government. Included in the class of GOCCs performing proprietary
functions are "business-like" entities such as the National Steel Corporation
(NSC), the National Development Corporation (NDC), the Social Security
System (SSS), the Government Service Insurance System (GSIS), and the
National Water Sewerage Authority (NAWASA), among others.

Petitioner was created to "undertake the development of hydroelectric

generation of power and the production of electricity from nuclear, geothermal
and other sources, as well as the transmission of electric power on a nationwide
basis." Pursuant to this mandate, petitioner generates power and sells
electricity in bulk. Certainly, these activities do not partake of the sovereign
functions of the government. They are purely private and commercial
undertakings, albeit imbued with public interest. The public interest involved in
its activities, however, does not distract from the true nature of the petitioner
as a commercial enterprise, in the same league with similar public utilities like
telephone and telegraph companies, railroad companies, water supply and
irrigation companies, gas, coal or light companies, power plants, ice plant
among others; all of which are declared by this Court as ministrant or
proprietary functions of government aimed at advancing the general interest of
society.[78]
Be that as it may, this Court's categorization cannot supplant that which was
previously made by the Executive and Legislative Branches. After the
promulgation of Manila International Airport Authority, then President Gloria
Macapagal-Arroyo issued Executive Order No. 596,[79] which recognized this
Court's categorization of "government instrumentalities vested with corporate
powers." Section 1 of Executive Order No. 596 states:
Section 1. The Office of the Government Corporate Counsel (OGCC) shall be the
principal law office of all GOCCs, except as may otherwise be provided by their
respective charter or authorized by the President, their subsidiaries, corporate
offsprings, and government acquired asset corporations. The OGCC shall
likewise be the principal law office of "government instrumentality vested with
corporate powers" or "government corporate entity", as defined by the
Supreme Court in the case of "MIAA vs. Court of Appeals, City of Parañaque, et
al.", supra, notable examples of which are: Manila International Airport
Authority (MIAA), Mactan International Airport Authority, the Philippine Ports
Authority (PPA), Philippine Deposit Insurance Corporation (PDIC), Metropolitan
Water and Sewerage Services (MWSS), Philippine Rice Research Institute
(PRRI), Laguna Lake Development Authority (LLDA), Fisheries Development
Authority (FDA), Bases Conversion Development Authority (BCDA), Cebu Port
Authority (CPA), Cagayan de Oro Port Authority, and San Fernando Port
Authority. (Emphasis supplied)
Under this provision, petitioner is categorized with other government agencies
that were found to be exempt from the payment of real property taxes.

In 2011, Congress passed Republic Act No. 10149 or the GOCC Governance Act
of 2011, which adopted the same categorization and explicitly lists petitioner
together with the other government agencies that were previously held by this
Court to be exempt from the payment of real property taxes:
(n) Government Instrumentalities with Corporate Powers (GICP)/Government
Corporate Entities (GCE) refer to instrumentalities or agencies of the
government, which are neither corporations nor agencies integrated within the
departmental framework, but vested by law with special functions or
jurisdiction, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy usually through a charter
including, but not limited to, the following: the Manila International Airport
Authority (MIAA), the Philippine Ports Authority (PPA), the Philippine Deposit
Insurance Corporation (PDIC), the Metropolitan Waterworks and Sewerage
System (MWSS), the Laguna Lake Development Authority (LLDA), the Philippine
Fisheries Development Authority (PFDA), the Bases Conversion and
Development Authority (BCDA), the Cebu Port Authority (CPA), the Cagayan de
Oro Port Authority, the San Fernando Port Authority, the Local Water Utilities
Administration (LWUA) and the Asian Productivity Organization (APO).
[80]
 (Emphasis supplied)
The Executive and Legislative Branches, therefore, have already categorized
petitioner not as a government-owned and controlled corporation but as a
Government Instrumentality with Corporate Powers/Government Corporate
Entity like the Manila International Airport Authority and the Philippine Fisheries
Development Authority. Privileges enjoyed by these Government
Instrumentalities with Corporate Powers/Government Corporate Entities should
necessarily also extend to petitioner. Hence, petitioner's real property tax
exemption under Republic Act No. 6234[81] is still valid as the proviso of Section
234[82] of the Local Government Code is only applicable to government-owned
and -controlled corporations.

Thus, petitioner is not liable to respondent Local Government of Quezon City for
real property taxes, except if the beneficial use of its properties has been
extended to a taxable person.

Respondents have not alleged that the beneficial use of any of petitioner's
properties was extended to a taxable person. In the absence of any allegation
to the contrary, petitioner's properties in Quezon City are not subject to the
levy of real property taxes.

WHEREFORE, the Petition is GRANTED. The Court of Appeals October 19,

2010 Decision in CA-G.R. SP No. 100733 is REVERSED and SET ASIDE. The
Temporary Restraining Orders issued by this Court on January 26, 2011 and
September 7, 2011 are made PERMANENT.

The real properties of the Metropolitan Waterworks and Sewerage System

located in Quezon City are DECLARED EXEMPT from the real estate tax
imposed by the Local Government of Quezon City. All the real estate tax
assessments, including the final notices of real estate tax delinquencies, issued
by the Local Government of Quezon City on the real properties of the
Metropolitan Waterworks and Sewerage System located in Quezon City are
declared VOID, except for the portions that are alleged and proven to have
been leased to private parties.

SO ORDERED.
Can’t Find Light Rail Transit Authority vs Quezon City | GR No 221626 Oct 9, 2019
 EN BANC

G.R. Nos. 187958, 187961, and 187962               April 7, 2010

MAYOR ABRAHAM N. TOLENTINO, Petitioner,

vs.
COMMISSION ON ELECTIONS, JOCELYN RICARDO, ARNEL TARUC, MARLENE CATAN,
MARIA THERESA MENDOZA COSTA, FIDELA ROFOLS CASTILLO, DOMINADOR BASSI,
ROBERTO MALABANAN HERNANDEZ, NERISSA MANZANO, LEONIDEZ MAGLABE
HERNANDEZ, TAGUMPAY REYES, and ELINO FAJARDO Respondents.

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

G.R. Nos. 187966, 187967, and 187968

VICE-MAYOR CELSO P. DE CASTRO, Petitioner,

vs.
COMMISSION ON ELECTIONS and ARNEL TARUC,

DECISION

BERSAMIN, J.:

Before us are two petitions for certiorari and prohibition assailing several orders of the Second
Division (Division) of the Commission on Election (COMELEC) relative to its revision of ballots
under Section 6, Rule 20 of its Rules of Procedure in the protests on the results of the local
elections in 2007 in Tagaytay City.

In G.R. Nos. 187958 and 187961-62, the petitioner, Abraham N. Tolentino (Tolentino), seeks
the nullification of the orders dated May 8, 20091 and May 25, 2009.2 In the first order, the
Division formally requested the Senate Electoral Tribunal (SET) to allow the conduct of the
revision within the SET’s premises; in the second, the Division denied Tolentino’s motion for
reconsideration vis-à-vis the first order. Tolentino prayed for the issuance of temporary
restraining order (TRO) and/or a writ of preliminarily injunction.

In G.R. Nos. 187966-68, the petitioner, Celso P. De Castro (De Castro), assails the order dated
June 2, 2009,3 which denied the motion to suspend the scheduled revision of ballots in the SET
premises. De Castro prayed for the issuance of a TRO or writ of preliminary injunction or status
quo ante order.

The petitions were consolidated on July 28, 2009 due to their commonality as to the facts and
issues.

Antecedents

In the May 14, 2007 elections, all the parties ran for elective local offices in Tagaytay City.
Tolentino and De Castro were proclaimed as the duly elected Mayor and Vice-Mayor,
respectively. The private respondents contested the election results in 116 ballot boxes by filing
three separate election protests against the proclaimed winning candidates for Mayor, Vice-
Mayor and Members of the Sanggunian Panlungsod, docketed as EPC Case

No. 2007-07,4 EPC Case No. 2007-08,5 and EPC Case No. 2007-09.6 The protests were raffled
to the Second Division of the COMELEC. The records do not contain the order for the
consolidation of the cases, but it appears that they were consolidated previously inasmuch as
the caption of all orders issued by the Division indicated the joining of the cases.

After finding the protests sufficient in form and substance, the Division required the City
Treasurer of Tagaytay City to inventory the protested ballot boxes and to turn them over to the
Election Officer of Tagaytay City for delivery and submission to the COMELEC’s Electoral
Contests Adjudication Department (ECAD) in Manila.

However, the delivery and submission took place only on December 17, 2008 due to the moves
of Tolentino and De Castro of taking turns to suspend the transmittal of the ballot boxes to
ECAD. Tolentino moved to defer the transmittal of the ballot boxes to ECAD on the premise that
he had to complete the photocopying and verification of the contested ballots; upon denial of his
motion, he elevated the issue to the Court by petition for certiorari (docketed as G.R. No.
183806-08). The petition was eventually dismissed for lack of merit on September 16, 2008. 7 On
his part, De Castro moved for the reconsideration of the September 7, 2007 order in the
COMELEC en banc, which denied the motion. In the order dated March 6, 2008, the Division
re-directed the City Treasurer and the Election Officer of Tagaytay City to implement the
directives of its September 7, 2007 order.

