[G.R. No. 151908.

August 12, 2003]

SMART COMMUNICATIONS, INC. (SMART) and PILIPINO TELEPHONE CORPORATION
(PILTEL), petitioners, vs. NATIONAL TELECOMMUNICATIONS COMMISSION (NTC),
respondent.
[G.R. No. 152063. August 12, 2003]
GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO., INC. (ISLACOM),
petitioners, vs. COURT OF APPEALS (The Former 6th Division) and the NATIONAL
TELECOMMUNICATIONS COMMISSION, respondents.
DECISION
YNARES-SANTIAGO, J.:
Pursuant to its rule-making and regulatory powers, the National Telecommunications
Commission (NTC) issued on June 16, 2000 Memorandum Circular No. 13-6-2000,
promulgating rules and regulations on the billing of telecommunications services. Among its
pertinent provisions are the following:
(1) The billing statements shall be received by the subscriber of the telephone service not
later than 30 days from the end of each billing cycle. In case the statement is received beyond
this period, the subscriber shall have a specified grace period within which to pay the bill and the
public telecommunications entity (PTEs) shall not be allowed to disconnect the service within the
grace period.
(2) There shall be no charge for calls that are diverted to a voice mailbox, voice prompt,
recorded message or similar facility excluding the customers own equipment.
(3) PTEs shall verify the identification and address of each purchaser of prepaid SIM cards.
Prepaid call cards and SIM cards shall be valid for at least 2 years from the date of first use.
Holders of prepaid SIM cards shall be given 45 days from the date the prepaid SIM card is fully
consumed but not beyond 2 years and 45 days from date of first use to replenish the SIM card,
otherwise the SIM card shall be rendered invalid. The validity of an invalid SIM card, however,
shall be installed upon request of the customer at no additional charge except the presentation
of a valid prepaid call card.
(4) Subscribers shall be updated of the remaining value of their cards before the start of every
call using the cards.
(5) The unit of billing for the cellular mobile telephone service whether postpaid or prepaid
shall be reduced from 1 minute per pulse to 6 seconds per pulse. The authorized rates per
minute shall thus be divided by 10.[1]
The Memorandum Circular provided that it shall take effect 15 days after its publication in a
newspaper of general circulation and three certified true copies thereof furnished the UP Law
Center. It was published in the newspaper, The Philippine Star, on June 22, 2000.[2]
Meanwhile, the provisions of the Memorandum Circular pertaining to the sale and use of prepaid
cards and the unit of billing for cellular mobile telephone service took effect 90 days from the
effectivity of the Memorandum Circular.
On August 30, 2000, the NTC issued a Memorandum to all cellular mobile telephone service
(CMTS) operators which contained measures to minimize if not totally eliminate the incidence of
stealing of cellular phone units. The Memorandum directed CMTS operators to:
a. strictly comply with Section B(1) of MC 13-6-2000 requiring the presentation and verification
of the identity and addresses of prepaid SIM card customers;

b. require all your respective prepaid SIM cards dealers to comply with Section B(1) of MC 136-2000;
c. deny acceptance to your respective networks prepaid and/or postpaid customers using stolen
cellphone units or cellphone units registered to somebody other than the applicant when
properly informed of all information relative to the stolen cellphone units;
d. share all necessary information of stolen cellphone units to all other CMTS operators in order
to prevent the use of stolen cellphone units; and
e. require all your existing prepaid SIM card customers to register and present valid
identification cards.[3]
This was followed by another Memorandum dated October 6, 2000 addressed to all public
telecommunications entities, which reads:
This is to remind you that the validity of all prepaid cards sold on 07 October 2000 and beyond
shall be valid for at least two (2) years from date of first use pursuant to MC 13-6-2000.
In addition, all CMTS operators are reminded that all SIM packs used by subscribers of prepaid
cards sold on 07 October 2000 and beyond shall be valid for at least two (2) years from date of
first use. Also, the billing unit shall be on a six (6) seconds pulse effective 07 October 2000.
For strict compliance.[4]
On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino Telephone
Corporation filed against the National Telecommunications Commission, Commissioner Joseph
A. Santiago, Deputy Commissioner Aurelio M. Umali and Deputy Commissioner Nestor C.
Dacanay, an action for declaration of nullity of NTC Memorandum Circular No. 13-6-2000 (the
Billing Circular) and the NTC Memorandum dated October 6, 2000, with prayer for the issuance
of a writ of preliminary injunction and temporary restraining order. The complaint was docketed
as Civil Case No. Q-00-42221 at the Regional Trial Court of Quezon City, Branch 77.[5]
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to regulate the
sale of consumer goods such as the prepaid call cards since such jurisdiction belongs to the
Department of Trade and Industry under the Consumer Act of the Philippines; that the Billing
Circular is oppressive, confiscatory and violative of the constitutional prohibition against
deprivation of property without due process of law; that the Circular will result in the impairment
of the viability of the prepaid cellular service by unduly prolonging the validity and expiration of
the prepaid SIM and call cards; and that the requirements of identification of prepaid card buyers
and call balance announcement are unreasonable. Hence, they prayed that the Billing Circular
be declared null and void ab initio.
Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc. filed a joint
Motion for Leave to Intervene and to Admit Complaint-in-Intervention.[6] This was granted by
the trial court.
On October 27, 2000, the trial court issued a temporary restraining order enjoining the NTC from
implementing Memorandum Circular No. 13-6-2000 and the Memorandum dated October 6,
2000.[7]
In the meantime, respondent NTC and its co-defendants filed a motion to dismiss the case on
the ground of petitioners failure to exhaust administrative remedies.
Subsequently, after hearing petitioners application for preliminary injunction as well as
respondents motion to dismiss, the trial court issued on November 20, 2000 an Order, the
dispositive portion of which reads:

WHEREFORE, premises considered, the defendants motion to dismiss is hereby denied for
lack of merit. The plaintiffs application for the issuance of a writ of preliminary injunction is
hereby granted. Accordingly, the defendants are hereby enjoined from implementing NTC
Memorandum Circular 13-6-2000 and the NTC Memorandum, dated October 6, 2000, pending
the issuance and finality of the decision in this case. The plaintiffs and intervenors are, however,
required to file a bond in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00),
Philippine currency.

Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No. 152063, assigning
the following errors:
1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE
DOCTRINES OF PRIMARY JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE
REMEDIES DO NOT APPLY SINCE THE INSTANT CASE IS FOR LEGAL NULLIFICATION
(BECAUSE OF LEGAL INFIRMITIES AND VIOLATIONS OF LAW) OF A PURELY
ADMINISTRATIVE REGULATION PROMULGATED BY AN AGENCY IN THE EXERCISE OF
ITS RULE MAKING POWERS AND INVOLVES ONLY QUESTIONS OF LAW.

SO ORDERED.[8]
Defendants filed a motion for reconsideration, which was denied in an Order dated February 1,
2001.[9]
Respondent NTC thus filed a special civil action for certiorari and prohibition with the Court of
Appeals, which was docketed as CA-G.R. SP. No. 64274. On October 9, 2001, a decision was
rendered, the decretal portion of which reads:
WHEREFORE, premises considered, the instant petition for certiorari and prohibition is
GRANTED, in that, the order of the court a quo denying the petitioners motion to dismiss as well
as the order of the court a quo granting the private respondents prayer for a writ of preliminary
injunction, and the writ of preliminary injunction issued thereby, are hereby ANNULLED and SET
ASIDE. The private respondents complaint and complaint-in-intervention below are hereby
DISMISSED, without prejudice to the referral of the private respondents grievances and
disputes on the assailed issuances of the NTC with the said agency.

2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE

DOCTRINE ON EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHEN
THE QUESTIONS RAISED ARE PURELY LEGAL QUESTIONS.
3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE
DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHERE
THE ADMINISTRATIVE ACTION IS COMPLETE AND EFFECTIVE, WHEN THERE IS NO
OTHER REMEDY, AND THE PETITIONER STANDS TO SUFFER GRAVE AND IRREPARABLE
INJURY.
4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE PETITIONERS
IN FACT EXHAUSTED ALL ADMINISTRATIVE REMEDIES AVAILABLE TO THEM.
5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN ISSUING ITS
QUESTIONED RULINGS IN THIS CASE BECAUSE GLOBE AND ISLA HAVE A CLEAR RIGHT
TO AN INJUNCTION.[13]

SO ORDERED.[10]
The two petitions were consolidated in a Resolution dated February 17, 2003.[14]
Petitioners motions for reconsideration were denied in a Resolution dated January 10, 2002 for
lack of merit.[11]
Hence, the instant petition for review filed by Smart and Piltel, which was docketed as G.R. No.
151908, anchored on the following grounds:
A.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE
NATIONAL TELECOMMUNICATIONS COMMISSION (NTC) AND NOT THE REGULAR
COURTS HAS JURISDICTION OVER THE CASE.
B.
THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN HOLDING THAT THE
PRIVATE RESPONDENTS FAILED TO EXHAUST AN AVAILABLE ADMINISTRATIVE REMEDY.
C.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BILLING
CIRCULAR ISSUED BY THE RESPONDENT NTC IS UNCONSTITUTIONAL AND CONTRARY
TO LAW AND PUBLIC POLICY.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE
RESPONDENTS FAILED TO SHOW THEIR CLEAR POSITIVE RIGHT TO WARRANT THE
ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION.[12]

On March 24, 2003, the petitions were given due course and the parties were required to submit
their respective memoranda.[15]
We find merit in the petitions.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or
administrative adjudicatory powers. Quasi-legislative or rule-making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the
granting statute and the doctrine of non-delegability and separability of powers.[16]
The rules and regulations that administrative agencies promulgate, which are the product of a
delegated legislative 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. 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.
[17] They must conform to and be consistent with the provisions of the enabling statute in order
for such rule or regulation to be valid. Constitutional and statutory provisions control with
respect to what rules and regulations may be promulgated by an administrative body, as well as
with respect to what fields are subject to regulation by it. It may not make rules and regulations
which are inconsistent with the provisions of the Constitution or a statute, particularly the statute
it is administering or which created it, or which are in derogation of, or defeat, the purpose of a
statute. In case of conflict between a statute and an administrative order, the former must
prevail.[18]
Not to be confused with the quasi-legislative or rule-making power of an administrative agency is
its quasi-judicial or administrative adjudicatory power. This is the power to hear and determine
questions of fact to which the legislative policy is to apply and to decide in accordance with the
standards laid down by the law itself in enforcing and administering the same law. The
administrative body exercises its quasi-judicial power when it performs in a judicial manner an

act which is essentially of an executive or administrative nature, where the power to act in such
manner is incidental to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it. In carrying out their quasi-judicial functions, the
administrative officers or bodies are required to investigate facts or ascertain the existence of
facts, hold hearings, weigh evidence, and draw conclusions from them as basis for their official
action and exercise of discretion in a judicial nature.[19]

This is within the scope of judicial power, which includes the authority of the courts to determine
in an appropriate action the validity of the acts of the political departments.[26] Judicial power
includes the duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.[27]

In questioning the validity or constitutionality of a rule or regulation issued by an administrative

agency, a party need not exhaust administrative remedies before going to court. This principle
applies only where the act of the administrative agency concerned was performed pursuant to its
quasi-judicial function, and not when the assailed act pertained to its rule-making or quasilegislative power. In Association of Philippine Coconut Dessicators v. Philippine Coconut
Authority,[20] it was held:

In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000 and its
Memorandum dated October 6, 2000 was pursuant to its quasi-legislative or rule-making power.
As such, petitioners were justified in invoking the judicial power of the Regional Trial Court to
assail the constitutionality and validity of the said issuances. In Drilon v. Lim,[28] it was held:

The rule of requiring exhaustion of administrative remedies before a party may seek judicial
review, so strenuously urged by the Solicitor General on behalf of respondent, has obviously no
application here. The resolution in question was issued by the PCA in the exercise of its rulemaking or legislative power. However, only judicial review of decisions of administrative
agencies made in the exercise of their quasi-judicial function is subject to the exhaustion
doctrine.
Even assuming arguendo that the principle of exhaustion of administrative remedies apply in this
case, the records reveal that petitioners sufficiently complied with this requirement. Even during
the drafting and deliberation stages leading to the issuance of Memorandum Circular No. 13-62000, petitioners were able to register their protests to the proposed billing guidelines. They
submitted their respective position papers setting forth their objections and submitting proposed
schemes for the billing circular.[21] After the same was issued, petitioners wrote successive
letters dated July 3, 2000[22] and July 5, 2000,[23] asking for the suspension and
reconsideration of the so-called Billing Circular. These letters were not acted upon until October
6, 2000, when respondent NTC issued the second assailed Memorandum implementing certain
provisions of the Billing Circular. This was taken by petitioners as a clear denial of the requests
contained in their previous letters, thus prompting them to seek judicial relief.
In like manner, the doctrine of primary jurisdiction applies only where the administrative agency
exercises its quasi-judicial or adjudicatory function. Thus, in cases involving specialized
disputes, the practice has been to refer the same to an administrative agency of special
competence pursuant to the doctrine of primary jurisdiction. The courts will not determine a
controversy involving a question which is within the jurisdiction of the administrative tribunal prior
to the resolution of that question by the administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the special knowledge, experience and
services of the administrative tribunal to determine technical and intricate matters of fact, and a
uniformity of ruling is essential to comply with the premises of the regulatory statute
administered. The objective of the doctrine of primary jurisdiction is to guide a court in
determining whether it should refrain from exercising its jurisdiction until after an administrative
agency has determined some question or some aspect of some question arising in the
proceeding before the court. It applies where the claim is originally cognizable in the courts and
comes into play whenever enforcement of the claim requires the resolution of issues which,
under a regulatory scheme, has been placed within the special competence of an administrative
body; in such case, the judicial process is suspended pending referral of such issues to the
administrative body for its view.[24]

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of
Section 187, this authority being embraced in the general definition of the judicial power to
determine what are the valid and binding laws by the criterion of their conformity to the
fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all civil
cases in which the subject of the litigation is incapable of pecuniary estimation, even as the
accused in a criminal action has the right to question in his defense the constitutionality of a law
he is charged with violating and of the proceedings taken against him, particularly as they
contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the
Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases
in which the constitutionality or validity of any treaty, international or executive agreement, law,
presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.[29]
In their complaint before the Regional Trial Court, petitioners averred that the Circular
contravened Civil Code provisions on sales and violated the constitutional prohibition against the
deprivation of property without due process of law. These are within the competence of the trial
judge. Contrary to the finding of the Court of Appeals, the issues raised in the complaint do not
entail highly technical matters. Rather, what is required of the judge who will resolve this issue is
a basic familiarity with the workings of the cellular telephone service, including prepaid SIM and
call cards and this is judicially known to be within the knowledge of a good percentage of our
population and expertise in fundamental principles of civil law and the Constitution.
Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No. Q-00-42221.
The Court of Appeals erred in setting aside the orders of the trial court and in dismissing the
case.
WHEREFORE, in view of the foregoing, the consolidated petitions are GRANTED. The decision
of the Court of Appeals in CA-G.R. SP No. 64274 dated October 9, 2001 and its Resolution
dated January 10, 2002 are REVERSED and SET ASIDE. The Order dated November 20, 2000
of the Regional Trial Court of Quezon City, Branch 77, in Civil Case No. Q-00-42221 is
REINSTATED. This case is REMANDED to the court a quo for continuation of the proceedings.
SO ORDERED.
G.R. No. 135992. July 23, 2004
EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and TELECOMMUNICATIONS
TECHNOLOGIES, INC., Petitioners, vs. INTERNATIONAL COMMUNICATION CORPORATION,
Respondent.
DECISION

However, where what is assailed is the validity or constitutionality of a rule or regulation issued
by the administrative agency in the performance of its quasi-legislative function, the regular
courts have jurisdiction to pass upon the same. The determination of whether a specific rule or
set of rules issued by an administrative agency contravenes the law or the constitution is within
the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review
or the power to declare a law, treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation in the courts, including the regional trial courts.[25]

AUSTRIA-MARTINEZ, J.:
The role of the telecommunications industry in Philippine progress and development cannot be
understated. Time was when the industry was dominated by a few -- an oligarchy of sorts where
the elite made the decisions and serfdom had no choice but acquiesce. Sensing the need to
abrogate their dominion, the government formulated policies in order to create an environment

conducive to the entry of new players. Thus, in October 1990, the National Telecommunications
Development Plan 1991-2010 (NTDP) was formulated and came into being. Designed by the
Department of Transportation and Communications (DOTC), the NTDP provides for the
framework of government policies, objectives and strategies that will guide the industrys
development for the next 20 years. As expected, with it came the increase in the demand for
telecommunications services, especially in the area of local exchange carrier service (LECS).1

On April 30, 1998, the Court of Appeals dismissed7 the petition for review on the ground that the
NTC did not commit any grave abuse of discretion in granting the PA to TTPI. It sustained the
NTCs finding that ICC is legally and financially competent and its network plan technically
feasible. The Court of Appeals also ruled that there was no violation of the equal protection
clause because the PA granted to ICC and TTPI were given under different situations and there
is no point of comparison between the two.8

Concomitantly, the DOTC issued guidelines for the rationalization of local exchange
telecommunications service. In particular, the DOTC issued on September 30, 1991,
Department Circular No. 91-260, with the purpose of minimizing or eliminating situations wherein
multiple operators provide local exchange service in a given area. Pursuant thereto, the National
Telecommunications Commission (NTC) was tasked to define the boundaries of local exchange
areas and authorize only one franchised local exchange carrier to provide local exchange
service within such areas.

Hence, the present petition for review on certiorari, raising the following issues:

Thereafter, on July 12, 1993, then President Fidel V. Ramos issued Executive Order No. 109
entitled Local Exchange Carrier Service. Section 2 thereof provides that all existing International
Gateway Facility (IGF) operators2 are required to provide local exchange carrier services in
unserved and underserved areas, including Metro Manila, thereby promoting universal access to
basic telecommunications service.

II

I
Whether or not the Honorable Court of Appeals committed a serious error of law in upholding the
Order of the NTC granting a PA to Respondent to operate LEC services in Manila and Navotas
which are areas already assigned to petitioner TTPI under a prior and subsisting PA.

Whether or not Petitioner is entitled to a Writ of Preliminary Injunction to restrain Respondent

from installing LEC services in the areas granted to it by the Order under review.9
In support thereof, petitioners posit the following arguments:

The NTC promulgated Memorandum Circular No. 11-9-93 on September 17, 1993 implementing
the objectives of E.O. No. 109.3 Section 3 of the Circular mandates existing IGF operators to file
a petition for the issuance of Certificate of Public Convenience and Necessity (CPCN) to install,
operate and maintain local exchange carrier services within two years from effectivity thereof.
Section 4 further requires IGF operators to provide a minimum of 300 local exchange lines per
one international switch termination and a minimum of 300,000 local exchange lines within three
years from grant of authority.
To cap the governments efforts, Republic Act No. 7925, otherwise known as the Public
Telecommunications Policy Act of the Philippines, was enacted on March 23, 1995. With regard
to local exchange service, Section 10 thereof mandates an international carrier to comply with its
obligation to provide local exchange service in unserved or underserved areas within three years
from the grant of authority as required by existing regulations. On September 25, 1995, the NTC
issued the Implementing Rules and Regulations for R.A. No. 7925 per its NTC MC No. 8-9-95.
Taking advantage of the opportunities brought about by the passage of these laws, several IGF
operators applied for CPCN to install, operate and maintain local exchange carrier services in
certain areas. Respondent International Communication Corporation, now known as Bayan
Telecommunications Corporation or Bayantel,4 applied for and was given by the NTC a
Provisional Authority (PA)5 on March 3, 1995, to install, operate and provide local exchange
service in Quezon City, Malabon and Valenzuela, Metro Manila, and the entire Bicol region.
Meanwhile, petitioner Telecommunications Technologies Philippines, Inc. (TTPI), as an affiliate
of petitioner Eastern Telecommunications Philippines, Inc. (ETPI), was granted by the NTC a PA
on September 25, 1996, to install, operate and maintain a local exchange service in the
Provinces of Batanes, Cagayan Valley, Isabela, Kalinga-Apayao, Nueva Vizcaya, Ifugao,
Quirino, the cities of Manila and Caloocan, and the Municipality of Navotas, Metro Manila.
It appears, however, that before TTPI was able to fully accomplish its rollout obligation, ICC
applied for and was given a PA by the NTC on November 10, 1997, to install, operate and
maintain a local exchange service in Manila and Navotas,6 two areas which were already
covered by TTPI under its PA dated September 25, 1996.
Aggrieved, petitioners filed a petition for review with the Court of Appeals with application for a
temporary restraining order and a writ of preliminary injunction, docketed as CA-G.R. SP No.
46047, arguing that the NTC committed grave abuse of discretion in granting a provisional
authority to respondent ICC to operate in areas already assigned to TTPI.

(1) The assignment to ICC of areas already allocated to TTPI violates the Service Area Scheme
(SAS), which is the guidepost of the laws and issuances governing local exchange service;
(2) ICC did not make any showing that an existing operator, TTPI in this case, failed to comply
with the service performance and technical standards prescribed by the NTC, and that the area
is underserved, as required under Section 23 of MC No. 11-9-93;
(3) The facts and figures cited by the NTC, i.e., ICCs alleged remarkable performance in fulfilling
its rollout obligation and the growth rate in the installation of telephone lines in Manila and
Navotas, do not justify the grant of the PA in favor of ICC, nor are they supported by the
evidence on record as these were not presented during the proceedings before the NTC;
(4) ICC did not comply with the requirement of prior consultation with the NTC before it filed its
application, in violation of Sections 3 and 3.1 of MC 11-9-93;
(5) ICC did not comply with Section 27 of MC 11-9-93 requiring that an escrow deposit be made
equivalent to 20% and a performance bond equivalent to 10% of the investment required for the
first two years of the project;
(6) ICC is not financially and technically capable of undertaking the project;
(7) The grant of a PA in favor of ICC to operate in areas covered by TTPI will render it difficult for
the latter to cross-subsidize its operations in less profitable areas covered by it and will threaten
its viability to continue as a local exchange operator.10
After a review of the records of this case, the Court finds no grave abuse of discretion committed
by the Court of Appeals in sustaining the NTCs grant of provisional authority to ICC.
The power of the NTC to grant a provisional authority has long been settled. As the regulatory
agency of the national government with jurisdiction over all telecommunications entities, it is
clothed with authority and given ample discretion to grant a provisional permit or authority.11 It
also has the authority to issue Certificates of Public Convenience and Necessity (CPCN) for the
installation, operation, and maintenance of communications facilities and services, radio
communications systems, telephone and telegraph systems, including the authority to determine
the areas of operations of applicants for telecommunications services.12 In this regard, the NTC
is clothed with sufficient discretion to act on matters solely within its competence.13

In granting ICC the PA to operate a local exchange carrier service in the Manila and Navotas
areas, the NTC took into consideration ICCs financial and technical resources and found them to
be adequate. The NTC also noted ICCs performance in complying with its rollout obligations
under the previous PA granted to it, thus:
With the proven track record of herein applicant as one of the pacesetters in carrying out its
landlines commitment in its assigned areas, applicant can best respond to public demand for
faster installation of telephone lines in Manila and Navotas.
The grant of this application is, therefore, a fitting recognition that should be accorded to any
deserving applicant, such as herein applicant ICC whose remarkable performance in terms of
public service as mandated by Executive Order 109 and Republic Act No. 7925 has persuaded
this Commission to affix the stamp of its approval.14
The Court will not interfere with these findings of the NTC, as these are matters that are
addressed to its sound discretion, being the government agency entrusted with the regulation of
activities coming under its special and technical forte.15 Moreover, the exercise of administrative
discretion is a policy decision and a matter that can best be discharged by the government
agency concerned, and not by the courts.16
Petitioner insists compliance with the service area scheme (SAS) mandated by DOTC Dept.
Circular No. 91-260, to wit:
1. The National Telecommunications Commission (NTC) shall define the boundaries of local
exchange areas, and shall henceforth authorize only one franchised Local Exchange Carrier
(LEC) to provide LEC service within such areas.
The Court is not persuaded. Said department circular was issued by the DOTC in 1991, before
the advent of E.O. No. 109 and R.A. No. 7925. When E.O. No. 109 was promulgated in 1993,
and R.A. No. 7925 enacted in 1995, the service area scheme was noticeably omitted therefrom.
Instead, E.O. No. 109 and R.A. No. 7925 adopted a policy of healthy competition among the
local exchange carrier service providers.
The need to formulate new policies is dictated by evolving goals and demands in
telecommunications services. Thus, E.O. No. 109 acknowledges that there is a need to
promulgate new policy directivesto meet the targets of Government through the National
Telecommunications Development Plan (NTDP) of the Department of Transportation and
Communications (DOTC), specifically: (1) to ensure the orderly development of the
telecommunications sector through the provision of service to all areas of the country; (2) to
satisfy the unserviced demand for telephones; and (3) to provide healthy competition among
authorized service providers. Likewise, one of the national policies and objectives of R.A. No.
7925 is to foster the improvement and expansion of telecommunications services in the country
through a healthy competitive environment, in which telecommunications carriers are free to
make business decisions and to interact with one another in providing telecommunications
services, with the end in view of encouraging their financial viability while maintaining affordable
rates.17
Recently, in Pilipino Telephone Corporation vs. NTC,18 the Court had occasion to rule on a case
akin to the present dispute, involving the same respondent ICC, and the Pilipino Telephone
Corporation (Piltel). In the Piltel case, ICC applied for a provisional authority to operate a local
exchange service in areas already covered by Piltel, which includes Misamis Occidental,
Zamboanga del Sur, Davao del Sur, South Cotabato and Saranggani. Piltel opposed ICCs
application but the NTC denied it, and granted ICCs application. The Court of Appeals dismissed
Piltels petition for review, and on certiorari before this Court, we affirmed the dismissal. The
Court found that the NTC did not commit any grave abuse of discretion when it granted the ICC
a provisional authority to operate in areas covered by Piltel. We held:

We will not disturb the factual findings of the NTC on the technical and financial capability of the
ICC to undertake the proposed project. We generally accord great weight and even finality to
factual findings of administrative bodies such as the NTC, if substantial evidence supports the
findings as in this case. The exception to this rule is when the administrative agency arbitrarily
disregarded evidence before it or misapprehended evidence to such an extent as to compel a
contrary conclusion had it properly appreciated the evidence. PILTEL gravely failed to show that
this exception applies to the instant case. Moreover, the exercise of administrative discretion,
such as the issuance of a PA, is a policy decision and a matter that the NTC can best discharge,
not the courts.
PILTEL contends that the NTC violated Section 23 of NTC Memorandum Circular No. 11-9-93,
otherwise known as the Implementing Guidelines on the Provisions of EO 109 which states:
Section 23. No other company or entity shall be authorized to provide local exchange service in
areas where the LECs comply with the relevant provisions of MTC MC No. 10-17-90 and NTC
MC No. 10-16-90 and that the local exchange service area is not underserved. (Emphasis
supplied)
Section 23 of EO 109 does not categorically state that the issuance of a PA is exclusive to any
telecommunications company. Neither Congress nor the NTC can grant an exclusive franchise,
certificate, or any other form of authorization to operate a public utility. In Republic v. Express
Telecommunications Co., the Court held that the Constitution is quite emphatic that the
operation of a public utility shall not be exclusive. Section 11, Article XII of the Constitution
provides:
Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned
by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires. xxx (Emphasis supplied)
Thus, in Radio Communications of the Philippines, Inc. v. National Telecommunications
Commission, the Court ruled that the Constitution mandates that a franchise cannot be exclusive
in nature.
...
Among the declared national policies in Republic Act No. 7925, otherwise known as the Public
Telecommunications Policy Act of the Philippines, is the healthy competition among
telecommunications carriers, to wit:
Obviously, the need for a healthy competitive environment in telecommunications is sufficient
impetus for the NTC to consider all those applicants, who are willing to offer competition,
develop the market and provide the environment necessary for greater public service.
Furthermore, free competition in the industry may also provide the answer to a much-desired
improvement in the quality and delivery of this type of public utility, to improved technology, fast
and handy mobil[e] service, and reduced user dissatisfaction.
PILTELs contention that the NTC Order amounts to a confiscation of property without due
process of law is untenable. Confiscation means the seizure of private property by the
government without compensation to the owner. A franchise to operate a public utility is not an
exclusive private property of the franchisee. Under the Constitution, no franchisee can demand
or acquire exclusivity in the operation of a public utility. Thus, a franchisee of a public utility
cannot complain of seizure or taking of property because of the issuance of another franchise to

a competitor. Every franchise, certificate or authority to operate a public utility is, by

constitutional mandate, non-exclusive. PILTEL cannot complain of a taking of an exclusive right
that it does not own and which no franchisee can ever own.

to catch up with its neighboring cities, installation of lines must be sped up.23 This, in fact, is
tantamount to a finding that the existing local exchange operator failed to meet the growing
demand for local lines.

Likewise, PILTELs argument that the NTC Order violates PILTELs rights as a prior operator has
no merit. The Court resolved a similar question in Republic v. Republic Telephone Company, Inc.
In striking down Retelcos claim that it had a right to be protected in its investment as a franchiseholder and prior operator of a telephone service in Malolos, Bulacan, the Court held:

ICCs technical and financial capabilities, as well as the growth rate in the number of lines in
particular areas, are matters within NTCs competence and should be accorded respect. The
NTC is given wide latitude in the evaluation of evidence and in the exercise of its adjudicative
functions, and this includes the authority to take judicial notice of facts within its special
competence.24

RETELCOs foremost argument is that such operations and maintenance of the telephone
system and solicitation of subscribers by [petitioners] constituted an unfair and ruinous
competition to the detriment of [RETELCO which] is a grantee of both municipal and legislative
franchises for the purpose. In effect, RETELCO pleads for protection from the courts on the
assumption that its franchises vested in it an exclusive right as prior operator. There is no clear
showing by RETELCO, however, that its franchises are of an exclusive character. xxx At any
rate, it may very well be pointed out as well that neither did the franchise of PLDT at the time of
the controversy confer exclusive rights upon PLDT in the operation of a telephone system. In
fact, we have made it a matter of judicial notice that all legislative franchises for the operation of
a telephone system contain the following provision:
It is expressly provided that in the event the Philippine Government should desire to maintain
and operate for itself the system and enterprise herein authorized, the grantee shall surrender
his franchise and will turn over to the Government said system and all serviceable equipment
therein, at cost, less reasonable depreciation.19
Similarly in this case, the grant of a PA to ICC to operate in areas covered by TTPI is not tainted
with any grave abuse of discretion as it was issued by the NTC after taking into account ICCs
technical and financial capabilities, and in keeping with the policy of healthy competition fostered
by E.O. No. 109 and R.A. No. 7925.
In addition, Section 6 of R.A. No. 7925 specifically limits the DOTC from exercising any power
that will tend to influence or effect a review or a modification of the NTCs quasi-judicial functions,
to wit:
Section 6. Responsibilities of and Limitations to Department Powers. -- The Department of
Transportation and Communications (Department) shall not exercise any power which will tend
to influence or effect a review or a modification of the Commissions quasi-judicial function.
The power of the NTC in granting or denying a provisional authority to operate a local exchange
carrier service is a quasi-judicial function,20 a sphere in which the DOTC cannot intrude upon. If
at all, the service area scheme provided in DOTC Dept. Circular No. 91-260 is only one of the
factors, but should not in any way, tie down the NTC in its determination of the propriety of a
grant of a provisional authority to a qualified applicant for local exchange service.
True, NTC MC No. 11-9-93 requires prior consultation with the NTC of the proposed service
areas. As petitioners themselves argue, prior consultation allows the NTC to assess the impact
of the proposed application on the viability of the local exchange operator in the area desired by
the would-be applicant and on the viability of the entire telecommunications industry as well as
rationalize the plans to minimize any adverse impact.21 In this case, prior consultation was
substantially complied with and its purpose accomplished, when ICC filed its application and the
NTC was given the opportunity to assess ICCs viability to render local exchange service in the
Manila and Navotas areas, and its impact on the telecommunications industry.
It is also true that NTC MC No. 8-9-95 allows a duly enfranchised entity to maintain a local
exchange network if it is shown that an existing authorized local exchange operator fails to
satisfy the demand for local exchange service.22 In this case, the NTC noted the increasing rate
in the demand for local lines within the Manila and Navotas areas, and in order for these areas

TTPI anticipates that allowing ICC to enter its service areas will make it difficult for it to crosssubsidize its operations in the less profitable areas. Such argument, however, is futile. The
cross-subsidy approach is apparently the governments response to the foreseen situation
wherein given its policy of universal access, a local exchange provider will find itself operating in
areas where the demand and the publics capacity to subscribe will be lesser than in other areas,
making these areas more of a liability than an asset. Thus, Section 4 of E.O. No. 109 provides:
SEC. 4. Cross-Subsidy. Until universal access to basic telecommunications is achieved, and
such service is priced to reflect actual costs, local exchange service shall continue to be crosssubsidized by other telecommunications services within the same company.
Meanwhile, NTC MC No. 8-9-95 provides:
ACCESS CHARGES
GENERAL
(a) Until the local exchange service is priced reflecting actual costs, the local exchange service
shall be cross-subsidized by other telecommunications services.
(c) The subsidy need by the LE service operator to earn a rate of return at parity with other
segments of telecommunications industry shall be charged against the international and
domestic toll and CMTS interconnect services.25
Both issuances allow a local exchange operator to cross-subsidize its operations from its other
telecommunications services, and not solely on the revenues derived from the operators local
exchange service.
Notably, R.A. No. 7617, as amended by R.A. No. 7674, grants TTPI the legislative franchise to
install, operate and maintain telecommunications systems throughout the Philippines but not
limited to the operations of local exchange service or public switched network, public-calling
stations, inter-exchange carrier or national toll transmission, value-added or enhanced services
intelligent networks, mobile or personal communications services, international gateway facility,
and paging services, among others.26 From these services, TTPI has other sources of revenue
from which it may cross-subsidize its local exchange operations.
The Court, however, agrees with petitioners that the NTC erred when it failed to require ICC to
make an escrow deposit and a performance bond. Section 27 of NTC MC No. 11-9-93
specifically provides:
SEC. 27. Authorized public telecommunications carriers shall be required to deposit in escrow in
a reputable bank 20% of the investment required for the first two years of the implementation of
the proposed project.
In addition to escrow, the authorized public telecommunications carriers shall be required to post
a performance bond equivalent to 10% of the investment required for the first two years of the
approved project but not to exceed P500 Million. The performance bond shall be forfeited in

favor of the government in the event that the authorized PTC fail to comply with the terms and
conditions of the authority granted. (Emphases Ours)

(1) Deposit in escrow in a reputable bank 20% of the investment required for the first two years
of the implementation of the proposed project; and

The escrow deposit and the posting of a performance bond are required in each proposed and
approved project of a local exchange operator. Project refers to a planned undertaking.27 ICCs
project for local exchange service in the Manila and Navotas areas is separate and distinct from
its projects in other areas; hence, the NTC should have directed ICC to submit such
requirements. Evidently, the escrow deposit is required to ensure that there is available money
on hand to defray ICCs expenditures for its project, while the performance bond will answer for
the faithful compliance and performance of ICCs rollout obligation and to compensate the
government for any damages incurred in case of ICCs default. Without these, the government
will be left holding an empty bag in the event ICC reneges in its rollout obligation.

