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G.R. No.

L-57883 March 12, 1982

GUALBERTO J. DE LA LLANA Presiding Judge, Branch II of the City Court of
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Justice, Respondents.

This Court, pursuant to its grave responsibility of passing upon the validity of any
executive or legislative act in an appropriate cases, has to resolve the crucial issue
of the constitutionality of Batas Pambansa Blg. 129, entitled "An act reorganizing
the Judiciary, Appropriating Funds Therefor and for Other Purposes." The task of
judicial review, aptly characterized as exacting and delicate, is never more so than
when a conceded legislative power, that of judicial reorganization, 1 may possibly
collide with the time-honored principle of the independence of the judiciary 2 as
protected and safeguarded by this constitutional provision: "The Members of the
Supreme Court and judges of inferior courts shall hold office during good behavior
until they reach the age of seventy years or become incapacitated to discharge the
duties of their office. The Supreme Court shall have the power to discipline judges
of inferior courts and, by a vote of at least eight Members, order their
dismissal." 3 For the assailed legislation mandates that Justices and judges of
inferior courts from the Court of Appeals to municipal circuit courts, except the
occupants of the Sandiganbayan and the Court of Tax Appeals, unless appointed to
the inferior courts established by such Act, would be considered separated from
the judiciary. It is the termination of their incumbency that for petitioners justifies a
suit of this character, it being alleged that thereby the security of tenure provision
of the Constitution has been ignored and disregarded,
That is the fundamental issue raised in this proceeding, erroneously entitled
Petition for Declaratory Relief and/or for Prohibition 4 considered by this Court as an
action for prohibited petition, seeking to enjoin respondent Minister of the Budget,
respondent Chairman of the Commission on Audit, and respondent Minister of
Justice from taking any action implementing Batas Pambansa Blg. 129.

Petitioners 5 sought to bolster their claim by imputing lack of good faith in its
enactment and characterizing as an undue delegation of legislative power to the
President his authority to fix the compensation and allowances of the Justices and
judges thereafter appointed and the determination of the date when the
reorganization shall be deemed completed. In the very comprehensive and
scholarly Answer of Solicitor General Estelito P. Mendoza, 6 it was pointed out that
there is no valid justification for the attack on the constitutionality of this statute, it
being a legitimate exercise of the power vested in the Batasang Pambansa to
reorganize the judiciary, the allegations of absence of good faith as well as the
attack on the independence of the judiciary being unwarranted and devoid of any
support in law. A Supplemental Answer was likewise filed on October 8, 1981,
followed by a Reply of petitioners on October 13. After the hearing in the morning
and afternoon of October 15, in which not only petitioners and respondents were
heard through counsel but also the amici curiae, 7 and thereafter submission of the
minutes of the proceeding on the debate on Batas Pambansa Blg. 129, this petition
was deemed submitted for decision.
The importance of the crucial question raised called for intensive and rigorous
study of all the legal aspects of the case. After such exhaustive deliberation in
several sessions, the exchange of views being supplemented by memoranda from
the members of the Court, it is our opinion and so hold that Batas Pambansa Blg.
129 is not unconstitutional.
1. The argument as to the lack of standing of petitioners is easily resolved. As far
as Judge de la Llana is concerned, he certainly falls within the principle set forth in
Justice Laurel's opinion in People v. Vera. 8 Thus: "The unchallenged rule is that the
person who impugns the validity of a statute must have a personal and substantial
interest in the case such that he has sustained, or will sustain, direct injury as a
result of its enforcement." 9 The other petitioners as members of the bar and
officers of the court cannot be considered as devoid of "any personal and
substantial interest" on the matter. There is relevance to this excerpt from a
separate opinion in Aquino, Jr. v. Commission on Elections: 10 "Then there is the
attack on the standing of petitioners, as vindicating at most what they consider a
public right and not protecting their rights as individuals. This is to conjure the
specter of the public right dogma as an inhibition to parties intent on keeping
public officials staying on the path of constitutionalism. As was so well put by Jaffe:
'The protection of private rights is an essential constituent of public interest and,
conversely, without a well-ordered state there could be no enforcement of private
rights. Private and public interests are, both in substantive and procedural sense,
aspects of the totality of the legal order.' Moreover, petitioners have convincingly
shown that in their capacity as taxpayers, their standing to sue has been amply

demonstrated. There would be a retreat from the liberal approach followed

in Pascual v. Secretary of Public Works,foreshadowed by the very decision
of People v. Vera where the doctrine was first fully discussed, if we act differently
now. I do not think we are prepared to take that step. Respondents, however,
would hark back to the American Supreme Court doctrine in Mellon v.
Frothingham with their claim that what petitioners possess 'is an interest which is
shared in common by other people and is comparatively so minute and
indeterminate as to afford any basis and assurance that the judicial process can
act on it.' That is to speak in the language of a bygone era even in the United
States. For as Chief Justice Warren clearly pointed out in the later case of Flast v.
Cohen, the barrier thus set up if not breached has definitely been lowered." 11
2. The imputation of arbitrariness to the legislative body in the enactment of Batas
Pambansa Blg. 129 to demonstrate lack of good faith does manifest violence to the
facts. Petitioners should have exercised greater care in informing themselves as to
its antecedents. They had laid themselves open to the accusation of reckless
disregard for the truth, On August 7, 1980, a Presidential Committee on Judicial
Reorganization was organized. 12This Executive Order was later amended by
Executive Order No. 619-A., dated September 5 of that year. It clearly specified the
task assigned to it: "1. The Committee shall formulate plans on the reorganization
of the Judiciary which shall be submitted within seventy (70) days from August 7,
1980 to provide the President sufficient options for the reorganization of the entire
Judiciary which shall embrace all lower courts, including the Court of Appeals, the
Courts of First Instance, the City and Municipal Courts, and all Special Courts, but
excluding the Sandigan Bayan." 13 On October 17, 1980, a Report was submitted
by such Committee on Judicial Reorganization. It began with this paragraph: "The
Committee on Judicial Reorganization has the honor to submit the following Report.
It expresses at the outset its appreciation for the opportunity accorded it to study
ways and means for what today is a basic and urgent need, nothing less than the
restructuring of the judicial system. There are problems, both grave and pressing,
that call for remedial measures. The felt necessities of the time, to borrow a phrase
from Holmes, admit of no delay, for if no step be taken and at the earliest
opportunity, it is not too much to say that the people's faith in the administration
of justice could be shaken. It is imperative that there be a greater efficiency in the
disposition of cases and that litigants, especially those of modest means much
more so, the poorest and the humblest can vindicate their rights in an
expeditious and inexpensive manner. The rectitude and the fairness in the way the
courts operate must be manifest to all members of the community and particularly
to those whose interests are affected by the exercise of their functions. It is to that
task that the Committee addresses itself and hopes that the plans submitted could
be a starting point for an institutional reform in the Philippine judiciary. The

experience of the Supreme Court, which since 1973 has been empowered to
supervise inferior courts, from the Court of Appeals to the municipal courts, has
proven that reliance on improved court management as well as training of judges
for more efficient administration does not suffice. I hence, to repeat, there is need
for a major reform in the judicial so stem it is worth noting that it will be the first of
its kind since the Judiciary Act became effective on June 16, 1901." 14 I t went to
say: "I t does not admit of doubt that the last two decades of this century are likely
to be attended with problems of even greater complexity and delicacy. New social
interests are pressing for recognition in the courts. Groups long inarticulate,
primarily those economically underprivileged, have found legal spokesmen and are
asserting grievances previously ignored. Fortunately, the judicially has not proved
inattentive. Its task has thus become even more formidable. For so much grist is
added to the mills of justice. Moreover, they are likewise to be quite novel. The
need for an innovative approach is thus apparent. The national leadership, as is
well-known, has been constantly on the search for solutions that will prove to be
both acceptable and satisfactory. Only thus may there be continued national
progress." 15 After which comes: "To be less abstract, the thrust is on development.
That has been repeatedly stressed and rightly so. All efforts are geared to its
realization. Nor, unlike in the past, was it to b "considered as simply the movement
towards economic progress and growth measured in terms of sustained increases
in per capita income and Gross National Product (GNP). 16 For the New Society, its
implication goes further than economic advance, extending to "the sharing, or
more appropriately, the democratization of social and economic opportunities, the
substantiation of the true meaning of social justice." 17 This process of
modernization and change compels the government to extend its field of activity
and its scope of operations. The efforts towards reducing the gap between the
wealthy and the poor elements in the nation call for more regulatory legislation.
That way the social justice and protection to labor mandates of the Constitution
could be effectively implemented." 18 There is likelihood then "that some measures
deemed inimical by interests adversely affected would be challenged in court on
grounds of validity. Even if the question does not go that far, suits may be filed
concerning their interpretation and application. ... There could be pleas for
injunction or restraining orders. Lack of success of such moves would not, even so,
result in their prompt final disposition. Thus delay in the execution of the policies
embodied in law could thus be reasonably expected. That is not conducive to
progress in development." 19 For, as mentioned in such Report, equally of vital
concern is the problem of clogged dockets, which "as is well known, is one of the
utmost gravity. Notwithstanding the most determined efforts exerted by the
Supreme Court, through the leadership of both retired Chief Justice Querube
Makalintal and the late Chief Justice Fred Ruiz Castro, from the time supervision of
the courts was vested in it under the 1973 Constitution, the trend towards more

and more cases has continued." 20 It is understandable why. With the accelerated
economic development, the growth of population, the increasing urbanization, and
other similar factors, the judiciary is called upon much oftener to resolve
controversies. Thus confronted with what appears to be a crisis situation that calls
for a remedy, the Batasang Pambansa had no choice. It had to act, before the
ailment became even worse. Time was of the essence, and yet it did not hesitate
to be duly mindful, as it ought to be, of the extent of its coverage before enacting
Batas Pambansa Blg. 129.
3. There is no denying, therefore, the need for "institutional reforms,"
characterized in the Report as "both pressing and urgent." 21 It is worth noting,
likewise, as therein pointed out, that a major reorganization of such scope, if it
were to take place, would be the most thorough after four generations. 22 The
reference was to the basic Judiciary Act generations . enacted in June of
1901, 23 amended in a significant way, only twice previous to the Commonwealth.
There was, of course, the creation of the Court of Appeals in 1935, originally
composed "of a Presiding Judge and ten appellate Judges, who shall be appointed
by the President of the Philippines, with the consent of the Commission on
Appointments of the National Assembly, 24 It could "sit en banc, but it may sit in
two divisions, one of six and another of five Judges, to transact business, and the
two divisions may sit at the same time." 25 Two years after the establishment of
independence of the Republic of the Philippines, the Judiciary Act of 1948 26 was
passed. It continued the existing system of regular inferior courts, namely, the
Court of Appeals, Courts of First Instance, 27 the Municipal Courts, at present the
City Courts, and the Justice of the Peace Courts, now the Municipal Circuit Courts
and Municipal Courts. The membership of the Court of Appeals has been
continuously increased. 28 Under a 1978 Presidential Decree, there would be fortyfive members, a Presiding Justice and forty-four Associate Justices, with fifteen
divisions. 29 Special courts were likewise created. The first was the Court of Tax
Appeals in 1954, 30 next came the Court of Agrarian Relations in 1955, 31 and then
in the same year a Court of the Juvenile and Domestic Relations for Manila in
1955, 32 subsequently followed by the creation of two other such courts for Iloilo
and Quezon City in 1966. 33 In 1967, Circuit Criminal Courts were established, with
the Judges having the same qualifications, rank, compensation, and privileges as
judges of Courts of First Instance. 34
4. After the submission of such Report, Cabinet Bill No. 42, which later became the
basis of Batas Pambansa Blg. 129, was introduced. After setting forth the
background as above narrated, its Explanatory Note continues: "Pursuant to the
President's instructions, this proposed legislation has been drafted in accordance
with the guidelines of that report with particular attention to certain objectives of

the reorganization, to wit, the attainment of more efficiency in disposal of cases, a

reallocation of jurisdiction, and a revision of procedures which do not tend to the
proper meeting out of justice. In consultation with, and upon a consensus of, the
governmental and parliamentary leadership, however, it was felt that some options
set forth in the Report be not availed of. Instead of the proposal to confine the
jurisdiction of the intermediate appellate court merely to appellate adjudication,
the preference has been opted to increase rather than diminish its jurisdiction in
order to enable it to effectively assist the Supreme Court. This preference has been
translated into one of the innovations in the proposed Bill." 35 In accordance with
the parliamentary procedure, the Bill was sponsored by the Chairman of the
Committee on Justice, Human Rights and Good Government to which it was
referred. Thereafter, Committee Report No. 225 was submitted by such Committee
to the Batasang Pambansa recommending the approval with some amendments. In
the sponsorship speech of Minister Ricardo C. Puno, there was reference to the
Presidential Committee on Judicial Reorganization. Thus: "On October 17, 1980, the
Presidential Committee on Judicial Reorganization submitted its report to the
President which contained the 'Proposed Guidelines for Judicial Reorganization.'
Cabinet Bill No. 42 was drafted substantially in accordance with the options
presented by these guidelines. Some options set forth in the aforesaid report were
not availed of upon consultation with and upon consensus of the government and
parliamentary leadership. Moreover, some amendments to the bill were adopted
by the Committee on Justice, Human Rights and Good Government, to which The
bill was referred, following the public hearings on the bill held in December of
1980. The hearings consisted of dialogues with the distinguished members of the
bench and the bar who had submitted written proposals, suggestions, and position
papers on the bill upon the invitation of the Committee on Justice, Human Rights
and Good Government." 36 Stress was laid by the sponsor that the enactment of
such Cabinet Bill would, firstly, result in the attainment of more efficiency in the
disposal of cases. Secondly, the improvement in the quality of justice dispensed by
the courts is expected as a necessary consequence of the easing of the court's
dockets. Thirdly, the structural changes introduced in the bill, together with the
reallocation of jurisdiction and the revision of the rules of procedure, are
designated to suit the court system to the exigencies of the present day Philippine
society, and hopefully, of the foreseeable future." 37 it may be observed that the
volume containing the minutes of the proceedings of the Batasang Pambansa show
that 590 pages were devoted to its discussion. It is quite obvious that it took
considerable time and effort as well as exhaustive study before the act was signed
by the President on August 14, 1981. With such a background, it becomes quite
manifest how lacking in factual basis is the allegation that its enactment is tainted
by the vice of arbitrariness. What appears undoubted and undeniable is the good

faith that characterized its enactment from its inception to the affixing of the
Presidential signature.
5. Nothing is better settled in our law than that the abolition of an office within the
competence of a legitimate body if done in good faith suffers from no infirmity.
The ponencia of Justice J.B.L. Reyes in Cruz v. Primicias, Jr. 38reiterated such a
doctrine: "We find this point urged by respondents, to be without merit. No removal
or separation of petitioners from the service is here involved, but the validity of the
abolition of their offices. This is a legal issue that is for the Courts to decide. It is
well-known rule also that valid abolition of offices is neither removal nor separation
of the incumbents. ... And, of course, if the abolition is void, the incumbent is
deemed never to have ceased to hold office. The preliminary question laid at rest,
we pass to the merits of the case. As well-settled as the rule that the abolition of
an office does not amount to an illegal removal of its incumbent is the principle
that, in order to be valid, the abolition must be made in good faith." 39 The above
excerpt was quoted with approval in Bendanillo, Sr. v. Provincial Governor, 40 two
earlier cases enunciating a similar doctrine having preceded it. 41 As with the
offices in the other branches of the government, so it is with the judiciary. The test
remains whether the abolition is in good faith. As that element is conspicuously
present in the enactment of Batas Pambansa Blg. 129, then the lack of merit of this
petition becomes even more apparent. The concurring opinion of Justice Laurel
in Zandueta v. De la Costa 42 cannot be any clearer. This is a quo warranto
proceeding filed by petitioner, claiming that he, and not respondent, was entitled
to he office of judge of the Fifth Branch of the Court of First Instance of Manila.
There was a Judicial Reorganization Act in 1936, 43 a year after the inauguration of
the Commonwealth, amending the Administrative Code to organize courts of
original jurisdiction known as the Courts of First Instance Prior to such statute,
petitioner was the incumbent of such branch. Thereafter, he received an ad interim
appointment, this time to the Fourth Judicial District, under the new legislation.
Unfortunately for him, the Commission on Appointments of then National Assembly
disapproved the same, with respondent being appointed in his place. He contested
the validity of the Act insofar as it resulted in his being forced to vacate his position
This Court did not rule squarely on the matter. His petition was dismissed on the
ground of estoppel. Nonetheless, the separate concurrence of Justice Laurel in the
result reached, to repeat, reaffirms in no uncertain terms the standard of good faith
to preclude any doubt as to the abolition of an inferior court, with due recognition
of the security of tenure guarantee. Thus: " I am of the opinion that
Commonwealth Act No. 145 in so far as it reorganizes, among other judicial
districts, the Ninth Judicial District, and establishes an entirely new district
comprising Manila and the provinces of Rizal and Palawan, is valid and
constitutional. This conclusion flows from the fundamental proposition that the

legislature may abolish courts inferior to the Supreme Court and therefore may
reorganize them territorially or otherwise thereby necessitating new appointments
and commissions. Section 2, Article VIII of the Constitution vests in the National
Assembly the power to define, prescribe and apportion the jurisdiction of the
various courts, subject to certain limitations in the case of the Supreme Court. It is
admitted that section 9 of the same article of the Constitution provides for the
security of tenure of all the judges. The principles embodied in these two sections
of the same article of the Constitution must be coordinated and harmonized. A
mere enunciation of a principle will not decide actual cases and controversies of
every sort. (Justice Holmes in Lochner vs. New York, 198 U.S., 45; 49 Law. ed;
937)" 44 justice Laurel continued: "I am not insensible to the argument that the
National Assembly may abuse its power and move deliberately to defeat the
constitutional provision guaranteeing security of tenure to all judges, But, is this
the case? One need not share the view of Story, Miller and Tucker on the one hand,
or the opinion of Cooley, Watson and Baldwin on the other, to realize that the
application of a legal or constitutional principle is necessarily factual and
circumstantial and that fixity of principle is the rigidity of the dead and the
unprogressive. I do say, and emphatically, however, that cases may arise where
the violation of the constitutional provision regarding security of tenure is palpable
and plain, and that legislative power of reorganization may be sought to cloak an
unconstitutional and evil purpose. When a case of that kind arises, it will be the
time to make the hammer fall and heavily. But not until then. I am satisfied that, as
to the particular point here discussed, the purpose was the fulfillment of what was
considered a great public need by the legislative department and that
Commonwealth Act No. 145 was not enacted purposely to affect adversely the
tenure of judges or of any particular judge. Under these circumstances, I am for
sustaining the power of the legislative department under the Constitution. To be
sure, there was greater necessity for reorganization consequent upon the
establishment of the new government than at the time Acts Nos. 2347 and 4007
were approved by the defunct Philippine Legislature, and although in the case of
these two Acts there was an express provision providing for the vacation by the
judges of their offices whereas in the case of Commonwealth Act No. 145 doubt is
engendered by its silence, this doubt should be resolved in favor of the valid
exercise of the legislative power." 45
6. A few more words on the question of abolition. In the above-cited opinion of
Justice Laurel in Zandueta, reference was made to Act No. 2347 46 on the
reorganization of the Courts of First Instance and to Act No. 4007 47 on the
reorganization of all branches of the government, including the courts of first
instance. In both of them, the then Courts of First Instance were replaced by new
courts with the same appellation. As Justice Laurel pointed out, there was no

question as to the fact of abolition. He was equally categorical as to

Commonwealth Act No. 145, where also the system of the courts of first instance
was provided for expressly. It was pointed out by Justice Laurel that the mere
creation of an entirely new district of the same court is valid and constitutional.
such conclusion flowing "from the fundamental proposition that the legislature may
abolish courts inferior to the Supreme Court and therefore may reorganize them
territorially or otherwise thereby necessitating new appointments and
commissions." 48 The challenged statute creates an intermediate appellate
court, 49 regional trial courts, 50 metropolitan trial courts of the national capital
region, 51 and other metropolitan trial courts, 52 municipal trial courts in cities, 53 as
well as in municipalities, 54 and municipal circuit trial courts. 55 There is even less
reason then to doubt the fact that existing inferior courts were abolished. For the
Batasang Pambansa, the establishment of such new inferior courts was the
appropriate response to the grave and urgent problems that pressed for solution.
Certainly, there could be differences of opinion as to the appropriate remedy. The
choice, however, was for the Batasan to make, not for this Court, which deals only
with the question of power. It bears mentioning that in Brillo v. Eage56 this Court,
in an unanimous opinion penned by the late Justice Diokno, citing Zandueta v. De
la Costa, ruled: "La segunda question que el recurrrido plantea es que la Carta de
Tacloban ha abolido el puesto. Si efectivamente ha sido abolido el cargo, entonces
ha quedado extinguido el derecho de recurente a ocuparlo y a cobrar el salario
correspodiente.Mc Culley vs. State, 46 LRA, 567. El derecho de un juez de
desempenarlo hasta los 70 aos de edad o se incapacite no priva al Congreso de
constitucionales." 57 Nonetheless, such well-established principle was not held
applicable to the situation there obtaining, the Charter of Tacloban City creating a
city court in place of the former justice of the peace court. Thus: "Pero en el caso
de autos el Juzgado de Tacloban no ha sido abolido. Solo se le ha cambiado el
nombre con el cambio de forma del gobierno local." 58 The present case is anything
but that. Petitioners did not and could not prove that the challenged statute was
not within the bounds of legislative authority.
7. This opinion then could very well stop at this point. The implementation of Batas
Pambansa Blg. 129, concededly a task incumbent on the Executive, may give rise,
however, to questions affecting a judiciary that should be kept independent. The
all-embracing scope of the assailed legislation as far as all inferior courts from the
Courts of Appeals to municipal courts are concerned, with the exception solely of
the Sandiganbayan and the Court of Tax Appeals 59 gave rise, and understandably
so, to misgivings as to its effect on such cherished Ideal. The first paragraph of the
section on the transitory provision reads: "The provisions of this Act shall be
immediately carried out in accordance with an Executive Order to be issued by the