In this connection, the Court ruled on September 16, 2008 in G.R. No. 183806-08 – Tolentino’s
earlier petition for certiorari – that there was no longer any legal bar against the full
implementation of the Division’s September 7, 2007 order for the immediate transmittal of the
ballot boxes for purposes of the revision and recount.

Further delay occurred because 44 of the 116 contested ballot boxes became involved in the
election protest of candidate Aquilino L. Pimentel III against Senator Juan Miguel F. Zubiri
pending in the SET and docketed as SET Case No. 001-07.

On November 21, 2008, De Castro again sought the suspension of the revision
proceedings,8 citing the order issued on November 17, 2008 by the SET, asserting the SET’s
preferential custody pursuant to Section 2 of COMELEC Resolution No. 2812 over the ballot
boxes, election documents, and election paraphernalia in connection with SET Case No. 001-
07.

However, the Division resolved not to suspend the revision proceedings, and instead directed
the Election Officer of Tagaytay City to deliver the affected ballot boxes to the SET, with the
remainder of the ballot boxes to be deposited in the ECAD Ballot Box Storage Area in Manila. 9

In his Compliance Report dated December 16, 2008, 10 the Election Officer certified that 116
ballot boxes were contested in EPC Nos. 2007-07, 2007-08 and 2007-09; that 44 ballot boxes
were delivered to the SET for being simultaneously involved in SET Case No. 001-07; 11 that on
December 17, 2008, 72 ballot boxes were delivered to the ECAD; that of the 44 ballot boxes
delivered to the SET, 16 were set aside with appropriate remarks "No metal seal
outside" or "Metal seal not properly locked";12 and that out of the 72 ballot boxes delivered to the
ECAD, 24 were set aside with the remarks "No metal seal outside", or "Metal seal not properly
locked", or "2 padlocks only."13

In other words, 40 ballot boxes out of the 116 protested ones were set aside due to apparent
sealing defects or irregularities.

On January 6, 2009, upon receipt of the 72 ballot boxes, the Division ordered the constitution of
four Revision Committees,14 for the committees to convene and commence the revision of the
72 ballot boxes in such a way that whenever a ballot box was opened, its contents should be
revised for all of the three protest cases before opening the next ballot box.

On January 9, 2009, Tolentino and De Castro separately moved for the reconsideration of the
Division’s order. Tolentino thereby raised prematurity due to the unresolved pending issues, the
absence of guidelines or procedure, and the fact that not all the involved ballot boxes were in
the COMELEC’s custody. De Castro sought to clarify the dispositions in the assailed order,
reminding that there would be a simultaneous revision for the three protest cases involving
three positions; and to suspend the proceedings until after all pending incidents were resolved
pursuant to Section 2, Rule 19 of the COMELEC Rules of Procedure.

On January 12, 2009, the Division suspended the revision proceedings until all the contested
ballot boxes were already in the custody of the COMELEC. 15 1avvphi1

It did not take long thereafter before the Division lifted the suspension of the revision
proceedings upon the private respondents’ manifestation, considering that the SET, through its
letter dated February 16, 2009, had meanwhile agreed to accommodate the Division’s request
to conduct the revision proceedings in the SET’s premises from March 2 to 13, 2009. 16

On May 8, 2009, the Division issued the first assailed order in G.R. Nos. 187958 and 187961-
62, formally requesting the SET to allow the revision to proceed within its premises, viz:

Acting on the JOINT MANIFESTATION WITH REQUEST TO SET SCHEDULE OF REVISION

filed by protestants, through counsel on February 16, 2009 and on the COMMENTS filed by
protestee, through counsel, in EPC 2007-07, Abraham N. Tolentino on February 25, 2009;
protestee in EPC 2007-08, Celso P. De Castro on February 27, 2009; protestees in EPC 2007-
08 x x x.

In connection thereto, in order to facilitate the resolution of election protest cases considering
that barely a year is left of the contested term of offices, the Commission (Second Division)
hereby REQUESTS the Senate Electoral Tribunal (SET) to allow the Commission to conduct
revision within its premises, under such terms and conditions that the Tribunal may impose.

SO ORDERED.17
Tolentino moved to reconsider this order, but the Division denied his motion through its second
assailed order dated May 25, 2009, thus:

xxx

We find protestee’s allegation unmeritorious. It should be understood that the deferment of the
revision was due to the unavailability at that time of the ballot boxes. To address this situation,
the Commission under its plenary powers, can avail of alternative methods to facilitate the
disposition of cases pursuant to the rule that election protest cases should be resolved with
dispatch. Hence, coordination with other tribunals for purposes of revision of ballots subject of
simultaneous protests is the usual course of action taken by the Commission.

IN VIEW THEREOF, there is no cogent reason for the Commission (Second Division) to
reconsider its order dated May 8, 2009. Moreover, the Senate Electoral Tribunal, in a letter
dated May 20, 2009 addressed to Presiding Commissioner Nicodemo T. Ferrer, granted the
Commission’s request to revise the contested ballots involved in the instant cases within its
premises.

SO ORDERED.18

On May 25, 2009,19 the Division directed anew the constitution of the four Revision Committees
and the commencement of the revision of the 44 ballot boxes within the SET premises on June
3, 2009.

On May 29, 2009, De Castro filed a verified omnibus motion requesting the Division to formulate
first the mechanics, guidelines and procedure for the simultaneous revision of the ballots for the
three distinct positions protested, and to defer the revision proceedings until after all pending
incidents had been resolved.20

In its June 2, 2009 order, the Division ruled that:

xxx there is no cogent reason to suspend the scheduled revision of ballots in these cases.

First, there is no need to specific rules regarding the revision of ballots because the Revision
Committee will conduct the revision of the forty-four (44) contested ballots now in the custody of
the Senate Electoral Tribunal, per case and not simultaneously. The normal procedure of
revision shall be followed.

Second, considering that the twenty-four (24) segregated ballot boxes are in the custody of the
Commission, the appropriate order as regards thereto shall later be issued.

Anent, protestee De Castro's submission of the names of his revisors and manifestation of his
intent to photocopy all the contested ballots and other related election documents, the
Commission (Second Division) hereby APPROVES and NOTES the same, respectively.

xxx

SO ORDERED.21

De Castro now assails the June 2, 2009 order in G.R. Nos. 187966-68. It appears that De
Castro’s omnibus motion and compliance filed on May 29, 2009, which was the subject of the
assailed order, was in effect a motion for the reconsideration of the May 25, 2009 order of the
Division received on the same date.22

In furtherance of his cause, Tolentino filed on June 30, 2009 his supplement to the
petition,23 alleging that events had transpired subsequent to the filing of his petition. He stated
that the revision proceedings concerning EPC 2007-07 conducted within the SET premises on
June 3 to 8, 2009 involved only 28 ballot boxes because the Revision Committee suspended
the revision of the set-aside 16 ballot boxes.

It appears that the Division likewise ordered the Revision Committees: (a) to verify the condition
of the ballot boxes and to submit a report thereon upon the termination of the revision
proceedings;24 (b) to submit a consolidated report on all the set-aside ballot boxes, including the
16 delivered to the SET whose revision was suspended by the Revision Committees; 25 and (c)
not to open the set-aside ballot boxes so that the Division would not be pre-empted in resolving
whether the ballot boxes found to have defective security devices should be included in the
revision of ballots and, instead, to authorize the Revision Committees only to verify the condition
of such ballot boxes and submit a report thereon, to become the basis for the Division to resolve
the pending issue.26

Issues
 In G.R. Nos. 187958 and 187961-62, Tolentino raises the following issues:

I. WHETHER OR NOT PUBLIC RESPONDENT, THE HONORABLE COMMISSION ON

ELECTIONS, COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WHEN IT ISSUED THE ASSAILED ISSUANCES ORDERING
THE REVISION OF THE FORTY FOUR (44) BALLOT BOXES WITH THE HONORABLE
SENATE ELECTORAL TRIBUNAL WITHOUT FIRST RESOLVING WHETHER OR NOT THE
SIXTEEN (16) BALLOT BOXES OF THE SAID FORTY FOUR (44) BALLOT BOXES, WHICH
WERE SEGREGATED OR SET ASIDE, SHOULD BE INCLUDED IN THE REVISION.

II. WHETHER OR NOT PUBLIC RESPONDENT, THE HONORABLE COMMISSION ON

ELECTIONS, COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WHEN IT ISSUED THE ASSAILED ISSUANCES ORDERING
THE REVISION OF THE FORTY FOUR (44) BALLOT BOXES WITH THE HONORABLE
SENATE ELECTORAL TRIBUNAL WITHOUT RESOLVING HOW THE REVISION
PROCEEDINGS WOULD BE CONDUCTED IN EPC NOS. 2007-07 TO 09, IN LINE WITH THE
ROSAL DOCTRINE AND WITH OBSERVANCE OF THE BASIC TENETS OF DUE PROCESS.

