Dean'S Notes

DeanS notes
Political
G.R. No. 202242 April 16, 2013
FRANCISCO I. CHAVEZ, Petitioner,

vs.
JUDICIALAND BAR COUNCIL, SEN. FRANCIS JOSEPH G. ESCUDERO and REP. NIEL C.
TUPAS, JR., Respondents.
RESOLUTION
MENDOZA, J.:
This resolves the Motion for Reconsideration1 filed by the Office of the Solicitor General (OSG) on
behalf of the respondents, Senator Francis Joseph G. Escudero and Congressman Niel C. Tupas,
Jr. (respondents), duly opposed2 by the petitioner, former Solicitor General Francisco I. Chavez
(petitioner).
By way of recapitulation, the present action stemmed from the unexpected departure of former Chief
Justice Renato C. Corona on May 29, 2012, and the nomination of petitioner, as his potential
successor. In his initiatory pleading, petitioner asked the Court to determine 1] whether the first
paragraph of Section 8, Article VIII of the 1987 Constitution allows more than one (1) member of
Congress to sit in the JBC; and 2] if the practice of having two (2) representatives from each House
of Congress with one (1) vote each is sanctioned by the Constitution.
On July 17, 2012, the Court handed down the assailed subject decision, disposing the same in the
following manner:
WHEREFORE, the petition is GRANTED. The current numerical composition of the Judicial and Bar
Council is declared UNCONSTITUTIONAL. The Judicial and Bar Council is hereby enjoined to
reconstitute itself so that only one (1) member of Congress will sit as a representative in its
proceedings, in accordance with Section 8(1), Article VIII of the 1987 Constitution.
This disposition is immediately executory.
SO ORDERED.
On July 31, 2012, following respondents motion for reconsideration and with due regard to Senate
Resolution Nos. 111,3 112,4 113,5 and 114,6 the Court set the subject motion for oral arguments on
August 2, 2012.7 On August 3, 2012, the Court discussed the merits of the arguments and agreed, in
the meantime, to suspend the effects of the second paragraph of the dispositive portion of the July
17, 2012 Decision which decreed that it was immediately executory. The decretal portion of the
August 3, 2012 Resolution8 reads:
WHEREFORE, the parties are hereby directed to submit their respective MEMORANDA within ten
(10) days from notice. Until further orders, the Court hereby SUSPENDS the effect of the second
paragraph of the dispositive portion of the Courts July 17, 2012 Decision, which reads: "This
disposition is immediately executory."9
Pursuant to the same resolution, petitioner and respondents filed their respective memoranda.10
Brief Statement of the Antecedents
In this disposition, it bears reiterating that from the birth of the Philippine Republic, the exercise of
appointing members of the Judiciary has always been the exclusive prerogative of the executive and
legislative branches of the government. Like their progenitor of American origins, both the Malolos
Constitution11 and the 1935 Constitution12 vested the power to appoint the members of the Judiciary
in the President, subject to confirmation by the Commission on Appointments. It was during these
times that the country became witness to the deplorable practice of aspirants seeking confirmation of
their appointment in the Judiciary to ingratiate themselves with the members of the legislative body.13
Then, under the 1973 Constitution,14 with the fusion of the executive and legislative powers in one
body, the appointment of judges and justices ceased to be subject of scrutiny by another body. The
power became exclusive and absolute to the Executive, subject only to the condition that the
appointees must have all the qualifications and none of the disqualifications.
Prompted by the clamor to rid the process of appointments to the Judiciary of the evils of political
pressure and partisan activities,15 the members of the Constitutional Commission saw it wise to
create a separate, competent and independent body to recommend nominees to the President.
Thus, it conceived of a body, representative of all the stakeholders in the judicial appointment
process, and called it the Judicial and Bar Council (JBC). The Framers carefully worded Section 8,
Article VIII of the 1987 Constitution in this wise:
Section 8. (1) A Judicial and Bar Council is hereby created under the supervision of the Supreme
Court composed of the Chief Justice as ex officio Chairman, the Secretary of Justice, and a
representative of the Congress as ex officio Members, a representative of the Integrated Bar, a
professor of law, a retired Member of the Supreme Court, and a representative of the private sector.
From the moment of the creation of the JBC, Congress designated one (1) representative to sit in
the JBC to act as one of the ex-officio members.16 Pursuant to the constitutional provision that
Congress is entitled to one (1) representative, each House sent a representative to the JBC, not
together, but alternately or by rotation.
In 1994, the seven-member composition of the JBC was substantially altered. An eighth member
1wphi1
was added to the JBC as the two (2) representatives from Congress began sitting simultaneously in
the JBC, with each having one-half (1/2) of a vote.17
In 2001, the JBC En Banc decided to allow the representatives from the Senate and the House of
Representatives one full vote each.18 It has been the situation since then.
Grounds relied upon by Respondents
Through the subject motion, respondents pray that the Court reconsider its decision and dismiss the
petition on the following grounds: 1] that allowing only one representative from Congress in the JBC
would lead to absurdity considering its bicameral nature; 2] that the failure of the Framers to make
the proper adjustment when there was a shift from unilateralism to bicameralism was a plain
oversight; 3] that two representatives from Congress would not subvert the intention of the Framers
to insulate the JBC from political partisanship; and 4] that the rationale of the Court in declaring a
seven-member composition would provide a solution should there be a stalemate is not exactly
correct.
While the Court may find some sense in the reasoning in amplification of the third and fourth
grounds listed by respondents, still, it finds itself unable to reverse the assailed decision on the
principal issues covered by the first and second grounds for lack of merit. Significantly, the
conclusion arrived at, with respect to the first and second grounds, carries greater bearing in the final
resolution of this case.
As these two issues are interrelated, the Court shall discuss them jointly.
Ruling of the Court
The Constitution evinces the direct action of the Filipino people by which the fundamental powers of
government are established, limited and defined and by which those powers are distributed among
the several departments for their safe and useful exercise for the benefit of the body politic.19 The
Framers reposed their wisdom and vision on one suprema lex to be the ultimate expression of the
principles and the framework upon which government and society were to operate. Thus, in the
interpretation of the constitutional provisions, the Court firmly relies on the basic postulate that the
Framers mean what they say. The language used in the Constitution must be taken to have been
deliberately chosen for a definite purpose. Every word employed in the Constitution must be
interpreted to exude its deliberate intent which must be maintained inviolate against disobedience
and defiance. What the Constitution clearly says, according to its text, compels acceptance and bars
modification even by the branch tasked to interpret it.
For this reason, the Court cannot accede to the argument of plain oversight in order to justify
constitutional construction. As stated in the July 17, 2012 Decision, in opting to use the singular
letter "a" to describe "representative of Congress," the Filipino people through the Framers intended
that Congress be entitled to only one (1) seat in the JBC. Had the intention been otherwise, the
Constitution could have, in no uncertain terms, so provided, as can be read in its other provisions.
A reading of the 1987 Constitution would reveal that several provisions were indeed adjusted as to
be in tune with the shift to bicameralism. One example is Section 4, Article VII, which provides that a
tie in the presidential election shall be broken "by a majority of all the Members of both Houses of the
Congress, voting separately."20Another is Section 8 thereof which requires the nominee to replace
the Vice-President to be confirmed "by a majority of all the Members of both Houses of the
Congress, voting separately."21 Similarly, under Section 18, the proclamation of martial law or the
suspension of the privilege of the writ of habeas corpus may be revoked or continued by the
Congress, voting separately, by a vote of at least a majority of all its Members."22 In all these
provisions, the bicameral nature of Congress was recognized and, clearly, the corresponding
adjustments were made as to how a matter would be handled and voted upon by its two Houses.
Thus, to say that the Framers simply failed to adjust Section 8, Article VIII, by sheer inadvertence, to
their decision to shift to a bicameral form of the legislature, is not persuasive enough. Respondents
cannot just lean on plain oversight to justify a conclusion favorable to them. It is very clear that the
Framers were not keen on adjusting the provision on congressional representation in the JBC
because it was not in the exercise of its primary function to legislate. JBC was created to support
the executive power to appoint, and Congress, as one whole body, was merely assigned a
contributory non-legislative function.
The underlying reason for such a limited participation can easily be discerned. Congress has two (2)
Houses. The need to recognize the existence and the role of each House is essential considering
that the Constitution employs precise language in laying down the functions which particular House
plays, regardless of whether the two Houses consummate an official act by voting jointly or
separately. Whether in the exercise of its legislative23 or its non-legislative functions such as inter
alia, the power of appropriation,24 the declaration of an existence of a state of war,25 canvassing of
electoral returns for the President and Vice-President,26 and impeachment,27 the dichotomy of each
House must be acknowledged and recognized considering the interplay between these two Houses.
In all these instances, each House is constitutionally granted with powers and functions peculiar to
its nature and with keen consideration to 1) its relationship with the other chamber; and 2) in
consonance with the principle of checks and balances, as to the other branches of government.
In checkered contrast, there is essentially no interaction between the two Houses in their
participation in the JBC. No mechanism is required between the Senate and the House of
Representatives in the screening and nomination of judicial officers. Rather, in the creation of the
JBC, the Framers arrived at a unique system by adding to the four (4) regular members, three (3)
representatives from the major branches of government - the Chief Justice as ex-officio Chairman
(representing the Judicial Department), the Secretary of Justice (representing the Executive
Department), and a representative of the Congress (representing the Legislative Department). The
total is seven (7), not eight. In so providing, the Framers simply gave recognition to the Legislature,
not because it was in the interest of a certain constituency, but in reverence to it as a major branch
of government.
On this score, a Member of Congress, Hon. Simeon A. Datumanong, from the Second District of
Maguindanao, submitted his well-considered position28 to then Chief Justice Reynato S. Puno:
I humbly reiterate my position that there should be only one representative of Congress in the JBC in
accordance with Article VIII, Section 8 (1) of the 1987 Constitution x x x.
The aforesaid provision is clear and unambiguous and does not need any further interpretation.
Perhaps, it is apt to mention that the oft-repeated doctrine that "construction and interpretation come
only after it has been demonstrated that application is impossible or inadequate without them."
Further, to allow Congress to have two representatives in the Council, with one vote each, is to
negate the principle of equality among the three branches of government which is enshrined in the
Constitution.
In view of the foregoing, I vote for the proposition that the Council should adopt the rule of single
representation of Congress in the JBC in order to respect and give the right meaning to the above-
quoted provision of the Constitution. (Emphases and underscoring supplied)
On March 14, 2007, then Associate Justice Leonardo A. Quisumbing, also a JBC Consultant,
submitted to the Chief Justice and ex-officio JBC Chairman his opinion,29 which reads:
8. Two things can be gleaned from the excerpts and citations above: the creation of the JBC is
intended to curtail the influence of politics in Congress in the appointment of judges, and the
understanding is that seven (7) persons will compose the JBC. As such, the interpretation of two
votes for Congress runs counter to the intendment of the framers. Such interpretation actually gives
Congress more influence in the appointment of judges. Also, two votes for Congress would increase
the number of JBC members to eight, which could lead to voting deadlock by reason of even-
numbered membership, and a clear violation of 7 enumerated members in the Constitution.
(Emphases and underscoring supplied)
In an undated position paper,30 then Secretary of Justice Agnes VST Devanadera opined:
As can be gleaned from the above constitutional provision, the JBC is composed of seven (7)
representatives coming from different sectors. From the enumeration it is patent that each category
of members pertained to a single individual only. Thus, while we do not lose sight of the bicameral
nature of our legislative department, it is beyond dispute that Art. VIII, Section 8 (1) of the 1987
Constitution is explicit and specific that "Congress" shall have only "xxx a representative." Thus, two
(2) representatives from Congress would increase the number of JBC members to eight (8), a
number beyond what the Constitution has contemplated. (Emphases and underscoring supplied)
In this regard, the scholarly dissection on the matter by retired Justice Consuelo Ynares-Santiago, a
former JBC consultant, is worth reiterating.31 Thus:
A perusal of the records of the Constitutional Commission reveals that the composition of the JBC
reflects the Commissions desire "to have in the Council a representation for the major elements of
the community." xxx The ex-officio members of the Council consist of representatives from the three
main branches of government while the regular members are composed of various stakeholders in
the judiciary. The unmistakeable tenor of Article VIII, Section 8(1) was to treat each ex-officio
member as representing one co-equal branch of government. xxx Thus, the JBC was designed to
have seven voting members with the three ex-officio members having equal say in the choice of
judicial nominees.
xxx
No parallelism can be drawn between the representative of Congress in the JBC and the exercise by
Congress of its legislative powers under Article VI and constituent powers under Article XVII of the
Constitution. Congress, in relation to the executive and judicial branches of government, is
constitutionally treated as another co-equal branch in the matter of its representative in the JBC. On
the other hand, the exercise of legislative and constituent powers requires the Senate and the House
of Representatives to coordinate and act as distinct bodies in furtherance of Congress role under
our constitutional scheme. While the latter justifies and, in fact, necessitates the separateness of the
two Houses of Congress as they relate inter se, no such dichotomy need be made when Congress
interacts with the other two co-equal branches of government.
It is more in keeping with the co-equal nature of the three governmental branches to assign the
same weight to considerations that any of its representatives may have regarding aspiring nominees
to the judiciary. The representatives of the Senate and the House of Representatives act as such for
one branch and should not have any more quantitative influence as the other branches in the
exercise of prerogatives evenly bestowed upon the three. Sound reason and principle of equality
among the three branches support this conclusion. [Emphases and underscoring supplied]
The argument that a senator cannot represent a member of the House of Representatives in the
JBC and vice-versa is, thus, misplaced. In the JBC, any member of Congress, whether from the
Senate or the House of Representatives, is constitutionally empowered to represent the entire
Congress. It may be a constricted constitutional authority, but it is not an absurdity.
From this score stems the conclusion that the lone representative of Congress is entitled to one full
vote. This pronouncement effectively disallows the scheme of splitting the said vote into half (1/2),
between two representatives of Congress. Not only can this unsanctioned practice cause disorder in
the voting process, it is clearly against the essence of what the Constitution authorized. After all,
basic and reasonable is the rule that what cannot be legally done directly cannot be done indirectly.
To permit or tolerate the splitting of one vote into two or more is clearly a constitutional
circumvention that cannot be countenanced by the Court. Succinctly put, when the Constitution
envisioned one member of Congress sitting in the JBC, it is sensible to presume that this
representation carries with him one full vote.
It is also an error for respondents to argue that the President, in effect, has more influence over the
JBC simply because all of the regular members of the JBC are his appointees. The principle of
checks and balances is still safeguarded because the appointment of all the regular members of the
JBC is subject to a stringent process of confirmation by the Commission on Appointments, which is
composed of members of Congress.
Respondents contention that the current irregular composition of the JBC should be accepted,
simply because it was only questioned for the first time through the present action, deserves scant
consideration. Well-settled is the rule that acts done in violation of the Constitution no matter how
frequent, usual or notorious cannot develop or gain acceptance under the doctrine of estoppel or
laches, because once an act is considered as an infringement of the Constitution it is void from the
very beginning and cannot be the source of any power or authority.
It would not be amiss to point out, however, that as a general rule, an unconstitutional act is not a
law; it confers no rights; it imposes no duties; it affords no protection; it creates no office; it is
inoperative as if it has not been passed at all. This rule, however, is not absolute. Under the doctrine
of operative facts, actions previous to the declaration of unconstitutionality are legally recognized.
They are not nullified. This is essential in the interest of fair play. To reiterate the doctrine enunciated
in Planters Products, Inc. v. Fertiphil Corporation:32
The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity
and fair play. It nullifies the effects of an unconstitutional law by recognizing that the existence of a
statute prior to a determination of unconstitutionality is an operative fact and may have
consequences which cannot always be ignored. The past cannot always be erased by a new judicial
declaration. The doctrine is applicable when a declaration of unconstitutionality will impose an undue
burden on those who have relied on the invalid law. Thus, it was applied to a criminal case when a
declaration of unconstitutionality would put the accused in double jeopardy or would put in limbo the
acts done by a municipality in reliance upon a law creating it.33
Under the circumstances, the Court finds the exception applicable in this case and holds that
notwithstanding its finding of unconstitutionality in the current composition of the JBC, all its prior
official actions are nonetheless valid.
Considering that the Court is duty bound to protect the Constitution which was ratified by the direct
action of the Filipino people, it cannot correct what respondents perceive as a mistake in its
mandate. Neither can the Court, in the exercise of its power to interpret the spirit of the Constitution,
read into the law something that is contrary to its express provisions and justify the same as
correcting a perceived inadvertence. To do so would otherwise sanction the Court action of making
amendment to the Constitution through a judicial pronouncement.
In other words, the Court cannot supply the legislative omission. According to the rule of casus
omissus "a case omitted is to be held as intentionally omitted."34 "The principle proceeds from a
reasonable certainty that a particular person, object or thing has been omitted from a legislative
enumeration."35 Pursuant to this, "the Court cannot under its power of interpretation supply the
omission even though the omission may have resulted from inadvertence or because the case in
question was not foreseen or contemplated."36 "The Court cannot supply what it thinks the legislature
would have supplied had its attention been called to the omission, as that would be judicial
legislation."37
Stated differently, the Court has no power to add another member by judicial construction.
The call for judicial activism fails to stir the sensibilities of the Court tasked to guard the Constitution
against usurpation. The Court remains steadfast in confining its powers in the sphere granted by the
Constitution itself. Judicial activism should never be allowed to become judicial exuberance.38 In
cases like this, no amount of practical logic or convenience can convince the Court to perform either
an excision or an insertion that will change the manifest intent of the Framers. To broaden the scope
of congressional representation in the JBC is tantamount to the inclusion of a subject matter which
was not included in the provision as enacted. True to its constitutional mandate, the Court cannot
craft and tailor constitutional provisions in order to accommodate all of situations no matter how ideal
or reasonable the proposed solution may sound. To the exercise of this intrusion, the Court declines.
WHEREFORE, the Motion for Reconsideration filed by respondents is hereby DENIED.
The suspension of the effects of the second paragraph of the dispositive portion of the July 17, 2012
Decision of the Court, which reads, "This disposition is immediately executory," is hereby LIFTED.
G.R. No. 191002 April 20, 2010
ARTURO M. DE CASTRO, Petitioner,

vs.
JUDICIAL AND BAR COUNCIL (JBC) and PRESIDENT GLORIA MACAPAGAL -
ARROYO, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 191032
JAIME N. SORIANO, Petitioner,

vs.
JUDICIAL AND BAR COUNCIL (JBC), Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 191057
PHILIPPINE CONSTITUTION ASSOCIATION (PHILCONSA), Petitioner,

vs.
x - - - - - - - - - - - - - - - - - - - - - - -x
A.M. No. 10-2-5-SC
IN RE APPLICABILITY OF SECTION 15, ARTICLE VII OF THE CONSTITUTION TO

APPOINTMENTS TO THE JUDICIARY, ESTELITO P. MENDOZA, Petitioner,
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 191149

JOHN G. PERALTA, Petitioner,
vs.
JUDICIAL AND BAR COUNCIL (JBC). Respondent.
PETER IRVING CORVERA; CHRISTIAN ROBERT S. LIM; ALFONSO V. TAN, JR.; NATIONAL
UNION OF PEOPLES LAWYERS; MARLOU B. UBANO; INTEGRATED BAR OF THE
PHILIPPINES-DAVAO DEL SUR CHAPTER, represented by its Immediate Past President,
ATTY. ISRAELITO P. TORREON, and the latter in his own personal capacity as a MEMBER of
the PHILIPPINE BAR; MITCHELL JOHN L. BOISER; BAGONG ALYANSANG BAYAN (BAYAN)
CHAIRMAN DR. CAROLINA P. ARAULLO; BAYAN SECRETARY GENERAL RENATO M.
REYES, JR.; CONFEDERATION FOR UNITY, RECOGNITION AND ADVANCE-MENT OF
GOVERNMENT EMPLOYEES (COURAGE) CHAIRMAN FERDINAND GAITE; KALIPUNAN NG
DAMAYANG MAHIHIRAP (KADAMAY) SECRETARY GENERAL GLORIA ARELLANO;
ALYANSA NG NAGKAKAISANG KABATAAN NG SAMBAYANAN PARA SA KAUNLARAN
(ANAKBAYAN) CHAIRMAN KEN LEONARD RAMOS; TAYO ANG PAG-ASA CONVENOR ALVIN
PETERS; LEAGUE OF FILIPINO STUDENTS (LFS) CHAIRMAN JAMES MARK TERRY
LACUANAN RIDON; NATIONAL UNION OF STUDENTS OF THE PHILIPPINES (NUSP)
CHAIRMAN EINSTEIN RECEDES; COLLEGE EDITORS GUILD OF THE PHILIPPINES (CEGP)
CHAIRMAN VIJAE ALQUISOLA; and STUDENT CHRISTIAN MOVEMENT OF THE PHILIPPINES
(SCMP) CHAIRMAN MA. CRISTINA ANGELA GUEVARRA; WALDEN F. BELLO and LORETTA
ANN P. ROSALES; WOMEN TRIAL LAWYERS ORGANIZATION OF THE PHILIPPINES,
represented by YOLANDA QUISUMBING-JAVELLANA; BELLEZA ALOJADO DEMAISIP;
TERESITA GANDIONCO-OLEDAN; MA. VERENA KASILAG-VILLANUEVA; MARILYN STA.
ROMANA; LEONILA DE JESUS; and GUINEVERE DE LEON; AQUILINO Q. PIMENTEL,
JR.; Intervenors.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 191342
ATTY. AMADOR Z. TOLENTINO, JR., (IBP Governor-Southern Luzon), and ATTY. ROLAND B.
INTING (IBPGovernor-Eastern Visayas), Petitioners,
vs.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 191420
PHILIPPINE BAR ASSOCIATION, INC., Petitioner,

vs.
JUDICIAL AND BAR COUNCIL and HER EXCELLENCY GLORIA MACAPAGAL-
ARROYO, Respondents.
RESOLUTION
BERSAMIN, J.:
On March 17, 2010, the Court promulgated its decision, holding:
WHEREFORE, the Court:

1. Dismisses the petitions for certiorari and mandamus in G.R. No. 191002 and G.R. No.
191149, and the petition for mandamus in G.R. No. 191057 for being premature;
2. Dismisses the petitions for prohibition in G.R. No. 191032 and G.R. No. 191342 for lack of
merit; and
3. Grants the petition in A.M. No. 10-2-5-SC and, accordingly, directs the Judicial and Bar
Council:
(a) To resume its proceedings for the nomination of candidates to fill the vacancy to
be created by the compulsory retirement of Chief Justice Reynato S. Puno by May
17, 2010;
(b) To prepare the short list of nominees for the position of Chief Justice;
(c) To submit to the incumbent President the short list of nominees for the position of
Chief Justice on or before May 17, 2010; and
(d) To continue its proceedings for the nomination of candidates to fill other
vacancies in the Judiciary and submit to the President the short list of nominees
corresponding thereto in accordance with this decision.
SO ORDERED.
Motions for Reconsideration
Petitioners Jaime N. Soriano (G.R. No. 191032), Amador Z. Tolentino and Roland B. Inting (G.R.
No. 191342), and Philippine Bar Association (G.R. No. 191420), as well as intervenors Integrated
Bar of the Philippines-Davao del Sur (IBP-Davao del Sur, et al.); Christian Robert S. Lim; Peter
Irving Corvera; Bagong Alyansang Bayan and others (BAYAN, et al.); Alfonso V. Tan, Jr.; the
Women Trial Lawyers Organization of the Philippines (WTLOP); Marlou B. Ubano; Mitchell John L.
Boiser; and Walden F. Bello and Loretta Ann P. Rosales (Bello, et al.), filed their respective motions
for reconsideration. Also filing a motion for reconsideration was Senator Aquilino Q. Pimentel, Jr.,
whose belated intervention was allowed.
We summarize the arguments and submissions of the various motions for reconsideration, in the
aforegiven order:
Soriano
1. The Court has not squarely ruled upon or addressed the issue of whether or not the power
to designate the Chief Justice belonged to the Supreme Court en banc.
2. The Mendoza petition should have been dismissed, because it sought a mere declaratory
judgment and did not involve a justiciable controversy.
3. All Justices of the Court should participate in the next deliberations. The mere fact that the
Chief Justice sits as ex officio head of the JBC should not prevail over the more compelling
state interest for him to participate as a Member of the Court.
Tolentino and Inting

1. A plain reading of Section 15, Article VII does not lead to an interpretation that exempts
judicial appointments from the express ban on midnight appointments.
2. In excluding the Judiciary from the ban, the Court has made distinctions and has created
exemptions when none exists.
3. The ban on midnight appointments is placed in Article VII, not in Article VIII, because it
limits an executive, not a judicial, power.
4. Resort to the deliberations of the Constitutional Commission is superfluous, and is

powerless to vary the terms of the clear prohibition.
5. The Court has given too much credit to the position taken by Justice Regalado. Thereby,
the Court has raised the Constitution to the level of a venerated text whose intent can only
be divined by its framers as to be outside the realm of understanding by the sovereign
people that ratified it.
6. Valenzuela should not be reversed.
7. The petitioners, as taxpayers and lawyers, have the clear legal standing to question the
illegal composition of the JBC.
Philippine Bar Association
1. The Courts strained interpretation of the Constitution violates the basic principle that the
Court should not formulate a rule of constitutional law broader than what is required by the
precise facts of the case.
2. Considering that Section 15, Article VII is clear and straightforward, the only duty of the
Court is to apply it. The provision expressly and clearly provides a general limitation on the
appointing power of the President in prohibiting the appointment of any person to any
position in the Government without any qualification and distinction.
3. The Court gravely erred in unilaterally ignoring the constitutional safeguard against
midnight appointments.
4. The Constitution has installed two constitutional safeguards:- the prohibition against
midnight appointments, and the creation of the JBC. It is not within the authority of the Court
to prefer one over the other, for the Courts duty is to apply the safeguards as they are, not
as the Court likes them to be.
5. The Court has erred in failing to apply the basic principles of statutory construction in
interpreting the Constitution.
6. The Court has erred in relying heavily on the title, chapter or section headings, despite
precedents on statutory construction holding that such headings carried very little weight.
7. The Constitution has provided a general rule on midnight appointments, and the only
exception is that on temporary appointments to executive positions.
8. The Court has erred in directing the JBC to resume the proceedings for the nomination of
the candidates to fill the vacancy to be created by the compulsory retirement of Chief Justice
Puno with a view to submitting the list of nominees for Chief Justice to President Arroyo on
or before May 17, 2010. The Constitution grants the Court only the power of supervision over
the JBC; hence, the Court cannot tell the JBC what to do, how to do it, or when to do it,
especially in the absence of a real and justiciable case assailing any specific action or
inaction of the JBC.
9. The Court has engaged in rendering an advisory opinion and has indulged in speculations.
10. The constitutional ban on appointments being already in effect, the Courts directing the
JBC to comply with the decision constitutes a culpable violation of the Constitution and the
commission of an election offense.
11. The Court cannot reverse on the basis of a secondary authority a doctrine unanimously
formulated by the Court en banc.
12. The practice has been for the most senior Justice to act as Chief Justice whenever the
incumbent is indisposed. Thus, the appointment of the successor Chief Justice is not
urgently necessary.
13. The principal purpose for the ban on midnight appointments is to arrest any attempt to
prolong the outgoing Presidents powers by means of proxies. The attempt of the incumbent
President to appoint the next Chief Justice is undeniably intended to perpetuate her power
beyond her term of office.
IBP-Davao del Sur, et al.
1. Its language being unambiguous, Section 15, Article VII of the Constitution applies to
appointments to the Judiciary. Hence, no cogent reason exists to warrant the reversal of the
Valenzuela pronouncement.
2. Section 16, Article VII of the Constitution provides for presidential appointments to the
Constitutional Commissions and the JBC with the consent of the Commission on
Appointments. Its phrase "other officers whose appointments are vested in him in this
Constitution" is enough proof that the limitation on the appointing power of the President
extends to appointments to the Judiciary. Thus, Section 14, Section 15, and Section 16 of
Article VII apply to all presidential appointments in the Executive and Judicial Branches of
the Government.
3. There is no evidence that the framers of the Constitution abhorred the idea of an Acting
Chief Justice in all cases.
Lim
1. There is no justiciable controversy that warrants the Courts exercise of judicial review.
2. The election ban under Section 15, Article VII applies to appointments to fill a vacancy in
the Court and to other appointments to the Judiciary.
3. The creation of the JBC does not justify the removal of the safeguard under Section 15 of
Article VII against midnight appointments in the Judiciary.
Corvera
1. The Courts exclusion of appointments to the Judiciary from the Constitutional ban on
midnight appointments is based on an interpretation beyond the plain and unequivocal
language of the Constitution.
2. The intent of the ban on midnight appointments is to cover appointments in both the
Executive and Judicial Departments. The application of the principle of verba legis (ordinary
meaning) would have obviated dwelling on the organization and arrangement of the
provisions of the Constitution. If there is any ambiguity in Section 15, Article VII, the intent
behind the provision, which is to prevent political partisanship in all branches of the
Government, should have controlled.
3. A plain reading is preferred to a contorted and strained interpretation based on

compartmentalization and physical arrangement, especially considering that the Constitution
must be interpreted as a whole.
4. Resort to the deliberations or to the personal interpretation of the framers of the

Constitution should yield to the plain and unequivocal language of the Constitution.
5. There is no sufficient reason for reversing Valenzuela, a ruling that is reasonable and in
accord with the Constitution.
BAYAN, et al.
1. The Court erred in granting the petition in A.M. No. 10-2-5-SC, because the petition did
not present a justiciable controversy. The issues it raised were not yet ripe for adjudication,
considering that the office of the Chief Justice was not yet vacant and that the JBC itself has
yet to decide whether or not to submit a list of nominees to the President.
2. The collective wisdom of Valenzuela Court is more important and compelling than the
opinion of Justice Regalado.
3. In ruling that Section 15, Article VII is in conflict with Section 4(1), Article VIII, the Court
has violated the principle of ut magis valeat quam pereat (which mandates that the
Constitution should be interpreted as a whole, such that any conflicting provisions are to be
harmonized as to fully give effect to all). There is no conflict between the provisions; they
complement each other.
4. The form and structure of the Constitutions titles, chapters, sections, and draftsmanship
carry little weight in statutory construction. The clear and plain language of Section 15,
Article VII precludes interpretation.
Tan, Jr.
1. The factual antecedents do not present an actual case or controversy. The clash of legal
rights and interests in the present case are merely anticipated. Even if it is anticipated with
certainty, no actual vacancy in the position of the Chief Justice has yet occurred.
2. The ruling that Section 15, Article VII does not apply to a vacancy in the Court and the
Judiciary runs in conflict with long standing principles and doctrines of statutory construction.
The provision admits only one exception, temporary appointments in the Executive
Department. Thus, the Court should not distinguish, because the law itself makes no
distinction.
3. Valenzuela was erroneously reversed. The framers of the Constitution clearly intended the
ban on midnight appointments to cover the members of the Judiciary. Hence, giving more
weight to the opinion of Justice Regalado to reverse the en banc decision in Valenzuela was
unwarranted.
4. Section 15, Article VII is not incompatible with Section 4(1), Article VIII. The 90-day
mandate to fill any vacancy lasts until August 15, 2010, or a month and a half after the end of
the ban. The next President has roughly the same time of 45 days as the incumbent
President (i.e., 44 days) within which to scrutinize and study the qualifications of the next
Chief Justice. Thus, the JBC has more than enough opportunity to examine the nominees
without haste and political uncertainty.1avv phi1
5. When the constitutional ban is in place, the 90-day period under Section 4(1), Article VIII is
suspended.
6. There is no basis to direct the JBC to submit the list of nominees on or before May 17,
2010. The directive to the JBC sanctions a culpable violation of the Constitution and
constitutes an election offense.
7. There is no pressing necessity for the appointment of a Chief Justice, because the Court
sits en banc, even when it acts as the sole judge of all contests relative to the election,
returns and qualifications of the President and Vice-President. Fourteen other Members of
the Court can validly comprise the Presidential Electoral Tribunal.
WTLOP
1. The Court exceeded its jurisdiction in ordering the JBC to submit the list of nominees for
Chief Justice to the President on or before May 17, 2010, and to continue its proceedings for
the nomination of the candidates, because it granted a relief not prayed for; imposed on the
JBC a deadline not provided by law or the Constitution; exercised control instead of mere
supervision over the JBC; and lacked sufficient votes to reverse Valenzuela.
2. In interpreting Section 15, Article VII, the Court has ignored the basic principle of statutory
construction to the effect that the literal meaning of the law must be applied when it is clear
and unambiguous; and that we should not distinguish where the law does not distinguish.
3. There is no urgency to appoint the next Chief Justice, considering that the Judiciary Act of
1948 already provides that the power and duties of the office devolve on the most senior
Associate Justice in case of a vacancy in the office of the Chief Justice.
Ubano
1. The language of Section 15, Article VII, being clear and unequivocal, needs no
interpretation
2. The Constitution must be construed in its entirety, not by resort to the organization and
arrangement of its provisions.
3. The opinion of Justice Regalado is irrelevant, because Section 15, Article VII and the
pertinent records of the Constitutional Commission are clear and unambiguous.
4. The Court has erred in ordering the JBC to submit the list of nominees to the President by
May 17, 2010 at the latest, because no specific law requires the JBC to submit the list of
nominees even before the vacancy has occurred.
Boiser
1. Under Section 15, Article VII, the only exemption from the ban on midnight appointments
is the temporary appointment to an executive position. The limitation is in keeping with the
clear intent of the framers of the Constitution to place a restriction on the power of the
outgoing Chief Executive to make appointments.
2. To exempt the appointment of the next Chief Justice from the ban on midnight
appointments makes the appointee beholden to the outgoing Chief Executive, and
compromises the independence of the Chief Justice by having the outgoing President be
continually influential.
3. The Courts reversal of Valenzuela without stating the sufficient reason violates the
principle of stare decisis.
Bello, et al.
1. Section 15, Article VII does not distinguish as to the type of appointments an outgoing
President is prohibited from making within the prescribed period. Plain textual reading and
the records of the Constitutional Commission support the view that the ban on midnight
appointments extends to judicial appointments.
2. Supervision of the JBC by the Court involves oversight. The subordinate subject to
oversight must first act not in accord with prescribed rules before the act can be redone to
conform to the prescribed rules.
3. The Court erred in granting the petition in A.M. No. 10-2-5-SC, because the petition did
not present a justiciable controversy.
Pimentel
1. Any constitutional interpretative changes must be reasonable, rational, and conformable to

the general intent of the Constitution as a limitation to the powers of Government and as a
bastion for the protection of the rights of the people. Thus, in harmonizing seemingly
conflicting provisions of the Constitution, the interpretation should always be one that
protects the citizenry from an ever expanding grant of authority to its representatives.
2. The decision expands the constitutional powers of the President in a manner totally
repugnant to republican constitutional democracy, and is tantamount to a judicial amendment
of the Constitution without proper authority.
Comments
The Office of the Solicitor General (OSG) and the JBC separately represent in their respective
comments, thus:
OSG
1. The JBC may be compelled to submit to the President a short list of its nominees for the
position of Chief Justice.
2. The incumbent President has the power to appoint the next Chief Justice.
3. Section 15, Article VII does not apply to the Judiciary.
4. The principles of constitutional construction favor the exemption of the Judiciary from the
ban on midnight appointments. 1aw ph!1
5. The Court has the duty to consider and resolve all issues raised by the parties as well as
other related matters.
JBC
1. The consolidated petitions should have been dismissed for prematurity, because the JBC
has not yet decided at the time the petitions were filed whether the incumbent President has
the power to appoint the new Chief Justice, and because the JBC, having yet to interview the
candidates, has not submitted a short list to the President.
2. The statement in the decision that there is a doubt on whether a JBC short list is
necessary for the President to appoint a Chief Justice should be struck down as bereft of
constitutional and legal basis. The statement undermines the independence of the JBC.
3. The JBC will abide by the final decision of the Court, but in accord with its constitutional
mandate and its implementing rules and regulations.
For his part, petitioner Estelito P. Mendoza (A.M. No. 10-2-5-SC) submits his comment even if the
OSG and the JBC were the only ones the Court has required to do so. He states that the motions for
reconsideration were directed at the administrative matter he initiated and which the Court resolved.
His comment asserts:
1. The grounds of the motions for reconsideration were already resolved by the decision and
the separate opinion.
2. The administrative matter he brought invoked the Courts power of supervision over the
JBC as provided by Section 8(1), Article VIII of the Constitution, as distinguished from the
Courts adjudicatory power under Section 1, Article VIII. In the former, the requisites for
judicial review are not required, which was why Valenzuela was docketed as an
administrative matter. Considering that the JBC itself has yet to take a position on when to
submit the short list to the proper appointing authority, it has effectively solicited the exercise
by the Court of its power of supervision over the JBC.
3. To apply Section 15, Article VII to Section 4(1) and Section 9, Article VIII is to amend the
Constitution.
4. The portions of the deliberations of the Constitutional Commission quoted in the dissent of
Justice Carpio Morales, as well as in some of the motions for reconsideration do not refer to
either Section 15, Article VII or Section 4(1), Article VIII, but to Section 13, Article VII (on
nepotism).
Ruling
We deny the motions for reconsideration for lack of merit, for all the matters being thereby raised
and argued, not being new, have all been resolved by the decision of March 17, 2010.
Nonetheless, the Court opts to dwell on some matters only for the purpose of clarification and
emphasis.
First: Most of the movants contend that the principle of stare decisis is controlling, and accordingly
insist that the Court has erred in disobeying or abandoning Valenzuela.1
The contention has no basis.
Stare decisis derives its name from the Latin maxim stare decisis et non quieta movere, i.e., to
adhere to precedent and not to unsettle things that are settled. It simply means that a principle
underlying the decision in one case is deemed of imperative authority, controlling the decisions of
like cases in the same court and in lower courts within the same jurisdiction, unless and until the
decision in question is reversed or overruled by a court of competent authority. The decisions relied
upon as precedents are commonly those of appellate courts, because the decisions of the trial
courts may be appealed to higher courts and for that reason are probably not the best evidence of
the rules of law laid down. 2
Judicial decisions assume the same authority as a statute itself and, until authoritatively abandoned,
necessarily become, to the extent that they are applicable, the criteria that must control the
actuations, not only of those called upon to abide by them, but also of those duty-bound to enforce
obedience to them.3 In a hierarchical judicial system like ours, the decisions of the higher courts bind
the lower courts, but the courts of co-ordinate authority do not bind each other. The one highest
court does not bind itself, being invested with the innate authority to rule according to its best lights.4
The Court, as the highest court of the land, may be guided but is not controlled by precedent. Thus,
the Court, especially with a new membership, is not obliged to follow blindly a particular decision that
it determines, after re-examination, to call for a rectification.5 The adherence to precedents is strict
and rigid in a common-law setting like the United Kingdom, where judges make law as binding as an
Act of Parliament.6 But ours is not a common-law system; hence, judicial precedents are not always
strictly and rigidly followed. A judicial pronouncement in an earlier decision may be followed as a
precedent in a subsequent case only when its reasoning and justification are relevant, and the court
in the latter case accepts such reasoning and justification to be applicable to the case. The
application of the precedent is for the sake of convenience and stability.
For the intervenors to insist that Valenzuela ought not to be disobeyed, or abandoned, or reversed,
and that its wisdom should guide, if not control, the Court in this case is, therefore, devoid of
rationality and foundation. They seem to conveniently forget that the Constitution itself recognizes
the innate authority of the Court en banc to modify or reverse a doctrine or principle of law laid down
in any decision rendered en banc or in division.7
Second: Some intervenors are grossly misleading the public by their insistence that the
Constitutional Commission extended to the Judiciary the ban on presidential appointments during
the period stated in Section 15, Article VII.
The deliberations that the dissent of Justice Carpio Morales quoted from the records of the
Constitutional Commission did not concern either Section 15, Article VII or Section 4(1), Article VIII,
but only Section 13, Article VII, a provision on nepotism. The records of the Constitutional
Commission show that Commissioner Hilario G. Davide, Jr. had proposed to include judges and
justices related to the President within the fourth civil degree of consanguinity or affinity among the
persons whom the President might not appoint during his or her tenure. In the end, however,
Commissioner Davide, Jr. withdrew the proposal to include the Judiciary in Section 13, Article VII
"(t)o avoid any further complication,"8 such that the final version of the second paragraph of Section
13, Article VII even completely omits any reference to the Judiciary, to wit:
Section 13. xxx
The spouse and relatives by consanguinity or affinity within the fourth civil degree of the President
shall not during his tenure be appointed as Members of the Constitutional Commissions, or the
Office of the Ombudsman, or as Secretaries, Undersecretaries, chairmen or heads of bureaus or
offices, including government-owned or controlled corporations and their subsidiaries.
Last: The movants take the majority to task for holding that Section 15, Article VII does not apply to
appointments in the Judiciary. They aver that the Court either ignored or refused to apply many
principles of statutory construction.
The movants gravely err in their posture, and are themselves apparently contravening their avowed
reliance on the principles of statutory construction.
For one, the movants, disregarding the absence from Section 15, Article VII of the express extension
of the ban on appointments to the Judiciary, insist that the ban applied to the Judiciary under the
principle of verba legis. That is self-contradiction at its worst.
Another instance is the movants unhesitating willingness to read into Section 4(1) and Section 9,
both of Article VIII, the express applicability of the ban under Section 15, Article VII during the period
provided therein, despite the silence of said provisions thereon. Yet, construction cannot supply the
omission, for doing so would generally constitute an encroachment upon the field of the
Constitutional Commission. Rather, Section 4(1) and Section 9 should be left as they are, given that
their meaning is clear and explicit, and no words can be interpolated in them.9 Interpolation of words
is unnecessary, because the law is more than likely to fail to express the legislative intent with the
interpolation. In other words, the addition of new words may alter the thought intended to be
conveyed. And, even where the meaning of the law is clear and sensible, either with or without the
omitted word or words, interpolation is improper, because the primary source of the legislative intent
is in the language of the law itself.10
Thus, the decision of March 17, 2010 has fittingly observed:
Had the framers intended to extend the prohibition contained in Section 15, Article VII to the
appointment of Members of the Supreme Court, they could have explicitly done so. They could not
have ignored the meticulous ordering of the provisions. They would have easily and surely written
the prohibition made explicit in Section 15, Article VII as being equally applicable to the appointment
of Members of the Supreme Court in Article VIII itself, most likely in Section 4 (1), Article VIII. That
such specification was not done only reveals that the prohibition against the President or Acting
President making appointments within two months before the next presidential elections and up to
the end of the Presidents or Acting Presidents term does not refer to the Members of the Supreme
Court.
We cannot permit the meaning of the Constitution to be stretched to any unintended point in order to
suit the purposes of any quarter.
Final Word
It has been insinuated as part of the polemics attendant to the controversy we are resolving that
because all the Members of the present Court were appointed by the incumbent President, a
majority of them are now granting to her the authority to appoint the successor of the retiring Chief
Justice.
The insinuation is misguided and utterly unfair.
The Members of the Court vote on the sole basis of their conscience and the merits of the issues.
Any claim to the contrary proceeds from malice and condescension. Neither the outgoing President
nor the present Members of the Court had arranged the current situation to happen and to evolve as
it has. None of the Members of the Court could have prevented the Members composing the Court
when she assumed the Presidency about a decade ago from retiring during her prolonged term and
tenure, for their retirements were mandatory. Yet, she is now left with an imperative duty under the
Constitution to fill up the vacancies created by such inexorable retirements within 90 days from their
occurrence. Her official duty she must comply with. So must we ours who are tasked by the
Constitution to settle the controversy.
ACCORDINGLY, the motions for reconsideration are denied with finality.
SO ORDERED.
LUCAS P. BERSAMIN
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
ANTONIO T. CARPIO RENATO C. CORONA

Associate Justice Associate Justice
CONCHITA CARPIO MORALES PRESBITERO J. VELASCO, JR.

ANTONIO EDUARDO B. NACHURA TERESITA J. LEONARDO-DE CASTRO

ARTURO D. BRION DIOSDADO M. PERALTA

MARIANO C. DEL CASTILLO ROBERTO A. ABAD
MARTIN S. VILLARAMA, JR. JOSE PORTUGAL PEREZ

JOSE CATRAL MENDOZA

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in
the above Resolution had been reached in consultation before the case was assigned to the writer of
the opinion of the Court.
REYNATO S. PUNO
Chief Justice
Footnotes
1In Re Appointments Dated March 30, 1998 of Hon. Mateo A. Valenzuela and Hon. Placido
B. Vallarta as Judges of the Regional Trial Court of Branch 62, Bago City and of Branch 24,
Cabanatuan City, respectively, A.M. No. 98-5-01-SC, November 9, 1998, 298 SCRA 408.
2 Price & Bitner, Effective Legal Research, Little, Brown & Co., New York (1962), 9.7.
3 Caltex (Phil.), Inc. v. Palomar, No. L-19650, September 29, 1966, 18 SCRA 247
4 E.g., Dias, Jurisprudence, Butterworths, London, 1985, Fifth Edition, p. 127.
5Limketkai Sons Milling, Inc. v. Court of Appeals, G.R. No. 118509, September 5, 1996, 261
SCRA 464.
6 See Calabresi, A Common Law for the Age of Statutes, Harvard University Press, p. 4
(1982) and endnote 12 of the page, which essentially recounts that the strict application of
the doctrine of stare decisis is true only in a common-law jurisdiction like England (citing
Wise, The Doctrine of Stare Decisis, 21 Wayne Law Review, 1043, 1046-1047 (1975).
Calabresi recalls that the English House of Lords decided in 1898 (London Tramways Co. v.
London County Council, A.C. 375) that they could not alter precedents laid down by the
House of Lords acting as the supreme court in previous cases, but that such precedents
could only be altered by an Act of Parliament, for to do otherwise would mean that the courts
would usurp legislative function; he mentions that in 1966, Lord Chancellor Gardiner
announced in a Practice Statement a kind of general memorandum from the court that while:
"Their Lordships regard the use of precedent as an indispensable foundation upon which to
decide what is the law," they "nevertheless recognize that too rigid adherence to precedent
may lead to injustice in a particular case and also unduly restrict the proper development of
the law. They propose, therefore, to modify their present practice and, while treating former
decisions of this House as normally binding, to depart from a previous decision when it
appears right to do so." (Calabresi cites Leach, Revisionism in the House of Lords: The
Bastion of Rigid Stare Decisis Falls, 80 Harvard Law Review, 797 (1967).
7 Section 4 (2), Article VIII, provides:
xxx
(3) Cases or matters heard by a division shall be decided or resolved with the
concurrence of a majority of the Members who actually took part in the deliberations
on the issues in the case and voted thereon, and in no case, without the concurrence
of at least three of such Members. When the required number is not obtained, the
case shall be decided en banc; Provided, that no doctrine or principle of law laid
down by the court in a decision rendered en banc or in division may be modified or
reversed except by the court sitting en banc.
8Record of the 1986 Constitutional Commission, Vol. 2, July 31, 1986, RCC No. 44. pp. 542-
543.
9 Smith v. State, 66 Md. 215, 7 Atl. 49.
10 State ex rel Everding v. Simon, 20 Ore. 365, 26 Pac. 170.
The Lawphil Project - Arellano Law Foundation
DISSENTING OPINION
CARPIO MORALES, J.:
No compelling reason exists for the Court to deny a reconsideration of the assailed Decision. The
various motions for reconsideration raise hollering substantial arguments and legitimately nagging
questions which the Court must meet head on.
If this Court is to deserve or preserve its revered place not just in the hierarchy but also in history,
passion for reason demands the issuance of an extended and extensive resolution that confronts the
ramifications and repercussions of its assailed Decision. Only then can it offer an illumination that
any self-respecting student of the law clamors and any adherent of the law deserves. Otherwise, it
takes the risk of reeking of an objectionable air of supreme judicial arrogance.
It is thus imperative to settle the following issues and concerns:
Whether the incumbent President is constitutionally proscribed from appointing the

successor of Chief Justice Reynato S. Puno upon his retirement on May 17, 2010 until the
ban ends at 12:00 noon of June 30, 2010
1. In interpreting the subject constitutional provisions, the Decision disregarded established
canons of statutory construction. Without explaining the inapplicability of each of the relevant
rules, the Decision immediately placed premium on the arrangement and ordering of
provisions, one of the weakest tools of construction, to arrive at its conclusion.
2. In reversing Valenzuela, the Decision held that the Valenzuela dictum did not firmly rest on
ConCom deliberations, yet it did not offer to cite a material ConCom deliberation. It instead
opted to rely on the memory of Justice Florenz Regalado which incidentally mentioned only
the "Court of Appeals." The Decisions conclusion must rest on the strength of its own
favorable Concom deliberation, none of which to date has been cited.
3. Instead of choosing which constitutional provision carves out an exception from the other
provision, the most legally feasible interpretation (in the limited cases of temporary physical
or legal impossibility of compliance, as expounded in my Dissenting Opinion) is to consider
the appointments ban or other substantial obstacle as a temporary impossibility which
excuses or releases the constitutional obligation of the Office of the President for the
duration of the ban or obstacle.
In view of the temporary nature of the circumstance causing the impossibility of performance, the
outgoing President is released from non-fulfillment of the obligation to appoint, and the duty devolves
upon the new President. The delay in the fulfillment of the obligation becomes excusable, since the
law cannot exact compliance with what is impossible. The 90-day period within which to appoint a
member of the Court is thus suspended and the period could only start or resume to run when the
temporary obstacle disappears (i.e., after the period of the appointments ban; when there is already
a quorum in the JBC; or when there is already at least three applicants).
Whether the Judicial and Bar Council is obliged to submit to the President the shortlist of
nominees for the position of Chief Justice (or Justice of this Court) on or before the
occurrence of the vacancy.
1. The ruling in the Decision that obligates the JBC to submit the shortlist to the President on
or before the occurrence of the vacancy in the Court runs counter to the Concom
deliberations which explain that the 90-day period is allotted for both the nomination by the
JBC and the appointment by the President. In the move to increase the period to 90 days,
Commissioner Romulo stated that "[t]he sense of the Committee is that 60 days is awfully
short and that the [Judicial and Bar] Council, as well as the President, may have difficulties
with that."
2. To require the JBC to submit to the President a shortlist of nominees on or before the
occurrence of vacancy in the Court leads to preposterous results. It bears reiterating that the
requirement is absurd when, inter alia, the vacancy is occasioned by the death of a member
of the Court, in which case the JBC could never anticipate the death of a Justice, and could
never submit a list to the President on or before the occurrence of vacancy.
3. The express allowance in the Constitution of a 90-day period of vacancy in the

membership of the Court rebuts any public policy argument on avoiding a vacuum of even a
single day without a duly appointed Chief Justice. Moreover, as pointed out in my Dissenting
Opinion, the practice of having an acting Chief Justice in the interregnum is provided for by
law, confirmed by tradition, and settled by jurisprudence to be an internal matter.
The Resolution of the majority, in denying the present Motions for Reconsideration, failed to rebut
the foregoing crucial matters.
I, therefore, maintain my dissent and vote to GRANT the Motions for Reconsideration of the Decision
of March 17, 2010 insofar as it holds that the incumbent President is not constitutionally proscribed
from appointing the successor of Chief Justice Reynato S. Puno upon his retirement on May 17,
2010 until the ban ends at 12:00 noon of June 30, 2010 and that the Judicial and Bar Council is
obliged to submit to the President the shortlist of nominees for the position of Chief Justice on or
before May 17, 2010.
CONCHITA CARPIO MORALES

