1

SECOND DIVISION

YAZAKI TORRES MANUFACTURING, INC., Petitioner,

G.R. No. 130584

Present:

-versus-

PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and

THE COURT OF APPEALS, THE HOME DEVELOPMENT MUTUAL FUND, through its Board of Trustees, and HONORABLE ZORAYDA AMELIA C. ALONZO, in her capacity as President of the Home Development Mutual Fund, Respondents.

GARCIA, JJ.

Promulgated:

June 27, 2006 x----------------------------------------------------------------------------------------x DECISION SANDOVAL-GUTIERREZ, J.:

This is a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as amended, seeking to annul the Decision1[1] of the Court of Appeals (Special Eighth Division), dated February 5, 1997, in CA-G.R. SP No. 41487 for having been issued with grave abuse of discretion. The Home Development Mutual Fund (HDMF) is the government agency tasked with the administration of the PAG-IBIG2[2] Fund (Fund) created under Presidential Decree (P.D.) No. 1530, signed into law on June 11, 1978. The Fund has been intended for housing purposes to be sourced from voluntary contributions from its members. On December 14, 1980, P.D. No. 1530 was amended by P.D. No. 1752 providing that

membership in the Fund is mandatory for all gainfully-employed Filipinos. On June 17, 1994, P.D. No. 1752 was amended by Republic Act (R.A.) No. 7742 which took effect on January 1, 1995. Under the new law, the coverage of the Fund extends to all members of the Social Security System and Government Service Insurance System, as well as their employers. However, membership is voluntary for employees earning less than P4,000.00 a month. On July 18, 1994, the HDMF Board of Trustees promulgated Rules and Regulations implementing R.A. No. 7742. Rule VII provides: RULE VII WAIVER OR SUSPENSION SEC. 1. Waiver or Suspension, Existing Provident or Retirement Plan . An employer and/or employee group who has an existing provident or retirement plan as of the effectivity of Republic Act No. 7742, qualified under Republic Act No. 4917 and actuarially determined to be sound and reasonable by an independent actuary duly accredited by the Insurance Commission may apply with the Fund for waiver or suspension of coverage. Such waiver or suspension may be granted by the President of the Fund on the basis of verification that the waiver or suspension does not contravene any effective collective bargaining or other existing agreement and that the features of the plan or plans are superior to the Fund and continue to be so. The certificate of waiver or suspension of coverage issued therein shall only be for a period of one (1) year but the same may be renewed for another year upon the filing of a proper application within a period of sixty (60) days prior to the expiration of the existing waiver or suspension. SEC. 2. Waiver or Suspension, Existing Housing Plan. An employer and/or employee group who has an existing housing plan as of the effectivity of Republic Act No. 7742 may apply with the Fund for waiver or suspension of coverage. Such waiver or suspension may be granted by the President of the Fund on the basis of verification that the waiver or suspension does not contravene any effective collective bargaining or other existing agreement and that the features of the plan or plans are superior to the Fund and continue to be so. The certificate of waiver or suspension of coverage issued therein shall only be for a period of one (1) year but the same may be renewed for another year upon the filing of a proper application within a period of sixty (60) days prior to the expiration of the existing waiver or suspension. xxx SEC. 4. Effects of Waiver or Suspension, Existing Provident or Retirement/Housing Plan. - Waiver or suspension of coverage granted to an employer under Sections 1 and 2 of this Rule shall likewise apply to his employees who are members of the employers private plan; Provided, That such members are not member-borrowers of the Fund. A memberborrower shall continue to pay and remit to the fund his monthly contributions together with the employer contributions to be shouldered by him. A member-saver may opt to remain in good standing by remitting to the Fund his monthly contributions with or without employer contribution. Employees who are non-members of the employers private plan at the time of the certificate of waiver or suspension of coverage is granted shall continue to be mandatorily covered by the Fund and their employer is required to set aside and remit to the Fund the employee contributions together with the employer contributions.

Yazaki Torres Manufacturing, Inc., petitioner herein, a corporation organized under Philippine laws, applied for and was granted by the HDMF a waiver from the Fund coverage for the period from January 1 to December 31, 1995. The HDMF found that petitioners retirement plan for its employees is superior to that offered by the Fund. On September 1, 1995, the HDMF Board of Trustees amended Rule VII of the Rules and Regulations implementing R.A. No. 7742. The amended Rule provides: SEC. 1. Waiver or Suspension Because of Existing Provident/Retirement and Housing Plan. An employer with a plan providing both for a provident/retirement and housing benefits for all his employees and existing as of December 14, 1980, the effectivity date of Presidential Decree No. 1752, may apply with the Fund for waiver or suspension of the coverage. The provident/retirement aspect of the plan must be qualified under Republic Act No. 4917 and actuarially determined to be sound and reasonable by an independent actuary duly accredited by the Insurance Commission. The provident/retirement and housing benefits as provided for under the plan must be superior to the provident/retirement and housing benefits offered by the Fund. Such waiver or suspension may be granted by the Fund on the basis of actual certification that the waiver or suspension does not contravene any collective bargaining agreement, any other existing agreement or clearly spelled out management policy and that features of the plan or plans are superior to the Fund and continue to be so. Provided further, That the application must be endorsed by the labor union representing a majority of the employees or in the absence thereof by at least a majority vote for all the employees in the said establishment in a meeting specifically called for the purpose; Provided furthermore, That such a meeting be held or conducted under the supervision of an authorized representative from the Fund. The certificate of waiver or suspension of coverage issued herein shall only be for a period of one (1) year effective upon issuance thereof. No certificate of waiver issued by the President of the Fund shall have retroactive effect. Application for renewal must be filed within sixty (60) days prior to the expiration of the existing waiver or suspension and such application for renewal shall only be granted based on the same conditions and requirements under which the original application was approved. Pending the approval of the application for waiver or suspension of coverage or the application for renewal, the employer and his covered employees shall continue to be mandatorily covered by the Fund as provided for under Republic Act No. 7742. xxx SEC. 3. Effects of Waiver or Suspension; Existing Provident or Retirement/Housing Plan. Waiver or suspension of coverage granted to an employer under Section 1 shall likewise apply to his employees who are members of the employers private plan; Provided, That such members are not member-borrowers of the Fund. A member-borrower shall continue to pay and remit to the Fund his monthly contributions together with the employer contribution to be shouldered by him. A member-saver may opt to remain in good standing by remitting to the Fund his monthly contributions with or without employer contributions. Notwithstanding

the certificate of waiver or suspension granted to the employer, it is still the obligation of the employer to service this type of contributing employee-member by deducting through salary deductions and remitting to the Fund the contribution as required herein. Employees who are non-members of the employers private plan at the time the certificate of waiver or suspension of coverage is granted shall continue to be mandatorily covered by the Fund and their employer is required to set aside and remit to the Fund the employee contributions together with the employers required contributions.

After its waiver from the Fund coverage lapsed, petitioner applied for a renewal. The ground relied upon was once again its superior retirement plan to that of the Fund. On February 16, 1996, the HDMF Chief Executive Officer disapproved petitioners application on the ground that its retirement plan is not superior to that provided by the Fund. Petitioner was then directed to register it s employees with the Fund and to remit their monthly contributions together with the mandatory employers share. Petitioner interposed an appeal to the HDMF Board of Trustees, but in a Resolution dated May 29, 1996, the Board denied the appeal. Thereupon, petitioner filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 41487. In a Decision dated February 5, 1997, the Court of Appeals (Special Eighth Division) denied the petition, holding that: Petitioner contends that the existing rules and regulations cannot be amended unless and until R.A. No. 7742 is likewise amended and since the September 1, 1995 amendment on Rule VII of the HDMF rules and regulations was beyond the 60-day period required under Section 5 of R.A. No. 7742, the same is invalid. To uphold these arguments would render the administrative agency inutile to correct the rules and regulations duly promulgated by it. A contario, such rules and regulations or orders may be amended, modified or revoked to conform to the requirements of the law or the demands of justice (Benito v. Public Service Commission, 86 Phil. 624 [1950]; Raymundo Transportation Co. v. Tanay Transit Co., 63 Phil. 1064 [1936]). The only limitation is that the administrative regulations cannot extend the law and amend a legislative enactment for settled is the rule that administrative regulations must be in harmony with the provisions of the law (Land Bank of the Philippines v. Court of Appeals, 249 SCRA 149 [1995]). In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails (Shell Philippines, Inc. v. Central Bank of the Philippines, 162 SCRA 628 [1988]). The September 1, 1995 amendment to the rules requiring both provident/retirement and housing plans to the employees in order that the employer may be granted a waiver or suspension of the Pag-ibig Fund coverage is in harmony with WHEREAS clauses of Presidential Decree No. 1752, thus: WHEREAS, the Government, in pursuit of the Constitutional mandates on the promotion of public welfare through ample social services, as well as its humanist commitment to the interests of the working group, in relation particularly to their need for decent shelter has established the Home Development Mutual Fund, under Presidential Decree 1530, a system of employee employer contributions for housing purposes; and

WHEREAS, there is need to strengthen the Home Development Mutual Funds and make it more effective both as savings generation and home building program for the gainfully-employed members of the Philippine society; (Emphasis supplied) states: The governing law which is Section 19 of Pres. Decree No. 1752 SEC. 19. Existing Provident/Housing Plans An employer and/or employee group who, at the time this Decree becomes effective have their own provident and/or employee housing plans, may register with the Fund, for any of the following purposes: (a) For annual certification of waiver or suspension from coverage or participation in the Fund, which shall be granted on the basis of verification that the waiver or suspension does not contravene any effective collective bargaining agreement and that the features of the plan or plans are superior to the Fund or continue to be so; or x x x The grant of the certification of waiver to the petitioner was only for a specific period, i.e., from January 1, 1995 to December 31, 1995 but subject to the condition that the same may be renewed for another year upon the filing of the proper application within 60 days prior to the expiration of the existing waiver or suspension. The grant is merely a privilege which the State in the exercise of its police power has the right not to renew the same as the exigency of the case warrants. After the lapse of the specified period, the HDMF is not automatically required to enter another contract with the petitioner as long as the latter applies for renewal of certification. To reiterate, Section 1 of the original HDMF rules, the law in force at the time of the granting of the certification of waiver to the petitioner, provides [s]uch waiver or suspension may be granted by the President of the Fund on the basis of verification that the waiver or suspension does not contravene any effective collective bargaining or other existing agreement and that the features of the plan or plans are superior to the Fund and continue to be so. The word may is merely permissive and operates to confer discretion upon a party (Capati v. Ocampo, 113 SCRA 794 [1982]). The disapproval of the petitioners application for renewal of waiver from the Pag-ibig Fund coverage was by reason that the petitioners retirement plan was not superior to Pag-ibig Fund (Annex D, Petition, p. 30, Rollo). It is well-settled principle that the finding of facts by the administrative bodies which has acquired the expertise in the field is entitled to great respect and, should not be disturbed on appeal unless it is shown that it has patently misappreciated the facts. Petitioner however failed to prove by sufficient evidence that the findings of the President of the Fund was patently erroneous.3[3]

Petitioner filed its Motion for Reconsideration, but it was denied in a Resolution dated June 17, 1997.

Hence, the instant petition for certiorari.4[4] Petitioner contends that the Court of Appeals acted with grave abuse of discretion in upholding the HDMFs Resolution denying petitioners application for renewal of waiver of the Fund membership coverage; and in confirming the authority of the HDMF to amend the implementing Rules of the Fund. It claims that Section 5 of R.A. No. 7742 does not grant HDMF the power to amend the implementing Rules and Regulations, contending that the power to make laws does not necessarily include the power to alter or repeal the same. Since the HDMF is merely an administrative agency tasked to implement the law, its authority to promulgate implementing Rules does not include the power to amend or revise them. It is a doctrine of long-standing that courts will not interfere in matters which are addressed to the sound discretion of the government agency entrusted with regulation of activities coming under the special and technical training and knowledge of such agency.5[5] For the exercise of administrative discretion is a policy decision and a matter that best be discharged by the government agency concerned and not by the courts.6[6] In this case, there is no showing that the HDMF arbitrarily, whimsically or capriciously denied petitioners application for renewal of its waiver. It conducted the necessary investigation, comparison, evaluation, and deliberation of petitioners retirement plan vis--vis the Fund. This Court thus holds that the Court of Appeals committed no grave abuse of discretion amounting to lack or excess of jurisdiction when it affirmed the denial of petitioners application for renewal of waiver by the HDMF. Moreover, the grant of waiver or exemption from the coverage of the Fund is but a mere privilege granted by the State. A privilege is a particular and peculiar benefit or advantage enjoyed by a person, company, or class beyond the common advantages of other citizens.7[7] Like any other privilege or exemption, it may be withdrawn by the State on a finding that the recipient is no longer entitled to it. There is no provision whatsoever in R.A. No. 7742 or its Implementing Rules and Regulations that the HDMF shall automatically renew a waiver from the Fund coverage upon an application for renewal. The task of determining whether such application should be granted is best discharged by the HDMF, not by the courts. Absent a showing that the denial of petitioners application by the HDMF is tainted by caprice, arbitrariness, or despotism, this Court will not interfere in the exercise of its discretion. Petitioner claims that under the original Implementing Rules and Regulations of the HDMF, superior retirement plan and superior housing plan were separate and alternative grounds for the waiver of the Fund coverage. However, under the Amended Rules and Regulations, superior retirement plan and superior housing plan are joint requirements. Since petitioner does not have a housing plan, this is the reason why its

retirement plan was not considered superior to that of the Fund. Hence, its application for renewal of waiver was denied. Consequently, it insists that the HDMF exceeded its authority when it amended its original Rules and Regulations. The legislative power is granted pursuant to Section 1, Article VI of the Constitution which provides: SEC. 1. The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives, except to the extent reserved to the people by the provision on initiative and referendum. The legislative power has been described generally as the power to make, alter, and repeal laws.8[8] The authority to amend, change, or modify a law is thus part of such legislative power. It is the peculiar province of the legislature to prescribe general rules for the government of society. However, the legislature cannot foresee every contingency involved in a particular problem that it seeks to address. Thus, it has become customary for it to delegate to instrumentalities of the executive department, known as administrative agencies, the power to make rules and regulations. This is because statutes are generally couched in general terms which express the policies, purposes, objectives, remedies and sanctions intended by the legislature. The details and manner of carrying out the law are left to the administrative agency charged with its implementation. In this sense, rules and regulations promulgated by an administrative agency are the product of a delegated power to create new or additional legal provisions that have the effect of law.9[9] Hence, in general, rules and regulations issued by an administrative agency, pursuant to the authority conferred upon it by law, have the force and effect, or partake of the nature, of a statute.10[10] The law delegated to the HDMF the rule-making power since this is necessary for the proper exercise of its authority to administer the Fund. Following the doctrine of necessary implication, this grant of express power to formulate implementing rules and regulations must necessarily include the power to amend, revise, alter, or repeal the same. WHEREFORE, the petition is DISMISSED. The Decision and Resolution of the Court of Appeals dated February 5 and July 17, 1997 AFFIRMED IN TOTO. Costs against petitioner. SO ORDERED. in CA-G.R. SP No. 41487 are

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 152574 November 17, 2004

FRANCISCO ABELLA JR., petitioner, vs. CIVIL SERVICE COMMISSION, respondent. DECISION PANGANIBAN, J.: Both the appointing authority and the appointee are the real parties in interest, and both have legal standing, in a suit assailing a Civil Service Commission (CSC) order disapproving an appointment. Despite having legal interest and standing, herein petitioner unsuccessfully challenges the constitutionality of the CSC circular that classifies certain positions in the career service of the government. In sum, petitioner was appointed to a Career Executive Service (CES) position, but did not have the corresponding eligibility for it; hence, the CSC correctly disapproved his appointment. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the November 16, 2001 Decision2 and the March 8, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 58987. The Assailed Decision disposed as follows: "WHEREFORE, the petition for review is DENIED for lack of merit."4 The challenged Resolution denied petitioner's Motion for Reconsideration. The Facts The CA narrates the factual antecedents in this wise: "Petitioner Francisco A. Abella, Jr., a lawyer, retired from the Export Processing Zone Authority (EPZA), now the Philippine Economic Zone Authority (PEZA), on July 1, 1996 as Department Manager of the Legal Services Department. He held a civil service eligibility for the position of Department Manager, having completed the training program for Executive Leadership and Management in 1982 under the Civil Service Academy, pursuant to CSC Resolution No. 850 dated April 16, 1979, which was then the required eligibility for said position. "It appears, however, that on May 31, 1994, the Civil Service Commission issued Memorandum Circular No. 21, series of 1994, the pertinent provisions of which read: '1. Positions Covered by the Career Executive Service (b) In addition to the above identified positions and other positions of the same category which had been previously classified and included in the CES, all other third level positions of equivalent category in all branches and instrumentalities of the national government, including government owned and controlled

corporations with original charters are embraced within the Career Executive Service provided that they meet the following criteria: '1. the position is a career position; '2. the position is above division chief level '3. the duties and responsibilities of the position require the performance of executive or managerial functions. '4. Status of Appointment of Incumbents of Positions Included Under the Coverage of the CES. Incumbents of positions which are declared to be Career Executive Service positions for the first time pursuant to this Resolution who hold permanent appointments thereto shall remain under permanent status in their respective positions. However, upon promotion or transfer to other Career Executive Service (CES) positions, these incumbents shall be under temporary status in said other CES positions until they qualify.' "Two years after his retirement, petitioner was hired by the Subic Bay Metropolitan Authority (SBMA) on a contractual basis. On January 1, 1999, petitioner was issued by SBMA a permanent employment as Department Manager III, Labor and Employment Center. However, when said appointment was submitted to respondent Civil Service Commission Regional Office No. III, it was disapproved on the ground that petitioner's eligibility was not appropriate. Petitioner was advised by SBMA of the disapproval of his appointment. In view thereof, petitioner was issued a temporary appointment as Department Manager III, Labor and Employment Center, SBMA on July 9, 1999. "Petitioner appealed the disapproval of his permanent appointment by respondent to the Civil Service Commission, which issued Resolution No. 000059, dated January 10, 2000, affirming the action taken by respondent. Petitioner's motion for reconsideration thereof was denied by the CSC in Resolution No. 001143 dated May 11, 2000." "Undaunted, petitioner filed with [the CA] a petition for review seeking the reversal of the CSC Resolutions dated January 10, 2000 and May 11, 2000 on the ground that CSC Memorandum Circular No. 21, s. 1994 is unconstitutional as it rendered his earned civil service eligibility ineffective or inappropriate for the position of Department Manager [III]"5 Ruling of the Court of Appeals The CA shunned the issue of constitutionality, arguing that a constitutional question should not be passed upon if there are other grounds upon which the case may be decided.6 Citing CSC Memorandum Circular 40, s. 1998 and Mathay v. Civil Service Commission,7 the appellate court ruled that only the appointing officer may request reconsideration of the action taken by the CSC on appointments. Thus, it held that petitioner did not have legal standing to question the disapproval of his appointment. 8 On reconsideration, the CA added that petitioner was not the real party in interest, as his appointment was dependent on the CSC's approval. Accordingly, he had no vested right in the office, since his appointment was disapproved.9 Unsatisfied, petitioner brought this recourse to this Court.10 The Issues

10

Petitioner raises the following issues for our consideration: "A. Whether or not Respondent Court committed grave abuse of discretion amounting to lack of jurisdiction in ruling that petitioner lacks the personality to question the disapproval by respondent office of petitioner's appointment as Department Manager III, Labor and Employment Center, SBMA. "B. Whether or not Respondent Court committed grave abuse of discretion amounting to lack of jurisdiction in ruling that petitioner is not the real party in interest to question the disapproval by respondent office of petitioner's appointment as Department Manager III, Labor and Employment Center, SBMA. "C. Whether or not Respondent Court committed grave abuse of discretion amounting to lack of jurisdiction, in dismissing petitioner's appeal on a mere technicality considering that petitioner is questioning the constitutionality of respondent office' issuance of Section 4 of CSC Memorandum Circular No. 21, s. 1994, which deprived petitioner his property right without due process of law."11 The Court's Ruling The Petition is partly meritorious. First Issue: Who May File Reconsideration or Appeal Preliminary Observation Petitioner imputes to the CA "grave abuse of discretion amounting to lack of jurisdiction" for ruling that he had no legal standing to contest the disapproval of his appointment.12 Grave abuse of discretion is a ground for a petition for certiorari under Rule 65 of the Rules of Court. Nevertheless, this Court resolved to grant due course to the Petition and to treat it appropriately as a petition for review on certiorari under Rule 45 of the Rules of Court. The grounds shall be deemed "reversible errors," not "grave abuse of discretion." Approval Required for Permanent Appointment A permanent appointment in the career service is issued to a person who has met the requirements of the position to which the appointment is made in accordance with the provisions of law, the rules and the standards promulgated pursuant thereto.13 It implies the civil service eligibility of the appointee.14 Thus, while the appointing authority has the discretion to choose whom to appoint, the choice is subject to the caveat that the appointee possesses the required qualifications.15 To make it fully effective, an appointment to a civil service position must comply with all legal requirements.16 Thus, the law requires the appointment to be submitted to the CSC which will ascertain, in the main, whether the proposed appointee is qualified to hold the position and whether the rules pertinent to the process of appointment were observed.17 The applicable provision of the Civil Service Law reads: "SECTION 9. Powers and Functions of the Commission. The Commission shall administer the Civil Service and shall have the following powers and functions: "(h) Approve all appointments, whether original or promotional, to positions in the civil service, except those of presidential appointees, members of the Armed Forces of the Philippines, police forces, firemen, and jailguards, and disapprove

11

those where the appointees do not possess the appropriate eligibility or required qualifications. An appointment shall take effect immediately upon issue by the appointing authority if the appointee assumes his duties immediately and shall remain effective until it is disapproved by the Commission, if this should take place, without prejudice to the liability of the appointing authority for appointments issued in violation of existing laws or rules: Provided, finally, That the Commission shall keep a record of appointments of all officers and employees in the civil service. All appointments requiring the approval of the Commission as herein provided, shall be submitted to it by the appointing authority within thirty days from issuance, otherwise, the appointment becomes ineffective thirty days thereafter."18 The appointing officer and the CSC acting together, though not concurrently but consecutively, make an appointment complete.19 In acting on the appointment, the CSC determines whether the appointee possesses the appropriate civil service eligibility or the required qualifications. If the appointee does, the appointment must be approved; if not, it should be disapproved.20 According to the appellate court, only the appointing authority had the right to challenge the CSC's disapproval. It relied on Section 2 of Rule VI of CSC Memorandum Circular 40, s. 1998 (Omnibus Rules on Appointment and Other Personal Actions), which provides: "Section 2. Request for Reconsideration of, or appeal from, the disapproval of an appointment may be made by the appointing authority and submitted to the Commission within fifteen (15) calendar days from receipt of the disapproved appointment." Appointing Authority's Right to Challenge CSC Disapproval While petitioner does not challenge the legality of this provision, he now claims that it is merely a technicality, which does not prevent him from requesting reconsideration. We clarify. The power of appointment necessarily entails the exercise of judgment and discretion.21 Luego v. Civil Service Commission22 declared: "Appointment is an essentially discretionary power and must be performed by the officer in which it is vested according to his best lights, the only condition being that the appointee should possess the qualifications required by law. If he does, then the appointment cannot be faulted on the ground that there are others better qualified who should have been preferred. This is a political question involving considerations of wisdom which only the appointing authority can decide."23 Significantly, "the selection of the appointee -- taking into account the totality of his qualifications, including those abstract qualities that define his personality -- is the prerogative of the appointing authority."24 No tribunal, not even this Court,25 may compel the exercise of an appointment for a favored person.26 The CSC's disapproval of an appointment is a challenge to the exercise of the appointing authority's discretion. The appointing authority must have the right to contest the disapproval. Thus, Section 2 of Rule VI of CSC Memorandum Circular 40, s. 1998 is justified insofar as it allows the appointing authority to request reconsideration or appeal. In Central Bank v. Civil Service Commission,27 this Court has affirmed that the appointing authority stands to be adversely affected when the CSC disapproves an appointment. Thus, the said authority can "defend its appointment since it knows the

12

reasons for the same."28 It is also the act of the appointing authority that is being questioned when an appointment is disapproved.29 Appointee's Legal Standing to Challenge the CSC Disapproval While there is justification to allow the appointing authority to challenge the CSC disapproval, there is none to preclude the appointee from taking the same course of action. Aggrieved parties, including the Civil Service Commission, should be given the right to file motions for reconsideration or to appeal.30 On this point, the concepts of "legal standing" and "real party in interest" become relevant. Although commonly directed towards ensuring that only certain parties can maintain an action, "legal standing" and "real party in interest" are different concepts. Kilosbayan v. Morato31 explained: "The difference between the rule on standing and real party-in-interest has been noted by authorities thus: 'It is important to note . . . that standing because of its constitutional and public policy underpinnings, is very different from questions relating to whether a particular plaintiff is the real party-in-interest or has capacity to sue. Although all three requirements are directed towards ensuring that only certain parties can maintain an action, standing restrictions require a partial consideration of the merits, as well as broader policy concerns relating to the proper role of the judiciary in certain areas. (FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328 [1985]) "Standing is a special concern in constitutional law because in some cases suits are brought not by parties who have been personally injured by the operation of a law or by official action taken, but by concerned citizens, taxpayers or voters who actually sue in the public interest. Hence the question in standing is whether such parties have 'alleged such a personal stake in the outcome of the controversy to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions.' (Baker v. Carr, 369 U.S. 186, 7 L. Ed. 2d 633 (1962)) "On the other hand, the question as to 'real party-in-interest' is whether he is 'the party who would be [benefited] or injured by the judgment, or the 'party entitled to the avails of the suit.' (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131 [1951])"32 If legal standing is granted to challenge the constitutionality or validity of a law or governmental act despite the lack of personal injury on the challenger's part, then more so should petitioner be allowed to contest the CSC Order disapproving his appointment. Clearly, he was prejudiced by the disapproval, since he could not continue his office. Although petitioner had no vested right to the position,33 it was his eligibility that was being questioned. Corollary to this point, he should be granted the opportunity to prove his eligibility. He had a personal stake in the outcome of the case, which justifies his challenge to the CSC act that denied his permanent appointment. The Appointee a Real Party in Interest A real party in interest is one who would be benefited or injured by the judgment, or one entitled to the avails of the suit.34 "Interest" within the meaning of the rule means material interest or an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved or a mere incidental interest.35 Otherwise

13

stated, the rule refers to a real or present substantial interest as distinguished from a mere expectancy; or from a future, contingent, subordinate, or consequential interest.36 As a general rule, one who has no right or interest to protect cannot invoke the jurisdiction of the court as a party-plaintiff in an action.37 Although the earlier discussion demonstrates that the appointing authority is adversely affected by the CSC's Order and is a real party in interest, the appointee is rightly a real party in interest too. He is also injured by the CSC disapproval, because he is prevented from assuming the office in a permanent capacity. Moreover, he would necessarily benefit if a favorable judgment is obtained, as an approved appointment would confer on him all the rights and privileges of a permanent appointee. Appointee Allowed Procedural Relief Section 2 of Rule VI of CSC Memorandum Circular 40, s. 1998 should not be interpreted to restrict solely to the appointing authority the right to move for a reconsideration of, or to appeal, the disapproval of an appointment. PD 807 and EO 292, from which the CSC derives the authority to promulgate its rules and regulations, are silent on whether appointees have a similar right to file motions for reconsideration of, or appeals from, unfavorable decisions involving appointments. Indeed, there is no legislative intent to bar appointees from challenging the CSC's disapproval. The view that only the appointing authority may request reconsideration or appeal is too narrow. The appointee should have the same right. Parenthetically, CSC Resolution 99-193638 recognizes the right of the adversely affected party to appeal to the CSC Regional Offices prior to elevating a matter to the CSC Central Office.39 The adversely affected party necessarily includes the appointee. This judicial pronouncement does not override Mathay v. Civil Service Commission,40 which the CA relied on. The Court merely noted in passing -- by way of obiter -- that based on a similar provision,41 only the appointing officer could request reconsideration of actions taken by the CSC on appointments. In that case, Quezon City Mayor Ismael A. Mathay Jr. sought the nullification of CSC Resolutions that recalled his appointment of a city government officer. He filed a Petition assailing the CA Decision, which had previously denied his Petition for Certiorari for being the wrong remedy and for being filed out of time. We observed then that the CSC Resolutions were already final and could no longer be elevated to the CA.42 Furthermore, Mathay's Petition for Certiorari filed with the CA was improper, because there was an available remedy of appeal. And the CSC could not have acted without jurisdiction, considering that it was empowered to recall an appointment initially approved.43 The right of the appointee to seek reconsideration or appeal was not the main issue in Mathay. At any rate, the present case is being decided en banc, and the ruling may reverse previous doctrines laid down by this Court.44 Second Issue: Constitutionality of Section 4, CSC Memorandum Circular 21, Series of 1994 Alleging that his civil service eligibility was rendered ineffective and that he was consequently deprived of a property right without due process,45 petitioner challenges the constitutionality of CSC Memorandum Circular 21, s. 1994.46 The pertinent part of this Circular reads: "1. Positions Covered by the Career Executive Service.

14

"(a) The Career Executive Service includes the positions of Undersecretary, Assistant Secretary, Bureau Director, Assistant Bureau Director, Regional Director (department-wide and bureau-wide), Assistant Regional Director (department-wide and bureau-wide) and Chief of Department Service[.] "(b) In addition to the above identified positions and other positions of the same category which had been previously classified and included in the CES, all other third level positions in all branches and instrumentalities of the national government, including government-owned or controlled corporations with original charters are embraced within the Career Executive Service provided that they meet the following criteria: "1. the position is a career position; "2. the position is above division chief level; "3. the duties and responsibilities of the position require the performance of executive or managerial functions." "4. Status of Appointment of Incumbents of Positions Under the Coverage of the CES. Incumbents of positions which are declared to be Career Executive Service positions for the first time pursuant to this Resolution who hold permanent appointments thereto shall remain under permanent status in their respective positions. However, upon promotion or transfer to other Career Executive Service (CES) positions, these incumbents shall be under temporary status in said other CES positions until they qualify." Petitioner argues that his eligibility, through the Executive Leadership and Management (ELM) training program, could no longer be affected by a new eligibility requirement. He claims that he was eligible for his previous position as department manager of the Legal Services Department, PEZA; hence, he should retain his eligibility for the position of department manager III, Labor and Employment Center, SBMA, notwithstanding the classification of the latter as a CES position. CSC Authorized to Issue Rules and Regulations The Constitution mandates that, as "the central personnel agency of the government,"47 the CSC should "establish a career service and adopt measures to promote the morale, efficiency, integrity, responsiveness, progressiveness, and courtesy in the Civil Service."48 It further requires that appointments in the civil service be made only through merit and fitness to be determined by competitive examination.49 Civil Service laws have expressly empowered the CSC to issue and enforce rules and regulations to carry out its mandate. In the exercise of its authority, the CSC deemed it appropriate to clearly define and identify positions covered by the Career Executive Service.50 Logically, the CSC had to issue guidelines to meet this objective, specifically through the issuance of the challenged Circular. Career Service Classified by Levels Positions in the career service, for which appointments require examinations, are grouped into three major levels:

15

"(a) The first level shall include clerical, trades, crafts, and custodial service positions which involve non-professional or sub[-]professional work in a nonsupervisory or supervisory capacity requiring less than four years of collegiate studies; "(b) The second level shall include professional, technical, and scientific positions which involve professional, technical, or scientific work in a non-supervisory or supervisory capacity requiring at least four years of college work up to Division Chief level; and "(c) The third level shall cover positions in the Career Executive Service."51 Entrance to the different levels requires the corresponding civil service eligibility. Those in the third level (CES positions) require Career Service Executive Eligibility (CSEE) as a requirement for permanent appointment.52 The challenged Circular did not revoke petitioner's ELM eligibility. He was appointed to a CES position; however, his eligibility was inadequate. Eligibility must necessarily conform to the requirements of the position, which in petitioner's case was a CSEE. Rights Protected The challenged Circular protects the rights of incumbents as long as they remain in the positions to which they were previously appointed. They are allowed to retain their positions in a permanent capacity, notwithstanding the lack of CSEE. Clearly, the Circular recognizes the rule of prospectivity of regulations;53 hence, there is no basis to argue that it is an ex post facto law54 or a bill of attainder.55 These terms, which have settled meanings in criminal jurisprudence, are clearly inapplicable here. The government service of petitioner ended when he retired in 1996; thus, his right to remain in a CES position, notwithstanding his lack of eligibility, also ceased. Upon his reemployment56 years later as department manager III at SBMA in 2001, it was necessary for him to comply with the eligibility prescribed at the time for that position. Security of Tenure Not Impaired The argument of petitioner that his security of tenure is impaired is unconvincing. First, security of tenure in the Career Executive Service -- except in the case of first and second level employees in the civil service -- pertains only to rank, not to the position to which the employee may be appointed.57 Second, petitioner had neither rank nor position prior to his reemployment. One cannot claim security of tenure if one held no tenure prior to appointment. Due Process Not Violated Petitioner contends that his due process rights, as enunciated in Ang Tibay v. Court of Appeals,58 were violated.59 We are not convinced. He points in particular to the CSC's alleged failure to notify him of a hearing relating to the issuance of the challenged Circular. The classification of positions in career service was a quasi-legislative, not a quasijudicial, issuance. This distinction determines whether prior notice and hearing are necessary. In exercising its quasi-judicial function, an administrative body adjudicates the rights of persons before it, in accordance with the standards laid down by the law.60 The

16

determination of facts and the applicable law, as basis for official action and the exercise of judicial discretion, are essential for the performance of this function.61 On these considerations, it is elementary that due process requirements, as enumerated in Ang Tibay, must be observed. These requirements include prior notice and hearing.62 On the other hand, quasi-legislative power is exercised by administrative agencies through the promulgation of rules and regulations within the confines of the granting statute and the doctrine of non-delegation of certain powers flowing from the separation of the great branches of the government.63 Prior notice to and hearing of every affected party, as elements of due process, are not required since there is no determination of past events or facts that have to be established or ascertained. As a general rule, prior notice and hearing are not essential to the validity of rules or regulations promulgated to govern future conduct.64 Significantly, the challenged Circular was an internal matter addressed to heads of departments, bureaus and agencies. It needed no prior publication, since it had been issued as an incident of the administrative body's power to issue guidelines for government officials to follow in performing their duties.65 Final Issue: Disapproval of Appointment Since petitioner had no CES eligibility, the CSC correctly denied his permanent appointment. The appointee need not have been previously heard, because the nature of the action did not involve the imposition of an administrative disciplinary measure.66 The CSC, in approving or disapproving an appointment, merely examines the conformity of the appointment with the law and the appointee's possession of all the minimum qualifications and none of the disqualification.67 In sum, while petitioner was able to demonstrate his standing to appeal the CSC Resolutions to the courts, he failed to prove his eligibility to the position he was appointed to. WHEREFORE, the Petition is GRANTED insofar as it seeks legal standing for petitioner, but DENIED insofar as it prays for the reversal of the CSC Resolutions disapproving his appointment as department manager III of the Labor and Employment Center, Subic Bay Metropolitan Authority. Costs against petitioner. SO ORDERED.

17

EN BANC [G.R. No. 142801-802. July 10, 2001] BUKLOD NG KAWANING EIIB, CESAR POSADA, REMEDIOS G. PRINCESA, BENJAMIN KHO, BENIGNO MANGA, LULU MENDOZA, petitioners, vs. HON. EXECUTIVE SECRETARY RONALDO B. ZAMORA, HON. SECRETARY JOSE PARDO, DEPARTMENT OF FINANCE, HON. SECRETARY BENJAMIN DIOKNO, DEPARTMENT OF BUDGET AND MANAGEMENT, HON. SECRETARY ARTEMIO TUQUERO, DEPARTMENT OF JUSTICE, respondents. DECISION SANDOVAL-GUTIERREZ, J.: In this petition for certiorari, prohibition and mandamus, petitioners Buklod Ng Kawaning EIIB, Cesar Posada, Remedios Princesa, Benjamin Kho, Benigno Manga and Lulu Mendoza, for themselves and in behalf of others with whom they share a common or general interest, seek the nullification of Executive Order No. 191i[1] and Executive Order No. 223ii[2] on the ground that they were issued by the Office of the President with grave abuse of discretion and in violation of their constitutional right to security of tenure. The facts are undisputed: On June 30, 1987, former President Corazon C. Aquino, issued Executive Order No. 127iii[3] establishing the Economic Intelligence and Investigation Bureau (EIIB) as part of the structural organization of the Ministry of Finance.iv[4] The EIIB was designated to perform the following functions: (a) Receive, gather and evaluate intelligence reports and information and evidence on the nature, modes and extent of illegal activities affecting the national economy, such as, but not limited to, economic sabotage, smuggling, tax evasion, and dollarsalting, investigate the same and aid in the prosecution of cases; (b) Coordinate with external agencies in monitoring the financial and economic activities of persons or entities, whether domestic or foreign, which may adversely affect national financial interest with the goal of regulating, controlling or preventing said activities; (c) Provide all intelligence units of operating Bureaus or Offices under the Ministry with the general framework and guidelines in the conduct of intelligence and investigating works; (d) Supervise, monitor and coordinate all the intelligence and investigation operations of the operating Bureaus and Offices under the Ministry; (e) Investigate, hear and file, upon clearance by the Minister, anti-graft and corruption cases against personnel of the Ministry and its constituents units; (f) Perform such other appropriate functions as may be assigned by the Minister or his deputies.v[5] In a desire to achieve harmony of efforts and to prevent possible conflicts among agencies in the course of their anti-smuggling operations, President Aquino issued Memorandum Order No. 225 on March 17, 1989, providing, among others, that the EIIB shall be the agency of primary responsibility for anti-smuggling operations in all land areas and inland waters and waterways outside the areas of sole jurisdiction of the Bureau of Customs.vi[6]

18

Eleven years after, or on January 7, 2000, President Joseph Estrada issued Executive Order No. 191 entitled Deactivation of the Economic Intelligence and Investigation Bureau.vii[7] Motivated by the fact that the designated functions of the EIIB are also being performed by the other existing agencies of the government and that there is a need to constantly monitor the overlapping of functions among these agencies, former President Estrada ordered the deactivation of EIIB and the transfer of its functions to the Bureau of Customs and the National Bureau of Investigation. Meanwhile, President Estrada issued Executive Order No. 196viii[8] creating the Presidential Anti-Smuggling Task Force Aduana.ix[9] Then the day feared by the EIIB employees came. On March 29, 2000, President Estrada issued Executive Order No. 223x[10] providing that all EIIB personnel occupying positions specified therein shall be deemed separated from the service effective April 30, 2000, pursuant to a bona fide reorganization resulting to abolition, redundancy, merger, division, or consolidation of positions.xi[11] Agonizing over the loss of their employment, petitioners now come before this Court invoking our power of judicial review of Executive Order Nos. 191 and 223. They anchor their petition on the following arguments: A Executive Order Nos. 191 and 223 should be annulled as they are unconstitutional for being violative of Section 2(3), Article IX-B of the Philippine Constitution and/or for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction. B. The abolition of the EIIB is a hoax. Similarly, if Executive Order Nos. 191 and 223 are considered to effect a reorganization of the EIIB, such reorganization was made in bad faith. C. The President has no authority to abolish the EIIB. Petitioners contend that the issuance of the afore-mentioned executive orders is: (a) a violation of their right to security of tenure; (b) tainted with bad faith as they were not actually intended to make the bureaucracy more efficient but to give way to Task Force Aduana, the functions of which are essentially and substantially the same as that of EIIB; and (c) a usurpation of the power of Congress to decide whether or not to abolish the EIIB. Arguing in behalf of respondents, the Solicitor General maintains that: (a) the President enjoys the totality of the executive power provided under Sections 1 and 7, Article VII of the Constitution, thus, he has the authority to issue Executive Order Nos. 191 and 223; (b) the said executive orders were issued in the interest of national economy, to avoid duplicity of work and to streamline the functions of the bureaucracy; and (c) the EIIB was not abolished, it was only deactivated. The petition is bereft of merit. Despite the presence of some procedural flaws in the instant petition, such as, petitioners disregard of the hierarchy of courts and the non-exhaustion of administrative remedies, we deem it necessary to address the issues. It is in the interest of the State that questions relating to the status and existence of a public office be settled

19

without delay. We are not without precedent. In Dario v. Mison,xii[12] we liberally decreed: The Court disregards the questions raised as to procedure, failure to exhaust administrative remedies, the standing of certain parties to sue, for two reasons, `[b]ecause of the demands of public interest, including the need for stability in the public service,' and because of the serious implications of these cases on the administration of the Philippine civil service and the rights of public servants. At first glance, it seems that the resolution of this case hinges on the question - Does the deactivation of EIIB constitute abolition of an office? However, after coming to terms with the prevailing law and jurisprudence, we are certain that the ultimate queries should be a) Does the President have the authority to reorganize the executive department? and, b) How should the reorganization be carried out? Surely, there exists a distinction between the words deactivate and abolish. To deactivate means to render inactive or ineffective or to break up by discharging or reassigning personnel,xiii[13] while to abolish means to do away with, to annul, abrogate or destroy completely.xiv[14] In essence, abolition denotes an intention to do away with the office wholly and permanently.xv[15] Thus, while in abolition, the office ceases to exist, the same is not true in deactivation where the office continues to exist, albeit remaining dormant or inoperative. Be that as it may, deactivation and abolition are both reorganization measures. The Solicitor General only invokes the above distinctions on the mistaken assumption that the President has no power to abolish an office. The general rule has always been that the power to abolish a public office is lodged with the legislature.xvi[16] This proceeds from the legal precept that the power to create includes the power to destroy. A public office is either created by the Constitution, by statute, or by authority of law.xvii[17] Thus, except where the office was created by the Constitution itself, it may be abolished by the same legislature that brought it into existence.xviii[18] The exception, however, is that as far as bureaus, agencies or offices in the executive department are concerned, the Presidents power of control may justify him to inactivate the functions of a particular office,xix[19] or certain laws may grant him the broad authority to carry out reorganization measures.xx[20] The case in point is Larin v. Executive Secretary.xxi[21] In this case, it was argued that there is no law which empowers the President to reorganize the BIR. In decreeing otherwise, this Court sustained the following legal basis, thus: Initially, it is argued that there is no law yet which empowers the President to issue E.O. No. 132 or to reorganize the BIR. We do not agree. Section 48 of R.A. 7645 provides that: Sec. 48. Scaling Down and Phase Out of Activities of Agencies Within the Executive Branch. The heads of departments, bureaus and offices and agencies are hereby directed to identify their respective activities which are no longer essential in the delivery of public services and which may be scaled down, phased out or abolished, subject to civil service rules and regulations. X x x. Actual scaling down, phasing out or abolition of the activities shall be effected pursuant to Circulars or Orders issued for the purpose by the Office of the President.