In his supplement to the petition, he adds the following issues:

I. WHETHER OR NOT THE HONORABLE COMMISSION ON ELECTIONS (SECOND

DIVISION) COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WHEN IT VIOLATED THE CARDINAL RULE IN
ADMINISTRATIVE CASES.

II. WHETHER HONORABLE COMMISSION ON ELECTIONS (2ND DIVISION) COMMITTED

GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WHEN IT ISSUED PIECEMEAL ORDERS LEADING TO DISORDERLY PROCEEDINGS.

In G.R. Nos. 187966-68, De Castro raises the sole issue:

WHETHER OR NOT THE PUBLIC RESPONDENT COMELEC SECOND DIVISION

COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN ISSUING THE QUESTIONED ORDER DATED JUNE 2, 2009.

Arguments and Contentions of the Parties

Tolentino contends that the Division should first resolve the issue of the inclusion or exclusion of
the protested ballot boxes, considering that the verification, investigation and examination of
their condition had already been terminated by the Election Officer of Tagaytay City; that
citing Rosal v. Commission on Elections (G.R. Nos. 172741 and 168253, March 16, 2007, 518
SCRA 473), he insists that the COMELEC should provide a reasonable procedure in view of a
vital threshold issue of "whether the ballots found in the ballot boxes during the revision
proceedings were the same ballots that were cast and counted in the elections;" and that the
assailed issuances totally overhauled, amended, and altered the final and executory ruling of
January 12, 2009 that deferred any revision proceedings until all the protested ballot boxes
were all in the custody of the COMELEC.

De Castro submits that the obstinate refusal of the Division to issue an order setting forth the
ground rules for the per case revision of ballots was an omission exemplifying a grave abuse of
discretion and a denial of his substantive and procedural right to due process; that the caption
of the orders dated May 25, 2009 and June 2, 2009 show that the three protest cases were
consolidated, but the Division still chose to conduct the revision piecemeal starting with the
position of Mayor, then of Vice Mayor, and finally of City Councilors, separately as provided in
the June 2, 2009 order.27

The private respondents counter through their Consolidated Joint Comment filed on September
8, 200928 that Rosal does not mention any requirement for the suspension of revision of ballots
or for the stoppage of the opening of a ballot box in a revision proceeding; that the set-aside
ballot boxes should be opened; that a full determination of the "integrity of the ballot boxes and
their contents" could be made only if the status and condition of the contents were also
considered; that the disallowance of the opening of the set-aside ballot boxes pre-empted the
parties’ rights to examine, present and argue upon the condition of the ballot boxes and their
contents; that the COMELEC could not be bound to maintain a strict adherence to its January
12, 2009 order because the SET had already allowed the revision to be conducted within its
premises; and that the COMELEC had issued sufficient and adequate rules of procedure for the
revision of the questioned ballots, for, as mandated in the June 2, 2009 order, the normal
procedure of revision would be followed, implying that the procedure in previous revision of
ballots be maintained.

Ruling
The petitions have no merit.

G.R. No. 187958 and Nos. 187961-62

At the outset, the Court holds that the order of revision and the revision of ballots synchronized
with that of the SET were proper. The reasons for this holding follow.

First: In regular election contests, the general averment of fraud or irregularities in the counting
of votes justifies the examination of the ballots and recounting of votes. This process of
examination is the revision of the ballots pursuant to Section 6, Rule 20 of the 1993
COMELEC Rules of Procedure, to wit:

Section 6. Revision of Ballots. – When the allegations in a protest or counter-protest so warrant,

or whenever in the opinion of the Commission or Division the interest of justice so demands, it
shall immediately order the ballot boxes containing ballots and their keys, list of voters with
voting records, book of voters, and other documents used in the election to be brought before
the Commission, and shall order the revision of the ballots.

The protests involved herein assailed the authenticity of the election returns and the veracity of
the counting of the ballots.29 In that regard, the ballots themselves are the best evidence, for, as
stated in Miguel v. Commission on Elections: 30

The rule in this jurisdiction is clear and jurisprudence is even clearer. In a string of categorical
pronouncements, we have consistently ruled that when there is an allegation in an election
protest that would require the perusal, examination or counting of ballots as evidence, it is the
ministerial duty of the trial court to order the opening of the ballot boxes and the examination
and counting of ballots deposited therein.

The only means to overcome the presumption of legitimacy of the election returns is to examine
and determine first whether the ballot boxes have been substantially preserved in the manner
mandated by law. Hence, the necessity to issue the order of revision.

Second: The synchronized revision of ballots by the SET and the Division is allowed under
Section 3 of COMELEC Resolution No. 2812, which provides:

Section 3. The Tribunals, the Commission and the Courts shall coordinate and make
arrangement with each other so as not to delay or interrupt the revision of ballots being
conducted. The synchronization of revision of ballots shall be such that the expeditious
disposition of the respective protest cases shall be the primary concern.

According to Mendoza v. Commission on Elections,31 the COMELEC does not lose jurisdiction

over the provincial election contest by reason of the transmittal of the provincial ballot boxes
and other election materials to the SET, because its jurisdiction over provincial election contest
exists side by side with the jurisdiction of the SET, with each tribunal being supreme in its
respective areas of concern, with neither being higher than the other in terms of precedence;
hence, the jurisdiction of one must yield to the other.

In the proper exercise of its jurisdiction, therefore, the Division, mindful of the need for the
expeditious disposition of the cases, formally requested the SET to permit the revision of the 44
ballot boxes within its premises. The Division made this request although it had suspended the
revision proceedings through a previous order on account of the then incomplete number of
ballot boxes in ECAD’s custody. In this connection, the contention that the Division’s
suspension order became immutable cannot be upheld; such an order, being essentially
interlocutory in character, could not attain finality. An interlocutory order is one that resolves an
incidental or collateral matter without putting an end to the case, and for that reason does not
become final and immutable upon the expiration of the period prescribed for taking an appeal
from a judgment or final order.32

It is clear that by its suspension order the Division only adopted an auxiliary means necessary
to carry its jurisdiction into effect. In that light, we should find that there was no irregularity in the
Division’s lifting of the suspension, for, after all, nothing prohibited the COMELEC from
undertaking the appreciation of ballots in tandem with the SET’s own revision of ballots for the
senatorial electoral protest.

Third: Under Section 11, Rule 20 of the COMELEC Rules of Procedure, 33 one of the most
indispensable informations that should appear in the revision report relates to the conditions of
the ballot boxes. The importance of this information cannot be understated. According to Rosal
v. Commission on Elections,34 "the integrity of the ballots and therefore their probative value, as
evidence of the voters’ will, are contingent on the integrity of the ballot boxes in which they were
stored." This was precisely what Tolentino was asking the Division to do before the order of
revision issued.
Yet, the Court rejects Tolentino’s urging for obvious reasons. Any defects in the security locks
or seals of the set-aside ballot boxes, as predetermined by the examining Election Officer, could
not yet satisfy the requirement of the rule. For one, the COMELEC was not bound by the report
simply because the defects still needed to be confirmed during the process of actual revision.
Moreover, the presumption that the ballots reflected the intent of the voters, as expressly
recognized in Section 6(c)(2), Rule 13 of A.M. No. 07-4-15- SC,35 should not be done away with
solely on the basis of the report of the City Election Officer, by which said officer complied with a
requirement set primarily for the transmittal of the ballot boxes involved. Rosal, which A.M. No.
07-4-15- SC complements, demands more than such a report in order to overcome the
presumption. More than such report, there should be a full blown trial in which all the parties
concerned should be allowed the opportunity to present their own evidence, to raise their
objections, and to pose their claims before reaching a finding of ballot box
tampering. Rosal clearly mandates so, viz:

Under the circumstances, the question as to who between the parties was duly elected to the
office of mayor cannot be settled without further proceedings in the Comelec. In keeping with
the precepts laid down in this decision, the Comelec must first ascertain, after due hearing,
whether it has before it the same ballots cast and counted in the elections. For this purpose, it
must determine: (1) which ballot boxes sufficiently retained their integrity as to justify the
conclusion that the ballots contained therein could be relied on as better evidence than the
election returns and (2) which ballot boxes were in such a condition as would afford a
reasonable opportunity for unauthorized persons to gain unlawful access to their contents. In
the latter case, the ballots must be held to have lost all probative value and cannot be used to
set aside the official count reflected in the election returns. 36

Consequently, no ruling could be handed down against the integrity of the ballot boxes that
would effectively render naught the evidentiary value of the ballots they contained unless a full
blown trial on the merits was first conducted. Tolentino should accept the legal impossibility for
the Division to rule on the issue of inclusion or exclusion of the set-aside ballot boxes except
after the revision process.