Associate Justice
The Lawphil Project - Arellano Law Foundation
CONCURRING AND DISSENTING OPINION
BRION, J.:
The Motions for Reconsideration
After sifting through the motions for reconsideration, I found that the arguments are largely the same
arguments that we have passed upon, in one form or another, in the various petitions. Essentially,
the issues boil down to justiciability; the conflict of constitutional provisions; the merits of the cited
constitutional deliberations; and the status and effect of the Valenzuela1 ruling. Even the motion for
reconsideration of the Philippine Bar Association (G.R. No. 191420), whose petition I did not
expressly touch upon in my Separate Opinion, basically dwells on these issues.
I have addressed most, if not all, of these issues and I submit my Separate Opinion2 as my basic
response to the motions for reconsideration, supplemented by the discussions below.
As I reflected in my Separate Opinion (which three other Justices joined),3 the election appointment
ban under Article VII, Section 15 of the Constitution should not apply to the appointment of Members
of the Supreme Court whose period for appointment is separately provided for under Article VIII,
Section 4(1). I shared this conclusion with the Courts Decision although our reasons differed on
some points.
I diverged fully from the Decision on the question of whether we should maintain or reverse our
ruling in Valenzuela. I maintained that it is still good law; no reason exists to touch the ruling as its
main focus the application of the election ban on the appointment of lower court judges under
Article VIII, Section 9 of the Constitution is not even an issue in the present case and was
discussed only because the petitions incorrectly cited the ruling as authority on the issue of the Chief
Justices appointment. The Decision proposed to reverse Valenzuela but only secured the support of
five (5) votes, while my Separate Opinion in support of Valenzuela had four (4) votes. Thus, on the
whole, the Decision did not prevail in reversing Valenzuela, as it only had five (5) votes in a field of
12 participating Members of the Court. Valenzuela should therefore remain, as of the filing of this
Opinion, as a valid precedent.
Acting on the present motions for reconsideration, I join the majority in denying the motions with
respect to the Chief Justice issue, although we differ in some respects on the reasons supporting the
denial. I dissent from the conclusion that the Valenzuela ruling should be reversed. My divergence
from the majoritys reasons and conclusions compels me to write this Concurring and Dissenting
Opinion.
The Basic Requisites / Justiciability
One marked difference between the Decision and my Separate Opinion is our approach on the basic
requisites/justiciability issues. The Decision apparently glossed over this aspect of the case, while I
fully explained why the De Castro4 and Peralta5 petitions should be dismissed outright. In my view,
these petitions violated the most basic requirements of their chosen medium for review a petition
for certiorari and mandamus under Rule 65 of the Rules of Court.
The petitions commonly failed to allege that the Judicial and Bar Council (JBC) performs judicial or
quasi-judicial functions, an allegation that the petitions could not really make, since the JBC does not
really undertake these functions and, for this reason, cannot be the subject of a petition for certiorari;
hence, the petitions should be dismissed outright. They likewise failed to facially show any failure or
refusal by the JBC to undertake a constitutional duty to justify the issuance of a writ of mandamus;
they invoked judicial notice that we could not give because there was, and is, no JBC refusal to
act.6 Thus, the mandamus aspects of these petitions should have also been dismissed outright. The
ponencia, unfortunately, failed to fully discuss these legal infirmities.
The motions for reconsideration lay major emphasis on the alleged lack of an actual case or
controversy that made the Chief Justices appointment a justiciable issue. They claim that the Court
cannot exercise the power of judicial review where there is no clash of legal rights and interests or
where this clash is merely anticipated, although the anticipated event shall come with certainty.7
What the movants apparently forgot, focused as they were on their respective petitions, is that the
present case is not a single-petition case that rises or falls on the strength of that single petition. The
present case involves various petitions and interventions,8 not necessarily pulling towards the same
direction, although each one is focused on the issue of whether the election appointment ban under
Article VII, Section 15 of the Constitution should apply to the appointment of the next Chief Justice of
the Supreme Court.
Among the petitions filed were those of Tolentino (G.R. No. 191342), Soriano (G.R. No. 191032) and
Mendoza (A.M. No. 10-2-5-SC). The first two are petitions for prohibition under Section 2 of Rule 65
of the Rules of Court.9While they commonly share this medium of review, they differ in their
supporting reasons. The Mendoza petition, on the other hand, is totally different it is a petition
presented as an administrative matter (A.M.) in the manner that the Valenzuela case was an A.M.
case. As I pointed out in the Separate Opinion, the Court uses the A.M. docket designation on
matters relating to its exercise of supervision over all courts and their personnel.10 I failed to note
then, but I make of record now, that court rules and regulations the outputs in the Courts
rulemaking function are also docketed as A.M. cases.
That an actual case or controversy involving a clash of rights and interests exists is immediately and
patently obvious in the Tolentino and Soriano petitions. At the time the petitions were filed, the JBC
had started its six-phase nomination process that would culminate in the submission of a list of
nominees to the President of the Philippines for appointive action. Tolentino and Soriano lawyers
and citizens with interest in the strict observance of the election ban sought to prohibit the JBC
from continuing with this process. The JBC had started to act, without any prodding from the Court,
because of its duty to start the nomination process but was hampered by the petitions filed and the
legal questions raised that only the Supreme Court can settle with finality.11 Thus, a clash of interests
based on law existed between the petitioners and the JBC. To state the obvious, a decision in favor
of Tolentino or Soriano would result in a writ of prohibition that would direct the JBC not to proceed
with the nomination process.
The Mendoza petition cited the effect of a complete election ban on judicial appointments (in view of
the already high level of vacancies and the backlog of cases) as basis, and submitted the question
as an administrative matter that the Court, in the exercise of its supervisory authority over the
Judiciary and the JBC itself, should act upon. At the same time, it cited the "public discourse and
controversy" now taking place because of the application of the election ban on the appointment of
the Chief Justice, pointing in this regard to the very same reasons mentioned in Valenzuela about
the need to resolve the issue and avoid the recurrence of conflict between the Executive and the
Judiciary, and the need to "avoid polemics concerning the matter."12
I recognized in the Separate Opinion that, unlike in Valenzuela where an outright defiance of the
election ban took place, no such obvious triggering event transpired in the Mendoza
petition.13 Rather, the Mendoza petition looked to the supervisory power of the Court over judicial
personnel and over the JBC as basis to secure a resolution of the election ban issue. The JBC, at
that time, had indicated its intent to look up to the Courts supervisory power and role as the final
interpreter of the Constitution to guide it in responding to the challenges it confronts.14 To me, this
was "a point no less critical, from the point of view of supervision, than the appointment of the two
judges during the election ban period in Valenzuela."15
In making this conclusion, I pointed out in my Separate Opinion the unavoidable surrounding
realities evident from the confluence of events, namely: (1) an election to be held on May 10, 2010;
(2) the retirement of the Chief Justice on May 17, 2010; (3) the lapse of the terms of the elective
officials from the President to the congressmen on June 30, 2010; (4) the delay before the Congress
can organize and send its JBC representatives; and (5) the expiration of the term of a non-elective
JBC member in July 2010.16 All these juxtaposed with the Courts supervision over the JBC, the
latters need for guidance, and the existence of an actual controversy on the same issues bedeviling
the JBC in my view, were sufficient to save the Mendoza petition from being a mere request for
opinion or a petition for declaratory relief that falls under the jurisdiction of the lower court. This
recognition is beyond the level of what this Court can do in handling a moot and academic case
usually, one that no longer presents a judiciable controversy but one that can still be ruled upon at
the discretion of the court when the constitutional issue is of paramount public interest and
controlling principles are needed to guide the bench, the bar and the public.17
To be sure, this approach in recognizing when a petition is actionable is novel. An overriding reason
for this approach can be traced to the nature of the petition, as it rests on the Courts supervisory
authority and relates to the exercise of the Courts administrative rather than its judicial functions
(other than these two functions, the Court also has its rulemaking function under Article VIII, Section
5(5) of the Constitution). Strictly speaking, the Mendoza petition calls for directions from the Court in
the exercise of its power of supervision over the JBC,18 not on the basis of the power of judicial
review.19 In this sense, it does not need the actual clash of interests of the type that a judicial
adjudication requires. All that must be shown is the active need for supervision to justify the Courts
intervention as supervising authority.
Under these circumstances, the Courts recognition of the Mendoza petition was not an undue
stretch of its constitutional powers. If the recognition is unusual at all, it is so only because of its
novelty; to my knowledge, this is the first time ever in Philippine jurisprudence that the supervisory
authority of the Court over an attached agency has been highlighted in this manner. Novelty, per se,
however, is not a ground for objection nor a mark of infirmity for as long as the novel move is
founded in law. In this case, as in the case of the writ of amparo and habeas data that were then
novel and avowedly activist in character, sufficient legal basis exists to actively invoke the Courts
supervisory authority granted under the Constitution, no less as basis for action.
To partly quote the wording of the Constitution, Article VIII, Section 8(1) and (5) provide that "A
Judicial and Bar Council is hereby created under the supervision of the Supreme Court It may
exercise such other functions and duties as the Supreme Court may assign to it." Supervision, as a
legal concept, more often than not, is defined in relation with the concept of control.20 In Social
Justice Society v. Atienza,21 we defined "supervision" as follows:
[Supervision] means overseeing or the power or authority of an officer to see that subordinate
officers perform their duties. If the latter fail or neglect to fulfill them, the former may take such action
or step as prescribed by law to make them perform their duties. Control, on the other hand, means
the power of an officer to alter or modify or nullify or set aside what a subordinate officer ha[s] done
in the performance of his duties and to substitute the judgment of the former for that of the latter.
Under this definition, the Court cannot dictate on the JBC the results of its assigned task, i.e., who to
recommend or what standards to use to determine who to recommend. It cannot even direct the JBC
on how and when to do its duty, but it can, under its power of supervision, direct the JBC to "take
such action or step as prescribed by law to make them perform their duties," if the duties are not
being performed because of JBCs fault or inaction, or because of extraneous factors affecting
performance. Note in this regard that, constitutionally, the Court can also assign the JBC other
functions and duties a power that suggests authority beyond what is purely supervisory.
Where the JBC itself is at a loss on how to proceed in light of disputed constitutional provisions that
require interpretation,22 the Court is not legally out of line as the final authority on the interpretation
of the Constitution and as the entity constitutionally-tasked to supervise the JBC in exercising its
oversight function by clarifying the interpretation of the disputed constitutional provision to guide the
JBC. In doing this, the Court is not simply rendering a general legal advisory; it is providing concrete
and specific legal guidance to the JBC in the exercise of its supervisory authority, after the latter has
asked for assistance in this regard. That the Court does this while concretely resolving actual
controversies (the Tolentino and Soriano petitions) on the same issue immeasurably strengthens the
intrinsic correctness of the Courts action.
It may be asked: why does the Court have to recognize the Mendoza petition when it can resolve the
conflict between Article VII, Section 15 and Article VIII, Section 4(1) through the Tolentino and
Soriano petitions?
The answer is fairly simple and can be read between the lines of the above explanation on the
relationship between the Court and the JBC. First, administrative is different from judicial function
and providing guidance to the JBC can only be appropriate in the discharge of the Courts
administrative function. Second, the resolution of the Tolentino and Soriano petitions will lead to
rulings directly related to the underlying facts of these petitions, without clear guidelines to the JBC
on the proper parameters to observe vis--vis the constitutional dispute along the lines the JBC
needs. In fact, concrete guidelines addressed to the JBC in the resolution of the Tolentino/Soriano
petitions may even lead to accusations that the Courts resolution is broader than is required by the
facts of the petitions. The Mendoza petition, because it pertains directly to the performance of the
JBCs duty and the Courts supervisory authority, allows the issuance of precise guidelines that will
enable the JBC to fully and seasonably comply with its constitutional mandate.
I hasten to add that the JBCs constitutional task is not as simple as some people think it to be. The
process of preparing and submitting a list of nominees is an arduous and time-consuming task that
cannot be done overnight. It is a six-step process lined with standards requiring the JBC to attract
the best available candidates, to examine and investigate them, to exhibit transparency in all its
actions while ensuring that these actions conform to constitutional and statutory standards (such as
the election ban on appointments), to submit the required list of nominees on time, and to ensure as
well that all these acts are politically neutral. On the time element, the JBC list for the Supreme Court
has to be submitted on or before the vacancy occurs given the 90-day deadline that the appointing
President is given in making the appointment. The list will be submitted, not to the President as an
outgoing President, nor to the election winner as an incoming President, but to the President of the
Philippines whoever he or she may be. If the incumbent President does not act on the JBC list within
the time left in her term, the same list shall be available to the new President for him to act upon. In
all these, the Supreme Court bears the burden of overseeing that the JBCs duty is done, unerringly
and with utmost dispatch; the Court cannot undertake this supervision in a manner consistent with
the Constitutions expectation from the JBC unless it adopts a pro-active stance within the limits of
its supervisory authority.
The Disputed Provisions
The movants present their arguments on the main issue at several levels. Some argue that the
disputed constitutional provisions Article VII, Section 15 and Article VIII, Section 4(1) are clear
and speak for themselves on what the Constitution covers in banning appointments during the
election period.23 One even posits that there is no conflict because both provisions can be given
effect without one detracting against the full effectiveness of the other,24 although the effect is to
deny the sitting President the option to appoint in favor of a deferment for the incoming Presidents
action. Still others, repeating their original arguments, appeal to the principles of interpretation and
latin maxims to prove their point.25
In my discussions in the Separate Opinion, I stated upfront my views on how the disputed provisions
interact with each other. Read singly and in isolation, they appear clear (this reading applies the
"plain meaning rule" that Tolentino advocates in his motion for reconsideration, as explained below).
Arrayed side by side with each other and considered in relation with the other provisions of the
Constitution, particularly its structure and underlying intents, the conflict however becomes obvious
and unavoidable.
Section 15 on its face disallows any appointment in clear negative terms ("shall not make") without
specifying the appointments covered by the prohibition.26 From this literal and isolated reading
springs the argument that no exception is provided (except that found in Section 15 itself) so that
even the Judiciary is covered by the ban on appointments.
On the other hand, Section 4(1) is likewise very clear and categorical in its terms: any vacancy in the
Court shall be filled within 90 days from its occurrence.27 In the way of Section 15, Section 4(1) is
also clear and categorical and provides no exception; the appointment refers solely to the Members
of the Supreme Court and does not mention any period that would interrupt, hold or postpone the
90-day requirement.
From this perspective, the view that no conflict exists cannot be seriously made, unless with the
mindset that one provision controls and the other should yield. Many of the petitions in fact advocate
this kind of reading, some of them openly stating that the power of appointment should be reserved
for the incoming President.28 The question, however, is whether from the viewpoint of strict law and
devoid of the emotionalism and political partisanship that permeate the present Philippine political
environment this kind of mindset can really be adopted in reading and applying the Constitution.
In my view, this kind of mindset and the conclusion it inevitably leads to cannot be adopted; the
provisions of the Constitution cannot be read in isolation from what the whole contains. To be exact,
the Constitution must be read and understood as a whole, reconciling and harmonizing apparently
conflicting provisions so that all of them can be given full force and effect,29 unless the Constitution
itself expressly states otherwise.30
Not to be forgotten in reading and understanding the Constitution are the many established
underlying constitutional principles that we have to observe and respect if we are to be true to the
Constitution. These principles among them the principles of checks and balances and separation
of powers are not always expressly stated in the Constitution, but no one who believes in and who
has studied the Constitution can deny that they are there and deserve utmost attention, respect, and
even priority consideration.
In establishing the structures of government, the ideal that the Constitution seeks to achieve is one
of balance among the three great departments of government the Executive, the Legislative and
the Judiciary, with each department undertaking its constitutionally-assigned task as a check against
the exercise of power by the others, while all three departments move forward in working for the
progress of the nation. Thus, the Legislature makes the laws and is supreme in this regard, in the
way that the Executive is supreme in enforcing and administering the law, while the Judiciary
interprets both the Constitution and the law. Any provision in each of the Articles on these three
departments31 that intrudes into the other must be closely examined if the provision affects and
upsets the desired balance.
Under the division of powers, the President as Chief Executive is given the prerogative of making
appointments, subject only to the legal qualification standards, to the checks provided by the
Legislatures Commission on Appointments (when applicable) and by the JBC for appointments in
the Judiciary, and to the Constitutions own limitations. Conflict comes in when the Constitution laid
down Article VII, Section 15 limiting the Presidents appointing power during the election period. This
limitation of power would have been all-encompassing and would, thus, have extended to all
government positions the President can fill, had the Constitution not inserted a provision, also on
appointments, in the Article on the Judiciary with respect to appointments to the Supreme Court.
This conflict gives rise to the questions: which provision should prevail, or should both be given
effect? Or should both provisions yield to a higher concern the need to maintain the integrity of our
elections?
A holistic reading of the Constitution a must in constitutional interpretation dictates as a general

rule that the tasks assigned to each department and their limitations should be given full effect to
fulfill the constitutional purposes under the check and balance principle, unless the Constitution itself
expressly indicates its preference for one task, concern or standard over the others,32 or unless this
Court, in its role as interpreter of the Constitution, has spoken on the appropriate interpretation that
should be made.33
In considering the interests of the Executive and the Judiciary, a holistic approach starts from the
premise that the constitutional scheme is to grant the President the power of appointment, subject to
the limitation provided under Article VII, Section 15. At the same time, the Judiciary is assured,
without qualifications under Article VIII, Section 4(1), of the immediate appointment of Members of
the Supreme Court, i.e., within 90 days from the occurrence of the vacancy. If both provisions would
be allowed to take effect, as I believe they should, the limitation on the appointment power of the
President under Article VII, Section 15 should itself be limited by the appointment of Members of the
Court pursuant to Article VIII, Section 4(1), so that the provision applicable to the Judiciary can be
given full effect without detriment to the Presidents appointing authority. This harmonization will
result in restoring to the President the full authority to appoint Members of the Supreme Court
pursuant to the combined operation of Article VII, Section 15 and Article VIII, Section 4(1).
Viewed in this light, there is essentially no conflict, in terms of the authority to appoint, between the
Executive and Judiciary; the President would effectively be allowed to exercise the Executives
traditional presidential power of appointment while respecting the Judiciarys own prerogative. In
other words, the President retains full powers to appoint Members of the Court during the election
period, and the Judiciary is assured of a full membership within the time frame given.
Interestingly, the objection to the full application of Article VIII, Section 4(1) comes, not from the
current President, but mainly from petitioners echoing the present presidential candidates, one of
whom shall soon be the incoming President. They do not, of course, cite reasons of power and the
loss of the opportunity to appoint the Chief Justice; many of the petitioners/intervenors oppose the
full application of Article VIII, Section 4(1) based on the need to maintain the integrity of the elections
through the avoidance of a "midnight appointment."
This "integrity" reason is a given in a democracy and can hardly be opposed on the theoretical plane,
as the integrity of the elections must indeed prevail in a true democracy. The statement, however,
begs a lot of questions, among them the question of whether the appointment of a full Court under
the terms of Article VIII, Section 4(1) will adversely affect or enhance the integrity of the elections.
In my Separate Opinion, I concluded that the appointment of a Member of the Court even during the
election period per se implies no adverse effect on the integrity of the election; a full Court is ideal
during this period in light of the Courts unique role during elections. I maintain this view and fully
concur in this regard with the majority.
During the election period, the court is not only the interpreter of the Constitution and the election
laws; other than the Commission on Elections and the lower courts to a limited extent, the Court is
likewise the highest impartial recourse available to decisively address any problem or dispute arising
from the election. It is the leader and the highest court in the Judiciary, the only one of the three
departments of government directly unaffected by the election. The Court is likewise the entity
entrusted by the Constitution, no less, with the gravest election-related responsibilities. In particular,
it is the sole judge of all contests in the election of the President and the Vice-President, with
leadership and participation as well in the election tribunals that directly address Senate and House
of Representatives electoral disputes. With this grant of responsibilities, the Constitution itself has
spoken on the trust it reposes on the Court on election matters. This reposed trust, to my mind,
renders academic any question of whether an appointment during the election period will adversely
affect the integrity of the elections it will not, as the maintenance of a full Court in fact contributes
to the enforcement of the constitutional scheme to foster a free and orderly election.
In reading the motions for reconsideration against the backdrop of the partisan political noise of the
coming elections, one cannot avoid hearing echoes from some of the arguments that the objection is
related, more than anything else, to their lack of trust in an appointment to be made by the
incumbent President who will soon be bowing out of office. They label the incumbent Presidents act
as a "midnight appointment" a term that has acquired a pejorative meaning in contemporary
society.
As I intimated in my Separate Opinion, the imputation of distrust can be made against any
appointing authority, whether outgoing or incoming. The incoming President himself will be before
this Court if an election contest arises; any President, past or future, would also naturally wish
favorable outcomes in legal problems that the Court would resolve. These possibilities and the
potential for continuing influence in the Court, however, cannot be active considerations in resolving
the election ban issue as they are, in their present form and presentation, all speculative. If past
record is to be the measure, the record of past Chief Justices and of this Court speaks for itself with
respect to the Justices relationship with, and deferral to, the appointing authority in their decisions.
What should not be forgotten in examining the records of the Court, from the prism of problems an
electoral exercise may bring, is the Courts unique and proven capacity to intervene and diffuse
situations that are potentially explosive for the nation. EDSA II particularly comes to mind in this
regard (although it was an event that was not rooted in election problems) as it is a perfect example
of the potential for damage to the nation that the Court can address and has addressed. When
acting in this role, a vacancy in the Court is not only a vote less, but a significant contribution less in
the Courts deliberations and capacity for action, especially if the missing voice is the voice of the
Chief Justice.
Be it remembered that if any EDSA-type situation arises in the coming elections, it will be
compounded by the lack of leaders because of the lapse of the Presidents term by June 30, 2010;
by a possible failure of succession if for some reason the election of the new leadership becomes
problematic; and by the similar absence of congressional leadership because Congress has not yet
convened to organize itself.34 In this scenario, only the Judiciary of the three great departments of
government stands unaffected by the election and should at least therefore be complete to enable it
to discharge its constitutional role to its fullest potential and capacity. To state the obvious, leaving
the Judiciary without any permanent leader in this scenario may immeasurably complicate the
problem, as all three departments of government will then be leaderless.
To stress what I mentioned on this point in my Separate Opinion, the absence of a Chief Justice will
make a lot of difference in the effectiveness of the Court as he or she heads the Judiciary, sits as
Chair of the JBC and of the Presidential Electoral Tribunal, presides over impeachment proceedings,
and provides the moral suasion and leadership that only the permanent mantle of the Chief Justice
can bestow. EDSA II is just one of the many lessons from the past when the weightiest of issues
were tackled and promptly resolved by the Court. Unseen by the general public in all these was the
leadership that was there to ensure that the Court would act as one, in the spirit of harmony and
stability although divergent in their individual views, as the Justices individually make their
contributions to the collegial result. To some, this leadership may only be symbolic, as the Court has
fully functioned in the past even with an incomplete membership or under an Acting Chief Justice.
But as I said before, an incomplete Court "is not a whole Supreme Court; it will only be a Court with
14 members who would act and vote on all matters before it." To fully recall what I have said on this
matter:
The importance of the presence of one Member of the Court can and should never be
underestimated, particularly on issues that may gravely affect the nation. Many a case has been won
or lost on the basis of one vote. On an issue of the constitutionality of a law, treaty or statute, a tie
vote which is possible in a 14 member court means that the constitutionality is upheld. This was
our lesson in Isagani Cruz v. DENR Secretary.
More than the vote, Court deliberation is the core of the decision-making process and one voice is
less is not only a vote less but a contributed opinion, an observation, or a cautionary word less for
the Court. One voice can be a big difference if the missing voice is that of the Chief Justice.
Without meaning to demean the capability of an Acting Chief Justice, the ascendancy in the Court of
a permanent sitting Chief Justice cannot be equaled. He is the first among equals a primus inter
pares who sets the tone for the Court and the Judiciary, and who is looked up to on all matters,
whether administrative or judicial. To the world outside the Judiciary, he is the personification of the
Court and the whole Judiciary. And this is not surprising since, as Chief Justice, he not only chairs
the Court en banc, but chairs as well the Presidential Electoral Tribunal that sits in judgment over
election disputes affecting the President and the Vice-President. Outside of his immediate Court
duties, he sits as Chair of the Judicial and Bar Council, the Philippine Judicial Academy and, by
constitutional command, presides over the impeachment of the President. To be sure, the Acting
Chief Justice may be the ablest, but he is not the Chief Justice without the mantle and permanent
title of the Office, and even his presence as Acting Chief Justice leaves the Court with one member
less. Sadly, this member is the Chief Justice; even with an Acting Chief Justice, the Judiciary and
the Court remains headless. 35
Given these views, I see no point in re-discussing the finer points of technical interpretation and their
supporting latin maxims that I have addressed in my Separate Opinion and now feel need no further
elaboration; maxims can be found to serve a pleaders every need and in any case are the last
interpretative tools in constitutional interpretation. Nor do I see any point in discussing arguments
based on the intent of the framers of the Constitution now cited by the parties in the contexts that
would serve their own ends. As may be evident in these discussions, other than the texts of the
disputed provisions, I prefer to examine their purposes and the consequences of their application,
understood within the context of democratic values. Past precedents are equally invaluable for the
lead, order, and stability they contribute, but only if they are in point, certain, and still alive to current
realities, while the history of provisions, including the intents behind them, are primarily important to
ascertain the purposes the provisions serve.
From these perspectives and without denigrating the framers historical contributions, I say that it is
the Constitution that now primarily speaks to us in this case and what we hear are its direct words,
not merely the recorded isolated debates reflecting the personal intents of the constitutional
commissioners as cited by the parties to fit their respective theories. The voice speaking the words
of the Constitution is our best guide, as these words will unalterably be there for us to read in the
context of their purposes and the nations needs and circumstances. This Concurring and Dissenting
Opinion hears and listens to that voice.
The Valenzuela Decision
The ponencias ruling reversing Valenzuela, in my view, is out of place in the present case, since at
issue here is the appointment of the Chief Justice during the period of the election ban, not the
appointment of lower court judges that Valenzuela resolved. To be perfectly clear, the conflict in the
constitutional provisions is not confined to Article VII, Section 15 and Article VIII, Section 4(1) with
respect to the appointment of Members of the Supreme Court; even before the Valenzuela ruling,
the conflict already existed between Article VII, Section 15 and Article VIII, Section 9 the provision
on the appointment of the justices and judges of courts lower than the Supreme Court. After this
Courts ruling in Valenzuela, no amount of hairsplitting can result in the conclusion that Article VII,
Section 15 applied the election ban over the whole Judiciary, including the Supreme Court, as the
facts and the fallo of Valenzuela plainly spoke of the objectionable appointment of two Regional Trial
Court judges. To reiterate, Valenzuela only resolved the conflict between Article VII, Section 15 and
appointments to the Judiciary under Article VIII, Section 9.
If Valenzuela did prominently figure at all in the present case, the prominence can be attributed to
the petitioners mistaken reading that this case is primary authority for the dictum that Article VII,
Section 15 completely bans all appointments to the Judiciary, including appointments to the
Supreme Court, during the election period up to the end of the incumbent Presidents term.
In reality, this mistaken reading is an obiter dictum in Valenzuela, and hence, cannot be cited for its
primary precedential value. This legal situation still holds true as Valenzuela was not doctrinally
reversed as its proposed reversal was supported only by five (5) out of the 12 participating Members
of the Court. In other words, this ruling on how Article VII, Section 15 is to be interpreted in relation
with Article VIII, Section 9, should continue to stand unless otherwise expressly reversed by this
Court.
But separately from the mistaken use of an obiter ruling as primary authority, I believe that I should
sound the alarm bell about the Valenzuela ruling in light of a recent vacancy in the position of
Presiding Justice of the Sandiganbayan resulting from Presiding Justice Norberto Geraldezs death
soon after we issued the decision in the present case. Reversing the Valenzuela ruling now, in the
absence of a properly filed case addressing an appointment at this time to the Sandiganbayan or to
any other vacancy in the lower courts, will be an irregular ruling of the first magnitude by this Court,
as it will effectively be a shortcut that lifts the election ban on appointments to the lower courts
without the benefit of a case whose facts and arguments would directly confront the continued
validity of the Valenzuela ruling. This is especially so after we have placed the Court on notice that a
reversal of Valenzuela is uncalled for because its ruling is not the litigated issue in this case.
In any case, let me repeat what I stressed in my Separate Opinion about Valenzuela which rests on
the reasoning that the evils Section 15 seeks to remedy vote buying, midnight appointments and
partisan reasons to influence the elections exist, thus justifying an election appointment ban. In
particular, the "midnight appointment" justification, while fully applicable to the more numerous
vacancies at the lower echelons of the Judiciary (with an alleged current lower court vacancy level of
537 or a 24.5% vacancy rate), should not apply to the Supreme Court which has only a total of 15
positions that are not even vacated at the same time. The most number of vacancies for any one
year occurred only last year (2009) when seven (7) positions were vacated by retirement, but this
vacancy rate is not expected to be replicated at any time within the next decade. Thus "midnight
appointments" to the extent that they were understood in Aytona36 will not occur in the vacancies of
this Court as nominations to its vacancies are all processed through the JBC under the publics close
scrutiny. As already discussed above, the institutional integrity of the Court is hardly an issue. If at
all, only objections personal to the individual Members of the Court or against the individual
applicants can be made, but these are matters addressed in the first place by the JBC before
nominees are submitted. There, too, are specific reasons, likewise discussed above, explaining why
the election ban should not apply to the Supreme Court. These exempting reasons, of course, have
yet to be shown to apply to the lower courts. Thus, on the whole, the reasons justifying the election
ban in Valenzuela still obtain in so far as the lower courts are concerned, and have yet to be proven
otherwise in a properly filed case. Until then, Valenzuela, except to the extent that it mentioned
Section 4(1), should remain an authoritative ruling of this Court.
CONCLUSION
In light of these considerations, a writ of prohibition cannot issue to prevent the JBC from performing
its principal function, under the Constitution, of recommending nominees for the position of Chief
Justice. Thus, I vote to deny with finality the Tolentino and Soriano motions for reconsideration.
The other motions for reconsideration in so far as they challenge the conclusion that the President
can appoint the Chief Justice even during the election period are likewise denied with finality for lack
of merit, but are granted in so far as they support the continued validity of the ruling of this Court in
In Re: Valenzuela and Vallarta, A.M. No. 98-5-01-SC, November 9, 1998.
My opinion on the Mendoza petition stands.
G.R. No. 176951 November 18, 2008
LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP

National President JERRY P. TREAS, CITY OF ILOILO represented by
MAYOR JERRY P. TREAS, CITY OF CALBAYOG represented by
MAYOR MEL SENEN S. SARMIENTO, and JERRY P. TREAS in his
personal capacity as taxpayer, petitioners,
vs.
COMMISSION ON ELECTIONS; MUNICIPALITY OF BAYBAY, PROVINCE
OF LEYTE; MUNICIPALITY OF BOGO, PROVINCE OF CEBU;
MUNICIPALITY OF CATBALOGAN, PROVINCE OF WESTERN SAMAR;
MUNICIPALITY OF TANDAG, PROVINCE OF SURIGAO DEL SUR;
MUNICIPALITY OF BORONGAN, PROVINCE OF EASTERN SAMAR; and
MUNICIPALITY OF TAYABAS, PROVINCE OF QUEZON, respondents.
CITY OF TARLAC, CITY OF SANTIAGO, CITY OF IRIGA, CITY OF LIGAO,
CITY OF LEGAZPI, CITY OF TAGAYTAY, CITY OF SURIGAO, CITY OF
BAYAWAN, CITY OF SILAY, CITY OF GENERAL SANTOS, CITY OF
ZAMBOANGA, CITY OF GINGOOG, CITY OF CAUAYAN, CITY OF
PAGADIAN, CITY OF SAN CARLOS, CITY OF SAN FERNANDO, CITY OF
TACURONG, CITY OF TANGUB, CITY OF OROQUIETA, CITY OF
URDANETA, CITY OF VICTORIAS, CITY OF CALAPAN, CITY OF
HIMAMAYLAN, CITY OF BATANGAS, CITY OF BAIS, CITY OF CADIZ, and
CITY OF TAGUM, petitioners-in-intervention.
x-----------------------------x
G.R. No. 177499 November 18, 2008

personal capacity as taxpayer, petitioners,
vs.
COMMISSION ON ELECTIONS; MUNICIPALITY OF LAMITAN, PROVINCE
OF BASILAN; MUNICIPALITY OF TABUK, PROVINCE OF KALINGA;
MUNICIPALITY OF BAYUGAN, PROVINCE OF AGUSAN DEL SUR;
MUNICIPALITY OF BATAC, PROVINCE OF ILOCOS NORTE;
MUNICIPALITY OF MATI, PROVINCE OF DAVAO ORIENTAL; and
MUNICIPALITY OF GUIHULNGAN, PROVINCE OF NEGROS
ORIENTAL, respondents.
x - - - - - - - - - - - - - - - - - - - - - - - - - - --x
G.R. No. 178056 November 18, 2008

personal capacity as taxpayer, petitioners
vs.
COMMISSION ON ELECTIONS; MUNICIPALITY OF CABADBARAN,
PROVINCE OF AGUSAN DEL NORTE; MUNICIPALITY OF CARCAR,
PROVINCE OF CEBU; and MUNICIPALITY OF EL SALVADOR, MISAMIS
ORIENTAL, respondents.
DECISION
CARPIO, J.:
The Case
These are consolidated petitions for prohibition1 with prayer for the issuance
of a writ of preliminary injunction or temporary restraining order filed by the
League of Cities of the Philippines, City of Iloilo, City of Calbayog, and Jerry
P. Treas2 assailing the constitutionality of the subject Cityhood Laws and
enjoining the Commission on Elections (COMELEC) and respondent
municipalities from conducting plebiscites pursuant to the Cityhood Laws.
The Facts
During the 11th Congress,3 Congress enacted into law 33 bills converting 33
municipalities into cities. However, Congress did not act on bills converting 24
other municipalities into cities.
During the 12th Congress,4 Congress enacted into law Republic Act No. 9009
(RA 9009),5 which took effect on 30 June 2001. RA 9009 amended Section
450 of the Local Government Code by increasing the annual income
requirement for conversion of a municipality into a city from P20 million
to P100 million. The rationale for the amendment was to restrain, in the words
of Senator Aquilino Pimentel, "the mad rush" of municipalities to convert into
cities solely to secure a larger share in the Internal Revenue Allotment despite
the fact that they are incapable of fiscal independence.6
After the effectivity of RA 9009, the House of Representatives of the

12th Congress7 adopted Joint Resolution No. 29,8 which sought to exempt
from the P100 million income requirement in RA 9009 the 24 municipalities
whose cityhood bills were not approved in the 11th Congress. However, the
12thCongress ended without the Senate approving Joint Resolution No. 29.
During the 13th Congress,9 the House of Representatives re-adopted Joint

Resolution No. 29 as Joint Resolution No. 1 and forwarded it to the Senate for
approval. However, the Senate again failed to approve the Joint Resolution.
Following the advice of Senator Aquilino Pimentel, 16 municipalities filed,
through their respective sponsors, individual cityhood bills. The 16 cityhood
bills contained a common provision exempting all the 16 municipalities from
the P100 million income requirement in RA 9009.
On 22 December 2006, the House of Representatives approved the cityhood

bills. The Senate also approved the cityhood bills in February 2007, except
that of Naga, Cebu which was passed on 7 June 2007. The cityhood bills
lapsed into law (Cityhood Laws10) on various dates from March to July 2007
without the President's signature.11
The Cityhood Laws direct the COMELEC to hold plebiscites to determine

whether the voters in each respondent municipality approve of the conversion
of their municipality into a city.
Petitioners filed the present petitions to declare the Cityhood Laws

unconstitutional for violation of Section 10, Article X of the Constitution, as
well as for violation of the equal protection clause.12Petitioners also lament
that the wholesale conversion of municipalities into cities will reduce the share
of existing cities in the Internal Revenue Allotment because more cities will
share the same amount of internal revenue set aside for all cities under
Section 285 of the Local Government Code.13
The Issues
The petitions raise the following fundamental issues:
1. Whether the Cityhood Laws violate Section 10, Article X of the

Constitution; and
2. Whether the Cityhood Laws violate the equal protection clause.
The Ruling of the Court
We grant the petitions.
The Cityhood Laws violate Sections 6 and 10, Article X of the Constitution,
and are thus unconstitutional.
First, applying the P100 million income requirement in RA 9009 to the present
case is a prospective, not a retroactive application, because RA 9009 took
effect in 2001 while the cityhood bills became law more than five years later.
Second, the Constitution requires that Congress shall prescribe all the criteria
for the creation of a city in the Local Government Code and not in any other
law, including the Cityhood Laws.
Third, the Cityhood Laws violate Section 6, Article X of the Constitution

because they prevent a fair and just distribution of the national taxes to local
government units.
Fourth, the criteria prescribed in Section 450 of the Local Government Code,
as amended by RA 9009, for converting a municipality into a city are clear,
plain and unambiguous, needing no resort to any statutory construction.
Fifth, the intent of members of the 11th Congress to exempt certain

municipalities from the coverage of RA 9009 remained an intent and was
never written into Section 450 of the Local Government Code.
Sixth, the deliberations of the 11th or 12th Congress on unapproved bills or

resolutions are not extrinsic aids in interpreting a law passed in the
13th Congress.
Seventh, even if the exemption in the Cityhood Laws were written in Section
450 of the Local Government Code, the exemption would still be
unconstitutional for violation of the equal protection clause.
Preliminary Matters
Prohibition is the proper action for testing the constitutionality of laws

administered by the COMELEC,14 like the Cityhood Laws, which direct the
COMELEC to hold plebiscites in implementation of the Cityhood Laws.
Petitioner League of Cities of the Philippines has legal standing because
Section 499 of the Local Government Code tasks the League with the
"primary purpose of ventilating, articulating and crystallizing issues affecting
city government administration and securing, through proper and legal means,
solutions thereto."15 Petitioners-in-intervention,16 which are existing cities,
have legal standing because their Internal Revenue Allotment will be reduced
if the Cityhood Laws are declared constitutional. Mayor Jerry P. Treas has
legal standing because as Mayor of Iloilo City and as a taxpayer he has
sufficient interest to prevent the unlawful expenditure of public funds, like the
release of more Internal Revenue Allotment to political units than what the law
allows.
Applying RA 9009 is a Prospective Application of the Law
RA 9009 became effective on 30 June 2001 during the 11th Congress. This
law specifically amended Section 450 of the Local Government Code, which
now provides:
Section 450. Requisites for Creation. (a) A municipality or a cluster of

barangays may be converted into a component city if it has a locally
generated average annual income, as certified by the Department of
Finance, of at least One hundred million pesos (P100,000,000.00)
for the last two (2) consecutive years based on 2000 constant
prices, and if it has either of the following requisites:
(i) a contiguous territory of at least one hundred (100) square

kilometers, as certified by the Land Management Bureau; or
(ii) a population of not less than one hundred fifty thousand

(150,000) inhabitants, as certified by the National Statistics Office.
The creation thereof shall not reduce the land area, population and
income of the original unit or units at the time of said creation to less
than the minimum requirements prescribed herein.
(b) The territorial jurisdiction of a newly-created city shall be properly

identified by metes and bounds. The requirement on land area shall not
apply where the city proposed to be created is composed of one (1) or
more islands. The territory need not be contiguous if it comprises two
(2) or more islands.
(c) The average annual income shall include the income accruing to the
general fund, exclusive of special funds, transfers, and non-recurring
income. (Emphasis supplied)
Thus, RA 9009 increased the income requirement for conversion of a

municipality into a city from P20 million to P100 million. Section 450 of the
Local Government Code, as amended by RA 9009, does not provide any
exemption from the increased income requirement.
Prior to the enactment of RA 9009, a total of 57 municipalities had cityhood

bills pending in Congress. Thirty-three cityhood bills became law before the
enactment of RA 9009. Congress did not act on 24 cityhood bills during
the 11th Congress.
During the 12th Congress, the House of Representatives adopted Joint

Resolution No. 29, exempting from the income requirement of P100 million in
RA 9009 the 24 municipalities whose cityhood bills were not acted upon
during the 11th Congress. This Resolution reached the Senate. However, the
12th Congress adjourned without the Senate approving Joint Resolution
No. 29.
During the 13th Congress, 16 of the 24 municipalities mentioned in the

unapproved Joint Resolution No. 29 filed between November and December
of 2006, through their respective sponsors in Congress, individual cityhood
bills containing a common provision, as follows:
Exemption from Republic Act No. 9009. - The City of x x x shall be

exempted from the income requirement prescribed under Republic Act
No. 9009.
This common provision exempted each of the 16 municipalities from the

income requirement of P100 million prescribed in Section 450 of the
Local Government Code, as amended by RA 9009. These cityhood bills
lapsed into law on various dates from March to July 2007 after President
Gloria Macapagal-Arroyo failed to sign them.
Indisputably, Congress passed the Cityhood Laws long after the effectivity
of RA 9009. RA 9009 became effective on 30 June 2001 or during the
11th Congress. The 13th Congress passed in December 2006 the cityhood
bills which became law only in 2007. Thus, respondent municipalities
cannot invoke the principle of non-retroactivity of laws.17 This basic rule has
no application because RA 9009, an earlier law to the Cityhood Laws, is not
being applied retroactively but prospectively.
Congress Must Prescribe in the Local Government Code All Criteria
Section 10, Article X of the 1987 Constitution provides:
No province, city, municipality, or barangay shall be created, divided,

merged, abolished or its boundary substantially altered, except in
accordance with the criteria established in the local government
code and subject to approval by a majority of the votes cast in a
plebiscite in the political units directly affected. (Emphasis supplied)
The Constitution is clear. The creation of local government units must follow
the criteria established in the Local Government Code and not in any
other law. There is only one Local Government Code.18 The Constitution
requires Congress to stipulate in the Local Government Code all the criteria
necessary for the creation of a city, including the conversion of a municipality
into a city. Congress cannot write such criteria in any other law, like the
Cityhood Laws.
The criteria prescribed in the Local Government Code govern exclusively the
creation of a city. No other law, not even the charter of the city, can govern
such creation. The clear intent of the Constitution is to insure that the creation
of cities and other political units must follow the same uniform, non-
discriminatory criteria found solely in the Local Government Code. Any
derogation or deviation from the criteria prescribed in the Local Government
Code violates Section 10, Article X of the Constitution.
RA 9009 amended Section 450 of the Local Government Code to increase the
income requirement from P20 million to P100 million for the creation of a
city. This took effect on 30 June 2001. Hence, from that moment the
Local Government Code required that any municipality desiring to
become a city must satisfy the P100 million income requirement. Section
450 of the Local Government Code, as amended by RA 9009, does not
contain any exemption from this income requirement.
In enacting RA 9009, Congress did not grant any exemption to respondent

municipalities, even though their cityhood bills were pending in Congress
when Congress passed RA 9009. The Cityhood Laws, all enacted after the
effectivity of RA 9009, explicitly exempt respondent municipalities from the
increased income requirement in Section 450 of the Local Government Code,
as amended by RA 9009. Such exemption clearly violates Section 10,
Article X of the Constitution and is thus patently unconstitutional. To be
valid, such exemption must be written in the Local Government Code
and not in any other law, including the Cityhood Laws.
Cityhood Laws Violate Section 6, Article X of the Constitution
Uniform and non-discriminatory criteria as prescribed in the Local Government

Code are essential to implement a fair and equitable distribution of national
taxes to all local government units. Section 6, Article X of the Constitution
provides:
Local government units shall have a just share, as determined by law,

in the national taxes which shall be automatically released to them.
(Emphasis supplied)
If the criteria in creating local government units are not uniform and
discriminatory, there can be no fair and just distribution of the national taxes to
local government units.
A city with an annual income of only P20 million, all other criteria being equal,
should not receive the same share in national taxes as a city with an annual
income of P100 million or more. The criteria of land area, population and
income, as prescribed in Section 450 of the Local Government Code, must be
strictly followed because such criteria, prescribed by law, are material in
determining the "just share" of local government units in national taxes. Since
the Cityhood Laws do not follow the income criterion in Section 450 of the
Local Government Code, they prevent the fair and just distribution of the
Internal Revenue Allotment in violation of Section 6, Article X of the
Constitution.
Section 450 of the Local Government Code is Clear,

Plain and Unambiguous
There can be no resort to extrinsic aids like deliberations of Congress if
the language of the law is plain, clear and unambiguous. Courts determine the
intent of the law from the literal language of the law, within the law's four
corners.19 If the language of the law is plain, clear and unambiguous, courts
simply apply the law according to its express terms. If a literal application of
the law results in absurdity, impossibility or injustice, then courts may resort to
extrinsic aids of statutory construction like the legislative history of the law.20
Congress, in enacting RA 9009 to amend Section 450 of the Local

Government Code, did not provide any exemption from the increased income
requirement, not even to respondent municipalities whose cityhood bills were
then pending when Congress passed RA 9009. Section 450 of the Local
Government Code, as amended by RA 9009, contains no exemption
whatsoever. Since the law is clear, plain and unambiguous that any
municipality desiring to convert into a city must meet the increased income
requirement, there is no reason to go beyond the letter of the law in applying
Section 450 of the Local Government Code, as amended by RA 9009.
The 11th Congress' Intent was not Written into the Local Government
Code
True, members of Congress discussed exempting respondent municipalities

from RA 9009, as shown by the various deliberations on the matter during the
11th Congress. However, Congress did not write this intended exemption into
law. Congress could have easily included such exemption in RA 9009 but
Congress did not. This is fatal to the cause of respondent municipalities
because such exemption must appear in RA 9009 as an amendment to
Section 450 of the Local Government Code. The Constitution requires that the
criteria for the conversion of a municipality into a city, including any exemption
from such criteria, must all be written in the Local Government Code.
Congress cannot prescribe such criteria or exemption from such criteria in any
other law. In short, Congress cannot create a city through a law that does
not comply with the criteria or exemption found in the Local Government
Code.
Section 10 of Article X is similar to Section 16, Article XII of the Constitution

prohibiting Congress from creating private corporations except by a general
law. Section 16 of Article XII provides:
The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and
subject to the test of economic viability. (Emphasis supplied)
Thus, Congress must prescribe all the criteria for the "formation, organization,
or regulation" of private corporations in a general law applicable to all
without discrimination.21 Congress cannot create a private corporation
through a special law or charter.
Deliberations of the 11th Congress on Unapproved Bills Inapplicable
Congress is not a continuing body.22 The unapproved cityhood bills filed

during the 11th Congress became mere scraps of paper upon the adjournment
of the 11th Congress. All the hearings and deliberations conducted during the
11th Congress on unapproved bills also became worthless upon the
adjournment of the 11th Congress. These hearings and deliberations
cannot be used to interpret bills enacted into law in the 13th or
subsequent Congresses.
The members and officers of each Congress are different. All unapproved bills
filed in one Congress become functus officio upon adjournment of that
Congress and must be re-filed anew in order to be taken up in the next
Congress. When their respective authors re-filed the cityhood bills in 2006
during the 13th Congress, the bills had to start from square one again, going
through the legislative mill just like bills taken up for the first time, from the
filing to the approval. Section 123, Rule XLIV of the Rules of the Senate, on
Unfinished Business, provides:
Sec. 123. x x x
All pending matters and proceedings shall terminate upon the

expiration of one (1) Congress, but may be taken by the succeeding
Congress as if presented for the first time. (Emphasis supplied)
Similarly, Section 78 of the Rules of the House of Representatives, on

Unfinished Business, states:
Section 78. Calendar of Business. The Calendar of Business shall

consist of the following:
a. Unfinished Business. This is business being considered by the

House at the time of its last adjournment. Its consideration shall
be resumed until it is disposed of. The Unfinished Business at the
end of a session shall be resumed at the commencement of the
next session as if no adjournment has taken place. At the end of
the term of a Congress, all Unfinished Business are deemed
terminated. (Emphasis supplied)
Thus, the deliberations during the 11th Congress on the unapproved cityhood
bills, as well as the deliberations during the 12th and 13th Congresses on the
unapproved resolution exempting from RA 9009 certain municipalities, have
no legal significance. They do not qualify as extrinsic aids in construing laws
passed by subsequent Congresses.
Applicability of Equal Protection Clause
If Section 450 of the Local Government Code, as amended by RA 9009,

contained an exemption to the P100 million annual income requirement, the
criteria for such exemption could be scrutinized for possible violation of the
equal protection clause. Thus, the criteria for the exemption, if found in the
Local Government Code, could be assailed on the ground of absence of a
valid classification. However, Section 450 of the Local Government Code, as
amended by RA 9009, does not contain any exemption. The exemption is
contained in the Cityhood Laws, which are unconstitutional because such
exemption must be prescribed in the Local Government Code as mandated in
Section 10, Article X of the Constitution.
Even if the exemption provision in the Cityhood Laws were written in Section
450 of the Local Government Code, as amended by RA 9009, such
exemption would still be unconstitutional for violation of the equal protection
clause. The exemption provision merely states, "Exemption from Republic
Act No. 9009 The City of x x x shall be exempted from the income
requirement prescribed under Republic Act No. 9009." This one sentence
exemption provision contains no classification standards or guidelines
differentiating the exempted municipalities from those that are not exempted.
Even if we take into account the deliberations in the 11th Congress that
municipalities with pending cityhood bills should be exempt from the P100
million income requirement, there is still no valid classification to satisfy the
equal protection clause. The exemption will be based solely on the fact
that the 16 municipalities had cityhood bills pending in the
11th Congress when RA 9009 was enacted. This is not a valid classification
between those entitled and those not entitled to exemption from the P100
million income requirement.
To be valid, the classification in the present case must be based on
substantial distinctions, rationally related to a legitimate government objective
which is the purpose of the law,23 not limited to existing conditions only, and
applicable to all similarly situated. Thus, this Court has ruled:
The equal protection clause of the 1987 Constitution permits a valid

classification under the following conditions:
1. The classification must rest on substantial distinctions;
2. The classification must be germane to the purpose of the law;
3. The classification must not be limited to existing conditions only; and
4. The classification must apply equally to all members of the same

class.24
There is no substantial distinction between municipalities with pending

cityhood bills in the 11thCongress and municipalities that did not have pending
bills. The mere pendency of a cityhood bill in the 11th Congress is not a
material difference to distinguish one municipality from another for the
purpose of the income requirement. The pendency of a cityhood bill in the
11th Congress does not affect or determine the level of income of a
municipality. Municipalities with pending cityhood bills in the 11th Congress
might even have lower annual income than municipalities that did not have
pending cityhood bills. In short, the classification criterion mere pendency of
a cityhood bill in the 11th Congress is not rationally related to the purpose of
the law which is to prevent fiscally non-viable municipalities from converting
into cities.
Municipalities that did not have pending cityhood bills were not informed that a
pending cityhood bill in the 11th Congress would be a condition for exemption
from the increased P100 million income requirement. Had they been informed,
many municipalities would have caused the filing of their own cityhood bills.
These municipalities, even if they have bigger annual income than the 16
respondent municipalities, cannot now convert into cities if their income is less
than P100 million.
The fact of pendency of a cityhood bill in the 11th Congress limits the
exemption to a specific condition existing at the time of passage of RA 9009.
That specific condition will never happen again. This violates the requirement
that a valid classification must not be limited to existing conditions only. This
requirement is illustrated in Mayflower Farms, Inc. v. Ten Eyck,25 where the
challenged law allowed milk dealers engaged in business prior to a fixed date
to sell at a price lower than that allowed to newcomers in the same business.
In Mayflower, the U.S. Supreme Court held:
We are referred to a host of decisions to the effect that a regulatory law

may be prospective in operation and may except from its sweep those
presently engaged in the calling or activity to which it is directed.
Examples are statutes licensing physicians and dentists, which apply
only to those entering the profession subsequent to the passage of the
act and exempt those then in practice, or zoning laws which exempt
existing buildings, or laws forbidding slaughterhouses within certain
areas, but excepting existing establishments. The challenged
provision is unlike such laws, since, on its face, it is not a
regulation of a business or an activity in the interest of, or for the
protection of, the public, but an attempt to give an economic
advantage to those engaged in a given business at an arbitrary
date as against all those who enter the industry after that date. The
appellees do not intimate that the classification bears any relation to the
public health or welfare generally; that the provision will discourage
monopoly; or that it was aimed at any abuse, cognizable by law, in the
milk business. In the absence of any such showing, we have no right to
conjure up possible situations which might justify the discrimination. The
classification is arbitrary and unreasonable and denies the appellant the
equal protection of the law. (Emphasis supplied)
In the same vein, the exemption provision in the Cityhood Laws gives the 16
municipalities a unique advantage based on an arbitrary date the filing of
their cityhood bills before the end of the 11thCongress - as against all other
municipalities that want to convert into cities after the effectivity of RA 9009.
Furthermore, limiting the exemption only to the 16 municipalities violates the

requirement that the classification must apply to all similarly situated.
Municipalities with the same income as the 16 respondent municipalities
cannot convert into cities, while the 16 respondent municipalities can. Clearly,
as worded the exemption provision found in the Cityhood Laws, even if it were
written in Section 450 of the Local Government Code, would still be
WHEREFORE, we GRANT the petitions and

declare UNCONSTITUTIONAL the Cityhood Laws, namely: Republic Act Nos.
9389, 9390, 9391, 9392, 9393, 9394, 9398, 9404, 9405, 9407, 9408, 9409,
9434, 9435, 9436, and 9491.
G.R. No. 176951 November 18, 2008
LEAGUE OF CITIES OF THE PHILIPPINES (LCP) vs.