20

Said provision clearly mentions the acts of scaling down, phasing out and abolition of offices only and does not cover the creation of offices or transfer of functions. Nevertheless, the act of creating and decentralizing is included in the subsequent provision of Section 62 which provides that: Sec. 62. Unauthorized organizational charges.- Unless otherwise created by law or directed by the President of the Philippines, no organizational unit or changes in key positions in any department or agency shall be authorized in their respective organization structures and be funded from appropriations by this Act. (italics ours) The foregoing provision evidently shows that the President is authorized to effect organizational changes including the creation of offices in the department or agency concerned. Another legal basis of E.O. No. 132 is Section 20, Book III of E.O. No. 292 which states: Sec. 20. Residual Powers. Unless Congress provides otherwise, the President shall exercise such other powers and functions vested in the President which are provided for under the laws and which are not specifically enumerated above or which are not delegated by the President in accordance with law. (italic ours) This provision speaks of such other powers vested in the President under the law. What law then gives him the power to reorganize? It is Presidential Decree No. 1772 which amended Presidential Decree No. 1416. These decrees expressly grant the President of the Philippines the continuing authority to reorganize the national government, which includes the power to group, consolidate bureaus and agencies, to abolish offices, to transfer functions, to create and classify functions, services and activities and to standardize salaries and materials. The validity of these two decrees are unquestionable. The 1987 Constitution clearly provides that all laws, decrees, executive orders, proclamations, letters of instructions and other executive issuances not inconsistent with this Constitution shall remain operative until amended, repealed or revoked. So far, there is yet no law amending or repealing said decrees. (Emphasis supplied) Now, let us take a look at the assailed executive order. In the whereas clause of E.O. No. 191, former President Estrada anchored his authority to deactivate EIIB on Section 77 of Republic Act 8745 (FY 1999 General Appropriations Act), a provision similar to Section 62 of R.A. 7645 quoted in Larin, thus; Sec. 77. Organized Changes. Unless otherwise provided by law or directed by the President of the Philippines, no changes in key positions or organizational units in any department or agency shall be authorized in their respective organizational structures and funded from appropriations provided by this Act. We adhere to the precedent or ruling in Larin that this provision recognizes the authority of the President to effect organizational changes in the department or agency under the executive structure. Such a ruling further finds support in Section 78 of Republic Act No. 8760.xxii[22] Under this law, the heads of departments, bureaus, offices and agencies and other entities in the Executive Branch are directed (a) to conduct a comprehensive review of their respective mandates, missions, objectives, functions, programs, projects, activities and systems and procedures; (b) identify activities which are no longer essential in the delivery of public services and which may be scaled down, phased-out or abolished; and (c) adopt measures that will result in the streamlined organization and improved overall performance of their respective agencies.xxiii[23] Section 78 ends up with the mandate that the actual streamlining and productivity improvement in agency organization and operation shall be effected pursuant

21

to Circulars or Orders issued for the purpose by the Office of the President .xxiv[24] The law has spoken clearly. We are left only with the duty to sustain. But of course, the list of legal basis authorizing the President to reorganize any department or agency in the executive branch does not have to end here. We must not lose sight of the very source of the power that which constitutes an express grant of power. Under Section 31, Book III of Executive Order No. 292 (otherwise known as the Administrative Code of 1987), the President, subject to the policy in the Executive Office and in order to achieve simplicity, economy and efficiency, shall have the continuing authority to reorganize the administrative structure of the Office of the President. For this purpose, he may transfer the functions of other Departments or Agencies to the Office of the President. In Canonizado v. Aguirre,xxv[25] we ruled that reorganization involves the reduction of personnel, consolidation of offices, or abolition thereof by reason of economy or redundancy of functions. It takes place when there is an alteration of the existing structure of government offices or units therein, including the lines of control, authority and responsibility between them. The EIIB is a bureau attached to the Department of Finance.xxvi[26] It falls under the Office of the President. Hence, it is subject to the Presidents continuing authority to reorganize. It having been duly established that the President has the authority to carry out reorganization in any branch or agency of the executive department, what is then left for us to resolve is whether or not the reorganization is valid. In this jurisdiction, reorganizations have been regarded as valid provided they are pursued in good faith. Reorganization is carried out in good faith if it is for the purpose of economy or to make bureaucracy more efficient.xxvii[27] Pertinently, Republic Act No. 6656xxviii[28] provides for the circumstances which may be considered as evidence of bad faith in the removal of civil service employees made as a result of reorganization, to wit: (a) where there is a significant increase in the number of positions in the new staffing pattern of the department or agency concerned; (b) where an office is abolished and another performing substantially the same functions is created; (c) where incumbents are replaced by those less qualified in terms of status of appointment, performance and merit; (d) where there is a classification of offices in the department or agency concerned and the reclassified offices perform substantially the same functions as the original offices, and (e) where the removal violates the order of separation.xxix[29] Petitioners claim that the deactivation of EIIB was done in bad faith because four days after its deactivation, President Estrada created the Task Force Aduana. We are not convinced. An examination of the pertinent Executive Ordersxxx[30] shows that the deactivation of EIIB and the creation of Task Force Aduana were done in good faith. It was not for the purpose of removing the EIIB employees, but to achieve the ultimate purpose of E.O. No. 191, which is economy. While Task Force Aduana was created to take the place of EIIB, its creation does not entail expense to the government. Firstly, there is no employment of new personnel to man the Task Force. E.O. No. 196 provides that the technical, administrative and special staffs of EIIB are to be composed of people who are already in the public service, they being employees of other existing agencies. Their tenure with the Task Force would only be temporary, i.e., only when the agency where they belong is called upon to assist the Task Force. Since their employment with the Task force is only by way of detail or assignment, they retain their employment with the existing agencies. And should the need for them cease, they would be sent back to the agency concerned. Secondly, the thrust of E.O. No. 196 is to have a small group of military men under the direct control and supervision of the President as base of the governments anti-

22

smuggling campaign. Such a smaller base has the necessary powers 1) to enlist the assistance of any department, bureau, or office and to use their respective personnel, facilities and resources; and 2) to select and recruit personnel from within the PSG and ISAFP for assignment to the Task Force. Obviously, the idea is to encourage the utilization of personnel, facilities and resources of the already existing departments, agencies, bureaus, etc., instead of maintaining an independent office with a whole set of personnel and facilities. The EIIB had proven itself burdensome for the government because it maintained separate offices in every region in the Philippines. And thirdly, it is evident from the yearly budget appropriation of the government that the creation of the Task Force Aduana was especially intended to lessen EIIBs expenses. Tracing from the yearly General Appropriations Act, it appears that the allotted amount for the EIIBs general administration, support, and operations for the year 1995, was P128,031,000;xxxi[31] for 1996, P182,156,000;xxxii[32] for 1998, P219,889,000;xxxiii[33] and, for 1999, P238,743,000.xxxiv[34] These amounts were far above the P50,000,000xxxv[35] allocation to the Task Force Aduana for the year 2000. While basically, the functions of the EIIB have devolved upon the Task Force Aduana, we find the latter to have additional new powers. The Task Force Aduana, being composed of elements from the Presidential Security Group (PSG) and Intelligence Service Armed Forces of the Philippines (ISAFP),xxxvi[36] has the essential power to effect searches, seizures and arrests. The EIIB did not have this power. The Task Force Aduana has the power to enlist the assistance of any department, bureau, office, or instrumentality of the government, including government-owned or controlled corporations; and to use their personnel, facilities and resources. Again, the EIIB did not have this power. And, the Task Force Aduana has the additional authority to conduct investigation of cases involving ill-gotten wealth. This was not expressly granted to the EIIB. Consequently, it cannot be said that there is a feigned reorganization. In Blaquera v. Civil Sevice Commission, xxxvii[37] we ruled that a reorganization in good faith is one designed to trim the fat off the bureaucracy and institute economy and greater efficiency in its operation. Lastly, we hold that petitioners right to security of tenure is not violated. Nothing is better settled in our law than that the abolition of an office within the competence of a legitimate body if done in good faith suffers from no infirmity. Valid abolition of offices is neither removal nor separation of the incumbents.xxxviii[38] In the instructive words laid down by this Court in Dario v. Mison,xxxix[39] through Justice Abraham F. Sarmiento: Reorganizations in this jurisdiction have been regarded as valid provided they are pursued in good faith. As a general rule, a reorganization is carried out in good faith if it is for the purpose of economy or to make bureaucracy more efficient. In that event, no dismissal (in case of dismissal) or separation actually occurs because the position itself ceases to exist. And in that case, security of tenure would not be a Chinese wall. Be that as it may, if the abolition, which is nothing else but a separation or removal, is done for political reasons or purposely to defeat security of tenure, otherwise not in good faith, no valid abolition takes and whatever abolition is done, is void ab initio. There is an invalid abolition as where there is merely a change of nomenclature of positions, or where claims of economy are belied by the existence of ample funds. Indeed, there is no such thing as an absolute right to hold office. Except constitutional offices which provide for special immunity as regards salary and tenure, no one can be said to have any vested right in an office or its salary.xl[40]

23

While we cast a commiserating look upon the plight of all the EIIB employees whose lives perhaps are now torn with uncertainties, we cannot ignore the unfortunate reality that our government is also battling the impact of a plummeting economy. Unless the government is given the chance to recuperate by instituting economy and efficiency in its system, the EIIB will not be the last agency to suffer the impact. We cannot frustrate valid measures which are designed to rebuild the executive department. WHEREFORE, the petition is hereby DENIED. No costs. SO ORDERED. Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Pardo, Buena,Ynares-

24

25

Sec. 17: Power of Control ( Stop) Power to Reorganize Buklod ng Kawaning EIIB vs. Zamora, G.R. No. 142801-802, July 10, 2001 FACTS: Pres. Estrada issued EO 191, deactivating the EIIB and transferring its functions to the BOC and NBI. As a result, the EIIB personnel were deemed separated from service. RULING: Deactivation vs. Abolition At first glance, it seems that the resolution of this case hinges on the question Does the deactivation of EIIB constitute abolition of an office? However, after coming to terms with the prevailing law and jurisprudence, we are certain that the ultimate queries should be a) Does the President have the authority to reorganize the executive department? And b) How should the reorganization be carried out? Surely, there exists a distinction between the words deactivate and abolish. To deactivate means to render inactive or ineffective or to break up by discharging or reassigning personnel, while to abolish means to do away with, to annul, abrogate or destroy completely. In essence, abolition denotes an intention to do away with the office wholly and permanently. Thus, while in abolition, the office ceases to exist, the same is not true in deactivation where the office continues to exist, albeit remaining dormant or inoperative. Be that as it may, deactivation and abolition are both reorganization measures. GR: Congress has power to abolish The general rule has always been that the power to abolish a public office is lodged with the legislature. This proceeds from the legal precept that the power to create includes the power to create includes the power to destroy. A public office is either created by the Constitution, by statute, or by authority of law. Thus, except where the office was created by the Constitution itself, may be abolished by the same legislature that brought it into existence. The exception, however, is that as far as bureaus, agencies or offices in the executive department are concerned, the Presidents power of control may justify him to inactivate the functions of a particular office, or certain laws may grant him the broad authority to carry out reorganization measures. What law gives President power to reorganize? In the whereas clause of E.O. No. 191, former President Estrada anchored his authority to deactivate EIIB on Section 77 of Republic Act 8745 (FY 1999 General Appropriations Act), a provision similar to Section 62 of R.A. 7645 quoted in Larin, thus; Sec. 77. Organized Changes. Unless otherwise provided by law or directed by the President of the Philippines, no changes in key positions or organizational units in any department or agency shall be authorized in their respective organizational structures and funded from appropriations provided by this Act. We adhere to the precedent or ruling in Larin that this provision recognizes the authority of the President to effect organizational changes in the department or agency

26

under the executive structure. Such a ruling further finds support in Section 78 of Republic Act No. 8760. Under this law, the heads of departments, bureaus, offices and agencies and other entities in the Executive Branch are directed (a) to conduct a comprehensive review of their respective mandates, missions, objectives, functions, programs, projects, activities and systems and procedures; (b) identify activities which are no longer essential in the delivery of public services and which may be scaled down, phased-out or abolished; and (c) adopt measures that will result in the streamlined organization and improved overall performance of their respective agencies. Section 78 ends up with the mandate that the actual streamlining and productivity improvement in agency organization and operation shall be effected pursuant to Circulars or Orders issued for the purpose by the Office of the President. The law has spoken clearly. We are left only with the duty to sustain. But of course, the list of legal basis authorizing the President to reorganize any department or agency in the executive branch does not have to end here. We must not lose sight of the very source of the power that which constitutes an express grant of power. Under Section 31, Book III of Executive Order No. 292 (otherwise known as the Administrative Code of 1987), the President, subject to the policy in the Executive Office and in order to achieve simplicity, economy and efficiency, shall have the continuing authority to reorganize the administrative structure of the Office of the President. For this purpose, he may transfer the functions of other Departments or Agencies to the Office of the President. In Canonizado v. Aguirre, we ruled that reorganization involves the reduction of personnel, consolidation of offices, or abolition thereof by reason of economy or redundancy of functions. It takes place when there is an alteration of the existing structure of government offices or units therein, including the lines of control, authority and responsibility between them. The EIIB is a bureau attached to the Department of Finance. It falls under the Office of the President. Hence, it is subject to the Presidents continuing authority to reorganize. Was the reorganization valid? It having been duly established that the President has the authority to carry out reorganization in any branch or agency of the executive department, what is then left for us to resolve is whether or not the reorganization is valid. In this jurisdiction, reorganizations have been regarded as valid provided they are pursued in good faith. Reorganization is carried out in good faith if it is for the purpose of economy or to make bureaucracy more efficient. Pertinently, Republic Act No. 6656 provides for the circumstances which may be considered as evidence of bad faith in the removal of civil service employees made as a result of reorganization, to wit: (a) where there is a significant increase in the number of positions in the new staffing pattern of the department or agency concerned; (b) where an office is abolished and another performing substantially the same functions is created; (c) where incumbents are replaced by those less qualified in terms of status of appointment, performance and merit; (d) where there is a classification of offices in the department or agency concerned and the reclassified offices perform substantially the same functions as the original offices, and (e) where the removal violates the order of separation. While basically, the functions of the EIIB have devolved upon the Task Force Aduana, we find the latter to have additional new powers. The Task Force Aduana, being composed of elements from the Presidential Security Group (PSG) and Intelligence Service Armed Forces of the Philippines (ISAFP), has the essential power to effect searches, seizures and arrests. The EIIB did not have this power. The Task Force Aduana has the power to enlist the assistance of any department, bureau, office, or instrumentality of the government, including government-owned or controlled corporations; and to use their personnel, facilities and resources. Again, the EIIB did not have this power. And, the Task Force Aduana has the additional authority to conduct investigation of cases involving illgotten wealth. This was not expressly granted to the EIIB.

27

Consequently, it cannot be said that there is a feigned reorganization. In Blaquera v. Civil Sevice Commission, we ruled that a reorganization in good faith is one designed to trim the fat off the bureaucracy and institute economy and greater efficiency in its operation. Valid abolition of office is not separation Lastly, we hold that petitioners right to security of tenure is not violated. Nothing is better settled in our law than that the abolition of an office within the competence of a legitimate body if done in good faith suffers from no infirmity. Valid abolition of offices is neither removal nor separation of the incumbents.

28

EN BANC [G.R. No. 127685. July 23, 1998] BLAS F. OPLE, petitioner, vs. RUBEN D. TORRES, ALEXANDER AGUIRRE, HECTOR VILLANUEVA, CIELITO HABITO, ROBERT BARBERS, CARMENCITA REODICA, CESAR SARINO, RENATO VALENCIA, TOMAS P. AFRICA, HEAD OF THE NATIONAL COMPUTER CENTER and CHAIRMAN OF THE COMMISSION ON AUDIT, respondents. DECISION PUNO, J.: The petition at bar is a commendable effort on the part of Senator Blas F. Ople to prevent the shrinking of the right to privacy, which the revered Mr. Justice Brandeis considered as "the most comprehensive of rights and the right most valued by civilized men."xxvi[1] Petitioner Ople prays that we invalidate Administrative Order No. 308 entitled "Adoption of a National Computerized Identification Reference System" on two important constitutional grounds, viz: one, it is a usurpation of the power of Congress to legislate, and two, it impermissibly intrudes on our citizenry's protected zone of privacy. We grant the petition for the rights sought to be vindicated by the petitioner need stronger barriers against further erosion. A.O. No. 308 was issued by President Fidel V. Ramos on December 12, 1996 and reads as follows: "ADOPTION OF A NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE SYSTEM WHEREAS, there is a need to provide Filipino citizens and foreign residents with the facility to conveniently transact business with basic service and social security providers and other government instrumentalities; WHEREAS, this will require a computerized system to properly and efficiently identify persons seeking basic services on social security and reduce, if not totally eradicate, fraudulent transactions and misrepresentations; WHEREAS, a concerted and collaborative effort among the various basic services and social security providing agencies and other government instrumentalities is required to achieve such a system; NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of the powers vested in me by law, do hereby direct the following: SECTION 1. Establishment of a National Computerized Identification Reference System. A decentralized Identification Reference System among the key basic services and social security providers is hereby established. SEC. 2 Inter-Agency Coordinating Committee. An Inter-Agency Coordinating Committee (IACC) to draw-up the implementing guidelines and oversee the implementation of the System is hereby created, chaired by the Executive Secretary, with the following as members: Head, Presidential Management Staff Secretary, National Economic Development Authority Secretary, Department of the Interior and Local Government

29

Secretary, Department of Health Administrator, Government Service Insurance System, Administrator, Social Security System, Administrator, National Statistics Office Managing Director, National Computer Center. SEC. 3. Secretariat. The National Computer Center (NCC) is hereby designated as secretariat to the IACC and as such shall provide administrative and technical support to the IACC. SEC. 4. Linkage Among Agencies. The Population Reference Number (PRN) generated by the NSO shall serve as the common reference number to establish a linkage among concerned agencies. The IACC Secretariat shall coordinate with the different Social Security and Services Agencies to establish the standards in the use of Biometrics Technology and in computer application designs of their respective systems. SEC. 5. Conduct of Information Dissemination Campaign. The Office of the Press Secretary, in coordination with the National Statistics Office, the GSIS and SSS as lead agencies and other concerned agencies shall undertake a massive tri-media information dissemination campaign to educate and raise public awareness on the importance and use of the PRN and the Social Security Identification Reference. SEC. 6. Funding. The funds necessary for the implementation of the system shall be sourced from the respective budgets of the concerned agencies. SEC. 7. Submission of Regular Reports. The NSO, GSIS and SSS shall submit regular reports to the Office of the President, through the IACC, on the status of implementation of this undertaking. SEC. 8. Effectivity. This Administrative Order shall take effect immediately. DONE in the City of Manila, this 12th day of December in the year of Our Lord, Nineteen Hundred and Ninety-Six. (SGD.) FIDEL V. RAMOS" A.O. No. 308 was published in four newspapers of general circulation on January 22, 1997 and January 23, 1997. On January 24, 1997, petitioner filed the instant petition against respondents, then Executive Secretary Ruben Torres and the heads of the government agencies, who as members of the Inter-Agency Coordinating Committee, are charged with the implementation of A.O. No. 308. On April 8, 1997, we issued a temporary restraining order enjoining its implementation. Petitioner contends: "A. THE ESTABLISHMENT OF A NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE SYSTEM REQUIRES A LEGISLATIVE ACT. THE ISSUANCE OF A.O. NO. 308 BY THE PRESIDENT OF THE REPUBLIC OF THE PHILIPPINES IS, THEREFORE, AN UNCONSTITUTIONAL USURPATION OF THE LEGISLATIVE POWERS OF THE CONGRESS OF THE REPUBLIC OF THE PHILIPPINES. B. THE APPROPRIATION OF PUBLIC FUNDS BY THE PRESIDENT FOR THE IMPLEMENTATION OF A.O. NO. 308 IS AN UNCONSTITUTIONAL USURPATION OF THE EXCLUSIVE RIGHT OF CONGRESS TO APPROPRIATE PUBLIC FUNDS FOR EXPENDITURE.

30

C. THE IMPLEMENTATION OF A.O. NO. 308 INSIDIOUSLY LAYS THE GROUNDWORK FOR A SYSTEM WHICH WILL VIOLATE THE BILL OF RIGHTS ENSHRINED IN THE CONSTITUTION."xxvi[2] Respondents counter-argue: A. THE INSTANT PETITION IS NOT A JUSTICIABLE CASE AS WOULD WARRANT A JUDICIAL REVIEW; B. A.O. NO. 308 [1996] WAS ISSUED WITHIN THE EXECUTIVE AND ADMINISTRATIVE POWERS OF THE PRESIDENT WITHOUT ENCROACHING ON THE LEGISLATIVE POWERS OF CONGRESS; C. THE FUNDS NECESSARY FOR THE IMPLEMENTATION OF THE IDENTIFICATION REFERENCE SYSTEM MAY BE SOURCED FROM THE BUDGETS OF THE CONCERNED AGENCIES; D. A.O. NO. 308 [1996] PROTECTS AN INDIVIDUAL'S INTEREST IN PRIVACY.xxvi[3]

We now resolve. I As is usual in constitutional litigation, respondents raise the threshold issues relating to the standing to sue of the petitioner and the justiciability of the case at bar. More specifically, respondents aver that petitioner has no legal interest to uphold and that the implementing rules of A.O. No. 308 have yet to be promulgated. These submissions do not deserve our sympathetic ear. Petitioner Ople is a distinguished member of our Senate. As a Senator, petitioner is possessed of the requisite standing to bring suit raising the issue that the issuance of A.O. No. 308 is a usurpation of legislative power.xxvi[4] As taxpayer and member of the Government Service Insurance System (GSIS), petitioner can also impugn the legality of the misalignment of public funds and the misuse of GSIS funds to implement A.O. No. 308.xxvi[5] The ripeness for adjudication of the petition at bar is not affected by the fact that the implementing rules of A.O. No. 308 have yet to be promulgated. Petitioner Ople assails A.O. No. 308 as invalid per se and as infirmed on its face. His action is not premature for the rules yet to be promulgated cannot cure its fatal defects. Moreover, the respondents themselves have started the implementation of A.O. No. 308 without waiting for the rules. As early as January 19, 1997, respondent Social Security System (SSS) caused the publication of a notice to bid for the manufacture of the National Identification (ID) card.xxvi[6] Respondent Executive Secretary Torres has publicly announced that representatives from the GSIS and the SSS have completed the guidelines for the national identification system.xxvi[7] All signals from the respondents show their unswerving will to implement A.O. No. 308 and we need not wait for the formality of the rules to pass judgment on its constitutionality. In this light, the dissenters insistence that we tighten the rule on standing is not a commendable stance as its result would be to throttle an important constitutional principle and a fundamental right. II We now come to the core issues. Petitioner claims that A.O. No. 308 is not a mere administrative order but a law and hence, beyond the power of the President to issue. He alleges that A.O. No. 308 establishes a system of identification that is all-

31

encompassing in scope, affects the life and liberty of every Filipino citizen and foreign resident, and more particularly, violates their right to privacy. Petitioner's sedulous concern for the Executive not to trespass on the lawmaking domain of Congress is understandable. The blurring of the demarcation line between the power of the Legislature to make laws and the power of the Executive to execute laws will disturb their delicate balance of power and cannot be allowed. Hence, the exercise by one branch of government of power belonging to another will be given a stricter scrutiny by this Court. The line that delineates Legislative and Executive power is not indistinct. Legislative power is "the authority, under the Constitution, to make laws, and to alter and repeal them."xxvi[8] The Constitution, as the will of the people in their original, sovereign and unlimited capacity, has vested this power in the Congress of the Philippines.xxvi[9] The grant of legislative power to Congress is broad, general and comprehensive.xxvi[10] The legislative body possesses plenary power for all purposes of civil government.xxvi[11] Any power, deemed to be legislative by usage and tradition, is necessarily possessed by Congress, unless the Constitution has lodged it elsewhere.xxvi[12] In fine, except as limited by the Constitution, either expressly or impliedly, legislative power embraces all subjects and extends to matters of general concern or common interest.xxvi[13] While Congress is vested with the power to enact laws, the President executes the laws.xxvi[14] The executive power is vested in the President.xxvi[15] It is generally defined as the power to enforce and administer the laws.xxvi[16] It is the power of carrying the laws into practical operation and enforcing their due observance.xxvi[17] As head of the Executive Department, the President is the Chief Executive. He represents the government as a whole and sees to it that all laws are enforced by the officials and employees of his department.xxvi[18] He has control over the executive department, bureaus and offices. This means that he has the authority to assume directly the functions of the executive department, bureau and office, or interfere with the discretion of its officials.xxvi[19] Corollary to the power of control, the President also has the duty of supervising the enforcement of laws for the maintenance of general peace and public order. Thus, he is granted administrative power over bureaus and offices under his control to enable him to discharge his duties effectively.xxvi[20] Administrative power is concerned with the work of applying policies and enforcing orders as determined by proper governmental organs.xxvi[21] It enables the President to fix a uniform standard of administrative efficiency and check the official conduct of his agents.xxvi[22] To this end, he can issue administrative orders, rules and regulations. Prescinding from these precepts, we hold that A.O. No. 308 involves a subject that is not appropriate to be covered by an administrative order. An administrative order is: "Sec. 3. Administrative Orders.-- Acts of the President which relate to particular aspects of governmental operation in pursuance of his duties as administrative head shall be promulgated in administrative orders."xxvi[23] An administrative order is an ordinance issued by the President which relates to specific aspects in the administrative operation of government. It must be in harmony with the law and should be for the sole purpose of implementing the law and carrying out the legislative policy.xxvi[24] We reject the argument that A.O. No. 308 implements the legislative policy of the Administrative Code of 1987. The Code is a general law and "incorporates in a unified document the major structural, functional and procedural principles of governance"xxvi[25] and "embodies changes in administrative structures and procedures designed to serve the people."xxvi[26] The Code is divided into seven (7) Books: Book I deals with Sovereignty and General Administration, Book II with the

32

Distribution of Powers of the three branches of Government, Book III on the Office of the President, Book IV on the Executive Branch, Book V on the Constitutional Commissions, Book VI on National Government Budgeting, and Book VII on Administrative Procedure. These Books contain provisions on the organization, powers and general administration of the executive, legislative and judicial branches of government, the organization and administration of departments, bureaus and offices under the executive branch, the organization and functions of the Constitutional Commissions and other constitutional bodies, the rules on the national government budget, as well as guidelines for the exercise by administrative agencies of quasi-legislative and quasi-judicial powers. The Code covers both the internal administration of government, i.e, internal organization, personnel and recruitment, supervision and discipline, and the effects of the functions performed by administrative officials on private individuals or parties outside government.xxvi[27] It cannot be simplistically argued that A.O. No. 308 merely implements the Administrative Code of 1987. It establishes for the first time a National Computerized Identification Reference System. Such a System requires a delicate adjustment of various contending state policies-- the primacy of national security, the extent of privacy interest against dossier-gathering by government, the choice of policies, etc. Indeed, the dissent of Mr. Justice Mendoza states that the A.O. No. 308 involves the all-important freedom of thought. As said administrative order redefines the parameters of some basic rights of our citizenry vis-a-vis the State as well as the line that separates the administrative power of the President to make rules and the legislative power of Congress, it ought to be evident that it deals with a subject that should be covered by law. Nor is it correct to argue as the dissenters do that A.O. No. 308 is not a law because it confers no right, imposes no duty, affords no protection, and creates no office. Under A.O. No. 308, a citizen cannot transact business with government agencies delivering basic services to the people without the contemplated identification card. No citizen will refuse to get this identification card for no one can avoid dealing with government. It is thus clear as daylight that without the ID, a citizen will have difficulty exercising his rights and enjoying his privileges. Given this reality, the contention that A.O. No. 308 gives no right and imposes no duty cannot stand. Again, with due respect, the dissenting opinions unduly expand the limits of administrative legislation and consequently erodes the plenary power of Congress to make laws. This is contrary to the established approach defining the traditional limits of administrative legislation. As well stated by Fisher: "x x x Many regulations however, bear directly on the public. It is here that administrative legislation must be restricted in its scope and application. Regulations are not supposed to be a substitute for the general policy-making that Congress enacts in the form of a public law. Although administrative regulations are entitled to respect, the authority to prescribe rules and regulations is not an independent source of power to make laws."xxvi[28] III Assuming, arguendo, that A.O. No. 308 need not be the subject of a law, still it cannot pass constitutional muster as an administrative legislation because facially it violates the right to privacy. The essence of privacy is the "right to be let alone."xxvi[29] In the 1965 case of Griswold v. Connecticut,xxvi[30] the United States Supreme Court gave more substance to the right of privacy when it ruled that the right has a constitutional foundation. It held that there is a right of privacy which can be found within the penumbras of the First, Third, Fourth, Fifth and Ninth Amendments,xxvi[31] viz:

33

"Specific guarantees in the Bill of Rights have penumbras formed by emanations from these guarantees that help give them life and substance x x x. Various guarantees create zones of privacy. The right of association contained in the penumbra of the First Amendment is one, as we have seen. The Third Amendment in its prohibition against the quartering of soldiers `in any house' in time of peace without the consent of the owner is another facet of that privacy. The Fourth Amendment explicitly affirms the `right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.' The Fifth Amendment in its Self-Incrimination Clause enables the citizen to create a zone of privacy which government may not force him to surrender to his detriment. The Ninth Amendment provides: `The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.'" In the 1968 case of Morfe v. Mutuc,xxvi[32] we adopted the Griswold ruling that there is a constitutional right to privacy. Speaking thru Mr. Justice, later Chief Justice, Enrique Fernando, we held: The Griswold case invalidated a Connecticut statute which made the use of contraceptives a criminal offense on the ground of its amounting to an unconstitutional invasion of the right of privacy of married persons; rightfully it stressed "a relationship lying within the zone of privacy created by several fundamental constitutional guarantees." It has wider implications though. The constitutional right to privacy has come into its own. So it is likewise in our jurisdiction. The right to privacy as such is accorded recognition independently of its identification with liberty; in itself, it is fully deserving of constitutional protection. The language of Prof. Emerson is particularly apt: 'The concept of limited government has always included the idea that governmental powers stop short of certain intrusions into the personal life of the citizen. This is indeed one of the basic distinctions between absolute and limited government. Ultimate and pervasive control of the individual, in all aspects of his life, is the hallmark of the absolute state. In contrast, a system of limited government safeguards a private sector, which belongs to the individual, firmly distinguishing it from the public sector, which the state can control. Protection of this private sector-- protection, in other words, of the dignity and integrity of the individual--has become increasingly important as modern society has developed. All the forces of a technological age --industrialization, urbanization, and organization-- operate to narrow the area of privacy and facilitate intrusion into it. In modern terms, the capacity to maintain and support this enclave of private life marks the difference between a democratic and a totalitarian society.'" Indeed, if we extend our judicial gaze we will find that the right of privacy is recognized and enshrined in several provisions of our Constitution.xxvi[33] It is expressly recognized in Section 3(1) of the Bill of Rights: "Sec. 3. (1) The privacy of communication and correspondence shall be inviolable except upon lawful order of the court, or when public safety or order requires otherwise as prescribed by law." Other facets of the right to privacy are protected in various provisions of the Bill of Rights, viz:xxvi[34] "Sec. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws. Sec. 2. The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except upon

34

probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized. Sec. 6. The liberty of abode and of changing the same within the limits prescribed by law shall not be impaired except upon lawful order of the court. Neither shall the right to travel be impaired except in the interest of national security, public safety, or public health, as may be provided by law. Sec. 8. The right of the people, including those employed in the public and private sectors, to form unions, associations, or societies for purposes not contrary to law shall not be abridged. Sec. 17. No person shall be compelled to be a witness against himself." Zones of privacy are likewise recognized and protected in our laws. The Civil Code provides that "[e]very person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons" and punishes as actionable torts several acts by a person of meddling and prying into the privacy of another.xxvi[35] It also holds a public officer or employee or any private individual liable for damages for any violation of the rights and liberties of another person,xxvi[36] and recognizes the privacy of letters and other private communications.xxvi[37] The Revised Penal Code makes a crime the violation of secrets by an officer,xxvi[38] the revelation of trade and industrial secrets,xxvi[39] and trespass to dwelling.xxvi[40] Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law,xxvi[41] the Secrecy of Bank Deposit Actxxvi[42] and the Intellectual Property Code.xxvi[43] The Rules of Court on privileged communication likewise recognize the privacy of certain information.xxvi[44] Unlike the dissenters, we prescind from the premise that the right to privacy is a fundamental right guaranteed by the Constitution, hence, it is the burden of government to show that A.O. No. 308 is justified by some compelling state interest and that it is narrowly drawn. A.O. No. 308 is predicated on two considerations: (1) the need to provide our citizens and foreigners with the facility to conveniently transact business with basic service and social security providers and other government instrumentalities and (2) the need to reduce, if not totally eradicate, fraudulent transactions and misrepresentations by persons seeking basic services. It is debatable whether these interests are compelling enough to warrant the issuance of A.O. No. 308. But what is not arguable is the broadness, the vagueness, the overbreadth of A.O. No. 308 which if implemented will put our people's right to privacy in clear and present danger. The heart of A.O. No. 308 lies in its Section 4 which provides for a Population Reference Number (PRN) as a "common reference number to establish a linkage among concerned agencies" through the use of "Biometrics Technology" and "computer application designs." Biometry or biometrics is "the science of the application of statistical methods to biological facts; a mathematical analysis of biological data."xxvi[45] The term "biometrics" has now evolved into a broad category of technologies which provide precise confirmation of an individual's identity through the use of the individual's own physiological and behavioral characteristics.xxvi[46] A physiological characteristic is a relatively stable physical characteristic such as a fingerprint, retinal scan, hand geometry or facial features. A behavioral characteristic is influenced by the individual's personality and includes voice print, signature and keystroke.xxvi[47] Most biometric identification systems use a card or personal identification number (PIN) for initial identification. The biometric measurement is used to verify that the individual holding the card or entering the PIN is the legitimate owner of the card or PIN.xxvi[48]

35

A most common form of biological encoding is finger-scanning where technology scans a fingertip and turns the unique pattern therein into an individual number which is called a biocrypt. The biocrypt is stored in computer data banksxxvi[49] and becomes a means of identifying an individual using a service. This technology requires one's fingertip to be scanned every time service or access is provided.xxvi[50] Another method is the retinal scan. Retinal scan technology employs optical technology to map the capillary pattern of the retina of the eye. This technology produces a unique print similar to a finger print.xxvi[51] Another biometric method is known as the "artificial nose." This device chemically analyzes the unique combination of substances excreted from the skin of people.xxvi[52] The latest on the list of biometric achievements is the thermogram. Scientists have found that by taking pictures of a face using infra-red cameras, a unique heat distribution pattern is seen. The different densities of bone, skin, fat and blood vessels all contribute to the individual's personal "heat signature."xxvi[53] In the last few decades, technology has progressed at a galloping rate. Some science fictions are now science facts. Today, biometrics is no longer limited to the use of fingerprint to identify an individual. It is a new science that uses various technologies in encoding any and all biological characteristics of an individual for identification. It is noteworthy that A.O. No. 308 does not state what specific biological characteristics and what particular biometrics technology shall be used to identify people who will seek its coverage. Considering the banquet of options available to the implementors of A.O. No. 308, the fear that it threatens the right to privacy of our people is not groundless. A.O. No. 308 should also raise our antennas for a further look will show that it does not state whether encoding of data is limited to biological information alone for identification purposes. In fact, the Solicitor General claims that the adoption of the Identification Reference System will contribute to the "generation of population data for development planning."xxvi[54] This is an admission that the PRN will not be used solely for identification but for the generation of other data with remote relation to the avowed purposes of A.O. No. 308. Clearly, the indefiniteness of A.O. No. 308 can give the government the roving authority to store and retrieve information for a purpose other than the identification of the individual through his PRN. The potential for misuse of the data to be gathered under A.O. No. 308 cannot be underplayed as the dissenters do. Pursuant to said administrative order, an individual must present his PRN everytime he deals with a government agency to avail of basic services and security. His transactions with the government agency will necessarily be recorded-- whether it be in the computer or in the documentary file of the agency. The individual's file may include his transactions for loan availments, income tax returns, statement of assets and liabilities, reimbursements for medication, hospitalization, etc. The more frequent the use of the PRN, the better the chance of building a huge and formidable information base through the electronic linkage of the files.xxvi[55] The data may be gathered for gainful and useful government purposes; but the existence of this vast reservoir of personal information constitutes a covert invitation to misuse, a temptation that may be too great for some of our authorities to resist.xxvi[56] We can even grant, arguendo, that the computer data file will be limited to the name, address and other basic personal information about the individual.xxvi[57] Even that hospitable assumption will not save A.O. No. 308 from constitutional infirmity for again said order does not tell us in clear and categorical terms how these information gathered shall be handled. It does not provide who shall control and access the data, under what circumstances and for what purpose. These factors are essential to safeguard the privacy and guaranty the integrity of the information.xxvi[58] Well to note, the computer linkage gives other government agencies access to the information. Yet, there are no controls to guard against leakage of information. When the access code of the control programs of the particular computer system is broken, an intruder,

36

without fear of sanction or penalty, can make use of the data for whatever purpose, or worse, manipulate the data stored within the system.xxvi[59] It is plain and we hold that A.O. No. 308 falls short of assuring that personal information which will be gathered about our people will only be processed for unequivocally specified purposes.xxvi[60] The lack of proper safeguards in this regard of A.O. No. 308 may interfere with the individual's liberty of abode and travel by enabling authorities to track down his movement; it may also enable unscrupulous persons to access confidential information and circumvent the right against self-incrimination; it may pave the way for "fishing expeditions" by government authorities and evade the right against unreasonable searches and seizures.xxvi[61] The possibilities of abuse and misuse of the PRN, biometrics and computer technology are accentuated when we consider that the individual lacks control over what can be read or placed on his ID, much less verify the correctness of the data encoded.xxvi[62] They threaten the very abuses that the Bill of Rights seeks to prevent.xxvi[63] The ability of a sophisticated data center to generate a comprehensive cradle-to-grave dossier on an individual and transmit it over a national network is one of the most graphic threats of the computer revolution.xxvi[64] The computer is capable of producing a comprehensive dossier on individuals out of information given at different times and for varied purposes.xxvi[65] It can continue adding to the stored data and keeping the information up to date. Retrieval of stored data is simple. When information of a privileged character finds its way into the computer, it can be extracted together with other data on the subject.xxvi[66] Once extracted, the information is putty in the hands of any person. The end of privacy begins. Though A.O. No. 308 is undoubtedly not narrowly drawn, the dissenting opinions would dismiss its danger to the right to privacy as speculative and hypothetical. Again, we cannot countenance such a laidback posture. The Court will not be true to its role as the ultimate guardian of the people's liberty if it would not immediately smother the sparks that endanger their rights but would rather wait for the fire that could consume them. We reject the argument of the Solicitor General that an individual has a reasonable expectation of privacy with regard to the National ID and the use of biometrics technology as it stands on quicksand. The reasonableness of a person's expectation of privacy depends on a two-part test: (1) whether by his conduct, the individual has exhibited an expectation of privacy; and (2) whether this expectation is one that society recognizes as reasonable.xxvi[67] The factual circumstances of the case determines the reasonableness of the expectation.xxvi[68] However, other factors, such as customs, physical surroundings and practices of a particular activity, may serve to create or diminish this expectation.xxvi[69] The use of biometrics and computer technology in A.O. No. 308 does not assure the individual of a reasonable expectation of privacy.xxvi[70] As technology advances, the level of reasonably expected privacy decreases.xxvi[71] The measure of protection granted by the reasonable expectation diminishes as relevant technology becomes more widely accepted.xxvi[72] The security of the computer data file depends not only on the physical inaccessibility of the file but also on the advances in hardware and software computer technology. A.O. No. 308 is so widely drawn that a minimum standard for a reasonable expectation of privacy, regardless of technology used, cannot be inferred from its provisions. The rules and regulations to be drawn by the IACC cannot remedy this fatal defect. Rules and regulations merely implement the policy of the law or order. On its face, A.O. No. 308 gives the IACC virtually unfettered discretion to determine the metes and bounds of the ID System. Nor do our present laws provide adequate safeguards for a reasonable expectation of privacy. Commonwealth Act No. 591 penalizes the disclosure by any person of data

37

furnished by the individual to the NSO with imprisonment and fine.xxvi[73] Republic Act No. 1161 prohibits public disclosure of SSS employment records and reports.xxvi[74] These laws, however, apply to records and data with the NSO and the SSS. It is not clear whether they may be applied to data with the other government agencies forming part of the National ID System. The need to clarify the penal aspect of A.O. No. 308 is another reason why its enactment should be given to Congress. Next, the Solicitor General urges us to validate A.O. No. 308's abridgment of the right of privacy by using the rational relationship test.xxvi[75] He stressed that the purposes of A.O. No. 308 are: (1) to streamline and speed up the implementation of basic government services, (2) eradicate fraud by avoiding duplication of services, and (3) generate population data for development planning. He concludes that these purposes justify the incursions into the right to privacy for the means are rationally related to the end.xxvi[76] We are not impressed by the argument. In Morfe v. Mutuc,xxvi[77] we upheld the constitutionality of R.A. 3019, the Anti-Graft and Corrupt Practices Act, as a valid police power measure. We declared that the law, in compelling a public officer to make an annual report disclosing his assets and liabilities, his sources of income and expenses, did not infringe on the individual's right to privacy. The law was enacted to promote morality in public administration by curtailing and minimizing the opportunities for official corruption and maintaining a standard of honesty in the public service.xxvi[78] The same circumstances do not obtain in the case at bar. For one, R.A. 3019 is a statute, not an administrative order. Secondly, R.A. 3019 itself is sufficiently detailed. The law is clear on what practices were prohibited and penalized, and it was narrowly drawn to avoid abuses. In the case at bar, A.O. No. 308 may have been impelled by a worthy purpose, but, it cannot pass constitutional scrutiny for it is not narrowly drawn. And we now hold that when the integrity of a fundamental right is at stake, this court will give the challenged law, administrative order, rule or regulation a stricter scrutiny. It will not do for the authorities to invoke the presumption of regularity in the performance of official duties. Nor is it enough for the authorities to prove that their act is not irrational for a basic right can be diminished, if not defeated, even when the government does not act irrationally. They must satisfactorily show the presence of compelling state interests and that the law, rule, or regulation is narrowly drawn to preclude abuses. This approach is demanded by the 1987 Constitution whose entire matrix is designed to protect human rights and to prevent authoritarianism. In case of doubt, the least we can do is to lean towards the stance that will not put in danger the rights protected by the Constitution. The case of Whalen v. Roexxvi[79] cited by the Solicitor General is also off-line. In Whalen, the United States Supreme Court was presented with the question of whether the State of New York could keep a centralized computer record of the names and addresses of all persons who obtained certain drugs pursuant to a doctor's prescription. The New York State Controlled Substances Act of 1972 required physicians to identify patients obtaining prescription drugs enumerated in the statute, i.e., drugs with a recognized medical use but with a potential for abuse, so that the names and addresses of the patients can be recorded in a centralized computer file of the State Department of Health. The plaintiffs, who were patients and doctors, claimed that some people might decline necessary medication because of their fear that the computerized data may be readily available and open to public disclosure; and that once disclosed, it may stigmatize them as drug addicts.xxvi[80] The plaintiffs alleged that the statute invaded a constitutionally protected zone of privacy, i.e, the individual interest in avoiding disclosure of personal matters, and the interest in independence in making certain kinds of important decisions. The U.S. Supreme Court held that while an individual's interest in avoiding disclosure of personal matters is an aspect of the right to privacy, the statute did not pose a grievous threat to establish a constitutional violation. The Court found

38

that the statute was necessary to aid in the enforcement of laws designed to minimize the misuse of dangerous drugs. The patient-identification requirement was a product of an orderly and rational legislative decision made upon recommendation by a specially appointed commission which held extensive hearings on the matter. Moreover, the statute was narrowly drawn and contained numerous safeguards against indiscriminate disclosure. The statute laid down the procedure and requirements for the gathering, storage and retrieval of the information. It enumerated who were authorized to access the data. It also prohibited public disclosure of the data by imposing penalties for its violation. In view of these safeguards, the infringement of the patients' right to privacy was justified by a valid exercise of police power. As we discussed above, A.O. No. 308 lacks these vital safeguards. Even while we strike down A.O. No. 308, we spell out in neon that the Court is not per se against the use of computers to accumulate, store, process, retrieve and transmit data to improve our bureaucracy. Computers work wonders to achieve the efficiency which both government and private industry seek. Many information systems in different countries make use of the computer to facilitate important social objectives, such as better law enforcement, faster delivery of public services, more efficient management of credit and insurance programs, improvement of telecommunications and streamlining of financial activities.xxvi[81] Used wisely, data stored in the computer could help good administration by making accurate and comprehensive information for those who have to frame policy and make key decisions.xxvi[82] The benefits of the computer has revolutionized information technology. It developed the internet,xxvi[83] introduced the concept of cyberspacexxvi[84] and the information superhighway where the individual, armed only with his personal computer, may surf and search all kinds and classes of information from libraries and databases connected to the net. In no uncertain terms, we also underscore that the right to privacy does not bar all incursions into individual privacy. The right is not intended to stifle scientific and technological advancements that enhance public service and the common good. It merely requires that the law be narrowly focusedxxvi[85] and a compelling interest justify such intrusions.xxvi[86] Intrusions into the right must be accompanied by proper safeguards and well-defined standards to prevent unconstitutional invasions. We reiterate that any law or order that invades individual privacy will be subjected by this Court to strict scrutiny. The reason for this stance was laid down in Morfe v. Mutuc, to wit: "The concept of limited government has always included the idea that governmental powers stop short of certain intrusions into the personal life of the citizen. This is indeed one of the basic distinctions between absolute and limited government. Ultimate and pervasive control of the individual, in all aspects of his life, is the hallmark of the absolute state. In contrast, a system of limited government safeguards a private sector, which belongs to the individual, firmly distinguishing it from the public sector, which the state can control. Protection of this private sector-- protection, in other words, of the dignity and integrity of the individual-- has become increasingly important as modern society has developed. All the forces of a technological age-- industrialization, urbanization, and organization-- operate to narrow the area of privacy and facilitate intrusion into it. In modern terms, the capacity to maintain and support this enclave of private life marks the difference between a democratic and a totalitarian society."xxvi[87] IV The right to privacy is one of the most threatened rights of man living in a mass society. The threats emanate from various sources-- governments, journalists, employers, social scientists, etc.xxvi[88] In the case at bar, the threat comes from the executive branch of government which by issuing A.O. No. 308 pressures the people to

39

surrender their privacy by giving information about themselves on the pretext that it will facilitate delivery of basic services. Given the record-keeping power of the computer, only the indifferent will fail to perceive the danger that A.O. No. 308 gives the government the power to compile a devastating dossier against unsuspecting citizens. It is timely to take note of the well-worded warning of Kalvin, Jr., "the disturbing result could be that everyone will live burdened by an unerasable record of his past and his limitations. In a way, the threat is that because of its recordkeeping, the society will have lost its benign capacity to forget."xxvi[89] Oblivious to this counsel, the dissents still say we should not be too quick in labelling the right to privacy as a fundamental right. We close with the statement that the right to privacy was not engraved in our Constitution for flattery. IN VIEW WHEREOF, the petition is granted and Administrative Order No. 308 entitled "Adoption of a National Computerized Identification Reference System" declared null and void for being unconstitutional. SO ORDERED. What is Administrative Power? Held: Administrative power is concerned with the work of applying policies and enforcing orders as determined by proper governmental organs. It enables the President to fix a uniform standard of administrative efficiency and check the official conduct of his agents. To this end, he can issue administrative orders, rules and regulations. (Ople v. Torres, G.R. No. 127685, July 23, 1998 [Puno]) What is an Administrative Order? Held: An administrative order is an ordinance issued by the President which relates to specific aspects in the administrative operation of government. It must be in harmony with the law and should be for the sole purpose of implementing the law and carrying out the legislative policy. (Ople v. Torres, G.R. No. 127685, July 23, 1998 [Puno])

40

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 173034 October 9, 2007

PHARMACEUTICAL AND HEALTH CARE ASSOCIATION OF THE PHILIPPINES, petitioner, vs. HEALTH SECRETARY FRANCISCO T. DUQUE III; HEALTH UNDER SECRETARIES DR. ETHELYN P. NIETO, DR. MARGARITA M. GALON, ATTY. ALEXANDER A. PADILLA, & DR. JADE F. DEL MUNDO; and ASSISTANT SECRETARIES DR. MARIO C. VILLAVERDE, DR. DAVID J. LOZADA, AND DR. NEMESIO T. GAKO, respondents. DECISION AUSTRIA-MARTINEZ, J.: The Court and all parties involved are in agreement that the best nourishment for an infant is mother's milk. There is nothing greater than for a mother to nurture her beloved child straight from her bosom. The ideal is, of course, for each and every Filipino child to enjoy the unequaled benefits of breastmilk. But how should this end be attained? Before the Court is a petition for certiorari under Rule 65 of the Rules of Court, seeking to nullify Administrative Order (A.O.) No. 2006-0012 entitled, Revised Implementing Rules and Regulations of Executive Order No. 51, Otherwise Known as The "Milk Code," Relevant International Agreements, Penalizing Violations Thereof, and for Other Purposes (RIRR). Petitioner posits that the RIRR is not valid as it contains provisions that are not constitutional and go beyond the law it is supposed to implement. Named as respondents are the Health Secretary, Undersecretaries, and Assistant Secretaries of the Department of Health (DOH). For purposes of herein petition, the DOH is deemed impleaded as a co-respondent since respondents issued the questioned RIRR in their capacity as officials of said executive agency.1 Executive Order No. 51 (Milk Code) was issued by President Corazon Aquino on October 28, 1986 by virtue of the legislative powers granted to the president under the Freedom Constitution. One of the preambular clauses of the Milk Code states that the law seeks to give effect to Article 112 of the International Code of Marketing of Breastmilk Substitutes (ICMBS), a code adopted by the World Health Assembly (WHA) in 1981. From 1982 to 2006, the WHA adopted several Resolutions to the effect that breastfeeding should be supported, promoted and protected, hence, it should be ensured that nutrition and health claims are not permitted for breastmilk substitutes. In 1990, the Philippines ratified the International Convention on the Rights of the Child. Article 24 of said instrument provides that State Parties should take appropriate measures to diminish infant and child mortality, and ensure that all segments of society, specially parents and children, are informed of the advantages of breastfeeding. On May 15, 2006, the DOH issued herein assailed RIRR which was to take effect on July 7, 2006. However, on June 28, 2006, petitioner, representing its members that are manufacturers of breastmilk substitutes, filed the present Petition for Certiorari and Prohibition with Prayer for the Issuance of a Temporary Restraining Order (TRO) or Writ of Preliminary Injunction.