In Rosal, we set the doctrinal guidelines in settling the issue in an election protest of who
among the parties was the real choice of the electorate, thus:

We summarize the foregoing doctrines: (1) the ballots cannot be used to overturn the official
count as reflected in the election returns unless it is first shown affirmatively that the ballots
have been preserved with a care which precludes the opportunity of tampering and all suspicion
of change, abstraction or substitution; (2) the burden of proving that the integrity of the ballots
has been preserved in such a manner is on the protestant; (3) where a mode of preserving the
ballots is enjoined by law, proof must be made of such substantial compliance with the
requirements of that mode as would provide assurance that the ballots have been kept inviolate
notwithstanding slight deviations from the precise mode of achieving that end; (4) it is only when
the protestant has shown substantial compliance with the provisions of law on the preservation
of ballots that the burden of proving actual tampering or the likelihood thereof shifts to the
protestee and (5) only if it appears to the satisfaction of the court or Comelec that the integrity of
the ballots has been preserved should it adopt the result as shown by the recount and not as
reflected in the election returns.37

The foregoing guidelines were inapplicable, however, considering that the proceedings were still
in the hearing stage. This explains why the Division deemed the determination of the physical
conditions of the ballot boxes as a necessary measure for its final determination of whether or
not to give probative value to the ballots contained in the set-aside ballot boxes. The Division
had still to reach the deliberative stage of the protests, when it would decide based on the
evidence presented during trial. Before then, deciding on the propriety of relying on the results
of the revision of ballots instead of the election returns did not yet arise.

Rosal does not forbid the revision of the set-aside ballots. What it proscribes is the blind
adherence to the result of the recount without taking into consideration the proof of any
likelihood that the integrity of the ballot boxes was compromised. It forbids the COMELEC from
conducting "a fresh appreciation of the contested ballots without first ascertaining whether the
ballots to be recounted had been kept inviolate." 38 Tolentino should understand that election
contests would not end with the result of the revision; and that the revision reports, being
evidentiary, should still be scrutinized like any other evidence presented before the Division.
Verily, the revision was not an end in itself, but simply demarcated the beginning of the process
of determining the true result of the election.

Fourth: The supplemental arguments of Tolentino allege a violation of his right to due process
by the non-observance of the cardinal rules of due process in administrative adjudications and
by the piece-meal resolution of the pending incidents.

In Ang Tibay v. Court of Industrial Relations,39 the Court enunciated the cardinal rules for
procedural due process in administrative or quasi-judicial tribunal, to wit:
 1. The right to a hearing, which includes the right to present one’s case and submit
evidence in support thereof;

2. The tribunal must consider the evidence presented;

3. The decision must have something to support itself;

4. The evidence must be substantial. Substantial evidence is such reasonable evidence

as a reasonable mind might accept as adequate to support a conclusion;

5. The decision must be based on the evidence presented at the hearing, or at least
contained in the record and disclosed to the parties affected;

6. The tribunal or body or any of its judges must act on its or his own independent
consideration of the law and facts of the controversy, and not simply accept the views of
a subordinate; and

7. The tribunal or body should render its decision in such manner that the parties to the
proceeding can know the various issues involved and the reason for the decision
rendered.

The Ang Tibay formulation was overlapping and repetitious. Hence, in Air Manila, Inc. v.
Balatbat,40 the formulation was simplified into four basic rights, as follows:

1. The right to notice, be it actual or constructive, of the institution of the proceedings

that may affect a person’s legal right;

2. The right to a reasonable opportunity to appear and defend his rights and to introduce
witnesses and relevant evidence in his favor;

3. The right to a tribunal so constituted as to give him reasonable assurance of honesty

and impartiality, and one of competent jurisdiction; and

4. The right to a finding or decision of that tribunal supported by substantial evidence

presented at the hearing or at least ascertained in the records or disclosed to the
parties.

Gauged upon the foregoing guidelines, Tolentino’s gripe was unwarranted. He was not denied
procedural due process. The Division had required him to provide the names of his revisors
whose tasks included the raising of objections, the claiming votes for him, or the contesting of
the votes in favor of his opponent. He has neither alleged being deprived of this opportunity, nor
indicated any situation in which his revisors were denied access to the revision proceedings. He
could not also insist that the COMELEC did not consider his legal and factual arguments;
besides, he could still raise them in his memorandum should he chose to. During the revision
stage, he should raise all objections, present his evidence and witnesses, and file his
memorandum before the case would be submitted for resolution. Such manner of presenting his
side would fully meet the demands of due process, for, as the Court has explained the nature of
due process in Stayfast Philippines Corporation v. National Labor Relations Commission: 41

The essence of due process is simply the opportunity to be heard, or as applied to

administrative proceedings, an opportunity to explain one’s side or an opportunity to seek a
reconsideration of the action or ruling complained of.

A formal or trial-type hearing is not at all times and in all instances essential. The requirements
are satisfied where the parties are afforded fair and reasonable opportunity to explain their side
of the controversy at hand. What is frowned upon is absolute lack of notice and hearing. xxx

A review of the records proves that the parties, including Tolentino, were afforded ample
opportunity to ventilate their respective claims, to raise their objections, to claim votes, and to
contest the votes of their opponents through their duly designated revisors.

G.R. Nos. 187966-68

Contrary to De Castro’s submission, the Division set the ground rule for the revision of the
contested ballots by laying down the procedure for the simultaneous revision of the contested
ballots for all the three election protests.

Paragraph 5 of the January 6, 2009 order distinctly stated that "the revision of ballots in the
above-entitled cases be conducted in such a way that when a ballot box is opened, its contents
shall be revised in all three (3) cases before proceeding to the next ballot box considering that
the same precincts are contested in all three (3) cases." 42 That procedure was ideal under the
obtaining circumstances, given that the same precincts were involved in all the three cases.
Also, the procedure was the practical and most expeditious manner of recording the
observations in the minutes of the proceedings, the segregation according to vote per
candidate, and the validation and registration of all objections or contests on the votes and
claims on the same. All objections and claims of each party’s revisors would later on be collated
on a "per case" basis and submitted to the Chairperson of each Revision Committee to aid in
the preparation of the revision report for the precincts or clusters of precincts assigned to such
committee.

We find no incompatibility between the order of January 6, 2009 and the order of June 2, 2009.
The latter order provided that the "Revision Committees will conduct the revision of the forty-
four (44) contested ballots now in the custody of the Senate Electoral Tribunal, per case and not
simultaneously. The normal procedure of revision shall be followed." 43 The purpose of the latter
order was to preserve the distinction of each position, that is, by keeping the data for each of
the positions separate despite the process of data-gathering being done simultaneously for all
three positions.

It is noted that the three cases involved 44 ballot boxes in the custody of the SET and 72 ballot
boxes in the custody of the COMELEC, all concerning the several elective positions. The task of
the four Revision Committees entailed the preparation of per-precinct revision reports for each
of the three positions, the number of which would depend on how many precincts or clusters of
precincts were assigned to the committees. The only logical solution to the need for systematic
proceedings was to do the revisions on a per-case or per-position approach, closing the ballot
box only after all the data required, and the objections and claims relevant to each position had
already been recorded. Such a procedure would become significant especially during the stage
of the segregation of the votes per candidate, at which time the votes for each candidate would
be given to the opponent’s revisors who would then validate the ballots, or register objections,
or claim votes for the candidates they represented, or contest the votes of their principal’s
opponents.

In an election protest, the electoral tribunal has an imperative duty to promptly ascertain by all
means within its command the candidates the electorate have chosen. It bears stressing that in
the exercise of the plenitude of its powers to protect the integrity of the elections, the COMELEC
should not and must not be straitjacketed by procedural rules in resolving election
disputes.44 Thus, the Division’s adoption of measures that especially respond to or address
unique situations, like these cases, was incidental to the COMELEC’s general authority to adopt
all the means to effect its powers and exercise its jurisdiction. Such adoption is even warranted
under Section 4 of the COMELEC Rules of Procedure:

Section 4. Means to Effect Jurisdiction. – All auxiliary writs, processes and other means
necessary to carry into effect its powers or jurisdiction may be employed by the Commission;
and if the procedure to be followed in the exercise of such power or jurisdiction is not
specifically provided for by law or these rules, any suitable process or proceeding may be
adopted.