President. The Court of Appeals, the Courts of First Instance, the Circuit Criminal
Courts, the Juvenile and Domestic Relations Courts, the Courts of Agrarian
Relations, the City Courts, the Municipal Courts, and the Municipal Circuit Courts
shall continue to function as presently constituted and organized, until the
completion of the reorganization provided in this Act as declared by the President.
Upon such declaration, the said courts shall be deemed automatically abolished
and the incumbents thereof shall cease to hold the office." 60 There is all the more
reason then why this Court has no choice but to inquire further into the allegation
by petitioners that the security of tenure provision, an assurance of a judiciary free
from extraneous influences, is thereby reduced to a barren form of words. The
amended Constitution adheres even more clearly to the long-established tradition
of a strong executive that antedated the 1935 Charter. As noted in the work of
former Vice-Governor Hayden, a noted political scientist, President Claro M. Recto
of the 1934 Convention, in his closing address, in stressing such a concept,
categorically spoke of providing "an executive power which, subject to the
fiscalization of the Assembly, and of public opinion, will not only know how to
govern, but will actually govern, with a firm and steady hand, unembarrassed by
vexatious interferences by other departments, or by unholy alliances with this and
that social group." 61 The above excerpt was cited with approval by Justice Laurel
in Planas v. Gil.62 Moreover, under the 1981 Amendments, it may be affirmed that
once again the principle of separation of powers, to quote from the same jurist
as ponente in Angara v. Electoral Commission, 63 "obtains not through express
provision but by actual division." 64 The president, under Article VII, shall be the
head of state and chief executive of the Republic of the Philippines." 65 Moreover, it
is equally therein expressly provided that all the powers he possessed under the
1935 Constitution are once again vested in him unless the Batasang Pambansa
provides otherwise." 66 Article VII of the 1935 Constitution speaks categorically:
"The Executive power shall be vested in a President of the Philippines." 67 As
originally framed, the 1973 Constitution created the position of President as the
"symbolic head of state." 68 In addition, there was a provision for a Prime Minister
as the head of government exercising the executive power with the assistance of
the Cabinet69 Clearly, a modified parliamentary system was established. In the
light of the 1981 amendments though, this Court inFree Telephone Workers Union
v. Minister of Labor 70 could state: "The adoption of certain aspects of a
parliamentary system in the amended Constitution does not alter its essentially
presidential character." 71 The retention, however, of the position of the Prime
Minister with the Cabinet, a majority of the members of which shall come from the
regional representatives of the Batasang Pambansa and the creation of an
Executive Committee composed of the Prime Minister as Chairman and not more
than fourteen other members at least half of whom shall be members of the
Batasang Pambansa, clearly indicate the evolving nature of the system of

government that is now operative. 72 What is equally apparent is that the strongest
ties bind the executive and legislative departments. It is likewise undeniable that
the Batasang Pambansa retains its full authority to enact whatever legislation may
be necessary to carry out national policy as usually formulated in a caucus of the
majority party. It is understandable then why in Fortun v. Labang 73 it was stressed
that with the provision transferring to the Supreme Court administrative
supervision over the Judiciary, there is a greater need "to preserve unimpaired the
independence of the judiciary, especially so at present, where to all intents and
purposes, there is a fusion between the executive and the legislative branches." 74
8. To be more specific, petitioners contend that the abolition of the existing inferior
courts collides with the security of tenure enjoyed by incumbent Justices and
judges under Article X, Section 7 of the Constitution. There was a similar provision
in the 1935 Constitution. It did not, however, go as far as conferring on this
Tribunal the power to supervise administratively inferior courts. 75 Moreover, this
Court is em powered "to discipline judges of inferior courts and, by a vote of at
least eight members, order their dismissal." 76 Thus it possesses the competence
to remove judges. Under the Judiciary Act, it was the President who was vested
with such power. 77 Removal is, of course, to be distinguished from termination by
virtue of the abolition of the office. There can be no tenure to a non-existent office.
After the abolition, there is in law no occupant. In case of removal, there is an
office with an occupant who would thereby lose his position. It is in that sense that
from the standpoint of strict law, the question of any impairment of security of
tenure does not arise. Nonetheless, for the incumbents of inferior courts abolished,
the effect is one of separation. As to its effect, no distinction exists between
removal and the abolition of the office. Realistically, it is devoid of significance. He
ceases to be a member of the judiciary. In the implementation of the assailed
legislation, therefore, it would be in accordance with accepted principles of
constitutional construction that as far as incumbent justices and judges are
concerned, this Court be consulted and that its view be accorded the fullest
consideration. No fear need be entertained that there is a failure to accord respect
to the basic principle that this Court does not render advisory opinions. No
question of law is involved. If such were the case, certainly this Court could not
have its say prior to the action taken by either of the two departments. Even then,
it could do so but only by way of deciding a case where the matter has been put in
issue. Neither is there any intrusion into who shall be appointed to the vacant
positions created by the reorganization. That remains in the hands of the Executive
to whom it properly belongs. There is no departure therefore from the tried and
tested ways of judicial power, Rather what is sought to be achieved by this liberal
interpretation is to preclude any plausibility to the charge that in the exercise of
the conceded power of reorganizing tulle inferior courts, the power of removal of

the present incumbents vested in this Tribunal is ignored or disregarded. The

challenged Act would thus be free from any unconstitutional taint, even one not
readily discernidble except to those predisposed to view it with distrust. Moreover,
such a construction would be in accordance with the basic principle that in the
choice of alternatives between one which would save and another which would
invalidate a statute, the former is to be preferred. 78 There is an obvious way to do
so. The principle that the Constitution enters into and forms part of every act to
applied Nuez
Sandiganbayan, 79 promulgated last January, has this relevant excerpt: "It is true
that other Sections of the Decree could have been so worded as to avoid any
constitutional objection. As of now, however, no ruling is called for. The view is
given expression in the concurring and dissenting opinion of Justice Makasiar that
in such a case to save the Decree from the direct fate of invalidity, they must be
construed in such a way as to preclude any possible erosion on the powers vested
in this Court by the Constitution. That is a proposition too plain to be committed. It
commends itself for approval." 80 Nor would such a step be unprecedented. The
Presidential Decree constituting Municipal Courts into Municipal Circuit Courts,
specifically provides: "The Supreme Court shall carry out the provisions of this
Decree through implementing orders, on a province-to-province basis." 81 It is true
there is no such provision in this Act, but the spirit that informs it should not be
ignored in the Executive Order contemplated under its Section 44. 82 Thus Batas
Pambansa Blg. 129 could stand the most rigorous test of constitutionality. 83
9. Nor is there anything novel in the concept that this Court is called upon to
reconcile or harmonize constitutional provisions. To be specific, the Batasang
Pambansa is expressly vested with the authority to reorganize inferior courts and
in the process to abolish existing ones. As noted in the preceding paragraph, the
termination of office of their occupants, as a necessary consequence of such
abolition, is hardly distinguishable from the practical standpoint from removal, a
power that is now vested in this Tribunal. It is of the essence of constitutionalism to
assure that neither agency is precluded from acting within the boundaries of its
conceded competence. That is why it has long been well-settled under the
constitutional system we have adopted that this Court cannot, whenever
appropriate, avoid the task of reconciliation. As Justice Laurel put it so well in the
previously cited Angara decision, while in the main, "the Constitution has blocked
out with deft strokes and in bold lines, allotment of power to the executive, the
legislative and the judicial departments of the government, the overlapping and
interlacing of functions and duties between the several departments, however,
sometimes makes it hard to say just where the one leaves off and the other
begins." 84 It is well to recall another classic utterance from the same jurist, even
more emphatic in its affirmation of such a view, moreover buttressed by one of

those insights for which Holmes was so famous "The classical separation of
government powers, whether viewed in the light of the political philosophy of
Aristotle, Locke, or Motesquieu or of the postulations of Mabini, Madison, or
Jefferson, is a relative theory of government. There is more truism and actuality in
interdependence than in independence and separation of powers, for as observed
by Justice Holmes in a case of Philippine origin, we cannot lay down 'with
mathematical precision and divide the branches into water-tight compartments'
not only because 'the great ordinances of the Constitution do not establish and
divide fields of black and white but also because 'even the more specific of them
are found to terminate in a penumbra shading gradually from one extreme to the
other.'" 85 This too from Justice Tuazon, likewise expressing with force and clarity
why the need for reconciliation or balancing is well-nigh unavodiable under the
fundamental principle of separation of powers: "The constitutional structure is a
complicated system, and overlappings of governmental functions are recognized,
unavoidable, and inherent necessities of governmental coordination." 86 In the
same way that the academe has noted the existence in constitutional litigation of
right versus right, there are instances, and this is one of them, where, without this
attempt at harmonizing the provisions in question, there could be a case of power
against power. That we should avoid.
10. There are other objections raised but they pose no difficulty. Petitioners would
characterize as an undue delegation of legislative power to the President the grant
of authority to fix the compensation and the allowances of the Justices and judges
thereafter appointed. A more careful reading of the challenged Batas Pambansa
Blg. 129 ought to have cautioned them against raising such an issue. The language
of the statute is quite clear. The questioned provisions reads as follows:
"Intermediate Appellate Justices, Regional Trial Judges, Metropolitan Trial Judges,
municipal Trial Judges, and Municipal Circuit Trial Judges shall receive such receive
such compensation and allowances as may be authorized by the President along
the guidelines set forth in Letter of Implementation No. 93 pursuant to Presidential
Decree No. 985, as amended by Presidential Decree No. 1597." 87 The existence of
a standard is thus clear. The basic postulate that underlies the doctrine of nondelegation is that it is the legislative body which is entrusted with the competence
to make laws and to alter and repeal them, the test being the completeness of the
statue in all its terms and provisions when enacted. As pointed out in Edu v.
Ericta: 88 "To avoid the taint of unlawful delegation, there must be a standard,
which implies at the very least that the legislature itself determines matters of
principle and lays down fundamental policy. Otherwise, the charge of complete
abdication may be hard to repel. A standard thus defines legislative policy, marks
its limits, maps out its boundaries and specifies the public agency to apply it. It
indicates the circumstances under which the legislative command is to be effected.

It is the criterion by which legislative purpose may be carried out. Thereafter, the
executive or administrative office designated may in pursuance of the above
guidelines promulgate supplemental rules and regulations. The standard may be
either express or implied. If the former, the non-delegation objection is easily met.
The standard though does not have to be spelled out specifically. It could be
implied from the policy and purpose of the act considered as a whole." 89 The
undeniably strong links that bind the executive and legislative departments under
the amended Constitution assure that the framing of policies as well as their
implementation can be accomplished with unity, promptitude, and efficiency. There
is accuracy, therefore, to this observation in the Free Telephone Workers Union
decision: "There is accordingly more receptivity to laws leaving to administrative
and executive agencies the adoption of such means as may be necessary to
effectuate a valid legislative purpose. It is worth noting that a highly-respected
legal scholar, Professor Jaffe, as early as 1947, could speak of delegation as the
'dynamo of modern government.'" 90 He warned against a "restrictive approach"
which could be "a deterrent factor to much-needed legislation." 91 Further on this
point from the same opinion" "The spectre of the non-delegation concept need not
chambers." 92 Another objection based on the absence in the statue of what
petitioners refer to as a "definite time frame limitation" is equally bereft of merit.
They ignore the categorical language of this provision: "The Supreme Court shall
submit to the President, within thirty (30) days from the date of the effectivity of
this act, a staffing pattern for all courts constituted pursuant to this Act which shall
be the basis of the implementing order to be issued by the President in accordance
with the immediately succeeding section." 93 The first sentence of the next section
is even more categorical: "The provisions of this Act shall be immediately carried
out in accordance with an Executive Order to be issued by the
President." 94 Certainly petitioners cannot be heard to argue that the President is
insensible to his constitutional duty to take care that the laws be faithfully
executed. 95 In the meanwhile, the existing inferior courts affected continue
functioning as before, "until the completion of the reorganization provided in this
Act as declared by the President. Upon such declaration, the said courts shall be
deemed automatically abolished and the incumbents thereof shall cease to hold
office." 96 There is no ambiguity. The incumbents of the courts thus automatically
abolished "shall cease to hold office." No fear need be entertained by incumbents
whose length of service, quality of performance, and clean record justify their
being named anew, 97 in legal contemplation without any interruption in the
continuity of their service. 98 It is equally reasonable to assume that from the ranks
of lawyers, either in the government service, private practice, or law professors will
come the new appointees. In the event that in certain cases a little more time is
necessary in the appraisal of whether or not certain incumbents deserve

reappointment, it is not from their standpoint undesirable. Rather, it would be a

reaffirmation of the good faith that will characterize its implementation by the
Executive. There is pertinence to this observation of Justice Holmes that even
acceptance of the generalization that courts ordinarily should not supply omissions
in a law, a generalization qualified as earlier shown by the principle that to save a
statute that could be done, "there is no canon against using common sense in
construing laws as saying what they obviously mean." 99 Where then is the
unconstitutional flaw
11. On the morning of the hearing of this petition on September 8, 1981,
petitioners sought to have the writer of this opinion and Justices Ramon C. Aquino
and Ameurfina Melencio-Herrera disqualified because the first-named was the
chairman and the other two, members of the Committee on Judicial
Reorganization. At the hearing, the motion was denied. It was made clear then and
there that not one of the three members of the Court had any hand in the framing
or in the discussion of Batas Pambansa Blg. 129. They were not consulted. They
did not testify. The challenged legislation is entirely the product of the efforts of the
legislative body. 100 Their work was limited, as set forth in the Executive Order, to
submitting alternative plan for reorganization. That is more in the nature of
scholarly studies. That the undertook. There could be no possible objection to such
activity. Ever since 1973, this Tribunal has had administrative supervision over
interior courts. It has had the opportunity to inform itself as to the way judicial
business is conducted and how it may be improved. Even prior to the 1973
Constitution, it is the recollection of the writer of this opinion that either the then
Chairman or members of the Committee on Justice of the then Senate of the
Philippines 101 consulted members of the Court in drafting proposed legislation
affecting the judiciary. It is not inappropriate to cite this excerpt from an article in
the 1975 Supreme Court Review: "In the twentieth century the Chief Justice of the
United States has played a leading part in judicial reform. A variety of conditions
have been responsible for the development of this role, and foremost among them
has been the creation of explicit institutional structures designed to facilitate
reform." 102 Also: "Thus the Chief Justice cannot avoid exposure to and direct
involvement in judicial reform at the federal level and, to the extent issues of
judicial federalism arise, at the state level as well." 103
12. It is a cardinal article of faith of our constitutional regime that it is the people
who are endowed with rights, to secure which a government is instituted. Acting as
it does through public officials, it has to grant them either expressly or impliedly
certain powers. Those they exercise not for their own benefit but for the body
politic. The Constitution does not speak in the language of ambiguity: "A public
office is a public trust." 104 That is more than a moral adjuration It is a legal

imperative. The law may vest in a public official certain rights. It does so to enable
them to perform his functions and fulfill his responsibilities more efficiently. It is
from that standpoint that the security of tenure provision to assure judicial
independence is to be viewed. It is an added guarantee that justices and judges
can administer justice undeterred by any fear of reprisal or untoward consequence.
Their judgments then are even more likely to be inspired solely by their knowledge
of the law and the dictates of their conscience, free from the corrupting influence
of base or unworthy motives. The independence of which they are assured is
impressed with a significance transcending that of a purely personal right. As thus
viewed, it is not solely for their welfare. The challenged legislation Thus subject d
to the most rigorous scrutiny by this Tribunal, lest by lack of due care and
circumspection, it allow the erosion of that Ideal so firmly embedded in the
national consciousness There is this farther thought to consider. independence in
thought and action necessarily is rooted in one's mind and heart. As emphasized
by former Chief Justice Paras in Ocampo v. Secretary of Justice, 105 there is no surer
guarantee of judicial independence than the God-given character and fitness of
those appointed to the Bench. The judges may be guaranteed a fixed tenure of
office during good behavior, but if they are of such stuff as allows them to be
subservient to one administration after another, or to cater to the wishes of one
litigant after another, the independence of the judiciary will be nothing more than
a myth or an empty Ideal. Our judges, we are confident, can be of the type of Lord
Coke, regardless or in spite of the power of Congress we do not say unlimited
but as herein exercised to reorganize inferior courts." 106 That is to recall one of
the greatest Common Law jurists, who at the cost of his office made clear that he
would not just blindly obey the King's order but "will do what becomes [him] as a
judge." So it was pointed out in the first leading case stressing the independence
of the judiciary, Borromeo v. Mariano, 107The ponencia of Justice Malcolm Identified
good judges with "men who have a mastery of the principles of law, who discharge
their duties in accordance with law, who are permitted to perform the duties of the
office undeterred by outside influence, and who are independent and selfrespecting human units in a judicial system equal and coordinate to the other two
departments of government." 108 There is no reason to assume that the failure of
this suit to annul Batas Pambansa Blg. 129 would be attended with deleterious
consequences to the administration of justice. It does not follow that the abolition
in good faith of the existing inferior courts except the Sandiganbayan and the
Court of Tax Appeals and the creation of new ones will result in a judiciary unable
or unwilling to discharge with independence its solemn duty or one recreant to the
trust reposed in it. Nor should there be any fear that less than good faith will
attend the exercise be of the appointing power vested in the Executive. It cannot
be denied that an independent and efficient judiciary is something to the credit of
any administration. Well and truly has it been said that the fundamental principle

of separation of powers assumes, and justifiably so, that the three departments are
as one in their determination to pursue the Ideals and aspirations and to fulfilling
the hopes of the sovereign people as expressed in the Constitution. There is
wisdom as well as validity to this pronouncement of Justice Malcolm in Manila
Electric Co. v. Pasay Transportation Company, 109 a decision promulgated almost
half a century ago: "Just as the Supreme Court, as the guardian of constitutional
rights, should not sanction usurpations by any other department or the
government, so should it as strictly confine its own sphere of influence to the
powers expressly or by implication conferred on it by the Organic Act." 110 To that
basic postulate underlying our constitutional system, this Court remains
WHEREFORE, the unconstitutionality of Batas Pambansa Blg. 129 not having been
shown, this petition is dismissed. No costs.

G.R. No. L-27811

November 17, 1967

INC., plaintiff-appellant,
JOSE PAO, HON. JUAN PAJO, in his capacity as Executive Secretary, and
HON. JUAN DE G. RODRIGUEZ, in his capacity as Secretary of Agriculture
and Natural Resources, defendants-appellees.
Office of the Solicitor General for defendant Secretary of Agriculture and Natural
Resources and Executive Secretary.

The question May the Executive Secretary, acting by authority of the President,
reverse a decision of the Director of Lands that had been affirmed by the Executive
Secretary of Agriculture and Natural Resources yielded an affirmative answer
from the lower court.1
Hence, this appeal certified to this Court by the Court of Appeals upon the
provisions of Sections 17 and 31 of the Judiciary Act of 1948, as amended.
The undisputed controlling facts are:
In 1932, Jose Magallanes was a permittee and actual occupant of a 1,103-hectare
pasture land situated in Tamlangon, Municipality of Bansalan, Province of Davao.

On June 25, 1958, Executive Secretary Juan Pajo, "[b]y authority of the President"
decided the controversy, modified the decision of the Director of Lands as affirmed
by the Secretary of Agriculture and Natural Resources, and (1) declared that "it
would be for the public interest that appellants, who are mostly landless farmers
who depend on the land for their existence, be allocated that portion on which they
have made improvements;" and (2) directed that the controverted land (northern
portion of Block I, LC Map 1749, Project No. 27, of Bansalan, Davao, with Latian
River as the dividing line) "should be subdivided into lots of convenient sizes and
allocated to actual occupants, without prejudice to the corporation's right to
reimbursement for the cost of surveying this portion." It may be well to state, at
this point, that the decision just mentioned, signed by the Executive Secretary, was
planted upon the facts as found in said decision.

On January 9, 1953, Magallanes ceded his rights and interests to a portion

(392,7569 hectares) of the above public land to plaintiff.

Plaintiff corporation took the foregoing decision to the Court of First Instance
praying that judgment be rendered declaring: (1) that the decision of the Secretary
of Agriculture and Natural Resources has full force and effect; and (2) that the
decision of the Executive Secretary is contrary to law and of no legal force and

On April 13, 1954, the portion Magallanes ceded to plaintiff was officially released
from the forest zone as pasture land and declared agricultural land.

And now subject of this appeal is the judgment of the court a quo dismissing
plaintiff's case.

On January 26, 1955, Jose Pao and nineteen other claimants2 applied for the
purchase of ninety hectares of the released area.

1. Plaintiff's mainstay is Section 4 of Commonwealth Act 141. The precept there is

that decisions of the Director of Lands "as to questions of facts shall be conclusive
when approved" by the Secretary of Agriculture and Natural Resources. Plaintiff's
trenchment claim is that this statute is controlling not only upon courts but also
upon the President.

On March 29, 1955, plaintiff corporation in turn filed its own sales application
covering the entire released area. This was protested by Jose Pao and his
nineteen companions upon the averment that they are actual occupants of the
part thereof covered by their own sales application.
The Director of Lands, following an investigation of the conflict, rendered a decision
on July 31, 1956 giving due course to the application of plaintiff corporation, and
dismissing the claim of Jose Pao and his companions. A move to reconsider failed.
On July 5, 1957, the Secretary of Agriculture and Natural Resources on appeal by
Jose Pao for himself and his companions held that the appeal was without merit
and dismissed the same.
The case was elevated to the President of the Philippines.

Plaintiff's position is incorrect. The President's duty to execute the law is of

constitutional origin.3 So, too, is his control of all executive departments. 4 Thus it is,
that department heads are men of his confidence. His is the power to appoint
them; his, too, is the privilege to dismiss them at pleasure. Naturally, he controls
and directs their acts. Implicit then is his authority to go over, confirm, modify or
reverse the action taken by his department secretaries. In this context, it may not
be said that the President cannot rule on the correctness of a decision of a
department secretary.
Particularly in reference to the decisions of the Director of Lands, as affirmed by
the Secretary of Agriculture and Natural Resources, the standard practice is to
allow appeals from such decisions to the Office of the President. 5This Court has

recognized this practice in several cases. In one, the decision of the Lands Director
as approved by the Secretary was considered superseded by that of the President's
appeal.6 In other cases, failure to pursue or resort to this last remedy of appeal was
considered a fatal defect, warranting dismissal of the case, for non-exhaustion of
all administrative remedies.7
Parenthetically, it may be stated that the right to appeal to the President reposes
upon the President's power of control over the executive departments. 8 And control
simply means "the power of an officer to alter or modify or nullify or set aside what
a subordinate officer had done in the performance of his duties and to substitute
the judgment of the former for that of the latter."9
This unquestionably negates the assertion that the President cannot undo an act of
his department secretary.
2. Plaintiff next submits that the decision of the Executive Secretary herein is an
undue delegation of power. The Constitution, petitioner asserts, does not contain
any provision whereby the presidential power of control may be delegated to the
Executive Secretary. It is argued that it is the constitutional duty of the President to
act personally upon the matter.
It is correct to say that constitutional powers there are which the President must
exercise in person.10 Not as correct, however, is it so say that the Chief Executive
may not delegate to his Executive Secretary acts which the Constitution does not
command that he perform in person. 11 Reason is not wanting for this view. The
President is not expected to perform in person all the multifarious executive and
administrative functions. The Office of the Executive Secretary is an auxiliary unit
which assists the President. The rule which has thus gained recognition is that
"under our constitutional setup the Executive Secretary who acts for and in behalf
and by authority of the President has an undisputed jurisdiction to affirm, modify,
or even reverse any order" that the Secretary of Agriculture and Natural Resources,
including the Director of Lands, may issue.12
3. But plaintiff underscores the fact that the Executive Secretary is equal in rank to
the other department heads, no higher than anyone of them. From this, plaintiff
carves the argument that one department head, on the pretext that he is an alter
ego of the President, cannot intrude into the zone of action allocated to another
department secretary. This argument betrays lack of appreciation of the fact that
where, as in this case, the Executive Secretary acts "[b]y authority of the
President," his decision is that of the President's. Such decision is to be given full

faith and credit by our courts. The assumed authority of the Executive Secretary is
to be accepted. For, only the President may rightfully say that the Executive
Secretary is not authorized to do so. Therefore, unless the action taken is
"disapproved or reprobated by the Chief Executive,"13 that remains the act of the
Chief Executive, and cannot be successfully assailed. 14 No such disapproval or
reprobation is even intimated in the record of this case.
For the reasons given, the judgment under review is hereby affirmed. Costs against
plaintiff. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Castro and
Angeles, JJ., concur.

Petitioner SPO1 Rimando A. Gannapao appeals the Decision [1] dated April 27,
2007 and Resolution[2] dated October 10, 2007 of the Court of Appeals (CA) in CAG.R. SP No. 70605. The CA affirmed Civil Service Commission (CSC) Resolution No.
020487[3] which upheld the decision of the Philippine National Police (PNP) Chief
finding petitioner guilty of Serious Irregularities in the Performance of Duties, as
affirmed by the Secretary of Department of Interior and Local Government (DILG),

but modified the penalty of three months suspension to dismissal from the service.
G.R. No. 180141

The facts are as follows:




On December 22, 1995, respondents Ricardo Barien, Inocencio M. Navallo, Ligaya


M. Gando, Lea Molleda, Fe R. Vetonio, Primo V. Babiano, Patiga J., Jose Taeza, G.


Delos Santos, Losbaes, W., Ave Pediglorio and Cresencia Roque (Barien, et al.) who
are stockholders and board members of United Workers Transport Corp. (UWTC),
filed a verified complaint before the PNP Inspectorate Division at Camp Crame,
charging petitioner with Grave Misconduct and Moonlighting with Urgent Prayer for
Preventive Suspension and Disarming. [4] Barien, et al. are former drivers,
conductors, mechanics and clerks of the defunct Metro Manila Transit Corporation
(MMTC). In April 1995, UWTC started operating MMTCs buses which it acquired
under a conditional sale with right of repossession. At about the same time,
petitioner was allegedly employed by Atty. Roy G. Gironella, the general manager
appointed by the Board of Directors of UWTC, as his personal bodyguard with
compensation coming from UWTC. In October 1995, Barien, et al. representing the
majority stockholders of UWTC sued Atty. Gironella and five other members of the

May 31, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

UWTC Board of Directors for gross mismanagement.

Barien, et al. further alleged that upon orders of Atty. Gironella, the buses regularly
driven by them and other stockholders/drivers/workers were confiscated by a task










petitioner. Armed with deadly weapons such as guns and knives, petitioner and his

group intimidated and harassed the regular bus drivers and conductors, and took
over the buses. Petitioner is not authorized to use his firearm or his authority as
police officer to act as bodyguard of Atty. Gironella and to intimidate and coerce
the drivers/stockholders and the bus passengers. Barien, et al. thus prayed for the
preventive suspension of petitioner, the confiscation of his firearm and his

On November 26, 1997, PNP Chief Sarmiento rendered his Decision, [10] as follows:
WHEREFORE, premises considered, this Headquarters finds
respondent SPO1 RIMANDO A. GANNAPAO GUILTY of the charge of
serious irregularities in the performance of duties, thus, he is
hereby sentenced to suffer the penalty of three (3) months
suspension from the police service without pay.

termination after due hearing.

The complaint passed a pre-charge investigation with The Inspector General,






on January 12, 1996.Petitioner specifically denied the allegations of the


dated April













1998 of







complaint and averred that he was never employed by Atty. Gironella as

Alio. Petitioner elevated the case to the NAPOLCOM National Appellate Board. His

bodyguard. Instead, it was his twin brother, Reynaldo Gannapao, who worked as

appeal, however, was dismissed in a Resolution dated December 29, 1999.[13]

messenger at UWTC. In an undated Memorandum,[6] Chief Service Inspectorate

Police Superintendent Atty. Joselito Azarcon Casugbo recommended the dismissal
of the complaint, citing the affidavit of desistance allegedly executed by Avelino

Subsequently, National Police Commission (NAPOLCOM) Memorandum Circular No.

96-010[7] dated July 31, 1996, was issued, and a summary hearing on the
complaint was conducted by the Office of the Legal Service, PNP National
Headquarters in accordance with the newly promulgated rules. The case was
docketed as Adm. Case No. 09-97.

On January 30, 1997, Atty. Eduardo Sierra of the Office of the Director General,
PNP, issued a subpoena to petitioner requiring him to appear at the hearing of
Adm. Case No. 09-97 before the Office of the Legal Service in Camp Crame.