COMMISSION ON ELECTIONS;
The Case
These are consolidated petitions for prohibition1 with prayer for the issuance
of a writ of preliminary injunction or temporary restraining order filed by the
League of Cities of the Philippines, City of Iloilo, City of Calbayog, and Jerry
P. Treas2 assailing the constitutionality of the subject Cityhood Laws and
enjoining the Commission on Elections (COMELEC) and respondent
municipalities from conducting plebiscites pursuant to the Cityhood Laws.
The Facts
During the 11th Congress,3 Congress enacted into law 33 bills converting 33
municipalities into cities. However, Congress did not act on bills converting 24
other municipalities into cities.
During the 12th Congress,4 Congress enacted into law Republic Act No. 9009
(RA 9009),5 which took effect on 30 June 2001. RA 9009 amended Section
450 of the Local Government Code by increasing the annual income
requirement for conversion of a municipality into a city from P20 million
to P100 million. The rationale for the amendment was to restrain, in the words
of Senator Aquilino Pimentel, "the mad rush" of municipalities to convert into
cities solely to secure a larger share in the Internal Revenue Allotment despite
the fact that they are incapable of fiscal independence.6
After the effectivity of RA 9009, the House of Representatives of the

12th Congress7 adopted Joint Resolution No. 29,8 which sought to exempt
from the P100 million income requirement in RA 9009 the 24 municipalities
whose cityhood bills were not approved in the 11th Congress. However, the
12thCongress ended without the Senate approving Joint Resolution No. 29.
During the 13th Congress,9 the House of Representatives re-adopted Joint

Resolution No. 29 as Joint Resolution No. 1 and forwarded it to the Senate for
approval. However, the Senate again failed to approve the Joint Resolution.
Following the advice of Senator Aquilino Pimentel, 16 municipalities filed,
through their respective sponsors, individual cityhood bills. The 16 cityhood
bills contained a common provision exempting all the 16 municipalities from
the P100 million income requirement in RA 9009.
On 22 December 2006, the House of Representatives approved the cityhood

bills. The Senate also approved the cityhood bills in February 2007, except
that of Naga, Cebu which was passed on 7 June 2007. The cityhood bills
lapsed into law (Cityhood Laws10) on various dates from March to July 2007
without the President's signature.11
The Cityhood Laws direct the COMELEC to hold plebiscites to determine

whether the voters in each respondent municipality approve of the conversion
of their municipality into a city.
Petitioners filed the present petitions to declare the Cityhood Laws

unconstitutional for violation of Section 10, Article X of the Constitution, as
well as for violation of the equal protection clause.12Petitioners also lament
that the wholesale conversion of municipalities into cities will reduce the share
of existing cities in the Internal Revenue Allotment because more cities will
share the same amount of internal revenue set aside for all cities under
Section 285 of the Local Government Code.13
The Issues
The petitions raise the following fundamental issues:
1. Whether the Cityhood Laws violate Section 10, Article X of the

Constitution; and
2. Whether the Cityhood Laws violate the equal protection clause.
The Ruling of the Court
We grant the petitions.
The Cityhood Laws violate Sections 6 and 10, Article X of the Constitution,
and are thus unconstitutional.
First, applying the P100 million income requirement in RA 9009 to the present
case is a prospective, not a retroactive application, because RA 9009 took
effect in 2001 while the cityhood bills became law more than five years later.
Second, the Constitution requires that Congress shall prescribe all the criteria
for the creation of a city in the Local Government Code and not in any other
law, including the Cityhood Laws.
Third, the Cityhood Laws violate Section 6, Article X of the Constitution

because they prevent a fair and just distribution of the national taxes to local
government units.
Fourth, the criteria prescribed in Section 450 of the Local Government Code,
as amended by RA 9009, for converting a municipality into a city are clear,
plain and unambiguous, needing no resort to any statutory construction.
Fifth, the intent of members of the 11th Congress to exempt certain

municipalities from the coverage of RA 9009 remained an intent and was
never written into Section 450 of the Local Government Code.
Sixth, the deliberations of the 11th or 12th Congress on unapproved bills or

resolutions are not extrinsic aids in interpreting a law passed in the
13th Congress.
Seventh, even if the exemption in the Cityhood Laws were written in Section
450 of the Local Government Code, the exemption would still be
Preliminary Matters
Prohibition is the proper action for testing the constitutionality of laws

administered by the COMELEC,14 like the Cityhood Laws, which direct the
COMELEC to hold plebiscites in implementation of the Cityhood Laws.
Petitioner League of Cities of the Philippines has legal standing because
Section 499 of the Local Government Code tasks the League with the
"primary purpose of ventilating, articulating and crystallizing issues affecting
city government administration and securing, through proper and legal means,
solutions thereto."15 Petitioners-in-intervention,16 which are existing cities,
have legal standing because their Internal Revenue Allotment will be reduced
if the Cityhood Laws are declared constitutional. Mayor Jerry P. Treas has
legal standing because as Mayor of Iloilo City and as a taxpayer he has
sufficient interest to prevent the unlawful expenditure of public funds, like the
release of more Internal Revenue Allotment to political units than what the law
allows.
Applying RA 9009 is a Prospective Application of the Law

RA 9009 became effective on 30 June 2001 during the 11th Congress. This
law specifically amended Section 450 of the Local Government Code, which
now provides:
Section 450. Requisites for Creation. (a) A municipality or a cluster of

barangays may be converted into a component city if it has a locally
generated average annual income, as certified by the Department of
Finance, of at least One hundred million pesos (P100,000,000.00)
for the last two (2) consecutive years based on 2000 constant
prices, and if it has either of the following requisites:
(i) a contiguous territory of at least one hundred (100) square

kilometers, as certified by the Land Management Bureau; or
(ii) a population of not less than one hundred fifty thousand

(150,000) inhabitants, as certified by the National Statistics Office.
The creation thereof shall not reduce the land area, population and
income of the original unit or units at the time of said creation to less
than the minimum requirements prescribed herein.
(b) The territorial jurisdiction of a newly-created city shall be properly

identified by metes and bounds. The requirement on land area shall not
apply where the city proposed to be created is composed of one (1) or
more islands. The territory need not be contiguous if it comprises two
(2) or more islands.
(c) The average annual income shall include the income accruing to the
general fund, exclusive of special funds, transfers, and non-recurring
income. (Emphasis supplied)
Thus, RA 9009 increased the income requirement for conversion of a

municipality into a city from P20 million to P100 million. Section 450 of the
Local Government Code, as amended by RA 9009, does not provide any
exemption from the increased income requirement.
Prior to the enactment of RA 9009, a total of 57 municipalities had cityhood

bills pending in Congress. Thirty-three cityhood bills became law before the
enactment of RA 9009. Congress did not act on 24 cityhood bills during
the 11th Congress.
During the 12th Congress, the House of Representatives adopted Joint
Resolution No. 29, exempting from the income requirement of P100 million in
RA 9009 the 24 municipalities whose cityhood bills were not acted upon
during the 11th Congress. This Resolution reached the Senate. However, the
12th Congress adjourned without the Senate approving Joint Resolution
No. 29.
During the 13th Congress, 16 of the 24 municipalities mentioned in the

unapproved Joint Resolution No. 29 filed between November and December
of 2006, through their respective sponsors in Congress, individual cityhood
bills containing a common provision, as follows:
Exemption from Republic Act No. 9009. - The City of x x x shall be

exempted from the income requirement prescribed under Republic Act
No. 9009.
This common provision exempted each of the 16 municipalities from the

income requirement of P100 million prescribed in Section 450 of the
Local Government Code, as amended by RA 9009. These cityhood bills
lapsed into law on various dates from March to July 2007 after President
Gloria Macapagal-Arroyo failed to sign them.
Indisputably, Congress passed the Cityhood Laws long after the effectivity
of RA 9009. RA 9009 became effective on 30 June 2001 or during the
11th Congress. The 13th Congress passed in December 2006 the cityhood
bills which became law only in 2007. Thus, respondent municipalities
cannot invoke the principle of non-retroactivity of laws.17 This basic rule has
no application because RA 9009, an earlier law to the Cityhood Laws, is not
being applied retroactively but prospectively.
Congress Must Prescribe in the Local Government Code All Criteria
Section 10, Article X of the 1987 Constitution provides:
No province, city, municipality, or barangay shall be created, divided,

merged, abolished or its boundary substantially altered, except in
accordance with the criteria established in the local government
code and subject to approval by a majority of the votes cast in a
plebiscite in the political units directly affected. (Emphasis supplied)
The Constitution is clear. The creation of local government units must follow
the criteria established in the Local Government Code and not in any
other law. There is only one Local Government Code.18 The Constitution
requires Congress to stipulate in the Local Government Code all the criteria
necessary for the creation of a city, including the conversion of a municipality
into a city. Congress cannot write such criteria in any other law, like the
Cityhood Laws.
The criteria prescribed in the Local Government Code govern exclusively the
creation of a city. No other law, not even the charter of the city, can govern
such creation. The clear intent of the Constitution is to insure that the creation
of cities and other political units must follow the same uniform, non-
discriminatory criteria found solely in the Local Government Code. Any
derogation or deviation from the criteria prescribed in the Local Government
Code violates Section 10, Article X of the Constitution.
RA 9009 amended Section 450 of the Local Government Code to increase the
income requirement from P20 million to P100 million for the creation of a
city. This took effect on 30 June 2001. Hence, from that moment the
Local Government Code required that any municipality desiring to
become a city must satisfy the P100 million income requirement. Section
450 of the Local Government Code, as amended by RA 9009, does not
contain any exemption from this income requirement.
In enacting RA 9009, Congress did not grant any exemption to respondent

municipalities, even though their cityhood bills were pending in Congress
when Congress passed RA 9009. The Cityhood Laws, all enacted after the
effectivity of RA 9009, explicitly exempt respondent municipalities from the
increased income requirement in Section 450 of the Local Government Code,
as amended by RA 9009. Such exemption clearly violates Section 10,
Article X of the Constitution and is thus patently unconstitutional. To be
valid, such exemption must be written in the Local Government Code
and not in any other law, including the Cityhood Laws.
Cityhood Laws Violate Section 6, Article X of the Constitution
Uniform and non-discriminatory criteria as prescribed in the Local Government

Code are essential to implement a fair and equitable distribution of national
taxes to all local government units. Section 6, Article X of the Constitution
provides:
Local government units shall have a just share, as determined by law,

in the national taxes which shall be automatically released to them.
(Emphasis supplied)
If the criteria in creating local government units are not uniform and
discriminatory, there can be no fair and just distribution of the national taxes to
local government units.
A city with an annual income of only P20 million, all other criteria being equal,
should not receive the same share in national taxes as a city with an annual
income of P100 million or more. The criteria of land area, population and
income, as prescribed in Section 450 of the Local Government Code, must be
strictly followed because such criteria, prescribed by law, are material in
determining the "just share" of local government units in national taxes. Since
the Cityhood Laws do not follow the income criterion in Section 450 of the
Local Government Code, they prevent the fair and just distribution of the
Internal Revenue Allotment in violation of Section 6, Article X of the
Constitution.
Section 450 of the Local Government Code is Clear,

Plain and Unambiguous
There can be no resort to extrinsic aids like deliberations of Congress if

the language of the law is plain, clear and unambiguous. Courts determine the
intent of the law from the literal language of the law, within the law's four
corners.19 If the language of the law is plain, clear and unambiguous, courts
simply apply the law according to its express terms. If a literal application of
the law results in absurdity, impossibility or injustice, then courts may resort to
extrinsic aids of statutory construction like the legislative history of the law.20
Congress, in enacting RA 9009 to amend Section 450 of the Local

Government Code, did not provide any exemption from the increased income
requirement, not even to respondent municipalities whose cityhood bills were
then pending when Congress passed RA 9009. Section 450 of the Local
Government Code, as amended by RA 9009, contains no exemption
whatsoever. Since the law is clear, plain and unambiguous that any
municipality desiring to convert into a city must meet the increased income
requirement, there is no reason to go beyond the letter of the law in applying
Section 450 of the Local Government Code, as amended by RA 9009.
The 11th Congress' Intent was not Written into the Local Government
Code
True, members of Congress discussed exempting respondent municipalities

from RA 9009, as shown by the various deliberations on the matter during the
11th Congress. However, Congress did not write this intended exemption into
law. Congress could have easily included such exemption in RA 9009 but
Congress did not. This is fatal to the cause of respondent municipalities
because such exemption must appear in RA 9009 as an amendment to
Section 450 of the Local Government Code. The Constitution requires that the
criteria for the conversion of a municipality into a city, including any exemption
from such criteria, must all be written in the Local Government Code.
Congress cannot prescribe such criteria or exemption from such criteria in any
other law. In short, Congress cannot create a city through a law that does
not comply with the criteria or exemption found in the Local Government
Code.
Section 10 of Article X is similar to Section 16, Article XII of the Constitution

prohibiting Congress from creating private corporations except by a general
law. Section 16 of Article XII provides:
The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and
subject to the test of economic viability. (Emphasis supplied)
Thus, Congress must prescribe all the criteria for the "formation, organization,
or regulation" of private corporations in a general law applicable to all
without discrimination.21 Congress cannot create a private corporation
through a special law or charter.
Deliberations of the 11th Congress on Unapproved Bills Inapplicable
Congress is not a continuing body.22 The unapproved cityhood bills filed

during the 11th Congress became mere scraps of paper upon the adjournment
of the 11th Congress. All the hearings and deliberations conducted during the
11th Congress on unapproved bills also became worthless upon the
adjournment of the 11th Congress. These hearings and deliberations
cannot be used to interpret bills enacted into law in the 13th or
subsequent Congresses.
The members and officers of each Congress are different. All unapproved bills
filed in one Congress become functus officio upon adjournment of that
Congress and must be re-filed anew in order to be taken up in the next
Congress. When their respective authors re-filed the cityhood bills in 2006
during the 13th Congress, the bills had to start from square one again, going
through the legislative mill just like bills taken up for the first time, from the
filing to the approval. Section 123, Rule XLIV of the Rules of the Senate, on
Unfinished Business, provides:
Sec. 123. x x x
All pending matters and proceedings shall terminate upon the

expiration of one (1) Congress, but may be taken by the succeeding
Congress as if presented for the first time. (Emphasis supplied)
Similarly, Section 78 of the Rules of the House of Representatives, on

Unfinished Business, states:
Section 78. Calendar of Business. The Calendar of Business shall

consist of the following:
a. Unfinished Business. This is business being considered by the

House at the time of its last adjournment. Its consideration shall
be resumed until it is disposed of. The Unfinished Business at the
end of a session shall be resumed at the commencement of the
next session as if no adjournment has taken place. At the end of
the term of a Congress, all Unfinished Business are deemed
terminated. (Emphasis supplied)
Thus, the deliberations during the 11th Congress on the unapproved cityhood
bills, as well as the deliberations during the 12th and 13th Congresses on the
unapproved resolution exempting from RA 9009 certain municipalities, have
no legal significance. They do not qualify as extrinsic aids in construing laws
passed by subsequent Congresses.
Applicability of Equal Protection Clause
If Section 450 of the Local Government Code, as amended by RA 9009,

contained an exemption to the P100 million annual income requirement, the
criteria for such exemption could be scrutinized for possible violation of the
equal protection clause. Thus, the criteria for the exemption, if found in the
Local Government Code, could be assailed on the ground of absence of a
valid classification. However, Section 450 of the Local Government Code, as
amended by RA 9009, does not contain any exemption. The exemption is
contained in the Cityhood Laws, which are unconstitutional because such
exemption must be prescribed in the Local Government Code as mandated in
Section 10, Article X of the Constitution.
Even if the exemption provision in the Cityhood Laws were written in Section
450 of the Local Government Code, as amended by RA 9009, such
exemption would still be unconstitutional for violation of the equal protection
clause. The exemption provision merely states, "Exemption from Republic
Act No. 9009 The City of x x x shall be exempted from the income
requirement prescribed under Republic Act No. 9009." This one sentence
exemption provision contains no classification standards or guidelines
differentiating the exempted municipalities from those that are not exempted.
Even if we take into account the deliberations in the 11th Congress that
municipalities with pending cityhood bills should be exempt from the P100
million income requirement, there is still no valid classification to satisfy the
equal protection clause. The exemption will be based solely on the fact
that the 16 municipalities had cityhood bills pending in the
11th Congress when RA 9009 was enacted. This is not a valid classification
between those entitled and those not entitled to exemption from the P100
million income requirement.
To be valid, the classification in the present case must be based on

substantial distinctions, rationally related to a legitimate government objective
which is the purpose of the law,23 not limited to existing conditions only, and
applicable to all similarly situated. Thus, this Court has ruled:
The equal protection clause of the 1987 Constitution permits a valid

classification under the following conditions:
1. The classification must rest on substantial distinctions;
2. The classification must be germane to the purpose of the law;
3. The classification must not be limited to existing conditions only; and
4. The classification must apply equally to all members of the same

class.24
There is no substantial distinction between municipalities with pending

cityhood bills in the 11thCongress and municipalities that did not have pending
bills. The mere pendency of a cityhood bill in the 11th Congress is not a
material difference to distinguish one municipality from another for the
purpose of the income requirement. The pendency of a cityhood bill in the
11th Congress does not affect or determine the level of income of a
municipality. Municipalities with pending cityhood bills in the 11th Congress
might even have lower annual income than municipalities that did not have
pending cityhood bills. In short, the classification criterion mere pendency of
a cityhood bill in the 11th Congress is not rationally related to the purpose of
the law which is to prevent fiscally non-viable municipalities from converting
into cities.
Municipalities that did not have pending cityhood bills were not informed that a
pending cityhood bill in the 11th Congress would be a condition for exemption
from the increased P100 million income requirement. Had they been informed,
many municipalities would have caused the filing of their own cityhood bills.
These municipalities, even if they have bigger annual income than the 16
respondent municipalities, cannot now convert into cities if their income is less
than P100 million.
The fact of pendency of a cityhood bill in the 11th Congress limits the
exemption to a specific condition existing at the time of passage of RA 9009.
That specific condition will never happen again. This violates the requirement
that a valid classification must not be limited to existing conditions only. This
requirement is illustrated in Mayflower Farms, Inc. v. Ten Eyck,25 where the
challenged law allowed milk dealers engaged in business prior to a fixed date
to sell at a price lower than that allowed to newcomers in the same business.
In Mayflower, the U.S. Supreme Court held:
We are referred to a host of decisions to the effect that a regulatory law

may be prospective in operation and may except from its sweep those
presently engaged in the calling or activity to which it is directed.
Examples are statutes licensing physicians and dentists, which apply
only to those entering the profession subsequent to the passage of the
act and exempt those then in practice, or zoning laws which exempt
existing buildings, or laws forbidding slaughterhouses within certain
areas, but excepting existing establishments. The challenged
provision is unlike such laws, since, on its face, it is not a
regulation of a business or an activity in the interest of, or for the
protection of, the public, but an attempt to give an economic
advantage to those engaged in a given business at an arbitrary
date as against all those who enter the industry after that date. The
appellees do not intimate that the classification bears any relation to the
public health or welfare generally; that the provision will discourage
monopoly; or that it was aimed at any abuse, cognizable by law, in the
milk business. In the absence of any such showing, we have no right to
conjure up possible situations which might justify the discrimination. The
classification is arbitrary and unreasonable and denies the appellant the
equal protection of the law. (Emphasis supplied)
In the same vein, the exemption provision in the Cityhood Laws gives the 16
municipalities a unique advantage based on an arbitrary date the filing of
their cityhood bills before the end of the 11thCongress - as against all other
municipalities that want to convert into cities after the effectivity of RA 9009.
Furthermore, limiting the exemption only to the 16 municipalities violates the

requirement that the classification must apply to all similarly situated.
Municipalities with the same income as the 16 respondent municipalities
cannot convert into cities, while the 16 respondent municipalities can. Clearly,
as worded the exemption provision found in the Cityhood Laws, even if it were
written in Section 450 of the Local Government Code, would still be
WHEREFORE, we GRANT the petitions and

declare UNCONSTITUTIONAL the Cityhood Laws, namely: Republic Act Nos.
9389, 9390, 9391, 9392, 9393, 9394, 9398, 9404, 9405, 9407, 9408, 9409,
9434, 9435, 9436, and 9491.
G.R. No. 176951 December 21, 2009
LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National President

JERRY P. TREAS, CITY OF ILOILO represented by MAYOR JERRY P. TREAS, CITY OF
CALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P. TREAS in
his personal capacity as taxpayer Petitioners,
vs.
COMMISSION ON ELECTIONS; MUNICIPALITY OF BAYBAY, PROVINCE OF LEYTE;
MUNICIPALITY OF BOGO, PROVINCE OF CEBU; MUNICIPALITY OF CATBALOGAN,
PROVINCE OF WESTERN SAMAR; MUNICIPALITY OF TANDAG, PROVINCE OF SURIGAO
DEL SUR; MUNICIPALITY OF BORONGAN, PROVINCE OF EASTERN SAMAR; and
MUNICIPALITY OF TAYABAS, PROVINCE OF QUEZON, Respondents.
CITY OF TARLAC, CITY OF SANTIAGO, CITY OF IRIGA, CITY OF LIGAO, CITY OF LEGAZPI,
CITY OF TAGAYTAY, CITY OF SURIGAO, CITY OF BAYAWAN, CITY OF SILAY, CITY OF
GENERAL SANTOS, CITY OF ZAMBOANGA, CITY OF GINGOOG, CITY OF CAUAYAN, CITY
OF PAGADIAN, CITY OF SAN CARLOS, CITY OF SAN FERNANDO, CITY OF TACURONG,
CITY OF TANGUB, CITY OF OROQUIETA, CITY OF URDANETA, CITY OF VICTORIAS, CITY OF
CALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS, CITY OF BAIS, CITY OF CADIZ, and
CITY OF TAGUM, Petitioners-In-Intervention.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 177499 December 21, 2009

his personal capacity as taxpayer, Petitioners,
vs.
COMMISSION ON ELECTIONS; MUNICIPALITY OF LAMITAN, PROVINCE OF BASILAN;
MUNICIPALITY OF TABUK, PROVINCE OF KALINGA; MUNICIPALITY OF BAYUGAN,
PROVINCE OF AGUSAN DEL SUR; MUNICIPALITY OF BATAC, PROVINCE OF ILOCOS
NORTE; MUNICIPALITY OF MATI, PROVINCE OF DAVAO ORIENTAL; and MUNICIPALITY OF
GUIHULNGAN, PROVINCE OF NEGROS ORIENTAL, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 178056 December 21, 2009

his personal capacity as taxpayer, Petitioners,
vs.
PROVINCE OF AGUSAN DEL NORTE; MUNICIPALITY OF CARCAR, PROVINCE OF CEBU; and
MUNICIPALITY OF EL SALVADOR, MISAMIS ORIENTAL, COMMISSION ON ELECTIONS;
MUNICIPALITY OF CABADBARAN, Respondents.
DECISION
VELASCO, JR. J.:
Ratio legis est anima. The spirit rather than the letter of the law. A statute must be read according to
its spirit or intent,1 for what is within the spirit is within the statute although it is not within its letter,
and that which is within the letter but not within the spirit is not within the statute.2 Put a bit differently,
that which is within the intent of the lawmaker is as much within the statute as if within the letter; and
that which is within the letter of the statute is not within the statute unless within the intent of the
lawmakers.3 Withal, courts ought not to interpret and should not accept an interpretation that would
defeat the intent of the law and its legislators.4
So as it is exhorted to pass on a challenge against the validity of an act of Congress, a co-equal

branch of government, it behooves the Court to have at once one principle in mind: the presumption
of constitutionality of statutes.5 This presumption finds its roots in the tri-partite system of
government and the corollary separation of powers, which enjoins the three great departments of the
government to accord a becoming courtesy for each others acts, and not to interfere inordinately
with the exercise by one of its official functions. Towards this end, courts ought to reject assaults
against the validity of statutes, barring of course their clear unconstitutionality. To doubt is to sustain,
the theory in context being that the law is the product of earnest studies by Congress to ensure that
no constitutional prescription or concept is infringed.6 Consequently, before a law duly challenged is
nullified, an unequivocal breach of, or a clear conflict with, the Constitution, not merely a doubtful or
argumentative one, must be demonstrated in such a manner as to leave no doubt in the mind of the
Court.7
BACKGROUND
The consolidated petitions for prohibition commenced by the League of Cities of the Philippines
(LCP), City of Iloilo, City of Calbayog, and Jerry P. Treas8 assail the constitutionality of the sixteen
(16) laws,9 each converting the municipality covered thereby into a city (cityhood laws, hereinafter)
and seek to enjoin the Commission on Elections (COMELEC) from conducting plebiscites pursuant
to subject laws.
By Decision10 dated November 18, 2008, the Court en banc, by a 6-5 vote, granted the petitions and
nullified the sixteen (16) cityhood laws for being violative of the Constitution, specifically its Section
10, Article X and the equal protection clause.
Subsequently, respondent local government units (LGUs) moved for reconsideration, raising, as one
of the issues, the validity of the factual premises not contained in the pleadings of the parties, let
alone established, which became the bases of the Decision subject of reconsideration.11 By
Resolution of March 31, 2009, a divided Court denied the motion for reconsideration.
A second motion for reconsideration followed in which respondent LGUs prayed as follows:
WHEREFORE, respondents respectfully pray that the Honorable Court reconsider its "Resolution"
dated March 31, 2009, in so far as it denies for "lack of merit" respondents "Motion for
Reconsideration" dated December 9, 2008 and in lieu thereof, considering that new and meritorious
arguments are raised by respondents "Motion for Reconsideration" dated December 9, 2008 to
grant afore-mentioned "Motion for Reconsideration" dated December 9, 2008 and dismiss the
"Petitions For Prohibition" in the instant case.
Per Resolution dated April 28, 2009, the Court, voting 6-6, disposed of the motion as follows:
By a vote of 6-6, the Motion for Reconsideration of the Resolution of 31 March 2009 is DENIED for
lack of merit. The motion is denied since there is no majority that voted to overturn the Resolution of
31 March 2009.
The Second Motion for Reconsideration of the Decision of 18 November 2008 is DENIED for being a
prohibited pleading, and the Motion for Leave to Admit Attached Petition in Intervention x x x filed by
counsel for Ludivina T. Mas, et al. are also DENIED. No further pleadings shall be entertained. Let
entry of judgment be made in due course. x x x
On May 14, 2009, respondent LGUs filed a Motion to Amend the Resolution of April 28, 2009 by
Declaring Instead that Respondents "Motion for Reconsideration of the Resolution of March 31,
2009" and "Motion for Leave to File and to Admit Attached Second Motion for Reconsideration of
the Decision Dated November 18, 2008 Remain Unresolved and to Conduct Further Proceedings
Thereon."
Per its Resolution of June 2, 2009, the Court declared the May 14, 2009 motion adverted to as
expunged in light of the entry of judgment made on May 21, 2009. Justice Leonardo-De Castro,
however, taking common cause with Justice Bersamin to grant the motion for reconsideration of the
April 28, 2009 Resolution and to recall the entry of judgment, stated the observation, and with
reason, that the entry was effected "before the Court could act on the aforesaid motion which was
filed within the 15-day period counted from receipt of the April 28, 2009 Resolution."12
Forthwith, respondent LGUs filed a Motion for Reconsideration of the Resolution of June 2, 2009 to
which some of the petitioners and petitioners-in-intervention filed their respective comments. The
Court will now rule on this incident. But first, we set and underscore some basic premises:
(1) The initial motion to reconsider the November 18, 2008 Decision, as Justice Leonardo-De
Castro noted, indeed raised new and substantial issues, inclusive of the matter of the
correctness of the factual premises upon which the said decision was predicated. The 6-6
vote on the motion for reconsideration per the Resolution of March 31, 2009, which denied
the motion on the sole ground that "the basic issues have already been passed upon"
reflected a divided Court on the issue of whether or not the underlying Decision of November
18, 2008 had indeed passed upon the basic issues raised in the motion for reconsideration
of the said decision;
(2) The aforesaid May 14, 2009 Motion to Amend Resolution of April 28, 2009 was
precipitated by the tie vote which served as basis for the issuance of said resolution. This
May 14, 2009 motionwhich mainly argued that a tie vote is inadequate to declare a law
unconstitutional remains unresolved; and
(3) Pursuant to Sec. 4(2), Art. VIII of the Constitution, all cases involving the constitutionality
of a law shall be heard by the Court en banc and decided with the concurrence of a majority
of the Members who actually took part in the deliberations on the issues in the case and
voted thereon.
The basic issue tendered in this motion for reconsideration of the June 2, 2009 Resolution boils
down to whether or not the required vote set forth in the aforesaid Sec. 4(2), Art. VIII is limited only
to the initial vote on the petition or also to the subsequent voting on the motion for reconsideration
where the Court is called upon and actually votes on the constitutionality of a law or like issuances.
Or, as applied to this case, would a minute resolution dismissing, on a tie vote, a motion for
reconsideration on the sole stated groundthat the "basic issues have already been passed"
suffice to hurdle the voting requirement required for a declaration of the unconstitutionality of the
cityhood laws in question?
The 6-6 vote on the motion to reconsider the Resolution of March 31, 2009, which denied the initial
motion on the sole ground that "the basic issues had already been passed upon" betrayed an evenly
divided Court on the issue of whether or not the underlying Decision of November 18, 2008 had
indeed passed upon the issues raised in the motion for reconsideration of the said decision. But at
the end of the day, the single issue that matters and the vote that really counts really turn on the
constitutionality of the cityhood laws. And be it remembered that the inconclusive 6-6 tie vote
reflected in the April 28, 2009 Resolution was the last vote on the issue of whether or not the
cityhood laws infringe the Constitution. Accordingly, the motions of the respondent LGUs, in light of
the 6-6 vote, should be deliberated anew until the required concurrence on the issue of the validity or
invalidity of the laws in question is, on the merits, secured.
It ought to be clear that a deadlocked vote does not reflect the "majority of the Members"
contemplated in Sec. 4 (2) of Art. VIII of the Constitution, which requires that:
All cases involving the constitutionality of a treaty, international or executive agreement, or law shall
be heard by the Supreme Court en banc, x x x shall be decided with the concurrence of a
majority of the Members who actually took part in the deliberations on the issues in the case and
voted thereon. (Emphasis added.)
Webster defines "majority" as "a number greater than half of a total."13 In plain language, this means
50% plus one. In Lambino v. Commission on Elections, Justice, now Chief Justice, Puno, in a
separate opinion, expressed the view that "a deadlocked vote of six (6) is not a majority and a non-
majority cannot write a rule with precedential value."14
As may be noted, the aforequoted Sec. 4 of Art. VIII, as couched, exacts a majority vote in the
determination of a case involving the constitutionality of a statute, without distinguishing whether
such determination is made on the main petition or thereafter on a motion for reconsideration. This is
as it should be, for, to borrow from the late Justice Ricardo J. Francisco: "x x x [E]ven assuming x x x
that the constitutional requirement on the concurrence of the majority was initially reached in the x x
x ponencia, the same is inconclusive as it was still open for review by way of a motion for
reconsideration."15
To be sure, the Court has taken stock of the rule on a tie-vote situation, i.e., Sec. 7, Rule 56 and the
complementary A.M. No. 99-1-09- SC, respectively, providing that:
SEC. 7. Procedure if opinion is equally divided. Where the court en banc is equally divided in
opinion, or the necessary majority cannot be had, the case shall again be deliberated on, and if after
such deliberation no decision is reached, the original action commenced in the court shall be
dismissed; in appealed cases, the judgment or order appealed from shall stand affirmed; and on all
incidental matters, the petition or motion shall be denied.
A.M. No. 99-1-09-SC x x x A motion for reconsideration of a decision or resolution of the Court En
Banc or of a Division may be granted upon a vote of a majority of the En Banc or of a Division, as
the case may be, who actually took part in the deliberation of the motion.
If the voting results in a tie, the motion for reconsideration is deemed denied.
But since the instant cases fall under Sec. 4 (2), Art. VIII of the Constitution, the aforequoted
provisions ought to be applied in conjunction with the prescription of the Constitution that the cases
"shall be decided with the concurrence of a majority of the Members who actually took part in the
deliberations on the issues in the instant cases and voted thereon." To repeat, the last vote on the
issue of the constitutionality of the cityhood bills is that reflected in the April 28, 2009 Resolutiona
6-6 deadlock.
On the postulate then that first, the finality of the November 18, 2008 Decision has yet to set in, the
issuance of the precipitate16 entry of judgment notwithstanding, and second, the deadlocked vote on
the second motion for reconsideration did not definitely settle the constitutionality of the cityhood
laws, the Court is inclined to take another hard look at the underlying decision. Without belaboring in
their smallest details the arguments for and against the procedural dimension of this disposition, it
bears to stress that the Court has the power to suspend its own rules when the ends of justice would
be served thereby.17 In the performance of their duties, courts should not be shackled by stringent
rules which would result in manifest injustice. Rules of procedure are only tools crafted to facilitate
the attainment of justice. Their strict and rigid application must be eschewed, if they result in
technicalities that tend to frustrate rather than promote substantial justice. Substantial rights must not
be prejudiced by a rigid and technical application of the rules in the altar of expediency. When a
case is impressed with public interest, a relaxation of the application of the rules is in order.18 Time
and again, this Court has suspended its own rules or excepted a particular case from their operation
whenever the higher interests of justice so require.19
While perhaps not on all fours with the case, because it involved a purely business transaction, what
the Court said in Chuidian v. Sandiganbayan20 is most apropos:
To reiterate what the Court has said in Ginete vs. Court of Appeals and other cases, the rules of
procedure should be viewed as mere instruments designed to facilitate the attainment of justice.
They are not to be applied with severity and rigidity when such application would clearly defeat the
very rationale for their conception and existence. Even the Rules of Court reflects this principle. The
power to suspend or even disregard rules, inclusive of the one-motion rule, can be so pervasive and
compelling as to alter even that which this Court has already declared to be final. The peculiarities of
this case impel us to do so now.
The Court, by a vote of 6-4, grants the respondent LGUs motion for reconsideration of the
Resolution of June 2, 2009, as well as their May 14, 2009 motion to consider the second motion for
reconsideration of the November 18, 2008 Decision unresolved, and also grants said second motion
for reconsideration.
This brings us to the substantive aspect of the case.
The Undisputed Factual Antecedents in Brief
During the 11th Congress,21 fifty-seven (57) cityhood bills were filed before the House of
Representatives.22 Of the fifty-seven (57), thirty-three (33) eventually became laws. The twenty-four
(24) other bills were not acted upon.
Later developments saw the introduction in the Senate of Senate Bill (S. Bill) No. 215723 to amend
Sec. 450 of Republic Act No. (RA) 7160, otherwise known as the Local Government Code (LGC) of
1991. The proposed amendment sought to increase the income requirement to qualify for
conversion into a city from PhP 20 million average annual income to PhP 100 million locally
generated income.
In March 2001, S. Bill No. 2157 was signed into law as RA 9009 to take effect on June 30, 2001. As
thus amended by RA 9009, Sec. 450 of the LGC of 1991 now provides that "[a] municipality x x x
may be converted into a component city if it has a [certified] locally generated average annual
income x x x of at least [PhP 100 million] for the last two (2) consecutive years based on 2000
constant prices."
After the effectivity of RA 9009, the Lower House of the 12th Congress adopted in July 2001 House
(H.) Joint Resolution No. 2924 which, as its title indicated, sought to exempt from the income
requirement prescribed in RA 9009 the 24 municipalities whose conversions into cities were not
acted upon during the previous Congress. The 12th Congress ended without the Senate approving
H. Joint Resolution No. 29.
Then came the 13th Congress (July 2004 to June 2007), which saw the House of Representatives
re-adopting H. Joint Resolution No. 29 as H. Joint Resolution No. 1 and forwarding it to the Senate
for approval.
The Senate, however, again failed to approve the joint resolution. During the Senate session held on
November 6, 2006, Senator Aquilino Pimentel, Jr. asserted that passing H. Resolution No. 1 would,
in net effect, allow a wholesale exemption from the income requirement imposed under RA 9009 on
the municipalities. For this reason, he suggested the filing by the House of Representatives of
individual bills to pave the way for the municipalities to become cities and then forwarding them to
the Senate for proper action.25
Heeding the advice, sixteen (16) municipalities filed, through their respective sponsors, individual
cityhood bills. Common to all 16 measures was a provision exempting the municipality covered from
the PhP 100 million income requirement.
As of June 7, 2007, both Houses of Congress had approved the individual cityhood bills, all of which
eventually lapsed into law on various dates. Each cityhood law directs the COMELEC, within thirty
(30) days from its approval, to hold a plebiscite to determine whether the voters approve of the
conversion.
As earlier stated, the instant petitions seek to declare the cityhood laws unconstitutional for violation
of Sec. 10, Art. X of the Constitution, as well as for violation of the equal-protection clause. The
wholesale conversion of municipalities into cities, the petitioners bemoan, will reduce the share of
existing cities in the Internal Revenue Allotment (IRA), since more cities will partake of the internal
revenue set aside for all cities under Sec. 285 of the LGC of 1991.26
Petitioners-in-intervention, LPC members themselves, would later seek leave and be allowed to
intervene.
Aside from their basic plea to strike down as unconstitutional the cityhood laws in question,
petitioners and petitioners-in-intervention collectively pray that an order issue enjoining the
COMELEC from conducting plebiscites in the affected areas. An alternative prayer would urge the
Court to restrain the poll body from proclaiming the plebiscite results.
On July 24, 2007, the Court en banc resolved to consolidate the petitions and the petitions-in-
intervention. On March 11, 2008, it heard the parties in oral arguments.
The Issues
In the main, the issues to which all others must yield pivot on whether or not the cityhood laws
violate (1) Sec. 10. Art. X of the Constitution and (2) the equal protection clause.
In the November 18, 2008 Decision granting the petitions, Justice Antonio T. Carpio, for the Court,
resolved the twin posers in the affirmative and accordingly declared the cityhood laws
unconstitutional, deviating as they do from the uniform and non-discriminatory income criterion
prescribed by the LGC of 1991. In so doing, the ponencia veritably agreed with the petitioners that
the Constitution, in clear and unambiguous language, requires that all the criteria for the creation of
a city shall be embodied and written in the LGC, and not in any other law.
After a circumspect reflection, the Court is disposed to reconsider.
Petitioners threshold posture, characterized by a strained interpretation of the Constitution, if

accorded cogency, would veritably curtail and cripple Congress valid exercise of its authority to
create political subdivisions.
By constitutional design27 and as a matter of long-established principle, the power to create political
subdivisions or LGUs is essentially legislative in character.28 But even without any constitutional
grant, Congress can, by law, create, divide, merge, or altogether abolish or alter the boundaries of a
province, city, or municipality. We said as much in the fairly recent case, Sema v. CIMELEC.29 The
1987 Constitution, under its Art. X, Sec. 10, nonetheless provides for the creation of LGUs, thus:
Section 10. No province, city, municipality, or barangay shall be created, divided, merged, abolished,
or its boundary substantially altered, except in accordance with the criteria established in the local
government code and subject to approval by a majority of the votes cast in a plebiscite in the political
units directly affected. (Emphasis supplied.)
As may be noted, the afore-quoted provision specifically provides for the creation of political
subdivisions "in accordance with the criteria established in the local government code," subject to the
approval of the voters in the unit concerned. The criteria referred to are the verifiable indicators of
viability, i.e., area, population, and income, now set forth in Sec. 450 of the LGC of 1991, as
amended by RA 9009. The petitioners would parlay the thesis that these indicators or criteria must
be written only in the LGC and not in any other statute. Doubtless, the code they are referring to is
the LGC of 1991. Pushing their point, they conclude that the cityhood laws that exempted the
respondent LGUs from the income standard spelled out in the amendatory RA 9009 offend the
Constitution.
Petitioners posture does not persuade.
The supposedly infringed Art. X, Sec. 10 is not a new constitutional provision. Save for the use of the
term "barrio" in lieu of "barangay," "may be" instead of "shall," the change of the phrase "unit or
units" to "political unit" and the addition of the modifier "directly" to the word "affected," the aforesaid
provision is a substantial reproduction of Art. XI, Sec. 3 of the 1973 Constitution, which reads:
Section 3. No province, city, municipality, or barrio may be created, divided, merged, abolished, or
its boundary substantially altered, except in accordance with the criteria established in the local
government code and subject to approval by a majority of the votes cast in a plebiscite in the unit or
units affected. (Emphasis supplied.)
It bears notice, however, that the "code" similarly referred to in the 1973 and 1987 Constitutions is
clearly but a law Congress enacted. This is consistent with the aforementioned plenary power of
Congress to create political units. Necessarily, since Congress wields the vast poser of creating
political subdivisions, surely it can exercise the lesser authority of requiring a set of criteria,
standards, or ascertainable indicators of viability for their creation. Thus, the only conceivable reason
why the Constitution employs the clause "in accordance with the criteria established in the local
government code" is to lay stress that it is Congress alone, and no other, which can impose the
criteria. The eminent constitutionalist, Fr. Joaquin G. Bernas, S.J., in his treatise on Constitutional
Law, specifically on the subject provision, explains:
Prior to 1965, there was a certain lack of clarity with regard to the power to create, divide, merge,
dissolve, or change the boundaries of municipal corporations. The extent to which the executive may
share in this power was obscured by Cardona v. Municipality of Binangonan.30 Pelaez v. Auditor
General subsequently clarified the Cardona case when the Supreme Court said that "the authority to
create municipal corporations is essentially legislative in nature."31 Pelaez, however, conceded that
"the power to fix such common boundary, in order to avoid or settle conflicts of jurisdiction between
adjoining municipalities, may partake of an administrative nature-involving as it does, the adoption of
means and ways to carry into effect the law creating said municipalities."32Pelaez was silent about
division, merger, and dissolution of municipal corporations. But since division in effect creates a new
municipality, and both dissolution and merger in effect abolish a legal creation, it may fairly be
inferred that these acts are also legislative in nature.
Section 10 [Art. X of the 1987 Constitution], which is a legacy from the 1973 Constitution, goes
further than the doctrine in the Pelaez case. It not only makes creation, division, merger, abolition or
substantial alteration of boundaries of provinces, cities, municipalities x x x subject to "criteria
established in the local government code," thereby declaring these actions properly legislative,
but it also makes creation, division, merger, abolition or substantial alteration of boundaries "subject
to approval by a majority of the votes cast in a plebiscite in the political units directly affected."33 x x x
(Emphasis added.)
It remains to be observed at this juncture that when the 1987 Constitution speaks of the LGC, the
reference cannot be to any specific statute or codification of laws, let alone the LGC of 1991.34 Be it
noted that at the time of the adoption of the 1987 Constitution, Batas Pambansa Blg. (BP) 337, the
then LGC, was still in effect. Accordingly, had the framers of the 1987 Constitution intended to
isolate the embodiment of the criteria only in the LGC, then they would have actually referred to BP
337. Also, they would then not have provided for the enactment by Congress of a new LGC, as they
did in Art. X, Sec. 335 of the Constitution.
Consistent with its plenary legislative power on the matter, Congress can, via either a consolidated
set of laws or a much simpler, single-subject enactment, impose the said verifiable criteria of
viability. These criteria need not be embodied in the local government code, albeit this code is the
ideal repository to ensure, as much as possible, the element of uniformity. Congress can even, after
making a codification, enact an amendatory law, adding to the existing layers of indicators earlier
codified, just as efficaciously as it may reduce the same. In this case, the amendatory RA 9009
upped the already codified income requirement from PhP 20 million to PhP 100 million. At the end of
the day, the passage of amendatory laws is no different from the enactment of laws, i.e., the
cityhood laws specifically exempting a particular political subdivision from the criteria earlier
mentioned. Congress, in enacting the exempting law/s, effectively decreased the already codified
indicators.
Petitioners theory that Congress must provide the criteria solely in the LGC and not in any other law
strikes the Court as illogical. For if we pursue their contention to its logical conclusion, then RA 9009
embodying the new and increased income criterion would, in a way, also suffer the vice of
unconstitutionality. It is startling, however, that petitioners do not question the constitutionality of RA
9009, as they in fact use said law as an argument for the alleged unconstitutionality of the cityhood
laws.
As it were, Congress, through the medium of the cityhood laws, validly decreased the income
criterion vis--vis the respondent LGUs, but without necessarily being unreasonably discriminatory,
as shall be discussed shortly, by reverting to the PhP 20 million threshold what it earlier raised to
PhP 100 million. The legislative intent not to subject respondent LGUs to the more stringent
requirements of RA 9009 finds expression in the following uniform provision of the cityhood laws:
Exemption from Republic Act No. 9009. The City of x x x shall be exempted from the income
requirement prescribed under Republic Act No. 9009.
In any event, petitioners constitutional objection would still be untenable even if we were to assume
purely ex hypothesi the correctness of their underlying thesis, viz: that the conversion of a
municipality to a city shall be in accordance with, among other things, the income criterion set forth
in the LGC of 1991, and in no other; otherwise, the conversion is invalid. We shall explain.
Looking at the circumstances behind the enactment of the laws subject of contention, the Court finds
that the LGC-amending RA 9009, no less, intended the LGUs covered by the cityhood laws to be
exempt from the PhP 100 million income criterion. In other words, the cityhood laws, which merely
carried out the intent of RA 9009, adhered, in the final analysis, to the "criteria established in the
Local Government Code," pursuant to Sec. 10, Art. X of the 1987 Constitution. We shall now
proceed to discuss this exemption angle.36
Among the criteria established in the LGC pursuant to Sec.10, Art. X of the 1987 Constitution are
those detailed in Sec. 450 of the LGC of 1991 under the heading "Requisites for Creation." The
section sets the minimum income qualifying bar before a municipality or a cluster of barangays may
be considered for cityhood. Originally, Sec. 164 of BP 337 imposed an average regular annual
income "of at least ten million pesos for the last three consecutive years" as a minimum income
standard for a municipal-to-city conversion. The LGC that BP 337 established was superseded by
the LGC of 1991 whose then Sec. 450 provided that "[a] municipality or cluster of barangays may be
converted into a component city if it has an average annual income, x x x of at least twenty million
pesos (P20,000,000.00) for at least two (2) consecutive years based on 1991 constant prices x x x."
RA 9009 in turn amended said Sec. 450 by further increasing the income requirement to PhP 100
million, thus:
Section 450. Requisites for Creation. (a) A municipality or a cluster of barangays may be
converted into a component city if it has a locally generated average annual income, as certified by
the Department of Finance, of at least One Hundred Million Pesos (P100,000,000.00) for the last
two (2) consecutive years based on 2000 constant prices, and if it has either of the following
requisites:
xxxx
(c) The average annual income shall include the income accruing to the general fund, exclusive of
special funds, transfers, and non-recurring income. (Emphasis supplied.)
The legislative intent is not at all times accurately reflected in the manner in which the resulting law
is couched. Thus, applying a verba legis37 or strictly literal interpretation of a statute may render it
meaningless and lead to inconvenience, an absurd situation or injustice.38 To obviate this aberration,
and bearing in mind the principle that the intent or the spirit of the law is the law itself,39 resort should
be to the rule that the spirit of the law controls its letter.40
It is in this respect that the history of the passage of RA 9009 and the logical inferences derivable
therefrom assume relevancy in discovering legislative intent.41
The rationale behind the enactment of RA 9009 to amend Sec. 450 of the LGC of 1991 can
reasonably be deduced from Senator Pimentels sponsorship speech on S. Bill No. 2157. Of
particular significance is his statement regarding the basis for the proposed increase from PhP 20
million to PhP 100 million in the income requirement for municipalities wanting to be converted into
cities, viz:
Senator Pimentel. Mr. President, I would have wanted this bill to be included in the whole set of
proposed amendments that we have introduced to precisely amend the [LGC]. However, it is a fact
that there is a mad rush of municipalities wanting to be converted into cities. Whereas in 1991, when
the [LGC] was approved, there were only 60 cities, today the number has increased to 85 cities, with
41 more municipalities applying for conversion x x x. At the rate we are going, I am apprehensive
that before long this nation will be a nation of all cities and no municipalities.
It is for that reason, Mr. President, that we are proposing among other things, that the financial
requirement, which, under the [LGC], is fixed at P20 million, be raised to P100 million to enable a
municipality to have the right to be converted into a city, and the P100 million should be sourced
from locally generated funds.
Congress to be sure knew, when RA 9009 was being deliberated upon, of the pendency of several
bills on cityhood, wherein the applying municipalities were qualified under the then obtaining PhP 20
million-income threshold. These included respondent LGUs. Thus, equally noteworthy is the ensuing
excerpts from the floor exchange between then Senate President Franklin Drilon and Senator
Pimentel, the latter stopping short of saying that the income threshold of PhP 100 million under S.
Bill No. 2157 would not apply to municipalities that have pending cityhood bills, thus:
THE PRESIDENT. The Chair would like to ask for some clarificatory point. x x x
THE PRESIDENT. This is just on the point of the pending bills in the Senate which propose the
conversion of a number of municipalities into cities and which qualify under the present standard.
We would like to know the view of the sponsor: Assuming that this bill becomes a law, will the
Chamber apply the standard as proposed in this bill to those bills which are pending for
consideration?
SENATOR PIMENTEL, Mr. President, it might not be fair to make this bill x x x [if]
approved, retroact to the bills that are pending in the Senate for conversion from municipalities to
cities.
THE PRESIDENT. Will there be an appropriate language crafted to reflect that view? Or does it not
become a policy of the Chamber, assuming that this bill becomes a law x x x that it will apply to
those bills which are already approved by the House under the old version of the [LGC] and are now
pending in the Senate? The Chair does not know if we can craft a language which will limit the
application to those which are not yet in the Senate. Or is that a policy that the Chamber will adopt?
SENATOR PIMENTEL. Mr. President, personally, I do not think it is necessary to put that provision
because what we are saying here will form part of the interpretation of this bill. Besides, if there is no
retroactivity clause, I do not think that the bill would have any retroactive effect.
THE PRESIDENT. So the understanding is that those bills which are already pending in the
Chamber will not be affected.
SENATOR PIMENTEL. These will not be affected, Mr. President.42 (Emphasis and underscoring
supplied.)
What the foregoing Pimental-Drilon exchange eloquently indicates are the following complementary
legislative intentions: (1) the then pending cityhood bills would be outside the pale of the minimum
income requirement of PhP 100 million that S. Bill No. 2159 proposes; and (2) RA 9009 would not
have any retroactive effect insofar as the cityhood bills are concerned.
Given the foregoing perspective, it is not amiss to state that the basis for the inclusion of the
exemption clause of the cityhood laws is the clear-cut intent of Congress of not according retroactive
effect to RA 9009. Not only do the congressional records bear the legislative intent of exempting the
cityhood laws from the income requirement of PhP 100 million. Congress has now made its intention
to exempt express in the challenged cityhood laws.
Legislative intent is part and parcel of the law, the controlling factor in interpreting a statute. In
construing a statute, the proper course is to start out and follow the true intent of the Legislature and
to adopt the sense that best harmonizes with the context and promotes in the fullest manner the
policy and objects of the legislature.43 In fact, any interpretation that runs counter to the legislative
intent is unacceptable and invalid.44 Torres v. Limjap could not have been more precise:
The intent of a Statute is the Law. If a statute is valid, it is to have effect according to the purpose
and intent of the lawmaker. The intent is x x x the essence of the law and the primary rule of
construction is to ascertain and give effect to that intent. The intention of the legislature in
enacting a law is the law itself, and must be enforced when ascertained, although it may not be
consistent with the strict letter of the statute. Courts will not follow the letter of a statute when it
leads away from the true intent and purpose of the legislature and to conclusions inconsistent with
the general purpose of the act. Intent is the spirit which gives life to a legislative enactment. In
construing statutes the proper course is to start out and follow the true intent of the legislature x x
x.45 (Emphasis supplied.)
As emphasized at the outset, behind every law lies the presumption of