The nature of election protests cases often makes the COMELEC face varied situations calling
for the exercise of its general authority to adopt means necessary to effect its powers and
jurisdiction. The COMELEC, in its performance of its duties, must be given a considerable
latitude in adopting means and methods that would insure the accomplishment of the great
objective for which it was created – to promote free, orderly, and honest elections. The choice of
the means by the COMELEC should not be interfered with, unless the means were clearly
illegal or the choice constituted grave abuse of discretion. 45 To require a more stringent rule
would unduly handicap the COMELEC in the achievement of its mandate to expeditiously
dispose of election contests. Hence, a liberal construction of its rules should be conceded to the
COMELEC, for, as already held:

It has been frequently decided, and it may be stated as a general rule recognized by all courts,
that statutes providing for election contests are to be liberally construed to the end that the will
of the people in the choice of public officers may not be defeated by mere technical objections.
An election contest, unlike an ordinary action, is imbued with public interest since it involves not
only the adjudication of the private interests of rival candidates but also the paramount need of
dispelling the uncertainty which beclouds the real choice of the electorate with respect to who
shall discharge the prerogatives of the office within their gift. Moreover, it is neither fair nor just
to keep in office for an uncertain period one whose right to it is under suspicion. It is imperative
that his claim be immediately cleared not only for the benefit of the winner but for the sake of
public interest, which can only be achieved by brushing aside technicalities of procedure which
protract and delay the trial of an ordinary action. xxx.46

Moreover, the pleadings of Tolentino even showed that the ground rules and guidelines for the
revision of ballots were issued to the parties a day before the revision proceedings. 47 Thus,
neither petitioner could validly complain about not having been duly informed of the manner of
revision, in light of the directive contained in paragraph 4 of the January 6, 2009 order that the
parties should be briefed on the ground rules for the revision of ballots before the
commencement of the revision.48

In fine, the Division did not commit any abuse of discretion, least of all grave, in its issuance of
the assailed orders. Its actuations relative to the conduct of the revision proceedings in the three
election protests were far from capricious or whimsical. The Division issued ground rules with
sufficient notice to the parties, who were thereby adequately shielded from partiality or
unfairness during the process of revision. The Division should instead be commended for
carrying out its mandate to expedite the disposition of the present election controversies.

WHEREFORE, we dismiss the petitions for lack of merit.

The Second Division of the Commission on Elections is directed to proceed with dispatch on the
revision of ballots in EPC Case No. 2007-07, EPC Case No. 2007-08, and EPC Case No. 2007-
09, and to resolve the election protests as soon as practicable.

This decision is immediately executory.

Costs of suit to be paid by the petitioners.

SO ORDERED.
 EN BANC

G.R. No. 196355               September 18, 2012

BIENVENIDO WILLIAM D. LLOREN, Petitioner,

vs.
THE COMMISSION ON ELECTIONS and ROGELIO PUA, JR., Respondents.

DECISION

BERSAMIN, J.:

This special civil action for certiorari seeks to set aside the dismissal by the First Division of the
Commission on Elections (COMELEC) of petitioner’s appeal taken in his election protest on the
ground that he did not pay the appeal fee on time and the denial of his motion for
reconsideration by the COMELEC En Banc on the ground that he did not pay the motion fee on
time as required by the rules of the COMELEC.

The dismissal of petitioner’s appeal was through the order issued on January 31, 2011 by the
First Division of the COMELEC, while the denial of the motion for reconsideration was through
1 

the order dated March 16, 2011 of the COMELEC En Banc. 2

Antecedents

Petitioner and respondent Rogelio Pua, Jr. (Pua) were the candidates for Vice-Mayor of the
Municipality of Inopacan, Leyte in the May 10, 2010 Automated National and Local Elections.
The Municipal Board of Canvassers proclaimed Pua as the winning candidate with a plurality of
752 votes for garnering 5,682 votes as against petitioner’s 4,930 votes.

Alleging massive vote-buying, intimidation, defective PCOS machines in all the clustered
precincts, election fraud, and other election-related manipulations, petitioner commenced
Election Protest Case (EPC) No. H-026 in the Regional Trial Court (RTC) in Hilongos, Leyte.

In his answer with special and affirmative defenses and counterclaim, Pua alleged that the
election protest stated no cause of action, was insufficient in form and content, and should be
dismissed for failure of petitioner to pay the required cash deposit.

On November 12, 2012, the RTC dismissed the election protest for insufficiency in form and
substance and for failure to pay the required cash deposit, viz:
3 

ALL THE FOREGOING CONSIDERED, for insufficiency in form and content as required under
Rule 2, Sec. 10 (c) (ii) and (iv) and for failing to make the required cash deposit within the given
period, the instant election protest is hereby DISMISSED.

With costs against the protestant.

SO ORDERED. 4

On November 17, 2010, petitioner filed a notice of appeal in the RTC, and paid the appeal fee
5 

of ₱ 1,000.00 to the same court. The RTC granted due course to the appeal on November 24,
2010.

On December 2, 2010, the fifteenth day from the filing of the notice of appeal, petitioner remitted
the appeal fee of ₱ 3,200.00 to the COMELEC Electoral Contests Adjudication Department
(ECAD) by postal money order. 6

Through the first assailed order of January 31, 2011, however, the COMELEC First Division
dismissed the appeal on the ground of petitioner’s failure to pay the appeal fee within the period
set under Section 4, Rule 40 of the COMELEC Rules of Procedure, holding:7 

The Commission (First division) RESOLVED as it hereby RESOLVES to DISMISS the instant
appeal case for protestant-appellant’s failure to pay the amount of Three thousand Pesos
(Php3,000.00) appeal fee within the reglementary period under the 1993 Comelec Rules of
Procedure as amended by Comelec Resolution No. 02-0130 dated 18 September 2002.

Section 4, Rule 40 of the Comelec Rules of Procedure mandates the payment of the appeal fee
within the period to file the notice of appeal or five (5) days from receipt of the decision sought
to be appealed, while Sec. 9, Rule 22 of the same Rules provides that failure to pay the appeal
fee is a ground for the dismissal of the appeal. These provisions were reinforced by the ruling of
the Supreme Court in the case of Divinagracia vs. Comelec (G.R. Nos. 186007 & 186016)
promulgated on 27 July 2009. The Ruling declared that for notices of appeal filed after its
promulgation, errors in the matters of non-payment or incomplete payment of appeal fees in the
court a quo and the Commission on Elections are no longer excusable.

SO ORDERED.

Petitioner moved for the reconsideration of the dismissal on February 14, 2011, and later sent a
notice dated March 3, 2011, stating that he paid the motion fee of ₱ 300.00 by postal money
order.

On March 16, 2011, the COMELEC En Banc denied petitioner’s motion for reconsideration
through the second assailed order, viz:  8

xxx the Commission En Banc hereby resolves to DENY the same for protestant-appellant’s
FAILURE to PAY the required motion fees prescribed under Section 7 (f), Rule 40, Comelec
Rules of Procedure, as amended by Comelec Minute Resolution No. 02-0130 dated September
18, 2002, in relation to Section 18, Rule 40, same Comelec Rules.

In the same order of March 16, 2011, the COMELEC En Banc directed the Clerk of the
Commission, ECAD, to issue an entry of judgment and to record the entry of judgment in the
Book of Entries of Judgment.

Aggrieved, petitioner commenced this special civil action for certiorari to annul the assailed
orders of the COMELEC.

Issue

Petitioner contends that he timely filed his notice of appeal in the RTC and timely paid the
appeal fee of ₱ 1,000.00 on November 17, 2010; and that he also paid the appeal fee of ₱
3,200.00 to the COMELEC ECAD on December 2, 2010 within the 15-day reglementary period
counted from the filing of the notice of appeal, conformably with Resolution No. 8486 dated July
15, 2008.

In his comment, Pua maintains that petitioner paid the ₱ 3,200.00 beyond the five-day
reglementary period under Section 4, Rule 40 of the COMELEC Rules of Procedure; and that
petitioner did not pay the motion fee of ₱ 300.00 prescribed under Section 7(f), Rule 40 of the
same rules. Hence, Pua submits that the dismissal of petitioner’s appeal and denial of his
motion for reconsideration did not constitute grave abuse of discretion.

The issue of whether the COMELEC committed grave abuse of discretion amounting to lack or
excess of jurisdiction in issuing the assailed orders is approached through two questions: firstly,
the procedural, which concerns the determination of whether or not petitioner timely paid the
appeal fee and motion fee under the COMELEC Rules of Procedure; and, secondly, the
substantive, which delves on whether or not the appeal may still proceed.

Ruling

The petition is meritorious as to the procedural question, but not as to the substantive question.

1.
Procedural Question:
Petitioner timely perfected his appeal

The rules on the timely perfection of an appeal in an election case requires two different appeal
fees, one to be paid in the trial court together with the filing of the notice of appeal within five
days from notice of the decision, and the other to be paid in the COMELEC Cash Division within
the 15-day period from the filing of the notice of appeal.

In A.M. No. 07-4-15-SC, the Court promulgated the Rules of Procedure In Election Contests
Before The Courts Involving Elective Municipal and Barangay Officials (hereafter, the Rules in
A.M. No. 07-4-15-SC), effective on May 15, 2007, to set down the procedure for election
contests and quo warranto cases involving municipal and barangay officials that are
commenced in the trial courts. The Rules in A.M. No. 07-4-15-SC superseded Rule 35
("Election Contests Before Courts of General Jurisdiction") and Rule 36 ("Quo Warranto Case
Before Courts of General Jurisdiction") of the 1993 COMELEC Rules of Procedure.