41

The main issue raised in the petition is whether respondents officers of the DOH acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and in violation of the provisions of the Constitution in promulgating the RIRR.3 On August 15, 2006, the Court issued a Resolution granting a TRO enjoining respondents from implementing the questioned RIRR. After the Comment and Reply had been filed, the Court set the case for oral arguments on June 19, 2007. The Court issued an Advisory (Guidance for Oral Arguments) dated June 5, 2007, to wit: The Court hereby sets the following issues: 1. Whether or not petitioner is a real party-in-interest; 2. Whether Administrative Order No. 2006-0012 or the Revised Implementing Rules and Regulations (RIRR) issued by the Department of Health (DOH) is not constitutional; 2.1 Whether the RIRR is in accord with the provisions of Executive Order No. 51 (Milk Code); 2.2 Whether pertinent international agreements1 entered into by the Philippines are part of the law of the land and may be implemented by the DOH through the RIRR; If in the affirmative, whether the RIRR is in accord with the international agreements; 2.3 Whether Sections 4, 5(w), 22, 32, 47, and 52 of the RIRR violate the due process clause and are in restraint of trade; and 2.4 Whether Section 13 of the RIRR on Total Effect provides sufficient standards. _____________ 1 (1) United Nations Convention on the Rights of the Child; (2) the WHO and Unicef "2002 Global Strategy on Infant and Young Child Feeding;" and (3) various World Health Assembly (WHA) Resolutions. The parties filed their respective memoranda. The petition is partly imbued with merit. On the issue of petitioner's standing With regard to the issue of whether petitioner may prosecute this case as the real partyin-interest, the Court adopts the view enunciated in Executive Secretary v. Court of Appeals,4 to wit: The modern view is that an association has standing to complain of injuries to its members. This view fuses the legal identity of an association with that of its members. An association has standing to file suit for its workers despite its lack of direct interest if its members are affected by the action. An organization has standing to assert the concerns of its constituents. We note that, under its Articles of Incorporation, the respondent was organized x x x to act as the representative of any individual, company, entity or association

42

on matters related to the manpower recruitment industry, and to perform other acts and activities necessary to accomplish the purposes embodied therein. The respondent is, thus, the appropriate party to assert the rights of its members, because it and its members are in every practical sense identical. x x x The respondent [association] is but the medium through which its individual members seek to make more effective the expression of their voices and the redress of their grievances. 5 (Emphasis supplied) which was reasserted in Purok Bagong Silang Association, Inc. v. Yuipco,6 where the Court ruled that an association has the legal personality to represent its members because the results of the case will affect their vital interests.7 Herein petitioner's Amended Articles of Incorporation contains a similar provision just like in Executive Secretary, that the association is formed "to represent directly or through approved representatives the pharmaceutical and health care industry before the Philippine Government and any of its agencies, the medical professions and the general public."8 Thus, as an organization, petitioner definitely has an interest in fulfilling its avowed purpose of representing members who are part of the pharmaceutical and health care industry. Petitioner is duly authorized9 to take the appropriate course of action to bring to the attention of government agencies and the courts any grievance suffered by its members which are directly affected by the RIRR. Petitioner, which is mandated by its Amended Articles of Incorporation to represent the entire industry, would be remiss in its duties if it fails to act on governmental action that would affect any of its industry members, no matter how few or numerous they are. Hence, petitioner, whose legal identity is deemed fused with its members, should be considered as a real party-in-interest which stands to be benefited or injured by any judgment in the present action. On the constitutionality of the provisions of the RIRR First, the Court will determine if pertinent international instruments adverted to by respondents are part of the law of the land. Petitioner assails the RIRR for allegedly going beyond the provisions of the Milk Code, thereby amending and expanding the coverage of said law. The defense of the DOH is that the RIRR implements not only the Milk Code but also various international instruments10 regarding infant and young child nutrition. It is respondents' position that said international instruments are deemed part of the law of the land and therefore the DOH may implement them through the RIRR. The Court notes that the following international instruments invoked by respondents, namely: (1) The United Nations Convention on the Rights of the Child; (2) The International Covenant on Economic, Social and Cultural Rights; and (3) the Convention on the Elimination of All Forms of Discrimination Against Women, only provide in general terms that steps must be taken by State Parties to diminish infant and child mortality and inform society of the advantages of breastfeeding, ensure the health and well-being of families, and ensure that women are provided with services and nutrition in connection with pregnancy and lactation. Said instruments do not contain specific provisions regarding the use or marketing of breastmilk substitutes. The international instruments that do have specific provisions regarding breastmilk substitutes are the ICMBS and various WHA Resolutions. Under the 1987 Constitution, international law can become part of the sphere of domestic law either by transformation or incorporation.11 The transformation method requires that an international law be transformed into a domestic law through a constitutional mechanism such as local legislation. The incorporation method applies

43

when, by mere constitutional declaration, international law is deemed to have the force of domestic law.12 Treaties become part of the law of the land through transformation pursuant to Article VII, Section 21 of the Constitution which provides that "[n]o treaty or international agreement shall be valid and effective unless concurred in by at least two-thirds of all the members of the Senate." Thus, treaties or conventional international law must go through a process prescribed by the Constitution for it to be transformed into municipal law that can be applied to domestic conflicts.13 The ICMBS and WHA Resolutions are not treaties as they have not been concurred in by at least two-thirds of all members of the Senate as required under Section 21, Article VII of the 1987 Constitution. However, the ICMBS which was adopted by the WHA in 1981 had been transformed into domestic law through local legislation, the Milk Code. Consequently, it is the Milk Code that has the force and effect of law in this jurisdiction and not the ICMBS per se. The Milk Code is almost a verbatim reproduction of the ICMBS, but it is well to emphasize at this point that the Code did not adopt the provision in the ICMBS absolutely prohibiting advertising or other forms of promotion to the general public of products within the scope of the ICMBS. Instead, the Milk Code expressly provides that advertising, promotion, or other marketing materials may be allowed if such materials are duly authorized and approved by the Inter-Agency Committee (IAC). On the other hand, Section 2, Article II of the 1987 Constitution, to wit: SECTION 2. The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation and amity with all nations. (Emphasis supplied) embodies the incorporation method.14 In Mijares v. Ranada,15 the Court held thus: [G]enerally 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. The classical formulation in international law sees those customary rules accepted as binding 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 opinion juris 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.16 (Emphasis supplied) "Generally accepted principles of international law" refers to norms of general or customary international law which are binding on all states, 17 i.e., renunciation of war as an instrument of national policy, the principle of sovereign immunity, 18 a person's right to life, liberty and due process,19 and pacta sunt servanda,20 among others. The concept of "generally accepted principles of law" has also been depicted in this wise: Some legal scholars and judges look upon certain "general principles of law" as a primary source of international law because they have the "character of jus rationale" and are "valid through all kinds of human societies." (Judge Tanaka in his dissenting opinion in the 1966 South West Africa Case, 1966 I.C.J. 296). O'Connell holds that certain priniciples are part of international law because they are "basic to legal

44

systems generally" and hence part of the jus gentium. These principles, he believes, are established by a process of reasoning based on the common identity of all legal systems. If there should be doubt or disagreement, one must look to state practice and determine whether the municipal law principle provides a just and acceptable solution. x x x 21 (Emphasis supplied) Fr. Joaquin G. Bernas defines customary international law as follows: Custom or customary international law means "a general and consistent practice of states followed by them from a sense of legal obligation [opinio juris]." (Restatement) This statement contains the two basic elements of custom: the material factor, that is, how states behave, and the psychological or subjective factor, that is, why they behave the way they do. The initial factor for determining the existence of custom is the actual behavior of states. This includes several elements: duration, consistency, and generality of the practice of states. The required duration can be either short or long. x x x Duration therefore is not the most important element. More important is the consistency and the generality of the practice. x x x Once the existence of state practice has been established, it becomes necessary to determine why states behave the way they do. Do states behave the way they do because they consider it obligatory to behave thus or do they do it only as a matter of courtesy? Opinio juris, or the belief that a certain form of behavior is obligatory, is what makes practice an international rule. Without it, practice is not law.22 (Underscoring and Emphasis supplied) Clearly, customary international law is deemed incorporated into our domestic system.23 WHA Resolutions have not been embodied in any local legislation. Have they attained the status of customary law and should they then be deemed incorporated as part of the law of the land? The World Health Organization (WHO) is one of the international specialized agencies allied with the United Nations (UN) by virtue of Article 57,24 in relation to Article 6325 of the UN Charter. Under the 1946 WHO Constitution, it is the WHA which determines the policies of the WHO,26 and has the power to adopt regulations concerning "advertising and labeling of biological, pharmaceutical and similar products moving in international commerce,"27 and to "make recommendations to members with respect to any matter within the competence of the Organization."28 The legal effect of its regulations, as opposed to recommendations, is quite different. Regulations, along with conventions and agreements, duly adopted by the WHA bind member states thus: Article 19. The Health Assembly shall have authority to adopt conventions or agreements with respect to any matter within the competence of the Organization. A two-thirds vote of the Health Assembly shall be required for the adoption of such conventions or agreements, which shall come into force for each Member when accepted by it in accordance with its constitutional processes.

45

Article 20. Each Member undertakes that it will, within eighteen months after the adoption by the Health Assembly of a convention or agreement, take action relative to the acceptance of such convention or agreement. Each Member shall notify the Director-General of the action taken, and if it does not accept such convention or agreement within the time limit, it will furnish a statement of the reasons for non-acceptance. In case of acceptance, each Member agrees to make an annual report to the Director-General in accordance with Chapter XIV. Article 21. The Health Assembly shall have authority to adopt regulations concerning: (a) sanitary and quarantine requirements and other procedures designed to prevent the international spread of disease; (b) nomenclatures with respect to diseases, causes of death and public health practices; (c) standards with respect to diagnostic procedures for international use; (d) standards with respect to the safety, purity and potency of biological, pharmaceutical and similar products moving in international commerce; (e) advertising and labeling of biological, pharmaceutical and similar products moving in international commerce. Article 22. Regulations adopted pursuant to Article 21 shall come into force for all Members after due notice has been given of their adoption by the Health Assembly except for such Members as may notify the Director-General of rejection or reservations within the period stated in the notice. (Emphasis supplied) On the other hand, under Article 23, recommendations of the WHA do not come into force for members, in the same way that conventions or agreements under Article 19 and regulations under Article 21 come into force. Article 23 of the WHO Constitution reads: Article 23. The Health Assembly shall have authority to make recommendations to Members with respect to any matter within the competence of the Organization. (Emphasis supplied) The absence of a provision in Article 23 of any mechanism by which the recommendation would come into force for member states is conspicuous. The former Senior Legal Officer of WHO, Sami Shubber, stated that WHA recommendations are generally not binding, but they "carry moral and political weight, as they constitute the judgment on a health issue of the collective membership of the highest international body in the field of health."29 Even the ICMBS itself was adopted as a mere recommendation, as WHA Resolution No. 34.22 states: "The Thirty-Fourth World Health Assembly x x x adopts, in the sense of Article 23 of the Constitution, the International Code of Marketing of Breastmilk Substitutes annexed to the present resolution." (Emphasis supplied) The Introduction to the ICMBS also reads as follows: In January 1981, the Executive Board of the World Health Organization at its sixty-seventh session, considered the fourth draft of the code, endorsed it, and unanimously recommended to the Thirty-fourth World Health Assembly the text of a resolution by which it would adopt the code in the form of a recommendation rather than a regulation. x x x (Emphasis supplied) The legal value of WHA Resolutions as recommendations is summarized in Article 62 of the WHO Constitution, to wit:

46

Art. 62. Each member shall report annually on the action taken with respect to recommendations made to it by the Organization, and with respect to conventions, agreements and regulations. Apparently, the WHA Resolution adopting the ICMBS and subsequent WHA Resolutions urging member states to implement the ICMBS are merely recommendatory and legally non-binding. Thus, unlike what has been done with the ICMBS whereby the legislature enacted most of the provisions into law which is the Milk Code, the subsequent WHA Resolutions,30 specifically providing for exclusive breastfeeding from 0-6 months, continued breastfeeding up to 24 months, and absolutely prohibiting advertisements and promotions of breastmilk substitutes, have not been adopted as a domestic law. It is propounded that WHA Resolutions may constitute "soft law" or non-binding norms, principles and practices that influence state behavior.31 "Soft law" does not fall into any of the categories of international law set forth in Article 38, Chapter III of the 1946 Statute of the International Court of Justice. 32 It is, however, an expression of non-binding norms, principles, and practices that influence state behavior.33 Certain declarations and resolutions of the UN General Assembly fall under this category.34 The most notable is the UN Declaration of Human Rights, which this Court has enforced in various cases, specifically, Government of Hongkong Special Administrative Region v. Olalia,35 Mejoff v. Director of Prisons,36 Mijares v. Raada37 and Shangri-la International Hotel Management, Ltd. v. Developers Group of Companies, Inc.. 38 The World Intellectual Property Organization (WIPO), a specialized agency attached to the UN with the mandate to promote and protect intellectual property worldwide, has resorted to soft law as a rapid means of norm creation, in order "to reflect and respond to the changing needs and demands of its constituents."39 Other international organizations which have resorted to soft law include the International Labor Organization and the Food and Agriculture Organization (in the form of the Codex Alimentarius).40 WHO has resorted to soft law. This was most evident at the time of the Severe Acute Respiratory Syndrome (SARS) and Avian flu outbreaks. Although the IHR Resolution does not create new international law binding on WHO member states, it provides an excellent example of the power of "soft law" in international relations. International lawyers typically distinguish binding rules of international law-"hard law"-from non-binding norms, principles, and practices that influence state behavior-"soft law." WHO has during its existence generated many soft law norms, creating a "soft law regime" in international governance for public health. The "soft law" SARS and IHR Resolutions represent significant steps in laying the political groundwork for improved international cooperation on infectious diseases. These resolutions clearly define WHO member states' normative duty to cooperate fully with other countries and with WHO in connection with infectious disease surveillance and response to outbreaks. This duty is neither binding nor enforceable, but, in the wake of the SARS epidemic, the duty is powerful politically for two reasons. First, the SARS outbreak has taught the lesson that participating in, and enhancing, international cooperation on infectious disease controls is in a country's self-interest x x x if this warning is heeded, the "soft law" in the SARS and IHR Resolution could inform the development of general and consistent state practice on infectious disease surveillance and outbreak response, perhaps crystallizing eventually into customary international law on infectious disease prevention and control.41

47

In the Philippines, the executive department implemented certain measures recommended by WHO to address the outbreaks of SARS and Avian flu by issuing Executive Order (E.O.) No. 201 on April 26, 2003 and E.O. No. 280 on February 2, 2004, delegating to various departments broad powers to close down schools/establishments, conduct health surveillance and monitoring, and ban importation of poultry and agricultural products. It must be emphasized that even under such an international emergency, the duty of a state to implement the IHR Resolution was still considered not binding or enforceable, although said resolutions had great political influence. As previously discussed, for an international rule to be considered as customary law, it must be established that such rule is being followed by states because they consider it obligatory to comply with such rules (opinio juris). Respondents have not presented any evidence to prove that the WHA Resolutions, although signed by most of the member states, were in fact enforced or practiced by at least a majority of the member states; neither have respondents proven that any compliance by member states with said WHA Resolutions was obligatory in nature. Respondents failed to establish that the provisions of pertinent WHA Resolutions are customary international law that may be deemed part of the law of the land. Consequently, legislation is necessary to transform the provisions of the WHA Resolutions into domestic law. The provisions of the WHA Resolutions cannot be considered as part of the law of the land that can be implemented by executive agencies without the need of a law enacted by the legislature. Second, the Court will determine whether the DOH may implement the provisions of the WHA Resolutions by virtue of its powers and functions under the Revised Administrative Code even in the absence of a domestic law. Section 3, Chapter 1, Title IX of the Revised Administrative Code of 1987 provides that the DOH shall define the national health policy and implement a national health plan within the framework of the government's general policies and plans, and issue orders and regulations concerning the implementation of established health policies. It is crucial to ascertain whether the absolute prohibition on advertising and other forms of promotion of breastmilk substitutes provided in some WHA Resolutions has been adopted as part of the national health policy. Respondents submit that the national policy on infant and young child feeding is embodied in A.O. No. 2005-0014, dated May 23, 2005. Basically, the Administrative Order declared the following policy guidelines: (1) ideal breastfeeding practices, such as early initiation of breastfeeding, exclusive breastfeeding for the first six months, extended breastfeeding up to two years and beyond; (2) appropriate complementary feeding, which is to start at age six months; (3) micronutrient supplementation; (4) universal salt iodization; (5) the exercise of other feeding options; and (6) feeding in exceptionally difficult circumstances. Indeed, the primacy of breastfeeding for children is emphasized as a national health policy. However, nowhere in A.O. No. 2005-0014 is it declared that as part of such health policy, the advertisement or promotion of breastmilk substitutes should be absolutely prohibited. The national policy of protection, promotion and support of breastfeeding cannot automatically be equated with a total ban on advertising for breastmilk substitutes. In view of the enactment of the Milk Code which does not contain a total ban on the advertising and promotion of breastmilk substitutes, but instead, specifically creates an

48

IAC which will regulate said advertising and promotion, it follows that a total ban policy could be implemented only pursuant to a law amending the Milk Code passed by the constitutionally authorized branch of government, the legislature. Thus, only the provisions of the Milk Code, but not those of subsequent WHA Resolutions, can be validly implemented by the DOH through the subject RIRR. Third, the Court will now determine whether the provisions of the RIRR are in accordance with those of the Milk Code. In support of its claim that the RIRR is inconsistent with the Milk Code, petitioner alleges the following: 1. The Milk Code limits its coverage to children 0-12 months old, but the RIRR extended its coverage to "young children" or those from ages two years old and beyond: MILK CODE RIRR WHEREAS, in order to ensure that safe and Section 2. Purpose These Revised Rules adequate nutrition for infants is provided, and Regulations are hereby promulgated there is a need to protect and promote to ensure the provision of safe and breastfeeding and to inform the public about adequate nutrition for infants and young the proper use of breastmilk substitutes and children by the promotion, protection and supplements and related products through support of breastfeeding and by ensuring adequate, consistent and objective information the proper use of breastmilk substitutes, and appropriate regulation of the marketing breastmilk supplements and related and distribution of the said substitutes, products when these are medically supplements and related products; indicated and only when necessary, on the basis of adequate information and through SECTION 4(e). "Infant" means a person falling appropriate marketing and distribution. within the age bracket of 0-12 months. Section 5(ff). "Young Child" means a person from the age of more than twelve (12) months up to the age of three (3) years (36 months). 2. The Milk Code recognizes that infant formula may be a proper and possible substitute for breastmilk in certain instances; but the RIRR provides "exclusive breastfeeding for infants from 0-6 months" and declares that "there is no substitute nor replacement for breastmilk": MILK CODE RIRR WHEREAS, in order to ensure that safe Section 4. Declaration of Principles and adequate nutrition for infants is The following are the underlying provided, there is a need to protect and principles from which the revised rules promote breastfeeding and to inform the and regulations are premised upon: public about the proper use of breastmilk substitutes and supplements and related a. Exclusive breastfeeding is for infants products through adequate, consistent and from 0 to six (6) months. objective information and appropriate b. There is no substitute or replacement regulation of the marketing and for breastmilk. distribution of the said substitutes, supplements and related products; 3. The Milk Code only regulates and does not impose unreasonable requirements for advertising and promotion; RIRR imposes an absolute ban on such activities

49

for breastmilk substitutes intended for infants from 0-24 months old or beyond, and forbids the use of health and nutritional claims. Section 13 of the RIRR, which provides for a "total effect" in the promotion of products within the scope of the Code, is vague: MILK CODE RIRR

50

SECTION 6. The General Public and Mothers. Section 4. Declaration of Principles The following are the underlying principles from which the revised rules (a) No advertising, promotion or other and regulations are premised upon: marketing materials, whether written, audio or visual, for products within the x x x x scope of this Code shall be printed, f. Advertising, promotions, or sponsorpublished, distributed, exhibited and broadcast unless such materials are ships of infant formula, breastmilk duly authorized and approved by an substitutes and other related products are inter-agency committee created herein prohibited. pursuant to the applicable standards Section 11. Prohibition No advertising, provided for in this Code. promotions, sponsorships, or marketing materials and activities for breastmilk substitutes intended for infants and young children up to twenty-four (24) months, shall be allowed, because they tend to convey or give subliminal messages or impressions that undermine breastmilk and breastfeeding or otherwise exaggerate breastmilk substitutes and/or replacements, as well as related products covered within the scope of this Code. Section 13. "Total Effect" - Promotion of products within the scope of this Code must be objective and should not equate or make the product appear to be as good or equal to breastmilk or breastfeeding in the advertising concept. It must not in any case undermine breastmilk or breastfeeding. The "total effect" should not directly or indirectly suggest that buying their product would produce better individuals, or resulting in greater love, intelligence, ability, harmony or in any manner bring better health to the baby or other such exaggerated and unsubstantiated claim. Section 15. Content of Materials. - The following shall not be included in advertising, promotional and marketing materials: a. Texts, pictures, illustrations or information which discourage or tend to undermine the benefits or superiority of breastfeeding or which idealize the use of breastmilk substitutes and milk supplements. In this connection, no pictures of babies and children together with their mothers, fathers, siblings, grandparents, other relatives or caregivers (or yayas) shall be used in any advertisements for infant formula and breastmilk supplements; b. The term "humanized," "maternalized," "close to mother's milk" or similar words

51

4. The RIRR imposes additional labeling requirements not found in the Milk Code: MILK CODE SECTION 10. Containers/Label. (a) Containers and/or labels shall be designed to provide the necessary information about the appropriate use of the products, and in such a way as not to discourage breastfeeding. RIRR Section 26. Content Each container/label shall contain such message, in both Filipino and English languages, and which message cannot be readily separated therefrom, relative the following points:

(a) The words or phrase "Important (b) Each container shall have a clear, Notice" or "Government Warning" or their equivalent; conspicuous and easily readable and understandable message in Pilipino or English printed on it, or on a label, which (b) A statement of the superiority of message can not readily become separated breastfeeding; from it, and which shall include the following points: (c) A statement that there is no substitute for breastmilk; (i) the words "Important Notice" or their equivalent; (d) A statement that the product shall be used only on the advice of a health worker (ii) a statement of the superiority of as to the need for its use and the proper breastfeeding; methods of use; (iii) a statement that the product shall be (e) Instructions for appropriate preparaused only on the advice of a health worker tion, and a warning against the health hazards of inappropriate preparation; and as to the need for its use and the proper methods of use; and (f) The health hazards of unnecessary or (iv) instructions for appropriate improper use of infant formula and other preparation, and a warning against the related products including information health hazards of inappropriate that powdered infant formula may contain preparation. pathogenic microorganisms and must be prepared and used appropriately. 5. The Milk Code allows dissemination of information on infant formula to health professionals; the RIRR totally prohibits such activity: MILK CODE RIRR

52

SECTION 7. Health Care System.

Section 22. No manufacturer, distributor or representatives of products covered by (b) No facility of the health care system the Code shall be allowed to conduct or be shall be used for the purpose of promoting involved in any activity on breastfeeding infant formula or other products within promotion, education and production of the scope of this Code. This Code does not, Information, Education and however, preclude the dissemination of Communication (IEC) materials on information to health professionals as breastfeeding, holding of or participating provided in Section 8(b). as speakers in classes or seminars for women and children activities and to SECTION 8. Health Workers. avoid the use of these venues to market their brands or company names. (b) Information provided by manufacturers and distributors to health SECTION 16. All health and nutrition professionals regarding products within claims for products within the scope of th the scope of this Code shall be restricted to Code are absolutely prohibited. For this scientific and factual matters and such purpose, any phrase or words that information shall not imply or create a connotes to increase emotional, belief that bottle-feeding is equivalent or intellectual abilities of the infant and superior to breastfeeding. It shall also young child and other like phrases shall include the information specified in not be allowed. Section 5(b). 6. The Milk Code permits milk manufacturers and distributors to extend assistance in research and continuing education of health professionals; RIRR absolutely forbids the same. MILK CODE RIRR

53

Section 4. Declaration of Principles SECTION 8. Health Workers The following are the underlying principles from (e) Manufacturers and which the revised rules and regulations distributors of products are premised upon: within the scope of this i. Milk Code may assist in the companies, and their representatives, should not form part of any policymaking body or research, scholarships and continuing education, entity in relation to the advancement of of health professionals, in breasfeeding. accordance with the rules and regulations SECTION 22. No manufacturer, distributor, or representatives of products covered by promulgated by the the Code shall be allowed to conduct or be Ministry of Health. involved in any activity on breastfeeding promotion, education and production of Information, Education and Communication (IEC) materials on breastfeeding, holding of or participating as speakers in classes or seminars for women and children activities and to avoid the use of these venues to market their brands or company names. SECTION 32. Primary Responsibility of Health Workers - It is the primary responsibility of the health workers to promote, protect and support breastfeeding and appropriate infant and young child feeding. Part of this responsibility is to continuously update their knowledge and skills on breastfeeding. No assistance, support, logistics or training from milk companies shall be permitted. 7. The Milk Code regulates the giving of donations; RIRR absolutely prohibits it. MILK CODE SECTION 6. The General Public and Mothers. RIRR Section 51. Donations Within the Scope of This Code - Donations of products, materials, defined and covered under the Milk Code and these implementing rules (f) Nothing herein and regulations, shall be strictly contained shall prevent prohibited. donations from manufacturers and Section 52. Other Donations By Milk distributors of products Companies Not Covered by this Code. within the scope of this Donations of products, equipments, and Code upon request by or the like, not otherwise falling within the with the approval of the scope of this Code or these Rules, given by Ministry of Health. milk companies and their agents, representatives, whether in kind or in cash, may only be coursed through the Inter Agency Committee (IAC), which shall determine whether such donation be accepted or otherwise.

54

8. The RIRR provides for administrative sanctions not imposed by the Milk Code. MILK CODE RIRR

55

Section 46. Administrative Sanctions. The following administrative sanctions shall be imposed upon any person, juridical or natural, found to have violated the provisions of the Code and its implementing Rules and Regulations: a) 1st violation Warning; b) 2nd violation Administrative fine of a minimum of Ten Thousand (P10,000.00) to Fifty Thousand (P50,000.00) Pesos, depending on the gravity and extent of the violation, including the recall of the offending product; c) 3rd violation Administrative Fine of a minimum of Sixty Thousand (P60,000.00) to One Hundred Fifty Thousand (P150,000.00) Pesos, depending on the gravity and extent of the violation, and in addition thereto, the recall of the offending product, and suspension of the Certificate of Product Registration (CPR); d) 4th violation Administrative Fine of a minimum of Two Hundred Thousand (P200,000.00) to Five Hundred (P500,000.00) Thousand Pesos, depending on the gravity and extent of the violation; and in addition thereto, the recall of the product, revocation of the CPR, suspension of the License to Operate (LTO) for one year; e) 5th and succeeding repeated violations Administrative Fine of One Million (P1,000,000.00) Pesos, the recall of the offending product, cancellation of the CPR, revocation of the License to Operate (LTO) of the company concerned, including the blacklisting of the company to be furnished the Department of Budget and Management (DBM) and the Department of Trade and Industry (DTI); f) An additional penalty of Two Thou-sand Five Hundred (P2,500.00) Pesos per day shall be made for every day the violation continues after having received the order from the IAC or other such appropriate body, notifying and penalizing the company for the infraction. For purposes of determining whether or not there is "repeated" violation, each product violation belonging or owned by a company, including those of their subsidiaries, are deemed to be violations of the concerned milk company and shall not be based on the specific violating

56

9. The RIRR provides for repeal of existing laws to the contrary. The Court shall resolve the merits of the allegations of petitioner seriatim. 1. Petitioner is mistaken in its claim that the Milk Code's coverage is limited only to children 0-12 months old. Section 3 of the Milk Code states: SECTION 3. Scope of the Code The Code applies to the marketing, and practices related thereto, of the following products: breastmilk substitutes, including infant formula; other milk products, foods and beverages, including bottle-fed complementary foods, when marketed or otherwise represented to be suitable, with or without modification, for use as a partial or total replacement of breastmilk; feeding bottles and teats. It also applies to their quality and availability, and to information concerning their use. Clearly, the coverage of the Milk Code is not dependent on the age of the child but on the kind of product being marketed to the public. The law treats infant formula, bottle-fed complementary food, and breastmilk substitute as separate and distinct product categories. Section 4(h) of the Milk Code defines infant formula as "a breastmilk substitute x x x to satisfy the normal nutritional requirements of infants up to between four to six months of age, and adapted to their physiological characteristics"; while under Section 4(b), bottle-fed complementary food refers to "any food, whether manufactured or locally prepared, suitable as a complement to breastmilk or infant formula, when either becomes insufficient to satisfy the nutritional requirements of the infant." An infant under Section 4(e) is a person falling within the age bracket 0-12 months. It is the nourishment of this group of infants or children aged 0-12 months that is sought to be promoted and protected by the Milk Code. But there is another target group. Breastmilk substitute is defined under Section 4(a) as "any food being marketed or otherwise presented as a partial or total replacement for breastmilk, whether or not suitable for that purpose." This section conspicuously lacks reference to any particular age-group of children. Hence, the provision of the Milk Code cannot be considered exclusive for children aged 0-12 months. In other words, breastmilk substitutes may also be intended for young children more than 12 months of age. Therefore, by regulating breastmilk substitutes, the Milk Code also intends to protect and promote the nourishment of children more than 12 months old. Evidently, as long as what is being marketed falls within the scope of the Milk Code as provided in Section 3, then it can be subject to regulation pursuant to said law, even if the product is to be used by children aged over 12 months. There is, therefore, nothing objectionable with Sections 242 and 5(ff)43 of the RIRR. 2. It is also incorrect for petitioner to say that the RIRR, unlike the Milk Code, does not recognize that breastmilk substitutes may be a proper and possible substitute for breastmilk. The entirety of the RIRR, not merely truncated portions thereof, must be considered and construed together. As held in De Luna v. Pascual,44 "[t]he particular words, clauses and phrases in the Rule should not be studied as detached and isolated expressions, but the whole and every part thereof must be considered in fixing the meaning of any of its parts and in order to produce a harmonious whole."

57

Section 7 of the RIRR provides that "when medically indicated and only when necessary, the use of breastmilk substitutes is proper if based on complete and updated information." Section 8 of the RIRR also states that information and educational materials should include information on the proper use of infant formula when the use thereof is needed. Hence, the RIRR, just like the Milk Code, also recognizes that in certain cases, the use of breastmilk substitutes may be proper. 3. The Court shall ascertain the merits of allegations 345 and 446 together as they are interlinked with each other. To resolve the question of whether the labeling requirements and advertising regulations under the RIRR are valid, it is important to deal first with the nature, purpose, and depth of the regulatory powers of the DOH, as defined in general under the 1987 Administrative Code,47 and as delegated in particular under the Milk Code. Health is a legitimate subject matter for regulation by the DOH (and certain other administrative agencies) in exercise of police powers delegated to it. The sheer span of jurisprudence on that matter precludes the need to further discuss it..48 However, health information, particularly advertising materials on apparently non-toxic products like breastmilk substitutes and supplements, is a relatively new area for regulation by the DOH.49 As early as the 1917 Revised Administrative Code of the Philippine Islands,50 health information was already within the ambit of the regulatory powers of the predecessor of DOH.51 Section 938 thereof charged it with the duty to protect the health of the people, and vested it with such powers as "(g) the dissemination of hygienic information among the people and especially the inculcation of knowledge as to the proper care of infants and the methods of preventing and combating dangerous communicable diseases." Seventy years later, the 1987 Administrative Code tasked respondent DOH to carry out the state policy pronounced under Section 15, Article II of the 1987 Constitution, which is "to protect and promote the right to health of the people and instill health consciousness among them."52 To that end, it was granted under Section 3 of the Administrative Code the power to "(6) propagate health information and educate the population on important health, medical and environmental matters which have health implications."53 When it comes to information regarding nutrition of infants and young children, however, the Milk Code specifically delegated to the Ministry of Health (hereinafter referred to as DOH) the power to ensure that there is adequate, consistent and objective information on breastfeeding and use of breastmilk substitutes, supplements and related products; and the power to control such information. These are expressly provided for in Sections 12 and 5(a), to wit: SECTION 12. Implementation and Monitoring (b) The Ministry of Health shall be principally responsible for the implementation and enforcement of the provisions of this Code. For this purpose, the Ministry of Health shall have the following powers and functions: (1) To promulgate such rules and regulations as are necessary or proper for the implementation of this Code and the accomplishment of its purposes and objectives.

58

(4) To exercise such other powers and functions as may be necessary for or incidental to the attainment of the purposes and objectives of this Code. SECTION 5. Information and Education (a) The government shall ensure that objective and consistent information is provided on infant feeding, for use by families and those involved in the field of infant nutrition. This responsibility shall cover the planning, provision, design and dissemination of information, and the control thereof, on infant nutrition. (Emphasis supplied) Further, DOH is authorized by the Milk Code to control the content of any information on breastmilk vis--vis breastmilk substitutes, supplement and related products, in the following manner: SECTION 5. x x x (b) Informational and educational materials, whether written, audio, or visual, dealing with the feeding of infants and intended to reach pregnant women and mothers of infants, shall include clear information on all the following points: (1) the benefits and superiority of breastfeeding; (2) maternal nutrition, and the preparation for and maintenance of breastfeeding; (3) the negative effect on breastfeeding of introducing partial bottlefeeding; (4) the difficulty of reversing the decision not to breastfeed; and (5) where needed, the proper use of infant formula, whether manufactured industrially or home-prepared. When such materials contain information about the use of infant formula, they shall include the social and financial implications of its use; the health hazards of inappropriate foods or feeding methods; and, in particular, the health hazards of unnecessary or improper use of infant formula and other breastmilk substitutes. Such materials shall not use any picture or text which may idealize the use of breastmilk substitutes. SECTION 8. Health Workers (b) Information provided by manufacturers and distributors to health professionals regarding products within the scope of this Code shall be restricted to scientific and factual matters, and such information shall not imply or create a belief that bottlefeeding is equivalent or superior to breastfeeding. It shall also include the information specified in Section 5(b). SECTION 10. Containers/Label (a) Containers and/or labels shall be designed to provide the necessary information about the appropriate use of the products, and in such a way as not to discourage breastfeeding. xxxx (d) The term "humanized," "maternalized" or similar terms shall not be used. (Emphasis supplied) The DOH is also authorized to control the purpose of the information and to whom such information may be disseminated under Sections 6 through 9 of the Milk Code54 to ensure that the information that would reach pregnant women, mothers of infants, and health professionals and workers in the health care system is restricted to scientific and factual matters and shall not imply or create a belief that bottlefeeding is equivalent or superior to breastfeeding.

59

It bears emphasis, however, that the DOH's power under the Milk Code to control information regarding breastmilk vis-a-vis breastmilk substitutes is not absolute as the power to control does not encompass the power to absolutely prohibit the advertising, marketing, and promotion of breastmilk substitutes. The following are the provisions of the Milk Code that unequivocally indicate that the control over information given to the DOH is not absolute and that absolute prohibition is not contemplated by the Code: a) Section 2 which requires adequate information and appropriate marketing and distribution of breastmilk substitutes, to wit: SECTION 2. Aim of the Code The aim of the Code is to contribute to the provision of safe and adequate nutrition for infants by the protection and promotion of breastfeeding and by ensuring the proper use of breastmilk substitutes and breastmilk supplements when these are necessary, on the basis of adequate information and through appropriate marketing and distribution. b) Section 3 which specifically states that the Code applies to the marketing of and practices related to breastmilk substitutes, including infant formula, and to information concerning their use; c) Section 5(a) which provides that the government shall ensure that objective and consistent information is provided on infant feeding; d) Section 5(b) which provides that written, audio or visual informational and educational materials shall not use any picture or text which may idealize the use of breastmilk substitutes and should include information on the health hazards of unnecessary or improper use of said product; e) Section 6(a) in relation to Section 12(a) which creates and empowers the IAC to review and examine advertising, promotion, and other marketing materials; f) Section 8(b) which states that milk companies may provide information to health professionals but such information should be restricted to factual and scientific matters and shall not imply or create a belief that bottlefeeding is equivalent or superior to breastfeeding; and g) Section 10 which provides that containers or labels should not contain information that would discourage breastfeeding and idealize the use of infant formula. It is in this context that the Court now examines the assailed provisions of the RIRR regarding labeling and advertising. Sections 1355 on "total effect" and 2656 of Rule VII of the RIRR contain some labeling requirements, specifically: a) that there be a statement that there is no substitute to breastmilk; and b) that there be a statement that powdered infant formula may contain pathogenic microorganisms and must be prepared and used appropriately. Section 1657 of the RIRR prohibits all health and nutrition claims for products within the scope of the Milk Code, such as claims of increased emotional and intellectual abilities of the infant and young child. These requirements and limitations are consistent with the provisions of Section 8 of the Milk Code, to wit:

60

SECTION 8. Health workers (b) Information provided by manufacturers and distributors to health professionals regarding products within the scope of this Code shall be restricted to scientific and factual matters, and such information shall not imply or create a belief that bottlefeeding is equivalent or superior to breastfeeding. It shall also include the information specified in Section 5.58 (Emphasis supplied) and Section 10(d)59 which bars the use on containers and labels of the terms "humanized," "maternalized," or similar terms. These provisions of the Milk Code expressly forbid information that would imply or create a belief that there is any milk product equivalent to breastmilk or which is humanized or maternalized, as such information would be inconsistent with the superiority of breastfeeding. It may be argued that Section 8 of the Milk Code refers only to information given to health workers regarding breastmilk substitutes, not to containers and labels thereof. However, such restrictive application of Section 8(b) will result in the absurd situation in which milk companies and distributors are forbidden to claim to health workers that their products are substitutes or equivalents of breastmilk, and yet be allowed to display on the containers and labels of their products the exact opposite message. That askewed interpretation of the Milk Code is precisely what Section 5(a) thereof seeks to avoid by mandating that all information regarding breastmilk vis-a-vis breastmilk substitutes be consistent, at the same time giving the government control over planning, provision, design, and dissemination of information on infant feeding. Thus, Section 26(c) of the RIRR which requires containers and labels to state that the product offered is not a substitute for breastmilk, is a reasonable means of enforcing Section 8(b) of the Milk Code and deterring circumvention of the protection and promotion of breastfeeding as embodied in Section 260 of the Milk Code. Section 26(f)61 of the RIRR is an equally reasonable labeling requirement. It implements Section 5(b) of the Milk Code which reads: SECTION 5. x x x (b) Informational and educational materials, whether written, audio, or visual, dealing with the feeding of infants and intended to reach pregnant women and mothers of infants, shall include clear information on all the following points: x x x (5) where needed, the proper use of infant formula, whether manufactured industrially or homeprepared. When such materials contain information about the use of infant formula, they shall include the social and financial implications of its use; the health hazards of inappropriate foods or feeding methods; and, in particular, the health hazards of unnecessary or improper use of infant formula and other breastmilk substitutes. Such materials shall not use any picture or text which may idealize the use of breastmilk substitutes. (Emphasis supplied) The label of a product contains information about said product intended for the buyers thereof. The buyers of breastmilk substitutes are mothers of infants, and Section 26 of the RIRR merely adds a fair warning about the likelihood of pathogenic microorganisms being present in infant formula and other related products when these are prepared and used inappropriately.

