Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 168584             October 15, 2007

REPUBLIC OF THE PHILIPPINES, represented by THE HONORABLE SECRETARY OF FINANCE, THE HONORABLE COMMISSIONER OF BUREAU OF INTERNAL REVENUE, THE HONORABLE COMMISSIONER OF CUSTOMS, and THE COLLECTOR OF CUSTOMS OF THE PORT OF SUBIC, petitioners, vs.HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74, RTC, Third Judicial Region, Olongapo City, INDIGO DISTRIBUTION CORP., herein represented by ARIEL G. CONSOLACION, W STAR TRADING AND WAREHOUSING CORP., herein represented by HIERYN R. ECLARINAL, FREEDOM BRANDS PHILS., CORP., herein represented by ANA LISA RAMAT, BRANDED WAREHOUSE, INC., herein represented by MARY AILEEN S. GOZUN, ALTASIA INC., herein represented by ALAN HARROW, TAINAN TRADE (TAIWAN), INC., herein represented by ELENA RANULLO, SUBIC PARK N’ SHOP, herein represented by NORMA MANGALINO DIZON, TRADING GATEWAYS INTERNATIONAL PHILS., herein represented by MA. CHARINA FE C. RODOLFO, DUTY FREE SUPERSTORE (DFS), herein represented by RAJESH R. SADHWANI, CHJIMES TRADING INC., herein represented by ANGELO MARK M. PICARDAL, PREMIER FREEPORT, INC., herein represented by ROMMEL P. GABALDON, FUTURE TRADE SUBIC FREEPORT, INC., herein represented by WILLIE S. VERIDIANO, GRAND COMTRADE INTERNATIONAL CORP., herein represented by JULIUS MOLINDA, and FIRST PLATINUM INTERNATIONAL, INC., herein represented by ISIDRO M. MUÑOZ, respondents.

D E C I S I O N

CARPIO MORALES, J.:

Petitioners seek via petition for certiorari and prohibition to annul (1) the May 4, 2005 Order 1 issued by public respondent Judge Ramon S. Caguioa of the Regional Trial Court (RTC), Branch 74, Olongapo City, granting private respondents’ application for the issuance of a writ of preliminary injunction and (2) the Writ of Preliminary Injunction 2 that was issued pursuant to such Order, which stayed the implementation of Republic Act (R.A.) No. 9334, AN ACT INCREASING THE EXCISE TAX RATES IMPOSED ON ALCOHOL AND TOBACCO PRODUCTS, AMENDING FOR THE PURPOSE SECTIONS 131, 141, 142, 143, 144, 145 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED.

Petitioners likewise seek to enjoin, restrain and inhibit public respondent from enforcing the impugned issuances and from further proceeding with the trial of Civil Case No. 102-0-05.

The relevant facts are as follows:

In 1992, Congress enacted Republic Act (R.A) No. 72273 or the Bases Conversion and Development Act of 1992 which, among other things, created the Subic Special Economic and Freeport Zone (SBF4) and the Subic Bay Metropolitan Authority (SBMA).

R.A. No. 7227 envisioned the SBF to be developed into a "self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments." 5 In line with this vision, Section 12 of the law provided:

(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines;

(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and

enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic, and other municipalities contiguous to be base areas.

In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter;

(d) No exchange control policy shall be applied and free markets for foreign exchange, gold, securities and future shall be allowed and maintained in the Subic Special Economic Zone;

(e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations of banks and other financial institutions within the Subic Special Economic Zone;

(f) Banking and finance shall be liberalized with the establishment of foreign currency depository units of local commercial banks and offshore banking units of foreign banks with minimum Central Bank regulation;

(g) Any investor within the Subic Special Economic Zone whose continuing investment shall not be less than Two hundred fifty thousand dollars ($250,000), his/her spouse and dependent children under twenty-one (21) years of age, shall be granted permanent resident status within the Subic Special Economic Zone. They shall have freedom of ingress and egress to and from the Subic Special Economic Zone without any need of special authorization from the Bureau of Immigration and Deportation. The Subic Bay Metropolitan Authority referred to in Section 13 of this Act may also issue working visas renewal every two (2) years to foreign executives and other aliens possessing highly-technical skills which no Filipino within the Subic Special Economic Zone possesses, as certified by the Department of Labor and Employment. The names of aliens granted permanent residence status and working visas by the Subic Bay Metropolitan Authority shall be reported to the Bureau of Immigration and Deportation within thirty (30) days after issuance thereof;

x x x x. (Emphasis supplied)

Pursuant to the law, private respondents Indigo Distribution Corporation, W Star Trading and Warehousing Corporation, Freedom Brands Philippines Corporation, Branded Warehouse, Inc., Altasia, Inc., Tainan Trade (Taiwan) Inc., Subic Park ‘N Shop, Incorporated, Trading Gateways International Philipines, Inc., Duty Free Superstore (DFS) Inc., Chijmes Trading, Inc., Premier Freeport, Inc., Future Trade Subic Freeport, Inc., Grand Comtrade Int’l., Corp., and First Platinum International, Inc., which are all domestic corporations doing business at the SBF, applied for and were granted Certificates of Registration and Tax Exemption6 by the SBMA.

These certificates allowed them to engage in the business either of trading, retailing or wholesaling, import and export, warehousing, distribution and/or transshipment of general merchandise, including alcohol and tobacco products, and uniformly granted them tax exemptions for such importations as contained in the following provision of their respective Certificates:

ARTICLE IV. The Company shall be entitled to tax and duty-free importation of raw materials, capital equipment, and household and personal items for use solely within the Subic Bay Freeport Zone pursuant to Sections 12(b) and 12(c) of the Act and Sections 43, 45, 46 and 49 of the Implementing Rules. All importations by the Company are exempt from inspection by the Societe Generale de Surveillance if such importations are delivered immediately to and for use solely within the Subic Bay Freeport Zone. (Emphasis supplied)

Congress subsequently passed R.A. No. 9334, however, effective on January 1, 2005,7 Section 6 of which provides:

Sec. 6. Section 131 of the National Internal Revenue Code of 1977, as amended, is hereby amended to read as follows:

Sec. 131. Payment of Excise Taxes on Imported Articles. –

(A) Persons Liable. – Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the Department of Finance and before the release of such articles from the customshouse or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by persons, entities or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation.

The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. This shall apply to cigars and cigarettes, distilled spirits, fermented liquors and wines brought directly into the duly chartered or legislated freeports of the Subic Economic Freeport Zone, created under Republic Act No. 7227; x x x and such other freeports as may hereafter be established or created by law: Provided, further, That importations of cigars and cigarettes, distilled spirits, fermented liquors and wines made directly by a government-owned and operated duty-free shop, like the Duty Free Philippines (DFP), shall be exempted from all applicable duties only: x x x Provided, finally, That the removal and transfer of tax and duty-free goods, products, machinery, equipment and other similar articles other than cigars and cigarettes, distilled spirits, fermented liquors and wines, from one Freeport to another Freeport, shall not be deemed an introduction into the Philippine customs territory. x x x. (Emphasis and underscoring supplied)

On the basis of Section 6 of R.A. No. 9334, SBMA issued on January 10, 2005 a Memorandum8 declaring that effective January 1, 2005, all importations of cigars, cigarettes, distilled spirits, fermented liquors and wines into the SBF, including those intended to be transshipped to other free ports in the Philippines, shall be treated as ordinary importations subject to all applicable taxes, duties and charges, including excise taxes.

Meanwhile, on February 3, 2005, former Bureau of Internal Revenue (BIR) Commissioner Guillermo L. Parayno, Jr. requested then Customs Commissioner George M. Jereos to immediately collect the excise tax due on imported alcohol and tobacco products brought to the Duty Free Philippines (DFP) and Freeport zones.9

Accordingly, the Collector of Customs of the port of Subic directed the SBMA Administrator to require payment of all appropriate duties and taxes on all importations of cigars and cigarettes, distilled spirits, fermented liquors and wines; and for all transactions involving the said items to be covered from then on by a consumption entry and no longer by a warehousing entry.10

On February 7, 2005, SBMA issued a Memorandum11 directing the departments concerned to require locators/importers in the SBF to pay the corresponding duties and taxes on their importations of cigars, cigarettes, liquors and wines before said items are cleared and released from the freeport. However, certain SBF locators which were "exclusively engaged in the transshipment of cigarette products for foreign destinations" were allowed by the SBMA to process their import documents subject to their submission of an Undertaking with the Bureau of Customs.12

On February 15, 2005, private respondents wrote the offices of respondent Collector of Customs and the SBMA Administrator requesting for a reconsideration of the directives on the imposition of duties and taxes, particularly excise taxes, on their shipments of cigars, cigarettes, wines and liquors.13 Despite these letters, however, they were not allowed to file any warehousing entry for their shipments.

Thus, private respondent enterprises, through their representatives, brought before the RTC of Olongapo City a special civil action for declaratory relief14 to have certain provisions of R.A. No. 9334 declared as unconstitutional, which case was docketed as Civil Case No. 102-0-05.

In the main, private respondents submitted that (1) R.A. No. 9334 should not be interpreted as altering, modifying or amending the provisions of R.A. No. 7227 because repeals by implication are not favored; (2) a general law like R.A. No. 9334 cannot amend R.A. No. 7727, which is a special law; and (3) the assailed law violates the one bill-one subject rule embodied in Section 26(1), Article VI15 of the Constitution as well as the constitutional proscription against the impairment of the obligation of contracts.16

Alleging that great and irreparable loss and injury would befall them as a consequence of the imposition of taxes on alcohol and tobacco products brought into the SBF, private respondents prayed for the issuance of a writ of preliminary injunction and/or Temporary Restraining Order (TRO) and preliminary mandatory injunction to enjoin the directives of herein petitioners.

Petitioners duly opposed the private respondents’ prayer for the issuance of a writ of preliminary injunction and/or TRO, arguing that (1) tax exemptions are not presumed and even when granted, are strictly construed against the grantee; (2) an increase in business expense is not the injury contemplated by law, it being a case of damnum absque injuria; and (3) the drawback mechanism established in the law clearly negates the possibility of the feared injury.17

Petitioners moreover pointed out that courts are enjoined from issuing a writ of injunction and/or TRO on the grounds of an alleged nullity of a law, ordinance or administrative regulation or circular or in a manner that would effectively dispose of the main case. Taxes, they stressed, are the lifeblood of the government and their prompt and certain availability is an imperious need. They maintained that greater injury would be inflicted on the public should the writ be granted.

On May 4, 2005, the court a quo granted private respondents’ application for the issuance of a writ of preliminary injunction, after it found that the essential requisites for the issuance of a preliminary injunction were present.

As investors duly licensed to operate inside the SBF, the trial court declared that private respondents were entitled to enjoy the benefits of tax incentives under R.A. No. 7227, particularly the exemption from local and national taxes under Section 12(c); the aforecited provision of R.A. No. 7227, coupled with private respondents’ Certificates of Registration and Tax Exemption from the SBMA, vested in them a clear and unmistakable right or right in esse that would be violated should R.A. No. 9334 be implemented; and the invasion of such right is substantial and material as private respondents would be compelled to pay more than what they should by way of taxes to the national government.

The trial court thereafter ruled that the prima facie presumption of validity of R.A. No. 9334 had been overcome by private respondents, it holding that as a partial amendment of the National Internal Revenue Code (NIRC) of 1997, 18 as amended, R.A. No. 9334 is a general law that could not prevail over a special statute like R.A. No. 7227 notwithstanding the fact that the assailed law is of later effectivity.

The trial court went on to hold that the repealing provision of Section 10 of R.A. No. 9334 does not expressly mention the repeal of R. A. No. 7227, hence, its repeal can only be an implied repeal, which is not favored; and since R.A. No. 9334 imposes new tax burdens, whatever doubts arising therefrom should be resolved against the taxing authority and in favor of the taxpayer.

The trial court furthermore held that R.A. No. 9334 violates the terms and conditions of private respondents’ subsisting contracts with SBMA, which are embodied in their Certificates of Registration and Exemptions in contravention of the constitutional guarantee against the impairment of contractual obligations; that greater damage would be inflicted on private respondents if the writ of injunction is not issued as compared to the injury that the government and the general public would suffer from its issuance; and that the damage that private respondents are bound to suffer once the assailed statute is implemented – including the loss of confidence of their foreign principals, loss of business opportunity and unrealized income, and the danger of closing down their businesses due to uncertainty of continued viability – cannot be measured accurately by any standard.

With regard to the rule that injunction is improper to restrain the collection of taxes under Section 218 19 of the NIRC, the trial court held that what is sought to be enjoined is not per se the collection of taxes, but the implementation of a statute that has been found preliminarily to be unconstitutional.

Additionally, the trial court pointed out that private respondents’ taxes have not yet been assessed, as they have not filed consumption entries on all their imported tobacco and alcohol products, hence, their duty to pay the corresponding excise taxes and the concomitant right of the government to collect the same have not yet materialized.

On May 11, 2005, the trial court issued a Writ of Preliminary Injunction directing petitioners and the SBMA Administrator as well as all persons assisting or acting for and in their behalf "1) to allow the operations of [private respondents] in accordance with R.A. No. 7227; 2) to allow [them] to file warehousing entries instead of consumption entries as regards their importation of tobacco and alcohol products; and 3) to cease and desist from implementing the pertinent provisions of R.A. No. 9334 by not compelling [private respondents] to immediately pay duties and taxes on said alcohol and tobacco products as a condition to their removal from the port area for transfer to the warehouses of [private respondents]."20

The injunction bond was approved at One Million pesos (P1,000,000).21

Without moving for reconsideration, petitioners have come directly to this Court to question the May 4, 2005 Order and the Writ of Preliminary Injunction which, they submit, were issued by public respondent with grave abuse of discretion amounting to lack or excess of jurisdiction.

In particular, petitioners contend that public respondent peremptorily and unjustly issued the injunctive writ despite the absence of the legal requisites for its issuance, resulting in heavy government revenue losses.22 They emphatically argue that since the tax exemption previously enjoyed by private respondents has clearly been withdrawn by R.A. No. 9334, private respondents do not have any right in esse nor can they invoke legal injury to stymie the enforcement of R.A. No. 9334.

Furthermore, petitioners maintain that in issuing the injunctive writ, public respondent showed manifest bias and prejudice and prejudged the merits of the case in utter disregard of the caveat issued by this Court in  Searth Commodities Corporation, et al. v. Court of Appeals23 and Vera v. Arca.24

Regarding the P1 million injunction bond fixed by public respondent, petitioners argue that the same is grossly disproportionate to the damages that have been and continue to be sustained by the Republic.

In their Reply25 to private respondents’ Comment, petitioners additionally plead public respondent’s bias and partiality in allowing the motions for intervention of a number of corporations26 without notice to them and in disregard of their present pending petition for certiorari and prohibition before this Court. The injunction bond filed by private respondent Indigo Distribution Corporation, they stress, is not even sufficient to cover all the original private respondents, much less, intervenor-corporations.

The petition is partly meritorious.

At the outset, it bears emphasis that only questions relating to the propriety of the issuance of the May 4, 2005 Order and the Writ of Preliminary Injunction are properly within the scope of the present petition and shall be so addressed in order to determine if public respondent committed grave abuse of discretion. The arguments raised by private respondents which pertain to the constitutionality of R.A. No. 9334 subject matter of the case pending litigation before the trial court have no bearing in resolving the present petition.

Section 3 of Rule 58 of the Revised Rules of Court provides:

SEC. 3. Grounds for issuance of preliminary injunction. – A preliminary injunction may be granted when it is established.

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

For a writ of preliminary injunction to issue, the plaintiff must be able to establish that (1) there is a clear and unmistakable right to be protected, (2) the invasion of the right sought to be protected is material and substantial, and (3) there is an urgent and paramount necessity for the writ to prevent serious damage.27

Conversely, failure to establish either the existence of a clear and positive right which should be judicially protected through the writ of injunction, or of the acts or attempts to commit any act which endangers or tends to endanger the existence of said right, or of the urgent need to prevent serious damage, is a sufficient ground for denying the preliminary injunction.28

It is beyond cavil that R.A. No. 7227 granted private respondents exemption from local and national taxes, including excise taxes, on their importations of general merchandise, for which reason they enjoyed tax-exempt status until the effectivity of R.A. No. 9334.

By subsequently enacting R.A. No. 9334, however, Congress expressed its intention to withdraw private respondents’ tax exemption privilege on their importations of cigars, cigarettes, distilled spirits, fermented liquors and wines. Juxtaposed to show this intention are the respective provisions of Section 131 of the NIRC before and after its amendment by R.A. No. 9334:

x x x x.

Sec. 131 of NIRC before R.A. No. 9334 Sec. 131, as amended by R.A. No. 9334Sec. 131. Payment of Excise Taxes on Imported Articles. –

(A) Persons Liable. – Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the Department of Finance and before the release of such articles from the customs house or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption.

Sec. 131. Payment of Excise Taxes on Imported Articles. –

(A) Persons Liable. – Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the Department of Finance and before the release of such articles from the customs house or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by persons, entities or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation.

The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. Provided, however, Thatthis shall   not apply   to cigars and cigarettes, fermented spirits and wines brought directly into the duly chartered or legislated freeports of the Subic Economic Freeport Zone, created under Republic Act No. 7227; the Cagayan Special Economic Zone and Freeport, created under Republic Act No. 7922; and the Zamboanga City Special Economic Zone, created under Republic Act No. 7903, and are not transshipped to any other port in the Philippines: Provided, further, That importations of cigars and cigarettes, distilled spirits, fermented liquors and wines made directly by a government-owned and operated duty-free shop, like the Duty Free Philippines (DFP), shall be exempted from all applicable duties, charges, including excise tax due thereon; Provided still further, That such articles directly imported by a government-owned and operated duty-free shop, like the Duty-Free Philippines, shall be labeled "tax and duty-free" and "not for resale": Provided, still further, That if such articles brought into the duly chartered or legislated freeports under Republic Acts Nos. 7227, 7922 and 7903 are subsequently introduced into the Philippine customs territory, then such articles shall, upon such introduction, be deemed imported into the Philippines and shall be subject to all imposts and excise taxes provided herein and other statutes: Provided, finally, That the removal and transfer of tax and duty-free goods, products, machinery, equipment and other similar articles, from one freeport to another freeport, shall not be deemed an introduction into the Philippine customs territory.

x x x x.

In the case of tax-free articles brought or imported into the Philippines by persons, entities or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation.

The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. This shall   apply to cigars and cigarettes,   distilled spirits , fermented liquors and wines brought directly into the duly chartered or legislated freeports of the Subic Economic Freeport Zone, created under Republic Act No. 7227; the Cagayan Special Economic Zone and Freeport, created under Republic Act No. 7922; and the Zamboanga City Special Economic Zone, created under Republic Act No. 7903, and such other freeports as may hereafter be established or created by law: Provided, further, That importations of cigars and cigarettes, distilled spirits, fermented liquors and wines made directly by a government-owned and operated duty-free shop, like the Duty Free Philippines (DFP), shall be exempted from all applicable duties only: Provided still further, That such articles directly imported by a government-owned and operated duty-free shop, like the Duty-Free Philippines, shall be labeled "tax and duty-free" and "not for resale":Provided, finally, That the removal and transfer of tax and duty-free goods, products, machinery, equipment and other similar articles other than cigars and cigarettes, distilled spirits, fermented liquors and wines, from one Freeport to another Freeport, shall not be deemed an introduction into the Philippine customs territory.

x x x x.

(Emphasis and underscoring supplied)

To note, the old Section 131 of the NIRC expressly provided that all taxes, duties, charges, including excise taxes shall not apply to importations of cigars, cigarettes, fermented spirits and wines brought directly into the duly chartered or legislated freeports of the SBF.

On the other hand, Section 131, as amended by R.A. No. 9334, now provides that such taxes, duties and charges, including excise taxes, shall apply to importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the SBF.

Without necessarily passing upon the validity of the withdrawal of the tax exemption privileges of private respondents, it behooves this Court to state certain basic principles and observations that should throw light on the propriety of the issuance of the writ of preliminary injunction in this case.

First. Every presumption must be indulged in favor of the constitutionality of a statute.29 The burden of proving the unconstitutionality of a law rests on the party assailing the law.30 In passing upon the validity of an act of a co-equal and coordinate branch of the government, courts must ever be mindful of the time-honored principle that a statute is presumed to be valid.

Second. There is no vested right in a tax exemption, more so when the latest expression of legislative intent renders its continuance doubtful. Being a mere statutory privilege,31 a tax exemption may be modified or withdrawn at will by the granting authority.32

To state otherwise is to limit the taxing power of the State, which is unlimited, plenary, comprehensive and supreme. The power to impose taxes is one so unlimited in force and so searching in extent, it is subject only to restrictions which rest on the discretion of the authority exercising it.33

Third. As a general rule, tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority.34 The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed.35 In case of doubt, non-exemption is favored.36

Fourth. A tax exemption cannot be grounded upon the continued existence of a statute which precludes its change or repeal. 37 Flowing from the basic precept of constitutional law that no law is irrepealable, Congress, in the legitimate exercise of its lawmaking powers, can enact a law withdrawing a tax exemption just as efficaciously as it may grant the same under Section 28(4) of Article VI38 of the Constitution. There is no gainsaying therefore that Congress can amend Section 131 of the NIRC in a manner it sees fit, as it did when it passed R.A. No. 9334.

Fifth. The rights granted under the Certificates of Registration and Tax Exemption of private respondents are not absolute and unconditional as to constitute rights in esse – those clearly founded on or granted by law or is enforceable as a matter of law.39

These certificates granting private respondents a "permit to operate" their respective businesses are in the nature of licenses, which the bulk of jurisprudence considers as neither a property nor a property right.40 The licensee takes his license subject to such conditions as the grantor sees fit to impose, including its revocation at pleasure.41 A license can thus be revoked at any time since it does not confer an absolute right.42

While the tax exemption contained in the Certificates of Registration of private respondents may have been part of the inducement for carrying on their businesses in the SBF, this exemption, nevertheless, is far from being contractual in nature in the sense that the non-impairment clause of the Constitution can rightly be invoked.43

Sixth. Whatever right may have been acquired on the basis of the Certificates of Registration and Tax Exemption must yield to the State’s valid exercise of police power.44 It is well to remember that taxes may be made the implement of the police power.45

It is not difficult to recognize that public welfare and necessity underlie the enactment of R.A. No. 9334. As petitioners point out, the now assailed provision was passed to curb the pernicious practice of some unscrupulous business enterprises inside the SBF of using their tax exemption privileges for smuggling purposes. Smuggling in whatever form is bad enough; it is worse when the same is allegedly perpetrated, condoned or facilitated by enterprises hiding behind the cloak of their tax exemption privileges.

Seventh. As a rule, courts should avoid issuing a writ of preliminary injunction which would in effect dispose of the main case without trial.46 This rule is intended to preclude a prejudgment of the main case and a reversal of the rule on the burden of proof since by issuing the injunctive writ, the court would assume the proposition that petitioners are inceptively duty bound to prove.47

Eighth. A court may issue a writ of preliminary injunction only when the petitioner assailing a statute has made out a case of unconstitutionality or invalidity strong enough, in the mind of the judge, to overcome the presumption of validity, in addition to a showing of a clear legal right to the remedy sought.48

Thus, it is not enough that petitioners make out a case of unconstitutionality or invalidity to overcome the  prima facie presumption of validity of a statute; they must also be able to show a clear legal right that ought to be protected by the court. The issuance of the writ is therefore not proper when the complainant’s right is doubtful or disputed.49

Ninth. The feared injurious effects of the imposition of duties, charges and taxes on imported cigars, cigarettes, distilled spirits, fermented liquors and wines on private respondents’ businesses cannot possibly outweigh the dire consequences that the non-collection of taxes, not to mention the unabated smuggling inside the SBF, would wreak on the government. Whatever damage would befall private respondents must perforce take a back seat to the pressing need to curb smuggling and raise revenues for governmental functions.

All told, while the grant or denial of an injunction generally rests on the sound discretion of the lower court, this Court may and should intervene in a clear case of abuse.50

One such case of grave abuse obtained in this case when public respondent issued his Order of May 4, 2005 and the Writ of Preliminary Injunction on May 11, 200551 despite the absence of a clear and unquestioned legal rightof private respondents.

In holding that the presumption of constitutionality and validity of R.A. No. 9334 was overcome by private respondents for the reasons public respondent cited in his May 4, 2005 Order, he disregarded the fact that as a condition  sine qua non to the issuance of a writ of preliminary injunction, private respondents needed also to show a clear legal right that ought to be protected. That requirement is not satisfied in this case.

To stress, the possibility of irreparable damage without proof of an actual existing right would not justify an injunctive relief.52

Besides, private respondents are not altogether lacking an appropriate relief under the law. As petitioners point out in their Petition53 before this Court, private respondents may avail themselves of a tax refund or tax credit should R.A. No. 9334 be finally declared invalid.

Indeed, Sections 20454 and 22955 of the NIRC provide for the recovery of erroneously or illegally collected taxes which would be the nature of the excise taxes paid by private respondents should Section 6 of R.A. No. 9334 be declared unconstitutional or invalid.

It may not be amiss to add that private respondents can also opt not to import, or to import less of, those items which no longer enjoy tax exemption under R.A. No. 9334 to avoid the payment of taxes thereon.

The Court finds that public respondent had also ventured into the delicate area which courts are cautioned from taking when deciding applications for the issuance of the writ of preliminary injunction. Having ruled preliminarily against the prima facie validity of R.A. No. 9334, he assumed in effect the proposition that private respondents in their petition for declaratory relief were duty bound to prove, thereby shifting to petitioners the burden of proving that R.A. No. 9334 is not unconstitutional or invalid.

In the same vein, the Court finds public respondent to have overstepped his discretion when he arbitrarily fixed the injunction bond of the SBF enterprises at only P1million.

The alleged sparseness of the testimony of Indigo Corporation’s representative56 on the injury to be suffered by private respondents may be excused because evidence for a preliminary injunction need not be conclusive or complete. Nonetheless, considering the number of private respondent enterprises and the volume of their businesses, the injunction bond is undoubtedly not sufficient to answer for the damages that the government was bound to suffer as a consequence of the suspension of the implementation of the assailed provisions of R.A. No. 9334.

Rule 58, Section 4(b) provides that a bond is executed in favor of the party enjoined to answer for all damages which it may sustain by reason of the injunction. The purpose of the injunction bond is to protect the defendant against loss or damage by reason of the injunction in case the court finally decides that the plaintiff was not entitled to it, and the bond is usually conditioned accordingly.57

Recalling this Court’s pronouncements in Olalia v. Hizon58 that:

x x x [T]here is no power the exercise of which is more delicate, which requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should never be extended unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in damages.

Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency demands it,

it cannot be overemphasized that any injunction that restrains the collection of taxes, which is the inevitable result of the suspension of the implementation of the assailed Section 6 of R.A. No. 9334, is a limitation upon the right of the government to its lifeline and wherewithal.

The power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.59 That the enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government has been repeatedly observed. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance,60 every precaution must be taken not to unduly suppress it.