Under Section 8, of Rule 14 of the Rules in A.M. No. 07-4-15-SC, an aggrieved party may
9 

appeal the decision of the trial court to the COMELEC within five days after promulgation by
filing a notice of appeal in the trial court that rendered the decision, serving a copy of the notice
of appeal on the adverse counsel or on the adverse party if the party is not represented by
counsel. Section 9, of Rule 14 of the Rules in A.M. No. 07-4-15-SC prescribes for that purpose
10 

an appeal fee of ₱ 1,000.00 to be paid to the trial court rendering the decision simultaneously
with the filing of the notice of appeal.

It should be stressed, however, that the Rules in A.M. No. 07-4-15-SC did not supersede the
appeal fee prescribed by the COMELEC under its own rules of procedure. As a result, "the
requirement of two appeal fees by two different jurisdictions caused a confusion in the
implementation by the COMELEC of its procedural rules on the payment of appeal fees
necessary for the perfection of appeals." To remove the confusion, the COMELEC issued
11 

Resolution No. 8486, effective on July 24, 2008, whereby the COMELEC clarified the rules on
12  13 

the payment of the two appeal fees by allowing the appellant to pay the COMELEC’s appeal fee
of ₱ 3,200.00 at the COMELEC’s Cash Division through the ECAD or by postal money order
payable to the COMELEC within a period of 15 days from the time of the filing of the notice of
appeal in the trial court, to wit:

xxxx

1. That if the appellant had already paid the amount of ₱ 1,000.00 before the Regional Trial
Court, Metropolitan Trial Court, Municipal Trial Court or lower courts within the five-day period,
pursuant to Section 9, Rule 14 of the Rules of Procedure in Election Contests Before the Courts
Involving Elective Municipal and Barangay Officials (Supreme Court Administrative Order No.
07-4-15) and his Appeal was given due course by the Court, said appellant is required to pay
the Comelec appeal fee of ₱ 3,200.00 at the Commission’s Cash Division through the Electoral
Contests Adjudication Department (ECAD) or by postal money order payable to the
Commission on Elections through ECAD, within a period of fifteen days (15) from the time of the
filing of the Notice of Appeal with the lower court. If no payment is made within the prescribed
period, the appeal shall be dismissed pursuant to Section 9 (a) of Rule 22 of the COMELEC
Rules of Procedure, which provides:

Sec. 9. Grounds for Dismissal of Appeal. — The appeal may be dismissed upon motion of
either party or at the instance of the Commission on any of the following grounds:

(a) Failure of the appellant to pay the correct appeal fee; xxx

2. That if the appellant failed to pay the ₱ 1,000.00-appeal fee with the lower court within the
five (5) day period as prescribed by the Supreme Court New Rules of Procedure but the case
was nonetheless elevated to the Commission, the appeal shall be dismissed outright by the
Commission, in accordance with the aforestated Section 9 (a) of Rule 22 of the Comelec Rules
of Procedure.

xxxx

Following the clarification made by the COMELEC in Resolution No. 8486, the Court declared
an end to the confusion arising from the requirement of two appeal fees effective on July 27,
2009, the date of promulgation of the ruling in Divinagracia, Jr. v. Commission on Elections by
14 

announcing that "for notices of appeal filed after the promulgation of this decision, errors

in the matter of non-payment or incomplete payment of the two appeal fees in election
cases are no longer excusable." 15

In light of the foregoing, the Court finds that petitioner perfected his appeal of the decision
rendered on November 12, 2012 by the RTC in EPC No. H-026. He filed his notice of appeal
and paid the ₱ 1,000.00 appeal fee to the RTC on November 17, 2012. Such filing and
payment, being done within five days from the promulgation of the decision, complied with
Section 8, Rule 14 of the Rules in A.M. No. 07-4-15-SC. Thereafter, he paid the appeal fee of ₱
3,200.00 to the COMELEC Cash Division through the ECAD on December 2, 2012. Such
payment, being done on the fifteenth day from his filing of the notice of appeal in the RTC,
complied with Resolution No. 8486.

Yet, in determining whether petitioner had perfected his appeal, the COMELEC First Division
relied on Section 4 of Rule 40 of its 1993 Rules of Procedure, a provision that required an
appellant to pay the appeal fee prescribed by the COMELEC within the period to file the notice
of appeal.16

The reliance on Section 4 of Rule 40 of the COMELEC 1993 Rules of Procedure was plainly
arbitrary and capricious. The COMELEC First Division thereby totally disregarded Resolution
No. 8486, whereby the COMELEC revised Section 4 of Rule 40 of the 1993 Rules of Procedure
by expressly allowing the appellant "to pay the Comelec appeal fee of ₱ 3,200.00 at the
Commission’s Cash Division through the Electoral Contests Adjudication Department (ECAD) or
by postal money order payable to the Commission on Elections through ECAD, within a period
of fifteen days (15) from the time of the filing of the Notice of Appeal with the lower court." In
effect, the period of perfecting the appeal in the COMELEC was extended from the original
period of five days counted from promulgation of the decision by the trial court to a longer period
of 15 days reckoned from the filing of the notice of appeal in the trial court.

Accordingly, the order issued on January 31, 2011 by the COMELEC First Division was null and
void for being contrary to Resolution No. 8486.

As to the order issued on March 16, 2011 by the COMELEC En Banc, the Court finds that the
COMELEC En Banc was capricious and arbitrary in thereby denying petitioner’s motion for
reconsideration on the ground that he did not simultaneously pay the motion fee of ₱ 300.00
prescribed by Section 7(f), Rule 40 of the 1993 Rules of Procedure.

The non-payment of the motion fee of ₱ 300.00 at the time of the filing of the motion for
reconsideration did not warrant the outright denial of the motion for reconsideration, but might
only justify the COMELEC to refuse to take action on the motion for reconsideration until the
fees were paid, or to dismiss the action or proceeding when no full payment of the fees is
ultimately made. The authority to dismiss is discretionary and permissive, not mandatory and
exclusive, as expressly provided in Section 18, Rule 40 of the 1993 Rules of Procedure itself, to
wit:

Section 18. Non-payment of Prescribed Fees. - If the fees above prescribed are not paid, the
Commission may refuse to take action thereon until they are paid and may dismiss the action or
the proceeding. (emphasis supplied)

The evident intent of rendering Section 18, Rule 40 of the 1993 Rules of Procedure
discretionary and permissive is to accord the movant an opportunity to pay the motion fee in full.
The dire outcome of denial of the motion for reconsideration should befall the movant only upon
his deliberate or unreasonable failure to pay the fee in full. It appears, however, that petitioner’s
failure to pay the motion fee simultaneously with his filing of the motion for reconsideration was
neither deliberate nor unreasonable. He actually paid the fee by postal money order on March
3, 2011.17

In light of his having complied with the requirements for a timely perfection of the appeal in both
the RTC and the COMELEC, and considering that he actually paid the motion fee, the
COMELEC En Banc’s strict and rigid application of the discretionary and permissive rule
amounted to giving undue primacy to technicality over substance. That outcome would not be
just to petitioner, for the COMELEC En Banc would close its eyes to the patent error committed
by the First Division in entirely ignoring Resolution No. 8486. Accordingly, the assailed order of
March 16, 2011 is another nullity to be struck down.

2.
Substantive Question:
Petitioner’s election protest lacks merit

Nonetheless, we affirm the dismissal by the RTC of EPC No. H-026 for being in accord with the
Rules in A.M. No. 10-4-1-SC.

Section 10(c), Rule 2 of the Rules in A.M. No. 10-4-1-SC pertinently provides as follows:

Section 10. Contents of the protest or petition.—

xxxx

c. An election protest shall also state:

(i) that the protestant was a candidate who had duly filed a certificate of candidacy and had
been voted for the same office;

(ii) the total number of precincts in the municipality;

(iii) the protested precincts and votes of the parties in the protested precincts per the Statement
of Votes by Precinct or, if the votes of the parties are not specified, an explanation why the
votes are not specified; and

(iv) a detailed specification of the acts or omissions complained of showing the electoral frauds,
anomalies or irregularities in the protested precincts. (Emphasis supplied)

As the findings of the RTC show, petitioner did not indicate the total number of precincts in the
municipality in his election protest.  The omission rendered the election protest insufficient in
1âwphi1

form and content, and warranted its summary dismissal, in accordance with Section 12, Rule 2
of the Rules in A.M. No. 10-4-1-SC, to wit:
Section 12. Summary dismissal of election contests. — The court shall summarily dismiss, motu
proprio, an election protest, counter-protest or petition for quo warranto on any of the following
grounds:

(a) The court has no jurisdiction over the subject matter;

(b) The petition is insufficient in form and content as required under Section 10;

(c) The petition is filed beyond the period prescribed in these Rules;

(d) The filing fee is not paid within the period for filing the election protest or petition for quo
warranto; and

(e) In a protest case where cash deposit is required, the deposit is not paid within five (5) days
from the filing of the protest. (Emphasis supplied)

Likewise, the RTC found that the cash deposit made by petitioner was insufficient. Considering
that the Court cannot disturb the findings on the insufficiency of petitioner’s cash deposit made
by the trial court, that finding was another basis for the summary dismissal of the election
protest under Section 12.