61

Petitioners counsel has admitted during the hearing on June 19, 2007 that formula milk is prone to contaminations and there is as yet no technology that allows production of powdered infant formula that eliminates all forms of contamination.62 Ineluctably, the requirement under Section 26(f) of the RIRR for the label to contain the message regarding health hazards including the possibility of contamination with pathogenic microorganisms is in accordance with Section 5(b) of the Milk Code. The authority of DOH to control information regarding breastmilk vis-a-vis breastmilk substitutes and supplements and related products cannot be questioned. It is its intervention into the area of advertising, promotion, and marketing that is being assailed by petitioner. In furtherance of Section 6(a) of the Milk Code, to wit: SECTION 6. The General Public and Mothers. (a) No advertising, promotion or other marketing materials, whether written, audio or visual, for products within the scope of this Code shall be printed, published, distributed, exhibited and broadcast unless such materials are duly authorized and approved by an inter-agency committee created herein pursuant to the applicable standards provided for in this Code. the Milk Code invested regulatory authority over advertising, promotional and marketing materials to an IAC, thus: SECTION 12. Implementation and Monitoring (a) For purposes of Section 6(a) of this Code, an inter-agency committee composed of the following members is hereby created: Minister of Health Minister of Trade and Industry Minister of Justice Minister of Social Services and Development ------------------------------------------------------------------------Chairman Member Member Member

The members may designate their duly authorized representative to every meeting of the Committee. The Committee shall have the following powers and functions: (1) To review and examine all advertising. promotion or other marketing materials, whether written, audio or visual, on products within the scope of this Code; (2) To approve or disapprove, delete objectionable portions from and prohibit the printing, publication, distribution, exhibition and broadcast of, all advertising promotion or other marketing materials, whether written, audio or visual, on products within the scope of this Code; (3) To prescribe the internal and operational procedure for the exercise of its powers and functions as well as the performance of its duties and responsibilities; and

62

(4) To promulgate such rules and regulations as are necessary or proper for the implementation of Section 6(a) of this Code. x x x (Emphasis supplied) However, Section 11 of the RIRR, to wit: SECTION 11. Prohibition No advertising, promotions, sponsorships, or marketing materials and activities for breastmilk substitutes intended for infants and young children up to twenty-four (24) months, shall be allowed, because they tend to convey or give subliminal messages or impressions that undermine breastmilk and breastfeeding or otherwise exaggerate breastmilk substitutes and/or replacements, as well as related products covered within the scope of this Code. prohibits advertising, promotions, sponsorships or marketing materials and activities for breastmilk substitutes in line with the RIRRs declaration of principle under Section 4(f), to wit: SECTION 4. Declaration of Principles (f) Advertising, promotions, or sponsorships of infant formula, breastmilk substitutes and other related products are prohibited. The DOH, through its co-respondents, evidently arrogated to itself not only the regulatory authority given to the IAC but also imposed absolute prohibition on advertising, promotion, and marketing. Yet, oddly enough, Section 12 of the RIRR reiterated the requirement of the Milk Code in Section 6 thereof for prior approval by IAC of all advertising, marketing and promotional materials prior to dissemination. Even respondents, through the OSG, acknowledged the authority of IAC, and repeatedly insisted, during the oral arguments on June 19, 2007, that the prohibition under Section 11 is not actually operational, viz: SOLICITOR GENERAL DEVANADERA: x x x Now, the crux of the matter that is being questioned by Petitioner is whether or not there is an absolute prohibition on advertising making AO 2006-12 unconstitutional. We maintained that what AO 2006-12 provides is not an absolute prohibition because Section 11 while it states and it is entitled prohibition it states that no advertising, promotion, sponsorship or marketing materials and activities for breast milk substitutes intended for infants and young children up to 24 months shall be allowed because this is the standard they tend to convey or give subliminal messages or impression undermine that breastmilk or breastfeeding x x x. We have to read Section 11 together with the other Sections because the other Section, Section 12, provides for the inter agency committee that is empowered to process and evaluate all the advertising and promotion materials. What AO 2006-12, what it does, it does not prohibit the sale and manufacture, it simply regulates the advertisement and the promotions of breastfeeding milk substitutes. Now, the prohibition on advertising, Your Honor, must be taken together with the provision on the Inter-Agency Committee that processes and evaluates because

63

there may be some information dissemination that are straight forward information dissemination. What the AO 2006 is trying to prevent is any material that will undermine the practice of breastfeeding, Your Honor. ASSOCIATE JUSTICE SANTIAGO: Madam Solicitor General, under the Milk Code, which body has authority or power to promulgate Rules and Regulations regarding the Advertising, Promotion and Marketing of Breastmilk Substitutes? SOLICITOR GENERAL DEVANADERA: Your Honor, please, it is provided that the Inter-Agency Committee, Your Honor. ASSOCIATE JUSTICE SANTIAGO: x x x Don't you think that the Department of Health overstepped its rule making authority when it totally banned advertising and promotion under Section 11 prescribed the total effect rule as well as the content of materials under Section 13 and 15 of the rules and regulations? SOLICITOR GENERAL DEVANADERA: Your Honor, please, first we would like to stress that there is no total absolute ban. Second, the Inter-Agency Committee is under the Department of Health, Your Honor. xxxx ASSOCIATE JUSTICE NAZARIO: Did I hear you correctly, Madam Solicitor, that there is no absolute ban on advertising of breastmilk substitutes in the Revised Rules? SOLICITOR GENERAL DEVANADERA: Yes, your Honor. ASSOCIATE JUSTICE NAZARIO: But, would you nevertheless agree that there is an absolute ban on advertising of breastmilk substitutes intended for children two (2) years old and younger? SOLICITOR GENERAL DEVANADERA: It's not an absolute ban, Your Honor, because we have the Inter-Agency Committee that can evaluate some advertising and promotional materials, subject to the standards that we have stated earlier, which are- they should not undermine breastfeeding, Your Honor. x x x Section 11, while it is titled Prohibition, it must be taken in relation with the other Sections, particularly 12 and 13 and 15, Your Honor, because it is recognized that the Inter-Agency Committee has that power to evaluate promotional materials, Your Honor. ASSOCIATE JUSTICE NAZARIO:

64

So in short, will you please clarify there's no absolute ban on advertisement regarding milk substitute regarding infants two (2) years below? SOLICITOR GENERAL DEVANADERA: We can proudly say that the general rule is that there is a prohibition, however, we take exceptions and standards have been set. One of which is that, the InterAgency Committee can allow if the advertising and promotions will not undermine breastmilk and breastfeeding, Your Honor.63 Sections 11 and 4(f) of the RIRR are clearly violative of the Milk Code. However, although it is the IAC which is authorized to promulgate rules and regulations for the approval or rejection of advertising, promotional, or other marketing materials under Section 12(a) of the Milk Code, said provision must be related to Section 6 thereof which in turn provides that the rules and regulations must be "pursuant to the applicable standards provided for in this Code." Said standards are set forth in Sections 5(b), 8(b), and 10 of the Code, which, at the risk of being repetitious, and for easy reference, are quoted hereunder: SECTION 5. Information and Education (b) Informational and educational materials, whether written, audio, or visual, dealing with the feeding of infants and intended to reach pregnant women and mothers of infants, shall include clear information on all the following points: (1) the benefits and superiority of breastfeeding; (2) maternal nutrition, and the preparation for and maintenance of breastfeeding; (3) the negative effect on breastfeeding of introducing partial bottlefeeding; (4) the difficulty of reversing the decision not to breastfeed; and (5) where needed, the proper use of infant formula, whether manufactured industrially or home-prepared. When such materials contain information about the use of infant formula, they shall include the social and financial implications of its use; the health hazards of inappropriate foods of feeding methods; and, in particular, the health hazards of unnecessary or improper use of infant formula and other breastmilk substitutes. Such materials shall not use any picture or text which may idealize the use of breastmilk substitutes. SECTION 8. Health Workers. (b) Information provided by manufacturers and distributors to health professionals regarding products within the scope of this Code shall be restricted to scientific and factual matters and such information shall not imply or create a belief that bottle feeding is equivalent or superior to breastfeeding. It shall also include the information specified in Section 5(b). SECTION 10. Containers/Label (a) Containers and/or labels shall be designed to provide the necessary information about the appropriate use of the products, and in such a way as not to discourage breastfeeding. (b) Each container shall have a clear, conspicuous and easily readable and understandable message in Pilipino or English printed on it, or on a label, which message can not readily become separated from it, and which shall include the following points: (i) the words "Important Notice" or their equivalent;

65

(ii) a statement of the superiority of breastfeeding; (iii) a statement that the product shall be used only on the advice of a health worker as to the need for its use and the proper methods of use; and (iv) instructions for appropriate preparation, and a warning against the health hazards of inappropriate preparation. Section 12(b) of the Milk Code designates the DOH as the principal implementing agency for the enforcement of the provisions of the Code. In relation to such responsibility of the DOH, Section 5(a) of the Milk Code states that: SECTION 5. Information and Education (a) The government shall ensure that objective and consistent information is provided on infant feeding, for use by families and those involved in the field of infant nutrition. This responsibility shall cover the planning, provision, design and dissemination of information, and the control thereof, on infant nutrition. (Emphasis supplied) Thus, the DOH has the significant responsibility to translate into operational terms the standards set forth in Sections 5, 8, and 10 of the Milk Code, by which the IAC shall screen advertising, promotional, or other marketing materials. It is pursuant to such responsibility that the DOH correctly provided for Section 13 in the RIRR which reads as follows: SECTION 13. "Total Effect" - Promotion of products within the scope of this Code must be objective and should not equate or make the product appear to be as good or equal to breastmilk or breastfeeding in the advertising concept. It must not in any case undermine breastmilk or breastfeeding. The "total effect" should not directly or indirectly suggest that buying their product would produce better individuals, or resulting in greater love, intelligence, ability, harmony or in any manner bring better health to the baby or other such exaggerated and unsubstantiated claim. Such standards bind the IAC in formulating its rules and regulations on advertising, promotion, and marketing. Through that single provision, the DOH exercises control over the information content of advertising, promotional and marketing materials on breastmilk vis-a-vis breastmilk substitutes, supplements and other related products. It also sets a viable standard against which the IAC may screen such materials before they are made public. In Equi-Asia Placement, Inc. vs. Department of Foreign Affairs,64 the Court held: x x x [T]his Court had, in the past, accepted as sufficient standards the following: "public interest," "justice and equity," "public convenience and welfare," and "simplicity, economy and welfare."65 In this case, correct information as to infant feeding and nutrition is infused with public interest and welfare. 4. With regard to activities for dissemination of information to health professionals, the Court also finds that there is no inconsistency between the provisions of the Milk Code and the RIRR. Section 7(b)66 of the Milk Code, in relation to Section 8(b)67 of the same

66

Code, allows dissemination of information to health professionals but such information is restricted to scientific and factual matters. Contrary to petitioner's claim, Section 22 of the RIRR does not prohibit the giving of information to health professionals on scientific and factual matters. What it prohibits is the involvement of the manufacturer and distributor of the products covered by the Code in activities for the promotion, education and production of Information, Education and Communication (IEC) materials regarding breastfeeding that are intended for women and children. Said provision cannot be construed to encompass even the dissemination of information to health professionals, as restricted by the Milk Code. 5. Next, petitioner alleges that Section 8(e)68 of the Milk Code permits milk manufacturers and distributors to extend assistance in research and in the continuing education of health professionals, while Sections 22 and 32 of the RIRR absolutely forbid the same. Petitioner also assails Section 4(i)69 of the RIRR prohibiting milk manufacturers' and distributors' participation in any policymaking body in relation to the advancement of breastfeeding. Section 4(i) of the RIRR provides that milk companies and their representatives should not form part of any policymaking body or entity in relation to the advancement of breastfeeding. The Court finds nothing in said provisions which contravenes the Milk Code. Note that under Section 12(b) of the Milk Code, it is the DOH which shall be principally responsible for the implementation and enforcement of the provisions of said Code. It is entirely up to the DOH to decide which entities to call upon or allow to be part of policymaking bodies on breastfeeding. Therefore, the RIRR's prohibition on milk companies participation in any policymaking body in relation to the advancement of breastfeeding is in accord with the Milk Code. Petitioner is also mistaken in arguing that Section 22 of the RIRR prohibits milk companies from giving reasearch assistance and continuing education to health professionals. Section 2270 of the RIRR does not pertain to research assistance to or the continuing education of health professionals; rather, it deals with breastfeeding promotion and education for women and children. Nothing in Section 22 of the RIRR prohibits milk companies from giving assistance for research or continuing education to health professionals; hence, petitioner's argument against this particular provision must be struck down. It is Sections 971 and 1072 of the RIRR which govern research assistance. Said sections of the RIRR provide that research assistance for health workers and researchers may be allowed upon approval of an ethics committee, and with certain disclosure requirements imposed on the milk company and on the recipient of the research award. The Milk Code endows the DOH with the power to determine how such research or educational assistance may be given by milk companies or under what conditions health workers may accept the assistance. Thus, Sections 9 and 10 of the RIRR imposing limitations on the kind of research done or extent of assistance given by milk companies are completely in accord with the Milk Code. Petitioner complains that Section 3273 of the RIRR prohibits milk companies from giving assistance, support, logistics or training to health workers. This provision is within the prerogative given to the DOH under Section 8(e)74 of the Milk Code, which provides that manufacturers and distributors of breastmilk substitutes may assist in researches, scholarships and the continuing education, of health professionals in accordance with the rules and regulations promulgated by the Ministry of Health, now DOH.

67

6. As to the RIRR's prohibition on donations, said provisions are also consistent with the Milk Code. Section 6(f) of the Milk Code provides that donations may be made by manufacturers and distributors of breastmilk substitutes upon the request or with the approval of the DOH. The law does not proscribe the refusal of donations. The Milk Code leaves it purely to the discretion of the DOH whether to request or accept such donations. The DOH then appropriately exercised its discretion through Section 5175 of the RIRR which sets forth its policy not to request or approve donations from manufacturers and distributors of breastmilk substitutes. It was within the discretion of the DOH when it provided in Section 52 of the RIRR that any donation from milk companies not covered by the Code should be coursed through the IAC which shall determine whether such donation should be accepted or refused. As reasoned out by respondents, the DOH is not mandated by the Milk Code to accept donations. For that matter, no person or entity can be forced to accept a donation. There is, therefore, no real inconsistency between the RIRR and the law because the Milk Code does not prohibit the DOH from refusing donations. 7. With regard to Section 46 of the RIRR providing for administrative sanctions that are not found in the Milk Code, the Court upholds petitioner's objection thereto. Respondent's reliance on Civil Aeronautics Board v. Philippine Air Lines, Inc.76 is misplaced. The glaring difference in said case and the present case before the Court is that, in the Civil Aeronautics Board, the Civil Aeronautics Administration (CAA) was expressly granted by the law (R.A. No. 776) the power to impose fines and civil penalties, while the Civil Aeronautics Board (CAB) was granted by the same law the power to review on appeal the order or decision of the CAA and to determine whether to impose, remit, mitigate, increase or compromise such fine and civil penalties. Thus, the Court upheld the CAB's Resolution imposing administrative fines. In a more recent case, Perez v. LPG Refillers Association of the Philippines, Inc.,77 the Court upheld the Department of Energy (DOE) Circular No. 2000-06-10 implementing Batas Pambansa (B.P.) Blg. 33. The circular provided for fines for the commission of prohibited acts. The Court found that nothing in the circular contravened the law because the DOE was expressly authorized by B.P. Blg. 33 and R.A. No. 7638 to impose fines or penalties. In the present case, neither the Milk Code nor the Revised Administrative Code grants the DOH the authority to fix or impose administrative fines. Thus, without any express grant of power to fix or impose such fines, the DOH cannot provide for those fines in the RIRR. In this regard, the DOH again exceeded its authority by providing for such fines or sanctions in Section 46 of the RIRR. Said provision is, therefore, null and void. The DOH is not left without any means to enforce its rules and regulations. Section 12(b) (3) of the Milk Code authorizes the DOH to "cause the prosecution of the violators of this Code and other pertinent laws on products covered by this Code." Section 13 of the Milk Code provides for the penalties to be imposed on violators of the provision of the Milk Code or the rules and regulations issued pursuant to it, to wit: SECTION 13. Sanctions (a) Any person who violates the provisions of this Code or the rules and regulations issued pursuant to this Code shall, upon conviction, be punished by a penalty of two (2) months to one (1) year imprisonment or a fine of not less than One Thousand Pesos (P1,000.00) nor more than Thirty Thousand Pesos (P30,000.00) or both. Should the offense be committed by a juridical person, the chairman of the Board of Directors, the president, general manager, or the partners and/or the persons directly responsible therefor, shall be penalized.

68

(b) Any license, permit or authority issued by any government agency to any health worker, distributor, manufacturer, or marketing firm or personnel for the practice of their profession or occupation, or for the pursuit of their business, may, upon recommendation of the Ministry of Health, be suspended or revoked in the event of repeated violations of this Code, or of the rules and regulations issued pursuant to this Code. (Emphasis supplied) 8. Petitioners claim that Section 57 of the RIRR repeals existing laws that are contrary to the RIRR is frivolous. Section 57 reads: SECTION 57. Repealing Clause - All orders, issuances, and rules and regulations or parts thereof inconsistent with these revised rules and implementing regulations are hereby repealed or modified accordingly. Section 57 of the RIRR does not provide for the repeal of laws but only orders, issuances and rules and regulations. Thus, said provision is valid as it is within the DOH's rulemaking power. An administrative agency like respondent possesses quasi-legislative or rule-making power or the power to make rules and regulations which results in delegated legislation that is within the confines of the granting statute and the Constitution, and subject to the doctrine of non-delegability and separability of powers.78 Such express grant of rulemaking power necessarily includes the power to amend, revise, alter, or repeal the same.79 This is to allow administrative agencies flexibility in formulating and adjusting the details and manner by which they are to implement the provisions of a law,80 in order to make it more responsive to the times. Hence, it is a standard provision in administrative rules that prior issuances of administrative agencies that are inconsistent therewith are declared repealed or modified. In fine, only Sections 4(f), 11 and 46 are ultra vires, beyond the authority of the DOH to promulgate and in contravention of the Milk Code and, therefore, null and void. The rest of the provisions of the RIRR are in consonance with the Milk Code. Lastly, petitioner makes a "catch-all" allegation that: x x x [T]he questioned RIRR sought to be implemented by the Respondents is unnecessary and oppressive, and is offensive to the due process clause of the Constitution, insofar as the same is in restraint of trade and because a provision therein is inadequate to provide the public with a comprehensible basis to determine whether or not they have committed a violation.81 (Emphasis supplied) Petitioner refers to Sections 4(f),82 4(i),83 5(w),84 11,85 22,86 32,87 46,88 and 5289 as the provisions that suppress the trade of milk and, thus, violate the due process clause of the Constitution. The framers of the constitution were well aware that trade must be subjected to some form of regulation for the public good. Public interest must be upheld over business interests.90 In Pest Management Association of the Philippines v. Fertilizer and Pesticide Authority,91 it was held thus: Furthermore, as held in Association of Philippine Coconut Desiccators v. Philippine Coconut Authority, despite the fact that "our present Constitution enshrines free enterprise as a policy, it nonetheless reserves to the government the power to intervene whenever necessary to promote the general welfare."

69

There can be no question that the unregulated use or proliferation of pesticides would be hazardous to our environment. Thus, in the aforecited case, the Court declared that "free enterprise does not call for removal of protective regulations." x x x It must be clearly explained and proven by competent evidence just exactly how such protective regulation would result in the restraint of trade. [Emphasis and underscoring supplied] In this case, petitioner failed to show that the proscription of milk manufacturers participation in any policymaking body (Section 4(i)), classes and seminars for women and children (Section 22); the giving of assistance, support and logistics or training (Section 32); and the giving of donations (Section 52) would unreasonably hamper the trade of breastmilk substitutes. Petitioner has not established that the proscribed activities are indispensable to the trade of breastmilk substitutes. Petitioner failed to demonstrate that the aforementioned provisions of the RIRR are unreasonable and oppressive for being in restraint of trade. Petitioner also failed to convince the Court that Section 5(w) of the RIRR is unreasonable and oppressive. Said section provides for the definition of the term "milk company," to wit: SECTION 5 x x x. (w) "Milk Company" shall refer to the owner, manufacturer, distributor of infant formula, follow-up milk, milk formula, milk supplement, breastmilk substitute or replacement, or by any other description of such nature, including their representatives who promote or otherwise advance their commercial interests in marketing those products; On the other hand, Section 4 of the Milk Code provides: (d) "Distributor" means a person, corporation or any other entity in the public or private sector engaged in the business (whether directly or indirectly) of marketing at the wholesale or retail level a product within the scope of this Code. A "primary distributor" is a manufacturer's sales agent, representative, national distributor or broker. (j) "Manufacturer" means a corporation or other entity in the public or private sector engaged in the business or function (whether directly or indirectly or through an agent or and entity controlled by or under contract with it) of manufacturing a products within the scope of this Code. Notably, the definition in the RIRR merely merged together under the term "milk company" the entities defined separately under the Milk Code as "distributor" and "manufacturer." The RIRR also enumerated in Section 5(w) the products manufactured or distributed by an entity that would qualify it as a "milk company," whereas in the Milk Code, what is used is the phrase "products within the scope of this Code." Those are the only differences between the definitions given in the Milk Code and the definition as restated in the RIRR. Since all the regulatory provisions under the Milk Code apply equally to both manufacturers and distributors, the Court sees no harm in the RIRR providing for just one term to encompass both entities. The definition of "milk company" in the RIRR and the definitions of "distributor" and "manufacturer" provided for under the Milk Code are practically the same. The Court is not convinced that the definition of "milk company" provided in the RIRR would bring about any change in the treatment or regulation of "distributors" and "manufacturers" of breastmilk substitutes, as defined under the Milk Code.

70

Except Sections 4(f), 11 and 46, the rest of the provisions of the RIRR are in consonance with the objective, purpose and intent of the Milk Code, constituting reasonable regulation of an industry which affects public health and welfare and, as such, the rest of the RIRR do not constitute illegal restraint of trade nor are they violative of the due process clause of the Constitution. WHEREFORE, the petition is PARTIALLY GRANTED. Sections 4(f), 11 and 46 of Administrative Order No. 2006-0012 dated May 12, 2006 are declared NULL and VOID for being ultra vires. The Department of Health and respondents are PROHIBITED from implementing said provisions. The Temporary Restraining Order issued on August 15, 2006 is LIFTED insofar as the rest of the provisions of Administrative Order No. 2006-0012 is concerned. SO ORDERED.

71

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 109976 April 26, 2005

PHILIPPINE NATIONAL OIL COMPANY, Petitioner, vs. THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL REVENUE and TIRSO SAVELLANO, Respondents. x--------------------x G.R. No. 112800 April 26, 2005

PHILIPPINE NATIONAL BANK, Petitioner, vs. THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, TIRSO B. SAVELLANO and COMMISSIONER OF INTERNAL REVENUE, Respondents. DECISION CHICO-NAZARIO, J.: This is a consolidation of two Petitions for Review on Certiorari filed by the Philippine National Oil Company (PNOC)1 and the Philippine National Bank (PNB),<2 assailing the decisions of the Court of Appeals in CA-G.R. SP No. 295833 and CA-G.R. SP No. 29526,4 respectively, which both affirmed the decision of the Court of Tax Appeals (CTA) in CTA Case No. 4249.5 The Petitions before this Court originated from a sworn statement submitted by private respondent Tirso B. Savellano (Savellano) to the Bureau of Internal Revenue (BIR) on 24 June 1986. Through his sworn statement, private respondent Savellano informed the BIR that PNB had failed to withhold the 15% final tax on interest earnings and/or yields from the money placements of PNOC with the said bank, in violation of Presidential Decree (P.D.) No. 1931. P.D. No. 1931, which took effect on 11 June 1984, withdrew all tax exemptions of government-owned and controlled corporations. In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxes on the interests earned by its money placements with PNB and which PNB did not withhold.6 PNOC wrote the BIR on 25 September 1986, and made an offer to compromise its tax liability, which it estimated to be in the sum of P304,419,396.83, excluding interest and surcharges, as of 31 July 1986. PNOC proposed to set-off its tax liability against a claim for tax refund/credit of the National Power Corporation (NAPOCOR), then pending with the BIR, in the amount of P335,259,450.21. The amount of the claim for tax refund/credit was supposedly a receivable account of PNOC from NAPOCOR.7 On 08 October 1986, the BIR sent a demand letter to PNB, as withholding agent, for the payment of the final tax on the interest earnings and/or yields from PNOC's money placements with the bank, from 15 October 1984 to 15 October 1986, in the total amount of P376,301,133.33.8 On the same date, the BIR also mailed a letter to PNOC informing it of the demand letter sent to PNB.9

72

PNOC, in another letter, dated 14 October 1986, reiterated its proposal to settle its tax liability through the set-off of the said tax liability against NAPOCOR'S pending claim for tax refund/credit.10 The BIR replied on 11 November 1986 that the proposal for set-off was premature since NAPOCOR's claim was still under process. Once more, BIR requested PNOC to settle its tax liability in the total amount of P385,961,580.82, consisting of P303,343,765.32 final tax, plus P82,617,815.50 interest computed until 15 November 1986.11 On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC proposed a compromise by paying P91,003,129.89, representing 30% of the P303,343,766.29 basic tax, in accordance with the provisions of Executive Order (E.O.) No. 44.12 Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987, accepted the compromise. The BIR received a total tax payment on the interest earnings and/or yields from PNOC's money placements with PNB in the amount of P93,955,479.12, broken down as follows: Previous payment made by PNB Add: Payment made by PNOC pursuant to the compromise agreement of June 22, 1987 Total tax payment P P 2,952,349.23 91,003,129.89

93,955,479.1213

Private respondent Savellano, through four installments, was paid the informer's reward in the total amount of P14,093,321.89, representing 15% of the P93,955,479.12 tax collected by the BIR from PNOC and PNB. He received the last installment on 01 December 1987.14 On 07 January 1988, private respondent Savellano, through his legal counsel, wrote the BIR to demand payment of the balance of his informer's reward, computed as follows: BIR tax assessment Final tax rate Informer's reward due (BIR deficiency tax assessment x Final tax rate) Less: Payment received by private respondent Savellano Outstanding balance P 385,961,580.82 0.15 P 57,894,237.12 P 14,093,321.89

P 43,800,915.2515

BIR Commissioner Tan replied through a letter, dated 08 March 1988, that private respondent Savellano was already fully paid the informer's reward equivalent to 15% of the amount of tax actually collected by the BIR pursuant to its compromise agreement with PNOC. BIR Commissioner Tan further explained that the compromise was in accordance with the provisions of E.O. No. 44, Revenue Memorandum Order (RMO) No. 39-86, and RMO No. 4-87.16 Private respondent Savellano submitted another letter, dated 24 March 1988, to BIR Commissioner Tan, seeking reconsideration of his decision to compromise the tax liability of PNOC. In the same letter, private respondent Savellano questioned the legality of the compromise agreement entered into by the BIR and PNOC and claimed that the tax liability should have been collected in full.17 On 08 April 1988, while the aforesaid Motion for Reconsideration was still pending with the BIR, private respondent Savellano filed a Petition for Review ad cautelam with the

73

CTA, docketed as CTA Case No. 4249. He claimed therein that BIR Commissioner Tan acted "with grave abuse of discretion and/or whimsical exercise of jurisdiction" in entering into a compromise agreement that resulted in "a gross and unconscionable diminution" of his reward. Private respondent Savellano prayed for the enforcement and collection of the total tax assessment against taxpayer PNOC and/or withholding agent PNB; and the payment to him by the BIR Commissioner of the 15% informer's reward on the total tax collected.18 He would later amend his Petition to implead PNOC and PNB as necessary and indispensable parties since they were parties to the compromise agreement.19 In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no cause of action against him, and that private respondent Savellano was already paid the informer's reward due him. Alleging that the Petition was baseless and malicious, BIR Commissioner Tan filed a counterclaim for exemplary damages against private respondent Savellano.20 PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked jurisdiction to decide the case.21 In its Resolution, dated 28 November 1988, the CTA denied the Motions to Dismiss since the question of lack of jurisdiction and/or cause of action do not appear to be indubitable.22 After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their respective Answers to the amended Petition. PNOC averred, among other things, that (1) it had no privity with private respondent Savellano; (2) the BIR Commissioner's discretionary act in entering into the compromise agreement had legal basis under E.O. No. 44 and RMO No. 39-86 and RMO No. 4-87; and (3) the CTA had no jurisdiction to resolve the case against it.23 On the other hand, PNB asserted that (1) the CTA lacked jurisdiction over the case; and (2) the BIR Commissioner's decision to accept the compromise was discretionary on his part and, therefore, cannot be reviewed or interfered with by the courts.24 PNOC and PNB later filed their amended Answer invoking an opinion of the Commission on Audit (COA) disallowing the payment by the BIR of informer's reward to private respondent Savellano.25 The CTA, thereafter, ordered the parties to submit their evidence,26 to be followed by their respective Memoranda.27 On 23 November 1990, private respondent Savellano, filed a Manifestation with Motion for Suspension of Proceedings, claiming that his pending Motion for Reconsideration with the BIR Commissioner may soon be resolved.28 Both PNOC and PNB opposed the said Motion.29 Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB, dated 16 January 1991, demanded that PNB pay deficiency withholding tax on the interest earnings and/or yields from PNOC's money placements, in the amount of P294,958,450.73, computed as follows: Withholding tax, plus interest under the P letter of demand dated November 11, 1986 Less: Amount paid under E.O. No. 44 P Amount still due and collectible P 385,961,580.82 91,003,129.89 294,958,450.7330

This BIR letter was received by PNB on 06 February 1991,31 and was protested by it through a letter, dated 11 April 1991.32 The BIR denied PNB's protest on the ground that it was filed out of time and, thus, the assessment had already become final.33

74

Private respondent Savellano, on 22 February 1991, filed an Omnibus Motion moving to withdraw his previous Motion for Suspension of Proceeding since BIR Commissioner Ong had finally resolved his Motion for Reconsideration, and submitting by way of supplemental offer of evidence (1) the letter of BIR Commissioner Ong, dated 13 February 1991, informing private respondent Savellano of the action on his Motion for Reconsideration; and (2) the demand-letter of BIR Commissioner Ong to PNB, dated 16 January 1991.34 Despite the oppositions of PNOC and PNB, the CTA, in a Resolution, dated 02 May 1991, resolved to allow private respondent Savellano to withdraw his previous Motion for Suspension of Proceeding and to admit the supplementary evidence being offered by the same party.35 In its Order, dated 03 June 1991, the CTA considered the case submitted for decision as of the following day, 04 June 1991.36 On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR assessment, dated 16 January 1991, for deficiency withholding tax in the sum of P294,958,450.73. PNB alleged that its appeal to the DOJ was sanctioned under P.D. No. 242, which provided for the administrative settlement of disputes between government offices, agencies, and instrumentalities, including government-owned and controlled corporations.37 Three days later, on 14 June 1991, PNB filed a Motion to Suspend Proceedings before the CTA since it had a pending appeal before the DOJ.38 On 04 July 1991, PNB filed with the CTA a Motion for Reconsideration of its Order, dated 03 June 1991, submitting the case for decision as of 04 June 1991, and prayed that the CTA hold its resolution of the case in view of PNB's appeal pending before the DOJ.39 On 17 July 1991, PNB filed a Motion to Suspend the Collection of Tax by the BIR. It alleged that despite its request for reconsideration of the deficiency withholding tax assessment, dated 16 January 1991, BIR Commissioner Ong sent another letter, dated 23 April 1991, demanding payment of the P294,958,450.73 deficiency withholding tax on the interest earnings and/or yields from PNOC's money placements. The same letter informed PNB that this was the BIR Commissioner's final decision on the matter and that the BIR Commissioner was set to issue a warrant of distraint and/or levy against PNB's deposits with the Central Bank of the Philippines. PNB further alleged that the levy and distraint of PNB's deposits, unless restrained by the CTA, would cause great and irreparable prejudice not only to PNB, a government-owned and controlled corporation, but also to the Government itself.40 Pursuant to the Order of the CTA, during the hearing on 19 July 1991,41 the parties submitted their respective Memoranda on PNB's Motion to Suspend Proceedings.42 On 20 September 1991, private respondent Savellano filed another Omnibus Motion calling the attention of the CTA to the fact that the BIR already issued, on 12 August 1991, a warrant of garnishment addressed to the Central Bank Governor and against PNB. In compliance with the said warrant, the Central Bank issued, on 23 August 1991, a debit advice against the demand deposit account of PNB with the Central Bank for the amount of P294,958,450.73, with a corresponding transfer of the same amount to the demand deposit-in-trust of BIR with the Central Bank. Since the assessment had already been enforced, PNB's Motion to Suspend Proceedings became moot and academic. Private respondent Savellano, thus, moved for the denial of PNB's Motion to Suspend Proceedings and for an order requiring BIR to deposit with the CTA the amount of P44,243,767.00 as his informer's reward, representing 15% of the deficiency withholding tax collected.43

75

Both PNOC and PNB opposed private respondent Savellano's Omnibus Motion, dated 20 September 1991, arguing that the DOJ already ordered the suspension of the collection of the tax deficiency. There was therefore no basis for private respondent Savellano's Motion as the same was premised on the erroneous assumption that the tax deficiency had been collected. When the DOJ denied the BIR Commissioner's Motion to Dismiss and required him to file his answer, the DOJ assumed jurisdiction over PNB's appeal, and the CTA should first suspend its proceedings to give the DOJ the opportunity to decide the validity and propriety of the tax assessment against PNB.44 The CTA, on 28 May 1992, rendered its decision, wherein it upheld its jurisdiction and disposed of the case as follows: WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the Bureau of Internal Revenue, on the one hand, and the Philippine National Oil Company and Philippine National Bank, on the other, as WITHOUT FORCE AND EFFECT; The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of January 16, 1991 against Philippine National Bank which has become final and unappealable by collecting from Philippine National Bank the deficiency withholding tax, plus interest totalling (sic) P294,958,450.73; Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his entitlement to informer's reward based on fifteen percent (15%) of the deficiency withholding total tax collected in this case or P44,243.767.00 subject to existing rules and regulations governing payment of reward to informers.45 In a Resolution, dated 16 November 1992, the CTA denied the Motions for Reconsideration filed by PNOC and PNB since they substantially raised the same issues in their previous pleadings and which had already been passed upon and resolved adversely against them.46 PNOC and PNB filed separate appeals with the Court of Appeals seeking the reversal of the CTA decision in CTA Case No. 4249, dated 28 May 1992, and the CTA Resolution in the same case, dated 16 November 1992. PNOC's appeal was docketed as CA-G.R. SP No. 29583, while PNB's appeal was CA-G.R. SP No. 29526. In both cases, the Court of Appeals affirmed the decision of the CTA. In the meantime, the Central Bank again issued on 02 September 1992 a debit advice against the demand deposit account of PNB with the Central Bank for the amount of P294,958,450.73,47 and on 15 September 1992, credited the same amount to the demand deposit account of the Treasurer of the Republic of the Philippines.48 On 04 November 1992, the Treasurer of the Republic issued a journal voucher transferring P294,958,450.73 to the account of the BIR.49 PNB, in turn, debited P294,958,450.73 from the deposit account of PNOC with PNB.50 PNOC and PNB then filed separate Petitions for Review on Certiorari with this Court, praying that the decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526, respectively, both affirming the decision of the CTA in CTA Case No. 4249, be reversed and set aside. These two Petitions were consolidated since they involved identical parties and factual background, and the resolution of related, if not exactly, the same issues. In its Petition for Review, PNOC alleged the following errors committed by the Court of Appeals in CA-G.R. SP No. 29583:

76

1. The Court of Appeals erred in holding that the deficiency taxes of PNOC could not be the subject of a compromise under Executive Order No. 44; and 2. The Court of Appeals erred in holding that Savellano is entitled to additional informer's reward.51 PNB, in its own Petition for Review, assailed the decision of the Court of Appeals in CAG.R. SP No. 29526, assigning the following errors: 1. Respondent Court erred in not finding that the Court of Tax Appeals lacks jurisdiction on the controversy involving BIR and PNB (both government instrumentalities) regarding the new assessment of BIR against PNB; 2. The respondent Court erred in not finding that the Court of Tax Appeals has no jurisdiction to question the compromise agreement entered into by the Commissioner of Internal Revenue; and 3. The respondent Court erred in not ruling that the Commissioner of Internal Revenue cannot unilaterally annul tax compromises validly entered into by his predecessor.52 The decisions of the Court of Appeals in CA-GR SP No. 29583 and CA-G.R. SP No. 29526, affirmed the decision of the CTA in CTA Case No. 4249. The resolution, therefore, of the assigned errors in the Court of Appeals' decisions essentially requires a review of the CTA decision itself. In consolidating the present Petitions, this Court finds that PNOC and PNB are basically questioning the (1) Jurisdiction of the CTA in CTA Case No. 4249; (2) Declaration by the CTA that the compromise agreement was without force and effect; (3) Finding of the CTA that the deficiency withholding tax assessment against PNB had already become final and unappealable and, thus, enforceable; and (4) Order of the CTA directing payment of additional informer's reward to private respondent Savellano. I Jurisdiction of the CTA A. The demand letter, dated 16 January 1991 did not constitute a new assessment against PNB. The main argument of PNB in assailing the jurisdiction of the CTA in CTA Case No. 4249 is that the BIR demand letter, dated 16 January 1991,53 should be considered as a new assessment against PNB. As a new assessment, it gave rise to a new dispute and controversy solely between the BIR and PNB that should be administratively settled or adjudicated, as provided in P.D. No. 242. This argument is without merit. The issuance by the BIR of the demand letter, dated 16 January 1991, was merely a development in the continuing effort of the BIR to collect the tax assessed against PNOC and PNB way back in 1986. BIR's first letter, dated 08 August 1986, was addressed to PNOC, requesting it to settle its tax liability. The BIR subsequently sent another letter, dated 08 October 1986, to PNB, as withholding agent, demanding payment of the tax it had failed to withhold on the interest earnings and/or yields from PNOC's money placements. PNOC wrote the BIR three succeeding letters offering to compromise its tax liability; PNB, on the other hand, did not act on the demand letter it received, dated 08 October 1986. The BIR and PNOC eventually reached a compromise agreement on 22 June 1987. Private

77

respondent Savellano questioned the validity of the compromise agreement because the reduced amount of tax collected from PNOC, by virtue of the compromise agreement, also proportionately reduced his informer's reward. Private respondent Savellano then requested the BIR Commissioner to review and reconsider the compromise agreement. Acting on the request of private respondent Savellano, the new BIR Commissioner declared the compromise agreement to be without basis and issued the demand letter, dated 16 January 1991, against PNB, as the withholding agent for PNOC. It is clear from the foregoing that the BIR demand letter, dated 16 January 1991, could not stand alone as a new assessment. It should always be considered in the factual context summarized above. In fact, the demand letter, dated 16 January 1991, actually referred to the withholding tax assessment first issued in 1986 and its eventual settlement through a compromise agreement. In addition, the computation of the deficiency withholding tax was based on the figures from the 1986 assessments against PNOC and PNB, and BIR no longer conducted a new audit or investigation of either PNOC and PNB before it issued the demand letter on 16 January 1991. These constant references to past events and circumstances demonstrate that the demand letter, dated 16 January 1991, was not a new assessment, but rather, the latest action taken by the BIR to collect on the tax assessments issued against PNOC and PNB in 1986. PNB argues that the demand letter, dated 16 January 1991, introduced a new controversy. We see it differently as the said demand letter presented the resolution by BIR Commissioner Ong of the previous controversy involving the compromise of the 1986 tax assessments. BIR Commissioner Ong explicitly declared therein that the compromise agreement was without legal basis, and requested PNB, as the withholding agent, to pay the amount of withholding tax still due. B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of Republic Act No. 1125. Having established that the BIR demand letter, dated 16 January 1991, did not constitute a new assessment, then, there could be no basis for PNB's claim that any dispute arising from the new assessment should only be between BIR and PNB. Still proceeding from the argument that there was a new dispute between PNB and BIR, PNB sought the suspension of the proceedings in CTA Case No. 4249, after it contested the deficiency withholding tax assessment against it and the demand for payment thereof before the DOJ, pursuant to P.D. No. 242. The CTA, however, correctly sustained its jurisdiction and continued the proceedings in CTA Case No. 4249; and, in effect, rejected DOJ's claim of jurisdiction to administratively settle or adjudicate BIR's assessment against PNB. The CTA assumed jurisdiction over the Petition for Review filed by private respondent Savellano based on the following provision of Rep. Act No. 1125, the Act creating the Court of Tax Appeals: SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided (1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising

78

under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue; . . . (Underscoring ours.) In his Petition before the CTA, private respondent Savellano requested a review of the decisions of then BIR Commissioner Tan to enter into a compromise agreement with PNOC and to reject his claim for additional informer's reward. He submitted before the CTA questions of law involving the interpretation and application of (1) E.O. No. 44, and its implementing rules and regulations, which authorized the BIR Commissioner to compromise delinquent accounts and disputed assessments pending as of 31 December 1985; and (2) Section 316(1) of the National Internal Revenue Code of 1977 (NIRC of 1977), as amended, which granted to the informer a reward equivalent to 15% of the actual amount recovered or collected by the BIR.54 These should undoubtedly be considered as matters arising from the NIRC and other laws being administered by the BIR, thus, appealable to the CTA under Section 7(1) of Rep. Act No. 1125. PNB, however, insists on the jurisdiction of the DOJ over its appeal of the deficiency withholding tax assessment by virtue of P.D. No. 242. Provisions on jurisdiction of P.D. No. 242 read: SECTION 1. Provisions of law to the contrary notwithstanding, all disputes, claims and controversies solely between or among the departments, bureaus, offices, agencies, and instrumentalities of the National Government, including government-owned or controlled corporations, but excluding constitutional offices or agencies, arising from the interpretation and application of statutes, contracts or agreements, shall henceforth be administratively settled or adjudicated as provided hereinafter; Provided, That this shall not apply to cases already pending in court at the time of the effectivity of this decree. SECTION 2. In all cases involving only questions of law, the same shall be submitted to and settled or adjudicated by the Secretary of Justice, as Attorney General and ex officio legal adviser of all government-owned or controlled corporations and entities, in consonance with Section 83 of the Revised Administrative Code. His ruling or determination of the question in each case shall be conclusive and binding upon all the parties concerned. SECTION 3. Cases involving mixed questions of law and of fact or only factual issues shall be submitted to and settled or adjudicated by: (a) The Solicitor General, with respect to disputes or claims controversies between or among the departments, bureaus, offices and other agencies of the National Government; (b) The Government Corporate Counsel, with respect to disputes or claims or controversies between or among government-owned or controlled corporations or entities being served by the Office of the Government Corporate Counsel; and (c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not fall under the categories mentioned in paragraphs (a) and (b). The PNB and DOJ are of the same position that P.D. No. 242, the more recent law, repealed Section 7(1) of Rep. Act No. 1125,55 based on the pronouncement of this Court in Development Bank of the Philippines v. Court of Appeals, et al., 56] quoted below: The Court expresses its entire agreement with the conclusion of the Court of Appeals and the basic premises thereof that there is an "irreconcilable

79

repugnancybetween Section 7(2) of R.A. No. 1125 and P.D. No. 242," and hence, that the later enactment (P.D. No. 242), being the latest expression of the legislative will, should prevail over the earlier. In the said case, it was expressly declared that P.D. No. 242 repealed Section 7(2) of Rep. Act No. 1125, which provides for the exclusive appellate jurisdiction of the CTA over decisions of the Commissioner of Customs. PNB contends that P.D. No. 242 should be deemed to have likewise repealed Section 7(1) of Rep. Act No. 1125, which provide for the exclusive appellate jurisdiction of the CTA over decisions of the BIR Commissioner.57 After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and P.D. No. 242, this Court finds itself in disagreement with the pronouncement made in Development Bank of the Philippines v. Court of Appeals, et al.,58 and refers to the earlier case of Lichauco & Company, Inc. v. Apostol, et al.,59 for the guidelines in determining the relation between the two statutes in question, to wit: The cases relating to the subject of repeal by implication all proceed on the assumption that if the act of later date clearly reveals an intention on the part of the law making power to abrogate the prior law, this intention must be given effect; but there must always be a sufficient revelation of this intention, and it has become an unbending rule of statutory construction that the intention to repeal a former law will not be imputed to the Legislature when it appears that the two statutes, or provisions, with reference to which the question arises bear to each other the relation of general to special. (Underscoring ours.) When there appears to be an inconsistency or conflict between two statutes and one of the statutes is a general law, while the other is a special law, then repeal by implication is not the primary rule applicable. The following rule should principally govern instead: Specific legislation upon a particular subject is not affected by a general law upon the same subject unless it clearly appears that the provisions of the two laws are so repugnant that the legislators must have intended by the later to modify or repeal the earlier legislation. The special act and the general law must stand together, the one as the law of the particular subject and the other as the general law of the land. (Ex Parte United States, 226 U. S., 420; 57 L. ed., 281; Ex Parte Crow Dog, 109 U. S., 556; 27 L. ed., 1030; Partee vs. St. Louis & S. F. R. Co., 204 Fed. Rep., 970.) Where there are two acts or provisions, one of which is special and particular, and certainly includes the matter in question, and the other general, which, if standing alone, would include the same matter and thus conflict with the special act or provision, the special must be taken as intended to constitute an exception to the general act or provision, especially when such general and special acts or provisions are contemporaneous, as the Legislature is not to be presumed to have intended a conflict. (Crane v. Reeder and Reeder, 22 Mich., 322, 334; University of Utah vs. Richards, 77 Am. St. Rep., 928.)60 It has, thus, become an established rule of statutory construction that between a general law and a special law, the special law prevails Generalia specialibus non derogant.61 Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a general law that deals with administrative settlement or adjudication of disputes, claims and controversies between or among government offices, agencies and instrumentalities, including government-owned or controlled corporations. Its coverage is broad and sweeping, encompassing all disputes, claims and controversies. It has been incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as the Revised Administrative Code of the Philippines.62 On the other hand, Rep. Act No. 1125 is a

80

special law63 dealing with a specific subject matter the creation of the CTA, which shall exercise exclusive appellate jurisdiction over the tax disputes and controversies enumerated therein. Following the rule on statutory construction involving a general and a special law previously discussed, then P.D. No. 242 should not affect Rep. Act No. 1125. Rep. Act No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and controversies, falling under Section 7 of Rep. Act No. 1125, even though solely among government offices, agencies, and instrumentalities, including government-owned and controlled corporations, remain in the exclusive appellate jurisdiction of the CTA. Such a construction resolves the alleged inconsistency or conflict between the two statutes, and the fact that P.D. No. 242 is the more recent law is no longer significant. Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No. 1125, the present dispute would still not be covered by P.D. No. 242. Section 1 of P.D. No. 242 explicitly provides that only disputes, claims and controversies solely between or among departments, bureaus, offices, agencies, and instrumentalities of the National Government, including constitutional offices or agencies, as well as government-owned and controlled corporations, shall be administratively settled or adjudicated. While the BIR is obviously a government bureau, and both PNOC and PNB are government-owned and controlled corporations, respondent Savellano is a private citizen. His standing in the controversy could not be lightly brushed aside. It was private respondent Savellano who gave the BIR the information that resulted in the investigation of PNOC and PNB; who requested the BIR Commissioner to reconsider the compromise agreement in question; and who initiated CTA Case No. 4249 by filing a Petition for Review. In Bay View Hotel, Inc. v. Manila Hotel Workers' Union-PTGWO, et al.,64] this Court upheld the jurisdiction of the Court of Industrial Relations over the ordinary courts and justified its decision in the following manner: We are unprepared to break away from the teaching in the cases just adverted to. To draw a tenuous jurisdictional line is to undermine stability in labor litigations. A piecemeal resort to one court and another gives rise to multiplicity of suits. To force the employees to shuttle from one court to another to secure full redress is a situation gravely prejudicial. The time to be lost, effort wasted, anxiety augmented, additional expense incurred these are considerations which weigh heavily against split jurisdiction. Indeed, it is more in keeping with orderly administration of justice that all the causes of action here "be cognizable and heard by only one court: the Court of Industrial Relations." The same justification is used in the present case to reject DOJ's jurisdiction over the BIR and PNB, to the exclusion of the other parties. The rights of all four parties in CTA Case No. 4249, namely the BIR, as the tax collector; PNOC, the taxpayer; PNB, the withholding agent; and private respondent Savellano, the informer claiming his reward; arose from the same factual background and were so closely interrelated, that a pronouncement as to one would definitely have repercussions on the others. The ends of justice were best served when the CTA continued to exercise its jurisdiction over CTA Case No. 4249. The CTA, which had assumed jurisdiction over all the parties to the controversy, could render a comprehensive resolution of the issues raised and grant complete relief to the parties. II Validity of the Compromise Agreement

81

A. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not a delinquent account or a disputed assessment as of 31 December 1985. PNOC and PNB, on different grounds, dispute the decision of the CTA in CTA Case No. 4249 declaring the compromise agreement between BIR and PNOC without force and effect. PNOC asserts that the compromise agreement was in accordance with E.O. No. 44, and its implementing rules and regulations, and should be binding upon the parties thereto. E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives the power to compromise any disputed assessment or delinquent account pending as of 31 December 1985, upon the payment of an amount equal to 30% of the basic tax assessed; in which case, the corresponding interests and penalties shall be condoned. E.O. No. 44 took effect on 04 September 1986 and remained effective until 31 March 1987. The disputed assessments or delinquent accounts that the BIR Commissioner could compromise under E.O. No. 44 are defined under Revenue Regulation (RR) No. 17-86, as follows: a) Delinquent account Refers to the amount of tax due on or before December 31, 1985 from a taxpayer who failed to pay the same within the time prescribed for its payment arising from (1) a self assessed tax, whether or not a tax return was filed, or (2) a deficiency assessment issued by the BIR which has become final and executory. Where no return was filed, the taxpayer shall be considered delinquent as of the time the tax on such return was due, and in availing of the compromise, a tax return shall be filed as a basis for computing the amount of compromise to be paid. b) Disputed assessment refers to a tax assessment disputed or protested on or before December 31, 1985 under any of the following categories: 1) if the same is administratively protested within thirty (30) days from the date the taxpayer received the assessment, or 2.) if the decision of the BIR on the taxpayer's administrative protest is appealed by the taxpayer before an appropriate court. PNOC's tax liability could not be considered a delinquent account since (1) it was not self-assessed, because the BIR conducted an investigation and assessment of PNOC and PNB after obtaining information regarding the non-withholding of tax from private respondent Savellano; and (2) the demand letter, issued against it on 08 August 1986, could not have been a deficiency assessment that became final and executory by 31 December 1985. The dissenting opinion contends, however, that the tax liability of PNOC constitutes a self-assessed tax, and is, therefore, a delinquent account as of 31 December 1985, qualifying for a compromise under E.O. No. 44. It anchors its argument on the declaration made by this Court in Tupaz v. Ulep,65 that internal revenue taxes are selfassessing. It is not denied herein that the self-assessing system governs Philippine internal revenue taxes. The dissenting opinion itself defines self-assessed tax as, "a tax that the taxpayer himself assesses or computes and pays to the taxing authority." Clearly, such a system imposes upon the taxpayer the obligation to conduct an assessment of himself so he

82

could determine and declare the amount to be used as tax basis, any deductions therefrom, and finally, the tax due. E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed. The phrase "whether or not a tax return was filed" only refers to the compliance by the taxpayer with the obligation to file a return on the dates specified by law, but it does not do away with the requisite that the tax must be self-assessed in order for the taxpayer to avail of the compromise. The second paragraph of Section 2(a) of RR No. 17-86 expressly commands, and still imposes upon the taxpayer, who is availing of the compromise under E.O. No. 44, and who has not previously filed any return, the duty to conduct selfassessment by filing a tax return that would be used as the basis for computing the amount of compromise to be paid. Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after conducting a self-assessment, discovers or becomes aware that he had failed to pay a tax due on or before 31 December 1985, regardless of whether he had previously filed a return to reflect such tax; voluntarily comes forward and admits to the BIR his tax liability; and applies for a compromise thereof. In case the taxpayer has not previously filed any return, he must fill out such a return reflecting therein his own declaration of the taxable amount and computation of the tax due. The compromise payment shall be computed based on the amount reflected in the tax return submitted by the taxpayer himself. Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively, conducted self-assessment in this case. There is no showing that in the absence of the tax assessment issued by the BIR against them, that PNOC and/or PNB would have voluntarily admitted their tax liabilities, already amounting to P385,961,580.82, as of 15 November 1986, and would have offered to compromise the same. In fact, both PNOC and PNB were conspicuously silent about their tax liabilities until they were assessed thereon. Any attempt by PNOC and PNB to assess and declare by themselves their tax liabilities had already been overtaken by the BIR's conduct of its audit and investigation and subsequent issuance of the assessments, dated 08 August 1986 and 08 October 1986, against PNOC and PNB, respectively. The said tax assessments, uncontested and undisputed, presented the results of the BIR audit and investigation and the computation of the total amount of tax liabilities of PNOC and PNB. They should be controlling in this case, and should not be so easily and conveniently ignored and set aside. It would be a contradiction to claim that the tax liabilities of PNOC and PNB are self-assessed and, at the same time, BIR-assessed; when it is clear and simple that it had been the BIR that conducted the assessment and determined the tax liabilities of PNOC and PNB. That the BIR-assessed tax liability should be differentiated from a self-assessed one, is supported by the provisions of RR No. 17-86 on the basis for computing the amount of compromise payment. Note that where tax liabilities are self-assessed, the compromise payment shall be computed based on the tax return filed by the taxpayer.66 On the other hand, where the BIR already issued an assessment, the compromise payment shall be computed based on the tax due on the assessment notice.67 For instances where the BIR had already issued an assessment against the taxpayer, the tax liability could still be compromised under E.O. No. 44 only if: (1) the assessment had been final and executory on or before 31 December 1985 and, therefore, considered a delinquent account as of said date;68 or (2) the assessment had been disputed or protested on or before 31 December 1985.69

83

RMO No. 39-86, which provides the guidelines for the implementation of E.O. No. 44, does mention different types of assessments that may be compromised under said statute (i.e., jeopardy assessments, arbitrary assessments, and tax assessments of doubtful validity). RMO No. 39-86 may not have expressly stated any qualification for these particular types of assessments; nonetheless, E.O. No. 44 specifically refers only to assessments that were delinquent or disputed as of 31 December 1985. E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so that they are harmonized and consistent with each other. Accordingly, this Court finds that the different types of assessments mentioned in RMO No. 39-86 would still have to qualify as delinquent accounts or disputed assessments as of 31 Dcember 1985, so that they could be compromised under E.O. No. 44. The BIR had first written to PNOC on 08 August 1986, demanding payment of the income tax on the interest earnings and/or yields from PNOC's money placements with PNB from 15 October 1984 to 15 October 1986. This demand letter could be regarded as the first assessment notice against PNOC. Such an assessment, issued only on 08 August 1986, could not have been final and executory as of 31 December 1985 so as to constitute a delinquent account. Neither was the assessment against PNOC an assessment that could have been disputed or protested on or before 31 December 1985, having been issued on a later date. Given that PNOC's tax liability did not constitute a delinquent account or a disputed assessment as of 31 December 1985, then it could not be compromised under E.O. No. 44. The assessment against PNOC, instead, was more appropriately covered by Revenue Memorandum Circular (RMC) No. 31-86. RMC No. 31-86 clarifies the scope of availment of the tax amnesty under E.O. No. 4170 and compromise payments on delinquent accounts and disputed assessments under E.O. No. 44. The third paragraph of RMC No. 31-86 reads: [T]axpayers against whom assessments had been issued from January 1 to August 21, 1986 may settle their tax liabilities by way of compromise under Section 246 of the Tax Code as amended by paying 30% of the basic assessment excluding surcharge, interest, penalties and other increments thereto. The above-quoted paragraph supports the position that only assessments that were disputed or that were final and executory by 31 December 1985 could be the subject of a compromise under E.O. No. 44. Assessments issued between 01 January to 21 August 1986 could still be compromised by payment of 30% of the basic tax assessed, not anymore pursuant to E.O. No. 44, but pursuant to Section 246 of the NIRC of 1977, as amended. Section 246 of the NIRC of 1977, as amended, granted the BIR Commissioner the authority to compromise the payment of any internal revenue tax under the following circumstances: (1) there exists a reasonable doubt as to the validity of the claim against the taxpayer; or (2) the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.71 There are substantial differences in circumstances under which compromises may be granted under Section 246 of the NIRC of 1977, as amended, and E.O. No. 44. Although PNOC and PNB have extensively argued their entitlement to compromise under E.O. No. 44, neither of them has alleged, much less, has presented any evidence to prove that it may compromise its tax liability under Section 246 of the NIRC of 1977, as amended.