Petitioner moved to dismiss the complaint on the ground of res judicata, citing

the earlier dismissal of the complaint against him by Chief Service Inspectorate
Casugbo.[9] However, PNP Chief Recaredo A. Sarmiento II denied the motion to

Aggrieved, petitioner brought his case to the Department of Interior and Local
Government (DILG). In an Order[14] dated July 18, 2000, DILG Secretary Alfredo Lim
denied petitioners appeal and affirmed his suspension for three months.

Petitioner then appealed to the CSC claiming that he had been denied due process
in the proceedings before the Office of the Legal Service. He also sought to set
aside the penalty of three months suspension.

On April 3, 2002, the CSC issued Resolution No. 020487 dismissing petitioners
appeal but modifying his penalty of three months suspension to dismissal. The CSC
noted that the only evidence submitted by petitioner during the investigation of
the case is the picture of his alleged twin brother, Reynaldo and said that the best
evidence would have been the birth certificate or any document or the
presentation of the person himself, which would verify the existence and
employment in UWTC of such person. As to the assertion of petitioner that the
complaint has no more basis since some of the complainants (Cresencia Roque,
Primo V. Babiano and Avelino Pediglorio) have filed affidavits of desistance with the

PNP, the CSC pointed out that these affidavits were submitted after the PNP Chief
had rendered his decision and attached to petitioners motion for reconsideration of
said decision. More importantly, the withdrawal of the complaint does not result in
its outright dismissal nor discharge the person complained of from any

the Civil Service Commission is hereby AFFIRMED. Accordingly, the

Preliminary Injunction issued on 14 January 2003 enjoining the Civil
Service Commission from implementing the assailed Resolution is

administrative liability. The CSC ruled that petitioners act of serving as bodyguard
of Atty. Gironella and harassing the bus drivers of UWTC is so grave as to warrant
the penalty of dismissal. The dispositive portion of the CSC resolution reads:
WHEREFORE, the appeal of Rimando A. Gannapao is
hereby DISMISSED. However, the Order dated February 26, 2001 of
then DILG Secretary Alfredo S. Lim affirming the suspension of
Gannapao for a period of three (3) months is modified to dismissal
from the service.[15]

On October 10, 2007, the CA denied petitioners motion for reconsideration.

Hence, this petition.

Petitioner contends that he was denied due process in the proceedings before the
Office of the Legal Service of the PNP since no notice and summons were issued for

Petitioner thus filed with the CA a Petition for Review with an Urgent Motion for
Issuance of Temporary Restraining Order and/or Preliminary Injunction. The CA
issued a TRO on September 4, 2002[16] and a writ of preliminary injunction
on January 14, 2003.[17] In a petition for certiorari filed with this Court, the CSC
questioned the validity of the CAs issuance of the writ of preliminary injunction,
arguing that the injunctive relief violates the Administrative Code and the CSC
rules which state that administrative disciplinary penalties shall be immediately







appeal. By

dated November 17, 2005, we sustained the CA ruling and found no

grave abuse of discretion in the issuance of the preliminary injunction. The CA,
however, dissolved the writ in its Decision dated April 27, 2007 affirming CSC
Resolution No. 020487.The CA ruled that petitioner cannot claim denial of due
process since he was given ample opportunity to present his side. According to the
CA, where the opportunity to be heard, either through oral arguments or pleadings,
is accorded, and the party could present its side or defend its interest in due
course, there is no denial of procedural due process. Thus, the CA decreed:
WHEREFORE, premises considered, the instant petition is
DENIED. The assailed Resolution No. 020487 dated 3 April 2002 of

him to answer the charges and no hearing was conducted. He claims that his
dismissal was not proper and legal as there was no introduction and presentation
of evidence against him and he was not given the opportunity to defend his
side. Also, petitioner assails the penalty of dismissal imposed upon him by the CSC,
alleging that it was improperly imposed considering the mitigating circumstance of
his length of service (14 years at the time the decision of the PNP Director General
was rendered[20]).

On the other hand, the Office of the Solicitor General (OSG), representing public
respondent CSC, maintains that petitioner was not denied due process. The OSG
points out that petitioner answered the complaint during the pre-charge
investigation and when the case was heard at the Office of the Legal Service,
petitioner was given the opportunity to answer the charges or to submit his
supplemental answer or counter-affidavit, but he instead moved for the dismissal
of the case. Atty. Sierra, the hearing officer of the Office of the Legal Service, also
issued a subpoena for petitioner to appear on February 10, 1997, but he failed to
appear on the said date. Moreover, petitioners culpability was proven by
substantial evidence through the documentary evidence consisting of individual

sworn statements from all the complainants, the police blotter of the incident

provisions ofNAPOLCOM Memorandum Circular No. 96-010 prescribe the following

involving Atty. Gironella and the UWTC drivers and conductors which also


established that petitioner was present thereat and his firearm identified, and the


photocopies of documents signed by Atty. Gironella showing payments to

petitioner as security personnel. In addition, a document changing the name of the

D. Pre-Charge Investigation

payee to Reynaldo instead of Rimando also signed by Atty. Gironella was presented

SECTION 1. Procedure.

to prove that petitioners claim that it was really his twin brother who was
employed at UWTC is just an alibi. Lastly, the OSG is of the view that the penalty of
dismissal was correctly imposed on petitioner, stressing that his act of serving as
bodyguard of Atty. Gironella and harassing the bus drivers of UWTC is a grave

The Court is tasked to resolve the following issues: (1) whether petitioner was

4.01 Within three (3) days from the receipt of the

complaint, the Command/Unit Inspector, upon directive from the
Disciplinary Authority concerned, shall conduct a preliminary
inquiry/pre-charge investigation wherein both the complainant and
the respondent and their witnesses, if any shall be summoned to
appear. x x x After the inquiry, the Command/Unit Inspector
shall submit to the Disciplinary Authority concerned his Report of
Investigation, together with his recommendation x x x:

denied due process, and (2) whether the CA correctly affirmed the CSC decision


modifying the penalty of petitioner from three months suspension to dismissal from
E. Summary Hearing

the service.

SECTION 1. Notification of Charges/Complaint Order to

The petition must fail.

Time and again, we have held that the essence of due process is simply an
opportunity to be heard or, as applied to administrative proceedings, an
opportunity to explain ones side or an opportunity to seek a reconsideration of the
action or ruling complained of. [21] In the application of the principle of due process,
what is sought to be safeguarded is not lack of previous notice but the denial of
the opportunity to be heard. [22] As long as a party was given the opportunity to
defend his interests in due course, he was not denied due process. [23]

Reviewing the records, we find that petitioner was afforded due process during the
proceedings before the Office of the Legal Service of the PNP. The pertinent

5.01 After it has been determined from the results of the
pre-charge investigation that the complaint is a proper subject of
summary hearing, the respondent PNP member shall be furnished
with a copy of the complaint or charges filed against him to include
copies of affidavits of witnesses and other documents submitted by
the complainant should there be any, and he shall be directed to
submit an answer within five (5) days from receipt of the
complaint, attaching therewith pertinent documents or evidence in
support of his defense.

As records bear out, petitioner was adequately apprised of the charges filed
against him and he submitted his answer to the complaint while the case was still

under a pre-charge investigation. When the Office of the Legal Service conducted a
summary hearing on the complaint, petitioner was again duly notified of the
proceedings and was given an opportunity to explain his side. Extant on the
records, particularly in the Resolution [24] dated April 14, 1998 issued by Police
Director General Santiago L. Alio, was the manner in which the summary hearing
before the Office of the Legal Service was conducted. We quote the relevant

On March 6, 1997, respondent submitted not a

supplemental answer or counter-affidavit, but a Motion to
Dismiss (LS-11) upon the ground that this case was already
dismissed by Atty. Joselito Azarcon-CASUGB[O]. The Hearing Officer
clarified to respondent (who always appeared without counsel) that
the Motion to Dismiss was deemed submitted for resolution, and in
the event that the saidMotion to Dismiss was denied, this case was
likewise submitted for decision.[25] (Additional italics supplied.)

portions thereof:
Having elevated this case to the Summary Dismissal
Authority of the C,(sic) PNP through the Office of the Legal Service,
a hearing was set by P/SInsp. Eduardo T[.] SIERRA, the Hearing
Officer, on January 29, 1997, at 2:00 p.m., but respondent failed to
appear (LS-3); per Memo of the Director, HSS, respondent was no
longer assigned at HSS (LS-4). On February 10, 1997, respondent
appeared for hearing without counsel after the subpoena was
served at his home address (LS-5). During the clarificatory
questions propounded by the Hearing Officer, respondent
reiterated that it was his twin brother who was the bodyguard of
Atty. Gironella and not him; he also mentioned that this case was
already dismissed by Atty. Joselito Azarcon-CASUGBO; since the
records show no evidence of said dismissal, respondent was asked
by the Hearing Officer that he may submit a supplemental
answer or counter-affidavit until February 17, 1997, or he may
adapt (sic) his answer to complaint he filed with TIG, IIAO and
submit the case for decision. Nonetheless, he was given copies of
the complaint and affidavits of complainants in case he wants to
submit a supplemental answer or counter-affidavit.
On February 17, 1997, the deadline for respondent to file a
supplemental answer or counter-affidavit, he did not appear, hence
the Hearing Officer considered the case submitted for decision. On
February 18, 1997, at about 2:00 p.m., however, respondent
showed up and submitted not a supplemental Answer or counteraffidavit but a Motion to be Furnished Official Copy of the
Complaint/Information and its Annexes and to (sic) Respondent to
Answer within Fifteen (15) Days from Receipt (LS-6). As prayed for,
the Motion was granted.

Petitioners claim that he did not file an answer since no subpoena was issued to
him thus deserves scant consideration. Petitioner had ample opportunity to
present his side during the hearing and he was even advised by the hearing officer
that he may file a supplemental answer or a counter affidavit until February 17,
1997 or he may adopt his answer filed with the TIG-IAO. Instead, petitioner filed a
motion to dismiss, reiterating the ground of res judicata, based on his own
assertion that the case against him had already been heard, tried and finally
terminated. Petitioner, however, did not present proof of such dismissal. Indeed, he
could not have presented such proof because, as correctly pointed out by the OSG,
the undated memorandum of Atty. Casugbo, the hearing official who conducted the
preliminary inquiry/pre-charge investigation, was merely recommendatory. Atty.
Casugbos report and recommendation was not approved by the PNP Director
General, the disciplinary authority to whom such report of investigation is
submitted, pursuant to Section (D) 4.01 of Memorandum Circular No. 96010. Consequently, when the Office of the Legal Service of the PNP found the
complaint to be a proper subject of a summary hearing, and a further investigation
was conducted pursuant to the rules, the recommendation to dismiss was deemed
not adopted or carried out. Having been given a reasonable opportunity to answer
the complaint against him, petitioner cannot now claim that he was deprived of
due process.[26]

Petitioners assertion that the complainants/witnesses against him have not been
cross-examined by him, is likewise bereft of merit. While the right to cross-examine

is a vital element of procedural due process, the right does not necessarily require
an actual cross examination but merely an opportunity to exercise this right if

Serious Irregularities in the Performance of Duties. This is

incurred by any member of the PNP who shall:

desired by the party entitled to it. [27] In this case, while Memorandum Circular No.
96-010 provides that the sworn statements of witnesses shall take the place of oral
testimony but shall be subject to cross-examination, petitioner missed this
opportunity precisely because he did not appear at the deadline for the filing of his

c. act as bodyguard or security guard for the person or

property of any public official, or private person unless
approved by the proper authorities concerned;

supplemental answer or counter-affidavit, and accordingly the hearing officer

x x x x (Emphasis ours.)

considered the case submitted for decision. And even with the grant of his
subsequent motion to be furnished with copy of complaint and its annexes, he still
failed to file a supplemental answer or counter-affidavit and instead filed a motion

The CSC found that petitioner indeed worked for Atty. Gironella as the latters

to dismiss reiterating the previous recommendation for dismissal made by Atty.

bodyguard -- at least during the relevant period, from April 1995 up to December

Casugbo.Moreover, after the PNP Director General rendered his decision, petitioner

1995 when Barien, et al. filed their verified complaint before the Inspectorate

filed a motion for reconsideration which was denied. He was also able to appeal

Division on the basis of the following:

from the decision of the PNP Director General to the DILG Secretary, and
eventually to the CSC. We have held that the fact that a party filed motions for


Certification of the San Jose Del Monte Police Station and the
police blotter entries Nos. 6050-95 and 6051-95 dated
November 22, 1995 as certified by SPO2 Rafael delos Reyes;


A document reflecting the payment made to SPO1 Rimando

Gannapao as security signed by Atty. Gironella;


A document changing the name of the payee to Reynaldo

instead of Rimando signed by Atty. Gironella; and


Affidavits of Primo Babiano, Ricardo Barien, Cresencia Roque

and Jocelyn Evangelista.[29]

reconsideration and appeals with the tribunals below, in which she presented her
arguments and through which she could have proffered her evidence, if any,
negates her claim that she was denied opportunity to be heard. [28]

As to the second issue, we hold that the CA did not err in affirming the CSC ruling
which modified the penalty imposed by the PNP Director General as affirmed by
the DILG Secretary, from three months suspension to dismissal.

Under Memorandum Circular No. 93-024 (Guidelines in the Application of Penalties

in Police Administrative Cases), the following acts of any member of the PNP are
considered Grave Offenses:

On the other hand, petitioner presented the Certification [30] dated January
2, 1996 by Atty. Gironella stating that petitioner was not an employee of
UWTC. This piece of evidence is unreliable, and at best, self-serving.

C. The following are Grave Offenses:


Petitioner reiterates that it was his twin brother Reynaldo whom Barien, et

original January 2, 1996 sworn statement[34] while the supposed affidavit of

al. encountered during the incident when their buses were confiscated by armed

desistance of Roque[35] dated October 14, 1997 should have already been alleged

men in October 1995. He submitted a photograph of his twin brother but this was

or submitted by him before Director General Sarmiento rendered his decision on

not given credence by the CSC. Before the CA, petitioner also attached a

November 26, 1997.[36]

photograph of himself together with his alleged twin brother Reynaldo, as well as
birth certificates issued by the Local Civil Registrar of Salcedo, Ilocos Sur stating

The CSC, on appeal, likewise gave scant weight to the alleged retraction of

their similar dates of birth and parents, and the affidavit of Reynaldo Gannapao.

some of the respondents. It noted that respondents Inocencio M. Navallo, Ligaya

However, there was no certification issued by UWTC that Reynaldo Gannapao

Gando, Lea Molleda, Fe R. Vetonio, Jose Taeza, among others did not desist from

was indeed employed therein for the period relevant to this case, nor any

pursuing the case. Before the CA, petitioner submitted a joint affidavit of

document evidencing receipt of his wages or salary from UWTC. Also, the police

desistance dated August 7, 2002 allegedly signed by Navallo, Vetonio, Gando,

blotter entries[32] dated October 13, 1995 and November 22, 1995 tend to support

Patiga, Taeza and G. delos Santos.[37] Nonetheless, the CSC, citing Section 10,

the claim of Barien, et al. that Atty. Gironella threatened them when they

Rule II of the Uniform Rules on Administrative Cases in the Civil Service, [38] held

complained of his mismanagement of company funds and that in this conflict,

that the withdrawal of the complaint does not result in its outright dismissal nor

petitioner had used his firearm and authority as police officer to lead in the taking

discharge the person complained of from any administrative liability. Where

of the MMTC buses from UWTC drivers and conductors. Thus, even assuming that

there is obvious truth or merit to the allegation in the complaint or where there

petitioner in fact had a twin brother by the name of Reynaldo, Barien, et al. in their

is documentary evidence that would tend to prove the guilt of the person

sworn statements categorically pointed to him, not his twin brother, as the one

complained of, the same should be given due course. [39] We find no error in the

leading the armed group sent by Atty. Gironella to confiscate their buses and acted

CSCs appreciation of the foregoing evidence adduced by the petitioner. Section 6,

as bodyguard of Atty. Gironella. Barien, et al. positively identified him as the police

Article XVI of the Constitution provides that the State shall establish and maintain

officer with officially issued firearm who actively assisted Atty. Gironella and

one police force which shall be civilian in character. Consequently, the PNP falls

committed acts of harassment which were narrated in the verified complaint and


sworn statements executed by respondents Primo Babiano, Ricardo C. Barien,

the Constitution.

Cresencia Roque and Jocelyn Evangelista. Consequently, no error was committed

the Civil Service Law and its implementing rules and regulations shall apply to all

by the CSC in giving more weight to the positive declarations of Barien, et al. than

personnel of the Department.













Section 91 of the DILG Act of 1990 expressly declared that

the denials of petitioner.

As a rule, administrative agencies factual findings that are affirmed by the
In his motion for reconsideration of the decision rendered by PNP Director
General Sarmiento, petitioner attached the alleged affidavits of desistance

Court of Appeals are conclusive on the parties and not reviewable by this Court,

except only for very compelling reasons. [42] Where the findings of the

executed by Babiano, Roque and Avelino Pediglorio. Director Alio, however, in

administrative body are amply supported by substantial evidence, such findings

denying the motion found these insignificant and not credible considering that

are accorded not only respect but also finality, and are binding on this Court. It is

Babianos signature in the April 12, 1996 retraction [33] was starkly different from his

not for the reviewing court to weigh the conflicting evidence, determine the

In refusing to be swayed by petitioners argument that his fourteen (14) years of

credibility of witnesses, or otherwise substitute its own judgment for that of the

service in government with no record of previous administrative offense should

administrative agency on the sufficiency of evidence.

have mitigated his liability, the CSC held:


We find no cogent reason

to deviate from the general rule in this case.

As mentioned, acting as private bodyguard without approval of the proper

authorities is classified as a grave offense. Memorandum Circular No. 93024 (Guidelines in the Application of Penalties in Police Administrative Cases)

provides for the following schedule of penalties:

SEC. 2. Schedule of Penalties. - The penalties for light, less
grave, and grave offenses shall be made in accordance with the
following schedule:
C. For Grave Offenses:

Maximum suspension imposable (minimum period);

Forced Resignation/Demotion of not more than one
(1) rank (medium period);
Dismissal (maximum period).

SEC. 4. Qualifying Circumstances. In the determination of
the penalties to be imposed, mitigating and aggravating
circumstances attendant to the commission of the offense shall be
The following are mitigating circumstances:

physical illness
good faith
length of service in the government
analogous circumstances.


The Commission finds the act of Gannapao of serving as a

bodyguard of UTWC General Manager Atty. Gironella and harassing
the bus drivers of the said agency so grave that the decision of
then DILG Secretary Alfredo S. Lim, affirming his suspension from
the service for three (3) months is modified to dismissal from the
In the case of University of the Philippines vs. Civil Service
Commission, et al., G.R. No. 89454 dated April 20, 1992, the
Supreme Court held, as follows:
We do not agree that private respondents
length of service and the fact that it was her first
offense shall be taken into account. Respondent
Commission failed to consider that private
respondent committed not only one act, but a
series of acts which were deliberately committed
over a number of years while respondent was in
the service. These acts were of the gravest
character which strikes at the very integrity and
prestige of the University.
It must be emphasized that the PNP, as an institution, was
organized to ensure accountability and uprightness in the exercise
of police discretion as well as to achieve efficiency and
effectiveness of its members and units in the performance of their
functions thus, its leadership would be well within its right to
cleanse itself of wrongdoers.[45]

Public respondent CSC did not err in not considering length of service as a
mitigating circumstance and in imposing the maximum penalty of dismissal on the
petitioner. Length of service as a factor in determining the imposable penalty in
administrative cases is a double-edged sword. [46] Despite the language of Section 4
of Memorandum Circular No. 93-024, length of service is not always a mitigating

circumstance in every case of commission of an administrative offense by a public

l. Other analogous circumstances (Emphasis ours.)

officer or employee.
Length of service is an alternative circumstance which can mitigate or possibly
even aggravate the penalty, depending on the circumstances of the case. Section
53, Rule IV of the Revised Uniform Rules on Administrative Cases in the Civil
Service, grants the disciplining authority the discretion to consider mitigating
circumstances in the imposition of the proper penalty. [47] Said rule provides thus:

53. Extenuating,

it against said respondent because her length of service, among other things,
helped her in the commission of the offense.

Where the government employee concerned took advantage of long years of

Alternative Circumstances. In the determination of the penalties to

service and position in public office, length of service may not be considered in


aggravating and alternative

lowering the penalty. This Court has invariably taken this circumstance against the

circumstancesattendant to the commission of the offense shall be

respondent public officer or employee in administrative cases involving serious


offenses, even if it was the first time said public officer or employee was



not consider length of service in favor of the private respondent; instead, we took




In University of the Philippines v. Civil Service Commission,[48] cited by CSC, we did

The following circumstances shall be appreciated:


Physical illness


Good faith


Taking undue advantage of official position


Taking undue advantage of subordinate


Undue disclosure of confidential information


Use of government property in the commission of the





Offense is committed during office hours and within

the premises of the office or building


Employment of fraudulent means to commit or conceal

the offense


Length of service in the government

Education, or

administratively charged. Thus, we held in Civil Service Commission v. Cortez[49]:

Petitioner CSC is correct that length of service should be
taken against the respondent. Length of service is not a magic
word that, once invoked, will automatically be considered as a
mitigating circumstance in favor of the party invoking it. Length of
service can either be a mitigating or aggravating circumstance
depending on the factual milieu of each case. Length of service, in
other words, is an alternative circumstance. That this is so is clear
in Section 53 of the Uniform Rules on Administrative Cases in the
Civil Service, which amended the Omnibus Civil Service Rules and
Regulations dated 27 December 1991. x x x
Moreover, a review of jurisprudence shows that,
although in most cases length of service is considered in
favor of the respondent, it is not considered where the
offense committed is found to be serious. x x x
x x x we cannot also consider length of service in favor of
the respondent because of the gravity of the offense she

committed and the fact that it was her length of service in the CSC
which helped her in the commission of the offense.

proper authorities for several months, petitioner reneged on his primary duties to
the community in the maintenance of peace and order and public safety. Such
mercenary tendencies undermine the effectivity and integrity of a national police

x x x it is clear from the ruling of the CSC that respondents

act irreparably tarnished the integrity of the CSC. x x x

force committed to provide protection and assistance to citizens in times of danger

and emergency. But what is worse, petitioner allowed himself to be used in
perpetrating violence and intimidation upon ordinary workers embroiled in a legal


conflict with management.

The gravity of the offense committed is also the

reason why we cannot consider the first offense
circumstance invoked by respondent. In several cases, we
imposed the heavier penalty of dismissal or a fine of more than
P20,000, considering the gravity of the offense committed, even if
the offense charged was respondents first offense. Thus, in the
present case, even though the offense respondent was found guilty
of was her first offense, the gravity thereof outweighs the fact that
it was her first offense.[50] (Emphasis ours.)

Petitioner apparently failed to grasp the gravity of his transgression which,

not only impacts negatively on the image of the PNP, but also reflects the
depravity of his character. Under the circumstances, the Court cannot consider in
his favor his fourteen (14) years in the police service and his being a first time
offender. The CSC thus correctly imposed on him the maximum penalty of
dismissal. Pursuant to Section 6 of Memorandum Circular No. 93-024, the penalty
of dismissal, which results in the separation of the respondent from the service,

Petitioner contends that this case should be distinguished from University

of the Philippines v. Civil Service Commission


because he was not committing

any crime assuming he served a bodyguard, was not in uniform or in the

shall carry with it the cancellation of eligibility, forfeiture of leave credits and
retirement benefits, and the disqualification from reemployment in the police

performance of duty there being no such allegation in the complaint, and was not
deceiving or cheating anybody.Even the ruling in Civil Service Commission v.


is not applicable since the respondent therein committed acts of


We are not persuaded.

As already pointed out, Serious Irregularities in the Performance of Duties,

like those offenses (e.g., Grave Misconduct, Dishonesty and Conduct Prejudicial to
the Best Interest of the Service) enumerated under Section 52 (A) of the Civil
Service Law, is a grave offense. Grave offenses have the most deleterious effects
on government service. By acting as a private bodyguard without approval by the







is DENIED. The

Decision dated April 27, 2007 and Resolution dated October 10, 2007 of the Court
of Appeals in CA-G.R. SP No. 70605 are hereby AFFIRMED.

With costs against the petitioner.