We note that the summary dismissal of the election protest upon any of the grounds mentioned
in Section 12 is mandatory.

WHEREFORE, the Court PARTIALLY GRANTS the petition for certiorari; ANNULS AND SETS

ASIDE the assailed orders of the COMELEC First Division and the COMELEC En Banc
respectively dated January 31, 2011 and March 16, 2011; AFFIRMS the Decision rendered on
November 12, 2010 by the Regional Trial Court dismissing Election Protest Case No. H-026 for
insufficiency in form and content of the election protest as well as for insufficiency of
protestant’s cash deposit; and ORDERS petitioner to pay the costs of suit.

SO ORDERED.

FIRST DIVISION

G.R. No. L-28841 June 24, 1983

RAFAEL YAPDIANGCO, petitioner-appellant,
vs.
THE HON. CONCEPCION B. BUENCAMINO and HON. JUSTINIANO CORTEZ, respondents-
appellees.

GUTIERREZ, JR., J.:

If the last day in the period of prescription of a felony falls on a Sunday or legal holiday, may the
information be filed on the next working day?

Stated otherwise, the issue in this appeal from a decision of the Court of First Instance of Rizal
Branch IX at Quezon City is whether or not a Sunday or a legal holiday is a legal efficient cause
which interrupts the prescription of an offense.

On February 1, 1965, the City Fiscal of Quezon City filed before the City Court an information
for slight physical injuries allegedly committed by the petitioner-appellant on December 2, 1964
against Mr. Ang Cho Ching.

On September 10, 1965, the petitioner-appellant moved to quash the criminal prosecution on
the ground that the information having been filed on the sixty first day following the commission
of the offense, the sixty days prescriptive period had lapsed.

On September 14, 1965, the City Court of Quezon City denied the motion to quash stating that
the 60th day fell on a Sunday and considering the rule that when the last day for the filing of a
pleading falls on a Sunday, the same may be filed on the next succeeding business day, the
action had not prescribed.

After a motion for reconsideration was denied by the City Court, the petitioner-appellant filed a
petition for certiorari and mandamus with preliminary injunction before the Court of First
Instance of Rizal.
On July 11, 1966, the Court of First Instance of Rizal dismissed the petition. A motion for
reconsideration was subsequently denied. Hence, this appeal.

The petitioner-appellant raised the following assignments of errors:

FIRST ASSIGNMENT OF ERROR

THE LOWER COURT ERRED IN FINDING THAT SUNDAY IS A LEGAL

EFFICIENT CAUSE TO INTERRUPT PRESCRIPTION OF AN OFFENSE.

SECOND ASSIGNMENT OF ERROR

THE LOWER COURT ERRED IN FINDING THAT THE PERIOD FIXED BY

LAW WITHIN WHICH TO COMMENCE CRIMINAL PROSECUTION MAY
LEGALLY BE EXTENDED WITH THE INTERVENTION OF A SUNDAY OR
LEGAL HOLIDAY.

THIRD ASSIGNMENT OF ERROR

THE LOWER COURT ERRED IN DENYING THE PETITION FOR mandamus

AND PRELIMINARY INJUNCTION.

Under Article 90 of the Revised Penal Code, light offenses prescribe in two months. Article 13 of
the Civil Code provides that when the law speaks of months, it shall be understood that months
are of thirty days each

Article 91 of the Revised Penal Code reads:

ART. 91. Computation of prescription of offenses.—The Period of Prescription

shall commence to run from the day on which the crime is discovered by the
offended party, the authorities or their agents, and shall be interrupted by the
filing of the complaint or information, and shall commence to run again when
such proceedings terminate without the accused being convicted or acquitted, or
are unjustifiably stopped for any reason not imputable to him.

The term of prescription shall not run when the offender is absent from the
Philippine Archipelago.

In support of his three assignments of errors which he discusses jointly, the petitioner-appellant
argues:

xxx xxx xxx

b) the fact that the 60th day was a Sunday did not interrupt nor stop the running
of the prescriptive period, for

i) as a matter of statutory articulation a Sunday or holiday is not

recognized as legally efficient cause to interrupt prescription;

ii) under the principle of inclusio unius exclusion alterius, the

single exception of offender's absence specified in Article 91 of
the Revised Penal Code excludes any other cause sufficient to
interrupt prescription;

iii) under the specific and controlling jurisprudence of the cases

that the last day of prescriptive period is a Sunday or a holiday
does not interrupt prescription

15 AM. Jur., Section 346, page 34:

The statute of limitations run from the time the offense is

committed until the prosecution is commenced.

Ibid., Section 357, page 37:

The running of the statute of limitation can be prevented only by

the means or for the reasons specified therein.

Ibid., Section 342, page 32:

 Statutes of stations in criminal cases differ from those in civil
cases. In civil cases they are statutes of repose, while in criminal
cases they create a bar to the prosecution. ...

As a general rule, exceptions will not be implied to the statutes of

stations of criminal offenses, and hence, in criminal prosecutions
unless the statute of stations contains an exception or condition
that will ton its operation, the running of the statute is not
interrupted, save only by indictment or other rsufficient procedure
commencing the prosecution of the offense. After the statute has
commenced to run it will not be interrupted by the happening of
any subsequent event or disability ...

45 Century Digest, Time, Section 41:

When an action would be barred on Sunday, that day must be

excluded from the count and the action brought on the Saturday
preceding, to save the bar. (Allen vs. Elliot, 67 Ala. 432.)

Where the year in which to begin an action expires on Sunday,

the action must be begun on the preceding day. (William vs.
Lane, 87 Wis. 152, 58 NW 77.)

iv) under the pervasive criminal law principle of liberal

construction of penal statutes in favor of the accused the
conclusion is evident that the exception clause to the prescriptive
rule in Article 91 of the Revised Penal Code should not be
unduly stretched and strained to include exceptions not specified
nor as much intimitated in the statute.

U.S. vs. Abad Santos, 36 Phil 243:

Criminal statutes are to be strictly construed no persons should

be brought within the terms who is not clearly within them nor
should any act be pronounced criminal when it is not made so.

v) extinctive or acquisitive prescription is not similar to

reglementary periods provided in the Rules of Court or in any
other statutes, hence, may not be extended under the "next
business day theory". Thus, it cannot be said under our system
that a party has a right to move, and the court the corresponding
authority to grant an extension of a period of prescription.

As against these arguments of the petitioner-appellant, the respondents cite the following
provision of the Revised Administrative Code to sustain their side:

SEC. 31. Pretermission of holiday.- where the day, or the last day, for doing any
act required or permitted by law falls on a holiday, the act may be done on the
next succeeding business day.

The law requires or permits the filing of the information within two months or sixty days from the
date the crime was discovered by the offended party. Since the 60th day or last day for the filing
of the information in this case fell on a holiday, according to the respondents-appellees the law
should allow the filing of charges to be done on the next succeeding business day.

If we follow the ordinary rule of time computation based on the common law, which, in
construing statutes of limitations excludes the first day and includes the last day unless the last
day is dies non in which event the following day is included, the stand of the respondents-
appellees would be correct.

As pointed out by the respondents-appellees, Section 1, Rule 28 of the former Rules of Court
provided:

xxx xxx xxx

How to compute time—In computing any period of time prescribed or allowed by

these rules, by order of court, or by any applicable statute, the day of the act,
event, or default after which the designated period of time begins to run is not to
be included. The last day of the period so computed is to be included, unless it
is a Sunday or a legal holiday, in which event the time shall run until the end of
the next day which is neither a Sunday nor a holiday.
After carefully considering all the foregoing, we find the arguments of the petitioners-appellants
meritorious. We are not dealing in this case with a simple rule on when a pleading may be filed.

The case at hand does not involve the simple issue of when to do an act. It deals with the
prescription of a criminal action. Under unquestioned authorities, the question to be resolved is
when the State is deemed to have lost or waived its right to prosecute an act prohibited and
punished by law. (People v. Moran, 44 Phil. 387, 406-7; People v. Parel 44 Phil. 437, 445;
People v. Montenegro, 68 Phil. 659). Wharton, in his work on Criminal Pleading and Practice,
quoted in People U. Moran has this to say about the nature of the statute of limitations in
criminal actions:

We should at first observe that a mistake is sometimes made in applying to

statutes of limitation in criminal suits the construction that has been given to
statutes of lirmitation in civil suits. The two classes of statutes, however, are
essentially different. In civil suits the statute is interposed by the legislature as
an impartial arbiter between two contending parties. In the construction of the
statute, therefore, there is no intendment to be made in favor of either party.
Neither grants the right to the other; there is therefore no grantor against whom
the ordinary presumptions of construction are to be made. But it is otherwise
when a statute of limitation is granted by the State. Here the State is the grantor,
surrendering by act of grace its rights to prosecute, and declaring the offense to
be no longer the subject of prosecution. The statute is not a statute of process,
to be scantily and grudgingly applied, but an amnesty, declaring that after a
certain time oblivion shall be cast over the offense; that the offender shall be at
liberty to return to his country, and resume his immunities as a citizen; and that
from henceforth he may cease to preserve the proofs of his innocence, for the
proofs of his guilt are blotted out. Hence it is that statutes of limitation are to be
liberally construed in favor of the defendant not one because such liberality of
construction belongs to all acts of amnesty and grace, but because the very
existence of the statute is a recognition and notification by the legislature of the
fact that time, while it gradually wears out proofs and innocence has assigned to
it fixed and positive periods in which it destroys proofs of guilt. Independently of
these views, it must be remembered that delay in instituting prosecutions is not
only productive of expense to the State, but of peril to public justice in the
attenuation and distortion, even by mere natural lapse of memory, of testimony.
It is the policy of the law that prosecutions should be prompt and that statutes
enforcing such promptitude should be vigorously maintained. They are not
merely acts of grace, but checks imposed by the State upon itself, to exact
vigilant activity from its subalterns and to secure for criminal trials the best
evidence that can be obtained. (44 Phil. 405-406; emphasis supplied).