84

B. The tax liability of PNB as withholding agent also did not qualify for compromise under E.O. No. 44. Before proceeding any further, this Court reconsiders the conclusion made by BIR Commissioner Ong in his demand letter, dated 16 January 1991, that the compromise settlement executed between the BIR and PNOC was without legal basis because withholding taxes were not actually taxes that could be compromised, but a penalty for PNB's failure to withhold and for which it was made personally liable. E.O. No. 44 covers disputed or delinquency cases where the person assessed was himself the taxpayer rather than a mere agent.72 RMO No. 39-86 expressly allows a withholding agent, who failed to withhold the required tax because of neglect, ignorance of the law, or his belief that he was not required by law to withhold tax, to apply for a compromise settlement of his withholding tax liability under E.O. No. 44. A withholding agent, in such a situation, may compromise the withholding tax assessment against him precisely because he is being held directly accountable for the tax.73 RMO No. 39-86 distinguishes between the withholding agent in the foregoing situation from the withholding agent who withheld the tax but failed to remit the amount to the Government. A withholding agent in the latter situation is the one disqualified from applying for a compromise settlement because he is being made accountable as an agent, who held funds in trust for the Government.74 Both situations, however, involve withholding agents. The right to compromise under these provisions should have been claimed by PNB, the withholding agent for PNOC. The BIR held PNB personally accountable for its failure to withhold the tax on the interest earnings and/or yields from PNOC's money placements with PNB. The BIR sent a demand letter, dated 08 October 1986, addressed directly to PNB, for payment of the withholding tax assessed against it, but PNB failed to take any action on the said demand letter. Yet, all the offers to compromise the withholding tax assessment came from PNOC and PNOC did not claim that it made the offers to compromise on behalf of PNB. Moreover, the general requirement of E.O. No. 44 still applies to withholding agents that the withholding tax liability must either be a delinquent account or a disputed assessment as of 31 December 1985 to qualify for compromise settlement. The demand letter against PNB, which also served as its assessment notice, had been issued on 08 October 1986 or two months later than PNOC's. PNB's withholding tax liability could not be considered a delinquent account or a disputed assessment, as defined under RR No. 17-86, for the same reasons that PNOC's tax liability did not constitute as such. The tax liability of PNB, therefore, was also not eligible for compromise settlement under E.O. No. 44. C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44, their application for compromise was filed beyond the deadline. Despite already ruling that the tax liabilities of PNOC and PNB could not be compromised under E.O. No. 44, this Court still deems it necessary to discuss the finding of the CTA that the compromise agreement had been filed beyond the effectivity of E.O. No. 44, since the CTA made a declaration in relation thereto that paragraph 2 of RMO No. 39-86 was null and void for unduly extending the effectivity of E.O. No. 44. Paragraph 2 of RMO No. 39-86 provides that: 2. Period for availment. Filing of application for compromise settlement under the said law shall be effective only until March 31, 1987. Applications filed on or before this date shall be valid even if the payment or payments of the compromise amount shall be made after the said date, subject, however, to the

85

provisions of Executive Order No. 44 and its implementing Revenue Regulations No. 17-86. It is well-settled in this jurisdiction that administrative authorities are vested with the power to make rules and regulations because it is impracticable for the lawmakers to provide general regulations for various and varying details of management. The interpretation given to a rule or regulation by those charged with its execution is entitled to the greatest weight by the court construing such rule or regulation, and such interpretation will be followed unless it appears to be clearly unreasonable or arbitrary.75 RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be unreasonable or arbitrary. It does not unduly expand the coverage of E.O. No. 44 by merely providing that applications for compromise filed until 31 March 1987 are still valid, even if payment of the compromised amount is made on a later date. It cannot be expected that the compromise allowed under E.O. No. 44 can be automatically granted upon mere filing of the application by the taxpayer. Irrefutably, the applications would still have to be processed by the BIR to determine compliance with the requirements of E.O. No. 44. As it is uncontested that a taxpayer could still file an application for compromise on 31 March 1987, the very last day of effectivity of E.O. No. 44, it would be unreasonable to expect the BIR to process and approve the taxpayer's application within the same date considering the volume of applications filed and pending approval, plus the other matters the BIR personnel would also have to attend to. Thus, RMO No. 39-86 merely assures the taxpayers that their applications would still be processed and could be approved on a later date. Payment, of course, shall be made by the taxpayer only after his application had been approved and the compromised amount had been determined. Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to be addressed is whether PNOC had been able to submit an application for compromise on or before 31 March 1987 in compliance thereof. Although the compromise agreement was executed only on 22 June 1987, PNOC is claiming that it had already written a letter to the BIR, as early as 25 September 1986, offering to compromise its tax liability, and that the said letter should be considered as PNOC's application for compromise settlement. A perusal of PNOC's letter, dated 25 September 1986, would reveal, however, that the terms of its proposed compromise did not conform to those authorized by E.O. No. 44. PNOC did not offer to pay outright 30% of the basic tax assessed against it as required by E.O. No. 44; and instead, made the following offer: (2) That PNOC be permitted to set-off its foregoing mentioned tax liability of P304,419,396.83 against the tax refund/credit claims of the National Power Corporation (NPC) for specific taxes on fuel oil sold to NPC totaling P335,259,450.21, which tax refunds/credits are actually receivable accounts of our Company from NPC.76 PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986.77 The BIR, in its letters to PNOC, dated 8 October 198678 and 11 November 1986,79 consistently denied PNOC's offer because the claim for tax refund/credit of NAPOCOR was still under process, so that the offer to set-off such claim against PNOC's tax liability was premature. Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a tax liability against a claim for tax refund/credit. Compromise under E.O. No. 44 may be availed of only in the following circumstances:

86

SEC. 3. Who may avail. Any person, natural or juridical, may settle thru a compromise any delinquent account or disputed assessment which has been due as of December 31, 1985, by paying an amount equal to thirty percent (30%) of the basic tax assessed. SEC. 6. Mode of Payment. Upon acceptance of the proposed compromise, the amount offered as compromise in complete settlement of the delinquent account shall be paid immediately in cash or manager's certified check. Deferred or staggered payments of compromise amounts over P50,000 may be considered on a case to case basis in accordance with the extant regulations of the Bureau upon approval of the Commissioner of Internal Revenue, his Deputy or Assistant as delineated in their respective jurisdictions. If the Compromise amount is not paid as required herein, the compromise agreement is automatically nullified and the delinquent account reverted to the original amount plus the statutory increments, which shall be collected thru the summary and/or judicial processes provided by law. E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish his tax liability by paying the compromise amount equivalent to 30% of the basic tax. It also benefits the Government by making collection of delinquent accounts and disputed assessments simpler, easier, and faster. Payment of the compromise amount must be made immediately, in cash or in manager's check. Although deferred or staggered payments may be allowed on a case-to-case basis, the mode of payment remains unchanged, and must still be made either in cash or in manager's check. PNOC's offer to set-off was obviously made to avoid actual cash-out by the company. The offer defeated the purpose of E.O. No. 44 because it would not only delay collection, but more importantly, it would not guarantee collection. First of all, BIR's collection was contingent on whether the claim for tax refund/credit of NAPOCOR would be subsequently granted. Second, collection could not be made immediately and would have to wait until the resolution of the claim for tax refund/credit of NAPOCOR. Third, there is no proof, other than the bare allegation of PNOC, that NAPOCOR's claim for tax refund/credit is an account receivable of PNOC. A possible dispute between NAPOCOR and PNOC as to the proceeds of the tax refund/credit would only delay collection by the BIR even further. It was only in its letter, dated 09 June 1987, that PNOC actually offered to compromise its tax liability in accordance with the terms and circumstances prescribed by E.O. No. 44 and its implementing rules and regulations, by stating that: Consequently, we reiterate our previous request for compromise under E.O. No. 44, and convey our preparedness to settle the subject tax assessment liability by payment of the compromise amount of P91,003,129.89, representing thirty percent (30%) of the basic tax assessment of P303,343,766.29, in accordance with E.O. No. 44 and its implementing BIR Revenue Memorandum Order No. 3986.80 PNOC claimed in the same letter that it had previously requested for a compromise under the terms of E.O. No. 44, but this Court could not find evidence of such previous request. There are stark and substantial differences in the terms of PNOC's offer to compromise in its earlier letters, dated 25 September 1986 and 14 October 1986 (set-off of the entire amount of its tax liability against the claim for tax refund/credit of NAPOCOR), to those in its letter, dated 09 June 1987 (payment of the compromise

87

amount representing 30% of the basic tax assessed against it), making it difficult for this Court to accept that the letter of 09 June 1987 merely reiterated PNOC's offer to compromise in its earlier letters. This Court likewise cannot give credence to PNOC's allegation that beginning 25 September 1986, the date of its first letter to the BIR, there were continuing negotiations between PNOC and BIR that culminated in the compromise agreement on 22 June 1987. Aside from the exchange of letters recounted in the preceding paragraphs, both PNOC and PNB failed to present any other proof of the supposed negotiations. After the BIR denied the second offer of PNOC to set-off its tax liability against the claim for tax refund/credit of NAPOCOR in a letter, dated 11 November 1986, there is no other evidence of subsequent communication between PNOC and the BIR. It was only after almost seven months, or on 09 June 1987, that PNOC again wrote a letter to the BIR, this time offering to pay the compromise amount of 30% of the basic tax assessed against. This letter was already filed beyond 31 March 1987, after the lapse of the effectivity of E.O. No. 44 and the deadline for filing applications for compromise under the said statute. Evidence of meetings between PNOC and the BIR, or any other form of communication, wherein the parties presented their offer and counter-offer to the other, would have been very valuable in explaining and supporting BIR Commissioner Tan's decision to accept PNOC's third offer to compromise after denying the previous two. The absence of such evidence herein negates PNOC's claim of actual negotiations with the BIR. Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB qualify as delinquent accounts or disputed assessments as of 31 December 1985, the application for compromise filed by PNOC on 09 June 1987, and accepted by then BIR Commissioner Tan on 22 June 1987, was still filed way beyond 31 March 1987, the expiration date of the effectivity of E.O. No. 44 and the deadline for filing of applications for compromise under RMO No. 39-86. D. The BIR Commissioner's discretionary authority to enter into a compromise agreement is not absolute and the CTA may inquire into allegations of abuse thereof. The foregoing discussion supports the CTA's conclusion that the compromise agreement between PNOC and the BIR was indeed without legal basis. Despite this lack of legal support for the execution of the said compromise agreement, PNB argues that the CTA still had no jurisdiction to review and set aside the compromise agreement. It contends that the authority to compromise is purely discretionary on the BIR Commissioner and the courts cannot interfere with his exercise thereof. It is generally true that purely administrative and discretionary functions may not be interfered with by the courts; but when the exercise of such functions by the administrative officer is tainted by a failure to abide by the command of the law, then it is incumbent on the courts to set matters right, with this Court having the last say on the matter.81 The manner by which BIR Commissioner Tan exercised his discretionary power to enter into a compromise was brought under the scrutiny of the CTA amidst allegations of "grave abuse of discretion and/or whimsical exercise of jurisdiction."82 The discretionary power of the BIR Commissioner to enter into compromises cannot be superior over the power of judicial review by the courts. The discretionary authority to compromise granted to the BIR Commissioner is never meant to be absolute, uncontrolled and unrestrained. No such unlimited power may be

88

validly granted to any officer of the government, except perhaps in cases of national emergency.83 In this case, the BIR Commissioner's authority to compromise, whether under E.O. No. 44 or Section 246 of the NIRC of 1977, as amended, can only be exercised under certain circumstances specifically identified in said statutes. The BIR Commissioner would have to exercise his discretion within the parameters set by the law, and in case he abuses his discretion, the CTA may correct such abuse if the matter is appealed to them.84 Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely exercised his authority to enter into a compromise specially granted by E.O. No. 44. Since this Court has already made a determination that the compromise agreement did not qualify under E.O. No. 44, BIR Commissioner Tan's decision to agree to the compromise should have been reviewed in the light of the general authority granted to the BIR Commissioner to compromise taxes under Section 246 of the NIRC of 1977, as amended. Then again, petitioners PNOC and PNB failed to allege, much less present evidence, that BIR Commissioner Tan acted in accordance with Section 246 of the NIRC of 1977, as amended, when he entered into the compromise agreement with PNOC. E. The CTA may set aside a compromise agreement that is contrary to law and public policy. PNB also asserts that the CTA had no jurisdiction to set aside a compromise agreement entered into in good faith. It relies on the decision of this Court in Republic v. Sandiganbayan85 that a compromise agreement cannot be set aside merely because it is too one-sided. A compromise agreement should be respected by the courts as the res judicata between the parties thereto. This Court, though, finds that there are substantial differences in the factual background of Republic v. Sandiganbayan and the present case. The compromise agreement executed between the Presidential Commission on Good Government (PCGG) and Roberto S. Benedicto in Republic v. Sandiganbayan was judicially approved by the Sandiganbayan. The Sandiganbayan had ample opportunity to examine the validity of the compromise agreement since two years elapsed from the time the agreement was executed up to the time it was judicially approved. This Court even stated in the said case that, "We are not dealing with the usual compromise agreement perfunctorily submitted to a court and approved as a matter of course. The PCGG-Benedicto agreement was thoroughly and, at times, disputatiously discussed before the respondent court. There could be no deception or misrepresentation foisted on either the PCGG or the Sandiganbayan."86 In addition, the new PCGG Chairman originally prayed for the re-negotiation of the compromise agreement so that it could be more just, fair, and equitable, an action considered by this Court as an implied admission that the agreement was not contrary to law, public policy or morals nor was there any circumstance which had vitiated consent.87 The above-mentioned circumstances strongly supported the validity of the compromise agreement in Republic v. Sandiganbayan, which was why this Court refused to set it aside. Unfortunately for the petitioners in the present case, the same cannot be said herein. The Court of Appeals, in upholding the jurisdiction of the CTA to set aside the compromise agreement, ruled that: We are unable to accept petitioner's submissions. Its formulation of the issues on CIR and CTA's lack of jurisdiction to disturb a compromise agreement

89

presupposes a compromise agreement validly entered into by the CIR and not, when as in this case, it was indubitably shown that the supposed compromise agreement is without legal support. In case of arbitrary or capricious exercise by the Commissioner or if the proceedings were fatally defective, the compromise can be attacked and reversed through the judicial process (Meralco Securities Corporation v. Savellano, 117 SCRA 805, 812 [1982]; Sarah E. Ramsay, et. al. v. U.S. 21 Ct. C1 443, aff'd 120 U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp. 135 cited in page 18 of decision) .88 Although the general rule is that compromises are to be favored, and that compromises entered into in good faith cannot be set aside,89 this rule is not without qualification. A court may still reject a compromise or settlement when it is repugnant to law, morals, good customs, public order, or public policy.90 The compromise agreement between the BIR and PNOC was contrary to law having been entered into by BIR Commissioner Tan in excess or in abuse of the authority granted to him by legislation. E.O. No. 44 and the NIRC of 1977, as amended, had identified the situations wherein the BIR Commissioner may compromise tax liabilities, and none of these situations existed in this case. The compromise, moreover, was contrary to public policy. The primary duty of the BIR is to collect taxes, since taxes are the lifeblood of the Government and their prompt and certain availability are imperious needs.91 In the present case, however, BIR Commissioner Tan, by entering into the compromise agreement that was bereft of any legal basis, would have caused the Government to lose almost P300 million in tax revenues and would have deprived the Government of much needed monetary resources. Allegations of good faith and previous execution of the terms of the compromise agreement on the part of PNOC would not be enough for this Court to disregard the demands of law and public policy. Compromise may be the favored method to settle disputes, but when it involves taxes, it may be subject to closer scrutiny by the courts. A compromise agreement involving taxes would affect not just the taxpayer and the BIR, but also the whole nation, the ultimate beneficiary of the tax revenues collected. F. The Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents. The new BIR Commissioner, Commissioner Ong, had acted well within his powers when he set aside the compromise agreement, dated 22 June 1987, after finding that the said compromise agreement was without legal basis. When he took over from his predecessor, there was still a pending motion for reconsideration of the said compromise agreement, filed by private respondent Savellano on 24 March 1988. To resolve the said motion, he reviewed the compromise agreement and, thereafter, came upon the conclusion that it did not comply with E.O. No. 44 and its implementing rules and regulations. It had been declared by this Court in Hilado v. Collector of Internal Revenue, et al.,92 that an administrative officer, such as the BIR Commissioner, may revoke, repeal or abrogate the acts or previous rulings of his predecessor in office. The construction of a statute by those administering it is not binding on their successors if, thereafter, the latter becomes satisfied that a different construction should be given. It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O. No. 44 and its implementing rules and regulations differently from that of his predecessor, former Commissioner Tan, which led to Commissioner Ong's revocation of the BIR approval of the compromise agreement, dated 22 June 1987. Such a revocation

90

was only proper considering that the former BIR Commissioner's decision to approve the said compromise agreement was based on the erroneous construction of the law (i.e., E.O. No. 44 and its implementing rules and regulations) and should not give rise to any vested right on PNOC.93 Furthermore, approval of the compromise agreement and acceptance of the compromise payment by his predecessor cannot estop BIR Commissioner Ong from setting aside the compromise agreement, dated 22 June 1987, for lack of legal basis; and from demanding payment of the deficiency withholding tax from PNB. As a general rule, the Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents94 because: . . . Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks, Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30, 1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L-23041, July 31, 1969, 28 SCRA 119).95 III Finality of the Tax Assessment A. The issue on whether the BIR complied with the notice requirements under RR No. 12-85 is raised for the first time on appeal and should not be given due course. PNB, in another effort to block the collection of the deficiency withholding tax, this time raises doubts as to the validity of the deficiency withholding tax assessment issued against it on 16 January 1991. It submits that the BIR failed to comply with the notice requirements set forth in RR No. 12-85.96 Whether or not the BIR complied with the notice requirements of RR No. 12-85 is a new issue raised by PNB only before this Court. Such a question has not been ventilated before the lower courts. For an appellate tribunal to consider a legal question, it should have been raised in the court below.97 If raised earlier, the matter would have been seriously delved into by the CTA and the Court of Appeals.98 B. The assessment against PNB had become final and unappealable, and therefore, enforceable. The CTA and the Court of Appeals declared as final and unappealable, and thus, enforceable, the assessment against PNB, dated 16 January 1991, since PNB failed to protest said assessment within the 30-day prescribed period. This Court, though, finds that the significant BIR assessment, as far as this case is concerned, should be the one issued by the BIR against PNB on 08 October 1986.

91

The BIR issued on 08 October 1986 an assessment against PNB for its withholding tax liability on the interest earnings and/or yields from PNOC's money placements with the bank. It had 30 days from receipt to protest the BIR's assessment.99 PNB, however, did not take any action as to the said assessment so that upon the lapse of the period to protest, the withholding tax assessment against it, dated 8 October 1986, became final and unappealable, and could no longer be disputed.100 The courts may therefore order the enforcement of this assessment. It is the enforcement of this BIR assessment against PNB, dated 08 October 1986, that is in issue in the instant case. If the compromise agreement is valid, it would effectively bar the BIR from enforcing the assessment and collecting the assessed tax; on the other hand, if the compromise agreement is void, then the courts can order the BIR to enforce the assessment and collect the assessed tax. As has been previously discussed by this Court, the BIR demand letter, dated 16 January 1991, is not a new assessment against PNB. It only demanded from PNB the payment of the balance of the withholding tax assessed against it on 08 October 1986. The same demand letter also has no substantial effect or impact on the resolution of the present case. It is already unnecessary and superfluous, having been issued by the BIR when CTA Case No. 4249 was already pending before the CTA. At best, the demand letter, dated 16 January 1991, constitute a useful reference for the courts in computing the balance of PNB's tax liability, after applying as partial payment thereon the amount previously received by the BIR from PNOC pursuant to the compromise agreement. IV Prescription A. The defense of prescription was never raised by petitioners PNOC and PNB, and should be considered waived. The dissenting opinion takes the position that the right of the BIR to assess and collect income tax on the interest earnings and/or yields from PNOC's money placements with PNB, particularly for taxable year 1985, had already prescribed, based on Section 268 of the NIRC of 1977, as amended. Section 268 of the NIRC of 1977, as amended, provides a three-year period of limitation for the assessment and collection of internal revenue taxes, which begins to run after the last day prescribed for filing of the return.101 The dissenting opinion points out that more than four years have elapsed from 25 January 1986 (the last day prescribed by law for PNB to file its withholding tax return for the fourth quarter of 1985) to 16 January 1991 (the date when the alleged final assessment of PNB's tax liability was issued). The issue of prescription, however, was brought up only in the dissenting opinion and was never raised by PNOC and PNB in the proceedings before the BIR nor in any of their pleadings submitted to the CTA and the Court of Appeals. Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on defenses and objections not pleaded, and reads: 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

92

pending between the parties for the same cause, or that the action is barred by prior judgment or by the statute of limitations, the court shall dismiss the claim. The general rule enunciated in the above-quoted provision governs the present case, that is, the defense of prescription, not pleaded in a motion to dismiss or in the answer, is deemed waived. The exception in same provision cannot be applied herein because the pleadings and the evidence on record do not sufficiently show that the action is barred by prescription. It has been consistently held in earlier tax cases that the defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidences submitted by the parties were not sufficient to support a finding by this Court on the matter.102 In Querol v. Collector of Internal Revenue,103 this Court pronounced that prescription, being a matter of defense, imposes the burden on the taxpayer to prove that the full period of the limitation has expired; and this requires him to positively establish the date when the period started running and when the same was fully accomplished. In making its conclusion that the assessment and collection in this case had prescribed, the dissenting opinion took liberties to assume the following facts even in the absence of allegations and evidences to the effect that: (1) PNB filed returns for its withholding tax obligations for taxable year 1985; (2) PNB reported in the said returns the interest earnings of PNOC's money placements with the bank; and (3) that the returns were filed on or before the prescribed date, which was 25 January 1986. It is not safe to adopt the first and second assumptions in this case considering that Section 269 of the NIRC of 1977, as amended, provides for a different period of limitation for assessment and collection of taxes in case of false or fraudulent return or for failure to file a return. In such cases, the BIR is given 10 years after discovery of the falsity, fraud, or omission within which to make an assessment.104 It is also not safe to accept the third assumption since there can be a possibility that PNB filed the withholding tax return later than the prescribed date, in which case, following the dictates of Section 268 of the NIRC of 1977, as amended, the three-year prescriptive period shall be counted from the date the return was actually filed.105 PNB's withholding tax returns for taxable year 1985, duly received by the BIR, would have been the best evidence to prove actual filing, the date of filing and the contents thereof. These facts are relevant in determining which prescriptive period should apply, and when such prescriptive period should begin to run and when it had lapsed. Yet, the pleadings did not refer to any return, and no return was made part of the records of the present case. This Court could not make a proper ruling on the matter of prescription on the mere basis of assumptions; such an issue should have been properly raised, argued, and supported by evidences submitted by the parties themselves before the BIR and the courts below. B. Granting that this Court can take cognizance of the defense of prescription, this Court finds that the assessment of the withholding tax liability against PNOC and collection of the tax assessed were done within the prescriptive period. Assuming, for the sake of argument, that this Court can give due course to the defense of prescription, it finds that the assessment against PNB for its withholding tax liability for taxable year 1985 and the collection of the tax assessed therein were accomplished within the prescribed periods for assessment and collection under the NIRC of 1977, as amended.

93

If this Court adopts the assumption made by the dissenting opinion that PNB filed its withholding tax return for the last quarter of 1985 on 25 January 1986, then the BIR had until 24 January 1989 to assess PNB. The original assessment against PNB was issued as early as 08 October 1986, well-within the three-year prescriptive period for making the assessment as prescribed by the following provisions of the NIRC of 1977, as amended: SEC. 268. Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period SEC. 269. Exceptions as to period of limitation of assessment and collection of taxes. (c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunction with one another. Section 268 requires that assessment be made within three years from the last day prescribed by law for the filing of the return. Section 269(c), on the other hand, provides that when an assessment is issued within the prescribed period provided in Section 268, the BIR has three years, counted from the date of the assessment, to collect the tax assessed either by distraint, levy or court action. Therefore, when an assessment is timely issued in accordance with Section 268, the BIR is given another three-year period, under Section 269(c), within which to collect the tax assessed, reckoned from the date of the assessment. In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986, so that the BIR had until 07 October 1989 to enforce it and to collect the tax assessed. The filing, however, by private respondent Savellano of his Amended Petition for Review before the CTA on 02 July 1988 already constituted a judicial action for collection of the tax assessed which stops the running of the three-year prescriptive period for collection thereof. A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper regular trial court; or where the assessment is appealed to the CTA, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for.106 The present case is unique, however, because the Petition for Review was filed by private respondent Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the collecting government agency; PNOC, the taxpayer; and PNB, the withholding agent, initially found themselves on the same side. The prayer in the Amended Petition for Review of private respondent Savellano reads: WHEREFORE, in view of the foregoing, petitioner respectfully prays that the compromise agreement of June 22, 1987 be reviewed and declared null and void, and that this Court directs: a) respondent Commissioner to enforce and collect and respondents PNB and/or PNOC to pay in a joint and several capacity, the total tax liability of P387,987,785.73, plus interests from 31 October 1986; and b) respondent Commissioner to pay unto petitioner, as informer's reward, 15% of the tax liability collected under clause (a) hereof.

94

Other equitable reliefs under the premises are likewise prayed for.107 (Underscoring ours.) Private respondent Savellano, in his Amended Petition for Review in CTA Case No. 4249, prayed for (1) the CTA to direct the BIR Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax making CTA Case No. 4249 a collection case. That the Amended Petition for Review was filed by the informer and not the taxpayer; and that the prayer for the enforcement of the tax assessment and payment of the tax was also made by the informer, not the BIR, should not affect the nature of the case as a judicial action for collection. In case the CTA grants the Petition and the prayer therein, as what has happened in the present case, the ultimate result would be the collection of the tax assessed. Consequently, upon the filing of the Amended Petition for Review by private respondent Savellano, judicial action for collection of the tax had been initiated and the running of the prescriptive period for collection of the said tax was terminated. Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive period for the collection of the tax, CTA Case No. 4249, at the very least, suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter.108 Just as in the cases of Republic v. Ker & Co., Ltd.109 and Protector's Services, Inc. v. Court of Appeals,110 this Court declares herein that the pendency of the present case before the CTA, the Court of Appeals and this Court, legally prevents the BIR Commissioner from instituting an action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, the informer, instead of PNOC, the taxpayer, or PNB, the withholding agent, would not prevent the suspension of the running of the prescriptive period for collection of the tax. What is controlling herein is the fact that the BIR Commissioner cannot file a judicial action in any other court for the collection of the tax because such a case would necessarily involve the same parties and involve the same issues already being litigated before the CTA in CTA Case No. 4249. The three-year prescriptive period for collection of the tax shall commence to run only after the promulgation of the decision of this Court in which the issues of the present case are resolved with finality. Whether the filing of the Amended Petition for Review by private respondent Savellano entirely stops or merely suspends the running of the prescriptive period for collection of the tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against PNB on 12 August 1991 and for the Central Bank of the Philippines to debit the account of PNB on 02 September 1992 pursuant to the said writ, because the case was by then, pending review by the Court of Appeals. However, since this Court already finds that the compromise agreement is without force and effect and hereby orders the enforcement of the assessment against PNB, then, any issue or controversy arising from the premature garnishment of PNB's account and collection of the tax by the BIR has become moot and academic at this point. V Additional Informer's Reward Private respondent Savellano is entitled to additional informer's reward since the BIR had already collected the full amount of the tax assessment against PNB.

95

PNOC insists that private respondent Savellano is not entitled to additional informer's reward because there was no voluntary payment of the withholding tax liability. PNOC, however, fails to state any legal basis for its argument. Section 316(1) of the NIRC of 1977, as amended, granted a reward to an informer equivalent to 15% of the revenues, surcharges, or fees recovered, plus, any fine or penalty imposed and collected.111 The provision was clear and uncomplicated an informer was entitled to a reward of 15% of the total amount actually recovered or collected by the BIR based on his information. The provision did not make any distinction as to the manner the tax liability was collected whether it was through voluntary payment by the taxpayer or through garnishment of the taxpayer's property. Applicable herein is another well-known maxim in statutory construction Ubi lex non distinguit nec nos distinguere debemos when the law does not distinguish, we should not distinguish.112 Pursuant to the writ of garnishment issued by the BIR, the Central Bank issued a debit advice against the demand deposit account of PNB with the Central Bank for the amount of P294,958,450.73, and credited the same amount to the demand deposit account of the Treasurer of the Republic of the Philippines. The Treasurer of the Republic, in turn, already issued a journal voucher transferring P294,958,450.73 to the account of the BIR. Since the BIR had already collected P294,958,450.73 from PNB through the execution of the writ of garnishment over PNB's deposit with the Central Bank, then private respondent Savellano should be awarded 15% thereof as reward since the said collection could still be traced to the information he had given. WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No. 109976 and G.R. No. 112800, respectively, are hereby DENIED. This Court AFFIRMS the assailed Decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526, which affirmed the decision of the CTA in CTA Case No. 4249, with modifications, to wit: (1) The compromise agreement between PNOC and the BIR, dated 22 June 1987, is declared void for being contrary to law and public policy, and is without force and effect; (2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation; (3)The withholding tax assessment against PNB, dated 08 October 1986, had become final and unappealable. The BIR Commissioner is ordered to enforce the said assessment and collect the amount of P294,958,450.73, the balance of tax assessed after crediting the previous payment made by PNOC pursuant to the compromise agreement, dated 22 June 1987; and (4) Private respondent Savellano shall be paid the remainder of his informer's reward, equivalent to 15% of the deficiency withholding tax ordered collected herein, or P 44,243,767.61. SO ORDERED.

96

PANGASINAN TRANSPORTATIONINC. v PUBLIC SERVICECOMMISSION 70 PHIL 221LAUREL; June 26, 1940 NATURE Petition for review on certiorari FACTS - For the past 20 years, Pangasinan Transport has been engaged in the business of transporting in Pangasinan, Tarlac and Nueva Ecija through TPU buses in accordance with the terms and conditions of the certificates of public convenience issued by the Public Utility Commission (later called Public Service Commission).- August 26, 1939 PTI applied for an authorization to operate ten additional Brockway trucks on theground that they were needed to comply with the terms and conditions of its existing certificates and as a result of the application of the Eight Hour Labor Law. This was granted by the Public Service Commission with the following conditions ( which are written in a beautiful language called Spanish so you may refer to theoriginal text in the case if there is a That the certificates of authorization issued toPangasinan Transport would be valid only for a period of 25years counted from the date of promulgation- That the company may be acquired by the PhilippineCommonwealth with properpayment of the cost price of its equipment, taking into accountreasonable depreciation to befixed by the Commission at thetime of it acquisition.- October 9, 1939 PTI did not agreewith the conditions set by PSC so itfiled a motion for reconsiderationwhich was denied by the latter.- November 20, 1939 - The presentpetition for a writ of certiorari was instituted in this court praying that:- An order be issued directing the secretary of the Public Service Commission to certifyforth with to this court the records of all proceedings in the case.- After hearing, the Court should render a decisiondeclaring section 1 of Commonwealth Act No. 454unconstitutional and void- If this court should be of the opinion that section 1 of Commonwealth Act No. 454 is constitutional, a decision should be rendered declaring that the provisions are not applicable to valid and subsisting certificates issued prior to June 8, 1939.- Section 15 of Commonwealth ActNo. 146, as amended by section 1 of Commonwealth Act No. 454 states that no public service shall operate in the Philippines without possessing a valid and subsisting certificate from the Public Service Commission and that the Commission may prescribe as a condition for the issuance of the certificate provided in the preceding paragraph that the service can be acquired by the Commonwealth of the Philippines or by any instrumentality thereof upon payment of the cost price of its useful equipment, less reasonable depreciation; and likewise, that the certificate shall valid only for a definite period of time; and that the violation of any of these conditions shall produce the immediate cancellation of the certificate without the necessity of any express action on the part of the Commission. ISSUE W O N t h e c o n d i t i o n s s e t b y t h e Public Service Commission were v a l i d ( a s m a n d a t e d b y Commonwealth Act 146) HELD YES but a remand of the case was Administrative Law A2010Dean Carlota ordered Reasoning

97

- The condition that the Commission can acquire PTI is a restatement of the constitutional provision that the State may, in the interest of nationalwelfare and defense, establish and operate industries and means o f transportation and communication , a n d , u p o n p a y m e n t o f j u s t c o m p e n s a t i o n , t r a n s f e r t o p u b l i c ownership utilities and other private e n t e r p r i s e s t o b e o p e r a t e d b y t h e Government.- P T I assails the condition that the certificates will be valid only for a p e r i o d o f t i m e . T h i s s h o u l d b e construed with the mandate that the Public Service Commission should issue certifications with the p u b l i c interest in mind. Thus the period for validity is established in relation top romoting and safeguarding public interest. Section 8 of Article XIII of theConstitution provides, among other things, that no franchise, certificate, or any other form of authorization for the operation of a public utility shall be "for a longer period than fifty years."- W h e n i t w a s o r d a i n e d , i n section 15 of Commonwealth A c t N o . 1 4 6 , a s a m e n d e d b y Commonwealth Act No. 454,t h a t t h e P u b l i c S e r v i c e Commission may prescribe as a condition for the issuance of a c e r t i f i c a t e t h a t i t " s h a l l b e valid only for a definite period of time" and, in section 16 (a)that "no such certificates shall be issued for a period of more than fifty yea rs," the National Assembly meant to give effect to this constitutional mandate.- All that has been delegated to the Commission, therefore, is t h e a d m i n i s t r a t i v e f u n c t i o n , involving the use discretion, to c a r r y o u t t h e w i l l o f t h e N a t i o n a l Assembly having in v i e w , i n a d d i t i o n , t h e promotion of "public interests i n a p r o p e r a n d s u i t a b l e manner."- T h e p e t i t i o n e r i s m i s t a k e n i n t h e suggestion that, simply because its existing certificates had been granted before June 8, 1939, the date when C o m m o n w e a l t h A c t N o . 4 5 4 , a m e n d a t o r y o f s e c t i o n 1 5 o f Commonwealth Act No. 146, was approved, it must be deemed to have t h e r i g h t o f h o l d i n g t h e m i n perpetuity. The Constitution of the Philippines provided, in section 8 of Article XIII, that "no franchise or right s h a l l b e g r a n t e d t o a n y i n d i v i d u a l , firm, or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by t h e N a t i o n a l A s s e m b l y w h e n t h e public interest so requires." This is in a c c o r d a n c e w i t h a l l o t h e r p r e v i o u s laws (such as the Jones Law and the Philippine Bill) on the matter.- Statutes enacted for the regulation o f p u b l i c u t i l i t i e s , b e i n g a p r o p e r e x e r c i s e b y t h e state of its police p o w e r , a r e a p p l i c a b l e n o t o n l y t o t h o s e p u b l i c u t i l i t i e s c o m i n g i n t o e x i s t e n c e a f t e r i t s p a s s a g e , b u t likewise to those already establishedand in operation.- Commonwealth Acts Nos. 146 and454 are not only the organic acts of t h e P u b l i c S e r v i c e C o m m i s s i o n b u t a r e " a p a r t o f t h e c h a r t e r o f e v e r y utility company operating or seeking t o o p e r a t e a f r a n c h i s e " i n t h e Philippines.- H o w e v e r t h e C o u r t o r d e r e d a remand of the case.- The petitioner's application here was for an increase of it s e q u i p m e n t t o e n a b l e i t t o comply with the conditions of i t s c e r t i f i c a t e s o f p u b l i c convenience.- On the matter of limitation to t w e n t y f i v e ( 2 5 ) y e a r s o f t h e life of its certificates of public convenience, there had been neither notice nor opportunity g i v e n t h e p e t i t i o n e r t o b e heard or present evidence. Disposition The decision appealed from is hereby reversed and the case r e m a n d e d t o t h e P u b l i c S e r v i c e Commission for further proceedings i n

98

a c c o r d a n c e w i t h l a w a n d t h i s decision, without any pronouncement regarding costs . Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 148083 July 21, 2006

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BICOLANDIA DRUG CORPORATION (Formerly known as ELMAS DRUG CO.), respondent. DECISION VELASCO, JR., J.: In cases of conflict between the law and the rules and regulations implementing the law, the law shall always prevail. Should Revenue Regulations deviate from the law they seek to implement, they will be struck down. The Facts In 1992, Republic Act No. 7432, otherwise known as "An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges and For Other Purposes," granted senior citizens several privileges, one of which was obtaining a 20 percent discount from all establishments relative to the use of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicines anywhere in the country.1 The law also provided that the private establishments giving the discount to senior citizens may claim the cost as tax credit.2 In compliance with the law, the Bureau of Internal Revenue issued Revenue Regulations No. 2-94, which defined "tax credit" as follows: Tax Credit refers to the amount representing the 20% discount granted to a qualified senior citizen by all establishments relative to their utilization of transportation services, hotels and similar lodging establishments, restaurants, halls, circuses, carnivals and other similar places of culture, leisure and amusement, which discount shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for valueadded tax or other percentage tax purposes.3 In 1995, respondent Bicolandia Drug Corporation, a corporation engaged in the business of retailing pharmaceutical products under the business style of "Mercury Drug," granted the 20 percent sales discount to qualified senior citizens purchasing their medicines in compliance with R.A. No. 7432.4 Respondent treated this discount as a deduction from its gross income in compliance with Revenue Regulations No. 2-94, which implemented R.A. No. 7432.5 On April 15, 1996, respondent filed its 1995 Corporate Annual Income Tax Return declaring a net loss position with nil income tax liability.6 On December 27, 1996, respondent filed a claim for tax refund or credit in the amount of PhP 259,659.00 with the Appellate Division of the Bureau of Internal Revenuebecause its net losses for the year 1995 prevented it from benefiting from the treatment of sales

99

discounts as a deduction from gross sales during the said taxable year.7 It alleged that the petitioner Commissioner of Internal Revenue erred in treating the 20 percent sales discount given to senior citizens as a deduction from its gross income for income tax purposes or other percentage tax purposes rather than as a tax credit.8 On April 6, 1998, respondent appealed to the Court of Tax Appeals in order to toll the running of two (2)-year prescriptive period to file a claim for refund pursuant to Section 230 of the Tax Code then.9 Respondent argued that since Section 4 of R.A. No. 7432 provided that discounts granted to senior citizens may be claimed as tax credit, Section 2(i) of Revenue Regulations No. 2-94, which referred to the tax credit as the amount representing the 20 percent discount that "shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for valueadded tax or other percentage tax purposes,"10 is illegal, void and without effect for being inconsistent with the statute it implements. Petitioner maintained that Revenue Regulations No. 2-94 is valid since the law tasked the Department of Finance, among other government offices, with the issuance of the necessary rules and regulations to carry out the objectives of the law.11 Ruling of the Court of Tax Appeals The Court of Tax Appeals declared that the provisions of R.A. No. 7432 would prevail over Section 2(i) of Revenue Regulations No. 2-94, whose definition of "tax credit" deviated from the intendment of the law; and as a result, partially granted the respondent's claim for a refund. After examining the evidence on record, the Court of Tax Appeals reduced the claimed 20 percent sales discount, thus reducing the refund to be given. It ruled that "Respondent is hereby ORDERED to REFUND in favor of Petitioner the amount of P236,321.52, representing overpaid income tax for the year 1995."12 Ruling of the Court of Appeals On appeal, the Court of Appeals modified the decision of the Court of Tax Appeals as the law provided for a tax credit, not a tax refund. The fallo of the Decision states: WHEREFORE, premises considered, the present appeal is hereby GRANTED and the Decision of the Court of Tax Appeals in C.T.A. Case No. 5599 is hereby MODIFIED in the sense that the award of tax refund is ANNULLED and SET ASIDE. Instead, the petitioner is hereby ORDERED to issue a tax credit certificate in favor of the respondent in the amount of P 236,321.52. No pronouncement as to costs.13 The Issue Petitioner now argues that the Court of Appeals erred in holding that the 20 percent sales discount granted to qualified senior citizens by the respondent pursuant to R.A. No. 7432 may be claimed as a tax credit, instead of a deduction from gross income or gross sales.14 The Court's Ruling The petition is not meritorious. Redefining "Tax Credit" as "Tax Deduction" The problem stems from the issuance of Revenue Regulations No. 2-94, which was supposed to implement R.A. No. 7432, and the radical departure it made when it defined

100

the "tax credit" that would be granted to establishments that give 20 percent discount to senior citizens. Under Revenue Regulations No. 2-94, the tax credit is "the amount representing the 20 percent discount granted to a qualified senior citizen by all establishments relative to their utilization of transportation services, hotels and similar lodging establishments, restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement, which discount shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax purposes."15 It equated "tax credit" with "tax deduction," contrary to the definition in Black's Law Dictionary, which defined tax credit as: An amount subtracted from an individual's or entity's tax liability to arrive at the total tax liability. A tax credit reduces the taxpayer's liability x x x, compared to a deduction which reduces taxable income upon which the tax liability is calculated. A credit differs from deduction to the extent that the former is subtracted from the tax while the latter is subtracted from income before the tax is computed.16 The interpretation of an administrative government agency, which is tasked to implement the statute, is accorded great respect and ordinarily controls the construction of the courts.17 Be that as it may, the definition laid down in the questioned Revenue Regulations can still be subjected to scrutiny. Courts will not hesitate to set aside an executive interpretation when it is clearly erroneous. There is no need for interpretation when there is no ambiguity in the rule, or when the language or words used are clear and plain or readily understandable to an ordinary reader.18 The definition of the term "tax credit" is plain and clear, and the attempt of Revenue Regulations No. 2-94 to define it differently is the root of the conflict. Tax Credit is not Tax Refund Petitioner argues that the tax credit is in the nature of a tax refund and should be treated as a return for tax payments erroneously or excessively assessed against a taxpayer, in line with Section 204(c) of Republic Act No. 8424, or the National Internal Revenue Code of 1997. Petitioner claims that there should first be payment of the tax before the tax credit can be claimed. However, in the National Internal Revenue Code, we see at least one instance where this is not the case. 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.19 It speaks of a tax credit for tax due, so payment of the tax has not yet been made in that particular example. The Court of Appeals expressly recognized the differences between a "tax credit" and a "tax refund," and stated that the same are not synonymous with each other, which is why it modified the ruling of the Court of Tax Appeals. Revenue Regulations No. 2-94 vs. R.A. No. 7432 and R.A. No. 7432 vs. the National Internal Revenue Code Petitioner contends that since R.A. No. 7432 used the word "may," the availability of the tax credit to private establishments is only permissive and not absolute or mandatory. From that starting point, petitioner further argues that the definition of the term "tax credit" in Revenue Regulations No. 2-94 was validly issued under the authority granted by the law to the Department of Finance to formulate the needed guidelines. It further explained that Revenue Regulations No. 2-94 can be harmonized with R.A No. 7432, such that the definition of the term "tax credit" in Revenue Regulations No. 2-94 is

101

controlling. It claims that to do otherwise would result in Section 4(a) of R.A. No. 7432 impliedly repealing Section 204 (c) of the National Internal Revenue Code. These arguments must also fail. Revenue Regulations No. 2-94 is still subordinate to R.A. No. 7432, and in cases of conflict, the implementing rule will not prevail over the law it seeks to implement. While seemingly conflicting laws must be harmonized as far as practicable, in this particular case, the conflict cannot be resolved in the manner the petitioner wishes. There is a great divide separating the idea of "tax credit" and "tax deduction," as seen in the definition in Black's Law Dictionary. The claimed absurdity of Section 4(a) of R.A. No. 7432 impliedly repealing Section 204(c) of the National Internal Revenue Code could only come about if it is accepted that a tax credit is akin to a tax refund wherein payment of taxes must be made in order for it to be claimed. But as shown in Section 112(a) of the National Internal Revenue Code, it is not always necessary for payment to be made for a tax credit to be available. Looking into R.A. No. 7432 Finally, petitioner argues that should private establishments, which count respondent in their number, be allowed to claim tax credits for discounts given to senior citizens, they would be earning and not just be reimbursed for the discounts given. It cannot be denied that R.A. No. 7432 has a laudable goal. Moreover, it cannot be argued that it was the intent of lawmakers for private establishments to be the primary beneficiaries of the law. However, while the purpose of the law to benefit senior citizens is praiseworthy, the concerns of the affected private establishments were also considered by the lawmakers. As in other cases wherein private property is taken by the State for public use, there must be just compensation. In this particular case, it took the form of the tax credit granted to private establishments, purposely chosen by the lawmakers. In the similar case of Commissioner of Internal Revenue v. Central Luzon Drug Corporation,20 scrutinizing the deliberations of the Bicameral Conference Committee Meeting on Social Justice on February 5, 1992 which finalized R.A. No. 7432, the discussions of the lawmakers clearly showed the intent that the cost of the 20 percent discount may be claimed by the private establishments as a tax credit. An excerpt from the deliberations is as follows: SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount, provided that, the private hospitals can claim the expense as a tax credit. REP. AQUINO. Yah could be allowed as deductions in the preparation of (inaudible) income. SEN. ANGARA. I-tax credit na lang natin para walang cash-out? REP. AQUINO. Oo, tax credit. Tama. Okay. Hospitals ba o lahat ng establishments na covered. THE CHAIRMAN. Sa kuwan lang yon, as private hospitals lang. REP. AQUINO. Ano ba yung establishments na covered? SEN. ANGARA. Restaurant, lodging houses, recreation centers. REP. AQUINO. All establishments covered siguro?