constitutionality.46 Consequently, to him who would assert the unconstitutionality of a statute belongs
the burden of proving otherwise. Laws will only be declared invalid if a conflict with the Constitution
is beyond reasonable doubt.47 Unfortunately for petitioners and petitioners-in-intervention, they failed
to discharge their heavy burden.
It is contended that the deliberations on the cityhood bills and the covering joint resolution were
undertaken in the 11th and/or the 12th Congress. Accordingly, so the argument goes, such
deliberations, more particularly those on the unapproved resolution exempting from RA 9009 certain
municipalities, are without significance and would not qualify as extrinsic aids in construing the
cityhood laws that were passed during the 13th Congress, Congress not being a continuing body.
The argument is specious and glosses over the reality that the cityhood billswhich were already
being deliberated upon even perhaps before the conception of RA 9009were again being
considered during the 13th Congress after being tossed around in the two previous Congresses.
And specific reference to the cityhood bills was also made during the deliberations on RA 9009. At
the end of the day, it is really immaterial if Congress is not a continuing legislative body. What is
important is that the debates, deliberations, and proceedings of Congress and the steps taken in the
enactment of the law, in this case the cityhood laws in relation to RA 9009 or vice versa, were part of
its legislative history and may be consulted, if appropriate, as aids in the interpretation of the
law.48 And of course the earlier cited Drilon-Pimentel exchange on whether or not the 16
municipalities in question would be covered by RA 9009 is another vital link to the historical chain of
the cityhood bills. This and other proceedings on the bills are spread in the Congressional journals,
which cannot be conveniently reduced to pure rhetoric without meaning whatsoever, on the
simplistic and non-sequitur pretext that Congress is not a continuing body and that unfinished
business in either chamber is deemed terminated at the end of the term of Congress.
This brings us to the challenge to the constitutionality of cityhood laws on equal protection grounds.
To the petitioners, the cityhood laws, by granting special treatment to respondent

municipalities/LGUs by way of exemption from the standard PhP 100 million minimum income
requirement, violate Sec.1, Art. III of the Constitution, which in part provides that no person shall "be
denied the equal protection of the laws."
Petitioners challenge is not well taken. At its most basic, the equal protection clause proscribes
undue favor as well as hostile discrimination. Hence, a law need not operate with equal force on all
persons or things to be conformable with Sec. 1, Art. III of the Constitution.
The equal protection guarantee is embraced in the broader and elastic concept of due process,
every unfair discrimination being an offense against the requirements of justice and fair play. It has
nonetheless come as a separate clause in Sec. 1, Art. III of the Constitution to provide for a more
specific protection against any undue discrimination or antagonism from government. Arbitrariness in
general may be assailed on the basis of the due process clause. But if a particular challenged act
partakes of an unwarranted partiality or prejudice, the sharper weapon to cut it down is the equal
protection clause.49 This constitutional protection extends to all persons, natural or artificial, within
the territorial jurisdiction. Artificial persons, as the respondent LGUs herein, are, however, entitled to
protection only insofar as their property is concerned.50
In the proceedings at bar, petitioner LCP and the intervenors cannot plausibly invoke the equal
protection clause, precisely because no deprivation of property results by virtue of the enactment of
the cityhood laws. The LCPs claim that the IRA of its member-cities will be substantially reduced on
account of the conversion into cities of the respondent LGUs would not suffice to bring it within the
ambit of the constitutional guarantee. Indeed, it is presumptuous on the part of the LCP member-
cities to already stake a claim on the IRA, as if it were their property, as the IRA is yet to be
allocated. For the same reason, the municipalities that are not covered by the uniform exemption
clause in the cityhood laws cannot validly invoke constitutional protection. For, at this point, the
conversion of a municipality into a city will only affect its status as a political unit, but not its property
as such.
As a matter of settled legal principle, the fundamental right of equal protection does not require
absolute equality. It is enough that all persons or things similarly situated should be treated alike,
both as to rights or privileges conferred and responsibilities or obligations imposed. The equal
protection clause does not preclude the state from recognizing and acting upon factual differences
between individuals and classes. It recognizes that inherent in the right to legislate is the right to
classify,51 necessarily implying that the equality guaranteed is not violated by a legislation based on
reasonable classification. Classification, to be reasonable, must (1) rest on substantial distinctions;
(2) be germane to the purpose of the law; (3) not be limited to existing conditions only; and (4) apply
equally to all members of the same class.52 The Court finds that all these requisites have been met
by the laws challenged as arbitrary and discriminatory under the equal protection clause.
As things stand, the favorable treatment accorded the sixteen (16) municipalities by the cityhood
laws rests on substantial distinction. Indeed, respondent LGUs, which are subjected only to the
erstwhile PhP 20 million income criterion instead of the stringent income requirement prescribed in
RA 9009, are substantially different from other municipalities desirous to be cities. Looking back, we
note that respondent LGUs had pending cityhood bills before the passage of RA 9009. There lies
part of the tipping difference. And years before the enactment of the amendatory RA 9009,
respondents LGUs had already met the income criterion exacted for cityhood under the LGC of
1991. Due to extraneous circumstances, however, the bills for their conversion remained unacted
upon by Congress. As aptly observed by then Senator, now Manila Mayor, Alfredo Lim in his speech
sponsoring H. Joint Resolution No. 1, or the cityhood bills, respondent LGUs saw themselves
confronted with the "changing of the rules in the middle of the game." Some excerpts of Senator
Lims sponsorship speech:
x x x [D]uring the Eleventh Congress, fifty-seven (57) municipalities applied for city status, confident
that each has met the requisites for conversion under Section 450 of the [LGC], particularly the
income threshold of P20 million. Of the 57 that filed, thirty-two (32) were enacted into law; x x x while
the rest twenty-four (24) in all failed to pass through Congress. Shortly before the long recess of
Congress in February 2001, to give way to the May elections x x x, Senate Bill No. 2157, which
eventually became [RA] 9009, was passed into law, effectively raising the income requirement for
creation of cities to a whooping P100 million x x x. Much as the proponents of the 24 cityhood bills
then pending struggled to beat the effectivity of the law on June 30, 2001, events that then unfolded
were swift and overwhelming that Congress just did not have the time to act on the measures.
Some of these intervening events were x x x the impeachment of President Estrada x x x and the
May 2001 elections.
The imposition of a much higher income requirement for the creation of a city x x x was unfair; like
any sport changing the rules in the middle of the game.
Undaunted, they came back during the [12th] Congress x x x. They filed House Joint Resolution No.
29 seeking exemption from the higher income requirement of RA 9009. For the second time,
[however], time ran out from them.
For many of the municipalities whose Cityhood Bills are now under consideration, this year, at the
closing days of the [13th] Congress, marks their ninth year appealing for fairness and justice. x x x
I, for one, share their view that fairness dictates that they should be given a legal remedy by which
they could be allowed to prove that they have all the necessary qualifications for city status using the
criteria set forth under the [LGC] prior to its amendment by RA 9009. Hence, when House Joint
Resolution No. 1 reached the Senate x x x I immediately set the public hearing x x x. On July 25,
2006, I filed Committee Report No. 84 x x x. On September 6, I delivered the sponsorship x x x.
x x x By November 14, the measure had reverted to the period of individual amendments. This was
when the then acting majority leader, x x x informed the Body that Senator Pimentel and the
proponents of House Joint Resolution No. 1 have agreed to the proposal of the Minority Leader for
the House to first approve the individual Cityhood Bills of the qualified municipalities, along with the
provision exempting each of them from the higher income requirement of RA 9009. x x x This led to
the certification issued by the proponents short-listing fourteen (14) municipalities deemed to be
qualified for city-status.
Acting on the suggestion of Senator Pimentel, the proponents lost no time in working for the
approval by the House of Representatives of their individual Cityhood Bills, each containing a
provision of exemption from the higher income requirement of RA 9009. On the last session day of
last year, December 21, the House transmitted to the Senate the Cityhood Bills of twelve out of the
14 pre-qualified municipalities. Your Committee immediately conducted the public hearing x x x.
The whole process I enumerated [span] three Congresses x x x.
In essence, the Cityhood Bills now under consideration will have the same effect as that of House
Joint Resolution No. 1 because each of the 12 bills seeks exemption from the higher income
requirement of RA 9009. The proponents are invoking the exemption on the basis of justice and
fairness.
Each of the 12 municipalities has all the requisites for conversion into a component city based on the
old requirements set forth under Section 450 of the [LGC], prior to its amendment by RA 9009,
namely: x x x53(Emphasis supplied.)
In hindsight, the peculiar conditions, as depicted in Senator Lims speech, which respondent LGUs
found themselves in were unsettling. They were qualified cityhood applicants before the enactment
of RA 009. Because of events they had absolutely nothing to do with, a spoiler in the form of RA
9009 supervened. Now, then, to impose on them the much higher income requirement after what
they have gone through would appear to be indeed "unfair," to borrow from Senator Lim. Thus, the
imperatives of fairness dictate that they should be given a legal remedy by which they would be
allowed to prove that they have all the necessary qualifications for city status, using the criteria set
forth under the LGC of 1991 prior to its amendment by RA 9009. Truly, the peculiar conditions of
respondent LGUs, which are actual and real, provide sufficient grounds for legislative classification.
To be sure, courts, regardless of doubts they might be entertaining, cannot question the wisdom of
the congressional classification, if reasonable, or the motivation underpinning the classification.54 By
the same token, they do not sit to determine the propriety or efficacy of the remedies Congress has
specifically chosen to extend. That is its prerogative. The power of the Legislature to make
distinctions and classifications among persons is, to reiterate, neither curtailed nor denied by the
equal protection clause. A law can be violative of the constitutional limitation only when the
classification is without reasonable basis.
The classification is also germane to the purpose of the law. The exemption of respondent
LGUs/municipalities from the PhP 100 million income requirement was meant to reduce the
inequality occasioned by the passage of the amendatory RA 9009. From another perspective, the
exemption was unquestionably designed to insure that fairness and justice would be accorded
respondent LGUs. Let it be noted that what were then the cityhood bills covering respondent LGUs
were part and parcel of the original 57 conversion bills filed in the 11th Congress, 33 of those
became laws before the adjournment of that Congress. The then bills of the challenged cityhood
laws were not acted upon due, inter alia, to the impeachment of then President Estrada, the related
jueteng scandal investigations conducted before, and the EDSA events that followed the aborted
impeachment.
While the equal protection guarantee frowns upon the creation of a privileged class without
justification, inherent in the equality clause is the exhortation for the Legislature to pass laws
promoting equality or reducing existing inequalities. The enactment of the cityhood laws was in a
real sense an attempt on the part of Congress to address the inequity dealt the respondent LGUs.
These laws positively promoted the equality and eliminated the inequality, doubtless unintended,
between respondent municipalities and the thirty-three (33) other municipalities whose cityhood bills
were enacted during the 11th Congress. Respondent municipalities and the 33 other municipalities,
which had already been elevated to city status, were all found to be qualified under the old Sec. 450
of the LGC of 1991 during the 11th Congress. As such, both respondent LGUs and the 33 other
former municipalities are under like circumstances and conditions. There is, thus, no rhyme or
reason why an exemption from the PhP 100 million requirement cannot be given to respondent
LGUs. Indeed, to deny respondent LGUs/municipalities the same rights and privileges accorded to
the 33 other municipalities when, at the outset they were similarly situated, is tantamount to denying
the former the protective mantle of the equal protection clause. In effect, petitioners and petitioners-
in-intervention are creating an absurd situation in which an alleged violation of the equal protection
clause of the Constitution is remedied by another violation of the same clause. The irony is not lost
to the Court.
Then too the non-retroactive effect of RA 9009 is not limited in application only to conditions existing
at the time of its enactment. It is intended to apply for all time, as long as the contemplated
conditions obtain. To be more precise, the legislative intent underlying the enactment of RA 9009 to
exclude would-be-cities from the PhP 100 million criterion would hold sway, as long as the
corresponding cityhood bill has been filed before the effectivity of RA 9009 and the concerned
municipality qualifies for conversion into a city under the original version of Sec. 450 of the LGC of
1991.
Viewed in its proper light, the common exemption clause in the cityhood laws is an application of the
non-retroactive effect of RA 9009 on the cityhood bills. It is not a declaration of certain rights, but a
mere declaration of prior qualification and/or compliance with the non-retroactive effect of RA 9009.
Lastly and in connection with the third requisite, the uniform exemption clause would apply to
municipalities that had pending cityhood bills before the passage of RA 9009 and were compliant
with then Sec. 450 of the LGC of 1991, which prescribed an income requirement of PhP 20 million. It
is hard to imagine, however, if there are still municipalities out there belonging in context to the same
class as the sixteen (16) respondent LGUs. Municipalities that cannot claim to belong to the same
class as the 16 cannot seek refuge in the cityhood laws. The former have to comply with the PhP
100 million income requirement imposed by RA 9009.
A final consideration. The existence of the cities consequent to the approval of the creating, but
challenged, cityhood laws in the plebiscites held in the affected LGUs is now an operative fact. New
cities appear to have been organized and are functioning accordingly, with new sets of officials and
employees. Other resulting events need not be enumerated. The operative fact doctrine provides
another reason for upholding the constitutionality of the cityhood laws in question.
In view of the foregoing discussion, the Court ought to abandon as it hereby abandons and sets
aside the Decision of November 18, 2008 subject of reconsideration. And by way of summing up the
main arguments in support of this disposition, the Court hereby declares the following:
(1) Congress did not intend the increased income requirement in RA 9009 to apply to the
cityhood bills which became the cityhood laws in question. In other words, Congress
intended the subject cityhood laws to be exempted from the income requirement of PhP 100
million prescribed by RA 9009;
(2) The cityhood laws merely carry out the intent of RA 9009, now Sec. 450 of the LGC of
1991, to exempt respondent LGUs from the PhP 100 million income requirement;
(3) The deliberations of the 11th or 12th Congress on unapproved bills or resolutions are
extrinsic aids in interpreting a law passed in the 13th Congress. It is really immaterial if
Congress is not a continuing body. The hearings and deliberations during the 11th and 12th
Congress may still be used as extrinsic reference inasmuch as the same cityhood bills which
were filed before the passage of RA 9009 were being considered during the 13th Congress.
Courts may fall back on the history of a law, as here, as extrinsic aid of statutory construction
if the literal application of the law results in absurdity or injustice.
(4) The exemption accorded the 16 municipalities is based on the fact that each had pending
cityhood bills long before the enactment of RA 9009 that substantially distinguish them from
other municipalities aiming for cityhood. On top of this, each of the 16 also met the PhP 20
million income level exacted under the original Sec. 450 of the 1991 LGC.
And to stress the obvious, the cityhood laws are presumed constitutional. As we see it, petitioners
have not overturned the presumptive constitutionality of the laws in question.
WHEREFORE, respondent LGUs Motion for Reconsideration dated June 2, 2009, their "Motion to
Amend the Resolution of April 28, 2009 by Declaring Instead that Respondents Motion for
Reconsideration of the Resolution of March 31, 2009 and Motion for Leave to File and to Admit
Attached Second Motion for Reconsideration of the Decision Dated November 18, 2008 Remain
Unresolved and to Conduct Further Proceedings," dated May 14, 2009, and their second Motion for
Reconsideration of the Decision dated November 18, 2008 are GRANTED. The June 2, 2009, the
March 31, 2009, and April 31, 2009 Resolutions are REVERSED and SET ASIDE. The entry of
judgment made on May 21, 2009 must accordingly be RECALLED.
The instant consolidated petitions and petitions-in-intervention are DISMISSED. The cityhood laws,
namely Republic Act Nos. 9389, 9390, 9391, 9392, 9393, 9394, 9398, 9404, 9405, 9407, 9408,
9409, 9434, 9435, 9436, and 9491 are declared VALID and CONSTITUTIONAL.
SO ORDERG.R. No. 221697
MARY GRACE NATIVIDAD S. POE-LLAMANZARES, Petitioners,

vs.
COMELEC AND ESTRELLA C. ELAMPARO Respondents.
x-----------------------x
G.R. No. 221698-700
MARY GRACE NATIVIDAD S. POE-LLAMANZARES, Petitioners,

vs.
COMELEC, FRANCISCO S. TATAD, ANTONIO P. CONTRERAS AND AMADO D.
VALDEZ Respondents.
DECISION
PEREZ, J.:
Before the Court are two consolidated petitions under Rule 64 in relation to Rule 65 of the Rules of
Court with extremely urgent application for an ex parte issuance of temporary
restraining order/status quo ante order and/or writ of preliminary injunction assailing the following: (1)
1 December 2015 Resolution of the Commission on Elections (COMELEC) Second Division; (2) 23
December 2015 Resolution of the COMELEC En Banc, in SPA No. 15-001 (DC); (3) 11 December
2015 Resolution of the COMELEC First Division; and ( 4) 23 December 2015 Resolution of the
COMELEC En Banc, in SPA No. 15-002 (DC), SPA No. 15-007 (DC) and SPA No. 15-139 (DC) for
having been issued without jurisdiction or with grave abuse of discretion amounting to lack or excess
of jurisdiction.
The Facts
Mary Grace Natividad S. Poe-Llamanzares (petitioner) was found abandoned as a newborn infant in
the Parish Church of Jaro, Iloilo by a certain Edgardo Militar (Edgardo) on 3 September 1968.
Parental care and custody over petitioner was passed on by Edgardo to his relatives, Emiliano
Militar (Emiliano) and his wife. Three days after, 6 September 1968, Emiliano reported and
registered petitioner as a foundling with the Office of the Civil Registrar of Iloilo City (OCR-Iloilo). In
her Foundling Certificate and Certificate of Live Birth, the petitioner was given the name "Mary Grace
Natividad Contreras Militar." 1
When petitioner was five (5) years old, celebrity spouses Ronald Allan Kelley Poe (a.k.a. Fenando
Poe, Jr.) and Jesusa Sonora Poe (a.k.a. Susan Roces) filed a petition for her adoption with the
Municipal Trial Court (MTC) of San Juan City. On 13 May 1974, the trial court granted their petition
and ordered that petitioner's name be changed from "Mary Grace Natividad Contreras Militar" to
"Mary Grace Natividad Sonora Poe." Although necessary notations were made by OCR-Iloilo on
petitioner's foundling certificate reflecting the court decreed adoption,2 the petitioner's adoptive
mother discovered only sometime in the second half of 2005 that the lawyer who handled petitioner's
adoption failed to secure from the OCR-Iloilo a new Certificate of Live Birth indicating petitioner's
new name and the name of her adoptive parents. 3 Without delay, petitioner's mother executed an
affidavit attesting to the lawyer's omission which she submitted to the OCR-Iloilo. On 4 May 2006,
OCR-Iloilo issued a new Certificate of Live Birth in the name of Mary Grace Natividad Sonora Poe.4
Having reached the age of eighteen (18) years in 1986, petitioner registered as a voter with the local
COMELEC Office in San Juan City. On 13 December 1986, she received her COMELEC Voter's
Identification Card for Precinct No. 196 in Greenhills, San Juan, Metro Manila.5
On 4 April 1988, petitioner applied for and was issued Philippine Passport No. F9272876 by the
Department of Foreign Affairs (DFA). Subsequently, on 5 April 1993 and 19 May 1998, she renewed
her Philippine passport and respectively secured Philippine Passport Nos. L881511 and DD156616.7
Initially, the petitioner enrolled and pursued a degree in Development Studies at the University of the
Philippines8but she opted to continue her studies abroad and left for the United States of America
(U.S.) in 1988. Petitioner graduated in 1991 from Boston College in Chestnuts Hill, Massachusetts
where she earned her Bachelor of Arts degree in Political Studies.9
On 27 July 1991, petitioner married Teodoro Misael Daniel V. Llamanzares (Llamanzares), a citizen
of both the Philippines and the U.S., at Sanctuario de San Jose Parish in San Juan City. 10 Desirous
of being with her husband who was then based in the U.S., the couple flew back to the U.S. two
days after the wedding ceremony or on 29 July 1991. 11
While in the U.S., the petitioner gave birth to her eldest child Brian Daniel (Brian) on 16 April
1992.12 Her two daughters Hanna MacKenzie (Hanna) and Jesusa Anika (Anika) were both born in
the Philippines on 10 July 1998 and 5 June 2004, respectively. 13
On 18 October 2001, petitioner became a naturalized American citizen. 14 She obtained U.S.
Passport No. 017037793 on 19 December 2001. 15
On 8 April 2004, the petitioner came back to the Philippines together with Hanna to support her
father's candidacy for President in the May 2004 elections. It was during this time that she gave birth
to her youngest daughter Anika. She returned to the U.S. with her two daughters on 8 July 2004. 16
After a few months, specifically on 13 December 2004, petitioner rushed back to the Philippines
upon learning of her father's deteriorating medical condition. 17 Her father slipped into a coma and
eventually expired. The petitioner stayed in the country until 3 February 2005 to take care of her
father's funeral arrangements as well as to assist in the settlement of his estate.18
According to the petitioner, the untimely demise of her father was a severe blow to her entire family.
In her earnest desire to be with her grieving mother, the petitioner and her husband decided to move
and reside permanently in the Philippines sometime in the first quarter of 2005.19 The couple began
preparing for their resettlement including notification of their children's schools that they will be
transferring to Philippine schools for the next semester;20 coordination with property movers for the
relocation of their household goods, furniture and cars from the U.S. to the Philippines;21 and inquiry
with Philippine authorities as to the proper procedure to be followed in bringing their pet dog into the
country.22 As early as 2004, the petitioner already quit her job in the U.S.23
Finally, petitioner came home to the Philippines on 24 May 200524 and without delay, secured a Tax
Identification Number from the Bureau of Internal Revenue. Her three (3) children immediately
followed25 while her husband was forced to stay in the U.S. to complete pending projects as well as
to arrange the sale of their family home there.26
The petitioner and her children briefly stayed at her mother's place until she and her husband
purchased a condominium unit with a parking slot at One Wilson Place Condominium in San Juan
City in the second half of 2005.27 The corresponding Condominium Certificates of Title covering the
unit and parking slot were issued by the Register of Deeds of San Juan City to petitioner and her
husband on 20 February 2006.28 Meanwhile, her children of school age began attending Philippine
private schools.
On 14 February 2006, the petitioner made a quick trip to the U.S. to supervise the disposal of some
of the family's remaining household belongings.29 She travelled back to the Philippines on 11 March
2006.30
In late March 2006, petitioner's husband officially informed the U.S. Postal Service of the family's
change and abandonment of their address in the U.S.31 The family home was eventually sold on 27
April 2006.32 Petitioner's husband resigned from his job in the U.S. in April 2006, arrived in the
country on 4 May 2006 and started working for a major Philippine company in July 2006.33
In early 2006, petitioner and her husband acquired a 509-square meter lot in Corinthian Hills,
Quezon City where they built their family home34 and to this day, is where the couple and their
children have been residing.35 A Transfer Certificate of Title covering said property was issued in the
couple's name by the Register of Deeds of Quezon City on 1June 2006.
On 7 July 2006, petitioner took her Oath of Allegiance to the Republic of the Philippines pursuant to
Republic Act (R.A.) No. 9225 or the Citizenship Retention and Re-acquisition Act of 2003.36 Under
the same Act, she filed with the Bureau of Immigration (BI) a sworn petition to reacquire Philippine
citizenship together with petitions for derivative citizenship on behalf of her three minor children on
10 July 2006.37 As can be gathered from its 18 July 2006 Order, the BI acted favorably on petitioner's
petitions and declared that she is deemed to have reacquired her Philippine citizenship while her
children are considered as citizens of the Philippines.38 Consequently, the BI issued Identification
Certificates (ICs) in petitioner's name and in the names of her three (3) children. 39
Again, petitioner registered as a voter of Barangay Santa Lucia, San Juan City on 31 August
2006.40 She also secured from the DFA a new Philippine Passport bearing the No. XX4731999.41 This
passport was renewed on 18 March 2014 and she was issued Philippine Passport No. EC0588861
by the DFA.42
On 6 October 2010, President Benigno S. Aquino III appointed petitioner as Chairperson of the
Movie and Television Review and Classification Board (MTRCB).43 Before assuming her post,
petitioner executed an "Affidavit of Renunciation of Allegiance to the United States of America and
Renunciation of American Citizenship" before a notary public in Pasig City on 20 October 2010,44 in
satisfaction of the legal requisites stated in Section 5 of R.A. No. 9225.45 The following day, 21
October 2010 petitioner submitted the said affidavit to the BI46 and took her oath of office as
Chairperson of the MTRCB.47 From then on, petitioner stopped using her American passport.48
On 12 July 2011, the petitioner executed before the Vice Consul of the U.S. Embassy in Manila an
"Oath/Affirmation of Renunciation of Nationality of the United States."49 On that day, she
accomplished a sworn questionnaire before the U.S. Vice Consul wherein she stated that she had
taken her oath as MTRCB Chairperson on 21 October 2010 with the intent, among others, of
relinquishing her American citizenship.50 In the same questionnaire, the petitioner stated that she had
resided outside of the U.S., specifically in the Philippines, from 3 September 1968 to 29 July 1991
and from May 2005 to present.51
On 9 December 2011, the U.S. Vice Consul issued to petitioner a "Certificate of Loss of Nationality
of the United States" effective 21 October 2010.52
On 2 October 2012, the petitioner filed with the COMELEC her Certificate of Candidacy (COC) for
Senator for the 2013 Elections wherein she answered "6 years and 6 months" to the question
"Period of residence in the Philippines before May 13, 2013."53 Petitioner obtained the highest
number of votes and was proclaimed Senator on 16 May 2013. 54
On 19 December 2013, petitioner obtained Philippine Diplomatic Passport No. DE0004530. 55
On 15 October 2015, petitioner filed her COC for the Presidency for the May 2016 Elections. 56 In her
COC, the petitioner declared that she is a natural-born citizen and that her residence in the
Philippines up to the day before 9 May 2016 would be ten (10) years and eleven (11) months
counted from 24 May 2005.57 The petitioner attached to her COC an "Affidavit Affirming Renunciation
of U.S.A. Citizenship" subscribed and sworn to before a notary public in Quezon City on 14 October
2015. 58
Petitioner's filing of her COC for President in the upcoming elections triggered the filing of several
COMELEC cases against her which were the subject of these consolidated cases.
Origin of Petition for Certiorari in G.R. No. 221697
A day after petitioner filed her COC for President, Estrella Elamparo (Elamparo) filed a petition to
deny due course or cancel said COC which was docketed as SPA No. 15-001 (DC) and raffled to
the COMELEC Second Division.59She is convinced that the COMELEC has jurisdiction over her
petition.60 Essentially, Elamparo's contention is that petitioner committed material misrepresentation
when she stated in her COC that she is a natural-born Filipino citizen and that she is a resident of
the Philippines for at least ten (10) years and eleven (11) months up to the day before the 9 May
2016 Elections.61
On the issue of citizenship, Elamparo argued that petitioner cannot be considered as a natural-born
Filipino on account of the fact that she was a foundling.62 Elamparo claimed that international law
does not confer natural-born status and Filipino citizenship on foundlings.63 Following this line of
reasoning, petitioner is not qualified to apply for reacquisition of Filipino citizenship under R.A. No.
9225 for she is not a natural-born Filipino citizen to begin with.64 Even assuming arguendo that
petitioner was a natural-born Filipino, she is deemed to have lost that status when she became a
naturalized American citizen.65 According to Elamparo, natural-born citizenship must be continuous
from birth.66
On the matter of petitioner's residency, Elamparo pointed out that petitioner was bound by the sworn
declaration she made in her 2012 COC for Senator wherein she indicated that she had resided in
the country for only six ( 6) years and six ( 6) months as of May 2013 Elections. Elamparo likewise
insisted that assuming arguendo that petitioner is qualified to regain her natural-born status under
R.A. No. 9225, she still fell short of the ten-year residency requirement of the Constitution as her
residence could only be counted at the earliest from July 2006, when she reacquired Philippine
citizenship under the said Act. Also on the assumption that petitioner is qualified to reacquire lost
Philippine Citizenship, Elamparo is of the belief that she failed to reestablish her domicile in the
Philippines.67
Petitioner seasonably filed her Answer wherein she countered that:
(1) the COMELEC did not have jurisdiction over Elamparo's petition as it was actually a
petition for quo warranto which could only be filed if Grace Poe wins in the Presidential
elections, and that the Department of Justice (DOJ) has primary jurisdiction to revoke the
BI's July 18, 2006 Order;
(2) the petition failed to state a cause of action because it did not contain allegations which, if
hypothetically admitted, would make false the statement in her COC that she is a natural-
born Filipino citizen nor was there any allegation that there was a willful or deliberate intent to
misrepresent on her part;
(3) she did not make any material misrepresentation in the COC regarding her citizenship
and residency qualifications for:
a. the 1934 Constitutional Convention deliberations show that foundlings were

considered citizens;
b. foundlings are presumed under international law to have been born of citizens of
the place where they are found;
c. she reacquired her natural-born Philippine citizenship under the provisions of R.A.
No. 9225;
d. she executed a sworn renunciation of her American citizenship prior to the filing of
her COC for President in the May 9, 2016 Elections and that the same is in full force
and effect and has not been withdrawn or recanted;
e. the burden was on Elamparo in proving that she did not possess natural-born
status;
f. residence is a matter of evidence and that she reestablished her domicile in the
Philippines as early as May 24, 2005;
g. she could reestablish residence even before she reacquired natural-born

citizenship under R.A. No. 9225;
h. statement regarding the period of residence in her 2012 COC for Senator was an
honest mistake, not binding and should give way to evidence on her true date of
reacquisition of domicile;
i. Elamparo's petition is merely an action to usurp the sovereign right of the Filipino
people to decide a purely political question, that is, should she serve as the country's
next leader.68
After the parties submitted their respective Memoranda, the petition was deemed submitted for
resolution.
On 1 December 2015, the COMELEC Second Division promulgated a Resolution finding that
petitioner's COC, filed for the purpose of running for the President of the Republic of the Philippines
in the 9 May 2016 National and Local Elections, contained material representations which are false.
The fallo of the aforesaid Resolution reads:
WHEREFORE, in view of all the foregoing considerations, the instant Petition to Deny Due Course
to or Cancel Certificate of Candidacy is hereby GRANTED. Accordingly, the Certificate of Candidacy
for President of the Republic of the Philippines in the May 9, 2016 National and Local Elections filed
by respondent Mary Grace Natividad Sonora Poe Llamanzares is hereby CANCELLED.69
Motion for Reconsideration of the 1 December 2015 Resolution was filed by petitioner which the
COMELEC En Banc resolved in its 23 December 2015 Resolution by denying the same.70
Origin of Petition for Certiorari in G.R. Nos. 221698-700
This case stemmed from three (3) separate petitions filed by Francisco S. Tatad (Tatad), Antonio P.
Contreras (Contreras) and Amado D. Valdez (Valdez) against petitioner before the COMELEC which
were consolidated and raffled to its First Division.
In his petition to disqualify petitioner under Rule 25 of the COMELEC Rules of Procedure,71 docketed
as SPA No. 15-002 (DC), Tatad alleged that petitioner lacks the requisite residency and citizenship
to qualify her for the Presidency.72
Tatad theorized that since the Philippines adheres to the principle of jus sanguinis, persons of
unknown parentage, particularly foundlings, cannot be considered natural-born Filipino citizens since
blood relationship is determinative of natural-born status.73 Tatad invoked the rule of statutory
construction that what is not included is excluded. He averred that the fact that foundlings were not
expressly included in the categories of citizens in the 193 5 Constitution is indicative of the framers'
intent to exclude them.74 Therefore, the burden lies on petitioner to prove that she is a natural-born
citizen.75
Neither can petitioner seek refuge under international conventions or treaties to support her claim
that foundlings have a nationality.76 According to Tatad, international conventions and treaties are not
self-executory and that local legislations are necessary in order to give effect to treaty obligations
assumed by the Philippines.77 He also stressed that there is no standard state practice that
automatically confers natural-born status to foundlings.78
Similar to Elamparo's argument, Tatad claimed that petitioner cannot avail of the option to reacquire
Philippine citizenship under R.A. No. 9225 because it only applies to former natural-born citizens
and petitioner was not as she was a foundling.79
Referring to petitioner's COC for Senator, Tatad concluded that she did not comply with the ten (10)
year residency requirement.80 Tatad opined that petitioner acquired her domicile in Quezon City only
from the time she renounced her American citizenship which was sometime in 2010 or
2011.81 Additionally, Tatad questioned petitioner's lack of intention to abandon her U.S. domicile as
evinced by the fact that her husband stayed thereat and her frequent trips to the U.S.82
In support of his petition to deny due course or cancel the COC of petitioner, docketed as SPA No.
15-139 (DC), Valdez alleged that her repatriation under R.A. No. 9225 did not bestow upon her the
status of a natural-born citizen.83 He advanced the view that former natural-born citizens who are
repatriated under the said Act reacquires only their Philippine citizenship and will not revert to their
original status as natural-born citizens.84
He further argued that petitioner's own admission in her COC for Senator that she had only been a
resident of the Philippines for at least six (6) years and six (6) months prior to the 13 May 2013
Elections operates against her. Valdez rejected petitioner's claim that she could have validly
reestablished her domicile in the Philippines prior to her reacquisition of Philippine citizenship. In
effect, his position was that petitioner did not meet the ten (10) year residency requirement for
President.
Unlike the previous COMELEC cases filed against petitioner, Contreras' petition,85 docketed as SPA
No. 15-007 (DC), limited the attack to the residency issue. He claimed that petitioner's 2015 COC for
President should be cancelled on the ground that she did not possess the ten-year period of
residency required for said candidacy and that she made false entry in her COC when she stated
that she is a legal resident of the Philippines for ten (10) years and eleven (11) months by 9 May
2016.86 Contreras contended that the reckoning period for computing petitioner's residency in the
Philippines should be from 18 July 2006, the date when her petition to reacquire Philippine
citizenship was approved by the BI.87 He asserted that petitioner's physical presence in the country
before 18 July 2006 could not be valid evidence of reacquisition of her Philippine domicile since she
was then living here as an American citizen and as such, she was governed by the Philippine
immigration laws.88
In her defense, petitioner raised the following arguments:
First, Tatad's petition should be dismissed outright for failure to state a cause of action. His petition
did not invoke grounds proper for a disqualification case as enumerated under Sections 12 and 68 of
the Omnibus Election Code.89 Instead, Tatad completely relied on the alleged lack of residency and
natural-born status of petitioner which are not among the recognized grounds for the disqualification
of a candidate to an elective office.90
Second, the petitions filed against her are basically petitions for quo warranto as they focus on
establishing her ineligibility for the Presidency.91 A petition for quo warranto falls within the exclusive
jurisdiction of the Presidential Electoral Tribunal (PET) and not the COMELEC.92
Third, the burden to prove that she is not a natural-born Filipino citizen is on the
respondents.93 Otherwise stated, she has a presumption in her favor that she is a natural-born citizen
of this country.
Fourth, customary international law dictates that foundlings are entitled to a nationality and are
presumed to be citizens of the country where they are found.94 Consequently, the petitioner is
considered as a natural-born citizen of the Philippines.95
Fifth, she claimed that as a natural-born citizen, she has every right to be repatriated under R.A. No.
9225 or the right to reacquire her natural-born status.96 Moreover, the official acts of the Philippine
Government enjoy the presumption of regularity, to wit: the issuance of the 18 July 2006 Order of the
BI declaring her as natural-born citizen, her appointment as MTRCB Chair and the issuance of the
decree of adoption of San Juan RTC.97 She believed that all these acts reinforced her position that
she is a natural-born citizen of the Philippines.98
Sixth, she maintained that as early as the first quarter of 2005, she started reestablishing her
domicile of choice in the Philippines as demonstrated by her children's resettlement and schooling in
the country, purchase of a condominium unit in San Juan City and the construction of their family
home in Corinthian Hills.99
Seventh, she insisted that she could legally reestablish her domicile of choice in the Philippines even
before she renounced her American citizenship as long as the three determinants for a change of
domicile are complied with.100 She reasoned out that there was no requirement that renunciation of
foreign citizenship is a prerequisite for the acquisition of a new domicile of choice.101
Eighth, she reiterated that the period appearing in the residency portion of her COC for Senator was
a mistake made in good faith.102
In a Resolution103 promulgated on 11 December 2015, the COMELEC First Division ruled that
petitioner is not a natural-born citizen, that she failed to complete the ten (10) year residency
requirement, and that she committed material misrepresentation in her COC when she declared
therein that she has been a resident of the Philippines for a period of ten (10) years and eleven (11)
months as of the day of the elections on 9 May 2016. The COMELEC First Division concluded that
she is not qualified for the elective position of President of the Republic of the Philippines. The
dispositive portion of said Resolution reads:
WHEREFORE, premises considered, the Commission RESOLVED, as it hereby RESOLVES,

to GRANT the Petitions and cancel the Certificate of Candidacy of MARY GRACE NATIVIDAD
SONORA POE-LLAMANZARES for the elective position of President of the Republic of the
Philippines in connection with the 9 May 2016 Synchronized Local and National Elections.
Petitioner filed a motion for reconsideration seeking a reversal of the COMELEC First Division's
Resolution. On 23 December 2015, the COMELEC En Banc issued a Resolution denying petitioner's
motion for reconsideration.
Alarmed by the adverse rulings of the COMELEC, petitioner instituted the present petitions
for certiorari with urgent prayer for the issuance of an ex parte temporary restraining order/status
quo ante order and/or writ of preliminary injunction. On 28 December 2015, temporary restraining
orders were issued by the Court enjoining the COMELEC and its representatives from implementing
the assailed COMELEC Resolutions until further orders from the Court. The Court also ordered the
consolidation of the two petitions filed by petitioner in its Resolution of 12 January 2016. Thereafter,
oral arguments were held in these cases.
The Court GRANTS the petition of Mary Grace Natividad S. Poe-Llamanzares and to ANNUL and
SET ASIDE the:
1. Resolution dated 1 December 2015 rendered through its Second Division, in SPA No. 15-
001 (DC), entitled Estrella C. Elamparo, petitioner, vs. Mary Grace Natividad Sonora Poe-
Llamanzares.
2. Resolution dated 11 December 2015, rendered through its First Division, in the
consolidated cases SPA No. 15-002 (DC) entitled Francisco S. Tatad, petitioner, vs. Mary
Grace Natividad Sonora Poe-Llamanzares, respondent; SPA No. 15-007 (DC)
entitled Antonio P. Contreras, petitioner, vs. Mary Grace Natividad Sonora Poe-Llamanzares,
respondent; and SPA No. 15-139 (DC) entitled Amado D. Valdez, petitioner, v. Mary Grace
Natividad Sonora Poe-Llamanzares, respondent.
3. Resolution dated 23 December 2015 of the Commission En Banc, upholding the 1

December 2015 Resolution of the Second Division.
4. Resolution dated 23 December 2015 of the Commission En Banc, upholding the 11

December 2015 Resolution of the First Division.
The procedure and the conclusions from which the questioned Resolutions emanated are tainted
with grave abuse of discretion amounting to lack of jurisdiction. The petitioner is a QUALIFIED
CANDIDATE for President in the 9 May 2016 National Elections.
The issue before the COMELEC is whether or not the COC of petitioner should be denied due
course or cancelled "on the exclusive ground" that she made in the certificate a false material
representation. The exclusivity of the ground should hedge in the discretion of the COMELEC and
restrain it from going into the issue of the qualifications of the candidate for the position, if, as in this
case, such issue is yet undecided or undetermined by the proper authority. The COMELEC cannot
itself, in the same cancellation case, decide the qualification or lack thereof of the candidate.
We rely, first of all, on the Constitution of our Republic, particularly its provisions in Article IX, C,
Section 2:
Section 2. The Commission on Elections shall exercise the following powers and functions:
(1) Enforce and administer all laws and regulations relative to the conduct of an
election, plebiscite, initiative, referendum, and recall.
(2) Exercise exclusive original jurisdiction over all contests relating to the elections,
returns, and qualifications of all elective regional, provincial, and city officials, and
appellate jurisdiction over all contests involving elective municipal officials decided by
trial courts of general jurisdiction, or involving elective barangay officials decided by
trial courts of limited jurisdiction.
Decisions, final orders, or rulings of the Commission on election contests involving

elective municipal and barangay offices shall be final, executory, and not appealable.
(3) Decide, except those involving the right to vote, all questions affecting elections,
including determination of the number and location of polling places, appointment of
election officials and inspectors, and registration of voters.
(4) Deputize, with the concurrence of the President, law enforcement agencies and
instrumentalities of the Government, including the Armed Forces of the Philippines,
for the exclusive purpose of ensuring free, orderly, honest, peaceful, and credible
elections.
(5) Register, after sufficient publication, political parties, organizations, or coalitions

which, in addition to other requirements, must present their platform or program of
government; and accredit citizens' arms of the Commission on Elections. Religious
denominations and sects shall not be registered. Those which seek to achieve their
goals through violence or unlawful means, or refuse to uphold and adhere to this
Constitution, or which are supported by any foreign government shall likewise be
refused registration.
Financial contributions from foreign governments and their agencies to political

parties, organizations, coalitions, or candidates related to elections constitute
interference in national affairs, and, when accepted, shall be an additional ground for
the cancellation of their registration with the Commission, in addition to other
penalties that may be prescribed by law.
(6) File, upon a verified complaint, or on its own initiative, petitions in court for
inclusion or exclusion of voters; investigate and, where appropriate, prosecute cases
of violations of election laws, including acts or omissions constituting election frauds,
offenses, and malpractices.
(7) Recommend to the Congress effective measures to minimize election spending,

including limitation of places where propaganda materials shall be posted, and to
prevent and penalize all forms of election frauds, offenses, malpractices, and
nuisance candidacies.
(8) Recommend to the President the removal of any officer or employee it has
deputized, or the imposition of any other disciplinary action, for violation or disregard
of, or disobedience to its directive, order, or decision.
(9) Submit to the President and the Congress a comprehensive report on the conduct
of each election, plebiscite, initiative, referendum, or recall.
Not any one of the enumerated powers approximate the exactitude of the provisions of Article VI,
Section 17 of the same basic law stating that:
The Senate and the House of Representatives shall each have an Electoral Tribunal which
shall be the sole judge of all contests relating to the election, returns, and qualifications of
their respective Members. Each Electoral Tribunal shall be composed of nine Members,
three of whom shall be Justices of the Supreme Court to be designated by the Chief Justice,
and the remaining six shall be Members of the Senate or the House of Representatives, as
the case may be, who shall be chosen on the basis of proportional representation from the
political parties and the parties or organizations registered under the party-list system
represented therein. The senior Justice in the Electoral Tribunal shall be its Chairman.
or of the last paragraph of Article VII, Section 4 which provides that:
The Supreme Court, sitting en banc, shall be the sole judge of all contests relating to the
election, returns, and qualifications of the President or Vice-President, and may promulgate
its rules for the purpose.
The tribunals which have jurisdiction over the question of the qualifications of the President, the
Vice-President, Senators and the Members of the House of Representatives was made clear by the
Constitution. There is no such provision for candidates for these positions.
Can the COMELEC be such judge?
The opinion of Justice Vicente V. Mendoza in Romualdez-Marcos v. Commission on

Elections,104 which was affirmatively cited in the En Banc decision in Fermin v. COMELEC105 is our
guide. The citation in Fermin reads:
Apparently realizing the lack of an authorized proceeding for declaring the ineligibility of candidates,
the COMELEC amended its rules on February 15, 1993 so as to provide in Rule 25 1, the
following:
Grounds for disqualification. - Any candidate who does not possess all the
qualifications of a candidate as provided for by the Constitution or by existing law or
who commits any act declared by law to be grounds for disqualification may be
disqualified from continuing as a candidate.
The lack of provision for declaring the ineligibility of candidates, however, cannot be supplied by a
mere rule. Such an act is equivalent to the creation of a cause of action which is a substantive
matter which the COMELEC, in the exercise of its rule-making power under Art. IX, A, 6 of the
Constitution, cannot do it. It is noteworthy that the Constitution withholds from the COMELEC even
the power to decide cases involving the right to vote, which essentially involves an inquiry
into qualifications based on age, residence and citizenship of voters. [Art. IX, C, 2(3)]
The assimilation in Rule 25 of the COMELEC rules of grounds for ineligibility into grounds for
disqualification is contrary to the evident intention of the law. For not only in their grounds but also in
their consequences are proceedings for "disqualification" different from those for a declaration of
"ineligibility." "Disqualification" proceedings, as already stated, are based on grounds specified in
12 and 68 of the Omnibus Election Code and in 40 of the Local Government Code and are for the
purpose of barring an individual from becoming a candidate or from continuing as a candidate for
public office. In a word, their purpose is to eliminate a candidate from the race either from the start or
during its progress. "Ineligibility," on the other hand, refers to the lack of the qualifications prescribed
in the Constitution or the statutes for holding public office and the purpose of the proceedings for
declaration of ineligibility is to remove the incumbent from office.
Consequently, that an individual possesses the qualifications for a public office does not imply that
he is not disqualified from becoming a candidate or continuing as a candidate for a public office and
vice versa. We have this sort of dichotomy in our Naturalization Law. (C.A. No. 473) That an alien
has the qualifications prescribed in 2 of the Law does not imply that he does not suffer from any of
[the] disqualifications provided in 4.
Before we get derailed by the distinction as to grounds and the consequences of the respective
proceedings, the importance of the opinion is in its statement that "the lack of provision for declaring
the ineligibility of candidates, however, cannot be supplied by a mere rule". Justice Mendoza
lectured in Romualdez-Marcos that:
Three reasons may be cited to explain the absence of an authorized proceeding for
determining before election the qualifications of a candidate.
First is the fact that unless a candidate wins and is proclaimed elected, there is no necessity for
determining his eligibility for the office. In contrast, whether an individual should be disqualified as a
candidate for acts constituting election offenses (e.g., vote buying, over spending, commission of
prohibited acts) is a prejudicial question which should be determined lest he wins because of the
very acts for which his disqualification is being sought. That is why it is provided that if the grounds
for disqualification are established, a candidate will not be voted for; if he has been voted for, the
votes in his favor will not be counted; and if for some reason he has been voted for and he has won,
either he will not be proclaimed or his proclamation will be set aside.
Second is the fact that the determination of a candidates' eligibility, e.g., his citizenship or, as in this
case, his domicile, may take a long time to make, extending beyond the beginning of the term of the
office. This is amply demonstrated in the companion case (G.R. No. 120265, Agapito A. Aquino v.
COMELEC) where the determination of Aquino's residence was still pending in the COMELEC even
after the elections of May 8, 1995. This is contrary to the summary character proceedings relating to
certificates of candidacy. That is why the law makes the receipt of certificates of candidacy a
ministerial duty of the COMELEC and its officers. The law is satisfied if candidates state in their
certificates of candidacy that they are eligible for the position which they seek to fill, leaving the
determination of their qualifications to be made after the election and only in the event they are
elected. Only in cases involving charges of false representations made in certificates of candidacy is
the COMELEC given jurisdiction.
Third is the policy underlying the prohibition against pre-proclamation cases in elections for
President, Vice President, Senators and members of the House of Representatives. (R.A. No. 7166,
15) The purpose is to preserve the prerogatives of the House of Representatives Electoral Tribunal
and the other Tribunals as "sole judges" under the Constitution of the election,
returns and qualifications of members of Congress of the President and Vice President, as the case
may be.106
To be sure, the authoritativeness of the Romualdez pronouncements as reiterated in Fermin, led to