(2) Post a performance bond equivalent to 10% of the investment required for the first two years
of the approved project but not to exceed P500 Million.

Section 27 of NTC MC No. 11-9-93 is silent as to whether the posting of an escrow deposit and
performance bond is a condition sine qua non for the grant of a provisional authority. While the
provision uses the term shall, said directive pertains to the NTC, which shall require the public
telecommunications carrier to make such deposit and posting. In any event, records show that
as of May 20, 2004, ICC has been granted an extension of its provisional authority up to
November 10, 2006.28 Records also show that ICC has already been providing local exchange
carrier service in the areas concerned, having installed 16,000 lines in the City of Manila, 12,000
of which have already been subscribed, 624 lines in Caloocan City, all of which have been
subscribed, while the roll-out plan for facilities and provisioning in the City of Navotas is being
finalized.29 Hence, so as not to disrupt ICCs rollout plan compliance, it would be more judicious
for the Court to merelyrequire ICC to comply with Section 27 of NTC MC No. 11-9-93, within
such period to be determined by the NTC.

within such period to be determined by the National Telecommunications Commission.

No pronouncement as to costs.
G.R. No. 110120 March 16, 1994
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
-versusCOURT OF APPEALS, HON. MANUEL JN. SERAPIO, Presiding Judge RTC, Branch 127,
Caloocan City, HON. MACARIO A. ASISTIO, JR., City Mayor of Caloocan and/or THE CITY
GOVERNMENT OF CALOOCAN, respondents.
Alberto N. Hidalgo and Ma. Teresa T. Oledan for petitioner.
The City Legal Officer & Chief, Law Department for Mayor Macario A. Asistio, Jr. and the City
Government of Caloocan.

ROMERO, J.:
Furthermore, it is well to stress that petitioner TTPI cannot claim any exclusive right to render
telecommunications service in areas which the NTC considers to be in need of additional
providers. R.A. No. 7925 is quite emphatic on this score, viz.:
SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor,
privilege, exemption, or immunity granted under existing franchises, or may hereafter be
granted, shall ipso facto become part of previously granted telecommunications franchises and
shall be accorded immediately and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life span of the franchise, or the
type of service authorized by the franchise. (Emphasis Ours)
More than anything else, public service should be the primordial objective of local exchange
operators. The entry of another provider in areas covered by TTPI should pose as a challenge
for it to improve its quality of service. Ultimately, it will be the public that will benefit. As pointed
out in Republic of the Phils. vs. Rep. Telephone Co, Inc.:30

The clash between the responsibility of the City Government of Caloocan to dispose off the 350
tons of garbage it collects daily and the growing concern and sensitivity to a pollution-free
environment of the residents of Barangay Camarin, Tala Estate, Caloocan City where these tons
of garbage are dumped everyday is the hub of this controversy elevated by the protagonists to
the Laguna Lake Development Authority (LLDA) for adjudication.
The instant case stemmed from an earlier petition filed with this Court by Laguna Lake
Development Authority (LLDA for short) docketed as G.R.
No. 107542 against the City Government of Caloocan, et al. In the Resolution of November 10,
1992, this Court referred G.R. No. 107542 to the Court of Appeals for appropriate disposition.
Docketed therein as CA-G.R. SP
No. 29449, the Court of Appeals, in a decision 1 promulgated on January 29, 1993 ruled that the
LLDA has no power and authority to issue a cease and desist order enjoining the dumping of
garbage in Barangay Camarin, Tala Estate, Caloocan City. The LLDA now seeks, in this petition,
a review of the decision of the Court of Appeals.

Free competition in the industry may also provide the answer to a much-desired improvement in
the quality and delivery of this type of public utility, to improved technology, fast and handy mobil
service, and reduced user dissatisfaction. After all, neither PLDT nor any other public utility has a
constitutional right to a monopoly position in view of the Constitutional proscription that no
franchise certificate or authorization shall be exclusive in character or shall last longer than fifty
(50) years (ibid., Section 11; Article XIV, Section 5, 1973 Constitution; Article XIV, Section 8,
1935 Constitution).

The facts, as disclosed in the records, are undisputed.

WHEREFORE, the petition for review on certiorari is PARTIALLY GRANTED. The Order of the
National Telecommunications Commission dated November 10, 1997 in NTC Case No. 96-195
is AFFIRMED with the following modifications:

On November 15, 1991, the LLDA conducted an on-site investigation, monitoring and test
sampling of the leachate 3 that seeps from said dumpsite to the nearby creek which is a tributary
of the Marilao River. The LLDA Legal and Technical personnel found that the City Government of
Caloocan was maintaining an open dumpsite at the Camarin area without first securing an
Environmental Compliance Certificate (ECC) from the Environmental Management Bureau
(EMB) of the Department of Environment and Natural Resources, as required under Presidential

Respondent International Communication Corporation, in accordance with Section 27 of NTC

MC No. 11-9-93, is required to:

On March 8, 1991, the Task Force Camarin Dumpsite of Our Lady of Lourdes Parish, Barangay
Camarin, Caloocan City, filed a letter-complaint 2 with the Laguna Lake Development Authority
seeking to stop the operation of the 8.6-hectare open garbage dumpsite in Tala Estate,
Barangay Camarin, Caloocan City due to its harmful effects on the health of the residents and
the possibility of pollution of the water content of the surrounding area.

Decree No. 1586, 4 and clearance from LLDA as required under Republic Act No. 4850, 5 as
amended by Presidential Decree No. 813 and Executive Order No. 927, series of 1983. 6

of Caloocan from dumping garbage at the Camarin dumpsite during the pendency of this case
and/or until further orders of the court.

After a public hearing conducted on December 4, 1991, the LLDA, acting on the complaint of
Task Force Camarin Dumpsite, found that the water collected from the leachate and the
receiving streams could considerably affect the quality, in turn, of the receiving waters since it
indicates the presence of bacteria, other than coliform, which may have contaminated the
sample during collection or handling. 7 On December 5, 1991, the LLDA issued a Cease and
Desist Order 8 ordering the City Government of Caloocan, Metropolitan Manila Authority, their
contractors, and other entities, to completely halt, stop and desist from dumping any form or kind
of garbage and other waste matter at the Camarin dumpsite.

On November 5, 1992, the LLDA filed a petition for certiorari, prohibition and injunction with
prayer for restraining order with the Supreme Court, docketed as G.R. No. 107542, seeking to
nullify the aforesaid order dated October 16, 1992 issued by the Regional Trial Court, Branch
127 of Caloocan City denying its motion to dismiss.

The dumping operation was forthwith stopped by the City Government of Caloocan. However,
sometime in August 1992 the dumping operation was resumed after a meeting held in July 1992
among the City Government of Caloocan, the representatives of Task Force Camarin Dumpsite
and LLDA at the Office of Environmental Management Bureau Director Rodrigo U. Fuentes
failed to settle the problem.
After an investigation by its team of legal and technical personnel on August 14, 1992, the LLDA
issued another order reiterating the December 5, 1991, order and issued an Alias Cease and
Desist Order enjoining the City Government of Caloocan from continuing its dumping operations
at the Camarin area.
On September 25, 1992, the LLDA, with the assistance of the Philippine National Police,
enforced its Alias Cease and Desist Order by prohibiting the entry of all garbage dump trucks
into the Tala Estate, Camarin area being utilized as a dumpsite.
Pending resolution of its motion for reconsideration earlier filed on September 17, 1992 with the
LLDA, the City Government of Caloocan filed with the Regional Trial Court of Caloocan City an
action for the declaration of nullity of the cease and desist order with prayer for the issuance of
writ of injunction, docketed as Civil Case No. C-15598. In its complaint, the City Government of
Caloocan sought to be declared as the sole authority empowered to promote the health and
safety and enhance the right of the people in Caloocan City to a balanced ecology within its
territorial jurisdiction. 9
On September 25, 1992, the Executive Judge of the Regional Trial Court of Caloocan City
issued a temporary restraining order enjoining the LLDA from enforcing its cease and desist
order. Subsequently, the case was raffled to the Regional Trial Court, Branch 126 of Caloocan
which, at the time, was presided over by Judge Manuel Jn. Serapio of the Regional Trial Court,
Branch 127, the pairing judge of the recently-retired presiding judge.
The LLDA, for its part, filed on October 2, 1992 a motion to dismiss on the ground, among
others, that under Republic Act No. 3931, as amended by Presidential Decree No. 984,
otherwise known as the Pollution Control Law, the cease and desist order issued by it which is
the subject matter of the complaint is reviewable both upon the law and the facts of the case by
the Court of Appeals and not by the Regional Trial Court. 10
On October 12, 1992 Judge Manuel Jn. Serapio issued an order consolidating Civil Case No. C15598 with Civil Case No. C-15580, an earlier case filed by the Task Force Camarin Dumpsite
entitled "Fr. John Moran, et al. vs. Hon. Macario Asistio." The LLDA, however, maintained during
the trial that the foregoing cases, being independent of each other, should have been treated
separately.
On October 16, 1992, Judge Manuel Jn. Serapio, after hearing the motion to dismiss, issued in
the consolidated cases an order 11 denying LLDA's motion to dismiss and granting the issuance
of a writ of preliminary injunction enjoining the LLDA, its agent and all persons acting for and on
its behalf, from enforcing or implementing its cease and desist order which prevents plaintiff City

The Court, acting on the petition, issued a Resolution 12 on November 10, 1992 referring the
case to the Court of Appeals for proper disposition and at the same time, without giving due
course to the petition, required the respondents to comment on the petition and file the same
with the Court of Appeals within ten (10) days from notice. In the meantime, the Court issued a
temporary restraining order, effective immediately and continuing until further orders from it,
ordering the respondents: (1) Judge Manuel Jn. Serapio, Presiding Judge, Regional Trial Court,
Branch 127, Caloocan City to cease and desist from exercising jurisdiction over the case for
declaration of nullity of the cease and desist order issued by the Laguna Lake Development
Authority (LLDA); and (2) City Mayor of Caloocan and/or the City Government of Caloocan to
cease and desist from dumping its garbage at the Tala Estate, Barangay Camarin, Caloocan
City.
Respondents City Government of Caloocan and Mayor Macario A. Asistio, Jr. filed on November
12, 1992 a motion for reconsideration and/or to quash/recall the temporary restraining order and
an urgent motion for reconsideration alleging that ". . . in view of the calamitous situation that
would arise if the respondent city government fails to collect 350 tons of garbage daily for lack of
dumpsite (i)t is therefore, imperative that the issue be resolved with dispatch or with sufficient
leeway to allow the respondents to find alternative solutions to this garbage problem."
On November 17, 1992, the Court issued a Resolution 13 directing the Court of Appeals to
immediately set the case for hearing for the purpose of determining whether or not the
temporary restraining order issued by the Court should be lifted and what conditions, if any, may
be required if it is to be so lifted or whether the restraining order should be maintained or
converted into a preliminary injunction.
The Court of Appeals set the case for hearing on November 27, 1992, at 10:00 in the morning at
the Hearing Room, 3rd Floor, New Building, Court of Appeals. 14 After the oral argument, a
conference was set on December 8, 1992 at 10:00 o'clock in the morning where the Mayor of
Caloocan City, the General Manager of LLDA, the Secretary of DENR or his duly authorized
representative and the Secretary of DILG or his duly authorized representative were required to
appear.
It was agreed at the conference that the LLDA had until December 15, 1992 to finish its study
and review of respondent's technical plan with respect to the dumping of its garbage and in the
event of a rejection of respondent's technical plan or a failure of settlement, the parties will
submit within 10 days from notice their respective memoranda on the merits of the case, after
which the petition shall be deemed submitted for resolution. 15 Notwithstanding such efforts, the
parties failed to settle the dispute.
On April 30, 1993, the Court of Appeals promulgated its decision holding that: (1) the Regional
Trial Court has no jurisdiction on appeal to try, hear and decide the action for annulment of
LLDA's cease and desist order, including the issuance of a temporary restraining order and
preliminary injunction in relation thereto, since appeal therefrom is within the exclusive and
appellate jurisdiction of the Court of Appeals under Section 9, par. (3), of Batas Pambansa Blg.
129; and (2) the Laguna Lake Development Authority has no power and authority to issue a
cease and desist order under its enabling law, Republic Act No. 4850, as amended by P.D. No.
813 and Executive Order
No. 927, series of 1983.

The Court of Appeals thus dismissed Civil Case No. 15598 and the preliminary injunction issued
in the said case was set aside; the cease and desist order of LLDA was likewise set aside and
the temporary restraining order enjoining the City Mayor of Caloocan and/or the City
Government of Caloocan to cease and desist from dumping its garbage at the Tala Estate,
Barangay Camarin, Caloocan City was lifted, subject, however, to the condition that any future
dumping of garbage in said area, shall be in conformity with the procedure and protective works
contained in the proposal attached to the records of this case and found on pages 152-160 of
the Rollo, which was thereby adopted by reference and made an integral part of the decision,
until the corresponding restraining and/or injunctive relief is granted by the proper Court upon
LLDA's institution of the necessary legal proceedings.
Hence, the Laguna Lake Development Authority filed the instant petition for review on certiorari,
now docketed as G.R. No. 110120, with prayer that the temporary restraining order lifted by the
Court of Appeals be re-issued until after final determination by this Court of the issue on the
proper interpretation of the powers and authority of the LLDA under its enabling law.
On July, 19, 1993, the Court issued a temporary restraining order 16 enjoining the City Mayor of
Caloocan and/or the City Government of Caloocan to cease and desist from dumping its
garbage at the Tala Estate, Barangay Camarin, Caloocan City, effective as of this date and
containing until otherwise ordered by the Court.
It is significant to note that while both parties in this case agree on the need to protect the
environment and to maintain the ecological balance of the surrounding areas of the Camarin
open dumpsite, the question as to which agency can lawfully exercise jurisdiction over the
matter remains highly open to question.
The City Government of Caloocan claims that it is within its power, as a local government unit,
pursuant to the general welfare provision of the Local Government Code, 17 to determine the
effects of the operation of the dumpsite on the ecological balance and to see that such balance
is maintained. On the basis of said contention, it questioned, from the inception of the dispute
before the Regional Trial Court of Caloocan City, the power and authority of the LLDA to issue a
cease and desist order enjoining the dumping of garbage in the Barangay Camarin over which
the City Government of Caloocan has territorial jurisdiction.
The Court of Appeals sustained the position of the City of Caloocan on the theory that Section 7
of Presidential Decree No. 984, otherwise known as the Pollution Control law, authorizing the
defunct National Pollution Control Commission to issue an ex-parte cease and desist order was
not incorporated in Presidential Decree No. 813 nor in Executive Order No. 927, series of
1983. The Court of Appeals ruled that under Section 4, par. (d), of Republic Act No. 4850, as
amended, the LLDA is instead required "to institute the necessary legal proceeding against any
person who shall commence to implement or continue implementation of any project, plan or
program within the Laguna de Bay region without previous clearance from the Authority."
The LLDA now assails, in this partition for review, the abovementioned ruling of the Court of
Appeals, contending that, as an administrative agency which was granted regulatory and
adjudicatory powers and functions by Republic Act No. 4850 and its amendatory laws,
Presidential Decree No. 813 and Executive Order No. 927, series of 1983, it is invested with the
power and authority to issue a cease and desist order pursuant to Section 4 par. (c), (d), (e), (f)
and (g) of Executive Order No. 927 series of 1983 which provides, thus:
Sec. 4. Additional Powers and Functions. The authority shall have the following powers and
functions:
xxx xxx xxx
(c) Issue orders or decisions to compel compliance with the provisions of this Executive Order
and its implementing rules and regulations only after proper notice and hearing.

(d) Make, alter or modify orders requiring the discontinuance of pollution specifying the
conditions and the time within which such discontinuance must be accomplished.
(e) Issue, renew, or deny permits, under such conditions as it may determine to be reasonable,
for the prevention and abatement of pollution, for the discharge of sewage, industrial waste, or
for the installation or operation of sewage works and industrial disposal system or parts thereof.
(f) After due notice and hearing, the Authority may also revoke, suspend or modify any permit
issued under this Order whenever the same is necessary to prevent or abate pollution.
(g) Deputize in writing or request assistance of appropriate government agencies or
instrumentalities for the purpose of enforcing this Executive Order and its implementing rules
and regulations and the orders and decisions of the Authority.
The LLDA claims that the appellate court deliberately suppressed and totally disregarded the
above provisions of Executive Order No. 927, series of 1983, which granted administrative
quasi-judicial functions to LLDA on pollution abatement cases.
In light of the relevant environmental protection laws cited which are applicable in this case, and
the corresponding overlapping jurisdiction of government agencies implementing these laws, the
resolution of the issue of whether or not the LLDA has the authority and power to issue an order
which, in its nature and effect was injunctive, necessarily requires a determination of the
threshold question: Does the Laguna Lake Development Authority, under its Charter and its
amendatory laws, have the authority to entertain the complaint against the dumping of garbage
in the open dumpsite in Barangay Camarin authorized by the City Government of Caloocan
which is allegedly endangering the health, safety, and welfare of the residents therein and the
sanitation and quality of the water in the area brought about by exposure to pollution caused by
such open garbage dumpsite?
The matter of determining whether there is such pollution of the environment that requires
control, if not prohibition, of the operation of a business establishment is essentially addressed
to the Environmental Management Bureau (EMB) of the DENR which, by virtue of Section 16 of
Executive Order No. 192, series of 1987, 18 has assumed the powers and functions of the
defunct National Pollution Control Commission created under Republic Act No. 3931. Under said
Executive Order, a Pollution Adjudication Board (PAB) under the Office of the DENR Secretary
now assumes the powers and functions of the National Pollution Control Commission with
respect to adjudication of pollution cases. 19
As a general rule, the adjudication of pollution cases generally pertains to the Pollution
Adjudication Board (PAB), except in cases where the special law provides for another forum. It
must be recognized in this regard that the LLDA, as a specialized administrative agency, is
specifically mandated under Republic Act No. 4850 and its amendatory laws to carry out and
make effective the declared national policy 20 of promoting and accelerating the development
and balanced growth of the Laguna Lake area and the surrounding provinces of Rizal and
Laguna and the cities of San Pablo, Manila, Pasay, Quezon and Caloocan 21 with due regard
and adequate provisions for environmental management and control, preservation of the quality
of human life and ecological systems, and the prevention of undue ecological disturbances,
deterioration and pollution. Under such a broad grant and power and authority, the LLDA, by
virtue of its special charter, obviously has the responsibility to protect the inhabitants of the
Laguna Lake region from the deleterious effects of pollutants emanating from the discharge of
wastes from the surrounding areas. In carrying out the aforementioned declared policy, the
LLDA is mandated, among others, to pass upon and approve or disapprove all plans, programs,
and projects proposed by local government offices/agencies within the region, public
corporations, and private persons or enterprises where such plans, programs and/or projects are
related to those of the LLDA for the development of the region. 22
In the instant case, when the complainant Task Force Camarin Dumpsite of Our Lady of Lourdes
Parish, Barangay Camarin, Caloocan City, filed its letter-complaint before the LLDA, the latter's

jurisdiction under its charter was validly invoked by complainant on the basis of its allegation that
the open dumpsite project of the City Government of Caloocan in Barangay Camarin was
undertaken without a clearance from the LLDA, as required under Section 4, par. (d), of
Republic Act. No. 4850, as amended by P.D. No. 813 and Executive Order No. 927. While there
is also an allegation that the said project was without an Environmental Compliance Certificate
from the Environmental Management Bureau (EMB) of the DENR, the primary jurisdiction of the
LLDA over this case was recognized by the Environmental Management Bureau of the DENR
when the latter acted as intermediary at the meeting among the representatives of the City
Government of Caloocan, Task Force Camarin Dumpsite and LLDA sometime in July 1992 to
discuss the possibility of
re-opening the open dumpsite.

course may take several years. The relevant pollution control statute and implementing
regulations were enacted and promulgated in the exercise of that pervasive, sovereign power to
protect the safety, health, and general welfare and comfort of the public, as well as the protection
of plant and animal life, commonly designated as the police power. It is a constitutional
commonplace that the ordinary requirements of procedural due process yield to the necessities
of protecting vital public interests like those here involved, through the exercise of police power. .
..

Having thus resolved the threshold question, the inquiry then narrows down to the following
issue: Does the LLDA have the power and authority to issue a "cease and desist" order under
Republic Act No. 4850 and its amendatory laws, on the basis of the facts presented in this case,
enjoining the dumping of garbage in Tala Estate, Barangay Camarin, Caloocan City.

The State shall protect and advance the right of the people to a balanced and healthful ecology
in accord with the rhythm and harmony of nature.

The irresistible answer is in the affirmative.

The cease and desist order issued by the LLDA requiring the City Government of Caloocan to
stop dumping its garbage in the Camarin open dumpsite found by the LLDA to have been done
in violation of Republic Act No. 4850, as amended, and other relevant environment laws, 23
cannot be stamped as an unauthorized exercise by the LLDA of injunctive powers. By its
express terms, Republic Act No. 4850, as amended by P.D. No. 813 and Executive Order No.
927, series of 1983, authorizes the LLDA to "make, alter or modify order requiring the
discontinuance or pollution." 24 (Emphasis supplied) Section 4, par. (d) explicitly authorizes the
LLDA to make whatever order may be necessary in the exercise of its jurisdiction.
To be sure, the LLDA was not expressly conferred the power "to issue and ex-parte cease and
desist order" in a language, as suggested by the City Government of Caloocan, similar to the
express grant to the defunct National Pollution Control Commission under Section 7 of P.D. No.
984 which, admittedly was not reproduced in P.D. No. 813 and E.O. No. 927, series of 1983.
However, it would be a mistake to draw therefrom the conclusion that there is a denial of the
power to issue the order in question when the power "to make, alter or modify orders requiring
the discontinuance of pollution" is expressly and clearly bestowed upon the LLDA by Executive
Order No. 927, series of 1983.
Assuming arguendo that the authority to issue a "cease and desist order" were not expressly
conferred by law, there is jurisprudence enough to the effect that the rule granting such authority
need not necessarily be express. 25 While it is a fundamental rule that an administrative agency
has only such powers as are expressly granted to it by law, it is likewise a settled rule that an
administrative agency has also such powers as are necessarily implied in the exercise of its
express powers. 26 In the exercise, therefore, of its express powers under its charter as a
regulatory and quasi-judicial body with respect to pollution cases in the Laguna Lake region, the
authority of the LLDA to issue a "cease and desist order" is, perforce, implied. Otherwise, it may
well be reduced to a "toothless" paper agency.
In this connection, it must be noted that in Pollution Adjudication Board v. Court of Appeals, et
al., 27 the Court ruled that the Pollution Adjudication Board (PAB) has the power to issue an exparte cease and desist order when there is prima facie evidence of an establishment exceeding
the allowable standards set by the anti-pollution laws of the country. The ponente, Associate
Justice Florentino P. Feliciano, declared:

The immediate response to the demands of "the necessities of protecting vital public interests"
gives vitality to the statement on ecology embodied in the Declaration of Principles and State
Policies or the 1987 Constitution. Article II, Section 16 which provides:

As a constitutionally guaranteed right of every person, it carries the correlative duty of nonimpairment. This is but in consonance with the declared policy of the state "to protect and
promote the right to health of the people and instill health consciousness among them." 28 It is
to be borne in mind that the Philippines is party to the Universal Declaration of Human Rights
and the Alma Conference Declaration of 1978 which recognize health as a fundamental human
right. 29
The issuance, therefore, of the cease and desist order by the LLDA, as a practical matter of
procedure under the circumstances of the case, is a proper exercise of its power and authority
under its charter and its amendatory laws. Had the cease and desist order issued by the LLDA
been complied with by the City Government of Caloocan as it did in the first instance, no further
legal steps would have been necessary.
The charter of LLDA, Republic Act No. 4850, as amended, instead of conferring upon the LLDA
the means of directly enforcing such orders, has provided under its Section 4 (d) the power to
institute "necessary legal proceeding against any person who shall commence to implement or
continue implementation of any project, plan or program within the Laguna de Bay region
without previous clearance from the LLDA."
Clearly, said provision was designed to invest the LLDA with sufficiently broad powers in the
regulation of all projects initiated in the Laguna Lake region, whether by the government or the
private sector, insofar as the implementation of these projects is concerned. It was meant to deal
with cases which might possibly arise where decisions or orders issued pursuant to the exercise
of such broad powers may not be obeyed, resulting in the thwarting of its laudabe objective. To
meet such contingencies, then the writs of mandamus and injunction which are beyond the
power of the LLDA to issue, may be sought from the proper courts.
Insofar as the implementation of relevant anti-pollution laws in the Laguna Lake region and its
surrounding provinces, cities and towns are concerned, the Court will not dwell further on the
related issues raised which are more appropriately addressed to an administrative agency with
the special knowledge and expertise of the LLDA.
WHEREFORE, the petition is GRANTED. The temporary restraining order issued by the Court
on July 19, 1993 enjoining the City Mayor of Caloocan and/or the City Government of Caloocan
from dumping their garbage at the Tala Estate, Barangay Camarin, Caloocan City is hereby
made permanent.
SO ORDERED.

Ex parte cease and desist orders are permitted by law and regulations in situations like that here
presented precisely because stopping the continuous discharge of pollutive and untreated
effluents into the rivers and other inland waters of the Philippines cannot be made to wait until
protracted litigation over the ultimate correctness or propriety of such orders has run its full
course, including multiple and sequential appeals such as those which Solar has taken, which of

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.

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:

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.

Previous payment made by PNB

P
2,952,349.23
Add: Payment made by PNOC pursuant to the compromise agreement of June 22, 1987
P
91,003,129.89
Total tax payment
P
93,955,479.1213

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 governmentowned 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
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

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
P 385,961,580.82
Final tax rate
0.15
Informer's reward due (BIR deficiency tax assessment x Final tax rate)
P
57,894,237.12
Less: Payment received by private respondent Savellano
P
14,093,321.89
Outstanding balance
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 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 letter of demand dated November 11, 1986
P 385,961,580.82
Less: Amount paid under E.O. No. 44
P
91,003,129.89
Amount still due and collectible
P 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
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
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;

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.

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 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.

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

I
Jurisdiction of the CTA

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:
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 CA-G.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

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 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 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 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

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.

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

II
Validity of the Compromise Agreement

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 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 governmentowned 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,

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 selfassessed, 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 selfassessed 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 self-assessing.
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 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 self-assessment 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 selfassessment 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

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.
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.

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:

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 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

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. 39-86.80
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 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 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 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 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.
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 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.

themselves on the same side. The prayer in the Amended Petition for Review of private
respondent Savellano reads:

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.

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:

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.
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 aboveprescribed 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

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.
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.

VICTORIAS MILLING COMPANY, INC., petitioner-appellant,

-versusSOCIAL SECURITY COMMISSION, respondent-appellee.

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.
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.

Ross, Selph and Carrascoso for petitioner-appellant.

Office of the Solicitor General and Ernesto T. Duran for respondent-appellee.
BARRERA, J.:
On October 15, 1958, the Social Security Commission issued its Circular No. 22 of the following
tenor: .
Effective November 1, 1958, all Employers in computing the premiums due the System, will take
into consideration and include in the Employee's remuneration all bonuses and overtime pay, as
well as the cash value of other media of remuneration. All these will comprise the Employee's
remuneration or earnings, upon which the 3-1/2% and 2-1/2% contributions will be based, up to
a maximum of P500 for any one month.
Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through counsel, wrote
the Social Security Commission in effect protesting against the circular as contradictory to a
previous Circular No. 7, dated October 7, 1957 expressly excluding overtime pay and bonus in
the computation of the employers' and employees' respective monthly premium contributions,
and submitting, "In order to assist your System in arriving at a proper interpretation of the term
'compensation' for the purposes of" such computation, their observations on Republic Act 1161
and its amendment and on the general interpretation of the words "compensation",
"remuneration" and "wages". Counsel further questioned the validity of the circular for lack of
authority on the part of the Social Security Commission to promulgate it without the approval of
the President and for lack of publication in the Official Gazette.
Overruling these objections, the Social Security Commission ruled that Circular No. 22 is not a
rule or regulation that needed the approval of the President and publication in the Official
Gazette to be effective, but a mere administrative interpretation of the statute, a mere statement
of general policy or opinion as to how the law should be construed.
Not satisfied with this ruling, petitioner comes to this Court on appeal.