G.R. No. L-30637

July 16, 1987

INC., petitioner,
HON. MANUEL LOPEZ ENAGE, in his capacity as Presiding Judge of Branch
II of the Court of First, Instance of Agusan, and AGO TIMBER
CORPORATION, respondents.

to Corner 6, a point at the intersection of the Agusan-Surigao Provincial boundary

and Nalagdao Creek ..." The eastern boundary of respondent Ago's concession is
described as "... point 4, along the Agusan-Surigao boundary; thence following
Agusan-Surigao boundary in a general southeasterly and southerly directions
about 12,000 meters to point 5, a point along Los Arcos-Lianga Road; ..." 1


Because of reports of encroachment by both parties on each other's concession

areas, the Director of Forestry ordered a survey to establish on the ground the
common boundary of their respective concession areas. Forester Cipriano Melchor
undertook the survey and fixed the common boundary as "Corner 5 of Lianga Bay
Logging Company at Km. 10.2 instead of Km. 9.7 on the Lianga-Arcos Road and
lines N900E, 21,000 meters; N12 W, 21,150 meters; N40 W, 3,000 meters; N31 W,
2,800 meters; N50 W, 1,700 meters" which respondent Ago protested claiming
that "its eastern boundary should be the provincial boundary line of AgusanSurigao as described in Section 1 of Art. 1693 of the Philippine Commission as
indicated in the green pencil in the attached sketch" of the areas as prepared by
the Bureau of Forestry. 2 The Director of Forestry, after considering the evidence,

The Court grants the petition for certiorari and prohibition and holds that
respondent judge, absent any showing of grave abuse of discretion, has no
competence nor authority to review anew the decision in administrative
proceedings of respondents public officials (director of forestry, secretary of
agriculture and natural resources and assistant executive secretaries of the Office
of the President) in determining the correct boundary line of the licensed timber
areas of the contending parties. The Court reaffirms the established principle that
findings of fact by an administrative board or agency or official, following a
hearing, are binding upon the courts and will not be disturbed except where the
board, agency and/or official(s) have gone beyond their statutory authority,
exercised unconstitutional powers or clearly acted arbitrarily and without regard to
their duty or with grave abuse of discretion.
The parties herein are both forest concessionaries whose licensed areas are
adjacent to each other. The concession of petitioner Lianga Bay Logging
Corporation Co., Inc. (hereinafter referred to as petitioner Lianga) as described in
its Timber License Agreement No. 49, is located in the municipalities of Tago,
Cagwait, Marihatag and Lianga, all in the Province of Surigao, consisting of 110,406
hectares, more or less, while that of respondent Ago Timber Corporation
(hereinafter referred to as respondent Ago) granted under Ordinary Timber License
No. 1323-60 [New] is located at Los Arcos and San Salvador, Province of Agusan,
with an approximate area of 4,000 hectares. It was a part of a forest area of 9,000
hectares originally licensed to one Narciso Lansang under Ordinary Timber License
No. 584-'52.
Since the concessions of petitioner and respondent are adjacent to each other,
they have a common boundary-the Agusan-Surigao Provincial boundary-whereby
the eastern boundary of respondent Ago's concession is petitioner Lianga's
western boundary. The western boundary of petitioner Lianga is described as "...
Corner 5, a point in the intersection of the Agusan-Surigao Provincial boundary and
Los Arcos-Lianga Road; thence following Agusan-Surigao Provincial boundary in a
general northerly and northwesterly and northerly directions about 39,500 meters

That the claim of the Ago Timber Corporation portrays a line (green line)
far different in alignment with the line (red) as indicated in the original
License Control Map of this Office;
That the claim of the Ago Timber Corporation (green line does not conform
to the distance of 6,800 meters from point 3 to point 4 of the original
description of the area of Narciso Lansang but would project said line to a
distance of approximately 13,800 meters;
That to follow the claim of the Ago Timber Corporation would increase the
area of Narciso Lansang from 9,000 to 12,360 hectares;
That to follow the claim of the Ago Timber Corporation would reduce the
area of the Lianga Bay Logging, Co., Inc. to 107,046 hectares instead of the
area granted which is 110,406 hectares.
and ruled that "the claim of the Ago Timber Corporation runs counter to the
intentions of this Office is granting the license of Mr. Narciso Lansang; and further,
that it also runs counter to the intentions of this Office in granting the Timber
License Agreement to the Lianga Bay Logging Co., Inc. The intentions of this Office
in granting the two licenses (Lansang and Lianga Bay Logging Co., Inc.) are

patently manifest in that distances and bearings are the controlling factors. If
mention was ever made of the Agusan-Surigao boundary, as the common
boundary line of both licensees, this Office could not have meant the AgusanSurigao boundary as described under Section 1 of Act 1693 of the Philippine
Commission for were it so it could have been so easy for this Office to mention the
distance from point 3 to point 4 of Narciso Lansang as approximately 13,800
meters. This cannot be considered a mistake considering that the percentage of
error which is more or less 103% is too high an error to be committed by an Office
manned by competent technical men. The Agusan-Surigao boundary as mentioned
in the technical descriptions of both licensees, is, therefore, patently an imaginary
line based on B.F. License Control Map. Such being the case, it is reiterated that
distance and bearings control the description where an imaginary line exists. 3The
decision fixed the common boundary of the licensed areas of the Ago Timber
Corporation and Lianga Bay Logging Co., Inc. as that indicated in red pencil of the
sketch attached to the decision.
In an appeal interposed by respondent Ago, docketed in the Department of
Agriculture and Natural Resources as DANR Case No. 2268, the then Acting
Secretary of Agriculture and Natural Resources Jose Y. Feliciano, in a decision dated
August 9, 1965 set aside the appealed decision of the Director of Forestry and
ruled that "(T)he common boundary line of the licensed areas of the Ago Timber
Corporation and the Lianga Bay Logging Co., Inc., should be that indicated by the
green line on the same sketch which had been made an integral part of the
appealed decision." 4
Petitioner elevated the case to the Office of the President, where in a decision
dated June 16, 1966, signed by then Assistant Executive Secretary Jose J. Leido, Jr.,
the ruling of the then Secretary of Agriculture and Natural Resources was
affirmed. 5 On motion for reconsideration, the Office of the President issued
another decision dated August 9, 1968 signed by then Assistant Executive
Secretary Gilberto Duavit reversing and overturning the decision of the then Acting
Secretary of Agriculture and Natural Resources and affirming in toto and
reinstating the decision, dated March 20, 1961, of the Director of Forestry. 6
Respondent Ago filed a motion for reconsideration of the decision dated August 9,
1968 of the Office of the President but after written opposition of petitioner Lianga,
the same was denied in an order dated October 2, 1968, signed by then Assistant
Executive Secretary Jose J. Leido, Jr. 7

On October 21, 1968, a new action was commenced by Ago Timber Corporation, as
plaintiff, in the Court of First Instance of Agusan, Branch II, docketed thereat as
Civil Case No. 1253, against Lianga Bay Logging Co., Inc., Assistant Executive
Secretaries Jose J. Leido, Jr. and Gilberto M. Duavit and Director of Forestry, as
defendants, for "Determination of Correct Boundary Line of License Timber Areas
and Damages with Preliminary Injunction" reiterating once more the same question
raised and passed upon in DANR Case No. 2268 and insisting that "a judicial review
of such divergent administrative decisions is necessary in order to determine the
correct boundary fine of the licensed areas in question." 8
As prayed for, respondent judge issued a temporary restraining order on October
28, 1968, on a bond of P20,000, enjoining the defendants from carrying out the
decision of the Office of the President. The corresponding writ was issued the next
day, or on October 29, 1968. 9
On November 10, 1968, defendant Lianga (herein petitioner) moved for dismissal
of the complaint and for dissolution of the temporary restraining order on grounds
that the complaint states no cause of action and that the court has no jurisdiction
over the person of respondent public officials and respondent corporation. It also
submitted its opposition to plaintiff's (herein respondent prayer for the issuance of
a writ of preliminary injunction. 10 A supplemental motion was filed on December 6,
1968. 11
On December 19, 1968, the lower court issued an order denying petitioner Lianga's
motion to dismiss and granting the writ of preliminary injunction prayed for by
respondent Ago. 12 Lianga's Motion for Reconsideration of the Order was denied on
May 9, 1969. 13 Hence, this petition praying of the Court (a) to declare that the
Director of Forestry has the exclusive jurisdiction to determine the common
boundary of the licensed areas of petitioners and respondents and that the
decision of the Office of the President dated August 9, 1968 is final and executory;
(b) to order the dismissal of Civil Case No. 1253 in the Court of First Instance of
Agusan; (c) to declare that respondent Judge acted without jurisdiction or in excess
of jurisdiction and with grave abuse of discretion, amounting to lack of jurisdiction,
in issuing the temporary restraining order dated October 28, 1968 and granting the
preliminary injunction per its Order dated December 19, 1968; and (d) to annul the
aforementioned orders.
After respondent's comments on the petition and petitioner's reply thereto, this
Court on June 30, 1969 issued a restraining order enjoining in turn the enforcement

of the preliminary injunction and related orders issued by the respondent court in
Civil Case No. 1253. 14
The Court finds merit in the petition.
Respondent Judge erred in taking cognizance of the complaint filed by respondent
Ago, asking for the determination anew of the correct boundary fine of its licensed
timber area, for the same issue had already been determined by the Director of
Forestry, the Secretary of Agriculture and Natural Resources and the Office of the
President, administrative officials under whose jurisdictions the matter properly
belongs. Section 1816 of the Revised Administrative Code vests in the Bureau of
Forestry, the jurisdiction and authority over the demarcation, protection,
management, reproduction, reforestation, occupancy, and use of all public forests
and forest reserves and over the granting of licenses for game and fish, and for the
taking of forest products, including stone and earth therefrom. The Secretary of
Agriculture and Natural Resources, as department head, may repeal or in the
decision of the Director of Forestry when advisable in the public interests, 15 whose
decision is in turn appealable to the Office of the President. 16
In giving due course to the complaint below, the respondent court would
necessarily have to assess and evaluate anew all the evidence presented in the
administrative proceedings, 17 which is beyond its competence and jurisdiction. For
the respondent court to consider and weigh again the evidence already presented
and passed upon by said officials would be to allow it to substitute its judgment for
that of said officials who are in a better position to consider and weigh the same in
the light of the authority specifically vested in them by law. Such a posture cannot
be entertained, for it is a well-settled doctrine that the courts of justice will
generally not interfere with purely administrative matters which are addressed to
the sound discretion of government agencies and their expertise unless there is a
clear showing that the latter acted arbitrarily or with grave abuse of discretion or
when they have acted in a capricious and whimsical manner such that their action
may amount to an excess or lack of jurisdiction. 18
A doctrine long recognized is that where the law confines in an administrative
office the power to determine particular questions or matters, upon the facts to be
presented, the jurisdiction of such office shall prevail over the courts. 19
The general rule, under the principles of administrative law in force in this
jurisdiction, is that decisions of administrative officers shall not be disturbed by the
courts, except when the former have acted without or in excess of their

jurisdiction, or with grave abuse of discretion. Findings of administrative officials

and agencies who have acquired expertise because their jurisdiction is confined to
specific matters are generally accorded not only respect but at times even finality
of such findings are supported by substantial evidence. 20 As recently stressed by
the Court, "in this era of clogged court dockets, the need for specialized
administrative boards or commissions with the special knowledge, experience and
capability to hear and determine promptly disputes on technical matters or
essentially factual matters, subject to judicial review in case of grave abuse of
discretion, has become well nigh indispensable." 21
The facts and circumstances in the instant case are similar to the earlier case
of Pajo, et al. v. Ago, et al. 22 (where therein respondent Pastor Ago is the president
of herein respondent Ago Timber Corporation). In the said case, therein respondent
Pastor Ago, after an adverse decision of the Director of Forestry, Secretary of
Agriculture and Natural Resources and Executive Secretary in connection with his
application for renewal of his expired timber licenses, filed with the Court of First
instance of Agusan a petition for certiorari, prohibition and damages with
preliminary injunction alleging that the rejection of his application for renewal by
the Director of Forestry and Secretary of Agriculture and Natural Resources and its
affirmance by the Executive Secretary constituted an abuse of discretion and was
therefore illegal. The Court held that "there can be no question that petitioner
Director of Forestry has jurisdiction over the grant or renewal of respondent Ago's
timber license (Sec. 1816, Rev. Adm. Code); that petitioner Secretary of Agriculture
and Natural Resources as department head, is empowered by law to affirm, modify
or reject said grant or renewal of respondent Ago's timber license by petitioner
Director of Forestry (Sec. 79[c], Rev. Adm. Code); and that petitioner Executive
Secretary, acting for and in behalf and by authority of the President has, likewise,
jurisdiction to affirm, modify or reverse the orders regarding the grant or renewal
of said timber license by the two aforementioned officials." The Court went on to
say that, "(I)n the case of Espinosa, et al. v. Makalintal, et al. (79 Phil. 134; 45 Off.
Gaz. 712), we held that the powers granted to the Secretary of Agriculture and
Commerce (Natural Resources) by law regarding the disposition of public lands
such as granting of licenses, permits, leases, and contracts or approving, rejecting,
reinstating, or cancelling applications or deciding conflicting applications, are all
executive and administrative in nature. It is a well-recognized principle that purely
administrative and discretionary functions may not be interfered with by the
courts. In general, courts have no supervising power over the proceedings and
actions of the administrative departments of the government. This is generally true
with respect to acts involving the exercise of judgment or discretion, and findings
of act. Findings of fact by an administrative board, agency or official, following a
hearing, are binding upon the courts and will not be disturbed except where the

board, agency or official has gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard to his duty
or with grave abuse of discretion. And we have repeatedly held that there is grave
abuse of discretion justifying the issuance of the writ of certiorari only when there
is capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction. (Abad Santos v. Province of Tarlac, 67 Phil. 480; Tan vs. People, 88 Phil.
Respondent Ago contends that the motion filed by petitioner Lianga for
reconsideration of the decision of the Office of the President was denied in an
alleged "decision" dated August 15, 1966, allegedly signed by then Assistant
Executive Secretary Jose J. Leido, Jr. that, "however, for some mysterious, unknown
if not anomalous reasons and/or illegal considerations, the "decision" allegedly
dated August 15, 1966(Annex "D") was never released" and instead a decision was
released on August 9, 1968, signed by then Assistant Executive Secretary Gilberto
M. Duavit, which reversed the findings and conclusions of the Office of the
President in its first decision dated June 16, 1966 and signed by then Assistant
Executive Secretary Leido.
It is elementary that a draft of a decision does not operate as judgment on a case
until the same is duly signed and delivered to the clerk for filing and promulgation.
A decision cannot be considered as binding on the parties until its
promulgation. 23 Respondent should be aware of this rule. In still another case
of Ago v. Court of Appeals, 24(where herein respondent Ago was the petitioner) the
Court held that, "While it is to be presumed that the judgment that was dictated in
open court will be the judgment of the court, the court may still modify said order
as the same is being put into writing. And even if the order or judgment has
already been put into writing and signed, while it has not yet been delivered to the
clerk for filing, it is stin subject to amendment or change by the judge. It is only
when the judgment signed by the judge is actually filed with the clerk of court that
it becomes a valid and binding judgment. Prior thereto, it could still be subject to
amendment and change and may not, therefore, constitute the real judgment of
the court."
Respondent alleges "that in view of the hopelessly conflicting decisions of the
administrative bodies and/or offices of the Philippine government, and the
important questions of law and fact involved therein, as well as the well-grounded
fear and suspicion that some anomalous, illicit and unlawful considerations had
intervened in the concealment of the decision of August 15, 1966 (Annex "D") of
Assistant Executive Secretary Gilberto M. Duavit, a judicial review of such

divergent administrative decisions is necessary in order to determine the correct

boundary line of the licensed areas in question and restore the faith and
confidence of the people in the actuations of our public officials and in our system
of administration of justice."
The mere suspicion of respondent that there were anomalies in the non-release of
the Leido "decision" allegedly denying petitioner's motion for reconsideration and
the substitution thereof by the Duavit decision granting reconsideration does not
justify judicial review. Beliefs, suspicions and conjectures cannot overcome the
presumption of regularity and legality of official actions. 25 It is presumed that an
official of a department performs his official duties regularly. 26 It should be noted,
furthermore, that as hereinabove stated with regard to the case history in the
Office of the President, Ago's motion for reconsideration of the Duavit decision
dated August 9, 1968 was denied in the Order dated October 2, 1968 and signed
by Assistant Executive Secretary Leido himself (who thereby joined in the reversal
of his own first decision dated June 16, 1966 and signed by himself).
The Ordinary Timber License No. 1323-'60[New] which approved the transfer to
respondent Ago of the 4,000 hectares from the forest area originally licensed to
Narciso Lansang, stipulates certain conditions, terms and limitations, among which
were: that the decision of the Director of Forestry as to the exact location of its
licensed areas is final; that the license is subject to whatever decision that may be
rendered on the boundary conflict between the Lianga Bay Logging Co. and the
Ago Timber Corporation; that the terms and conditions of the license are subject to
change at the discretion of the Director of Forestry and the license may be made to
expire at an earlier date. Under Section 1834 of the Revised Administrative Code,
the Director of Forestry, upon granting any license, may prescribe and insert
therein such terms, conditions, and limitations, not inconsistent with law, as may
be deemed by him to be in the public interest. The license operates as a contract
between the government and respondent. Respondent, therefore, is estopped from
questioning the terms and stipulation thereof.
Clearly, the injunctive writ should not have been issued. The provisions of law
explicitly provide that Courts of First Instance shall have the power to issue writ of
injunction, mandamus, certiorari, prohibition, quo warranto and habeas corpus in
their respective places, 27 if the petition filed relates to the acts or omissions of an
inferior court, or of a corporation, board, officer or person, within their
jurisdiction. 28

The jurisdiction or authority of the Court of First Instance to control or restrain acts
by means of the writ of injunction is limited only to acts which are being committed
within the territorial boundaries of their respective provinces or districts 29 except
where the sole issue is the legality of the decision of the administrative officials. 30
In the leading case of Palanan Lumber Plywood Co., Inc. v. Arranz 31 which involved
a petition for certiorari and prohibition filed in the Court of First Instance of Isabela
against the same respondent public officials as here and where the administrative
proceedings taken were similar to the case at bar, the Court laid down the rule
that: "We agree with the petitioner that the respondent Court acted without
jurisdiction in issuing a preliminary injunction against the petitioners Executive
Secretary, Secretary of Agriculture and Natural Resources and the Director of
Forestry, who have their official residences in Manila and Quezon City, outside of
the territorial jurisdiction of the respondent Court of First Instance of Isabela. Both
the statutory provisions and the settled jurisdiction of this Court unanimously
affirm that the extraordinary writs issued by the Court of First Instance are limited
to and operative only within their respective provinces and districts."
A different rule applies only when the point in controversy relates solely to a
determination of a question of law whether the decision of the respondent
administrative officials was legally correct or not. 32 We thus declared inDirector of
Forestry v. Ruiz. 33 "In Palanan Lumber & Plywood Co., Inc., supra, we reaffirmed
the rule of non-jurisdiction of courts of first instance to issue injunctive writs in
order to control acts outside of their premises or districts. We went further and said
that when the petition filed with the courts of first instance not only questions the
legal correctness of the decision of administrative officials but also seeks to
enjoin the enforcement of the said decision, the court could not validly issue the
writ of injunction when the officials sought to be restrained from enforcing the
decision are not stationed within its territory.1avvphi1
"To recapitulate, insofar as injunctive or prohibitory writs are concerned, the rule
still stands that courts of first instance have the power to issue writs limited to and
operative only within their respective provinces or districts. "
The writ of preliminary injunction issued by respondent court is furthermore void,
since it appears that the forest area described in the injunctive writ includes areas
not licensed to respondent Ago. The forest area referred to and described therein
comprises the whole area originally licensed to Narciso Lansang under the earlier
Ordinary Timber License No. 58452. Only a portion of this area was in fact

transferred to respondent Ago as described in its Ordinary Timber License No.

It is abundantly clear that respondent court has no jurisdiction over the subject
matter of Civil Case No. 1253 of the Court of First Instance of Agusan nor has it
jurisdiction to decide on the common boundary of the licensed areas of petitioner
Lianga and respondent Ago, as determined by respondents public officials against
whom no case of grave abuse of discretion has been made. Absent a cause of
action and jurisdiction, respondent Judge acted with grave abuse of discretion and
excess, if not lack, of jurisdiction in refusing to dismiss the case under review and
in issuing the writ of preliminary injunction enjoining the enforcement of the final
decision dated August 9, 1968 and the order affirming the same dated October 2,
1968 of the Office of the President.
ACCORDINGLY, the petition for certiorari and prohibition is granted. The restraining
order heretofore issued by the Court against enforcement of the preliminary
injunction and related orders issued by respondent judge is the case below is made
permanent and the respondent judge or whoever has taken his place is hereby
ordered to dismiss Civil Case No. 1253.


Before us is a petition for prohibition and declaratory relief seeking the
annulment of a status quo order[1] dated September 29, 1998 issued by the public
respondent Commission on the Settlement of Land Problems (COSLAP, for brevity)
in COSLAP Case No. 98-253.
The facts are:
The property being fought over by the parties is a 10.36-hectare property in
Baguio City called Dominican Hills, formerly registered in the name of Diplomat
Hills, Inc. It appeared that the property was mortgaged to the United Coconut
Planters Bank (UCPB) which eventually foreclosed the mortgage thereon and
acquired the same as highest bidder. On April 11, 1983, it was donated to the
Republic of the Philippines by UCPB through its President, Eduardo Cojuangco. The
deed of donation stipulated that Dominican Hills would be utilized for the priority
programs, projects, activities in human settlements and economic development
and governmental purposes of the Ministry of Human Settlements.
On December 12, 1986, the then President Corazon C. Aquino issued
Executive Order No. 85 abolishing the Office of Media Affairs and the Ministry of
Human Settlements. All agencies under the latters supervision as well as all its
assets, programs and projects, were transferred to the Presidential Management
Staff (PMS).[2]


President RODRIGO S. MACARIO, SR., petitioner, vs. COMMISSION

On October 18, 1988, the PMS received an application from petitioner UNITED
RESIDENTS OF DOMINICAN HILL, INC. (UNITED, for brevity), a community housing
association composed of non-real property owning residents of Baguio City, to
acquire a portion of the Dominican Hills property. On February 2, 1990, PMS
Secretary Elfren Cruz referred the application to the HOME INSURANCE GUARANTY
CORPORATION (HIGC). HIGC consented to act as originator for UNITED.

Accordingly, on May 9, 1990, a Memorandum of Agreement was signed by and

among the PMS, the HIGC, and UNITED. The Memorandum of Agreement called for
the PMS to sell the Dominican Hills property to HIGC which would, in turn, sell the
same to UNITED. The parties agreed on a selling price of P75.00 per square meter.

Thus, on June 12, 1991, HIGC sold 2.48 hectares of the property to
UNITED. The deed of conditional sale provided that ten (10) per cent of the
purchase price would be paid upon signing, with the balance to be amortized
within one year from its date of execution. After UNITED made its final payment on
January 31, 1992, HIGC executed a Deed of Absolute Sale dated July 1, 1992.
Petitioner alleges that sometime in 1993, private respondents entered the
Dominican Hills property allocated to UNITED and constructed houses
thereon. Petitioner was able to secure a demolition order from the city mayor. [4]
Unable to stop the razing of their houses, private respondents, under the
(ASSOCIATION, for brevity) filed an action [5] for injunction docketed as Civil Case
No. 3316-R, in the Regional Trial Court of Baguio City, Branch 4. Private
respondents were able to obtain a temporary restraining order but their prayer for
a writ of preliminary injunction was later denied in an Order dated March 18, 1996.

While Civil Case No. 3316-R was pending, the ASSOCIATION, this time
represented by the Land Reform Beneficiaries Association, Inc. (BENEFICIARIES, for
brevity), filed Civil Case No. 3382-R before Branch 61 of the same court. The
complaint[7] prayed for damages, injunction and annulment of the said
Memorandum of Agreement between UNITED and HIGC. Upon motion of UNITED,
the trial court in an Order dated May 27, 1996 dismissed Civil Case No. 3382-R.
The said Order of dismissal is currently on appeal with the Court of Appeals. [9]
Demolition Order No. 1-96 was subsequently implemented by the Office of the
City Mayor and the City Engineers Office of Baguio City. However, petitioner avers
that private respondents returned and reconstructed the demolished structures.
To forestall the re-implementation of the demolition order, private respondents
filed on September 29, 1998 a petition [10] for annulment of contracts with prayer
for a temporary restraining order, docketed as COSLAP Case No. 98-253, in the
Commission on the Settlement of Land Problems (COSLAP) against petitioner,
HIGC, PMS, the City Engineers Office, the City Mayor, as well as the Register of

Deeds of Baguio City. On the very same day, public respondent COSLAP issued the
contested order requiring the parties to maintain the status quo.
Without filing a motion for reconsideration from the aforesaid status
quo order, petitioner filed the instant petition questioning the jurisdiction of the
The issues we are called upon to resolve are:
To the extent that the instant case is denominated as one for declaratory
relief, we initially clarify that we do not possess original jurisdiction to entertain
such petitions.[11] Such is vested in the Regional Trial Courts. [12]Accordingly, we shall
limit our review to ascertaining if the proceedings before public respondent
COSLAP are without or in excess of its jurisdiction. In this wise, a recounting of the
history of the COSLAP may provide useful insights into the extent of its powers and
The COSLAP was created by virtue of Executive Order No. 561 dated
September 21, 1979. Its forerunner was the Presidential Action Committee on Land
Problems (PACLAP) founded on July 31, 1970 by virtue of Executive Order No.
251. As originally conceived, the committee was tasked to expedite and coordinate
the investigation and resolution of land disputes, streamline and shorten
administrative procedures, adopt bold and decisive measures to solve land
problems, and/or recommend other solutions. It was given the power to issue

subpoenas duces tecum and ad testificandum and to call upon any department,
office, agency or instrumentality of the government, including government owned
or controlled corporations and local government units, for assistance in the
performance of its functions. At the time, the PACLAP did not exercise quasi-judicial
On March 19, 1971, Executive Order No. 305 was issued reconstituting the
PACLAP.[13] The committee was given exclusive jurisdiction over all cases involving
public lands and other lands of the public domain and accordingly was tasked:
1. To investigate, coordinate, and resolve expeditiously land disputes,
streamline administrative procedures, and in general, to adopt bold
and decisive measures to solve problems involving public lands and
lands of the public domain;
2. To coordinate and integrate the activities of all government agencies
having to do with public lands or lands of the public domain;
3. To study and review present policies as embodied in land laws and
administrative rules and regulations, in relation to the needs for land
of the agro-industrial sector and small farmers, with the end in view to
evolving and recommending new laws and policies and establishing
priorities in the grant of public land, and the simplification of
processing of land applications in order to relieve the small man from
the complexities of existing laws, rules and regulations;
4. To evolve and implement a system for the speedy investigation and
resolution of land disputes;
5. To receive all complaints of settlers and small farmers, involving public
lands or other lands of the public domain;
6. To look into the conflicts between Christians and non-Christians,
between corporations and small settlers and farmers; cause the
speedy settlement of such conflicts in accordance with priorities or
policies established by the Committee; and
7. To perform such other functions as may be assigned to it by the

Thereafter, the PACLAP was reorganized pursuant to Presidential Decree No.