Whether this Court must issue the writ of prohibition, suffice it to stress that being possessed of the power to act on the petition for declaratory relief, public respondent can proceed to determine the merits of the main case. To halt the proceedings at this point may be acting too prematurely and would not be in keeping with the policy that courts must decide controversies on the merits.

Moreover, lacking the requisite proof of public respondent’s alleged partiality, this Court has no ground to prohibit him from proceeding with the case for declaratory relief. For these reasons, prohibition does not lie.

WHEREFORE, the Petition is PARTLY GRANTED. The writ of certiorari to nullify and set aside the Order of May 4, 2005 as well as the Writ of Preliminary Injunction issued by respondent Judge Caguioa on May 11, 2005 isGRANTED. The assailed Order and Writ of Preliminary Injunction are hereby declared NULL AND VOID and accordingly SET ASIDE. The writ of prohibition prayed for is, however, DENIED.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

 

G.R. No. 92585 May 8, 1992

CALTEX PHILIPPINES, INC., petitioner, vs.THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.

 

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the authority of the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising from sales to the National Power Corporation, Atlas Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining Corporation (MAR-COPPER), preventing it from exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and disallowing its claims which are still pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).

Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional Commissions 3 may be brought to this Court on certiorari by the aggrieved party within thirty (30) days from receipt of a copy thereof. The certiorari referred to is the special civil action for certiorari under Rule 65 of the Rules of Court. 4

Considering, however, that the allegations that the COA acted with: (a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings and rulings of the administrator

of the fund itself and in disallowing a claim which is still pending resolution at the OEA level, and (b) "grave abuse of discretion and completely without jurisdiction" 5 in declaring that petitioner cannot avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement therefrom are sufficient to bring this petition within Rule 65 of the Rules of Court, and, considering further the importance of the issues raised, the error in the designation of the remedy pursued will, in this instance, be excused.

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as follows:

Sec. 8 . There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum products. The Oil Price Stabilization Fund may be sourced from any of the following:

a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax exemptions of government corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy;

c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that may be issued by the Board of Energy requiring payment by persons or companies engaged in the business of importing, manufacturing and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation of crude oil and petroleum products is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board of Energy.

The Fund herein created shall be used for the following:

1) To reimburse the oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustment and/or increase in world market prices of crude oil;

2) To reimburse the oil companies for possible cost under-recovery incurred as a result of the reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.

The material operative facts of this case, as gathered from the pleadings of the parties, are not disputed.

On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as Petitioner, directing the latter to remit to the OPSF its collection, excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to P335,037,649.00 and informing it that, pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. 6

On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the OEA showed that the grand total of its unremitted collections of the above tax is P1,287,668,820.00, broken down as follows:

1986 — P233,190,916.001987 — 335,065,650.001988 — 719,412,254.00;

directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent periods. 7

In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of government transactions of national government agencies and government-owned or controlled corporations. 8

In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit action on the reimbursement claims. 9

By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the payment of the collections and the recovery of claims, since the outright payment of the sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will cause a very serious impairment of its cash position. 10 The proposal reads:

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to COA to facilitate monitoring of payments and reimbursements will be administered by the ERB/Finance Dept./OEA, as agencies designated by law to administer/regulate OPSF.

(2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion as payment to OPSF, similarly OEA will deliver to Caltex the same amount in cash reimbursement from OPSF.

(3) The COA audit will commence immediately and will be conducted expeditiously.

(4) The review of current claims (1989) will be conducted expeditiously to preclude further accumulation of reimbursement from OPSF.

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the above-stated proposal but prohibiting petitioner from further offsetting remittances and reimbursements for the current and ensuing years. 11 Decision No. 921 reads:

This pertains to the within separate requests of Mr. Manuel A. Estrella, President, Petron Corporation, and Mr. Francis Ablan, President and Managing Director, Caltex (Philippines) Inc., for reconsideration of this Commission's adverse action embodied in its letters dated February 2, 1989 and March 9, 1989, the former directing immediate remittance to the Oil Price Stabilization Fund of collections made by the firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the latter reiterating the same directive but further advising the firms to desist from offsetting collections against their claims with the notice that "this Commission will hold in abeyance the audit of all . . . claims for reimbursement from the OPSF."

It appears that under letters of authority issued by the Chairman, Energy Regulatory Board, the aforenamed oil companies were allowed to offset the amounts due to the Oil Price Stabilization Fund against their outstanding claims from the said Fund for the calendar years 1987 and 1988, pending with the then Ministry of Energy, the government entity charged with administering the OPSF. This Commission, however, expressing serious doubts as to the propriety of the offsetting of all types of reimbursements from the OPSF against all categories of remittances, advised these oil companies that such offsetting was bereft of legal basis. Aggrieved thereby, these companies now seek reconsideration and in support thereof clearly manifest their intent to make arrangements for the remittance to the Office of Energy Affairs of the amount of collections equivalent to what has been previously offset,  provided that this Commission authorizes the Office of Energy Affairs to prepare the corresponding checks representing reimbursement from the OPSF. It is alleged that the implementation of such an arrangement, whereby the remittance of collections due to the OPSF and the reimbursement of claims from the Fund shall be made within a period of not more than one week from each other, will benefit the Fund and not unduly jeopardize the continuing daily cash requirements of these firms.

Upon a circumspect evaluation of the circumstances herein obtaining, this Commission perceives no further objectionable feature in the proposed arrangement, provided that 15% of whatever amount is due from the Fund is retained by the Office of Energy Affairs,

the same to be answerable for suspensions or disallowances, errors or discrepancies which may be noted in the course of audit and surcharges for late remittances without prejudice to similar future retentions to answer for any deficiency in such surcharges, and provided further that no offsetting of remittances and reimbursements for the current and ensuing years shall be allowed.

Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director Wenceslao R. De la Paz of the Office of Energy Affairs: 12

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based on our initial verification of documents submitted to us by your Office in support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989, as well as its outstanding claims against the Oil Price Stabilization Fund (OPSF) as of May 31, 1989, we are pleased to inform your Office that Caltex (Philippines), Inc. shall be required to remit to OPSF an amount of P1,505,668,906, representing remittances to the OPSF which were offset against its claims reimbursements (net of unsubmitted claims). In addition, the Commission hereby authorize ( sic) the Office of Energy Affairs (OEA) to cause payment of P1,959,182,612 to Caltex, representing claims initially allowed in audit, the details of which are presented hereunder: . . .

As presented in the foregoing computation the disallowances totalled P387,683,535, which included P130,420,235 representing those claims disallowed by OEA, details of which is (sic) shown in Schedule 1 as summarized as follows:

Disallowance of COAParticulars Amount

Recovery of financing charges P162,728,475 /aProduct sales 48,402,398 /bInventory lossesBorrow loan arrangement 14,034,786 /cSales to Atlas/Marcopper 32,097,083 /dSales to NPC 558——————P257,263,300

Disallowances of OEA 130,420,235————————— ——————Total P387,683,535

The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges

Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that recovery of financing charges by oil companies is not among the items for which the OPSF may be utilized. Therefore, it is our view that recovery of financing charges has no legal basis. The mechanism for such claims is provided in DOF Circular 1-87.

b. Product Sales –– Sales to International Vessels/Airlines

BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that (sic) oil companies should pay OPSF impost on export sales of petroleum products. Effective February 7, 1987 sales to international vessels/airlines should not be included as part of its domestic sales. Changing the effectivity date of the resolution from February 7, 1987 to October 20, 1987 as covered by subsequent ERB Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in their domestic sales volumes to international vessels/airlines and claim the corresponding reimbursements from OPSF during the period. It is our opinion that the effectivity of the said resolution should be February 7, 1987.

c. Inventory losses –– Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA) transactions including the related BLA agreement, as they affect the claims for reimbursements of ad valorem taxes. We observed that oil companies immediately settle ad valorem taxes for BLA

transaction (sic). Loan balances therefore are not tax paid inventories of Caltex subject to reimbursements but those of the borrower. Hence, we recommend reduction of the claim for July, August, and November, 1987 amounting to P14,034,786.

d. Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the suspension of payment of all taxes, duties, fees, imposts and other charges whether direct or indirect due and payable by the copper mining companies in distress to the national and local governments." It is our opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount as herein authorized shall be subject to availability of funds of OPSF as of May 31, 1989 and applicable auditing rules and regulations. With regard to the disallowances, it is further informed that the aggrieved party has 30 days within which to appeal the decision of the Commission in accordance with law.

On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision based on the following grounds: 13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES, ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE ORDER NO. 137.

xxx xxx xxx

B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY LEGISLATION.

xxx xxx xxx

C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID.

xxx xxx xxx

On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for Reconsideration. 14

On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while allowing the recovery of product sales or those arising from export sales. 15 Decision No. 1171 reads as follows:

Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the .authority to recover financing charges from the OPSF on the basis of Department of Finance (DOF) Circular 1-87, dated February 18, 1987, which allowed oil companies to "recover cost of financing working capital associated with crude oil shipments," and provided a schedule of reimbursement in terms of peso per barrel. It appears that on November 6, 1989, the DOF issued a memorandum to the President of the Philippines explaining the nature of these financing charges and justifying their reimbursement as follows:

As part of your program to promote economic recovery, . . . oil companies (were authorized) to refinance their imports of crude oil and petroleum products from the normal trade credit of 30 days up to 360 days from date of loading . . . Conformably . . ., the oil companies deferred their foreign exchange remittances for purchases by refinancing their import bills from the normal 30-day payment term up to the desired 360 days. This refinancing of importations carried additional costs (financing charges) which then became, due to government mandate, an inherent part of the cost of the purchases of our country's oil requirement.

We beg to disagree with such contention. The justification that financing charges increased oil costs and the schedule of reimbursement rate in peso per barrel (Exhibit 1) used to support alleged increase (sic) were not validated in our independent inquiry. As manifested in Exhibit 2, using the same formula which the DOF used in arriving at the reimbursement rate but using comparable percentages instead of pesos, the ineluctable conclusion is that the oil companies are actually gaining rather than losing from the extension of credit because such extension enables them to invest the collections in marketable securities which have much higher rates than those they incur due to the extension. The Data we used were obtained from CPI (CALTEX) Management and can easily be verified from our records.

With respect to product sales or those arising from sales to international vessels or airlines, . . ., it is believed that export sales (product sales) are entitled to claim refund from the OPSF.

As regard your claim for underrecovery arising from inventory losses, . . . It is the considered view of this Commission that the OPSF is not liable to refund such surtax on inventory losses because these are paid to BIR and not OPSF, in view of which CPI (CALTEX) should seek refund from BIR. . . .

Finally, as regards the sales to Atlas and Marcopper, it is represented that you are entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July 17, 1984, since these copper mining companies did not pay CPI (CALTEX) and OPSF imposts which were added to the selling price.

Upon a circumspect evaluation, this Commission believes and so holds that the CPI (CALTEX) has no authority to claim reimbursement for this uncollected OPSF impost because LOI 1416 dated July 17, 1984, which exempts distressed mining companies from "all taxes, duties, import fees and other charges" was issued when OPSF was not yet in existence and could not have contemplated OPSF imposts at the time of its formulation. Moreover, it is evident that OPSF was not created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices.

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it imputes to the COA the commission of the following errors: 16

I

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES FROM THE OPSF.

II

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES TO NPC.

III

RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.

IV

RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS REIMBURSEMENT VIS-A-VIS THE OPSF.

V

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.

In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition within ten (10) days from notice. 18

On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the Office of the Solicitor General, filed their Comment. 19

This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file their respective Memoranda within twenty (20) days from notice. 20

In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment filed on 6 September 1990 be considered as the Memorandum for respondents. 21

Upon the other hand, petitioner filed its Memorandum on 14 August 1991.

I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:

(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a second purpose, to wit:

2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

the "other factors" mentioned therein that may be determined by the Ministry (now Department) of Finance may include financing charges for "in essence, financing charges constitute unrecovered cost of acquisition of crude oil incurred by the oil companies," as explained in the 6 November 1989 Memorandum to the President of the Department of Finance; they "directly translate to cost underrecovery in cases where the money market placement rates decline and at the same time the tax on interest income increases. The relationship is such that the presence of underrecovery or overrecovery is directly dependent on the amount and extent of financing charges."

(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the basis of Department of Finance Circular No. 1-87, dated 18 February 1987, which provides:

To allow oil companies to recover the costs of financing working capital associated with crude oil shipments, the following guidelines on the utilization of the Oil Price Stabilization Fund pertaining to the payment of the foregoing ( sic) exchange risk premium and recovery of financing charges will be implemented:

1. The OPSF foreign exchange premium shall be reduced to a flat rate of one (1) percent for the first (6) months and 1/32 of one percent per month thereafter up to a maximum period of one year, to be applied on crude oil' shipments from January 1, 1987. Shipments with outstanding financing as of January 1, 1987 shall be charged on the basis of the fee applicable to the remaining period of financing.

2. In addition, for shipments loaded after January 1987, oil companies shall be allowed to recover financing charges directly from the OPSF per barrel of crude oil based on the following schedule:

Financing Period Reimbursement RatePesos per Barrel

Less than 180 days None180 days to 239 days 1.90241 (sic) days to 299 4.02300 days to 369 (sic) days 6.16360 days or more 8.28

The above rates shall be subject to review every sixtydays. 22

Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the Office of Energy Affairs as follows:

HON. VICENTE T. PATERNODeputy Executive SecretaryFor Energy AffairsOffice of the PresidentMakati, Metro Manila

Dear Sir:

This refers to the letters of the Oil Industry dated December 4, 1986 and February 5, 1987 and subsequent discussions held by the Price Review committee on February 6, 1987.

On the basis of the representations made, the Department of Finance recognizes the necessity to reduce the foreign exchange risk premium accruing to the Oil Price Stabilization Fund (OPSF). Such a reduction would allow the industry to recover partly associated financing charges on crude oil imports. Accordingly, the OPSF foreign exchange risk fee shall be reduced to a flat charge of 1% for the first six (6) months plus 1/32% of 1% per month thereafter up to a maximum period of one year, effective January 1, 1987. In addition, since the prevailing company take would still leave unrecovered financing charges, reimbursement may be secured from the OPSF in accordance with the provisions of the attached Department of Finance circular. 23

Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the guidelines for the computation of the foreign exchange risk fee and the recovery of financing charges from the OPSF, to wit:

B. FINANCE CHARGES

1. Oil companies shall be allowed to recover financing charges directly from the OPSF for both crude and product shipments loaded after January 1, 1987 based on the following rates:

Financing Period Reimbursement Rate(PBbl.)

Less than 180 days None180 days to 239 days 1.90240 days to 229 (sic) days 4.02300 days to 359 days 6.16360 days to more 8.28

2. The above rates shall be subject to review every sixty days. 24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further guidelines on the recoverability of financing charges, to wit:

Following are the supplemental rules to Department of Finance Circular No. 1-87 dated February 18, 1987 which allowed the recovery of financing charges directly from the Oil Price Stabilization Fund. (OPSF):

1. The Claim for reimbursement shall be on a per shipment basis.

2. The claim shall be filed with the Office of Energy Affairs together with the claim on peso cost differential for a particular shipment and duly certified supporting documents provided for under Ministry of Finance No. 11-85.

3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be issued by the Office of Energy Affairs. The said certificate may be used to offset against amounts payable to the OPSF. The oil companies may also redeem said certificates in cash if not utilized, subject to availability of funds. 25

The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017. 26

The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the light of the determination of executive agencies. The determination by the Department of Finance and the OEA that financing charges are recoverable from the OPSF is entitled to great weight and consideration. 27 The function of the COA, particularly in the matter of allowing or disallowing certain expenditures, is limited to the promulgation of accounting and auditing rules for, among others, the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties. 28

(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's claim that petitioner is gaining, instead of losing, from the extension of credit, is belatedly raised and not supported by expert analysis.

In impeaching the validity of petitioner's assertions, the respondents argue that:

1. The Constitution gives the COA discretionary power to disapprove irregular or unnecessary government expenditures and as the monetary claims of petitioner are not allowed by law, the COA acted within its jurisdiction in denying them;

2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges from the OPSF;

3. Under the principle of ejusdem generis, the "other factors" mentioned in the second purpose of the OPSF pursuant to E.O. No. 137 can only include "factors which are of the same nature or analogous to those enumerated;"

4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and

5. Department of Finance rules and regulations implementing P.D. No. 1956 do not likewise allow reimbursement of financing  charges. 29

We find no merit in the first assigned error.

As to the power of the COA, which must first be resolved in view of its primacy, We find the theory of petitioner –– that such does not extend to the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or use of government funds and properties, but only to the promulgation of accounting and auditing rules for, among others, such disallowance –– to be untenable in the light of the provisions of the 1987 Constitution and related laws.

Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts, of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or, unconscionable expenditures, or uses of government funds and properties.

These present powers, consistent with the declared independence of the Commission, 30 are broader and more extensive than that conferred by the 1973 Constitution. Under the latter, the Commission was empowered to:

Examine, audit, and settle, in accordance with law and regulations, all accounts pertaining to the revenues, and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities including government-owned or controlled corporations, keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers pertaining thereto; and promulgate accounting and auditing rules and regulations including those for the prevention of irregular, unnecessary, excessive, or extravagant expenditures or uses of funds and property. 31

Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor, the General Auditing Office, were, unfortunately, limited; its very role was markedly passive. Section 2 of Article XI thereofprovided:

Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining to the revenues and receipts from whatever source, including trust funds derived from bond issues; and audit, in accordance with law and administrative regulations, all expenditures of funds or property pertaining to or held in trust by the Government or the provinces or municipalities thereof. He shall keep the general accounts of the Government and the preserve the vouchers pertaining thereto. It shall be the duty of the Auditor General to bring to the attention of the proper administrative officer expenditures of funds or property which, in his opinion, are irregular, unnecessary, excessive, or extravagant. He shall also perform such other functions as may be prescribed by law.

As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures or uses of funds, the 1935 Constitution did not grant the Auditor General the power to issue rules and regulations to prevent the same. His was merely to bring that matter to the attention of the proper administrative officer.

The ruling on this particular point, quoted by petitioner from the cases of Guevarra vs. Gimenez 32 and Ramos vs.Aquino, 33 are no longer controlling as the two (2) were decided in the light of the 1935 Constitution.

There can be no doubt, however, that the audit power of the Auditor General under the 1935 Constitution and the Commission on Audit under the 1973 Constitution authorized them to disallow illegal expenditures of funds or uses of funds and property. Our present Constitution retains that same power and authority, further strengthened by the definition of the COA's general jurisdiction in Section 26 of the Government Auditing Code of the Philippines 34 and Administrative Code of 1987. 35 Pursuant to its power to promulgate accounting and auditing rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 36 the COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is responsible for the enforcement of the rules and regulations, it goes without saying that failure to comply with them is a ground for disapproving the payment of the proposed expenditure. As observed by one of the Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas: 37

It should be noted, however, that whereas under Article XI, Section 2, of the 1935 Constitution the Auditor General could not correct "irregular, unnecessary, excessive or extravagant" expenditures of public funds but could only "bring [the matter] to the attention of the proper administrative officer," under the 1987 Constitution, as also under the 1973 Constitution, the Commission on Audit can "promulgate accounting and auditing rules and regulations including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties." Hence, since the Commission on Audit must ultimately be responsible for the enforcement of these rules and regulations, the failure to comply with these regulations can be a ground for disapproving the payment of a proposed expenditure.

Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active role and invested it with broader and more extensive powers, they did not intend merely to make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and independent watchdog of the Government.

The issue of the financing charges boils down to the validity of Department of Finance Circular No. 1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine "other factors" which may result in cost underrecovery and a consequent reimbursement from the OPSF.

The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges are not included in "cost underrecovery" and, therefore, cannot be considered as one of the "other factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what "cost underrecovery" is. It merely states what it includes. Thus:

. . . "Cost underrecovery" shall include the following:

i. Reduction in oil company takes as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

These "other factors" can include only those which are of the same class or nature as the two specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they are in the nature of government mandated price reductions. Hence, any other factor which seeks to be a part of the enumeration, or which could qualify as a cost underrecovery, must be of the same class or nature as those specifically enumerated.

Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad and unrestricted authority to determine or define "other factors."

Both views are unacceptable to this Court.

The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are held to be as applying only to persons or things of the same kind or class as those specifically mentioned. 38A reading of subparagraphs (i) and (ii) easily discloses that they

do not have a common characteristic. The first relates to price reduction as directed by the Board of Energy while the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What should be considered for purposes of determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly allows cost underrecovery only if such were incurred as a result of the reduction of domestic prices of petroleum products.

Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the sense that such were incurred as a result of the inability to fully offset financing expenses from yields in money market placements, they do not, however, fall under the foregoing provision of P.D. No. 1956, as amended, because the same did not result from the reduction of the domestic price of petroleum products. Until paragraph (2), Section 8 of the decree, as amended, is further amended by Congress, this Court can do nothing. The duty of this Court is not to legislate, but to apply or interpret the law. Be that as it may, this Court wishes to emphasize that as the facts in this case have shown, it was at the behest of the Government that petitioner refinanced its oil import payments from the normal 30-day trade credit to a maximum of 360 days. Petitioner could be correct in its assertion that owing to the extended period for payment, the financial institution which refinanced said payments charged a higher interest, thereby resulting in higher financing expenses for the petitioner. It would appear then that equity considerations dictate that petitioner should somehow be allowed to recover its financing losses, if any, which may have been sustained because it accommodated the request of the Government. Although under Section 29 of the National Internal Revenue Code such losses may be deducted from gross income, the effect of that loss would be merely to reduce its taxable income, but not to actually wipe out such losses. The Government then may consider some positive measures to help petitioner and others similarly situated to obtain substantial relief. An amendment, as aforestated, may then be in order.

Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the Department of Finance to determine or define "other factors" is to uphold an undue delegation of legislative power, it clearly appearing that the subject provision does not provide any standard for the exercise of the authority. It is a fundamental rule that delegation of legislative power may be sustained only upon the ground that some standard for its exercise is provided and that the legislature, in making the delegation, has prescribed the manner of the exercise of the delegated authority. 39

Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed to disprove COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed to sufficiently show that it incurred a loss. Such being the case, how can petitioner claim for reimbursement? It cannot have its cake and eat it too.

II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner. The respondents themselves admit in their Comment that underrecovery arising from sales to NPC are reimbursable because NPC was granted full exemption from the payment of taxes; to prove this, respondents trace the laws providing for such exemption. 40 The last law cited is the Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the tax and duty exemption privileges of the National Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products . . . are restored effective March 10, 1987." In a Memorandum issued on 5 October 1987 by the Office of the President, NPC's tax exemption was confirmed and approved.

Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to the NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price Standby Fund to support the OPSF. 41 The pertinent part of Section 2, Republic Act No. 6952 provides:

Sec. 2. Application of the Fund shall be subject to the following conditions:

(1) That the Fund shall be used to reimburse the oil companies for (a) cost increases of imported crude oil and finished petroleum products resulting from foreign exchange rate adjustments and/or increases in world market prices of crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation (NPC); and (c) other cost underrecoveries incurred as may be finally decided by the SupremeCourt; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the National Power Corporation.

III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of payments of all taxes, duties, fees and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the national government. Pursuant to this LOI, then Minister of Energy, Hon. Geronimo Velasco, issued Memorandum Circular No. 84-11-22 advising the oil companies that Atlas Consolidated Mining Corporation and Marcopper Mining Corporation are among those declared to be in distress.

In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August 1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no authority to claim reimbursement for this uncollected impost because LOI 1416 dated July 17, 1984, . . . was issued when OPSF was not yet in existence and could not have contemplated OPSF imposts at the time of its formulation." 43 It is further stated that: "Moreover, it is evident that OPSF was not created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices."

In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended to exempt said distressed mining companies from the payment of OPSF dues for the following reasons:

a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating the OPSF was promulgated on October 10, 1984, while E.O. 137, amending P.D. 1956, was issued on February 25, 1987.

b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the government's effort to prevent the collapse of the copper industry. P.D No. 1956, as amended, was issued for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum product's; and

c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the Notional and Local Governments . . ." On the other hand, OPSF dues are not payable by (sic) distressed copper companies but by oil companies. It is to be noted that the copper mining companies do not pay OPSF dues. Rather, such imposts are built in or already incorporated in the prices of oil products. 44

Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining companies, it does not accord petitioner the same privilege with respect to its obligation to pay OPSF dues.

We concur with the disquisitions of the respondents. Aside from such reasons, however, it is apparent that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of the Civil Code, which reads:

Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided. . . .

In applying said provision, this Court ruled in the case of Tañada vs. Tuvera: 46

WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all unpublished presidential issuances which are of general application, and unless so published they shall have no binding force and effect.

Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated on 29 December 1986, 47 ruled:

We hold therefore that all statutes, including those of local application and private laws, shall be published as a condition for their effectivity, which shall begin fifteen days after publication unless a different effectivity date is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of legislative powers whenever the same are validly delegated by the legislature or, at present, directly conferred by the Constitution. Administrative rules and regulations must also be published if their purpose is to enforce or implement existing laws pursuant also to a valid delegation.

xxx xxx xxx

WHEREFORE, it is hereby declared that all laws as above defined shall immediately upon their approval, or as soon thereafter as possible, be published in full in the Official Gazette, to become effective only after fifteen days from their publication, or on another date specified by the legislature, in accordance with Article 2 of the Civil Code.

LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette after its issuance or at any time after the decision in the abovementioned cases.

Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18 June 1987. As amended, the said provision now reads:

Laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is otherwiseprovided.

We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to Executive Order No. 200.

Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing authority.  48 The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or at least be within its purview by clear legislative intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the payment of taxes by copper mining companies, it does not give petitioner the same privilege with respect to the payment of OPSF dues.

IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction. 49 Respondents, on the other hand, contend that said amount was already disallowed by the OEA for failure to substantiate it. 50 In fact, when OEA submitted the claims of petitioner for pre-audit, the abovementioned amount was already excluded.

An examination of the records of this case shows that petitioner failed to prove or substantiate its contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF. Additionally, We find no reason to doubt the submission of respondents that said amount has already been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said claim must be upheld.

V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner contends that it should be allowed to offset its claims from the OPSF against its contributions to the fund as this has been allowed in the past, particularly in the years 1987 and 1988. 51

Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which provides for "Retention of Money for Satisfaction of Indebtedness to Government." 52 Petitioner also mentions communications from the Board of Energy and the Department of Finance that supposedly authorize compensation.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can be no offsetting of taxes against the claims that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law. Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised Administrative Code, is misplaced because "while this provision empowers the COA to withhold payment of a government indebtedness to a person who is also indebted to the government and apply the government indebtedness to the satisfaction of the obligation of the person to the government, like authority or right to make compensation is not given to the private person."  54 The reason for this, as stated in Commissioner of Internal Revenue vs.Algue, Inc., 55 is that money due the government, either in the form of taxes or other dues, is its lifeblood and should be collected without hindrance. Thus, instead of giving petitioner a reason for compensation or set-off, the Revised Administrative Code makes it the respondents' duty to collect petitioner's indebtedness to the OPSF.

Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a result of taxation because "P.D. 1956, amended, did not create a source of taxation; it instead established a special fund . . .,"  56 and that the OPSF contributions do not go to the general fund of the state and are not used for public purpose, i.e., not for the support of the government, the administration of law, or the payment of public expenses. This alleged lack of a public purpose behind OPSF exactions distinguishes such from a tax. Hence, the ruling in the Francia case is inapplicable.

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the OPSF; the said law provides in part that:

Sec. 2. Application of the fund shall be subject to the following conditions:

xxx xxx xxx

(3) That no amount of the Petroleum Price Standby Fund shall be used to pay any oil company which has an outstanding obligation to the Government without said obligation being offset first, subject to the requirements of compensation or offset under the Civil Code.

We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. 57 There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others, demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil prices is of prime concern which the state, via its police power, may properly address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is taxation. No amount of semantical juggleries could dim this fact.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government.  58Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. 59

We may even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as agents for the Government in the latter's collection since the taxes are, in reality, passed unto the end-users –– the consuming public. In that capacity, the petitioner, as one of such companies, has the primary obligation to account for and remit the taxes collected to the administrator of the OPSF. This duty stems from the fiduciary relationship between the two; petitioner certainly cannot be considered merely as a debtor. In respect, therefore, to its collection for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally feasible. Firstly, the Government and the petitioner cannot be said to be mutually debtors and creditors of each other. Secondly, there is no proof that petitioner's claim is already due and liquidated. Under Article 1279 of the Civil Code, in order that compensation may be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) both debts consist in a sum of :money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

(5) over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

That compensation had been the practice in the past can set no valid precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against their OPSF contributions. Instead, it prohibits the government from paying any amount from the Petroleum Price Standby Fund to oil companies which have outstanding obligations with the government, without said obligation being offset first subject to the rules on compensation in the Civil Code.

WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim for reimbursement of underrecovery arising from sales to the National Power Corporation, which is hereby allowed.

With costs against petitioner.

SO ORDERED.

HIRD DIVISION  

COMMISSIONER OF INTERNAL G.R. No. 159647REVENUE,

Petitioner, Present:Panganiban, J.,

Chairman,Sandoval-Gutierrez,

- versus - Corona,Carpio Morales, andGarcia, JJCENTRAL LUZON DRUG Promulgated:CORPORATION,Respondent. April 15, 2005

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

DECISION  

PANGANIBAN, J.:

The 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely a tax deduction from the gross

income or gross sale of the establishment concerned. A tax credit is used by a private establishment only after the tax has been

computed; a tax deduction, before the tax is computed. RA 7432 unconditionally grants a tax credit to all covered entities. Thus, the

provisions of the revenue regulation that withdraw or modify such grant are void. Basic is the rule that administrative regulations

cannot amend or revoke the law.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the August 29, 2002

Decision[2] and the August 11, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 67439. The assailed Decision reads

as follows: 

WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in toto. No costs.[4]

 

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The CA narrated the antecedent facts as follows: 

Respondent is a domestic corporation primarily engaged in retailing of medicines and other pharmaceutical products. In 1996, it operated six (6) drugstores under the business name and style Mercury Drug. From January to December 1996, respondent granted twenty (20%) percent sales discount to qualified senior citizens on their purchases of medicines pursuant to Republic Act No. [R.A.] 7432 and its Implementing Rules and Regulations. For the said period, the amount allegedly representing the 20% sales discount granted by respondent to qualified senior citizens totaled P904,769.00. On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996 declaring therein that it incurred net losses from its operations. On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the amount of P904,769.00 allegedly arising from the 20% sales discount granted by respondent to qualified senior citizens in compliance with [R.A.] 7432. Unable to obtain affirmative response from petitioner, respondent elevated its claim to the Court of Tax Appeals [(CTA or Tax Court)] via a Petition for Review. On February 12, 2001, the Tax Court rendered a Decision[5] dismissing respondents Petition for lack of merit. In said decision, the [CTA] justified its ruling with the following ratiocination:

 x x x, if no tax has been paid to the government, erroneously or illegally, or if no amount is due and collectible from the taxpayer, tax refund or tax credit is unavailing. Moreover, whether the recovery of the tax is made by means of a claim for refund or tax credit, before recovery is allowed[,] it must be first established that there was an actual collection and receipt by the government of the tax sought to be recovered. x x x.

x x x x x x x x x Prescinding from the above, it could logically be deduced that tax credit is premised on the existence of tax liability on the part of taxpayer. In other words, if there is no tax liability, tax credit is not available.

 Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed resolution, [6] granted respondents motion for reconsideration and ordered herein petitioner to issue a Tax Credit Certificate in favor of respondent citing the decision of the then Special Fourth Division of [the CA] in CA G.R. SP No. 60057 entitled Central [Luzon] Drug Corporation vs. Commissioner of Internal Revenue promulgated on May 31, 2001, to wit: 

However, Sec. 229 clearly does not apply in the instant case because the tax sought to be refunded or credited by petitioner was not erroneously paid or illegally collected. We take exception to the CTAs sweeping but unfounded statement that both tax refund and tax credit are modes of recovering taxes which are either erroneously or illegally paid to the government. Tax refunds or credits do not exclusively pertain to illegally collected or erroneously paid taxes as they may be other circumstances where a refund is warranted. The tax refund provided under Section 229 deals exclusively with illegally collected or erroneously paid taxes but there are other possible situations, such as the refund of excess estimated corporate quarterly income tax paid, or that of excess input tax paid by a VAT-registered person, or that of excise tax paid on goods locally produced or manufactured but actually exported. The standards and mechanics for the grant of a refund or credit under these situations are different from that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax credit and it does not in any way refer to illegally collected or erroneously paid taxes, x x x.[7]

Ruling of the Court of Appeals

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering petitioner to issue a tax credit certificate in favor

of respondent in the reduced amount of P903,038.39. It reasoned that Republic Act No. (RA) 7432 required neither a tax liability nor a

payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not tantamount to an

unintended benefit from the law, but rather a just compensation for the taking of private property for public use.

Hence this Petition.[8]

The Issues  

Petitioner raises the following issues for our consideration: Whether the Court of Appeals erred in holding that respondent may claim the 20% sales discount as a tax credit instead of as a deduction from gross income or gross sales. Whether the Court of Appeals erred in holding that respondent is entitled to a refund.[9]

These two issues may be summed up in only one: whether respondent, despite incurring a net loss, may still claim the 20 percent sales

discount as a tax credit.

The Courts RulingThe Petition is not meritorious.

Sole Issue:Claim of 20 Percent Sales Discount as   Tax Credit   Despite   Net Loss

 

Section 4a) of RA 7432[10] grants to senior citizens the privilege of obtaining a 20 percent discount on their purchase of medicine from

any private establishment in the country.[11] The latter may then claim the cost of the discount as a tax credit.[12] But can such credit be

claimed, even though an establishment operates at a loss?

We answer in the affirmative.

 Tax Credit   versus Tax Deduction

Although the term is not specifically defined in our Tax Code, [13] tax credit generally refers to an amount that is subtracted directly

from ones total tax liability.[14] It is an allowance against the tax itself[15] or a deduction from what is owed[16] by a taxpayer to the

government. Examples of tax credits are withheld taxes, payments of estimated tax, and investment tax credits.[17]

Tax credit should be understood in relation to other tax concepts. One of these is tax deduction -- defined as a subtraction from income

for tax purposes,[18] or an amount that is allowed by law to reduce income prior to [the] application of the tax rate to compute the

amount of tax which is due.[19] An example of a tax deduction is any of the allowable deductions enumerated in Section 34[20] of the

Tax Code.

A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax due, including -- whenever applicable --

the income tax that is determined after applying the corresponding tax rates to taxable income.[21] A tax deduction, on the other,

reduces the income that is subject to tax[22] in order to arrive at taxable income.[23] To think of the former as the latter is to avoid, if not

entirely confuse, the issue. A tax credit is used only after the tax has been computed; a tax deduction, before.

 Tax Liability Required for   Tax Credit

Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit can be applied.

Without that liability, any tax credit application will be useless. There will be no reason for deducting the latter when there is, to begin

with, no existing obligation to the government. However, as will be presented shortly, the existence of a tax credit or its grant by law

is not the same as the availment or use of such credit. While the grant is mandatory, the availment or use is not.

If a net loss is reported by, and no other taxes are currently due from, a business establishment, there will obviously be no tax liability

against which any tax credit can be applied.[24] For the establishment to choose the immediate availment of a tax credit will be

premature and impracticable. Nevertheless, the irrefutable fact remains that, under RA 7432, Congress has granted without conditions

a tax credit benefit to all covered establishments.

Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax liability that calls for its

application. Neither can it be reduced to nil by the quick yet callow stroke of an administrative pen, simply because no reduction of

taxes can instantly be effected. By its nature, thetax credit may still be deducted from a future, not a present, tax liability, without

which it does not have any use. In the meantime, it need not move. But it breathes.

 Prior Tax Payments Not Required for   Tax Credit

While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence

or grant solely of such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions

granting or allowing tax credits, even though no taxes have been previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain limitations -- for estate taxes paid

to a foreign country. Also found in Section 101(C) is a similar provision for donors taxes -- again when paid to a foreign country -- in

computing for the donors tax due. The tax credits in both instances allude to the prior payment of taxes, even if not made to our

government.

Under Section 110, a VAT (Value-Added Tax)- registered person engaging in transactions -- whether or not subject to the VAT -- is

also allowed a tax credit that includes a ratable portion of any input tax not directly attributable to either activity. This input tax

may either be the VAT on the purchase or importation of goods or services that is merely due from -- not necessarily paid by -- such

VAT-registered person in the course of trade or business; or the transitional input tax determined in accordance with Section 111(A).

The latter type may in fact be an amount equivalent to only eight percent of the value of a VAT-registered persons beginning

inventory of goods, materials and supplies, when such amount -- as computed -- is higher than the actual VAT paid on the said items.

[25] Clearly from this provision, the tax credit refers to an input tax that is either due only or given a value by mere comparison with the

VAT actually paid -- then later prorated. No tax is actually paid prior to the availment of such credit.

In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For the purchase of primary

agricultural products used as inputs -- either in the processing of sardines, mackerel and milk, or in the manufacture of refined sugar

and cooking oil -- and for the contract price of public work contracts entered into with the government, again, no prior tax payments

are needed for the use of the tax credit.

More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under Section 112(A), apply for

the issuance of a tax credit certificate for the amount of creditable input taxes merely due -- again not necessarily paid to -- the

government and attributable to such sales, to the extent that the input taxes have not been applied against output taxes. [26] Where a

taxpayer is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales, the amount of creditable input

taxes due that are not directly and entirely attributable to any one of these transactions shall be proportionately allocated on the basis

of the volume of sales. Indeed, in availing of such tax credit for VAT purposes, this provision -- as well as the one earlier mentioned --

shows that the prior payment of taxes is not a requisite.

It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a  tax credit allowed, even though no prior tax

payments are not required. Specifically, in this provision, the imposition of a final withholding tax rate on cash and/or property

dividends received by a nonresident foreign corporation from a domestic corporation is subjected to the condition that a foreign  tax

credit will be given by the domiciliary country in an amount equivalent to taxes that are merely deemed paid. [27] Although true, this

provision actually refers to the tax credit as a condition only for the imposition of a lower tax rate, not as a deduction from the

corresponding tax liability. Besides, it is not our government but the domiciliary country that credits against the income tax payable to

the latter by the foreign corporation, the tax to be foregone or spared.[28]

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the income tax imposable

under Title II, the amount of income taxes merely incurred -- not necessarily paid -- by a domestic corporation during a taxable year in

any foreign country. Moreover, Section 34(C)(5) provides that for such taxes incurred but not paid, a tax credit may be allowed,

subject to the condition precedent that the taxpayer shall simply give a bond with sureties satisfactory to and approved by petitioner, in

such sum as may be required; and further conditioned upon payment by the taxpayer of any tax found due, upon petitioners

redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that grant or allow  tax credits,

even though no prior tax payments have been made.

Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income that is taxed in the state of

source is also taxable in thestate of residence, but the tax paid in the former is merely allowed as a credit against the tax levied in the

latter.[29] Apparently, payment is made to thestate of source, not the state of residence. No tax, therefore, has been previously paid to

the latter.

Under special laws that particularly affect businesses, there can also be tax credit incentives. To illustrate, the incentives provided for

in Article 48 of Presidential Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to

either five percent of the net value earned, or five or ten percent of the net local content of exports. [30] In order to avail of such credits

under the said law and still achieve its objectives, no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not indispensable to the availment of a  tax credit. Thus, the

CA correctly held that the availment under RA 7432 did not require prior tax payments by private establishments concerned.

[31] However, we do not agree with its finding[32]that the carry-over of tax credits under the said special law to succeeding taxable

periods, and even their application against internal revenue taxes, did not necessitate the existence of a tax liability.

The examples above show that a tax liability is certainly important in the availment or use, not the existence or grant, of a tax credit.

Regarding this matter, a private establishment reporting a net loss in its financial statements is no different from another that presents

a net income. Both are entitled to the tax credit provided for under RA 7432, since the law itself accords that unconditional benefit.

However, for the losing establishment to immediately apply such credit, where no tax is due, will be an improvident usance.

 Sections 2.i and 4 of Revenue Regulations No. 2-94 Erroneous

RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts they grant.[33] In turn, the

Implementing Rules and Regulations, issued pursuant thereto, provide the procedures for its availment. [34] To deny such credit, despite

the plain mandate of the law and the regulations carrying out that mandate, is indefensible.

First, the definition given by petitioner is erroneous. It refers to tax credit as the amount representing the 20 percent discount that shall

be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for value-added tax

or other percentage tax purposes.[35] In ordinary business language, the tax credit represents the amount of such discount. However, the

manner by which the discount shall be credited against taxes has not been clarified by the revenue regulations.

By ordinary acceptation, a discount is an abatement or reduction made from the gross amount or value of anything. [36] To be more

precise, it is in business parlance a deduction or lowering of an amount of money; [37] or a reduction from the full amount or value of

something, especially a price.[38] In business there are many kinds of discount, the most common of which is that affecting the income

statement[39] or financial report upon which the income tax is based.

 Business Discounts Deducted from   Gross Sales

A cash discount, for example, is one granted by business establishments to credit customers for their prompt payment.[40] It is a

reduction in price offered to the purchaser if payment is made within a shorter period of time than the maximum time specified.

[41] Also referred to as a sales discount on the part of the seller and a purchase discount on the part of the buyer, it may be expressed in

such terms as 5/10, n/30.[42]

A quantity discount, however, is a reduction in price allowed for purchases made in large quantities, justified by savings in packaging,

shipping, and handling.[43] It is also called a volume or bulk discount.[44]

A percentage reduction from the list price x x x allowed by manufacturers to wholesalers and by wholesalers to retailers [45] is known as

a trade discount. No entry for it need be made in the manual or computerized books of accounts, since the purchase or sale is already

valued at the net price actually charged the buyer. [46] The purpose for the discount is to encourage trading or increase sales, and the

prices at which the purchased goods may be resold are also suggested.[47] Even a chain discount -- a series of discounts from one list

price -- is recorded at net.[48]

Finally, akin to a trade discount is a functional discount. It is a suppliers price discount given to a purchaser based on the [latters] role

in the [formers] distribution system.[49] This role usually involves warehousing or advertising.

Based on this discussion, we find that the nature of a sales discount is peculiar. Applying generally accepted accounting principles

(GAAP) in the country, this type of discount is reflected in the income statement[50] as a line item deducted -- along with returns,

allowances, rebates and other similar expenses -- from gross sales to arrive at net sales.[51] This type of presentation is resorted to,

because the accounts receivable and sales figures that arise from sales discounts, -- as well as from quantity, volume or bulk

discounts -- are recorded in the manual and computerized books of accounts and reflected in the financial statements at the gross

amounts of the invoices.[52] This manner of recording credit sales -- known as the gross method -- is most widely used, because it is

simple, more convenient to apply than the net method, and produces no material errors over time.[53]

However, under the net method used in recording trade, chain or functional discounts, only the net amounts of the invoices -- after the

discounts have been deducted -- are recorded in the books of accounts[54] and reflected in the financial statements. A separate line item

cannot be shown,[55] because the transactions themselves involving both accounts receivable and sales have already been entered into,

net of the said discounts.

The term sales discounts is not expressly defined in the Tax Code, but one provision adverts to amounts whose sum -- along with sales

returns, allowancesand cost of goods sold[56] -- is deducted from gross sales to come up with the gross

income, profit or margin[57] derived from business.[58] In another provision therein, sales discounts that are granted and indicated in the

invoices at the time of sale -- and that do not depend upon the happening of any future event -- may be excluded from the  gross

sales within the same quarter they were given.[59] While determinative only of the VAT, the latter provision also appears as a suitable

reference point for income tax purposes already embraced in the former. After all, these two provisions affirm that sales discounts are

amounts that are always deductible from gross sales.

 Reason for the Senior Citizen Discount: The Law, Not Prompt Payment

A distinguishing feature of the implementing rules of RA 7432 is the private establishments outright deduction of the discount from

the invoice price of the medicine sold to the senior citizen.[60] It is, therefore, expected that for each retail sale made under this law, the

discount period lasts no more than a day, because such discount is given -- and the net amount thereof collected -- immediately upon

perfection of the sale.[61] Although prompt payment is made for an arms-length transaction by the senior citizen, the real and

compelling reason for the private establishment giving the discount is that the law itself makes it mandatory.

What RA 7432 grants the senior citizen is a mere discount privilege, not a  sales discount or any of the above discounts in particular.

Prompt payment is not the reason for (although a necessary consequence of) such grant. To be sure, the privilege enjoyed by the senior

citizen must be equivalent to the tax creditbenefit enjoyed by the private establishment granting the discount. Yet, under the revenue

regulations promulgated by our tax authorities, this benefit has been erroneously likened and confined to a sales discount.

To a senior citizen, the monetary effect of the privilege may be the same as that resulting from a sales discount. However, to a private

establishment, the effect is different from a simple reduction in price that results from such discount. In other words, the tax

credit benefit is not the same as a sales discount. To repeat from our earlier discourse, this benefit cannot and should not be treated as

a tax deduction.

 To stress, the effect of a sales discount on the income statement and income tax return of an establishment covered by RA 7432 is

different from that resulting from the availment or use of its tax credit benefit. While the former is a deduction before, the latter is a

deduction after, the income tax is computed. As mentioned earlier, a discount is not necessarily a sales discount, and a tax credit for a

simple discount privilege should not be automatically treated like a sales discount. Ubi lex non distinguit, nec nos distinguere

debemus. Where the law does not distinguish, we ought not to distinguish.

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount deductible from gross

income for income taxpurposes, or from gross sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under

RA 7432 is related to a sales discount. This contrived definition is improper, considering that the latter has to be deducted from gross

sales in order to compute the gross income in the income statement and cannot be deducted again, even for purposes of computing

the income tax.

When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount -- when claimed -- shall be

treated as a reduction from any tax liability, plain and simple. The option to avail of the  tax credit benefit depends upon the existence

of a tax liability, but to limit the benefit to asales discount -- which is not even identical to the discount privilege that is granted by law

-- does not define it at all and serves no useful purpose. The definition must, therefore, be stricken down.

 Laws Not Amended by Regulations

Second, the law cannot be amended by a mere regulation. In fact, a regulation that operates to create a rule out of harmony with the

statute is a mere nullity;[62] it cannot prevail.

It is a cardinal rule that courts will and should respect the contemporaneous construction placed upon a statute by the executive

officers whose duty it is to enforce it x x x. [63] In the scheme of judicial tax administration, the need for certainty and predictability in

the implementation of tax laws is crucial.[64]Our tax authorities fill in the details that Congress may not have the opportunity or

competence to provide.[65] The regulations these authorities issue are relied upon by taxpayers, who are certain that these will be

followed by the courts.[66] Courts, however, will not uphold these authorities interpretations when clearly absurd, erroneous or

improper.

In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a meaning utterly in contrast to

what RA 7432 provides. Their interpretation has muddled up the intent of Congress in granting a mere discount privilege, not a  sales

discount. The administrative agency issuing these regulations may not enlarge, alter or restrict the provisions of the law it administers;

it cannot engraft additional requirements not contemplated by the legislature.[67]

In case of conflict, the law must prevail.[68] A regulation adopted pursuant to law is law.[69] Conversely, a regulation or any portion

thereof not adopted pursuant to law is no law and has neither the force nor the effect of law.[70]

 Availment of   Tax Credit   Voluntary

Third, the word may in the text of the statute[71] implies that the availability of the tax credit benefit is neither unrestricted nor

mandatory.[72] There is no absolute right conferred upon respondent, or any similar taxpayer, to avail itself of the  tax credit remedy

whenever it chooses; neither does it impose a duty on the part of the government to sit back and allow an important facet of tax

collection to be at the sole control and discretion of the taxpayer.[73] For the tax authorities to compel respondent to deduct the 20

percent discount from either its gross income or its gross sales[74] is, therefore, not only to make an imposition without basis in law,

but also to blatantly contravene the law itself.

What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive, not imperative. Respondent is given two

options -- either to claim or not to claim the cost of the discounts as a tax credit. In fact, it may even ignore the credit and simply

consider the gesture as an act of beneficence, an expression of its social conscience.

Granting that there is a tax liability and respondent claims such cost as a tax credit, then the tax credit can easily be applied. If there is

none, the credit cannot be used and will just have to be carried over and revalidated [75] accordingly. If, however, the business continues

to operate at a loss and no other taxes are due, thus compelling it to close shop, the credit can never be applied and will be lost

altogether.

In other words, it is the existence or the lack of a tax liability that determines whether the cost of the discounts can be used as a  tax

credit. RA 7432 does not give respondent the unfettered right to avail itself of the credit whenever it pleases. Neither does it allow our

tax administrators to expand or contract the legislative mandate. The plain meaning rule or verba legis in statutory construction is thus

applicable x x x. Where the words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning and applied

without attempted interpretation.[76]

 Tax Credit   Benefit Deemed   Just Compensation

Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of eminent domain. Be it stressed that the privilege

enjoyed by senior citizens does not come directly from the State, but rather from the private establishments concerned. Accordingly,

the tax credit benefit granted to these establishments can be deemed as their just compensation for private property taken by the State

for public use.[77]

The concept of public use is no longer confined to the traditional notion of use by the public, but held synonymous with public

interest, public benefit,public welfare, and public convenience.[78] The discount privilege to which our senior citizens are entitled is

actually a benefit enjoyed by the general public to which these citizens belong. The discounts given would have entered the coffers

and formed part of the gross sales of the private establishments concerned, were it not for RA 7432. The permanent reduction in their

total revenues is a forced subsidy corresponding to the taking of private property forpublic use or benefit.

As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a  just compensation. This term refers not

only to the issuance of a tax credit certificate indicating the correct amount of the discounts given, but also to the promptness in its

release. Equivalent to the payment of property taken by the State, such issuance -- when not done within a reasonable time from the

grant of the discounts -- cannot be considered as just compensation. In effect, respondent is made to suffer the consequences of being

immediately deprived of its revenues while awaiting actual receipt, through the certificate, of the equivalent amount it needs to cope

with the reduction in its revenues.[79]

Besides, the taxation power can also be used as an implement for the exercise of the power of eminent domain. [80] Tax measures are

but enforced contributions exacted on pain of penal sanctions[81] and clearly imposed for a public purpose.[82] In recent years, the power

to tax has indeed become a most effective tool to realize social justice, public welfare, and the equitable distribution of wealth.[83]

While it is a declared commitment under Section 1 of RA 7432, social justice cannot be invoked to trample on the rights of property

owners who under our Constitution and laws are also entitled to protection. The social justice consecrated in our [C]onstitution [is] not

intended to take away rights from a person and give them to another who is not entitled thereto. [84] For this reason, a just compensation

for income that is taken away from respondent becomes necessary. It is in the tax credit that our legislators find support to realize

social justice, and no administrative body can alter that fact.

To put it differently, a private establishment that merely breaks even[85] -- without the discounts yet -- will surely start to incur losses

because of such discounts. The same effect is expected if its mark-up is less than 20 percent, and if all its sales come from retail

purchases by senior citizens. Aside from the observation we have already raised earlier, it will also be grossly unfair to an

establishment if the discounts will be treated merely as deductions from either its  gross income or its gross sales. Operating at a loss

through no fault of its own, it will realize that the tax credit limitation under RR 2-94 is inutile, if not improper. Worse, profit-

generating businesses will be put in a better position if they avail themselves of tax credits denied those that are losing, because no

taxes are due from the latter.

Grant of   Tax Credit Intended by the Legislature

Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by the community as a whole and to establish a

program beneficial to them.[86] These objectives are consonant with the constitutional policy of making health x x x services available

to all the people at affordable cost[87] and of giving priority for the needs of the x x x elderly. [88] Sections 2.i and 4 of RR 2-94,

however, contradict these constitutional policies and statutory objectives.

Furthermore, Congress has allowed all private establishments a simple tax credit, not a deduction. In fact, no cash outlay is required

from the government for the availment or use of such credit. The deliberations on February 5, 1992 of the Bicameral Conference

Committee Meeting on Social Justice, which finalized RA 7432, disclose the true intent of our legislators to treat the  sales

discounts as a tax credit, rather than as a deduction from gross income. We quote from those deliberations as follows: 

"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from taxable income. I think we incorporated there a provision na - on the responsibility of the private hospitals and drugstores, hindi ba?

 SEN. ANGARA. Oo. THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about the deductions from

taxable income of that private hospitals, di ba ganon 'yan? MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government and public institutions, so,

puwede na po nating hindi isama yung mga less deductions ng taxable income. THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung isiningit natin? MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the microphone). SEN. ANGARA. Hindi pa, hindi pa. THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin? SEN. ANGARA. Oo. You want to insert that? THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e. SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount, provided that, the private

hospitals can claim the expense as a tax credit. REP. AQUINO. Yah could be allowed as deductions in the perpetrations of (inaudible) income. SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano? REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na covered. THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang. REP. AQUINO. Ano ba yung establishments na covered? SEN. ANGARA. Restaurant lodging houses, recreation centers. REP. AQUINO. All establishments covered siguro? SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can we go back to Section 4

ha? REP. AQUINO. Oho. SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount from all establishments et

cetera, et cetera, provided that said establishments - provided that private establishments may claim the cost as a tax credit. Ganon ba 'yon?

 REP. AQUINO. Yah. SEN. ANGARA. Dahil kung government, they don't need to claim it. THE CHAIRMAN. (Rep. Unico). Tax credit. SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay. REP. AQUINO Okay. SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".[89]

 

Special La w Over General Law

Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general law.  x x x [T]he rule is that on a specific

matter the special law shall prevail over the general law, which shall be resorted to only to supply deficiencies in the former. [90] In

addition, [w]here there are two statutes, the earlier special and the later general -- the terms of the general broad enough to include the

matter provided for in the special -- the fact that one is special and the other is general creates a presumption that the special is to be

considered as remaining an exception to the general,[91] one as a general law of the land, the other as the law of a particular case. [92] It is

a canon of statutory construction that a later statute, general in its terms and not expressly repealing a prior special statute, will

ordinarily not affect the special provisions of such earlier statute.[93]

RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to, the Tax Code -- a later law. When the

former states that a tax credit may be claimed, then the requirement of prior tax payments under certain provisions of the latter, as

discussed above, cannot be made to apply. Neither can the instances of or references to a tax deduction under the Tax Code[94] be made

to restrict RA 7432. No provision of any revenue regulation can supplant or modify the acts of Congress.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals AFFIRMED. No

pronouncement as to costs.

SO ORDERED.

VIVENCIO V. JUMAMIL, G.R. No. 144570Petitioner,Present: 

PANGANIBAN, J., Chairman,- versus - SANDOVAL-GUTIERREZ,

CORONA,CARPIO MORALES, and

GARCIA, JJ. JOSE J. CAFE, GLICERIO L. ALERIA, RUDY G. ADLAON, DAMASCENO AGUIRRE, RAMON PARING, MARIO ARGUELLES, ROLANDO STA. ANA, NELLIE UGDANG, PEDRO ATUEL, RUBY BONSOBRE, RUTH FORNILLOS, DANIEL GATCHALIAN,RUBEN GUTIERREZ, JULIET GATCHALIAN, ZENAIDA POBLETE, ARTHUR LOUDY, LILIAN LU, ISABEL MEJIA, EDUARDO ARGUELLES, LAO SUI KIEN, SAMUEL CONSOLACION, DR. ARTURO MONTERO, DRA. LILIOSA MONTERO, PEDRO LACIA, CIRILA LACIA, EVELYN SANGALANG, DAVID CASTILLO, ARSENIO SARMIENTO, ELIZABETH SY, METODIO NAVASCA, HELEN VIRTUDAZO, IRENE LIMBAGA, SYLVIA BUSTAMANTE, JUANA DACALUS, NELLIE RICAMORA, JUDITH ESPINOSA, PAZ KUDERA, EVELYN PANES, AGATON BULICATIN, PRESCILLA GARCIA, ROSALIA OLITAO, LUZVIMINDA AVILA, GLORIA OLAIR, LORITA MENCIAS, RENATO ARIETA, EDITHA ACUZAR, LEONARDA VILLACAMPA, ELIAS JARDINICO, BOBINO NAMUAG, FELIMON NAMUAG, EDGAR CABUNOC, HELEN ARGUELLES, HELEN ANG, FELECIDAD PRIETO, LUISITO GRECIA, LILIBETH PARING, RUBEN

CAMACHO, ROSALINDA LALUNA, LUZ YAP, ROGELIO LAPUT,ROSEMARIE WEE, TACOTCHE RANAIN, AVELINO DELOS REYES and ROGASIANO OROPEZA,Respondents. Promulgated:

 September 21, 2005

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

D E C I S I O N 

CORONA, J.: 

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Vivencio V. Jumamil seeks to reverse the

decision of the Court of Appeals dated July 24, 2000[1] in CA-G.R. CV No. 35082, the dispositive portion of which read: With the foregoing, the assailed Decision of Branch 4, Regional Trial Court of Panabo Davao dated 26 November 1990 in Sp. Civil Action No. 89-1 is hereby AFFIRMED.[2]

 

The Regional Trial Court dismissed petitioners petition for declaratory relief with prayer for preliminary injunction and writ of

restraining order, and ordered the petitioner to pay attorneys fees in the amount of P1,000 to each of the 57 private respondents.[3]

 

The factual antecedents follow.

In 1989, petitioner Jumamil[4] filed before the Regional Trial Court (RTC) of Panabo, Davao del Norte a petition for

declaratory relief with prayer for preliminary injunction and writ of restraining order against public respondents Mayor Jose J. Cafe

and the members of the Sangguniang Bayan of Panabo, Davao del Norte. He questioned the constitutionality of Municipal Resolution

No. 7, Series of 1989 (Resolution No. 7).

Resolution No. 7, enacting Appropriation Ordinance No. 111, provided for an initial appropriation of  P765,000 for the

construction of stalls around a proposed terminal fronting the Panabo Public Market[5] which was destroyed by fire. 

Subsequently, the petition was amended due to the passage of Resolution No. 49, series of 1989 (Resolution No. 49),

denominated as Ordinance No. 10, appropriating a further amount of P1,515,000 for the construction of additional stalls in the same

public market.[6]

 

Prior to the passage of these resolutions, respondent Mayor Cafe had already entered into contracts with those who advanced

and deposited (with the municipal treasurer) from their personal funds the sum of P40,000 each. Some of the parties were close friends

and/or relatives of the public respondents.[7] The construction of the stalls which petitioner sought to stop through the preliminary

injunction in the RTC was nevertheless finished, rendering the prayer therefor moot and academic. The leases of the stalls were then

awarded by public raffle which, however, was limited to those who had deposited P40,000 each.[8] Thus, the petition was amended

anew to include the 57 awardees of the stalls as private respondents.[9]

 

Petitioner alleges that Resolution Nos. 7 and 49 were unconstitutional because they were: passed for the business, occupation, enjoyment and benefit of private respondents who deposited the amount of P40,000.00 for each stall, and with whom also the mayor had a prior contract to award the would be constructed stalls to all private respondents. As admitted by public respondents some of the private respondents are close friends and/or relatives of some of the public respondents which makes the questioned acts discriminatory. The questioned resolutions and ordinances did not provide for any notice of publication that the special privilege and unwarranted benefits conferred on the private respondents maybe (sic) availed of by anybody who can deposit the amount ofP40,000.00.[10]

 Neither was there any prior notice or publication pertaining to contracts entered into by public and private

respondents for the construction of stalls to be awarded to private respondents that the same can be availed of by anybody willing to deposit P40,000.00.[11]

  

In this petition, petitioner prays for the reversal of the decision of the Court of Appeals (CA) and a declaration of the

unconstitutionality, illegality and nullity of the questioned resolutions/ordinances and lease contracts entered into by the public and

private respondents; for the declaration of the illegality of the award of the stalls during the pendency of this action and for the re-

raffling and award of the stalls in a manner that is fair and just to all interested applicants; [12] for the issuance of an order to the local

government to admit any and all interested persons who can deposit the amount of  P40,000 for a stall and to order a re-raffling for the

award of the stalls to the winners of the re-raffle; for the nullification of the award of attorneys fees to private respondents on the

ground that it was erroneous and unmeritorious; and for the award of damages in favor of petitioner in the form of attorneys fees.[13]

 

At the outset, we must point out that the issue of the constitutionality of the questioned resolutions was never ruled upon by

both the RTC and the CA. 

It appears that on May 21, 1990, both parties agreed [14] to await the decision in CA G.R. SP No. 20424,[15] which involved similar

facts, issues and parties. The RTC, consequently, deferred the resolution of the pending petition. The appellate court eventually

rendered its decision in that case finding that the petitioners were not entitled to the declaratory relief prayed for as they had no legal

interest in the controversy. Upon elevation to the Supreme Court as UDK Case No. 9948, the petition for review on certiorari was

denied for being insufficient in form and substance. [16]

The RTC, after receipt of the entry of the SC judgment,[17] dismissed the pending petition on November 26, 1990. It adopted

the ruling in CA G.R. SP No. 20424:x x x x x x x x x

 We find petitioners aforesaid submission utterly devoid of merit. It is, to say the least, questionable whether or not a special civil action for declaratory relief can be filed in relation to a contract by persons who are not parties thereto. Under Sec. 1 of Rule 64 of the Rules of Court, any person interested under a deed, will, contract, or other written instruments may bring an action to determine any question of the contract, or validly arising under the instrument for a declaratory (sic) of his rights or duties thereunder. Since contracts take effect only between the parties (Art. 1311) it is quite plain that one who is not a party to a contract can not have the interest in it that the rule requires as a basis for declaratory reliefs (PLUM vs. Santos, 45 SCRA 147). 

Following this ruling, the petitioners were not parties in the agreement for the award of the market stalls by the public respondents, in the public market of Panabo, Davao, and since the petitioners were not parties to the award of the market stalls and whose rights are never affected by merely stating that they are taxpayers, they have no legal interest in the controversy and they are not, therefore, entitled to bring an action for declaratory relief.[18]

 WHEREFORE, the petition of the petitioners as taxpayers being without merit and not in consonance with

law, is hereby ordered DISMISSED. As to the counterclaim for damages, the same not having been actually and fully proven, the Court gives no

award as to the same. It is not amiss to state here that the petitioners agreed to be bound by the outcome of Special Civil Case No. 89-10.

 However, for unnecessarily dragging into Court the fifty-seven (57) private respondents who are bonafide

businessmen and stall holders in the public market of Panabo, it is fitting and proper for the petitioners to be ordered payment of attorneys fees.

 Accordingly, the herein petitioners are ordered to pay ONE THOUSAND (P1,000.00) PESOS EACH to the

57 private respondents, as attorneys fees, jointly and severally, and for them to pay the costs of this suit. SO ORDERED.[19]

From this adverse decision, petitioner again appealed to the Court of Appeals in CA-G.R. CV No. 35082 which is now before

us for review.

The appellate court, yet again, affirmed the RTC decision and held that:Res judicata does not set in a case dismissed for lack of capacity to sue, because there has been no

determination on the merits. Neither does the law of the case apply. However, the court a quo took judicial notice of the fact that petitioners agreed to be bound by the outcome of Special Civil Case No. 89-10.  Allegans contraria non est audiendus. (He is not to be heard who alleges things contradictory to each other.) It must be here observed that petitioners-appellants were the ones who manifested that it would be practical to await the decision of the Supreme Court in their petition for certiorari, for after all the facts, circumstances and issues in that case, are exactly the same as in the case that is here appealed. Granting that they may evade such assumption, a careful evaluation of the case would lead Us to the same conclusion: that the case for declaratory relief is dismissible. As enumerated by Justice Regalado in his Remedial Law Compendium, the requisites of an action for declaratory relief are:

 (a)      The subject matter of the controversy must be a deed, will, contract or other written instrument,

statute, executive order or regulation, or ordinance; 

(b)      The terms of said documents and the validity thereof are doubtful and require judicial construction; 

(c)       There must have been no breach of the documents in question; 

(d)      There must be an actual justiciable controversy or the ripening seeds of one between persons whose interests are adverse;

 (e)      The issue must be ripe for judicial determination; and

 (f)         Adequate relief is not available through other means or other forms of action or proceeding. In Tolentino vs. Board of Accountancy, et al, 90 Phil. 83, 88, the Supreme Court ratiocinated the requisites

of justiciability of an action for declaratory relief by saying that the court must be satisfied that an actual controversy, or the ripening seeds of one, exists between parties, all of whom are sui juris and before the court, and that the declaration sought will be a practical help in ending the controversy.

 The petition must show an active antagonistic assertion of a legal right on one side and a denial thereof on

the other concerning a real, and not a mere theoretical question or issue. The question is whether the facts alleged a substantial controversy between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory relief. In GSISEA and GSISSU vs. Hon. Alvendia etc. and GSIS, 108 Phil. 505, the Supreme Court ruled a declaratory relief improper or unnecessary when it appears to be a moot case, since it seeks to get a judgment on a pretended controversy, when in reality there is none. In Kawasaki Port Service Corporation vs. Amores, 199 SCRA 230, citing Dy Poco vs. Commissioner of Immigration, et al., 16 SCRA 618, the rule was

stated: where a declaratory judgment as to a disputed fact would be determinative of issues rather than a construction of definite stated rights, statuses and other relations, commonly expressed in a written instrument, the case is not one for declaratory judgment.

 Indeed, in its true light, the present petition for declaratory relief seems to be no more than a request for an

advisory opinion to which courts in this and other jurisdiction have cast a definite aversion. The ordinances being assailed are appropriation ordinances. The passage of the ordinances were pursuant to the public purpose of constructing market stalls. For the exercise of judicial review, the governmental act being challenged must have had an adverse effect on the person challenging it, and the person challenging the act, must have standing to challenge, i.e., in the categorical and succinct language of Justice Laurel, he must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement. Standing is a special concern in constitutional law because in some cases suits are brought not by parties who have been personally injured by the operation of a law or by official action taken, but by concerned citizens, taxpayers or voters who actually sue in the public interest. Hence the question in standing is whether such parties have alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court largely depends for illumination of difficult constitutional questions.

 A careful analysis of the records of the case at bar would disclose that petitioners-appellants have suffered

no wrong under the terms of the ordinances being assailed and, naturally need no relief in the form they now seek to obtain. Judicial exercise cannot be exercised in vacuo. The policy of the courts is to avoid ruling on a constitutional question and to presume that the acts of the political departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to sustain. The issue is not the ordinances themselves, but the award of the market stalls to the private respondents on the strength of the contracts individually executed by them with Mayor Cafe. To reiterate, a person who is not a party to a contract cannot file a petition for declaratory relief and seek judicial interpretation of such contract (Atlas Consolidated Mining Corp. vs. Court of Appeals, 182 SCRA 166). Not having established their locus standi, we see no error committed by the court a quo warranting reversal of the appealed decision.

 With the foregoing, the assailed Decision of Branch 4, Regional Trial Court of Panabo Davao dated 26

November 1990 in Sp. Civil Action No. 89-1 is hereby AFFIRMED. SO ORDERED.[20]

Thus, both the RTC and the CA dismissed the case on the ground of petitioners lack of legal standing and the parties

agreement to be bound by the decision in CA G.R. SP. No. 20424.

The issues to be resolved are the following:

(1) whether the parties were bound by the outcome in CA G.R. SP. No. 20424;

(2) whether petitioner had the legal standing to bring the petition for declaratory relief;

(3) whether Resolution Nos. 7 and 49 were unconstitutional; and

(4) whether petitioner should be held liable for damages. 

LOCUS STANDI AND THE CONSTITUTIONALITY ISSUE

We will first consider the second issue. The petition for declaratory relief challenged the constitutionality of the subject

resolutions. There is an unbending rule that courts will not assume jurisdiction over a constitutional question unless the following

requisites are satisfied: (1) there must be an actual case calling for the exercise of judicial review; (2) the question before the Court

must be ripe for adjudication; (3) the person challenging the validity of the act must have standing to do so; (4) the question of

constitutionality must have been raised at the earliest opportunity, and (5) the issue of constitutionality must be the very lis mota of the

case.[21]

Legal standing or locus standi is a partys personal and substantial interest in a case such that he has sustained or will sustain

direct injury as a result of the governmental act being challenged. It calls for more than just a generalized grievance.  The term interest

means a material interest, an interest in issue affected by the decree, as distinguished from mere interest in the question involved, or a

mere incidental interest.[22] Unless a persons constitutional rights are adversely affected by the statute or ordinance, he has no legal

standing.

The CA held that petitioner had no standing to challenge the two resolutions/ordinances because he suffered no wrong under

their terms. It also concluded that the issue (was) not the ordinances themselves but the award of the market stalls to the private

respondents on the strength of the contracts individually executed by them with Mayor Cafe. Consequently, it ruled that petitioner,

who was not a party to the lease contracts, had no standing to file the petition for declaratory relief and seek judicial interpretation of

the agreements. 

We do not agree. Petitioner brought the petition in his capacity as taxpayer of the Municipality of Panabo, Davao del

Norte[23] and not in his personal capacity. He was questioning the official acts of the public respondents in passing the ordinances and

entering into the lease contracts with private respondents. A taxpayer need not be a party to the contract to challenge its validity.

[24] Atlas Consolidated Mining & Development Corporation v. Court of Appeals [25] cited by the CA does not apply because it involved

contracts between two private parties.

Parties suing as taxpayers must specifically prove sufficient interest in preventing the illegal expenditure of

money raised by taxation.[26] The expenditure of public funds by an officer of the State for the purpose of executing an unconstitutional

act constitutes a misapplication of such funds.[27] The resolutions being assailed were appropriations ordinances. Petitioner alleged that

these ordinances were passed for the business, occupation, enjoyment and benefit of private respondents [28] (that is, allegedly for the

private benefit of respondents) because even before they were passed, respondent Mayor Cafe and private respondents had already

entered into lease contracts for the construction and award of the market stalls.[29] Private respondents admitted they deposited P40,000

each with the municipal treasurer, which amounts were made available to the municipality during the construction of the stalls. The

deposits, however, were needed to ensure the speedy completion of the stalls after the public market was gutted by a series of fires.

[30] Thus, the award of the stalls was necessarily limited only to those who advanced their personal funds for their construction.[31]

 

Petitioner did not seasonably allege his interest in preventing the illegal expenditure of public funds or the specific injury to

him as a result of the enforcement of the questioned resolutions and contracts. It was only in the Remark to Comment he filed in this

Court did he first assert that he (was) willing to engage in business and (was) interested to occupy a market stall. [32] Such claim was

obviously an afterthought.

 

Be that as it may, we have on several occasions relaxed the application of these rules on legal standing:

 

In not a few cases, the Court has liberalized the locus standi requirement when a petition raises an issue of transcendental significance or paramount importance to the people. Recently, after holding that the IBP had no locus standi to bring the suit, the Court in IBP v. Zamora nevertheless entertained the Petition therein. It noted that "the IBP has advanced constitutional issues which deserve the attention of this Court in view of their seriousness, novelty and weight as precedents."[33]

― o O o ― 

Objections to a taxpayer's suit for lack of sufficient personality, standing or interest are procedural matters. Considering the importance to the public of a suit assailing the constitutionality of a tax law, and in keeping with the Court's duty, specially explicated in the 1987 Constitution, to determine whether or not the other branches of the Government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Supreme Court may brush aside technicalities of procedure and take cognizance of the suit.[34]

― o O o ―

There being no doctrinal definition of transcendental importance, the following determinants formulated by former Supreme Court Justice Florentino P. Feliciano are instructive: (1) the character of the funds or other assets involved in the case; (2) the presence of a clear case of disregard of a constitutional or statutory prohibition by the public respondent agency or instrumentality of the government; and (3) the lack of any other party with a more direct and specific interest in raising the questions being raised.[35]

But, even if we disregard petitioners lack of legal standing, this petition must still fail. The subject resolutions/ordinances

appropriated a total of P2,280,000 for the construction of the public market stalls. Petitioner alleges that these ordinances were

discriminatory because, even prior to their enactment, a decision had already been made to award the market stalls to the private

respondents who deposited P40,000 each and who were either friends or relatives of the public respondents. Petitioner asserts that

there (was) no publication or invitation to the public that this contract (was) available to all who (were) interested to own a stall and

(were) willing to deposit P40,000.[36]Respondents, however, counter that the public respondents act of entering into this agreement was

authorized by the Sangguniang Bayan of Panabo per Resolution No. 180 dated October 10, 1988[37] and that all the people interested

were invited to participate in investing their savings.[38]

We note that the foregoing was a disputed fact which the courts below did not resolve because the case was dismissed on the

basis of petitioners lack of legal standing. Nevertheless, petitioner failed to prove the subject ordinances and agreements to be

discriminatory. Considering that he was asking this Court to nullify the acts of the local political department of Panabo, Davao del

Norte, he should have clearly established that such ordinances operated unfairly against those who were not notified and who were

thus not given the opportunity to make their deposits. His unsubstantiated allegation that the public was not notified did not suffice.

Furthermore, there was the time-honored presumption of regularity of official duty, absent any showing to the contrary. [39] And this is

not to mention that: 

The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are valid, absent a clear and unmistakable showing to the contrary. To doubt is to sustain. This presumption is based on the doctrine of separation of powers. This means that the measure had first been carefully studied by the legislative and executive departments and found to be in accord with the Constitution before it was finally enacted and approved.[40]

Therefore, since petitioner had no locus standi to

question the ordinances, there is no need for us to discuss the constitutionality of said enactments. WERE THE PARTIES BOUND BY THE OUTCOME IN CA G.R. SP. NO. 20424?

Adverting to the first issue, we observe that petitioner was the one who wanted the parties to await the decision of the

Supreme Court in UDK Case No. 9948 since the facts and issues in that case were similar to this. Petitioner, having expressly agreed

to be bound by our decision in the aforementioned case, should be reined in by the dismissal order we issued, now final and executory.

In addition to the fact that nothing prohibits parties from committing to be bound by the results of another case, courts may take

judicial notice of a judgment in another case as long as the parties give their consent or do not object.[41] As opined by Justice Edgardo

L. Paras: 

A court will take judicial notice of its own acts and records in the same case, of facts established in prior proceedings in the same case, of the authenticity of its own records of another case between the same parties, of the files of related cases in the same court, and of public records on file in the same court. In addition, judicial notice will be taken of the record, pleadings or judgment of a case in another court between the same parties or involving one of the same parties, as well as of the record of another case between different parties in the same court.[42]

DAMAGES

Finally, on the issue of damages, petitioner asserts that he impleaded the 57 respondents in good faith since the award of the stalls to

them was made during the pendency of the action.[43] Private respondents refute this assertion and argue that petitioner filed this action

in bad faith and with the intention of harassing them inasmuch as he had already filed CA G.R. SP. No. 20424 even before then.

[44] The RTC, affirmed by the CA, held that petitioner should pay attorneys fees for unnecessarily dragging into Court the 57 private

respondents who (were) bonafide businessmen and stall holders in the public market of Panabo.[45]

 

We do not agree that petitioner should be held liable for damages. It is not sound public policy to put a premium on the right

to litigate where such right is exercised in good faith, albeit erroneously. [46] The alleged bad faith of petitioner was never established.

The special circumstances in Article 2208 of the Civil Code justifying the award of attorneys fees are not present in this case. 

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 35082 is hereby AFFIRMED with

the MODIFICATION that the award of attorney's fees to private respondents is deleted. 

Costs against petitioner. 

SO ORDERED.PROF. RANDOLF S. DAVID, LORENZO TA„ADA III, RONALD LLAMAS, H. HARRY L. ROQUE, JR., JOEL RUIZ BUTUYAN, ROGER R. RAYEL, GARY S. MALLARI,              ROMEL REGALADO BAGARES, CHRISTOPHER F.C. BOLASTIG,

                                               Petitioners, 

- versus -  GLORIA MACAPAGAL-ARROYO,                  AS PRESIDENT AND COMMANDER-IN-CHIEF, EXECUTIVE SECRETARY EDUARDO ERMITA, HON. AVELINO CRUZ II, SECRETARY OF NATIONAL DEFENSE, GENERAL GENEROSO SENGA, CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES, DIRECTOR GENERAL ARTURO LOMIBAO, CHIEF, PHILIPPINE NATIONAL POLICE,

                                               Respondents.x-------------------------------------------------xNI„EZ CACHO-OLIVARES AND TRIBUNE PUBLISHING CO., INC.,

                                           Petitioners,  

- versus -  HONORABLE SECRETARY EDUARDO ERMITA AND HONORABLE DIRECTOR GENERAL ARTURO C. LOMIBAO, 

                                           Respondents.x-------------------------------------------------xFRANCIS JOSEPH G. ESCUDERO, JOSEPH A. SANTIAGO, TEODORO A. CASINO, AGAPITO A. AQUINO, MARIO J. AGUJA, SATUR C. OCAMPO, MUJIV S. HATAMAN, JUAN EDGARDO ANGARA, TEOFISTO DL. GUINGONA III, EMMANUEL JOSEL J. VILLANUEVA, LIZA L. MAZA, IMEE R. MARCOS, RENATO B. MAGTUBO, JUSTIN MARC SB. CHIPECO, ROILO GOLEZ, DARLENE ANTONINO-CUSTODIO, LORETTA ANN P. ROSALES, JOSEL G. VIRADOR, RAFAEL V. MARIANO, GILBERT C. REMULLA, FLORENCIO G. NOEL, ANA THERESIA HONTIVEROS-BARAQUEL, IMELDA C. NICOLAS, MARVIC M.V.F. LEONEN, NERI JAVIER COLMENARES, MOVEMENT OF CONCERNED CITIZENS FOR CIVIL LIBERTIES REPRESENTED BY AMADO GAT INCIONG,

                                               Petitioners, 

- versus -  EDUARDO R. ERMITA, EXECUTIVE SECRETARY, AVELINO J. CRUZ, JR., SECRETARY, DND RONALDO V. PUNO, SECRETARY, DILG, GENEROSO SENGA,

  G.R. No. 171396   Present:   PANGANIBAN, C.J., *PUNO,  QUISUMBING,  YNARES-SANTIAGO,  SANDOVAL-GUTIERREZ,  CARPIO,  AUSTRIA-MARTINEZ,  CORONA,  CARPIO MORALES,  CALLEJO, SR.,  AZCUNA,  TINGA,  CHICO-NAZARIO,  GARCIA, and  VELASCO, JJ.   Promulgated:   May 3, 2006    G.R. No. 171409            G.R. No. 171485                  

AFP CHIEF OF STAFF, ARTURO LOMIBAO, CHIEF PNP,

                                           Respondents.x-------------------------------------------------xKILUSANG MAYO UNO, REPRESENTED BY ITS CHAIRPERSON ELMER C. LABOG AND SECRETARY GENERAL JOEL MAGLUNSOD, NATIONAL FEDERATION OF LABOR UNIONS Ð KILUSANG MAYO UNO (NAFLU-KMU), REPRESENTED BY ITS NATIONAL PRESIDENT, JOSELITO V. USTAREZ, ANTONIO C. PASCUAL, SALVADOR T. CARRANZA, EMILIA P. DAPULANG, MARTIN CUSTODIO, JR., AND ROQUE M. TAN,

                                              Petitioners,    

- versus -    HER EXCELLENCY, PRESIDENT GLORIA MACAPAGAL-ARROYO, THE HONORABLE EXECUTIVE SECRETARY, EDUARDO ERMITA, THE CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES, GENEROSO SENGA, AND THE PNP DIRECTOR GENERAL, ARTURO LOMIBAO,

                                           Respondents.x-------------------------------------------------xALTERNATIVE LAW GROUPS, INC. (ALG),

                                                Petitioner,- versus -  

  EXECUTIVE SECRETARY EDUARDO R. ERMITA, LT. GEN. GENEROSO SENGA, AND DIRECTOR GENERAL ARTURO LOMIBAO,         

                                           Respondents.x-------------------------------------------------xJOSE ANSELMO I. CADIZ, FELICIANO M. BAUTISTA, ROMULO R. RIVERA, JOSE AMOR M. AMORADO, ALICIA A. RISOS-VIDAL, FELIMON C. ABELITA III, MANUEL P. LEGASPI, J.B. JOVY C. BERNABE, BERNARD L. DAGCUTA, ROGELIO V. GARCIA AND INTEGRATED BAR OF THE PHILIPPINES (IBP),

                                               Petitioners, 

- versus -  HON. EXECUTIVE SECRETARY EDUARDO ERMITA, GENERAL GENEROSO SENGA, IN HIS CAPACITY AS AFP CHIEF OF STAFF, AND DIRECTOR GENERAL ARTURO LOMIBAO, IN HIS CAPACITY AS PNP CHIEF,                                           Respondents.x-------------------------------------------------xLOREN B. LEGARDA,

                                       Petitioner, 

                 G.R. No. 171483                              G.R. No. 171400             

 - versus -

  GLORIA MACAPAGAL-ARROYO, IN HER CAPACITY AS PRESIDENT AND COMMANDER-IN-CHIEF; ARTURO LOMIBAO, IN HIS CAPACITY AS DIRECTOR-GENERAL OF THE PHILIPPINE NATIONAL POLICE (PNP); GENEROSO SENGA, IN HIS CAPACITY AS CHIEF OF STAFF OF THE ARMED FORCES OF THE PHILIPPINES (AFP); AND EDUARDO ERMITA, IN HIS CAPACITY AS EXECUTIVE SECRETARY,

                                           Respondents. 

  G.R. No. 171489                      G.R. No. 171424                              

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

DECISION  SANDOVAL-GUTIERREZ, J.: 

 

All powers need some restraint; practical adjustments rather than rigid formula are necessary. [1]   Superior strength Ð the use

of force Ð cannot make wrongs into rights. In this regard, the courts should be vigilant in safeguarding the constitutional rights of the

citizens, specifically their liberty. 

Chief Justice Artemio V. PanganibanÕs philosophy of liberty is thus most relevant.   He said: ÒIn cases involving liberty,

the scales of justice should weigh heavily against government and in favor of the poor, the oppressed, the marginalized, the

dispossessed and the weak.Ó  Laws and actions that restrict fundamental rights come to the courts Òwith a heavy presumption

against their constitutional validity.Ó[2]

         These seven (7) consolidated petitions for certiorari and prohibition allege that in issuing Presidential Proclamation No. 1017

(PP 1017)  and  General Order No. 5 (G.O. No. 5), President Gloria Macapagal-Arroyo committed grave abuse of

discretion.  Petitioners contend that respondent officials of the Government, in their professed efforts to defend and preserve

democratic institutions, are actually trampling upon the very freedom guaranteed and protected by the Constitution.  Hence, such

issuances are void for being unconstitutional.

 

 

         Once again, the Court is faced with an age-old but persistently modern problem.  How does the Constitution of a free people

combine the degree of liberty, without which, law becomes tyranny, with the degree of law, without which, liberty becomes license?[3]

         On February 24, 2006, as the nation celebrated the 20th Anniversary of the Edsa People Power I, President Arroyo issued PP

1017 declaring a state of national emergency, thus: 

NOW, THEREFORE, I, Gloria Macapagal-Arroyo, President of the Republic of the Philippines and Commander-in-Chief of the Armed Forces of the Philippines, by virtue of the powers vested upon me by Section 18, Article 7 of the Philippine Constitution which states that: ÒThe President. . . whenever it becomes necessary, . . . may call out (the) armed forces to prevent or suppress. . .rebellion. . .,Ó and in my capacity as their Commander-in-Chief, do hereby command the Armed Forces of the Philippines, to maintain law and order throughout the Philippines, prevent or suppress all forms of lawless violence as well as any act of insurrection or rebellion and to enforce obedience to all the laws and to all decrees, orders and regulations promulgated by me personally or upon my direction; and as provided in Section 17, Article 12 of the Constitution do hereby declare a State of National Emergency.

 

She cited the following facts as bases: 

WHEREAS, over these past months, elements in the political opposition have conspired with authoritarians of the extreme Left represented by the NDF-CPP-NPA and the extreme Right, represented by military adventurists Ð the historical enemies of the democratic Philippine State Ð who are now in a tactical alliance and engaged in a concerted and systematic conspiracy, over a broad front, to bring down the duly constituted Government elected in May 2004;

 WHEREAS, these conspirators have repeatedly tried to bring down the President; WHEREAS, the claims of these elements have been recklessly magnified by certain segments of the

national media; WHEREAS, this series of actions is hurting the Philippine State Ð by obstructing governance

including hindering the growth of the economy and sabotaging the peopleÕs confidence in government and their faith in the future of this country;

 WHEREAS, these actions are adversely affecting the economy; WHEREAS, these activities give totalitarian forces of both the extreme Left and extreme Right the

opening to intensify their avowed aims to bring down the democratic Philippine State; WHEREAS, Article 2, Section 4 of the our Constitution makes the defense and preservation of the

democratic institutions and the State the primary duty of Government; WHEREAS, the activities above-described, their consequences, ramifications and collateral effects

constitute a clear and present danger to the safety and the integrity of the Philippine State and of the Filipino people;

  

On the same day, the President issued G. O. No. 5 implementing PP 1017, thus:          WHEREAS, over these past months, elements in the political opposition have conspired with authoritarians of the extreme Left, represented by the NDF-CPP-NPA and the extreme Right, represented by military adventurists - the historical enemies of the democratic Philippine State Ð and who are now in a tactical alliance and engaged in a concerted and systematic conspiracy, over a broad front, to bring down the duly-constituted Government elected in May 2004;            WHEREAS, these conspirators have repeatedly tried to bring down our republican government; 

WHEREAS, the claims of these elements have been recklessly magnified by certain segments of the national media;

 WHEREAS, these series of actions is hurting the Philippine State by obstructing governance, including

hindering the growth of the economy and sabotaging the peopleÕs confidence in the government and their faith in the future of this country;

 WHEREAS, these actions are adversely affecting the economy; WHEREAS, these activities give totalitarian forces; of both the extreme Left and extreme Right the

opening to intensify their avowed aims to bring down the democratic Philippine State; WHEREAS, Article 2, Section 4 of our Constitution makes the defense and preservation of the democratic

institutions and the State the primary duty of Government; WHEREAS, the activities above-described, their consequences, ramifications and collateral effects

constitute a clear and present danger to the safety and the integrity of the Philippine State and of the Filipino people; WHEREAS, Proclamation 1017 date February 24, 2006 has been issued declaring a State of National

Emergency; NOW, THEREFORE, I GLORIA MACAPAGAL-ARROYO, by virtue of the powers vested in me

under the Constitution as President of the Republic of the Philippines, and Commander-in-Chief of the Republic of the Philippines, and pursuant to Proclamation No. 1017 dated February 24, 2006, do hereby call upon the Armed Forces of the Philippines (AFP) and the Philippine National Police (PNP), to prevent and suppress acts of terrorism and lawless violence in the country;             I hereby direct the Chief of Staff of the AFP and the Chief of the PNP, as well as the officers and men of the AFP and PNP, to immediately carry out the necessary and appropriate actions and measures to suppress and prevent acts of terrorism and lawless violence.

         

On March 3, 2006, exactly one week after the declaration of a state of national emergency and after all these petitions had

been filed, the President lifted PP 1017.   She issued Proclamation No. 1021 which reads:

WHEREAS, pursuant to Section 18, Article VII and Section 17, Article XII of the Constitution, Proclamation No. 1017 dated February 24, 2006, was issued declaring a state of national emergency;             WHEREAS, by virtue of General Order No.5 and No.6 dated February 24, 2006, which were issued on the basis of Proclamation No. 1017, the Armed Forces of the Philippines (AFP) and the Philippine National Police (PNP), were directed to maintain law and order throughout the Philippines, prevent and suppress all form of lawless violence as well as any act of rebellion and to undertake such action as may be necessary;             WHEREAS, the AFP and PNP have effectively prevented, suppressed and quelled the acts lawless violence and rebellion;             NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines, by virtue of the powers vested in me by law, hereby declare that the state of national emergency has ceased to exist.  

In their presentation of the factual bases of PP 1017 and G.O. No. 5, respondents stated that the proximate cause behind the

executive issuances was the conspiracy among some military officers, leftist insurgents of the New PeopleÕs Army (NPA), and some

members of the political opposition in a plot to unseat or assassinate President Arroyo. [4] They considered the aim to oust or

assassinate the President and take-over the reigns of government as a clear and present danger.

During the oral arguments held on March 7, 2006, the Solicitor General specified the facts leading to the issuance of PP 1017

and            G.O. No. 5.   Significantly, there was no refutation from petitionersÕ counsels.

The Solicitor General argued that the intent of the Constitution is to give full discretionary powers to the President in

determining the necessity of calling out the armed forces.   He emphasized that none of the petitioners has shown that PP 1017 was

without factual bases.  While he explained that it is not respondentsÕ task to state the facts behind the questioned Proclamation,

however, they are presenting the same, narrated hereunder, for the elucidation of the issues.

On January 17, 2006, Captain Nathaniel Rabonza and                    First Lieutenants Sonny Sarmiento, Lawrence San Juan

and Patricio Bumidang, members of the Magdalo Group indicted in the Oakwood mutiny, escaped their detention cell in Fort

Bonifacio, Taguig City.   In a public statement, they vowed to remain defiant and to elude arrest at all costs.  They called upon the

people to Òshow and proclaim our displeasure at the sham regime. Let us demonstrate our disgust, not only by going to the streets in

protest, but also by wearing red bands on our left arms.Ó [5]

 

On February 17, 2006, the authorities got hold of a document entitled ÒOplan Hackle I Ó which detailed plans for bombings

and attacks during the Philippine Military Academy Alumni Homecoming in Baguio City.    The plot was to assassinate selected

targets including some cabinet members and President Arroyo herself.[6]   Upon the advice of her security, President Arroyo decided

not to attend the Alumni Homecoming.  The next day, at the height of the celebration, a bomb was found and detonated at the PMA

parade ground.

On February 21, 2006, Lt. San Juan was recaptured in a communist safehouse in Batangas province.   Found in his

possession were two (2) flash disks containing minutes of the meetings between members of the Magdalo Group and the National

PeopleÕs Army (NPA), a tape recorder, audio cassette cartridges, diskettes, and copies of subversive documents. [7]   Prior to his arrest,

Lt. San Juan announced through DZRH that the ÒMagdaloÕs D-Day would be on February 24, 2006, the 20th Anniversary of Edsa

I.Ó

On February 23, 2006, PNP Chief Arturo Lomibao intercepted information that members of the PNP- Special Action Force

were planning to defect.   Thus, he immediately ordered SAF Commanding General Marcelino Franco, Jr. to ÒdisavowÓ any

defection. The latter promptly obeyed and issued a public statement:  ÒAll SAF units are under the effective control of responsible and

trustworthy officers with proven integrity and unquestionable loyalty.Ó

On the same day, at the house of former Congressman Peping Cojuangco, President Cory AquinoÕs brother, businessmen

and mid-level government officials plotted moves to bring down the Arroyo administration.  Nelly Sindayen of TIME Magazine

reported that Pastor Saycon, longtime Arroyo critic, called a U.S. government official about his groupÕs plans if President Arroyo is

ousted.  Saycon also phoned a man code-named Delta. Saycon identified him as B/Gen. Danilo Lim, Commander of the ArmyÕs elite

Scout Ranger.  Lim said Òit was all systems go for the planned movement against Arroyo.Ó[8]

B/Gen. Danilo Lim and Brigade Commander Col. Ariel Querubin confided to Gen. Generoso Senga, Chief of Staff of the

Armed Forces of the Philippines (AFP), that a huge number of soldiers would join the rallies to provide a critical mass and armed

component to the Anti-Arroyo protests to be held on February 24, 2005.   According to these two (2) officers, there was no way they

could possibly stop the soldiers because they too, were breaking the chain of command to join the forces foist to unseat the

President.  However, Gen. Senga has remained faithful to his Commander-in-Chief and to the chain of command.  He immediately

took custody of B/Gen. Lim and directed Col. Querubin to return to the Philippine Marines Headquarters in Fort Bonifacio.

Earlier, the CPP-NPA called for intensification of political and revolutionary work within the military and the police

establishments in order to forge alliances with its members and key officials.    NPA spokesman Gregorio ÒKa RogerÓ Rosal

declared: ÒThe Communist Party and revolutionary movement and the entire people look forward to the possibility in the coming year

of accomplishing its immediate task of bringing down the Arroyo regime; of rendering it to weaken and unable to rule that it will not

take much longer to end it.Ó[9]

On the other hand, Cesar Renerio, spokesman for the National Democratic Front (NDF) at North Central Mindanao, publicly

announced: ÒAnti-Arroyo groups within the military and police are growing rapidly, hastened by the economic difficulties suffered by

the families of AFP officers and enlisted personnel who undertake counter-insurgency operations in the field.Ó  He claimed that with

the forces of the national democratic movement, the anti-Arroyo conservative political parties, coalitions, plus the groups that have

been reinforcing since June 2005, it is probable that the PresidentÕs ouster is nearing its concluding stage in the first half of 2006.

Respondents further claimed that the bombing of telecommunication towers and cell sites in Bulacan and Bataan was also

considered as additional factual basis for the issuance of PP 1017 and G.O. No. 5.   So is the raid of an army outpost in Benguet

resulting in the death of three (3) soldiers.   And also the directive of the Communist Party of the Philippines ordering its front

organizations to join 5,000 Metro Manila radicals and 25,000 more from the provinces in mass protests.[10]

By midnight of February 23, 2006, the President convened her security advisers and several cabinet members to assess the

gravity of the fermenting peace and order situation.   She directed both the AFP and the PNP to account for all their men and ensure

that the chain of command remains solid and undivided.   To protect the young students from any possible trouble that might break

loose on the streets, the President suspended classes in all levels in the entire National Capital Region.  

For their part, petitioners cited the events that followed after the issuance of PP 1017 and G.O. No. 5.

Immediately, the Office of the President announced the cancellation of all programs and activities related to the

20th anniversary celebration of Edsa People Power I; and revoked the permits to hold rallies issued earlier by the local governments.

Justice Secretary Raul Gonzales stated that political rallies, which to the PresidentÕs mind were organized for purposes of

destabilization, are cancelled. Presidential Chief of Staff Michael Defensor announced that Òwarrantless arrests and take-over of

facilities, including media, can already be implemented.Ó[11] 

Undeterred by the announcements that rallies and public assemblies would not be allowed, groups of protesters (members

of Kilusang Mayo Uno [KMU] and National Federation of Labor Unions-Kilusang Mayo Uno [NAFLU-KMU]), marched from

various parts of Metro Manila with the intention of converging at the EDSA shrine.   Those who were already near the EDSA site

were violently dispersed by huge clusters of anti-riot police.   The well-trained policemen used truncheons, big fiber glass shields,

water cannons, and tear gas to stop and break up the marching groups, and scatter the massed participants. The same police action was

used against the protesters marching forward to Cubao, Quezon City and to the corner of Santolan Street and EDSA.    That same

evening, hundreds of riot policemen broke up an EDSA celebration rally held along Ayala Avenue and Paseo de Roxas Street in

Makati City.[12] 

According to petitioner Kilusang Mayo Uno, the police cited PP 1017 as the ground for the dispersal of their assemblies.

During the dispersal of the rallyists along EDSA, police arrested (without warrant) petitioner Randolf S. David, a professor at

the University of the Philippines and newspaper columnist. Also arrested was his companion, Ronald Llamas, president of party-

list Akbayan.

At around 12:20 in the early morning of February 25, 2006, operatives of the Criminal Investigation and Detection Group

(CIDG) of the PNP, on the basis of PP 1017 and G.O. No. 5, raided the Daily Tribune offices in Manila.   The raiding team

confiscated news stories by reporters, documents, pictures, and mock-ups of the Saturday issue.   Policemen from Camp Crame in

Quezon City were stationed inside the editorial and business offices of the newspaper; while policemen from the Manila Police

District were stationed outside the building.[13]       

A few minutes after the search and seizure at the Daily Tribune offices, the police surrounded the premises of another pro-

opposition paper, Malaya, and its sister publication, the tabloid Abante.

The raid, according to Presidential Chief of Staff Michael Defensor,  is Òmeant to show a Ôstrong presence,Õ to tell media

outlets not to connive or do anything that would help the rebels in bringing down this government.Ó   The PNP warned that it would

take over any media organization that would not follow Òstandards set by the government during the state of national

emergency.Ó   Director General Lomibao stated that Òif they do not follow the standards Ð and the standards are - if they would

contribute to instability in the government, or if they do not subscribe to what is in General Order No. 5 and Proc. No. 1017 Ð we will

recommend a Ôtakeover.ÕÓ  National TelecommunicationsÕ Commissioner Ronald Solis urged television and radio networks

to ÒcooperateÓ with the government for the duration of the state of national emergency.    He asked for Òbalanced reportingÓ from

broadcasters when covering the events surrounding the coup attempt foiled by the government.   He warned that his agency will not

hesitate to recommend the closure of any broadcast outfit that violates rules set out for media coverage when the national security is

threatened.[14]

Also, on February 25, 2006, the police arrested Congressman Crispin Beltran, representing the Anakpawis Party and

Chairman of Kilusang Mayo Uno (KMU), while leaving his farmhouse in Bulacan.    The police showed a warrant for his arrest dated

1985. BeltranÕs lawyer explained that the warrant, which stemmed from a case of inciting to rebellion filed during the Marcos

regime, had long been quashed.   Beltran, however, is not a party in any of these petitions.

When members of petitioner KMU went to Camp Crame to visit Beltran, they were told they could not be admitted because

of PP 1017 and G.O. No. 5.   Two members were arrested and detained, while the rest were dispersed by the police.

Bayan Muna Representative Satur Ocampo eluded arrest when the police went after him during a public forum at the Sulo

Hotel in Quezon City.   But his two drivers, identified as Roel and Art, were taken into custody.

Retired Major General Ramon Monta–o, former head of the Philippine Constabulary, was arrested while with his wife and

golfmates at the Orchard Golf and Country Club in Dasmari–as, Cavite.

Attempts were made to arrest Anakpawis Representative Satur Ocampo, Representative Rafael Mariano, Bayan

Muna Representative Teodoro Casi–o and Gabriela Representative Liza Maza.   Bayan Muna Representative Josel Virador was

arrested at the PAL Ticket Office in Davao City.  Later, he was turned over to the custody of the House of Representatives where the

ÒBatasan 5Ó decided to stay indefinitely.     

Let it be stressed at this point that the alleged violations of the rights of Representatives Beltran, Satur Ocampo,  et al., are not

being raised in these petitions.

 On March 3, 2006, President Arroyo issued PP 1021 declaring that the state of national emergency has ceased to exist.

In the interim, these seven (7) petitions challenging the constitutionality of PP 1017 and G.O. No. 5 were filed with this Court

against the above-named respondents.  Three (3) of these petitions impleaded President Arroyo as respondent.

         In G.R. No. 171396, petitioners Randolf S. David, et al. assailed PP 1017 on the grounds that (1) it encroaches on the emergency

powers of Congress; (2) it is a subterfuge to avoid the constitutional requirements for the imposition of martial law; and (3) it violates

the constitutional guarantees of freedom of the press, of speech and of assembly.

         In G.R. No. 171409, petitioners Ninez Cacho-Olivares and Tribune Publishing Co., Inc. challenged the CIDGÕs act of raiding

the Daily Tribune offices as a clear case of ÒcensorshipÓ or Òprior restraint.Ó   They also claimed that the term ÒemergencyÓ refers

only to tsunami, typhoon, hurricane and similar occurrences, hence, there is Òabsolutely no emergencyÓ that warrants the issuance of

PP 1017. 

   In G.R. No. 171485, petitioners herein are Representative Francis Joseph G. Escudero, and twenty one (21) other members of

the House of Representatives, including Representatives Satur Ocampo, Rafael Mariano, Teodoro Casi–o, Liza Maza, and Josel

Virador.   They asserted that PP 1017 and G.O. No. 5 constitute Òusurpation of legislative powersÓ; Òviolation of freedom of

expressionÓ and Òa declaration of martial law.Ó   They alleged that President Arroyo Ògravely abused her discretion in calling out

the armed forces without clear and verifiable factual basis of the possibility of lawless violence and a showing that there is necessity

to do so.Ó

      In G.R. No. 171483, petitioners KMU, NAFLU-KMU, and their members averred that PP 1017 and G.O. No. 5 are

unconstitutional because (1) they arrogate unto President Arroyo the power to enact laws and decrees; (2) their issuance was without

factual basis; and (3) they violate freedom of expression and the right of the people to peaceably assemble to redress their grievances.

In G.R. No. 171400, petitioner Alternative Law Groups, Inc. (ALGI) alleged that PP 1017 and G.O. No. 5 are

unconstitutional because they violate  (a)  Section 4[15] of Article II, (b) Sections 1,[16] 2,[17] and 4[18]  of Article III, (c) Section 23[19] of

Article VI,  and  (d)  Section 17[20] of Article XII of the Constitution. 

In G.R. No. 171489, petitioners Jose Anselmo I. Cadiz et al., alleged that PP 1017 is an Òarbitrary and unlawful exercise by

the President of her Martial Law powers.Ó  And assuming that PP 1017 is not really a declaration of Martial Law, petitioners argued

that Òit amounts to an exercise by the President of emergency powers without congressional approval.Ó  In addition, petitioners

asserted that PP 1017 Ògoes beyond the nature and function of a proclamation as defined under the Revised Administrative Code.Ó

And lastly, in G.R. No. 171424, petitioner Loren B. Legarda maintained that PP 1017 and G.O. No. 5 are Òunconstitutional

for being violative of the freedom of expression, including its cognate rights such as freedom of the press and the right to access to

information on matters of public concern, all guaranteed under Article III, Section 4 of the 1987 Constitution.Ó  In this regard, she

stated that these issuances prevented her from fully prosecuting her election protest pending before the Presidential Electoral Tribunal.

         In respondentsÕ Consolidated Comment, the Solicitor General countered that: first, the petitions should be dismissed for

being             moot; second, petitioners in G.R. Nos. 171400 (ALGI),  171424 (Legarda), 171483 (KMU et al.), 171485 (Escudero et

al.) and 171489 (Cadiz et al.) have no legal standing;  third, it is not necessary for petitioners to implead President Arroyo as

respondent;  fourth,  PP 1017 has constitutional and legal basis; and fifth, PP 1017 does not violate the peopleÕs right to free

expression and redress of grievances.

         On March 7, 2006, the Court conducted oral arguments and heard the parties on the above interlocking issues which may be

summarized as follows:

                    A.    PROCEDURAL:

1)    Whether the issuance of PP 1021 renders the petitions moot and academic.

2)    Whether petitioners in 171485 (Escudero et al.), G.R. Nos. 171400 (ALGI), 171483 (KMU et

al.), 171489 (Cadiz et al.), and 171424 (Legarda) have legal standing.

                  B.      SUBSTANTIVE:

1)    Whether the Supreme Court can review the factual bases of PP 1017.

2)    Whether PP 1017 and G.O. No. 5 are unconstitutional.a. Facial Challengeb. Constitutional Basisc. As Applied Challenge 

A.            PROCEDURAL 

         First, we must resolve the procedural roadblocks.

I- Moot and Academic Principle

         One of the greatest contributions of the American system to this country is the concept of judicial review enunciated in Marbury

v. Madison.[21] This concept rests on the extraordinary simple foundation --

         The Constitution is the supreme law. It was ordained by the people, the ultimate source of all political authority. It confers limited powers on the national government. x x x If the government consciously or unconsciously oversteps these limitations there must be some authority competent to hold it in control, to thwart its unconstitutional attempt, and thus to vindicate and preserve inviolate the will of the people as expressed in the Constitution. This power the courts exercise. This is the beginning and the end of the theory of judicial review.[22]

 

         But the power of judicial review does not repose upon the courts a Òself-starting capacity.Ó [23]  Courts may exercise such power

only when the following requisites are present: first, there must be an actual case or controversy; second, petitioners have to raise a

question of constitutionality; third, the constitutional question must be raised at the earliest opportunity; and fourth, the decision of the

constitutional question must be necessary to the determination of the case itself.[24] 

Respondents maintain that the first and second requisites are absent, hence, we shall limit our discussion thereon.

An actual case or controversy involves a conflict of legal right, an opposite legal claims susceptible of judicial resolution.   It

is Òdefinite and concrete, touching the legal relations of parties having adverse legal    interest;Ó a real and substantial controversy

admitting of specific relief.[25]  The Solicitor General refutes the existence of such actual case or controversy, contending that the

present petitions were rendered Òmoot and academicÓ by President ArroyoÕs issuance of PP 1021.

Such contention lacks merit.

A moot and academic case is one that ceases to present a justiciable controversy by virtue of supervening events, [26] so that a

declaration thereon would be of no practical use or value.[27]  Generally, courts decline jurisdiction over such case[28] or dismiss it on

ground of mootness.[29]  

The Court holds that President ArroyoÕs issuance of PP 1021 did not render the present petitions moot and

academic.   During the eight (8) days that PP 1017 was operative, the police officers, according to petitioners, committed illegal acts in

implementing it.  Are PP 1017 and G.O. No. 5 constitutional or valid?  Do they justify these alleged illegal acts?  These are the

vital issues that must be resolved in the present petitions.  It must be stressed that Òan unconstitutional act is not a law, it confers

no rights, it imposes no duties, it affords no protection; it is in legal contemplation, inoperative.Ó[30]

The Òmoot and academicÓ principle is not a magical formula that can automatically dissuade the courts in resolving a

case.  Courts will decide cases, otherwise moot and academic, if:  first, there is a grave violation of the Constitution;[31] second, the

exceptional character of the situation and the paramount public interest is involved; [32] third,when constitutional issue raised requires

formulation of controlling principles to guide the bench, the bar, and the public;[33] and fourth, the case is capable of repetition yet

evading review.[34]

All the foregoing exceptions are present here and justify this CourtÕs assumption of jurisdiction over the instant

petitions.  Petitioners alleged that the issuance of PP 1017 and G.O. No. 5 violates the Constitution.   There is no question that the

issues being raised affect the publicÕs interest, involving as they do the peopleÕs basic rights to freedom of expression, of assembly

and of the press.   Moreover, the Court has the duty to formulate guiding and controlling constitutional precepts, doctrines or rules.  It

has the symbolic function of educating the bench and the bar, and in the present petitions, the military and the police, on the extent

of the protection given by constitutional guarantees.[35]  And lastly, respondentsÕ contested actions are capable of

repetition.  Certainly, the petitions are subject to judicial    review.

In their attempt to prove the alleged mootness of this case, respondents cited Chief Justice Artemio V. PanganibanÕs

Separate Opinion in Sanlakas v. Executive Secretary.[36]   However, they failed to take into account the Chief JusticeÕs very statement

that an otherwise ÒmootÓ case may still be decided Òprovided the party raising it in a proper case has been and/or continues to be

prejudiced or damaged as a direct result of its issuance.Ó   The present case falls right within this exception to the mootness rule

pointed out by the Chief Justice.

II- Legal Standing

In view of the number of petitioners suing in various personalities, the Court deems it imperative to have a more than passing

discussion on legal standing or locus standi.

 

         Locus standi is defined as Òa right of appearance in a court of justice on a given question.Ó [37]   In private suits, standing is

governed by the Òreal-parties-in interestÓ rule as contained in Section 2, Rule 3 of the 1997 Rules of Civil Procedure, as amended. It

provides that Òevery action must be prosecuted or defended in the name of the real party in interest .Ó  Accordingly, the Òreal-

party-in interestÓ is Òthe party who stands to be benefited or injured by the judgment in the suit or the party entitled to the

avails of the suit.Ó[38] Succinctly put, the plaintiffÕs standing is based on his own right to the relief sought.  

         The difficulty of determining locus standi arises in public suits.         Here, the plaintiff who asserts a Òpublic rightÓ in assailing

an allegedly illegal official action, does so as a representative of the general public.    He may be a person who is affected no

differently from any other person.  He could be suing as a Òstranger,Ó or in the category of a Òcitizen,Ó or Ôtaxpayer.Ó  In either

case, he has to adequately show that he is entitled to seek judicial protection.   In other words, he has to make out a sufficient interest

in the vindication of the public order and the securing of relief as a ÒcitizenÓ or Òtaxpayer.

         Case law in most jurisdictions now allows both ÒcitizenÓ and ÒtaxpayerÓ standing in public actions.   The distinction was first

laid down in Beauchamp v. Silk,[39]  where it was held that the plaintiff in a taxpayerÕs suit is in a different category from the plaintiff

in a citizenÕs suit.  In the former, the plaintiff is affected by the expenditure of public funds, while in the latter, he is but the

mere instrument of the public concern.   As held by the New York Supreme Court in People ex rel Case v. Collins:[40]   ÒIn matter

of mere public right, howeverÉthe people are the real partiesÉIt is at least the right, if not the duty, of every citizen to

interfere and see that a public offence be properly pursued and punished, and that a public grievance be remedied .Ó   With

respect to taxpayerÕs suits, Terr v. Jordan[41]  held that Òthe right of a citizen and a taxpayer to maintain an action in courts to

restrain the unlawful use of public funds to his injury cannot be denied.Ó

         However, to prevent just about any person from seeking judicial interference in any official policy or act with which he

disagreed with, and thus hinders the activities of governmental agencies engaged in public service, the United State Supreme Court

laid down the more stringent Òdirect injuryÓ test in Ex Parte Levitt,[42] later reaffirmed inTileston v. Ullman.[43]  The same Court

ruled that for a private individual to invoke the judicial power to determine the validity of an executive or legislative action,  he must

show that he has sustained a direct injury as a result of that action, and it is not sufficient that he has a general interest

common to all members of the public.

This Court adopted the Òdirect injuryÓ test in our jurisdiction.   In People v. Vera,[44]  it held that the person who impugns

the validity of a statute must have Òa personal and substantial interest in the case such that he has sustained, or will sustain

direct injury as a result.Ó  The Vera doctrine was upheld in a litany of cases, such as, Custodio v. President of the Senate,[45] Manila

Race Horse TrainersÕ Association v. De la Fuente,[46]  Pascual v. Secretary of Public Works[47] and Anti-Chinese League of the

Philippines v. Felix.[48]

However, being a mere procedural technicality, the requirement of locus standi may be waived by the Court in the exercise of

its discretion. This was done in the 1949 Emergency Powers Cases, Araneta v. Dinglasan,[49] where the Òtranscendental

importanceÓ of the cases prompted the Court to act liberally.   Such liberality was neither a rarity nor accidental.   In Aquino v.

Comelec,[50]  this  Court resolved to pass upon the issues raised due to the Òfar-reaching implicationsÓ of the petition

notwithstanding its categorical statement that petitioner therein had no personality to file the suit.   Indeed, there is a chain of cases

where this liberal policy has been observed, allowing ordinary citizens, members of Congress, and civic organizations to prosecute

actions involving the constitutionality or validity of laws, regulations and rulings.[51] 

         Thus, the Court has adopted a rule that even where the petitioners have failed to show direct injury, they have been allowed to

sue under the principle of Òtranscendental importance.Ó Pertinent are the following cases:

(1) Chavez v. Public Estates Authority,[52] where the Court ruled that the enforcement of the constitutional right to information and the equitable diffusion of natural resources are matters of transcendental importance which clothe the petitioner with locus standi;

 (2) Bagong Alyansang Makabayan v. Zamora,[53]  wherein the Court held that Ògiven the transcendental

importance of the issues involved, the Court may relax the standing requirements and allow the suit to prosper despite the lack of direct injury to the parties seeking judicial reviewÓ of the Visiting Forces Agreement;

 (3) Lim v. Executive Secretary,[54]  while the Court noted that the petitioners may not file suit in their

capacity as taxpayers absent a showing that ÒBalikatan 02-01Ó involves the exercise of CongressÕ taxing or spending powers, it reiterated its ruling in Bagong Alyansang Makabayan v. Zamora,[55]  that in cases of transcendental importance, the cases must be settled promptly and definitely and standing requirements may be relaxed.

By way of summary, the following rules may be culled from the  cases decided by this Court.   Taxpayers, voters, concerned

citizens, and legislators may be accorded standing to sue, provided that the following requirements are met:

(1)                   the cases involve constitutional issues;

(2)                   for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure is

unconstitutional;

(3)                   for voters, there must be a showing of obvious interest in the validity of the election law in question;

(4)                   for concerned citizens, there must be a showing that the issues raised are of transcendental importance which

must be settled early; and

(5)                    for legislators, there must be a claim that the official action complained of infringes upon their prerogatives

as legislators.

Significantly, recent decisions show a certain toughening in the CourtÕs attitude toward legal standing.  

         In Kilosbayan, Inc. v. Morato,[56] the Court ruled that the status of Kilosbayan as a peopleÕs organization does not give it the

requisite personality to question the validity of the on-line lottery contract, more so where it does not raise any issue of

constitutionality.  Moreover, it cannot sue as a taxpayer absent any allegation that public funds are being misused. Nor can it sue as a

concerned citizen as it does not allege any specific injury it has suffered.

         In Telecommunications and Broadcast Attorneys of the Philippines, Inc. v. Comelec,[57]  the Court reiterated the Òdirect injuryÓ

test with respect to concerned citizensÕ cases involving constitutional issues.   It held that Òthere must be a showing that the citizen

personally suffered some actual or threatened injury arising from the alleged illegal official act.Ó

In Lacson v. Perez,[58] the Court ruled that one of the petitioners, Laban ng Demokratikong Pilipino (LDP), is not a real party-

in-interest as it had not demonstrated any injury to itself or to its leaders, members or supporters.  

In Sanlakas v. Executive Secretary,[59] the Court ruled that only the petitioners who are members of Congress have standing to

sue, as they claim that the PresidentÕs declaration of a state of rebellion is a usurpation of the emergency powers of Congress, thus

impairing their legislative powers. As to petitioners Sanlakas, Partido Manggagawa, and Social Justice Society, the Court declared

them to be devoid of standing, equating them with the LDP in Lacson. 

Now,  the application of the above principles to the present petitions.

The locus standi of petitioners in G.R. No. 171396, particularly David and Llamas, is beyond doubt.   The same holds true

with petitioners in G.R. No. 171409, Cacho-Olivares and Tribune Publishing Co. Inc.  They alleged Òdirect injuryÓ resulting from

Òillegal arrestÓ and Òunlawful searchÓ committed by police operatives pursuant to PP 1017.  Rightly so, the Solicitor General does

not question their legal standing.

         In G.R. No. 171485, the opposition Congressmen alleged there was usurpation of legislative powers.   They also raised the issue

of whether or not the concurrence of Congress is necessary whenever the alarming powers incident to Martial Law are

used.   Moreover, it is in the interest of justice that those affected by PP 1017 can be represented by their Congressmen in bringing to

the attention of the Court the alleged violations of their basic rights.

         In G.R. No. 171400, (ALGI), this Court applied the liberality rule in Philconsa v. Enriquez,[60] Kapatiran Ng Mga Naglilingkod

sa Pamahalaan ng Pilipinas, Inc. v. Tan,[61] Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform ,

[62] Basco v. Philippine Amusement and Gaming Corporation,[63] and Ta–ada v. Tuvera,[64]  that when the issue concerns a public right,

it is sufficient that the petitioner is a citizen and has an interest in the execution of the laws.

In G.R. No. 171483,  KMUÕs assertion that PP 1017 and G.O. No. 5 violated its right to peaceful assembly may be deemed

sufficient to give it legal standing. Organizations may be granted standing to assert the rights of their members .[65]    We take

judicial notice of the announcement by the Office of the President banning all rallies and canceling all permits for public assemblies

following the issuance of PP 1017 and G.O. No. 5.

In G.R. No. 171489, petitioners, Cadiz et al., who are national officers of the Integrated Bar of the Philippines (IBP) have no

legal standing, having failed to allege any direct or potential injury which the IBP as an institution or its members may suffer as a

consequence of the issuance of PP No. 1017 and G.O. No. 5.  In Integrated Bar of the Philippines v. Zamora,[66]  the Court held that

the mere invocation by the IBP of its duty to preserve the rule of law and nothing more, while undoubtedly true, is not sufficient to

clothe it with standing in this case.   This is too general an interest which is shared by other groups and the whole citizenry.  However,

in view of the transcendental importance of the issue, this Court declares that petitioner have locus standi.

In G.R. No. 171424, Loren Legarda has no personality as a taxpayer to file the instant petition as there are no allegations of

illegal disbursement of public funds.   The fact that she is a former Senator is of no consequence.   She can no longer sue as a

legislator on the allegation that her prerogatives as a lawmaker have been impaired by PP 1017 and G.O. No. 5.    Her claim that she is

a media personality will not likewise aid her because there was no showing that the enforcement of these issuances prevented her from

pursuing her occupation.  Her submission that she has pending electoral protest before the Presidential Electoral Tribunal is likewise

of no relevance.  She has not sufficiently shown that PP 1017 will affect the proceedings or result of her case.   But considering once

more the transcendental importance of the issue involved, this Court may relax the standing rules.

It must always be borne in mind that the question of locus standi is but corollary to the bigger question of proper exercise of

judicial power. This is the underlying legal tenet of the Òliberality doctrineÓ on legal standing.   It cannot be doubted that the validity

of PP No. 1017 and G.O.  No. 5 is a judicial question which is of paramount importance to the Filipino people.   To paraphrase Justice

Laurel, the whole of Philippine society now waits with bated breath the ruling of this Court on this very critical matter. The petitions

thus call for the application of the Òtranscendental importanceÓ doctrine, a relaxation of the standing requirements for the

petitioners in the ÒPP 1017 cases.Ó  

 

This Court holds that all the petitioners herein have locus standi.

 

Incidentally, it is not proper to implead President Arroyo as respondent.  Settled is the doctrine that the President, during his

tenure of office or actual incumbency,[67] may not be sued in any civil or criminal case, and there is no need to provide for it in the

Constitution or law.  It will degrade the dignity of the high office of the President, the Head of State, if he can be dragged into court

litigations while serving as such.   Furthermore, it is important that he be freed from any form of harassment, hindrance or distraction

to enable him to fully attend to the performance of his official duties and functions.   Unlike the legislative and judicial branch, only

one constitutes the executive branch and anything which impairs his usefulness in the discharge of the many great and important

duties imposed upon him by the Constitution necessarily impairs the operation of the Government.  However, this does not mean that

the President is not accountable to anyone.  Like any other official, he remains accountable to the people [68] but he may be removed

from office only in the mode provided by law and that is by impeachment.[69]

B.  SUBSTANTIVE

I. Review of Factual Bases     

 

Petitioners maintain that PP 1017 has no factual basis.   Hence, it was not ÒnecessaryÓ for President Arroyo to issue such

Proclamation.  

The issue of whether the Court may review the factual bases of the PresidentÕs exercise of his Commander-in-Chief power

has reached its distilled point - from the indulgent days of Barcelon v. Baker[70] and Montenegro v. Castaneda[71] to the volatile era

of Lansang v.Garcia,[72] Aquino, Jr. v. Enrile,[73] and Garcia-Padilla v. Enrile.[74]  The tug-of-war always cuts across the line defining

Òpolitical questions,Ó particularly those questions Òin regard to which full discretionary authority has been delegated to the

legislative or executive branch of the government.Ó[75]  Barcelon and Montenegro were in unison in declaring that the authority to

decide whether an exigency has arisen belongs to the President and his decision is final and conclusive on the

courts.  Lansang took the opposite view. There, the members of the Court were unanimous in the conviction that the Court has the

authority to inquire into the existence of factual bases in order to determine their constitutional sufficiency.  From the principle of

separation of powers, it shifted the focus to the system of checks and balances, Òunder which the President is supreme, x x x

only if and when he acts within the sphere allotted to him by the Basic Law, and the authority to determine whether or not he

has so acted is vested in the Judicial Department,which in this respect, is, in turn, constitutionally supreme.Ó[76]  In 1973, the

unanimous Court of Lansang was divided in Aquino v. Enrile.[77]  There, the Court was almost evenly divided on the issue of whether

the validity of the imposition of Martial Law is a political or justiciable question.[78]   Then came Garcia-Padilla v. Enrile which

greatly diluted Lansang.  It declared that there is a need to re-examine the latter case, ratiocinating that Ò in times of war or national

emergency, the President must be given absolute control for the very life of the nation and the government is in great

peril.  The President, it intoned, is answerable only to his conscience, the People, and God.Ó[79] 

The Integrated Bar of the Philippines v. Zamora[80] -- a recent case most pertinent to these cases at bar -- echoed a principle

similar to Lansang.  While the Court considered the PresidentÕs Òcalling-outÓ power as a discretionary power solely vested in his

wisdom, it stressed that Òthis does not prevent an examination of whether such power was exercised within permissible

constitutional limits or whether it was exercised in a manner constituting grave abuse of discretion .Ó    This ruling is mainly a

result of the CourtÕs reliance on Section 1, Article VIII of 1987 Constitution which fortifies the authority of the courts to determine in

an appropriate action the validity of the acts of the political departments.   Under the new definition of judicial power, the courts are

authorized not only Òto settle actual controversies involving rights which are legally demandable and enforceable,Ó but also Òto

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.Ó   The latter part of the authority represents a broadening of judicial power to

enable the courts of justice to review what was before a forbidden territory,    to wit, the discretion of the political departments of the

government.[81]   It speaks of judicial prerogative not only in terms of power but also of duty.[82] 

As to how the Court may inquire into the PresidentÕs exercise of power,  Lansang adopted the test that Òjudicial inquiry

can go no further than to satisfy the Court not that the PresidentÕs decision is correct,Ó but that Òthe President did not

act arbitrarily.Ó Thus, the standard laid down is not correctness, but arbitrariness.[83]  In Integrated Bar of the Philippines, this Court

further ruled that Òit is incumbent upon the petitioner to show that the PresidentÕs decision is totally bereft of factual basisÓ

and that if he fails, by way of proof, to support his assertion, then Òthis Court cannot undertake an independent investigation

beyond the pleadings.Ó

Petitioners failed to show that President ArroyoÕs exercise of the calling-out power, by issuing PP 1017, is totally bereft of

factual basis.  A reading of the Solicitor GeneralÕs Consolidated Comment and Memorandum shows a detailed narration of the events

leading to the issuance of PP 1017, with supporting reports forming part of the records.   Mentioned are the escape of the Magdalo

Group, their audacious threat of the Magdalo D-Day, the defections in the military, particularly in the Philippine Marines, and the

reproving statements from the communist leaders. There was also the Minutes of the Intelligence Report and Security Group of the

Philippine Army showing the growing alliance between the NPA and the military.   Petitioners presented nothing to refute such

events.  Thus, absent any contrary allegations, the Court is convinced that the President was justified in issuing PP 1017 calling for

military aid.

 

Indeed, judging the seriousness of the incidents, President Arroyo was not expected to simply fold her arms and do nothing to

prevent or suppress what she believed was lawless violence, invasion or rebellion.   However, the exercise of such power or duty must

not stifle liberty.

 II. Constitutionality of PP 1017 and G.O. No. 5

 Doctrines of Several Political Theorists

on the Power of the Presidentin Times of Emergency

  

This case brings to fore a contentious subject -- the power of the President in times of emergency .   A glimpse at the various

political theories relating to this subject provides an adequate backdrop for our ensuing discussion. 

John Locke, describing the architecture of civil government, called upon the English doctrine of prerogative to cope with the

problem of emergency.   In times of danger to the nation, positive law enacted by the legislature might be inadequate or even a fatal

obstacle to the promptness of action necessary to avert catastrophe.  In these situations, the Crown retained a prerogative Òpower to

act according to discretion for the public good, without the proscription of the law and sometimes even against it .Ó[84]  But

Locke recognized that this moral restraint might not suffice to avoid abuse of prerogative powers.    Who shall judge the need for

resorting to the prerogative and how may its abuse be avoided?  Here, Locke readily admitted defeat, suggesting that Òthe people

have no other remedy in this, as in all other cases where they have no judge on earth, but to appeal to Heaven.Ó[85]   

Jean-Jacques Rousseau also assumed the need for temporary suspension of democratic processes of government in time of

emergency.  According to him:

The inflexibility of the laws, which prevents them from adopting themselves to circumstances, may, in certain cases, render them disastrous and make them bring about, at a time of crisis, the ruin of the StateÉ

 It is wrong therefore to wish to make political institutions as strong as to render it impossible to suspend

their operation. Even Sparta allowed its law to lapse... If the peril is of such a kind that the paraphernalia of the laws are an obstacle to their preservation, the

method is to nominate a supreme lawyer, who shall silence all the laws and suspend for a moment the sovereign authority. In such a case, there is no doubt about the general will, and it clear that the peopleÕs first intention is that the State shall not perish.[86]

 

Rosseau did not fear the abuse of the emergency dictatorship or Òsupreme magistracyÓ as he termed it.  For him, it would

more likely be cheapened by Òindiscreet use.Ó   He was unwilling to rely upon an Òappeal to heaven.Ó  Instead, he relied upon a

tenure of office of prescribed duration to avoid perpetuation of the dictatorship.[87]

 

John Stuart Mill concluded his ardent defense of representative government: ÒI am far from condemning, in cases of

extreme necessity, the assumption of absolute power in the form of a temporary dictatorship.Ó[88] 

Nicollo MachiavelliÕs view of emergency powers, as one element in the whole scheme of limited government, furnished an

ironic contrast to the Lockean theory of prerogative.   He recognized and attempted to bridge this chasm in democratic political

theory,  thus:

            Now, in a well-ordered society, it should never be necessary to resort to extra Ðconstitutional measures; for although they may for a time be beneficial, yet the precedent is pernicious, for if the practice is once established for good objects, they will in a little while be disregarded under that pretext but for evil purposes. Thus, no republic will ever be perfect if she has not by law provided for everything, having a remedy for every emergency and fixed rules for applying it.[89]  

         Machiavelli Ð in contrast to Locke, Rosseau and Mill Ð sought to incorporate into the constitution a regularized system of

standby emergency powers to be invoked with suitable checks and controls in time of national danger.   He attempted forthrightly to

meet the problem of combining a capacious reserve of power and speed and vigor in its application in time of emergency, with

effective constitutional restraints.[90]

Contemporary political theorists, addressing themselves to the problem of response to emergency by constitutional

democracies, have employed the doctrine of constitutional dictatorship. [91] Frederick M. Watkins saw Òno reason why absolutism

should not be used as a means for the defense of liberal institutions,Ó provided it Òserves to protect established institutions

from the danger of permanent injury in a period of temporary emergency and is followed by a prompt return to the previous

forms of political life.Ó[92]   He recognized the two (2) key elements of the problem of emergency governance, as well as all

constitutional governance: increasing administrative powers of the executive, while at the same time Òimposing limitation upon

that power.Ó[93]   Watkins placed his real faith in a scheme of constitutional dictatorship.  These are the conditions of success of such

a dictatorship:  ÒThe period of dictatorship must be relatively shortÉDictatorship should always be strictly legitimate in

characterÉFinal authority to determine the need for dictatorship in any given case must never rest with the dictator

himselfÉÓ[94] and the objective of such an emergency dictatorship should be Òstrict political conservatism.Ó 

Carl J. Friedrich cast his analysis in terms similar to those of Watkins.[95]   ÒIt is a problem of concentrating power Ð in a

government where power has consciously been divided Ð to cope withÉ situations of unprecedented magnitude and gravity.   There

must be a broad grant of powers, subject to equally strong limitations as to who shall exercise such powers, when, for how long, and to

what end.Ó[96]  Friedrich, too, offered criteria for judging the adequacy of any of scheme of emergency powers, to wit:  ÒThe

emergency executive must be appointed by constitutional means Ð i.e., he must be legitimate; he should not enjoy power to

determine the existence of an emergency; emergency powers should be exercised under a strict time limitation; and last, the

objective of emergency action must be the defense of the constitutional order.Ó[97] 

Clinton L. Rossiter, after surveying the history of the employment of emergency powers in Great Britain, France, Weimar,

Germany and the United States, reverted to a description of a scheme of Òconstitutional dictatorshipÓ as solution to the vexing

problems presented by emergency.[98]   Like Watkins and Friedrich, he stated a priori the conditions of success of  the  Òconstitutional

dictatorship,Ó thus:

1) No general regime or particular institution of constitutional dictatorship should be initiated unless it is necessary or even indispensable to the preservation of the State and its constitutional orderÉ

 2)   Éthe decision to institute a constitutional dictatorship should never be in the hands of the man

or men who will constitute the dictatorÉ 3)   No government should initiate a constitutional dictatorship without making specific provisions

for its terminationÉ 4)   Éall uses of emergency powers and all readjustments in the organization of the government

should be effected in pursuit  of constitutional or legal requirementsÉ 5)   É no dictatorial institution should be adopted, no right invaded, no regular procedure altered

any more than is absolutely necessary for the conquest of the particular crisis . . . 6)   The measures adopted in the prosecution of the a constitutional dictatorship should never be

permanent in character or effectÉ 7)   The dictatorship should be carried on by persons representative of every part of the citizenry

interested in the defense of the existing constitutional order. . . 8)   Ultimate responsibility should be maintained for every action taken under a constitutional

dictatorship. . . 9)   The decision to terminate a constitutional dictatorship, like the decision to institute one should

never be in the hands of the man or men who constitute the dictator. . . 10) No constitutional dictatorship should extend beyond the termination of the crisis for which it

was institutedÉ 11) Éthe termination of the crisis must be followed by a complete return as possible to the political

and governmental conditions existing prior to the initiation of the constitutional dictatorshipÉ[99] 

         

Rossiter accorded to legislature a far greater role in the oversight exercise of emergency powers than did Watkins.   He would secure

to Congress final responsibility for declaring the existence or termination of an emergency, and he places great faith in the

effectiveness of congressional investigating committees.[100]

         Scott and Cotter, in analyzing the above contemporary theories in light of recent experience, were one in saying that, Ò the

suggestion that democracies surrender the control of government to an authoritarian ruler in time of grave danger to the

nation is not based upon sound constitutional theory.Ó To appraise emergency power in terms of constitutional dictatorship serves

merely to distort the problem and hinder realistic analysis.  It matters not whether the term ÒdictatorÓ is used in its normal sense (as

applied to authoritarian rulers) or is employed to embrace all chief executives administering emergency powers. However used,

Òconstitutional dictatorshipÓ cannot be divorced from the implication of suspension of the processes of constitutionalism.   Thus, they

favored instead the Òconcept of constitutionalismÓ articulated by Charles H. McIlwain: A concept of constitutionalism which is less misleading in the analysis of problems of emergency powers,

and which is consistent with the findings of this study, is that formulated by Charles H. McIlwain. While it does not by any means necessarily exclude some indeterminate limitations upon the substantive powers of government, full emphasis is placed upon procedural limitations, and political responsibility. McIlwain clearly recognized the need to repose adequate power in government. And in discussing the meaning of constitutionalism, he insisted that the historical and proper test of constitutionalism was the existence of adequate processes for keeping government responsible.  He refused to equate constitutionalism with the enfeebling of government by an exaggerated emphasis upon separation of powers and substantive limitations on governmental power. He found that the really effective checks on despotism have consisted not in the weakening of government but, but rather in the limiting of it; between which there is a great and very significant difference. In associating constitutionalism with ÒlimitedÓ as distinguished from ÒweakÓ government, McIlwain  meant government limited to the orderly procedure of law as opposed to the processes of force. The two fundamental correlative elements of constitutionalism for which all lovers of liberty must yet fight are the legal limits to arbitrary power and a complete political responsibility of government to the governed.[101]

In the final analysis, the various approaches to emergency of the above political theorists Ð- from LockÕs Òtheory of

prerogative,Ó to WatkinsÕ doctrine of Òconstitutional dictatorshipÓ and, eventually, to McIlwainÕs Òprinciple of constitutionalismÓ

---  ultimately aim to solve one real problem in emergency governance, i.e., that of allotting increasing areas of discretionary

power to the Chief Executive, while insuring that such powers will be exercised with a sense of political responsibility and

under effective limitations and checks. 

 

Our Constitution has fairly coped with this problem.  Fresh from the fetters of a repressive regime, the 1986 Constitutional

Commission, in drafting the 1987 Constitution, endeavored to create a government in the concept of Justice JacksonÕs Òbalanced

power structure.Ó[102]  Executive, legislative, and judicial powers are dispersed to the President, the Congress, and the Supreme Court,

respectively.  Each is supreme within its own sphere.  But none has the monopoly of power in times of emergency.  Each branch

is given a role to serve as limitation or check upon the other.   This  system  does  not  weaken  the

President,  it  just  limits  his  power, using the language of McIlwain.  In other words, in times of emergency, our Constitution

reasonably demands that we repose a certain amount of faith in the basic integrity and wisdom of the Chief Executive but, at the same

time, it obliges him to operate within carefully prescribed procedural limitations. 

 

a. ÒFacial ChallengeÓ  

Petitioners contend that PP 1017 is void on its face because of its Òoverbreadth.Ó They claim that its enforcement

encroached on both unprotected and protected rights under Section 4, Article III of the Constitution and sent a Òchilling effectÓ to the

citizens.  

A facial review of PP 1017, using the overbreadth doctrine, is uncalled for.  

  First and foremost, the overbreadth doctrine is an analytical tool developed for testing Òon their facesÓ statutes in  free

speech cases, also known under the American Law as First Amendment cases.[103]

 

A plain reading of PP 1017 shows that it is not primarily directed to speech or even speech-related conduct.   It is actually a

call upon the AFP to prevent or suppress all forms of lawless violence.  In United States v. Salerno,[104] the US Supreme Court held

that Òwe have not recognized an ÔoverbreadthÕ doctrine outside the limited context of the First AmendmentÓ (freedom of

speech).   

Moreover, the overbreadth doctrine is not intended for testing the validity of a law that Òreflects legitimate state interest in

maintaining comprehensive control over harmful, constitutionally unprotected conduct.Ó Undoubtedly, lawless violence, insurrection

and rebellion are considered ÒharmfulÓ and Òconstitutionally unprotected conduct.Ó In Broadrick v. Oklahoma,[105] it was held: 

It remains a Ômatter of no little difficultyÕ to determine when a law may properly be held void on its face and when Ôsuch summary actionÕ is inappropriate. But the plain  import of our cases is, at the very least, that facial overbreadth adjudication is an exception to our traditional rules of practice and that its function, a limited one at the outset, attenuates as the otherwise unprotected behavior that it forbids the State to sanction moves from Ôpure speechÕ toward conduct and that conduct Ðeven if expressive Ð falls within the scope of otherwise valid criminal laws that reflect legitimate state interests in maintaining comprehensive controls over harmful, constitutionally unprotected conduct.

 

         Thus, claims of facial overbreadth are entertained in cases involving statutes which, by their terms, seek to regulate only

Òspoken wordsÓ and again, that Òoverbreadth claims, if entertained at all, have been curtailed when invoked against ordinary

criminal laws that are sought to be applied to protected conduct.Ó[106]   Here, the incontrovertible fact remains that PP 1017

pertains to a spectrum of conduct, not free speech, which is manifestly subject to state regulation. 

         Second, facial invalidation of laws is considered as Òmanifestly strong medicine,Ó to be used Òsparingly and only as a last

resort,Ó and  is Ògenerally disfavored;Ó[107]  The reason for this is obvious. Embedded in the traditional rules governing

constitutional adjudication is the principle that a person to whom a law may be applied will not be heard to challenge a law on the

ground that it may conceivably be applied unconstitutionally to others, i.e.,  in other situations not before the Court.[108]  A writer

and scholar in Constitutional Law explains further:

 The most distinctive feature of the overbreadth technique is that it marks an exception to some of the

usual rules of constitutional litigation.  Ordinarily, a particular litigant claims that a statute is unconstitutional as applied to him or her; if the litigant prevails, the courts carve away the unconstitutional aspects of the law by invalidating its improper applications on a case to case basis.   Moreover, challengers to a law are not permitted to raise the rights of third parties and can only assert their own interests.  In overbreadth analysis, those rules give way; challenges are permitted to raise the rights of third parties ; and the court invalidates the entire statute Òon its face,Ó not merely Òas applied forÓ so that the overbroad law becomes unenforceable until a properly authorized court construes it more narrowly.  The factor that motivates courts to depart from the normal adjudicatory rules is the concern with the Òchilling;Ó deterrent effect of the overbroad statute on third parties not courageous enough to bring suit.  The Court assumes that an overbroad lawÕs Òvery existence may cause others not before the court to refrain from constitutionally protected speech or expression.Ó  An overbreadth ruling is designed to remove that deterrent effect on the speech of those third parties.

  

In other words, a facial challenge using the overbreadth doctrine will require the Court to examine PP 1017 and pinpoint its

flaws and defects, not on the basis of its actual operation to petitioners, but on the assumption or prediction that its very existence may

cause others not before the Court to refrain from constitutionally protected speech or expression.  In Younger v. Harris,[109] it was

held that: 

[T]he task of analyzing a proposed statute, pinpointing its deficiencies, and requiring correction of these deficiencies before the statute is put into effect, is rarely if ever an appropriate task for the judiciary. The combination of the relative remoteness of the controversy, the impact on the legislative process of the relief

sought, and above all the speculative and amorphous nature of the required line-by-line analysis of detailed statutes,...ordinarily results in a kind of case that is wholly unsatisfactory for deciding constitutional questions, whichever way they might be decided.

 

And third, a facial challenge on the ground of overbreadth is the most difficult challenge to mount successfully, since the

challenger must establish that there can be no instance when the assailed law may be valid.  Here, petitioners did not even attempt

to show whether this situation exists.

 

Petitioners likewise seek a facial review of PP 1017 on the ground of vagueness.    This, too, is unwarranted.

 

  Related to the ÒoverbreadthÓ doctrine is the Òvoid for vagueness doctrineÓ which holds that Òa law is facially invalid if

men of common intelligence must necessarily guess at its meaning and differ as to its application.Ó[110] It is subject to the same

principles governing overbreadth doctrine.  For one, it is also an analytical tool for testing Òon their facesÓ statutes in free speech

cases.  And like overbreadth, it is said that a litigant may challenge a statute on its face only if it is  vague in all its possible

applications. Again, petitioners did not even attempt to show that PP 1017 is vague in all its application.  They also failed to

establish that men of common intelligence cannot understand the meaning and application of PP 1017.  

b. Constitutional Basis of PP 1017  

Now on the constitutional foundation of PP 1017.

 

The operative portion of PP 1017 may be divided into three important provisions, thus:

 

First provision:   Òby virtue of the power vested upon me by Section 18, Artilce VII É do hereby command the Armed

Forces of the Philippines, to maintain law and order throughout the Philippines, prevent or suppress all forms of lawless violence as well any act of insurrection or rebellionÓ

 Second provision:   Òand to enforce obedience to all the laws  and  to  all decrees, orders and regulations promulgated by me

personally or upon my direction;Ó

 Third provision:

Òas provided in Section 17, Article XII of the Constitution do hereby declare a State of National

Emergency.Ó First Provision:  Calling-out Power

The first provision pertains to the PresidentÕs calling-out power.  In Sanlakas v. Executive Secretary,[111]  this Court, through

Mr. Justice Dante O. Tinga, held that Section 18, Article VII of the Constitution reproduced as follows:              Sec. 18. The President shall be the Commander-in-Chief of all armed forces of the Philippines and whenever it becomes necessary, he may call out such armed forces to prevent or suppress lawless violence, invasion or

rebellion. In case of invasion or rebellion, when the public safety requires it, he may, for a period not exceeding sixty days, suspend the privilege of the writ of habeas corpus or place the Philippines or any part thereof under martial law. Within forty-eight hours from the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus, the President shall submit a report in person or in writing to the Congress. The Congress, voting jointly, by a vote of at least a majority of all its Members in regular or special session, may revoke such proclamation or suspension, which revocation shall not be set aside by the President. Upon the initiative of the President, the Congress may, in the same manner, extend such proclamation or suspension for a period to be determined by the Congress, if the invasion or rebellion shall persist and public safety requires it.

                                     The Congress, if not in session, shall within twenty-four hours following such proclamation or suspension,

convene in accordance with its rules without need of a call. 

            The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency of the factual bases of the proclamation of martial law or the suspension of the privilege of the writ or the extension thereof, and must promulgate its decision thereon within thirty days from its filing.

             A state of martial law does not suspend the operation of the Constitution, nor supplant the functioning of the civil courts or legislative assemblies, nor authorize the conferment of jurisdiction on military courts and agencies over civilians where civil courts are able to function, nor automatically suspend the privilege of the writ.

                                     The suspension of the privilege of the writ shall apply only to persons judicially charged for rebellion or

offenses inherent in or directly connected with invasion.                                     During the suspension of the privilege of the writ, any person thus arrested or detained shall be judicially

charged within three days, otherwise he shall be released 

grants the President, as Commander-in-Chief, a ÒsequenceÓ of graduated powers.  From the most to the least benign, these are: the

calling-out power, the power to suspend the privilege of the writ of habeas corpus, and the power to declare Martial

Law.   Citing Integrated Bar of the Philippines v. Zamora,[112]  the Court ruled that the only criterion for the exercise of the calling-out

power is that Òwhenever it becomes necessary,Ó the President may call the armed forces Òto prevent or suppress lawless

violence, invasion or rebellion.Ó  Are these conditions present in the instant cases?  As stated earlier, considering the circumstances

then prevailing, President Arroyo found it necessary to issue PP 1017.   Owing to her OfficeÕs vast intelligence network, she is in the

best position to determine the actual condition of the country.

 

         Under the calling-out power, the President may summon the armed forces to aid him in suppressing lawless violence, invasion

and rebellion.  This involves ordinary police action.  But every act that goes beyond the PresidentÕs calling-out power is considered

illegal or ultra vires.  For this reason, a President must be careful in the exercise of his powers.   He cannot invoke a greater power

when he wishes to act under a lesser power.  There lies the wisdom of our Constitution, the greater the power, the greater are the

limitations.

 

         It is pertinent to state, however, that there is a distinction between the PresidentÕs authority to declare a Òstate of rebellionÓ

(in Sanlakas) and the authority to proclaim a state of national emergency.  While President ArroyoÕs authority to declare a Òstate of

rebellionÓ emanates from her powers as Chief Executive, the statutory authority cited inSanlakas was Section 4, Chapter 2, Book II of

the Revised Administrative Code of 1987, which provides:

          SEC. 4. Ð Proclamations. Ð Acts of the President fixing a date or declaring a status or condition of public moment or interest, upon the existence of which the operation of a specific law or regulation is made to depend, shall be promulgated in proclamations which shall have the force of an executive order.

 

         President ArroyoÕs declaration of a Òstate of rebellionÓ was merely an act declaring a status or condition of public moment or

interest, a declaration allowed under Section 4 cited above.  Such declaration, in the words of Sanlakas, is harmless, without legal

significance, and deemed not written.  In these cases, PP 1017 is more than that.  In declaring a state of national emergency, President

Arroyo did not only rely on Section 18, Article VII of the Constitution, a provision calling on the AFP to prevent or suppress lawless

violence, invasion or rebellion.  She also relied on Section 17, Article XII, a provision on the StateÕs extraordinary power to take over

privately-owned public utility and business affected with public interest.   Indeed, PP 1017 calls for the exercise of an awesome

power.  Obviously, such Proclamation cannot be deemed harmless, without legal significance, or not written, as in the case

of Sanlakas.

 

         Some of the petitioners vehemently maintain that PP 1017 is actually a declaration of Martial Law.  It is no so.  What defines the

character of PP 1017 are its wordings.  It is plain therein that what the President invoked was her calling-out power.

 

         The declaration of Martial Law is a Òwarn[ing] to citizens that the military power has been called upon by the executive to assist

in the maintenance of law and order, and that, while the emergency lasts, they must, upon pain of arrest and punishment, not commit

any acts which will in any way render more difficult the restoration of order and the enforcement of law.Ó[113]

        

In his  ÒStatement before the Senate Committee on JusticeÓ on March 13, 2006, Mr. Justice Vicente V. Mendoza,[114] an

authority in constitutional law, said that of the three powers of the President as Commander-in-Chief, the power to declare Martial

Law poses the most severe threat to civil liberties.  It is a strong medicine which should not be resorted to lightly.  It cannot be used to

stifle or persecute critics of the government.  It is placed in the keeping of the President for the purpose of enabling him to secure the

people from harm and to restore order so that they can enjoy their individual freedoms.  In fact, Section 18, Art. VII, provides: A state of martial law does not suspend the operation of the Constitution, nor supplant the functioning of

the civil courts or legislative assemblies, nor authorize the conferment of jurisdiction on military courts and agencies over civilians where civil courts are able to function, nor automatically suspend the privilege of the writ.

         Justice Mendoza also stated that PP 1017 is not a declaration of Martial Law.   It is no more than a call by the President to the

armed forces to prevent or suppress lawless violence.   As such, it cannot be used to justify acts that only under a valid declaration of

Martial Law can be done.   Its use for any other purpose is a perversion of its nature and scope, and any act done contrary to its

command is ultra vires.  

 

         Justice Mendoza further stated that specifically, (a) arrests and seizures without judicial warrants; (b) ban on public assemblies;

(c) take-over of news media and agencies and press censorship; and (d) issuance of Presidential Decrees, are powers which can be

exercised by the President as Commander-in-Chief only where there is a valid declaration of Martial Law or suspension of the writ

of habeas corpus. 

 

Based on the above disquisition, it is clear that PP 1017 is not a declaration of Martial Law.   It is merely an exercise of

President ArroyoÕs calling-out power for the armed forces to assist her in preventing or suppressing lawless violence. 

Second Provision:  ÒTake CareÓ Power

 

The second provision pertains to the power of the President to ensure that the laws be faithfully executed.  This is based on

Section 17, Article VII which reads:  SEC. 17. The President shall have control of all the executive departments, bureaus, and offices. He shall

ensure that the laws be faithfully executed. 

 As the Executive in whom the executive power is vested,[115] the primary function of the President is to enforce the laws as

well as to formulate policies to be embodied in existing laws.  He sees to it that all laws are enforced by the officials and employees of

his department.  Before assuming office, he is required to take an oath or affirmation to the effect that as President of the Philippines,

he will, among others, Òexecute its laws.Ó[116]  In the exercise of such function, the President, if needed, may employ the powers

attached to his office as the Commander-in-Chief of all the armed forces of the country, [117] including the Philippine National

Police[118] under the Department of Interior and Local Government.[119]   

Petitioners, especially Representatives Francis Joseph G. Escudero, Satur Ocampo, Rafael Mariano, Teodoro Casi–o, Liza

Maza, and Josel Virador argue that PP 1017 is unconstitutional as it arrogated upon President Arroyo the power to enact laws and

decrees in violation of Section 1, Article VI of the Constitution, which vests the power to enact laws in Congress.  They assail the

clause Òto enforce obedience to all the laws and to all decrees, orders and regulations promulgated by me personally or upon

my direction.Ó

 

PetitionersÕ contention is understandable.  A reading of PP 1017 operative clause shows that it was lifted [120] from Former

President MarcosÕ Proclamation No. 1081, which partly reads:   

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

powers vested upon me by Article VII, Section 10, Paragraph (2) of the Constitution, do hereby place the entire Philippines as defined in Article 1, Section 1 of the Constitution under martial law and, in my capacity as their Commander-in-Chief, do hereby command the Armed Forces of the Philippines, to maintain law and order throughout the Philippines, prevent or suppress all forms of lawless violence as well as any act of insurrection or rebellion and to enforce obedience to all the laws and decrees, orders and regulations promulgated by me personally or upon my direction. 

 

We all know that it was PP 1081 which granted President Marcos legislative power.   Its enabling clause states:  Òto enforce

obedience to all the laws and decrees, orders and regulations promulgated by me personally or upon my direction.Ó   Upon the

other hand, the enabling clause of PP 1017 issued by President Arroyo is: to enforce obedience to all the laws and to all decrees,

orders and regulations promulgated by me personally or upon my direction.Ó

 

Is it within the domain of President Arroyo to promulgate ÒdecreesÓ? 

 

PP  1017  states in part:   Òto  enforce  obedience  to  all  the  laws  and decrees x x x promulgated by me personally or

upon my direction.Ó 

 

The President is granted an Ordinance Power under Chapter 2, Book III of Executive Order No. 292 (Administrative Code of

1987).  She may issue any of the following:

 

Sec. 2.  Executive Orders. Ñ Acts of the President providing for rules of a general or permanent character in implementation or execution of constitutional or statutory powers shall be promulgated in executive orders.

Sec. 3.  Administrative Orders. Ñ Acts of the President which relate to particular aspect of governmental operations in pursuance of his duties as administrative head shall be promulgated in administrative orders.

Sec. 4.  Proclamations. Ñ Acts of the President fixing a date or declaring a status or condition of public moment or interest, upon the existence of which the operation of a specific law or regulation is made to depend, shall be promulgated in proclamations which shall have the force of an executive order.

Sec. 5.  Memorandum Orders. Ñ Acts of the President on matters of administrative detail or of subordinate or temporary interest which only concern a particular officer or office of the Government shall be embodied in memorandum orders.

Sec. 6.  Memorandum Circulars. Ñ Acts of the President on matters relating to internal administration, which the President desires to bring to the attention of all or some of the departments, agencies, bureaus or offices of the Government, for information or compliance, shall be embodied in memorandum circulars.

Sec. 7.  General or Special Orders. Ñ Acts and commands of the President in his capacity as Commander-in-Chief of the Armed Forces of the Philippines shall be issued as general or special orders. 

 

 President ArroyoÕs ordinance power is limited to the foregoing issuances. She cannot issue decrees similar to those issued

by Former President Marcos under PP 1081.  Presidential Decrees are laws which are of the same category and binding force as

statutes because they were issued by the President in the exercise of his legislative power during the period of Martial Law under the

1973 Constitution.[121] 

 

This Court rules that the assailed PP 1017 is unconstitutional insofar as it grants President Arroyo the authority to

promulgate Òdecrees.Ó  Legislative power is peculiarly within the province of the Legislature.  Section 1, Article VI categorically

states that Ò[t]he legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House

of Representatives.Ó  To be sure, neither Martial Law nor a state of rebellion nor a state of emergency can justify President

ArroyoÕs exercise of legislative power by issuing decrees.  

 

         Can President Arroyo enforce obedience to all decrees and laws through the military?  

         As this Court stated earlier, President Arroyo has no authority to enact decrees. It follows that these decrees are void and,

therefore, cannot be enforced.  With respect to Òlaws,Ó she cannot call the military to enforce or implement certain laws, such as

customs laws, laws governing family and property relations, laws on obligations and contracts and the like.  She can only order the

military, under PP 1017, to enforce laws pertinent to its duty to suppress lawless violence.

 

Third Provision:  Power to Take Over 

The pertinent provision of PP 1017 states:

 x x x and to enforce obedience to all the laws and to all decrees, orders, and regulations

promulgated by me personally or upon my direction; and as provided in Section 17, Article XII of the Constitution  do hereby declare a state of national emergency.

 

The import of this provision is that President Arroyo, during the state of national emergency under PP 1017, can call the

military not only to enforce obedience Òto all the laws and to all decrees x x xÓ but also to act pursuant to the provision of Section 17,

Article XII which reads: 

         Sec. 17. In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately-owned public utility or business affected with public interest. 

What could be the reason of President Arroyo in invoking the above provision when she issued PP 1017?

 

The answer is simple.  During the existence of the state of national emergency, PP 1017 purports to grant the President,

without any authority or delegation from Congress, to take over or direct the operation of any privately-owned public utility or

business affected with public interest.

 

This provision was first introduced in the 1973 Constitution, as a product of the Òmartial lawÓ thinking of the 1971

Constitutional Convention.[122]  In effect at the time of its approval was President MarcosÕ Letter of Instruction No. 2 dated September

22, 1972 instructing the Secretary of National Defense to take over Ò the  management, control and operation of the Manila Electric

Company, the Philippine   Long Distance Telephone Company, the National Waterworks and  Sewerage Authority, the Philippine

National Railways, the Philippine Air Lines, Air Manila (and) Filipinas Orient Airways . . . for the successful prosecution by the

Government of its effort to contain, solve and end the present national emergency.Ó

 

         Petitioners, particularly the members of the House of Representatives, claim that President ArroyoÕs inclusion of Section 17,

Article XII in PP 1017 is an encroachment on the legislatureÕs emergency powers.

 

         This is an area that needs delineation.

 

         A distinction must be drawn between the PresidentÕs authority to declare Òa state of national emergencyÓ and

to exercise emergency powers.  To the first, as elucidated by the Court, Section 18, Article VII grants the President such power,

hence, no legitimate constitutional objection can be raised.  But to the second, manifold constitutional issues arise.

          Section 23, Article VI of the Constitution reads:  

 SEC. 23.  (1) The Congress, by a vote of two-thirds of both Houses in joint session assembled, voting

separately, shall have the sole power to declare the existence of a state of war.

(2) In times of war or other national emergency, the Congress may, by law, authorize the President, for a limited period and subject to such restrictions as it may prescribe, to exercise powers necessary and proper to carry out a declared national policy. Unless sooner withdrawn by resolution of the Congress, such powers shall cease upon the next adjournment thereof.

         It may be pointed out that the second paragraph of the above provision refers not only to war but also to Òother national

emergency.Ó  If the intention of the Framers of our Constitution was to withhold from the President the authority to declare a Òstate

of national emergencyÓ pursuant to Section 18, Article VII (calling-out power) and grant it to Congress (like the declaration of the

existence of a state of war), then the Framers could have provided so.  Clearly, they did not intend that Congress should first authorize

the President before he can declare a Òstate of national emergency.Ó  The logical conclusion then is that President Arroyo could

validly declare the existence of a state of national emergency even in the absence of a Congressional enactment. 

        

But the exercise of emergency powers, such as the taking over of privately owned public utility or business affected with

public interest, is a different matter.    This requires a delegation from Congress. 

 

Courts have often said that constitutional provisions in pari materia are to be construed together.  Otherwise stated, different

clauses, sections, and provisions of a constitution which relate to the same subject matter will be construed together and considered in

the light of each other.[123]  Considering that Section 17 of Article XII and Section 23 of Article VI, previously quoted, relate to

national emergencies, they must be read together to determine the limitation of the exercise of emergency powers.

 

Generally, Congress is the repository of emergency powers.  This is evident in the tenor of Section 23 (2), Article VI

authorizing it to delegate such powers to the President.  Certainly, a body cannot delegate a power not reposed upon it.  However,

knowing that during grave emergencies, it may not be possible or practicable for Congress to meet and exercise its powers, the

Framers of our Constitution deemed it wise to allow Congress to grant emergency powers to the President, subject to certain

conditions, thus: (1)   There must be a war or other emergency. (2)   The delegation must be for a limited period only. (3)  The delegation must be subject to such restrictions as the Congress may prescribe.(4)  The emergency powers must be exercised to carry out a national policy declared by Congress.[124]

 

         Section 17, Article XII must be understood as an aspect of the emergency powers clause.  The taking over of private business

affected with public interest is just another facet of the emergency powers generally reposed upon Congress.   Thus, when Section 17

states that the Òthe State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or

direct the operation of any privately owned public utility or business affected with public interest ,Ó  it refers to Congress, not

the President.  Now, whether or not the President may exercise such power is dependent on whether Congress may delegate it to him

pursuant to a law prescribing the reasonable terms thereof.   Youngstown Sheet & Tube Co. et al. v. Sawyer,[125] held:

 It is clear that if the President had authority to issue the order he did, it must be found in some provision of

the Constitution.  And it is not claimed that express constitutional language grants this power to the President.  The contention is that presidential power should be implied from the aggregate of his powers under the Constitution.  Particular reliance is placed on provisions in Article II which say that ÒThe executive Power shall be vested in a President . . . .;Ó that Òhe shall take Care that the Laws be faithfully executed;Ó and that he Òshall be Commander-in-Chief of the Army and Navy of the United States.

 The order cannot properly be sustained as an exercise of the PresidentÕs military power as Commander-in-

Chief of the Armed Forces.  The Government attempts to do so by citing a number of cases upholding broad powers in military commanders engaged in day-to-day fighting in a theater of war.  Such cases need not concern us here.  Even though Òtheater of warÓ be an expanding concept, we cannot with faithfulness to our constitutional system hold that the Commander-in-Chief of the Armed Forces has the ultimate power as such to take possession of private property in order to keep labor disputes from stopping production.   This is a job for the nationÕs lawmakers, not for its military authorities.

 Nor can the seizure order be sustained because of the several constitutional provisions that grant

executive power to the President.  In the framework of our Constitution, the PresidentÕs power to see that the laws are faithfully executed refutes the idea that he is to be a lawmaker.   The Constitution limits his

functions in the lawmaking process to the recommending of laws he thinks wise and the vetoing of laws he thinks bad.  And the Constitution is neither silent nor equivocal about who shall make laws which the President is to execute.  The first section of the first article says that ÒAll legislative Powers herein granted shall be vested in a Congress of the United States. . .Ó[126]

 

Petitioner Cacho-Olivares, et al. contends that the term ÒemergencyÓ under Section 17, Article XII refers to Òtsunami,Ó

Òtyphoon,Ó    ÒhurricaneÓ and Òsimilar occurrences.Ó  This is a limited view of Òemergency.Ó

Emergency, as a generic term, connotes the existence of conditions suddenly intensifying the degree of existing danger to life

or well-being beyond that which is accepted as normal.   Implicit in this definitions are the elements of intensity, variety, and

perception.[127]   Emergencies, as perceived by legislature or executive in the United Sates since 1933, have been occasioned by a wide

range of situations, classifiable under three (3) principal heads: a) economic,[128] b) natural disaster,[129] and c) national security.[130]

 

ÒEmergency,Ó as contemplated in our Constitution, is of the same breadth.  It may include rebellion, economic crisis,

pestilence or epidemic, typhoon, flood, or other similar catastrophe of nationwide proportions or effect. [131]  This is evident in the

Records of the Constitutional Commission, thus: MR. GASCON. Yes.  What is the CommitteeÕs definition of Ònational emergencyÓ which appears in Section

13, page 5?  It reads: When the common good so requires, the State may temporarily take over or direct the operation of any privately

owned public utility or business affected with public interest.

MR. VILLEGAS.  What I mean is threat from external aggression, for example, calamities or natural disasters.

MR. GASCON.   There is a question by Commissioner de los Reyes.  What about strikes and riots?

MR. VILLEGAS.  Strikes, no; those would not be covered by the term Ònational emergency.Ó

MR. BENGZON.  Unless they are of such proportions such that they would paralyze government service.[132]

x    x    x                                                                             x    x    x

MR. TINGSON.  May I ask the committee if Ònational emergencyÓ refers to military national emergency or could this be economic emergency?Ó

MR. VILLEGAS.  Yes, it could refer to both military or economic dislocations.

MR. TINGSON.  Thank you very much.[133]

         It may be argued that when there is national emergency, Congress may not be able to convene and, therefore, unable to delegate

to the President the power to take over privately-owned public utility or business affected with public interest.

 

         In Araneta v. Dinglasan,[134] this Court emphasized that legislative power, through which extraordinary measures are exercised,

remains in Congress even in times of crisis.

         Òx x x

             After all the criticisms that have been made against the efficiency of the system of the separation of powers, the fact remains that the Constitution has set up this form of government, with all its defects and shortcomings, in preference to the commingling of powers in one man or group of men.  The Filipino people by adopting parliamentary government have given notice that they share the faith of other

democracy-loving peoples in this system, with all its faults, as the ideal.  The point is, under this framework of government, legislation is preserved for Congress all the time, not excepting periods of crisis no matter how serious.  Never in the history of the United States, the basic features of whose Constitution have been copied in ours, have specific functions of the legislative branch of enacting laws been surrendered to another department Ð unless we regard as legislating the carrying out of a legislative policy according to prescribed standards; no, not even when that Republic was fighting a total war, or when it was engaged in a life-and-death struggle to preserve the Union. The truth is that under our concept of constitutional government, in times of extreme perils more than in normal circumstances Ôthe various branches, executive, legislative, and judicial,Õ given the ability to act, are called  upon Ôto perform the duties and discharge the responsibilities committed to them respectively.Ó 

Following our interpretation of Section 17, Article XII, invoked by President Arroyo in issuing PP 1017, this Court rules that

such Proclamation does not authorize her during the emergency to temporarily take over or direct the operation of any privately owned

public utility or business affected with public interest without authority from Congress. 

 

Let it be emphasized that while the President alone can declare a   state of national emergency, however, without legislation,

he has no     power to take over privately-owned public utility or business affected     with public interest. The President cannot decide

whether exceptional      circumstances exist warranting the take over of privately-owned           public utility or business affected with

public interest.  Nor can he determine when such exceptional circumstances have ceased.  Likewise, without legislation, the President

has no power to point out the types of businesses affected with public interest that should be taken over.    In short, the President has no

absolute authority to exercise all the powers of the State under Section 17, Article VII in the absence of an emergency powers act

passed by Congress.   

c. ÒAS APPLIED CHALLENGEÓ

 

One of the misfortunes of an emergency, particularly, that which pertains to security, is that military necessity and the

guaranteed rights of the individual are often not compatible.   Our history reveals that in the crucible of conflict, many rights are

curtailed and trampled upon.  Here, the right against unreasonable search and seizure; the right against warrantless

arrest; and the freedom of speech, of expression, of the press, and of assembly under the Bill of Rights suffered the greatest blow.

 

Of the seven (7) petitions, three (3) indicate Òdirect injury.Ó 

 

In G.R. No. 171396, petitioners David and Llamas alleged that, on February 24, 2006, they were arrested without warrants

on their way to EDSA to celebrate the 20 thAnniversary of People Power I.     The arresting officers cited PP 1017 as basis of the

arrest.  

In G.R. No. 171409, petitioners Cacho-Olivares and Tribune Publishing Co., Inc. claimed that on February 25, 2006, the

CIDG operatives Òraided and ransacked without warrantÓ their office.  Three policemen were assigned to guard their office as a

possible Òsource of destabilization.Ó  Again, the basis was PP 1017.

 

And in G.R. No. 171483, petitioners KMU and NAFLU-KMU et al. alleged that their members were Òturned away and

dispersedÓ when they went to EDSA and later, to Ayala Avenue, to celebrate the 20th Anniversary of People Power I.

        

          A perusal of the Òdirect injuriesÓ allegedly suffered by the said petitioners shows that they resulted from the implementation,

pursuant to G.O. No. 5, of  PP 1017. 

 

Can this Court adjudge as unconstitutional PP 1017 and G.O. No 5 on the basis of these illegal acts?  In general, does the

illegal implementation of a law render it unconstitutional?

 

Settled is the rule that courts are not at liberty to declare statutes invalid although they may be abused and

misabused[135] and may afford an opportunity for abuse in the manner of application.[136]  The validity of a statute or ordinance is

to be determined from its general purpose and its efficiency to accomplish the end desired, not from its effects in a particular case.[137]  PP 1017 is merely an invocation of the PresidentÕs calling-out power.  Its general purpose is to command the AFP to suppress all

forms of lawless violence, invasion or rebellion.   It had accomplished the end desired which prompted President Arroyo to issue PP

1021.  But there is nothing in PP 1017 allowing the police, expressly or impliedly, to conduct illegal arrest, search or violate the

citizensÕ constitutional rights.

Now, may this Court adjudge a law or ordinance unconstitutional on the ground that its implementor committed illegal

acts?   The answer is no. The criterion by which the validity of the statute or ordinance is to be measured is the essential basis for the

exercise of power, and not a mere incidental result arising from its exertion.[138] This is logical.  Just imagine the absurdity of

situations when laws maybe declared unconstitutional just because the officers implementing them have acted arbitrarily.   If this were

so, judging from the blunders committed by policemen in the cases passed upon by the Court, majority of the provisions of the

Revised Penal Code would have been declared unconstitutional a long time ago. 

President Arroyo issued G.O. No. 5 to carry into effect the provisions of PP 1017.   General orders are Òacts and commands

of the President in his capacity as Commander-in-Chief of the Armed Forces of the Philippines.Ó They are internal rules issued by the

executive officer to his subordinates precisely for the proper and efficientadministration of law.  Such rules and regulations create

no relation except between the official who issues them and the official who receives them. [139]  They are based on and are the product

of, a relationship in which power is their source, and obedience, their object. [140]  For these reasons, one requirement for these rules to

be valid is that they must be reasonable, not arbitrary or capricious.

 

G.O. No. 5 mandates the AFP and the PNP to immediately carry out the Ònecessary and appropriate actions and

measures to suppress and prevent acts of terrorism and lawless violence.Ó

 

Unlike the term Òlawless violenceÓ which is unarguably extant in our statutes and the Constitution, and which is invariably

associated with Òinvasion, insurrection or rebellion,Ó the phrase Òacts of terrorismÓ is still an amorphous and vague

concept.  Congress has yet to enact a law defining and punishing acts of terrorism.

 

In fact, this Òdefinitional predicamentÓ or the Òabsence of an agreed definition of terrorismÓ confronts not only our

country, but the international community as well.  The following observations are quite apropos:

 In the actual unipolar context of international relations, the Òfight against terrorismÓ has become one of

the basic slogans when it comes to the justification of the use of force against certain states and against groups operating internationally.  Lists of states Òsponsoring terrorismÓ and of terrorist organizations are set up and

constantly being updated according to criteria that are not always known to the public, but are clearly determined by strategic interests.

 The basic problem underlying all these military actions Ð or threats of the use of force as the most recent

by the United States against Iraq Ð consists in the absence of an agreed definition of terrorism. Remarkable confusion persists in regard to the legal categorization of acts of violence either by states, by

armed groups such as liberation movements, or by individuals. The dilemma can by summarized in the saying ÒOne countryÕs terrorist is another countryÕs freedom

fighter.Ó  The apparent contradiction or lack of consistency in the use of the term ÒterrorismÓ may further be demonstrated by the historical fact that leaders of national liberation movements such as Nelson Mandela in South Africa, Habib Bourgouiba in Tunisia, or Ahmed Ben Bella in Algeria, to mention only a few, were originally labeled as terrorists by those who controlled the territory at the time, but later became internationally respected statesmen.

 What, then, is the defining criterion for terrorist acts Ð the  differentia specifica distinguishing those acts

from eventually legitimate acts of national resistance or self-defense? Since the times of the Cold War the United Nations Organization has been trying in vain to reach a

consensus on the basic issue of definition.  The organization has intensified its efforts recently, but has been unable to bridge the gap between those who associate ÒterrorismÓ with any violent act by non-state groups against civilians, state functionaries or infrastructure or military installations, and those who believe in the concept of the legitimate use of force when resistance against foreign occupation or against systematic oppression of ethnic and/or religious groups within a state is concerned.

 The dilemma facing the international community can best be illustrated by reference to the contradicting

categorization of organizations and movements such as Palestine Liberation Organization (PLO) Ð which is a terrorist group for Israel and a liberation movement for Arabs and Muslims Ð the Kashmiri resistance groups Ð who are terrorists in the perception of India, liberation fighters in that of Pakistan Ð the earlier Contras in Nicaragua Ð freedom fighters for the United States, terrorists for the Socialist camp Ð or, most drastically, the Afghani Mujahedeen (later to become the Taliban movement): during the Cold War period they were a group of freedom fighters for the West, nurtured by the United States, and a terrorist gang for the Soviet Union.   One could go on and on in enumerating examples of conflicting categorizations that cannot be reconciled in any way Ð because of opposing political interests that are at the roots of those perceptions.

 How, then, can those contradicting definitions and conflicting perceptions and evaluations of one and the

same group and its actions be explained?  In our analysis, the basic reason for these striking inconsistencies lies in the divergent interest of states.  Depending on whether a state is in the position of an occupying power or in that of a rival, or adversary, of an occupying power in a given territory, the definition of terrorism will ÒfluctuateÓ accordingly.  A state may eventually see itself as protector of the rights of a certain ethnic group outside its territory and will therefore speak of a Òliberation struggle,Ó not of ÒterrorismÓ when acts of violence by this group are concerned, and vice-versa.

 The United Nations Organization has been unable to reach a decision on the definition of terrorism exactly

because of these conflicting interests of sovereign states that determine in each and every instance how a particular armed movement (i.e. a non-state actor) is labeled in regard to the terrorists-freedom fighter dichotomy.   A Òpolicy of double standardsÓ on this vital issue of international affairs has been the unavoidable consequence.

 This Òdefinitional predicamentÓ of an organization consisting of sovereign states Ð and not of peoples, in

spite of the emphasis in the Preamble to the United Nations Charter! Ð has become even more serious in the present global power constellation: one superpower exercises the decisive role in the Security Council, former great powers of the Cold War era as well as medium powers are increasingly being marginalized; and the problem has become even more acute since the terrorist attacks of 11 September 2001 I the United States.[141]

 

The absence of a law defining Òacts of terrorismÓ may result in abuse and oppression on the part of the police or

military.   An illustration is when a group of persons are merely engaged in a drinking spree.    Yet the military or the police may

consider the act as an act of terrorism and immediately arrest them pursuant to G.O. No. 5.    Obviously, this is abuse and oppression

on their part.  It must be remembered that an act can only be considered a crime if there is a law defining the same as such and

imposing the corresponding penalty thereon. 

So far, the word ÒterrorismÓ appears only once in our criminal laws, i.e., in P.D. No. 1835 dated January 16, 1981 enacted

by President Marcos during the Martial Law regime.  This decree is entitled ÒCodifying The Various Laws on Anti-Subversion and

Increasing The Penalties for Membership in Subversive Organizations.Ó  The word ÒterrorismÓ is mentioned in the following

provision:  ÒThat one who conspires with any other person for the purpose of overthrowing the Government of the Philippines x x x

by force, violence, terrorism, x x x shall be punished by reclusion temporal x x x.Ó

 

P.D. No. 1835 was repealed by E.O. No. 167 (which outlaws the Communist Party of the Philippines) enacted by President

Corazon Aquino on May 5, 1985.  These two (2) laws, however, do not define Òacts of terrorism.Ó   Since there is no law defining

Òacts of terrorism,Ó it is President Arroyo alone, under G.O. No. 5, who has the discretion to determine what acts constitute

terrorism.  Her judgment on this aspect is absolute, without restrictions.  Consequently, there can be indiscriminate arrest without

warrants, breaking into offices and residences, taking over the media enterprises, prohibition and dispersal of all assemblies and

gatherings unfriendly to the administration.  All these can be effected in the name of G.O. No. 5.  These acts go far beyond the calling-

out power of the President.  Certainly, they violate the due process clause of the Constitution.  Thus, this Court declares that the Òacts

of terrorismÓ portion of G.O. No. 5 is unconstitutional.

Significantly, there is nothing in G.O. No. 5 authorizing the military or police to commit acts beyond what are necessary and

appropriate to suppress and prevent lawless violence, the limitation of their authority in pursuing the Order.  Otherwise, such acts

are considered illegal.   

         We first examine G.R. No. 171396 (David et al.)

The Constitution provides that Òthe right of the people to be secured in their persons, houses, papers and effects against

unreasonable search and seizure of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of

arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of

the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be

seized.Ó[142]   The plain import of the language of the Constitution is that searches, seizures and arrests are  normally unreasonable

unless authorized by a validly issued search warrant or warrant of arrest. Thus, the fundamental protection given by this provision is

that between person and police must stand the protective authority of a magistrate clothed with power to issue or refuse to issue search

warrants or warrants of arrest.[143]

         In the Brief Account[144] submitted by petitioner David, certain facts are established: first, he was arrested without

warrant; second, the PNP operatives arrested him on the  basis of PP 1017; third, he was brought at Camp Karingal, Quezon City

where he was  fingerprinted, photographed and booked like a criminal suspect; fourth, he was treated brusquely by policemen who

Òheld his head and tried to push himÓ inside an unmarked car; fifth, he was charged with Violation of Batas Pambansa

Bilang         No. 880[145]and Inciting to Sedition; sixth,  he was  detained for seven (7) hours; and seventh, he was  eventually released

for insufficiency of evidence.  

Section 5, Rule 113 of the Revised Rules on Criminal Procedure provides:

 Sec. 5. Arrest without warrant; when lawful. - A peace officer or a private person may, without a

warrant, arrest a person: (a) When, in his presence, the person to be arrested has committed, is actually committing, or is

attempting to commit an offense. (b) When an offense has just been committed and he has probable cause to believe based on personal

knowledge of facts or circumstances that the person to be arrested has committed it; and x     x     x. 

Neither of the two (2) exceptions mentioned above justifies petitioner DavidÕs  warrantless  arrest.  During the inquest for

the charges of inciting to sedition  andviolation of BP 880,  all  that  the  arresting  officers  could  invoke was  their

observation  that  some  rallyists  were  wearing  t-shirts with the invective ÒOust Gloria NowÓand  their  erroneous  assumption that

petitioner David was the leader of the rally.[146]   Consequently, the Inquest Prosecutor ordered his immediate release on the ground of

insufficiency of evidence.  He noted that petitioner David was not wearing the subject t-shirt and even if he was wearing it, such fact is

insufficient to charge him with inciting to sedition.  Further, he also stated that there is insufficient evidence for the charge

of violation of BP 880 as it was not even known whether petitioner David was the leader of the rally.[147]

 But what made it doubly worse for petitioners David et al. is that not only was their right against warrantless arrest violated,

but also their right to peaceably assemble.

 

Section 4 of Article III guarantees: No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the

people peaceably to assemble and petition the government for redress of grievances. 

ÒAssemblyÓ means a right on the part of the citizens to meet peaceably for consultation in respect to public affairs.   It is a

necessary consequence of our republican institution and complements the right of speech.   As in the case of freedom of expression,

this right is not to be limited, much less denied, except on a showing of a clear and present danger of a substantive evil that

Congress has a right to prevent.  In other words, like other rights embraced in the freedom of expression, the right to assemble is not

subject to previous restraint or censorship.   It may not be conditioned upon the prior issuance of a permit or authorization from the

government authorities except, of course, if the assembly is intended to be held in a public place, a permit for the use of such place,

and not for the assembly itself, may be validly required.

The ringing truth here is that petitioner David, et al. were arrested while they were exercising their right to peaceful

assembly.   They were not committing any crime, neither was there a showing of a clear and present danger that warranted the

limitation of that right.   As can be gleaned from circumstances, the charges of inciting to seditionand violation of BP 880 were mere

afterthought.  Even the Solicitor General, during the oral argument, failed to justify the arresting officersÕ conduct.  In De Jonge v.

Oregon,[148] it was held that peaceable assembly cannot be made a crime, thus: Peaceable assembly for lawful discussion cannot be made a crime. The holding of meetings for peaceable

political action cannot be proscribed. Those who assist in the conduct of such meetings cannot be branded as criminals on that score. The question, if the rights of free speech and peaceful assembly are not to be preserved, is not as to the auspices under which the meeting was held but as to its purpose; not as to the relations of the speakers, but whether their utterances transcend the bounds of the freedom of speech which the Constitution protects.  If the persons assembling have committed crimes elsewhere, if they have formed or are engaged in a conspiracy against

the public peace and order, they may be prosecuted for their conspiracy or other violations of valid laws. But it is a different matter when the State, instead of prosecuting them for such offenses, seizes upon mere participation in a peaceable assembly and a lawful public discussion as the basis for a criminal charge.

 

On the basis of the above principles, the Court likewise considers the dispersal and arrest of the members of KMU et

al. (G.R. No. 171483) unwarranted. Apparently, their dispersal was done merely on the basis of Malaca–angÕs directive canceling all

permits previously issued by local government units.  This is arbitrary.  The wholesale cancellation of all permits to rally is a blatant

disregard of the principle that Òfreedom of assembly is not to be limited, much less denied, except on a showing of a clear and

present danger of a substantive evil that the State has a right to prevent.Ó[149]  Tolerance is the rule and limitation is the

exception.  Only upon a showing that an assembly presents a clear and present danger that the State may deny the citizensÕ right to

exercise it.  Indeed, respondents failed to show or convince the Court that the rallyists committed acts amounting to lawless violence,

invasion or rebellion.   With the blanket revocation of permits, the distinction between protected and unprotected assemblies was

eliminated.

 

 Moreover, under BP 880, the authority to regulate assemblies and rallies is lodged with the local government units.   They

have the power to issue permits and to revoke such permits after due notice and hearing on the determination of the presence of

clear and present danger. Here, petitioners were not even notified and heard on the revocation of their permits. [150]  The first time they

learned of it was at the time of the dispersal.  Such absence of notice is a fatal defect.  When a personÕs right is restricted by

government action, it behooves a democratic government to see to it that the restriction is fair, reasonable, and according to procedure.

G.R. No. 171409, (Cacho-Olivares, et al.) presents another facet of freedom of speech i.e., the freedom of the

press.  PetitionersÕ narration of facts, which the Solicitor General failed to refute, established the following: first, the Daily

TribuneÕs offices were searched without warrant; second, the police operatives seized several materials for publication; third, the

search was conducted at about 1:00 oÕ clock in the morning of February 25, 2006; fourth, the search was conducted in the absence of

any official of theDaily Tribune except the security guard of the building; and fifth, policemen stationed themselves at the vicinity of

the Daily Tribune offices.

         Thereafter, a wave of warning came from government officials. Presidential Chief of Staff Michael Defensor was quoted as

saying that such raid was Òmeant to show a Ôstrong presence,Õ to tell media outlets not to connive or do anything that would

help the rebels in bringing down this government.Ó   Director General Lomibao further stated that Òif they do not follow the

standards Ðand the standards are if they would contribute to instability in the government, or if they do not subscribe to what

is in General Order No. 5 and Proc. No. 1017 Ð we will recommend a  Ôtakeover.ÕÓ  National Telecommunications

Commissioner Ronald Solis urged television and radio networks to ÒcooperateÓ with the government for the duration of the state of

national emergency.   He warned that his agency will not hesitate to recommend the closure of any broadcast outfit that violates

rules set out for media coverage during times when the national security is threatened.[151]

The search is illegal.  Rule 126 of The Revised Rules on Criminal Procedure lays down the steps in the conduct of search and

seizure.  Section 4 requires that a search warrant be issued upon probable cause in connection with one specific offence to be

determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may

produce.  Section 8  mandates that the search of a house, room, or any other premise be made in the presence of the lawful

occupantthereof or any member of his family or in the absence of the latter, in the presence of two (2) witnesses of sufficient age and

discretion  residing in the same locality.  And Section 9 states that  the warrant must direct that it be served in the daytime, unless the

property is on the person or in the place ordered to be searched, in which case a direction may be inserted that it be served at any time

of the day or night.  All these rules were violated by the CIDG operatives.

Not only that, the search violated petitionersÕ freedom of the press.   The best gauge of a free and democratic society rests in

the degree of freedom enjoyed by its media. In the Burgos v. Chief of Staff[152]  this Court held that -- 

 As heretofore stated, the premises searched were the business and printing offices of the "Metropolitan Mail" and the "We ForumÓ newspapers. As a consequence of the search and seizure, these premises were padlocked and sealed, with the further result that the printing and publication of said newspapers were discontinued. 

Such closure is in the nature of previous restraint or censorship abhorrent to the freedom of the press guaranteed under the fundamental law, and constitutes a virtual denial of petitioners' freedom to express themselves in print. This state of being is patently anathematic to a democratic framework where a free, alert and even militant press is essential for the political enlightenment and growth of the citizenry.

 

While admittedly, the Daily Tribune was not padlocked and sealed like the ÒMetropolitan MailÓ and ÒWe ForumÓ

newspapers in the above case, yet it cannot be denied that the CIDG operatives exceeded their enforcement duties.   The search and

seizure of materials for publication, the stationing of policemen in the vicinity of the The Daily Tribune offices, and the arrogant

warning of government officials to media, are plain censorship.  It is that officious functionary of the repressive government who tells

the citizen that he may speak only if allowed to do so, and no more and no less than what he is permitted to say on pain of punishment

should he be so rash as to disobey.[153]  Undoubtedly, the The Daily Tribune was subjected to these arbitrary intrusions because of its

anti-government sentiments.   This Court cannot tolerate the blatant disregard of a constitutional right even if it involves the most

defiant of our citizens.   Freedom to comment on public affairs is essential to the vitality of a representative democracy.   It is the duty

of the courts to be watchful for the constitutional rights of the citizen, and against any stealthy encroachments thereon.   The motto

should always be obsta principiis.[154]

 

Incidentally, during the oral arguments, the Solicitor General admitted that the search of the  TribuneÕs offices and the

seizure of its materials for publication and other papers are illegal; and that the same are inadmissible Òfor any purpose,Ó thus: 

JUSTICE CALLEJO: 

            You made quite a mouthful of admission when you said that the policemen, when inspected the Tribune for the purpose of gathering evidence and you admitted that the policemen were able to get the clippings.  Is that not in admission of the admissibility of these clippings that were taken from the Tribune?

 SOLICITOR GENERAL BENIPAYO:             Under the law they would seem to be, if they were illegally seized, I think and I know,

Your Honor, and these are inadmissible for any purpose.[155]

 x x x                 x x x                 x x x SR. ASSO. JUSTICE PUNO:             These have been published in the past issues of the Daily Tribune; all you have to do is to

get those past issues.  So why do you have to go there at 1 oÕclock in the morning and without any search warrant?  Did they become suddenly part of the evidence of rebellion or inciting to sedition or what?

SOLGEN BENIPAYO:             Well, it was the police that did that, Your Honor.  Not upon my instructions. SR. ASSO. JUSTICE PUNO:             Are you saying that the act of the policeman is illegal, it is not based on any law, and it is

not based on Proclamation 1017. SOLGEN BENIPAYO:             It is not based on Proclamation 1017, Your Honor, because there is nothing in 1017 which

says that the police could go and inspect and gather clippings from Daily Tribune or any other newspaper.

 SR. ASSO. JUSTICE PUNO:             Is it based on any law? SOLGEN BENIPAYO:             As far as I know, no, Your Honor, from the facts, no. SR. ASSO. JUSTICE PUNO:             So, it has no basis, no legal basis whatsoever? SOLGEN BENIPAYO:             Maybe so, Your Honor.  Maybe so, that is why I said, I donÕt know if it is premature to

say this, we do not condone this.  If the people who have been injured by this would want to sue them, they can sue and there are remedies for this.[156]

 

Likewise, the warrantless arrests and seizures executed by the police were, according to the Solicitor General, illegal and

cannot be condoned, thus: 

 CHIEF JUSTICE PANGANIBAN:

 There seems to be some confusions if not contradiction in your theory.

                       SOLICITOR GENERAL BENIPAYO:             I donÕt know whether this will clarify.  The acts, the supposed illegal or unlawful acts committed on the occasion of 1017, as I said, it cannot be condoned.  You cannot blame the President for, as you said, a misapplication of the law.  These are acts of the police officers, that is their responsibility.[157]

 

The Dissenting Opinion states that PP 1017 and G.O. No. 5 are constitutional in every aspect and Òshould result in no

constitutional or statutory breaches if applied according to their letter.Ó

 

The Court has passed upon the constitutionality of these issuances.  Its ratiocination has been exhaustively presented.  At this

point, suffice it to reiterate that PP 1017 is limited to the calling out by the President of the military to prevent or suppress lawless

violence, invasion or rebellion.  When in implementing its provisions, pursuant to G.O. No. 5, the military and the police committed

acts which violate the citizensÕ rights under the Constitution, this Court has to declare such acts unconstitutional and illegal.

 

In this connection, Chief Justice Artemio V. PanganibanÕs concurring opinion, attached hereto, is considered an integral part

of this ponencia.

S U M M A T I O N

In sum, the lifting of PP 1017 through the issuance of PP 1021 Ð a supervening event Ð would have normally rendered this

case moot and academic.  However, while PP 1017 was still operative, illegal acts were committed allegedly in pursuance

thereof.  Besides, there is no guarantee that PP 1017, or one similar to it, may not again be issued.    Already, there have been media

reports on April 30, 2006 that allegedly PP 1017 would be reimposed Òif the May 1 ralliesÓ become Òunruly and

violent.Ó  Consequently, the transcendental issues raised by the parties should not be Òevaded;Ó they must now be resolved to

prevent future constitutional aberration.

 

The Court finds and so holds that PP 1017 is constitutional insofar as it constitutes a call by the President for the AFP to

prevent or suppress lawless violence.  The proclamation is sustained by Section 18, Article VII of the Constitution and the relevant

jurisprudence discussed earlier.  However, PP 1017Õs extraneous provisions giving the President express or implied power (1) to

issue decrees; (2) to direct the AFP to enforce obedience to all laws even those not related to lawless violence as well as decrees

promulgated by the President; and (3) to impose standards on media or any form of prior restraint on the press, are ultra

vires and unconstitutional.  The Court also rules that under Section 17, Article XII of the Constitution, the President, in the absence

of a legislation, cannot take over privately-owned public utility and private business affected with public interest.

In the same vein, the Court finds G.O. No. 5 valid.  It is an Order issued by the President Ð acting as Commander-in-Chief Ð

addressed to subalterns in the AFP to carry out the provisions of PP 1017.   Significantly, it also provides a valid standard Ð that the

military and the police should take only the Ònecessary and appropriate actions and measures to suppress and prevent acts of

lawless violence.Ó   But the words Òacts of terrorismÓ found in G.O. No. 5 have not been legally defined and made punishable by

Congress and should thus be deemed deleted from the said G.O.  While ÒterrorismÓ has been denounced generally in media, no law

has been enacted to guide the military, and eventually the courts, to determine the limits of the AFPÕs authority in carrying out this

portion of G.O. No. 5. 

On the basis of the relevant and uncontested facts narrated earlier, it is also pristine clear that (1) the warrantless arrest of

petitioners Randolf S. David and Ronald Llamas; (2) the dispersal of the rallies and warrantless arrest of the KMU and NAFLU-KMU

members; (3) the imposition of standards on media or any prior restraint on the press; and (4) the warrantless search of

the Tribune  offices and the whimsical seizures of some articles for publication and other materials, are not authorized by the

Constitution, the law and jurisprudence.   Not even by the valid provisions of PP 1017 and G.O. No. 5.

Other than this declaration of invalidity, this Court cannot impose any civil, criminal or administrative sanctions on the

individual police officers concerned.  They have not been individually identified and given their day in court.  The civil complaints or

causes of action and/or relevant criminal Informations have not been presented before this Court.   Elementary due process bars this

Court from making any specific pronouncement of civil, criminal or administrative liabilities.

 

It is well to remember that military power is a means to an end and substantive civil rights are ends in

themselves.  How to give the military the power it needs to protect the Republic without unnecessarily trampling individual

rights is one of the eternal balancing tasks of a democratic state.   During emergency, governmental action may vary in breadth

and intensity from normal times, yet they should not be arbitrary as to unduly restrain our peopleÕs liberty. 

 

Perhaps, the vital lesson that we must learn from the theorists who studied the various competing political philosophies is

that, it is possible to grant government the authority to cope with crises without surrendering the two vital principles of

constitutionalism: the maintenance of legal limits to arbitrary power, and political responsibility of the government to the

governed.[158]

WHEREFORE, the Petitions are partly granted.  The Court rules that PP 1017 is CONSTITUTIONAL insofar as it

constitutes a call by President Gloria Macapagal-Arroyo on the AFP to prevent or suppress lawless violence.  However, the

provisions of PP 1017 commanding the AFP to enforce laws not related to lawless violence, as well as decrees promulgated by the

President, are declared UNCONSTITUTIONAL.   In addition, the provision in PP 1017 declaring national emergency under Section

17,  Article VII of the Constitution is CONSTITUTIONAL, but such declaration does not authorize the President to take over

privately-owned public utility or business affected with public interest without prior legislation. 

G.O. No. 5 is CONSTITUTIONAL since it provides a standard by which the AFP and the PNP should implement PP 1017,

i.e. whatever is Ònecessary and appropriate actions and measures to suppress and prevent acts of lawless

violence.Ó  Considering that Òacts of terrorismÓ have not yet been defined and made punishable by the Legislature, such portion of

G.O. No. 5 is declared UNCONSTITUTIONAL.   

The warrantless arrest of Randolf S. David and Ronald Llamas; the dispersal and warrantless arrest of the KMU and

NAFLU-KMU members during their rallies, in the absence of proof that these petitioners were committing acts constituting lawless

violence, invasion or rebellion and violating BP 880; the imposition of standards on media or any form of prior restraint on the press,

as well as the warrantless search of the Tribune offices and whimsical seizure of its articles for publication and other materials, are

declared UNCONSTITUTIONAL. No costs.

SO ORDERED.