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.
G.R. No. L-16704

March 17, 1962

The single issue involved in this appeal is whether or not Circular No. 22 is a rule or regulation,
as contemplated in Section 4(a) of Republic Act 1161 empowering the Social Security
Commission "to adopt, amend and repeal subject to the approval of the President such rules
and regulations as may be necessary to carry out the provisions and purposes of this Act."
There can be no doubt that there is a distinction between an administrative rule or regulation
and an administrative interpretation of a law whose enforcement is entrusted to an
administrative body. When an administrative agency promulgates rules and regulations, it
"makes" a new law with the force and effect of a valid law, while when it renders an opinion or
gives a statement of policy, it merely interprets a pre-existing law (Parker, Administrative Law, p.
197; Davis, Administrative Law, p. 194). 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 often times 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. (Davis,
op. cit., p. 194.) .
A rule is binding on the courts so long as the procedure fixed for its promulgation is followed and
its scope is within the statutory authority granted by the legislature, even if the courts are not in

agreement with the policy stated therein or its innate wisdom (Davis, op. cit., 195-197). On the
other hand, administrative interpretation of the law is at best merely advisory, for it is the courts
that finally determine what the law means.
Circular No. 22 in question was issued by the Social Security Commission, in view of the
amendment of the provisions of the Social Security Law defining the term "compensation"
contained in Section 8 (f) of Republic Act No. 1161 which, before its amendment, reads as
follows: .
(f) Compensation All remuneration for employment include the cash value of any
remuneration paid in any medium other than cash except (1) that part of the remuneration in
excess of P500 received during the month; (2) bonuses, allowances or overtime pay; and (3)
dismissal and all other payments which the employer may make, although not legally required to
do so.
Republic Act No. 1792 changed the definition of "compensation" to:
(f) Compensation All remuneration for employment include the cash value of any
remuneration paid in any medium other than cash except that part of the remuneration in excess
of P500.00 received during the month.
It will thus be seen that whereas prior to the amendment, bonuses, allowances, and overtime
pay given in addition to the regular or base pay were expressly excluded, or exempted from the
definition of the term "compensation", such exemption or exclusion was deleted by the
amendatory law. It thus became necessary for the Social Security Commission to interpret the
effect of such deletion or elimination. Circular No. 22 was, therefore, issued to apprise those
concerned of the interpretation or understanding of the Commission, of the law as amended,
which it was its duty to enforce. It did not add any duty or detail that was not already in the law
as amended. It merely stated and circularized the opinion of the Commission as to how the law
should be construed.
The case of People v. Jolliffe (G.R. No. L-9553, promulgated on May 30, 1959) cited by
appellant, does not support its contention that the circular in question is a rule or regulation.
What was there said was merely that a regulation may be incorporated in the form of a circular.
Such statement simply meant that the substance and not the form of a regulation is decisive in
determining its nature. It does not lay down a general proposition of law that any circular,
regardless of its substance and even if it is only interpretative, constitutes a rule or regulation
which must be published in the Official Gazette before it could take effect.
The case of People v. Que Po Lay (50 O.G. 2850) also cited by appellant is not applicable to the
present case, because the penalty that may be incurred by employers and employees if they
refuse to pay the corresponding premiums on bonus, overtime pay, etc. which the employer
pays to his employees, is not by reason of non-compliance with Circular No. 22, but for violation
of the specific legal provisions contained in Section 27(c) and (f) of Republic Act No. 1161.
We find, therefore, that Circular No. 22 purports merely to advise employers-members of the
System of what, in the light of the amendment of the law, they should include in determining the
monthly compensation of their employees upon which the social security contributions should be
based, and that such circular did not require presidential approval and publication in the Official
Gazette for its effectivity.
It hardly need be said that the Commission's interpretation of the amendment embodied in its
Circular No. 22, is correct. The express elimination among the exemptions excluded in the old
law, of all bonuses, allowances and overtime pay in the determination of the "compensation"
paid to employees makes it imperative that such bonuses and overtime pay must now be
included in the employee's remuneration in pursuance of the amendatory law. It is true that in
previous cases, this Court has held that bonus is not demandable because it is not part of the
wage, salary, or compensation of the employee. But the question in the instant case is not

whether bonus is demandable or not as part of compensation, but whether, after the employer
does, in fact, give or pay bonus to his employees, such bonuses shall be considered
compensation under the Social Security Act after they have been received by the employees.
While it is true that terms or words are to be interpreted in accordance with their well-accepted
meaning in law, nevertheless, when such term or word is specifically defined in a particular law,
such interpretation must be adopted in enforcing that particular law, for it can not be gainsaid
that a particular phrase or term may have one meaning for one purpose and another meaning
for some other purpose. Such is the case that is now before us. Republic Act 1161 specifically
defined what "compensation" should mean "For the purposes of this Act". Republic Act 1792
amended such definition by deleting same exemptions authorized in the original Act. By virtue of
this express substantial change in the phraseology of the law, whatever prior executive or
judicial construction may have been given to the phrase in question should give way to the clear
mandate of the new law.
IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby affirmed, with costs
against appellant. So ordered
G.R. No. 163123. April 15, 2005
PHILIPPINE HEALTH INSURANCE CORPORATION, Petitioners,
vs.
CHINESE GENERAL HOSPITAL AND MEDICAL CENTER, Respondents.
DECISION
CORONA, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
March 29, 2004 decision1 of the Court of Appeals, the dispositive portion of which read:
FOR THE FOREGOING DISQUISITIONS, the petition is GRANTED, the Philippine Health
Insurance Corporation2 is hereby ordered to give due course to petitioners, Chinese General
Hospital and Medical Center, claims for the period from 1989 to 1992, amounting to FOURTEEN
MILLION TWO HUNDRED NINETY ONE THOUSAND FIVE HUNDRED SIXTY EIGHT PESOS
and 71/100 PESOS (P14,291,568.71).3
The facts, as culled by the Court of Appeals, follow.
On February 14, 1995, Republic Act No. 7875, otherwise known as "An Act Instituting a National
Health Insurance Program for all Filipinos and Establishing the Philippine Health Insurance
Corporation For the Purpose," was approved and signed into law. As its guiding principle, it is
provided in Section 2 thereof, thus:
"Section 2. Declaration of Principles and Policies. Section 11, Article XIII of the Constitution of
the Republic of the Philippines declares that the state shall adopt an integrated and
comprehensive approach to health development which shall endeavor to make essential goods,
health and other social services available to all the people at affordable cost. Priority for the
needs of the underprivileged, sick, elderly, disabled, women, and children should be recognized.
Likewise, it shall be the policy of the State to provide free medical care to paupers.
Prior to the enactment of R.A. 7875. CGH4 had been an accredited health care provider under
the Philippine Medical Care Commission (PMCC), more popularly known as Medicare. As
defined by R.A. 7875, a health care provider refers to a health care institution, which is duly
licensed and accredited devoted primarily to the maintenance and operation of facilities for
health promotion, prevention, diagnosis, treatment and care of individuals suffering from illness,
disease, injury, disability or deformity, or in need of obstetrical or other medical and nursing
care.5

As such, petitioner6 filed its Medicare claims with the Social Security System (SSS), which,
together with the Government Service Insurance System (GSIS), administered the Health
Insurance Fund of the PMMC. Thus, petitioner filed its claim from 1989 to 1992 with the SSS,
amounting to EIGHT MILLION ONE HUNDRED TWO THOUSAND SEVEN HUNDRED EIGHTYTWO and 10/100 (P8,102,782.10). Its application for the payment of its claim with the SSS was
overtaken by the passage of R.A. 7875, which in Section 51 and 52, provides:
SECTION 51. Merger. Within sixty (60) days from the promulgation of the implementing rules
and regulations, all functions and assets of the Philippine Medical Care Commission shall be
merged with those of the Corporation (PHILHEALTH) without need of conveyance, transfer or
assignment. The PMCC shall thereafter cease to exist.
The liabilities of the PMCC shall be treated in accordance with existing laws and pertinent rules
and regulations. xxx
SECTION 52. Transfer of Health Insurance Funds of the SSS and GSIS. The Health Insurance
Funds being administered by the SSS and GSIS shall be transferred to the Corporation within
sixty (60) days from the promulgation of the implementing rules and regulations. The SSS and
GSIS shall, however, continue to perform Medicare functions under contract with the
Corporation until such time that such functions are assumed by the Corporation xxx.
Being the successor of the PMCC, PHILHEALTH, in compliance with the mandate of R.A.
7875,7 promulgated the rules and regulations implementing said act, Section 52 of which
provides:
SECTION 52. Fee for Service Guidelines on Claims Payment. xxx b. All claims for payment of
services rendered shall be filed within sixty (60) calendar days from the date of discharge of the
patient. Otherwise, the claim shall be barred from payment except if the delay in the filing of thee
claim is due to natural calamities and other fortuitous events. If the claim is sent through mail,
the date of the mailing as stamped by the post office of origin shall be considered as the date of
the filing.
If the delay in the filing is due to natural calamities or other fortuitous events, the health care
provider shall be accorded an extension period of sixty (60) calendar days.
If the delay in the filing of the claim is caused by the health care provider, and the Medicare
benefits had already been deducted, the claim will not be paid. If the claim is not yet deducted, it
will be paid to the member chargeable to the future claims of the health care provider.
Instead of giving due course to petitioners claims totaling to EIGHT MILLION ONE HUNDRED
TWO THOUSAND SEVEN HUNDRED EIGHTY-TWO and 10/100 (P8,102,782.10), only ONE
MILLION THREE HUNDRED SIXTY-FIVE THOUSAND FIVE HUNDRED FIFTY-SIX and 32/100
Pesos (1,365,556.32) was paid to petitioner, representing its claims from 1989 to 1992 (sic).
Petitioner again filed its claims representing services rendered to its patients from 1998 to 1999,
amounting to SEVEN MILLION FIVE HUNDRED FIFTY FOUR THOUSAND THREE HUNDRED
FORTY TWO and 93/100 Pesos (P7,554,342.93). For being allegedly filed beyond the sixty (60)
day period allowed by the implementing rules and regulations, Section 52 thereof, petitioners
claims were denied by the Claims Review Unit of Philhealth in its letter dated January 14, 200,
thus:

after discharge. However, the remaining medicare claims have been forwarded to Claims
Processing Department (CPD) for payment.
SECTION 52 (B) Rule 52 (B) Rule VIII of the Implementing Rules and Regulations of 7875
provides that all claims for payment of services rendered shall be filed within sixty (60) days from
the day of discharge of the patient. However, Philhealth Circular No, 31-A, series of 1998, state
that all claims pending with Philhealth as of September 15, 1998 and claims with discharge
dates from September to December 31, 1998 are given one hundred twenty (120) days from the
date of discharge to file their claim. In as much as we would like to grant your request for
reconsideration, the Corporation could no longer extend the period of filing xxx.
Petitioners claim was denied with finality by PHILHEALTH in its assailed decision dated June 6,
2000.
In a petition for review under Rule 43 of the Rules of Court, the Court of Appeals ordered herein
petitioner Philippine Health Insurance Corporation (Philhealth) to pay the claims in the amount of
Fourteen Million Two Hundred Ninety-one Thousand Five Hundred Sixty-eight Pesos and 71/100
(P14,291,568.71), principally on the ground of liberal application of the 60-day rule under
Section 52 of RA 7875s Implementing Rules and Regulations. According to the Court of
Appeals:
The avowed policy in the creation of a national health program is, as provided in Section 11,
Article XIII of the 1987 Constitution, to adopt an integrated and comprehensive approach to
health development which shall endeavor to make essential goods, health and other social
services available to all people at affordable cost. To assist the state in pursuing this policy,
hospitals and medical institutions such as herein petitioner are accredited to provide health care.
It is true, as aptly stated by the OGCC, that petitioner was not required by the government to
take part in its program, it did so voluntarily. But the fact that the government did not "twist"
petitioners arm, so to speak, to participate does not make petitioners participation in the
program less commendable, considering that at rate PHILHEALTH is denying claims of health
care givers, it is more risky rather than providential for health care givers to take part in the
governments health program.
It is Our firmly held view that the policy of the state in creating a national health insurance
program would be better served by granting the instant petition. Thus, it is noteworthy to mention
that health care givers are threatening to "boycott" PHILHEALTH, reasoning that the claims
approved by PHILHEALTH are not commensurate to the services rendered by them to its
members. Thus, how can these accredited health care givers be encouraged to serve an
increasing number of members when they end up on the losing end of this venture. We must
admit that the costs of operating these medical institutions cannot be taken lightly. They must
also earn a modicum amount of profit in order to operate properly.
Again, it is trite to emphasize that essentially, the purpose of the national health insurance
program is to provide members immediate medical care with the least amount of cash
expended. Thus, with PHILHEALTH, members/patients need only to present their card to prove
their membership and the accredited health care giver is mandated by law to provide the
necessary medical assistance, said health care giver shouldering the PHILHEALTH part of the
bill. However, it is the members/patients who bear the brunt. Thus, they are made to shoulder
the PHILHEALTH part of the bill, and the refund thereof is subject to whether or not the claims of
the health care providers are approved by PHILHEALTH. This is blatantly contrary to the very
purpose for which the National Health Insurance Program was created.8

"xxx
xxxxxxxxx
This pertains to your three hundred seventy three Philhealth medicare claims (373) which were
primarily denied by Claims Processing Department for late filing and for which you made an
appeal to this office. We regret to inform you that after thorough evaluation of your claims, [your]
361 medicare claims were DENIED, due to the fact that the claims were filed 5 to 16 months

We agree.

The state policy in creating a national health insurance program is to grant discounted medical
coverage to all citizens, with priority to the needs of the underprivileged, sick, elderly, disabled,
women and children, and free medical care to paupers9.
The very same policy was adopted in RA 787510 which sought to:
a) provide all citizens of the Philippines with the mechanism to gain financial access to health
services;
b) create the National Health Insurance Program to serve as the means to help the people pay
for the health services;
c) prioritize and accelerate the provision of health services to all Filipinos, especially that
segment of the population who cannot afford such services; and
d) establish the Philippine Health Insurance Corporation that will administer the program at
central and local levels.11
To assist the state in pursuing the aforementioned policy, health institutions were granted the
privilege of applying for accreditation as health care providers.12 Respondent Chinese General
Hospital and Medical Center (CGH) was one of those which received such accreditation.
Under the rules promulgated by the Philhealth Board pursuant to RA 7875, any claim for
payment of services rendered (to a patient) shall be filed within sixty (60) calendar days from the
date of discharge of the patient. Otherwise, the claim is barred.13
But before a claim is filed with petitioner Philhealth for services already rendered, an accredited
health care provider like respondent CGH is required to:
a. accomplish a Philhealth claim form;
b. accomplish an itemized list of the medicines administered to and medical supplies used by
the patient concerned, indicating therein the quality, unit, price and total price corresponding
thereto;
c. require the patient concerned and his/her employer to accomplish and submit a Philhealth
member/employer certification;
d. in case the patient gave birth, require her to submit a certified true copy of the childs birth
certificate;
e. in case the patient died, require the immediate relatives to submit a certified true copy of the
deceaseds death certificate; and
f. in case a members dependent is hospitalized for which the member seeks coverage, require
the member to submit proof of relationship to the patient and to execute an affidavit of
support.14
Apart from the foregoing requirements which often necessitate securing documents from other
government offices, and the fact that most patients are unable to immediately accomplish and
submit the required documents, an accredited health care provider like CGH has to contend with
an average of about a thousand members and/or dependents seeking medical treatment for
various illnesses per month.
Under these circumstances, it is unreasonable to expect respondent CGH to comply 100% of
the time with the prescribed 60-day rule of Philhealth. Despite the prescribed standard
procedures, respondent has no assurance of the members prompt submission of the required

documents. This factor is completely beyond its control. There will always be delay not
attributable to respondent.
The unreasonably strict implementation of the 60-day rule, without regard to the causes of delay
beyond respondents control, will be counter-productive to the long-term effectiveness of the
NHIP. Instead of placing a premium on participation in the Program, Philhealth punishes an
accredited health provider like CGH by refusing to pay its claims for services already rendered.
Under these circumstances, no accredited provider will gamble on honoring claims with delayed
supporting papers no matter how meritorious knowing that reimbursement from Philhealth
will not be forthcoming.
This Court will not hesitate, whenever necessary, to allow a liberal implementation of the rules
and regulations of an administrative agency in cases where their unjustifiably rigid enforcement
will result in a deprivation of legal rights. In this case, respondent had already rendered the
services for which it was filing its claims. Technicalities should not be allowed to defeat
respondents right to be reimbursed, specially since petitioners charter itself guarantees such
reimbursement.
A careful reading of RA 7875 shows that the law itself does not provide for any specific period
within which to file claims. We can safely presume therefore that the period for filing was not per
se the principal concern of the legislature. More important than mere technicalities is the
realization of the state policy to provide Philhealth members with the requisite medical care at
the least possible cost. Truly, nothing can be more disheartening than to see the Acts noble
objective frustrated by the overly stringent application of technical rules.
The fact is that it was not RA 7875 itself but Section 52 of its Implementing Rules and
Regulations which established the 60-day cut-off for the filing of claims.
While it is doctrinal in administrative law that the rules and regulations of administrative bodies
interpreting the law they are entrusted to enforce have the force of law15, these issuances are
by no means iron-clad norms. Administrative bodies themselves can and have in fact "bent the
rules" for reasons of public interest. On September 15, 1998, for instance, petitioner issued
Philhealth Circular No. 31-A:16
IN ORDER to allow members of the National Health Insurance Program (NHIP) sufficient time to
complete all documents to support their medical care claims, Philhealth is temporarily
suspending the sixty (60)-day reglementary period for filing claims.
While Section 52 (b), Rule VIII of the Implementing Rules and Regulations of R.A. 7875 provides
that all claims for payment of services shall be filed within 60 calendar days from the day of
discharge of a patient, there is a need to extend this period to minimize the incidence of late
filing due to members personal difficulties and circumstances beyond their control. (emphasis
ours)
And then again, on April 20, 1999, Philhealth Circular No. 50 was issued:
TO MINIMIZE the incidence of late filing of claims due to members personal difficulties in
preparing the needed documents, Philhealth is extending the period for filing of claims xxx
(emphasis ours)
The above circulars indubitably recognized the necessity of extending the 60-day period
because of the difficulties encountered by members in completing the required documents, often
due to circumstances beyond their control. Petitioner appeared to be well aware of the problems
encountered by its members in complying with the 60-day rule. Furthermore, implicit in the
wording of the circulars was the cognition of the fact that the fault was not always attributable to
the health care providers like CGH but to the members themselves.

Delay on the part of members is an ordinary occurrence. There is no need to make a mountain
out of a molehill as far as this particular point is concerned. To this day, members continue to
encounter delay in submitting their documents. There was therefore no compelling reason for
the exacting and meticulous enforcement of the rule when, in at least two instances, petitioner
itself implemented it liberally and on the same ground that it was using against respondent.
Petitioner likewise contends that respondent failed to exhaust administrative remedies before
resorting to judicial intervention. We disagree.

There is no need to belabor the fact that the baseless denial of respondents claims will be
gravely disturbing to the health care industry, specially the providers whose claims will be
unpaid. The unfortunate reality is that there are today some health care providers who admit
numbers for treatment and/or confinement yet require them to pay the portion which ought to be
shouldered by Philhealth. A refund is made only if their claim is first paid, due to the
apprehension of not being reimbursed. Simply stated, a member cannot avail of his benefits
under the NHIP at the time he needs it most.

Under the doctrine of exhaustion of administrative remedies, an administrative decision must

first be appealed to the administrative superiors at the highest level before it may be elevated to
a court of justice for review.

We cannot turn a deaf ear to respondents plea for fairness which essentially demands that its
claims for services already rendered be honored as the National Health Insurance Program law
intended.

This doctrine, however, is a relative one and its flexibility is conditioned on the peculiar
circumstances of a case.17 There are a number of instances when the doctrine has been held to
be inapplicable. Among the established exceptions are:

WHEREFORE, the assailed decision of the Court of Appeals is hereby AFFIRMED. Petitioner is
hereby ordered to pay respondents claims representing services rendered to its members from
1989 to 1992.

1) when the question raised is purely legal;

No costs.

2) when the administrative body is in estoppel;

SO ORDERED.

3) when the act complained of is patently illegal;

G.R. No. L-75697 June 18, 1987

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA
COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.

4) when there is urgent need for judicial intervention;

5) when the claim involved is small;
6) when irreparable damage will be suffered;
7) when there is no other plain, speedy and adequate remedy;
8) when strong public interest is involved;
9) when the subject of the controversy is private land;
10) in quo warranto proceedings.18
As explained by the appellate court:
It is Our view that the instant case falls as one of the exceptions, concerning as it does public
interest. As mentioned earlier, although they were not made parties to the instant case, the rights
of millions of Filipinos who are members of PHILHEALTH and who obviously rely on it for their
health care, are considered, nonetheless, parties to the present case. This Court is mandated
herein to take conscious and detailed consideration of the interplay of the interests of the state,
the health care giver and the members. With these in mind, We hold that the greater interest of
the greater number of people, mostly members of PHILHEALTH, is paramount.
Furthermore, when the representatives of herein petitioner met with Dr. Enrique Zalamea,
PHILHEALTHs President and Chief Executive Officer, he informed them that, in lieu of protest to
be filed directly with him, the representatives could make representations with the Office of the
President, which petitioner did to no avail, considering that the formal protest filed was referred
back by the Office of the President to Dr. Zalamea. Being then the head of PHILHEALTH, and
expected to have an intimate knowledge of the law and the rules creating the National Health
Insurance Program, under which PHILHEALTH was created, he instructed herein petitioner to
pursue a remedy not sanctioned by the rules and not in accord with the rule of exhaustion of
administrative remedies. In so doing, PHILHEALTH is deemed estopped from assailing the
instant petition for failure to exhaust administrative remedies when PHILHEALTH itself, through
its president, does not subscribe to it.19

MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on
behalf of other videogram operators adversely affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with
broad powers to regulate and supervise the videogram industry (hereinafter briefly referred to as
the BOARD). The Decree was promulgated on October 5, 1985 and took effect on April 10,
1986, fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree,
Presidential Decree No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette,
ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers,
Importers and Distributors Association of the Philippines, and Philippine Motion Pictures
Producers Association, hereinafter collectively referred to as the Intervenors, were permitted by
the Court to intervene in the case, over petitioner's opposition, upon the allegations that
intervention was necessary for the complete protection of their rights and that their "survival and
very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were
thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as
follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among
others, videotapes, discs, cassettes or any technical improvement or variation thereof, have
greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp
decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the
collection of sales, contractor's specific, amusement and other taxes, thereby resulting in
substantial losses estimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms, and such earnings have not been subjected to
tax, thereby depriving the Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the
viability of the movie industry, particularly the more than 1,200 movie houses and theaters
throughout the country, and occasioned industry-wide displacement and unemployment due to
the shutdown of numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the
Government to create an environment conducive to growth and development of all business
industries, including the movie industry which has an accumulated investment of about P3
Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate
the dire financial condition of the movie industry upon which more than 75,000 families and
500,000 workers depend for their livelihood, but also provide an additional source of revenue for
the Government, and at the same time rationalize the heretofore uncontrolled distribution of
videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes
a clear and present danger to the moral and spiritual well-being of the youth, and impairs the
mandate of the Constitution for the State to support the rearing of the youth for civic efficiency
and the development of moral character and promote their physical, intellectual, and social wellbeing;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb
these blatant malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people
and betraying the national economic recovery program, bold emergency measures must be
adopted with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers
conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough
to include the general purpose which a statute seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes to accomplish. The requirement is satisfied
if all the parts of the statute are related, and are germane to the subject matter expressed in the
title, or as long as they are not inconsistent with or foreign to the general subject and title. 2 An
act having a single general subject, indicated in the title, may contain any number of provisions,
no matter how diverse they may be, so long as they are not inconsistent with or foreign to the
general subject, and may be considered in furtherance of such subject by providing for the
method and means of carrying out the general object." 3 The rule also is that the constitutional
requirement as to the title of a bill should not be so narrowly construed as to cripple or impede
the power of legislation. 4 It should be given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a
rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision
of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase
price or rental rate, as the case may be, for every sale, lease or disposition of a videogram
containing a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of
the proceeds of the tax collected shall accrue to the province, and the other fifty percent (50%)
shall acrrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan

Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the video
industry through the Videogram Regulatory Board as expressed in its title. The tax provision is
not inconsistent with, nor foreign to that general subject and title. As a tool for regulation 6 it is
simply one of the regulatory and control mechanisms scattered throughout the DECREE. The
express purpose of the DECREE to include taxation of the video industry in order to regulate
and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles
2 and 5, supra. Those preambles explain the motives of the lawmaker in presenting the
measure. The title of the DECREE, which is the creation of the Videogram Regulatory Board, is
comprehensive enough to include the purposes expressed in its Preamble and reasonably
covers all its provisions. It is unnecessary to express all those objectives in the title or that the
latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even definitely deters the
activities taxed. 8 The power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax, the
legislature acts upon its constituents. This is, in general, a sufficient security against erroneous
and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted
by the realization that earnings of videogram establishments of around P600 million per annum
have not been subjected to tax, thereby depriving the Government of an additional source of
revenue. It is an end-user tax, imposed on retailers for every videogram they make available for
public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry
which the theater-owners pay to the government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that
is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the proliferation of pornographic video tapes. And
while it was also an objective of the DECREE to protect the movie industry, the tax remains a
valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that "inequities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation". 12 Taxation has been made the
implement of the state's police power. 13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the
DECREE by the former President under Amendment No. 6 of the 1973 Constitution providing
that "whenever in the judgment of the President ... , there exists a grave emergency or a threat
or imminence thereof, or whenever the interim Batasang Pambansa or the regular National
Assembly fails or is unable to act adequately on any matter for any reason that in his judgment
requires immediate action, he may, in order to meet the exigency, issue the necessary decrees,
orders, or letters of instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas"
clause sufficiently summarizes the justification in that grave emergencies corroding the moral
values of the people and betraying the national economic recovery program necessitated bold
emergency measures to be adopted with dispatch. Whatever the reasons "in the judgment" of
the then President, considering that the issue of the validity of the exercise of legislative power
under the said Amendment still pends resolution in several other cases, we reserve resolution of
the question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of
legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit
the direct assistance of other agencies and units of the government and deputize, for a fixed and
limited period, the heads or personnel of such agencies and units to perform enforcement
functions for the Board" is not a delegation of the power to legislate but merely a conferment of
authority or discretion as to its execution, enforcement, and implementation. "The true distinction
is between the delegation of power to make the law, which necessarily involves a discretion as
to what it shall be, and conferring authority or discretion as to its execution to be exercised under
and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit
such assistance is for a "fixed and limited period" with the deputized agencies concerned being
"subject to the direction and control of the BOARD." That the grant of such authority might be the
source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the
eventuality occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among
other categories, one which "alters the legal rules of evidence, and authorizes conviction upon
less or different testimony than the law required at the time of the commission of the offense." It
is petitioner's position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45) days
after the effectivity of this Decree within which to register with and secure a permit from the
BOARD to engage in the videogram business and to register with the BOARD all their
inventories of videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or otherwise disposed of.
Thereafter any videogram found in the possession of any person engaged in the videogram
business without the required proof of registration by the BOARD, shall be prima facie evidence
of violation of the Decree, whether the possession of such videogram be for private showing
and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof
of registration of any videogram cannot be presented and thus partakes of the nature of an ex
post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals,
et al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law providing
that the presumption of innocence may be overcome by a contrary presumption founded upon
the experience of human conduct, and enacting what evidence shall be sufficient to overcome
such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1
COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the
"legislature may enact that when certain facts have been proved that they shall be prima facie
evidence of the existence of the guilt of the accused and shift the burden of proof provided there
be a rational connection between the facts proved and the ultimate facts presumed so that the
inference of the one from proof of the others is not unreasonable and arbitrary because of lack
of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection
between the fact proved, which is non-registration, and the ultimate fact presumed which is
violation of the DECREE, besides the fact that the prima facie presumption of violation of the
DECREE attaches only after a forty-five-day period counted from its effectivity and is, therefore,
neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being
eased out of existence as if it were a nuisance. Being a relatively new industry, the need for its
regulation was apparent. While the underlying objective of the DECREE is to protect the
moribund movie industry, there is no question that public welfare is at bottom of its enactment,
considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber
of the viewing public brought about by the availability of unclassified and unreviewed video tapes
containing pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to mention the fact that the
activities of video establishments are virtually untaxed since mere payment of Mayor's permit
and municipal license fees are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the
video industry. On the contrary, video establishments are seen to have proliferated in many
places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency
of the DECREE. These considerations, however, are primarily and exclusively a matter of
legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may be the basis
for declaring a statute invalid. This is as it ought to be. The principle of separation of powers has
in the main wisely allocated the respective authority of each department and confined its
jurisdiction to such a sphere. There would then be intrusion not allowable under the Constitution
if on a matter left to the discretion of a coordinate branch, the judiciary would substitute its own.
If there be adherence to the rule of law, as there ought to be, the last offender should be courts
of justice, to which rightly litigants submit their controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The attack on the validity of the challenged
provision likewise insofar as there may be objections, even if valid and cogent on its wisdom
cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged
statute. We find no clear violation of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.
G.R. No. 119528 March 26, 1997
PHILIPPINE AIRLINES, INC., petitioner,
vs.
CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS, INC., respondents.

TORRES, JR., J.:

This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks
to prohibit respondent Civil Aeronautics Board from exercising jurisdiction over private
respondent's Application for the issuance of a Certificate of Public Convenience and Necessity,
and to annul and set aside a temporary operating permit issued by the Civil Aeronautics Board in
favor of Grand International Airways (GrandAir, for brevity) allowing the same to engage in
scheduled domestic air transportation services, particularly the Manila-Cebu, Manila-Davao, and
converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is
the fact that GrandAir does not possess a legislative franchise authorizing it to engage in air
transportation service within the Philippines or elsewhere. Such franchise is, allegedly, a
requisite for the issuance of a Certificate of Public Convenience or Necessity by the respondent
Board, as mandated under Section 11, Article XII of the Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a
requirement for the issuance of a Certificate of Public Convenience and Necessity or a
Temporary Operating Permit, following the Court's pronouncements in the case of Albano vs.
Reyes, 1 as restated by the Court of Appeals in Avia Filipinas International vs. Civil Aeronautics
Board 2 and Silangan Airways, Inc. vs. Grand International Airways, Inc., and the Hon. Civil
Aeronautics Board. 3
On November 24, 1994, private respondent GrandAir applied for a Certificate of Public
Convenience and Necessity with the Board, which application was docketed as CAB Case No.
EP-12711. 4 Accordingly, the Chief Hearing Officer of the CAB issued a Notice of Hearing setting
the application for initial hearing on December 16, 1994, and directing GrandAir to serve a copy

of the application and corresponding notice to all scheduled Philippine Domestic operators. On
December 14, 1994, GrandAir filed its Compliance, and requested for the issuance of a
Temporary Operating Permit. Petitioner, itself the holder of a legislative franchise to operate air
transport services, filed an Opposition to the application for a Certificate of Public Convenience
and Necessity on December 16, 1995 on the following grounds:
A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first
obtained a franchise to operate from Congress.
B. The petitioner's application is deficient in form and substance in that:
1. The application does not indicate a route structure including a computation of trunkline,
secondary and rural available seat kilometers (ASK) which shall always be maintained at a
monthly level at least 5% and 20% of the ASK offered into and out of the proposed base of
operations for rural and secondary, respectively.
2. It does not contain a project/feasibility study, projected profit and loss statements, projected
balance sheet, insurance coverage, list of personnel, list of spare parts inventory, tariff structure,
documents supportive of financial capacity, route flight schedule, contracts on facilities (hangars,
maintenance, lot) etc.
C. Approval of petitioner's application would violate the equal protection clause of the
constitution.

of the Temporary Operating Permit on January 11, 1995, but the same was denied in CAB
Resolution No. 02 (95) on February 2, 1995. 8 In the said Resolution, the Board justified its
assumption of jurisdiction over GrandAir's application.
WHEREAS , the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776
as follows:
(c) The Board shall have the following specific powers and duties:
(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, alter,
modify, cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own
initiative, any temporary operating permit or Certificate of Public Convenience and Necessity;
Provided, however; that in the case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines.
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme
Court held that the CAB can even on its own initiative, grant a TOP even before the presentation
of evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on October
30, 1991, held that in accordance with its mandate, the CAB can issue not only a TOP but also a
Certificate of Public Convenience and Necessity (CPCN) to a qualified applicant therefor in the
absence of a legislative franchise, citing therein as basis the decision of Albano vs. Reyes (175
SCRA 264) which provides (inter alia) that:

D. There is no urgent need and demand for the services applied for.
E. To grant petitioner's application would only result in ruinous competition contrary to Section
4(d) of R.A. 776. 5
At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the
Board to hear the application because GrandAir did not possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's
Opposition. Pertinent portions of the Order read:
PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter
has first obtained a franchise to operate from Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina
vs. CAB, CA G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. 776, the
Board possesses this specific power and duty.

a) Franchises by Congress are not required before each and every public utility may operate
when the law has granted certain administrative agencies the power to grant licenses for or to
authorize the operation of certain public utilities;
b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise,
certificate or other form of authorization for the operation of a public utility does not necessarily
imply that only Congress has the power to grant such authorization since our statute books are
replete with laws granting specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities.
WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section
2.1 that a minimum of two (2) operators in each route/link shall be encouraged and that
routes/links presently serviced by only one (1) operator shall be open for entry to additional
operators.

SO ORDERED.

RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on
January 05, 1995 on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand
International Airways, Inc. alleging among others that the CAB has no such jurisdiction, is
hereby DENIED, as it hereby denied, in view of the foregoing and considering that the grounds
relied upon by the movant are not indubitable.

Meantime, on December 22, 1994, petitioner this time, opposed private respondent's application
for a temporary permit maintaining that:

On March 21, 1995, upon motion by private respondent, the temporary permit was extended for
a period of six (6) months or up to September 22, 1995.

1. The applicant does not possess the required fitness and capability of operating the services
applied for under RA 776; and,

Hence this petition, filed on April 3, 1995.

In view thereof, the opposition of PAL on this ground is hereby denied.