832 dated November 27, 1975.[14] Its jurisdiction was revised thus:
xxx xxx xxx
2. Refer for immediate action any land problem or dispute brought to the attention
of the PACLAP, to any member agency having jurisdiction thereof: Provided, that
when the Executive Committee decides to act on a case, its resolution, order or
decision thereon, shall have the force and effect of a regular administrative
resolution, order or decision, and shall be binding upon the parties therein involved
and upon the member agency having jurisdiction thereof;
xxx xxx xxx
Notably, the said Presidential Decree No. 832 did not contain any provision for
judicial review of the resolutions, orders or decisions of the PACLAP.
On September 21, 1979, the PACLAP was abolished and its functions
transferred to the present Commission on the Settlement of Land Problems by
virtue of Executive Order No. 561. This reorganization, effected in line with
Presidential Decree No. 1416, brought the COSLAP directly under the Office of the
President.[15] It was only at this time that a provision for judicial review was made
from resolutions, orders or decisions of the said agency, as embodied in section
3(2) thereof, to wit:
Powers and functions.The Commission shall have the following powers and
1. Coordinate the activities, particularly the investigation work, of the
various government offices and agencies involved in the settlement of
land problems or disputes, and streamline administrative procedures
to relieve small settlers and landholders and members of cultural
minorities of the expense and time-consuming delay attendant to the
solution of such problems or disputes;
2. Refer and follow-up for immediate action by the agency having
appropriate jurisdiction any land problem or dispute referred to the
Commission: Provided, that the Commission may, in the following
cases, assume jurisdiction and resolve land problems or disputes

which are critical and explosive in nature considering, for instance, the
large number of the parties involved, the presence or emergence of
social tension or unrest, or other similar critical situations requiring
immediate action:
(a) Between occupants/squatters and pasture lease agreement holders or
timber concessionaires;
(b) Between occupants/squatters and government reservation grantees;
(c) Between occupants/squatters and public land claimants or applicants;
(d) Petitions for classification, release and/or subdivision of lands of the
public domain; and
(e) Other similar land problems of grave urgency and magnitude.
The Commission shall promulgate such rules of procedure as will insure
expeditious resolution and action on the above cases. The resolution, order or
decision of the Commission on any of the foregoing cases shall have the force and
effect of a regular administrative resolution, order or decision and shall be binding
upon the parties therein and upon the agency having jurisdiction over the
same. Said resolution, order or decision shall become final and executory within
thirty (30) days from its promulgation and shall be appealable by certiorari only to
the Supreme Court.
xxx xxx xxx
In the performance of its functions and discharge of its duties, the Commission is
authorized, through the Commissioner, to issue subpoena and subpoena duces
tecum for the appearance of witnesses and the production of records, books and
documents before it. It may also call upon any ministry, office, agency or
instrumentality of the National Government, including government-owned or
controlled corporations, and local governments for assistance. This authority is
likewise, conferred upon the provincial offices as may be established pursuant to
Section 5 of this Executive Order.
In Baaga v. Commission on the Settlement of Land Problems,[16] we
characterized the COSLAPs jurisdiction as being general in nature, as follows:

Petitioners also contend in their petition that the COSLAP itself has no jurisdiction
to resolve the protest and counter-protest of the parties because its power to
resolve land problems is confined to those cases which are critical and explosive in
This contention is devoid of merit. It is true that Executive Order No. 561 provides
that the COSLAP may take cognizance of cases which are critical and explosive in
nature considering, for instance, the large number of parties involved, the
presence or emergence of social tension or unrest, or other similar critical
situations requiring immediate action. However, the use of the word may does not
mean that the COSLAPs jurisdiction is merely confined to the above mentioned
cases. The provisions of the said Executive Order are clear that the COSLAP was
created as a means of providing a more effective mechanism for the expeditious
settlement of land problems in general, which are frequently the source of conflicts
among settlers, landowners and cultural minorities. Besides, the COSLAP merely
took over from the abolished PACLAP whose functions, including its jurisdiction,
power and authority to act on, decide and resolve land disputes (Sec. 2, P.D. No.
832) were all assumed by it. The said Executive Order No. 561 containing said
provision, being enacted only on September 21, 1979, cannot affect the exercise of
jurisdiction of the PACLAP Provincial Committee of Koronadal on September 29,
1978. Neither can it affect the decision of the COSLAP which merely affirmed said
exercise of jurisdiction.
Given the facts of the case, it is our view that the COSLAP is not justified in
assuming jurisdiction over the controversy. As matters stand, it is not the judiciarys
place to question the wisdom behind a law; [17] our task is to interpret the law. We
feel compelled to observe, though, that by reason of the ambiguous terminology
employed in Executive Order No. 561, the power to assume jurisdiction granted to
the COSLAP provides an ideal breeding ground for forum shopping, as we shall
explain subsequently. Suffice it to state at this stage that the COSLAP may not
assume jurisdiction over cases which are already pending in the regular courts.
The reason is simple. Section 3(2) of Executive Order 561 speaks of any
resolution, order or decision of the COSLAP as having the force and effect of
a regular administrative resolution, order or decision. The qualification places an
unmistakable emphasis on the administrative character of the COSLAPs
determinations, amplified by the statement that such resolutions, orders or
decisions shall be binding upon the parties thereinand upon the agency having
jurisdiction over the same. An agency is defined by statute as any of the various
units of the Government, including a department, bureau, office, instrumentality,

or government-owned or controlled corporation, or a local government or a distinct

unit therein.[18] A department, on the other hand, refers to an executive
department created by law.[19] Whereas, a bureau is understood to refer to any
principal subdivision of any department.[20] In turn, an office refers, within the
framework of governmental organization, to any major functional unit of a
department or bureau including regional offices. It may also refer to any position
held or occupied by individual persons, whose functions are defined by law or
regulation.[21] An instrumentality is deemed to refer to any agency of the National
Government, not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds and enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies, chartered institutions and
government-owned or controlled corporations.[22] Applying the principle in statutory
construction of ejusdem generis, i.e., where general words follow an enumeration
or persons or things, by words of a particular and specific meaning, such general
words are not to be construed in their widest extent, but are to be held as applying
only to persons or things of the same kind or class as those specifically mentioned,
section 3(2) of Executive Order 561 patently indicates that the COSLAPs
dispositions are binding on administrative or executive agencies. The history of the
COSLAP itself bolsters this view. Prior enactments enumerated its member
agencies among which it was to exercise a coordinating function.
The COSLAP discharges quasi-judicial functions:
Quasi-judicial function is a term which applies to the actions, discretion, etc. of
public administrative officers or bodies, who are required to investigate facts, or
ascertain the existence of facts, hold hearings, and draw conclusions from them, as
a basis for their official action and to exercise discretion of a judicial nature. [24]
However, it does not depart from its basic nature as an administrative agency,
albeit one that exercises quasi-judicial functions. Still, administrative agencies are
not considered courts; they are neither part of the judicial system nor are they
deemed judicial tribunals.[25] The doctrine of separation of powers observed in our
system of government reposes the three (3) great powers into its three (3)
branches the legislative, the executive, and the judiciary each department being
co-equal and coordinate, and supreme in its own sphere. Accordingly, the
executive department may not, by its own fiat, impose the judgment of one of its
own agencies, upon the judiciary. Indeed, under the expanded jurisdiction of the
Supreme Court, it is empowered to determine whether or not there has been grave

abuse of discretion amounting to lack of or excess of jurisdiction on the part of any

branch or instrumentality of the Government.[26]
There is an equally persuasive reason to grant the petition. As an additional
ground for the annulment of the assailed status quo order of COSLAP, UNITED
accuses private respondents of engaging in forum shopping.Forum shopping exists
when a party repetitively avail[s] of several judicial remedies in different courts,
simultaneously or successively, all substantially founded on the same transactions
and the same essential facts and circumstances, and all raising substantially the
same issues either pending in, or already resolved adversely by some other court.
In this connection, Supreme Court Administrative Circular No. 04-94 dated
February 8, 1994 provides:
Revised Circular No. 28-91, dated February 8, 1994, applies to and governs the
filing of petitions in the Supreme Court and the Court of Appeals and is intended to
prevent the multiple filing of petitions or complaints involving the same issues in
other tribunals or agencies as a form of forum shopping.
Complementary thereto and for the same purpose, the following requirements, in
addition to those in pertinent provisions of the Rules of Court and existing circulars,
shall be strictly complied with in the filing of complaints, petitions, applications or
other initiatory pleadings in all courts and agencies other than the Supreme Court
and the Court of Appeals and shall be subject to the sanctions provided hereunder.
1. The plaintiff, petitioner, applicant or principal party seeking relief in the
complaint, petition, application or other initiatory pleading shall certify under oath
in such original pleading, or in a sworn certification annexed thereto and
simultaneously filed therewith, to the truth of the following facts and undertakings:
(a) he has not theretofore commenced any other action or proceeding involving
the same issues in the Supreme Court, the Court of Appeals, or any other tribunal
or agency; (b) to the best of his knowledge, no such action or proceedings is
pending in the Supreme Court, the Court of Appeals, or any other tribunal or
agency; (c) if there is any such action or proceeding which is either pending or may
have been terminated, he must state the status thereof; and (d) if he should
thereafter learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals or any other tribunal or agency, he
undertakes to report that fact within five (5) days therefrom to the court or agency
wherein the original pleading and sworn certification contemplated herein have
been filed.

The complaint and other initiatory pleadings referred to and subject of this Circular
are the original civil complaint, counterclaim, cross-claim, third (fourth, etc.) party
complaint, or complaint-in-intervention, petition, or application wherein a party
asserts his claim for relief.
2. Any violation of this Circular shall be a cause for the dismissal of the
complaint, petition, application or other initiatory pleading, upon motion
and after hearing. However, any clearly willful and deliberate forum
shopping by any other party and his counsel through the filing of multiple
action shall be a ground for the summary dismissal thereof and shall
constitute contempt of court. Furthermore, the submission of a false
certification or non-compliance with the undertakings therein, as provided in
Paragraph 1 hereof, shall constitute indirect contempt of court, without prejudice to
disciplinary proceedings against the counsel and the filing of a criminal action
against the party. [italics supplied]
xxx xxx xxx
The said Administrative Circulars use of the auxiliary verb shall imports an
imperative obligation xxx inconsistent with the idea of discretion. [28] Hence,
compliance therewith is mandatory.[29]
It bears stressing that there is a material distinction between the requirement
of submission of the certification against forum shopping from the undertakings
stated therein. Accordingly,
xxx [f]ailure to comply with this requirement cannot be excused by the fact that
plaintiff is not guilty of forum shopping. The Court of Appeals, therefore, erred in
concluding that Administrative Circular No. 04-94 did not apply to private
respondents case merely because her complaint was not based on petitioners
cause of action. The Circular applies to any complaint, petition, application, or
other initiatory pleading, regardless of whether the party filing it has actually
committed forum shopping. Every party filing a complaint or any other initiatory
pleading is required to swear under oath that he has not committed nor will he
commit forum shopping.Otherwise, we would have an absurd situation where the
parties themselves would be the judge of whether their actions constitute a
violation of said Circular, and compliance therewith would depend on their belief
that they might or might not have violated the requirement. Such interpretation of
the requirement would defeat the very purpose of Circular 04-94.

Indeed, compliance with the certification against forum shopping is separate from,
and independent of, the avoidance of forum shopping itself. Thus, there is a
difference in the treatmentin terms of imposable sanctionsbetween failure to
comply with the certification requirement and violation of the prohibition against
forum shopping. The former is merely a cause for the dismissal, without prejudice,
of the complaint or initiatory pleading, while the latter is a ground for summary
dismissal thereof and constitutes direct contempt.[30]
A scrutiny of the pleadings filed before the trial courts and the COSLAP
sufficiently establishes private respondents propensity for forum shopping. We lay
the premise that the certification against forum shopping must be executed by the
plaintiff or principal party, and not by his counsel. [31] Hence, one can deduce that
the certification is a peculiar personal representation on the part of the principal
party, an assurance given to the court or other tribunal that there are no other
pending cases involving basically the same parties, issues and causes of action. In
the case at bar, private respondents litany of omissions range from failing to
submit the required certification against forum shopping to filing a false
certification, and then to forum shopping itself. First, the petition filed before the
COSLAP conspicuously lacked a certification against forum shopping. Second, it
does not appear from the record that the ASSOCIATION informed Branch 4 of the
Regional Trial Court of Baguio City before which Civil Case No. 3316-R was pending,
that another action, Civil Case No. 3382-R, was filed before Branch 61 of the same
court. Another group of homeless residents of Dominican Hill, the LAND REFORM
BENEFICIARIES ASSOCIATION, INC. initiated the latter case. The aforesaid plaintiff,
however, does not hesitate to admit that it filed the second case in
representation of private respondent, as one of its affiliates. In the same manner,
the certification against forum shopping accompanying the complaint in Civil Case
No. 3382-R does not mention the pendency of Civil Case No. 3316-R. In fact, the
opposite assurance was given, that there was no action pending before any other
tribunal. Another transgression is that both branches of the trial court do not
appear to have been notified of the filing of the subject COSLAP Case No. 98-253.
It is evident from the foregoing facts that private respondents, in filing
multiple petitions, have mocked our attempts to eradicate forum shopping and
have thereby upset the orderly administration of justice. They sought recourse
from three (3) different tribunals in order to obtain the writ of injunction they so
desperately desired. The willful attempt by private respondents to obtain a
preliminary injunction in another court after it failed to acquire the same from the
original court constitutes grave abuse of the judicial process. [32]

In this connection, we expounded on forum shopping in Viva Productions, Inc.

v. Court of Appeals[33] that:
Private respondents intention to engage in forum shopping becomes manifest with
undoubted clarity upon the following considerations. Notably, if not only to ensure
the issuance of an injunctive relief, the significance of the action for damages
before the Makati court would be nil. What damages against private respondent
would there be to speak about if the Paraaque court already enjoins the
performance of the very same act complained of in the Makati court? Evidently,
the action for damages is premature if not for the preliminary injunctive relief
sought. Thus, we find grave abuse of discretion on the part of the Makati court,
being a mere co-equal of theParaaque court, in not giving due deference to the
latter before which the issue of the alleged violation of the sub-judice rule had
already been raised and submitted. In such instance, the Makati court, if it was
wary of dismissing the action outrightly under Administrative Circular No. 04-94,
should have, at least, ordered the consolidation of its case with that of
the Paraaque court, which had first acquired jurisdiction over the related case xxx,
or it should have suspended the proceedings until the Paraaque court may have
ruled on the issue xxx.
xxx xxx xxx
Thus, while we might admit that the causes of action before the Makati court and
the Paraaque court are distinct, and that private respondent cannot seek civil
indemnity in the contempt proceedings, the same being in the nature of criminal
contempt, we nonetheless cannot ignore private respondents intention of seeking
exactly identical reliefs when it sought the preliminary relief of injunction in
the Makati court. As earlier indicated, had private respondent been completely in
good faith, there would have been no hindrance in filing the action for damages
with the regional trial court of Paraaque and having it consolidated with the
contempt proceedings before Branch 274, so that the same issue on the alleged
violation of the sub judice rule will not have to be passed upon twice, and there
would be no possibility of having two courts of concurrent jurisdiction making two
conflicting resolutions.
Yet from another angle, it may be said that when the Paraaque court acquired
jurisdiction over the said issue, it excluded all other courts of concurrent
jurisdiction from acquiring jurisdiction over the same. To hold otherwise would be
to risk instances where courts of concurrent jurisdiction might have conflicting
orders. This will create havoc and result in an extremely disordered administration

of justice. Therefore, even on the assumption that the Makati court may acquire
jurisdiction over the subject matter of the action for damages, without prejudice to
the application of Administrative Circular No. 04-94, it cannot nonetheless acquire
jurisdiction over the issue of whether or not petitioner has violated the sub
judice rule. At best, the Makati court may hear the case only with respect to the
alleged injury suffered by private respondent after the Paraaque court shall have
ruled favorably on the said issue.
We also noted several indications of private respondents bad faith. The
complaint filed in Civil Case No. 3316-R was prepared by the ASSOCIATIONs
counsel, Atty. Conrado Villamor Catral, Jr. whereas the complaint filed in Civil Case
No. 3382-R was signed by a different lawyer, Atty. Thomas S. Tayengco. With
regard to the petition filed with the COSLAP, the same was signed by private
respondents individually. As to the latter case, we noted that the petition itself
could not have been prepared by ordinary laymen, inasmuch as it exhibits
familiarity with statutory provisions and legal concepts, and is written in a lawyerly
In the same manner, the plaintiffs in the three (3) different cases were made
to appear as dissimilar: in Civil Case No. 3316-R, the plaintiff was ASSOCIATION of
which private respondent Mario Padilan was head, while the plaintiff in Civil Case
No. 3382-R was the BENEFICIARIES. Before the COSLAP, private respondents
themselves were the petitioners, led again by Padilan. [34] Private respondents also
attempted to vary their causes of action: in Civil Case No. 3382-R and COSLAP
Case No. 98-253, they seek the annulment of the Memorandum of Agreement
executed by and among UNITED, the PMS, and HIGC as well as the transfer
certificates of title accordingly issued to petitioner. All three (3) cases sought to
enjoin the demolition of private respondents houses.
It has been held that forum shopping is evident where the elements of litis
pendentia or res judicata are present. Private respondents subterfuge comes to
naught, for the effects of res judicata or litis pendentia may not be avoided by
varying the designation of the parties or changing the form of the action or
adopting a different mode of presenting ones case.[35]
In view of the foregoing, all that remains to be done is the imposition of the
proper penalty. A partys willful and deliberate act of forum shopping is punishable
by summary dismissal of the actions filed. [36] The summary dismissal of both
COSLAP Case No. 98-253 and Civil Case No. 3316-R is therefore warranted under
the premises. We shall refrain from making any pronouncement on Civil Case No.

3382-R, the dismissal of which was elevated on appeal to the Court of Appeals
where it is still pending.
WHEREFORE, the petition is hereby GRANTED. The status quo order dated
September 29, 1998 issued in COSLAP Case No. 98-253 by respondent Commission
On The Settlement Of Land Problems (COSLAP) is hereby SET ASIDE; and the
petition filed in COSLAP Case No. 98-253 and the complaint in Civil Case No. 3316R are hereby DISMISSED for lack of jurisdiction and forum shopping. Costs against
private respondents.

VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES, petitioner,
Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

This petition was filed on September 1, 1986 by petitioner on his own behalf and
purportedly on behalf of other videogram operators adversely affected. It assails
the constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry (hereinafter briefly referred to as the BOARD). The Decree was
promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15)
days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned
decree, Presidential Decree No. 1994 amended the National Internal Revenue Code
providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each
processed video-tape cassette, ready for playback, regardless of
length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to
sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie
Producers, Importers and Distributors Association of the Philippines, and Philippine
Motion Pictures Producers Association, hereinafter collectively referred to as the
Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete
protection of their rights and that their "survival and very existence is threatened
by the unregulated proliferation of film piracy." The Intervenors were thereafter
allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular
clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of
videograms including, among others, videotapes, discs, cassettes
or any technical improvement or variation thereof, have greatly

prejudiced the operations of moviehouses and theaters, and have

caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales,
contractor's specific, amusement and other taxes, thereby
resulting in substantial losses estimated at P450 Million annually in
government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around
P600 Million per annum from rentals, sales and disposition of
videograms, and such earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million in
taxes each year;
establishments have also affected the viability of the movie
industry, particularly the more than 1,200 movie houses and
theaters throughout the country, and occasioned industry-wide
displacement and unemployment due to the shutdown of
numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is
imperative for the Government to create an environment
conducive to growth and development of all business industries,
including the movie industry which has an accumulated investment
of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram
establishments will not only alleviate the dire financial condition of
the movie industry upon which more than 75,000 families and
500,000 workers depend for their livelihood, but also provide an
additional source of revenue for the Government, and at the same
time rationalize the heretofore uncontrolled distribution of
6. WHEREAS, the rampant and unregulated showing of obscene
videogram features constitutes a clear and present danger to the
moral and spiritual well-being of the youth, and impairs the
mandate of the Constitution for the State to support the rearing of
the youth for civic efficiency and the development of moral

character and promote their physical, intellectual, and social wellbeing;

7. WHEREAS, civic-minded citizens and groups have called for
remedial measures to curb these blatant malpractices which have
flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the
moral values of the people and betraying the national economic
recovery program, bold emergency measures must be adopted
with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following
1. Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a RIDER and the same
is not germane to the subject matter thereof;

title be comprehensive enough to include the general purpose which a statute

seeks to achieve. It is not necessary that the title express each and every end that
the statute wishes to accomplish. The requirement is satisfied if all the parts of the
statute are related, and are germane to the subject matter expressed in the title,
or as long as they are not inconsistent with or foreign to the general subject and
title. 2 An act having a single general subject, indicated in the title, may contain
any number of provisions, no matter how diverse they may be, so long as they are
not inconsistent with or foreign to the general subject, and may be considered in
furtherance of such subject by providing for the method and means of carrying out
the general object." 3 The rule also is that the constitutional requirement as to the
title of a bill should not be so narrowly construed as to cripple or impede the power
of legislation. 4 It should be given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the
DECREE is a rider is without merit. That section reads, inter alia:

3. There is no factual nor legal basis for the exercise by the

President of the vast powers conferred upon him by Amendment
No. 6;

Section 10. Tax on Sale, Lease or Disposition of Videograms.

Notwithstanding any provision of law to the contrary, the province
shall collect a tax of thirty percent (30%) of the purchase price or
rental rate, as the case may be, for every sale, lease or disposition
of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax
collected shall accrue to the province, and the other fifty percent
(50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared
equally by the City/Municipality and the Metropolitan Manila

4. There is undue delegation of power and authority;

xxx xxx xxx

2. The tax imposed is harsh, confiscatory, oppressive and/or in

unlawful restraint of trade in violation of the due process clause of
the Constitution;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a
nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject
which shall be expressed in the title thereof" 1 is sufficiently complied with if the

The foregoing provision is allied and germane to, and is reasonably necessary for
the accomplishment of, the general object of the DECREE, which is the regulation
of the video industry through the Videogram Regulatory Board as expressed in its
title. The tax provision is not inconsistent with, nor foreign to that general subject
and title. As a tool for regulation 6 it is simply one of the regulatory and control
mechanisms scattered throughout the DECREE. The express purpose of the
DECREE to include taxation of the video industry in order to regulate and
rationalize the heretofore uncontrolled distribution of videograms is evident from
Preambles 2 and 5, supra. Those preambles explain the motives of the lawmaker in
presenting the measure. The title of the DECREE, which is the creation of the

Videogram Regulatory Board, is comprehensive enough to include the purposes

expressed in its Preamble and reasonably covers all its provisions. It is unnecessary
to express all those objectives in the title or that the latter be an index to the body
of the DECREE. 7

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and
oppressive, confiscatory, and in restraint of trade. However, it is beyond serious
question that a tax does not cease to be valid merely because it regulates,
discourages, or even definitely deters the activities taxed. 8 The power to impose
taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any restrictions whatever, except
such as rest in the discretion of the authority which exercises it. 9 In imposing a
tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation. 10

3. Petitioner argues that there was no legal nor factual basis for the promulgation
of the DECREE by the former President under Amendment No. 6 of the 1973
Constitution providing that "whenever in the judgment of the President ... , there
exists a grave emergency or a threat or imminence thereof, or whenever the
interim Batasang Pambansa or the regular National Assembly fails or is unable to
act adequately on any matter for any reason that in his judgment requires
immediate action, he may, in order to meet the exigency, issue the necessary
decrees, orders, or letters of instructions, which shall form part of the law of the

The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram establishments of
around P600 million per annum have not been subjected to tax, thereby depriving
the Government of an additional source of revenue. It is an end-user tax, imposed
on retailers for every videogram they make available for public viewing. It is similar
to the 30% amusement tax imposed or borne by the movie industry which the
theater-owners pay to the government, but which is passed on to the entire cost of
the admission ticket, thus shifting the tax burden on the buying or the viewing
public. It is a tax that is imposed uniformly on all videogram operators.

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th
"whereas" clause sufficiently summarizes the justification in that grave
emergencies corroding the moral values of the people and betraying the national
economic recovery program necessitated bold emergency measures to be adopted
with dispatch. Whatever the reasons "in the judgment" of the then President,
considering that the issue of the validity of the exercise of legislative power under
the said Amendment still pends resolution in several other cases, we reserve
resolution of the question raised at the proper time.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer
the need for regulating the video industry, particularly because of the rampant film
piracy, the flagrant violation of intellectual property rights, and the proliferation of
pornographic video tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor one
industry over another. 11
It is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that
"inequities which result from a singling out of one particular class

limitation". 12 Taxation has been made the implement of the

state's police power. 13

4. Neither can it be successfully argued that the DECREE contains an undue

delegation of legislative power. The grant in Section 11 of the DECREE of authority
to the BOARD to "solicit the direct assistance of other agencies and units of the
government and deputize, for a fixed and limited period, the heads or personnel of
such agencies and units to perform enforcement functions for the Board" is not a
delegation of the power to legislate but merely a conferment of authority or
discretion as to its execution, enforcement, and implementation. "The true
distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as
to its execution to be exercised under and in pursuance of the law. The first cannot
be done; to the latter, no valid objection can be made." 14 Besides, in the very
language of the decree, the authority of the BOARD to solicit such assistance is for
a "fixed and limited period" with the deputized agencies concerned being "subject
to the direction and control of the BOARD." That the grant of such authority might
be the source of graft and corruption would not stigmatize the DECREE as

unconstitutional. Should the eventuality occur, the aggrieved parties will not be
without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law
is, among other categories, one which "alters the legal rules of evidence, and
authorizes conviction upon less or different testimony than the law required at the
time of the commission of the offense." It is petitioner's position that Section 15 of
the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a
period of forty-five (45) days after the effectivity of this Decree
within which to register with and secure a permit from the BOARD
to engage in the videogram business and to register with the
BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations
thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any person
engaged in the videogram business without the required proof of
registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram
be for private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the
required proof of registration of any videogram cannot be presented and thus
partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs.
Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to
the passage of a law providing that the presumption of innocence
may be overcome by a contrary presumption founded upon the
experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People vs.
Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE
"legislature may enact that when certain facts have been proved
that they shall be prima facie evidence of the existence of the guilt
of the accused and shift the burden of proof provided there be a
rational connection between the facts proved and the ultimate

facts presumed so that the inference of the one from proof of the
others is not unreasonable and arbitrary because of lack of
connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational
connection between the fact proved, which is non-registration, and the ultimate
fact presumed which is violation of the DECREE, besides the fact that theprima
facie presumption of violation of the DECREE attaches only after a forty-five-day
period counted from its effectivity and is, therefore, neither retrospective in
6. We do not share petitioner's fears that the video industry is being over-regulated
and being eased out of existence as if it were a nuisance. Being a relatively new
industry, the need for its regulation was apparent. While the underlying objective
of the DECREE is to protect the moribund movie industry, there is no question that
public welfare is at bottom of its enactment, considering "the unfair competition
posed by rampant film piracy; the erosion of the moral fiber of the viewing public
brought about by the availability of unclassified and unreviewed video tapes
containing pornographic films and films with brutally violent sequences; and losses
in government revenues due to the drop in theatrical attendance, not to mention
the fact that the activities of video establishments are virtually untaxed since mere
payment of Mayor's permit and municipal license fees are required to engage in
business. 17
The enactment of the Decree since April 10, 1986 has not brought about the
"demise" of the video industry. On the contrary, video establishments are seen to
have proliferated in many places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom
and expediency of the DECREE. These considerations, however, are primarily and
exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the
action taken, may be the basis for declaring a statute invalid. This
is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department
and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to
the discretion of a coordinate branch, the judiciary would
substitute its own. If there be adherence to the rule of law, as there

ought to be, the last offender should be courts of justice, to which

rightly litigants submit their controversy precisely to maintain
unimpaired the supremacy of legal norms and prescriptions. The
attack on the validity of the challenged provision likewise insofar as
there may be objections, even if valid and cogent on its wisdom
cannot be sustained. 18



In fine, petitioner has not overcome the presumption of validity which attaches to a
challenged statute. We find no clear violation of the Constitution which would
justify us in pronouncing Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.

43 Phil. 1 Political Law Delegation of Power Administrative Bodies

In July 1919, the Philippine Legislature (during special session) passed and

No costs.

approved Act No. 2868 entitled An Act Penalizing the Monopoly and Hoarding of
Rice, Palay and Corn. The said act, under extraordinary circumstances, authorizes


the Governor General (GG) to issue the necessary Rules and Regulations in
United States vs Ang Tang Ho

the GG issued Executive Order No. 53 which was published on August 20, 1919.

December 18, 2011

The said EO fixed the price at which rice should be sold. On the other hand, Ang

No comments




regulating the distribution of such products. Pursuant to this Act, in August 1919,

Tang Ho, a rice dealer, sold a ganta of rice to Pedro Trinidad at the price of eighty
centavos. The said amount was way higher than that prescribed by the EO. The
sale was done on the 6th of August 1919. On August 8, 1919, he was charged

for violation of the said EO. He was found guilty as charged and was sentenced to 5
months imprisonment plus a P500.00 fine. He appealed the sentence countering
that there is an undue delegation of power to the Governor General.
ISSUE: Whether or not there is undue delegation to the Governor General.

HELD: First of, Ang Tang Hos conviction must be reversed because he committed
the act prior to the publication of the EO. Hence, he cannot be ex post facto
charged of the crime. Further, one cannot be convicted of a violation of a law or of


an order issued pursuant to the law when both the law and the order fail to set up
an ascertainable standard of guilt.

Anent the issue of undue delegation, the said Act wholly fails to provide definitely
and clearly what the standard policy should contain, so that it could be put in use
as a uniform policy required to take the place of all others without the
determination of the insurance commissioner in respect to matters involving the
exercise of a legislative discretion that could not be delegated, and without which
the act could not possibly be put in use. The law must be complete in all its terms
and provisions when it leaves the legislative branch of the government and nothing
must be left to the judgment of the electors or other appointee or delegate of the
legislature, so that, in form and substance, it is a law in all its details in
presenti, but which may be left to take effect in future, if necessary, upon the
ascertainment of any prescribed fact or event.


(PHILS.), INC., respondent.
Petitioner Commissioner of Internal Revenue (Commissioner) assails the
resolution[1] of the Court of Appeals reversing the decision [2] of the Court of Tax
Appeals which in turn denied the protest filed by respondent General Foods (Phils.),
Inc., regarding the assessment made against the latter for deficiency taxes.
The records reveal that, on June 14, 1985, respondent corporation, which is
engaged in the manufacture of beverages such as Tang, Calumet and Kool-Aid,
filed its income tax return for the fiscal year ending February 28, 1985. In said tax
return, respondent corporation claimed as deduction, among other business
expenses, the amount of P9,461,246 for media advertising for Tang.

On May 31, 1988, the Commissioner disallowed 50% or P4,730,623 of the

deduction claimed by respondent corporation. Consequently, respondent
corporation was assessed deficiency income taxes in the amount of P2,635,
141.42. The latter filed a motion for reconsideration but the same was denied.
On September 29, 1989, respondent corporation appealed to the Court of Tax
Appeals but the appeal was dismissed:
With such a gargantuan expense for the advertisement of a singular product,
which even excludes other advertising and promotions expenses, we are not
prepared to accept that such amount is reasonable to stimulate the current sale of
merchandise regardless of Petitioners explanation that such expense does not
connote unreasonableness considering the grave economic situation taking place
after the Aquino assassination characterized by capital fight, strong deterioration
of the purchasing power of the Philippine peso and the slacking demand for
consumer products (Petitioners Memorandum, CTA Records, p. 273). We are not
convinced with such an explanation. The staggering expense led us to believe that
such expenditure was incurred to create or maintain some form of good will for the
taxpayers trade or business or for the industry or profession of which the taxpayer
is a member. The term good will can hardly be said to have any precise
signification; it is generally used to denote the benefit arising from connection and
reputation (Words and Phrases, Vol. 18, p. 556 citing Douhart vs. Loagan, 86 III.
App. 294). As held in the case of Welch vs. Helvering, efforts to establish
reputation are akin to acquisition of capital assets and, therefore, expenses related
thereto are not business expenses but capital expenditures. (Atlas Mining and
Development Corp. vs. Commissioner of Internal Revenue, supra). For sure such
expenditure was meant not only to generate present sales but more for future and
prospective benefits. Hence, abnormally large expenditures for advertising are
usually to be spread over the period of years during which the benefits of the
expenditures are received (Mertens, supra, citing Colonial Ice Cream Co., 7 BTA
WHEREFORE, in all the foregoing, and finding no error in the case appealed from,
we hereby RESOLVE to DISMISS the instant petition for lack of merit and ORDER
the Petitioner to pay the respondent Commissioner the assessed amount
of P2,635,141.42 representing its deficiency income tax liability for the fiscal year
ended February 28, 1985.[3]
Aggrieved, respondent corporation filed a petition for review at the Court of
Appeals which rendered a decision reversing and setting aside the decision of the
Court of Tax Appeals:

Since it has not been sufficiently established that the item it claimed as a
deduction is excessive, the same should be allowed.
WHEREFORE, the petition of petitioner General Foods (Philippines), Inc. is hereby
GRANTED. Accordingly, the Decision, dated 8 February 1994 of respondent Court of
Tax Appeals is REVERSED and SET ASIDE and the letter, dated 31 May 1988 of
respondent Commissioner of Internal Revenue is CANCELLED.
Thus, the instant petition, wherein the Commissioner presents for the Courts
consideration a lone issue: whether or not the subject media advertising expense
for Tang incurred by respondent corporation was an ordinary and necessary
expense fully deductible under the National Internal Revenue Code (NIRC).
It is a governing principle in taxation that tax exemptions must
construed in strictissimi juris against the taxpayer and liberally in favor of
taxing authority;[5] and he who claims an exemption must be able to justify
claim by the clearest grant of organic or statute law. An exemption from
common burden cannot be permitted to exist upon vague implications. [6]


Deductions for income tax purposes partake of the nature of tax exemptions;
hence, if tax exemptions are strictly construed, then deductions must also be
strictly construed.
We then proceed to resolve the singular issue in the case at bar. Was the
media advertising expense for Tang paid or incurred by respondent corporation for
the fiscal year ending February 28, 1985 necessary and ordinary, hence, fully
deductible under the NIRC? Or was it a capital expenditure, paid in order to create
goodwill and reputation for respondent corporation and/or its products, which
should have been amortized over a reasonable period?
Section 34 (A) (1), formerly Section 29 (a) (1) (A), of the NIRC provides:
(A) Expenses.(1) Ordinary and necessary trade, business or professional expenses.(a) In general.- There shall be allowed as deduction from gross
income all ordinary and necessary expenses paid or
incurred during the taxable year in carrying on, or which

management, operation and/or conduct of the trade,

business or exercise of a profession.
Simply put, to be deductible from gross income, the subject advertising
expense must comply with the following requisites: (a) the expense must be
ordinary and necessary; (b) it must have been paid or incurred during the taxable
year; (c) it must have been paid or incurred in carrying on the trade or business of
the taxpayer; and (d) it must be supported by receipts, records or other pertinent
The parties are in agreement that the subject advertising expense was paid or
incurred within the corresponding taxable year and was incurred in carrying on a
trade or business. Hence, it was necessary. However, their views conflict as to
whether or not it was ordinary. To be deductible, an advertising expense should not
only be necessary but also ordinary. These two requirements must be met.
The Commissioner maintains that the subject advertising expense was not
ordinary on the ground that it failed the two conditions set by U.S. jurisprudence:
first, reasonableness of the amount incurred and second, the amount incurred
must not be a capital outlay to create goodwill for the product and/or private
respondents business. Otherwise, the expense must be considered a capital
expenditure to be spread out over a reasonable time.
We agree.
There is yet to be a clear-cut criteria or fixed test for determining the
reasonableness of an advertising expense. There being no hard and fast rule on
the matter, the right to a deduction depends on a number of factors such as but
not limited to: the type and size of business in which the taxpayer is engaged; the
volume and amount of its net earnings; the nature of the expenditure itself; the
intention of the taxpayer and the general economic conditions. It is the interplay of
these, among other factors and properly weighed, that will yield a proper
In the case at bar, the P9,461,246 claimed as media advertising expense for
Tang alone was almost one-half of its total claim for marketing expenses. Aside
from that, respondent-corporation also claimed P2,678,328 as other advertising
and promotions expense and another P1,548,614, for consumer promotion.
Furthermore, the subject P9,461,246 media advertising expense for Tang was
almost double the amount of respondent corporations P4,640,636 general and
administrative expenses.
We find the subject expense for the advertisement of a single product to be
inordinately large. Therefore, even if it is necessary, it cannot be considered an
ordinary expense deductible under then Section 29 (a) (1) (A) of the NIRC.

Advertising is generally of two kinds: (1) advertising to stimulate

the current sale of merchandise or use of services and (2) advertising designed to
stimulate the future sale of merchandise or use of services. The second type
involves expenditures incurred, in whole or in part, to create or maintain some
form of goodwill for the taxpayers trade or business or for the industry or
profession of which the taxpayer is a member. If the expenditures are for the
advertising of the first kind, then, except as to the question of the reasonableness
of amount, there is no doubt such expenditures are deductible as business
expenses. If, however, the expenditures are for advertising of the second kind,
then normally they should be spread out over a reasonable period of time.
We agree with the Court of Tax Appeals that the subject advertising expense
was of the second kind. Not only was the amount staggering; the respondent
corporation itself also admitted, in its letter protest [8] to the Commissioner of
Internal Revenues assessment, that the subject media expense was incurred in
order to protect respondent corporations brand franchise, a critical point during the
period under review.
The protection of brand franchise is analogous to the maintenance of goodwill
or title to ones property. This is a capital expenditure which should be spread out
over a reasonable period of time.[9]
Respondent corporations venture to protect its brand franchise was
tantamount to efforts to establish a reputation. This was akin to the acquisition of
capital assets and therefore expenses related thereto were not to be considered as
business expenses but as capital expenditures.[10]
True, it is the taxpayers prerogative to determine the amount of advertising
expenses it will incur and where to apply them. [11] Said prerogative, however, is
subject to certain considerations.The first relates to the extent to which the
expenditures are actually capital outlays; this necessitates an inquiry into the
nature or purpose of such expenditures. [12] The second, which must be applied in
harmony with the first, relates to whether the expenditures are ordinary and
necessary. Concomitantly, for an expense to be considered ordinary, it must be
reasonable in amount. The Court of Tax Appeals ruled that respondent corporation
failed to meet the two foregoing limitations.
We find said ruling to be well founded. Respondent corporation incurred the
subject advertising expense in order to protect its brand franchise. We consider
this as a capital outlay since it created goodwill for its business and/or
product. The P9,461,246 media advertising expense for the promotion of a single
product, almost one-half of petitioner corporations entire claim for marketing
expenses for that year under review, inclusive of other advertising and promotion
expenses of P2,678,328 and P1,548,614 for consumer promotion, is doubtlessly

It has been a long standing policy and practice of the Court to respect the
conclusions of quasi-judicial agencies such as the Court of Tax Appeals, a highly
specialized body specifically created for the purpose of reviewing tax cases. The
CTA, by the nature of its functions, is dedicated exclusively to the study and
consideration of tax problems. It has necessarily developed an expertise on the
subject. We extend due consideration to its opinion unless there is an abuse or
improvident exercise of authority. [13] Since there is none in the case at bar, the
Court adheres to the findings of the CTA.
Accordingly, we find that the Court of Appeals committed reversible error
when it declared the subject media advertising expense to be deductible as an
ordinary and necessary expense on the ground that it has not been established
that the item being claimed as deduction is excessive. It is not incumbent upon the
taxing authority to prove that the amount of items being claimed is unreasonable.
The burden of proof to establish the validity of claimed deductions is on the
taxpayer.[14] In the present case, that burden was not discharged satisfactorily.
WHEREFORE, premises considered, the instant petition is GRANTED. The
assailed decision of the Court of Appeals is hereby REVERSED and SET
ASIDE. Pursuant to Sections 248 and 249 of the Tax Code, respondent General
Foods (Phils.), Inc. is hereby ordered to pay its deficiency income tax in the amount
of P2,635,141.42, plus 25% surcharge for late payment and 20% annual interest
computed from August 25, 1989, the date of the denial of its protest, until the
same is fully paid.

The CA affirmed in toto the decision of the Court of Tax Appeals (CTA)
dated January 24, 1996 and its resolution of July 31, 1996, dismissing petitioner Far
East Bank and Trust Companys claim for refund of excess creditable withholding
taxes in the aggregate amount of Seven Hundred Fifty-Five Thousand Seven
Hundred and Fifteen Pesos (P755,715) allegedly paid and remitted to the Bureau of
Internal Revenue (BIR) sometime in 1990 and 1991.
Petitioner, Present:
DAVIDE, JR., C.J. (Chairman),
- versus - AZCUNA, JJ.
x ---------------------------------------------------------------------------------------- x

The antecedent facts are as follows:

Petitioner is a domestic banking corporation duly organized and
existing under and by virtue of Philippine laws. In the early part of
1992, the Cavite Development Bank [CDB], also a domestic
banking corporation, was merged with Petitioner with the latter as
its surviving entity [under] the merger. Petitioner being the
surviving entity[, it] acquired all [the] assets of CDB.
During the period from 1990 to 1991, CDB sold some acquired
assets in the course of which it allegedly withheld the creditable
tax from the sales proceeds which amounted to P755,715.00.
In said years, CDB filed income tax returns which reflected that
CDB incurred negative taxable income or losses for both years.
Since there was no tax against which to credit or offset the taxes
withheld by CDB, the result was that CDB, according to petitioner,
had excess creditable withholding tax.
Thus, petitioner, being the surviving entity of the merger, filed this
Petition for Review after its administrative claim for refund was not
acted upon.[1]

This is a Petition for Review on Certiorari assailing the decision of the Court
of Appeals (CA) dated May 7, 1997 in CA-G.R. SP No. 41666.

In denying petitioners claim, the CA held that the evidence presented by

petitioner consisting of (1) confirmation receipts, payment orders, and official

receipts issued by the Central Bank and the BIR with CDB as the payor; [2] (2)



Income Tax Returns for 1990 and 1991 with attached financial statements filed by
petitioner with the BIR;[3] and, (3) a list prepared by the Accounting Department of
Petitioner contends that the confirmation receipts presented by it
petitioner purportedly showing the CDB schedule of creditable withholding tax
constitute competent and irrefutable proof of the fact that taxes were withheld and
applied for refund for 1990 and 1991, [4] all failed to clearly establish that the taxes
remitted to the BIR.[6] It is admitted that the taxes reflected on the confirmation
arising from the sale of its acquired assets sometime in 1990 and 1991 were
receipts as well as on the payment orders and official receipts issued by the BIR
properly withheld and remitted to the BIR. The CA likewise ruled that it was
were withheld by CDB. Petitioner maintains that these pertained to the proceeds of
incumbent upon petitioner to present BIR Form No. 1743.1 as required under
the sale of its acquired assets in 1990 and 1991. According to petitioner, CDB took
Revenue Regulation 6-85 to conclusively prove its right to the refund. It held that
the initiative of paying the withholding tax accruing thereon notwithstanding the
petitioners failure to do so was fatal to its cause.
fact that it was the recipient of the income, to ensure that the correct taxes were
remitted to the BIR. Petitioner further argues that the list prepared by its
Hence, this Petition.
Accounting Department identifying the persons to whom the various sales were
made and indicating the amount of taxes withheld for each transaction should
Petitioner anchors its arguments on the following grounds:
have been given more weight by the court a quo as this document, when taken

with the tax withholding forms, indubitably establishes the fact of withholding and
the basis for the claims for refund. [7]Considering, therefore, that petitioner had
adequately established by other evidence the basis for the grant of the claim for




tax refund, petitioner asserts that its failure to submit BIR Form No. 1743.1 is not
fatal to its cause.

The crucial issue in this case turns on a question of fact, that is, whether
petitioner adduced sufficient evidence to prove its entitlement to a refund.

returns,[14] the submission to the payee, in respect of his or its receipts during the
calendar quarter or year, of a written statement showing the income or other
payments made by the withholding agent during such quarter or year and the

The findings of fact of the CTA, a special court exercising particular

amount of the tax deducted and withheld therefrom, [15] and the filing with the BIR

expertise on the subject of tax, are generally regarded as final, binding and

of a reconciliation statement of quarterly payments and a list of payees and

conclusive[8] upon this Court, especially if these are substantially similar to the

income payments.[16] Codal provisions on withholding tax are mandatory and must

findings of the CA which is normally the final arbiter of questions of fact. [9]The

be complied with by the withholding agent. This is significant in that a taxpayer

findings shall not be reviewed nor disturbed on appeal [10] unless a party can show

cannot be compelled to answer for the non-performance by the withholding agent

that these are not supported by evidence, [11] or when the judgment is premised on

of its legal duty to withhold unless there is collusion or bad faith. In addition, the

a misapprehension of facts, or when the lower courts failed to notice certain

former could not be deemed to have evaded the tax had the withholding agent

relevant facts which if considered would justify a different conclusion. [12]

performed its duty. [17]

Petitioner has not sufficiently presented a case for the application of an

exception from the rule.

On the other hand, it is incumbent upon the payee to reflect in his or its
own return the income upon which any creditable tax is required to be withheld at
the source. Only when there is an excess of the amount of tax so withheld over the

Firstly, the CA cannot be faulted for not lending credence to petitioners

tax due on the payees return can a refund become possible.

contention that it withheld, for its own account, the creditable withholding taxes
on the sale of its acquired assets. In our withholding tax system, possession of the

A taxpayer must thus do two things to be able to successfully make a

amount that is used to settle the tax liability is acquired by the payor as the

claim for the tax refund: (a) declare the income payments it received as part of its

withholding agent of the government.[13] For this reason, the Tax Code imposes,

gross income and (b) establish the fact of withholding. [18] On this score, the

among others, certain obligations upon the withholding agent to monitor its

relevant revenue regulation provides as follows:

compliance with this duty. These include the filing of the quarterly withholding tax

Section 10. Claims for tax credit or refund. -- Claims for tax
credit or refund of income tax deducted and withheld on income
payments shall be given due course only when it is shown on the
return that the income payment received was declared as part of
the gross income and the fact of withholding is established by a
copy of thestatement duly issued by the payor to the payee (BIR
Form No. 1743.1) showing the amount paid and the amount of tax
withheld therefrom.[19]

part, in its Decision (Annex A of the Petition) that, It can not well
be said that the amounts paid and remitted to the BIR were for
CDBs account and not for the other possible payees of withholding
taxes which CDB may also be liable to remit as a withholding agent
x x x . [20]

Petitioner, apparently aware of the foregoing deficiency, offered into

evidence a CDB Schedule of Creditable Withholding Tax for the period 1990 to
As mentioned, petitioner relies heavily on the confirmation receipts with
1991[21] prepared by petitioners representative to show that the taxes CDB
the corresponding official receipts and payment orders to support its case.
withheld did, indeed, pertain to the taxes accruing on the sale of the acquired
Standing alone, however, these documents only establish that CDB withheld
assets. The CA, however, found the same to be self-serving and unverifiable and
certain amounts in 1990 and 1991. It does not follow that the payments reflected
therefore barren of evidentiary weight. [22] We accord this finding on an issue of fact
in the confirmation receipts relate to the creditable withholding taxes arising from
the highest respect and we will not set it aside lightly.
the sale of the acquired properties. The claim that CDB had excess creditable
withholding taxes can only be upheld if it were clearly and positively shown that
It bears emphasis that questions on whether certain items of evidence
the amounts on the various confirmation receipts were the amounts withheld by
should be accorded probative value or weight, or rejected as feeble or spurious, or
virtue of the sale of the acquired assets. On this point, the CA correctly
whether the proofs on one side or the other are clear and convincing and adequate
to establish a proposition in issue, are without doubt questions of fact. This is true
The confirmation receipts alone, by themselves, will not suffice to
prove that the taxes reflected in the income tax returns are the
same taxes withheld from CDBs income payments from the sale of
its acquired assets. This is because a cursory examination of the
said Confirmation Receipts, Payment Orders and Official Receipts
will show that what are reflected therein are merely the names of
the payors and the amount of tax. The nature of the tax paid, or at
the very least, the income payments from which the taxes paid
were withheld are not reflected therein. If these are the only
entries that are found on these proferred documents, We cannot
begrudge the Respondent Court from nurturing veritable doubts on
the nature and identity of the taxes withheld, when it declared, in

regardless of whether the body of proofs presented by a party, weighed and

analyzed in relation to contrary evidence submitted by the adverse party, may be
said to be strong, clear and convincing. Whether certain documents presented by
one side should be accorded full faith and credit in the face of protests as to their
spurious character by the other side; whether inconsistencies in the body of proofs
of a party are of such gravity as to justify refusing to give said proofs weightall

these are issues of fact. Questions like these are not reviewable by us. As a rule,

discrepancy. This further undermines petitioners contentions, and its reliance on

we confine our review of cases decided by the CA only to questions of law raised in

the CDB Schedule.

the petition and therein distinctly set forth.[23] We note that without the CDB
Schedule, no evidence links the Confirmation Receipts, Payment Orders and Official
Receipts to the taxes allegedly withheld by CDB on the sale of the acquired assets.

Petitioner also asserts that the confusion or difficulty in the implementation

of Revenue Memorandum Circular 7-90 [27] was the reason why CDB took upon itself
the task of withholding the taxes arising from the sale, to ensure accuracy.

As to the annual income tax returns for 1990 and 1991

presented by

Assuming this were true, CDB should have, nevertheless, accomplished the

petitioner, we must stress that the mere admission into the records of these

necessary returns to clearly identify the nature of the payments made and file the

returns does not automatically make their contents or entries undisputed and

same with the BIR. Section 2 of the circular clearly provides that the amount of

binding facts. Mere allegations by petitioner of the figures in its returns are not a

withholding tax paid by a corporation to the BIR during the quarter on sales or

sufficient proof of the amount of its refund entitlement.

They do not even

exchanges of property and which are creditable against the corporations tax

constitute evidence adverse to respondent, against whom these are being

liability are evidenced by Confirmation/Official Receipts and covered by BIR Form


Nos. 1743W and 1743-B. On the other hand, Revenue Regulation 6-85 states that


BIR Form No. 1743.1 establishes the fact of withholding. Since no competent


evidence was adduced by petitioner, the failure to offer these returns as evidence

Commissioner of Internal Revenue (CIR) raised the fact that there was a

of the amount of petitioners entitlement during the trial phase of this case is fatal

discrepancy in the excess creditable withholding tax reflected in the returns with

to its cause. For its negligence, petitioner cannot be allowed to seek refuge in a

the amounts sought to be refunded by petitioner. Whereas the 1990 and 1991

liberal application of the [r]ules. [28] The liberal interpretation and application of

Income Tax Returns indicated that CDB had excess creditable withholding tax in

rules apply only in proper cases of demonstrable merit and under justifiable causes

the amounts of P535,310 and P357,511, respectively, the amounts claimed by

and circumstances.[29]















were P512,940.50

for 1990

and P242,774.50 for 1991.[26] The records are bereft of any explanation for such

We must emphasize that tax refunds, like tax exemptions, are construed
strictly against the taxpayer and liberally in favor of the taxing authority. [30]In the
event, petitioner has not met its burden of proof in establishing the factual basis
for its claim for refund and we find no reason to disturb the ruling of the lower

WHEREFORE, the petition is DENIED and the Decision of the Court of


dated May



pronouncement as to costs.






41666 is AFFIRMED.


Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents

LUZ R. YAMANE, in her G.R. No. 154993

for resolution of this Court two novel questions: one procedural, the other

capacity as the CITY

substantive, yet both of obvious significance. The first pertains to the proper mode



of judicial review undertaken from decisions of the regional trial courts resolving

Petitioner, PUNO, J.,

the denial of tax protests made by local government treasurers, pursuant to the
Local Government Code. The second is whether a local government unit can, under


the Local Government Code, impel a condominium corporation to pay business



- versus - TINGA, and

Respondent. October 25, 2005

While we agree with the City Treasurers position on the first issue, there
ultimately is sufficient justification for the Court to overlook what is essentially a
procedural error. We uphold respondents on the second issue. Indeed, there are
disturbing aspects in both procedure and substance that attend the attempts by


the City of Makati to flex its taxing muscle. Considering that the tax imposition now
in question has utterly no basis in law, judicial relief is imperative. There are fewer
indisputable causes for the exercise of judicial review over the exercise of the


taxing power than when the tax is based on whim, and not on law.

The facts, as culled from the record, follow.

Respondent BA-Lepanto Condominium Corporation (the Corporation) is a duly









Condominium Act,[2] which owns and holds title to the common and limited

With due respect, we submit that the Assessment has no

basis as the Corporation is not liable for business taxes and
surcharges and interest thereon, under the Makati [Revenue] Code or
even under the [Local Government] Code.

common areas of the BA-Lepanto Condominium (the Condominium), situated in

Paseo de Roxas, Makati City. Its membership comprises the various unit owners of
the Condominium. The Corporation is authorized, under Article V of its Amended
By-Laws, to collect regular assessments from its members for operating expenses,
capital expenditures on the common areas, and other special assessments as
provided for in the Master Deed with Declaration of Restrictions of the

The Makati [Revenue] Code and the [Local Government] Code

do not contain any provisions on which the Assessment could be
based. One might argue that Sec. 3A.02(m) of the Makati [Revenue]
Code imposes business tax on owners or operators of any business
not specified in the said code. We submit, however, that this is not
applicable to the Corporation as the Corporation is not an owner or
operator of any business in the contemplation of the Makati
[Revenue] Code and even the [Local Government] Code.[4]


On 15 December 1998, the Corporation received a Notice of Assessment dated 14

December 1998 signed by the City Treasurer. The Notice of Assessment stated that
the Corporation is liable to pay the correct city business taxes, fees and charges,
computed as totaling P1,601,013.77 for the years 1995 to 1997. [3] The Notice of
Assessment was silent as to the statutory basis of the business taxes assessed.

Proceeding from the premise that its tax liability arose from Section
3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue that
under both the Makati Code and the Local Government Code, business is defined
as trade or commercial activity regularly engaged in as a means of livelihood or
with a view to profit. It was submitted that the Corporation, as a condominium
corporation, was organized not for profit, but to hold title over the common areas

Through counsel, the Corporation responded with a written tax protest

dated 12 February 1999, addressed to the City Treasurer. It was evident in the
protest that the Corporation was perplexed on the statutory basis of the tax

of the Condominium, to manage the Condominium for the unit owners, and to hold
title to the parcels of land on which the Condominium was located. Neither was the
Corporation authorized, under its articles of incorporation or by-laws to engage in

profit-making activities. The assessments it did collect from the unit owners were
Herein appellant, to defray the improvements and beautification of the
common areas, collect [sic] assessments from its members. Its end
view is to get appreciate living rules for the unit owners [sic], to give
an impression to outsides [sic] of the quality of service the
condominium offers, so as to allow present owners to command better
prices in the event of sale.[10]

for capital expenditures and operating expenses.[5]

The protest was rejected by the City Treasurer in a letter dated 4 March

With this, the RTC concluded that the activities of the Corporation fell squarely

1999. She insisted that the collection of dues from the unit owners was effected

under the definition of business under Section 13(b) of the Local Government Code,

primarily to sustain and maintain the expenses of the common areas, with the end

and thus subject to local business taxation.[11]

in view [sic] of getting full appreciative living values [sic] for the individual
condominium occupants and to command better marketable [sic] prices for those
occupants who would in the future sell their respective units. [6] Thus, she
concluded since the chances of getting higher prices for well-managed common
areas of any condominium are better and more effective that condominiums with
poor [sic] managed common areas, the corporation activity is a profit venture

From this Decision of the RTC, the Corporation filed a Petition for Review under Rule
42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the petition
was dismissed outright[12] on the ground that only decisions of the RTC brought on
appeal from a first level court could be elevated for review under the mode of
review prescribed under Rule 42. [13] However, the Corporation pointed out in

making [sic].[7]

its Motion for Reconsideration that under Section 195 of the Local Government
Code, the remedy of the taxpayer on the denial of the protest filed with the local
From the denial of the protest, the Corporation filed an Appeal with the Regional
Trial Court (RTC) of Makati.


On 1 March 2000, the Makati RTC Branch 57 rendered

a Decision[9] dismissing the appeal for lack of merit. Accepting the premise laid by
the City Treasurer, the RTC acknowledged, in sadly risible language:

treasurer is to appeal the denial with the court of competent jurisdiction.


Persuaded by this contention, the Court of Appeals reinstated the petition. [15]

On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered

Upon denial of her Motion for Reconsideration,[21] the City Treasurer

the Decision[16] now assailed before this Court. The appellate court reversed the RTC

elevated the present Petition for Review under Rule 45. It is argued that the

and declared that the Corporation was not liable to pay business taxes to the City

Corporation is engaged in business, for the dues collected from the different unit

of Makati.[17] In doing so, the Court of Appeals delved into jurisprudential definitions

owners is utilized towards the beautification and maintenance of the Condominium,

of profit,[18] and concluded that the Corporation was not engaged in profit. For one,

resulting in full appreciative living values for the condominium units which would

it was held that the very statutory concept of a condominium corporation showed

command better market prices should they be sold in the future. The City Treasurer

that it was not a juridical entity intended to make profit, as its sole purpose was to

likewise avers that the rationale for business taxes is not on the income received or

hold title to the common areas in the condominium and to maintain the

profit earned by the business, but the privilege to engage in business. The fact that


Corporation is empowered to acquire, own, hold, enjoy, lease, operate and

The Court of Appeals likewise cited provisions from the Corporations

maintain, and to convey sell, transfer or otherwise dispose of real or personal

Amended Articles of Incorporation and Amended By-Laws that, to its estimation,

property allegedly qualifies as incident to the fact of [the Corporations] act of

established that the Corporation was not engaged in business and the assessment

engaging in business.[22]

collected from unit owners limited to those necessary to defray the expenses in the
maintenance of the common areas and management the condominium. [20]

The City Treasurer also claims that the Corporation had filed the wrong
mode of appeal before the Court of Appeals when the latter filed its Petition for
Review under Rule 42. It is reasoned that the decision of the Makati RTC was
rendered in the exercise of original jurisdiction, it being the first court which took
cognizance of the case. Accordingly, with the Corporation having pursued an

erroneous mode of appeal, the RTC Decision is deemed to have become final and

The other view, as maintained by the City Treasurer, is that the jurisdiction
exercised by the RTC is original in character. This is the first time that the position

First, we dispose of the procedural issue, which essentially boils down to

whether the RTC, in deciding an appeal taken from a denial of a protest by a local
treasurer under Section 195 of the Local Government Code, exercises original
jurisdiction or appellate jurisdiction. The question assumes a measure of
importance to this petition, for the adoption of the position of the City Treasurer
that the mode of review of the decision taken by the RTC is governed by Rule 41 of
the Rules of Civil Procedure means that the decision of the RTC would have long
become final and executory by reason of the failure of the Corporation to file a

has been presented to the court for adjudication. Still, this argument does find
jurisprudential mooring in our ruling inGarcia v. De Jesus,[25] where the Court
proffered the following distinction between original jurisdiction and appellate
jurisdiction: Original jurisdiction is the power of the Court to take judicial
cognizance of a case instituted for judicial action for the first time under conditions
provided by law. Appellate jurisdiction is the authority of a Court higher in rank to
re-examine the final order or judgment of a lower Court which tried the case now
elevated for judicial review.[26]

notice of appeal.[23]
The quoted definitions were taken from the commentaries of the esteemed
There are discernible conflicting views on the issue. The first, as expressed
by the Court of Appeals, holds that the RTC, in reviewing denials of protests by local
treasurers, exercises appellate jurisdiction. This position is anchored on the
language of Section 195 of the Local Government Code which states that the
remedy of the taxpayer whose protest is denied by the local treasurer is to
appeal with the court of competent jurisdiction. [24] Apparently though, the Local
Government Code does not elaborate on how such appeal should be undertaken.

Justice Florenz Regalado. With the definitions as beacon, the review taken by the
RTC over the denial of the protest by the local treasurer would fall within that courts
original jurisdiction. In short, the review is the initial judicial cognizance of the
matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is
inappropriate, since the denial of the protest is not the judgment or order of a lower
court, but of a local government official.

The stringent concept of original jurisdiction may seemingly be neutered by

Rule 43 of the 1997 Rules of Civil Procedure, Section 1 of which lists a slew of

Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial
Courts over rulings made by non-judicial entities.

administrative agencies and quasi-judicial tribunals or their officers whose

decisions may be reviewed by the Court of Appeals in the exercise of its appellate
jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P.
129),[27]ineluctably confers appellate jurisdiction on the Court of Appeals over final
rulings of quasi-judicial agencies, instrumentalities, boards or commission, by
explicitly using the phrase appellate jurisdiction. [28] The power to create or
characterize jurisdiction of courts belongs to the legislature. While the traditional
notion of appellate jurisdiction connotes judicial review over lower court decisions,
it has to yield to statutory redefinitions that clearly expand its breadth to
encompass even review of decisions of officers in the executive branches of

From these premises, it is evident that the stance of the City Treasurer is
correct as a matter of law, and that the proper remedy of the Corporation from the
RTC judgment is an ordinary appeal under Rule 41 to the Court of Appeals.
However, we make this pronouncement subject to two important qualifications.
First, in this particular case there are nonetheless significant reasons for the Court
to overlook the procedural error and ultimately uphold the adjudication of the
jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal
weight of the pronouncement is confined to cases and controversies that emerged
prior to the enactment of Republic Act No. 9282, the law which expanded the
jurisdiction of the Court of Tax Appeals (CTA).

Yet significantly, the Local Government Code, or any other statute for that
matter, does not expressly confer appellate jurisdiction on the part of regional trial
courts from the denial of a tax protest by a local treasurer. On the other hand,
Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional
Trial Courts, confining as it does said appellate jurisdiction to cases decided by
Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the

Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA
exercises exclusive appellate jurisdiction to review on appeal decisions, orders or
resolutions of the Regional Trial Courts in local tax cases original decided or
resolved by them in the exercise of their originally or appellate jurisdiction.
Moreover, the provision also states that the review is triggered by filing a petition

for review under a procedure analogous to that provided for under Rule 42 of the
1997 Rules of Civil Procedure.[29]

Moreover, we recognize that the Corporations error in elevating the RTC

decision for review via Rule 42 actually worked to the benefit of the City Treasurer.

Republic Act No. 9282, however, would not apply to this case simply
because it arose prior to the effectivity of that law. To declare otherwise would be to
institute a jurisdictional rule derived not from express statutory grant, but from
implication. The jurisdiction of a court to take cognizance of a case should be
clearly conferred and should not be deemed to exist on mere implications, [30] and
this settled rule would be needlessly emasculated should we declare that the
Corporations position is correct in law.

There is wider latitude on the part of the Court of Appeals to refuse cognizance over
a petition for review under Rule 42 than it would have over an ordinary appeal
under Rule 41. Under Section 13, Rule 41, the stated grounds for the dismissal of
an ordinary appeal prior to the transmission of the case records are when the
appeal was taken out of time or when the docket fees were not paid. [33] On the
other hand, Section 6, Rule 42 provides that in order that the Court of Appeals may
allow due course to the petition for review, it must first make a prima facie finding
that the lower court has committed an error that would warrant the reversal or
modification of the decision under review. [34] There is no similar requirement of

Be that as it may, characteristic of all procedural rules is adherence to the

precept that they should not be enforced blindly, especially if mechanical

a prima facie determination of error in the case of ordinary appeal, which is

perfected upon the filing of the notice of appeal in due time. [35]

application would defeat the higher ends that animates our civil procedurethe just,
speedy and inexpensive disposition of every action and proceeding. [31] Indeed, we
have repeatedly upheldand utilized ourselvesthe discretion of courts to nonetheless
take cognizance of petitions raised on an erroneous mode of appeal and instead
treat these petitions in the manner as they should have appropriately been filed.

The Court of Appeals could very well have treated the Corporations petition for

review as an ordinary appeal.

Evidently, by employing the Rule 42 mode of review, the Corporation faced

a greater risk of having its petition rejected by the Court of Appeals as compared to
having filed an ordinary appeal under Rule 41. This was not an error that worked to
the prejudice of the City Treasurer.

We now proceed to the substantive issue, on whether the City of Makati

institutions.[37] None of the other general limitations under Section 133 find

may collect business taxes on condominium corporations.

application to the case at bar.

We begin with an overview of the power of a local government unit to impose

The most well-known mode of local government taxation is perhaps the real

business taxes.

property tax, which is governed by Title II, Book II of the Code, and which bears no
application in this case. A different set of provisions, found under Title I of Book II,
governs other taxes imposable by local government units, including business taxes.
Under Section 151 of the Code, cities such as Makati are authorized to levy the
same taxes fees and charges as provinces and municipalities. It is in Article II, Title
II, Book II of the Code, governing municipal taxes, where the provisions on business
taxation relevant to this petition may be found.[38]

The power of local government units to impose taxes within its territorial
jurisdiction derives from the Constitution itself, which recognizes the power of these
units to create its own sources of revenue and to levy taxes, fees, and charges

Section 143 of the Code specifically enumerates several types of business on which

subject to such guidelines and limitations as the Congress may provide, consistent

municipalities and cities may impose taxes. These include manufacturers,

with the basic policy of local autonomy. [36] These guidelines and limitations as

wholesalers, distributors, dealers of any article of commerce of whatever nature;

provided by Congress are in main contained in the Local Government Code of 1991

those engaged in the export or commerce of essential commodities; contractors

(the Code), which provides for comprehensive instances when and how local

and other independent contractors; banks and financial institutions; and peddlers

government units may impose taxes. The significant limitations are enumerated

engaged in the sale of any merchandise or article of commerce. Moreover, the

primarily in Section 133 of the Code, which include among others, a prohibition on

local sanggunian is also authorized to impose taxes on any other businesses not

the imposition of income taxes except when levied on banks and other financial

otherwise specified under Section 143 which the sanggunian concerned may deem
proper to tax.

The coverage of business taxation particular to the City of Makati is

provided by the Makati Revenue Code (Revenue Code), enacted through Municipal
Ordinance No. 92-072. The Revenue Code remains in effect as of this

messsengerial services; operators of shoe shine stands; painting

shops; perma press establishments; rent-a-plant services; polo
players; school for and/or horse-back riding academy; real estate
appraisers; real estate brokerages; photostatic, white/blue
printing, Xerox, typing, and mimeographing services; rental of
bicycles and/or tricycles, furniture, shoes, watches, household
appliances, boats, typewriters, etc.; roasting of pigs, fowls, etc.;
shipping agencies; shipyard for repairing ships for others; shops
for shearing animals; silkscreen or T-shirt printing shops; stables;
travel agencies; vaciador shops; veterinary clinics; video rentals
and/or coverage services; dancing schools/speed reading/EDP;
nursery, vocational and other schools not regulated by the
Department of Education, Culture and Sports, (DECS), day care
centers; etc.[39]

writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati,
and it is quite specific as to the particular businesses which are covered by
business taxes. To give a sample of the specified businesses under the Revenue
Code which are not enumerated under the Local Government Code, we cite Section
3A.02(f) of the Code, which levies a gross receipt tax :

Other provisions of the Revenue Code likewise subject hotel and restaurant
owners and operators[40], real estate dealers, and lessors of real estate [41] to
business taxes.

(f) On contractors and other independent contractors defined in

Sec. 3A.01(q) of Chapter III of this Code, and on owners or
operators of business establishments rendering or offering
services such as: advertising agencies; animal hospitals;
assaying laboratories; belt and buckle shops; blacksmith shops;
bookbinders; booking officers for film exchange; booking offices
for transportation on commission basis; breeding of game cocks
and other sporting animals belonging to others; business
management services; collecting agencies; escort services;
feasibility studies; consultancy services; garages; garbage
disposal contractors; gold and silversmith shops; inspection
services for incoming and outgoing cargoes; interior decorating
services; janitorial services; job placement or recruitment
agencies; landscaping contractors; lathe machine shops;
management consultants not subject to professional tax;
medical and dental laboratories; mercantile agencies;

Should the comprehensive listing not prove encompassing enough, there is

also a catch-all provision similar to that under the Local Government Code. This is
found in Section 3A.02(m) of the Revenue Code, which provides:

(m) On owners or operators of any business not specified

above shall pay the tax at the rate of two percent (2%) for 1993, two
and one-half percent (2 %) for 1994 and 1995, and three percent (3%)

for 1996 and the years thereafter of the gross receipts during the
preceding year.[42]

informative to apprise the taxpayer the legal basis of the tax. Section 195 of the
Local Government Code does not go as far as to expressly require that the notice of
assessment specifically cite the provision of the ordinance involved but it does

The initial inquiry is what provision of the Makati Revenue Code does the

require that it state the nature of the tax, fee or charge, the amount of deficiency,

City Treasurer rely on to make the Corporation liable for business taxes. Even at this

surcharges, interests and penalties. In this case, the notice of assessment sent to

point, there already stands a problem with the City Treasurers cause of action.

the Corporation did state that the assessment was for business taxes, as well as
the amount of the assessment. There may have beenprima facie compliance with
the requirement under Section 195. However in this case, the Revenue Code

Our careful examination of the record reveals a highly disconcerting fact. At

no point has the City Treasurer been candid enough to inform the Corporation, the
RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the
precise statutory basis under the Makati Revenue Code for the levying of the
business tax on petitioner. We have examined all of the pleadings submitted by the
City Treasurer in all the antecedent judicial proceedings, as well as in this present
petition, and also the communications by the City Treasurer to the Corporation

provides multiple provisions on business taxes, and at varying rates. Hence, we

could appreciate the Corporations confusion, as expressed in its protest, as to the
exact legal basis for the tax. [43] Reference to the local tax ordinance is vital, for the
power of local government units to impose local taxes is exercised through the




the sanggunian,






Government Code alone.[44] What determines tax liability is the tax ordinance, the
Local Government Code being the enabling law for the local legislative body.

which form part of the record. Nowhere therein is there any citation made by the
City Treasurer of any provision of the Revenue Code which would serve as the legal
authority for the collection of business taxes from condominiums in Makati.

Moreover, a careful examination of the Revenue Code shows that while

Section 3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which
provides for a different tax rate from that of the former provision, may be construed

Ostensibly, the notice of assessment, which stands as the first instance the
taxpayer is officially made aware of the pending tax liability, should be sufficiently

to be of similar import. While Section 3A.02(f) is quite exhaustive in enumerating

the class of businesses taxed under the provision, the listing, while it does not

include condominium-related enterprises, ends with the abbreviation etc., or et

Corporation itself does not allege injury arising from such failure on the part of the


City Treasurer.

We do note our discomfort with the unlimited breadth and the dangerous

We do not know why the Corporation chose not to put this issue into

uncertainty which are the twin hallmarks of the words et cetera. Certainly, we

litigation, though we can ultimately presume that no injury was sustained because

cannot be disposed to uphold any tax imposition that derives its authority from

the City Treasurer failed to cite the specific statutory basis of the tax. What is

enigmatic and uncertain words such as et cetera. Yet we cannot even say with

essential though is that the local treasurer be required to explain to the taxpayer

definiteness whether the tax imposed on the Corporation in this case is based on et

with sufficient particularity the basis of the tax, so as to leave no doubt in the mind

cetera, or on Section 3A.02(m), or on any other provision of the Revenue Code.

of the taxpayer as to the specific tax involved.

Assuming that the assessment made on the Corporation is on a provision other

than Section 3A.02(m), the main legal issue takes on a different complexion. For
example, if it is based on et cetera under Section 3A.02(f), we would have to
examine whether the Corporation faces analogous comparison with the other
businesses listed under that provision.

In this case, the Corporation seems confident enough in litigating despite

the failure of the City Treasurer to admit on what exact provision of the Revenue
Code the tax liability ensued. This is perhaps because the Corporation has
anchored its central argument on the position that the Local Government Code
itself does not sanction the imposition of business taxes against it. This position

Certainly, the City Treasurer has not been helpful in that regard, as she has

was sustained by the Court of Appeals, and now merits our analysis.

been silent all through out as to the exact basis for the tax imposition which she
wishes that this Court uphold. Indeed, there is only one thing that prevents this

As stated earlier, local tax on businesses is authorized under Section 143 of

Court from ruling that there has been a due process violation on account of the City

the Local Government Code. The word business itself is defined under Section

Treasurers failure to disclose on paper the statutory basis of the taxthat the

131(d) of the Code as trade or commercial activity regularly engaged in as a means

of livelihood or with a view to profit. [45] This definition of business takes on

specially formed for the purpose of holding title to the common area, in which the

importance, since Section 143 allows local government units to impose local taxes

holders of separate interests shall automatically be members or shareholders, to

on businesses other than those specified under the provision. Moreover, even those

the exclusion of others, in proportion to the appurtenant interest of their respective

business activities specifically named in Section 143 are themselves susceptible to

broad interpretation. For example, Section 143(b) authorizes the imposition of
business taxes on wholesalers, distributors, or dealers in any article of commerce of
whatever kind or nature.

It is thus imperative that in order that the Corporation may be subjected to

business taxes, its activities must fall within the definition of business as provided
in the Local Government Code. And to hold that they do is to ignore the very
statutory nature of a condominium corporation.

units.[47] The necessity of a condominium corporation has not gained widespread

acceptance[48], and even is merely permissible under the Condominium Act.

Nonetheless, the condominium corporation has been resorted to by many

condominium projects, such as the Corporation in this case.

In line with the authority of the condominium corporation to manage the

condominium project, it may be authorized, in the deed of restrictions, to make
reasonable assessments to meet authorized expenditures, each condominium unit
to be assessed separately for its share of such expenses in proportion (unless
otherwise provided) to its owners fractional interest in any common areas. [50] It is

The creation of the condominium corporation is sanctioned by Republic Act

No. 4726, otherwise known as the Condominium Act. Under the law, a

the collection of these assessments from unit owners that form the basis of the City
Treasurers claim that the Corporation is doing business.

condominium is an interest in real property consisting of a separate interest in a

unit in a residential, industrial or commercial building and an undivided interest in
common, directly or indirectly, in the land on which it is located and in other
common areas of the building.[46] To enable the orderly administration over these
common areas which are jointly owned by the various unit owners, the
Condominium Act permits the creation of a condominium corporation, which is

The Condominium Act imposes several limitations on the condominium

corporation that prove crucial to the disposition of this case. Under Section 10 of
the law, the

corporate purposes of a condominium corporation are limited to the holding of the

common and limited common areas in the Condominium Project; (b) adopting such

common areas, either in ownership or any other interest in real property recognized

necessary measures for the protection and safeguard of the unit owners and their

by law; to the management of the project; and to such other purposes as may be

property, including the power to contract for security services and for insurance

necessary, incidental or convenient to the accomplishment of such purpose.

coverage on the entire project; (c) making and adopting needful rules and

Further, the same provision prohibits the articles of incorporation or by-laws of

regulations concerning the use, enjoyment and occupancy of the units and common

the condominium corporation from containing any provisions which are contrary to

areas, including the power to fix penalties and assessments for violation of such

the provisions of the Condominium Act, the enabling or master deed, or the

rules; (d) to provide for the maintenance, repair, sanitation, and cleanliness of the

declaration of restrictions of the condominium project.[52]

common and limited common areas; (e) to provide and contract for public utilities


and other services to the common areas; (f) to contract for the services of persons
We can elicit from the Condominium Act that a condominium corporation is
precluded by statute from engaging in corporate activities other than the holding of
the common areas, the administration of the condominium project, and other acts
necessary, incidental or convenient to the accomplishment of such purposes.

or firms to assist in the management and operation of the Condominium Project; (g)
to discharge any lien or encumbrances upon the Condominium Project; (h) to
enforce the terms contained in the Master Deed with Declaration of Restrictions of
the Project; (i) to levy and

Neither the maintenance of livelihood, nor the procurement of profit, fall within the

collect those assessments as provided in the Master Deed, in order to defray the

scope of permissible corporate purposes of a condominium corporation under the

costs, expenses and losses of the condominium; (j) to acquire, own, hold, enjoy,

Condominium Act.

lease operate and maintain, and to convey, sell transfer, mortgage or otherwise
dispose of real or personal property in connection with the purposes and activities

The Court has examined the particular Articles of Incorporation and ByLaws of the Corporation, and these documents unmistakably hew to the limitations
contained in the Condominium Act. Per the Articles of Incorporation, the
Corporations corporate purposes are limited to: (a) owning and holding title to the

of the corporation; and (k) to exercise and perform such other powers reasonably
necessary, incidental or convenient to accomplish the foregoing purposes. [53]

Obviously, none of these stated corporate purposes are geared towards

maintaining a livelihood or the obtention of profit. Even though the Corporation is
empowered to levy assessments or dues from the unit owners, these amounts
collected are not intended for the incurrence of profit by the Corporation or its
members, but to shoulder the multitude of necessary expenses that arise from the
maintenance of the Condominium Project. Just as much is confirmed by Section 1,
Article V of the Amended By-Laws, which enumerate the particular expenses to be
defrayed by the regular assessments collected from the unit owners. These would
include the salaries of the employees of the Corporation, and the cost of
maintenance and ordinary repairs of the common areas.[54]

Moreover, the logic on this point of the City Treasurer is baffling. By this
rationale, every Makati City car owner may be considered as being engaged in
business, since the repairs or improvements on the car may be deemed oriented
towards appreciating the value of the car upon resale. There is an evident
distinction between persons who spend on repairs and improvements on their
personal and real property for the purpose of increasing its resale value, and those
who defray such expenses for the purpose of preserving the property. The vast

The City Treasurer nonetheless contends that the collection of these

assessments and dues are with the end view of getting full appreciative living
values for the condominium units, and as a result, profit is obtained once these
units are sold at higher prices. The Court cites with approval the two counterpoints
raised by the Court of Appeals in rejecting this contention. First, if any profit is

majority of persons fall under the second category, and it would be highly specious
to subject these persons to local business taxes. The profit motive in such cases is
hardly the driving factor behind such improvements, if it were contemplated at all.
Any profit that would be derived under such circumstances would merely be
incidental, if not accidental.

obtained by the sale of the units, it accrues not to the corporation but to the unit
owner. Second, if the unit owner does obtain profit from the sale of the corporation,
the owner is already required to pay capital gains tax on the appreciated value of
the condominium unit.[55]

Besides, we shudder at the thought of upholding tax liability on the basis of

the standard of full appreciative living values, a phrase that defies statutory
explication, commonsensical meaning, the English language, or even definition

from Google. The exercise of the power of taxation constitutes a deprivation of

property under the

organized under the Corporation Code [59] is so specifically empowered. Section

36(7) of the Corporation Code states that every corporation incorporated under the
Code has the power and capacity to purchase, receive, take or grant, hold, convey,
sell, lease, pledge, mortgage and otherwise deal with such real and personal

due process clause,[56] and the taxpayers right to due process is violated when

property . . . as the transaction of the lawful business of the corporation may

arbitrary or oppressive methods are used in assessing and collecting taxes. [57] The

reasonably and necessarily require . . . . [60] Without this power, corporations, as

fact that the Corporation did not fall within the enumerated classes of taxable

juridical persons, would be deprived of the capacity to engage in most meaningful

businesses under either the Local Government Code or the Makati Revenue Code

legal relations.

already forewarns that a clear demonstration is essential on the part of the City
Treasurer on why the Corporation should be taxed anyway. Full appreciative living
values is nothing but blather in search of meaning, and to impose a tax hinged on
that standard is both arbitrary and oppressive.

Again, whatever capacity the Corporation may have pursuant to its power
to exercise acts of ownership over personal and real property is limited by its stated
corporate purposes, which are by themselves further limited by the Condominium
Act. A condominium corporation, while enjoying such powers of ownership, is

The City Treasurer also contends that the fact that the Corporation is

prohibited by law from transacting its properties for the purpose of gainful profit.

engaged in business is evinced by the Articles of Incorporation, which specifically

empowers the Corporation to acquire, own, hold, enjoy, lease, operate and
maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or
personal property.


What the City Treasurer fails to add is that every corporation

Accordingly, and with a significant degree of comfort, we hold that

condominium corporations are generally exempt from local business taxation under
the Local Government Code, irrespective of any local ordinance that seeks to
declare otherwise.

Still, we can note a possible exception to the rule. It is not unthinkable that
the unit owners of a condominium would band together to engage in activities for
profit under the shelter of the condominium corporation. [61] Such activity would be

WHEREFORE, the petition is DENIED. No costs.

prohibited under the Condominium Act, but if the fact is established, we see no
reason why the condominium corporation may be made liable by the local
government unit for business taxes. Even though such activities would be
considered as ultra vires, since they are engaged in beyond the legal capacity of
the condominium corporation[62], the principle of estoppel would preclude the
corporation or its officers and members from invoking the void nature of its
undertakings for profit as a means of acquitting itself of tax liability.

Still, the City Treasurer has not posited the claim that the Corporation is
engaged in business activities beyond the statutory purposes of a condominium
corporation. The assessment appears to be based solely on the Corporations
collection of assessments from unit owners, such assessments being utilized to
defray the necessary expenses for the Condominium Project and the common
areas. There is no contemplation of business, no orientation towards profit in this
case. Hence, the assailed tax assessment has no basis under the Local Government
Code or the Makati Revenue Code, and the insistence of the city in its collection of
the void tax constitutes an attempt at deprivation of property without due process
of law.


Before the Court is a petition for review [1] assailing the Decision[2] of 7
January 2000 of the Court of Appeals in CA-G.R. SP No. 36816. The Court of
Appeals affirmed the Decision[3] of 5 January 1995 of the Court of Tax Appeals
(CTA) in CTA Cases Nos. 2514, 2515 and 2516. The CTA ordered the
Commissioner of Internal Revenue (petitioner) to refund a total of P29,575.02 to
respondent companies (respondents).

Antecedent Facts
Respondents are domestic corporations licensed to transact insurance
business in the country. From August 1971 to September 1972, respondents paid
the Bureau of Internal Revenue under protest the 3% tax imposed on lending
investors by Section 195-A[4] of Commonwealth Act No. 466 (CA 466), as
amended by Republic Act No. 6110 (RA 6110) and other laws. CA 466 was the
National Internal Revenue Code (NIRC) applicable at the time.
Respondents paid the following amounts: P7,985.25 from Philippine
American (PHILAM) Accident Insurance Company; P7,047.80 from PHILAM
Assurance Company; and P14,541.97 from PHILAM General Insurance Company.
These amounts represented 3% of each companys interest income from
mortgage and other loans. Respondents also paid the taxes required of insurance
companies under CA 466.


INC., respondents.

On 31 January 1973, respondents sent a letter-claim to petitioner seeking a

refund of the taxes paid under protest. When respondents did not receive a
response, each respondent filed on 26 April 1973 a petition for review with the
CTA. These three petitions, which were later consolidated, argued that
respondents were not lending investors and as such were not subject to the 3%
lending investors tax under Section 195-A.
The CTA archived respondents case for several years while another case
with a similar issue was pending before the higher courts. When respondents
case was reinstated, the CTA ruled that respondents were entitled to their


The Case

The Ruling of the Court of Tax Appeals

The CTA held that respondents are not taxable as lending investors because
the term lending investors does not embrace insurance companies. The CTA
traced the history of the tax on lending investors, as follows:
Originally, a person who was engaged in lending money at interest was taxed as
a money lender. [Sec. 1464(x), Rev. Adm. Code] The term money lenders was
defined as including all persons who make a practice of lending money for
themselves or others at interest. [Sec. 1465(v), id.] Under this law, an insurance
company was not considered a money lender and was not taxable as such. To
quote from an old BIR Ruling:
The lending of money at interest by insurance companies constitutes a
necessary incident of their regular business. For this reason, insurance
companies are not liable to tax as money lenders or real estate brokers for
making or negotiating loans secured by real property. (Ruling, February 28, 1920;
BIR 135.2) (The Internal Revenue Law, Annotated, 2 nd ed., 1929, by B.L. Meer,
page 143)
The same rule has been applied to banks.
For making investments on salary loans, banks will not be required to pay the
money lenders tax imposed by this subsection, for the reason that money
lending is considered a mere incident of the banking business. [See Ruling No.
43, (October 8, 1926) 25 Off. Gaz. 1326) (The Internal Revenue Law, Annotated,
The term money lenders was later changed to lending investors but the
definition of the term remains the same. [Sec. 1464(x), Rev. Adm. Code, as finally
amended by Com. Act No. 215, and Sec. 1465(v) of the same Code, as finally
amended by Act No. 3963] The same law is embodied in the present National
Internal Revenue Code (Com. Act No. 466) without change, except in the amount
of the tax. [See Secs. 182(A) (3) (dd) and 194(u), National Internal Revenue
It is a well-settled rule that an administrative interpretation of a law which has
been followed and applied for a long time, and thereafter the law is re-enacted
without substantial change, such administrative interpretation is deemed to have
received legislative approval. In short, the administrative interpretation becomes
part of the law as it is presumed to carry out the legislative purpose. [5]
The CTA held that the practice of lending money at interest is part of the
insurance business. CA 466 already taxes the insurance business. The CTA

pointed out that the law recognizes and even regulates this practice of lending
money by insurance companies.
The CTA observed that CA 466 also treated differently insurance companies
from lending investors in regard to fixed taxes. Under Section 182(A)(3)(gg),
insurance companies were subject to the same fixed tax as banks and finance
companies. The CTA reasoned that insurance companies were grouped with
banks and finance companies because the latters lending activities were also
integral to their business. In contrast, lending investors were taxed at a different
fixed tax under Section 182(A)(3)(dd) of CA 466. The CTA stated that insurance
companies xxx had never been required by respondent [CIR] to pay the fixed tax
imposed on lending investors xxx.[6]
The dispositive portion of the Decision of 5 January 1995 of the Court of Tax
Appeals (CTA Decision) reads:
WHEREFORE, premises considered, petitioners Philippine American Accident
Insurance Co., Philippine American Assurance Co., and Philippine American
General Insurance Co., Inc. are not taxable on their lending transactions
independently of their insurance business. Accordingly, respondent is hereby
ordered to refund to petitioner[s] the sum of P7,985.25, P7,047.80
and P14,541.97 in CTA Cases No. 2514, 2515 and 2516, respectively
representing the fixed and percentage taxes when (sic) paid by petitioners as
lending investor from August 1971 to September 1972.
No pronouncement as to cost.
Dissatisfied, petitioner elevated the matter to the Court of Appeals. [8]

The Ruling of the Court of Appeals

The Court of Appeals ruled that respondents are not taxable as lending
investors. In its Decision of 7 January 2000 (CA Decision), the Court of Appeals
affirmed the ruling of the CTA, thus:
WHEREFORE, premises considered, the petition is DISMISSED, hereby AFFIRMING
the decision, dated January 5, 1995, of the Court of Tax Appeals in CTA Cases
Nos. 2514, 2515 and 2516.

Petitioner appealed the CA Decision to this Court.

The Issues
Petitioner raises the sole issue:

The Ruling of the Court

The petition lacks merit.

On the Additional Issue Raised by Petitioner

Section 182(A)(3)(dd) of CA 466 imposes an annual fixed tax on lending
investors, depending on their location. [11] The sole question before the CTA was
whether respondents were subject to the percentage tax on lending investors
under Section 195-A. Petitioner raised for the first time the issue of the fixed tax
in the Petition for Review[12] petitioner filed before the Court of Appeals.
Ordinarily, a party cannot raise for the first time on appeal an issue not
raised in the trial court.[13] The Court of Appeals should not have taken
cognizance of the issue on respondents supposed liability under Section 182(A)
(3)(dd). However, we cannot entirely fault the Court of Appeals or petitioner.
Even if the percentage tax on lending investors was the sole issue before it, the
CTA ordered petitioner to refund to the PHILAM companies the fixed and
percentage taxes [t]hen paid by petitioners as lending investor. [14] Although the
amounts for refund consisted only of what respondents paid as percentage
taxes, the CTA Decision also ordered the refund to respondents of the fixed tax
on lending investors. Respondents in their pleadings deny any liability under
Section 182(A)(3)(dd), on the same ground that they are not lending investors.
The question of whether respondents should pay the fixed tax under Section
182(A)(3)(dd) revolves around the same issue of whether respondents are

taxable as lending investors. In similar circumstances, the Court has held that an
appellate court may consider an unassigned error if it is closely related to an
error that was properly assigned. [15] This rule properly applies to the present
case. Thus, we shall consider and rule on the issue of whether respondents are
subject to the fixed tax under Section 182(A)(3)(dd).Whether Insurance
Companies are
Taxable as Lending Investors
Invoking Sections 195-A and 182(A)(3)(dd) in relation to Section 194(u) of
CA 466, petitioner argues that insurance companies are subject to two fixed
taxes and two percentage taxes. Petitioner alleges that:
As a lending investor, an insurance company is subject to an annual fixed tax
of P500.00 and another P500.00 under Section 182 (A)(3)(dd) and (gg) of the Tax
Code. As an underwriter, an insurance company is subject to the 3% tax of the
total premiums collected and another 3% on the gross receipts as a lending
investor under Sections 255 and 195-A, respectively of the same Code. xxx [16]
Petitioner also contends that the refund granted to respondents is in the
nature of a tax exemption, and cannot be allowed unless granted explicitly and
The rule that tax exemptions should be construed strictly against the
taxpayer presupposes that the taxpayer is clearly subject to the tax being levied
against him. Unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule that the imposition
of a tax cannot be presumed. [17] Where there is doubt, tax laws must be
construed strictly against the government and in favor of the taxpayer. [18] This is
because taxes are burdens on the taxpayer, and should not be unduly imposed
or presumed beyond what the statutes expressly and clearly import. [19]
Section 182(A)(3)(dd) of CA 466 also provides:
Sec. 182. Fixed taxes. (A) On business xxx
(3) Other fixed taxes. The following fixed taxes shall be collected as follows,
the amount stated being for the whole year, when not otherwise specified;
(dd) Lending investors
1. In chartered cities and first class municipalities, five hundred
2. In second and third class municipalities, two hundred and fifty

3. In fourth and fifth class municipalities and municipal districts,

one hundred and twenty-five pesos; Provided, That lending
investors who do business as such in more than one province
shall pay a tax of five hundred pesos.
Section 195-A of CA 466 provides:
Sec. 195-A. Percentage tax on dealers in securities; lending investors. Dealers in
securities and lending investors shall pay a tax equivalent to three per centum on
their gross income.
Neither Section 182(A)(3)(dd) nor
companies. Section 182(A)(3)(dd) provides
different localities. Section 195-A refers
investors. The burden is thus on petitioner
lending investors for purposes of taxation.

Section 195-A mentions insurance

for the taxation of lending investors in
to dealers in securities and lending
to show that insurance companies are

In this case, petitioner does not dispute that respondents are in the insurance
business. Petitioner merely alleges that the definition of lending investors under CA
466 is broad enough to encompass insurance companies. Petitioner insists that
because of Section 194(u), the two principal activities of the insurance business,
namely, underwriting and investment, are separately taxable. [20]
Section 194(u) of CA 466 states:
(u) Lending investor includes all persons who make a practice of lending money for
themselves or others at interest.
As can be seen, Section 194(u) does not tax the practice of lending per se. It
merely defines what lending investors are. The question is whether the lending
activities of insurance companies make them lending investors for purposes of
We agree with the CTA and Court of Appeals that it does not. Insurance
companies cannot be considered lending investors under CA 466, as amended.

Definition of Lending
Investors under CA 466 Does
Not Include Insurance

The definition in Section 194(u) of CA 466 is not broad enough to include the
business of insurance companies. The Insurance Code of 1978 [21] is very clear on
what constitutes an insurance company. It provides that an insurer or insurance
company shall include all individuals, partnerships, associations or corporations
xxx engaged as principals in the insurance business, excepting mutual benefit
associations.[22] More specifically, respondents fall under the category of insurance
corporations as defined in Section 185 of the Insurance Code, thus:
SECTION 185. Corporations formed or organized to save any person or persons or
other corporations harmless from loss, damage, or liability arising from any
unknown or future or contingent event, or to indemnify or to compensate any
person or persons or other corporations for any such loss, damage, or liability, or
to guarantee the performance of or compliance with contractual obligations or the
payment of debts of others shall be known as insurance corporations.
Plainly, insurance companies and lending investors are different enterprises in
the eyes of the law. Lending investors cannot, for a consideration, hold anyone
harmless from loss, damage or liability, nor provide compensation or indemnity for
loss. The underwriting of risks is the prerogative of insurers, the great majority of
which are incorporated insurance companies[23] like respondents.

Granting of Mortgage and

other Loans are Investment
Practices that are Part of the
Insurance Business.
True, respondents granted mortgage and other kinds of loans. However, this
was not done independently of respondents insurance business. The granting of
certain loans is one of several means of investment allowed to insurance
companies. No less than the Insurance Code mandates and regulates this practice.

Unlike the practice of lending investors, the lending activities of insurance

companies are circumscribed and strictly regulated by the State. Insurance
companies cannot freely lend to themselves or others as lending investors can,
nor can insurance companies grant simply any kind of loan. Even prior to 1978,
the Insurance Code prescribed strict rules for the granting of loans by insurance
companies.[26] These provisions on mortgage, collateral and policy loans were
reiterated in the Insurance Code of 1978 and are still in force today.

Petitioner concedes that respondents investment practices are as much a part

of the insurance business as the task of underwriting. Nevertheless, petitioner
argues that such investment practices are separately taxable under CA 466.
The CTA and the Court of Appeals found that the investment of premiums and
other funds received by respondents through the granting of mortgage and other
loans was necessary to respondents business and hence, should not be taxed
Insurance companies are required by law to possess and maintain substantial
legal reserves to meet their obligations to policyholders. [27] This obviously cannot
be accomplished through the collection of premiums alone, as the legal reserves
and capital and surplus insurance companies are obligated to maintain run into
millions of pesos. As such, the creation of investment income has long been held to
be generally, if not necessarily, essential to the business of insurance.[28]
The creation of investment income in the manner sanctioned by the laws on
insurance is thus part of the business of insurance, and the fruits of these
investments are essentially income from the insurance business. This is
particularly true if the invested assets are held either as reserved funds to provide
for policy obligations or as capital and surplus to provide an extra margin of safety
which will be attractive to insurance buyers.[29]

Sec. 182. Fixed taxes. (A) On business xxx

(3) Other fixed taxes. The following fixed taxes shall be collected as follows, the
amount stated being for the whole year, when not otherwise specified;
(dd) Lending investors
1. In chartered cities and first class municipalities, five
hundred pesos;
2. In second and third class municipalities, two hundred
and fifty pesos;
3. In fourth and fifth class municipalities and municipal
districts, one hundred and twenty-five pesos; Provided,
That lending investors who do business as such in more
than one province shall pay a tax of five hundred
(gg) Banks, insurance companies, finance and investment companies doing
business in the Philippines and franchise grantees, five hundred pesos.

The Court has also held that when a company is taxed on its main business, it
is no longer taxable further for engaging in an activity or work which is merely a
part of, incidental to and is necessary to its main business. [30] Respondents already
paid percentage and fixed taxes on their insurance business. To require them to
pay percentage and fixed taxes again for an activity which is necessarily a part of
the same business, the law must expressly require such additional payment of tax.
There is, however, no provision of law requiring such additional payment of tax.

The separate provisions on lending investors and insurance companies

demonstrate an intention to treat these businesses differently. If Congress intended
insurance companies to be taxed as lending investors, there would be no need for
Section 182(A)(3)(gg). Section 182(A)(3)(dd) would have been sufficient. That
insurance companies were included with banks, finance and investment companies
also supports the CTAs conclusion that insurance companies had more in common
with the latter enterprises than with lending investors. As the CTA pointed out,
banks also regularly lend money at interest, but are not taxable as lending

Sections 195-A and 182(A)(3)(dd) of CA 466 do not require insurance

companies to pay double percentage and fixed taxes. They merely tax lending
investors, not lending activities. Respondents were not transformed into lending
investors by the mere fact that they granted loans, as these investments were part
of, incidental and necessary to their insurance business.

We find no merit in petitioners contention that Congress intended to subject

respondents to two percentage taxes and two fixed taxes. Petitioners argument
goes against the doctrine of strict interpretation of tax impositions.

Different Tax Treatment of

Insurance Companies and
Lending Investors.
Section 182(A)(3) of CA 466 accorded different tax treatments to lending
investors and insurance companies. The relevant portions of Section 182 state:

Petitioners argument is likewise not in accord with existing jurisprudence.

In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,
the Court ruled that the different tax treatment accorded to pawnshops and
lending investors in the NIRC of 1977 and the NIRC of 1986 showed the intent of
Congress to deal with both subjects differently. The same reasoning applies
squarely to the present case.
Even the current tax law does not treat insurance companies as lending
investors. Under Section 108(A)[32] of the NIRC of 1997, lending investors and nonlife insurance companies, except for their crop insurances, are subject to value-

added tax (VAT). Life insurance companies are exempt from VAT, but are subject to
percentage tax under Section 123 of the NIRC of 1997.
Indeed, the fact that Sections 195-A and 182(A)(3)(dd) of CA 466 failed to
mention insurance companies already implies the latters exclusion from the
coverage of these provisions. When a statute enumerates the things upon which it
is to operate, everything else by implication must be excluded from its operation
and effect.[33]

Definition of Lending
Investors in CA 466 is Not
Petitioner does not dispute that it issued a ruling in 1920 to the effect that the
lending of money at interest was a necessary incident of the insurance business,
and that insurance companies were thus not subject to the tax on money lenders.
Petitioner argues only that the 1920 ruling does not apply to the instant case
because RA 6110 introduced the definition of lending investors to CA 466 only in
The subject definition was actually introduced much earlier, at a time when
lending investors were still referred to as money lenders. Sections 45 and 46 of the
Internal Revenue Law of 1914[34] (1914 Tax Code) state:
SECTION 45. Amount of Tax on Business. Fixed taxes on business shall be collected
as follows, the amount stated being for the whole year, when not otherwise
(x) Money lenders, eighty pesos;
SECTION 46. Words and Phrases Defined. In applying the provisions of the
preceding section words and phrases shall be taken in the sense and
extension indicated below:

Money lender includes all persons who make a practice of lending money
for themselves or others at interest. (Emphasis supplied)
As can be seen, the definitions of money lender under the 1914 Tax Code and
lending investor under CA 466 are identical. The term money lender was merely
changed to lending investor when Act No. 3963 amended the Revised
Administrative Code in 1932.[35] This same definition of lending investor has since
appeared in Section 194(u) of CA 466 and later tax laws.
Note that insurance companies were not included among the businesses
subject to an annual fixed tax under the 1914 Tax Code. [36] That Congress later saw
the need to introduce Section 182(A)(3)(gg) in CA 466 bolsters our view that there
was no legislative intent to tax insurance companies as lending investors. If
insurance companies were already taxed as lending investors, there would have
been no need for a separate provision specifically requiring insurance companies
to pay fixed taxes.

The Court Accords Great

Weight to the Factual Findings
of the CTA.
Dedicated exclusively to the study and consideration of tax problems, the CTA
has necessarily developed an expertise in the subject of taxation that this Court
has recognized time and again. For this reason, the findings of fact of the CTA,
particularly when affirmed by the Court of Appeals, are generally conclusive on this
Court absent grave abuse of discretion or palpable error, [37]which are not present in
this case.
WHEREFORE, we DENY the instant petition and AFFIRM the Decision of 7
January 2000 of the Court of Appeals in CA-G.R. SP No. 36816.