The rules contained in Section 31 of the Revised Administrative Code and Section 1, Rule 28 of
the Old Rules of Court deal with the computation of time allowed to do a particular act, such as,
the filing of tax returns on or before a definite date, filing an answer to a complaint, taking an
appeal, etc. They do not apply to lengthen the period fixed by the State for it to prosecute those
who committed a crime against it. The waiver or loss of the right to prosecute such offenders is
automatic and by operation of law. Where the sixtieth and last day to file an information falls on
a Sunday or legal holiday, the sixty-day period cannot be extended up to the next working day.
Prescription has automatically set in. The remedy is for the fiscal or prosecution to file the
information on the last working day before the criminal offense prescribes.

WHEREFORE, the petition for certiorari and mandamus is granted. The questioned order of the
respondent court is SET ASIDE. The motion to quash is GRANTED and the information before
the city court is DISMISSED.

SO ORDERED.
 THIRD DIVISION

G.R. No. 198174               September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision1 dated May 31, 2011 and Resolution2 dated August 10, 2011 of the Court of Appeals
(CA) in CA-G.R. CV No. 93027.

The facts follow.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The
contract of insurance obligates the petitioner to pay the respondent the amount of Six Hundred
Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to said vehicle during the
period covered, which is from February 26, 2007 to February 26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar
Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up.
However, Lanuza no longer returned the motor vehicle to respondent and despite diligent efforts
to locate the same, said efforts proved futile. Resultantly, respondent promptly reported the
incident to the police and concomitantly notified petitioner of the said loss and demanded
payment of the insurance proceeds in the total sum of ₱630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating
among others, thus:

Upon verification of the documents submitted, particularly the Police Report and your Affidavit,
which states that the culprit, who stole the Insure[d] unit, is employed with you. We would like to
invite you on the provision of the Policy under Exceptions to Section-III, which we quote:

1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON
IN THE INSURED’S SERVICE."

In view [of] the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued
that the exception refers to damage of the motor vehicle and not to its loss. However,
petitioner’s denial of respondent’s insured claim remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner
before the Regional Trial Court (RTC) of Quezon City on September 10, 2007.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in
this wise:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant ordering the latter as follows:

To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time of
demand up to the time the amount is fully settled;

To pay attorney’s fees in the sum of ₱65,000.00; and

To pay the costs of suit.

All other claims not granted are hereby denied for lack of legal and factual basis. 3
Aggrieved, petitioner filed an appeal with the CA.

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s
decision. The fallo reads:

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision,
dated December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil
Case No. Q-07-61099, is hereby AFFIRMED in toto.

SO ORDERED.4

Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in
a Resolution dated August 10, 2011.

Hence, the present petition wherein petitioner raises the following grounds for the allowance of
its petition:

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND

GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF
THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT
EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF
THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT
THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR
PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS LIBERALLY IN
FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND

COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE
JUDGMENT OF THE TRIAL COURT.5

Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded
under the insurance policy.

We rule in the negative.

Significant portions of Section III of the Insurance Policy states:

SECTION III – LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or
damage to the Schedule Vehicle and its accessories and spare parts whilst thereon:

(a)

by accidental collision or overturning, or collision or overturning consequent upon mechanical

breakdown or consequent upon wear and tear;

(b)

by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c)

by malicious act;

(d)

whilst in transit (including the processes of loading and unloading) incidental to such transit by
road, rail, inland waterway, lift or elevator.

xxxx

EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

Loss or Damage in respect of any claim or series of claims arising out of one event, the first
amount of each and every loss for each and every vehicle insured by this Policy, such amount
being equal to one percent (1.00%) of the Insured’s estimate of Fair Market Value as shown in
the Policy Schedule with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures
or breakages;

Damage to tires, unless the Schedule Vehicle is damaged at the same time;

Any malicious damage caused by the Insured, any member of his family or by a person in the
Insured’s service.6

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage,"
under paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person,
property or reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it
asserts that the loss of respondent’s vehicle as a result of it being stolen by the latter’s driver is
excluded from the policy.

We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft
perpetrated by the driver of the insured is not an exception to the coverage from the insurance
policy, since Section III thereof did not qualify as to who would commit the theft. Thus:

Theft perpetrated by a driver of the insured is not an exception to the coverage from the
insurance policy subject of this case. This is evident from the very provision of Section III –
"Loss or Damage." The insurance company, subject to the limits of liability, is obligated to
indemnify the insured against theft. Said provision does not qualify as to who would commit the
theft. Thus, even if the same is committed by the driver of the insured, there being no
categorical declaration of exception, the same must be covered. As correctly pointed out by the
plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for which the
parties entered into the contract which is to insure against risks of loss or damage to the goods.
Such interpretation should result from the natural and reasonable meaning of language in the
policy. Where restrictive provisions are open to two interpretations, that which is most favorable
to the insured is adopted." The defendant would argue that if the person employed by the
insured would commit the theft and the insurer would be held liable, then this would result to an
absurd situation where the insurer would also be held liable if the insured would commit the
theft. This argument is certainly flawed. Of course, if the theft would be committed by the
insured himself, the same would be an exception to the coverage since in that case there would
be fraud on the part of the insured or breach of material warranty under Section 69 of the
Insurance Code.7

Moreover, contracts of insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary and popular
sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms used
specifying the excluded classes therein are to be given their meaning as understood in common
speech.9

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common
ordinary usage. The word "loss" refers to the act or fact of losing, or failure to keep possession,
while the word "damage" means deterioration or injury to property. 1âwphi1

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy
under paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious
damage," or more specifically, "injury" to the motor vehicle caused by a person under the
insured’s service. Paragraph 4 clearly does not contemplate "loss of property," as what
happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one
of the exceptions from coverage, is the damage that is the direct result from the deliberate or
willful act of the insured, members of his family, and any person in the insured’s service, whose
clear plan or purpose was to cause damage to the insured vehicle for purposes of defrauding
the insurer, viz.:

This interpretation by the Court is bolstered by the observation that the subject policy appears to
clearly delineate between the terms "loss" and "damage" by using both terms throughout the
said policy. x x x

xxxx

If the intention of the defendant-appellant was to include the term "loss" within the term
"damage" then logic dictates that it should have used the term "damage" alone in the entire
policy or otherwise included a clear definition of the said term as part of the provisions of the
said insurance contract. Which is why the Court finds it puzzling that in the said policy’s
provision detailing the exceptions to the policy’s coverage in Section III thereof, which is one of
the crucial parts in the insurance contract, the insurer, after liberally using the words "loss" and
"damage" in the entire policy, suddenly went specific by using the word "damage" only in the
policy’s exception regarding "malicious damage." Now, the defendant-appellant would like this
Court to believe that it really intended the word "damage" in the term "malicious damage" to
include the theft of the insured vehicle.

The Court does not find the particular contention to be well taken.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be
construed according to the sense and meaning of the terms which the parties thereto have
used. In the case of property insurance policies, the evident intention of the contracting parties,
i.e., the insurer and the assured, determine the import of the various terms and provisions
embodied in the policy. However, when the terms of the insurance policy are ambiguous,
equivocal or uncertain, such that the parties themselves disagree about the meaning of
particular provisions, the policy will be construed by the courts liberally in favor of the assured
and strictly against the insurer. 10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance
contract contain limitations on liability, courts should construe them in such a way as to preclude
the insurer from non-compliance with his obligation. Thus, in Eternal Gardens Memorial Park
Corporation v. Philippine American Life Insurance Company, 11 this Court ruled –

It must be remembered that an insurance contract is a contract of adhesion which must be

construed liberally in favor of the insured and strictly against the insurer in order to safeguard
the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held
that:

Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared
by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer
from non-compliance with its obligations.

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated
the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his obligation. Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly against the
party which prepared the contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid
forfeiture.12

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.
Accordingly, the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the
Court of Appeals are hereby AFFIRMED.

SO ORDERED.