2. Applicant has failed to prove that there is clear and urgent public need for the services applied
for. 6
On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance
of a Temporary Operating Permit in favor of Grand Air 7 for a period of three months, i.e., from
December 22, 1994 to March 22, 1994. Petitioner moved for the reconsideration of the issuance

Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking
cognizance of GrandAir's application for the issuance of a Certificate of Public Convenience and
Necessity, and in issuing a temporary operating permit in the meantime, since GrandAir has not
been granted and does not possess a legislative franchise to engage in scheduled domestic air
transportation. A legislative franchise is necessary before anyone may engage in air transport
services, and a franchise may only be granted by Congress. This is the meaning given by the

petitioner upon a reading of Section 11, Article XII, 9 and Section 1, Article VI, 10 of the
Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice, which
reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for opinion on the necessity of a legislative franchise before
the Civil Aeronautics Board ("CAB") may issue a Certificate of Public Convenience and
Necessity and/or permit to engage in air commerce or air transportation to an individual or entity.
You state that during the hearing on the application of Cebu Air for a congressional franchise,
the House Committee on Corporations and Franchises contended that under the present
Constitution, the CAB may not issue the abovestated certificate or permit, unless the individual
or entity concerned possesses a legislative franchise. You believe otherwise, however, for the
reason that under R.A. No. 776, as amended, the CAB is explicitly empowered to issue
operating permits or certificates of public convenience and necessity and that this statutory
provision is not inconsistent with the current charter.
We concur with the view expressed by the House Committee on Corporations and Franchises.
In an opinion rendered in favor of your predecessor-in-office, this Department observed that,
. . . it is useful to note the distinction between the franchise to operate and a permit to
commence operation. The former is sovereign and legislative in nature; it can be conferred only
by the lawmaking authority (17 W and P, pp. 691-697). The latter is administrative and regulatory
in character (In re Application of Fort Crook-Bellevue Boulevard Line, 283 NW 223); it is granted
by an administrative agency, such as the Public Service Commission [now Board of
Transportation], in the case of land transportation, and the Civil Aeronautics Board, in case of air
services. While a legislative franchise is a pre-requisite to a grant of a certificate of public
convenience and necessity to an airline company, such franchise alone cannot constitute the
authority to commence operations, inasmuch as there are still matters relevant to such
operations which are not determined in the franchise, like rates, schedules and routes, and
which matters are resolved in the process of issuance of permit by the administrative. (Secretary
of Justice opn No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public convenience and necessity is an
authorization issued by the appropriate governmental agency for the operation of public services
for which a franchise is required by law (Almario, Transportation and Public Service Law, 1977
Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a
business activity or enterprise of a public nature, whereas a certificate of public convenience and
necessity is a regulatory measure which constitutes the franchise's authority to commence
operations. It is thus logical that the grant of the former should precede the latter.

Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic
Act 776, which follows the pronouncements of the Court of Appeals in the cases of Avia Filipinas
vs. Civil Aeronautics Board, and Silangan Airways, Inc. vs. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the
Certificate of Public Convenience and Necessity or Temporary Operating Permit to a prospective
domestic air transport operator who does not possess a legislative franchise to operate as such.
Relying on the Court's pronouncement in Albano vs. Reyes (supra), the Court of Appeals upheld
the authority of the Board to issue such authority, even in the absence of a legislative franchise,
which authority is derived from Section 10 of Republic Act 776, as amended by P.D. 1462. 11
The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary
Operating Permit. This rule has been established in the case of Philippine Air Lines Inc., vs. Civil
Aeronautics Board, promulgated on June 13, 1968. 12 The Board is expressly authorized by
Republic Act 776 to issue a temporary operating permit or Certificate of Public Convenience and
Necessity, and nothing contained in the said law negates the power to issue said permit before
the completion of the applicant's evidence and that of the oppositor thereto on the main petition.
Indeed, the CAB's authority to grant a temporary permit "upon its own initiative" strongly
suggests the power to exercise said authority, even before the presentation of said evidence has
begun. Assuming arguendo that a legislative franchise is prerequisite to the issuance of a
permit, the absence of the same does not affect the jurisdiction of the Board to hear the
application, but tolls only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is admittedly a prerogative of
the legislature, since Congress is that branch of government vested with plenary powers of
legislation.
The franchise is a legislative grant, whether made directly by the legislature itself, or by any one
of its properly constituted instrumentalities. The grant, when made, binds the public, and is,
directly or indirectly, the act of the state. 13
The issue in this petition is whether or not Congress, in enacting Republic Act 776, has
delegated the authority to authorize the operation of domestic air transport services to the
respondent Board, such that Congressional mandate for the approval of such authority is no
longer necessary.
Congress has granted certain administrative agencies the power to grant licenses for, or to
authorize the operation of certain public utilities. With the growing complexity of modern life, the
multiplication of the subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency towards the delegation of greater
powers by the legislature, and towards the approval of the practice by the courts. 14 It is
generally recognized that a franchise may be derived indirectly from the state through a duly
designated agency, and to this extent, the power to grant franchises has frequently been
delegated, even to agencies other than those of a legislative nature. 15 In pursuance of this, it
has been held that privileges conferred by grant by local authorities as agents for the state
constitute as much a legislative franchise as though the grant had been made by an act of the
Legislature. 16
The trend of modern legislation is to vest the Public Service Commissioner with the power to
regulate and control the operation of public services under reasonable rules and regulations,
and as a general rule, courts will not interfere with the exercise of that discretion when it is just
and reasonable and founded upon a legal right. 17

Please be guided accordingly.

(SGD.) SEDFREY A. ORDONEZ
Secretary of Justice

It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the
pertinent issuances governing the Philippine Ports Authority, 18 proves that the PPA is
empowered to undertake by itself the operation and management of the Manila International
Container Terminal, or to authorize its operation and management by another by contract or
other means, at its option. The latter power having been delegated to the to PPA, a franchise

from Congress to authorize an entity other than the PPA to operate and manage the MICP
becomes unnecessary.
Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to
issue a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a
domestic air transport operator, who, though not possessing a legislative franchise, meets all the
other requirements prescribed by the law. Such requirements were enumerated in Section 21 of
R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is
an indispensable requirement for an entity to operate as a domestic air transport operator.
Although Section 11 of Article XII recognizes Congress' control over any franchise, certificate or
authority to operate a public utility, it does not mean Congress has exclusive authority to issue
the same. Franchises issued by Congress are not required before each and every public utility
may operate. 19 In many instances, Congress has seen it fit to delegate this function to
government agencies, specialized particularly in their respective areas of public service.
A reading of Section 10 of the same reveals the clear intent of Congress to delegate the
authority to regulate the issuance of a license to operate domestic air transport services:
Sec. 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board
shall have the power to regulate the economic aspect of air transportation, and shall have
general supervision and regulation of, the jurisdiction and control over air carriers, general sales
agents, cargo sales agents, and air freight forwarders as well as their property rights, equipment,
facilities and franchise, insofar as may be necessary for the purpose of carrying out the provision
of this Act.
In support of the Board's authority as stated above, it is given the following specific powers and
duties:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise,
alter, modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon its
own initiative any Temporary Operating Permit or Certificate of Public Convenience and
Necessity: Provided however, That in the case of foreign air carriers, the permit shall be issued
with the approval of the President of the Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of
Public Convenience and Necessity", this, according to petitioner, means that a legislative
franchise is an absolute requirement. It cites a number of authorities supporting the view that a
Certificate of Public Convenience and Necessity is issued to a public service for which a
franchise is required by law, as distinguished from a "Certificate of Public Convenience" which is
an authorization issued for the operation of public services for which no franchise, either
municipal or legislative, is required by law. 20
This submission relies on the premise that the authority to issue a certificate of public
convenience and necessity is a regulatory measure separate and distinct from the authority to
grant a franchise for the operation of the public utility subject of this particular case, which is
exclusively lodged by petitioner in Congress.

additional requirement but to modify and qualify what might otherwise be taken as the strict
significance of the word necessity. Public convenience and necessity exists when the proposed
facility will meet a reasonable want of the public and supply a need which the existing facilities
do not adequately afford. It does not mean or require an actual physical necessity or an
indispensable thing. 21
The terms "convenience" and "necessity" are to be construed together, although they are not
synonymous, and effect must be given both. The convenience of the public must not be
circumscribed by according to the word "necessity" its strict meaning or an essential requisites.
22
The use of the word "necessity", in conjunction with "public convenience" in a certificate of
authorization to a public service entity to operate, does not in any way modify the nature of such
certification, or the requirements for the issuance of the same. It is the law which determines the
requisites for the issuance of such certification, and not the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for the operation of
domestic transport services, has delegated to the said body the authority to determine the
capability and competence of a prospective domestic air transport operator to engage in such
venture. This is not an instance of transforming the respondent Board into a mini-legislative
body, with unbridled authority to choose who should be given authority to operate domestic air
transport services.
To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving
commission" that will give the delegate unlimited legislative authority. It must not be a delegation
"running riot" and "not canalized with banks that keep it from overflowing." Otherwise, the
delegation is in legal effect an abdication of legislative authority, a total surrender by the
legislature of its prerogatives in favor of the delegate. 23
Congress, in this instance, has set specific limitations on how such authority should be
exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:
Sec. 4. Declaration of policies. In the exercise and performance of its powers and duties under
this Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider the
following, among other things, as being in the public interest, and in accordance with the public
convenience and necessity:
(a) The development and utilization of the air potential of the Philippines;
(b) The encouragement and development of an air transportation system properly adapted to the
present and future of foreign and domestic commerce of the Philippines, of the Postal Service
and of the National Defense;
(c) The regulation of air transportation in such manner as to recognize and preserve the inherent
advantages of, assure the highest degree of safety in, and foster sound economic condition in,
such transportation, and to improve the relations between, and coordinate transportation by, air
carriers;

We do not agree with the petitioner.

(d) The promotion of adequate, economical and efficient service by air carriers at reasonable
charges, without unjust discriminations, undue preferences or advantages, or unfair or
destructive competitive practices;

Many and varied are the definitions of certificates of public convenience which courts and legal
writers have drafted. Some statutes use the terms "convenience and necessity" while others use
only the words "public convenience." The terms "convenience and necessity", if used together in
a statute, are usually held not to be separable, but are construed together. Both words modify
each other and must be construed together. The word 'necessity' is so connected, not as an

(e) Competition between air carriers to the extent necessary to assure the sound development of
an air transportation system properly adapted to the need of the foreign and domestic commerce
of the Philippines, of the Postal Service, and of the National Defense;

(f) To promote safety of flight in air commerce in the Philippines; and,

(g) The encouragement and development of civil aeronautics.
More importantly, the said law has enumerated the requirements to determine the competency
of a prospective operator to engage in the public service of air transportation.
Sec. 12. Citizenship requirement. Except as otherwise provided in the Constitution and existing
treaty or treaties, a permit authorizing a person to engage in domestic air commerce and/or air
transportation shall be issued only to citizens of the Philippines 24
Sec. 21. Issuance of permit. The Board shall issue a permit authorizing the whole or any part of
the service covered by the application, if it finds: (1) that the applicant is fit, willing and able to
perform such service properly in conformity with the provisions of this Act and the rules,
regulations, and requirements issued thereunder; and (2) that such service is required by the
public convenience and necessity; otherwise the application shall be denied.
Furthermore, the procedure for the processing of the application of a Certificate of Public
Convenience and Necessity had been established to ensure the weeding out of those entities
that are not deserving of public service. 25
In sum, respondent Board should now be allowed to continue hearing the application of
GrandAir for the issuance of a Certificate of Public Convenience and Necessity, there being no
legal obstacle to the exercise of its jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS the
instant petition for lack of merit. The respondent Civil Aeronautics Board is hereby DIRECTED to
CONTINUE hearing the application of respondent Grand International Airways, Inc. for the
issuance of a Certificate of Public Convenience and Necessity.
SO ORDERED.
G.R. No. 144109

February 17, 2003

ASSOCIATED COMMUNICATIONS & WIRELESS SERVICES UNITED BROADCASTING

NETWORKS, petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION, respondent.

On November 11, 1931, Act No. 3846, entitled "An Act Providing for the Regulation of Radio
Stations and Radio Communications in the Philippines and for Other Purposes," was enacted.
Sec. 1 of the law reads, viz:
"Sec. 1. No person, firm, company, association, or corporation shall construct, install, establish,
or operate a radio transmitting station, or a radio receiving station used for commercial
purposes, or a radio broadcasting station, without having first obtained a franchise therefor from
the Congress of the Philippines..."
Pursuant to the above provision, Congress enacted in 1965 R.A. No. 4551, entitled "An Act
Granting Marcos J. Villaverde, Jr. and Winfred E. Villaverde a Franchise to Construct, Install,
Maintain and Operate Public Radiotelephone and Radiotelegraph Coastal Stations, and Public
Fixed and Public Based and Land Mobile Stations within the Philippines for the Reception and
Transmission of Radiotelephone and Radiotelegraph for Domestic Communications and
Provincial Telephone Systems in Certain Provinces." It gave the grantees a 50-year franchise.2
In 1969, the franchise was transferred to petitioner Associated Communications & Wireless
Services United Broadcasting Network, Inc. (ACWS for brevity) through Congress Concurrent
Resolution No. 58.3 Petitioner ACWS then engaged in the installation and operation of several
radio stations around the country.
In 1974, P.D. No. 576-A, "Regulating the Ownership and Operation of Radio and Television
Stations and for other Purposes" was issued, with the following pertinent provisions on franchise
of radio and television broadcasting systems:
"Sec. 1. No radio station or television channel may obtain a franchise unless it has sufficient
capital on the basis of equity for its operation for at least one year, including purchase of
equipment.
xxxxxxxxx
Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of authority to operate
radio or television broadcasting systems shall terminate on December 31, 1981. Thereafter,
irrespective of any franchise, grant, license, permit, certificate or other forms of authority to
operate granted by any office, agency or person, no radio or television station shall be
authorized to operate without the authority of the Board of Communications and the Secretary of
Public Works and Communications or their successors who have the right and authority to
assign to qualified parties frequencies, channels or other means of identifying broadcasting
system; Provided, however, that any conflict over, or disagreement with a decision of the
aforementioned authorities may be appealed finally to the Office of the President within fifteen
days from the date the decision is received by the party in interest."

DECISION
PUNO, J.:
For many years now, there has been a "pervading confusion in the state of affairs of the
broadcast industry brought about by conflicting laws, decrees, executive orders and other
pronouncements promulgated during the Martial Law regime."1 The question that has taken a
long life is whether the operation of a radio or television station requires a congressional
franchise. The Court shall now lay to rest the issue.
This is a petition for review on certiorari of the Court of Appeals January 31, 2000 decision and
February 21, 2000 resolution affirming the January 13, 1999 decision of the National
Telecommunications Commission (NTC for brevity).
First, the facts.

A few years later or in 1979, E.O. No. 5464 was issued. It integrated the Board of
Communications and the Telecommunications Control Bureau under the Integrated
Reorganization Plan of 1972 into the NTC. Among the powers vested in the NTC under Sec. 15
of E.O. No. 546 are the following:
"a. Issue Certificate of Public Convenience for the operation of communication utilities and
services, radio communications systems, wire or wireless telephone or telegraph system, radio
and television broadcasting system and other similar public utilities;
xxxxxxxxx
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems
and radio communication systems including amateur radio stations and radio and television
broadcasting systems; . . . "
Upon termination of petitioners franchise on December 31, 1981 pursuant to P.D. No. 576-A, it
continued operating its radio stations under permits granted by the NTC.

As these presidential issuances relating to the radio and television broadcasting industry brought
about confusion as to whether the NTC could issue permits to radio and television broadcast
stations without legislative franchise, the NTC sought the opinion of the Department of Justice
(DOJ) on the matter. On June 20, 1991, the DOJ rendered Opinion No. 98, Series of 1991, viz:

communications utilities, including radio and televisions broadcasting systems and the power to
grant permits for the use of radio frequencies (Sec. 14[a] and [c], supra). Additionally, NTC was
vested with broad rule making authority to encourage a larger and more effective use of
communications, radio and television broadcasting facilities, and to maintain effective
competition among private entities in these activities whenever the Commission finds it
reasonably feasible (Sec. 15[f]).

"We believe that under P.D. No. 576-A dated November 11, 1974 and prior to the issuance of
E.O No. 546 dated July 23, 1979, the NTC, then Board of Communications, had no authority to
issue permits or authorizations to operate radio and television broadcasting systems without a
franchise first being obtained pursuant to Section 1 of Act No. 3846, as amended. A close
reading of the provisions of Sections 1 and 6 of P.D. No. 576-A, supra, does not reveal any
indication of a legislative intent to do away with the franchising requirement under Section 1 of
Act No. 3846. In fact, a mere reading of Section 1 would readily indicate that a franchise was
necessary for the operation of radio and television broadcasting systems as it expressly
provided that no such franchise may be obtained unless the radio station or television channel
has sufficient capital on the basis of equity for its operation for at least one year, including
purchase of equipment.

In the recent case of Albano vs. Reyes (175 SCRA 264), the Supreme Court held that
franchises issued by Congress are not required before each and every public utility may
operate. Administrative agencies may be empowered by law to grant licenses for or to authorize
the operation of certain public utilities. The Supreme Court stated that the provision in the
Constitution (Art. XII, Sec. 11) that the issuance of a franchise, certificate or other form of
authorization for the operation of a public utility shall be subject to amendment, alteration or
repeal by Congress, does not necessarily imply . . . that only Congress has the power to grant
such authorization. Our statute books are replete with laws granting specified agencies in the
Executive Branch the power to issue such authorization for certain classes of public utilities.

It is believed that the termination of all franchises granted for the operation of radio and
television broadcasting systems effective December 31, 1981 and the vesting of the power to
authorize the operation of any radio or television station upon the Board of Communications and
the Secretary of Public Works and Communications and their successors under Section 6 of
P.D. No. 576-A does not necessarily imply the abrogation of the requirement of obtaining a
franchise under Section 1 of Act No. 3846, as amended, in the absence of a clear provision in
P.D. No. 576-A providing to this effect.
It should be noted that under Act No. 3846, as amended, a person, firm or entity desiring to
operate a radio broadcasting station must obtain the following: (a) a franchise from Congress
(Sec. 1); (b) a permit to construct or install a station from the Secretary of Commerce and
Industry (Sec. 2); and (c) a license to operate the station also from the Secretary of Commerce
and Industry (id.). The franchise is the privilege granted by the State through its legislative body
and is subject to regulation by the State itself by virtue of its police power through its
administrative agencies (RCPI vs. NTC, 150 SCRA 450). The permit and license are the
administrative authorizations issued by the administrative agency in the exercise of regulation. It
is clear that what was transferred to the Board of Communications and the Secretary of
Commerce and Industry under Section 6 of P.D. No. 576-A was merely the regulatory powers
vested solely in the Secretary of Commerce and Industry under Section 2 of Act No. 3846, as
amended. The franchising authority was retained by the then incumbent President as repository
of legislative power under Martial Law, as is clearly indicated in the first WHEREAS clause of
P.D. No. 576-A to wit:
WHEREAS, the President of the Philippines is empowered under the Constitution to review and
approve franchises for public utilities.
Of course, under the Constitution, said power (the power to review and approve franchises),
belongs to the lawmaking body (Sec. 5, Art. XIV, 1973 Constitution; Sec. 11, Art. XII, 1987
Constitution).
The corollary question to be resolved is: Has E.O. No 546 (which is a law issued pursuant to
P.D. No. 1416, as amended by P.D. No. 1771, granting the then President continuing authority to
reorganize the administrative structure of the national government) modified the franchising and
licensing arrangement for radio and television broadcasting systems under P.D. No. 576-A?
We believe so.
E.O. No. 546 integrated the Board of Communications and the Telecommunications Bureau into
a single entity known as the NTC (See Sec. 14), and vested the new body with broad powers,
among them, the power to issue Certificates of Public Convenience for the operation of

We believe that E.O. No. 546 is one law which authorizes an administrative agency, the NTC, to
issue authorizations for the operation of radio and television broadcasting systems without need
of a prior franchise issued by Congress.
Based on all the foregoing, we hold the view that NTC is empowered under E.O. No. 546 to
issue authorization and permits to operate radio and television broadcasting system."5
However, on May 3, 1994, the NTC, the Committee on Legislative Franchises of Congress, and
the Kapisanan ng mga Brodkaster sa Pilipinas of which petitioner is a member of good standing,
entered into a Memorandum of Understanding (MOU) that requires a congressional franchise to
operate radio and television stations. The MOU states, viz:
"WHEREAS, under the provisions of Section 1 of Act No. 3846 (Radio Laws of the Philippines,
as amended), only radio and television broadcast stations with legislative franchise are
authorized to operate.
WHEREAS, Executive Order No. 546, which created the National Telecommunications
Commission (NTC) and abolished the Board of Communications (BOC) and the
Telecommunications Control Bureau (TCB), and integrated the functions and prerogative of the
latter two agencies into the National Telecommunications Commission (NTC);
WHEREAS, the National Telecommunications Commission (NTC) is authorized to issue
certificate of public convenience for the operation of radio and television broadcast stations;
WHEREAS, there is a pervading confusion in the state of affairs of the broadcast industry
brought about by conflicting laws, decrees, executive orders and other pronouncements
promulgated during the Martial Law regime, the parties in their common desire to rationalize the
broadcast industry, promote the interest of public welfare, avoid a vacuum in the delivery of
broadcast services, and foremost to better serve the ends of press freedom, the parties hereto
have agreed as follows:
The NTC shall continue to issue and grant permits or authorizations to operate radio and
television broadcast stations within their mandate under Section 15 of Executive Order No. 546,
provided that such temporary permits or authorization to operate shall be valid for two (2) years
within which the permittee shall be required to file an application for legislative franchise with
Congress not later than December 31, 1994; provided finally, that if the permittee of the
temporary permit or authorization to operate fails to secure the legislative franchise with
Congress within this period, the NTC shall not extend or renew its permit or authorization to
operate any further."6

Prior to the December 31, 1994 deadline set by the MOU, petitioner filed with Congress an
application for a franchise on December 20, 1994. Pending its approval, the NTC issued to
petitioner a temporary permit dated July 7, 1995 to operate a television station via Channel 25 of
the UHF Band from June 29, 1995 to June 28, 1997.7 In 1996, the NTC authorized petitioner to
increase the power output of Channel 25 from 1.0 kilowatt to 25 kilowatts after finding it
financially and technically capable;8 it also granted petitioner a permit to purchase radio
transmitters/transceivers for use in its television Channel 25 broadcasting.9 Shortly before the
expiration of its temporary permit, petitioner applied for its renewal on May 14, 1997.10
On October 28, 1997, the House Committee on Legislative Franchises of Congress replied to an
inquiry of the NTCs Broadcast Division Chief regarding the franchise application of ACWS filed
on December 20, 1994. The Committee certified that petitioners franchise application was not
deliberated on by the 9th Congress because petitioner failed to submit the required supporting
documents. In the next Congress, petitioner did not re-file its application.11
The following month or on November 17, 1997, the NTCs Broadcast Service Department wrote
to petitioner ordering it to submit a new congressional franchise for the operation of its seven
radio stations and informing it that pending compliance, its application for temporary permits to
operate these radio stations would be held in abeyance.12 Petitioner failed to comply with the
franchise requirement; it claims that it did not receive the November 17, 1997 letter.
Despite the absence of a congressional franchise, the NTC notified petitioner on January 19,
1998 that its May 14, 1997 application for renewal of its temporary permit to operate television
Channel 25 was approved and would be released upon payment of the prescribed fee of
P3,600.00.13 After paying said amount,14 however, the NTC refused to release to petitioner its
renewed permit. Instead, the NTC commenced against petitioner Administrative Case No. 98009 based on the November 17, 1997 letter. On February 26, 1998, the NTC issued an Order
directing petitioner to show cause why its assigned frequency, television Channel 25, should not
be recalled for lack of the required congressional franchise. Petitioner was also directed to
cease and desist from operating Channel 25 unless subsequently authorized by the NTC.15
In compliance with the February 26, 1998 Order, petitioner filed its Answer on March 17,
1998.16 In a hearing on April 22, 1998, petitioner presented evidence and asked for continuance
of the presentation to May 20, 1998.17 On May 4, 1998, however, petitioner filed before the
Court of Appeals a Petition for Mandamus, Prohibition, and Damages to compel the NTC to
release its temporary permit to operate Channel 25 which was approved in January 1998. The
appellate court denied the petition on September 30, 1998.
Meantime, on August 17, 1998, the NTC issued Memorandum Circular No. 14-10-98 which
reads, viz:

2. Broadcast operators affected by this circular must file their respective applications for
renewal/extension of their Temporary Permits in the prescribed form together with the
certification from the Committee on Legislative Franchises, House of Representatives that a
franchise bill has indeed been filed prior to 30 November 1998.
3. In the event the permittee will not be able to have its franchise bill approved within the
prescribed period, the NTC will no longer renew/extend its Temporary Permit and the
Commission shall initiate the recall of its assigned frequency provided that due process of law is
observed.
4. Henceforth, no application/petition for Certificate of Public Convenience (CPC) to establish,
maintain and operate a broadcast station in the broadcast service shall be accepted for filing
without showing that the applicant has an approved Legislative Franchise.
This Memorandum Circular shall be published in one (1) newspaper of general circulation in the
Philippines and shall take effect thirty (30) days from its publication.
August 17, 1998, Quezon City, Philippines."18
The Memorandum Circular was published in the Philippine Star on October 15, 1998.
Well within the November 30, 1998 deadline under the Memorandum Circular, House Bill No.
3216, entitled "An Act Granting the ACWS-United Broadcasting Network, Inc. a Franchise to
Construct, Install, Operate and Maintain Radio and Television Broadcasting Stations within the
Philippines, and for other Purposes," was filed with the Legislative Calendar Section, Bills and
Index Division on September 2, 1998.19
On January 13, 1999, the NTC rendered a decision on Administrative Case No. 98-009 against
petitioner, the dispositive portion of which reads:
"WHEREFORE, for lack of a legal personality to justify the issuance of any permit or license to
the respondent (ACWS), the respondent not having a valid legislative franchise, the Commission
hereby renders judgment as follows:
1) Channel 25 assigned to herein respondent ACWS is hereby RECALLED;
2) Respondents application for renewal of its temporary permit to operate Channel 25 is hereby
DENIED; and
3) Respondent is hereby ordered to CEASE and DESIST from further operating Channel 25."20

"SUBJECT: Guidelines in the Renewal/Extension of Temporary Permit of Radio/TV Broadcast

operators who failed to secure a legislative franchise conformably with the Memorandum of
Understanding (MOU) dated May 3, 1994, entered into by and between the National
Telecommunications and the Committee on Legislative Franchises, House of Representatives,
and the Kapisanan ng mga Brodkaster sa Pilipinas (KBP).

Petitioner sought recourse at the Court of Appeals which affirmed the NTC decision.

In compliance with the MOU and in order to clear the ambiguity surrounding the operation of
broadcast operators who were not able to have their legislative franchise approved during the
last congress, the following guidelines are hereby issued:

THE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE NTC THAT A
CONGRESSIONAL FRANCHISE IS A CONDITION SINE QUA NON IN THE OPERATION OF A
RADIO AND TELEVISION BROADCASTING SYSTEM.

1. Existing broadcast operators who were not able to secure a legislative franchise up to this
date are given up to December 31, 1999 within which to have their application for a legislative
franchise bill approved by Congress. The franchise bill must be filed immediately but not later
than November 30th of this year to give both Houses time to deliberate upon and recommend
approval/disapproval thereof.

II.

Hence, this petition for review on certiorari on the following grounds:

"I.

THE COURT OF APPEALS ERRED IN NOT CONSIDERING OPINION 98 SERIES OF 1991

DATED JUNE 20, 1991 OF THE SECRETARY OF JUSTICE HOLDING THAT THE NTC MAY
ISSUE AUTHORIZATION FOR THE OPERATION OF RADIO AND TELEVISION
BROADCASTING SYSTEMS, WITHOUT THE NEED OF A PRIOR FRANCHISE ISSUED BY
CONGRESS, AS BINDING ON THE NTC WHO REQUESTED FOR SAID OPINION AND IS

NOT MERELY ADVISORY, AS IT IS PREDICATED ON A DECISION OF THIS HONORABLE

COURT.
III.
THE COURT OF APPEALS ERRED IN CONSIDERING ACT NO. 3846 AS REQUIRING A
FRANCHISE FROM CONGRESS FOR THE LAWFUL OPERATION OF RADIO OR
TELEVISION BROADCASTING STATIONS WHEN CLEARLY ITS PROVISIONS COVER ONLY
RADIO BUT IT DOES NOT INCLUDE TELEVISION STATIONS.
IV.
THE COURT OF APPEALS ERRED IN UPHOLDING THE RECALL OF THE FREQUENCY
CHANNEL 25 PREVIOUSLY ASSIGNED TO THE PETITIONER AND/OR THE CANCELLATION
OF ITS PERMIT TO OPERATE WHICH IS UNREASONABLE, UNFAIR, OPPRESSIVE,
WHIMSICAL AND CONFISCATORY WHEN IT PREVIOUSLY ISSUED THE SAID PERMIT
WITHOUT REQUIRING A LEGISLATIVE FRANCHISE.
V.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT NTC CASE NO. 98-009 HAD
BEEN RENDERED MOOT AND ACADEMIC WITH THE ADOPTION AND PROMULGATION BY
THE NTC OF MEMORANDUM CIRCULAR NO. 14-10-98 DATED AUGUST 17, 1998 AS
PETITIONER FILED THE APPLICATION FOR LEGISLATIVE FRANCHISE PURSUANT
THERETO."21
The petition is devoid of merit.

The appellate court correctly ruled that a congressional franchise is necessary for petitioner to
operate television Channel 25. Even assuming that Act No. 3846 applies only to radio stations
and not to television stations as petitioner adamantly insists, the subsequent P.D. No. 576-A
clearly shows in Section 1 that a franchise is required to operate radio as well as television
stations, viz:
"Sec. 1. No radio station or television channel may obtain a franchise unless it has sufficient
capital on the basis of equity for its operation for at least one year, including purchase of
equipment." (emphasis supplied)
As pointed out in DOJ Opinion No. 98, there is nothing in P.D. No. 576-A that reveals any
intention to do away with the requirement of a franchise for the operation of radio and television
stations. Section 6 of P.D. No. 576-A merely identifies the regulatory agencies from whom
authorizations, in addition to the required congressional franchise, must be secured after
December 31, 1981, viz:
"Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of authority to
operate radio or television broadcasting systems shall terminate on December 31, 1981.
Thereafter, irrespective of any franchise, grant, license, permit, certificate or other forms of
authority to operate granted by any office, agency or person, no radio or television station shall
be authorized to operate without the authority of the Board of Communications and the
Secretary of Public Works and Communications or their successors who have the right and
authority to assign to qualified parties frequencies, channels or other means of identifying
broadcasting system . . ." (emphasis supplied)
To understand why it was necessary to identify these agencies, we turn a heedful eye on the
laws regarding authorizations for the operation of radio and television stations that preceded
P.D. No. 576-A.

We shall discuss together the first three assigned errors as they are interrelated.
Act No. 3846 of 1931 provides, viz:
Petitioner stresses that Act. No. 3846 covers only the operation of radio and not television
stations as Section 1 of the said law does not mention television stations in its coverage, viz:
"Sec. 1. No person, firm, company, association or corporation shall construct, install, establish,
or operate a radio transmitting station, or a radio receiving station used for commercial
purposes, or a radio broadcasting station, without having first obtained a franchise therefor from
the Congress of the Philippines"
Petitioner observes that quite understandably, television stations were not included in Act No.
3846 because the law was enacted in 1931 when there was yet no television station in the
Philippines. Following the rule in statutory construction that what is not included in the law is
deemed excluded, petitioner avers that television stations are not covered by Act No. 3846.
Petitioner notes that in fact, the NTC previously issued to it a temporary permit dated July 7,
1995 to operate Channel 25 from June 29, 1995 to June 28, 1997 without requiring a
congressional franchise. Likewise, in 1996, the NTC issued to it a permit to increase its
television operating power and to purchase a radio transmitter/transceiver for use in its television
broadcasting, again without requiring a congressional franchise. Petitioner thus argues that,
contrary to the January 19, 1999 decision of the NTC, its application for renewal of its temporary
permit to operate television Channel 25 does not require a congressional franchise.
In upholding the NTC decision, the Court of Appeals held that a congressional franchise is
required for the operation of radio and television broadcasting stations as this requirement under
Act No. 3846 was not expressly repealed by P.D. No. 576-A nor E.O. No. 546. Citing Berces, Sr.
v. Guingona,22 it ruled that without an express repeal, a subsequent law cannot be construed as
repealing a prior law unless there is an irreconcilable inconsistency and repugnancy in the
language of the new and old laws, which petitioner was not able to show.23

"Sec. 1. No person, firm, company, association, or corporation shall construct, install, establish,
or operate a radio transmitting station, or a radio receiving station used for commercial
purposes, or a radio broadcasting station, without having first obtained a franchise therefor from
the Congress of the Philippines:
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Sec. 1-A. No person, firm, company, association or corporation shall possess or own
transmitters or transceivers (combination transmitter-receiver), without registering the same with
the Secretary of Public Works and Communications . . . and no person, firm, company,
association or corporation shall construct or manufacture, or purchase radio transmitters or
transceivers without a permit issued by the Secretary of Public Works and Communications.
xxxxxxxxx
Sec. 3. The Secretary of Public Works and Communications is hereby empowered to regulate
the construction or manufacture, possession, control, sale and transfer of radio transmitters or
transceivers (combination transmitter-receiver) and the establishment, use, the operation of all
radio stations and of all forms of radio communications and transmissions within the Philippines.
In addition to the above, he shall have the following specific powers and duties:
xxxxxxxxx
(c) He shall assign call letter and assign frequencies for each station licensed by him and for
each station established by virtue of a franchise granted by the Congress of the Philippines and
specify the stations to which each of such frequencies may be used;. . ."