102

SEN. ANGARA. From all establishments. Alisin na natin `yung kuwan kung ganon. Can we go back to Section 4 ha? REP. AQUINO. Oho. SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount from all establishments et cetera, et cetera, provided that said establishments may claim the cost as a tax credit. Ganon ba `yon? REP. AQUINO. Yah. SEN. ANGARA. Dahil kung government, they don't need to claim it. THE CHAIRMAN. Tax credit. SEN. ANGARA. As a tax credit [rather] than a kuwan deduction, Okay.21 It is clear that the lawmakers intended the grant of a tax credit to complying private establishments like the respondent. If the private establishments appear to benefit more from the tax credit than originally intended, it is not for petitioner to say that they shouldn't. The tax credit may actually have provided greater incentive for the private establishments to comply with R.A. No. 7432, or quicker relief from the cut into profits of these businesses. Revenue Regulations No. 2-94 Null and Void From the above discussion, it must be concluded that Revenue Regulations No. 2-94 is null and void for failing to conform to the law it sought to implement. In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law.22 Revenue Regulations No. 2-94 being null and void, it must be ruled then that under R.A. No. 7432, which was effective at the time, respondent is entitled to its claim of a tax credit, and the ruling of the Court of Appeals must be affirmed. But even as this particular case is decided in this manner, it must be noted that the concerns of the petitioner regarding tax credits granted to private establishments giving discounts to senior citizens have been addressed. R.A. No. 7432 has been amended by Republic Act No. 9257, the "Expanded Senior Citizens Act of 2003." In this, the term "tax credit" is no longer used. The 20 percent discount granted by hotels and similar lodging establishments, restaurants and recreation centers, and in the purchase of medicines in all establishments for the exclusive use and enjoyment of senior citizens is treated in the following manner: The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. Provided, further, that the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended.23 This time around, there is no conflict between the law and the implementing Revenue Regulations. Under Revenue Regulations No. 4-2006, "(o)nly the actual amount of the

103

discount granted or a sales discount not exceeding 20% of the gross selling price can be deducted from the gross income, net of value added tax, if applicable, for income tax purposes, and from gross sales or gross receipts of the business enterprise concerned, for VAT or other percentage tax purposes."24 Under the new law, there is no tax credit to speak of, only deductions. Petitioner can find some vindication in the amendment made to R.A. No. 7432 by R.A. No. 9257, which may be more in consonance with the principles of taxation, but as it was R.A. No. 7432 in force at the time this case arose, this law controls the result in this particular case, for which reason the petition must fail. This case should remind all heads of executive agencies which are given the power to promulgate rules and regulations, that they assume the roles of lawmakers. It is wellsettled that a regulation should not conflict with the law it implements. Thus, those drafting the regulations should study well the laws their rules will implement, even to the extent of reviewing the minutes of the deliberations of Congress about its intent when it drafted the law. They may also consult the Secretary of Justice or the Solicitor General for their opinions on the drafted rules. Administrative rules, regulations and orders have the efficacy and force of law so long as they do not contravene any statute or the Constitution.25 It is then the duty of the agencies to ensure that their rules do not deviate from or amend acts of Congress, for their regulations are always subordinate to law. WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of Appeals is AFFIRMED. There is no pronouncement as to costs. SO ORDERED. Quisumbing, Chairman, Carpio-Morales, Tinga, J.J., concur.

104

EN BANC

DEPARTMENT OF AGRARIAN REFORM, represented by SECRETARY JOSE MARI B. PONCE (OIC), Petitioner,

G.R. No. 162070

Present: Davide, C.J., Puno, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio,

- versus -

Austria-Martinez, Corona, Carpio Morales, Callejo, Sr.,

105

Azcuna, Tinga, Chico-Nazario and Garcia, JJ. DELIA T. SUTTON, ELLA T. SUTTON-SOLIMAN and HARRY T. SUTTON, Respondents. October 19, 2005 Promulgated:

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

DECISION

PUNO, J.: This is a petition for review filed by the Department of Agrarian Reform (DAR) of the Decision and Resolution of the Court of Appeals, dated September 19, 2003 and February 4, 2004, respectively, which declared DAR Administrative Order (A.O.) No. 9, series of 1993, null and void for being violative of the Constitution. The case at bar involves a land in Aroroy, Masbate, inherited by respondents which has been devoted exclusively to cow and calf breeding. On October 26, 1987, pursuant to the then existing agrarian reform program of the government, respondents made a voluntary offer to sell (VOS)[1] their landholdings to petitioner DAR to avail of certain incentives under the law. On June 10, 1988, a new agrarian law, Republic Act (R.A.) No. 6657, also known as the Comprehensive Agrarian Reform Law (CARL) of 1988, took effect. It included in its coverage farms used for raising livestock, poultry and swine. On December 4, 1990, in an en banc decision in the case of Luz Farms v. Secretary of DAR,[2] this Court ruled that lands devoted to livestock and poultryraising are not included in the definition of agricultural land. Hence, we declared as unconstitutional certain provisions of the CARL insofar as they included livestock farms in the coverage of agrarian reform. In view of the Luz Farms ruling, respondents filed with petitioner DAR a formal request to withdraw their VOS as their landholding was devoted exclusively to cattleraising and thus exempted from the coverage of the CARL.[3] On December 21, 1992, the Municipal Agrarian Reform Officer of Aroroy, Masbate, inspected respondents land and found that it was devoted solely to cattle raising and breeding. He recommended to the DAR Secretary that it be exempted from the coverage of the CARL.

106

On April 27, 1993, respondents reiterated to petitioner DAR the withdrawal of their VOS and requested the return of the supporting papers they submitted in connection therewith.[4] Petitioner ignored their request. On December 27, 1993, DAR issued A.O. No. 9, series of 1993,[5] which provided that only portions of private agricultural lands used for the raising of livestock, poultry and swine as of June 15, 1988 shall be excluded from the coverage of the CARL. In determining the area of land to be excluded, the A.O. fixed the following retention limits, viz: 1:1 animal-land ratio (i.e., 1 hectare of land per 1 head of animal shall be retained by the landowner), and a ratio of 1.7815 hectares for livestock infrastructure for every 21 heads of cattle shall likewise be excluded from the operations of the CARL. On February 4, 1994, respondents wrote the DAR Secretary and advised him to consider as final and irrevocable the withdrawal of their VOS as, under the Luz Farms doctrine, their entire landholding is exempted from the CARL.[6] On September 14, 1995, then DAR Secretary Ernesto D. Garilao issued an Order [7] partially granting the application of respondents for exemption from the coverage of CARL. Applying the retention limits outlined in the DAR A.O. No. 9, petitioner exempted 1,209 hectares of respondents land for grazing purposes, and a maximum of 102.5635 hectares for infrastructure. Petitioner ordered the rest of respondents landholding to be segregated and placed under Compulsory Acquisition. Respondents moved for reconsideration. They contend that their entire landholding should be exempted as it is devoted exclusively to cattle-raising. Their motion was denied.[8] They filed a notice of appeal[9] with the Office of the President assailing: (1) the reasonableness and validity of DAR A.O. No. 9, s. 1993, which provided for a ratio between land and livestock in determining the land area qualified for exclusion from the CARL, and (2) the constitutionality of DAR A.O. No. 9, s. 1993, in view of the Luz Farms case which declared cattle-raising lands excluded from the coverage of agrarian reform. On October 9, 2001, the Office of the President affirmed the impugned Order of petitioner DAR.[10] It ruled that DAR A.O. No. 9, s. 1993, does not run counter to the Luz Farms case as the A.O. provided the guidelines to determine whether a certain parcel of land is being used for cattle-raising. However, the issue on the constitutionality of the assailed A.O. was left for the determination of the courts as the sole arbiters of such issue. On appeal, the Court of Appeals ruled in favor of the respondents. It declared DAR A.O. No. 9, s. 1993, void for being contrary to the intent of the 1987 Constitutional Commission to exclude livestock farms from the land reform program of the government. The dispositive portion reads: WHEREFORE, premises considered, DAR Administrative Order No. 09, Series of 1993 is hereby DECLARED null and void. The assailed order of the Office of the President dated 09 October 2001 in so far as it affirmed the Department of Agrarian Reforms ruling that petitioners landholding is covered by the agrarian reform program of the government is REVERSED and SET ASIDE. SO ORDERED.[11] Hence, this petition.

107

The main issue in the case at bar is the constitutionality of DAR A.O. No. 9, series of 1993, which prescribes a maximum retention limit for owners of lands devoted to livestock raising. Invoking its rule-making power under Section 49 of the CARL, petitioner submits that it issued DAR A.O. No. 9 to limit the area of livestock farm that may be retained by a landowner pursuant to its mandate to place all public and private agricultural lands under the coverage of agrarian reform. Petitioner also contends that the A.O. seeks to remedy reports that some unscrupulous landowners have converted their agricultural farms to livestock farms in order to evade their coverage in the agrarian reform program.

Petitioners arguments fail to impress.

Administrative agencies are endowed with powers legislative in nature, i.e., the power to make rules and regulations. They have been granted by Congress with the authority to issue rules to regulate the implementation of a law entrusted to them. Delegated rule-making has become a practical necessity in modern governance due to the increasing complexity and variety of public functions. However, while administrative rules and regulations have the force and effect of law, they are not immune from judicial review.[12] They may be properly challenged before the courts to ensure that they do not violate the Constitution and no grave abuse of administrative discretion is committed by the administrative body concerned. The fundamental rule in administrative law is that, to be valid, administrative rules and regulations must be issued by authority of a law and must not contravene the provisions of the Constitution.[13] The rule-making power of an administrative agency may not be used to abridge the authority given to it by Congress or by the Constitution. Nor can it be used to enlarge the power of the administrative agency beyond the scope intended. Constitutional and statutory provisions control with respect to what rules and regulations may be promulgated by administrative agencies and the scope of their regulations.[14] In the case at bar, we find that the impugned A.O. is invalid as it contravenes the Constitution. The A.O. sought to regulate livestock farms by including them in the coverage of agrarian reform and prescribing a maximum retention limit for their ownership. However, the deliberations of the 1987 Constitutional Commission show a clear intent to exclude, inter alia, all lands exclusively devoted to livestock, swine and poultry- raising. The Court clarified in the Luz Farms case that livestock, swine and poultry-raising are industrial activities and do not fall within the definition of agriculture or agricultural activity. The raising of livestock, swine and poultry is different from crop or tree farming. It is an industrial, not an agricultural, activity. A great portion of the investment in this enterprise is in the form of industrial fixed assets, such as: animal housing structures and facilities, drainage, waterers and blowers, feedmill with grinders, mixers, conveyors, exhausts and generators, extensive warehousing facilities for feeds and other supplies, anti-pollution equipment like bio-gas and digester plants augmented by lagoons and concrete ponds, deepwells, elevated water tanks, pumphouses, sprayers, and other technological appurtenances.[15] Clearly, petitioner DAR has no power to regulate livestock farms which have been exempted by the Constitution from the coverage of agrarian reform. It has exceeded its power in issuing the assailed A.O.

108

The subsequent case of Natalia Realty, Inc. v. DAR[16] reiterated our ruling in the Luz Farms case. In Natalia Realty, the Court held that industrial, commercial and residential lands are not covered by the CARL.[17] We stressed anew that while Section 4 of R.A. No. 6657 provides that the CARL shall cover all public and private agricultural lands, the term agricultural land does not include lands classified as mineral, forest, residential, commercial or industrial. Thus, in Natalia Realty, even portions of the Antipolo Hills Subdivision, which are arable yet still undeveloped, could not be considered as agricultural lands subject to agrarian reform as these lots were already classified as residential lands.

A similar logical deduction should be followed in the case at bar. Lands devoted to raising of livestock, poultry and swine have been classified as industrial, not agricultural, lands and thus exempt from agrarian reform. Petitioner DAR argues that, in issuing the impugned A.O., it was seeking to address the reports it has received that some unscrupulous landowners have been converting their agricultural lands to livestock farms to avoid their coverage by the agrarian reform. Again, we find neither merit nor logic in this contention. The undesirable scenario which petitioner seeks to prevent with the issuance of the A.O. clearly does not apply in this case. Respondents family acquired their landholdings as early as 1948. They have long been in the business of breeding cattle in Masbate which is popularly known as the cattle-breeding capital of the Philippines.[18] Petitioner DAR does not dispute this fact. Indeed, there is no evidence on record that respondents have just recently engaged in or converted to the business of breeding cattle after the enactment of the CARL that may lead one to suspect that respondents intended to evade its coverage. It must be stressed that what the CARL prohibits is the conversion of agricultural lands for non-agricultural purposes after the effectivity of the CARL. There has been no change of business interest in the case of respondents. Moreover, it is a fundamental rule of statutory construction that the reenactment of a statute by Congress without substantial change is an implied legislative approval and adoption of the previous law. On the other hand, by making a new law, Congress seeks to supersede an earlier one.[19] In the case at bar, after the passage of the 1988 CARL, Congress enacted R.A. No. 7881[20] which amended certain provisions of the CARL. Specifically, the new law changed the definition of the terms agricultural activity and commercial farming by dropping from its coverage lands that are devoted to commercial livestock, poultry and swine-raising.[21] With this significant modification, Congress clearly sought to align the provisions of our agrarian laws with the intent of the 1987 Constitutional Commission to exclude livestock farms from the coverage of agrarian reform.

In sum, it is doctrinal that rules of administrative bodies must be in harmony with the provisions of the Constitution. They cannot amend or extend the Constitution. To be valid, they must conform to and be consistent with the Constitution. In case of conflict between an administrative order and the provisions of the Constitution, the latter prevails.[22] The assailed A.O. of petitioner DAR was properly stricken down as unconstitutional as it enlarges the coverage of agrarian reform beyond the scope intended by the 1987 Constitution.

IN VIEW WHEREOF, the petition is DISMISSED. The assailed Decision and Resolution of the Court of Appeals, dated September 19, 2003 and February 4, 2004, respectively, are AFFIRMED. No pronouncement as to costs.

109

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 132601 January 19, 1999 LEO ECHEGARAY, petitioner, vs. SECRETARY OF JUSTICE, ET AL., respondents. RESOLUTION PUNO, J.: For resolution are public respondents' Urgent Motion for Reconsideration of the Resolution of this Court dated January 4, 1990 temporarily restraining the execution of petitioner and Supplemental Motion to Urgent Motion for Reconsideration. It is the submission of public respondents that: 1. The Decision in this case having become final and executory, its execution enters the exclusive ambit of authority of the executive authority. The issuance of the TRO may be construed as trenching on that sphere of executive authority; 2. The issuance of the temporary restraining order . . . creates dangerous precedent as there will never be an end to litigation because there is always a possibility that Congress may repeal a law. 3. Congress had earlier deliberated extensively on the death penalty bill. To be certain, whatever question may now be raised on the Death Penalty Law before the present Congress within the 6-month period given by this Honorable Court had in all probability been fully debated upon . . . 4. Under the time honored maxim lex futuro, judex praeterito, the law looks forward while the judge looks at the past, . . . the Honorable Court in issuing the TRO has transcended its power of judicial review. 5. At this moment, certain circumstances/supervening events transpired to the effect that the repeal or modification of the law imposing death penalty has become nil, to wit: a. The public pronouncement of President Estrada that he will veto any law imposing the death penalty involving heinous crimes. b. The resolution of Congressman Golez, et al., that they are against the repeal of the law; c. The fact that Senator Roco's resolution to repeal the law only bears his signature and that of Senator Pimentel.

110

In their Supplemental Motion to Urgent Motion for Reconsideration, public respondents attached a copy of House Resolution No. 629 introduced by Congressman Golez entitled "Resolution expressing the sense of the House of Representative to reject any move to review Republic Act No. 7659 which provided for the re-imposition of death penalty, notifying the Senate, the Judiciary and the Executive Department of the position of the House of Representative on this matter, and urging the President to exhaust all means under the law to immediately implement the death penalty law." The Resolution was concurred in by one hundred thirteen (113) congressman. In their Consolidated Comment, petitioner contends: (1) the stay order. . . is within the scope of judicial power and duty and does not trench on executive powers nor on congressional prerogatives; (2) the exercise by this Court of its power to stay execution was reasonable; (3) the Court did not lose jurisdiction to address incidental matters involved or arising from the petition; (4) public respondents are estopped from challenging the Court's jurisdiction; and (5) there is no certainty that the law on capital punishment will not be repealed or modified until Congress convenes and considers all the various resolutions and bills filed before it. Prefatorily, the Court likes to emphasize that the instant motions concern matters that are not incidents in G.R. No. 117472, where the death penalty was imposed on petitioner on automatic review of his conviction by this Court. The instant motions were filed in this case, G.R. No. 132601, where the constitutionality of R.A. No. 8177 (Lethal Injection Law) and its implementing rules and regulations was assailed by petitioner. For this reason, the Court in its Resolution of January 4, 1999 merely noted the Motion to Set Aside of Rodessa "Baby" R. Echegaray dated January 7, 1999 and Entry of Appearance of her counsel dated January 5, 1999. Clearly, she has no legal standing to intervene in the case at bar, let alone the fact that the interest of the State is properly represented by the Solicitor General. We shall now resolve the basic issues raised by the public respondents. I First. We do not agree with the sweeping submission of the public respondents that this Court lost its jurisdiction over the case at bar and hence can no longer restrain the execution of the petitioner. Obviously, public respondents are invoking the rule that final judgments can no longer be altered in accord with the principle that "it is just as important that there should be a place to end as there should be a place to begin litigation." 1 To start with, the Court is not changing even a comma of its final Decision. It is appropriate to examine with precision the metes and bounds of the Decision of this Court that became final. These metes and bounds are clearly spelled out in the Entry of Judgment in this case, viz: ENTRY OF JUDGMENT This is to certify that on October 12, 1998 a decision rendered in the above-entitled case was filed in this Office, the dispositive part of which reads as follows: WHEREFORE, the petition is DENIED insofar as petitioner seeks to declare the assailed statute (Republic Act No. 8177) as unconstitutional; but GRANTED insofar as Sections 17 and 19 of the Rules and Regulations to Implement Republic Act No. 8177 are concerned, which are hereby declared INVALID because (a) Section 17 contravenes Article 83 of the Revised Penal Code, as amended by Section 25 of Republic Act No. 7659; and (b) Section 19 fails to provide

111

for review and approval of the Lethal Injection Manual by the Secretary of Justice, and unjustifiably makes the manual confidential, hence unavailable to interested parties including the accused/convict and counsel. Respondents are hereby enjoined from enforcing and implementing Republic Act No. 8177 until the aforesaid Sections 17 and 19 of the Rules and Regulations to Implement Republic Act No. 8177 are appropriately amended, revised and/or corrected in accordance with this Decision. SO ORDERED. and that the same has, on November 6, 1988 become final and executory and is hereby recorded in the Book of Entries of Judgment. Manila, Philippine. Clerk of Court By: (SGD) TERESITA G. DIMAISIP Acng Chief Judicial Records Office The records will show that before the Entry of Judgment, the Secretary of Justice, the Honorable Serafin Cuevas, filed with this Court on October 21, 1998 a Compliance where he submitted the Amended Rules and Regulations implementing R.A. No. 8177 in compliance with our Decision. On October 28, 1998, Secretary Cuevas submitted a Manifestation informing the Court that he has caused the publication of the said Amended Rules and Regulations as required by the Administrative Code. It is crystalline that the Decision of this Court that became final and unalterable mandated: (1) that R.A. No. 8177 is not unconstitutional; (2) that sections 17 and 19 of the Rules and Regulations to Implement R.A. No. 8177 are invalid, and (3) R.A. No. 8177 cannot be enforced and implemented until sections 17 and 19 of the Rules and Regulations to Implement R.A. No. 8177 are amended. It is also daylight clear that this Decision was not altered a whit by this Court. Contrary to the submission of the Solicitor General, the rule on finality of judgment cannot divest this Court of its jurisdiction to execute and enforce the same judgment. Retired Justice Camilo Quiason synthesized the well established jurisprudence on this issue as follows: 2the finality of a judgment does not mean that the Court has lost all its powers nor the case. By the finality of the judgment, what the court loses is its jurisdiction to amend, modify or alter the same. Even after the judgment has become final the court retains its jurisdiction to execute and enforce it. 3 There is a difference between the jurisdiction of the court to execute its judgment and its jurisdiction to amend, modify or alter the same. The former continues even after the judgment has become final for the purpose of enforcement of judgment; the latter terminates when the judgment becomes final. 4 . . . For after the judgment has become final facts and circumstances may transpire which can render the execution unjust or impossible. 5 In truth, the arguments of the Solicitor General has long been rejected by this Court. As aptly pointed out by the petitioner, as early as 1915, this Court has unequivocably ruled in the case of Director of Prisons v. Judge of First Instance, 6 viz: This Supreme Court has repeatedly declared in various decisions, which constitute jurisprudence on the subject, that in criminal cases, after the sentence has been pronounced and the period for reopening the same

112

cannot change or alter its judgment, as its jurisdiction has terminated . . . When in cases of appeal or review the cause has been returned thereto for execution, in the event that the judgment has been affirmed, it performs a ministerial duty in issuing the proper order. But it does not follow from this cessation of functions on the part of the court with reference to the ending of the cause that the judicial authority terminates by having then passed completely to the Executive. The particulars of the execution itself, which are certainly not always included in the judgment and writ of execution, in any event are absolutely under the control of the judicial authority, while the executive has no power over the person of the convict except to provide for carrying out of the penalty and to pardon. Getting down to the solution of the question in the case at bar, which is that of execution of a capital sentence, it must be accepted as a hypothesis that postponement of the date can be requested. There can be no dispute on this point. It is a well-known principle that notwithstanding the order of execution and the executory nature thereof on the date set or at the proper time, the date therefor can be postponed, even in sentences of death. Under the common law this postponement can be ordered in three ways: (1) By command of the King; (2) by discretion (arbitrio) of the court; and (3) by mandate of the law. It is sufficient to state this principle of the common law to render impossible that assertion in absolute terms that after the convict has once been placed in jail the trial court can not reopen the case to investigate the facts that show the need for postponement. If one of the ways is by direction of the court, it is acknowledged that even after the date of the execution has been fixed, and notwithstanding the general rule that after the (court) has performed its ministerial duty of ordering the execution . . . and its part is ended, if however a circumstance arises that ought to delay the execution, and there is an imperative duty to investigate the emergency and to order a postponement. Then the question arises as to whom the application for postponing the execution ought to be addressed while the circumstances is under investigation and so to who has jurisdiction to make the investigation. The power to control the execution of its decision is an essential aspect of jurisdiction. It cannot be the subject of substantial subtraction for our Constitution 7 vests the entirety of judicial power in one Supreme Court and in such lower courts as may be established by law. To be sure, the important part of a litigation, whether civil or criminal, is the process of execution of decisions where supervening events may change the circumstance of the parties and compel courts to intervene and adjust the rights of the litigants to prevent unfairness. It is because of these unforseen, supervening contingencies that courts have been conceded the inherent and necessary power of control of its processes and orders to make them conformable to law and justice. 8 For this purpose, Section 6 of Rule 135 provides that "when by law jurisdiction is conferred on a court or judicial officer, all auxiliary writs, processes and other means necessary to carry it into effect may be employed by such court or officer and if the procedure to be followed in the exercise of such jurisdiction is not specifically pointed out by law or by these rules, any suitable process or mode of proceeding may be adopted which appears conformable to the spirit of said law or rules." It bears repeating that what the Court restrained temporarily is the execution of its own Decision to give it reasonable time to check its fairness in light of supervening events in Congress as alleged by petitioner. The Court, contrary to popular misimpression, did not restrain the effectivity of a law enacted by Congress.1wphi1.nt The more disquieting dimension of the submission of the public respondents that this Court has no jurisdiction to restrain the execution of petitioner is that it can diminish the

113

independence of the judiciary. Since the implant of republicanism in our soil, our courts have been conceded the jurisdiction to enforce their final decisions. In accord with this unquestioned jurisdiction, this Court promulgated rules concerning pleading, practice and procedure which, among others, spelled out the rules on execution of judgments. These rules are all predicated on the assumption that courts have the inherent, necessary and incidental power to control and supervise the process of execution of their decisions. Rule 39 governs execution, satisfaction and effects of judgments in civil cases. Rule 120 governs judgments in criminal cases. It should be stressed that the power to promulgate rules of pleading, practice and procedure was granted by our Constitutions to this Court to enhance its independence, for in the words of Justice Isagani Cruz "without independence and integrity, courts will lose that popular trust so essential to the maintenance of their vigor as champions of justice." 9 Hence, our Constitutions continuously vested this power to this Court for it enhances its independence. Under the 1935 Constitution, the power of this Court to promulgate rules concerning pleading, practice and procedure was granted but it appeared to be coexistent with legislative power for it was subject to the power of Congress to repeal, alter or supplement. Thus, its Section 13, Article VIII provides: Sec.13. The Supreme Court shall have the power to promulgate rules concerning pleading, practice and procedure in all courts, and the admission to the practice of law. Said rules shall be uniform for all courts of the same grade and shall not diminish, increase, or modify substantive rights. The existing laws on pleading, practice and procedure are hereby repealed as statutes, and are declared Rules of Court, subject to the power of the Supreme Court to alter and modify the same. The Congress have the power to repeal, alter or supplement the rules concerning pleading, practice and procedure, and the admission to the practice of law in the Philippines. The said power of Congress, however, is not as absolute as it may appear on its surface. In In re Cunanan 10 Congress in the exercise of its power to amend rules of the Supreme Court regarding admission to the practice of law, enacted the Bar Flunkers Act of 1953 11 which considered as a passing grade, the average of 70% in the bar examinations after July 4, 1946 up to August 1951 and 71% in the 1952 bar examinations. This Court struck down the law as unconstitutional. In his ponencia, Mr. Justice Diokno held that " . . . the disputed law is not a legislation; it is a judgment a judgment promulgated by this Court during the aforecited years affecting the bar candidates concerned; and although this Court certainly can revoke these judgments even now, for justifiable reasons, it is no less certain that only this Court, and not the legislative nor executive department, that may do so. Any attempt on the part of these department would be a clear usurpation of its function, as is the case with the law in question." 12 The venerable jurist further ruled: "It is obvious, therefore, that the ultimate power to grant license for the practice of law belongs exclusively to this Court, and the law passed by Congress on the matter is of permissive character, or as other authorities say, merely to fix the minimum conditions for the license." By its ruling, this Court qualified the absolutist tone of the power of Congress to "repeal, alter or supplement the rules concerning pleading, practice and procedure, and the admission to the practice of law in the Philippines. The ruling of this Court in In re Cunanan was not changed by the 1973 Constitution. For the 1973 Constitution reiterated the power of this Court "to promulgate rules concerning pleading, practice and procedure in all courts, . . . which, however, may be repealed, altered or supplemented by the Batasang Pambansa . . . ." More completely, Section 5(2)5 of its Article X provided: Sec.5. The Supreme Court shall have the following powers.

114

(5) Promulgate rules concerning pleading, practice, and procedure in all courts, the admission to the practice of law, and the integration of the Bar, which, however, may be repealed, altered, or supplemented by the Batasang Pambansa. Such rules shall provide a simplified and inexpensive procedure for the speedy disposition of cases, shall be uniform for all courts of the same grade, and shall not diminish, increase, or modify substantive rights. Well worth noting is that the 1973 Constitution further strengthened the independence of the judiciary by giving to it the additional power to promulgate rules governing the integration of the Bar. 13 The 1987 Constitution molded an even stronger and more independent judiciary. Among others, it enhanced the rule making power of this Court. Its Section 5(5), Article VIII provides: Sec. 5. The Supreme Court shall have the following powers: (5) Promulgate rules concerning the protection and enforcement of constitutional rights, pleading, practice and procedure in all courts, the admission to the practice of law, the Integrated Bar, and legal assistance to the underprivileged. Such rules shall provide a simplified and inexpensive procedure for the speedy disposition of cases, shall be uniform for all courts of the same grade, and shall not diminish, increase, or modify substantive rights. Rules of procedure of special courts and quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court. The rule making power of this Court was expanded. This Court for the first time was given the power to promulgate rules concerning the protection and enforcement of constitutional rights. The Court was also granted for the first time the power to disapprove rules of procedure of special courts and quasi-judicial bodies. But most importantly, the 1987 Constitution took away the power of Congress to repeal, alter, or supplement rules concerning pleading, practice and procedure. In fine, the power to promulgate rules of pleading, practice and procedure is no longer shared by this Court with Congress, more so with the Executive. If the manifest intent of the 1987 Constitution is to strengthen the independence of the judiciary, it is inutile to urge, as public respondents do, that this Court has no jurisdiction to control the process of execution of its decisions, a power conceded to it and which it has exercised since time immemorial. To be sure, it is too late in the day for public respondents to assail the jurisdiction of this Court to control and supervise the implementation of its decision in the case at bar. As aforestated, our Decision became final and executory on November 6, 1998. The records reveal that after November 6, 1998, or on December 8, 1998, no less than the Secretary of Justice recognized the jurisdiction of this Court by filing a Manifestation and Urgent Motion to compel the trial judge, the Honorable Thelma A. Ponferrada, RTC, Br. 104, Quezon City to provide him ". . . a certified true copy of the Warrant of Execution dated November 17, 1998 bearing the designated execution day of death convict Leo Echegaray and allow (him) to reveal or announce the contents thereof, particularly the execution date fixed by such trial court to the public when requested." The relevant portions of the Manifestation and Urgent Motion filed by the Secretary of Justice beseeching this Court "to provide the appropriate relief" state:

115

5. Instead of filing a comment on Judge Ponferrada's Manifestation however, herein respondent is submitting the instant Manifestation and Motion (a) to stress, inter alia, that the non-disclosure of the date of execution deprives herein respondent of vital information necessary for the exercise of his statutory powers, as well as renders nugatory the constitutional guarantee that recognizes the people's right to information of public concern, and (b) to ask this Honorable Court to provide the appropriate relief. 6. The non-disclosure of the date of execution deprives herein respondent of vital information necessary for the exercise of his power of supervision and control over the Bureau of Corrections pursuant to Section 39, Chapter 8, Book IV of the Administrative Code of 1987, in relation to Title III, Book IV of such Administrative Code, insofar as the enforcement of Republic Act No. 8177 and the Amended Rules and Regulations to Implement Republic Act No. 8177 is concerned and for the discharge of the mandate of seeing to it that laws and rules relative to the execution of sentence are faithfully observed. 7. On the other hand, the willful omission to reveal the information about the precise day of execution limits the exercise by the President of executive clemency powers pursuant to Section 19, Article VII (Executive Department) of the 1987 Philippine Constitution and Article 81 of the Revised Penal Code, as amended, which provides that the death sentence shall be carried out "without prejudice to the exercise by the President of his executive powers at all times." (Emphasis supplied) For instance, the President cannot grant reprieve, i.e., postpone the execution of a sentence to a day certain (People v. Vera, 65 Phil. 56, 110 [1937]) in the absence of a precise date to reckon with. The exercise of such clemency power, at this time, might even work to the prejudice of the convict and defeat the purpose of the Constitution and the applicable statute as when the date at execution set by the President would be earlier than that designated by the court. 8. Moreover, the deliberate non-disclosure of information about the date of execution to herein respondent and the public violates Section 7, Article III (Bill of Rights) and Section 28, Article II (Declaration of Principles and State Policies) of the 1987 Philippine Constitution which read: Sec. 7. The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development shall, be afforded the citizen, subject to such limitations as may be provided by law. Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure of all transactions involving public interest. 9. The "right to information" provision is self-executing. It supplies "the rules by means of which the right to information may be enjoyed (Cooley, A Treatise on the Constitutional Limitations, 167 [1972]) by guaranteeing the right and mandating the duty to afford access to sources of information. Hence, the fundamental right therein recognized may be asserted by the people upon the ratification of the Constitution without need for any ancillary act of the Legislature (Id., at p. 165) What may be provided for by the Legislature are reasonable conditions and limitations upon the access to be afforded which must, of necessity, be consistent with the declared State policy of full public disclosure of all transactions involving public interest (Constitution, Art. II, Sec. 28). However, it cannot be overemphasized that whatever limitation may be prescribed by the Legislature, the right and the duty under Art. III, Sec. 7 have become operative and enforceable by virtue of the adoption of the New Charter." (Decision of the Supreme Court En Banc in Legaspi v. Civil Service Commission, 150 SCRA 530, 534-535 [1987].

116

The same motion to compel Judge Ponferrada to reveal the date of execution of petitioner Echegaray was filed by his counsel, Atty. Theodore Te, on December 7, 1998. He invoked his client's right to due process and the public's right to information. The Solicitor General, as counsel for public respondents, did not oppose petitioner's motion on the ground that this Court has no more jurisdiction over the process of execution of Echegaray. This Court granted the relief prayed for by the Secretary of Justice and by the counsel of the petitioner in its Resolution of December 15, 1998. There was not a whimper of protest from the public respondents and they are now estopped from contending that this Court has lost its jurisdiction to grant said relief. The jurisdiction of this Court does not depend on the convenience of litigants. II Second. We likewise reject the public respondents' contention that the "decision in this case having become final and executory, its execution enters the exclusive ambit of authority of the executive department . . .. By granting the TRO, the Honorable Court has in effect granted reprieve which is an executive function." 14 Public respondents cite as their authority for this proposition, Section 19, Article VII of the Constitution which reads: Except in cases of impeachment, or as otherwise provided in this Constitution, the President may grant reprieves, commutations, and pardons, and remit fines and forfeitures after conviction by final judgment. He shall also have the power to grant amnesty with the concurrence of a majority of all the members of the Congress. The text and tone of this provision will not yield to the interpretation suggested by the public respondents. The provision is simply the source of power of the President to grant reprieves, commutations, and pardons and remit fines and forfeitures after conviction by final judgment. It also provides the authority for the President to grant amnesty with the concurrence of a majority of all the members of the Congress. The provision, however, cannot be interpreted as denying the power of courts to control the enforcement of their decisions after their finality. In truth, an accused who has been convicted by final judgment still possesses collateral rights and these rights can be claimed in the appropriate courts. For instance, a death convict who become insane after his final conviction cannot be executed while in a state of insanity. 15 As observed by Antieau, "today, it is generally assumed that due process of law will prevent the government from executing the death sentence upon a person who is insane at the time of execution." 16 The suspension of such a death sentence is undisputably an exercise of judicial power. It is not a usurpation of the presidential power of reprieve though its effects is the same the temporary suspension of the execution of the death convict. In the same vein, it cannot be denied that Congress can at any time amend R.A. No. 7659 by reducing the penalty of death to life imprisonment. The effect of such an amendment is like that of commutation of sentence. But by no stretch of the imagination can the exercise by Congress of its plenary power to amend laws be considered as a violation of the power of the President to commute final sentences of conviction. The powers of the Executive, the Legislative and the Judiciary to save the life of a death convict do not exclude each other for the simple reason that there is no higher right than the right to life. Indeed, in various States in the United States, laws have even been enacted expressly granting courts the power to suspend execution of convicts and their constitutionality has been upheld over arguments that they infringe upon the power of the President to grant reprieves. For the public respondents therefore to contend that only the Executive can protect the right to life of an accused after his final conviction is to violate the principle of co-equal and coordinate powers of the three branches of our government. III

117

Third. The Court's resolution temporarily restraining the execution of petitioner must be put in its proper perspective as it has been grievously distorted especially by those who make a living by vilifying courts. Petitioner filed his Very Urgent Motion for Issuance of TRO on December 28, 1998 at about 11:30 p.m. He invoked several grounds, viz: (1) that his execution has been set on January 4, the first working day of 1999; (b) that members of Congress had either sought for his executive clemency and/or review or repeal of the law authorizing capital punishment; (b.1) that Senator Aquilino Pimentel's resolution asking that clemency be granted to the petitioner and that capital punishment be reviewed has been concurred by thirteen (13) other senators; (b.2) Senate President Marcelo Fernan and Senator Miriam S. Defensor have publicly declared they would seek a review of the death penalty law; (b.3) Senator Paul Roco has also sought the repeal of capital punishment, and (b.4) Congressman Salacrib Baterina, Jr., and thirty five (35) other congressmen are demanding review of the same law. When the Very Urgent Motion was filed, the Court was already in its traditional recess and would only resume session on January 18, 1999. Even then, Chief Justice Hilario Davide, Jr. called the Court to a Special Session on January 4, 1991 17 at 10. a.m. to deliberate on petitioner's Very Urgent Motion. The Court hardly had five (5) hours to resolve petitioner's motion as he was due to be executed at 3 p.m. Thus, the Court had the difficult problem of resolving whether petitioner's allegations about the moves in Congress to repeal or amend the Death Penalty Law are mere speculations or not. To the Court's majority, there were good reasons why the Court should not immediately dismiss petitioner's allegations as mere speculations and surmises. They noted that petitioner's allegations were made in a pleading under oath and were widely publicized in the print and broadcast media. It was also of judicial notice that the 11th Congress is a new Congress and has no less than one hundred thirty (130) new members whose views on capital punishment are still unexpressed. The present Congress is therefore different from the Congress that enacted the Death Penalty Law (R.A. No. 7659) and the Lethal Injection Law (R.A. No. 8177). In contrast, the Court's minority felt that petitioner's allegations lacked clear factual bases. There was hardly a time to verify petitioner's allegations as his execution was set at 3 p.m. And verification from Congress was impossible as Congress was not in session. Given these constraints, the Court's majority did not rush to judgment but took an extremely cautious stance by temporarily restraining the execution of petitioner. The suspension was temporary "until June 15, 1999, coeval with the constitutional duration of the present regular session of Congress, unless it sooner becomes certain that no repeal or modification of the law is going to be made." The extreme caution taken by the Court was compelled, among others, by the fear that any error of the Court in not stopping the execution of the petitioner will preclude any further relief for all rights stop at the graveyard. As life was at, stake, the Court refused to constitutionalize haste and the hysteria of some partisans. The Court's majority felt it needed the certainty that the legislature will not petitioner as alleged by his counsel. It was believed that law and equitable considerations demand no less before allowing the State to take the life of one its citizens. The temporary restraining order of this Court has produced its desired result, i.e., the crystallization of the issue whether Congress is disposed to review capital punishment. The public respondents, thru the Solicitor General, cite posterior events that negate beyond doubt the possibility that Congress will repeal or amend the death penalty law. He names these supervening events as follows: a. The public pronouncement of President Estrada that he will veto any law imposing the death penalty involving heinous crimes. b. The resolution of Congressman Golez, et al., that they are against the repeal of the law; c. The fact that Senator Roco's resolution to repeal the law only bears his signature and that of Senator Pimentel. 18

118

In their Supplemental Motion to Urgent Motion for Reconsideration, the Solicitor General cited House Resolution No. 629 introduced by Congressman Golez entitled "Resolution expressing the sense of the House of Representatives to reject any move to review R.A. No. 7659 which provided for the reimposition of death penalty, notifying the Senate, the Judiciary and the Executive Department of the position of the House of Representative on this matter and urging the President to exhaust all means under the law to immediately implement the death penalty law." The Golez resolution was signed by 113 congressman as of January 11, 1999. In a marathon session yesterday that extended up 3 o'clock in the morning, the House of Representative with minor, the House of Representative with minor amendments formally adopted the Golez resolution by an overwhelming vote. House Resolution No. 25 expressed the sentiment that the House ". . . does not desire at this time to review Republic Act 7659." In addition, the President has stated that he will not request Congress to ratify the Second Protocol in review of the prevalence of heinous crimes in the country. In light of these developments, the Court's TRO should now be lifted as it has served its legal and humanitarian purpose. A last note. In 1922, the famous Clarence Darrow predicted that ". . . the question of capital punishment had been the subject of endless discussion and will probably never be settled so long as men believe in punishment." 19 In our clime and time when heinous crimes continue to be unchecked, the debate on the legal and moral predicates of capital punishment has been regrettably blurred by emotionalism because of the unfaltering faith of the pro and anti-death partisans on the right and righteousness of their postulates. To be sure, any debate, even if it is no more than an exchange of epithets is healthy in a democracy. But when the debate deteriorates to discord due to the overuse of words that wound, when anger threatens to turn the majority rule to tyranny, it is the especial duty of this Court to assure that the guarantees of the Bill of Rights to the minority fully hold. As Justice Brennan reminds us ". . . it is the very purpose of the Constitution and particularly the Bill of Rights to declare certain values transcendent, beyond the reach of temporary political majorities." 20 Man has yet to invent a better hatchery of justice than the courts. It is a hatchery where justice will bloom only when we can prevent the roots of reason to be blown away by the winds of rage. The flame of the rule of law cannot be ignited by rage, especially the rage of the mob which is the mother of unfairness. The business of courts in rendering justice is to be fair and they can pass their litmus test only when they can be fair to him who is momentarily the most hated by society. 21 IN VIEW WHEREOF, the Court grants the public respondents' Urgent Motion for Reconsideration and Supplemental Motion to Urgent Motion for Reconsideration and lifts the Temporary Restraining Order issued in its Resolution of January 4, 1999. The Court also orders respondent trial court judge (Hon. Thelma A. Ponferrada, Regional Trial Court, Quezon City, Branch 104) to set anew the date for execution of the convict/petitioner in accordance with applicable provisions of law and the Rules of Court, without further delay. SO ORDERED.

119

Boie-Takeda Chemicals Inc. vs. De la Serna 228 SCRA 329 (G.R. No. 92174 and L-102552) December 10, 1993

FACTS Both cases originated form a routine inspection conducted in the premises of BoieTakeda Chemical Inc.and Philippine Fujixerox Coporation by the Labor and Development Officer. Both inspection revealed irregularity in paying the 13th month pay. Boie-Takeda, in the first case, did not include the commission received by its medical representatives in the computation of the 13th month pay. While Philippine Fujixerox Corporation underpaid their 62 employees 13th month pay. Both companies were issued Notice of Inspection Results. Boie-Takeda was required within (10) ten calendar day from notice to effect restitution and correction of the underpaid thirteenth month pay. On the other hand, Philippine Fujixerox Corporation was requested rectification and/or restitution of the violation within five working days from notice. Read more in Business Alyssa Campanella Should Win Miss Universe 2011 Troubleshooting CBU Cars Part I( KIA Carnival) Boie-Takeda contest the issued notice, by writing the labor department and expressing therein that commissions are not included in the computation of the 13th month pay because the law and the implementing rules speaks of Regular Basic Salary, the letter further stress that . there is no commission, when no sale was transacted, thereby commissions are not and cannot be legally defined as regular in nature. On the other hand, Philippine Fujixerox Corporation takes no action on the notice but requested a follow up of the inspection findings. Both companies were directed to appear before their respectve Regional Director and Labor Development Officer to hear their side. But despite of due notice both did not appear. And by reasons of these, their respective cases were resolved against them. Both were ordered to pay their respective employees underpaid thirteenth month pay. Both appealed to the Secretary of Labor and both appeals were denied for lack of merit Hence, because of their almost identitical case, this consolidated petition. ISSUE

120

Whether or not the labor officials in computing the 13th month pay, committed grave abuse of discretion amounting to lack of jurisdiction by giving effect to Section 5 of the Revised Guidelines on the implementation of the Thirteenth Month Pay and overruling both companies contention that such is a usurpation of legislative power because it is not justified or within the authority of the law besides being violative of the equal protection clause of the constitution. HELD Contrary to respondents contention, Memorandum Order No. 28 did not repeal, supersede or abrogate P.D. 851. As may be gleaned from the language of Memorandum Order No. 28, it merely modified Section 1 of the decree by removing the P1,000.00 salary ceiling. The concept of 13th Month Pay as envisioned, defined and implemented under P.D. 851 remained unaltered, and while entitlement to said benefit was no longer limited to employees receiving a monthly basic salary of not more than P1,000.00, said benefit was, and still is, to be computed on the basic salary of the employee-recipient as provided under P.D. 851. Thus, the interpretation given to the term basic salary as defined in P.D. 851 applies equally to basic salary under Memorandum Order No. 28

121

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 131082 June 19, 2000

ROMULO, MABANTA, BUENAVENTURA, SAYOC & DE LOS ANGELES, petitioner, vs. HOME DEVELOPMENT MUTUAL FUND, respondent. DAVIDE, JR., C.J.: Once again, this Court is confronted with the issue of the validity of the Amendments to the Rules and Regulations Implementing Republic Act No. 7742, which require the existence of a plan providing for both provident/retirement and housing benefits for exemption from the Pag-IBIG Fund coverage under Presidential Decree No. 1752, as amended. Pursuant to Section 19 1 of P.D. No. 1752, as amended by R.A. No. 7742, petitioner Romulo, Mabanta, Buenaventura, Sayoc and De Los Angeles (hereafter PETITIONER), a law firm, was exempted for the period 1 January to 31 December 1995 from the PagIBIG Fund coverage by respondent Home Development Mutual Fund (hereafter HDMF) because of a superior retirement plan. 2 On 1 September 1995, the HDMF Board of Trustees, pursuant to Section 5 of Republic Act No. 7742, issued Board Resolution No. 1011, Series of 1995, amending and modifying the Rules and Regulations Implementing R.A. No. 7742. As amended, Section 1 of Rule VII provides that for a company to be entitled to a waiver or suspension of Fund coverage, 3 it must have a plan providing for both provident/retirement and housing benefits superior to those provided under the Pag-IBIG Fund. On 16 November 1995, PETITIONER filed with the respondent an application for Waiver or Suspension of Fund Coverage because of its superior retirement plan. 4 In support of said application, PETITIONER submitted to the HDMF a letter explaining that the 1995 Amendments to the Rules are invalid. 5 In a letter dated 18 March 1996, the President and Chief Executive Officer of HDMF disapproved PETITIONER's application on the ground that the requirement that there should be both a provident retirement fund and a housing plan is clear in the use of the phrase "and/or," and that the Rules Implementing R.A. No. 7742 did not amend nor repeal Section 19 of P.D. No. 1752 but merely implement the law. 6 PETITIONER's appeal 7 with the HDMF Board of Trustees was denied for having been rendered moot and academic by Board Resolution No. 1208, Series of 1996, removing

122

the availment of waiver of the mandatory coverage of the Pag-IBIG Fund, except for distressed employers. 8 On 31 March 1997, PETITIONER filed a petition for review 9 before the Court of Appeals. On motion by HDMF, the Court of Appeals dismissed 10 the petition on the ground that the coverage of employers and employees under the Home Development Mutual Fund is mandatory in character as clearly worded in Section 4 of P.D. No. 1752, as amended by R.A. No. 7742. There is no allegation that petitioner is a distressed employer to warrant its exemption from the Fund coverage. As to the amendments to the Rules and Regulations Implementing R.A. No. 7742, the same are valid. Under P.D. No. 1752 and R.A. No. 7742 the Board of Trustees of the HDMF is authorized to promulgate rules and regulations, as well as amendments thereto, concerning the extension, waiver or suspension of coverage under the Pag-IBIG Fund. And the publication requirement was amply met, since the questioned amendments were published in the 21 October 1995 issue of the Philippine Star, which is a newspaper of general circulation. PETITIONER's motion for reconsideration 11 was denied. 12 Hence, on 6 November 1997, PETITIONER filed a petition before this Court assailing the 1995 and the 1996 Amendments to the Rules and Regulations Implementing Republic Act No. 7742 for being contrary to law. In support thereof, PETITIONER contends that the subject 1995 Amendments issued by HDMF are inconsistent with the enabling law, P.D. No. 1752, as amended by R.A. No. 7742, which merely requires as a pre-condition for exemption from coverage the existence of either a superior provident/retirement plan or a superior housing plan, and not the concurrence of both plans. Hence, considering that PETITIONER has a provident plan superior to that offered by the HDMF, it is entitled to exemption from the coverage in accordance with Section 19 of P.D. No. 1752. The 1996 Amendment are also void insofar as they abolished the exemption granted by Section 19 of P.D. 1752, as amended. The repeal of such exemption involves the exercise of legislative power, which cannot be delegated to HMDF. PETITIONER also cites Section 9 (1), Chapter 2, Book VII of the Administrative Code of 1987, which provides: Sec. 9. Public Participation (1) If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule. Since the Amendments to the Rules and Regulations Implementing Republic Act No. 7742 involve an imposition of an additional burden, a public hearing should have first been conducted to give chance to the employers, like PETITIONER, to be heard before the HDMF adopted the said Amendments. Absent such public hearing, the amendments should be voided. Finally, PETITIONER contends that HDMF did not comply with Section 3, Chapter 2, Book VII of the Administrative Code of 1987, which provides that "[e]very agency shall file with the University of the Philippines Law Center three (3) certified copies of every rule adopted by it." On the other hand, the HDMF contends that in promulgating the amendments to the rules and regulations which require the existence of a plan providing for both provident and housing benefits for exemption from the Fund Coverage, the respondent Board was merely exercising its rule-making power under Section 13 of P.D. No. 1752. It had the option to use "and" only instead of "or" in the rules on waiver in order to effectively implement the Pag-IBIG Fund Law. By choosing "and," the Board has clarified the confusion brought about by the use of "and/or" in Section 19 of P.D. No. 1752, as amended.

123

As to the public hearing, HDMF maintains that as can be clearly deduced from Section 9(1), Chapter 2, Book VII of the Revised Administrative Code of 1987, public hearing is required only when the law so provides, and if not, only if the same is practicable. It follows that public hearing is only optional or discretionary on the part of the agency concerned, except when the same is required by law. P.D. No. 1752 does not require that pubic hearing be first conducted before the rules and regulations implementing it would become valid and effective. What it requires is the publication of said rules and regulations at least once in a newspaper of general circulation. Having published said 1995 and 1996 Amendments through the Philippine Star on 21 October 1995 1 and 15 November 1996, 14 respectively, HDMF has complied with the publication requirement. Finally, HDMF claims that as early as 18 October 1996, it had already filed certified true copies of the Amendments to the Rules and Regulations with the University of the Philippines Law Center. This fact is evidenced by certified true copies of the Certification from the Office of the National Administrative Register of the U.P. Law Center. 15 We find for the PETITIONER. The issue of the validity of the 1995 Amendments to the Rules and Regulations Implementing R.A. No. 7742, specifically Section I, Rule VII on Waiver and Suspension, has been squarely resolved in the relatively recent case of China Banking Corp. v. The Members of the Board of Trustees of the HDMF. 16 We held in that case that Section 1 of Rule VII of the Amendments to the Rules and Regulations Implementing R.A. No. 7742, and HDMF Circular No. 124-B prescribing the Revised Guidelines and Procedure for Filing Application for Waiver or Suspension of Fund Coverage under P.D. No. 1752, as amended by R.A. No. 7742, are null and void insofar as they require that an employer should have both a provident/retirement plan and a housing plan superior to the benefits offered by the Fund in order to qualify for waiver or suspension of the Fund coverage. In arriving at said conclusion, we ruled: The controversy lies in the legal signification of the words "and/or." In the instant case, the legal meaning of the words "and/or" should be taken in its ordinary signification, i.e., "either and or; e.g. butter and/or eggs means butter and eggs or butter or eggs. The term "and/or" means that the effect shall be given to both the conjunctive "and" and the disjunctive "or"; or that one word or the other may be taken accordingly as one or the other will best effectuate the purpose intended by the legislature as gathered from the whole statute. The term is used to avoid a construction which by the use of the disjunctive "or" alone will exclude the combination of several of the alternatives or by the use of the conjunctive "and" will exclude the efficacy of any one of the alternatives standing alone.1avvphi1 It is accordingly ordinarily held that the intention of the legislature in using the term "and/or" is that the word "and" and the word "or" are to be used interchangeably. It . . . seems to us clear from the language of the enabling law that Section 19 of P.D. No. 1752 intended that an employer with a provident plan or an employee housing plan superior to that of the fund may obtain exemption from coverage. If the law had intended that the employee [sic] should have both a superior provident plan and a housing plan in order to qualify for exemption, it would have used the words "and" instead of "and/or." Notably, paragraph (a) of Section 19 requires for annual certification of waiver or suspension, that the features of the plan or plans are superior to the fund or continue to be so. The law obviously

124

contemplates that the existence of either plan is considered as sufficient basis for the grant of an exemption; needless to state, the concurrence of both plans is more than sufficient. To require the existence of both plans would radically impose a more stringent condition for waiver which was not clearly envisioned by the basic law. By removing the disjunctive word "or" in the implementing rules the respondent Board has exceeded its authority. It is without doubt that the HDMF Board has rule-making power as provided in Section 51 17 of R.A. No. 7742 and Section 13 18 of P.D. No. 1752. However, it is well-settled that rules and regulations, which are the product of a delegated power to create new and additional legal provisions that have the effect of law, should be within the scope of the statutory authority granted by the legislature to the administrative agency. 19 It is required that the regulation be germane to the objects and purposes of the law, and be not in contradiction to, but in conformity with, the standards prescribed by law. 20 In the present case, when the Board of Trustees of the HDMF required in Section 1, Rule VII of the 1995 Amendments to the Rules and Regulations Implementing R.A. No. 7742 that employers should have both provident/retirement and housing benefits for all its employees in order to qualify for exemption from the Fund, it effectively amended Section 19 of P.D. No. 1752. And when the Board subsequently abolished that exemption through the 1996 Amendments, it repealed Section 19 of P.D. No. 1752. Such amendment and subsequent repeal of Section 19 are both invalid, as they are not within the delegated power of the Board. The HDMF cannot, in the exercise of its rule-making power, issue a regulation not consistent with the law it seeks to apply. Indeed, administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out. 21 Only Congress can repeal or amend the law. While it may be conceded that the requirement of having both plans to qualify for an exemption, as well as the abolition of the exemption, would enhance the interest of the working group and further strengthen the Home Development Mutual Fund in its pursuit of promoting public welfare through ample social services as mandated by the Constitution, we are of the opinion that the basic law should prevail. A department zeal may not be permitted to outrun the authority conferred by the statute. 22 Considering the foregoing conclusions, it is unnecessary to dwell on the other issues raised. WHEREFORE, the petition is GRANTED. The assailed decision of 31 July 1997 of the Court of Appeals in CA-G.R. No. SP-43668 and its Resolution of 15 October 1997 are hereby REVERSED and SET ASIDE. The disapproval by the Home Development Mutual Fund of the application of the petitioner for waiver or suspension of Fund coverage is SET ASIDE, and the Home Development Mutual Fund is hereby directed to refund to petitioner all sums of money it collected from the latter.

125

EN BANC [G.R. No. 143596. December 11, 2003] JUDGE TOMAS C. LEYNES, petitioner, vs. THE COMMISSION ON AUDIT (COA), HON. GREGORIA S. ONG, DIRECTOR, COMMISSION ON AUDIT and HON. SALVACION DALISAY, PROVINCIAL AUDITOR, respondents. DECISION CORONA, J.: Before us is a petition for certiorari under Rule 65 in relation to Section 2, Rule 64 of the Rules of Court, seeking to reverse and set aside the decisionxxxi[1] dated September 14, 1999 of the Commission on Audit (COA), affirming the resolution of COA Regional Director Gregoria S. Ong dated March 29, 1994 which in turn affirmed the opinion dated October 19, 1993 of the Provincial Auditor of Oriental Mindoro, Salvacion M. Dalisay. All three denied the grant of P1,600 monthly allowance to petitioner Judge Tomas C. Leynes by the Municipality of Naujan, Oriental Mindoro. FACTUAL ANTECEDENTS Petitioner Judge Tomas C. Leynes who, at present, is the presiding judge of the Regional Trial Court of Calapan City, Oriental Mindoro, Branch 40 was formerly assigned to the Municipality of Naujan, Oriental Mindoro as the sole presiding judge of the Municipal Trial Court thereof. As such, his salary and representation and transportation allowance (RATA) were drawn from the budget of the Supreme Court. In addition, petitioner received a monthly allowance of P944 from the local fundsxxxi[2] of the Municipality of Naujan starting 1984.xxxi[3] On March 15, 1993, the Sangguniang Bayan of Naujan, through Resolution No. 057, sought the opinion of the Provincial Auditor and the Provincial Budget Officer regarding any budgetary limitation on the grant of a monthly allowance by the municipality to petitioner judge. On May 7, 1993, the Sangguniang Bayan unanimously approved Resolution No. 101 increasing petitioner judges monthly allowance from P944 to P1,600 (an increase of P656) starting May 1993.xxxi[4] By virtue of said resolution, the municipal government (the Municipal Mayor and the Sangguniang Bayan) approved a supplemental budget which was likewise approved by the Sangguniang Panlalawigan and the Office of Provincial Budget and Management of Oriental Mindoro. In 1994, the Municipal Government of Naujan again provided for petitioner judges P1,600 monthly allowance in its annual budget which was again approved by the Sangguniang Panlalawigan and the Office of Provincial Budget and Management of Oriental Mindoro.xxxi[5]

126

On February 17, 1994, Provincial Auditor Salvacion M. Dalisay sent a letter to the Municipal Mayor and the Sangguniang Bayan of Naujan directing them to stop the payment of the P1,600 monthly allowance or RATA to petitioner judge and to require the immediate refund of the amounts previously paid to the latter. She opined that the Municipality of Naujan could not grant RATA to petitioner judge in addition to the RATA the latter was already receiving from the Supreme Court. Her directive was based on the following: Section 36, RA No. 7645, General Appropriations Act of 1993 Representation and Transportation Allowances. The following officials and those of equivalent rank as may be determined by the Department of Budget and Management (DBM) while in the actual performance of their respective functions are hereby granted monthly commutable representation and transportation allowances payable from the programmed appropriations provided for their respective offices, not exceeding the rates indicated below . . . National Compensation Circular No. 67 dated January 1, 1992, of the Department of Budget and Management Subject: Representation and Transportation Allowances of National Government Officials and Employees 4. Funding Source: In all cases, commutable and reimbursable RATA shall be paid from the amount appropriated for the purpose and other personal services savings of the agency or project from where the officials and employees covered under this Circular draw their salaries. No one shall be allowed to collect RATA from more than one source .xxxi[6] (emphasis supplied) Petitioner judge appealed to COA Regional Director Gregoria S. Ong who, however, upheld the opinion of Provincial Auditor Dalisay and who added that Resolution No. 101, Series of 1993 of the Sangguniang Bayan of Naujan failed to comply with Section 3 of Local Budget Circular No. 53 dated September 1, 1993 outlining the conditions for the grant of allowances to judges and other national officials or employees by the local government units (LGUs). Section 3 of the said budget circular provides that: Sec. 3 Allowances. LGUs may grant allowances/additional compensation to the national government officials/employees assigned to their locality at rates authorized by law, rules and regulations and subject to the following preconditions: a. That the annual income or finances of the municipality, city or province as certified by the Accountant concerned will allow the grant of the allowances/additional compensation without exceeding the general limitations for personal services under Section 325 of RA 7160; That the budgetary requirements under Section 324 of RA 7160 including the full requirement of RA 6758 have been satisfied and provided fully in the budget as certified by the Budget Officer and COA representative in the LGU concerned; That the LGU has fully implemented the devolution of personnel/functions in accordance with the provisions of RA 7160; That the LGU has already created mandatory positions prescribed in RA 7160; and

b.

c. d.

127

e.

That similar allowances/additional compensation are not granted by the national government to the officials/employees assigned to the LGU.xxxi[7]

Petitioner judge appealed the unfavorable resolution of the Regional Director to the Commission on Audit. In the meantime, a disallowance of the payment of the P1,600 monthly allowance to petitioner was issued. Thus he received his P1,600 monthly allowance from the Municipality of Naujan only for the period May 1993 to January 1994. On September 14, 1999, the COA issued its decision affirming the resolution of Regional Director Gregoria S. Ong: The main issue . . . is whether or not the Municipality of Naujan, Oriental Mindoro can validly provide RATA to its Municipal Judge, in addition to that provided by the Supreme Court. Generally, the grant of (RATA) [sic] to qualified national government officials and employees pursuant to Section 36 of R.A. 7645 [General Appropriations Act of 1993] and NCC No. 67 dated 01 January 1992 is subject to the following conditions to wit: 1. Payable from the programmed /appropriated amount and others from personal services savings of the respective offices where the officials or employees draw their salaries; Not exceeding the rates prescribed by the Annual General Appropriations Act; Officials /employees on detail with other offices or assigned to serve other offices or agencies shall be paid from their parent agencies; No one shall be allowed to collect RATA from more than one source.

2. 3. 4.

On the other hand, the municipal government may provide additional allowances and other benefits to judges and other national government officials or employees assigned or stationed in the municipality, provided, that the finances of the municipality allow the grant thereof pursuant to Section 447, Par. 1 (xi), R.A. 7160, and provided further, that similar allowance/additional compensation are not granted by the national government to the official/employee assigned to the local government unit as provided under Section 3(e) of Local Budget Circular No. 53, dated 01 September 1993. The conflicting provisions of Section 447, Par. (1) (xi) of the Local Government Code of 1991 and Section 36 of the General Appropriations Act of 1993 [RA 7645] have been harmonized by the Local Budget Circular No. 53 dated 01 September 1993, issued by the Department of Budget and Management pursuant to its powers under Section 25 and Section 327 of the Local Government Code. The said circular must be adhered to by the local government units particularly Section 3 thereof which provides the implementing guidelines of Section 447, Par. (1) (xi) of the Local Government Code of 1991 in the grant of allowances to national government officials/employees assigned or stationed in their respective local government units. Consequently, the subject SB Resolution No. 101 dated 11 May 1993 of the Sangguniang Bayan of Naujan, Oriental Mindoro, having failed to comply with the inherent precondition as defined in Section 3 (e). . . is null and void. Furthermore, the Honorable Judge Tomas C. Leynes, being a national government official is prohibited to receive additional RATA from the local government fund pursuant to Section 36 of the General

128

Appropriations Act (R.A. 7645 for 1993) and National Compensation Circular No. 67 dated 1 January 1992.xxxi[8] (emphasis ours) ASSIGNMENTS OF ERROR Petitioner judge filed a motion for reconsideration of the above decision but it was denied by the Commission in a resolution dated May 30, 2000. Aggrieved, petitioner filed the instant petition, raising the following assignments of error for our consideration: I WHETHER OR NOT RESOLUTION NO. 1O1, SERIES OF 1993 OF NAUJAN, ORIENTAL MINDORO, WHICH GRANTED ADDITIONAL ALLOWANCE TO THE MUNICIPAL TRIAL JUDGE OF NAUJAN, ORIENTAL MINDORO AND INCREASING HIS CURRENT REPRESENTATION AND TRAVELLING ALLOWANCE (RATA) TO AN AMOUNT EQUIVALENT TO THAT RECEIVED MONTHLY BY SANGGUNIANG MEMBERS IN PESOS: ONE THOUSAND SIX HUNDRED (P1,600.00) EFFECTIVE 1993, IS VALID. II WHETHER OR NOT THE POWER OF MUNICIPAL GOVERNMENTS TO GRANT ADDITIONAL ALLOWANCES AND OTHER BENEFITS TO NATIONAL GOVERNMENT EMPLOYEES STATIONED IN THEIR MUNICIPALITY IS VERY EXPLICIT AND UNEQUIVOCAL UNDER THE LOCAL GOVERNMENT CODE OF 1991 PARTICULARLY SECTION 447 IN RELATION TO SECTIONS 17 AND 22 THEREOF. III WHETHER OR NOT THE DEPARTMENT OF BUDGET AND MANAGEMENT (DBM) CAN, BY THE ISSUANCE OF BUDGET CIRCULARS, RESTRICT A MUNICIPAL GOVERNMENT FROM EXERCISING ITS GIVEN LEGISLATIVE POWERS OF PROVIDING ADDITIONAL ALLOWANCES AND OTHER BENEFITS TO NATIONAL EMPLOYEES STATIONED OR ASSIGNED TO THEIR MUNICIPALITY FOR AS LONG AS THEIR FINANCES SO ALLOW. IV WHETHER OR NOT THE LOCAL GOVERNMENT CODE OF 1991 PARTICULARLY SECTION 447 (a) (1) (xi) WAS EXPRESSLY OR IMPLIEDLY REPEALED OR MODIFIED BY REPUBLIC ACT 7645 AND THE GENERAL APPROPRIATIONS ACT OF 1993. V WHETHER OR NOT PETITIONER WAS ENTITLED TO RECEIVE THE ADDITIONAL ALLOWANCES GRANTED TO HIM BY THE MUNICIPALITY OF NAUJAN, ORIENTAL MINDORO BY VIRTUE OF ITS RESOLUTION NO. 101, SERIES OF 1993. POSITION OF COA Respondent Commission on Audit opposes the grant by the Municipality of Naujan of the P1,600 monthly allowance to petitioner Judge Leynes for the reason that the municipality could not grant RATA to judges in addition to the RATA already received from the Supreme Court.xxxi[9] Respondent bases its contention on the following: 1. National Compensation Circular No. 67 (hereafter NCC No. 67) dated January 1, 1992 of the Department of Budget and Management (DBM) which provides that (a) the RATA of national officials and employees shall be payable from the

129

programmed appropriations or personal services savings of the agency where such officials or employees draw their salary and (b) no one shall be allowed to collect RATA from more than one source; 2. the General Appropriations Act of 1993 (RA 7645) which provided that the RATA of national officials shall be payable from the programmed appropriations of their respective offices and Local Budget Circular No. 53 (hereafter LBC No. 53) dated September 1, 1993 of the DBM which prohibits local government units from granting allowances to national government officials or employees stationed in their localities when such allowances are also granted by the national government or are similar to the allowances granted by the national government to such officials or employees.xxxi[10]

3.

POSITION OF PETITIONER Petitioner judge, on the other hand, asserts that the municipality is expressly and unequivocally empowered by RA 7160 (the Local Government Code of 1991) to enact appropriation ordinances granting allowances and other benefits to judges stationed in its territory. Section 447(a)(1)(xi) of the Local Government Code of 1991 imposes only one condition, that is, when the finances of the municipal government allow. The Code does not impose any other restrictions in the exercise of such power by the municipality. Petitioner also asserts that the DBM cannot amend or modify a substantive law like the Local Government Code of 1991 through mere budget circulars. Petitioner emphasizes that budget circulars must conform to, not modify or amend, the provisions of the law it seeks to implement.xxxi[11] HISTORY OF GRANT OF ALLOWANCES TO JUDGES The power of local government units (LGUs) to grant allowances to judges stationed in their respective territories was originally provided by Letter of Instruction No. 1418 dated July 18, 1984 (hereafter LOI No. 1418): WHEREAS, the State is cognizant of the need to maintain the independence of the Judiciary; WHEREAS, the budgetary allotment of the Judiciary constitutes only a small percentage of the national budget; WHEREAS, present economic conditions adversely affected the livelihood of the members of the Judiciary; WHEREAS, some local government units are ready, willing and able to pay additional allowances to Judges of various courts within their respective territorial jurisdiction; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Republic of the Philippines, do hereby direct: 1. 3. Section 3 of Letter of Implementation No. 96 is hereby amended to read as follows: The allowances provided in this letter shall be borne exclusively by the National Government. However, provincial, city and municipal governments may pay additional allowances to the members and personnel of the Judiciary assigned in their respective

130

areas out of available local funds but not to exceed P1,500.00; Provided, that in Metropolitan Manila, the city and municipal governments therein may pay additional allowances not exceeding P3,000.00. (emphasis ours)xxxi[12] On June 25, 1991, the DBM issued Circular No. 91-7 outlining the guidelines for the continued receipt of allowances by judges from LGUs: Consistent with the constitutional provision on the fiscal autonomy of the judiciary and the policy of the National Government of allowing greater autonomy to local government units, judges of the Judiciary are hereby allowed to continue to receive allowances at the same rates which they have been receiving from the Local Government Units as of June 30, 1989, subject to the following guidelines: 1. That the continuance of payment of subject allowance to the recipient judge shall be entirely voluntary and non-compulsory on the part of the Local Government Units; That payment of the above shall always be subject to the availability of local funds; That it shall be made only in compliance with the policy of non-diminution of compensation received by the recipient judge before the implementation of the salary standardization; That the subject allowance shall be given only to judges who were receiving the same as of June 30, 1989 and shall be co-terminous with the incumbent judges; and That the subject allowance shall automatically terminate upon transfer of a judge from one local government unit to another local government unit. (emphasis ours)

2. 3.

4.

5.

On October 10, 1991, Congress enacted RA 7160, otherwise known as the Local Government Code of 1991.xxxi[13] The power of the LGUs to grant allowances and other benefits to judges and other national officials stationed in their respective territories was expressly provided in Sections 447(a)(1)(xi), 458(a)(1)(xi) and 468(a)(1)(xi) of the Code. On March 15, 1994, the DBM issued Local Budget Circular No. 55 (hereafter LBC No. 55) setting out the maximum amount of allowances that LGUs may grant to judges. For provinces and cities, the amount should not exceed P1,000 and for municipalities, P700. On December 3, 2002, we struck down the above circular in Dadole, et al. vs. COA.xxxi[14] We ruled there that the Local Government Code of 1991 clearly provided that LGUs could grant allowances to judges, subject only to the condition that the finances of the LGUs allowed it. We held that setting a uniform amount for the grant of allowances (was) an inappropriate way of enforcing said criterion. Accordingly, we declared that the DBM exceeded its power of supervision over LGUs by imposing a prohibition that did not jibe with the Local Government Code of 1991.xxxi[15] ESTABLISHED PRINCIPLES INVOLVED From the foregoing history of the power of LGUs to grant allowances to judges, the following principles should be noted:

131

1.

the power of LGUs to grant allowances to judges has long been recognized (since 1984 by virtue of LOI No. 1418) and, at present, it is expressly and unequivocally provided in Sections 447, 458 and 468 of the Local Government Code of 1991; the issuance of DBM Circular No. 91-7 dated June 25, 1991 and LBC No. 55 dated March 15, 1994 indicates that the national government recognizes the power of LGUs to grant such allowances to judges; in Circular No. 91-7, the national government merely provides the guidelines for the continued receipt of allowances by judges from LGUs while in LBC No. 55, the national government merely tries to limit the amount of allowances LGUs may grant to judges and in the recent case of Dadole, et al. vs. COA, the Court upheld the constitutionally enshrined autonomy of LGUs to grant allowances to judges in any amount deemed appropriate, depending on availability of funds, in accordance with the Local Government Code of 1991.

2.

3.

4.

OUR RULING We rule in favor of petitioner judge. Respondent COA erred in opposing the grant of the P1,600 monthly allowance by the Municipality of Naujan to petitioner Judge Leynes. DISCUSSION OF OUR RULING Section 447(a)(1)(xi) of RA 7160, the Local Government Code of 1991, provides: (a) The sangguniang bayan, as the legislative body of the municipality, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants . . ., and shall: (1) Approve ordinances and pass resolutions necessary for an efficient and effective municipal government, and in this connection shall: (xi) When the finances of the municipal government allow, provide for additional allowances and other benefits to judges, prosecutors, public elementary and high school teachers, and other national government officials stationed in or assigned to the municipality; (emphasis ours) Respondent COA, however, contends that the above section has been repealed, modified or amended by NCC No. 67 dated January 1, 1992, RA 7645 (the General Appropriations Act of 1993) and LBC No. 53 dated September 1, 1993.xxxi[16] It is elementary in statutory construction that an administrative circular cannot supersede, abrogate, modify or nullify a statute. A statute is superior to an administrative circular, thus the latter cannot repeal or amend it.xxxi[17] In the present case, NCC No. 67, being a mere administrative circular, cannot repeal a substantive law like RA 7160. It is also an elementary principle in statutory construction that repeal of statutes by implication is not favored, unless it is manifest that the legislature so intended. The legislature is assumed to know the existing laws on the subject and cannot be presumed to have enacted inconsistent or conflicting statutes.xxxi[18] Respondent COA alleges that Section 36 of RA 7645 (the GAA of 1993) repealed Section 447(a)(l)(xi) of RA 7160 (the LGC of 1991). A review of the two laws, however, shows that this was not so. Section 36 of RA 7645 merely provided for the different rates of RATA payable to

132

national government officials or employees, depending on their position, and stated that these amounts were payable from the programmed appropriations of the parent agencies to which the concerned national officials or employees belonged. Furthermore, there was no other provision in RA 7645 from which a repeal of Section 447(a) (l)(xi) of RA 7160 could be implied. In the absence, therefore, of any clear repeal of Section 447(a)(l)(xi) of RA 7160, we cannot presume such intention on the part of the legislature. Moreover, the presumption against implied repeal becomes stronger when, as in this case, one law is special and the other is general.xxxi[19] The principle is expressed in the maxim generalia specialibus non derogant, a general law does not nullify a specific or special law. The reason for this is that the legislature, in passing a law of special character, considers and makes special provisions for the particular circumstances dealt with by the special law. This being so, the legislature, by adopting a general law containing provisions repugnant to those of the special law and without making any mention of its intention to amend or modify such special law, cannot be deemed to have intended an amendment, repeal or modification of the latter.xxxi[20] In this case, RA 7160 (the LGC of 1991) is a special lawxxxi[21] which exclusively deals with local government units (LGUs), outlining their powers and functions in consonance with the constitutionally mandated policy of local autonomy. RA 7645 (the GAA of 1993), on the other hand, was a general lawxxxi[22] which outlined the share in the national fund of all branches of the national government. RA 7645 therefore, being a general law, could not have, by mere implication, repealed RA 7160. Rather, RA 7160 should be taken as the exception to RA 7645 in the absence of circumstances warranting a contrary conclusion.xxxi[23] The controversy actually centers on the seemingly sweeping provision in NCC No. 67 which states that no one shall be allowed to collect RATA from more than one source. Does this mean that judges cannot receive allowances from LGUs in addition to the RATA from the Supreme Court? For reasons that will hereinafter be discussed, we answer in the negative. The pertinent provisions of NCC No. 67 read: 3. Rules and Regulations: 3.1.1 Payment of RATA, whether commutable or reimbursable, shall be in accordance with the rates prescribed for each of the following officials and employees and those of equivalent ranks, and the conditions enumerated under the pertinent sections of the General Provisions of the annual General Appropriations Act (GAA):

4. Funding Source: In all cases, commutable and reimbursable RATA shall be paid from the amount appropriated for the purpose and other personal services savings of the agency or project from where the officials and employees covered under this Circular draw their salaries. No one shall be allowed to collect RATA from more than one source. (emphasis ours) In construing NCC No. 67, we apply the principle in statutory construction that force and effect should not be narrowly given to isolated and disjoined clauses of the law but to its spirit, broadly taking all its provisions together in one rational view.xxxi[24] Because a statute is enacted as a whole and not in parts or sections, that is, one part is as important as the others, the statute should be construed and given effect as a whole. A provision or section which is unclear by itself may be clarified by reading and construing it in relation to the whole statute.xxxi[25]

133

Taking NCC No. 67 as a whole then, what it seeks to prevent is the dual collection of RATA by a national official from the budgets of more than one national agency. We emphasize that the other source referred to in the prohibition is another national agency. This can be gleaned from the fact that the sentence no one shall be allowed to collect RATA from more than one source (the controversial prohibition) immediately follows the sentence that RATA shall be paid from the budget of the national agency where the concerned national officials and employees draw their salaries. The fact that the other source is another national agency is supported by RA 7645 (the GAA of 1993) invoked by respondent COA itself and, in fact, by all subsequent GAAs for that matter, because the GAAs all essentially provide that (1) the RATA of national officials shall be payable from the budgets of their respective national agencies and (2) those officials on detail with other national agencies shall be paid their RATA only from the budget of their parent national agency: Section 36, RA 7645, General Appropriations Act of 1993: Representation and Transportation Allowances. The following officials and those of equivalent rank as may be determined by the Department of Budget and Management (DBM) while in the actual performance of their respective functions are hereby granted monthly commutable representation and transportation allowances payable from the programmed appropriations provided for their respective offices, not exceeding the rates indicated below, which shall apply to each type of allowance: Officials on detail with other offices, including officials of the Commission of Audit assigned to serve other offices or agencies, shall be paid the allowance herein authorized from the appropriations of their parent agencies. (emphasis ours) Clearly therefore, the prohibition in NCC No. 67 is only against the dual or multiple collection of RATA by a national official from the budgets of two or more national agencies. Stated otherwise, when a national official is on detail with another national agency, he should get his RATA only from his parent national agency and not from the other national agency he is detailed to. Since the other source referred in the controversial prohibition is another national agency, said prohibition clearly does not apply to LGUs like the Municipality of Naujan. National agency of course refers to the different offices, bureaus and departments comprising the national government. The budgets of these departments or offices are fixed annually by Congress in the General Appropriations Act.xxxi[26] An LGU is obviously not a national agency. Its annual budget is fixed by its own legislative council (Sangguniang Bayan, Panlungsod or Panlalawigan), not by Congress. Without doubt, NCC No. 67 does not apply to LGUs. The prohibition in NCC No. 67 is in fact an administrative tool of the DBM to prevent the much-abused practice of multiple allowances, thus standardizing the grant of RATA by national agencies. Thus, the purpose clause of NCC No. 67 reads: This Circular is being issued to ensure uniformity and consistency of actions on claims for representation and transportation allowance (RATA) which is primarily granted by law to national government officials and employees to cover expenses incurred in the discharge or performance of their duties and responsibilities. By no stretch of the imagination can NCC No. 67 be construed as nullifying the power of LGUs to grant allowances to judges under the Local Government Code of 1991. It was issued primarily to make the grant of RATA to national officials under the national budget uniform. In other words, it applies only to the national funds administered by the DBM, not the local funds of LGUs.

134

To rule against the power of LGUs to grant allowances to judges as what respondent COA would like us to do will subvert the principle of local autonomy zealously guaranteed by the Constitution.xxxi[27] The Local Government Code of 1991 was specially promulgated by Congress to ensure the autonomy of local governments as mandated by the Constitution. By upholding, in the present case, the power of LGUs to grant allowances to judges and leaving to their discretion the amount of allowances they may want to grant, depending on the availability of local funds, we ensure the genuine and meaningful local autonomy of LGUs. We now discuss the next contention of respondent COA: that the resolution of the Sangguniang Bayan of Naujan granting the P1,600 monthly allowance to petitioner judge was null and void because it failed to comply with LBC No. 53 dated September 1, 1993: Sec. 3 Allowances. LGUs may grant allowances/additional compensation to the national government officials/employees assigned to their locality at rates authorized by law, rules and regulations and subject to the following preconditions: a. That the annual income or finances of the municipality, city or province as certified by the Accountant concerned will allow the grant of the allowances/additional compensation without exceeding the general limitations for personal services under Section 325 of RA 7160; That the budgetary requirements under Section 324 of RA 7160 including the full requirement of RA 6758 have been satisfied and provided fully in the budget as certified by the Budget Officer and COA representative in the LGU concerned; That the LGU has fully implemented the devolution of personnel/functions in accordance with the provisions of RA 7160; That the LGU has already created mandatory positions prescribed in RA 7160. That similar allowances/additional compensation are not granted by the national government to the officials/employees assigned to the LGU.

b.

c. d. e.

Though LBC No. 53 of the DBM may be considered within the ambit of the President's power of general supervision over LGUs,xxxi[28] we rule that Section 3, paragraph (e) thereof is invalid. RA 7160, the Local Government Code of 1991, clearly provides that provincial, city and municipal governments may grant allowances to judges as long as their finances allow. Section 3, paragraph (e) of LBC No. 53, by outrightly prohibiting LGUs from granting allowances to judges whenever such allowances are (1) also granted by the national government or (2) similar to the allowances granted by the national government, violates Section 447(a)(l)(xi) of the Local Government Code of 1991.xxxi[29] As already stated, a circular must conform to the law it seeks to implement and should not modify or amend it.xxxi[30] Moreover, by prohibiting LGUs from granting allowances similar to the allowances granted by the national government, Section 3 (e) of LBC No. 53 practically prohibits LGUs from granting allowances to judges and, in effect, totally nullifies their statutory power to do so. Being unduly restrictive therefore of the statutory power of LGUs to grant allowances to judges and being violative of their autonomy guaranteed by the Constitution, Section 3, paragraph (e) of LBC No. 53 is hereby declared null and void.

135

Paragraphs (a) to (d) of said circular, however, are valid as they are in accordance with Sections 324xxxi[31] and 325xxxi[32] of the Local Government Code of 1991; these respectively provide for the budgetary requirements and general limitations on the use of provincial, city and municipal funds. Paragraphs (a) to (d) are proper guidelines for the condition provided in Sections 447, 458 and 468 of the Local Government Code of 1991 that LGUs may grant allowances to judges if their funds allow.xxxi[33] Respondent COA also argues that Resolution No. 101 of the Sangguniang Bayan of Naujan failed to comply with paragraphs (a) to (d) of LBC No. 53, thus it was null and void. The argument is misplaced. Guidelines (a) to (d) were met when the Sangguniang Panlalawigan of Oriental Mindoro approved Resolution No. 101 of the Sangguniang Bayan of Naujan granting the P1,600 monthly allowance to petitioner judge as well as the corresponding budgets of the municipality providing for the said monthly allowance to petitioner judge. Under Section 327 of the Local Government Code of 1991, the Sangguniang Panlalawigan was specifically tasked to review the appropriation ordinances of its component municipalities to ensure compliance with Sections 324 and 325 of the Code. Considering said duty of the Sangguniang Panlalawigan, we will assume, in the absence of proof to the contrary, that the Sangguniang Panlalawigan of Oriental Mindoro performed what the law required it to do, that is, review the resolution and the corresponding budgets of the Municipality of Naujan to make sure that they complied with Sections 324 and 325 of the Code.xxxi[34] We presume the regularity of the Sangguniang Panlalawigans official act. Moreover, it is well-settled that an ordinance must be presumed valid in the absence of evidence showing that it is not in accordance with the law.xxxi[35] Respondent COA had the burden of proving that Resolution No. 101 of the Sangguniang Bayan of Naujan did not comply with the condition provided in Section 447 of the Code, the budgetary requirements and general limitations on the use of municipal funds provided in Sections 324 and 325 of the Code and the implementing guidelines issued by the DBM, i.e., paragraphs (a) to (d), Section 3 of LBC No. 53. Respondent COA also had the burden of showing that the Sangguniang Panlalawigan of Oriental Mindoro erroneously approved said resolution despite its non-compliance with the requirements of the law. It failed to discharge such burden. On the contrary, we find that the resolution of the Municipality of Naujan granting the P1,600 monthly allowance to petitioner judge fully complied with the law. Thus, we uphold its validity. In sum, we hereby affirm the power of the Municipality of Naujan to grant the questioned allowance to petitioner Judge Leynes in accordance with the constitutionally mandated policy of local autonomy and the provisions of the Local Government Code of 1991. We also sustain the validity of Resolution No. 101, Series of 1993, of the Sangguniang Bayan of Naujan for being in accordance with the law. WHEREFORE, the petition is hereby GRANTED. The assailed decision dated September 14, 1999 of the Commission of Audit is hereby SET ASIDE and Section 3, paragraph (e) of LBC No. 53 is hereby declared NULL and VOID. No costs. SO ORDERED.

136

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 167798 April 19, 2006

KILUSANG MAYO UNO, NATIONAL FEDERATION OF LABOR UNIONS-KILUSANG MAYO UNO (NAFLU-KMU), JOSELITO V. USTAREZ, EMILIA P. DAPULANG, SALVADOR T. CARRANZA, MARTIN T. CUSTODIO, JR. and ROQUE M. TAN, Petitioners, vs. THE DIRECTOR-GENERAL, NATIONAL ECONOMIC DEVELOPMENT AUTHORITY, and THE SECRETARY, DEPARTMENT OF BUDGET and MANAGEMENT, Respondents. x-----------------------------------x
G.R. No. 167930 April 19, 2006

BAYAN MUNA Representatives SATUR C. OCAMPO, TEODORO A. CASIO, and JOEL G. VIRADOR, GABRIELA WOMENS PARTY Representative LIZA L. MAZA, ANAKPAWIS Representatives RAFAEL V. MARIANO and CRISPIN B. BELTRAN, Rep. FRANCIS G. ESCUDERO, Rep. EDUARDO C. ZIALCITA, Rep. LORENZO R. TAADA III, DR. CAROL PAGADUAN-ARAULLO and RENATO M. REYES, JR. of BAYAN, MARIE HILAO-ENRIQUEZ of KARAPATAN, ANTONIO L. TINIO of ACT, FERDINAND GAITE of COURAGE, GIOVANNI A. TAPANG of AGHAM, WILFREDO MARBELLA GARCIA, of KMP, LANA LINABAN of GABRIELA, AMADO GAT INCIONG, RENATO CONSTANTINO, JR., DEAN PACIFICO H. AGABIN, SHARON R. DUREMDES of the NATIONAL COUNCIL OF CHURCHES IN THE PHILIPPINES, and BRO. EDMUNDO L. FERNANDEZ (FSC) of the ASSOCIATION OF MAJOR RELIGIOUS SUPERIORS OF THE PHILIPPINES (AMRSP), Petitioners, vs. EDUARDO ERMITA, in his capacity as Executive Secretary, ROMULO NERI, in his capacity as Director-General of the NATIONAL ECONOMIC and DEVELOPMENT AUTHORITY (NEDA) and the Administrator of the NATIONAL STATISTICS OFFICE (NSO), Respondents.

DECISION CARPIO, J.:

137

This case involves two consolidated petitions for certiorari, prohibition, and mandamus under Rule 65 of the Rules of Court, seeking the nullification of Executive Order No. 420 (EO 420) on the ground that it is unconstitutional. EO 420, issued by President Gloria Macapagal-Arroyo on 13 April 2005, reads: REQUIRING ALL GOVERNMENT AGENCIES AND GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS TO STREAMLINE AND HARMONIZE THEIR IDENTIFICATION (ID) SYSTEMS, AND AUTHORIZING FOR SUCH PURPOSE THE DIRECTOR-GENERAL, NATIONAL ECONOMIC AND DEVELOPMENT AUTHORITY TO IMPLEMENT THE SAME, AND FOR OTHER PURPOSES WHEREAS, good governance is a major thrust of this Administration; WHEREAS, the existing multiple identification systems in government have created unnecessary and costly redundancies and higher costs to government, while making it inconvenient for individuals to be holding several identification cards; WHEREAS, there is urgent need to streamline and integrate the processes and issuance of identification cards in government to reduce costs and to provide greater convenience for those transacting business with government; WHEREAS, a unified identification system will facilitate private businesses, enhance the integrity and reliability of government-issued identification cards in private transactions, and prevent violations of laws involving false names and identities. NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines by virtue of the powers vested in me by law, do hereby direct the following: Section 1. Adoption of a unified multi-purpose identification (ID) system for government.1avvphil.net All government agencies, including government-owned and controlled corporations, are hereby directed to adopt a unified multi-purpose ID system to ensure the attainment of the following objectives: a. To reduce costs and thereby lessen the financial burden on both the government and the public brought about by the use of multiple ID cards and the maintenance of redundant database containing the same or related information; b. To ensure greater convenience for those transacting business with the government and those availing of government services; c. To facilitate private businesses and promote the wider use of the unified ID card as provided under this executive order; d. To enhance the integrity and reliability of government-issued ID cards; and e. To facilitate access to and delivery of quality and effective government service. Section 2. Coverage All government agencies and government-owned and controlled corporations issuing ID cards to their members or constituents shall be covered by this executive order. Section 3. Data requirement for the unified ID system The data to be collected and recorded by the participating agencies shall be limited to the following: Any prominent distinguishing features like moles and others

138

Tax Identification Number (TIN) Provided that a corresponding ID number issued by the participating agency and a common reference number shall form part of the stored ID data and, together with at least the first five items listed above, including the print of the right thumbmark, or any of the fingerprints as collected and stored, shall appear on the face or back of the ID card for visual verification purposes. Section 4. Authorizing the Director-General, National Economic and Development Authority, to Harmonize All Government Identification Systems. The DirectorGeneral, National Economic Development Authority, is hereby authorized to streamline and harmonize all government ID systems. Section 5. Functions and responsibilities of the Director-General, National Economic and Development Authority. In addition to his organic functions and responsibilities, the Director-General, National Economic and Development Authority, shall have the following functions and responsibilities: a. Adopt within sixty (60) days from the effectivity of this executive order a unified government ID system containing only such data and features, as indicated in Section 3 above, to validly establish the identity of the card holder: b. Enter into agreements with local governments, through their respective leagues of governors or mayors, the Commission on Elections (COMELEC), and with other branches or instrumentalities of the government, for the purpose of ensuring government-wide adoption of and support to this effort to streamline the ID systems in government; b. Call on any other government agency or institution, or create subcommittees or technical working groups, to provide such assistance as may be necessary or required for the effective performance of its functions; and d. Promulgate such rules or regulations as may be necessary in pursuance of the objectives of this executive order. Section 6. Safeguards. The Director-General, National Economic and Development Authority, and the pertinent agencies shall adopt such safeguard as may be necessary and adequate to ensure that the right to privacy of an individual takes precedence over efficient public service delivery. Such safeguards shall, as a minimum, include the following: a. The data to be recorded and stored, which shall be used only for purposes of establishing the identity of a person, shall be limited to those specified in Section 3 of this executive order; b. In no case shall the collection or compilation of other data in violation of a persons right to privacy shall be allowed or tolerated under this order; c. Stringent systems of access control to data in the identification system shall be instituted; d. Data collected and stored for this purpose shall be kept and treated as strictly confidential and a personal or written authorization of the Owner shall be required for access and disclosure of data; e. The identification card to be issued shall be protected by advanced security features and cryptographic technology; and

139

f. A written request by the Owner of the identification card shall be required for any correction or revision of relevant data, or under such conditions as the participating agency issuing the identification card shall prescribe. Section 7. Funding. Such funds as may be recommended by the Department of Budget and Management shall be provided to carry out the objectives of this executive order. Section 8. Repealing clause. All executive orders or issuances, or portions thereof, which are inconsistent with this executive order, are hereby revoked, amended or modified accordingly. Section 9. Effectivity. This executive order shall take effect fifteen (15) days after its publication in two (2) newspapers of general circulation. DONE in the City of Manila, this 13th day of April, in the year of Our Lord, Two Thousand and Five. Thus, under EO 420, the President directs all government agencies and governmentowned and controlled corporations to adopt a uniform data collection and format for their existing identification (ID) systems. Petitioners in G.R. No. 167798 allege that EO 420 is unconstitutional because it constitutes usurpation of legislative functions by the executive branch of the government. Furthermore, they allege that EO 420 infringes on the citizens right to privacy.1 Petitioners in G.R. No. 167930 allege that EO 420 is void based on the following grounds: 1. EO 420 is contrary to law. It completely disregards and violates the decision of this Honorable Court in Ople v. Torres et al., G.R. No. 127685, July 23, 1998. It also violates RA 8282 otherwise known as the Social Security Act of 1997. 2. The Executive has usurped the legislative power of Congress as she has no power to issue EO 420. Furthermore, the implementation of the EO will use public funds not appropriated by Congress for that purpose. 3. EO 420 violates the constitutional provisions on the right to privacy (i) It allows access to personal confidential data without the owners consent. (ii) EO 420 is vague and without adequate safeguards or penalties for any violation of its provisions. (iii) There are no compelling reasons that will legitimize the necessity of EO 420. 4. Granting without conceding that the President may issue EO 420, the Executive Order was issued without public hearing. 5. EO 420 violates the Constitutional provision on equal protection of laws and results in the discriminatory treatment of and penalizes those without ID.2 Issues

140

Essentially, the petitions raise two issues. First, petitioners claim that EO 420 is a usurpation of legislative power by the President. Second, petitioners claim that EO 420 infringes on the citizens right to privacy. Respondents question the legal standing of petitioners and the ripeness of the petitions. Even assuming that petitioners are bereft of legal standing, the Court considers the issues raised under the circumstances of paramount public concern or of transcendental significance to the people. The petitions also present a justiciable controversy ripe for judicial determination because all government entities currently issuing identification cards are mandated to implement EO 420, which petitioners claim is patently unconstitutional. Hence, the Court takes cognizance of the petitions. The Courts Ruling The petitions are without merit. On the Alleged Usurpation of Legislative Power Section 2 of EO 420 provides, "Coverage. All government agencies and governmentowned and controlled corporations issuing ID cards to their members or constituents shall be covered by this executive order." EO 420 applies only to government entities that issue ID cards as part of their functions under existing laws. These government entities have already been issuing ID cards even prior to EO 420. Examples of these government entities are the GSIS,3 SSS,4 Philhealth,5 Mayors Office,6 LTO,7 PRC,8 and similar government entities. Section 1 of EO 420 directs these government entities to "adopt a unified multi-purpose ID system." Thus, all government entities that issue IDs as part of their functions under existing laws are required to adopt a uniform data collection and format for their IDs. Section 1 of EO 420 enumerates the purposes of the uniform data collection and format, namely: a. To reduce costs and thereby lessen the financial burden on both the government and the public brought about by the use of multiple ID cards and the maintenance of redundant database containing the same or related information; b. To ensure greater convenience for those transacting business with the government and those availing of government services; c. To facilitate private businesses and promote the wider use of the unified ID card as provided under this executive order; d. To enhance the integrity and reliability of government-issued ID cards; and e. To facilitate access to and delivery of quality and effective government service. In short, the purposes of the uniform ID data collection and ID format are to reduce costs, achieve efficiency and reliability, insure compatibility, and provide convenience to the people served by government entities. Section 3 of EO 420 limits the data to be collected and recorded under the uniform ID system to only 14 specific items, namely: (1) Name; (2) Home Address; (3) Sex; (4) Picture; (5) Signature; (6) Date of Birth; (7) Place of Birth; (8) Marital Status; (9) Name of Parents; (10) Height; (11) Weight; (12) Two index fingers and two thumbmarks; (13) Any prominent distinguishing features like moles or others; and (14) Tax Identification Number.

141

These limited and specific data are the usual data required for personal identification by government entities, and even by the private sector. Any one who applies for or renews a drivers license provides to the LTO all these 14 specific data. At present, government entities like LTO require considerably more data from applicants for identification purposes. EO 420 will reduce the data required to be collected and recorded in the ID databases of the government entities. Government entities cannot collect or record data, for identification purposes, other than the 14 specific data. Various laws allow several government entities to collect and record data for their ID systems, either expressly or impliedly by the nature of the functions of these government entities. Under their existing ID systems, some government entities collect and record more data than what EO 420 allows. At present, the data collected and recorded by government entities are disparate, and the IDs they issue are dissimilar. In the case of the Supreme Court,9 the IDs that the Court issues to all its employees, including the Justices, contain 15 specific data, namely: (1) Name; (2) Picture; (3) Position; (4) Office Code Number; (5) ID Number; (6) Height; (7) Weight; (8) Complexion; (9) Color of Hair; (10) Blood Type; (11) Right Thumbmark; (12) Tax Identification Number; (13) GSIS Policy Number; (14) Name and Address of Person to be Notified in Case of Emergency; and (15) Signature. If we consider that the picture in the ID can generally also show the sex of the employee, the Courts ID actually contains 16 data. In contrast, the uniform ID format under Section 3 of EO 420 requires only "the first five items listed" in Section 3, plus the fingerprint, agency number and the common reference number, or only eight specific data. Thus, at present, the Supreme Courts ID contains far more data than the proposed uniform ID for government entities under EO 420. The nature of the data contained in the Supreme Court ID is also far more financially sensitive, specifically the Tax Identification Number. Making the data collection and recording of government entities unified, and making their ID formats uniform, will admittedly achieve substantial benefits. These benefits are savings in terms of procurement of equipment and supplies, compatibility in systems as to hardware and software, ease of verification and thus increased reliability of data, and the user-friendliness of a single ID format for all government entities. There is no dispute that government entities can individually limit the collection and recording of their data to the 14 specific items in Section 3 of EO 420. There is also no dispute that these government entities can individually adopt the ID format as specified in Section 3 of EO 420. Such an act is certainly within the authority of the heads or governing boards of the government entities that are already authorized under existing laws to issue IDs. A unified ID system for all these government entities can be achieved in either of two ways. First, the heads of these existing government entities can enter into a memorandum of agreement making their systems uniform. If the government entities can individually adopt a format for their own ID pursuant to their regular functions under existing laws, they can also adopt by mutual agreement a uniform ID format, especially if the uniform format will result in substantial savings, greater efficiency, and optimum compatibility. This is purely an administrative matter, and does not involve the exercise of legislative power. Second, the President may by executive or administrative order direct the government entities under the Executive department to adopt a uniform ID data collection and format. Section 17, Article VII of the 1987 Constitution provides that the "President shall

142

have control of all executive departments, bureaus and offices." The same Section also mandates the President to "ensure that the laws be faithfully executed." Certainly, under this constitutional power of control the President can direct all government entities, in the exercise of their functions under existing laws, to adopt a uniform ID data collection and ID format to achieve savings, efficiency, reliability, compatibility, and convenience to the public. The Presidents constitutional power of control is self-executing and does not need any implementing legislation. Of course, the Presidents power of control is limited to the Executive branch of government and does not extend to the Judiciary or to the independent constitutional commissions. Thus, EO 420 does not apply to the Judiciary, or to the COMELEC which under existing laws is also authorized to issue voters ID cards.10 This only shows that EO 420 does not establish a national ID system because legislation is needed to establish a single ID system that is compulsory for all branches of government. The Constitution also mandates the President to ensure that the laws are faithfully executed. There are several laws mandating government entities to reduce costs, increase efficiency, and in general, improve public services.11 The adoption of a uniform ID data collection and format under EO 420 is designed to reduce costs, increase efficiency, and in general, improve public services. Thus, in issuing EO 420, the President is simply performing the constitutional duty to ensure that the laws are faithfully executed. Clearly, EO 420 is well within the constitutional power of the President to promulgate. The President has not usurped legislative power in issuing EO 420. EO 420 is an exercise of Executive power the Presidents constitutional power of control over the Executive department. EO 420 is also compliance by the President of the constitutional duty to ensure that the laws are faithfully executed. Legislative power is the authority to make laws and to alter or repeal them. In issuing EO 420, the President did not make, alter or repeal any law but merely implemented and executed existing laws. EO 420 reduces costs, as well as insures efficiency, reliability, compatibility and user-friendliness in the implementation of current ID systems of government entities under existing laws. Thus, EO 420 is simply an executive issuance and not an act of legislation. The act of issuing ID cards and collecting the necessary personal data for imprinting on the ID card does not require legislation. Private employers routinely issue ID cards to their employees. Private and public schools also routinely issue ID cards to their students. Even private clubs and associations issue ID cards to their members. The purpose of all these ID cards is simply to insure the proper identification of a person as an employee, student, or member of a club. These ID cards, although imposed as a condition for exercising a privilege, are voluntary because a person is not compelled to be an employee, student or member of a club. What require legislation are three aspects of a government maintained ID card system. First, when the implementation of an ID card system requires a special appropriation because there is no existing appropriation for such purpose. Second, when the ID card system is compulsory on all branches of government, including the independent constitutional commissions, as well as compulsory on all citizens whether they have a use for the ID card or not. Third, when the ID card system requires the collection and recording of personal data beyond what is routinely or usually required for such purpose, such that the citizens right to privacy is infringed. In the present case, EO 420 does not require any special appropriation because the existing ID card systems of government entities covered by EO 420 have the proper

143

appropriation or funding. EO 420 is not compulsory on all branches of government and is not compulsory on all citizens. EO 420 requires a very narrow and focused collection and recording of personal data while safeguarding the confidentiality of such data. In fact, the data collected and recorded under EO 420 are far less than the data collected and recorded under the ID systems existing prior to EO 420. EO 420 does not establish a national ID card system. EO 420 does not compel all citizens to have an ID card. EO 420 applies only to government entities that under existing laws are already collecting data and issuing ID cards as part of their governmental functions. Every government entity that presently issues an ID card will still issue its own ID card under its own name. The only difference is that the ID card will contain only the five data specified in Section 3 of EO 420, plus the fingerprint, the agency ID number, and the common reference number which is needed for cross-verification to ensure integrity and reliability of identification. This Court should not interfere how government entities under the Executive department should undertake cost savings, achieve efficiency in operations, insure compatibility of equipment and systems, and provide user-friendly service to the public. The collection of ID data and issuance of ID cards are day-to-day functions of many government entities under existing laws. Even the Supreme Court has its own ID system for employees of the Court and all first and second level courts. The Court is even trying to unify its ID system with those of the appellate courts, namely the Court of Appeals, Sandiganbayan and Court of Tax Appeals. There is nothing legislative about unifying existing ID systems of all courts within the Judiciary. The same is true for government entities under the Executive department. If government entities under the Executive department decide to unify their existing ID data collection and ID card issuance systems to achieve savings, efficiency, compatibility and convenience, such act does not involve the exercise of any legislative power. Thus, the issuance of EO 420 does not constitute usurpation of legislative power. On the Alleged Infringement of the Right to Privacy All these years, the GSIS, SSS, LTO, Philhealth and other government entities have been issuing ID cards in the performance of their governmental functions. There have been no complaints from citizens that the ID cards of these government entities violate their right to privacy. There have also been no complaints of abuse by these government entities in the collection and recording of personal identification data. In fact, petitioners in the present cases do not claim that the ID systems of government entities prior to EO 420 violate their right to privacy. Since petitioners do not make such claim, they even have less basis to complain against the unified ID system under EO 420. The data collected and stored for the unified ID system under EO 420 will be limited to only 14 specific data, and the ID card itself will show only eight specific data. The data collection, recording and ID card system under EO 420 will even require less data collected, stored and revealed than under the disparate systems prior to EO 420. Prior to EO 420, government entities had a free hand in determining the kind, nature and extent of data to be collected and stored for their ID systems. Under EO 420, government entities can collect and record only the 14 specific data mentioned in Section 3 of EO 420. In addition, government entities can show in their ID cards only eight of these specific data, seven less data than what the Supreme Courts ID shows. Also, prior to EO 420, there was no executive issuance to government entities prescribing safeguards on the collection, recording, and disclosure of personal identification data to protect the right to privacy. Now, under Section 5 of EO 420, the following safeguards are instituted:

144

a. The data to be recorded and stored, which shall be used only for purposes of establishing the identity of a person, shall be limited to those specified in Section 3 of this executive order; b. In no case shall the collection or compilation of other data in violation of a persons right to privacy be allowed or tolerated under this order; c. Stringent systems of access control to data in the identification system shall be instituted; d. Data collected and stored for this purpose shall be kept and treated as strictly confidential and a personal or written authorization of the Owner shall be required for access and disclosure of data; e. The identification card to be issued shall be protected by advanced security features and cryptographic technology; f. A written request by the Owner of the identification card shall be required for any correction or revision of relevant data, or under such conditions as the participating agency issuing the identification card shall prescribe. On its face, EO 420 shows no constitutional infirmity because it even narrowly limits the data that can be collected, recorded and shown compared to the existing ID systems of government entities. EO 420 further provides strict safeguards to protect the confidentiality of the data collected, in contrast to the prior ID systems which are bereft of strict administrative safeguards. The right to privacy does not bar the adoption of reasonable ID systems by government entities. Some one hundred countries have compulsory national ID systems, including democracies such as Spain, France, Germany, Belgium, Greece, Luxembourg, and Portugal. Other countries which do not have national ID systems, like the United States, Canada, Australia, New Zealand, Ireland, the Nordic Countries and Sweden, have sectoral cards for health, social or other public services.12 Even with EO 420, the Philippines will still fall under the countries that do not have compulsory national ID systems but allow only sectoral cards for social security, health services, and other specific purposes. Without a reliable ID system, government entities like GSIS, SSS, Philhealth, and LTO cannot perform effectively and efficiently their mandated functions under existing laws. Without a reliable ID system, GSIS, SSS, Philhealth and similar government entities stand to suffer substantial losses arising from false names and identities. The integrity of the LTOs licensing system will suffer in the absence of a reliable ID system. The dissenting opinion cites three American decisions on the right to privacy, namely, Griswold v. Connecticut,13 U.S. Justice Department v. Reporters Committee for Freedom of the Press,14 and Whalen v. Roe.15 The last two decisions actually support the validity of EO 420, while the first is inapplicable to the present case. In Griswold, the U.S. Supreme Court declared unconstitutional a state law that prohibited the use and distribution of contraceptives because enforcement of the law would allow the police entry into the bedrooms of married couples. Declared the U.S. Supreme Court: "Would we allow the police to search the sacred precincts of the marital bedrooms for telltale signs of the use of contraceptives? The very idea is repulsive to the notions of privacy surrounding the marriage relationship." Because the facts and the issue involved in Griswold are materially different from the present case, Griswold has no persuasive bearing on the present case.

145

In U.S. Justice Department, the issue was not whether the State could collect and store information on individuals from public records nationwide but whether the State could withhold such information from the press. The premise of the issue in U.S. Justice Department is that the State can collect and store in a central database information on citizens gathered from public records across the country. In fact, the law authorized the Department of Justice to collect and preserve fingerprints and other criminal identification records nationwide. The law also authorized the Department of Justice to exchange such information with "officials of States, cities and other institutions." The Department of Justice treated such information as confidential. A CBS news correspondent and the Reporters Committee demanded the criminal records of four members of a family pursuant to the Freedom of Information Act. The U.S. Supreme Court ruled that the Freedom of Information Act expressly exempts release of information that would "constitute an unwarranted invasion of personal privacy," and the information demanded falls under that category of exempt information. With the exception of the 8 specific data shown on the ID card, the personal data collected and recorded under EO 420 are treated as "strictly confidential" under Section 6(d) of EO 420. These data are not only strictly confidential but also personal matters. Section 7, Article III of the 1987 Constitution grants the "right of the people to information on matters of public concern." Personal matters are exempt or outside the coverage of the peoples right to information on matters of public concern. The data treated as "strictly confidential" under EO 420 being private matters and not matters of public concern, these data cannot be released to the public or the press. Thus, the ruling in U.S. Justice Department does not collide with EO 420 but actually supports the validity EO 420. Whalen v. Roe is the leading American case on the constitutional protection for control over information. In Whalen, the U.S. Supreme Court upheld the validity of a New York law that required doctors to furnish the government reports identifying patients who received prescription drugs that have a potential for abuse. The government maintained a central computerized database containing the names and addresses of the patients, as well as the identity of the prescribing doctors. The law was assailed because the database allegedly infringed the right to privacy of individuals who want to keep their personal matters confidential. The U.S. Supreme Court rejected the privacy claim, and declared: Disclosures of private medical information to doctors, to hospital personnel, to insurance companies, and to public health agencies are often an essential part of modern medical practice even when the disclosure may reflect unfavorably on the character of the patient. Requiring such disclosures to representatives of the State having responsibility for the health of the community does not automatically amount to an impermissible invasion of privacy. (Emphasis supplied) Compared to the personal medical data required for disclosure to the New York State in Whalen, the 14 specific data required for disclosure to the Philippine government under EO 420 are far less sensitive and far less personal. In fact, the 14 specific data required under EO 420 are routine data for ID systems, unlike the sensitive and potentially embarrassing medical records of patients taking prescription drugs. Whalen, therefore, carries persuasive force for upholding the constitutionality of EO 420 as non-violative of the right to privacy. Subsequent U.S. Supreme Court decisions have reiterated Whalen. In Planned Parenthood of Central Missouri v. Danforth,16 the U.S. Supreme Court upheld the validity of a law that required doctors performing abortions to fill up forms, maintain records for seven years, and allow the inspection of such records by public health officials. The U.S. Supreme Court ruled that "recordkeeping and reporting requirements that are

146

reasonably directed to the preservation of maternal health and that properly respect a patients confidentiality and privacy are permissible." Again, in Planned Parenthood of Southeastern Pennsylvania v. Casey,17 the U.S. Supreme Court upheld a law that required doctors performing an abortion to file a report to the government that included the doctors name, the womans age, the number of prior pregnancies and abortions that the woman had, the medical complications from the abortion, the weight of the fetus, and the marital status of the woman. In case of statefunded institutions, the law made such information publicly available. In Casey, the U.S. Supreme Court stated: "The collection of information with respect to actual patients is a vital element of medical research, and so it cannot be said that the requirements serve no purpose other than to make abortion more difficult." Compared to the disclosure requirements of personal data that the U.S. Supreme Court have upheld in Whalen, Danforth and Casey as not violative of the right to privacy, the disclosure requirements under EO 420 are far benign and cannot therefore constitute violation of the right to privacy. EO 420 requires disclosure of 14 personal data that are routine for ID purposes, data that cannot possibly embarrass or humiliate anyone. Petitioners have not shown how EO 420 will violate their right to privacy. Petitioners cannot show such violation by a mere facial examination of EO 420 because EO 420 narrowly draws the data collection, recording and exhibition while prescribing comprehensive safeguards. Ople v. Torres18 is not authority to hold that EO 420 violates the right to privacy because in that case the assailed executive issuance, broadly drawn and devoid of safeguards, was annulled solely on the ground that the subject matter required legislation. As then Associate Justice, now Chief Justice Artemio V. Panganiban noted in his concurring opinion in Ople v. Torres, "The voting is decisive only on the need for appropriate legislation, and it is only on this ground that the petition is granted by this Court." EO 420 applies only to government entities that already maintain ID systems and issue ID cards pursuant to their regular functions under existing laws. EO 420 does not grant such government entities any power that they do not already possess under existing laws. In contrast, the assailed executive issuance in Ople v. Torres sought to establish a "National Computerized Identification Reference System,"19 a national ID system that did not exist prior to the assailed executive issuance. Obviously, a national ID card system requires legislation because it creates a new national data collection and card issuance system where none existed before. In the present case, EO 420 does not establish a national ID system but makes the existing sectoral card systems of government entities like GSIS, SSS, Philhealth and LTO less costly, more efficient, reliable and user-friendly to the public. Hence, EO 420 is a proper subject of executive issuance under the Presidents constitutional power of control over government entities in the Executive department, as well as under the Presidents constitutional duty to ensure that laws are faithfully executed. WHEREFORE, the petitions are DISMISSED. Executive Order No. 420 is declared VALID. SO ORDERED. ANTONIO T. CARPIO

147

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-32166 October 18, 1977 THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant, vs. HON. MAXIMO A. MACEREN CFI, Sta. Cruz, Laguna, JOSE BUENAVENTURA, GODOFREDO REYES, BENJAMIN REYES, NAZARIO AQUINO and CARLO DEL ROSARIO, accusedappellees. Office of the Solicitor General for appellant. Rustics F. de los Reyes, Jr. for appellees.

AQUINO, J.:t.hqw This is a case involving the validity of a 1967 regulation, penalizing electro fishing in fresh water fisheries, promulgated by the Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries under the old Fisheries Law and the law creating the Fisheries Commission.

148

On March 7, 1969 Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario Aquino and Carlito del Rosario were charged by a Constabulary investigator in the municipal court of Sta. Cruz, Laguna with having violated Fisheries Administrative Order No. 84-1. It was alleged in the complaint that the five accused in the morning of March 1, 1969 resorted to electro fishing in the waters of Barrio San Pablo Norte, Sta. Cruz by "using their own motor banca, equipped with motor; with a generator colored green with attached dynamo colored gray or somewhat white; and electrocuting device locally known as sensored with a somewhat webbed copper wire on the tip or other end of a bamboo pole with electric wire attachment which was attached to the dynamo direct and with the use of these devices or equipments catches fish thru electric current, which destroy any aquatic animals within its cuffed reach, to the detriment and prejudice of the populace" (Criminal Case No. 5429). Upon motion of the accused, the municipal court quashed the complaint. The prosecution appealed. The Court of First Instance of Laguna affirmed the order of dismissal (Civil Case No. SC-36). The case is now before this Court on appeal by the prosecution under Republic Act No. 5440. The lower court held that electro fishing cannot be penalize because electric current is not an obnoxious or poisonous substance as contemplated in section I I of the Fisheries Law and that it is not a substance at all but a form of energy conducted or transmitted by substances. The lower court further held that, since the law does not clearly prohibit electro fishing, the executive and judicial departments cannot consider it unlawful. As legal background, it should be stated that section 11 of the Fisheries Law prohibits "the use of any obnoxious or poisonous substance" in fishing. Section 76 of the same law punishes any person who uses an obnoxious or poisonous substance in fishing with a fine of not more than five hundred pesos nor more than five thousand, and by imprisonment for not less than six months nor more than five years. It is noteworthy that the Fisheries Law does not expressly punish .electro fishing." Notwithstanding the silence of the law, the Secretary of Agriculture and Natural Resources, upon the recommendation of the Commissioner of Fisheries, promulgated Fisheries Administrative Order No. 84 (62 O.G. 1224), prohibiting electro fishing in all Philippine waters. The order is quoted below: +.wph!1 SUBJECT: PROHIBITING ELECTRO FISHING IN ALL WATERS +.wph!1 OF THE PHILIPPINES. Pursuant to Section 4 of Act No. 4003, as amended, and Section 4 of R.A. No. 3512, the following rules and regulations regarding the prohibition of electro fishing in all waters of the Philippines are promulgated for the information and guidance of all concerned.+.wph!1 SECTION 1. Definition. Words and terms used in this Order 11 construed as follows: (a) Philippine waters or territorial waters of the Philippines' includes all waters of the Philippine Archipelago, as defined in the t between the United States and Spain, dated respectively the tenth of December, eighteen hundred ninety eight and the seventh of November, nineteen hundred. For the purpose of this order, rivers, lakes and other bodies of fresh waters are included.

149

(b) Electro Fishing. Electro fishing is the catching of fish with the use of electric current. The equipment used are of many electrical devices which may be battery or generator-operated and from and available source of electric current. (c) 'Persons' includes firm, corporation, association, agent or employee. (d) 'Fish' includes other aquatic products. SEC. 2. Prohibition. It shall be unlawful for any person to engage in electro fishing or to catch fish by the use of electric current in any portion of the Philippine waters except for research, educational and scientific purposes which must be covered by a permit issued by the Secretary of Agriculture and Natural Resources which shall be carried at all times. SEC. 3. Penalty. Any violation of the provisions of this Administrative Order shall subject the offender to a fine of not exceeding five hundred pesos (P500.00) or imprisonment of not extending six (6) months or both at the discretion of the Court. SEC. 4. Repealing Provisions. All administrative orders or parts thereof inconsistent with the provisions of this Administrative Order are hereby revoked. SEC. 5. Effectivity. This Administrative Order shall take effect six (60) days after its publication in the Office Gazette. On June 28, 1967 the Secretary of Agriculture and Natural Resources, upon the recommendation of the Fisheries Commission, issued Fisheries Administrative Order No. 84-1, amending section 2 of Administrative Order No. 84, by restricting the ban against electro fishing to fresh water fisheries (63 O.G. 9963). Thus, the phrase "in any portion of the Philippine waters" found in section 2, was changed by the amendatory order to read as follows: "in fresh water fisheries in the Philippines, such as rivers, lakes, swamps, dams, irrigation canals and other bodies of fresh water." The Court of First Instance and the prosecution (p. 11 of brief) assumed that electro fishing is punishable under section 83 of the Fisheries Law (not under section 76 thereof), which provides that any other violation of that law "or of any rules and regulations promulgated thereunder shall subject the offender to a fine of not more than two hundred pesos (P200), or in t for not more than six months, or both, in the discretion of the court." That assumption is incorrect because 3 of the aforequoted Administrative Order No. 84 imposes a fm of not exceeding P500 on a person engaged in electro fishing, which amount the 83. It seems that the Department of Fisheries prescribed their own penalty for swift fishing which penalty is less than the severe penalty imposed in section 76 and which is not Identified to the at penalty imposed in section 83. Had Administrative Order No. 84 adopted the fighter penalty prescribed in on 83, then the crime of electro fishing would be within the exclusive original jurisdiction of the inferior court (Sec. 44 [f], Judiciary Law; People vs. Ragasi, L-28663, September 22, We have discussed this pre point, not raised in the briefs, because it is obvious that the crime of electro fishing which is punishable with a sum up to P500, falls within the

150

concurrent original jurisdiction of the inferior courts and the Court of First instance (People vs. Nazareno, L-40037, April 30, 1976, 70 SCRA 531 and the cases cited therein). And since the instant case was filed in the municipal court of Sta. Cruz, Laguna, a provincial capital, the order of d rendered by that municipal court was directly appealable to the Court, not to the Court of First Instance of Laguna (Sec. 45 and last par. of section 87 of the Judiciary Law; Esperat vs. Avila, L-25992, June 30, 1967, 20 SCRA 596). It results that the Court of First Instance of Laguna had no appellate jurisdiction over the case. Its order affirming the municipal court's order of dismissal is void for lack of motion. This appeal shall be treated as a direct appeal from the municipal court to this Court. (See People vs. Del Rosario, 97 Phil. 67). In this appeal, the prosecution argues that Administrative Orders Nos. 84 and 84-1 were not issued under section 11 of the Fisheries Law which, as indicated above, punishes fishing by means of an obnoxious or poisonous substance. This contention is not welltaken because, as already stated, the Penal provision of Administrative Order No. 84 implies that electro fishing is penalized as a form of fishing by means of an obnoxious or poisonous substance under section 11. The prosecution cites as the legal sanctions for the prohibition against electro fishing in fresh water fisheries (1) the rule-making power of the Department Secretary under section 4 of the Fisheries Law; (2) the function of the Commissioner of Fisheries to enforce the provisions of the Fisheries Law and the regulations Promulgated thereunder and to execute the rules and regulations consistent with the purpose for the creation of the Fisheries Commission and for the development of fisheries (Sec. 4[c] and [h] Republic Act No. 3512; (3) the declared national policy to encourage, Promote and conserve our fishing resources (Sec. 1, Republic Act No. 3512), and (4) section 83 of the Fisheries Law which provides that "any other violation of" the Fisheries Law or of any rules and regulations promulgated thereunder "shall subject the offender to a fine of not more than two hundred pesos, or imprisonment for not more than six months, or both, in the discretion of the court." As already pointed out above, the prosecution's reference to section 83 is out of place because the penalty for electro fishing under Administrative order No. 84 is not the same as the penalty fixed in section 83. We are of the opinion that the Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries exceeded their authority in issuing Fisheries Administrative Orders Nos. 84 and 84-1 and that those orders are not warranted under the Fisheries Commission, Republic Act No. 3512. The reason is that the Fisheries Law does not expressly prohibit electro fishing. As electro fishing is not banned under that law, the Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries are powerless to penalize it. In other words, Administrative Orders Nos. 84 and 84-1, in penalizing electro fishing, are devoid of any legal basis. Had the lawmaking body intended to punish electro fishing, a penal provision to that effect could have been easily embodied in the old Fisheries Law. That law punishes (1) the use of obnoxious or poisonous substance, or explosive in fishing; (2) unlawful fishing in deepsea fisheries; (3) unlawful taking of marine molusca, (4) illegal taking of sponges; (5) failure of licensed fishermen to report the kind and quantity of fish caught, and (6) other violations.

151

Nowhere in that law is electro fishing specifically punished. Administrative Order No. 84, in punishing electro fishing, does not contemplate that such an offense fails within the category of "other violations" because, as already shown, the penalty for electro fishing is the penalty next lower to the penalty for fishing with the use of obnoxious or poisonous substances, fixed in section 76, and is not the same as the penalty for "other violations" of the law and regulations fixed in section 83 of the Fisheries Law. The lawmaking body cannot delegate to an executive official the power to declare what acts should constitute an offense. It can authorize the issuance of regulations and the imposition of the penalty provided for in the law itself. (People vs. Exconde 101 Phil. 11 25, citing 11 Am. Jur. 965 on p. 11 32). Originally, Administrative Order No. 84 punished electro fishing in all waters. Later, the ban against electro fishing was confined to fresh water fisheries. The amendment created the impression that electro fishing is not condemnable per se. It could be tolerated in marine waters. That circumstances strengthens the view that the old law does not eschew all forms of electro fishing. However, at present, there is no more doubt that electro fishing is punishable under the Fisheries Law and that it cannot be penalized merely by executive revolution because Presidential Decree No. 704, which is a revision and consolidation of all laws and decrees affecting fishing and fisheries and which was promulgated on May 16, 1975 (71 O.G. 4269), expressly punishes electro fishing in fresh water and salt water areas. That decree provides: +.wph!1 SEC. 33. Illegal fishing, dealing in illegally caught fish or fishery/aquatic products. It shall he unlawful for any person to catch, take or gather or cause to be caught, taken or gathered fish or fishery/aquatic products in Philippine waters with the use of explosives, obnoxious or poisonous substance, or by the use of electricity as defined in paragraphs (1), (m) and (d), respectively, of Section 3 hereof: ... The decree Act No. 4003, as amended, Republic Acts Nos. 428, 3048, 3512 and 3586, Presidential Decrees Nos. 43, 534 and 553, and all , Acts, Executive Orders, rules and regulations or parts thereof inconsistent with it (Sec. 49, P. D. No. 704). The inclusion in that decree of provisions defining and penalizing electro fishing is a clear recognition of the deficiency or silence on that point of the old Fisheries Law. It is an admission that a mere executive regulation is not legally adequate to penalize electro fishing. Note that the definition of electro fishing, which is found in section 1 (c) of Fisheries Administrative Order No. 84 and which is not provided for the old Fisheries Law, is now found in section 3(d) of the decree. Note further that the decree penalty electro fishing by "imprisonment from two (2) to four (4) years", a punishment which is more severe than the penalty of a time of not excluding P500 or imprisonment of not more than six months or both fixed in section 3 of Fisheries Administrative Order No. 84. An examination of the rule-making power of executive officials and administrative agencies and, in particular, of the Secretary of Agriculture and Natural Resources (now Secretary of Natural Resources) under the Fisheries Law sustains the view that he ex his authority in penalizing electro fishing by means of an administrative order. Administrative agent are clothed with rule-making powers because the lawmaking body finds it impracticable, if not impossible, to anticipate and provide for the multifarious

152

and complex situations that may be encountered in enforcing the law. All that is required is that the regulation should be germane to the defects and purposes of the law and that it should conform to the standards that the law prescribes (People vs. Exconde 101 Phil. 1125; Director of Forestry vs. Mu;oz, L-24796, June 28, 1968, 23 SCRA 1183, 1198; Geukeko vs. Araneta, 102 Phil. 706, 712). The lawmaking body cannot possibly provide for all the details in the enforcement of a particular statute (U.S. vs. Tupasi Molina, 29 Phil. 119, 125, citing U.S. vs. Grimaud 220 U.S. 506; Interprovincial Autobus Co., Inc. vs. Coll. of Internal Revenue, 98 Phil. 290, 2956). The grant of the rule-making power to administrative agencies is a relaxation of the principle of separation of powers and is an exception to the nondeleption of legislative, powers. Administrative regulations or "subordinate legislation calculated to promote the public interest are necessary because of "the growing complexity of modem life, the multiplication of the subjects of governmental regulations, and the increased difficulty of administering the law" Calalang vs. Williams, 70 Phil. 726; People vs. Rosenthal and Osme;a, 68 Phil. 328). Administrative regulations adopted under legislative authority by a particular department must be in harmony with the provisions of the law, and should be for the sole purpose of carrying into effect its general provisions. By such regulations, of course, the law itself cannot be extended. (U.S. vs. Tupasi Molina, supra). An administrative agency cannot amend an act of Congress (Santos vs. Estenzo, 109 Phil. 419, 422; Teoxon vs. Members of the d of Administrators, L-25619, June 30, 1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-28952, December 29, 1971, 42 SCRA 660; Deluao vs. Casteel, L-21906, August 29, 1969, 29 SCRA 350). The rule-making power must be confined to details for regulating the mode or proceeding to carry into effect the law as it his been enacted. The power cannot be extended to amending or expanding the statutory requirements or to embrace matters not covered by the statute. Rules that subvert the statute cannot be sanctioned. (University of Santo Tomas vs. Board of Tax A 93 Phil. 376, 382, citing 12 C.J. 845-46. As to invalid regulations, see of Internal Revenue vs. Villaflor 69 Phil. 319, Wise & Co. vs. Meer, 78 Phil. 655, 676; Del March vs. Phil. Veterans Administrative, L-27299, June 27, 1973, 51 SCRA 340, 349). There is no question that the Secretary of Agriculture and Natural Resources has rulemaking powers. Section 4 of the Fisheries law provides that the Secretary "shall from time to time issue instructions, orders, and regulations consistent" with that law, "as may be and proper to carry into effect the provisions thereof." That power is now vested in the Secretary of Natural Resources by on 7 of the Revised Fisheries law, Presidential December No. 704. Section 4(h) of Republic Act No. 3512 empower the Co of Fisheries "to prepare and execute upon the approval of the Secretary of Agriculture and Natural Resources, forms instructions, rules and regulations consistent with the purpose" of that enactment "and for the development of fisheries." Section 79(B) of the Revised Administrative Code provides that "the Department Head shall have the power to promulgate, whenever he may see fit do so, all rules, regulates, orders, memorandums, and other instructions, not contrary to law, to regulate the proper working and harmonious and efficient administration of each and all of the offices and dependencies of his Department, and for the strict enforcement and proper execution of the laws relative to matters under the jurisdiction of said Department; but none of said rules or orders shall prescribe penalties for the violation thereof, except as expressly authorized by law."

153

Administrative regulations issued by a Department Head in conformity with law have the force of law (Valerie vs. Secretary of culture and Natural Resources, 117 Phil. 729, 733; Antique Sawmills, Inc. vs. Zayco, L- 20051, May 30, 1966, 17 SCRA 316). As he exercises the rule-making power by delegation of the lawmaking body, it is a requisite that he should not transcend the bound demarcated by the statute for the exercise of that power; otherwise, he would be improperly exercising legislative power in his own right and not as a surrogate of the lawmaking body. Article 7 of the Civil Code embodies the basic principle that administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution." As noted by Justice Fernando, "except for constitutional officials who can trace their competence to act to the fundamental law itself, a public office must be in the statute relied upon a grant of power before he can exercise it." "department zeal may not be permitted to outrun the authority conferred by statute." (Radio Communications of the Philippines, Inc. vs. Santiago, L-29236, August 21, 1974, 58 SCRA 493, 496-8). "Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute, and compliance therewith may be enforced by a penal sanction provided in the law. This is so because statutes are usually couched in general terms, after expressing the policy, purposes, objectives, remedies and sanctions intended by the legislature. The details and the manner of carrying out the law are oftentimes left to the administrative agency entrusted with its enforcement. In this sense, it has been said that rules and regulations are the product of a delegated power to create new or additional legal provisions that have the effect of law." The rule or regulation should be within the scope of the statutory authority granted by the legislature to the administrative agency. (Davis, Administrative Law, p. 194, 197, cited in Victories Milling Co., Inc. vs. Social Security Commission, 114 Phil. 555, 558). In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law (People vs. Lim, 108 Phil. 1091). This Court in its decision in the Lim case, supra, promulgated on July 26, 1960, called the attention of technical men in the executive departments, who draft rules and regulations, to the importance and necessity of closely following the legal provisions which they intend to implement so as to avoid any possible misunderstanding or confusion. The rule is that the violation of a regulation prescribed by an executive officer of the government in conformity with and based upon a statute authorizing such regulation constitutes an offense and renders the offender liable to punishment in accordance with the provisions of the law (U.S. vs. Tupasi Molina, 29 Phil. 119, 124). In other words, a violation or infringement of a rule or regulation validly issued can constitute a crime punishable as provided in the authorizing statute and by virtue of the latter (People vs. Exconde 101 Phil. 1125, 1132). It has been held that "to declare what shall constitute a crime and how it shall be punished is a power vested exclusively in the legislature, and it may not be delegated to any other body or agency" (1 Am. Jur. 2nd, sec. 127, p. 938; Texas Co. vs. Montgomery, 73 F. Supp. 527).

154

In the instant case the regulation penalizing electro fishing is not strictly in accordance with the Fisheries Law, under which the regulation was issued, because the law itself does not expressly punish electro fishing. The instant case is similar to People vs. Santos, 63 Phil. 300. The Santos case involves section 28 of Fish and Game Administrative Order No. 2 issued by the Secretary of Agriculture and Natural Resources pursuant to the aforementioned section 4 of the Fisheries Law. Section 28 contains the proviso that a fishing boat not licensed under the Fisheries Law and under the said administrative order may fish within three kilometers of the shoreline of islands and reservations over which jurisdiction is exercised by naval and military reservations authorities of the United States only upon receiving written permission therefor, which permission may be granted by the Secretary upon recommendation of the military or naval authorities concerned. A violation of the proviso may be proceeded against under section 45 of the Federal Penal Code. Augusto A. Santos was prosecuted under that provision in the Court of First Instance of Cavite for having caused his two fishing boats to fish, loiter and anchor without permission from the Secretary within three kilometers from the shoreline of Corrigidor Island. This Court held that the Fisheries Law does not prohibit boats not subject to license from fishing within three kilometers of the shoreline of islands and reservations over which jurisdiction is exercised by naval and military authorities of the United States, without permission from the Secretary of Agriculture and Natural Resources upon recommendation of the military and naval authorities concerned. As the said law does not penalize the act mentioned in section 28 of the administrative order, the promulgation of that provision by the Secretary "is equivalent to legislating on the matter, a power which has not been and cannot be delegated to him, it being expressly reserved" to the lawmaking body. "Such an act constitutes not only an excess of the regulatory power conferred upon the Secretary but also an exercise of a legislative power which he does not have, and therefore" the said provision "is null and void and without effect". Hence, the charge against Santos was dismiss. A penal statute is strictly construed. While an administrative agency has the right to make ranks and regulations to carry into effect a law already enacted, that power should not be confused with the power to enact a criminal statute. An administrative agency can have only the administrative or policing powers expressly or by necessary implication conferred upon it. (Glustrom vs. State, 206 Ga. 734, 58 Second 2d 534; See 2 Am. Jr. 2nd 129-130). Where the legislature has delegated to executive or administrative officers and boards authority to promulgate rules to carry out an express legislative purpose, the rules of administrative officers and boards, which have the effect of extending, or which conflict with the authority granting statute, do not represent a valid precise of the rule-making power but constitute an attempt by an administrative body to legislate (State vs. Miles, Wash. 2nd 322, 105 Pac. 2nd 51). In a prosecution for a violation of an administrative order, it must clearly appear that the order is one which falls within the scope of the authority conferred upon the administrative body, and the order will be scrutinized with special care. (State vs. Miles supra).

155

The Miles case involved a statute which authorized the State Game Commission "to adopt, promulgate, amend and/or repeal, and enforce reasonable rules and regulations governing and/or prohibiting the taking of the various classes of game. Under that statute, the Game Commission promulgated a rule that "it shall be unlawful to offer, pay or receive any reward, prize or compensation for the hunting, pursuing, taking, killing or displaying of any game animal, game bird or game fish or any part thereof." Beryl S. Miles, the owner of a sporting goods store, regularly offered a ten-down cash prize to the person displaying the largest deer in his store during the open for hunting such game animals. For that act, he was charged with a violation of the rule Promulgated by the State Game Commission. It was held that there was no statute penalizing the display of game. What the statute penalized was the taking of game. If the lawmaking body desired to prohibit the display of game, it could have readily said so. It was not lawful for the administrative board to extend or modify the statute. Hence, the indictment against Miles was quashed. The Miles case is similar to this case. WHEREFORE, the lower court's decision of June 9, 1970 is set aside for lack of appellate jurisdiction and the order of dismissal rendered by the municipal court of Sta. Cruz, Laguna in Criminal Case No. 5429 is affirmed. Costs de oficio. SO ORDERED.