the amendment through COMELEC Resolution No. 9523, on 25 September 2012 of its Rule 25.
This, the 15 February1993 version of Rule 25, which states that:
Grounds for disqualification. -Any candidate who does not possess all the qualifications of a
candidate as provided for by the Constitution or by existing law or who commits any act declared by
law to be grounds for disqualification may be disqualified from continuing as a candidate.107
was in the 2012 rendition, drastically changed to:
Grounds. - Any candidate who, in action or protest in which he is a party, is declared by final
decision of a competent court, guilty of, or found by the Commission to be suffering from any
disqualification provided by law or the Constitution.
A Petition to Disqualify a Candidate invoking grounds for a Petition to Deny to or Cancel a Certificate
of Candidacy or Petition to Declare a Candidate as a Nuisance Candidate, or a combination thereof,
shall be summarily dismissed.
Clearly, the amendment done in 2012 is an acceptance of the reality of absence of an authorized
proceeding for determining before election the qualifications of candidate. Such that, as presently
required, to disqualify a candidate there must be a declaration by a final judgment of a competent
court that the candidate sought to be disqualified "is guilty of or found by the Commission to be
suffering from any disqualification provided by law or the Constitution."
Insofar as the qualification of a candidate is concerned, Rule 25 and Rule 23 are flipsides of one to
the other. Both do not allow, are not authorizations, are not vestment of jurisdiction, for the
COMELEC to determine the qualification of a candidate. The facts of qualification must beforehand
be established in a prior proceeding before an authority properly vested with jurisdiction. The prior
determination of qualification may be by statute, by executive order or by a judgment of a competent
court or tribunal.
If a candidate cannot be disqualified without a prior finding that he or she is suffering from a
disqualification "provided by law or the Constitution," neither can the certificate of candidacy be
cancelled or denied due course on grounds of false representations regarding his or her
qualifications, without a prior authoritative finding that he or she is not qualified, such prior authority
being the necessary measure by which the falsity of the representation can be found. The only
exception that can be conceded are self-evident facts of unquestioned or unquestionable veracity
and judicial confessions. Such are, anyway, bases equivalent to prior decisions against which the
falsity of representation can be determined.
The need for a predicate finding or final pronouncement in a proceeding under Rule 23 that deals
with, as in this case, alleged false representations regarding the candidate's citizenship and
residence, forced the COMELEC to rule essentially that since foundlings108 are not mentioned in the
enumeration of citizens under the 1935 Constitution,109 they then cannot be citizens. As the
COMELEC stated in oral arguments, when petitioner admitted that she is a foundling, she said it all.
This borders on bigotry. Oddly, in an effort at tolerance, the COMELEC, after saying that it cannot
rule that herein petitioner possesses blood relationship with a Filipino citizen when "it is certain that
such relationship is indemonstrable," proceeded to say that "she now has the burden to present
evidence to prove her natural filiation with a Filipino parent."
The fact is that petitioner's blood relationship with a Filipino citizen is DEMONSTRABLE.
At the outset, it must be noted that presumptions regarding paternity is neither unknown nor
unaccepted in Philippine Law. The Family Code of the Philippines has a whole chapter on Paternity
and Filiation.110 That said, there is more than sufficient evider1ce that petitioner has Filipino parents
and is therefore a natural-born Filipino. Parenthetically, the burden of proof was on private
respondents to show that petitioner is not a Filipino citizen. The private respondents should have
shown that both of petitioner's parents were aliens. Her admission that she is a foundling did not shift
the burden to her because such status did not exclude the possibility that her parents were Filipinos,
especially as in this case where there is a high probability, if not certainty, that her parents are
Filipinos.
The factual issue is not who the parents of petitioner are, as their identities are unknown, but
whether such parents are Filipinos. Under Section 4, Rule 128:
Sect. 4. Relevancy, collateral matters - Evidence must have such a relation to the fact in issue as to
induce belief in its existence or no-existence. Evidence on collateral matters shall not be allowed,
except when it tends in any reasonable degree to establish the probability of improbability of the fact
in issue.
The Solicitor General offered official statistics from the Philippine Statistics Authority (PSA)111 that
from 1965 to 1975, the total number of foreigners born in the Philippines was 15,986 while the total
number of Filipinos born in the country was 10,558,278. The statistical probability that any child born
in the Philippines in that decade is natural-born Filipino was 99.83%. For her part, petitioner
presented census statistics for Iloilo Province for 1960 and 1970, also from the PSA. In 1960, there
were 962,532 Filipinos and 4,734 foreigners in the province; 99.62% of the population were Filipinos.
In 1970, the figures were 1,162,669 Filipinos and 5,304 foreigners, or 99.55%. Also presented were
figures for the child producing ages (15-49). In 1960, there were 230,528 female Filipinos as against
730 female foreigners or 99.68%. In the same year, there were 210,349 Filipino males and 886 male
aliens, or 99.58%. In 1970, there were 270,299 Filipino females versus 1, 190 female aliens,
or 99.56%. That same year, there were 245,740 Filipino males as against only 1,165 male aliens
or 99.53%. COMELEC did not dispute these figures. Notably, Commissioner Arthur Lim admitted,
during the oral arguments, that at the time petitioner was found in 1968, the majority of the
population in Iloilo was Filipino.112
Other circumstantial evidence of the nationality of petitioner's parents are the fact that she was
abandoned as an infant in a Roman Catholic Church in Iloilo City. She also has typical Filipino
1w phi 1
features: height, flat nasal bridge, straight black hair, almond shaped eyes and an oval face.
There is a disputable presumption that things have happened according to the ordinary course of
nature and the ordinary habits of life.113 All of the foregoing evidence, that a person with typical
Filipino features is abandoned in Catholic Church in a municipality where the population of the
Philippines is overwhelmingly Filipinos such that there would be more than a 99% chance that a
child born in the province would be a Filipino, would indicate more than ample probability if not
statistical certainty, that petitioner's parents are Filipinos. That probability and the evidence on which
it is based are admissible under Rule 128, Section 4 of the Revised Rules on Evidence.
To assume otherwise is to accept the absurd, if not the virtually impossible, as the norm. In the
words of the Solicitor General:
Second. It is contrary to common sense because foreigners do not come to the Philippines so they
can get pregnant and leave their newborn babies behind. We do not face a situation where the
probability is such that every foundling would have a 50% chance of being a Filipino and a 50%
chance of being a foreigner. We need to frame our questions properly. What are the chances that
the parents of anyone born in the Philippines would be foreigners? Almost zero. What are the
chances that the parents of anyone born in the Philippines would be Filipinos? 99.9%.
According to the Philippine Statistics Authority, from 2010 to 2014, on a yearly average, there were
1,766,046 children born in the Philippines to Filipino parents, as opposed to 1,301 children in the
Philippines of foreign parents. Thus, for that sample period, the ratio of non-Filipino children to
natural born Filipino children is 1:1357. This means that the statistical probability that any child born
in the Philippines would be a natural born Filipino is 99.93%.
From 1965 to 1975, the total number of foreigners born in the Philippines is 15,986 while the total
number of Filipinos born in the Philippines is 15,558,278. For this period, the ratio of non-Filipino
children is 1:661. This means that the statistical probability that any child born in the Philippines on
that decade would be a natural born Filipino is 99.83%.
We can invite statisticians and social anthropologists to crunch the numbers for us, but I am
confident that the statistical probability that a child born in the Philippines would be a natural born
Filipino will not be affected by whether or not the parents are known. If at all, the likelihood that a
foundling would have a Filipino parent might even be higher than 99.9%. Filipinos abandon their
children out of poverty or perhaps, shame. We do not imagine foreigners abandoning their children
here in the Philippines thinking those infants would have better economic opportunities or believing
that this country is a tropical paradise suitable for raising abandoned children. I certainly doubt
whether a foreign couple has ever considered their child excess baggage that is best left behind.
To deny full Filipino citizenship to all foundlings and render them stateless just because there may
be a theoretical chance that one among the thousands of these foundlings might be the child of not
just one, but two, foreigners is downright discriminatory, irrational, and unjust. It just doesn't make
any sense. Given the statistical certainty - 99.9% - that any child born in the Philippines would be a
natural born citizen, a decision denying foundlings such status is effectively a denial of their
birthright. There is no reason why this Honorable Court should use an improbable hypothetical to
sacrifice the fundamental political rights of an entire class of human beings. Your Honor,
constitutional interpretation and the use of common sense are not separate disciplines.
As a matter of law, foundlings are as a class, natural-born citizens. While the 1935 Constitution's
enumeration is silent as to foundlings, there is no restrictive language which would definitely exclude
foundlings either. Because of silence and ambiguity in the enumeration with respect to foundlings,
there is a need to examine the intent of the framers. In Nitafan v. Commissioner of Internal
Revenue,114 this Court held that:
The ascertainment of that intent is but in keeping with the fundamental principle of
constitutional construction that the intent of the framers of the organic law and of the people
adopting it should be given effect. The primary task in constitutional construction is to
ascertain and thereafter assure the realization of the purpose of the framers and of the
people in the adoption of the Constitution. It may also be safely assumed that the people in
ratifying the Constitution were guided mainly by the explanation offered by the framers.115
As pointed out by petitioner as well as the Solicitor General, the deliberations of the 1934
Constitutional Convention show that the framers intended foundlings to be covered by the
enumeration. The following exchange is recorded:
Sr. Rafols: For an amendment. I propose that after subsection 2, the following is inserted: "The
natural children of a foreign father and a Filipino mother not recognized by the father.
xxxx
President:
[We] would like to request a clarification from the proponent of the amendment. The gentleman
refers to natural children or to any kind of illegitimate children?
Sr. Rafols:
To all kinds of illegitimate children. It also includes natural children of unknown parentage, natural or
illegitimate children of unknown parents.
Sr. Montinola:
For clarification. The gentleman said "of unknown parents." Current codes consider them Filipino,
that is, I refer to the Spanish Code wherein all children of unknown parentage born in Spanish
territory are considered Spaniards, because the presumption is that a child of unknown parentage is
the son of a Spaniard. This may be applied in the Philippines in that a child of unknown parentage
born in the Philippines is deemed to be Filipino, and there is no need ...
Sr. Rafols:
There is a need, because we are relating the conditions that are [required] to be Filipino.
Sr. Montinola:
But that is the interpretation of the law, therefore, there is no [more] need for amendment.
Sr. Rafols:
The amendment should read thus:
"Natural or illegitimate of a foreign father and a Filipino mother recognized by one, or the children of
unknown parentage."
Sr. Briones:
The amendment [should] mean children born in the Philippines of unknown parentage.
Sr. Rafols:
The son of a Filipina to a Foreigner, although this [person] does not recognize the child, is not
unknown.
President:
Does the gentleman accept the amendment or not?
Sr. Rafols:
I do not accept the amendment because the amendment would exclude the children of a Filipina
with a foreigner who does not recognize the child. Their parentage is not unknown and I think those
of overseas Filipino mother and father [whom the latter] does not recognize, should also be
considered as Filipinos.
President:
The question in order is the amendment to the amendment from the Gentleman from Cebu, Mr.
Briones.
Sr. Busion:
Mr. President, don't you think it would be better to leave this matter in the hands of the Legislature?
Sr. Roxas:
Mr. President, my humble opinion is that these cases are few and far in between, that the
constitution need [not] refer to them. By international law the principle that children or people born in
a country of unknown parents are citizens in this nation is recognized, and it is not necessary to
include a provision on the subject exhaustively.116
Though the Rafols amendment was not carried out, it was not because there was any objection to
the notion that persons of "unknown parentage" are not citizens but only because their number was
not enough to merit specific mention. Such was the account,117 cited by petitioner, of delegate and
constitution law author Jose Aruego who said:
During the debates on this provision, Delegate Rafols presented an amendment to include
as Filipino citizens the illegitimate children with a foreign father of a mother who was a citizen
of the Philippines, and also foundlings; but this amendment was defeated primarily because
the Convention believed that the cases, being too few to warrant the inclusion of a provision
in the Constitution to apply to them, should be governed by statutory legislation. Moreover, it
was believed that the rules of international law were already clear to the effect that
illegitimate children followed the citizenship of the mother, and that foundlings followed the
nationality of the place where they were found, thereby making unnecessary the inclusion in
the Constitution of the proposed amendment.
This explanation was likewise the position of the Solicitor General during the 16 February 2016 Oral
Arguments:
We all know that the Rafols proposal was rejected. But note that what was declined was the
proposal for a textual and explicit recognition of foundlings as Filipinos. And so, the way to explain
the constitutional silence is by saying that it was the view of Montinola and Roxas which prevailed
that there is no more need to expressly declare foundlings as Filipinos.
Obviously, it doesn't matter whether Montinola's or Roxas' views were legally correct. Framers of a
constitution can constitutionalize rules based on assumptions that are imperfect or even wrong. They
can even overturn existing rules. This is basic. What matters here is that Montinola and Roxas were
able to convince their colleagues in the convention that there is no more need to expressly declare
foundlings as Filipinos because they are already impliedly so recognized.
In other words, the constitutional silence is fully explained in terms of linguistic efficiency and the
avoidance of redundancy. The policy is clear: it is to recognize foundlings, as a class, as Filipinos
under Art. IV, Section 1 (3) of the 1935 Constitution. This inclusive policy is carried over into the
1973 and 1987 Constitution. It is appropriate to invoke a famous scholar as he was paraphrased by
Chief Justice Fernando: the constitution is not silently silent, it is silently vocal. 118
The Solicitor General makes the further point that the framers "worked to create a just and humane
society," that "they were reasonable patriots and that it would be unfair to impute upon them a
discriminatory intent against foundlings." He exhorts that, given the grave implications of the
argument that foundlings are not natural-born Filipinos, the Court must search the records of the
1935, 1973 and 1987 Constitutions "for an express intention to deny foundlings the status of
Filipinos. The burden is on those who wish to use the constitution to discriminate against foundlings
to show that the constitution really intended to take this path to the dark side and inflict this across
the board marginalization."
We find no such intent or language permitting discrimination against foundlings. On the contrary, all
three Constitutions guarantee the basic right to equal protection of the laws. All exhort the State to
render social justice. Of special consideration are several provisions in the present charter: Article II,
Section 11 which provides that the "State values the dignity of every human person and guarantees
full respect for human rights," Article XIII, Section 1 which mandates Congress to "give highest
priority to the enactment of measures that protect and enhance the right of all the people to human
dignity, reduce social, economic, and political inequalities x x x" and Article XV, Section 3 which
requires the State to defend the "right of children to assistance, including proper care and nutrition,
and special protection from all forms of neglect, abuse, cruelty, exploitation, and other conditions
prejudicial to their development." Certainly, these provisions contradict an intent to discriminate
against foundlings on account of their unfortunate status.
Domestic laws on adoption also support the principle that foundlings are Filipinos. These laws do not
provide that adoption confers citizenship upon the adoptee. Rather, the adoptee must be a Filipino in
the first place to be adopted. The most basic of such laws is Article 15 of the Civil Code which
provides that "[l]aws relating to family rights, duties, status, conditions, legal capacity of persons are
binding on citizens of the Philippines even though living abroad." Adoption deals with status, and a
Philippine adoption court will have jurisdiction only if the adoptee is a Filipino. In Ellis and Ellis v.
Republic,119 a child left by an unidentified mother was sought to be adopted by aliens. This Court
said:
In this connection, it should be noted that this is a proceedings in rem, which no court may entertain
unless it has jurisdiction, not only over the subject matter of the case and over the parties, but also
over the res, which is the personal status of Baby Rose as well as that of petitioners herein. Our Civil
Code (Art. 15) adheres to the theory that jurisdiction over the status of a natural person is
determined by the latter's nationality. Pursuant to this theory, we have jurisdiction over the status of
Baby Rose, she being a citizen of the Philippines, but not over the status of the petitioners, who are
foreigners.120 (Underlining supplied)
Recent legislation is more direct. R.A. No. 8043 entitled "An Act Establishing the Rules to Govern
the Inter-Country Adoption of Filipino Children and For Other Purposes" (otherwise known as the
"Inter-Country Adoption Act of 1995"), R.A. No. 8552, entitled "An Act Establishing the Rules and
Policies on the Adoption of Filipino Children and For Other Purposes" (otherwise known as the
Domestic Adoption Act of 1998) and this Court's A.M. No. 02-6-02-SC or the "Rule on Adoption," all
expressly refer to "Filipino children" and include foundlings as among Filipino children who may be
adopted.
It has been argued that the process to determine that the child is a foundling leading to the issuance
of a foundling certificate under these laws and the issuance of said certificate are acts to acquire or
perfect Philippine citizenship which make the foundling a naturalized Filipino at best. This is
erroneous. Under Article IV, Section 2 "Natural-born citizens are those who are citizens of the
Philippines from birth without having to perform any act to acquire or perfect their Philippine
citizenship." In the first place, "having to perform an act" means that the act must be personally done
by the citizen. In this instance, the determination of foundling status is done not by the child but by
the authorities.121 Secondly, the object of the process is the determination of the whereabouts of the
parents, not the citizenship of the child. Lastly, the process is certainly not analogous to
naturalization proceedings to acquire Philippine citizenship, or the election of such citizenship by one
born of an alien father and a Filipino mother under the 1935 Constitution, which is an act to perfect it.
In this instance, such issue is moot because there is no dispute that petitioner is a foundling, as
evidenced by a Foundling Certificate issued in her favor.122 The Decree of Adoption issued on 13
May 1974, which approved petitioner's adoption by Jesusa Sonora Poe and Ronald Allan Kelley
Poe, expressly refers to Emiliano and his wife, Rosario Militar, as her "foundling parents," hence
effectively affirming petitioner's status as a foundling.123
Foundlings are likewise citizens under international law. Under the 1987 Constitution, an
international law can become part of the sphere of domestic law either by transformation or
incorporation. The transformation method requires that an international law be transformed into a
domestic law through a constitutional mechanism such as local legislation.124 On the other hand,
generally accepted principles of international law, by virtue of the incorporation clause of the
Constitution, form part of the laws of the land even if they do not derive from treaty obligations.
Generally accepted principles of international law include international custom as evidence of a
general practice accepted as law, and general principles of law recognized by civilized
nations.125 International customary rules are accepted as binding as a result from the combination of
two elements: the established, widespread, and consistent practice on the part of States; and a
psychological element known as the opinionjuris sive necessitates (opinion as to law or necessity).
Implicit in the latter element is a belief that the practice in question is rendered obligatory by the
existence of a rule of law requiring it.126 "General principles of law recognized by civilized nations" are
principles "established by a process of reasoning" or judicial logic, based on principles which are
"basic to legal systems generally,"127 such as "general principles of equity, i.e., the general principles
of fairness and justice," and the "general principle against discrimination" which is embodied in the
"Universal Declaration of Human Rights, the International Covenant on Economic, Social and
Cultural Rights, the International Convention on the Elimination of All Forms of Racial Discrimination,
the Convention Against Discrimination in Education, the Convention (No. 111) Concerning
Discrimination in Respect of Employment and Occupation."128 These are the same core principles
which underlie the Philippine Constitution itself, as embodied in the due process and equal
protection clauses of the Bill of Rights.129
Universal Declaration of Human Rights ("UDHR") has been interpreted by this Court as part of the
generally accepted principles of international law and binding on the State.130 Article 15 thereof
states:
1. Everyone has the right to a nationality.
2. No one shall be arbitrarily deprived of his nationality nor denied the right to change his
nationality.
The Philippines has also ratified the UN Convention on the Rights of the Child (UNCRC). Article 7 of
the UNCRC imposes the following obligations on our country:
Article 7
1. The child shall be registered immediately after birth and shall have the right from birth to a name,
the right to acquire a nationality and as far as possible, the right to know and be cared for by his or
her parents.
2. States Parties shall ensure the implementation of these rights in accordance with their national
law and their obligations under the relevant international instruments in this field, in particular where
the child would otherwise be stateless.
In 1986, the country also ratified the 1966 International Covenant on Civil and Political Rights
(ICCPR). Article 24 thereof provide for the right of every child "to acquire a nationality:"
Article 24
1. Every child shall have, without any discrimination as to race, colour, sex, language, religion,
national or social origin, property or birth, the right, to such measures of protection as are required
by his status as a minor, on the part of his family, society and the State.
2. Every child shall be registered immediately after birth and shall have a name.
3. Every child has the right to acquire a nationality.
The common thread of the UDHR, UNCRC and ICCPR is to obligate the Philippines to grant
nationality from birth and ensure that no child is stateless. This grant of nationality must be at the
time of birth, and it cannot be accomplished by the application of our present naturalization laws,
Commonwealth Act No. 473, as amended, and R.A. No. 9139, both of which require the applicant to
be at least eighteen (18) years old.
The principles found in two conventions, while yet unratified by the Philippines, are generally
accepted principles of international law. The first is Article 14 of the 1930 Hague Convention on
Certain Questions Relating to the Conflict of Nationality Laws under which a foundling is presumed
to have the "nationality of the country of birth," to wit:
Article 14
A child whose parents are both unknown shall have the nationality of the country of birth. If the
child's parentage is established, its nationality shall be determined by the rules applicable in cases
where the parentage is known.
A foundling is, until the contrary is proved, presumed to have been born on the territory of the State
in which it was found. (Underlining supplied)
The second is the principle that a foundling is presumed born of citizens of the country where he is
found, contained in Article 2 of the 1961 United Nations Convention on the Reduction of
Statelessness:
Article 2
A foundling found in the territory of a Contracting State shall, in the absence of proof to the contrary,
be considered to have been born within the territory of parents possessing the nationality of that
State.
That the Philippines is not a party to the 1930 Hague Convention nor to the 1961 Convention on the
Reduction of Statelessness does not mean that their principles are not binding. While the Philippines
is not a party to the 1930 Hague Convention, it is a signatory to the Universal Declaration on Human
Rights, Article 15(1) ofwhich131effectively affirms Article 14 of the 1930 Hague Convention. Article 2 of
the 1961 "United Nations Convention on the Reduction of Statelessness" merely "gives effect" to
Article 15(1) of the UDHR.132 In Razon v. Tagitis, 133 this Court noted that the Philippines had not
signed or ratified the "International Convention for the Protection of All Persons from Enforced
Disappearance." Yet, we ruled that the proscription against enforced disappearances in the said
convention was nonetheless binding as a "generally accepted principle of international law." Razon
v. Tagitis is likewise notable for declaring the ban as a generally accepted principle of international
law although the convention had been ratified by only sixteen states and had not even come into
force and which needed the ratification of a minimum of twenty states. Additionally, as petitioner
points out, the Court was content with the practice of international and regional state organs,
regional state practice in Latin America, and State Practice in the United States.
Another case where the number of ratifying countries was not determinative is Mijares v.
Ranada, 134 where only four countries had "either ratified or acceded to"135 the 1966 "Convention on
the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters" when the
case was decided in 2005. The Court also pointed out that that nine member countries of the
European Common Market had acceded to the Judgments Convention. The Court also cited U.S.
laws and jurisprudence on recognition of foreign judgments. In all, only the practices of fourteen
countries were considered and yet, there was pronouncement that recognition of foreign judgments
was widespread practice.
Our approach in Razon and Mijares effectively takes into account the fact that "generally accepted
principles of international law" are based not only on international custom, but also on "general
principles of law recognized by civilized nations," as the phrase is understood in Article 38.1
paragraph (c) of the ICJ Statute. Justice, fairness, equity and the policy against discrimination, which
are fundamental principles underlying the Bill of Rights and which are "basic to legal systems
generally,"136 support the notion that the right against enforced disappearances and the recognition of
foreign judgments, were correctly considered as "generally accepted principles of international law"
under the incorporation clause.
Petitioner's evidence137 shows that at least sixty countries in Asia, North and South America, and
Europe have passed legislation recognizing foundlings as its citizen. Forty-two (42) of those
countries follow the jus sanguinis regime. Of the sixty, only thirty-three (33) are parties to the 1961
Convention on Statelessness; twenty-six (26) are not signatories to the Convention. Also, the Chief
Justice, at the 2 February 2016 Oral Arguments pointed out that in 166 out of 189 countries
surveyed (or 87.83%), foundlings are recognized as citizens. These circumstances, including the
practice of jus sanguinis countries, show that it is a generally accepted principle of international law
to presume foundlings as having been born of nationals of the country in which the foundling is
found.
Current legislation reveals the adherence of the Philippines to this generally accepted principle of
international law. In particular, R.A. No. 8552, R.A. No. 8042 and this Court's Rules on Adoption,
expressly refer to "Filipino children." In all of them, foundlings are among the Filipino children who
could be adopted. Likewise, it has been pointed that the DFA issues passports to foundlings.
Passports are by law, issued only to citizens. This shows that even the executive department, acting
through the DFA, considers foundlings as Philippine citizens.
Adopting these legal principles from the 1930 Hague Convention and the 1961 Convention on
Statelessness is rational and reasonable and consistent with the jus sanguinis regime in our
Constitution. The presumption of natural-born citizenship of foundlings stems from the presumption
that their parents are nationals of the Philippines. As the empirical data provided by the PSA show,
that presumption is at more than 99% and is a virtual certainty.
In sum, all of the international law conventions and instruments on the matter of nationality of
foundlings were designed to address the plight of a defenseless class which suffers from a
misfortune not of their own making. We cannot be restrictive as to their application if we are a
country which calls itself civilized and a member of the community of nations. The Solicitor General's
warning in his opening statement is relevant:
.... the total effect of those documents is to signify to this Honorable Court that those treaties and
conventions were drafted because the world community is concerned that the situation of foundlings
renders them legally invisible. It would be tragically ironic if this Honorable Court ended up using the
international instruments which seek to protect and uplift foundlings a tool to deny them political
status or to accord them second-class citizenship.138
The COMELEC also ruled139 that petitioner's repatriation in July 2006 under the provisions of R.A.
No. 9225 did not result in the reacquisition of natural-born citizenship. The COMELEC reasoned that
since the applicant must perform an act, what is reacquired is not "natural-born" citizenship but only
plain "Philippine citizenship."
The COMELEC's rule arrogantly disregards consistent jurisprudence on the matter of repatriation
statutes in general and of R.A. No. 9225 in particular.
In the seminal case of Bengson Ill v. HRET, 140 repatriation was explained as follows:
Moreover, repatriation results in the recovery of the original nationality. This means that a
naturalized Filipino who lost his citizenship will be restored to his prior status as a naturalized Filipino
citizen. On the other hand, if he was originally a natural-born citizen before he lost his Philippine
citizenship, he will be restored to his former status as a natural-born Filipino.
R.A. No. 9225 is a repatriation statute and has been described as such in several cases. They
include Sobejana-Condon v. COMELEC141 where we described it as an "abbreviated repatriation
process that restores one's Filipino citizenship x x x." Also included is Parreno v. Commission on
Audit,142 which cited Tabasa v. Court of Appeals,143where we said that "[t]he repatriation of the former
Filipino will allow him to recover his natural-born citizenship. Parreno v. Commission on Audit144 is
categorical that "if petitioner reacquires his Filipino citizenship (under R.A. No. 9225), he will
... recover his natural-born citizenship."
The COMELEC construed the phrase "from birth" in the definition of natural citizens as implying "that
natural-born citizenship must begin at birth and remain uninterrupted and continuous from birth."
R.A. No. 9225 was obviously passed in line with Congress' sole prerogative to determine how
citizenship may be lost or reacquired. Congress saw it fit to decree that natural-born citizenship may
be reacquired even if it had been once lost. It is not for the COMELEC to disagree with the
Congress' determination.
More importantly, COMELEC's position that natural-born status must be continuous was already
rejected in Bengson III v. HRET145 where the phrase "from birth" was clarified to mean at the time of
birth: "A person who at the time of his birth, is a citizen of a particular country, is a natural-born
citizen thereof." Neither is "repatriation" an act to "acquire or perfect" one's citizenship. In Bengson III
v. HRET, this Court pointed out that there are only two types of citizens under the 1987 Constitution:
natural-born citizen and naturalized, and that there is no third category for repatriated citizens:
It is apparent from the enumeration of who are citizens under the present Constitution that there are
only two classes of citizens: (1) those who are natural-born and (2) those who are naturalized in
accordance with law. A citizen who is not a naturalized Filipino, ie., did not have to undergo the
process of naturalization to obtain Philippine citizenship, necessarily is a natural-born Filipino.
Noteworthy is the absence in said enumeration of a separate category for persons who, after losing
Philippine citizenship, subsequently reacquire it. The reason therefor is clear: as to such persons,
they would either be natural-born or naturalized depending on the reasons for the loss of their
citizenship and the mode prescribed by the applicable law for the reacquisition thereof. As
respondent Cruz was not required by law to go through naturalization proceedings in order to
reacquire his citizenship, he is perforce a natural-born Filipino. As such, he possessed all the
necessary qualifications to be elected as member of the House of Representatives.146
The COMELEC cannot reverse a judicial precedent. That is reserved to this Court. And while we
may always revisit a doctrine, a new rule reversing standing doctrine cannot be retroactively applied.
In Morales v. Court of Appeals and Jejomar Erwin S. Binay, Jr.,147 where we decreed reversed the
condonation doctrine, we cautioned that it "should be prospective in application for the reason that
judicial decisions applying or interpreting the laws of the Constitution, until reversed, shall form part
of the legal system of the Philippines." This Court also said that "while the future may ultimately
uncover a doctrine's error, it should be, as a general rule, recognized as good law prior to its
abandonment. Consequently, the people's reliance thereupon should be respected."148
Lastly, it was repeatedly pointed out during the oral arguments that petitioner committed a falsehood
when she put in the spaces for "born to" in her application for repatriation under R.A. No. 9225 the
names of her adoptive parents, and this misled the BI to presume that she was a natural-born
Filipino. It has been contended that the data required were the names of her biological parents which
are precisely unknown.
This position disregards one important fact - petitioner was legally adopted. One of the effects of
adoption is "to sever all legal ties between the biological parents and the adoptee, except when the
biological parent is the spouse of the adoptee."149 Under R.A. No. 8552, petitioner was also entitled to
an amended birth certificate "attesting to the fact that the adoptee is the child of the adopter(s)" and
which certificate "shall not bear any notation that it is an amended issue."150 That law also requires
that "[a]ll records, books, and papers relating to the adoption cases in the files of the court, the
Department [of Social Welfare and Development], or any other agency or institution participating in
the adoption proceedings shall be kept strictly confidential."151 The law therefore allows petitioner to
state that her adoptive parents were her birth parents as that was what would be stated in her birth
certificate anyway. And given the policy of strict confidentiality of adoption records, petitioner was not
obligated to disclose that she was an adoptee.
Clearly, to avoid a direct ruling on the qualifications of petitioner, which it cannot make in the same
case for cancellation of COC, it resorted to opinionatedness which is, moreover, erroneous. The
whole process undertaken by COMELEC is wrapped in grave abuse of discretion.
On Residence
The tainted process was repeated in disposing of the issue of whether or not petitioner committed
false material representation when she stated in her COC that she has before and until 9 May 2016
been a resident of the Philippines for ten (10) years and eleven (11) months.
Petitioner's claim that she will have been a resident for ten (10) years and eleven (11) months on the
day before the 2016 elections, is true.
The Constitution requires presidential candidates to have ten (10) years' residence in the Philippines
before the day of the elections. Since the forthcoming elections will be held on 9 May 2016,
petitioner must have been a resident of the Philippines prior to 9 May 2016 for ten (10) years. In
answer to the requested information of "Period of Residence in the Philippines up to the day before
May 09, 2016," she put in "10 years 11 months" which according to her pleadings in these cases
corresponds to a beginning date of 25 May 2005 when she returned for good from the U.S.
When petitioner immigrated to the U.S. in 1991, she lost her original domicile, which is the
Philippines. There are three requisites to acquire a new domicile: 1. Residence or bodily presence in
a new locality; 2. an intention to remain there; and 3. an intention to abandon the old domicile.152 To
successfully effect a change of domicile, one must demonstrate an actual removal or an actual
change of domicile; a bona fide intention of abandoning the former place of residence and
establishing a new one and definite acts which correspond with the purpose. In other words, there
must basically be animus manendi coupled with animus non revertendi. The purpose to remain in or
at the domicile of choice must be for an indefinite period of time; the change of residence must be
voluntary; and the residence at the place chosen for the new domicile must be actual.153
Petitioner presented voluminous evidence showing that she and her family abandoned their U.S.
domicile and relocated to the Philippines for good. These evidence include petitioner's former U.S.
passport showing her arrival on 24 May 2005 and her return to the Philippines every time she
travelled abroad; e-mail correspondences starting in March 2005 to September 2006 with a freight
company to arrange for the shipment of their household items weighing about 28,000 pounds to the
Philippines; e-mail with the Philippine Bureau of Animal Industry inquiring how to ship their dog to
the Philippines; school records of her children showing enrollment in Philippine schools starting June
2005 and for succeeding years; tax identification card for petitioner issued on July 2005; titles for
condominium and parking slot issued in February 2006 and their corresponding tax declarations
issued in April 2006; receipts dated 23 February 2005 from the Salvation Army in the U.S.
acknowledging donation of items from petitioner's family; March 2006 e-mail to the U.S. Postal
Service confirming request for change of address; final statement from the First American Title
Insurance Company showing sale of their U.S. home on 27 April 2006; 12 July 2011 filled-up
questionnaire submitted to the U.S. Embassy where petitioner indicated that she had been a
Philippine resident since May 2005; affidavit from Jesusa Sonora Poe (attesting to the return of
petitioner on 24 May 2005 and that she and her family stayed with affiant until the condominium was
purchased); and Affidavit from petitioner's husband (confirming that the spouses jointly decided to
relocate to the Philippines in 2005 and that he stayed behind in the U.S. only to finish some work
and to sell the family home).
The foregoing evidence were undisputed and the facts were even listed by the COMELEC,
particularly in its Resolution in the Tatad, Contreras and Valdez cases.
However, the COMELEC refused to consider that petitioner's domicile had been timely changed as
of 24 May 2005. At the oral arguments, COMELEC Commissioner Arthur Lim conceded the
presence of the first two requisites, namely, physical presence and animus manendi, but maintained
there was no animus non-revertendi.154 The COMELEC disregarded the import of all the evidence
presented by petitioner on the basis of the position that the earliest date that petitioner could have
started residence in the Philippines was in July 2006 when her application under R.A. No. 9225 was
approved by the BI. In this regard, COMELEC relied on Coquilla v. COMELEC,155 Japzon v.
COMELEC156 and Caballero v. COMELEC. 157 During the oral arguments, the private respondents
also added Reyes v. COMELEC.158 Respondents contend that these cases decree that the stay of an
alien former Filipino cannot be counted until he/she obtains a permanent resident visa or reacquires
Philippine citizenship, a visa-free entry under a balikbayan stamp being insufficient. Since petitioner
was still an American (without any resident visa) until her reacquisition of citizenship under R.A. No.
9225, her stay from 24 May 2005 to 7 July 2006 cannot be counted.
But as the petitioner pointed out, the facts in these four cases are very different from her situation.
In Coquilla v. COMELEC,159 the only evidence presented was a community tax certificate secured by
the candidate and his declaration that he would be running in the elections. Japzon v.
COMELEC160 did not involve a candidate who wanted to count residence prior to his reacquisition of
Philippine citizenship. With the Court decreeing that residence is distinct from citizenship, the issue
there was whether the candidate's acts after reacquisition sufficed to establish residence.
In Caballero v. COMELEC, 161 the candidate admitted that his place of work was abroad and that he
only visited during his frequent vacations. In Reyes v. COMELEC,162 the candidate was found to be
an American citizen who had not even reacquired Philippine citizenship under R.A. No. 9225 or had
renounced her U.S. citizenship. She was disqualified on the citizenship issue. On residence, the only
proof she offered was a seven-month stint as provincial officer. The COMELEC, quoted with
approval by this Court, said that "such fact alone is not sufficient to prove her one-year residency."
It is obvious that because of the sparse evidence on residence in the four cases cited by the
respondents, the Court had no choice but to hold that residence could be counted only from
acquisition of a permanent resident visa or from reacquisition of Philippine citizenship. In contrast,
the evidence of petitioner is overwhelming and taken together leads to no other conclusion that she
decided to permanently abandon her U.S. residence (selling the house, taking the children from U.S.
schools, getting quotes from the freight company, notifying the U.S. Post Office of the abandonment
of their address in the U.S., donating excess items to the Salvation Army, her husband resigning
from U.S. employment right after selling the U.S. house) and permanently relocate to the Philippines
and actually re-established her residence here on 24 May 2005 (securing T.I.N, enrolling her
children in Philippine schools, buying property here, constructing a residence here, returning to the
Philippines after all trips abroad, her husband getting employed here). Indeed, coupled with her
eventual application to reacquire Philippine citizenship and her family's actual continuous stay in the
Philippines over the years, it is clear that when petitioner returned on 24 May 2005 it was for good.
In this connection, the COMELEC also took it against petitioner that she had entered the Philippines
visa-free as a balikbayan. A closer look at R.A. No. 6768 as amended, otherwise known as the "An
Act Instituting a Balikbayan Program," shows that there is no overriding intent to treat balikbayans as
temporary visitors who must leave after one year. Included in the law is a former Filipino who has
been naturalized abroad and "comes or returns to the Philippines." 163 The law institutes
a balikbayan program "providing the opportunity to avail of the necessary training to enable
the balikbayan to become economically self-reliant members of society upon their return to the
country"164 in line with the government's "reintegration program."165 Obviously, balikbayans are not
ordinary transients.
Given the law's express policy to facilitate the return of a balikbayan and help him reintegrate into
society, it would be an unduly harsh conclusion to say in absolute terms that the balikbayan must
leave after one year. That visa-free period is obviously granted him to allow him to re-establish his
life and reintegrate himself into the community before he attends to the necessary formal and legal
requirements of repatriation. And that is exactly what petitioner did - she reestablished life here by
enrolling her children and buying property while awaiting the return of her husband and then
applying for repatriation shortly thereafter.
No case similar to petitioner's, where the former Filipino's evidence of change in domicile is
extensive and overwhelming, has as yet been decided by the Court. Petitioner's evidence of
residence is unprecedented. There is no judicial precedent that comes close to the facts of
residence of petitioner. There is no indication in Coquilla v. COMELEC,166 and the other cases cited
by the respondents that the Court intended to have its rulings there apply to a situation where the
facts are different. Surely, the issue of residence has been decided particularly on the facts-of-the
case basis.
To avoid the logical conclusion pointed out by the evidence of residence of petitioner, the COMELEC
ruled that petitioner's claim of residence of ten (10) years and eleven (11) months by 9 May 2016 in
her 2015 COC was false because she put six ( 6) years and six ( 6) months as "period of residence
before May 13, 2013" in her 2012 COC for Senator. Thus, according to the COMELEC, she started
being a Philippine resident only in November 2006. In doing so, the COMELEC automatically
assumed as true the statement in the 2012 COC and the 2015 COC as false.
As explained by petitioner in her verified pleadings, she misunderstood the date required in the 2013
COC as the period of residence as of the day she submitted that COC in 2012. She said that she
reckoned residency from April-May 2006 which was the period when the U.S. house was sold and
her husband returned to the Philippines. In that regard, she was advised by her lawyers in 2015 that
residence could be counted from 25 May 2005.
Petitioner's explanation that she misunderstood the query in 2012 (period of residence before 13
May 2013) as inquiring about residence as of the time she submitted the COC, is bolstered by the
change which the COMELEC itself introduced in the 2015 COC which is now "period of residence in
the Philippines up to the day before May 09, 2016." The COMELEC would not have revised the
query if it did not acknowledge that the first version was vague.
That petitioner could have reckoned residence from a date earlier than the sale of her U.S. house
and the return of her husband is plausible given the evidence that she had returned a year before.
Such evidence, to repeat, would include her passport and the school records of her children.
It was grave abuse of discretion for the COMELEC to treat the 2012 COC as a binding and
conclusive admission against petitioner. It could be given in evidence against her, yes, but it was by
no means conclusive. There is precedent after all where a candidate's mistake as to period of
residence made in a COC was overcome by evidence. In Romualdez-Marcos v. COMELEC,167 the
candidate mistakenly put seven (7) months as her period of residence where the required period
was a minimum of one year. We said that "[i]t is the fact of residence, not a statement in a certificate
of candidacy which ought to be decisive in determining whether or not an individual has satisfied the
constitutions residency qualification requirement." The COMELEC ought to have looked at the
evidence presented and see if petitioner was telling the truth that she was in the Philippines from 24
May 2005. Had the COMELEC done its duty, it would have seen that the 2012 COC and the 2015
COC both correctly stated the pertinent period of residency.
The COMELEC, by its own admission, disregarded the evidence that petitioner actually and
physically returned here on 24 May 2005 not because it was false, but only because COMELEC took
the position that domicile could be established only from petitioner's repatriation under R.A. No. 9225
in July 2006. However, it does not take away the fact that in reality, petitioner had returned from the
U.S. and was here to stay permanently, on 24 May 2005. When she claimed to have been a resident
for ten (10) years and eleven (11) months, she could do so in good faith.
For another, it could not be said that petitioner was attempting to hide anything. As already stated, a
petition for quo warranto had been filed against her with the SET as early as August 2015. The event
from which the COMELEC pegged the commencement of residence, petitioner's repatriation in July
2006 under R.A. No. 9225, was an established fact to repeat, for purposes of her senatorial
candidacy.
Notably, on the statement of residence of six (6) years and six (6) months in the 2012 COC,
petitioner recounted that this was first brought up in the media on 2 June 2015 by Rep. Tobias
Tiangco of the United Nationalist Alliance. Petitioner appears to have answered the issue
immediately, also in the press. Respondents have not disputed petitioner's evidence on this point.
From that time therefore when Rep. Tiangco discussed it in the media, the stated period of
residence in the 2012 COC and the circumstances that surrounded the statement were already
matters of public record and were not hidden.
Petitioner likewise proved that the 2012 COC was also brought up in the SET petition for quo
warranto. Her Verified Answer, which was filed on 1 September 2015, admitted that she made a
mistake in the 2012 COC when she put in six ( 6) years and six ( 6) months as she misunderstood
the question and could have truthfully indicated a longer period. Her answer in the SET case was a
matter of public record. Therefore, when petitioner accomplished her COC for President on 15
October 2015, she could not be said to have been attempting to hide her erroneous statement in her
2012 COC for Senator which was expressly mentioned in her Verified Answer.
The facts now, if not stretched to distortion, do not show or even hint at an intention to hide the 2012
statement and have it covered by the 2015 representation. Petitioner, moreover, has on her side this
Court's pronouncement that:
Concededly, a candidate's disqualification to run for public office does not necessarily constitute
material misrepresentation which is the sole ground for denying due course to, and for the
cancellation of, a COC. Further, as already discussed, the candidate's misrepresentation in his COC
must not only refer to a material fact (eligibility and qualifications for elective office), but should
evince a deliberate intent to mislead, misinform or hide a fact which would otherwise render a
candidate ineligible. It must be made with an intention to deceive the electorate as to one's
qualifications to run for public office.168
In sum, the COMELEC, with the same posture of infallibilism, virtually ignored a good number of
evidenced dates all of which can evince animus manendi to the Philippines and animus non
revertedi to the United States of America. The veracity of the events of coming and staying home
was as much as dismissed as inconsequential, the focus having been fixed at the petitioner's "sworn
declaration in her COC for Senator" which the COMELEC said "amounts to a declaration and
therefore an admission that her residence in the Philippines only commence sometime in November
2006"; such that "based on this declaration, [petitioner] fails to meet the residency requirement for
President." This conclusion, as already shown, ignores the standing jurisprudence that it is the fact
of residence, not the statement of the person that determines residence for purposes of compliance
with the constitutional requirement of residency for election as President. It ignores the easily
researched matter that cases on questions of residency have been decided favorably for the
candidate on the basis of facts of residence far less in number, weight and substance than that
presented by petitioner.169 It ignores, above all else, what we consider as a primary reason why
petitioner cannot be bound by her declaration in her COC for Senator which declaration was not
even considered by the SET as an issue against her eligibility for Senator. When petitioner made the
declaration in her COC for Senator that she has been a resident for a period of six (6) years and six
(6) months counted up to the 13 May 2013 Elections, she naturally had as reference the residency
requirements for election as Senator which was satisfied by her declared years of residence. It was
uncontested during the oral arguments before us that at the time the declaration for Senator was
made, petitioner did not have as yet any intention to vie for the Presidency in 2016 and that the
general public was never made aware by petitioner, by word or action, that she would run for
President in 2016. Presidential candidacy has a length-of-residence different from that of a
senatorial candidacy. There are facts of residence other than that which was mentioned in the COC
for Senator. Such other facts of residence have never been proven to be false, and these, to repeat
include:
[Petitioner] returned to the Philippines on 24 May 2005. (petitioner's] husband however stayed in the
USA to finish pending projects and arrange the sale of their family home.
Meanwhile [petitioner] and her children lived with her mother in San Juan City. [Petitioner] enrolled
Brian in Beacon School in Taguig City in 2005 and Hanna in Assumption College in Makati City in
2005. Anika was enrolled in Learning Connection in San Juan in 2007, when she was already old
enough to go to school.
In the second half of 2005, [petitioner] and her husband acquired Unit 7F of One Wilson Place
Condominium in San Juan. [Petitioner] and her family lived in Unit 7F until the construction of their
family home in Corinthian Hills was completed.
Sometime in the second half of 2005, [petitioner's] mother discovered that her former lawyer who
handled [petitioner's] adoption in 1974 failed to secure from the Office of the Civil Registrar of Iloilo a
new Certificate of Live Birth indicating [petitioner's] new name and stating that her parents are
"Ronald Allan K. Poe" and "Jesusa L. Sonora."
In February 2006, [petitioner] travelled briefly to the US in order to supervise the disposal of some of
the family's remaining household belongings. [Petitioner] returned to the Philippines on 11 March
1a\^ /phi1
2006.
In late March 2006, [petitioner's] husband informed the United States Postal Service of the family's
abandonment of their address in the US.
The family home in the US was sole on 27 April 2006.
In April 2006, [petitioner's] husband resigned from his work in the US. He returned to the Philippines
on 4 May 2006 and began working for a Philippine company in July 2006.
In early 2006, [petitioner] and her husband acquired a vacant lot in Corinthian Hills, where they
eventually built their family home.170
In light of all these, it was arbitrary for the COMELEC to satisfy its intention to let the case fall under
the exclusive ground of false representation, to consider no other date than that mentioned by
petitioner in her COC for Senator.
All put together, in the matter of the citizenship and residence of petitioner for her candidacy as
President of the Republic, the questioned Resolutions of the COMELEC in Division and En
Banc are, one and all, deadly diseased with grave abuse of discretion from root to fruits.
WHEREFORE, the petition is GRANTED. The Resolutions, to wit:
1. dated 1 December 2015 rendered through the COMELEC Second Division, in SPA No. 15-001
(DC), entitled Estrella C. Elamparo, petitioner, vs. Mary Grace Natividad Sonora Poe-Llamanzares,
respondent, stating that:
[T]he Certificate of Candidacy for President of the Republic of the Philippines in the May 9, 2016
National and Local Elections filed by respondent Mary Grace Natividad Sonora Poe-Llamanzares is
hereby GRANTED.
2. dated 11 December 2015, rendered through the COMELEC First Division, in the consolidated
cases SPA No. 15-002 (DC) entitled Francisco S. Tatad, petitioner, vs. Mary Grace Natividad
Sonora Poe-Llamanzares, respondent; SPA No. 15-007 (DC) entitled Antonio P. Contreras,
petitioner, vs. Mary Grace Natividad Sonora Poe-Llamanzares, respondent; and SPA No. 15-139
(DC) entitled Amado D. Valdez, petitioner, v. Mary Grace Natividad Sonora Poe-
Llamanzares, respondent; stating that:
WHEREFORE, premises considered, the Commission RESOLVED, as it hereby RESOLVES, to

GRANT the petitions and cancel the Certificate of Candidacy of MARY GRACE NATIVIDAD
SONORA POE-LLAMANZARES for the elective position of President of the Republic of the
Philippines in connection with the 9 May 2016 Synchronized Local and National Elections.
3. dated 23 December 2015 of the COMELEC En Banc, upholding the 1 December 2015 Resolution
of the Second Division stating that:
WHEREFORE, premises considered, the Commission RESOLVED, as it hereby RESOLVES, to

DENY the Verified Motion for Reconsideration of SENATOR MARY GRACE NATIVIDAD SONORA
POE-LLAMANZARES. The Resolution dated 11 December 2015 of the Commission First Division is
AFFIRMED.
4. dated 23 December 2015 of the COMELEC En Banc, upholding the 11 December 2015
Resolution of the First Division.
are hereby ANNULED and SET ASIDE. Petitioner MARY GRACE NATIVIDAD SONORA POE-
LLAMANZARES is DECLARED QUALIFIED to be a candidate for President in the National and
Local Elections of 9 May 2016.
SO ORDERED.
CIVIL LAW
Republic Act No. 9255 February 24 2004
AN ACT ALLOWING ILLEGITIMATE CHILDREN TO USE THE SURNAME OF THEIR FATHER,

AMENDING FOR THE PURPOSE ARTICLE 176 OF EXECUTIVE ORDER NO. 209, OTHERWISE
KNOWN AS THE "FAMILY CODE OF THE PHILIPPINES"
Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:
SECTION 1. Article 176 of Executive Order No. 209, otherwise known as the Family Code of the
Philippines, is hereby amended to read as follows:
"Article 176. Illegitimate children shall use the surname and shall be under the parental
authority of their mother, and shall be entitled to support in conformity with this Code.
However, illegitimate children may use the surname of their father if their filiation has been
expressly recognized by the father through the record of birth appearing in the civil register,
or when an admission in a public document or private handwritten instrument is made by the
father. Provided, the father has the right to institute an action before the regular courts to
prove non-filiation during his lifetime. The legitime of each illegitimate child shall consist of
one-half of the legitime of a legitimate child."
SECTION 2. Repealing Clause. All laws, presidential decrees, executive orders, proclamations,
rules and regulations, which are inconsistent with the provisions of this Act are hereby repealed or
modified accordingly.
SECTION 3. Effectivity Clause. This Act shall take effect fifteen (15) days from its publication in
the Official Gazette or in two (2) newspapers of general circulation.
RA 7610
ARTICLE VI
Other Acts of Abuse
Section 10. Other Acts of Neglect, Abuse, Cruelty or Exploitation and Other Conditions
Prejudicial to the Child's Development.
(a) Any person who shall commit any other acts of child abuse, cruelty or exploitation or to
be responsible for other conditions prejudicial to the child's development including those
covered by Article 59 of Presidential Decree No. 603, as amended, but not covered by the
Revised Penal Code, as amended, shall suffer the penalty of prision mayor in its minimum
period.
(b) Any person who shall keep or have in his company a minor, twelve (12) years or under or
who in ten (10) years or more his junior in any public or private place, hotel, motel, beer joint,
discotheque, cabaret, pension house, sauna or massage parlor, beach and/or other tourist
resort or similar places shall suffer the penalty of prision mayor in its maximum period and a
fine of not less than Fifty thousand pesos (P50,000): Provided, That this provision shall not
apply to any person who is related within the fourth degree of consanguinity or affinity or any
bond recognized by law, local custom and tradition or acts in the performance of a social,
moral or legal duty.
(c) Any person who shall induce, deliver or offer a minor to any one prohibited by this Act to
keep or have in his company a minor as provided in the preceding paragraph shall suffer the
penalty of prision mayor in its medium period and a fine of not less than Forty thousand
pesos (P40,000); Provided, however, That should the perpetrator be an ascendant,
stepparent or guardian of the minor, the penalty to be imposed shall be prision mayor in its
maximum period, a fine of not less than Fifty thousand pesos (P50,000), and the loss of
parental authority over the minor.
REPUBLIC ACT No. 10142
AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY

DISTRESSED ENTERPRISES AND INDIVIDUALS
Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:
CHAPTER I
GENERAL PROVISIONS
Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and Insolvency Act
(FRIA) of 2010".
Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors, both juridical
and natural persons, and their creditors to collectively and realistically resolve and adjust competing
claims and property rights. In furtherance thereof, the State shall ensure a timely, fair, transparent,
effective and efficient rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be
made with a view to ensure or maintain certainly and predictability in commercial affairs, preserve
and maximize the value of the assets of these debtors, recognize creditor rights and respect priority
of claims, and ensure equitable treatment of creditors who are similarly situated. When rehabilitation
is not feasible, it is in the interest of the State to facilities a speedy and orderly liquidation of these
debtor's assets and the settlement of their obligations.
Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem. Jurisdiction over
all persons affected by the proceedings shall be considered as acquired upon publication of the
notice of the commencement of the proceedings in any newspaper of general circulation in the
Philippines in the manner prescribed by the rules of procedure to be promulgated by the Supreme
Court.
The proceedings shall be conducted in a summary and non-adversarial manner consistent with the
declared policies of this Act and in accordance with the rules of procedure that the Supreme Court
may promulgate.
Section 4. Definition of Terms. - As used in this Act, the term:
(a) Administrative expenses shall refer to those reasonable and necessary expenses:
(1) incurred or arising from the filing of a petition under the provisions of this Act;
(2) arising from, or in connection with, the conduct of the proceedings under this Act,
including those incurred for the rehabilitation or liquidation of the debtor;
(3) incurred in the ordinary course of business of the debtor after the commencement
date;
(4) for the payment of new obligations obtained after the commencement date to
finance the rehabilitation of the debtor;
(5) incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them; and
(6) that are otherwise authorized or mandated under this Act or such other expenses
as may be allowed by the Supreme Court in its rules.
(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the common control of another corporation.
(c) Claim shall refer to all claims or demands of whatever nature or character against the
debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or undisputed, including, but not limited to; (1)
all claims of the government, whether national or local, including taxes, tariffs and customs
duties; and (2) claims against directors and officers of the debtor arising from acts done in
the discharge of their functions falling within the scope of their authority: Provided, That, this
inclusion does not prohibit the creditors or third parties from filing cases against the directors
and officers acting in their personal capacities.
(d) Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the petition for
voluntary or involuntary proceedings.
(e) Commencement Order shall refer to the order issued by the court under Section 16 of
this Act.
(f) Control shall refer to the power of a parent corporation to direct or govern the financial and
operating policies of an enterprise so as to obtain benefits from its activities. Control is
presumed to exist when the parent owns, directly or indirectly through subsidiaries or
affiliates, more than one-half (1/2) of the voting power of an enterprise unless, in exceptional
circumstances, it can clearly be demonstrated that such ownership does not constitute
control. Control also exists even when the parent owns one-half (1/2) or less of the voting
power of an enterprise when there is power:
(1) over more than one-half (1/2) of the voting rights by virtue of an agreement with
investors;
(2) to direct or govern the financial and operating policies of the enterprise under a
statute or an agreement;
(3) to appoint or remove the majority of the members of the board of directors or
equivalent governing body; or
(4) to cast the majority votes at meetings of the board of directors or equivalent
governing body.
(g) Court shall refer to the court designated by the Supreme Court to hear and determine, at
the first instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person which has a claim against the debtor
that arose on or before the commencement date.
(i) Date of liquidation shall refer to the date on which the court issues the Liquidation Order.
(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.
(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole
proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership
duly registered with the Securities and Exchange Commission (SEC), a corporation duly
organized and existing under Philippine laws, or an individual debtor who has become
insolvent as defined herein.
(l) Encumbered property shall refer to real or personal property of the debtor upon which a
lien attaches.
(m) General unsecured creditor shall refer to a creditor whose claim or a portion thereof its
neither secured, preferred nor subordinated under this Act.
(n) Group of debtors shall refer to and can cover only: (1) corporations that are financially
related to one another as parent corporations, subsidiaries or affiliates; (2) partnerships that
are owned more than fifty percent (50%) by the same person; and (3) single proprietorships
that are owned by the same person. When the petition covers a group of debtors, all
reference under these rules to debtor shall include and apply to the group of debtors.
(o) Individual debtor shall refer to a natural person who is a resident and citizen of the
Philippines that has become insolvent as defined herein.
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its
or his liabilities as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which includes
all the property and assets of the debtor as of commencement date, plus the property and
assets acquired by the rehabilitation receiver or liquidator after that date, as well as all other
property and assets in which the debtor has an ownership interest, whether or not these
property and assets are in the debtor's possession as of commencement
date: Provided, That trust assets and bailment, and other property and assets of a third party
that are in the possession of the debtor as of commencement date, are excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
(s) Liabilities shall refer to monetary claims against the debtor, including stockholder's
advances that have been recorded in the debtor's audited financial statements as advances
for future subscriptions.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or personal
property that legality entities a creditor to resort to said property for payment of the claim or
debt secured by such lien.
(u) Liquidation shall refer to the proceedings under Chapter V of this Act.
(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of this
Act.
(w) Liquidator shall refer to the natural person or juridical entity appointed as such by the
court and entrusted with such powers and duties as set forth in this Act: Provided, That, if the
liquidator is a juridical entity, it must designated a natural person who possesses all the
qualifications and none of the disqualifications as its representative, it being understood that
the juridical entity and the representative are solidarity liable for all obligations and
responsibilities of the liquidator.
(x) Officer shall refer to a natural person holding a management position described in or
contemplated by a juridical entity's articles of incorporation, bylaws or equivalent documents,
except for the corporate secretary, the assistant corporate secretary and the external auditor.
(y) Ordinary course of business shall refer to transactions in the pursuit of the individual
debtor's or debtor's business operations prior to rehabilitation or insolvency proceedings and
on ordinary business terms.
(z) Ownership interest shall refer to the ownership interest of third parties in property held by
the debtor, including those covered by trust receipts or assignments of receivables.
(aa) Parent shall refer to a corporation which has control over another corporation either
directly or indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured creditors'
committee, a stakeholder, a party with an ownership interest in property held by the debtor, a
secured creditor, the rehabilitation receiver, liquidator or any other juridical or natural person
who stands to be benefited or injured by the outcome of the proceedings and whose notice
of appearance is accepted by the court.
(cc) Possessory lien shall refer to a lien on property, the possession of which has been
transferred to a creditor or a representative or agent thereof.
(dd) Proceedings shall refer to judicial proceedings commenced by the court's acceptance of
a petition filed under this Act.
(ee) Property of others shall refer to property held by the debtor in which other persons have
an ownership interest.
(ff) Publication notice shall refer to notice through publication in a newspaper of general
circulation in the Philippines on a business day for two (2) consecutive weeks.
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful
operation and solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of payments projected in
the plan, more if the debtor continues as a going concern than if it is immediately liquidated.
(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed
as such by the court pursuant to this Act and which shall be entrusted with such powers and
duties as set forth herein.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of an
insolvent debtor can be restored using various means including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago,
debt-equity conversion and sale of the business (or parts of it) as a going concern, or setting-
up of new business entity as prescribed in Section 62 hereof, or other similar arrangements
as may be approved by the court or creditors.
(jj) Secured claim shall refer to a claim that is secured by a lien.
(kk) Secured creditor shall refer to a creditor with a secured claim.
(ll) Secured party shall refer to a secured creditor or the agent or representative of such
secured creditor.
(mm) Securities market participant shall refer to a broker dealer, underwriter, transfer agent
or other juridical persons transacting securities in the capital market.
(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a member of

a nonstock corporation or association or a partner in a partnership.
(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting stock
of which is owned or controlled directly or indirectly through one or more intermediaries by
another corporation, which thereby becomes its parent corporation.
(pp) Unsecured claim shall refer to a claim that is not secured by a lien.
(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.
(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.
(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the
consent of which is necessary for the approval of a Rehabilitation Plan under this Act.
Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need
companies, and national and local government agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually
subject to conservatorship, receivership or liquidation proceedings under the New Central
Bank Act (Republic Act No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies that are potentially or actually subject
to insolvency proceedings under the Insurance Code (Presidential Decree No. 1460) or
successor legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to sell
pre-need plans.
Provided, That government financial institutions other than banks and government-owned or
controlled corporations shall be covered by this Act, unless their specific charter provides otherwise.
Section 6. Designation of Courts and Promulgation of Procedural Rules. - The Supreme Court shall
designate the court or courts that will hear and resolve cases brought under this Act and shall
promulgate the rules of pleading, practice and procedure to govern the proceedings brought under
this Act.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered as a
separate entity under the proceedings in this Act. Under these proceedings, the assets and liabilities
of a debtor may not be commingled or aggregated with those of another, unless the latter is a related
enterprise that is owned or controlled directly or indirectly by the same interests: Provided,
however, That the commingling or aggregation of assets and liabilities of the debtor with those of a
related enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and the related
enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to
commingle its assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related enterprise is
beneficial to all concerned and promotes the objectives of rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other entities
affiliated with the debtor as parties pursuant to the rules of procedure as may be promulgated by the
Supreme Court.
Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to the relevant
provisions of the Corporation Code in the case of stock or nonstock corporations or the Civil Code in
the case of partnerships that are not inconsistent with this Act.
Section 9. Creditors Representatives. - Creditors may designate representatives to vote or

otherwise act on their behalf by filing notice of such representation with the court and serving a copy
on the rehabilitation receiver or liquidator.
Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership,
or Directors and Officers. - Individual debtor, owner of a sole proprietorship, partners in a
partnership, or directors and officers of a debtor shall be liable for double the value of the property
sold, embezzled or disposed of or double the amount of the transaction involved, whichever is higher
to be recovered for benefit of the debtor and the creditors, if they, having notice of the
commencement of the proceedings, or having reason to believe that proceedings are about to be
commenced, or in contemplation of the proceedings, willfully commit the following acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary
course of business or authorize or approve any transaction in fraud of creditors or in a
manner grossly disadvantageous to the debtor and/or creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or
misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or officer under this
section. In this connection, in case of partnerships and corporations, the court shall consider the
amount of the shareholding or partnership or equity interest of such partner, director or officer, the
degree of control of such partner, director or officer over the debtor, and the extent of the
involvement of such partner, director or debtor in the actual management of the operations of the
debtor.
Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable banking
legislation to the contrary, any bank, whether universal or not, may acquire and hold an equity
interest or investment in a debtor or its subsidiaries when conveyed to such bank in satisfaction of
debts pursuant to a Rehabilitation or Liquidation Plan approved by the court: Provided, That such
ownership shall be subject to the ownership limits applicable to universal banks for equity
investments and: Provided, further, That any equity investment or interest acquired or held pursuant
to this section shall be disposed by the bank within a period of five (5) years or as may be prescribed
by the Monetary Board.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner in
case of a sole proprietorship, or by a majority of the partners in case of a partnership, or in case of a
corporation, by a majority vote of the board of directors or trustees and authorized by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of
nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder's or
member's meeting duly called for the purpose, an insolvent debtor may initiate voluntary
proceedings under this Act by filing a petition for rehabilitation with the court and on the grounds
hereinafter specifically provided. The petition shall be verified to establish the insolvency of the
debtor and the viability of its rehabilitation, and include, whether as an attachment or as part of the
body of the petition, as a minimum the following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its
obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on the form of relief
requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and
(j) Other documents required to be filed with the petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme Court.
A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of its
members foresee the impossibility of meeting debts when they respectively fall due, and the financial
distress would likely adversely affect the financial condition and/or operations of the other members
of the group and/or the participation of the other members of the group is essential under the terms
and conditions of the proposed Rehabilitation Plan.
(2) Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or group of
creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners'
contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a
petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due
and demandable payments thereon have not been made for at least sixty (60) days or that
the debtor has failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the
debtor that will prevent the debtor from paying its debts as they become due or will render it
insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for rehabilitation
shall be verified to establish the substantial likelihood that the debtor may be rehabilitated, and
include:
(a) identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation

proceedings under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation receiver;
(f) other information that may be required under this Act depending on the form of relief
requested; and
(g) other documents required to be filed with the petition pursuant to this Act and the rules of
(B) Action on the Petition and Commencement of Proceedings.
Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be sufficient in
form and substance, it shall, within five (5) working days from the filing of the petition, issue a
Commencement Order. If, within the same period, the court finds the petition deficient in form or
substance, the court may, in its discretion, give the petitioner/s a reasonable period of time within
which to amend or supplement the petition, or to submit such documents as may be necessary or
proper to put the petition in proper order. In such case, the five (5) working days provided above for
the issuance of the Commencement Order shall be reckoned from the date of the filing of the
amended or supplemental petition or the submission of such documents.
Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The

rehabilitation proceedings shall commence upon the issuance of the Commencement Order, which
shall:
(a) identify the debtor, its principal business or activity/ies and its principal place of business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or procedure particular to the
relief sought;
(d) state the legal effects of the Commencement Order, including those mentioned in Section
17 hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of general circulation
in the Philippines once a week for at least two (2) consecutive weeks, with the first
publication to be made within seven (7) days from the time of its issuance;
(g) If the petitioner is the debtor direct the service by personal delivery of a copy of the
petition on each creditor holding at least ten percent (10%) of the total liabilities of the debtor
as determined from the schedule attached to the petition within five (5) days; if the
petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the petition
on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the nominees of the
petitioner/s and who shall exercise such powers and duties defined in this Act as well as the
procedural rules that the Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to establish their claims against
the debtor and direct all creditors to their claims with the court at least five (5) days before
the initial hearing;
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment on or
opposition to the petition or its claim/s against the debtor under such procedures as the
Supreme Court provide;
(k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods
and services in the ordinary course of business for as long as the debtor makes payments
for the services or goods supplied after the issuance of the Commencement Order;
(l) authorize the payment of administrative expenses as they become due;
(m) set the case for initial hearing, which shall not be more than forty (40) days from the date
of filing of the petition for the purpose of determining whether there is substantial likelihood
for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination and copying
by any interested party;
(o) indicate the location or locations at which documents regarding the debtor and the
proceedings under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the petitioner, may submit the name or
nominate any other qualified person to the position of rehabilitation receiver at least five (5)
days before the initial hearing;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of
claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or other provisional
remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in any
manner any of its properties except in the ordinary course of business; and
(4) prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the
court's issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension
Order described in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions provided for this Act, such as the
right to review and obtain records to which the debtor's management and directors have
access, including bank accounts or whatever nature of the debtor subject to the approval by
the court of the performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise
attempt to collection or enforce a claim against the debtor after commencement date unless
otherwise allowed in this Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the commencement
date of any debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against the
debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the court
Provided. However, That the court may allow the continuation of cases on other courts
where the debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor outside these proceedings shall be
sufficient to support a finding of indirect contempt of court.
Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not
apply:
(a) to cases already pending appeal in the Supreme Court as of commencement

date Provided, That any final and executory judgment arising from such appeal shall be
referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a specialized court or
quasi-judicial agency which, upon determination by the court is capable of resolving the
claim more quickly, fairly and efficiently than the court: Provided, That any final and
executory judgment of such court or agency shall be referred to the court and shall be
treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable with the
debtor, and third party or accommodation mortgagors as well as issuers of letters of credit,
unless the property subject of the third party or accommodation mortgage is necessary for
the rehabilitation of the debtor as determined by the court upon recommendation by the
rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market participant to recover
or otherwise claim moneys and securities entrusted to the latter in the ordinary course of the
latter's business as well as any action of such securities market participant or the appropriate
regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant
to a securities pledge or margin agreement for the settlement of securities transactions in
accordance with the provisions of the Securities Regulation Code and its implementing rules
and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a clearing
agency or similar entities duly authorized, registered and/or recognized by the appropriate
regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any
form of actions of such agencies or entities to reimburse themselves for any transactions
settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner, director or officer of a
debtor shall not be affected by any proceeding commend under this Act.
Section 19. Waiver of taxes and Fees Due to the National Government and to Local Government
Units (LGUs). - Upon issuance of the Commencement Order by the court, and until the approval of
the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all taxes
and fees including penalties, interests and charges thereof due to the national government or to
LGUs shall be considered waived, in furtherance of the objectives of rehabilitation.
Section 20. Application of Stay or Suspension Order to Government Financial Institutions. - The
provisions of this Act concerning the effects of the Commencement Order and the Stay or
Suspension Order on the suspension of rights to foreclose or otherwise pursue legal remedies shall
apply to government financial institutions, notwithstanding provisions in their charters or other laws
to the contrary.
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the
Commencement Order shall be for the effective for the duration of the rehabilitation proceedings for
as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In
determining whether there is substantial likelihood for the debtor to be successfully rehabilitated, the
court shall ensure that the following minimum requirements are met:
(a) The proposed Rehabilitation Plan submitted complies with the minimum contents
prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the
protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in attempts to
reach consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that
the underlying assumptions and the goals stated in the petitioner's Rehabilitation Plan are
realistic reasonable and reasonable or if not, there is, in any case, a substantial likelihood for
the debtor to be successfully rehabilitated because, among others:
(1) there are sufficient assets with/which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's, partners, stockholders, directors and officers have been acting in
good faith and which due diligence;
(4) the petition is not s sham filing intended only to delay the enforcement of the
rights of the creditor's or of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any
materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at
least three-fourths (3/4) of its total obligations to the extent reasonably possible and made a
good faith effort to reach a consensus on the proposed Rehabilitation Plan if the petitioner/s
is/are a creditor or group of creditors, that/ the petitioner/s has/have met with the debtor and
made a good faith effort to reach a consensus on the proposed Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a
group of creditors.
Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
(a) determine the creditors who have made timely and proper filing of their notice of claims;
(b) hear and determine any objection to the qualifications of the appointment of the
rehabilitation receiver and, if necessary appoint a new one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit
the same to the court and to the rehabilitation receiver within a period of not more than
twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to
prepare and submit to the court within forty (40) days from initial hearing the report provided
in Section 24 hereof.
Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the
schedule of debts and liabilities and who fails to file a notice of claim in accordance with the
Commencement Order but subsequently files a belated claim shall not be entitled to participate in
the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial hearing
and with or without the comments of the creditors or any of them, the rehabilitation receiver shall
submit a report to the court stating his preliminary findings and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or
acts committed by the owner/s of a sole proprietorship partners of a partnership or directors
or officers of a corporation in contemplation of the insolvency of the debtor or which may
have contributed to the insolvency of the debtor;
(b) the underlying assumptions, the financial goals and the procedures to accomplish such
goals as stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. - Within
ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section 24 hereof
the court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and
(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(b) dismiss the petition upon a finding that:
(1)debtor is not insolvent;
(2) the petition i8 a sham filing intended only to delay the enforcement of the rights of
the creditor/s or of any group of creditors;
(3)the petition, the Rehabilitation Plan and the attachments thereto contain any
materially false or misleading statements; or
(4)the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a

group of creditors;
(c)convert the proceedings into one for the liquidation of the debtor upon a finding that:
(1)the debtor is insolvent; and

(2)there is no substantial likelihood for the debtor to be successfully rehabilitated as
determined in accordance with the rules to be promulgated by the Supreme Court.
Section 26.Petition Given Due Course. - If the petition is given due course, the court shall direct the
rehabilitation receiver to review, revise and/or recommend action on the Rehabilitation Plan and
submit the same or a new one to the court within a period of not more than ninety (90) days.
The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation proceedings
pending before it to arbitration or other modes of dispute resolution, as provided for under Republic
Act No. 9285, Or the Alternative Dispute Resolution Act of 2004, should it determine that such mode
will resolve the dispute more quickly, fairly and efficiently than the court.
Section 27.Dismissal of Petition. - If the petition is dismissed pursuant to paragraph (b) of Section
25 hereof, then the court may, in its discretion, order the petitioner to pay damages to any creditor or
to the debtor, as the case may be, who may have been injured by the filing of the petition, to the
extent of any such injury.
(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.
Section 28.Who May Serve as a Rehabilitation Receiver. - Any qualified natural or juridical person
may serve as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a juridical entity,
it must designate a natural person/s who possess/es all the qualifications and none of the
disqualifications as its representative, it being understood that the juridical entity and the
representative/s are solidarily liable for all obligations and responsibilities of the rehabilitation
receiver.
Section 29.Qualifications of a Rehabilitation Receiver. - The rehabilitation receiver shall have the
following minimum qualifications:
(a)A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination;
(b)Of good moral character and with acknowledged integrity, impartiality and independence;
(c)Has the requisite knowledge of insolvency and other relevant commercial laws, rules and
procedures, as well as the relevant training and/or experience that may be necessary to
enable him to properly discharge the duties and obligations of a rehabilitation receiver; and
(d)Has no conflict of interest: Provided, That such conflict of interest may be waived,
expressly or impliedly, by a party who may be prejudiced thereby.
Other qualifications and disqualifications of the rehabilitation receiver shall be set forth in procedural
rules, taking into consideration the nature of the business of the debtor and the need to protect the
interest of all stakeholders concerned.
Section 30.Initial Appointment of the Rehabilitation Receiver. - The court shall initially appoint the
rehabilitation receiver, who mayor may not be from among the nominees of the petitioner, However,
at the initial hearing of the petition, the creditors and the debtor who are not petitioners may
nominate other persons to the position. The court may retain the rehabilitation receiver initially
appointed or appoint another who mayor may not be from among those nominated.
In case the debtor is a securities market participant, the court shall give priority to the nominee of the
appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by more than fifty percent (50%) of the secured
creditors and the general unsecured creditors, and satisfactory evidence is submitted, the court shall
appoint the creditors' nominee as rehabilitation receiver.
Section 31.Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The rehabilitation
receiver shall be deemed an officer of the court with the principal duty of preserving and maximizing
the value of the assets of the debtor during the rehabilitation proceedings, determining the viability of
the rehabilitation of the debtor, preparing and recommending a Rehabilitation Plan to the court, and
implementing the approved Rehabilitation Plan, To this end, and without limiting the generality of the
foregoing, the rehabilitation receiver shall have the following powers, duties and responsibilities:
(a)To verify the accuracy of the factual allegations in the petition and its annexes;
(b)To verify and correct, if necessary, the inventory of all of the assets of the debtor, and
their valuation;
(c)To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;
(d)To evaluate the validity, genuineness and true amount of all the claims against the debtor;
(e)To take possession, custody and control, and to preserve the value of all the property of
the debtor;
(f)To sue and recover, with the approval of the court, all amounts owed to, and all properties
pertaining to the debtor;
(g)To have access to all information necessary, proper or relevant to the operations and
business of the debtor and for its rehabilitation;
(h) To sue and recover, with the. approval of the court, all property or money of the debtor
paid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute undue
preference of creditor/s;
(i) To monitor the operations and the business of the debtor to ensure that no payments or
transfers of property are made other than in the ordinary course of business;
(j) With the court's approval, to engage the services of or to employ persons or entities to
assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best rehabilitated, to review) revise
and/or recommend action on the Rehabilitation Plan and submit the same or a new one to
the court for approval;
(1) To implement the Rehabilitation Plan as approved by the court, if 80 provided under the
Rehabilitation Plan;
(m) To assume and exercise the powers of management of the debtor, if directed by the
court pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time to time, be conferred upon him by the
court; and
To submit a status report on the rehabilitation proceedings every quarter or as may be

required by the court motu proprio. or upon motion of any creditor. or as may be provided, in
the Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver shall
not take over the management and control of the debtor but may recommend the
appointment of a management committee over the debtor in the cases provided by this Act.
Section 32.Removal of the Rehabilitation Receiver. The rehabilitation receiver may be removed at
any time by the court either motu proprio or upon motion by any creditor/s holding more than fifty
percent (50%) of the total obligations of the debtor, on such grounds as the rules of procedure may
provide which shall include, but are not limited to, the following:
(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper
degree of care in the performance of his duties and powers;
(b) Lack of a particular or specialized competency required by the specific case;
(c) Illegal acts or conduct in the performance of his duties and powers;
(d) Lack of qualification or presence of any disqualification;
(e) Conflict of interest that arises after his appointment; and
(f) Manifest lack of independence that is detrimental to the general body of the stakeholders.
Section 33.Compensation and Terms of Service. The rehabilitation receiver and his direct
employees or independent contractors shall be entitled to compensation for reasonable fees and
expenses from the debtor according to the terms approved by the court after notice and hearing.
Prior to such hearing, the rehabilitation receiver and his direct employees shall be entitled to
reasonable compensation based on quantum meruit. Such costs shall be considered administrative
expenses.
Section 34.Oath and Bond of the Rehabilitation Receiver. Prior to entering upon his powers, duties
and responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such amount to
be fixed by the court, conditioned upon the faithful and proper discharge of his powers, duties and
responsibilities.
Section 35.Vacancy. - Incase the position of rehabilitation receiver is vacated for any reason
whatsoever. the court shall direct the debtor and the creditors to submit the name/s of their
nominee/s to the position. The court may appoint any of the qualified nominees. or any other person
qualified for the position.
Section 36.Displacement of Existing Management by the Rehabilitation Receiver or Management

Committee. Upon motion of any interested party, the court may appoint and direct the rehabilitation
receiver to assume the powers of management of the debtor, or appoint a management committee
that will undertake the management of the debtor. upon clear and convincing evidence of any of the
following circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtors
assets or other properties;
(b) Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor. or fraud or other wrongful conduct on the part of, or
gross or willful violation of this Act by. existing management of the debtor Or the owner,
partner, director, officer or representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the powers of management of the
debtor. the court may:
(1) require the rehabilitation receiver to post an additional bond;
(2) authorize him to engage the services or to employ persona or entities to assist him in the
discharge of his managerial functions; and
(3) authorize a commensurate increase in his compensation.
Section 37.Role of the Management Committee. When appointed pursuant to the foregoing
section, the management committee shall take the place of the management and the governing
body of the debtor and assume their rights and responsibilities.
The specific powers and duties of the management committee, whose members shall be considered
as officers of the court, shall be prescribed by the procedural rules.
Section 38.Qualifications of Members of the Management Committee. - The qualifications and

disqualifications of the members of the management committee shall be set forth in the procedural
rules, taking into consideration the nature of the business of the debtor and the need to protect the
interest of all stakeholders concerned.
Section 39.Employment of Professionals. - Upon approval of the court, and after notice and hearing,
the rehabilitation receiver or the management committee may employ specialized professionals and
other experts to assist each in the performance of their duties. Such professionals and other experts
shall be considered either employees or independent contractors of the rehabilitation receiver or the
management committee, as the case may be. The qualifications and disqualifications of the
professionals and experts may be set forth in procedural rules, taking into consideration the nature
of the business of the debtor and the need to protect the interest of all stakeholders concerned.
Section 40.Conflict of Interest. - No person may be appointed as a rehabilitation receiver, member

of a_ management committee, or be employed by the rehabilitation receiver or the management
committee if he has a conflict of interest.
An individual shall be deemed to have a conflict of interest if he is so situated as to be materially

influenced in the exercise of his judgment for or against any party to the proceedings. Without
limiting the generality of the foregoing, an individual shall be deemed to have a conflict of interest if:
(a) he is a creditor, owner, partner or stockholder of the debtor;
(b) he is engaged in a line of business which competes with that of the debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a director, officer, owner,
partner or employee of the debtor or any of the creditors, or the auditor or accountant of the
debtor;
(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the
outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree to any individual
creditor, owners of a sale proprietorship-debtor, partners of a partnership- debtor or to any
stockholder, director, officer, employee or underwriter of a corporation-debtor; or
(f) he has any other direct or indirect material interest in the debtor or any of the creditors.
Any rehabilitation receiver, member of the management committee or persons employed or

contracted by them possessing any conflict of interest shall make the appropriate disclosure either to
the court or to the creditors in case of out-of-court rehabilitation proceedings. Any party to the
proceeding adversely affected by the appointment of any person with a conflict of interest to any of
the positions enumerated above may however waive his right to object to such appointment and, if
the waiver is unreasonably withheld, the court may disregard the conflict of interest, taking into
account the general interest of the stakeholders.
Section 41.Immunity. - The rehabilitation receiver and all persons employed by him, and the
members of the management committee and all persons employed by it, shall not be subject to any
action. claim or demand in connection with any act done or omitted to be done by them in good faith
in connection with the exercise of their powers and functions under this Act or other actions duly
approved by the court. 1aw p++il
Section 42.Creditors' Committee. - After the creditors' meeting called pursuant to Section 63 hereof,
the creditors belonging to a class may formally organize a committee among
themselves. In addition, the creditors may, as a body, agree to form a creditors' committee
composed of a representative from each class of creditors, such as the following:
(a) Secured creditors;
(b) Unsecured creditors;
(c) Trade creditors and suppliers; and
(d) Employees of the debtor.
In the . election of the creditors' representatives, the rehabilitation receiver or his representative shall
attend such meeting and extend the appropriate assistance as may be defined in the procedural
rules.
Section 43.Role of Creditors' Committee. - The creditors' committee when constituted pursuant to
Section 42 of this Act shall assist the rehabilitation receiver in communicating with the creditors and
shall be the primary liaison between the rehabilitation receiver and the creditors. The creditors'
committee cannot exercise or waive any right or give any consent on behalf of any creditor unless
specifically authorized in writing by such creditor. The creditors' committee may be authorized by the
court or by the rehabilitation receiver to perform such other tasks and functions as may be defined
by the procedural rules in order to facilitate the rehabilitation process.
(D) Determination of Claims.
Section 44.Registry of Claims. - Within twenty (20) days from his assumption into office, the
rehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation receiver shall
make the registry available for public inspection and provide
publication notice to the debtor, creditors and stakeholders on where and when they may inspect it.
All claims included in the registry of claims must be duly supported by sufficient evidence.
Section 45.Opposition or Challenge of Claims. Within thirty (30) days from the expiration of the
period stated in the immediately preceding section, the debtor, creditors, stakeholders and other
interested parties may submit a challenge to claim/s to the court, serving a certified copy on the
rehabilitation receiver and the creditor holding the challenged claim/so Upon the expiration of the
thirty (30)-day period, the rehabilitation receiver shall submit to the court the registry of claims which
shall include undisputed claims that have not been subject to challenge.
Section 46.Appeal. - Any decision of the rehabilitation receiver regarding a claim may be appealed
to the court.
(E) Governance.
Section 47.Management. - Unless otherwise provided herein, the management of the juridical
debtor shall remain with the existing management subject to the applicable law/s and agreement/s, if
any, on the election or appointment of directors, managers Or managing partner. However, all
disbursements, payments or sale, disposal, assignment, transfer or encumbrance of property , or
any other act affecting title or interest in property, shall be subject to the approval of the rehabilitation
receiver and/or the court, as provided in the following subchapter.
(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after
Commencement Date.
Section 48.Use or Disposition of Assets. - Except as otherwise provided herein, no funds or

property of the debtor shall he used or disposed of except in the ordinary course of business of the
debtor, or unless necessary to finance the administrative expenses of the rehabilitation proceedings.
Section 49.Sale of Assets. - The court, upon application of the rehabilitation receiver, may authorize
the sale of unencumbered property of the debtor outside the ordinary course of business upon a
showing that the property, by its nature or because of other circumstance, is perishable, costly to
maintain, susceptible to devaluation or otherwise injeopardy.
Section 50.Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held
by Debtor. The court may authorize the sale, transfer, conveyance or disposal of encumbered
property of the debtor, or property of others held by the debtor where there is a security interest
pertaining to third parties under a financial, credit or other similar transactions if, upon application of
the rehabilitation receiver and with the consent of the affected owners of the property, or secured
creditor/s in the case of encumbered property of the debtor and, after notice and hearing, the court
determines that:
(a) such sale, transfer, conveyance or disposal is necessary for the continued operation of
the debtor's business; and
(b) the debtor has made arrangements to provide a substitute lien or ownership right that
provides an equal level of security for the counter-party's claim or right.
Provided, That properties held by the debtor where the debtor has authority to sell such as trust
receipt or consignment arrangements may be sold or disposed of by the .debtor, if such sale or
disposal is necessary for the operation of the debtor's business, and the debtor has made
arrangements to provide a substitute lien or ownership right that provides an equal level of security
for the counter-party's claim or right.
Sale or disposal of property under this section shall not give rise to any criminal liability under
applicable laws.
Section 51.Assets of Debtor Held by Third Parties. In the case of possessory pledges, mechanic's
liens or similar claims, third parties who have in their possession or control property of the debtor
shall not transfer, conveyor otherwise dispose of the same to persons other than the debtor, unless
upon prior approval of the rehabilitation receiver. The rehabilitation receiver may also:
(a) demand the surrender or the transfer of the possession or control of such property to the
rehabilitation receiver or any other person, subject to payment of the claims secured by any
possessory Iien/s thereon;
(b) allow said third parties to retain possession or control, if such an arrangement would
more likely preserve or increase the value of the property in question or the total value of the
assets of the debtor; or
(c) undertake any otI1er disposition of the said property as may be beneficial for the
rehabilitation of the debtor, after notice and hearing, and approval of the court.
Section 52.Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. - The court
may rescind or declare as null and void any sale, payment, transfer or conveyance of the debtor's
unencumbered property or any encumbering thereof by the debtor or its agents or representatives
after the commencement date which are not in the ordinary course of the business of the
debtor: Provided, however, That the unencumbered property may be sold, encumbered or otherwise
disposed of upon order of the court after notice and hearing:
(a) if such are in the interest of administering the debtor and facilitating the preparation and
implementation of a Rehabilitation Plan;
(b) in order to provide a substitute lien, mortgage or pledge of property under this Act;
(c) for payments made to meet administrative expenses as they arise;
(d) for payments to victims of quasi delicts upon a showing that the claim is valid and the
debtor has insurance to reimburse the debtor for the payments made;
(e) for payments made to repurchase property of the debtor that is auctioned off in a judicial
or extrajudicial sale under. This Act; or
(f) for payments made to reclaim property of the debtor held pursuant to a possessory lien.
Section 53.Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value. - Upon
the application of a secured creditor holding a lien against or holder of an ownership interest in
property held by the debtor that is subject to potentially rapid obsolescence, depreciation or
diminution in value, the court shall, after notice and hearing, order the debtor or rehabilitation
receiver to take reasonable steps necessary to prevent the depreciation. If depreciation cannot be
avoided and such depreciation is jeopardizing the security or property interest of the secured creditor
or owner, the court shall:
(a) allow the encumbered property to be foreclosed upon by the secured creditor according
to the relevant agreement between the debtor and the secured creditor, applicable rules of
procedure and relevant legislation: Provided. That the proceeds of the sale will be distributed
in accordance with the order prescribed under the rules of concurrence and preference of
credits; or
(b) upon motion of, or with the consent of the affected secured creditor or interest owner.
order the conveyance of a lien against or ownership interest in substitute property of the
debtor to the secured creditor: Provided. That other creditors holding liens on such property,
if any, do not object thereto, or, if such property is not available;
(c) order the conveyance to the secured creditor or holder . of an ownership interest of a lien
on the residual funds from the sale of encumbered property during the proceedings; or
(d) allow the sale or disposition of the property: Provided. That the sale or disposition will
maximize the value of the property for the benefit of the secured creditor and the debtor, and
the proceeds of the sale will be distributed in accordance with the order prescribed under the
rules of concurrence and preference of credits.
Section 54.Post-commencement Interest. - The rate and term of interest, if any, on secured and
unsecured claims shall be determined and provided for in the approved Rehabilitation Plan.
Section 55.Post-commencement Loans and Obligations. - With the approval of the court upon the
recommendation of the rehabilitation receiver, the debtor, in order to enhance its
rehabilitation. may:
(a) enter into credit arrangements; or
(b) enter into credit arrangements, secured by mortgages of its unencumbered property or
secondary mortgages of encumbered property with the approval of senior secured parties
with regard to the encumbered property; or
(c) incur other obligations as may be essential for its rehabilitation.
The payment of the foregoing obligations shall be considered administrative expenses under this
Act.
Section 56.Treatment of Employees, Claims. Compensation of employees required to carry on the

business shall be considered an administrative expense. Claims of separation pay for months
worked prior to the commencement date shall be considered a pre- ommencement claim. Claims for
salary and separation pay for work performed after the commencement date shall be an
administrative expense.
Section 57.Treatment of Contracts. - Unless cancelled by virtue of a final judgment of a court of

competent jurisdiction issued prior to the issuance of the Commencement Order, or at anytime
thereafter by the court before which the rehabilitation proceedings are pending, all valid and
subbsisting contracts of the debtor with creditors and other third parties as at the commencement
date shall continue in force: Provided, That within ninety (90) days following the commencement of
proceedings, the debtor, with the consent of the rehabilitation receiver, shall notify each contractual
counter-party of whether it is confirming the particular contract. Contractual obligations of the debtor
arising or performed during this period, and afterwards for confirmed contracts, shall be considered
administrative expenses. Contracts not confirmed within the required deadline shall be considered
terminated. Claims for actual damages, if any, arising as a result of the election to terminate a
contract shall be considered a pre-commencement claim against the debtor. Nothing contained
herein shall prevent the cancellation or termination of any contract of the debtor for any ground
provided by law.
(G) Avoidance Proceedings.
Section 58.Rescission or Nullity of Certain Pre-commencement Transactions. Any transaction

occurring prior to commencement date entered into by the debtor or involving its funds or assets
may be rescinded or declared null and void on the ground that the same was executed with intent to
defraud a creditor or creditors or which constitute undue preference of creditors. Without limiting the
generality of the foregoing, a disputable presumption of such design shall arise if the transaction:
(a) provides unreasonably inadequate consideration to the debtor and is executed within
ninety (90) days prior to the commencement date;
(b) involves an accelerated payment of a claim to a creditor within ninety (90) days prior to
the commencement date;
(c) provides security or additional security executed within ninety (90) days prior to the
commencement date;
(d) involves creditors, where a creditor obtained, or received the benefit of, more than its pro
rata share in the assets of the debtor, executed at a time when the debtor was insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims where the
effect of the transaction is to put assets of the debtor beyond the reach of creditors or to
otherwise prejudice the interests of creditors.
Provided, however, That nothing in this section shall prevent the court from rescinding or declaring
as null and void a transaction on other grounds provided by relevant legislation and
jurisprudence: Provided, further, That the provisions of the Civil Code on rescission shall in any case
apply to these transactions.
Section 59.Actions for Rescission or Nullity. - (a) The rehabilitation receiver or, with his conformity,
any creditor may initiate and prosecute any action to rescind, or declare null and void any
transaction described in Section 58 hereof. If the rehabilitation receiver does not consent to the filing
or prosecution of such action,
(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign and
transfer to the creditor all rights, title and interest in the chose in action or subject matter of the
proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent of his claim
and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any,
belongs to the estate.
(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or liquidator)
signifies to the court his readiness to institute the proceeding for the benefit of the creditors, the
order shall fix the time within which he shall do so and, m that case, the benefit derived from the
proceeding, if instituted within the time limits so fixed, belongs to the estate.
(H) Treatment of Secured Creditors.
Section 60.No Diminution of Secured Creditor Rights. The issuance of the Commencement Order
and the Suspension or Stay Order, and any other provision of this Act, shall not be
deemed in any way to diminish or impair the security or lien of a secured creditor, or the value of his
lien or security, except that his right to enforce said security or lien may be suspended during the
term of the Stay Order.
The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured
creditor to enforce his security or lien, or foreclose upon property of the debtor
securing his/its claim, if the said property is not necessary for the rehabilitation of the debtor. The
secured creditor and/or the other lien holders shall be admitted to the rehabilitation proceedings only
for the balance of his claim, if any.
Section 61.Lack of Adequate Protection. - The court, on motion or motu proprio, may terminate,
modify or set conditions for the continuance of suspension of payment, or relieve a claim from the
coverage thereof, upon showing that: (a) a creditor does not have adequate protection over property
securing its claim; or
(b) the value of a claim secured by a lien on property which is not necessary for rehabilitation of the
debtor exceeds the fair market value of the said property.
For purposes of this section, a creditor shall be deemed to lack adequate protection if it can be
shown that:
(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the
property insured;
(b) the debtor fails or refuses to take commercially reasonable steps to maintain the property;
or
(c) the property has depreciated to an extent that the creditor is under secured.
Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation receiver to
make arrangements to provide for the insurance or maintenance of the property; or to make
payments or otherwise provide additional or replacement security such that the obligation is fully
secured. If such arrangements are not feasible, the court may modify the Stay Order to allow the
secured creditor lacking adequate protection to enforce its security claim against the
debtor: Provided, however, That the court may deny the creditor the remedies in this paragraph if the
property subject of the enforcement is required for the rehabilitation of the debtor.
(i) Administration of Proceedings.
Section 62.Contents of a Rehabilitation Plan. The Rehabilitation Plan shall, as a minimum:
(a) specify the underlying assumptions, the financial goals and the procedures proposed to
accomplish such goals;
(b) compare the amounts expected to be received by the creditors under the Rehabilitation
Plan with those that they will receive if liquidation ensues within the next one hundred twenty
(120) days;
(c) contain information sufficient to give the various classes of creditors a reasonable basis
for determining whether supporting the Plan is in their financial interest when compared to
the immediate liquidation of the debtor, including any reduction of principal interest and
penalties payable to the creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior approval has been granted by the court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization. dacion en
pago, debt-equity conversion and sale of the business (or parts of it) as a going concern, or
setting-up of a new business entity or other similar arrangements as may be necessary to
restore the financial well-being and visibility of the insolvent debtor;
(g) specify the treatment of each class or subclass described in subsections (d) and (e);
(h) provide for equal treatment of all claims within the same class or subclass, unless a
particular creditor voluntarily agrees to less favorable treatment;
(i) ensure that the payments made under the plan follow the priority established under the
provisions of the Civil Code on concurrence and preference of credits and other applicable
laws;
(j) maintain the security interest of secured creditors and preserve the liquidation value of the
security unless such has been waived or modified voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made during the
proceedings and the justifications thereof;
(1) describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;
(m) identify the debtor's role in the implementation of the Plan;

(n) state any rehabilitation covenants of the debtor, the breach of which shall be considered
a material breach of the Plan;
(o) identify those responsible for the future management of the debtor and the supervision
and implementation of the Plan, their affiliation with the debtor and their remuneration;
(p) address the treatment of claims arising after the confirmation of the Rehabilitation Plan;
(q) require the debtor and its counter-parties to adhere to the terms of all contracts that the
debtor has chosen to confirm;
(r) arrange for the payment of all outstanding administrative expenses as a condition to the
Plan's approval unless such condition has been waived in writing by the creditors concerned;
(s) arrange for the payment" of all outstanding taxes and assessments, or an adjusted
amount pursuant to a compromise settlement with the BlR Or other applicable tax
authorities;
(t) include a certified copy of a certificate of tax clearance or evidence of a compromise

settlement with the BIR;
(u) include a valid and binding r(,solution of a meeting of the debtor's stockholders to
increase the shares by the required amount in cases where the Plan contemplates an
additional issuance of shares by the debtor;
(v) state the compensation and status, if any, of the rehabilitation receiver after the approval
of the Plan; and
(w) contain provisions for conciliation and/or mediation as a prerequisite to court assistance
or intervention in the event of any disagreement in the interpretation or implementation of the
Rehabilitation Plan.
Section 63.Consultation with Debtor and Creditors. if the court gives due course to the petition,
the rehabilitation receiver shall confer with the debtor and all the classes of creditors, and may
consider their views and proposals ill the review, revision or preparation of a new Rehabilitation
Plan.
Section 64.Creditor Approval of Rehabilitation Plan. The rehabilitation receiver shall notify the
creditors and stakeholders that the Plan is ready for their examination. Within twenty (2Q) days from
the said notification, the rehabilitation receiver shall convene the creditors, either as a whole or per
class, for purposes of voting on the approval of the Plan. The Plan shall be deemed rejected unless
approved by all classes of creditors w hose rights are adversely modified or affected by the Plan. For
purposes of this section, the Plan is deemed to have been approved by a class of creditors if
members of the said class holding more than fifty percent (50%) of the total claims of the said class
vote in favor of the Plan. The votes of the creditors shall be based solely on the amount of their
respective claims based on the registry of claims submitted by the rehabilitation receiver pursuant to
Section 44 hereof.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation
Plan if all of the following circumstances are present:
(a)The Rehabilitation Plan complies with the requirements specified in this Act.
(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least their controlling
interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would have
received if the debtor were under liquidation.
Section 65.Submission of Rehabilitation Plan to the Court. - 1fthe Rehabilitation Plan is approved,
the rehabilitation receiver shall submit the same to the court for confirmation. Within five (5) days
from receipt of the Rehabilitation Plan, the court shall notify the creditors that the Rehabilitation Plan
has been submitted for confirmation, that any creditor may obtain copies of the Rehabilitation Plan
and that any creditor may file an objection thereto.
Section 66.Filing of Objections to Rehabilitation Plan. A creditor may file an objection to the
Rehabilitation Plan within twenty (20) days from receipt of notice from the court that the
Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan shall be
limited to the following:
(a) The creditors' support was induced by fraud;
(b)The documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or
(c)The Rehabilitation Plan is in fact not supported by the voting creditors.
Section 67.Hearing on the Objections. - If objections have been submitted during the relevant
period, the court shall issue an order setting the time and date for the hearing or hearings on the
objections.
If the court finds merit in the objection, it shall order the rehabilitation receiver or other party to cure
the defect, whenever feasible. If the court determines that the debtor acted in bad faith, or that it is
not feasible to cure the defect, the court shall convert the proceedings into one for the liquidation of
the debtor under Chapter V of this Act.
Section 68.Confirmation of the Rehabilitation Plan. If no objections are filed within the relevant
period or, if objections are filed, the court finds them lacking in merit, or determines that the basis for
the objection has been cured, or determines that the debtor has complied with an order to cure the
objection, the court shall issue an order confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over claims if the
Rehabilitation Plan has made adequate provisions for paying such claims.
For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the court
shall have the power to approve or implement the Rehabilitation Plan despite the lack of approval, or
objection from the owners, partners or stockholders of the insolvent debtor: Provided, That the terms
thereof are necessary to restore the financial well-being and viability of the insolvent debtor.
Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of the Rehabilitation
Plan by the court shall result in the following:
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all
persons who may be affected by . it, including the creditors, whether or not such persons
have participated in the proceedings or opposed the Rehabilitation Plan or whether or not
their claims have been scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all
actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the
(d) Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the provisions of
the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall
be binding on creditors regardless of whether or not the Plan is successfully implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not
subject to any Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided,
however, That the court may maintain jurisdiction over the case in order to resolve claims against
the debtor that remain contested and allegations that the debtor has breached the Plan.
Section 70. Liability of General Partners of a Partnership for Unpaid Balances Under an Approved
Plan. - The approval of the Plan shall not affect the rights of creditors to pursue actions against the
general partners of a partnership to the extent they are liable under relevant legislation for the debts
thereof.
Section 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. - Amounts

of any indebtedness or obligations reduced or forgiven in connection with a Plan's approval shall not
be subject to any tax in furtherance of the purposes of this Act.
Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a maximum
period of one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion
or motu propio, be converted into one for the liquidation of the debtor .
Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the
Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to the court.
Unless the Rehabilitation Plan specifically requires and describes the role of the rehabilitation
receiver after the approval of the Rehabilitation Plan, the court shall discharge the rehabilitation
receiver of his duties.
(j) Termination of Proceedings

Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II shall,
upon motion by any stakeholder or the rehabilitation receiver be terminated by order of the court
either declaring a successful implementation of the Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood
that the debtor can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the
implementation thereof, the debtor fails to perform its obligations thereunder or there is a
failure to realize the objectives, targets or goals set forth therein, including the timelines and
conditions for the settlement of the obligations due to the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its
amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an affected
party may:
(1) Issue an order directing that the breach be cured within a specified period of time, falling
which the proceedings may be converted to a liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation
Plan, the approval of which shall be governed by the same requirements for the approval of
a Rehabilitation Plan under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present regulation, other
applicable law and the best interests of the creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.
Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:
(a) The discharge of the rehabilitation receiver subject to his submission of a final
accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any action for
the enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of rehabilitation or
dismissal of the petition for reasons other than technical grounds, the proceedings shall be
immediately converted to liquidation as provided in Section 92 of this Act.
CHAPTER III
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors, may
file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan which
has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of
the debtor, including secured creditors holding more than fifty percent (50%) of the total secured
claims of the debtor and unsecured creditors holding more than fifty percent (50%) of the total
unsecured claims of the debtor. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified
nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the provisioning of
funds to account for appropriate payments should any such claims be ruled valid or their
amounts adjusted.
Section 77. Issuance of Order. - Within five (5) working days, and after determination that the
petition is sufficient in form and substance, the court shall issue an Order which shall;
(a) identify the debtor, its principal business of activity/ies and its principal place of business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground./s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of general circulation in the Philippines
once a week for at least two (2) consecutive weeks, with the first publication to be made
within seven (7) days from the time of its issuance;
(e) direct the service by personal delivery of a copy of the petition on each creditor who is not
a petitioner holding at least ten percent (10%) of the total liabilities of the debtor, as
determined in the schedule attached to the petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for examination
and copying by any interested party;
(g) state that creditors and other interested parties opposing the petition or Rehabilitation
Plan may file their objections or comments thereto within a period of not later than twenty
(20) days from the second publication of the Order;
(h) appoint a rehabilitation receiver, if provided for in the Plan; and

(i) include a Suspension or Stay Order as described in this Act.
Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication of
the Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested party
submits an objection to it in accordance with the next succeeding section.
Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or other interested party
may submit to the court a verified objection to the petition or the Rehabilitation Plan not later than
eight (8) days from the date of the second publication of the Order mentioned in Section 77 hereof.
The objections shall be limited to the following:
(a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto are
materially false or misleading;
(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and the
claim in not categorically declared as a contested claim; or
(d) The support of the creditors, or any of them was induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the
rehabilitation receiver (if applicable), the secured creditor with the largest claim and who supports
the Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the
Rehabilitation Plan.
Section 80. Hearing on the Objections. - After receipt of an objection, the court shall set the same
for hearing. The date of the hearing shall be no earlier than twenty (20) days and no later than thirty
(30) days from the date of the second publication of the Order mentioned in Section 77 hereof. If the
court finds merit in the objection, it shall direct the debtor, when feasible to cure the detect within a
reasonable period. If the court determines that the debtor or creditors supporting the Rehabilitation
Plan acted in bad faith, or that the objection is non-curable, the court may order the conversion of
the proceedings into liquidation. A finding by the court that the objection has no substantial merit, or
that the same has been cured shall be deemed an approval of the Rehabilitation Plan.
Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum period of
one hundred twenty (120) days from the date of the filing of the petition to approve the Rehabilitation
Plan. If the court fails to act within the said period, the Rehabilitation Plan shall be deemed
approved.
Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal
effect as confirmation of a Plan under Chapter II of this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR REHABILITATION
PLANS
Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-
of-curt or informal restructuring agreement or Rehabilitation Plan that meets the minimum
requirements prescribed in this chapter is hereby recognized as consistent with the objectives of this
Act.
Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and
Rehabilitation Plans. - For an out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan to qualify under this chapter, it must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured
obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the
unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total
liabilities, secured and unsecured, of the debtor.
Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties pending
negotiation and finalization of the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan contemplated herein shall be effective and enforceable not only against the
contracting parties but also against the other creditors: Provided, That (a) such agreement is
approved by creditors representing more than fifty percent (50%) of the total liabilities of the debtor;
(b) notice thereof is publishing in a newspaper of general circulation in the Philippines once a week
for two (2) consecutive weeks; and (c) the standstill period does not exceed one hundred twenty
(120) days from the date of effectivity. The notice must invite creditors to participate in the
negotiation for out-of-court rehabilitation or restructuring agreement and notify them that said
agreement will be binding on all creditors if the required majority votes prescribed in Section 84 of
this Act are met.
Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that is
approved pursuant to an informal workout framework referred to in this chapter shall have the same
legal effect as confirmation of a Plan under Section 69 hereof. The notice of the Rehabilitation Plan
or restructuring agreement or Plan shall be published once a week for at least three (3) consecutive
weeks in a newspaper of general circulation in the Philippines. The Rehabilitation Plan or
restructuring agreement shall take effect upon the lapse of fifteen (15) days from the date of the last
publication of the notice thereof.
Section 87. Amendment or Modification. - Any amendment of an out-of-court restructuring/workout

agreement or Rehabilitation Plan must be made in accordance with the terms of the agreement and
with due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings
arising from, or relating to, the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan shall not stay its implementation, unless the relevant party is able to secure a
temporary restraining order or injunctive relief from the Court of Appeals.
Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court assistance for
the execution or implementation of a Rehabilitation Plan under this Chapter, under such rules of
CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a petition
for liquidation with the court. The petition shall be verified, shall establish the insolvency of the debtor
and shall contain, whether as an attachment or as part of the body of the petition;
(a) a schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings,

the debtor may also initiate liquidation proceedings by filing a motion in the same court where the
rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified, shall contain or set forth the same matters required in the
preceding paragraph, and state that the debtor is seeking immediate dissolution and termination of
its corporate existence.
If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall
issue a Liquidation Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims is
at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of the
subscribed capital stock or partner's contributions of the debtor, whichever is higher, may apply for
and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the
court. The petition shall show that:
(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the
due and demandable payments thereon have not been made for at least one hundred eighty
(180) days or that the debtor has failed generally to meet its liabilities as they fall due; and
(b) there is no substantial likelihood that the debtor may be rehabilitated.
At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated

rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million
pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or partner's
contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by filing a
motion in the same court where the rehabilitation proceedings are pending to convert the
rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or
set forth the same matters required in the preceding paragraph, and state that the movants are
seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an Order:
(1) directing the publication of the petition or motion in a newspaper of general circulation
once a week for two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their comment on
the petition or motion within fifteen (15) days from the date of last publication.
If, after considering the comments filed, the court determines that the petition or motion is
meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of court-
supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of
rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or (b)
Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time
upon the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not
feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 93. Powers of the Securities and Exchange Commission (SEC). - The provisions of this
chapter shall not affect the regulatory powers of the SEC under Section 6 of Presidential Decree No.
902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and heard
before it.
CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his debts
but foreseeing the impossibility of meeting them when they respectively fall due, may file a verified
petition that he be declared in the state of suspension of payments by the court of the province or
city in which he has resides for six (6) months prior to the filing of his petition. He shall attach to his
petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory of assess; and (c) a
proposed agreement with his creditors.
Section 95. Action on the Petition. - If the court finds the petition sufficient in form and substance, it
shall, within five (5) working days from the filing of the petition, issue an Order:
(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such
time not less than fifteen (15) days nor more than forty (40) days from the date of such Order
and designating the date, time and place of the meeting;
(b) directing such creditors to prepare and present written evidence of their claims before the
scheduled creditors' meeting;
(c) directing the publication of the said order in a newspaper of general circulation published
in the province or city in which the petition is filed once a week for two (2) consecutive
weeks, with the first publication to be made within seven (7) days from the time of the
issuance of the Order;
(d) directing the clerk of court to cause the sending of a copy of the Order by registered mail,
postage prepaid, to all creditors named in the schedule of debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any
manner of his property, except those used in the ordinary operations of commerce or of
industry in which the petitioning individual debtor is engaged so long as the proceedings
relative to the suspension of payments are pending;
(f) prohibiting the individual debtor from making any payment outside of the necessary or
legitimate expenses of his business or industry, so long as the proceedings relative to the
suspension of payments are pending; and
(g) appointing a commissioner to preside over the creditors' meeting.
Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue an
order suspending any pending execution against the individual debtor. Provide, That properties held
as security by secured creditors shall not be the subject of such suspension order. The suspension
order shall lapse when three (3) months shall have passed without the proposed agreement being
accepted by the creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the
filing of the petition for suspension of payments and for as long as proceedings remain pending
except:
(a) those creditors having claims for personal labor, maintenance, expense of last illness and
funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to
the filing of the petition; and
(b) secured creditors.
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least
three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner
appointed by the court shall preside over the meeting and the clerk of court shall act as the secretary
thereof, subject to the following rules:
(a) The clerk shall record the creditors present and amount of their respective claims;
(b) The commissioner shall examine the written evidence of the claims. If the creditors
present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the
commissioner shall declare the meeting open for business;
(c) The creditors and individual debtor shall discuss the propositions in the proposed
agreement and put them to a vote;
(d) To form a majority, it is necessary:
(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
(2) that the claims represented by said majority vote amount to at least three-fifths
(3/5) of the total liabilities of the debtor mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made against the majority
vote shall be drawn up, and the commissioner and the individual debtor together with all
creditors taking part in the voting shall sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be
entitled to vote.
Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the
Suspension Order may refrain from attending the meeting and from voting therein. Such persons
shall not be bound by any agreement determined upon at such meeting, but if they should join in the
voting they shall be bound in the same manner as are the other creditors.
Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be deemed
rejected if the number of creditors required for holding a meeting do not attend thereat, or if the two
(2) majorities mentioned in Section 97 hereof are not in favor thereof. In such instances, the
proceeding shall be terminated without recourse and the parties concerned shall be at liberty to
enforce the rights which may correspond to them.
Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof made
during the creditors' meeting, is approved by the majority of creditors in accordance with Section 97
hereof, any creditor who attended the meeting and who dissented from and protested against the
vote of the majority may file an objection with the court within ten (10) days from the date of the last
creditors' meeting. The causes for which objection may be made to the decision made by the
majority during the meeting shall be: (a) defects in the call for the meeting, in the holding thereof and
in the deliberations had thereat which prejudice the rights of the creditors; (b) fraudulent connivance
between one or more creditors and the individual debtor to vote in favor of the proposed agreement;
or (c) fraudulent conveyance of claims for the purpose of obtaining a majority. The court shall hear
and pass upon such objection as soon as possible and in a summary manner.
In case the decision of the majority of creditors to approve the individual debtor's proposal or any
amendment thereof made during the creditors' meeting is annulled by the court, the court shall
declare the proceedings terminated and the creditors shall be at liberty to exercise the rights which
may correspond to them.
Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the
creditors to approve the proposed agreement or any amendment thereof made during the creditors'
meeting is uphold by the court, or when no opposition or objection to said decision has been
presented, the court shall order that the agreement be carried out and all parties bound thereby to
comply with its terms.
The court may also issue all orders which may be necessary or proper to enforce the agreement on
motion of any affected party. The Order confirming the approval of the proposed agreement or any
amendment thereof made during the creditors' meeting shall be binding upon all creditors whose
claims are included in the schedule of debts and liabilities submitted by the individual debtor and
who were properly summoned, but not upon: (a) those creditors having claims for personal labor,
maintenance, expenses of last illness and funeral of the wife or children of the debtor incurred in the
sixty (60) days immediately prior to the filing of the petition; and (b) secured creditors who failed to
attend the meeting or refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails, wholly
or in part, to perform the agreement decided upon at the meeting of the creditors, all the rights which
the creditors had against the individual debtor before the agreement shall revest in them. In such
case the individual debtor may be made subject to the insolvency proceedings in the manner
established by this Act.
(B) Voluntary Liquidation.
Section 103. Application. - An individual debtor whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to
be discharged from his debts and liabilities by filing a verified petition with the court of the province
or city in which he has resided for six (6) months prior to the filing of such petition. He shall attach to
his petition a schedule of debts and liabilities and an inventory of assets. The filing of such petition
shall be an act of insolvency.
Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance it
shall, within five (5) working days issue the Liquidation Order mentioned in Section 112 hereof.
(C) In voluntary Liquidation.
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or with
claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a verified
petition for liquidation with the court of the province or city in which the individual debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or
allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the Philippines,
with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his
creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or taken
on legal process;
(e) That he has suffered his property to remain under attachment or legal process for three
(3) days for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for
the purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the purpose
of hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to
give a preference to one or more of his creditors and thereby hinder or delay the liquidation
or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate,
property, rights or credits with intent to hinder or delay the liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale,
conveyance or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his
current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys
deposited with him or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for money, he shall
have been found to be without sufficient property subject to execution to satisfy the
judgment.
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the
petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor shall
not be declared an insolvent the petitioners will pay to the debtor all costs, expenses, damages
occasioned by the proceedings and attorney's fees.
Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors' petition,
the court shall issue an Order requiring the individual debtor to show cause, at a time and place to
be fixed by the said court, why he should not be adjudged an insolvent. Upon good cause shown,
the court may issue an Order forbidding the individual debtor from making payments of any of his
debts, and transferring any property belonging to him. However, nothing contained herein shall affect
or impair the rights of a secured creditor to enforce his lien in accordance with its terms.
Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found in
favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112
hereof.
Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of the
Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be found
therein; or conceals himself to avoid service of the Order to show cause, or any other preliminary
process or orders in the matter, then the petitioning creditors, upon submitting the affidavits requisite
to procedure an Order of publication, and presenting a bond in double the amount of the aggregate
sum of their claims against the individual debtor, shall be entitled to an Order of the court directing
the sheriff of the province or city in which the matter is pending to take into his custody a sufficient
amount of property of the individual debtor to satisfy the demands of the petitioning creditors and the
costs of the proceedings. Upon receiving such Order of the court to take into custody of the property
of the individual debtor, it shall be the duty of the sheriff to take possession of the property and
effects of the individual debtor, not exempt from execution, to an extent sufficient to cover the
amount provided for and to prepare within three (3) days from the time of taking such possession, a
complete inventory of all the property so taken, and to return it to the court as soon as completed.
The time for taking the inventory and making return thereof may be extended for good cause shown
to the court. The sheriff shall also prepare a schedule of the names and residences of the creditors,
and the amount due each, from the books of the debtor, or from such other papers or data of the
individual debtor available as may come to his possession, and shall file such schedule or list of
creditors and inventory with the clerk of court.
Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to
Sureties. - In all cases where property is taken into custody by the sheriff, if it does not embrace all
the property and effects of the debtor not exempt from execution, any other creditor or creditors of
the individual debtor, upon giving bond to be approved by the court in double the amount of their
claims, singly or jointly, shall be entitled to similar orders and to like action, by the sheriff; until all
claims be provided for, if there be sufficient property or effects. All property taken into custody by the
sheriff by virtue of the giving of any such bonds shall be held by him for the benefit of all creditors of
the individual debtor whose claims shall be duly proved as provided in this Act. The bonds provided
for in this section and the preceding section to procure the order for custody of the property and
effects of the individual debtor shall be conditioned that if, upon final hearing of the petition in
insolvency, the court shall find in favor of the petitioners, such bonds and all of them shall be void; if
the decision be in favor of the individual debtor, the proceedings shall be dismissed, and the
individual debtor, his heirs, administrators, executors or assigns shall be entitled to recover such
sum of money as shall be sufficient to cover the damages sustained by him, not to exceed the
amount of the respective bonds. Such damages shall be fixed and allowed by the court. If either the
petitioners or the debtor shall appeal from the decision of the court, upon final hearing of the petition,
the appellant shall be required to give bond to the successful party in a sum double the amount of
the value of the property in controversy, and for the costs of the proceedings.
Any person interested in the estate may take exception to the sufficiency of the sureties on such
bond or bonds. When excepted to the petitioner's sureties, upon notice to the person excepting of
not less than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon failure
to justify, or of others in their place fail to justify at the time and place appointed the judge shall issue
an Order vacating the order to take the property of the individual debtor into the custody of the
sheriff, or denying the appeal, as the case may be.
Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented to
the court or a judge thereof, asking for and obtaining an Order of publication and an Order for the
custody of the property of the individual debtor and thereafter the petitioners shall make it appear
satisfactorily to the court or a judge thereof that the interest of the parties to the proceedings will be
subserved by a sale thereof, the court may order such property to be sold in the same manner as
property is sold under execution, the proceeds to de deposited in the court to abide by the result of
the proceedings.
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND JURIDICAL
DEBTORS
Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor shall include both
individual debtor as defined in Section 4(o) and debtor as defined in Section 4(k) of this Act.
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as
dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except
those that may be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general circulation once a
week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor to the
liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the debtor;
(g) direct all creditors to file their claims with the liquidator within the period set by the rules of
procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of other
nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which date shall
not be less than thirty (30) days nor more than forty-five (45) days from the date of the last
publication.
Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:
(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence
terminated;
(b) legal title to and control of all the assets of the debtor, except those that may be exempt
from execution, shall be deemed vested in the liquidator or, pending his election or
appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the
liquidator, within ninety (90) days from the date of his assumption of office, declares
otherwise and the contracting party agrees;
(d) no separate action for the collection of an unsecured claim shall be allowed. Such actions
already pending will be transferred to the Liquidator for him to accept and settle or contest. If
the liquidator contests or disputes the claim, the court shall allow, hear and resolve such
contest except when the case is already on appeal. In such a case, the suit may proceed to
judgment, and any final and executor judgment therein for a claim against the debtor shall be
filed and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.
Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a
secured creditor to enforce his lien in accordance with the applicable contract or law. A secured
creditor may:
(a) waive his right under the security or lien, prove his claim in the liquidation proceedings
and share in the distribution of the assets of the debtor; or
(b) maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the
liquidator. When the value of the property is less than the claim it secures, the liquidator may
convey the property to the secured creditor and the latter will be admitted in the liquidation
proceedings as a creditor for the balance. If its value exceeds the claim secured, the
liquidator may convey the property to the creditor and waive the debtor's right of redemption
upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the
proceeds of the sale; or
(3) the secure creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.
(B) The Liquidator.
Section 115. Election of Liquidator. - Only creditors who have filed their claims within the period set
by the court, and whose claims are not barred by the statute of limitations, will be allowed to vote in
the election of the liquidator. A secured creditor will not be allowed to vote, unless: (a) he waives his
security or lien; or (b) has the value of the property subject of his security or lien fixed by agreement
with the liquidator, and is admitted for the balance of his claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the
highest number of votes cast in terms of amount of claims, ad who is qualified pursuant to Section
118 hereof, shall be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
(a) on the date set for the election of the liquidator, the creditors do not attend;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the
court may instead set another hearing of the election of the liquidator.
Provided further, That nothing in this section shall be construed to prevent a rehabilitation receiver,
who was administering the debtor prior to the commencement of the liquidation, from being
appointed as a liquidator.
Section 117. Oath and Bond of the Liquidator. -Prior to entering upon his powers, duties and
responsibilities, the liquidator shall take an oath and file a bond, In such amount to be fixed by the
court, conditioned upon the proper and faithful discharge of his powers, duties and responsibilities.
Section 118. Qualifications of the Liquidator. - The liquidator shall have the qualifications
enumerated in Section 29 hereof. He may be removed at any time by the court for cause,
either motu propio or upon motion of any creditor entitled to vote for the election of the liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be deemed
an officer of the court with the principal duly of preserving and maximizing the value and recovering
the assets of the debtor, with the end of liquidating them and discharging to the extent possible all
the claims against the debtor. The powers, duties and responsibilities of the liquidator shall include,
but not limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b) to take possession of all the property of the debtor except property exempt by law from
execution;
(c) to sell, with the approval of the court, any property of the debtor which has come into his
possession or control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an
encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the approval of the
court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will assist him in
the discharge of the functions and which shall have powers as the court deems just,
reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and
reasonable to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right and
duty to take all reasonable steps to manage and dispose of the debtor's assets with a view towards
maximizing the proceedings therefrom, to pay creditors and stockholders, and to terminate the
debtor's legal existence. Other duties of the liquidator in accordance with this section may be
established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation receiver.
Section 120. Compensation of the Liquidator. - The liquidator and the persons and entities engaged
or employed by him to assist in the discharge of his powers and duties shall be entitled to such
reasonable compensation as may determined by the liquidation court, which shall not exceed the
maximum amount as may be prescribed by the Supreme Court.
Section 121. Reporting Requiremen5ts. - The liquidator shall make and keep a record of all moneys
received and all disbursements mad by him or under his authority as liquidator. He shall render a
quarterly report thereof to the court , which report shall be made available to all interested parties.
The liquidator shall also submit such reports as may be required by the court from time to time as
well as a final report at the end of the liquidation proceedings.
Section 122. Discharge of Liquidator. - In preparation for the final settlement of all the claims against
the debtor , the liquidator will notify all the creditors, either by publication in a newspaper of general
circulation or such other mode as the court may direct or allow, that will apply with the court for the
settlement of his account and his discharge from liability as liquidator. The liquidator will file a final
accounting with the court, with proof of notice to all creditors. The accounting will be set for hearing.
If the court finds the same in order, the court will discharge the liquidator.
(C) Determination of Claims
Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the
liquidator shall prepare a preliminary registry of claims of secured and unsecured creditors. Secured
creditors who have waived their security or lien, or have fixed the value of the property subject of
their security or lien by agreement with the liquidator and is admitted as a creditor for the balance ,
shall be considered as unsecured creditors. The liquidator shall make the registry available for public
inspection and provide publication notice to creditors, individual debtors owner/s of the sole
proprietorship-debtor, the partners of the partnership-debtor and shareholders or members of the
corporation-debtor, on where and when they may inspect it. All claims must be duly proven before
being paid.
Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of each
other one debt shall be set off against the other, and only the balance, if any shall be allowed in the
liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration of the
period for filing of applications for recognition of claims, creditors, individual debtors, owner/s of the
sole proprietorship-debtor, partners of the partnership-debtor and shareholders or members of the
corporation -debtor and other interested parties may submit a challenge to claim or claims to the
court, serving a certified copy on the liquidator and the creditor holding the challenged claim. Upon
the expiration of the (30) day period, the rehabilitation receiver shall submit to the court the registry
of claims containing the undisputed claims that have not been subject to challenge. Such claims
shall become final upon the filling of the register and may be subsequently set aside only on grounds
or fraud, accident, mistake or inexcusable neglect.
Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims and
submit his findings thereon to the court for final approval. The liquidator may disallow claims.
(D) Avoidance Proceedings.
Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to the
issuance of the Liquidation Order or, in case of the conversion of the rehabilitation proceedings prior
to the commencement date, entered into by the debtor or involving its assets, may be rescinded or
declared null and void on the ground that the same was executed with intent to defraud a creditor or
creditors or which constitute undue preference of creditors. The presumptions set forth in Section 58
hereof shall apply.
Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a creditor
may initiate and prosecute any action to rescind, or declare null and void any transaction described
in the immediately preceding paragraph. If the liquidator does not consent to the filling or prosecution
of such action, any creditor may seek leave of the court to commence said action.
(b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign and
transfer to the creditor all rights, title and interest in the chose in action or subject matter of
the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the
extent of his claim and the costs, belongs exclusively to the creditor instituting the
proceeding, and the surplus, if any, belongs to the estate.
(d) Where, before an orders is made under subsection (a) hereof, the liquidator signifies to
the court his readiness to the institute the proceeding for the benefit of the creditors, the
order shall fix the time within which he shall do so and, in that case the benefit derived from
the proceedings, if instituted within the time limits so fixed, belongs to the estate.
(E) The Liquidation Plan.

Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office, the
Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall, as a minimum
enumerate all the assets of the debtor and a schedule of liquidation of the assets and payment of the
claims.
Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition and
after hearing, to exempt and set apart, for the use and benefit of the said insolvent, such real and
personal property as is by law exempt from execution, and also a homestead; but no such petition
shall be heard as aforesaid until it is first proved that notice of the hearing of the application therefor
has been duly given by the clerk, by causing such notice to be posted it at least three (3) public
places in the province or city at least ten (10) days prior to the time of such hearing, which notice
shall set forth the name of the said insolvent debtor, and the time and place appointed for the
hearing of such application, and shall briefly indicate the homestead sought to be exempted or the
property sought to be set aside; and the decree must show that such proof was made to the
satisfaction of the court, and shall be conclusive evidence of that fact.
Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets of the
debtor and convert the same into money. The sale shall be made at public auction. However, a
private sale may be allowed with the approval of the court if; (a) the goods to be sold are of a
perishable nature, or are liable to quickly deteriorate in value, or are disproportionately expensive to
keep or maintain; or (b) the private sale is for the best interest of the debtor and his creditors.
With the approval of the court, unencumbered property of the debtor may also be conveyed to a
creditor in satisfaction of his claim or part thereof.
Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the
Liquidation Plan as approved by the court. Payments shall be made to the creditors only in
accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its Implementation
shall ensure that the concurrence and preference of credits as enumerated in the Civil Code of the
Philippines and other relevant laws shall be observed, unless a preferred creditor voluntarily waives
his preferred right. For purposes of this chapter, credits for services rendered by employees or
laborers to the debtor shall enjoy first preference under Article 2244 of the Civil Code, unless the
claims constitute legal liens under Article 2241 and 2242 thereof.
Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities and
Exchange Commission. - Upon determining that the liquidation has been completed according to this
Act and applicable law, the court shall issue an Order approving the report and ordering the SEC to
remove the debtor from the registry of legal entities.
Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the debtor has
been removed from the registry of legal entities at the SEC. The court shall issue an Order
terminating the proceedings.
(F) Liquidation of a Securities Market Participant.
Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this
chapter shall be without prejudice to the power of a regulatory agency or self- regulatory
organization to liquidate trade-related claims of clients or customers of a securities market
participant which, for purposes of investor protection, are hereby deemed to have absolute priority
over other claims of whatever nature or kind insofar as trade-related assets are concerned.
For purposes of this section, trade -related assets include cash, securities, trading right and other
owned and used by the securities market participant in the ordinary course of this business.
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION PROCEEDINGS
(A) Banks and Other Financial Institutions Under Rehabilitation Receivership Pursuant to a
State-funded or State-mandated Insurance System.
Section 137. Provision of Assistance. - The court shall issue orders, adjudicate claims and provide
other relief necessary to assist in the liquidation of a financial under rehabilitation receivership
established by a state-funded or state-mandated insurance system.
Section 138. Application of Relevant Legislation. - The liquidation of bank, financial institutions,
insurance companies and pre-need companies shall be determined by relevant legislation. The
provisions in this Act shall apply in a suppletory manner.
(B) Cross-Border Insolvency Proceedings.
Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to the provision
of Section 136 hereof and the rules of procedure that may be adopted by the Supreme Court, the
Model Law on Cross-Border Insolvency of the United Nations Center for International Trade and
Development is hereby adopted as part of this Act.
Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an
insolvency or rehabilitation proceeding taking place in a foreign jurisdiction, upon the submission of a
petition by the representative of the foreign entity that is the subject of the foreign proceeding.
Section 141. Provision of Relief. - The court may issue orders:
(a) suspending any action to enforce claims against the entity or otherwise seize or foreclose
on property of the foreign entity located in the Philippines;
(b) requiring the surrender property of the foreign entity to the foreign representative; or
(c) providing other necessary relief.
Section 142. Factors in Granting Relief. - In determining whether to grant relief under this
subchapter, the court shall consider;
(a) the protection of creditors in the Philippines and the inconvenience in pursuing their claim
in a foreign proceeding;
(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation
proceedings;
(c) whether other jurisdictions have given recognition to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors and other
interested parties in a manner substantially in accordance with the manner prescribed in this
Act; and
(e) the extent that the foreign proceeding has recognized and shown deference to
proceedings under this Act and previous legislation.
CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND CONTROLLED
CORPORATIONS
Section 143. Funds for Rehabilitation of Government -owned and Controlled Corporations. - Public
funds for the rehabilitation of government-owned and controlled corporations shall be released only
pursuant to an appropriation by Congress and shall be supported by funds actually available as
certified by the National Treasurer.
The Department of Finance, in collaboration with the Department of Budget and Management, shall
promulgate the rules for the use and release of said funds.
CHAPTER X
MISCELLANEOUS PROVISIOS
Section 144. Applicability of Provisions. - The provisions in Chapter II, insofar as they are
applicable, shall likewise apply to proceedings in Chapters II and IV.
Section 145. Penalties. - An owner, partner, director, officer or other employee of the debtor who
commits any one of the following acts shall, upon conviction thereof, be punished by a fine of not
more than One million pesos (Php 1, 000,000.00) and imprisonment for not less than three(3)
months nor more than five (5) years for each offense;
(a) if he shall, having notice of the commencement of the proceedings, or having reason to
believe that proceedings are about to be commented, or in contemplation of the proceedings
hide or conceal, or destroy or cause to be destroyed or hidden any property belonging to the
debtor or if he shall hide, destroy, after mutilate or falsify, or cause to be hidden, destroyed,
altered, mutilated or falsified, any book, deed, document or writing relating thereto; if he
shall, with intent to defraud the creditors of the debtor, make any payment sale, assignment,
transfer or conveyance of any property belongings to the debtor
(b) if he shall, having knowledge belief of any person having proved a false or fictitious claim
against the debtor, fail to disclose the same to the rehabilitation receiver of liquidator within
one (1) month after coming to said knowledge or belief; or if he shall attempt to account for
any of the debtors property by fictitious losses or expense; or
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation

established by this Act.
Section 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation

Cases. - This Act shall govern all petitions filed after it has taken effect. All further proceedings in
insolvency, suspension of payments and rehabilitation cases then pending, except to the extent that
in opinion of the court their application would not be feasible or would work injustice, in which event
the procedures set forth in prior laws and regulations shall apply.
Section 147. Application to Pending Contracts. - This Act shall apply to all contracts of the debtor
regardless of the date of perfection.
Section 148. Repeating Clause. - The Insolvency Law (Act No. 1956). As amended is hereby
repealed. All other laws, orders, rules and regulations or parts thereof inconsistent with any provision
of this Act are hereby repealed or modified accordingly.
Section 149. Separability Clause. - If any provision of this Act shall be held invalid, the remainder of
this Act not otherwise affected shall remain in full force effect
Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least two (2) national newspaper of general circulation.
TAXATION
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CEBU TOYO

CORPORATION, respondent.
DECISION
QUISUMBING, J.:
In its Decision dated July 6, 2001, the Court of Appeals, in CA-G.R. SP

[1]
No. 60304, affirmed the Resolutions dated May 31, 2000 and August 2, [2]
2000, of the Court of Tax Appeals (CTA) ordering the Commissioner of Internal
[3]
Revenue (CIR) to allow a partial refund or, alternatively, to issue a tax credit
certificate in favor of Cebu Toyo Corporation in the sum of P2,158,714.46,
representing the unutilized input value-added tax (VAT) payments.
The facts, as culled from the records, are as follows:
Respondent Cebu Toyo Corporation is a domestic corporation engaged in
the manufacture of lenses and various optical components used in television
sets, cameras, compact discs and other similar devices. Its principal office is
located at the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City,
Cebu. It is a subsidiary of Toyo Lens Corporation, a non-resident corporation
organized under the laws of Japan. Respondent is a zone export enterprise
registered with the Philippine Economic Zone Authority (PEZA), pursuant to the
provisions of Presidential Decree No. 66. It is also registered with the Bureau
[4]
of Internal Revenue (BIR) as a VAT taxpayer. [5]
As an export enterprise, respondent sells 80% of its products to its mother

corporation, the Japan-based Toyo Lens Corporation, pursuant to an
Agreement of Offsetting. The rest are sold to various enterprises doing business
in the MEPZ. Inasmuch as both sales are considered export sales subject to
Value-Added Tax (VAT) at 0% rate under Section 106(A)(2)(a) of the National [6]
Internal Revenue Code, as amended, respondent filed its quarterly VAT returns
from April 1, 1996 to December 31, 1997 showing a total input VAT
of P4,462,412.63.
On March 30, 1998, respondent filed with the Tax and Revenue Group of
the One-Stop Inter-Agency Tax Credit and Duty Drawback Center of the
Department of Finance, an application for tax credit/refund of VAT paid for the
period April 1, 1996 to December 31, 1997 amounting to P4,439,827.21
representing excess VAT input payments.
Respondent, however, did not bother to wait for the Resolution of its claim
by the CIR. Instead, on June 26, 1998, it filed a Petition for Review with the
CTA to toll the running of the two-year prescriptive period pursuant to Section
230 of the Tax Code.
[7]
Before the CTA, the respondent posits that as a VAT-registered exporter of

goods, it is subject to VAT at the rate of 0% on its export sales that do not result
in any output tax. Hence, the unutilized VAT input taxes on its purchases of
goods and services related to such zero-rated activities are available as tax
credits or refunds.
The petitioners position is that respondent was not entitled to a refund or tax
credit since: (1) it failed to show that the tax was erroneously or illegally
collected; (2) the taxes paid and collected are presumed to have been made in
accordance with law; and (3) claims for refund are strictly construed against the
claimant as these partake of the nature of tax exemption.
Initially, the CTA denied the petition for insufficiency of evidence. The tax
[8]
court sustained respondents argument that it was a VAT-registered entity. It

also found that the petition was timely, as it was filed within the prescription
period. The CTA also ruled that the respondents sales to Toyo Lens
Corporation and to certain establishments in the Mactan Export Processing
Zone were export sales subject to VAT at 0% rate. It found that the input VAT
covered by respondents claim was not applied against any output VAT.
However, the tax court decreed that the petition should nonetheless be denied
because of the respondents failure to present documentary evidence to show
that there were foreign currency exchange proceeds from its export sales. The
CTA also observed that respondent failed to submit the approval by Bangko
Sentral ng Pilipinas (BSP) of its Agreement of Offsetting with Toyo Lens
Corporation and the certification of constructive inward remittance.
Undaunted, respondent filed on February 21, 2000, a Motion for
Reconsideration arguing that: (1) proof of its inward remittance was not
required by law; (2) BSP and BIR regulations do not require BSP approval on
its Agreement of Offsetting nor do they require certification on the amount
constructively remitted; (3) it was not legally required to prove foreign currency
payments on the remaining sales to MEPZ enterprises; and (4) it had complied
with the substantiation requirements under Section 106(A)(2)(a) of the Tax
Code. Hence, it was entitled to a refund of unutilized VAT input tax.
On May 31, 2000, the tax court partly granted the motion for reconsideration
in a Resolution, to wit:
WHEREFORE, finding the motion of petitioner to be meritorious, the same is hereby

partially granted. Accordingly, the Court hereby MODIFIES its decision in the above-
entitled case, the dispositive portion of which shall now read as follows:
WHEREFORE, finding the petition for review partially meritorious, respondent is

hereby ORDERED to REFUND or, in the alternative, to ISSUE a TAX CREDIT
CERTIFICATE in favor of Petitioner in the amount of P2,158,714.46 representing
unutilized input tax payments.
SO ORDERED. [9]
In granting partial reconsideration, the tax court found that there was no
need for BSP approval of the Agreement of Offsetting since the same may be
categorized as an inter-company open account offset arrangement. Hence, the
respondent need not present proof of foreign currency exchange proceeds from
its sales to MEPZ enterprises pursuant to Section 106(A)(2)(a) of the Tax
[10]
Code. However, the CTA stressed that respondent must still prove that there
was an actual offsetting of accounts to prove that constructive foreign currency
exchange proceeds were inwardly remitted as required under Section
106(A)(2)(a).
The CTA found that only the amount of Y274,043,858.00 covering
respondents sales to Toyo Lens Corporation and purchases from said mother
company for the period August 7, 1996 to August 26, 1997 were actually offset
against respondents related accounts receivable and accounts payable as
shown by the Agreement for Offsetting dated August 30, 1997. Resort to the
respondents Accounts Receivable and Accounts Payable subsidiary ledgers
corroborated the amount. The tax court also found that out of the total export
sales for the period April 1, 1996 to December 31, 1997 amounting
to Y700,654,606.15, respondents sales to MEPZ enterprises amounted only
to Y136,473,908.05 of said total. Thus, allocating the input taxes supported by
receipts to the export sales, the CTA determined that the refund/credit
amounted to only P2,158,714.46, computed as follows:
[11]
Total Input Taxes Claimed by respondent P4,439,827.21

Less: Exceptions made by SGV
a.) 1996 P651,256.17
b.) 1997 104,129.13 755,385.30
Validly Supported Input Taxes P3,684,441.91
Allocation:
Verified Zero-Rated Sales
a.) Toyo Lens Corporation Y274,043,858.00
b.) MEPZ Enterprises 136,473,908.05 Y410,517,766.05
Divided by Total Zero-Rated Sales Y700,654,606.15
Quotient 0.5859
Multiply by Allowable Input Tax P3,684,441.91
Amount Refundable P2,158,714.[52][12]
On June 21, 2000, petitioner Commissioner filed a Motion for
Reconsideration arguing that respondent was not entitled to a refund because
as a PEZA-registered enterprise, it was not subject to VAT pursuant to Section
24 of Republic Act No. 7916, as amended by Rep. Act No. 8748. Thus,
[13] [14] [15]
since respondent was not subject to VAT, the Commissioner contended that
the capital goods it purchased must be deemed not used in VAT taxable
business and therefore it was not entitled to refund of input taxes on such capital
goods pursuant to Section 4.106-1 of Revenue Regulations No. 7-95. [16]
Petitioner filed a Motion for Reconsideration on June 21, 2000 based on

the following theories: (1) that respondent being registered with the PEZA as
an ecozone enterprise is not subject to VAT pursuant to Sec. 24 of Rep. Act
No. 7916; and (2) since respondents business is not subject to VAT, the capital
goods it purchased are considered not used in a VAT taxable business and
therefore is not entitled to a refund of input taxes. [17]
The respondent opposed the Commissioners Motion for

Reconsideration and prayed that the CTA resolution be modified so as to grant
it the entire amount of tax refund or credit it was seeking.
On August 2, 2000, the Court of Tax Appeals denied the petitioners motion
for reconsideration. It held that the grounds relied upon were only raised for the
first time and that Section 24 of Rep. Act No. 7916 was not applicable since
respondent has availed of the income tax holiday incentive under Executive
Order No. 226 or the Omnibus Investment Code of 1987 pursuant to Section
23 of Rep. Act No. 7916. The tax court pointed out that E.O. No. 226 granted
[18]
PEZA-registered enterprises an exemption from payment of income taxes for 4

or 6 years depending on whether the registration was as a pioneer or as a non-
pioneer enterprise, but subject to other national taxes including VAT.
The petitioner then filed a Petition for Review with the Court of Appeals
(CA), docketed as CA-G.R. SP No. 60304, praying for the reversal of the CTA
Resolutions dated May 31, 2000 and August 2, 2000, and reiterating its claim
that respondent is not entitled to a refund of input taxes since it is VAT-exempt.
On July 6, 2001, the appellate court decided CA-G.R. SP No. 60304 in
respondents favor, thus:
WHEREFORE, finding no merit in the petition, this Court DISMISSES it and

AFFIRMS the Resolutions dated May 31, 2000 and August 2, 2000 . . . of the Court
of Tax Appeals.
SO ORDERED. [19]
The Court of Appeals found no reason to set aside the conclusions of the
Court of Tax Appeals. The appellate court held as untenable herein petitioners
argument that respondent is not entitled to a refund because it is VAT-exempt
since the evidence showed that it is a VAT-registered enterprise subject to VAT
at the rate of 0%. It agreed with the ruling of the tax court that respondent had
two options under Section 23 of Rep. Act No. 7916, namely: (1) to avail of an
income tax holiday under E.O. No. 226 and be subject to VAT at the rate of 0%;
or (2) to avail of the 5% preferential tax under P.D. No. 66 and enjoy VAT
exemption. Since respondent availed of the incentives under E.O. No. 226, then
the 0% VAT rate would be applicable to it and any unutilized input VAT should
be refunded to respondent upon proper application with and substantiation by
the BIR.
Hence, the instant petition for review now before us, with herein petitioner
alleging that:
I. RESPONDENT BEING REGISTERED WITH THE PHILIPPINE ECONOMIC ZONE
AUTHORITY (PEZA) AS AN ECOZONE EXPORT ENTERPRISE, ITS BUSINESS IS
NOT SUBJECT TO VAT PURSUANT TO SECTION 24 OF REPUBLIC ACT NO.
7916 IN RELATION TO SECTION 103 OF THE TAX CODE, AS AMENDED BY RA
NO. 7716.
II. SINCE RESPONDENTS BUSINESS IS NOT SUBJECT TO VAT, IT IS NOT
ENTITLED TO REFUND OF INPUT TAXES PURSUANT TO SECTION 4.103-1 OF
REVENUE REGULATIONS NO. 7-95.[20]
In our view, the main issue for our resolution is whether the Court of Appeals
erred in affirming the Court of Tax Appeals resolution granting a refund in the
amount of P2,158,714.46 representing unutilized input VAT on goods and
services for the period April 1, 1996 to December 31, 1997.
Both the Commissioner of Internal Revenue and the Office of the Solicitor
General argue that respondent Cebu Toyo Corporation, as a PEZA-registered
enterprise, is exempt from national and local taxes, including VAT, under
Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC. Thus, they
[21]
contend that respondent Cebu Toyo Corporation is not entitled to any refund or
credit on input taxes it previously paid as provided under Section 4.103-1 of[22]
Revenue Regulations No. 7-95, notwithstanding its registration as a VAT

taxpayer. For petitioner claims that said registration was erroneous and did not
confer upon the respondent any right to claim recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O.
No. 226 for four years from August 7, 1995 making it exempt from income tax
but not from other taxes such as VAT. Hence, according to respondent, its
export sales are not exempt from VAT, contrary to petitioners claim, but its
export sales is subject to 0% VAT. Moreover, it argues that it was able to
establish through a report certified by an independent Certified Public
Accountant that the input taxes it incurred from April 1, 1996 to December 31,
1997 were directly attributable to its export sales. Since it did not have any
output tax against which said input taxes may be offset, it had the option to file
a claim for refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we
find the petition bereft of merit.
Petitioners contention that respondent is not entitled to refund for being
exempt from VAT is untenable. This argument turns a blind eye to the fiscal
incentives granted to PEZA-registered enterprises under Section 23 of Rep. Act
No. 7916. Note that under said statute, the respondent had two options with
respect to its tax burden. It could avail of an income tax holiday pursuant to
provisions of E.O. No. 226, thus exempt it from income taxes for a number of
years but not from other internal revenue taxes such as VAT; or it could avail of
the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only
the preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of
Appeals and the Court of Tax Appeals found that respondent availed of the
income tax holiday for four (4) years starting from August 7, 1995, as clearly
reflected in its 1996 and 1997 Annual Corporate Income Tax Returns, where
respondent specified that it was availing of the tax relief under E.O. No. 226.
Hence, respondent is not exempt from VAT and it correctly registered itself as
a VAT taxpayer. In fine, it is engaged in taxable rather than exempt
transactions.
Taxable transactions are those transactions which are subject to value-
added tax either at the rate of ten percent (10%) or zero percent (0%). In taxable
transactions, the seller shall be entitled to tax credit for the value-added tax paid
on purchases and leases of goods, properties or services. [23]
An exemption means that the sale of goods, properties or services and the
use or lease of properties is not subject to VAT (output tax) and the seller is not
allowed any tax credit on VAT (input tax) previously paid. The person making
the exempt sale of goods, properties or services shall not bill any output tax to
his customers because the said transaction is not subject to VAT. Thus, a VAT-
registered purchaser of goods, properties or services that are VAT-exempt, is
not entitled to any input tax on such purchases despite the issuance of a VAT
invoice or receipt. [24]
Now, having determined that respondent is engaged in taxable transactions

subject to VAT, let us then proceed to determine whether it is subject to 10% or
zero (0%) rate of VAT. To begin with, it must be recalled that generally, sale of
goods and supply of services performed in the Philippines are taxable at the
rate of 10%. However, export sales, or sales outside the Philippines, shall be
subject to value-added tax at 0% if made by a VAT-registered person. Under [25]
the value-added tax system, a zero-rated sale by a VAT-registered person,

which is a taxable transaction for VAT purposes, shall not result in any output
tax. However, the input tax on his purchase of goods, properties or services
related to such zero-rated sale shall be available as tax credit or refund. [26]
In principle, the purpose of applying a zero percent (0%) rate on a taxable

transaction is to exempt the transaction completely from VAT previously
collected on inputs. It is thus the only true way to ensure that goods are provided
free of VAT. While the zero rating and the exemption are computationally the
same, they actually differ in several aspects, to wit:
(a) A zero-rated sale is a taxable transaction but does not result in an output tax while
an exempted transaction is not subject to the output tax;
(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales
may be allowed as tax credits or refunded while the seller in an exempt transaction is
not entitled to any input tax on his purchases despite the issuance of a VAT invoice or
receipt.
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are
required to register while registration is optional for VAT-exempt persons.
In this case, it is undisputed that respondent is engaged in the export

business and is registered as a VAT taxpayer per Certificate of Registration of
the BIR. Further, the records show that the respondent is subject to VAT as it
[27]
availed of the income tax holiday under E.O. No. 226. Perforce, respondent is
subject to VAT at 0% rate and is entitled to a refund or credit of the unutilized
input taxes, which the Court of Tax Appeals computed at P2,158,714.46, but
which we findafter recomputationshould be P2,158,714.52.
The Supreme Court will not set aside lightly the conclusions reached by the
Court of Tax Appeals which, by the very nature of its functions, is dedicated
exclusively to the resolution of tax problems and has accordingly developed an
expertise on the subject, unless there has been an abuse or improvident
exercise of authority. In this case, we find no cogent reason to deviate from
[28]
this well-entrenched principle. Thus, we are persuaded that indeed the Court of
Appeals committed no reversible error in affirming the assailed ruling of the
Court of Tax Appeals.
WHEREFORE, the petition is DENIED for lack of merit. The assailed
Decision dated July 6, 2001 of the Court of Appeals, in CA-G.R. SP No. 60304
is AFFIRMED with very slight modification. Petitioner is hereby ORDERED to
REFUND or, in the alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor
of respondent in the amount of P2,158,714.52 representing unutilized input tax
payments. No pronouncement as to costs.
G.R. No. 150154. August 9, 2005
COMMISSIONER OF INTERNAL REVENUE, Petitioners,

vs.
TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC., Respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review under Rule 45 of the Rules of Court, petitioner Commissioner of Internal
Revenue (CIR) prays for the reversal of the decision of the Court of Appeals in CA-G.R. SP No.
59106,1 affirming the order of the Court of Tax Appeals (CTA) in CTA Case No. 5593,2 which
ordered said petitioner CIR to refund or, in the alternative, to issue a tax credit certificate to
respondent Toshiba Information Equipment (Phils.), Inc. (Toshiba), in the amount
of P16,188,045.44, representing unutilized input value-added tax (VAT) payments for the first and
second quarters of 1996.
There is hardly any dispute as to the facts giving rise to the present Petition.
Respondent Toshiba was organized and established as a domestic corporation, duly-registered with
the Securities and Exchange Commission on 07 July 1995,3 with the primary purpose of engaging in
the business of manufacturing and exporting of electrical and mechanical machinery, equipment,
systems, accessories, parts, components, materials and goods of all kinds, including, without
limitation, to those relating to office automation and information technology, and all types of
computer hardware and software, such as HDD, CD-ROM and personal computer printed circuit
boards.4
On 27 September 1995, respondent Toshiba also registered with the Philippine Economic Zone
Authority (PEZA) as an ECOZONE Export Enterprise, with principal office in Laguna Technopark,
Bian, Laguna.5 Finally, on 29 December 1995, it registered with the Bureau of Internal Revenue
(BIR) as a VAT taxpayer and a withholding agent.6
Respondent Toshiba filed its VAT returns for the first and second quarters of taxable year 1996,
reporting input VAT in the amount of P13,118,542.007 and P5,128,761.94,8 respectively, or a total
of P18,247,303.94. It alleged that the said input VAT was from its purchases of capital goods and
services which remained unutilized since it had not yet engaged in any business activity or
transaction for which it may be liable for any output VAT.9Consequently, on 27 March 1998,
respondent Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center of the Department of Finance (DOF) applications for tax credit/refund of its unutilized input
VAT for 01 January to 31 March 1996 in the amount of P14,176,601.28,10 and for 01 April to 30 June
1996 in the amount of P5,161,820.79,11 for a total of P19,338,422.07. To toll the running of the two-
year prescriptive period for judicially claiming a tax credit/refund, respondent Toshiba, on 31 March
1998, filed with the CTA a Petition for Review. It would subsequently file an Amended Petition for
Review on 10 November 1998 so as to conform to the evidence presented before the CTA during
the hearings.
In his Answer to the Amended Petition for Review before the CTA, petitioner CIR raised several
Special and Affirmative Defenses, to wit
5. Assuming without admitting that petitioner filed a claim for refund/tax credit, the same is subject to
investigation by the Bureau of Internal Revenue.
6. Taxes are presumed to have been collected in accordance with law. Hence, petitioner must prove
that the taxes sought to be refunded were erroneously or illegally collected.
7. Petitioner must prove the allegations supporting its entitlement to a refund.
8. Petitioner must show that it has complied with the provisions of Sections 204(c) and 229 of the
1997 Tax Code on the filing of a written claim for refund within two (2) years from the date of
payment of the tax.
9. Claims for refund of taxes are construed strictly against claimants, the same being in the nature of
an exemption from taxation.12
After evaluating the evidence submitted by respondent Toshiba,13 the CTA, in its Decision dated 10
March 2000, ordered petitioner CIR to refund, or in the alternative, to issue a tax credit certificate to
respondent Toshiba in the amount of P16,188,045.44.14
In a Resolution, dated 24 May 2000, the CTA denied petitioner CIRs Motion for Reconsideration for
lack of merit.15
The Court of Appeals, in its Decision dated 27 September 2001, dismissed petitioner CIRs Petition
for Review and affirmed the CTA Decision dated 10 March 2000.
Comes now petitioner CIR before this Court assailing the above-mentioned Decision of the Court of
Appeals based on the following grounds
1. The Court of Appeals erred in holding that petitioners failure to raise in the Tax Court the
arguments relied upon by him in the petition, is fatal to his cause.
2. The Court of Appeals erred in not holding that respondent being registered with the Philippine
Economic Zone Authority (PEZA) as an Ecozone Export Enterprise, its business is not subject to
VAT pursuant to Section 24 of Republic Act No. 7916 in relation to Section 103 (now 109) of the Tax
Code.
3. The Court of Appeals erred in not holding that since respondents business is not subject to VAT,
the capital goods and services it purchased are considered not used in VAT taxable business, and,
therefore, it is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106-1
of Revenue Regulations No. 7-95 and of input taxes on services pursuant to Section 4.103-1 of said
Regulations.
4. The Court of Appeals erred in holding that respondent is entitled to a refund or tax credit of input
taxes it paid on zero-rated transactions.16
Ultimately, however, the issue still to be resolved herein shall be whether respondent Toshiba is
entitled to the tax credit/refund of its input VAT on its purchases of capital goods and services, to
which this Court answers in the affirmative.
An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and services by

persons from the Customs Territory to ECOZONE enterprises shall be subject to VAT at zero
percent (0%).
Respondent Toshiba bases its claim for tax credit/refund on Section 106(b) of the Tax Code of 1977,
as amended, which reads:
SEC. 106. Refunds or tax credits of creditable input tax.
(b) Capital goods. A VAT-registered person may apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported or locally purchased, to the extent that such
input taxes have not been applied against output taxes. The application may be made only within
two (2) years after the close of the taxable quarter when the importation or purchase was made.17
Petitioner CIR, on the other hand, opposes such claim on account of Section 4.106-1(b) of Revenue
Regulations (RR) No. 7-95, otherwise known as the VAT Regulations, as amended, which provides
as follows
Sec. 4.106-1. Refunds or tax credits of input tax.
...
(b) Capital Goods. -- Only a VAT-registered person may apply for issuance of a tax credit certificate
or refund of input taxes paid on capital goods imported or locally purchased. The refund shall be
allowed to the extent that such input taxes have not been applied against output taxes. The
application should be made within two (2) years after the close of the taxable quarter when the
importation or purchase was made.
Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are
used in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall
only be the ratable portion corresponding to the taxable operations.
"Capital goods or properties" refer to goods or properties with estimated useful life greater than one
year and which are treated as depreciable assets under Section 29(f), used directly or indirectly in
the production or sale of taxable goods or services. (Underscoring ours.)
Petitioner CIR argues that although respondent Toshiba may be a VAT-registered taxpayer, it is not
engaged in a VAT-taxable business. According to petitioner CIR, respondent Toshiba is actually
VAT-exempt, invoking the following provision of the Tax Code of 1977, as amended
SEC. 103. Exempt transactions. The following shall be exempt from value-added tax.
(q) Transactions which are exempt under special laws, except those granted under Presidential
Decree No. 66, 529, 972, 1491, and 1590, and non-electric cooperatives under Republic Act No.
6938, or international agreements to which the Philippines is a signatory.18
Since respondent Toshiba is a PEZA-registered enterprise, it is subject to the five percent (5%)
preferential tax rate imposed under Chapter III, Section 24 of Republic Act No. 7916, otherwise
known as The Special Economic Zone Act of 1995, as amended. According to the said section,
"[e]xcept for real property taxes on land owned by developers, no taxes, local and national, shall be
imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent
(5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid"
The five percent (5%) preferential tax rate imposed on the gross income of a PEZA-registered
enterprise shall be in lieu of all national taxes, including VAT. Thus, petitioner CIR contends that
respondent Toshiba is VAT-exempt by virtue of a special law, Rep. Act No. 7916, as amended.
It would seem that petitioner CIR failed to differentiate between VAT-exempt transactions from VAT-
exempt entities. In the case of Commissioner of Internal Revenue v. Seagate Technology
(Philippines),19 this Court already made such distinction
An exempt transaction, on the one hand, involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to
the tax status VAT-exempt or not of the party to the transaction
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax
Code, a special law or an international agreement to which the Philippines is a signatory, and by
virtue of which its taxable transactions become exempt from VAT
Section 103(q) of the Tax Code of 1977, as amended, relied upon by petitioner CIR, relates to VAT-
exempt transactions. These are transactions exempted from VAT by special laws or international
agreements to which the Philippines is a signatory. Since such transactions are not subject to VAT,
the sellers cannot pass on any output VAT to the purchasers of goods, properties, or services, and
they may not claim tax credit/refund of the input VAT they had paid thereon.
Section 103(q) of the Tax Code of 1977, as amended, cannot apply to transactions of respondent
Toshiba because although the said section recognizes that transactions covered by special laws
may be exempt from VAT, the very same section provides that those falling under Presidential
Decree No. 66 are not. Presidential Decree No. 66, creating the Export Processing Zone Authority
(EPZA), is the precursor of Rep. Act No. 7916, as amended,20 under which the EPZA evolved into
the PEZA. Consequently, the exception of Presidential Decree No. 66 from Section 103(q) of the
Tax Code of 1977, as amended, extends likewise to Rep. Act No. 7916, as amended.
This Court agrees, however, that PEZA-registered enterprises, which would necessarily be located
within ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, as
amended, which imposes the five percent (5%) preferential tax rate on gross income of PEZA-
registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same statute which
establishes the fiction that ECOZONES are foreign territory.
It is important to note herein that respondent Toshiba is located within an ECOZONE. An ECOZONE
or a Special Economic Zone has been described as
. . . [S]elected areas with highly developed or which have the potential to be developed into agro-
industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers
whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may
contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free
trade zones and tourist/recreational centers.21
The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be
referred to as the Customs Territory.22
Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and operate
the ECOZONES as a separate customs territory;23 thus, creating the fiction that the ECOZONE is a
foreign territory.24 As a result, sales made by a supplier in the Customs Territory to a purchaser in
the ECOZONE shall be treated as an exportation from the Customs Territory. Conversely, sales
made by a supplier from the ECOZONE to a purchaser in the Customs Territory shall be considered
as an importation into the Customs Territory.
Given the preceding discussion, what would be the VAT implication of sales made by a supplier from
the Customs Territory to an ECOZONE enterprise?
The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall
be imposed to form part of the cost of goods destined for consumption outside of the territorial
border of the taxing authority. Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT; while, those destined for use or consumption within the
Philippines shall be imposed with ten percent (10%) VAT.25
Applying said doctrine to the sale of goods, properties, and services to and from the
ECOZONES,26 the BIR issued Revenue Memorandum Circular (RMC) No. 74-99, on 15 October
1999. Of particular interest to the present Petition is Section 3 thereof, which reads
SECTION 3. Tax Treatment Of Sales Made By a VAT Registered Supplier from The Customs
Territory, To a PEZA Registered Enterprise.
(1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in lieu
of all taxes, except real property tax, pursuant to R.A. No. 7916, as amended:
(a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered
subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No.
7916, in relation to ART. 77(2) of the Omnibus Investments Code.
(b) Sale of service. This shall be treated subject to zero percent (0%) VAT under the "cross
border doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.
(2) If Buyer is a PEZA registered enterprise which is not embraced by the 5% special tax regime,
hence, subject to taxes under the NIRC, e.g., Service Establishments which are subject to taxes
under the NIRC rather than the 5% special tax regime:
(a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered
subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No.
7916 in relation to ART. 77(2) of the Omnibus Investments Code.
(b) Sale of Service. This shall be treated subject to zero percent (0%) VAT under the "cross
border doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.
(3) In the final analysis, any sale of goods, property or services made by a VAT registered supplier
from the Customs Territory to any registered enterprise operating in the ecozone, regardless of the
class or type of the latters PEZA registration, is actually qualified and thus legally entitled to the zero
percent (0%) VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT
registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec.
106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the Omnibus Investments Code, while all sales of
services to the said enterprises, made by VAT registered suppliers from the Customs Territory, shall
be treated effectively subject to the 0% VAT, pursuant to Section 108(B)(3), NIRC, in relation to the
provisions of R.A. No. 7916 and the "Cross Border Doctrine" of the VAT system.
This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to
the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE
enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-
rating imposed by Revenue Regulations No. 7-95 effective as of the date of the issuance of this
Circular.
Indubitably, no output VAT may be passed on to an ECOZONE enterprise since it is a VAT-exempt

entity. The VAT treatment of sales to it, however, varies depending on whether the supplier from the
Customs Territory is VAT-registered or not.
Sales of goods, properties and services by a VAT-registered supplier from the Customs Territory to
an ECOZONE enterprise shall be treated as export sales. If such sales are made by a VAT-
registered supplier, they shall be subject to VAT at zero percent (0%). In zero-rated transactions, the
VAT-registered supplier shall not pass on any output VAT to the ECOZONE enterprise, and at the
same time, shall be entitled to claim tax credit/refund of its input VAT attributable to such sales.
Zero-rating of export sales primarily intends to benefit the exporter (i.e., the supplier from the
Customs Territory), who is directly and legally liable for the VAT, making it internationally competitive
by allowing it to credit/refund the input VAT attributable to its export sales.
Meanwhile, sales to an ECOZONE enterprise made by a non-VAT or unregistered supplier would

only be exempt from VAT and the supplier shall not be able to claim credit/refund of its input VAT.
Even conceding, however, that respondent Toshiba, as a PEZA-registered enterprise, is a VAT-
exempt entity that could not have engaged in a VAT-taxable business, this Court still believes, given
the particular circumstances of the present case, that it is entitled to a credit/refund of its input VAT.
II
Prior to RMC No. 74-99, however, PEZA-registered enterprises availing of the income tax holiday
under Executive Order No. 226, as amended, were deemed subject to VAT.
In his Petition, petitioner CIR opposed the grant of tax credit/refund to respondent Toshiba,
reasoning thus
In the first place, respondent could not have paid input taxes on its purchases of goods and services
from VAT-registered suppliers because such purchases being zero-rated, that is, no output tax was
paid by the suppliers, no input tax was shifted or passed on to respondent. The VAT is an indirect
tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the
goods, properties or services (Section 105, 1997 Tax Code).
Secondly, Section 4.100-2 of Revenue Regulations No. 7-95 provides:
"SEC. 4.100-2. Zero-rated sales. A zero-rated sale by a VAT-registered person, which is a taxable
transaction for VAT purposes, shall not result in any output tax. However, the input tax on his
purchases of goods, properties or services related to such zero-rated sale shall be available as tax
credit or refund in accordance with these regulations."
From the foregoing, the VAT-registered person who can avail as tax credit or refund of the input tax
on his purchases of goods, services or properties is the seller whose sale is zero-rated. Applying the
foregoing provision to the case at bench, the VAT-registered supplier, whose sale of goods and
services to respondent is zero-rated, can avail as tax credit or refund the input taxes on its (supplier)
own purchases of goods and services related to its zero-rated sale of goods and services to
respondent. On the other hand, respondent, as the buyer in such zero-rated sale of goods and
services, could not have paid input taxes for which it can claim as tax credit or refund.27
Before anything else, this Court wishes to point out that petitioner CIR is working on the erroneous
premise that respondent Toshiba is claiming tax credit or refund of input VAT based on Section
4.100-2,28 in relation to Section 4.106-1(a),29 of RR No. 7-95, as amended, which allows the tax
credit/refund of input VAT on zero-rated sales of goods, properties or services. Instead, respondent
Toshiba is basing its claim for tax credit or refund on Sec. 4.106-1(b) of the same regulations, which
allows a VAT-registered person to apply for tax credit/refund of the input VAT on its capital goods.
While in the former, the seller of the goods, properties or services is the one entitled to the tax
credit/refund; in the latter, it is the purchaser of the capital goods.
Nevertheless, regardless of his mistake as to the basis for respondent Toshibas application for tax
credit/refund, petitioner CIR validly raised the question of whether any output VAT was actually
passed on to respondent Toshiba which it could claim as input VAT subject to credit/refund. If the
VAT-registered supplier from the Customs Territory did not charge any output VAT to respondent
Toshiba believing that it is exempt from VAT or it is subject to zero-rated VAT, then respondent
Toshiba did not pay any input VAT on its purchase of capital goods and it could not claim any tax
credit/refund thereof.
The rule that any sale by a VAT-registered supplier from the Customs Territory to a PEZA-registered
enterprise shall be considered an export sale and subject to zero percent (0%) VAT was clearly
established only on 15 October 1999, upon the issuance of RMC No. 74-99. Prior to the said date,
however, whether or not a PEZA-registered enterprise was VAT-exempt depended on the type of
fiscal incentives availed of by the said enterprise. This old rule on VAT-exemption or liability of
PEZA-registered enterprises, followed by the BIR, also recognized and affirmed by the CTA, the
Court of Appeals, and even this Court,30 cannot be lightly disregarded considering the great number
of PEZA-registered enterprises which did rely on it to determine its tax liabilities, as well as, its
privileges.
According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the PEZA-registered
enterprise the option to choose between two sets of fiscal incentives: (a) The five percent (5%)
preferential tax rate on its gross income under Rep. Act No. 7916, as amended; and (b) the income
tax holiday provided under Executive Order No. 226, otherwise known as the Omnibus Investment
Code of 1987, as amended.31
The five percent (5%) preferential tax rate on gross income under Rep. Act No. 7916, as amended,
is in lieu of all taxes. Except for real property taxes, no other national or local tax may be imposed on
a PEZA-registered enterprise availing of this particular fiscal incentive, not even an indirect tax like
VAT.
Alternatively, Book VI of Exec. Order No. 226, as amended, grants income tax holiday to registered
pioneer and non-pioneer enterprises for six-year and four-year periods, respectively.32 Those
availing of this incentive are exempt only from income tax, but shall be subject to all other taxes,
including the ten percent (10%) VAT.
This old rule clearly did not take into consideration the Cross Border Doctrine essential to the VAT
system or the fiction of the ECOZONE as a foreign territory. It relied totally on the choice of fiscal
incentives of the PEZA-registered enterprise. Again, for emphasis, the old VAT rule for PEZA-
registered enterprises was based on their choice of fiscal incentives: (1) If the PEZA-registered
enterprise chose the five percent (5%) preferential tax on its gross income, in lieu of all taxes, as
provided by Rep. Act No. 7916, as amended, then it would be VAT-exempt; (2) If the PEZA-
registered enterprise availed of the income tax holiday under Exec. Order No. 226, as amended, it
shall be subject to VAT at ten percent (10%). Such distinction was abolished by RMC No. 74-99,
which categorically declared that all sales of goods, properties, and services made by a VAT-
registered supplier from the Customs Territory to an ECOZONE enterprise shall be subject to VAT,
at zero percent (0%) rate, regardless of the latters type or class of PEZA registration; and, thus,
affirming the nature of a PEZA-registered or an ECOZONE enterprise as a VAT-exempt entity.
The sale of capital goods by suppliers from the Customs Territory to respondent Toshiba in the
present Petition took place during the first and second quarters of 1996, way before the issuance of
RMC No. 74-99, and when the old rule was accepted and implemented by no less than the BIR
itself. Since respondent Toshiba opted to avail itself of the income tax holiday under Exec. Order No.
226, as amended, then it was deemed subject to the ten percent (10%) VAT. It was very likely
therefore that suppliers from the Customs Territory had passed on output VAT to respondent
Toshiba, and the latter, thus, incurred input VAT. It bears emphasis that the CTA, with the help of
SGV & Co., the independent accountant it commissioned to make a report, already thoroughly
reviewed the evidence submitted by respondent Toshiba consisting of receipts, invoices, and
vouchers, from its suppliers from the Customs Territory. Accordingly, this Court gives due respect to
and adopts herein the CTAs findings that the suppliers of capital goods from the Customs Territory
did pass on output VAT to respondent Toshiba and the amount of input VAT which respondent
Toshiba could claim as credit/refund.
Moreover, in another circular, Revenue Memorandum Circular (RMC) No. 42-2003, issued on 15
July 2003, the BIR answered the following question
Q-5: Under Revenue Memorandum Circular (RMC) No. 74-99, purchases by PEZA-registered firms
automatically qualify as zero-rated without seeking prior approval from the BIR effective October
1999.
1) Will the OSS-DOF Center still accept applications from PEZA-registered claimants who were
allegedly billed VAT by their suppliers before and during the effectivity of the RMC by issuing VAT
invoices/receipts?
A-5(1): If the PEZA-registered enterprise is paying the 5% preferential tax in lieu of all other taxes,
the said PEZA-registered taxpayer cannot claim TCC or refund for the VAT paid on purchases.
However, if the taxpayer is availing of the income tax holiday, it can claim VAT credit provided:
a. The taxpayer-claimant is VAT-registered;
b. Purchases are evidenced by VAT invoices or receipts, whichever is applicable, with shifted VAT to
the purchaser prior to the implementation of RMC No. 74-99; and
c. The supplier issues a sworn statement under penalties of perjury that it shifted the VAT and
declared the sales to the PEZA-registered purchaser as taxable sales in its VAT returns.
For invoices/receipts issued upon the effectivity of RMC No. 74-99, the claims for input VAT by
PEZA-registered companies, regardless of the type or class of PEZA registration, should be denied.
Under RMC No. 42-2003, the DOF would still accept applications for tax credit/refund filed by PEZA-
registered enterprises, availing of the income tax holiday, for input VAT on their purchases made
prior to RMC No. 74-99. Acceptance of applications essentially implies processing and possible
approval thereof depending on whether the given conditions are met. Respondent Toshibas claim
for tax credit/refund arose from the very same circumstances recognized by Q-5(1) and A-5(1) of
RMC No. 42-2003. It therefore seems irrational and unreasonable for petitioner CIR to oppose
respondent Toshibas application for tax credit/refund of its input VAT, when such claim had already
been determined and approved by the CTA after due hearing, and even affirmed by the Court of
Appeals; while it could accept, process, and even approve applications filed by other similarly-
situated PEZA-registered enterprises at the administrative level.
III
Findings of fact by the CTA are respected and adopted by this Court.
Finally, petitioner CIR, in a last desperate attempt to block respondent Toshibas claim for tax
credit/refund, challenges the allegation of said respondent that it availed of the income tax holiday
under Exec. Order No. 226, as amended, rather than the five percent (5%) preferential tax rate
under Rep. Act No. 7916, as amended. Undoubtedly, this is a factual matter that should have been
raised and threshed out in the lower courts. Giving it credence would belie petitioner CIRs assertion
that it is raising only issues of law in its Petition that may be resolved without need for reception of
additional evidences. Once more, this Court respects and adopts the finding of the CTA, affirmed by
the Court of Appeals, that respondent Toshiba had indeed availed of the income tax holiday under
Exec. Order No. 226, as amended.
WHEREFORE, based on the foregoing, this Court AFFIRMS the decision of the Court of Appeals in
CA-G.R. SP. No. 59106, and the order of the CTA in CTA Case No. 5593, ordering said petitioner
CIR to refund or, in the alternative, to issue a tax credit certificate to respondent Toshiba, in the
amount of P16,188,045.44, representing unutilized input VAT for the first and second quarters of
1996.
G.R. No. 157594 March 9, 2010
TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
In this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, petitioner Toshiba
Information Equipment (Philippines), Inc. (Toshiba) seeks the reversal and setting aside of (1) the
Decision2 dated August 29, 2002 of the Court of Appeals in CA-G.R. SP No. 63047, which found that
Toshiba was not entitled to the credit/refund of its unutilized input Value-Added Tax (VAT) payments
attributable to its export sales, because it was a tax-exempt entity and its export sales were VAT-
exempt transactions; and (2) the Resolution3 dated February 19, 2003 of the appellate court in the
same case, which denied the Motion for Reconsideration of Toshiba. The herein assailed judgment
of the Court of Appeals reversed and set aside the Decision4 dated October 16, 2000 of the Court of
Tax Appeals (CTA) in CTA Case No. 5762 granting the claim for credit/refund of Toshiba in the
amount of P1,385,282.08.
Toshiba is a domestic corporation principally engaged in the business of manufacturing and