Shortly after the declaration of Martial Law, then President Marcos issued P.D. No. 1 dated
September 24, 1972, through which the Integrated Reorganization Plan for the executive branch
was adopted. Under the Plan, the Public Service Commission was abolished and its functions
transferred to special regulatory boards, among which was the Board of Communications with
the following functions:
"5a. Issue Certificates of Public Convenience for the operation of communications utilities and
services, radio communications systems . . ., radio and television broadcasting systems and
other similar public utilities;

Contrary to the opinion of the Secretary of Justice in DOJ Opinion No. 98, Series of 1991, the
appellate court was correct in ruling that E.O. No. 546 which came after P.D. No. 576-A did not
dispense with the requirement of a congressional franchise. It merely abolished the Board of
Communications and the Telecommunications Control Bureau under the Reorganization Plan
and transferred their functions to the NTC,25 including the power to issue Certificates of Public
Convenience (CPC) and grant permits for the use of frequencies, viz:
"Sec. 15. a. Issue Certificate of Public Convenience for the operation of communication utilities
and services, radio communications systems, wire or wireless telephone or telegraph system,
radio and television broadcasting system and other similar public utilities;

xxxxxxxxx
xxxxxxxxx
c. Grant permits for the use of radio frequencies for . . . radio and television broadcasting
systems including amateur radio stations."
With the creation of the Board of Communications under the Plan, it was no longer sufficient to
secure authorization from the Secretary of Public Works and Communications as provided in Act
No. 3846. The Boards authorization was also necessary. Thus, P.D. No. 576-A provides in
Section 6 that radio and television station operators must secure authorization from both the
Secretary of Public Works and Communications and the Board of Communications.
Dispensing with the requirement of a congressional franchise is not in line with the declared
purposes of P.D. No. 576-A, viz:
"WHEREAS, it has been observed that some public utilities, especially radio and television
stations, have a tendency toward monopoly in ownership and operation to such an extent that a
region or section of the country may be covered by any number of such broadcast stations, all or
most of which are owned, operated or managed by one person or corporation;
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WHEREAS, on account of the limited number of frequencies available for broadcasting in the
Philippines, it is necessary to regulate the ownership and operation of radio and television
stations and provide measures that would enhance quality and viability in broadcasting and help
serve the public interests; . . ."
A textual interpretation of Section 6 of P.D. No. 576-A yields the same interpretation that after
December 31, 1981, a franchise is still necessary to operate radio and television stations. Were
it the intention of the law to do away with the requirement of a franchise after said date, then the
phrase "(t)hereafter, irrespective of any franchise, grant, license, permit, certificate or other
forms of authority to operate granted by any office, agency or person (emphasis supplied)"
would not have been necessary because the first sentence of Section 6 already states that "(a)ll
franchises, grants, licenses, permits, certificates or other forms of authority to operate radio or
television broadcasting systems shall terminate on December 31, 1981." It is therefore already
understood that these forms of authority have no more force and effect after December 31,
1981. If the intention were to do away with the franchise requirement, Section 6 would have
simply laid down after the first sentence the requirements to operate radio and television stations
after December 31, 1981, i.e., "no radio or television station shall be authorized to operate
without the authority of the Board of Communications and the Secretary of Public Works and
Communications." Instead, however, the phrase "irrespective of any franchise," was inserted
to emphasize that a franchise or any other form of authorization from any office, agency or
person does not suffice to operate radio and television stations because the authorizations of
both the Board of Communications and the Secretary of Public Works and Communications are
required as well. This interpretation adheres to the rule in statutory construction that words in a
statute should not be construed as surplusage if a reasonable construction which will give them
some force and meaning is possible.24

c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems
and radio communication systems including amateur radio stations and radio and television
broadcasting systems; . . . "
E.O. No. 546 defines the regulatory and technical aspect of the legal process preparatory to the
full exercise of the privilege to operate radio and television stations, which is different from the
grant of a franchise from Congress, viz:
"The statutory functions of NTC may then be given effect as Congress prerogative to grant
franchises under Act No. 3846 is upheld for they are distinct forms of authority. The former
covers matters dealing mostly with the technical side of radio or television broadcasting, while
the latter involves the exercise by the legislature of an exclusive power resulting in a franchise or
a grant under authority of government, conferring a special right to do an act or series of acts of
public concern (37 C.J.S., secs. 1, 14, pp. 144, 157).
In fine, there being no clear showing that the laws here involved cannot stand together, the
presumption is against inconsistency or repugnance, hence, against implied repeal of the earlier
law by the later statute (Agujetas v. Court of Appeals, 261 SCRA 17, 1996)."26
As we held in Radio Communication of the Philippines, Inc. v. National Telecommunications
Commission,27 a franchise is distinguished from a CPC in that the former is a grant or privilege
from the sovereign power, while the latter is a form of regulation through the administrative
agencies, viz:
"A franchise started out as a "royal privilege or (a) branch of the Kings prerogative, subsisting in
the hands of a subject." This definition was given by Finch, adopted by Blackstone, and
accepted by every authority since (State v. Twin Village Water Co., 98 Me 214, 56 A 763 [1903]).
Today, a franchise, being merely a privilege emanating from the sovereign power of the state
and owing its existence to a grant, is subject to regulation by the state itself by virtue of its police
power through its administrative agencies."28
Even prior to E.O. No. 546, the NTCs precursor, i.e., the Board of Communications, already had
the function of issuing CPC under the Integrated Reorganization Plan. The CPC was required by
the Board at the same time that P.D. No. 576-A required a franchise to operate radio and
television stations. The function of the NTC to issue CPC under E.O. No. 546 is thus nothing
new and exists alongside the requirement of a congressional franchise under P.D. No. 576-A.
There is no conflict between E.O. No. 546 and P.D. No 576-A; Section 15 of the former does not
dispense with the franchise requirement in the latter. We adhere to the cardinal rule in statutory
construction that statutes in pare materia, although in apparent conflict, or containing apparent
inconsistencies, should, as far as reasonably possible, be construed in harmony with each other,
so as to give force and effect to each.29 The ruling of this Court in Crusaders Broadcasting
System, Inc. v. National Telecommunications Commission,30 buttresses the interpretation that
the requirement of a congressional franchise for the operation of radio and television stations
exists alongside the requirement of a CPC. In that case, we held that under E.O. No. 546, the
regulation of radio communications is a function assigned to and performed by the NTC and at

the same time recognized the requirement of a congressional franchise for the operation of a
radio station under Act No. 3846. We did not interpret E.O. No. 546 to have repealed the
congressional franchise requirement under Act No. 3846 as these two laws are not inconsistent
and can both be given effect. Likewise, in Radio Communication of the Philippines, Inc. v.
National Telecommunications Commission,31 we recognized the necessity of both a
congressional franchise under Act No. 3846 and a CPC under E.O. No. 546 to operate a radio
communications system.
In buttressing its position that a congressional franchise is not required to operate its television
station, petitioner banks on DOJ Opinion No. 98, Series of 1991 which states that under E.O.
No. 546, the NTC may issue a permit or authorization for the operation of radio and television
broadcasting systems without a prior franchise issued by Congress. Petitioner argues that the
opinion is binding and conclusive upon the NTC as the NTC itself requested the advisory from
the Secretary of Justice who is the legal adviser of government. Petitioner claims that it was
precisely because of the above DOJ Opinion No. 98 that the NTC did not previously require a
congressional franchise in all of its applications for permits with the NTC.
Petitioner, however, cannot rely on DOJ Opinion No. 98 as this opinion is merely persuasive and
not necessarily controlling.32 As shown above, the opinion is erroneous insofar as it holds that
E.O. No. 546 dispenses with the requirement of a congressional franchise to operate radio and
television stations. The case of Albano v. Reyes33 cited in the DOJ opinion, which allegedly
makes it binding upon the NTC, does not lend support to petitioners cause. In that case, we
held, viz:
"Franchises issued by Congress are not required before each and every public utility may
operate. Thus, the law has granted certain administrative agencies the power to grant licenses
for or to authorize the operation of certain public utilities. (See E.O. Nos. 172 and 202)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise, certificate or
other form of authorization for the operation of a public utility shall be subject to amendment,
alteration or repeal by Congress does not necessarily imply, as petitioner posits, that only
Congress has the power to grant such authorization. Our statute books are replete with laws
granting specified agencies in the Executive Branch the power to issue such authorization for
certain classes of public utilities. (footnote omitted)"34
Our ruling in Albano that a congressional franchise is not required before "each and every public
utility may operate" should be viewed in its proper light. Where there is a law such as P.D. No.
576-A which requires a franchise for the operation of radio and television stations, that law must
be followed until subsequently repealed. As we have earlier shown, however, there is nothing in
the subsequent E.O. No. 546 which evinces an intent to dispense with the franchise
requirement. In contradistinction with the case at bar, the law applicable in Albano, i.e., E.O. No.
30, did not require a franchise for the Philippine Ports Authority to take over, manage and
operate the Manila International Port Complex and undertake the providing of cargo handling
and port related services thereat. Similarly, in Philippine Airlines, Inc. v. Civil Aeronautics Board,
et al.,35 we ruled that a legislative franchise is not necessary for the operation of domestic air
transport because "there is nothing in the law nor in the Constitution which indicates that a
legislative franchise is an indispensable requirement for an entity to operate as a domestic air
transport operator."36 Thus, while it is correct to say that specified agencies in the Executive
Branch have the power to issue authorization for certain classes of public utilities, this does not
mean that the authorization or CPC issued by the NTC dispenses with the requirement of a
franchise as this is clearly required under P.D. No. 576-A.
Petitioner contends that the NTC erroneously denied its application for renewal of its temporary
permit to operate Channel 25 and recalled its Channel 25 frequency based on the May 3, 1994
MOU that requires a congressional franchise for the operation of television broadcast
stations.1a\^/phi1.net The MOU is not an act of Congress and thus cannot amend Act No. 3846
which requires a congressional franchise for the operation of radio stations alone, and not
television stations.

We find no merit in petitioners contention. As we have shown, even assuming that Act No. 3846
requires only radio stations to secure a congressional franchise for its operation, P.D. No. 576-A
was subsequently issued in 1974, which clearly requires a franchise for both radio and television
stations. Thus, the 1994 MOU did not amend any law, but merely clarified the existing law that
requires a franchise.
That the legislative intent is to continue requiring a franchise for the operation of radio and
television broadcasting stations is clear from the franchises granted by Congress after the
effectivity of E.O. No. 546 in 1979 for the operation of radio and television stations. Among these
are: (1) R.A. No. 9131 dated April 24, 2001, entitled "An Act Granting the Iddes Broadcast
Group, Inc., a Franchise to Construct, Install, Establish, Operate and Maintain Radio and
Television Broadcasting Stations in the Philippines;" (2) R.A. No. 9148 dated July 31, 2001,
entitled "An Act Granting the Hypersonic Broadcasting Center, Inc., a Franchise to Construct,
Install, Establish, Operate and Maintain Radio Broadcasting Stations in the Philippines;" and (3)
R.A. No. 7678 dated February 17, 1994, entitled "An Act Granting the Digital Telecommunication
Philippines, Incorporated, a Franchise to Install, Operate and Maintain Telecommunications
Systems Throughout the Philippines." All three franchises require the grantees to secure a
CPCN/license/permit to construct and operate their stations/systems. Likewise, the Tax Reform
Act of 1997 provides in Section 119 for tax on franchise of radio and/or television broadcasting
companies, viz:
"Sec. 119. Tax on Franchises. Any provision of general or special law to the contrary
notwithstanding, there shall be levied, assessed and collected in respect to all franchises on
radio and/or television broadcasting companies whose annual gross receipts of the preceding
year does not exceed Ten million pesos (P10,000,000), subject to Section 236 of this Code, a
tax of three percent (3%) and on electric, gas and water utilities, a tax of two percent (2%) on the
gross receipts derived from the business covered by the law granting the franchise. . . "
(emphasis supplied)
Undeniably, petitioner is aware that a congressional franchise is necessary to operate its
television station Channel 25 as shown by its actuations. Shortly before the December 31, 1994
deadline set in the MOU, petitioner filed an application for a franchise with Congress. It was not,
however, acted upon in the 9th Congress for petitioners failure to submit the necessary
supporting documents; petitioner failed to re-file the application in the following Congress.
Petitioner also filed an application for a franchise with Congress on September 2, 1998, before
the November 30, 1998 deadline under Memorandum Circular No. 14-10-98.37
We now come to the fourth assigned error. Petitioner avers that the Court of Appeals erred in
upholding the recall of frequency Channel 25 previously assigned to it and the cancellation of its
permit to operate which was already approved in January 1998. It claims that these acts of the
NTC were unreasonable, unfair, oppressive, whimsical and confiscatory considering that the
NTC previously issued petitioner a temporary permit without requiring a congressional franchise.
On February 26, 1998, the NTC issued a show cause order to petitioner with the following
decretal portion:
"IN VIEW THEREOF, respondents are hereby directed to show cause in writing within ten (10)
days from receipt of this order why their assigned frequency, more specifically Channel 25 in the
UHF Band, should not be recalled for lack of the necessary Congressional Franchise as
required by Section 1, Act No. 3846, as amended.
Moreover, respondent is hereby directed to cease and desist from operating DWQH-TV, unless
subsequently authorized by the Commission."38
The order was supposedly based on a letter of the NTC dated November 17, 1997 informing
petitioner that its application for renewal of temporary permits of its seven radio stations were
being held in abeyance pending submission of its new congressional franchise. Petitioner was

directed to submit the franchise within thirty days from expiration of its temporary permits to be
renewed and informed that its failure to do so might constitute denial of its application.

controversial questions, render its decisions in such a manner that the parties to the proceeding
can know the various issues involved, and the reasons for the decision rendered."45

Petitioner is correct that the November 17, 1997 letter referred only to its radio stations and not
to its television Channel 25. Thus, it could not serve as basis for the February 26, 1998 show
cause order which referred solely to its television Channel 25. Besides, petitioner claims that it
did not receive the letter. Be that as it may, the NTCs February 26, 1998 order for petitioner to
cease and desist from operating Channel 25 was not unreasonable, unfair, oppressive,
whimsical and confiscatory. The 1994 MOU states in unmistakable terms that petitioners
temporary permit to operate Channel 25 would be valid for only two years, i.e., from June 29,
1995 to June 28, 1997. During these two years, petitioner was supposed to have secured a
congressional franchise, otherwise "the NTC shall not extend or renew its permit or authorization
to operate any further."39 Apparently, petitioner did not submit a congressional franchise to the
NTC in applying for renewal of this temporary permit on May 14, 1997. The NTCs approval of
petitioners application to renew its temporary permit in January 1998 was thus erroneous
because under the 1994 MOU, the NTC could not renew petitioners temporary permit to
operate Channel 25 without a congressional franchise. In the absence of a renewed temporary
permit, the NTC was correct in ordering petitioner to cease and desist from operating Channel
25, regardless of whether or not petitioner received the November 17, 1997 letter. The NTCs
erroneous approval of petitioners application in January 1998 did not estop the NTC from
ordering petitioner on February 26, 1998 to cease and desist from operating Channel 25 for
failure to comply with the franchise requirement as estoppel does not work against the
government.40

Petitioner had the opportunity to present its case and submit evidence on why its assigned
frequency Channel 25 should not be recalled and its application for renewal denied. Petitioner
filed its Answer to the show cause order on March 17, 1998.46 A hearing was held on April 22,
1998 wherein petitioner presented its evidence in compliance with the show cause order. Based
on the NTCs findings that petitioner failed to comply with the requirement of a congressional
franchise, the NTC denied its application for renewal of its temporary permit to operate Channel
25 and recalled its assigned Channel 25 frequency. The requirements of due process in Ang
Tibay were satisfied, thus petitioner cannot say that the NTCs actions were unreasonable,
unfair, oppressive, whimsical and confiscatory.

Likewise, the NTCs denial of petitioners application for renewal of its temporary permit to
operate Channel 25 and recall of its Channel 25 frequency in its January 13, 1999 decision were
not unreasonable, unfair, oppressive, whimsical and confiscatory so as to offend petitioners
right to due process. In Crusaders Broadcasting System, Inc. v. National Telecommunications
Commission,41 the Court ruled that although a particular ground for suspending operations of
the broadcasting company was not reflected in the show cause order, the NTC could
nevertheless raise said ground if any basis therefore was gleaned during the administrative
proceedings. In the instant case, the lack of congressional franchise as ground for denial of
petitioners application for renewal of temporary permit and recall of its Channel 25 frequency
was raised not only during the administrative proceedings against it, but was even stated in the
February 26, 1998 show cause order, viz:
"IN VIEW THEREOF, respondents are hereby directed to show cause in writing within ten (10)
days from receipt of this order why their assigned frequency, more specifically Channel 25 in the
UHF Band, should not be recalled for lack of the necessary Congressional Franchise as
required by Section 1, Act No. 3846, as amended.
Moreover, respondent is hereby directed to cease and desist from operating DWQH-TV, unless
subsequently authorized by the Commission." 42 (emphasis supplied)
In Eastern Broadcasting Corporation v. Dans, Jr., et al.,43 we held that the requirements of due
process in administrative proceedings laid down by this Court in Ang Tibay v. Court of Industrial
Relations44 should be satisfied before a broadcast station may be closed or its operations
curtailed. We enumerated these requirements, viz:
". . . (1) the right to a hearing which includes the right to present ones case and submit evidence
in support thereof; (2) the tribunal must consider the evidence presented; (3) the decision must
have something to support itself; (4) the evidence must be substantial. Substantial evidence
means such reasonable evidence as a reasonable mind might accept as adequate to support a
conclusion; (5) the decision must be based on the evidence presented at the hearing, or at least
contained in the record and disclosed to the parties affected; (6) the tribunal or body or any of its
judges must act on its own independent consideration of the law and facts of the controversy
and not simply accept the views of a subordinate; (7) the board or body should, in all

Finally, petitioner contends that the Court of Appeals erred in not holding that Administrative
Case No. 98-009, the administrative proceeding against it for failure to secure a congressional
franchise to operate its television Channel 25, has been rendered moot and academic by the
adoption and promulgation of NTC Memorandum Circular No. 14-10-98 dated August 17, 1998
which took effect on November 15, 1998. The Memorandum Circular states, viz:
"In compliance with the MOU and in order to clear the ambiguity surrounding the operation of
broadcast operators who were not able to have their legislative franchise approved during the
last Congress, the following guidelines are hereby issued:
1. Existing broadcast operators who were not able to secure a legislative franchise up to this
date (August 17, 1998) are given up to December 31, 1999 within which to have their application
for a legislative franchise bill approved by Congress. The franchise bill must be filed immediately
but not later than November 30th of this year . . ."
Petitioner avers that the NTC erroneously held that this Memorandum Circular is not applicable
to it because the words of the circular are clear that it covers "existing broadcasting operators"
including petitioner. In compliance with the Memorandum Circular, petitioner filed House Bill No.
32 on September 2, 1998, well within the November 30, 1998 deadline. Thus, petitioner argues
that the NTC erred in denying its application for renewal of permit to operate Channel 25 and
recalling its assigned Channel 25 frequency on January 13, 1999, long before the Memorandum
Circulars December 31, 1999 deadline to secure a congressional franchise. Petitioner posits
that the NTCs premature and arbitrary promulgation of its January 13, 1999 decision "slammed
the door for the petitioner to secure its legislative franchise. The pending application for
legislative franchise of petitioner was effectively struck out by said NTC decision."47
Whether or not the benefits of the Memorandum Circular extend to petitioner, the fact is, as
correctly pointed out by the appellate court, petitioner failed to secure a legislative franchise by
December 31, 1999. Consequently, the NTCs recall of petitioners assigned frequency Channel
25 and denial of its application for renewal of its permit to operate the said television channel
were proper as the Memorandum Circular provides, viz:
"1. Existing broadcast operators who are not able to secure a legislative franchise up to this date
(August 17, 1998) are given up to December 31, 1999 within which to have their application for a
legislative franchise approved by Congress. The franchise bill must be filed immediately but not
later than November 30th of this year . . .
xxxxxxxxx
3. In the event the permittee will not be able to have its franchise bill approved within the
prescribed period, the NTC will no longer renew/extend its temporary permit and the
Commission shall initiate the recall of its assigned frequency provided that due process of law is
observed.

4. Henceforth, no application/petition for Certificate of Public Convenience (CPC) to establish,

maintain and operate a broadcast station in the broadcast service shall be accepted for filing
without showing that the applicant has an approved legislative franchise."(emphasis supplied)

the applicant. The justification appears to be simply because this was required in the past so it is
now. We are reminded of the forceful denunciation of Justice Holmes of a stubborn adherence to
an anachronistic rule of law:

Petitioners argument is flawed when it states that the January 13, 1999 decision of the NTC
"slammed the door" on its application for a congressional franchise as the process of securing a
congressional franchise is separate and distinct from the process of applying for renewal of a
temporary permit with the NTC. The latter is not a prerequisite to the former. In fact, in the
normal course of securing authorizations to operate a television and radio station, the
application for a CPC with the NTC comes after securing a franchise from Congress.48 The
CPC is not a condition for the grant of a congressional franchise.49

It is revolting to have no better reason for a rule of law that so it was laid down in the time of
Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished long
since, and the rule simply persists from blind imitation of the past. (The Path of the Law,
Collected Legal Papers [1920] 210, 212 quoted from The Justice Holmes Reader, Julius N.
Marke, 1955 ed., p. 278.)"51

The Court is not unmindful that there is a trend towards delegating the legislative power to
authorize the operation of certain public utilities to administrative agencies and dispensing with
the requirement of a congressional franchise as in the Albano case which involved the provision
of cargo handling and port related services at the Manila International Port Complex and the PAL
case involving the operation of domestic air transport. The rationale for this trend was explained
in the PAL case, viz:

The call to dispense with the requisite legislative franchise must, however, be addressed to
Congress as the lawmaker of the land for the Courts function is to interpret and not to rewrite
the law. As long as the law remains unchanged, the requirement of a franchise to operate a
television station must be upheld.
WHEREFORE, the petition is DENIED and the Court of Appeals January 13, 2000 decision and
February 21, 2000 resolution are AFFIRMED. No costs.
SO ORDERED.

". . . With the growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the laws, there is a
constantly growing tendency towards the delegation of greater powers by the legislature, and
towards the approval of the practice by the courts.1awphi1.nt (Pangasinan Transportation Co.,
Inc. vs. The Public Service Commission, G.R. No. 47065, June 26, 1940, 70 Phil 221.) It is
generally recognized that a franchise may be derived indirectly from the state through a duly
designated agency, and to this extent, the power to grant franchises has frequently been
delegated, even to agencies other than those of a legislative nature. (Dyer vs. Tuskaloosa
Bridge Co., 2 Port. 296, 27 Am. D. 655; Christian-Todd Tel. Co. vs. Commonwealth, 161 S.W.
543, 156 Ky. 557, 37 C.J.S. 158) In pursuance of this, it has been held that privileges conferred
by grant by local authorities as agents for the state constitute as much a legislative franchise as
though the grant had been made by an act of the Legislature. (Superior Water, Light and Power
Co. vs. City of Superior, 181 N.W. 113, 174 Wis. 257, affirmed 183 N.W. 254, 37 C.J.S. 158.)
The trend of modern legislation is to vest the Public Service Commissioner with the power to
regulate and control the operation of public services under reasonable rules and regulations,
and as a general rule, courts will not interfere with the exercise of that discretion when it is just
and reasonable and founded upon a legal right."501a\^/phi1.net
The criticism against the requirement of a congressional franchise is incisively expressed by a
public utilities lawyer, viz:
"As will be noted, a legislative franchise is required to install and operate a radio station before
an applicant can apply for a Certificate of Public Convenience to operate a radio station based in
any part of the country. Under Act No. 3846 of 1929, Sec. 1, it was provided that no one may
install and operate a radio station without having first obtained a franchise therefore from the
Congress of the Philippines. Since then, this has been strictly followed. And this holds true with
respect to application for electric, telephone and many other telecommunications services.
Before, even mere application for authority to operate an ice plant must have prior congressional
franchise. But this was not strictly followed until ice plant operations were eventually
deregulated. Right now, the both houses of the legislature are saddled with House Bill Nos. etc.
for the grant of legislative franchise to operate this and that public utility services in various
places in the Philippines. We hear during sessions in both houses the time wasted on reports
and considerations of these house bills for grant of franchises. The legislature is empowered and
has created respective regulatory bodies with requisite expertise to handle franchising and
regulation of such types of public utility services, why not just entrust all these functions to them?
What exactly is the reason or rationale for imposing a prior congressional franchise? There
seems to be no valid reason for it except to impose added burden and expenses on the part of

A.L.A. SCHECHTER POULTRY CORPORATION v. UNITED STATES, 295 U.S. 495 (1935)
295 U.S. 495
A.L.A. SCHECHTER POULTRY CORPORATION et al.
v.
UNITED STATES.
UNITED STATES
v.
A.L.A. SCHECHTER POULTRY CORPORATION et al.
Nos. 854, 864.
Argued May 2, 3, 1935.
Decided May 27, 1935.

Phrase 'unfair methods of competition' within Federal Trade Commission Act has broader
meaning than common-law term 'unfair competition,' but its scope cannot be precisely defined,
and what constitutes 'unfair methods of competition' must be determined in particular instances,
upon evidence, in light of particular competitive conditions and of what is found to be a specific
and substantial public interest (Federal Trade Commission Act 5 (15 USCA 45)).[ A.L.A.
Schechter Poultry Corporation v. United States 295 U.S. 495 (1935) ]
[295 U.S. 495, 500] Messrs. Joseph Heller, Frederick H. Wood, and Jacob E. Heller, all of New
York City, for petitioner A.L.A. Schechter Corporation and others.
[295 U.S. 495, 508] The Attorney General and Messrs. Stanley F. Reed, Sol. Gen., and Donald
R. Richberg, both of Washington, D.C., for the United States.
[295 U.S. 495, 519]
Mr. Chief Justice HUGHES delivered the opinion of the Court.
Petitioners in No. 854 were convicted in the District Court of the United States for the Eastern
District of New York on eighteen counts of an indictment charging violations of what is known as
the 'Live Poultry Code,'1 and on an additional count for conspiracy to commit such violations. 2
By demurrer to the indictment and appropriate motions on the trial, the defendants contended

(1) that the code had been adopted pursuant to an unconstitutional delegation by Congress of
legislative power; (2) that it attempted to regulate intrastate transactions which lay outside the
authority of Congress; and (3) that in certain provisions it was repugnant to the due process
clause of the Fifth Amendment. [295 U.S. 495, 520] 'The Circuit Court of Appeals sustained the
conviction on the conspiracy count and on sixteen counts for violation of the code, but reversed
the conviction on two counts which charged violation of requirements as to minimum wages and
maximum hours of labor, as these were not deemed to be within the congressional power of
regulation. 76 F.(2d) 617. On the respective applications of the defendants (No. 854) and of the
government (No. 864), this Court granted writs of certiorari April 15, 1935. 295 U.S. 723 , 55
S.Ct. 651, 79 L.Ed. --.
New York City is the largest live poultry market in the United States. Ninety-six per cent. of the
live poultry there marketed comes from other states. Three-fourths of this amount arrives by rail
and is consigned to commission men or receivers. Most of these freight shipments (about 75 per
cent.) come in at the Manhattan Terminal of the New York Central Railroad, and the remainder at
one of the four terminals in New Jersey serving New York City. The commission men transact by
far the greater part of the business on a commission basis, representing the shippers as agents,
and remitting to them the proceeds of sale, less commissions, freight, and handling charges.
Otherwise, they buy for their own account. They sell to slaughterhouse operators who are also
called marketmen.
The defendants are slaughterhouse operators of the latter class. A.L. A. Schechter Poultry
Corporation and Schechter Live Poultry Market are corporations conducting wholesale poultry
slaughterhouse markets in Brooklyn, New York City. Joseph Schechter operated the latter
corporation and also guaranteed the credits of the former corporation, which was operated by
Martin, Alex, and Aaron Schechter. Defendants ordinarily purchase their live poultry from
commission men at the West Washington Market in New York City or at the railroad terminals
serving the city, but occasionally they purchase from commission men in Philadelphia. They buy
the [295 U.S. 495, 521] poultry for slaughter and resale. After the poultry is trucked to their
slaughterhouse markets in Brooklyn, it is there sold, usually within twenty-four hours, to retail
poultry dealers and butchers who sell directly to consumers. The poultry purchased from
defendants is immediately slaughtered, prior to delivery, by shochtim in defendants' employ.
Defendants do not sell poultry in interstate commerce.
The 'Live Poultry Code' was promulgated under section 3 of the National Industrial Recovery
Act. 3 That section, the pertinent provisions of which are set forth in the margin,4 authorizes the
President to approve 'codes of [295 U.S. 495, 522] fair competition.' SUCH A CODE may be
approved for a trade or industry, upon application by one or more trade or industrial associations
or groups, if the President finds (1) that such associations or groups 'impose no inequitable
restrictions on admission to membership therein and are truly representative,' and (2) that such
codes are not designed 'to promote monopolies or to eliminate or oppress small enterprises and
will not operate to discrimi___ '(c) The several district courts of the United States are hereby invested with jurisdiction to
prevent and restrain violations of any code of fair competition approved under this title (chapter);
and it shall be the duty of the several district attorneys of the United States, in their respective
districts, under the direction of the Attorney General, to institute proceedings in equity to prevent
and restrain such violations.
'(d) Upon his own motion, or if complaint is made to the President that abuses inimical to the
public interest and contrary to the policy herein declared are prevalent in any trade or industry or
subdivision thereof, and if no code of fair competition therefor has theretofore been approved by
the President, the President, after such public notice and hearing as he shall specify, may
prescribe and approve a code of fair competition for such trade or industry or subdivision
thereof, which shall have the same effect as a code of fair competition approved by the
President under subsection (a) of this section. ...
'(f) When a code of fair competition has been approved or prescribed by the President under this
title (chapter), any violation of any provision thereof in any transaction in or affecting interstate or

foreign commerce shall be a misdemeanor and upon conviction thereof an offender shall be
fined not more than $500 for each offense, and each day such violation continues shall be
deemed a separate offense.' [295 U.S. 495, 523] nate against them, and will tend to effectuate
the policy' of title 1 of the act (15 USCA 701 et seq.). Such codes 'shall not permit monopolies or
monopolistic practices.' As a condition of his approval, the President may 'impose such
conditions (including requirements for the making of reports and the keeping of accounts) for the
protection of consumers, competitors, employees, and others, and in furtherance of the public
interest, and may provide such exceptions to and exemptions from the provisions of such code
as the President in his discretion deems necessary to effectuate the policy herein declared.'
Where such a code has not been approved, the President may prescribe one, either on his own
motion or on complaint. Violation of any provision of a code (so approved or prescribed) 'in any
transaction in or affecting interstate or foreign commerce' is made a misdemeanor punishable by
a fine of not more than $500 for each offense, and each day the violation continues is to be
deemed a separate offense.
The 'Live Poultry Code' was approved by the President on April 13, 1934. Its divisions indicate
its nature and scope. The code has eight articles entitled (1) 'purposes,' (2) 'definitions,' (3)
'hours,' (4) 'wages,' (5) 'general labor provisions,' (6) 'administration,' (7) 'trade practice
provisions,' and (8) 'general.'
The declared purpose is 'To effect the policies of title I of the National Industrial Recovery Act.'
The code is established as 'a code for fair competition for the live poultry industry of the
metropolitan area in and about the City of New York.' That area is described as embracing the
five boroughs of New York City, the counties of Rockland, Westchester, Nassau, and Suffolk in
the state of New York, the counties of Hudson and Bergen in the state of New Jersey, and the
county of Fairfield in the state of Connecticut.
The 'industry' is defined as including 'every person engaged in the business of selling,
purchasing of re- [295 U.S. 495, 524] sale, transporting, or handling and/or slaughtering live
poultry, from the time such poultry comes into the New York metropolitan area to the time it is
first sold in slaughtered form,' and such 'related branches' as may from time to time be included
by amendment. Employers are styled 'members of the industry,' and the term 'employee' is
defined to embrace 'any and all persons engaged in the industry, however compensated,' except
'members.'
The code fixes the number of hours for workdays. It provides that no employee, with certain
exceptions, shall be permitted to work in excess of forty hours in any one week, and that no
employees, save as stated, 'shall be paid in any pay period less than at the rate of fifty (50)
cents per hour.' The article containing 'general labor provisions' prohibits the employment of any
person under 16 years of age, and declares that employees shall have the right of 'collective
bargaining' and freedom of choice with respect to labor organizations, in the terms of section
7(a) of the act (15 USCA 707(a). The minimum number of employees, who shall be employed by
slaughterhouse operators, is fixed; the number being graduated according to the average
volume of weekly sales.
Provision is made for administration through an 'industry advisory committee,' to be selected by
trade associations and members of the industry, and a 'code supervisor,' to be appointed, with
the approval of the committee, by agreement between the Secretary of Agriculture and the
Administrator for Industrial Recovery. The expenses of administration are to be borne by the
members of the industry proportionately upon the basis of volume of business, or such other
factors as the advisory committee may deem equitable, 'subject to the disapproval of the
Secretary and/or Administrator.'
The seventh article, containing 'trade practice provisions,' prohibits various practices which are
said to consti- [295 U.S. 495, 525] tute 'unfair methods of competition.' The final article provides
for verified reports, such as the Secretary or Administrator may require, '(1) for the protection of
consumers, competitors, employees, and others, and in furtherance of the public interest, and
(2) for the determination by the Secretary or Administrator of the extent to which the declared
policy of the act is being effectuated by this code.' The members of the industry are also required

to keep books and records which 'will clearly reflect all financial transactions of their respective
businesses and the financial condition thereof,' and to submit weekly reports showing the range
of daily prices and volume of sales' for each kind of produce.
The President approved the code by an executive order (No. 6675-A) in which he found that the
application for his approval had been duly made in accordance with the provisions of title 1 of
the National Industrial Recover Act; that there had been due notice and hearings; that the code
constituted 'a code of fair competition' as contemplated by the act and complied with its pertinent
provisions, including clauses (1) and (2) of subsection (a) of section 3 of title 1 (15 USCA 703(a)
(1, 2); and that the code would tend 'to effectuate the policy of Congress as declared in section 1
of Title I.' 5 [295 U.S. 495, 526] The executive order also recited that the Secretary of
Agriculture and the Administrator of the National Industrial Recovery Act had rendered separate
reports as to the provisions within their respective jurisdictions. The Secretary of Agriculture
reported that the provisions of the code 'establishing standards of fair competition (a) are
regulations of transactions in or affecting the current of interstate and/or foreign commerce and
(b) are reason- [295 U.S. 495, 527] able,' and also that the code would tend to effectuate the
policy declared in title 1 of the act, as set forth in section 1 (15 USCA 701). The report of the
Administrator for Industrial Recovery dealt with wages, hours of labor, and other labor
provisions. 6
Of the eighteen counts of the indictment upon which the defendants were convicted, aside from
the count for conspiracy, two counts charged violation of the minimum wage and maximum hour
provisions of the code, and ten counts were for violation of the requirement (found in the 'trade
practice provisions') of 'straight killing.' This requirement was really one of 'straight' selling. The
term 'straight killing' was defined in the code as 'the practice of requiring persons purchasing
poultry for resale to accept the run of any half coop, coop, or coops, as purchased by
slaughterhouse operators, except for culls.' 7 The charges in the ten counts, respectively, were
[295 U.S. 495, 528] that the defendants in selling to retail dealers and butchers had permitted
'selections of individual chickens taken from particular coops and half coops.'
Of the other six counts, one charged the sale to a butcher of an unfit chicken; two counts
charged the making of sales without having the poultry inspected or approved in accordance
with regulations or ordinances of the city of New York; two counts charged the making of false
reports or the failure to make reports relating to the range of daily prices and volume of sales for
certain periods; and the remaining count was for sales to slaughterers or dealers who were
without licenses required by the ordinances and regulations of the city of New York.
First. Two preliminary points are stressed by the government with respect to the appropriate
approach to the important questions presented. We are told that the provision of the statute
authorizing the adoption of codes must be viewed in the light of the grave national crisis with
which Congress was confronted. Undoubtedly, the conditions to which power is addressed are
always to be considered when the exercise of power is challenged. Extraordinary conditions may
call for extraordinary remedies. But the argument necessarily stops short of an attempt to justify
action which lies outside the sphere of constitutional authority. Extraordinary conditions do not
create or enlarge constitutional power. 8 The Constitution established a national government
with powers deemed to be adequate, as they have proved to be both in war and peace, but
these powers of the national government are limited by the constitutional grants. Those who act
under these grants are not at liberty to transcend the [295 U.S. 495, 529] imposed limits
because they believe that more or different power is necessary. Such assertions of
extraconstitutional authority were anticipated and precluded by the explicit terms of the Tenth
Amendment- 'The powers not delegated to the United States by the Constitution, nor prohibited
by it to the States, are reserved to the States respectively, or to the people.'
The further point is urged that the national crisis demanded a broad and intensive co-operative
effort by those engaged in trade and industry, and that this necessary co-operation was sought
to be fostered by permitting them to initiate the adoption of codes. But the statutory plan is not
simply one for voluntary effort. It does not seek merely to endow voluntary trade or industrial

associations or groups with privileges or immunities. It involves the coercive exercise of the
lawmaking power. The codes of fair competition which the statute attempts to authorize are
codes of laws. If valid, they place all persons within their reach under the obligation of positive
law, binding equally those who assent and those who do not assent. Violations of the provisions
of the codes are punishable as crimes.
Second. The Question of the Delegation of Legislative Power.-We recently had occasion to
review the pertinent decisions and the general principles which govern the determination of this
question. Panama Refining Company v. Ryan, 293 U.S. 388 , 55 S.Ct. 241, 79 L.Ed . 446. The
Constitution provides that 'All legislative powers herein granted shall be vested in a Congress of
the United States, which shall consist of a Senate and House of Representatives.' Article 1, 1.
And the Congress is authorized 'To make all Laws which shall be necessary and proper for
carrying into Execution' its general powers. Article 1, 8, par. 18. The Congress is not permitted to
abdicate or to transfer to others the essential legislative functions with which it is thus vested.
We have repeatedly recognized the necessity of adapting [295 U.S. 495, 530] legislation to
complex conditions involving a host of details with which the national Legislature cannot deal
directly. We pointed out in the Panama Refining Company Case that the Constitution has never
been regarded as denying to Congress the necessary resources of flexibility and practicality,
which will enable it to perform its function in laying down policies and establishing standards,
while leaving to selected instrumentalities the making of subordinate rules within prescribed
limits and the determination of facts to which the policy as declared by the Legislature is to
apply. But we said that the constant recognition of the necessity and validity of such provisions,
and the wide range of administrative authority which has been developed by means of them,
cannot be allowed to obscure the limitations of the authority to delegate, if our constitutional
system is to be maintained. Id., 293 U.S. 388 , page 421, 55 S.Ct. 241.
Accordingly, we look to the statute to see whether Congress has overstepped these limitationswhether Congress in authorizing 'codes of fair competition' has itself established the standards
of legal obligation, thus performing its essential legislative function, or, by the failure to enact
such standards, has attempted to transfer that function to others.
The aspect in which the question is now presented is distinct from that which was before us in
the case of the Panama Refining Company. There the subject of the statutory prohibition was
defined. National Industrial Recovery Act, 9(c), 15 USCA 709(c). That subject was the
transportation in interstate and foreign commerce of petroleum and petroleum products which
are produced or withdrawn from storage in excess of the amount permitted by state authority.
The question was with respect to the range of discretion given to the President in prohibiting that
transportation. Id., 293 U.S. 388 , pages 414, 415, 430, 55 S.Ct. 241. As to the 'codes of fair
competition,' under section 3 of the act, the question is more funda- [295 U.S. 495, 531]
mental. It is whether there is any adequate definition of the subject to which the codes are to be
addressed.
What is meant by 'fair competition' as the term is used in the act? Does it refer to a category
established in the law, and is the authority to make codes limited accordingly? Or is it used as a
convenient designation for whatever set of laws the formulators of a code for a particular trade
or industry may propose and the President may approve ( subject to certain restrictions), or the
President may himself prescribe, as being wise and beneficient provisions for the government of
the trade or industry in order to accomplish the broad purposes of rehabilitation, correction, and
expansion which are stated in the first section of title 1? 9
The act does not define 'fair competition.' 'Unfair competition,' as known to the common law, is a
limited concept. Primarily, and strictly, it relates to the palming off of one's goods as those of a
rival trader. Good- year's Rubber Manufacturing Co. v. Good-year Rubber Co., 128 U.S. 598 ,
[295 U.S. 495, 532] 604, 9 S.Ct. 166; Howe Scale Co. v. Wyckoff, Seamans & Benedict, 198
U.S. 118, 140 , 25 S.Ct. 609; Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 413 , 36 S.Ct.
357. In recent years, its scope has been extended. It has been held to apply to misappropriation
as well as misrepresenation, to the selling of another's goods as one's own-to misappropriation
of what equitably belongs to a competitor. International News Service v. Associated Press, 248

U.S. 215, 241 , 242 S., 39 S.Ct. 68, 2 A.L.R. 293. Unfairness in competition has been predicated
of acts which lie outside the ordinary course of business and are tainted by fraud or coercion or
conduct otherwise prohibited by law. 10 Id., 248 U.S. 315 , page 258, 39 S.Ct. 68, 2 A.L.R. 293.
But it is evident that in its widest range, 'unfair competition,' as it has been understood in the law,
does not reach the objectives of the codes which are authorized by the National Industrial
Recovery Act. The codes may, indeed, cover conduct which existing law condemns, but they are
not limited to conduct of that sort. The government does not contend that the act contemplates
such a limitation. It would be opposed both to the declared purposes of the act and to its
administrative construction.
The Federal Trade Commission Act [section 5 (15 USCA 45 11 introduced the expression 'unfair
methods of competition,' which were declared to be unlawful. That was an expression new in the
law. Debate apparently convinced the sponsors of the legislation that the words 'unfair
competition,' in the light of their meaning at common law, were too narrow. We have said that the
substituted phrase has a broader meaning, that it does not admit of precise definition; its scope
being left to judicial determination as controversies arise. Federal Trade Commission v. Raladam
Co., 283 U.S. 643, 648 , 649 S., 51 S.Ct. 587, 79 A.L.R. 1191; Federal Trade Commission v. R.
F. Keppel, 291 U.S. 304 , 310-312, 54 S.Ct. 423. What are [295 U.S. 495, 533] 'UNFAIR
METHODS OF COMPETITION' ARE THUS to be determined in particular instances, upon
evidence, in the light of particular competitive conditions and of what is found to be a specific
and substantial public interest. Federal Trade Commission v. Beech-Nut Packing Co., 257 U.S.
441, 453 , 42 S.Ct. 150, 19 A.L.R. 882; Federal Trade Commission v. Klesner, 280 U.S. 19, 27 ,
28 S., 50 S.Ct. 1, 68 A.L.R. 838; Federal Trade Commission v. Raladam Co., supra; Federal
Trade Commission v. R. F. Keppel, supra; Federal Trade Commission v. Algoma Lumber Co.,
291 U.S. 67, 73 , 54 S.Ct. 315. To make this possible, Congress set up a special procedure. A
commission, a quasi judicial body, was created. Provision was made for formal complaint, for
notice and hearing, for appropriate findings of fact supported by adequate evidence, and for
judicial review to give assurance that the action of the commission is taken within its statutory
authority. Federal Trade Commission v. Raladam Co., supra; Federal Trade Commission v.
Klesner, supra. 12
In providing for codes, the National Industrial Recovery Act dispenses with this administrative
procedure and with any administrative procedure of an analogous character. But the difference
between the code plan of the Recovery Act and the scheme of the Federal Trade Commission
Act lies not only in procedure but in subject- [295 U.S. 495, 534] matter. We cannot regard the
'fair competition' of the codes as antithetical to the 'unfair methods of competition' of the Federal
Trade Commission Act. The 'fair competition' of the codes has a much broader range and a new
significance. The Recovery Act provides that it shall not be construed to impair the powers of the
Federal Trade Commission, but, when a code is approved, its provisions are to be the 'standards
of fair competition' for the trade or industry concerned, and any violation of such standards in
any transaction in or affecting interstate or foreign commerce is to be deemed 'an unfair method
of competition' within the meaning of the Federal Trade Commission Act. Section 3(b) of the act,
15 USCA 703(b).
For a statement of the authorized objectives and content of the 'codes of fair competition,' we
are referred repeatedly to the 'Declaration of Policy' in section 1 of title 1 of the Recovery Act (15
USCA 701). Thus the approval of a code by the President is conditioned on his finding that it 'will
tend to effectuate the policy of this title.' Section 3(a) of the act, 15 USCA 703(a). The President
is authorized to impose such conditions 'for the protection of consumers, competitors,
employees, and others, and in furtherance of the public interest, and may provide such
exceptions to and exemptions from the provisions of such code, as the President in his
discretion deems necessary to effectuate the policy herein declared.' Id. The 'policy herein
declared' is manifestly that set forth in section 1. That declaration embraces a broad range of
objectives. Among them we find the elimination of 'unfair competitive practices.' But, even if this
clause were to be taken to relate to practices which fall under the ban of existing law, either
common law or statute, it is still only one of the authorized aims described in section 1. It is there
declared to be 'the policy of Congress'- 'to remove obstructions to the free flow of interstate and

foreign commerce which tend to diminish the amount [295 U.S. 495, 535] thereof; and to
provide for the general welfare by promoting the organization of industry for the purpose of
cooperative action among trade groups, to induce and maintain united action of labor and
management under adequate governmental sanctions and supervision, to eliminate unfair
competitive practices, to promote the fullest possible utilization of the present productive
capacity of industries, to avoid undue restriction of production (except as may be temporarily
required), to increase the consumption of industrial and agricultural products by increasing
purchasing power, to reduce and relieve unemployment, to improve standards of labor, and
otherwise to rehabilitate industry and to conserve natural resources.' 13
Under section 3, whatever 'may tend to effectuate' these general purposes may be included in
the 'codes of fair competition.' We think the conclusion is inescapable that the authority sought to
be conferred by section 3 was not merely to deal with 'unfair competitive practices' which offend
against existing law, and could be the subject of judicial condemnation without further legislation,
or to create administrative machinery for the application of established principles of law to
particular instances of violation. Rather, the purpose is clearly disclosed to authorize new and
controlling prohibitions through codes of laws which would embrace what the formulators would
propose, and what the President would approve or prescribe, as wise and beneficient measures
for the government of trades and industries in order to bring about their rehabilitation, correction,
and development, according to the general declaration of policy in section 1. Codes of laws of
this sort are styled 'codes of fair competition.'
We find no real controversy upon this point and we must determine the validity of the code in
question in this aspect. As the government candidly says in its [295 U.S. 495, 536] brief: 'The
words 'policy of this title' clearly refer to the 'policy' which Congress declared in the section
entitled 'Declaration of Policy'- Section 1. All of the policies there set forth point toward a single
goal- the rehabilitation of industry and the industrial recovery which unquestionably was the
major policy of Congress in adopting the National Industrial Recovery Act.' And that this is the
controlling purpose of the code now before us appears both from its repeated declarations to
that effect and from the scope of its requirements. It will be observed that its provisions as to the
hours and wages of employees and its 'general labor provisions' were placed in separate
articles, and these were not included in the article on 'trade practice provisions' declaring what
should be deemed to constitute 'unfair methods of competition.' The Secretary of Agriculture
thus stated the objectives of the Live Poultry Code in his report to the President, which was
recited in the executive order of approval:
'That said code will tend to effectuate the declared policy of title I of the National Industrial
Recovery Act as set forth in section 1 of said act in that the terms and provisions of such code
tend to: (a) Remove obstructions to the free flow of interstate and foreign commerce which tend
to diminish the amount thereof: (b) to provide for the general welfare by promoting the
organization of industry for the purpose of cooperative action among trade groups; (c) to
eliminate unfair competitive practices; (d) to promote the fullest possible utilization of the present
productive capacity of industries; (e) to avoid undue restriction of production (except as may be
temporarily required); (f) to increase the consumption of industrial and agricultural products by
increasing purchasing power; and (g) otherwise to rehabilitate industry and to conserve natural
resources.' [295 U.S. 495, 537] The government urges that the codes will 'consist of rules of
competition deemed fair for each industry by representative members of that industry-by the
persons most vitally concerned and most familiar with its problems.' Instances are cited in which
Congress has availed itself of such assistance; as, e.g., in the exercise of its authority over the
public domain, with respect to the recognition of local customs or rules of miners as to mining
claims, 14 or, in matters of a more or less technical nature, as in designating the standard height
of drawbars. 15 But would it be seriously contended that Congress could delegate its legislative
authority to trade or industrial associations or groups so as to empower them to enact the laws
they deem to be wise and beneficent for the rehabilitation and expansion of their trade or
industries? Could trade or industrial associations or groups be constituted legislative bodies for
that purpose because such associations or groups are familiar with the problems of their
enterprises? And could an effort of that sort be made valid by such a preface of generalities as to

permissible aims as we find in section 1 of title 1? The answer is obvious. Such a delegation of
legislative power is unknown to our law, and is utterly inconsistent with the constitutional
prerogatives and duties of Congress.
The question, then, turns upon the authority which section 3 of the Recovery Act vests in the
President to approve or prescribe. If the codes have standing as penal statutes, this must be
due to the effect of the executive action. But Congress cannot delegate legislative power to the
President to exercise an unfettered discretion to make [295 U.S. 495, 538] whatever laws he
thinks may be needed or advisable for the rehabilitation and expansion of trade or industry. See
Panama Refining Company v. Ryan, supra, and cases there reviewed.
Accordingly we turn to the Recovery Act to ascertain what limits have been set to the exercise of
the President's discretion: First, the President, as a condition of approval, is required to find that
the trade or industrial associations or groups which propose a code 'impose no inequitable
restrictions on admission to membership' and are 'truly representative.' That condition, however,
relates only to the status of the initiators of the new laws and not to the permissible scope of
such laws. Second, the President is required to find that the code is not 'designed to promote
monopolies or to eliminate or oppress small enterprises and will not operate to discriminate
against them.' And to this is added a proviso that the code 'shall not permit monopolies or
monopolistic practices.' But these restrictions leave virtually untouched the field of policy
envisaged by section 1, and, in that wide field of legislative possibilities, the proponents of a
code, refraining from monopolistic designs, may roam at will, and the President may approve or
disapprove their proposals as he may see fit. That is the precise effect of the further finding that
the President is to make-that the code 'will tend to effectuate the policy of this title.' While this is
called a finding, it is really but a statement of an opinion as to the general effect upon the
promotion of trade or industry of a scheme of laws. These are the only findings which Congress
has made essential in order to put into operation a legislative code having the aims described in
the 'Declaration of Policy.'
Nor is the breadth of the President's discretion left to the necessary implications of this limited
requirement as to his findings. As already noted, the President in approving a code may impose
his own conditions, adding to [295 U.S. 495, 539] or taking from what is proposed, as 'in his
discretion' he thinks necessary 'to effectuate the policy' declared by the act. Of course, he has
no less liberty when he prescribes a code on his own motion or on complaint, and he is free to
prescribe one if a code has not been approved. The act provides for the creation by the
President of administrative agencies to assist him, but the action or reports of such agencies, or
of his other assistants-their recommendations and findings in relation to the making of codeshave no sanction beyond the will of the President, who may accept, modify, or reject them as he
pleases. Such recommendations or findings in no way limit the authority which section 3
undertakes to vest in the President with no other conditions than those there specified. And this
authority relates to a host of different trades and industries, thus extending the President's
discretion to all the varieties of laws which he may deem to be beneficial in dealing with the vast
array of commercial and industrial activities throughout the country.
Such a sweeping delegation of legislative power finds no support in the decisions upon which
the government especially relies. By the Interstate Commerce Act (49 USCA 1 et seq.),
Congress has itself provided a code of laws regulating the activities of the common carriers
subject to the act, in order to assure the performance of their services upon just and reasonable
terms, with adequate facilities and without unjust discrimination. Congress from time to time has
elaborated its requirements, as needs have been disclosed. To facilitate the application of the
standards prescribed by the act, Congress has provided an expert body. That administrative
agency, in dealing with particular cases, is required to act upon notice and hearing, and its
orders must be supported by findings of fact which in turn are sustained by evidence. Interstate
Commerce Commission v. Louisville & Nashville Railroad Company, 227 U.S. 88 , 33 S.Ct. 185;
State of Florida v. United States, 282 U.S. 194 , 51 S.Ct. 119; United States [295 U.S. 495, 540]
v. Baltimore & Ohio Railroad Company, 293 U.S. 454 , 55 S.Ct. 268. When the Commission is
authorized to issue, for the construction, extension, or abandonment of lines, a certificate of
'public convenience and necessity,' or to permit the acquisition by one carrier of the control of
another, if that is found to be 'in the public interest,' we have pointed out that these provisions

are not left without standards to guide determination. The authority conferred has direct relation
to the standards prescribed for the service of common carriers, and can be exercised only upon
findings, based upon evidence, with respect to particular conditions of transportation. New York
Central Securities Corporation v. United States, 287 U.S. 12, 24 , 25 S., 53 S.Ct. 45; Texas &
Pacific Railway Co. v. Gulf, Colorado & Santa Fe Railway Co., 270 U.S. 266, 273 , 46 S.Ct. 263;
Chesapeake & Ohio Railway Co. v. United States, 283 U.S. 35, 42 , 51 S.Ct. 337.
Similarly, we have held that the Radio Act of 192716 established standards to govern radio
communications, and, in view of the limited number of available broadcasting frequencies,
Congress authorized allocation and licenses. The Federal Radio Commission was created as
the licensing authority, in order to secure a reasonable equality of opportunity in radio
transmission and reception. The authority of the Commission to grant licenses 'as public
convenience, interest or necessity requires' was limited by the nature of radio communications,
and by the scope, character, and quality of the services to be rendered and the relative
advantages to be derived through distribution of facilities. These standards established by
Congress were to be enforced upon hearing and evidence by an administrative body acting
under statutory restrictions adapted to the particular activity. Federal Radio Commission v.
Nelson Brothers Bond & Mtg. Co., 289 U.S. 266 , 53 S.Ct. 627
[295 U.S. 495, 541] In Hampton, Jr. & Company v. United States, 276 U.S. 394 , 48 S.Ct. 348,
350 the question related to the 'flexible tariff provision' of the Tariff Act of 1922.17 We held that
Congress had described its plan 'to secure by law the imposition of customs duties on articles of
imported merchandise which should equal the difference between the cost of producing in a
foreign country the articles in question and laying them down for sale in the United States, and
the cost of producing and selling like or similar articles in the United States.' As the differences in
cost might vary from time to time, provision was made for the investigation and determination of
these differences by the executive branch so as to make 'the adjustments necessary to conform
the duties to the standard underlying that policy and plan.' Id. 276 U.S. 394 , pages 404, 405, 48
S.Ct. 348, 350. The Court found the same principle to be applicable in fixing customs duties as
that which permitted Congress to exercise its rate-making power in interstate commerce, 'by
declaring the rule which shall prevail in the legislative fixing of rates,' and then remitting 'the
fixing of such rates' in accordance with its provisions 'to a rate-making body.' Id. 276 U.S. 394 ,
page 409, 48 S.Ct. 348, 352. The Court fully recognized the limitations upon the delegation of
legislative power. Id. 276 U.S. 394 , pages 408-411, 48 S.Ct. 348.
To summarize and conclude upon this point: Section 3 of the Recovery Act (15 USCA 703 is
without precedent. It supplies no standards for any trade, industry, or activity. It does not
undertake to prescribe rules of conduct to be applied to particular states of fact determined by
appropriate administrative procedure. Instead of prescribing rules of conduct, it authorizes the
making of codes to prescribe them. For that legislative undertaking, section 3 sets up no
standards, aside from the statement of the general aims of rehabilitation, correction, and
expansion described in section 1. In view of the scope of that broad declaration and of the [295
U.S. 495, 542] nature of the few restrictions that are imposed, the discretion of the President in
approving or prescribing codes, and thus enacting laws for the government of trade and industry
throughout the country, is virtually unfettered. We think that the code-making authority thus
conferred is an unconstitutional delegation of legislative power.
Third. The Question of the Application of the Provisions of the Live Poultry Code to Intrastate
Transactions.-Although the validity of the codes (apart from the question of delegation) rests
upon the commerce clause of the Constitution, section 3(a) of the act (15 USCA 703(a) is not in
terms limited to interstate and foreign commerce. From the generality of its terms, and from the
argument of the government at the bar, it would appear that section 3(a) was designed to
authorize codes without that limitation. But under section 3(f) of the act (15 USCA 73(f) penalties
are confined to violations of a code provision 'in any transaction in or affecting interstate or
foreign commerce.' This aspect of the case presents the question whether the particular
provisions of the Live Poultry Code, which the defendants were convicted for violating and for
having conspired to violate, were within the regulating power of Congress.

These provisions relate to the hours and wages of those employed by defendants in their
slaughterhouses in Brooklyn and to the sales there made to retail dealers and butchers.
Were these transactions 'in' interstate commerce? Much is made of the fact that almost all the
poultry coming to New York is sent there from other states. But the code provisions, as here
applied, do not concern the transportation of the poultry from other states to New York, or the
transactions of the commission men or others to whom it is consigned, or the sales made by
such consignees to defendants. When defendants had made their purchases, whether at the
West Washington Market in New York City or at the railroad [295 U.S. 495, 543] terminals
serving the city, or elsewhere, the poultry was trucked to their slaughterhouses in Brooklyn for
local disposition. The interstate transactions in relation to that poultry then ended. Defendants
held the poultry at their slaughterhouse markets for slaughter and local sale to retail dealers and
butchers who in turn sold directly to consumers. Neither the slaughtering nor the sales by
defendants were transactions in interstate commerce. Brown v. Houston, 114 U.S. 622, 632 ,
633 S., 5 S.Ct. 1091; Public Utilities Commission v. Landon, 249 U.S. 236, 245 , 39 S.Ct. 268;
Industrial Association v. United States, 268 U.S. 64, 78 , 79 S., 45 S.Ct. 403; Atlantic Coast Line
R. Co. v. Standard Oil Co., 275 U.S. 257, 267 , 48 S.Ct. 107.
The undisputed facts thus afford no warrant for the argument that the poultry handled by
defendants at their slaughterhouse markets was in a 'current' or 'flow' of interstate commerce,
and was thus subject to congressional regulation. The mere fact that there may be a constant
flow of commodities into a state does not mean that the flow continues after the property has
arrived and has become commingled with the mass of property within the state and is there held
solely for local disposition and use. So far as the poultry here in question is concerned, the flow
in interstate commerce had ceased. The poultry had come to a permanent rest within the state.
It was not held, used, or sold by defendants in relation to any further transactions in interstate
commerce and was not destined for transportation to other states. Hence decisions which deal
with a stream of interstate commerce-where goods come to rest within a state temporarily and
are later to go forward in interstate commerce-and with the regulations of transactions involved
in that practical continuity of movement, are not applicable here. See Swift & Company v. United
States, 196 U.S. 375, 387 , 388 S., 25 S.Ct. 276; Lemke v. Farmers' Grain Company, 258 U.S.
50, 55 , 42 S.Ct. 244; Stafford v. Wallace, 258 U.S. 495, 519 , 42 S.Ct. 397, 23 A.L.R. 229;
Board of Trade of City of Chi- [295 U.S. 495, 544] cago v. Olsen, 262 U.S. 1, 35 , 43 S.Ct. 470;
Tagg Bros. & Moorhead v. United States, 280 U.S. 420, 439 , 50 S.Ct. 220.
Did the defendants' transactions directly 'affect' interstate commerce so as to be subject to
federal regulation? The power of Congress extends, not only to the regulation of transactions
which are part of interstate commerce, but to the protection of that commerce from injury. It
matters not that the injury may be due to the conduct of those engaged in intrastate operations.
Thus, Congress may protect the safety of those employed in interstate transportation, 'no matter
what may be the source of the dangers which threaten it.' Southern Railway Company v. United
States, 222 U.S. 20, 27 , 32 S.Ct. 2, 4. We said in Mondou v. New York, N.H. & H.R. Co.
(Second Employers' Liability Cases), 223 U.S. 1, 51 , 32 S.Ct. 169, 38 L.R.A.(N.S.) 44, that it is
the 'effect upon interstate commerce,' not 'the source of the injury,' which is 'the criterion of
congressional power.' We have held that, in dealing with common carriers engaged in both
interstate and intrastate commerce, the dominant authority of Congress necessarily embraces
the right to control their intrastate operations in all matters having such a close and substantial
relation to interstate traffic that the control is essential or appropriate to secure the freedom of
that traffic from interference or unjust discrimination and to promote the efficiency of the
interstate service. Houston, E. & W.T.R. Co. v. U.S. (The Shreveport Case), 234 U.S. 342, 351 ,
352 S., 34 S.Ct. 833; Railroad Commission of State of Wisconsin v. Chicago, Burlington &
Quincy R. Co., 257 U.S. 563, 588 , 42 S.Ct. 232, 22 A.L.R. 1086. And combinations and
conspiracies to restrain interstate commerce, or to monopolize any part of it, are none the less
within the reach of the Anti-Trust Act (15 USCA 1 et seq.) because the conspirators seek to
attain their end by means of intrastate activities. Coronado Coal Company v. United Mine
Workers, 268 U.S. 295, 310 , 45 S.Ct. 551; Bedford Cut Stone Company v. Journeyman Stone
Cutters' Association, 274 U.S. 37, 46 , 47 S.Ct. 522, 54 A.L.R. 791.

We recently had occasion, in Local 167 V. United States, 291 U.S. 293 , 54 S.Ct. 396, to apply
this principle in connection with [295 U.S. 495, 545] the live poultry industry. That was a suit to
enjoin a conspiracy to restrain and monopolize interstate commerce in violation of the Anti-Trust
Act. It was shown that marketmen, teamsters, and slaughterers (shochtim) had conspired to
burden the free movement of live poultry into the metropolitan area in and about New York City.
Marketmen had organized an association, had allocated retailers among themselves, and had
agreed to increase prices. To accomplish their objects, large amounts of money were raised by
levies upon poultry sold, men were hired to obstruct the business of dealers who resisted,
wholesalers and retailers were spied upon, and by violence and other forms of intimidation were
prevented from freely purchasing live poultry. Teamsters refused to handle poultry for recalcitrant
marketmen, and members of the shochtim union refused to slaughter. In view of the proof of that
conspiracy, we said that it was unnecessary to decide when interstate commerce ended and
when intrastate commerce began. We found that the proved interference by the conspirators
'with the unloading, the transportation, the sales by marketmen to retailers, the prices charged,
and the amount of profits exacted' operated 'substantially and directly to restrain and burden the
untrammelled shipment and movement of the poultry,' while unquestionably it was in interstate
commerce. The intrastate acts of the conspirators were included in the injunction because that
was found to be necessary for the protection of interstate commerce against the attempted and
illegal restraint. Id. 291 U.S. 293 , pp. 297, 299, 300, 54 S.Ct. 396, 398.
The instant case is not of that sort. This is not a prosecution for a conspiracy to restrain or
monopolize interstate commerce in violation of the Anti-Trust Act. Defendants have been
convicted, not upon direct charges of injury to interstate commerce or of interference with
persons engaged in that commerce, but of violations of certain provisions of the Live Poultry
Code and of con- [295 U.S. 495, 546] spiracy to commit these violations. Interstate commerce
is brought in only upon the charge that violations of these provisions-as to hours and wages of
employees and local sales-'affected' interstate commerce.
In determining how far the federal government may go in controlling intrastate transactions upon
the ground that they 'affect' interstate commerce, there is a necessary and well-established
distinction between direct and indirect effects. The precise line can be drawn only as individual
cases arise, but the distinction is clear in principle. Direct effects are illustrated by the railroad
cases we have cited, as, e.g., the effect of failure to use prescribed safety appliances on
railroads which are the highways of both interstate and intrastate commerce, injury to an
employee engaged in interstate transportation by the negligence of an employee engaged in an
intrastate movement, the fixing of rates for intrastate transportation which unjustly discriminate
against interstate commerce. But where the effect of intrastate transactions upon interstate
commerce is merely indirect, such transactions remain within the domain of state power. If the
commerce clause were construed to reach all enterprises and transactions which could be said
to have an indirect effect upon interstate commerce, the federal authority would embrace
practically all the activities of the people, and the authority of the state over its domestic
concerns would exist only by sufferance of the federal government. Indeed, on such a theory,
even the development of the state's commercial facilities would be subject to federal control. As
we said in Simpson v. Shepard (Minnesota Rate Case), 230 U.S. 352, 410 , 33 S. Ct. 729, 745,
48 L.R.A. (N.S.) 1151, Ann. Cas. 1916A, 18: 'In the intimacy of commercial relations, much that
is done in the superintendence of local matters may have an indirect bearing upon interstate
commerce. The development of local resources and the extension of local facilities may have a
very important effect upon communities less favored, and to an appreciable degree [295 U.S.
495, 547] alter the course of trade. The freedom of local trade may stimulate interstate
commerce, while restrictive measures within the police power of the state, enacted exclusively
with respect to internal business, as distinguished from interstate traffic, may in their reflex or
indirect influence diminish the latter and reduce the volume of articles transported into or out of
the state.' See, also, Kidd v. Pearson, 128 U.S. 1, 21 , 9 S.Ct. 6; Heisler v. Thomas Colliery Co.,
260 U.S. 245, 259 , 260 S., 43 S.Ct. 83.
The distinction between direct and indirect effects has been clearly recognized in the application
of the Anti-Trust Act. Where a combination or conspiracy is formed, with the intent to restrain
interstate commerce or to monopolize any part of it, the violation of the statute is clear.

Coronado Coal Company v. United Mine Workers, 268 U.S. 295, 310 , 45 S.Ct. 551. But, where
that intent is absent, and the objectives are limited to intrastate activities, the fact that there may
be an indirect effect upon interstate commerce does not subject the parties to the federal statute,
notwithstanding its broad provisions. This principle has frequently been applied in litigation
growing out of labor disputes. United Mine Workers v. Coronado Coal Company, 259 U.S. 344,
410 , 411 S., 42 S. Ct. 570, 27 A.L.R. 762; United Leather Workers' International Union v.
Herkert, 265 U.S. 457 , 464-467, 44 S.Ct. 623, 33 A.L.R. 566; Industrial Association v. United
States, 268 U.S. 64, 82 , 45 S.Ct. 403; Levering & Garrigues v. Morrin, 289 U.S. 103, 107 , 108
S., 53 S.Ct. 549, 551. In the case last cited we quoted with approval the rule that had been
stated and applied in Industrial Association v. United States, supra, after review of the decisions,
as follows: 'The alleged conspiracy, and the acts here complained of, spent their intended and
direct force upon a local situation-for building is as essentially local as mining, manufacturing or
growing crops-and if, by resulting diminution of the commercial demand, interstate trade was
curtailed either generally or in specific instances that was a fortuitous consequence so remote
and indirect [295 U.S. 495, 548] as plainly to cause it to fall outside the reach of the Sherman
Act (15 USCA 1-7, 15 note).'
While these decisions related to the application of the Federal statute, and not to its
constitutional validity, the distinction between direct and indirect effects of intrastate transactions
upon interstate commerce must be recognized as a fundamental one, essential to the
maintenance of our constitutional system. Otherwise, as we have said, there would be virtually
no limit to the federal power, and for all practical purposes we should have a completely
centralized government. We must consider the provisions here in question in the light of this
distinction.
The question of chief importance relates to the provisions of the code as to the hours and wages
of those employed in defendants' slaughterhouse markets. It is plain that these requirements are
imposed in order to govern the details of defendants' management of their local business. The
persons employed in slaughtering and selling in local trade are not employed in interstate
commerce. Their hours and wages have no direct relation to interstate commerce. The question
of how many hours these employees should work and what they should be paid differs in no
essential respect from similar questions in other local businesses which handle commodities
brought into a state and there dealt in as a part of its internal commerce. This appears from an
examination of the considerations urged by the government with respect to conditions in the
poultry trade. Thus, the government argues that hours and wages affect prices; that
slaughterhouse men sell at a small margin above operating costs; that labor represents 50 to 60
per cent. of these costs; that a slaughterhouse operator paying lower wages or reducing his cost
by exacting long hours of work translates his saving into lower prices; that this results in
demands for a cheaper grade of goods: and that the cutting [295 U.S. 495, 549] of prices
brings about a demoralization of the price structure. Similar conditions may be adduced in
relation to other businesses. The argument of the government proves too much. If the federal
government may determine the wages and hours of employees in the internal commerce of a
state, because of their relation to cost and prices and their indirect effect upon interstate
commerce, it would seem that a similar control might be exerted over other elements of cost,
also affecting prices, such as the number of employees, rents, advertising, methods of doing
business, etc. All the processes of production and distribution that enter into cost could likewise
be controlled. If the cost of doing an intrastate business is in itself the permitted object of federal
control, the extent of the regulation of cost would be a question of discretion and not of power.
The government also makes the point that efforts to enact state legislation establishing high
labor standards have been impeded by the belief that, unless similar action is taken generally,
commerce will be diverted from the states adopting such standards, and that this fear of
diversion has led to demands for federal legislation on the subject of wages and hours. The
apparent implication is that the federal authority under the commerce clause should be deemed
to extend to the establishment of rules to govern wages and hours in intrastate trade and
industry generally throughout the country, thus overriding the authority of the states to deal with
domestic problems arising from labor conditions in their internal commerce.

It is not the province of the Court to consider the economic advantages or disadvantages of such
a centralized system. It is sufficient to say that the Federal Constitution does not provide for it.
Our growth and development have called for wide use of the commerce power of the federal
government in its control over the expanded activities of interstate commerce and in protecting
that [295 U.S. 495, 550] commerce from burdens, interferences, and conspiracies to restrain
and monopolize it. But the authority of the federal government may not be pushed to such an
extreme as to destroy the distinction, which the commerce clause itself establishes, between
commerce 'among the several States' and the internal concerns of a state. The same answer
must be made to the contention that is based upon the serious economic situation which led to
the passage of the Recovery Act-the fall in prices, the decline in wages and employment, and
the curtailment of the market for commodities. Stress is laid upon the great importance of
maintaining wage distributions which would provide the necessary stimulus in starting 'the
cumulative forces making for expanding commercial activity.' Without in any way disparaging this
motive, it is enough to say that the recuperative efforts of the federal government must be made
in a manner consistent with the authority granted by the Constitution.
We are of the opinion that the attempt through the provisions of the code to fix the hours and
wages of employees of defendants in their intrastate business was not a valid exercise of federal
power.
The other violations for which defendants were convicted related to the making of local sales.
Ten counts, for violation of the provision as to 'straight killing,' were for permitting customers to
make 'selections of individual chickens taken from particular coops and half coops.' Whether or
not this practice is good or bad for the local trade, its effect, if any, upon interstate commerce
was only indirect. The same may be said of violations of the code by intrastate transactions
consisting of the sale 'of an unfit chicken' and of sales which were not in accord with the
ordinances of the city of New York. The requirement of reports as to prices and volumes of
defendants' sales was incident to the effort to control their intrastate business. [295 U.S. 495,
551] In view of these conclusions, we find it unnecessary to discuss other questions which
have been raised as to the validity of certain provisions of the code under the due process
clause of the Fifth Amendment.
On both the grounds we have discussed, the attempted delegation of legislative power and the
attempted regulation of intrastate transactions which affect interstate commerce only indirectly,
we hold the code provisions here in question to be invalid and that the judgment of conviction
must be reversed.
No. 854
-reversed.
No. 864-affirmed.
Mr. Justice CARDOZO (concurring).
The delegated power of legislation which has found expression in this code is not canalized
within banks that keep it from overflowing. It is unconfined and vagrant, if I may borrow my own
words in an earlier opinion. Panama Refining Co. v. Ryan, 293 U.S. 388, 440 , 55 S.Ct. 241.
This court has held that delegation may be unlawful, though the act to be performed is definite
and single, if the necessity, time, and occasion of performance have been left in the end to the
discretion of the delegate. Panama Refining Co. v. Ryan, supra. I thought that ruling went too far.
I pointed out in an opinion that there had been 'no grant to the Executive of any roving
commission to inquire into evils and then, upon discovering them, do anything he pleases.' 293
U.S. 388 , at page 435, 55 S. Ct. 241, 254. Choice, though within limits, had been given him 'as
to the occasion, but none whatever as to the means.' Id. Here, in the case before us, is an
attempted delegation not confined to any single act nor to any class or group of acts identified or
described by reference to a standard. Here in effect is a roving commission to inquire into evils
and upon discovery correct them. [295 U.S. 495, 552] I have said that there is no standard,

definite or even approximate, to which legislation must conform. Let me make my meaning more
precise. If codes of fair competition are codes eliminating 'unfair' methods of competition
ascertained upon inquiry to prevail in one industry or another, there is no unlawful delegation of
legislative functions when the President is directed to inquire into such practices and denounce
them when discovered. For many years a like power has been committed to the Federal Trade
Commission with the approval of this court in a long series of decisions. Cf. Federal Trade
Commission v. R.F. Keppel & Bro., 291 U.S. 304, 312 , 54 S.Ct. 423; Federal Trade Commission
v. Raladam Co., 283 U.S. 643, 648 , 51 S.Ct. 587, 79 A.L.R. 1191; Federal Trade Commission v.
Gratz, 253 U.S. 421 , 40 S.Ct. 572. Delegation in such circumstances is born of the necessities
of the occasion. The industries of the country are too many and diverse to make it possible for
Congress, in respect of matters such as these, to legislate directly with adequate appreciation of
varying conditions. Nor is the substance of the power changed because the President may act at
the instance of trade or industrial associations having special knowledge of the facts. Their
function is strictly advisory; it is the imprimatur of the President that begets the quality of law.
Doty v. Love, 295 U.S. 64 , 55 S.Ct. 558, 79 L.Ed. --. When the task that is set before one is that
of cleaning house, it is prudent as well as usual to take counsel of the dwellers.
But there is another conception of codes of fair competition, their significance and function,
which leads to very different consequences, though it is one that is struggling now for recognition
and acceptance. By this other conception a code is not to be restricted to the elimination of
business practices that would be characterized by general acceptation as oppressive or unfair. It
is to include whatever ordinances may be desirable or helpful for the well-being or prosperity of
the industry [295 U.S. 495, 553] affected. In that view, the function of its adoption is not merely
negative, but positive; the planning of improvements as well as the extirpation of abuses. What
is fair, as thus conceived, is not something to be contrasted with what is unfair or fraudulent or
tricky. The extension becomes as wide as the field of industrial regulation. If that conception
shall prevail, anything that Congress may do within the limits of the commerce clause for the
betterment of business may be done by the President upon the recommendation of a trade
association by calling it a code. This is delegation running riot. No such plenitude of power is
susceptible of transfer. The statute, however, aims at nothing less, as one can learn both from its
terms and from the administrative practice under it. Nothing less is aimed at by the code now
submitted to our scrutiny.

distinction between what is national and what is local in the activities of commerce. Motion at the
outer rim is communicated perceptibly, though minutely, to recording instruments at the center. A
society such as ours 'is an elastic medium which transmits all tremors throughout its territory; the
only question is of their size.' Per Learned Hand, J., in the court below. The law is not indifferent
to considerations of degree. Activities local in their immediacy do not become interstate and
national because of distant repercussions. What is near and what is distant may at times be
uncertain. Cf. Board of Trade of City of Chicago v. Olsen, 262 U.S. 1 , 43 S.Ct. 470. There is no
penumbra of uncertainty obscuring judgment here. To find immediacy or directness here is to
find it almost everywhere. If centripetal forces are to be isolated to the exclusion of the forces
that oppose and counteract them, there will be an end to our federal system.
To take from this code the provisions as to wages and the hours of labor is to destroy it
altogether. If a trade or an industry is so predominantly local as to be exempt [295 U.S. 495,
555] from regulation by the Congress in respect of matters such as these, there can be no
'code' for it at all. This is clear from the provisions of section 7(a) of the act (15 USCA 707(a),
with its explicit disclosure of the statutory scheme. Wages and the hours of labor are essential
features of the plan, its very bone and sinew. There is no opportunity in such circumstances for
the severance of the infected parts in the hope of saving the remainder. A code collapses utterly
with bone and sinew gone.
I am authorized to state that Mr. Justice STONE joins in this opinion.
Footnotes
[ Footnote 1 ] The full title of the Code is 'Code of Fair Competition for the Live Poultry Industry
of the Metropolitan Area in and about the City of New York.'
[ Footnote 2 ] The indictment contained 60 counts, of which 27 counts were dismissed by the
trial court, and on 14 counts the defendants were acquitted.
[ Footnote 3 ] Act of June 16, 1933, c. 90, 48 Stat. 195, 196; 15 U.S.C. 703 (15 USCA 703).
[ Footnote 4 ] 'Codes of fair competition.

The code does not confine itself to the suppression of methods of competition that would be
classified as unfair according to accepted business standards or accepted norms of ethics. It
sets up a comprehensive body of rules to promote the welfare of the industry, if not the welfare
of the nation, without reference to standards, ethical or commercial, that could be known or
predicted in advance of its adoption. One of the new rules, the source of ten counts in the
indictment, is aimed at an established practice, not unethical or oppressive, the practice of
selective buying. Many others could be instanced as open to the same objection if the sections
of the code were to be examined one by one. The process of dissection will not be traced in all
its details. Enough at this time to state what it reveals. Even if the statute itself had fixed the
meaning of fair competition by way of contrast with practices that are oppressive or unfair, the
code outruns the bounds of the authority conferred. What is excessive is not sporadic or
superficial. It is deep- seated and per- [295 U.S. 495, 554] vasive. The licit and illicit sections
are so combined and welded as to be incapable of severance without destructive mutilation.
But there is another objection, far-reaching and incurable, aside from any defect of unlawful
delegation.
If this code had been adopted by Congress itself, and not by the President on the advice of an
industrial association, it would even then be void, unless authority to adopt it is included in the
grant of power 'to regulare commerce with foreign nations, and among the several States.'
United States Constitution, art. 1, 8, cl. 3.
I find no authority in that grant for the regulation of wages and hours of labor in the intrastate
transactions that make up the defendants' business. As to this feature of the case, little can be
added to the opinion of the court. There is a view of causation that would obliterate the

'Sec. 3. (a) Upon the application to the President by one or more trade or industrial associations
or groups, the President may approve a code or codes of fair competition for the trade or
industry or subdivision thereof, represented by the applicant or applicants, if the President finds
(1) that such associations or groups impose no inequitable restrictions on admission to
membership therein and are truly representative of such trades or industries or subdivisions
thereof, and ( 2) that such code or codes are not designed to promote monopolies or to
eliminate or oppress small enterprises and will not operate to discriminate against them, and will
tend to effectuate the policy of this title: Provided, That such code or codes shall not permit
monopolies or monopolistic practices: Provided further, That where such code or codes affect
the services and welfare of persons engaged in other steps of the economic process, nothing in
this section shall deprive such persons of the right to be heard prior to approval by the President
of such code or codes. The President may, as a condition of his approval of any such code,
impose such conditions (including requirements for the making of reports and the keeping of
accounts) for the protection of consumers, competitors, employees, and others, and in
furtherance of the public interest, and may provide such exceptions to and exemptions from the
provisions of such code. as the President in his discretion deems necessary to effectuate the
policy herein declared.
'(b) After the President shall have approved any such code, the provisions of such code shall be
the standards of fair competition for such trade or industry or subdivision thereof. Any violation of
such standards in any transaction in or affecting interstate or foreign commerce shall be deemed
an unfair method of competition in commerce within the meaning of the Federal Trade
Commission Act, as amended ( chapter 2 of this title); but nothing in this title (chapter) shall be
construed to impair the powers of the Federal Trade Commission under such Act, as amended
(chapter 2).

[ Footnote 5 ] The executive order is as follows:

'Executive Order.
'Approval of Code of Fair Competition for the Live Poultry Industry of the Metropolitan Area in
and about the City of New York.
'Whereas, the Secretary of Agriculture and the Administrator of the National Industrial Recovery
Act having rendered their separate reports and recommendations and findings on the provisions
of said code, coming within their respective jurisdictions, as set forth in the Executive Order No.
6182 of June 26, 1933, as supplemented by Executive Order No. 6207 of July 21, 1933, and
Executive Order N. 6345 of October 20, 1933, as amended by Executive Order No. 6551 of
January 8, 1934;
'Now, therefore, I, Franklin D. Roosevelt, President of the United States, pursuant to the
authority vested in me by title I of the National Industrial Recovery Act, approved June 16, 1933,
and otherwise, do hereby find that:
'1. An application has been duly made, pursuant to and in full compliance with the provisions of
title I of the National Industrial Recovery Act, approved June 16, 1933, for my approval of a code
of fair competition for the live poultry industry in the metropolitan area in and about the City of
New York; and
'2. Due notice and opportunity for hearings to interested parties have been given pursuant to the
provisions of the act and regulations thereunder; and,
'3. Hearings have been held upon said code, pursuant to such notice and pursuant to the
pertinent provisions of the act and regulations thereunder; and
'4. Said code of fair competition constitutes a code of fair competition, as contemplated by the
act and complies in all respects with the pertinent provisions of the act, including clauses (1) and
(2) of subsection (a) of section 3 of title I of the act; and
'5. It appears, after due consideration, that said code of fair competition will tend to effectuate
the policy of Congress as declared in section 1 of title I of the act.
'Now, therefore, I, Franklin D. Roosevelt, President of the United States, pursuant to the
authority vested in me by title I of the National Industrial Recovery Act, approved June 16, 1933,
and otherwise, do hereby approve said Code of Fair Competition for the Live Poultry Industry in
the Metropolitan Area in and about the City of New York.
'Franklin D. Roosevelt, 'President of the United States. 'The White House, 'April 13, 1934.'
[ Footnote 6 ] The Administrator for Industrial Recovery stated in his report that the Code had
been sponsored by trade associations representing about 350 wholesale firms, 150 retail shops,
and 21 commission agencies; that these associations represented about 90 per cent. of the live
poultry industry by numbers and volume of business; and that the industry as defined in the
code supplies the consuming public with practically all the live poultry coming into the
metropolitan area from forty-one states and transacted an aggreagate annual business of
approximately $90,000,000. He further said that about 1,610 employees were engaged in the
industry; that it had suffered severely on account of the prevailing economic conditions and
because of unfair methods of competition and the abuses that had developed as a result of the
'uncontrolled methods of doing business'; and that these conditions had reduced the number of
employees by approximately 40 per cent. He added that the report of the Research and
Planning Division indicated that the code would bring about an increase in wages of about 20
per cent. in this industry and an increase in employment of 19.2 per cent.
[ Footnote 7 ] The prohibition in the code (article VII, 14) was as follows: 'Straight Killing.-The
use, in the wholesale slaughtering of poultry, of any method of slaughtering other than 'straight
killing' or killing on the basis of official grade. Purchasers may, however, make selection of a half
coop, coop, or coops, but shall not have the right to make any selection of particular birds.'

[ Footnote 9 ] That section (15 USCA 701), under the heading 'Declaration of Policy,' is as
follows: 'Section 1. A national emergency productive of widespread unemployment and
disoreganization of industry, which burdens interstate and foreign commerce, affects the public
welfare, and undermines the standards of living of the American people, is hereby declared to
exist. It is hereby declared to be the policy of Congress to remove obstructions to the free flow of
interstate and foreign commerce which tend to diminish the amount thereof; and to provide for
the general welfare by promoting the organization of industry for the purpose of co- operative
action among trade groups, to induce and maintain united action of labor and management
under adequate governmental sanctions and supervision, to eliminate unfair competitive
practices, to promote the fullest possible utilization of the present productive capacity of
industries, to avoid undue restriction of production (except as may be temporarily required), to
increase the consumption of industrial and agricultural products by increasing purchasing power,
to reduce and relieve unemployment, to improve standards of labor, and otherwise to rehabilitate
industry and to conserve natural resources.'
[ Footnote 10 ] See cases collected in Nims on Unfair Competition and Trade-Marks, c. I, 4, p.
19, and chapter XIX.
[ Footnote 11 ] Act of September 26, 1914, c. 311, 38 Stat. 717, 719, 720 (section 5 (15 USCA
45)).
[ Footnote 12 ] The Tariff Act of 1930 (section 337, 46 Stat. 703 (19 USCA 1337 )), like the Tariff
Act of 1922 (section 316, 42 Stat. 943 (19 USCA 174 et seq.)), employs the expressions 'unfair
methods of competition' and 'unfair acts' in the importation of articles into the United States, and
in their sale, 'the effect or tendency of which is to destroy or substantially injure an industry,
efficiently and economically operated, in the United States, or to prevent the establishment of
such an industry, or to restrain or monopolize trade and commerce in the United States.'
Provision is made for investigation and findings by the Tariff Commission, for appeals upon
questions of law to the United States Court of Customs and Patent Appeals, and for ultimate
action by the President when the existence of any 'such unfair method or act' is established to
his satisfaction.
[ Footnote 13 ] See note 9.
[ Footnote 14 ] Act of July 26, 1866, c. 262, 14 Stat. 251; Jackson v. Roby, 109 U.S. 440, 441 , 3
S.Ct. 301; Erhardt v. Boaro, 113 U.S. 527, 535 , 5 S.Ct. 560; Butte City Water Co. v. Baker, 196
U.S. 119, 126 , 25 S.Ct. 211.
[ Footnote 15 ] Act of March 2, 1893, c. 196, 27 Stat. 531 (45 USCA 1 et seq.); St. Louis, Iron
Mountain & S. Railway Co. v. Taylor, 210 U.S. 281, 286 , 28 S.Ct. 616.
[ Footnote 16 ] Act of February 23, 1927, c. 169, 44 Stat. 1162, as amended by the Act of March
28, 1928, c. 263, 45 Stat. 373.
[ Footnote 17 ] Act of September 21, 1922, c. 356, title 3, 315, 42 Stat. 858, 941 (19 USCA 154
et seq.).
G.R. No. 17122

[ Footnote 8 ] See Ex parte Milligan, 4 Wall. 2, 120, 121; Home Building & Loan Association v.
Blaisdell, 290 U.S. 398, 426 , 54 S.Ct. 231, 88 A.L.R. 1481.

February 27, 1922

THE UNITED STATES, plaintiff-appellee,

vs.
ANG TANG HO, defendant-appellant.

Williams & Ferrier for appellant.

Acting Attorney-General Tuason for appellee.

The undersigned accuses Ang Tang Ho of a violation of Executive Order No. 53 of the GovernorGeneral of the Philippines, dated the 1st of August, 1919, in relation with the provisions of
sections 1, 2 and 4 of Act No. 2868, committed as follows:

JOHNS, J.:
At its special session of 1919, the Philippine Legislature passed Act No. 2868, entitled "An Act
penalizing the monopoly and holding of, and speculation in, palay, rice, and corn under
extraordinary circumstances, regulating the distribution and sale thereof, and authorizing the
Governor-General, with the consent of the Council of State, to issue the necessary rules and
regulations therefor, and making an appropriation for this purpose," the material provisions of
which are as follows:
Section 1. The Governor-General is hereby authorized, whenever, for any cause, conditions
arise resulting in an extraordinary rise in the price of palay, rice or corn, to issue and promulgate,
with the consent of the Council of State, temporary rules and emergency measures for carrying
out the purpose of this Act, to wit:
(a) To prevent the monopoly and hoarding of, and speculation in, palay, rice or corn.
(b) To establish and maintain a government control of the distribution or sale of the commodities
referred to or have such distribution or sale made by the Government itself.
(c) To fix, from time to time the quantities of palay rice, or corn that a company or individual may
acquire, and the maximum sale price that the industrial or merchant may demand.
(d) . . .
SEC. 2. It shall be unlawful to destroy, limit, prevent or in any other manner obstruct the
production or milling of palay, rice or corn for the purpose of raising the prices thereof; to corner
or hoard said products as defined in section three of this Act; . . .
Section 3 defines what shall constitute a monopoly or hoarding of palay, rice or corn within the
meaning of this Act, but does not specify the price of rice or define any basic for fixing the price.
SEC. 4. The violations of any of the provisions of this Act or of the regulations, orders and
decrees promulgated in accordance therewith shall be punished by a fine of not more than five
thousands pesos, or by imprisonment for not more than two years, or both, in the discretion of
the court: Provided, That in the case of companies or corporations the manager or administrator
shall be criminally liable.
SEC. 7. At any time that the Governor-General, with the consent of the Council of State, shall
consider that the public interest requires the application of the provisions of this Act, he shall so
declare by proclamation, and any provisions of other laws inconsistent herewith shall from then
on be temporarily suspended.
Upon the cessation of the reasons for which such proclamation was issued, the GovernorGeneral, with the consent of the Council of State, shall declare the application of this Act to have
likewise terminated, and all laws temporarily suspended by virtue of the same shall again take
effect, but such termination shall not prevent the prosecution of any proceedings or cause begun
prior to such termination, nor the filing of any proceedings for an offense committed during the
period covered by the Governor-General's proclamation.
August 1, 1919, the Governor-General issued a proclamation fixing the price at which rice
should be sold.
August 8, 1919, a complaint was filed against the defendant, Ang Tang Ho, charging him with the
sale of rice at an excessive price as follows:

That on or about the 6th day of August, 1919, in the city of Manila, Philippine Islands, the said
Ang Tang Ho, voluntarily, illegally and criminally sold to Pedro Trinidad, one ganta of rice at the
price of eighty centavos (P.80), which is a price greater than that fixed by Executive Order No.
53 of the Governor-General of the Philippines, dated the 1st of August, 1919, under the authority
of section 1 of Act No. 2868. Contrary to law.
Upon this charge, he was tried, found guilty and sentenced to five months' imprisonment and to
pay a fine of P500, from which he appealed to this court, claiming that the lower court erred in
finding Executive Order No. 53 of 1919, to be of any force and effect, in finding the accused
guilty of the offense charged, and in imposing the sentence.
The official records show that the Act was to take effect on its approval; that it was approved July
30, 1919; that the Governor-General issued his proclamation on the 1st of August, 1919; and
that the law was first published on the 13th of August, 1919; and that the proclamation itself was
first published on the 20th of August, 1919.
The question here involves an analysis and construction of Act No. 2868, in so far as it
authorizes the Governor-General to fix the price at which rice should be sold. It will be noted that
section 1 authorizes the Governor-General, with the consent of the Council of State, for any
cause resulting in an extraordinary rise in the price of palay, rice or corn, to issue and
promulgate temporary rules and emergency measures for carrying out the purposes of the Act.
By its very terms, the promulgation of temporary rules and emergency measures is left to the
discretion of the Governor-General. The Legislature does not undertake to specify or define
under what conditions or for what reasons the Governor-General shall issue the proclamation,
but says that it may be issued "for any cause," and leaves the question as to what is "any cause"
to the discretion of the Governor-General. The Act also says: "For any cause, conditions arise
resulting in an extraordinary rise in the price of palay, rice or corn." The Legislature does not
specify or define what is "an extraordinary rise." That is also left to the discretion of the
Governor-General. The Act also says that the Governor-General, "with the consent of the
Council of State," is authorized to issue and promulgate "temporary rules and emergency
measures for carrying out the purposes of this Act." It does not specify or define what is a
temporary rule or an emergency measure, or how long such temporary rules or emergency
measures shall remain in force and effect, or when they shall take effect. That is to say, the
Legislature itself has not in any manner specified or defined any basis for the order, but has left
it to the sole judgement and discretion of the Governor-General to say what is or what is not "a
cause," and what is or what is not "an extraordinary rise in the price of rice," and as to what is a
temporary rule or an emergency measure for the carrying out the purposes of the Act. Under this
state of facts, if the law is valid and the Governor-General issues a proclamation fixing the
minimum price at which rice should be sold, any dealer who, with or without notice, sells rice at a
higher price, is a criminal. There may not have been any cause, and the price may not have
been extraordinary, and there may not have been an emergency, but, if the Governor-General
found the existence of such facts and issued a proclamation, and rice is sold at any higher price,
the seller commits a crime.
By the organic law of the Philippine Islands and the Constitution of the United States all powers
are vested in the Legislative, Executive and Judiciary. It is the duty of the Legislature to make
the law; of the Executive to execute the law; and of the Judiciary to construe the law. The
Legislature has no authority to execute or construe the law, the Executive has no authority to
make or construe the law, and the Judiciary has no power to make or execute the law. Subject to
the Constitution only, the power of each branch is supreme within its own jurisdiction, and it is for
the Judiciary only to say when any Act of the Legislature is or is not constitutional. Assuming,
without deciding, that the Legislature itself has the power to fix the price at which rice is to be
sold, can it delegate that power to another, and, if so, was that power legally delegated by Act

No. 2868? In other words, does the Act delegate legislative power to the Governor-General? By
the Organic Law, all Legislative power is vested in the Legislature, and the power conferred
upon the Legislature to make laws cannot be delegated to the Governor-General, or any one
else. The Legislature cannot delegate the legislative power to enact any law. If Act no 2868 is a
law unto itself and within itself, and it does nothing more than to authorize the Governor-General
to make rules and regulations to carry the law into effect, then the Legislature itself created the
law. There is no delegation of power and it is valid. On the other hand, if the Act within itself does
not define crime, and is not a law, and some legislative act remains to be done to make it a law
or a crime, the doing of which is vested in the Governor-General, then the Act is a delegation of
legislative power, is unconstitutional and void.
The Supreme Court of the United States in what is known as the Granger Cases (94 U.S., 183187; 24 L. ed., 94), first laid down the rule:
Railroad companies are engaged in a public employment affecting the public interest and, under
the decision in Munn vs. Ill., ante, 77, are subject to legislative control as to their rates of fare
and freight unless protected by their charters.
The Illinois statute of Mar. 23, 1874, to establish reasonable maximum rates of charges for the
transportation of freights and passengers on the different railroads of the State is not void as
being repugnant to the Constitution of the United States or to that of the State.
It was there for the first time held in substance that a railroad was a public utility, and that, being
a public utility, the State had power to establish reasonable maximum freight and passenger
rates. This was followed by the State of Minnesota in enacting a similar law, providing for, and
empowering, a railroad commission to hear and determine what was a just and reasonable rate.
The constitutionality of this law was attacked and upheld by the Supreme Court of Minnesota in
a learned and exhaustive opinion by Justice Mitchell, in the case of State vs. Chicago,
Milwaukee & St. Paul ry. Co. (38 Minn., 281), in which the court held:
Regulations of railway tariffs Conclusiveness of commission's tariffs. Under Laws 1887, c.
10, sec. 8, the determination of the railroad and warehouse commission as to what are equal
and reasonable fares and rates for the transportation of persons and property by a railway
company is conclusive, and, in proceedings by mandamus to compel compliance with the tariff
of rates recommended and published by them, no issue can be raised or inquiry had on that
question.
Same constitution Delegation of power to commission. The authority thus given to the
commission to determine, in the exercise of their discretion and judgement, what are equal and
reasonable rates, is not a delegation of legislative power.
It will be noted that the law creating the railroad commission expressly provides
That all charges by any common carrier for the transportation of passengers and property shall
be equal and reasonable.
With that as a basis for the law, power is then given to the railroad commission to investigate all
the facts, to hear and determine what is a just and reasonable rate. Even then that law does not
make the violation of the order of the commission a crime. The only remedy is a civil proceeding.
It was there held
That the legislative itself has the power to regulate railroad charges is now too well settled to
require either argument or citation of authority.
The difference between the power to say what the law shall be, and the power to adopt rules
and regulations, or to investigate and determine the facts, in order to carry into effect a law
already passed, is apparent. The true distinction is between the delegation of power to make the

law, which necessarily involves a discretion as to what it shall be, and the conferring an authority
or discretion to be exercised under and in pursuance of the law.
The legislature enacts that all freights rates and passenger fares should be just and reasonable.
It had the undoubted power to fix these rates at whatever it deemed equal and reasonable.
They have not delegated to the commission any authority or discretion as to what the law shall
be, which would not be allowable, but have merely conferred upon it an authority and
discretion, to be exercised in the execution of the law, and under and in pursuance of it, which is
entirely permissible. The legislature itself has passed upon the expediency of the law, and what
is shall be. The commission is intrusted with no authority or discretion upon these questions. It
can neither make nor unmake a single provision of law. It is merely charged with the
administration of the law, and with no other power.
The delegation of legislative power was before the Supreme Court of Wisconsin in Dowling vs.
Lancoshire Ins. Co. (92 Wis., 63). The opinion says:
"The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its
execution, to be exercised under and in pursuance of the law. The first cannot be done; to the
latter no valid objection can be made."
The act, in our judgment, wholly fails to provide definitely and clearly what the standard policy
should contain, so that it could be put in use as a uniform policy required to take the place of all
others, without the determination of the insurance commissioner in respect to maters involving
the exercise of a legislative discretion that could not be delegated, and without which the act
could not possibly be put in use as an act in confirmity to which all fire insurance policies were
required to be issued.
The result of all the cases on this subject is that a law must be complete, in all its terms and
provisions, when it leaves the legislative branch of the government, and nothing must be left to
the judgement of the electors or other appointee or delegate of the legislature, so that, in form
and substance, it is a law in all its details in presenti, but which may be left to take effect in
futuro, if necessary, upon the ascertainment of any prescribed fact or event.
The delegation of legislative power was before the Supreme Court in United States vs. Grimaud
(220 U.S., 506; 55 L. ed., 563), where it was held that the rules and regulations of the Secretary
of Agriculture as to a trespass on government land in a forest reserve were valid constitutional.
The Act there provided that the Secretary of Agriculture ". . . may make such rules and
regulations and establish such service as will insure the object of such reservations; namely, to
regulate their occupancy and use, and to preserve the forests thereon from destruction; and any
violation of the provisions of this act or such rules and regulations shall be punished, . . ."
The brief of the United States Solicitor-General says:
In refusing permits to use a forest reservation for stock grazing, except upon stated terms or in
stated ways, the Secretary of Agriculture merely assert and enforces the proprietary right of the
United States over land which it owns. The regulation of the Secretary, therefore, is not an
exercise of legislative, or even of administrative, power; but is an ordinary and legitimate refusal
of the landowner's authorized agent to allow person having no right in the land to use it as they
will. The right of proprietary control is altogether different from governmental authority.
The opinion says:
From the beginning of the government, various acts have been passed conferring upon
executive officers power to make rules and regulations, not for the government of their
departments, but for administering the laws which did govern. None of these statutes could
confer legislative power. But when Congress had legislated power. But when Congress had

legislated and indicated its will, it could give to those who were to act under such general
provisions "power to fill up the details" by the establishment of administrative rules and
regulations, the violation of which could be punished by fine or imprisonment fixed by Congress,
or by penalties fixed by Congress, or measured by the injury done.

All saloons in said village shall be closed at 11 o'clock P.M. each day and remain closed until 5
o'clock on the following morning, unless by special permission of the president.
Construing it in 136 Wis., 526; 128 A. S. R., 1100,1 the Supreme Court of that State says:

That "Congress cannot delegate legislative power is a principle universally recognized as vital to
the integrity and maintenance of the system of government ordained by the Constitution."
If, after the passage of the act and the promulgation of the rule, the defendants drove and
grazed their sheep upon the reserve, in violation of the regulations, they were making an
unlawful use of the government's property. In doing so they thereby made themselves liable to
the penalty imposed by Congress.
The subjects as to which the Secretary can regulate are defined. The lands are set apart as a
forest reserve. He is required to make provisions to protect them from depredations and from
harmful uses. He is authorized 'to regulate the occupancy and use and to preserve the forests
from destruction.' A violation of reasonable rules regulating the use and occupancy of the
property is made a crime, not by the Secretary, but by Congress."
The above are leading cases in the United States on the question of delegating legislative
power. It will be noted that in the "Granger Cases," it was held that a railroad company was a
public corporation, and that a railroad was a public utility, and that, for such reasons, the
legislature had the power to fix and determine just and reasonable rates for freight and
passengers.
The Minnesota case held that, so long as the rates were just and reasonable, the legislature
could delegate the power to ascertain the facts and determine from the facts what were just and
reasonable rates,. and that in vesting the commission with such power was not a delegation of
legislative power.

We regard the ordinance as void for two reasons; First, because it attempts to confer arbitrary
power upon an executive officer, and allows him, in executing the ordinance, to make unjust and
groundless discriminations among persons similarly situated; second, because the power to
regulate saloons is a law-making power vested in the village board, which cannot be delegated.
A legislative body cannot delegate to a mere administrative officer power to make a law, but it
can make a law with provisions that it shall go into effect or be suspended in its operations upon
the ascertainment of a fact or state of facts by an administrative officer or board. In the present
case the ordinance by its terms gives power to the president to decide arbitrary, and in the
exercise of his own discretion, when a saloon shall close. This is an attempt to vest legislative
discretion in him, and cannot be sustained.
The legal principle involved there is squarely in point here.
It must be conceded that, after the passage of act No. 2868, and before any rules and
regulations were promulgated by the Governor-General, a dealer in rice could sell it at any price,
even at a peso per "ganta," and that he would not commit a crime, because there would be no
law fixing the price of rice, and the sale of it at any price would not be a crime. That is to say, in
the absence of a proclamation, it was not a crime to sell rice at any price. Hence, it must follow
that, if the defendant committed a crime, it was because the Governor-General issued the
proclamation. There was no act of the Legislature making it a crime to sell rice at any price, and
without the proclamation, the sale of it at any price was to a crime.
The Executive order2 provides:

The Wisconsin case was a civil action founded upon a "Wisconsin standard policy of fire
insurance," and the court held that "the act, . . . wholly fails to provide definitely and clearly what
the standard policy should contain, so that it could be put in use as a uniform policy required to
take the place of all others, without the determination of the insurance commissioner in respect
to matters involving the exercise of a legislative discretion that could not be delegated."

(5) The maximum selling price of palay, rice or corn is hereby fixed, for the time being as follows:

The case of the United States Supreme Court, supra dealt with rules and regulations which were
promulgated by the Secretary of Agriculture for Government land in the forest reserve.

Rice at P15 per sack of 57 kilos, or 63 centavos per ganta.

In Manila
Palay at P6.75 per sack of 57 kilos, or 29 centavos per ganta.

Corn at P8 per sack of 57 kilos, or 34 centavos per ganta.

These decisions hold that the legislative only can enact a law, and that it cannot delegate it
legislative authority.
The line of cleavage between what is and what is not a delegation of legislative power is pointed
out and clearly defined. As the Supreme Court of Wisconsin says:

In the provinces producing palay, rice and corn, the maximum price shall be the Manila price
less the cost of transportation from the source of supply and necessary handling expenses to
the place of sale, to be determined by the provincial treasurers or their deputies.

That no part of the legislative power can be delegated by the legislature to any other department
of the government, executive or judicial, is a fundamental principle in constitutional law, essential
to the integrity and maintenance of the system of government established by the constitution.

In provinces, obtaining their supplies from Manila or other producing provinces, the maximum
price shall be the authorized price at the place of supply or the Manila price as the case may be,
plus the transportation cost, from the place of supply and the necessary handling expenses, to
the place of sale, to be determined by the provincial treasurers or their deputies.

Where an act is clothed with all the forms of law, and is complete in and of itself, it may be
provided that it shall become operative only upon some certain act or event, or, in like manner,
that its operation shall be suspended.

(6) Provincial treasurers and their deputies are hereby directed to communicate with, and
execute all instructions emanating from the Director of Commerce and Industry, for the most
effective and proper enforcement of the above regulations in their respective localities.

The legislature cannot delegate its power to make a law, but it can make a law to delegate a
power to determine some fact or state of things upon which the law makes, or intends to make,
its own action to depend.

The law says that the Governor-General may fix "the maximum sale price that the industrial or
merchant may demand." The law is a general law and not a local or special law.

The Village of Little Chute enacted an ordinance which provides:

The proclamation undertakes to fix one price for rice in Manila and other and different prices in
other and different provinces in the Philippine Islands, and delegates the power to determine the

other and different prices to provincial treasurers and their deputies. Here, then, you would have
a delegation of legislative power to the Governor-General, and a delegation by him of that power
to provincial treasurers and their deputies, who "are hereby directed to communicate with, and
execute all instructions emanating from the Director of Commerce and Industry, for the most
effective and proper enforcement of the above regulations in their respective localities." The
issuance of the proclamation by the Governor-General was the exercise of the delegation of a
delegated power, and was even a sub delegation of that power.
Assuming that it is valid, Act No. 2868 is a general law and does not authorize the GovernorGeneral to fix one price of rice in Manila and another price in Iloilo. It only purports to authorize
him to fix the price of rice in the Philippine Islands under a law, which is General and uniform,
and not local or special. Under the terms of the law, the price of rice fixed in the proclamation
must be the same all over the Islands. There cannot be one price at Manila and another at Iloilo.
Again, it is a mater of common knowledge, and of which this court will take judicial notice, that
there are many kinds of rice with different and corresponding market values, and that there is a
wide range in the price, which varies with the grade and quality. Act No. 2868 makes no
distinction in price for the grade or quality of the rice, and the proclamation, upon which the
defendant was tried and convicted, fixes the selling price of rice in Manila "at P15 per sack of
57 kilos, or 63 centavos per ganta," and is uniform as to all grades of rice, and says nothing
about grade or quality. Again, it will be noted that the law is confined to palay, rice and corn.
They are products of the Philippine Islands. Hemp, tobacco, coconut, chickens, eggs, and many
other things are also products. Any law which single out palay, rice or corn from the numerous
other products of the Islands is not general or uniform, but is a local or special law. If such a law
is valid, then by the same principle, the Governor-General could be authorized by proclamation
to fix the price of meat, eggs, chickens, coconut, hemp, and tobacco, or any other product of the
Islands. In the very nature of things, all of that class of laws should be general and uniform.
Otherwise, there would be an unjust discrimination of property rights, which, under the law, must
be equal and inform. Act No. 2868 is nothing more than a floating law, which, in the discretion
and by a proclamation of the Governor-General, makes it a floating crime to sell rice at a price in
excess of the proclamation, without regard to grade or quality.
When Act No. 2868 is analyzed, it is the violation of the proclamation of the Governor-General
which constitutes the crime. Without that proclamation, it was no crime to sell rice at any price.
In other words, the Legislature left it to the sole discretion of the Governor-General to say what
was and what was not "any cause" for enforcing the act, and what was and what was not "an
extraordinary rise in the price of palay, rice or corn," and under certain undefined conditions to fix
the price at which rice should be sold, without regard to grade or quality, also to say whether a
proclamation should be issued, if so, when, and whether or not the law should be enforced, how
long it should be enforced, and when the law should be suspended. The Legislature did not
specify or define what was "any cause," or what was "an extraordinary rise in the price of rice,
palay or corn," Neither did it specify or define the conditions upon which the proclamation should
be issued. In the absence of the proclamation no crime was committed. The alleged sale was
made a crime, if at all, because the Governor-General issued the proclamation. The act or
proclamation does not say anything about the different grades or qualities of rice, and the
defendant is charged with the sale "of one ganta of rice at the price of eighty centavos (P0.80)
which is a price greater than that fixed by Executive order No. 53."
We are clearly of the opinion and hold that Act No. 2868, in so far as it undertakes to authorized
the Governor-General in his discretion to issue a proclamation, fixing the price of rice, and to
make the sale of rice in violation of the price of rice, and to make the sale of rice in violation of
the proclamation a crime, is unconstitutional and void.
It may be urged that there was an extraordinary rise in the price of rice and profiteering, which
worked a severe hardship on the poorer classes, and that an emergency existed, but the
question here presented is the constitutionality of a particular portion of a statute, and none of
such matters is an argument for, or against, its constitutionality.

The Constitution is something solid, permanent an substantial. Its stability protects the life,
liberty and property rights of the rich and the poor alike, and that protection ought not to change
with the wind or any emergency condition. The fundamental question involved in this case is the
right of the people of the Philippine Islands to be and live under a republican form of
government. We make the broad statement that no state or nation, living under republican form
of government, under the terms and conditions specified in Act No. 2868, has ever enacted a
law delegating the power to any one, to fix the price at which rice should be sold. That power
can never be delegated under a republican form of government.
In the fixing of the price at which the defendant should sell his rice, the law was not dealing with
government property. It was dealing with private property and private rights, which are sacred
under the Constitution. If this law should be sustained, upon the same principle and for the same
reason, the Legislature could authorize the Governor-General to fix the price of every product or
commodity in the Philippine Islands, and empower him to make it a crime to sell any product at
any other or different price.
It may be said that this was a war measure, and that for such reason the provision of the
Constitution should be suspended. But the Stubborn fact remains that at all times the judicial
power was in full force and effect, and that while that power was in force and effect, such a
provision of the Constitution could not be, and was not, suspended even in times of war. It may
be claimed that during the war, the United States Government undertook to, and did, fix the price
at which wheat and flour should be bought and sold, and that is true. There, the United States
had declared war, and at the time was at war with other nations, and it was a war measure, but it
is also true that in doing so, and as a part of the same act, the United States commandeered all
the wheat and flour, and took possession of it, either actual or constructive, and the government
itself became the owner of the wheat and flour, and fixed the price to be paid for it. That is not
this case. Here the rice sold was the personal and private property of the defendant, who sold it
to one of his customers. The government had not bought and did not claim to own the rice, or
have any interest in it, and at the time of the alleged sale, it was the personal, private property of
the defendant. It may be that the law was passed in the interest of the public, but the members
of this court have taken on solemn oath to uphold and defend the Constitution, and it ought not
to be construed to meet the changing winds or emergency conditions. Again, we say that no
state or nation under a republican form of government ever enacted a law authorizing any
executive, under the conditions states, to fix the price at which a price person would sell his own
rice, and make the broad statement that no decision of any court, on principle or by analogy, will
ever be found which sustains the constitutionality of the particular portion of Act No. 2868 here in
question. By the terms of the Organic Act, subject only to constitutional limitations, the power to
legislate and enact laws is vested exclusively in the Legislative, which is elected by a direct vote
of the people of the Philippine Islands. As to the question here involved, the authority of the
Governor-General to fix the maximum price at which palay, rice and corn may be sold in the
manner power in violation of the organic law.
This opinion is confined to the particular question here involved, which is the right of the
Governor-General, upon the terms and conditions stated in the Act, to fix the price of rice and
make it a crime to sell it at a higher price, and which holds that portions of the Act
unconstitutional. It does not decide or undertake to construe the constitutionality of any of the
remaining portions of the Act.
The judgment of the lower court is reversed, and the defendant discharged. So ordered.
Araullo, C.J., Johnson, Street and Ostrand, JJ., concur.
Romualdez, J., concurs in the result.

Separate Opinions
MALCOLM, J., concurring:

I concur in the result for reasons which reach both the facts and the law. In the first place, as to
the facts, one cannot be convicted ex post facto of a violation of a law and of an executive
order issued pursuant to the law, when the alleged violation thereof occurred on August 6, 1919,
while the Act of the Legislature in question was not published until August 13, 1919, and the
order was not published until August 20, 1919. In the second place, as to the law, one cannot
be convicted of a violation of a law or of an order issued pursuant to the law when both the law
and the order fail to set up an ascertainable standard of guilt. (U.S. vs. Cohen Grocery Company
[1921], 255 U.S., 81, holding section 4 of the Federal Food Control Act of August 10, 1917, as
amended, invalid.)
In order that there may not be any misunderstanding of our position, I would respectfully invite
attention to the decision of the United States Supreme Court in German Alliance Ins. Co. vs.
Lewis ([1914, 233 U.S., 389), concerning the legislative regulation of the prices charged by
business affected with a public interest, and to another decision of the United States Supreme
Court, that of Marshall Field & Co. vs. Clark ([1892], 143 U.S., 649), which adopts as its own the
principles laid down in the case of Locke's Appeal ([1873], 72 Pa. St., 491), namely; "The
Legislature cannot delegate its power to make a law; but it can make a law to delegate a power
to determine some fact or state of things upon which the law makes, or intends to make, its own
action depend. To deny this would be to stop the wheels of government. There are many things
upon which wise and useful legislation must depend which cannot be known to the law-making
power, and must, therefore, be a subject of inquiry and determination outside of the halls of
legislation."
G.R. No. 74457 March 20, 1987
RESTITUTO YNOT, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, THE STATION COMMANDER, INTEGRATED
NATIONAL POLICE, BAROTAC NUEVO, ILOILO and THE REGIONAL DIRECTOR, BUREAU
OF ANIMAL INDUSTRY, REGION IV, ILOILO CITY, respondents.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, do hereby promulgate the following:
SECTION 1. Executive Order No. 626 is hereby amended such that henceforth, no carabao
regardless of age, sex, physical condition or purpose and no carabeef shall be transported from
one province to another. The carabao or carabeef transported in violation of this Executive Order
as amended shall be subject to confiscation and forfeiture by the government, to be distributed
to charitable institutions and other similar institutions as the Chairman of the National Meat
Inspection Commission may ay see fit, in the case of carabeef, and to deserving farmers
through dispersal as the Director of Animal Industry may see fit, in the case of carabaos.
SECTION 2. This Executive Order shall take effect immediately.
Done in the City of Manila, this 25th day of October, in the year of Our Lord, nineteen hundred
and eighty.
(SGD.) FERDINAND E. MARCOS
President
Republic of the Philippines
The petitioner had transported six carabaos in a pump boat from Masbate to Iloilo on January
13, 1984, when they were confiscated by the police station commander of Barotac Nuevo, Iloilo,
for violation of the above measure. 1 The petitioner sued for recovery, and the Regional Trial
Court of Iloilo City issued a writ of replevin upon his filing of a supersedeas bond of P12,000.00.
After considering the merits of the case, the court sustained the confiscation of the carabaos
and, since they could no longer be produced, ordered the confiscation of the bond. The court
also declined to rule on the constitutionality of the executive order, as raise by the petitioner, for
lack of authority and also for its presumed validity. 2
The petitioner appealed the decision to the Intermediate Appellate Court,* 3 which upheld the
trial court, ** and he has now come before us in this petition for review on certiorari.

Ramon A. Gonzales for petitioner.

CRUZ, J.:
The essence of due process is distilled in the immortal cry of Themistocles to Alcibiades "Strike
but hear me first!" It is this cry that the petitioner in effect repeats here as he challenges the
constitutionality of Executive Order No. 626-A.
The said executive order reads in full as follows:
WHEREAS, the President has given orders prohibiting the interprovincial movement of carabaos
and the slaughtering of carabaos not complying with the requirements of Executive Order No.
626 particularly with respect to age;
WHEREAS, it has been observed that despite such orders the violators still manage to
circumvent the prohibition against inter-provincial movement of carabaos by transporting
carabeef instead; and
WHEREAS, in order to achieve the purposes and objectives of Executive Order No. 626 and the
prohibition against interprovincial movement of carabaos, it is necessary to strengthen the said
Executive Order and provide for the disposition of the carabaos and carabeef subject of the
violation;

The thrust of his petition is that the executive order is unconstitutional insofar as it authorizes
outright confiscation of the carabao or carabeef being transported across provincial boundaries.
His claim is that the penalty is invalid because it is imposed without according the owner a right
to be heard before a competent and impartial court as guaranteed by due process. He
complains that the measure should not have been presumed, and so sustained, as
constitutional. There is also a challenge to the improper exercise of the legislative power by the
former President under Amendment No. 6 of the 1973 Constitution. 4
While also involving the same executive order, the case of Pesigan v. Angeles 5 is not applicable
here. The question raised there was the necessity of the previous publication of the measure in
the Official Gazette before it could be considered enforceable. We imposed the requirement then
on the basis of due process of law. In doing so, however, this Court did not, as contended by the
Solicitor General, impliedly affirm the constitutionality of Executive Order No. 626-A. That is an
entirely different matter.
This Court has declared that while lower courts should observe a becoming modesty in
examining constitutional questions, they are nonetheless not prevented from resolving the same
whenever warranted, subject only to review by the highest tribunal. 6 We have jurisdiction under
the Constitution to "review, revise, reverse, modify or affirm on appeal or certiorari, as the law or
rules of court may provide," final judgments and orders of lower courts in, among others, all
cases involving the constitutionality of certain measures. 7 This simply means that the resolution
of such cases may be made in the first instance by these lower courts.

And while it is true that laws are presumed to be constitutional, that presumption is not by any
means conclusive and in fact may be rebutted. Indeed, if there be a clear showing of their
invalidity, and of the need to declare them so, then "will be the time to make the hammer fall,
and heavily," 8 to recall Justice Laurel's trenchant warning. Stated otherwise, courts should not
follow the path of least resistance by simply presuming the constitutionality of a law when it is
questioned. On the contrary, they should probe the issue more deeply, to relieve the abscess,
paraphrasing another distinguished jurist, 9 and so heal the wound or excise the affliction.
Judicial power authorizes this; and when the exercise is demanded, there should be no shirking
of the task for fear of retaliation, or loss of favor, or popular censure, or any other similar
inhibition unworthy of the bench, especially this Court.
The challenged measure is denominated an executive order but it is really presidential decree,
promulgating a new rule instead of merely implementing an existing law. It was issued by
President Marcos not for the purpose of taking care that the laws were faithfully executed but in
the exercise of his legislative authority under Amendment No. 6. It was provided thereunder that
whenever in his judgment there existed a grave emergency or a threat or imminence thereof or
whenever the legislature failed or was unable to act adequately on any matter that in his
judgment required immediate action, he could, in order to meet the exigency, issue decrees,
orders or letters of instruction that were to have the force and effect of law. As there is no
showing of any exigency to justify the exercise of that extraordinary power then, the petitioner
has reason, indeed, to question the validity of the executive order. Nevertheless, since the
determination of the grounds was supposed to have been made by the President "in his
judgment, " a phrase that will lead to protracted discussion not really necessary at this time, we
reserve resolution of this matter until a more appropriate occasion. For the nonce, we confine
ourselves to the more fundamental question of due process.
It is part of the art of constitution-making that the provisions of the charter be cast in precise and
unmistakable language to avoid controversies that might arise on their correct interpretation.
That is the Ideal. In the case of the due process clause, however, this rule was deliberately not
followed and the wording was purposely kept ambiguous. In fact, a proposal to delineate it more
clearly was submitted in the Constitutional Convention of 1934, but it was rejected by Delegate
Jose P. Laurel, Chairman of the Committee on the Bill of Rights, who forcefully argued against it.
He was sustained by the body. 10
The due process clause was kept intentionally vague so it would remain also conveniently
resilient. This was felt necessary because due process is not, like some provisions of the
fundamental law, an "iron rule" laying down an implacable and immutable command for all
seasons and all persons. Flexibility must be the best virtue of the guaranty. The very elasticity of
the due process clause was meant to make it adapt easily to every situation, enlarging or
constricting its protection as the changing times and circumstances may require.
Aware of this, the courts have also hesitated to adopt their own specific description of due
process lest they confine themselves in a legal straitjacket that will deprive them of the elbow
room they may need to vary the meaning of the clause whenever indicated. Instead, they have
preferred to leave the import of the protection open-ended, as it were, to be "gradually
ascertained by the process of inclusion and exclusion in the course of the decision of cases as
they arise." 11 Thus, Justice Felix Frankfurter of the U.S. Supreme Court, for example, would go
no farther than to define due process and in so doing sums it all up as nothing more and
nothing less than "the embodiment of the sporting Idea of fair play." 12
When the barons of England extracted from their sovereign liege the reluctant promise that that
Crown would thenceforth not proceed against the life liberty or property of any of its subjects
except by the lawful judgment of his peers or the law of the land, they thereby won for
themselves and their progeny that splendid guaranty of fairness that is now the hallmark of the
free society. The solemn vow that King John made at Runnymede in 1215 has since then
resounded through the ages, as a ringing reminder to all rulers, benevolent or base, that every

person, when confronted by the stern visage of the law, is entitled to have his say in a fair and
open hearing of his cause.
The closed mind has no place in the open society. It is part of the sporting Idea of fair play to
hear "the other side" before an opinion is formed or a decision is made by those who sit in
judgment. Obviously, one side is only one-half of the question; the other half must also be
considered if an impartial verdict is to be reached based on an informed appreciation of the
issues in contention. It is indispensable that the two sides complement each other, as unto the
bow the arrow, in leading to the correct ruling after examination of the problem not from one or
the other perspective only but in its totality. A judgment based on less that this full appraisal, on
the pretext that a hearing is unnecessary or useless, is tainted with the vice of bias or
intolerance or ignorance, or worst of all, in repressive regimes, the insolence of power.
The minimum requirements of due process are notice and hearing 13 which, generally speaking,
may not be dispensed with because they are intended as a safeguard against official
arbitrariness. It is a gratifying commentary on our judicial system that the jurisprudence of this
country is rich with applications of this guaranty as proof of our fealty to the rule of law and the
ancient rudiments of fair play. We have consistently declared that every person, faced by the
awesome power of the State, is entitled to "the law of the land," which Daniel Webster described
almost two hundred years ago in the famous Dartmouth College Case, 14 as "the law which
hears before it condemns, which proceeds upon inquiry and renders judgment only after trial." It
has to be so if the rights of every person are to be secured beyond the reach of officials who, out
of mistaken zeal or plain arrogance, would degrade the due process clause into a worn and
empty catchword.
This is not to say that notice and hearing are imperative in every case for, to be sure, there are a
number of admitted exceptions. The conclusive presumption, for example, bars the admission of
contrary evidence as long as such presumption is based on human experience or there is a
rational connection between the fact proved and the fact ultimately presumed therefrom. 15
There are instances when the need for expeditions action will justify omission of these
requisites, as in the summary abatement of a nuisance per se, like a mad dog on the loose,
which may be killed on sight because of the immediate danger it poses to the safety and lives of
the people. Pornographic materials, contaminated meat and narcotic drugs are inherently
pernicious and may be summarily destroyed. The passport of a person sought for a criminal
offense may be cancelled without hearing, to compel his return to the country he has fled. 16
Filthy restaurants may be summarily padlocked in the interest of the public health and bawdy
houses to protect the public morals. 17 In such instances, previous judicial hearing may be
omitted without violation of due process in view of the nature of the property involved or the
urgency of the need to protect the general welfare from a clear and present danger.
The protection of the general welfare is the particular function of the police power which both
restraints and is restrained by due process. The police power is simply defined as the power
inherent in the State to regulate liberty and property for the promotion of the general welfare. 18
By reason of its function, it extends to all the great public needs and is described as the most
pervasive, the least limitable and the most demanding of the three inherent powers of the State,
far outpacing taxation and eminent domain. The individual, as a member of society, is hemmed
in by the police power, which affects him even before he is born and follows him still after he is
dead from the womb to beyond the tomb in practically everything he does or owns. Its
reach is virtually limitless. It is a ubiquitous and often unwelcome intrusion. Even so, as long as
the activity or the property has some relevance to the public welfare, its regulation under the
police power is not only proper but necessary. And the justification is found in the venerable
Latin maxims, Salus populi est suprema lex and Sic utere tuo ut alienum non laedas, which call
for the subordination of individual interests to the benefit of the greater number.
It is this power that is now invoked by the government to justify Executive Order No. 626-A,
amending the basic rule in Executive Order No. 626, prohibiting the slaughter of carabaos
except under certain conditions. The original measure was issued for the reason, as expressed
in one of its Whereases, that "present conditions demand that the carabaos and the buffaloes be

conserved for the benefit of the small farmers who rely on them for energy needs." We affirm at
the outset the need for such a measure. In the face of the worsening energy crisis and the
increased dependence of our farms on these traditional beasts of burden, the government would
have been remiss, indeed, if it had not taken steps to protect and preserve them.
A similar prohibition was challenged in United States v. Toribio, 19 where a law regulating the
registration, branding and slaughter of large cattle was claimed to be a deprivation of property
without due process of law. The defendant had been convicted thereunder for having
slaughtered his own carabao without the required permit, and he appealed to the Supreme
Court. The conviction was affirmed. The law was sustained as a valid police measure to prevent
the indiscriminate killing of carabaos, which were then badly needed by farmers. An epidemic
had stricken many of these animals and the reduction of their number had resulted in an acute
decline in agricultural output, which in turn had caused an incipient famine. Furthermore,
because of the scarcity of the animals and the consequent increase in their price, cattle-rustling
had spread alarmingly, necessitating more effective measures for the registration and branding
of these animals. The Court held that the questioned statute was a valid exercise of the police
power and declared in part as follows:
To justify the State in thus interposing its authority in behalf of the public, it must appear, first,
that the interests of the public generally, as distinguished from those of a particular class, require
such interference; and second, that the means are reasonably necessary for the
accomplishment of the purpose, and not unduly oppressive upon individuals. ...
From what has been said, we think it is clear that the enactment of the provisions of the statute
under consideration was required by "the interests of the public generally, as distinguished from
those of a particular class" and that the prohibition of the slaughter of carabaos for human
consumption, so long as these animals are fit for agricultural work or draft purposes was a
"reasonably necessary" limitation on private ownership, to protect the community from the loss
of the services of such animals by their slaughter by improvident owners, tempted either by
greed of momentary gain, or by a desire to enjoy the luxury of animal food, even when by so
doing the productive power of the community may be measurably and dangerously affected.
In the light of the tests mentioned above, we hold with the Toribio Case that the carabao, as the
poor man's tractor, so to speak, has a direct relevance to the public welfare and so is a lawful
subject of Executive Order No. 626. The method chosen in the basic measure is also reasonably
necessary for the purpose sought to be achieved and not unduly oppressive upon individuals,
again following the above-cited doctrine. There is no doubt that by banning the slaughter of
these animals except where they are at least seven years old if male and eleven years old if
female upon issuance of the necessary permit, the executive order will be conserving those still
fit for farm work or breeding and preventing their improvident depletion.
But while conceding that the amendatory measure has the same lawful subject as the original
executive order, we cannot say with equal certainty that it complies with the second requirement,
viz., that there be a lawful method. We note that to strengthen the original measure, Executive
Order No. 626-A imposes an absolute ban not on the slaughter of the carabaos but on their
movement, providing that "no carabao regardless of age, sex, physical condition or purpose (sic)
and no carabeef shall be transported from one province to another." The object of the prohibition
escapes us. The reasonable connection between the means employed and the purpose sought
to be achieved by the questioned measure is missing
We do not see how the prohibition of the inter-provincial transport of carabaos can prevent their
indiscriminate slaughter, considering that they can be killed anywhere, with no less difficulty in
one province than in another. Obviously, retaining the carabaos in one province will not prevent
their slaughter there, any more than moving them to another province will make it easier to kill
them there. As for the carabeef, the prohibition is made to apply to it as otherwise, so says
executive order, it could be easily circumvented by simply killing the animal. Perhaps so.
However, if the movement of the live animals for the purpose of preventing their slaughter

cannot be prohibited, it should follow that there is no reason either to prohibit their transfer as,
not to be flippant dead meat.
Even if a reasonable relation between the means and the end were to be assumed, we would
still have to reckon with the sanction that the measure applies for violation of the prohibition. The
penalty is outright confiscation of the carabao or carabeef being transported, to be meted out by
the executive authorities, usually the police only. In the Toribio Case, the statute was sustained
because the penalty prescribed was fine and imprisonment, to be imposed by the court after trial
and conviction of the accused. Under the challenged measure, significantly, no such trial is
prescribed, and the property being transported is immediately impounded by the police and
declared, by the measure itself, as forfeited to the government.
In the instant case, the carabaos were arbitrarily confiscated by the police station commander,
were returned to the petitioner only after he had filed a complaint for recovery and given a
supersedeas bond of P12,000.00, which was ordered confiscated upon his failure to produce the
carabaos when ordered by the trial court. The executive order defined the prohibition, convicted
the petitioner and immediately imposed punishment, which was carried out forthright. The
measure struck at once and pounced upon the petitioner without giving him a chance to be
heard, thus denying him the centuries-old guaranty of elementary fair play.
It has already been remarked that there are occasions when notice and hearing may be validly
dispensed with notwithstanding the usual requirement for these minimum guarantees of due
process. It is also conceded that summary action may be validly taken in administrative
proceedings as procedural due process is not necessarily judicial only. 20 In the exceptional
cases accepted, however. there is a justification for the omission of the right to a previous
hearing, to wit, the immediacy of the problem sought to be corrected and the urgency of the
need to correct it.
In the case before us, there was no such pressure of time or action calling for the petitioner's
peremptory treatment. The properties involved were not even inimical per se as to require their
instant destruction. There certainly was no reason why the offense prohibited by the executive
order should not have been proved first in a court of justice, with the accused being accorded all
the rights safeguarded to him under the Constitution. Considering that, as we held in Pesigan v.
Angeles, 21 Executive Order No. 626-A is penal in nature, the violation thereof should have
been pronounced not by the police only but by a court of justice, which alone would have had
the authority to impose the prescribed penalty, and only after trial and conviction of the accused.
We also mark, on top of all this, the questionable manner of the disposition of the confiscated
property as prescribed in the questioned executive order. It is there authorized that the seized
property shall "be distributed to charitable institutions and other similar institutions as the
Chairman of the National Meat Inspection Commission may see fit, in the case of carabeef, and
to deserving farmers through dispersal as the Director of Animal Industry may see fit, in the case
of carabaos." (Emphasis supplied.) The phrase "may see fit" is an extremely generous and
dangerous condition, if condition it is. It is laden with perilous opportunities for partiality and
abuse, and even corruption. One searches in vain for the usual standard and the reasonable
guidelines, or better still, the limitations that the said officers must observe when they make their
distribution. There is none. Their options are apparently boundless. Who shall be the fortunate
beneficiaries of their generosity and by what criteria shall they be chosen? Only the officers
named can supply the answer, they and they alone may choose the grantee as they see fit, and
in their own exclusive discretion. Definitely, there is here a "roving commission," a wide and
sweeping authority that is not "canalized within banks that keep it from overflowing," in short, a
clearly profligate and therefore invalid delegation of legislative powers.
To sum up then, we find that the challenged measure is an invalid exercise of the police power
because the method employed to conserve the carabaos is not reasonably necessary to the
purpose of the law and, worse, is unduly oppressive. Due process is violated because the owner
of the property confiscated is denied the right to be heard in his defense and is immediately
condemned and punished. The conferment on the administrative authorities of the power to

adjudge the guilt of the supposed offender is a clear encroachment on judicial functions and
militates against the doctrine of separation of powers. There is, finally, also an invalid delegation
of legislative powers to the officers mentioned therein who are granted unlimited discretion in the
distribution of the properties arbitrarily taken. For these reasons, we hereby declare Executive
Order No. 626-A unconstitutional.
We agree with the respondent court, however, that the police station commander who
confiscated the petitioner's carabaos is not liable in damages for enforcing the executive order in
accordance with its mandate. The law was at that time presumptively valid, and it was his
obligation, as a member of the police, to enforce it. It would have been impertinent of him, being
a mere subordinate of the President, to declare the executive order unconstitutional and, on his
own responsibility alone, refuse to execute it. Even the trial court, in fact, and the Court of
Appeals itself did not feel they had the competence, for all their superior authority, to question
the order we now annul.
The Court notes that if the petitioner had not seen fit to assert and protect his rights as he saw
them, this case would never have reached us and the taking of his property under the
challenged measure would have become a fait accompli despite its invalidity. We commend him
for his spirit. Without the present challenge, the matter would have ended in that pump boat in
Masbate and another violation of the Constitution, for all its obviousness, would have been
perpetrated, allowed without protest, and soon forgotten in the limbo of relinquished rights.
The strength of democracy lies not in the rights it guarantees but in the courage of the people to
invoke them whenever they are ignored or violated. Rights are but weapons on the wall if, like
expensive tapestry, all they do is embellish and impress. Rights, as weapons, must be a promise
of protection. They become truly meaningful, and fulfill the role assigned to them in the free
society, if they are kept bright and sharp with use by those who are not afraid to assert them.
WHEREFORE, Executive Order No. 626-A is hereby declared unconstitutional. Except as
affirmed above, the decision of the Court of Appeals is reversed. The supersedeas bond is
cancelled and the amount thereof is ordered restored to the petitioner. No costs.
SO ORDERED.