exporting of electric machinery, equipment systems, accessories, parts, components, materials and
goods of all kinds, including those relating to office automation and information technology and all
types of computer hardware and software, such as but not limited to HDD-CD-ROM and personal
computer printed circuit board.5 It is registered with the Philippine Economic Zone Authority (PEZA)
as an Economic Zone (ECOZONE) export enterprise in the Laguna Technopark, Inc., as evidenced
by Certificate of Registration No. 95-99 dated September 27, 1995.6 It is also registered with
Regional District Office No. 57 of the Bureau of Internal Revenue (BIR) in San Pedro, Laguna, as a
VAT-taxpayer with Taxpayer Identification No. (TIN) 004-739-137.7
In its VAT returns for the first and second quarters of 1997,8 filed on April 14, 1997 and July 21,
1997, respectively, Toshiba declared input VAT payments on its domestic purchases of taxable
goods and services in the aggregate sum of P3,875,139.65,9 with no zero-rated sales. Toshiba
subsequently submitted to the BIR on July 23, 1997 its amended VAT returns for the first and
second quarters of 1997,10 reporting the same amount of input VAT payments but, this time, with
zero-rated sales totaling P7,494,677,000.00.11
On March 30, 1999, Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of the Department of Finance (DOF One-Stop Shop) two separate applications for
tax credit/refund12 of its unutilized input VAT payments for the first half of 1997 in the total amount
of P3,685,446.73.13
The next day, on March 31, 1999, Toshiba likewise filed with the CTA a Petition for Review14 to toll
the running of the two-year prescriptive period under Section 230 of the Tax Code of 1977,15 as
amended.16 In said Petition, docketed as CTA Case No. 5762, Toshiba prayed that
[A]fter due hearing, judgment be rendered ordering [herein respondent Commissioner of Internal
Revenue (CIR)] to refund or issue to [Toshiba] a tax refund/tax credit certificate in the amount of
P3,875,139.65 representing unutilized input taxes paid on its purchase of taxable goods and
services for the period January 1 to June 30, 1997.17
The Commissioner of Internal Revenue (CIR) opposed the claim for tax refund/credit of Toshiba,
setting up the following special and affirmative defenses in his Answer18
5. [Toshibas] alleged claim for refund/tax credit is subject to administrative routinary

investigation/examination by [CIRs] Bureau;
6. [Toshiba] failed miserably to show that the total amount of P3,875,139.65 claimed as VAT
input taxes, were erroneously or illegally collected, or that the same are properly
documented;
7. Taxes paid and collected are presumed to have been made in accordance with law;
hence, not refundable;
8. In an action for tax refund, the burden is on the taxpayer to establish its right to refund,
and failure to sustain the burden is fatal to the claim for refund;
9. It is incumbent upon [Toshiba] to show that it has complied with the provisions of Section
204 in relation to Section 229 of the Tax Code;
10. Well-established is the rule that claims for refund/tax credit are construed in strictissimi
juris against the taxpayer as it partakes the nature of exemption from tax.19
Upon being advised by the CTA,20 Toshiba and the CIR filed a Joint Stipulation of Facts and
Issues,21 wherein the opposing parties "agreed and admitted" that
1. [Toshiba] is a duly registered value-added tax entity in accordance with Section 107 of the
Tax Code, as amended.
2. [Toshiba] is subject to zero percent (0%) value-added tax on its export sales in
accordance with then Section 100(a)(2)(A) of the Tax Code, as amended.
3. [Toshiba] filed its quarterly VAT returns for the first two quarters of 1997 within the legally
prescribed period.
xxxx
7. [Toshiba] is subject to zero percent (0%) value-added tax on its export sales.
8. [Toshiba] has duly filed the instant Petition for Review within the two-year prescriptive
period prescribed by then Section 230 of the Tax Code.22
In the same pleading, Toshiba and the CIR jointly submitted the following issues for determination by
the CTA
Whether or not [Toshiba] has incurred input taxes in the amount of P3,875,139.65 for the period
January 1 to June 30, 1997 which are directly attributable to its export sales[.]
Whether or not the input taxes incurred by [Toshiba] for the period January 1 to June 30, 1997 have
not been carried over to the succeeding quarters[.]
Whether or not input taxes incurred by [Toshiba] for the first two quarters of 1997 have not been
offset against any output tax[.]
Whether or not input taxes incurred by [Toshiba] for the first two quarters of 1997 are properly
substantiated by official receipts and invoices.23
During the trial before the CTA, Toshiba presented documentary evidence in support of its claim for
tax credit/refund, while the CIR did not present any evidence at all.
With both parties waiving the right to submit their respective memoranda, the CTA rendered its
Decision in CTA Case No. 5762 on October 16, 2000 favoring Toshiba. According to the CTA, the
CIR himself admitted that the export sales of Toshiba were subject to zero percent (0%) VAT based
on Section 100(a)(2)(A)(i) of the Tax Code of 1977, as amended. Toshiba could then claim tax credit
or refund of input VAT paid on its purchases of goods, properties, or services, directly attributable to
such zero-rated sales, in accordance with Section 4.102-2 of Revenue Regulations No. 7-95. The
CTA, though, reduced the amount to be credited or refunded to Toshiba to P1,385,292.02.
The dispositive portion of the October 16, 2000 Decision of the CTA fully reads
WHEREFORE, [Toshibas] claim for refund of unutilized input VAT payments is hereby GRANTED
but in a reduced amount of P1,385,282.08 computed as follows:
1st Quarter 2nd Quarter Total

Amount of claimed input taxes
filed with the DOF One Stop
Shop Center P3,268,682.34 P416,764.39 P3,685,446.73
Less: 1) Input taxes not properly

supported by VAT invoices and
official receipts
a. Per SGVs verification
(Exh. I) P 242,491.45 P154,391.13 P 396,882.58
b. Per this courts further

verification (Annex A) P1,852,437.65 P 35,108.00 P1,887,545.65
P189,499.13 P2,300,164.65
Amount Refundable P1,158,016.82 P227,265.26 P1,385,282.08
Respondent Commissioner of Internal Revenue is ORDERED to REFUND to [Toshiba] or in the

alternative, ISSUE a TAX CREDIT CERTIFICATE in the amount of P1,385,282.08 representing
unutilized input taxes paid by [Toshiba] on its purchases of taxable goods and services for the period
January 1 to June 30, 1997.24
Both Toshiba and the CIR sought reconsideration of the foregoing CTA Decision.
Toshiba asserted in its Motion for Reconsideration25 that it had presented proper substantiation for
the P1,887,545.65 input VAT disallowed by the CTA.
The CIR, on the other hand, argued in his Motion for Reconsideration26 that Toshiba was not entitled
to the credit/refund of its input VAT payments because as a PEZA-registered ECOZONE export
enterprise, Toshiba was not subject to VAT. The CIR invoked the following statutory and regulatory
provisions
Section 24 of Republic Act No. 791627
SECTION 24. Exemption from Taxes Under the National Internal Revenue Code. Any provision of
existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national,
shall be imposed on business establishments operating within the ECOZONE. In lieu of paying
taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the
ECOZONE shall be remitted to the national government. x x x.
Section 103(q) of the Tax Code of 1977, as amended
Sec. 103. Exempt transactions. The following shall be exempt from the value-added tax:
xxxx
(q) Transactions which are exempt under special laws, except those granted under Presidential
Decree Nos. 66, 529, 972, 1491, and 1950, and non-electric cooperatives under Republic Act No.
6938, or international agreements to which the Philippines is a signatory.
Section 4.103-1 of Revenue Regulations No. 7-95
SEC. 4.103-1. Exemptions. (A) In general. An exemption means that the sale of goods or
properties and/or services and the use or lease of properties is not subject to VAT (output tax) and
the seller is not allowed any tax credit on VAT (input tax) previously paid.
The person making the exempt sale of goods, properties or services shall not bill any output tax to
his customers because the said transaction is not subject to VAT. On the other hand, a VAT-
registered purchaser of VAT-exempt goods, properties or services which are exempt from VAT is not
entitled to any input tax on such purchase despite the issuance of a VAT invoice or receipt.
The CIR contended that under Section 24 of Republic Act No. 7916, a special law, all businesses
and establishments within the ECOZONE were to remit to the government five percent (5%) of their
gross income earned within the zone, in lieu of all taxes, including VAT. This placed Toshiba within
the ambit of Section 103(q) of the Tax Code of 1977, as amended, which exempted from VAT the
transactions that were exempted under special laws. Following Section 4.103-1(A) of Revenue
Regulations No. 7-95, the VAT-exemption of Toshiba meant that its sale of goods was not subject to
output VAT and Toshiba as seller was not allowed any tax credit on the input VAT it had previously
paid.
On January 17, 2001, the CTA issued a Resolution28 denying both Motions for Reconsideration of
Toshiba and the CIR.
The CTA took note that the pieces of evidence referred to by Toshiba in its Motion for
Reconsideration were insufficient substantiation, being mere schedules of input VAT payments it
had purportedly paid for the first and second quarters of 1997. While the CTA gives credence to the
report of its commissioned certified public accountant (CPA), it does not render its decision based on
the findings of the said CPA alone. The CTA has its own CPA and the tax court itself conducts an
investigation/examination of the documents presented. The CTA stood by its earlier disallowance of
the amount of P1,887,545.65 as tax credit/refund because it was not supported by VAT invoices
and/or official receipts.
1avv phi 1
The CTA refused to consider the argument that Toshiba was not entitled to a tax credit/refund under
Section 24 of Republic Act No. 7916 because it was only raised by the CIR for the first time in his
Motion for Reconsideration. Also, contrary to the assertions of the CIR, the CTA held that Section
23, and not Section 24, of Republic Act No. 7916, applied to Toshiba. According to Section 23 of
Republic Act No. 7916
SECTION 23. Fiscal Incentives. Business establishments operating within the ECOZONES shall
be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating
the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226,
otherwise known as the Omnibus Investment Code of 1987.
Furthermore, tax credits for exporters using local materials as inputs shall enjoy the benefits
provided for in the Export Development Act of 1994.
Among the fiscal incentives granted to PEZA-registered enterprises by the Omnibus Investments
Code of 1987 was the income tax holiday, to wit
Art. 39. Incentives to Registered Enterprises. All registered enterprises shall be granted the
following incentives to the extent engaged in a preferred area of investment:
(a) Income Tax Holiday.
(1) For six (6) years from commercial operation for pioneer firms and four (4) years
for non-pioneer firms, new registered firms shall be fully exempt from income taxes
levied by the national government. Subject to such guidelines as may be prescribed
by the Board, the income tax exemption will be extended for another year in each of
the following cases:
(i) The project meets the prescribed ratio of capital equipment to number of
workers set by the Board;
(ii) Utilization of indigenous raw materials at rates set by the Board;
(iii) The net foreign exchange savings or earnings amount to at least

US$500,000.00 annually during the first three (3) years of operation.
The preceding paragraph notwithstanding, no registered pioneer firm may avail of

this incentive for a period exceeding eight (8) years.
(2) For a period of three (3) years from commercial operation, registered expanding
firms shall be entitled to an exemption from income taxes levied by the National
Government proportionate to their expansion under such terms and conditions as the
Board may determine: Provided, however, That during the period within which this
incentive is availed of by the expanding firm it shall not be entitled to additional
deduction for incremental labor expense.
(3) The provision of Article 7(14) notwithstanding, registered firms shall not be
entitled to any extension of this incentive.
The CTA pointed out that Toshiba availed itself of the income tax holiday under the Omnibus
Investments Code of 1987, so Toshiba was exempt only from income tax but not from other taxes
such as VAT. As a result, Toshiba was liable for output VAT on its export sales, but at zero percent
(0%) rate, and entitled to the credit/refund of the input VAT paid on its purchases of goods and
services relative to such zero-rated export sales.
Unsatisfied, the CIR filed a Petition for Review29 with the Court of Appeals, docketed as CA-G.R. SP
No. 63047.
In its Decision dated August 29, 2002, the Court of Appeals granted the appeal of the CIR, and
reversed and set aside the Decision dated October 16, 2000 and the Resolution dated January 17,
2001 of the CTA. The appellate court ruled that Toshiba was not entitled to the refund of its alleged
unused input VAT payments because it was a tax-exempt entity under Section 24 of Republic Act
No. 7916. As a PEZA-registered corporation, Toshiba was liable for remitting to the national
government the five percent (5%) preferential rate on its gross income earned within the ECOZONE,
in lieu of all other national and local taxes, including VAT.
The Court of Appeals further adjudged that the export sales of Toshiba were VAT-exempt, not zero-
rated, transactions. The appellate court found that the Answer filed by the CIR in CTA Case No.
5762 did not contain any admission that the export sales of Toshiba were zero-rated transactions
under Section 100(a)(2)(A) of the Tax Code of 1977, as amended. At the least, what was admitted
by the CIR in said Answer was that the Tax Code provisions cited in the Petition for Review of
Toshiba in CTA Case No. 5762 were correct. As to the Joint Stipulation of Facts and Issues filed by
the parties in CTA Case No. 5762, which stated that Toshiba was subject to zero percent (0%) VAT
on its export sales, the appellate court declared that the CIR signed the said pleading through
palpable mistake. This palpable mistake in the stipulation of facts should not be taken against the
CIR, for to do otherwise would result in suppressing the truth through falsehood. In addition, the
State could not be put in estoppel by the mistakes or errors of its officials or agents.
Given that Toshiba was a tax-exempt entity under Republic Act No. 7916, a special law, the Court of
Appeals concluded that the export sales of Toshiba were VAT-exempt transactions under Section
109(q) of the Tax Code of 1997, formerly Section 103(q) of the Tax Code of 1977. Therefore,
Toshiba could not claim refund of its input VAT payments on its domestic purchases of goods and
services.
The Court of Appeals decreed at the end of its August 29, 2002 Decision
WHEREFORE, premises considered, the appealed decision of the Court of Tax Appeals in CTA
Case No. 5762, is hereby REVERSED and SET ASIDE, and a new one is hereby rendered finding
[Toshiba], being a tax exempt entity under R.A. No. 7916, not entitled to refund the VAT payments
made in its domestic purchases of goods and services.30
Toshiba filed a Motion for Reconsideration31 of the aforementioned Decision, anchored on the
following arguments: (a) the CIR never raised as an issue before the CTA that Toshiba was tax-
exempt under Section 24 of Republic Act No. 7916; (b) Section 24 of Republic Act No. 7916,
subjecting the gross income earned by a PEZA-registered enterprise within the ECOZONE to a
preferential rate of five percent (5%), in lieu of all taxes, did not apply to Toshiba, which availed itself
of the income tax holiday under Section 23 of the same statute; (c) the conclusion of the CTA that
the export sales of Toshiba were zero-rated was supported by substantial evidence, other than the
admission of the CIR in the Joint Stipulation of Facts and Issues; and (d) the judgment of the CTA
granting the refund of the input VAT payments was supported by substantial evidence and should
not have been set aside by the Court of Appeals.
In a Resolution dated February 19, 2003, the Court of Appeals denied the Motion for
Reconsideration of Toshiba since the arguments presented therein were mere reiterations of those
already passed upon and found to be without merit by the appellate court in its earlier Decision. The
Court of Appeals, however, mentioned that it was incorrect for Toshiba to say that the issue of the
applicability of Section 24 of Republic Act No. 7916 was only raised for the first time on appeal
before the appellate court. The said issue was adequately raised by the CIR in his Motion for
Reconsideration before the CTA, and was even ruled upon by the tax court.
Hence, Toshiba filed the instant Petition for Review with the following assignment of errors
5.1 THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT [TOSHIBA],
BEING A PEZA-REGISTERED ENTERPRISE, IS EXEMPT FROM VAT UNDER SECTION
24 OF R.A. 7916, AND FURTHER HOLDING THAT [TOSHIBAS] EXPORT SALES ARE
EXEMPT TRANSACTIONS UNDER SECTION 109 OF THE TAX CODE.
5.2 THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO DISMISS

OUTRIGHT AND GAVE DUE COURSE TO [CIRS] PETITION NOTWITHSTANDING
[CIRS] FAILURE TO ADEQUATELY RAISE IN ISSUE DURING THE TRIAL IN THE
COURT OF TAX APPEALS THE APPLICABILITY OF SECTION 24 OF R.A. 7916 TO
[TOSHIBAS] CLAIM FOR REFUND.
5.3 THE HONORABLE COURT OF APPEALS ERRED WHEN [IT] RULED THAT THE
COURT OF TAX APPEALS FINDINGS, WITH REGARD [TOSHIBAS] EXPORT SALES
BEING ZERO RATED SALES FOR VAT PURPOSES, WERE BASED MERELY ON THE
ADMISSIONS MADE BY [CIRS] COUNSEL AND NOT SUPPORTED BY SUBSTANTIAL
EVIDENCE.
5.4 THE HONORABLE COURT OF APPEALS ERRED WHEN IT REVERSED THE

DECISION OF THE COURT OF TAX APPEALS GRANTING [TOSHIBAS] CLAIM FOR
REFUND[;]32
and the following prayer
WHEREFORE, premises considered, Petitioner TOSHIBA INFORMATION EQUIPMENT (PHILS.),

INC. most respectfully prays that the decision and resolution of the Honorable Court of Appeals,
reversing the decision of the CTA in CTA Case No. 5762, be set aside and further prays that a new
one be rendered AFFIRMING AND UPHOLDING the Decision of the CTA promulgated on October
16, 2000 in CTA Case No. 5762.
Other reliefs, which the Honorable Court may deem just and equitable under the circumstances, are
likewise prayed for.33
The Petition is impressed with merit.
The CIR did not timely raise before the CTA the issues on the VAT-exemptions of Toshiba and its
export sales.
Upon the failure of the CIR to timely plead and prove before the CTA the defenses or objections that
Toshiba was VAT-exempt under Section 24 of Republic Act No. 7916, and that its export sales were
VAT-exempt transactions under Section 103(q) of the Tax Code of 1977, as amended, the CIR is
deemed to have waived the same.
During the pendency of CTA Case No. 5762, the proceedings before the CTA were governed by the
Rules of the Court of Tax Appeals,34 while the Rules of Court were applied suppletorily.35
Rule 9, Section 1 of the Rules of Court provides:
SECTION 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in
a motion to dismiss or in the answer are deemed waived. However, when it appears from the
pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that
there is another action pending between the same parties for the same cause, or that the action is
barred by a prior judgment or by statute of limitations, the court shall dismiss the claim.
The CIR did not argue straight away in his Answer in CTA Case No. 5762 that Toshiba had no right
to the credit/refund of its input VAT payments because the latter was VAT-exempt and its export
sales were VAT-exempt transactions. The Pre-Trial Brief36 of the CIR was equally bereft of such
allegations or arguments. The CIR passed up the opportunity to prove the supposed VAT-
exemptions of Toshiba and its export sales when the CIR chose not to present any evidence at all
during the trial before the CTA.37 He missed another opportunity to present the said issues before
the CTA when he waived the submission of a Memorandum.38 The CIR had waited until the CTA
already rendered its Decision dated October 16, 2000 in CTA Case No. 5762, which granted the
claim for credit/refund of Toshiba, before asserting in his Motion for Reconsideration that Toshiba
was VAT-exempt and its export sales were VAT-exempt transactions.
The CIR did not offer any explanation as to why he did not argue the VAT-exemptions of Toshiba
and its export sales before and during the trial held by the CTA, only doing so in his Motion for
Reconsideration of the adverse CTA judgment. Surely, said defenses or objections were already
available to the CIR when the CIR filed his Answer to the Petition for Review of Toshiba in CTA
Case No. 5762.
It is axiomatic in pleadings and practice that no new issue in a case can be raised in a pleading
which by due diligence could have been raised in previous pleadings.39 The Court cannot simply
grant the plea of the CIR that the procedural rules be relaxed based on the general averment of the
interest of substantive justice. It should not be forgotten that the first and fundamental concern of the
rules of procedure is to secure a just determination of every action.40 Procedural rules are designed
to facilitate the adjudication of cases. Courts and litigants alike are enjoined to abide strictly by the
rules. While in certain instances, the Court allows a relaxation in the application of the rules, it never
intends to forge a weapon for erring litigants to violate the rules with impunity. The liberal
interpretation and application of rules apply only in proper cases of demonstrable merit and under
justifiable causes and circumstances. While it is true that litigation is not a game of technicalities, it is
equally true that every case must be prosecuted in accordance with the prescribed procedure to
ensure an orderly and speedy administration of justice. Party litigants and their counsel are well
advised to abide by, rather than flaunt, procedural rules for these rules illumine the path of the law
and rationalize the pursuit of justice.41
The CIR judicially admitted that Toshiba was VAT-registered and its export sales were subject to
VAT at zero percent (0%) rate.
More importantly, the arguments of the CIR that Toshiba was VAT-exempt and the latters export
sales were VAT-exempt transactions are inconsistent with the explicit admissions of the CIR in the
Joint Stipulation of Facts and Issues (Joint Stipulation) that Toshiba was a registered VAT entity and
that it was subject to zero percent (0%) VAT on its export sales.
The Joint Stipulation was executed and submitted by Toshiba and the CIR upon being advised to do
so by the CTA at the end of the pre-trial conference held on June 23, 1999.42 The approval of the
Joint Stipulation by the CTA, in its Resolution43 dated July 12, 1999, marked the culmination of the
pre-trial process in CTA Case No. 5762.
Pre-trial is an answer to the clarion call for the speedy disposition of cases. Although it was
discretionary under the 1940 Rules of Court, it was made mandatory under the 1964 Rules and the
subsequent amendments in 1997. It has been hailed as "the most important procedural innovation in
Anglo-Saxon justice in the nineteenth century."44
The nature and purpose of a pre-trial have been laid down in Rule 18, Section 2 of the Rules of
Court:
SECTION 2. Nature and purpose. The pre-trial is mandatory. The court shall consider:
(a) The possibility of an amicable settlement or of a submission to alternative modes of

dispute resolution;
(b) The simplification of the issues;
(c) The necessity or desirability of amendments to the pleadings;
(d) The possibility of obtaining stipulations or admissions of facts and of documents to avoid
unnecessary proof;
(e) The limitation of the number of witnesses;
(f) The advisability of a preliminary reference of issues to a commissioner;
(g) The propriety of rendering judgment on the pleadings, or summary judgment, or of

dismissing the action should a valid ground therefor be found to exist;
(h) The advisability or necessity of suspending the proceedings; and
(i) Such other matters as may aid in the prompt disposition of the action. (Emphasis ours.)
The admission having been made in a stipulation of facts at pre-trial by the parties, it must be treated
as a judicial admission.45 Under Section 4, Rule 129 of the Rules of Court, a judicial admission
requires no proof. The admission may be contradicted only by a showing that it was made through
palpable mistake or that no such admission was made. The Court cannot lightly set aside a judicial
admission especially when the opposing party relied upon the same and accordingly dispensed with
further proof of the fact already admitted. An admission made by a party in the course of the
proceedings does not require proof.46
In the instant case, among the facts expressly admitted by the CIR and Toshiba in their CTA-
approved Joint Stipulation are that Toshiba "is a duly registered value-added tax entity in
accordance with Section 107 of the Tax Code, as amended[,]"47 that "is subject to zero percent (0%)
value-added tax on its export sales in accordance with then Section 100(a)(2)(A) of the Tax Code,
as amended."48 The CIR was bound by these admissions, which he could not eventually contradict in
his Motion for Reconsideration of the CTA Decision dated October 16, 2000, by arguing that Toshiba
was actually a VAT-exempt entity and its export sales were VAT-exempt transactions. Obviously,
Toshiba could not have been subject to VAT and exempt from VAT at the same time. Similarly, the
export sales of Toshiba could not have been subject to zero percent (0%) VAT and exempt from
VAT as well.
The CIR cannot escape the binding effect of his judicial admissions.
The Court disagrees with the Court of Appeals when it ruled in its Decision dated August 29, 2002
that the CIR could not be bound by his admissions in the Joint Stipulation because (1) the said
admissions were "made through palpable mistake"49 which, if countenanced, "would result in
falsehood, unfairness and injustice";50 and (2) the State could not be put in estoppel by the mistakes
of its officials or agents. This ruling of the Court of Appeals is rooted in its conclusion that a "palpable
mistake" had been committed by the CIR in the signing of the Joint Stipulation. However, this Court
finds no evidence of the commission of a mistake, much more, of a palpable one.
The CIR does not deny that his counsel, Atty. Joselito F. Biazon, Revenue Attorney II of the BIR,
signed the Joint Stipulation, together with the counsel of Toshiba, Atty. Patricia B. Bisda.
Considering the presumption of regularity in the performance of official duty,51 Atty. Biazon is
presumed to have read, studied, and understood the contents of the Joint Stipulation before he
signed the same. It rests on the CIR to present evidence to the contrary.
Yet, the Court observes that the CIR himself never alleged in his Motion for Reconsideration of the
CTA Decision dated October 16, 2000, nor in his Petition for Review before the Court of Appeals,
that Atty. Biazon committed a mistake in signing the Joint Stipulation. Since the CIR did not make
such an allegation, neither did he present any proof in support thereof. The CIR began to aver the
existence of a palpable mistake only after the Court of Appeals made such a declaration in its
Decision dated August 29, 2002.
Despite the absence of allegation and evidence by the CIR, the Court of Appeals, on its own,
concluded that the admissions of the CIR in the Joint Stipulation were due to a palpable mistake
based on the following deduction
Scrutinizing the Answer filed by [the CIR], we rule that the Joint Stipulation of Facts and Issues
signed by [the CIR] was made through palpable mistake. Quoting paragraph 4 of its Answer, [the
CIR] states:
"4. He ADMITS the allegations contained in paragraph 5 of the petition only insofar as the cited
provisions of Tax Code is concerned, but SPECIFICALLY DENIES the rest of the allegations therein
for being mere opinions, arguments or gratuitous assertions on the part of [Toshiba] and/or because
they are mere erroneous conclusions or interpretations of the quoted law involved, the truth of the
matter being those stated hereunder
x x x x"
And paragraph 5 of the petition for review filed by [Toshiba] before the CTA states:
"5. Petitioner is subject to zero percent (0%) value-added tax on its export sales in accordance with
then Section 100(a)(2)(A) of the Tax Code x x x.
x x x x"
As we see it, nothing in said Answer did [the CIR] admit that the export sales of [Toshiba] were
indeed zero-rated transactions. At the least, what was admitted only by [the CIR] concerning
paragraph 4 of his Answer, is the fact that the provisions of the Tax Code, as cited by [Toshiba] in its
petition for review filed before the CTA were correct.52
The Court of Appeals provided no explanation as to why the admissions of the CIR in his Answer in
CTA Case No. 5762 deserved more weight and credence than those he made in the Joint
Stipulation. The appellate court failed to appreciate that the CIR, through counsel, Atty. Biazon, also
signed the Joint Stipulation; and that absent evidence to the contrary, Atty. Biazon is presumed to
have signed the Joint Stipulation willingly and knowingly, in the regular performance of his official
duties. Additionally, the Joint Stipulation53 of Toshiba and the CIR was a more recent pleading than
the Answer54 of the CIR. It was submitted by the parties after the pre-trial conference held by the
CTA, and subsequently approved by the tax court. If there was any discrepancy between the
admissions of the CIR in his Answer and in the Joint Stipulation, the more logical and reasonable
explanation would be that the CIR changed his mind or conceded some points to Toshiba during the
pre-trial conference which immediately preceded the execution of the Joint Stipulation. To
automatically construe that the discrepancy was the result of a palpable mistake is a wide leap which
this Court is not prepared to take without substantial basis.
The judicial admissions of the CIR in the Joint Stipulation are not intrinsically false, wrong, or illegal,
and are consistent with the ruling on the VAT treatment of PEZA-registered enterprises in the
previous Toshiba case.
There is no basis for believing that to bind the CIR to his judicial admissions in the Joint Stipulation
that Toshiba was a VAT-registered entity and its export sales were zero-rated VAT transactions
would result in "falsehood, unfairness and injustice." The judicial admissions of the CIR are not
intrinsically false, wrong, or illegal. On the contrary, they are consistent with the ruling of this Court in
a previous case involving the same parties, Commissioner of Internal Revenue v. Toshiba
Information Equipment (Phils.) Inc.55 (Toshiba case), explaining the VAT treatment of PEZA-
registered enterprises.
In the Toshiba case, Toshiba sought the refund of its unutilized input VAT on its purchase of capital
goods and services for the first and second quarters of 1996, based on Section 106(b) of the Tax
Code of 1977, as amended.56 In the Petition at bar, Toshiba is claiming refund of its unutilized input
VAT on its local purchase of goods and services which are attributable to its export sales for the first
and second quarters of 1997, pursuant to Section 106(a), in relation to Section 100(a)(1)(A)(i) of the
Tax Code of 1977, as amended, which read
SEC. 106. Refunds or tax credits of creditable input tax. (a) Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated, may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent
that such input tax has not been applied against output tax: Provided, however, That in the case of
zero-rated sales under Section 100(a)(2)(A)(i),(ii) and (b) and Section 102(b)(1) and (2), the
acceptable foreign currency exchange proceeds thereof has been duly accounted for in accordance
with the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the
taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of
goods or properties of services, and the amount of creditable input tax due or paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated proportionately on the
basis of the volume sales.
SEC. 100. Value-added tax on sale of goods or properties. (a) Rate and base of tax. x x x
xxxx
(2) The following sales by VAT-registered persons shall be subject to 0%:
(A) Export sales. The term "export sales" means:
(i) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipnas (BSP).
Despite the difference in the legal bases for the claims for credit/refund in the Toshiba case and the
case at bar, the CIR raised the very same defense or objection in both that Toshiba and its
transactions were VAT-exempt. Hence, the ruling of the Court in the former case is relevant to the
present case.
At the outset, the Court establishes that there is a basic distinction in the VAT-exemption of a person
and the VAT-exemption of a transaction
It would seem that petitioner CIR failed to differentiate between VAT-exempt transactions from VAT-
exempt entities. In the case of Commissioner of Internal Revenue v. Seagate Technology
(Philippines), this Court already made such distinction
An exempt transaction, on the one hand, involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to
the tax status VAT-exempt or not of the party to the transaction
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax
Code, a special law or an international agreement to which the Philippines is a signatory, and by
virtue of which its taxable transactions become exempt from VAT x x x.57
In effect, the CIR is opposing the claim for credit/refund of input VAT of Toshiba on two grounds: (1)
that Toshiba was a VAT-exempt entity; and (2) that its export sales were VAT-exempt transactions.
It is now a settled rule that based on the Cross Border Doctrine, PEZA-registered enterprises, such
as Toshiba, are VAT-exempt and no VAT can be passed on to them. The Court explained in the
Toshiba case that
PEZA-registered enterprise, which would necessarily be located within ECOZONES, are VAT-
exempt entities, not because of Section 24 of Rep. Act No. 7916, as amended, which imposes the
five percent (5%) preferential tax rate on gross income of PEZA-registered enterprises, in lieu of all
taxes; but, rather, because of Section 8 of the same statute which establishes the fiction that
ECOZONES are foreign territory.
xxxx
The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall
be imposed to form part of the cost of goods destined for consumption outside of the territorial
border of the taxing authority. Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT; while, those destined for use or consumption within the
Philippines shall be imposed with ten percent (10%) VAT.
Applying said doctrine to the sale of goods, properties, and services to and from the ECOZONES,
the BIR issued Revenue Memorandum Circular (RMC) No. 74-99, on 15 October 1999. Of particular
interest to the present Petition is Section 3 thereof, which reads
SECTION 3. Tax Treatment of Sales Made by a VAT Registered Supplier from the Customs
Territory, to a PEZA Registered Enterprise.
(1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax
regime, in lieu of all taxes, except real property tax, pursuant to R.A. No. 7916, as amended:
(a) Sale of goods (i.e., merchandise). This shall be treated as indirect export
hence, considered subject to zero percent (0%) VAT, pursuant to Sec.
106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the
Omnibus Investments Code.
(b) Sale of service. This shall be treated subject to zero percent (0%) VAT under
the "cross border doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98
dated Nov. 5, 1998.
(2) If Buyer is a PEZA registered enterprise which is not embraced by the 5% special tax
regime, hence, subject to taxes under the NIRC, e.g., Service Establishments which are
subject to taxes under the NIRC rather than the 5% special tax regime:
(a) Sale of goods (i.e., merchandise). This shall be treated as indirect export
hence, considered subject to zero percent (0%) VAT, pursuant to Sec.
106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916 in relation to ART. 77(2) of the
Omnibus Investments Code.
(b) Sale of Service. This shall be treated subject to zero percent (0%) VAT under
the "cross border doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98
dated Nov. 5, 1998.
(3) In the final analysis, any sale of goods, property or services made by a VAT registered
supplier from the Customs Territory to any registered enterprise operating in the ecozone,
regardless of the class or type of the latters PEZA registration, is actually qualified and thus
legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to
such enterprise made by a VAT registered supplier from the Customs Territory shall be
treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to ART. 77(2)
of the Omnibus Investments Code, while all sales of services to the said enterprises, made
by VAT registered suppliers from the Customs Territory, shall be treated effectively subject to
the 0% VAT, pursuant to Section 108(B)(3), NIRC, in relation to the provisions of R.A. No.
7916 and the "Cross Border Doctrine" of the VAT system.
This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to
the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE
enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-
rating imposed by Revenue Regulations No. 7-95 effective as of the date of the issuance of this
Circular.
Indubitably, no output VAT may be passed on to an ECOZONE enterprise since it is a VAT-exempt

entity. x x x.58
The Court, nevertheless, noted in the Toshiba case that the rule which considers any sale by a
supplier from the Customs Territory to a PEZA-registered enterprise as export sale, which should not
be burdened by output VAT, was only clearly established on October 15, 1999, upon the issuance
by the BIR of RMC No. 74-99. Prior to October 15, 1999, whether a PEZA-registered enterprise was
exempt or subject to VAT depended on the type of fiscal incentives availed of by the said
enterprise.59 The old rule, then followed by the BIR, and recognized and affirmed by the CTA, the
Court of Appeals, and this Court, was described as follows
According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the PEZA-registered
enterprise the option to choose between two sets of fiscal incentives: (a) The five percent (5%)
preferential tax rate on its gross income under Rep. Act No. 7916, as amended; and (b) the income
tax holiday provided under Executive Order No. 226, otherwise known as the Omnibus Investment
Code of 1987, as amended.
The five percent (5%) preferential tax rate on gross income under Rep. Act No. 7916, as amended,
is in lieu of all taxes. Except for real property taxes, no other national or local tax may be imposed on
a PEZA-registered enterprise availing of this particular fiscal incentive, not even an indirect tax like
VAT.
Alternatively, Book VI of Exec. Order No. 226, as amended, grants income tax holiday to registered
pioneer and non-pioneer enterprises for six-year and four-year periods, respectively. Those availing
of this incentive are exempt only from income tax, but shall be subject to all other taxes, including
the ten percent (10%) VAT.
This old rule clearly did not take into consideration the Cross Border Doctrine essential to the VAT
system or the fiction of the ECOZONE as a foreign territory. It relied totally on the choice of fiscal
incentives of the PEZA-registered enterprise. Again, for emphasis, the old VAT rule for PEZA-
registered enterprises was based on their choice of fiscal incentives: (1) If the PEZA-registered
enterprise chose the five percent (5%) preferential tax on its gross income, in lieu of all taxes, as
provided by Rep. Act No. 7916, as amended, then it would be VAT-exempt; (2) If the PEZA-
registered enterprise availed of the income tax holiday under Exec. Order No. 226, as amended, it
shall be subject to VAT at ten percent (10%). Such distinction was abolished by RMC No. 74-99,
which categorically declared that all sales of goods, properties, and services made by a VAT-
registered supplier from the Customs Territory to an ECOZONE enterprise shall be subject to VAT,
at zero percent (0%) rate, regardless of the latters type or class of PEZA registration; and, thus,
affirming the nature of a PEZA-registered or an ECOZONE enterprise as a VAT-exempt entity.60
To recall, Toshiba is herein claiming the refund of unutilized input VAT payments on its local
purchases of goods and services attributable to its export sales for the first and second quarters of
1997. Such export sales took place before October 15, 1999, when the old rule on the VAT
treatment of PEZA-registered enterprises still applied. Under this old rule, it was not only possible,
but even acceptable, for Toshiba, availing itself of the income tax holiday option under Section 23 of
Republic Act No. 7916, in relation to Section 39 of the Omnibus Investments Code of 1987, to be
subject to VAT, both indirectly (as purchaser to whom the seller shifts the VAT burden) and directly
(as seller whose sales were subject to VAT, either at ten percent [10%] or zero percent [0%]).
A VAT-registered seller of goods and/or services who made zero-rated sales can claim tax credit or
refund of the input VAT paid on its purchases of goods, properties, or services relative to such zero-
rated sales, in accordance with Section 4.102-2 of Revenue Regulations No. 7-95, which provides
Sec. 4.102-2. Zero-rating. (a) In general. - A zero-rated sale by a VAT-registered person, which is
a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on
his purchases of goods, properties or services related to such zero-rated sale shall be available as
tax credit or refund in accordance with these regulations.
The BIR, as late as July 15, 2003, when it issued RMC No. 42-2003, accepted applications for
credit/refund of input VAT on purchases prior to RMC No. 74-99, filed by PEZA-registered
enterprises which availed themselves of the income tax holiday. The BIR answered Question Q-5(1)
of RMC No. 42-2003 in this wise
Q-5: Under Revenue Memorandum Circular (RMC) No. 74-99, purchases by PEZA-registered firms
automatically qualify as zero-rated without seeking prior approval from the BIR effective October
1999.
1) Will the OSS-DOF Center still accept applications from PEZA-registered claimants who
were allegedly billed VAT by their suppliers before and during the effectivity of the RMC by
issuing VAT invoices/receipts?
xxxx
A-5(1): If the PEZA-registered enterprise is paying the 5% preferential tax in lieu of

all other taxes, the said PEZA-registered taxpayer cannot claim TCC or refund for the
VAT paid on purchases. However, if the taxpayer is availing of the income tax
holiday, it can claim VAT credit provided:
a. The taxpayer-claimant is VAT-registered;
b. Purchases are evidenced by VAT invoices or receipts, whichever is

applicable, with shifted VAT to the purchaser prior to the implementation of
RMC No. 74-99; and
c. The supplier issues a sworn statement under penalties of perjury that it

shifted the VAT and declared the sales to the PEZA-registered purchaser as
taxable sales in its VAT returns.
For invoices/receipts issued upon the effectivity of RMC No. 74-99, the claims for input VAT by
PEZA-registered companies, regardless of the type or class of PEZA-registration, should be denied.
(Emphases ours.)
Consequently, the CIR cannot herein insist that all PEZA-registered enterprises are VAT-exempt in
every instance. RMC No. 42-2003 contains an express acknowledgement by the BIR that prior to
RMC No. 74-99, there were PEZA-registered enterprises liable for VAT and entitled to credit/refund
of input VAT paid under certain conditions.
This Court already rejected in the Toshiba case the argument that sale transactions of a PEZA-
registered enterprise were VAT-exempt under Section 103(q) of the Tax Code of 1977, as amended,
ratiocinating that
Section 103(q) of the Tax Code of 1977, as amended, relied upon by petitioner CIR, relates to VAT-
exempt transactions. These are transactions exempted from VAT by special laws or international
agreements to which the Philippines is a signatory. Since such transactions are not subject to VAT,
the sellers cannot pass on any output VAT to the purchasers of goods, properties, or services, and
they may not claim tax credit/refund of the input VAT they had paid thereon.
Section 103(q) of the Tax Code of 1977, as amended, cannot apply to transactions of respondent
Toshiba because although the said section recognizes that transactions covered by special laws
may be exempt from VAT, the very same section provides that those falling under Presidential
Decree No. 66 are not. Presidential Decree No. 66, creating the Export Processing Zone Authority
(EPZA), is the precursor of Rep. Act No. 7916, as amended, under which the EPZA evolved into the
PEZA. Consequently, the exception of Presidential Decree No. 66 from Section 103(q) of the Tax
Code of 1977, as amended, extends likewise to Rep. Act No. 7916, as amended.61 (Emphasis ours.)
In light of the judicial admissions of Toshiba, the CTA correctly confined itself to the other factual
issues submitted for resolution by the parties.
In accord with the admitted facts that Toshiba was a VAT-registered entity and that its export sales
were zero-rated transactions the stated issues in the Joint Stipulation were limited to other factual
matters, particularly, on the compliance by Toshiba with the rest of the requirements for credit/refund
of input VAT on zero-rated transactions. Thus, during trial, Toshiba concentrated on presenting
evidence to establish that it incurred P3,875,139.65 of input VAT for the first and second quarters of
1997 which were directly attributable to its export sales; that said amount of input VAT were not
carried over to the succeeding quarters; that said amount of input VAT has not been applied or offset
against any output VAT liability; and that said amount of input VAT was properly substantiated by
official receipts and invoices.
After what truly appears to be an exhaustive review of the evidence presented by Toshiba, the CTA
made the following findings
(1) The amended quarterly VAT returns of Toshiba for 1997 showed that it made no other
sales, except zero-rated export sales, for the entire year, in the sum of P2,083,305,000.00
for the first quarter and P5,411,372,000.00 for the second quarter. That being the case, all
input VAT allegedly incurred by Toshiba for the first two quarters of 1997, in the amount
of P3,875,139.65, was directly attributable to its zero-rated sales for the same period.
(2) Toshiba did carry-over the P3,875,139.65 input VAT it reportedly incurred during the first
two quarters of 1997 to succeeding quarters, until the first quarter of 1999. Despite the carry-
over of the subject input VAT of P3,875,139.65, the claim of Toshiba was not affected
because it later on deducted the said amount as "VAT Refund/TCC Claimed" from its total
available input VAT of P6,841,468.17 for the first quarter of 1999.
(3) Still, the CTA could not allow the credit/refund of the total input VAT of P3,875,139.65
being claimed by Toshiba because not all of said amount was actually incurred by the
company and duly substantiated by invoices and official receipts. From the P3,875,139.65
claim, the CTA deducted the amounts of (a) P189,692.92, which was in excess of
the P3,685,446.23 input VAT Toshiba originally claimed in its application for credit/refund
filed with the DOF One-Stop Shop; (b) P396,882.58, which SGV & Co., the commissioned
CPA, disallowed for being improperly substantiated, i.e., supported only by provisional
acknowledgement receipts, or by documents other than official receipts, or not supported by
TIN or TIN VAT or by any document at all; (c) P1,887,545.65, which the CTA itself verified as
not being substantiated in accordance with Section 4.104-562 of Revenue Regulations No. 7-
95, in relation to Sections 10863 and 23864 of the Tax Code of 1977, as amended; and
(d) P15,736.42, which Toshiba already applied to its output VAT liability for the fourth quarter
of 1998.
(4) Ultimately, Toshiba was entitled to the credit/refund of unutilized input VAT payments
attributable to its zero-rated sales in the amounts of P1,158,016.82 and P227,265.26, for the
first and second quarters of 1997, respectively, or in the total amount of P1,385,282.08.
Since the aforementioned findings of fact of the CTA are borne by substantial evidence on record,
unrefuted by the CIR, and untouched by the Court of Appeals, they are given utmost respect by this
Court.
The Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of
its functions, is dedicated exclusively to the resolution of tax problems and has accordingly
developed an expertise on the subject unless there has been an abuse or improvident exercise of
authority.65 In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner
of Internal Revenue,66 this Court more explicitly pronounced
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the
highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357
SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature
of its function is dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned unless there has
been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if
they are not supported by substantial evidence or there is a showing of gross error or abuse on the
part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court
must presume that the CTA rendered a decision which is valid in every respect.
WHEREFORE, the assailed Decision dated August 29, 2002 and the Resolution dated February 19,
2003 of the Court of Appeals in CA-G.R. SP No. 63047 are REVERSED and SET ASIDE, and the
Decision dated October 16, 2000 of the Court of Tax Appeals in CTA Case No. 5762 is
REINSTATED. Respondent Commissioner of Internal Revenue is ORDERED to REFUND or, in the
alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of petitioner Toshiba Information
Equipment (Phils.), Inc. in the amount of P1,385,282.08, representing the latters unutilized input
VAT payments for the first and second quarters of 1997. No pronouncement as to costs.
SO ORDERED.

Dean'S Notes

Diunggah oleh

Informasi Dokumen

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Dean'S Notes

Diunggah oleh

Hak Cipta:

Format Tersedia

DeanS notes

G.R. No. 202242 April 16, 2013

FRANCISCO I. CHAVEZ, Petitioner,

This disposition is immediately executory.

Brief Statement of the Antecedents

Grounds relied upon by Respondents

Ruling of the Court

WHEREFORE, the Motion for Reconsideration filed by respondents is hereby DENIED.

G.R. No. 191002 April 20, 2010

ARTURO M. DE CASTRO, Petitioner,

G.R. No. 191032

JAIME N. SORIANO, Petitioner,

G.R. No. 191057

PHILIPPINE CONSTITUTION ASSOCIATION (PHILCONSA), Petitioner,

A.M. No. 10-2-5-SC

IN RE APPLICABILITY OF SECTION 15, ARTICLE VII OF THE CONSTITUTION TO

G.R. No. 191149

G.R. No. 191342

G.R. No. 191420

PHILIPPINE BAR ASSOCIATION, INC., Petitioner,

On March 17, 2010, the Court promulgated its decision, holding:

WHEREFORE, the Court:

Motions for Reconsideration

Tolentino and Inting

4. Resort to the deliberations of the Constitutional Commission is superfluous, and is

6. Valenzuela should not be reversed.

Philippine Bar Association

IBP-Davao del Sur, et al.

3. A plain reading is preferred to a contorted and strained interpretation based on

4. Resort to the deliberations or to the personal interpretation of the framers of the

1. Any constitutional interpretative changes must be reasonable, rational, and conformable to

3. Section 15, Article VII does not apply to the Judiciary.

The contention has no basis.

Section 13. xxx

Thus, the decision of March 17, 2010 has fittingly observed:

The insinuation is misguided and utterly unfair.

ACCORDINGLY, the motions for reconsideration are denied with finality.

ANTONIO T. CARPIO RENATO C. CORONA

CONCHITA CARPIO MORALES PRESBITERO J. VELASCO, JR.

ANTONIO EDUARDO B. NACHURA TERESITA J. LEONARDO-DE CASTRO

ARTURO D. BRION DIOSDADO M. PERALTA

MARTIN S. VILLARAMA, JR. JOSE PORTUGAL PEREZ

JOSE CATRAL MENDOZA

4 E.g., Dias, Jurisprudence, Butterworths, London, 1985, Fifth Edition, p. 127.

7 Section 4 (2), Article VIII, provides:

9 Smith v. State, 66 Md. 215, 7 Atl. 49.

10 State ex rel Everding v. Simon, 20 Ore. 365, 26 Pac. 170.

The Lawphil Project - Arellano Law Foundation

CARPIO MORALES, J.:

It is thus imperative to settle the following issues and concerns:

Whether the incumbent President is constitutionally proscribed from appointing the

3. The express allowance in the Constitution of a 90-day period of vacancy in the

CONCHITA CARPIO MORALES

The Lawphil Project - Arellano Law Foundation

CONCURRING AND DISSENTING OPINION

The Motions for Reconsideration

The Basic Requisites / Justiciability

The Disputed Provisions

A holistic reading of the Constitution a must in constitutional interpretation dictates as a general

The Valenzuela Decision

My opinion on the Mendoza petition stands.

G.R. No. 176951 November 18, 2008

LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP