G.R. No.

157307 February 27, 2006 maintaining petitioner Rivera in peaceful possession of the property without prejudice to his
claim as qualified beneficiary of the agrarian reform program.8
AGUSTIN RIVERA, substituted by GREGORIO B. RIVERA, DOMINGA B. RIVERA,
ORLANDO B. RIVERA, ROSARIO R. LOPEZ, CRISANTO B. RIVERA, EMILIANO B. RIVERA On appeal, the DARAB affirmed the PARABs finding of estoppel and added that the action to
and CONCHITA B. RIVERA, Petitioners, recover the property was barred by the Statute of Limitations under Section 38 9 of Rep. Act No.
vs. 3844.10
NEMESIO DAVID, Respondent.
Respondent David elevated the case to the Court of Appeals, raising the following issues:
QUISUMBING,J.: This petition for review on certiorari seeks to reverse the Decision 1 dated
October 1, 2002 of the Court of Appeals in CA-G.R. SP No. 58211, and its Resolution 2 dated
(A) DID RESPONDENT [petitioner herein] FAIL TO DISCHARGE THE BURDEN OF PROVING
February 19, 2003 denying reconsideration. The Court of Appeals had overturned for lack of
BY SUBSTANTIAL EVIDENCE HIS AFFIRMATIVE ALLEGATIONS OF (I) FARMING AND
jurisdiction of the DAR the Decision dated January 31, 1995 of the Provincial Agrarian Reform
TILLING; (II) PALAY PRODUCTION; (III) PERSONAL PERFORMANCE OF ALL PHASES OF
Adjudication Board (PARAB) and the Decision dated March 6, 2000 of the Department of
PRODUCTION; (IV) PAYMENT OF LEASEHOLD RENTALS; (V) SETTLEMENT BY
Agrarian Reform Adjudication Board (DARAB).
PETITIONERS FATHER OF A CONTROVERSY WITH HIM; (VI) CONVEYANCE BY
PETITIONERS FATHER OF THE 1.8 HECTARES TO RESPONDENT?
The pertinent facts of the case are as follows:
(B) DID RESPONDENTS EVIDENCE FAIL TO ESTABLISH THE TRADITIONAL SIX
Respondent Nemesio David, with the other heirs of Consolacion Suarez David, owned in ESSENTIAL ELEMENTS TEST FOR TENANCY RELATIONSHIPS IN CHICO V. COURT OF
common five hectares of land covered by Transfer Certificate of Title No. 47588-R in Dau, APPEALS, 284 SCRA 33, 36 AND BARANDA V. BAGUIO, 189 SCRA 194, 200?
Mabalacat, Pampanga. Petitioner Agustin Rivera occupied 1.8 hectares of the land. Through
counsel, the Davids demanded that petitioner vacate the property. Rivera refused and instituted
(C) IS MERE ALLEGATION OF CONVEYANCE WITHOUT PROOF ENOUGH TO SUSTAIN
a complaint with an application for injunction to maintain peaceful possession before the
THE DARABS CONCLUSION THAT RESPONDENT IS A TENANT-FARMER ENTITLED TO
PARAB.3
SECURITY OF TENURE?

In his Complaint, Rivera averred that he was a duly instituted tenant. To support his averment,
(D) IS A DARAB DECISION BASED ON SOME HEARSAY AFFIDAVITS AND CERTIFICATION
he submitted a certification from the Municipal Agrarian Reform Office together with the affidavits
NOT SUBJECTED TO PRIOR REAFFIRMATION IN OPEN COURT BY THE AFFIANT OR
of two neighbors.
PERSON CERTIFYING AND TO A PROCESS OF SANITIZING OR PASTURIZING AS TO
THEIR SELF-SERVING CONTENT A DECISION BASED ON EVIDENCE THAT LACKS
Respondent David denied that Rivera was his familys tenant. According to respondent, Rivera RATIONAL PROBATIVE FORCE?
had been squatting on the property since 1965 and had put up, without the Davids consent, a
hollow blocks business and also a piggery in the property. David sought the dismissal of the
(E) IS A DARAB DECISION BASED ON HEARSAY AFFIDAVITS AND CERTIFICATION NOT
case before the PARAB alleging that the PARAB lacked jurisdiction, considering that the
SUBJECTED TO PRIOR IDENTIFICATION BY THE AFFIANT OR PERSON CERTIFYING A
property was not an agricultural land and the case involved the issue of ownership.4
DECISION BASED ON EVIDENCE THAT [LA]CKS RATIONAL PROBATIVE FORCE?

The PARAB required the parties to file their position papers. In his position paper, 5 Rivera
[(F) IS A DARAB DECISION BASED ON SOME HEARSAY AFFAIDAVITS AND
averred that he occupied the land, at first, as a tenant; then, as an owner in 1957. He alleged
CERTIFICATION NOT SUBJECTED TO CROSS-EXAMINATION A DECISION BASED ON
that the land became his own as disturbance compensation. He prayed that he be declared as a
EVIDENCE THAT LACKS RATIONAL PROBATIVE FORCE?] [sic]
qualified beneficiary of the agrarian reform program and he be awarded three hectares as
mandated by law.
(G) IS THE DARABS MARCH 6, 2000 DECISION AD[O]PTING THE FINDINGS OF
ADJUDICATOR ILAO ONE THAT IS BASED ON EVIDENCE THAT LACKS RATIONAL
For his part, respondent David reiterated his defenses and added that Riveras claim that the
PROBATIVE FORCE?
property was transferred to the latter in 1957 was inconsistent with Riveras claim of disturbance
compensation since the idea of disturbance compensation was introduced only by Republic Act
No. 38446 on August 8, 1963 and the disturbance compensation awarded to an agricultural (H) DOES THE PARAB/DARAB (sic) HAVE JURISDICTION TO MAKE A FINDING OF
lessee is equivalent only to five years rental. Even so, the 1.8 hectares claimed by the petitioner OWNERSHIP UNDER THE GUISE OF A CHARACTERIZATION TO THE EFFECT THAT
was in excess of what is allowed under said law.7 PETITIONERS FATHER HAD MADE A CONVEYANCE TO RESPONDENT? 11

Initially, the PARAB held that David was guilty of laches or estoppel since he and his
predecessors-in-interest had allowed petitioner to retain the property. Further, the PARAB said it
had more reasons to believe that respondents predecessors-in-interest had given the land to
the petitioner as the latter had long occupied the property and developed it. It rendered judgment
The appellate court reversed the decisions of both the PARAB and the DARAB. It reasoned that
the Department of Agrarian Reform (DAR) no longer had jurisdiction over the case because by
petitioner Riveras own admission, the tenancy ended in 1957. The appellate court set aside the
decisions of both the PARAB and DARAB for lack of jurisdiction and dismissed petitioners
complaint, to wit:
WHEREFORE, the petition is GRANTED, and the challenged decisions of both the PARA[B] and same existed immediately, or shortly, before the controversy and the subject-matter thereof is
the DARAB are REVERSED and SET ASIDE, including the writs of execution issued by the whether or not said relationship has been lawfully terminated, or if the dispute otherwise springs
PARA[B], and another is rendered DISMISSING the respondent Agustin Riveras complaint. No or originates from the relationship of landlord and tenant, the litigation is (then) cognizable only
costs. SO ORDERED.12 by the Court of Agrarian Relations . . .17

Petitioner before us raises now mainly the issue concerning jurisdiction, alleging that:
THE COURT OF APPEALS ERRED IN FINDING THAT THE PARA[B] AND THE DARAB HAVE
NO JURISDICTION OVER RIVERAS COMPLAINT. 13
Although the cause of action now may differ from that in the 2004 case of David v. Rivera, under
the facts of the cases, and by our prior judgment on the issue of jurisdiction, the parties herein
are bound by the conclusiveness of judgment in the 2004 case of David v. Rivera, in accordance
with Rule 39, Sec. 4(c), of the Rules of Court.18Conformably then, the DAR has jurisdiction.

Now, on the issue of ownership, we find that petitioner Rivera failed to prove that he indeed
Simply put, the main issue now is as follows: Does the DAR have jurisdiction? Secondly, was
owned the property.1wphi1 All he submitted was an affidavit from a Feliciano Manansala
petitioner the owner of the land and are his substitute-petitioners entitled to its peaceful
stating that there was a verbal agreement between him and the respondents predecessor-in-
possession?
interest giving him the 1.8 hectares. However, petitioner did not present the affiant in court.
Where the affiant did not appear, nor was he presented during the administrative investigation to
We note that because of petitioner Riveras death, his heirs are now substituted as petitioners. At identify his sworn statement, his affidavit is hearsay, hence inadmissible in evidence.19
any rate, petitioner had insisted that the DAR had jurisdiction over the case for he had
sufficiently established before the PARAB and the DARAB that he was a tenant of respondents
On the other hand, respondent David presented TCT No. 47588-R, dated September 29, 1965,
predecessor-in-interest. He asserted that as tenant of respondents predecessor-in-interest, his
tax declarations from 1941 to 1963 under the name of respondents predecessors-in-interest,
tenancy was intimately related to the issue of ownership and thus his case fell under the
and tax declarations from 1965 to 1971 under the name of the respondent and his co-heirs.
jurisdiction of the DAR.1wphi1
Compared to petitioners dearth of evidence, these sufficiently show that respondent and his co-
heirs still owned the land. As a corollary, since it has been established that petitioner Rivera is
Petitioner further contended that even though the tenancy relation no longer existed at the time not the owner of the land, he and his heirs are not entitled to peaceful possession thereof.
the complaint was filed, the DAR had not been deprived of its jurisdiction since under Section
1(e), Rule II of the DARAB
In sum, we find that the Court of Appeals did not err in dismissing Agustin Riveras complaint, not
because the DAR had no jurisdiction over the case but because his complaint lacks merit.
Rules of Procedure,14 it has jurisdiction over cases involving the alienation of agricultural lands
covered by the agrarian reform program. He added that the definition of "agrarian dispute" under
WHEREFORE, the petition is DENIED. We affirm the Decision dated October 1, 2002 and the
Rep. Act No. 665715 included any controversy relating to compensation of land acquired under
Resolution dated February 19, 2003 in CA-G.R. SP No. 58211 dismissing Agustin Riveras
the Act and other terms and conditions of transfer of ownership from landowners to farm
complaint. The Decision dated January 31, 1995 of the PARAB in DARAB Case No. 664 P94
workers, tenants, and other agrarian reform beneficiaries.
and the Decision dated March 6, 2000 of the DARAB in DARAB Case No. 4960, including the
writs of execution issued by the PARAB are SET ASIDE. Respondent Nemesio David and his
For his part, respondent David reiterates before us the arguments in his earlier pleadings before fellow heirs of Consolacion Suarez David are hereby declared owners of the contested land
the administrative agencies and the appellate court. covered by TCT No. 47588-R under the Registry of Deeds of Mabalacat, Pampanga. No
pronouncement as to costs. SO ORDERED.
First, on the matter of jurisdiction. We agree with petitioner that the DAR has jurisdiction over his
case. In the 2004 case of David v. Rivera,16 a case involving the same parcel of land here, filed G.R. No. 147956 February 16, 2005
before the Municipal Circuit Trial Court (MCTC) of Mabalacat by the respondent against
petitioner, the issue raised was whether the MCTC or the DAR had jurisdiction. Therein, we held
ESPERANZA S. LONGINO, petitioner,
that the existence of prior agricultural tenancy relationship characterizes the controversy as an
vs.
"agrarian dispute", adding that
ATTY. LINA A. GENERAL, OIC, Commission Member III; ATTY. NOEL A. GALAROSA, OIC,
Commission Member III; ATTY. LUZ SARMIENTO, OIC, Office of the Executive Director, all
Even if the tenurial arrangement has been severed, the action still involves an incident arising of COSLAP; JUDGE JAIME F. BAUTISTA of the Regional Trial Court, Branch 75,
from the landlord and tenant relationship. Where the case involves the dispossession by a Valenzuela City; and ELSA P. SERRANO, respondents.
former landlord of a former tenant of the land claimed to have been given as compensation in
consideration of the renunciation of the tenurial rights, there clearly exists an agrarian dispute.
CALLEJO, SR., J.:
On this point the Court has already ruled:

On March 1, 1988, the Philippine National Railways (PNR) executed Contract of Lease No.
Indeed, section 21 of Republic Act No. 1199, provides that 'all cases involving the dispossession
10320 in favor of Julian Estrella over its property located in Polo, Valenzuela, Bulacan, with an
of a tenant by the landlord or by a third party and/or the settlement and disposition of disputes
area of 1,000 square meters and described as "between TP 228 and TP 230, left side." The
arising from the relationship of landlord and tenant . . . shall be under the original and exclusive
lease agreement was for a period of two years up to March 1, 1990, with an annual rental of
jurisdiction of the Court of Agrarian Relations.' This jurisdiction does not require the continuance
20,000.00. Although Estrella had unpaid rentals amounting to 100,000.00 on the initial
of the relationship of landlord and tenant at the time of the dispute. The same may have
agreement, the contract of lease was renewed until December 31, 1992. Estrella constructed his
arisen, and often times arises, precisely from the previous termination of such relationship. If the
house on the property.1
On April 6, 1992, Estrella filed an application with the PNR for a lease of an additional 848
square meters with the intention of constructing a 12-door commercial apartment building on the
said property. However, the PNR did not act on the said application. 2
Sometime in November 1992, Estrella and Elsa Serrano, owner and operator of the I.V.B.
Construction Supply at Km. 16, MacArthur Highway, Malanday, Valenzuela, Bulacan, entered
into a verbal contract of lease in which one of the apartments, which were still to be constructed,
would be leased to Serrano for a monthly rental of 5,000.00 with an advance rental of
10,000.00. Estrella assured Serrano that he had just renewed his lease contract with the PNR
for a long term and was to pick up the contract shortly. However, Estrella failed to construct the
planned 12-door apartment.3
Meanwhile, Serranos lease contract with the owner of the property where she had established
her business had expired. She was compelled to construct, at her expense, a one-door
commercial apartment on a portion of the property leased by Estrella from the PNR, with an area
of 114 square meters. She and Estrella later agreed that she would construct another
commercial apartment beside the existing one, with the latters assurance that the portion of the
property in which the second commercial apartment would be constructed would be leased to
her for a period of ten (10) years. Estrella also asked Serrano to supply him with construction
materials on credit, to which Serrano agreed.4
Serrano caused the construction of the second commercial apartment, but was aghast to
discover in September 1993 that, after the expiration of Estrellas contract with the PNR in
December of 1992, Estrella no longer had an existing lease contract with the PNR. Worse, PNR
officials told her that Estrella had no right to lease a portion of its property to third persons, and
advised her not to pay any more rentals to Estrella for the property occupied by the commercial
apartment.5
On January 13, 1994, Serrano filed a Complaint for Damages against Estrella with the Regional
Trial Court (RTC) of Valenzuela.6 The case was docketed as Civil Case No. 4287-L-94. Estrella
was declared in default. Serrano adduced her evidence ex parte.
On March 31, 1995, the PNR and Serrano entered into a Lease Contract over the portion of the
subject property where Serranos commercial apartment building stood. The effectivity of the
contract was until December 31, 1995.
On September 28, 1995, the court rendered judgment in favor of Serrano and against
Estrella.l^vvphi1.net The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered as follows: 1. Ordering the defendant to pay
plaintiff the sum of 113,652.00 as actual damages; 2. Ordering the defendant to pay plaintiff the
sum of 110,000.00 as moral damages 3. Ordering the defendant to pay plaintiff the sum of
20,000.00 as attorneys fees; 4. Ordering the defendant to pay plaintiff the sum of 10,000.00
as litigation expenses; and 5. Ordering the defendant to pay the costs of suit. SO ORDERED. 7
On January 22, 1996, the PNR and Serrano executed Lease Contract No. R-12666 over a
portion of the property of the PNR with an area of 111.11 square meters, to expire on December
31, 1996.8 She constructed a barber shop and a barbecue stand on a portion of the property.
Meanwhile, the decision of the RTC in Civil Case No. 4287-V-94 became final and executory.
Estrella failed to pay the amount adjudged by the court in favor of Serrano. The Sheriff sold the
house owned by Estrella at public auction to Serrano on May 5, 1997 as the winning
bidder.9 Estrella vacated the house, and the Sheriff turned it over to Serrano on September 23,
1998.10
Serrano wanted to renew her lease with the PNR. She and her close friend, Esperanza S.
Longino, a PNR retiree, executed an Agreement on August 4, 1998, in which Serrano allowed
her to occupy a portion of the property without paying any rental therefor, on Longinos promise
to help her secure a lease contract over a property with an area of 146 square meters. Serrano
then filed her application for a lease contract. However, the application could not be acted upon
by the PNR because of the suspension of its lease contracts over its property, which was a part
of its North Rail Project. Moreover, Serrano still had unpaid back rentals.
Despite her agreement with Serrano, on August 6, 1998, Longino filed an application with the
PNR for a lease of the property occupied by her with an area of 146.30 square meters for a
period of two months.11
When Serrano learned of the application, she wrote the PNR on September 26, 1998, citing the
decision of the RTC in Civil Case No. 4287-V-94. She, likewise, informed the latter about her
purchase of Estrellas house at public auction. Serrano also cited her agreement with Longino in
which the latter bound herself to help her (Serrano) secure a lease contract from the PNR.
Serrano alleged that the property applied for by Longino was part of the property on which the
house she had purchased at public auction from the Sheriff in Civil Case No. 4287-V-94 was
located. She also declared that she had allowed Longino to occupy the said
property.12 1vvphi1.nt
On November 10, 1998, Director Divina Gracia Dantes, Officer-in-Charge of the Real Estate
Department of the PNR, recommended the approval of Serranos application and the denial of
that of Longinos. Dantes took into account the fact that the portion of the property applied for
lease by Serrano and Longino was near the property on which the house formerly owned by
Estrella, which had been sold at public auction to Serrano, was located.
Meanwhile, on January 19, 1999, the Board of Directors of the PNR approved Resolution No.
99-03, directing the PNR Management to desist from selling or leasing its properties needed for
the right-of-way of its North Rail Project.13
However, despite the said Resolution of the Board of Directors of the PNR, the General Manager
of the PNR directed Dantes to prepare the contract of lease in favor of Longino and to transmit
the same for his signature on January 21, 1999. Dantes complied.
On January 26, 1999, the PNR and Esperanza Longino executed a Lease Contract over a
portion of its property near the house of Serrano, formerly owned by Estrella, with an area of 146
square meters, for a period of three months up to April 26, 1999, for an annual rental of
13,684.00.14 Longino paid the amount. After securing the requisite building permits, Longino
constructed a barber shop on said property, following her demolition of the barber shop and the
barbecue stand then owned by Serrano. Longino then embarked to construct her building on the
property.1awphi1.nt
On February 25, 1999 Serrano filed a handwritten Complaint against Longino, with the
Commission on Settlement of Land Problems (COSLAP), demanding that the PNR lease the
property to her, and the eviction of Longino from the property on the ground that she had a
preferential right to lease the property. Serrano alleged that the house she had purchased at
public auction from Estrella was located on the said PNR property, and that Longino occupied
the property on her sufferance under their August 4, 1998 agreement. She complained that
Longino and other ten workers had earlier demolished her barber shop and barbecue stand and
were about to construct a building thereon. Serrano prayed that she be declared entitled to lease
the property and that her application for a lease contract over the property be approved by the
PNR. As prayed for by Serrano, the COSLAP issued, on February 26, 1999, a status quo order.
The COSLAP opted to assume jurisdiction over the complaint and issued summons on the
respondent. It also issued, on March 4, 1999, an Order directing the Real Estate Department of
the PNR to implement the Status Quo Order. Longinos motion to quash the case on the ground
of lack of jurisdiction was denied by the COSLAP.15
In her answer to the complaint, Longino alleged that the portion of the property leased by her
with an area of 146.30 square meters, was outside the property formerly leased by the PNR to
Estrella (with an area of 111.11 square meters) 16 as shown by the plan prepared by the PNR
itself and applied for by Serrano. She claimed that she filed her application for lease because
she discovered that Serrano was indebted to the PNR for back rentals; hence, was disqualified
to lease the property. She also alleged that the complaint against her involved her lease contract
with the PNR over which the COSLAP had no jurisdiction. She maintained that only the regular
courts were vested with jurisdiction to resolve the issue of who, as between her and the
complainant, was entitled to lease the property, as well as the issue of whether she was
estopped by the August 4, 1998 agreement with Estrella to herself apply for a lease of the
property. In her position paper, Longino reiterated that the COSLAP had no jurisdiction over the
case.
In the meantime, on orders of the COSLAP, an ocular inspection of the property was conducted
by Rene Credo. In a Report dated March 12, 1999, he declared that Serrano, the complainant in
the case, had been in possession of the property since 1992, and that Longino was in the
process of constructing a building thereon.17
Despite the pendency of the case, the PNR and Longino executed, on May 5, 1999, a Contract
of Lease over the property to expire on July 26, 1999, revocable within fifteen (15) days in the
event that the Northeast Project would start in the area.18
On August 9, 1999, Dantes met with Serrano, informing her that she could re-apply for a lease
contract covering the property in question, provided that she first settle her back rentals of
154,945.02 as of July 31, 1999.19 On September 17, 1999, the General Manager of the PNR
and Serrano reached an agreement to lease out the property with an area of 111.11 square
meters where her structures were constructed, subject to the condition that she first pays her
back rentals of 154,945.02 as of July 31, 1999. However, Serrano failed to pay her back
rentals.
On October 27, 1999, the PNR and Longino executed Lease Contract No. R-12904 over the
property, to expire on January 26, 2000. She paid the rentals agreed upon in said contract.
However, the said contract was not renewed because of the implementation of the North Rail
Project.20
During the investigation, both the complainant (Serrano) and the respondent (Longino) were
questioned by the Commissioners.21
On December 16, 1999, the COSLAP rendered a Resolution in favor of Serrano and against
Longino, holding, inter alia, that Serrano was the lawful possessor of the property and had a
preferential right to lease the same. The decretal portion of the Resolution reads:
WHEREFORE, premises considered, the Commission hereby Ordered that: 1. Declaring
complainant as the lawful possessor and has the preferential right to lease the property in
question; 2. Recommending to the PNR the cancellation and/or non-renewal of the Lease
Contract of the respondent; and 3. After cancellation or non-renewal of the lease contract,
directing respondent to immediately and peacefully vacate the premises in favor of the
complainant. SO ORDERED.22
Citing the ruling of this Court in Baaga vs. COSLAP,23 COSLAP held that it had jurisdiction over
the dispute in question. It also ruled that Longino acted in bad faith and contrary to Article 19 of
the New Civil Code, when, despite her August 4, 1998 agreement with Serrano, she
nevertheless applied for and secured a lease contract from the PNR over the subject property. It
declared that the RTC had allowed Serrano, the plaintiff in Civil Case No. 4287-V-94, to occupy
the house of Estrella.
Longino received a copy of the Resolution on December 30, 1999 and failed to appeal the
same.24 Instead, on January 19, 2000, she sent a letter to the General Manager of the PNR,
urging the latter to disregard the resolution/recommendation of the COSLAP for being partially
irregular.25 She recalled the testimonies of Dantes and of the PNR counsel before the COSLAP
that only the PNR had the right to determine who was entitled to lease the land, such
determination was reversible only by the regular courts.26
In the meantime, the October 27, 1999 Lease Contract of Longino with the PNR was not
renewed after its expiration. On motion of Serrano, the COSLAP issued a Writ of Execution on
February 8, 2000. Per the request of the COSLAP, the RTC of Valenzuela issued an Order, on
March 2, 2000, ordering the Sheriff to implement the writ of execution. On March 31, 2000, the
Sheriff served a notice on Longino to vacate the property, but she refused. The complainant then
filed a motion for the demolition of the structures constructed by the respondent on the
property pendente lite, which the COSLAP granted. It forthwith issued the writ.
Longino filed a petition for prohibition against the COSLAP and Serrano with the Court of
Appeals (CA), docketed as CA-G.R. SP No. 57613 for the nullification of the December 16, 1999
Resolution of the COSLAP and the February 8, 2000 Writ of Demolition issued by it, with a plea
for injunctive relief. Longino alleged that in taking cognizance of Serranos complaint, the
COSLAP acted without jurisdiction; and, when it issued the said Resolutions, with grave abuse
of its discretion. She averred that the COSLAP had no jurisdiction to review the lease contracts
entered into between her and the PNR. She contended that she had the preferential right to
lease the property.
In her comment on the petition, Serrano averred that the petition should be dismissed because
of the following: (a) the December 16, 1999 Resolution of the COSLAP had become final and
executory; (b) the petitioner was estopped from assailing the jurisdiction of the COSLAP over the
complaint; and (c) the COSLAPs Resolution was in accord with law and the evidence.
In its comment on the petition for a writ of preliminary injunction, the COSLAP averred that
Longino had no right to the property since she was allowed to take possession of the property
only at the sufferance of Serrano. It maintained that, considering that the assailed Resolution of
the COSLAP had already become final and executory, the enforcement thereof can no longer be
enjoined.
On April 17, 2001, the CA rendered judgment dismissing the petition. The appellate court held
that the COSLAP had jurisdiction over Serranos complaint because it merely determined who
had the preferential right over the property but did not review the lease contract between the
PNR and Longino. The CA also ruled that Serrano had the preferential right over the disputed lot
and that the December 16, 1999 Resolution of the COSLAP had already become final and
executory. Hence, the appellate court concluded that the petition for prohibition was moot and
academic.
Longino, now the petitioner, filed the instant petition for review on certiorari for the reversal of the
decision of the CA, raising the following issues:
1. WHETHER OR NOT PUBLIC RESPONDENTS HAVE JURISDICTION TO RESOLVE THE
DISPUTE BETWEEN THE PETITIONER AND THE PRIVATE RESPONDENT AND THE
AUTHORITY TO ISSUE THE WRIT OF EXECUTION; AND
2. WHO BETWEEN THEM HAVE A PREFERENTIAL RIGHT OVER THE PROPERTY IN
QUESTION.27
Private respondent Serrano reiterated her comment on the petition in the CA as her comment in
the petition at bench.
The issues for resolution are the following: (a) whether the petition for prohibition under Rule 65
of the Rules of Court was the proper remedy of the petitioner; (b) whether the COSLAP had
jurisdiction over the complaint of the respondent herein; (c) whether the petitioner is barred from
assailing the jurisdiction of the COSLAP; and (d) whether the COSLAP acted with grave abuse
of discretion in causing the petitioners eviction and the demolition of her structures on the PNR
property.
On the first issue, the private respondent avers that the remedy of the petitioner from the
December 16, 1999 Resolution of the COSLAP was to appeal, by way of a petition for review, to
the CA under Rule 43 of the Rules of Court, instead of filing a petition for prohibition under Rule
65 of the Rules of Court, as amended. The private respondent avers that since the petitioner
opted not to appeal the resolution to the CA, she is proscribed from filing a petition for prohibition
under Rule 65 of the Rules of Court.
We are not in full accord with the private respondents contention.
Rule 65, Section 2 of the Rules of Court provides:
Section 2. Petition for prohibition. When the proceedings of any tribunal, corporation, board, or
person, whether exercising functions judicial or ministerial, are without or in excess of its or his
jurisdiction, or with grave abuse of discretion, and there is no appeal or any other plain, speedy,
and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court alleging the facts with certainty and praying that judgment be
rendered commanding the defendant to desist from further proceedings in the action or matter
specified therein.
The petition shall be accompanied by a certified true copy of the judgment or order subject
thereof, together with copies of all pleadings and documents relevant and pertinent thereto.
The principal purpose for the writ of prohibition is to prevent an encroachment, excess,
usurpation or assumption of jurisdiction on the part of an inferior court or quasi-judicial tribunal. It
is granted when it is necessary for the orderly administration of justice, or prevent the use of the
strong arm of the law in an oppressive or vindictive manner, or multiplicity of actions. 28 The writs
of certiorari and prohibition, for that matter, are intended to annul or void proceedings in order to
insure the fair and orderly administration of justice.29
For a party to be entitled to a writ of prohibition, he must establish the following requisites: (a) it
must be directed against a tribunal, corporation, board or person exercising functions, judicial or
ministerial; (b) the tribunal, corporation, board or person has acted without or in excess of its
jurisdiction, or with grave abuse of discretion; and (c) there is no appeal or any other plain,
speedy, and adequate remedy in the ordinary course of law.30
For grave abuse of discretion to prosper as a ground for prohibition, it must first be
demonstrated that the lower court or tribunal has exercised its power in an arbitrary and despotic
manner, by reason of passion or personal hostility, and it must be patent and gross as would
amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act in
contemplation of law. Excess of jurisdiction signifies that the court, board or office has
jurisdiction over the case but has transcended the same or acted without authority. 31 The writ of
prohibition will not lie to enjoin acts already done. 32 However, as an exception to the rule on
mootness, courts will decide a question otherwise moot if it is capable of repetition yet evading
review.33
In a case where a lower court or quasi-judicial body commits an error in the excess of its
jurisdiction, if such error is one of judgment, it is revocable only by appeal. On the other hand, if
the act complained of was issued by such court or body with grave abuse of discretion, which is
tantamount to lack or in excess of jurisdiction, the remedy of the aggrieved party is to file a
petition for certiorari and/or prohibition under Rule 65 of the Rules of Court. 34 Indeed, a decision
of a court without jurisdiction is null and void. It could never become final and executory; hence,
appeal therefrom by writ of error is out of the question. The aggrieved party should file a petition
for certiorari or prohibition under Rule 65 of the Rules of Court.35
A remedy is considered plain, speedy and adequate if it will promptly relieve the petitioner from
the injurious effects of the judgment or rule, order or resolution of the lower court or
agency.36 While ordinarily, certiorari or prohibition for that matter is unavailing where the appeal
period had lapsed, the same may be availed of whereas in the present case, public welfare and
the administration of public policy dictates; where the broader interest of justice so requires;
where the writs issued are null and void; where the questioned order amounts to an oppressive
excess of judicial authority.37
In the present case, the petition for prohibition filed with the CA by the petitioner could have been
dismissed by the CA because the structures on the property had already been demolished;
hence, the acts sought to be enjoined by the petitioner had already been effected by the
respondent sheriff. For another reason, the lease contract of the petitioner and the PNR had not
been renewed after its expiration on January 26, 2000. Manifestly, the petitioner was obliged to
vacate the property and remove her structures thereon. Nevertheless, the CA took cognizance of
the petition and resolved the same on its merits, precisely because the issues raised therein,
namely, whether the COSLAP had jurisdiction over the complaint of the private respondent; and
whether the COSLAP exceeded its jurisdiction in declaring the private respondent the legal
possessor of the property and of having priority in leasing the subject property raised in the
petition, were substantial.
We agree with the petitioner that the CA erred in ruling that the COSLAP had jurisdiction on the
complaint of the private respondent and that the latter was the legal possessor and had
preferential right to lease the property. Consequently, the Resolution of the COSLAP dated
December 16, 1999, as well as the writ issued by it are null and void.
The COSLAP had no jurisdiction over the complaint of the private respondent herein, who was
the complainant before the COSLAP. The rule is that jurisdiction over the nature and subject
matter of the case is conferred by law and determined by the allegations of the complaint. 38 The
nature of the action, as well as which court or body has jurisdiction over it, is determined based
on the allegations in the complaint irrespective of whether or not the plaintiff is entitled to the
relief prayed for. Jurisdiction over the action does not depend on the defenses set forth in the
answer, or in a motion to dismiss of the defendant. 39 Even if a tribunal or a quasi-judicial body of
the government has jurisdiction over an action but exceeds its authority in the course of the
proceedings, such act is null and void.40
Administrative agencies, like the COSLAP, are tribunals of limited jurisdiction and, as such, could b) Between occupants/squatters and government reservation grantees;
wield only such as are specifically granted to them by the enabling statutes. 41 In relation thereto
is the doctrine of primary jurisdiction involving matters that demand the special competence of
c) Between occupants/squatters and public land claimants or applicants;
administrative agencies even if the question involved is also judicial in nature. Courts cannot and
will not resolve a controversy involving a question within which the jurisdiction of an
administrative tribunal, especially when the question demands the sound exercise of d) Petitions for classification, release and/or subdivision of lands of the public domain;
administrative discretion requiring special knowledge, experience and services of the and
administrative tribunal to determine technical and intricate matters of fact. The court cannot
arrogate into itself the authority to resolve a controversy, the jurisdiction of which is initially
e) Other similar land problems of grave urgency and magnitude.
lodged with the administrative body of special competence. 42 But disputes requiring no special
skill or technical expertise of an administrative body and which could be resolved by applying
pertinent provisions of the Civil Code are within the exclusive jurisdiction of the regular courts. 43 The Commission shall promulgate such rules and procedures as will insure expeditious
resolution and action on the above cases. The resolution, order or decision of the Commission
on any of the foregoing cases shall have the force and effect of a regular administrative
Under Executive Order No. 251, which took effect on July 31, 1970, the President created the
resolution, order or decision and shall be binding upon the parties therein and upon the agency
Presidential Action Committee on Land Problems (PACLAP) to expedite and coordinate the
having jurisdiction over the same.45
investigation of land disputes between small settlers, members of cultural minorities and other
claimants and between small settlers and big landowners. It was also tasked to streamline and
shorten administrative procedures, adopt, hold and decide measures to solve land problems Under the law, the COSLAP has two options in acting on a land dispute or problem lodged
and/or recommend other solutions. Under Presidential Decree No. 832, the President enlarged before it, namely, (a) refer the matter to the agency having appropriate jurisdiction for
the functions and duties of the PACLAP, to include quasi-judicial functions, thus: settlement/resolution; or (b) assume jurisdiction if the matter is one of those enumerated in
paragraph 2(a) to (e) of the law, if such case is critical and explosive in nature, taking into
account the large number of the parties involved, the presence or emergence of social tension or
1. Direct and coordinate the activities, particularly the investigation work, of the various
unrest, or other similar critical situations requiring immediate action. In resolving whether to
government agencies and agencies involved in land problems or disputes, and streamline
assume jurisdiction over a case or to refer the same to the particular agency concerned, the
administrative procedures to relieve small settlers and landholders and members of cultural
COSLAP has to consider the nature or classification of the land involved, the parties to the case,
minorities of the expense and time-consuming delay attendant to the solution of such problems
the nature of the questions raised, and the need for immediate and urgent action thereon to
or disputes;
prevent injuries to persons and damage or destruction of property. The law does not vest
jurisdiction on the COSLAP over any land dispute or problem.
2. Refer for immediate action any land problem or dispute brought to the attention of the
PACLAP, to any member agency having jurisdiction thereof: Provided, That when the Executive
The complaint of the private respondent herein, who was the complainant in the COSLAP, was
Committee decides to act on a case, its resolution, order or decision thereon, shall have the
for the PNR to lease the property to her and deny the application of the petitioner, the
force and effect of a regular administrative resolution, order or decision, and shall be binding
respondent therein; and to have the petitioner evicted from the property upon the non-renewal of
upon the parties therein involved and upon the member agency having jurisdiction thereof;44
the lease contract with the PNR upon its expiration on January 26, 2000. The complaint was
anchored on the private respondents claim that she had acquired the house of Estrella which
The PACLAP was abolished by E.O. No. 561 which took effect on September 21, 1979, and was was located near the property subject of her application; and that the petitioner was estopped by
replaced by the COSLAP, composed of three members: a Commissioner and two Associate their August 4, 1998 agreement to apply for the lease of the subject property. The private
Commissioners. Among the powers and functions of the COSLAP are administrative and quasi- respondent alleged that the petitioner promised to help her secure a lease contract over the
judicial. property. The private respondent thus sought a ruling from the COSLAP that she was the lawful
possessor of the property, having merely allowed the petitioner herein to occupy the same.
1. Coordinate the activities, particularly the investigation work, of the various government offices
and agencies involved in the settlement of land problems or disputes, and streamline The property subject of the application of both parties is not public land but property belonging to
administrative procedures to relieve small settlers and landholders and members of cultural the PNR, which is a part of its North Rail Project. The private respondent is a businesswoman,
minorities of the expense and time-consuming delay attendant to the solution of such problems while the respondent is a retired PNR employee and, likewise, a businesswoman. The parties
or disputes; wanted to lease the property for their respective business enterprises, such as the putting up of
a bakery. Neither of them is a squatter, patent lease agreement holder, government reservation
grantee, public land claimant or occupant, or a member of any cultural minority. The dispute
2. Refer and follow-up for immediate action by the agency having appropriate jurisdiction over
between the parties was not critical and explosive in nature so as to generate social tension or
any land problem or dispute referred to the Commission: Provided, That the Commission may, in
unrest, or a critical situation which required immediate action. The issues raised by the parties in
the following cases, assume jurisdiction and resolve land problems or disputes which are critical
their pleadings involved the application of the New Civil Code in relation to the Charter of the
and explosive in nature considering, for instance, the large number of the parties involved, the
PNR, which clearly do involve the application of the expertise of the COSLAP.
presence or emergence of social tension or unrest, or other similar critical situations requiring
immediate action:
We note that under paragraph 2(e) of E.O. No. 561, the COSLAP is vested with jurisdiction over
complaints involving "other similar land problems of grave urgency" and is undisputable. But the
a) Between occupants/squatters and pasture lease agreement holders or timber
principle in statutory construction of ejusdem generis, i.e., "where general words follow an
concessionaires;
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 to be held as applying only to
persons or things of the same kind as clear as those specifically mentioned. 46 Hence, the
provision should not be interpreted to apply to a dispute between two businesswomen claiming a
priority right to lease a 146-square meter property of the PNR, the petitioner claiming that the
private respondent is disqualified from leasing the property because she is indebted to the PNR
for back rentals, and the private respondent claiming that she has the preferential right to lease
the property merely because the house which she purchased from another was near the subject
property.
The COSLAP and the private respondent cannot find surcease in the ruling of the Court
in Baaga v. COSLAP.47 In that case, the petitioner therein, Guillermo Baaga, et al., filed a free
patent application with the Bureau of Lands over a public land with an area of 30 hectares.
Therein private respondent Gregorio Dopreza filed a separate application over the same
property with the Bureau of Lands. But the Bureau of Lands failed to resolve the application and
conduct any investigation for a considerable period of time. Based on the letter of Dopreza, the
COSLAP opted to exercise jurisdiction over the controversy. Guillermo Baaga questioned the
jurisdiction of the COSLAP and this Court sustained its jurisdiction, since the controversy
involved the conflicting free patent applications of the petitioners and the private respondent
therein over a parcel of disposable public land with an area of 30 hectares. The Court declared
that the jurisdiction of the COSLAP is not confined to the cases mentioned in paragraph 2(a) to
(e) of E.O. No. 561 but includes land problems in government, in general, which are frequently
the source of conflicts among settlers, landowners and cultural minorities. Undeniably, the
COSLAP had jurisdiction over land dispute between the parties who were claimants/applicants
of public lands. Moreover, the Court noted, the petitioners therein were estopped from assailing
the jurisdiction of the COSLAP because they failed to assail the same jurisdiction on appeal.
In the present action, the petitioner questioned the jurisdiction of the COSLAP in her answer to
the complaint and in her position paper, and prayed for its dismissal on that ground. In fact, the
only relief prayed for by the petitioner from the COSLAP was the dismissal of the complaint of
the private respondent against her.
The Court, likewise, rules that the COSLAP had no jurisdiction over the issues raised by the
parties because as early as January 19, 1999, the Board of Directors of the PNR had approved
Resolution No. 99-03, directing the PNR Management to desist from selling or leasing its
properties needed for the right-of-way of its North Rail Project, to wit:
RESOLUTION No. 99-03
RESOLVED, as it is hereby RESOLVED, that Management cease and desist from disposing
(whether through sale or lease) PNR properties which would eventually be part of the right-of-
way of the North Rail project, be APPROVED, as it is hereby APPROVED.
Notwithstanding the Resolution of the Board of Directors, the COSLAP declared the private
respondent the legal possessor of the property and had the priority to lease the same. When to
lease property owned by it, whom to lease such property, as well as the terms and conditions
thereof, are matters addressed to the PNR.
The COSLAPs records show that the private respondent owed the PNR the huge amount of
154,945.02 as of July 31, 1999 by way of back rentals. The PNR had agreed to lease its
property to the private respondent, provided that she paid her back rentals. The private
respondent failed to do so. As aforesaid, the Board of Directors of the PNR, as early as January
19, 1999, had approved a Resolution prohibiting the sale or lease of its properties, including the
property subject of the private respondents complaint, needed for the right-of-way of its North
Rail Project. And yet, the COSLAP declared the private respondent the lawful possessor of the
property and as having the preferential right to lease the same. By its Resolution, the COSLAP
set aside the Resolution of the PNR Board of Directors and abetted the private respondents
obstinate refusal to pay her back rentals to the PNR amounting to 154,945.02. The COSLAP
had no authority to override the January 19, 1999 Resolution of the Board of Directors of the
PNR and to impose its resolution on the PNR.
Upon the expiration of the January 22, 1996 Lease Contract of the private respondent and the
PNR on December 31, 1996, she had no more right to possess the leased property. Indeed, the
PNR had the right to have her evicted therefrom. And yet, the COSLAP declared, by its
Resolution, that the private respondent herein, who was heavily indebted to the PNR, was the
lawful possessor of the property.
When the COSLAP issued its December 16, 1999 Resolution declaring the private respondent
the lawful possessor of the property, the lease contract between the PNR and the petitioner had
yet to expire on January 21, 2000. In issuing such declaration, the COSLAP thereby branded the
petitioner herein, who was not indebted to the PNR for any rentals, a possessor of the property
without any right. By its Resolution, the COSLAP, for all intents and purposes, thereby declared
the October 27, 1999 lease contract between the petitioner and the PNR ineffective. In fine, the
COSLAP acted beyond its competence.
The bare fact that the private respondents house was located near the property subject of her
complaint does not give her any priority right to lease the property. Only the PNR, being the
owner of the property, has the right to determine when, to whom and under what conditions to
lease its property.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The assailed
Decision of the Court of Appeals and the Resolution dated December 16, 1999 of the COSLAP
are SET ASIDE and REVERSED. The petitioners petition for prohibition to enjoin the demolition
of her structures on the property is DENIED for being moot and academic. No costs. SO
ORDERED.
G.R. No. 163980 August 3, 2006
HOLY SPIRIT HOMEOWNERS ASSOCIATION, INC. and NESTORIO F. APOLINARIO, in his
personal capacity and as President of Holy Spirit Homeowners Association,
Inc., Petitioners,
vs.
SECRETARY MICHAEL DEFENSOR, in his capacity as Chairman of the Housing and
Urban Development Coordinating Council (HUDCC), ATTY. EDGARDO PAMINTUAN, in his
capacity as General Manager of the National Housing Authority (NHA), MR. PERCIVAL
CHAVEZ, in his capacity as Chairman of the PresidentialCommission for the Urban Poor
(PCUP), MAYOR FELICIANO BELMONTE, in his capacity as Mayor of Quezon City,
SECRETARY ELISEA GOZUN, in her capacity as Secretary of the Department of
Environment and Natural Resources (DENR) and SECRETARY FLORENTE SORIQUEZ, in
his capacity as Secretary of the Department of Public Works and Highways (DPWH) as ex-
officio members of the NATIONAL GOVERNMENT CENTER ADMINISTRATION
COMMITTEE, Respondents.
TINGA, J.:
The instant petition for prohibition under Rule 65 of the 1997 Rules of Civil Procedure, with
prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction,
seeks to prevent respondents from enforcing the implementing rules and regulations (IRR) of
Republic Act No. 9207, otherwise known as the "National Government Center (NGC) Housing
and Land Utilization Act of 2003."
Petitioner Holy Spirit Homeowners Association, Inc. (Association) is a homeowners association
from the West Side of the NGC. It is represented by its president, Nestorio F. Apolinario, Jr., who
is a co-petitioner in his own personal capacity and on behalf of the association.
Named respondents are the ex-officio members of the National Government Center
Administration Committee (Committee). At the filing of the instant petition, the Committee was
composed of Secretary Michael Defensor, Chairman of the Housing and Urban Development
Coordinating Council (HUDCC), Atty. Edgardo Pamintuan, General Manager of the National
Housing Authority (NHA), Mr. Percival Chavez, Chairman of the Presidential Commission for
Urban Poor (PCUP), Mayor Feliciano Belmonte of Quezon City, Secretary Elisea Gozun of the
Department of Environment and Natural Resources (DENR), and Secretary Florante Soriquez of
the Department of Public Works and Highways (DPWH).
Prior to the passage of R.A. No. 9207, a number of presidential issuances authorized the
creation and development of what is now known as the National Government Center (NGC).
On March 5, 1972, former President Ferdinand Marcos issued Proclamation No. 1826, reserving
a parcel of land in Constitution Hills, Quezon City, covering a little over 440 hectares as a
national government site to be known as the NGC. 1
On August 11, 1987, then President Corazon Aquino issued Proclamation No. 137, excluding
150 of the 440 hectares of the reserved site from the coverage of Proclamation No. 1826 and
authorizing instead the disposition of the excluded portion by direct sale to the bona
fide residents therein. 2
In view of the rapid increase in population density in the portion excluded by Proclamation No.
137 from the coverage of Proclamation No. 1826, former President Fidel Ramos issued
Proclamation No. 248 on September 7, 1993, authorizing the vertical development of the
excluded portion to maximize the number of families who can effectively become beneficiaries of
the governments socialized housing program. 3
On May 14, 2003, President Gloria Macapagal-Arroyo signed into law R.A. No. 9207. Among the
salient provisions of the law are the following:
Sec. 2. Declaration of Policy. It is hereby declared the policy of the State to secure the land
tenure of the urban poor. Toward this end, lands located in the NGC, Quezon City shall be
utilized for housing, socioeconomic, civic, educational, religious and other purposes.
Sec. 3. Disposition of Certain Portions of the National Government Center Site to Bona Fide
Residents. Proclamation No. 1826, Series of 1979, is hereby amended by excluding from the
coverage thereof, 184 hectares on the west side and 238 hectares on the east side of
Commonwealth Avenue, and declaring the same open for disposition to bona fide residents
therein: Provided, That the determination of the bona fide residents on the west side shall be
based on the census survey conducted in 1994 and the determination of the bona fide residents
on the east side shall be based on the census survey conducted in 1994 and occupancy
verification survey conducted in 2000: Provided, further, That all existing legal agreements,
programs and plans signed, drawn up or implemented and actions taken, consistent with the
provisions of this Act are hereby adopted.
Sec. 4. Disposition of Certain Portions of the National Government Center Site for Local
Government or Community Facilities, Socioeconomic, Charitable, Educational and Religious
Purposes. Certain portions of land within the aforesaid area for local government or community
facilities, socioeconomic, charitable, educational and religious institutions are hereby reserved
for disposition for such purposes: Provided, That only those institutions already operating and
with existing facilities or structures, or those occupying the land may avail of the disposition
program established under the provisions this Act; Provided, further, That in ascertaining the
specific areas that may be disposed of in favor of these institutions, the existing site allocation
shall be used as basis therefore: Provided, finally. That in determining the reasonable lot
allocation of such institutions without specific lot allocations, the land area that may be
allocated to them shall be based on the area actually used by said institutions at the time of
effectivity of this Act. (Emphasis supplied.)
In accordance with Section 5 of R.A. No. 9207, 4 the Committee formulated the Implementing
Rules and Regulations (IRR) of R.A. No. 9207 on June 29, 2004. Petitioners subsequently filed
the instant petition, raising the following issues:
WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE RULES
AND REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS "NATIONAL
GOVERNMENT CENTER (NGC) HOUSING AND LAND UTILIZATION ACT OF 2003" SHOULD
BE DECLARED NULL AND VOID FOR BEING INCONSISTENT WITH THE LAW IT SEEKS TO
IMPLEMENT.
WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE RULES
AND REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS "NATIONAL
GOVERNMENT CENTER (NGC) HOUSING AND LAND UTILIZATION ACT OF 2003" SHOULD
BE DECLARED NULL AND VOID FOR BEING ARBITRARY, CAPRICIOUS AND WHIMSICAL. 5
First, the procedural matters.
The Office of the Solicitor General (OSG) argues that petitioner Association cannot question the
implementation of Section 3.1 (b.2) and Section 3.2 (c.1) since it does not claim any right over
the NGC East Side. Section 3.1 (b.2) provides for the maximum lot area that may be awarded to
a resident-beneficiary of the NGC East Side, while Section 3.2 (c.1) imposes a lot price
escalation penalty to a qualified beneficiary who fails to execute a contract to sell within the
prescribed period. 6 Also, the OSG contends that since petitioner association is not the duly
recognized peoples organization in the NGC and since petitioners not qualify as beneficiaries,
they cannot question the manner of disposition of lots in the NGC. 7
"Legal standing" or locus standi has been defined as a personal and substantial interest in the
case such that the party has sustained or will sustain direct injury as a result of the governmental
act that is being challenged. The gist of the question of standing is whether a party alleges
"such personal stake in the outcome of the controversy as to assure that concrete adverseness
which sharpens the presentation of issues upon which the court depends for illumination of
difficult constitutional questions." 8
Petitioner association has the legal standing to institute the instant petition, whether or not it is
the duly recognized association of homeowners in the NGC. There is no dispute that the
individual members of petitioner association are residents of the NGC. As such they are covered
and stand to be either benefited or injured by the enforcement of the IRR, particularly as regards
the selection process of beneficiaries and lot allocation to qualified beneficiaries. Thus, petitioner
association may assail those provisions in the IRR which it believes to be unfavorable to the
rights of its members. Contrary to the OSGs allegation that the failure of petitioner association
and its members to qualify as beneficiaries effectively bars them from questioning the provisions
of the IRR, such circumstance precisely operates to confer on them the legal personality to
assail the IRR. Certainly, petitioner and its members have sustained direct injury arising from the
enforcement of the IRR in that they have been disqualified and eliminated from the selection
process. While it is true that petitioners claim rights over the NGC West Side only and thus
cannot be affected by the implementation of Section 3.1 (b.2), which refers to the NGC East
Side, the rest of the assailed provisions of the IRR, namely, Sections 3.1 (a.4), 3.2 (a.1) and 3.2
(c.1), govern the disposition of lots in the West Side itself or all the lots in the NGC.
We cannot, therefore, agree with the OSG on the issue of locus standi. The petition does not
merit dismissal on that ground.
There are, however, other procedural impediments to the granting of the instant petition. The
OSG claims that the instant petition for prohibition is an improper remedy because the writ of
prohibition does not lie against the exercise of a quasi-legislative function. 9 Since in issuing the
questioned IRR of R.A. No. 9207, the Committee was not exercising judicial, quasi-judicial or
ministerial function, which is the scope of a petition for prohibition under Section 2, Rule 65 of
the 1997 Rules of Civil Procedure, the instant prohibition should be dismissed outright, the OSG
contends. For their part, respondent Mayor of Quezon City 10 and respondent NHA 11 contend
that petitioners violated the doctrine of hierarchy of courts in filing the instant petition with this
Court and not with the Court of Appeals, which has concurrent jurisdiction over a petition for
prohibition.
The cited breaches are mortal. The petition deserves to be spurned as a consequence.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or
administrative adjudicatory powers. Quasi-legislative or rule-making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the
granting statute and the doctrine of non-delegability and separability of powers. 12
In questioning the validity or constitutionality of a rule or regulation issued by an administrative
agency, a party need not exhaust administrative remedies before going to court. This principle,
however, applies only where the act of the administrative agency concerned was performed
pursuant to its quasi-judicial function, and not when the assailed act pertained to its rule-making
or quasi-legislative power. 13
The assailed IRR was issued pursuant to the quasi-legislative power of the Committee expressly
authorized by R.A. No. 9207. The petition rests mainly on the theory that the assailed IRR
issued by the Committee is invalid on the ground that it is not germane to the object and purpose
of the statute it seeks to implement. Where what is assailed is the validity or constitutionality of a
rule or regulation issued by the administrative agency in the performance of its quasi-legislative
function, the regular courts have jurisdiction to pass upon the same. 14
Since the regular courts have jurisdiction to pass upon the validity of the assailed IRR issued by
the Committee in the exercise of its quasi-legislative power, the judicial course to assail its
validity must follow the doctrine of hierarchy of courts. Although the Supreme Court, Court of
Appeals and the Regional Trial Courts have concurrent jurisdiction to issue writs of certiorari,
prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence does not
give the petitioner unrestricted freedom of choice of court forum. 15
True, this Court has the full discretionary power to take cognizance of the petition filed directly
with it if compelling reasons, or the nature and importance of the issues raised, so warrant. 16 A
direct invocation of the Courts original jurisdiction to issue these writs should be allowed only
when there are special and important reasons therefor, clearly and specifically set out in the
petition. 17
In Heirs of Bertuldo Hinog v. Melicor, 18 the Court said that it will not entertain direct resort to it
unless the redress desired cannot be obtained in the appropriate courts, and exceptional and
compelling circumstances, such as cases of national interest and of serious implications, justify
the availment of the extraordinary remedy of writ of certiorari, calling for the exercise of its
primary jurisdiction. 19 A perusal, however, of the petition for prohibition shows no compelling,
special or important reasons to warrant the Courts taking cognizance of the petition in the first
instance. Petitioner also failed to state any reason that precludes the lower courts from passing
upon the validity of the questioned IRR. Moreover, as provided in Section 5, Article VIII of the
Constitution, 20 the Courts power to evaluate the validity of an implementing rule or regulation is
generally appellate in nature. Thus, following the doctrine of hierarchy of courts, the instant
petition should have been initially filed with the Regional Trial Court.
A petition for prohibition is also not the proper remedy to assail an IRR issued in the exercise of
a quasi-legislative function. Prohibition is an extraordinary writ directed against any tribunal,
corporation, board, officer or person, whether exercising judicial, quasi-judicial or ministerial
functions, ordering said entity or person to desist from further proceedings when said
proceedings are without or in excess of said entitys or persons jurisdiction, or are accompanied
with grave abuse of discretion, and there is no appeal or any other plain, speedy and adequate
remedy in the ordinary course of law. 21 Prohibition lies against judicial or ministerial functions,
but not against legislative or quasi-legislative functions. Generally, the purpose of a writ of
prohibition is to keep a lower court within the limits of its jurisdiction in order to maintain the
administration of justice in orderly channels. 22 Prohibition is the proper remedy to afford relief
against usurpation of jurisdiction or power by an inferior court, or when, in the exercise of
jurisdiction in handling matters clearly within its cognizance the inferior court transgresses the
bounds prescribed to it by the law, or where there is no adequate remedy available in the
ordinary course of law by which such relief can be obtained. 23 Where the principal relief sought
is to invalidate an IRR, petitioners remedy is an ordinary action for its nullification, an action
which properly falls under the jurisdiction of the Regional Trial Court. In any case, petitioners
allegation that "respondents are performing or threatening to perform functions without or in
excess of their jurisdiction" may appropriately be enjoined by the trial court through a writ of
injunction or a temporary restraining order.
In a number of petitions, 24 the Court adequately resolved them on other grounds without
adjudicating on the constitutionality issue when there were no compelling reasons to pass upon
the same. In like manner, the instant petition may be dismissed based on the foregoing
procedural grounds. Yet, the Court will not shirk from its duty to rule on the merits of this petition
to facilitate the speedy resolution of this case. In proper cases, procedural rules may be relaxed
or suspended in the interest of substantial justice. And the power of the Court to except a
particular case from its rules whenever the purposes of justice require it cannot be questioned. 25
Now, we turn to the substantive aspects of the petition. The outcome, however, is just as dismal
for petitioners.
Petitioners assail the following provisions of the IRR:
Section 3. Disposition of Certain portions of the NGC Site to the bonafide residents
3.1. Period for Qualification of Beneficiaries (a.4) Processing and evaluation of qualifications
shall be based on the Code of Policies and subject to the condition that a beneficiary is qualified
to acquire only one (1) lot with a minimum of 36 sq. m. and maximum of 54 sq. m. and subject
further to the availability of lots. (b.2) Applications for qualification as beneficiary shall be
processed and evaluated based on the Code of Policies including the minimum and maximum
lot allocation of 35 sq. m. and 60 sq. m.
3.2. Execution of the Contract to Sell
(a) Westside
(a.1) All qualified beneficiaries shall execute Contract to Sell (CTS) within sixty (60) days from
the effectivity of the IRR in order to avail of the lot at P700.00 per sq. m.
(c) for both eastside and westside
(c.1) Qualified beneficiaries who failed to execute CTS on the deadline set in item a.1 above in
case of westside and in case of eastside six (6) months after approval of the subdivision plan
shall be subjected to lot price escalation.
The rate shall be based on the formula to be set by the National Housing Authority factoring
therein the affordability criteria. The new rate shall be approved by the NGC-Administration
Committee (NGC-AC).
Petitioners contend that the aforequoted provisions of the IRR are constitutionally infirm as they
are not germane to and/or are in conflict with the object and purpose of the law sought to be
implemented.
First. According to petitioners, the limitation on the areas to be awarded to qualified beneficiaries
under Sec. 3.1 (a.4) and (b.2) of the IRR is not in harmony with the provisions of R.A. No. 9207,
which mandates that the lot allocation to qualified beneficiaries shall be based on the area
actually used or occupied by bona fide residents without limitation to area. The argument is
utterly baseless.
The beneficiaries of lot allocations in the NGC may be classified into two groups, namely, the
urban poor or the bona fide residents within the NGC site and certain government institutions
including the local government. Section 3, R.A. No. 9207 mandates the allocation of additional
property within the NGC for disposition to its bona fide residents and the manner by which this
area may be distributed to qualified beneficiaries. Section 4, R.A. No. 9207, on the other hand,
governs the lot disposition to government institutions. While it is true that Section 4 of R.A. No.
9207 has a proviso mandating that the lot allocation shall be based on the land area actually
used or occupied at the time of the laws effectivity, this proviso applies only to institutional
beneficiaries consisting of the local government, socioeconomic, charitable, educational and
religious institutions which do not have specific lot allocations, and not to the bona fide residents
of NGC. There is no proviso which even hints that a bona fide resident of the NGC is likewise
entitled to the lot area actually occupied by him.
Petitioners interpretation is also not supported by the policy of R.A. No. 9207 and the prior
proclamations establishing the NGC. The governments policy to set aside public property aims
to benefit not only the urban poor but also the local government and various government
institutions devoted to socioeconomic, charitable, educational and
religious purposes. 26 Thus, although Proclamation No. 137 authorized the sale of lots to bona
fide residents in the NGC, only a third of the entire area of the NGC was declared open for
disposition subject to the condition that those portions being used or earmarked for public or
quasi-public purposes would be excluded from the housing program for NGC residents. The
same policy of rational and optimal land use can be read in Proclamation No. 248 issued by
then President Ramos. Although the proclamation recognized the rapid increase in the
population density in the NGC, it did not allocate additional property within the NGC for urban
poor housing but instead authorized the vertical development of the same 150 hectares
identified previously by Proclamation No. 137 since the distribution of individual lots would not
adequately provide for the housing needs of all the bona fide residents in the NGC.
In addition, as provided in Section 4 of R.A. No. 9207, the institutional beneficiaries shall be
allocated the areas actually occupied by them; hence, the portions intended for the institutional
beneficiaries is fixed and cannot be allocated for other non-institutional beneficiaries. Thus, the
areas not intended for institutional beneficiaries would have to be equitably distributed among
the bona fide residents of the NGC. In order to accommodate all qualified residents, a limitation
on the area to be awarded to each beneficiary must be fixed as a necessary consequence.
Second. Petitioners note that while Sec. 3.2 (a.1) of the IRR fixes the selling rate of a lot
at P700.00 per sq. m., R.A. No. 9207 does not provide for the price. They add Sec. 3.2 (c.1)
penalizes a beneficiary who fails to execute a contract to sell within six (6) months from the
approval of the subdivision plan by imposing a price escalation, while there is no such penalty
imposed by R.A. No. 9207. Thus, they conclude that the assailed provisions conflict with R.A.
No. 9207 and should be nullified. The argument deserves scant consideration.
Where a rule or regulation has a provision not expressly stated or contained in the statute being
implemented, that provision does not necessarily contradict the statute. A legislative rule is in the
nature of subordinate legislation, designed to implement a primary legislation by providing the
details thereof. 27 All that is required is that the regulation should be germane to the objects and
purposes of the law; that the regulation be not in contradiction to but in conformity with the
standards prescribed by the law. 28
In Section 5 of R.A. No. 9207, the Committee is granted the power to administer, formulate
guidelines and policies, and implement the disposition of the areas covered by the law. Implicit in
this authority and the statutes objective of urban poor housing is the power of the Committee to
formulate the manner by which the reserved property may be allocated to the beneficiaries.
Under this broad power, the Committee is mandated to fill in the details such as the
qualifications of beneficiaries, the selling price of the lots, the terms and conditions governing the
sale and other key particulars necessary to implement the objective of the law. These details are
purposely omitted from the statute and their determination is left to the discretion of the
Committee because the latter possesses special knowledge and technical expertise over these
matters.
The Committees authority to fix the selling price of the lots may be likened to the rate-fixing
power of administrative agencies. In case of a delegation of rate-fixing power, the only standard
which the legislature is required to prescribe for the guidance of the administrative authority is
that the rate be reasonable and just. However, it has been held that even in the absence of an
express requirement as to reasonableness, this standard may be implied. 29 In this regard,
petitioners do not even claim that the selling price of the lots is unreasonable.
The provision on the price escalation clause as a penalty imposed to a beneficiary who fails to
execute a contract to sell within the prescribed period is also within the Committees authority to
formulate guidelines and policies to implement R.A. No. 9207. The Committee has the power to
lay down the terms and conditions governing the disposition of said lots, provided that these are
reasonable and just. There is nothing objectionable about prescribing a period within which the
parties must execute the contract to sell. This condition can ordinarily be found in a contract to
sell and is not contrary to law, morals, good customs, public order, or public policy.
Third. Petitioners also suggest that the adoption of the assailed IRR suffers from a procedural
flaw. According to them the IRR was adopted and concurred in by several representatives of
peoples organizations contrary to the express mandate of R.A. No. 9207 that only two
representatives from duly recognized peoples organizations must compose the NGCAC which
promulgated the assailed IRR. It is worth noting that petitioner association is not a duly
recognized peoples organization.
In subordinate legislation, as long as the passage of the rule or regulation had the benefit of a
hearing, the procedural due process requirement is deemed complied with. That there is
observance of more than the minimum requirements of due process in the adoption of the 2,000,000 2,000,000.00
questioned IRR is not a ground to invalidate the same. ======== =========

In sum, the petition lacks merit and suffers from procedural deficiencies.
WHEREFORE, the instant petition for prohibition is DISMISSED. Costs against petitioners. SO
ORDERED.
Milagros Matuguina became the majority stockholder of MIWPI on September 24, 1974, when
the latter's Board of Directors approved by Resolution the transfer of 1,000,000 shares from
Henry Wee to Milagros Matuguina, thus giving her seventy percent (70%) stock ownership of
MIWPI.

In an undated letter 2 to the Director of Forest Development (BFD) on November 26, 1974,
G.R. No. 98310 October 24, 1996
Milagros Matuguina requested the Director for a change of name and transfer of management of
PTL No. 30 from a single proprietorship under her name, to that of MIWPI.
MATUGUINA INTEGRATED WOOD PRODUCTS, INC., petitioner,
vs.
This request was favorably endorsed on December 2, 1974 3 by the BFD's Acting Director, Jose
The HON. COURT OF APPEALS, DAVAO ENTERPRISES CORPORATION, The HON.
Viado to respondent Secretary of Natural Resources, who approved the same on September 5,
MINISTER, (NOW SECRETARY) of NATURAL RESOURCES AND PHILLIP CO, respondents.
1975. 4

TORRES, JR., J.:p

Matuguina Integrated Wood Products Inc. (MIWPI, for brevity) filed this action for Prohibition,
Damages and Injunction, in order to prevent the respondent Minister (now Secretary) of Natural
Resources from enforcing its Order of Execution against it, for liability arising from an alleged
encroachment of the petitioner over the timber concession of respondent DAVENCOR located in
Mati, Davao Oriental.
On July 17, 1975, Milagros Matuguina and petitioner MIWPI executed a Deed of
Transfer 5 transferring all of the former's rights, interests, ownership and participation in
Provincial Timber License No. 30 to the latter for and in consideration of 148,000 shares of
stocks in MIWPI.
A copy of said deed was submitted to the Director of Forest Development and petitioner MIWPI
had since been acting as holder and licensee of PTL No. 30

The Regional Trial Court, Branch 17, Davao City, ruled in favor of the petitioner, but on appeal,
On July 28, 1975, pending approval of the request to transfer the PTL to MIWPI, DAVENCOR,
was reversed by the respondent Court of Appeals in its decision dated February 25, 1991, which
through its Assistant General Manager, complained to the District Forester at Mati, Davao
found MIWPI, as an alter ego of Milagros Matuguina and/or Matuguina Logging Enterprises
Oriental that Milagros Matuguina/MLE had encroached into and was conducting logging
(MLE), to be liable to DAVENCOR for the illegal encroachment.
operations in DAVENCOR's timber concession.

The following are the antecedent facts:

On June 28, 1973, the Acting Director of the Bureau of Forest Development issued Provisional
Timber License (PTL) No. 30, covering an area of 5,400 hectares to Ms. Milagros Matuguina
who was then doing business under the name of MLE, a sole proprietorship venture. A portion,
covering 1,900 hectares, of the said area was located within the territorial boundary of Gov.
Generoso in Mati, Davao Oriental, and adjoined the timber concession of Davao Enterprises
Corporation (DAVENCOR), the private respondent in this case.
On July 10, 1974, petitioner Matuguina Integrated Wood Products, Inc. (MIWPI), was
incorporated, having an authorized capital stock of Ten Million Pesos (P10,000,000.00). 1 The
incorporators/stockholders of MIWPI, and their stock subscriptions were as follows:
Name No. Of Shares Amount of Capital
Subscribed Stock Subscribed
After investigation of DAVENCOR's complaint, the Investigating Committee which looked into
DAVENCOR's complaint submitted its report to the Director, finding that MLE had encroached on
the concession area of DAVENCOR. In line with this, the Director of Forest Development issued
an Order 6 on July 15, 1981, finding and declaring MLE to have encroached upon, and
conducted illegal logging operations within the licensed or concession area of DAVENCOR.
MLE appealed the Order to the Ministry of Natural Resources, which appeal was docketed as
MNR CASE No. 6540. During the pendency of the appealed case with the Minister of Natural
Resources, Ma. Milagros Matuguina disposed of her shares in petitioner MIWPI, thereby ceasing
to be a stockholder of the petitioner as of March 16, 1986. 7
On October 1, 1986, The Minister of Natural Resources, Hon. Ernesto M. Maceda rendered his
Decision, 8 affirming the aforesaid order of the Director of Foreign Development, stating thus:
DECISION

1. Henry Wee 1,160,000 1,160,000.00

For our Resolution is the appeal by MATUGUINA LOGGING ENTERPRISES (MLR, for short) of
2. Ma. Milagros Matuguina 400,000 400,000.00
the Order dated 15 July 1991 of the Director of Forest Development finding and declaring MLE
3. Alejandro Chua Chun 200,000 200,000.00
to have encroached upon, and conducted illegal logging operations within the license or
4. Bernadita Chua 120,000 120,000.00
concession area of DAVAO ENTERPRISES CORPORATION. The aforesaid Order dispositively
5. Domingo Herrera 40,000 40,000.00
states:
6. Manuel Hernaez 40,000 40,000.00
7. Luis Valderama 40,000 40,000.00

Wherefore, there being a clear and convincing proof that Matuguina Conducted illegal operation
within the license area of DAVENCOR, above named respondent is hereby ordered to pay to the
complainant the equivalent value in pesos of 2,352.04 cubic meters of timber based on the
market price obtaining, at the logpond of the respondent at the time of cutting, minus the cost of
production, or to restitute to the complainant equal volume of 2,352.04 cubic meters of logs
owned by respondent to be taken at respondent's logpond. The respondent is hereby directed to
comply with this Order within a period of ninety (90) days from receipt of this Order and after the
lapse of the said period, no compliance has been made by the respondent, its logging
operations shall ipso facto become automatically suspended until respondent shall have
complied as directed.
The Regional Director of Region II, Davao City is hereby instructed to implement this Order and
to submit his compliance report within ten (10) days after the lapse of the ninety (90) days period
within which the respondent is directed to comply with this Order.
And that the dispositive portion of the said decision states: WHEREFORE, the Order dated 15
July 1981 of the Director of Forest Development is hereby AFFIRMED.
When the Decision of the Minister of Natural Resources became final and executory, Philip Co
and DAVENCOR requested the respondent Minister on October 30, 1986 to issue immediately a
writ of execution against MLE and/or MIWPI. 9 The Order of Execution 10 was issued on January
6, 1987 by the Minister through the latter's Assistant on Legal Affairs. The said Order directed
the issuance of a writ of execution, not only against MLE, but likewise against MIWPI. The
dispositive portion of the order provides:
WHEREFORE, let a Writ of Execution be issued against Matuguina Logging Enterprises and/or
Matuguina Integrated Wood Products, Inc. For the satisfaction of the Decision of the Bureau of
Forest Development dated 15 July 1981, and the Order of this office dated 1 October 1986. SO
ORDERED.
Subsequently, a writ of execution 11 dated January 8, 1987 was issued in favor of the respondent
DAVENCOR, which states:
The City/Provincial Sheriff
Davao City
GREETINGS:
You are hereby directed to enforce, implement and execute the Order of Execution dated 06
June 1987 of this Office in the above-entitled case against Matuguina Logging Enterprises
and/or Matuguina Integrated Wood Products, Inc. Its officers or any person or corporation in its
behalf and conformably with the Order dated 15 July 1981 of the Director of Forest
Development, stating dispositively.
You are hereby requested to submit your return to this Office within the period of sixty (60) days
from your receipt hereof as to action taken hereon. SO ORDERED.
On February 11, 1987, MIWPI filed the instant complaint 12 for prohibition, damages and
injunction, with prayer for restraining order, which case was docketed as Civil Case No. 18,457-
87 in the Regional Trial Court Davao City, Branch 17. MIWPI stated its primary cause of
action, the relevant portion of which reads, viz.:
5. That plaintiff which has a distinct and separate personality of its own under the law, and was
never a party to the case between DAVENCOR and MLE, suddenly became a party to the case
after the decision became final and executory with the issuance of Annex "B" hereof for reasons
known to the defendants alone:
6. That the issuance of Annex "B" hereof (the order of execution) by the defendant Minister has
been made not only without or in excess of his authority but that the same was issued patently
without any factual or legal basis, hence, a gross violation of plaintiff's constitutional rights under
the due process clause;
7. That plaintiff, in the face of the order (Annex "B") complained of, there being no appeal or any
plain, speedy, and adequate remedy in the ordinary course of law, does not have any alternative
but to ventilate the present recourse;
8. That defendant Minister is doing, threatens or is about to do, or is procuring or suffering to be
done, some act which definitely is in violation of the plaintiff's rights respecting the subject matter
of the action, and unless said act or acts are restrained or prohibited at least during the
pendency of this case, said act or acts would probably work not only injustice to plaintiff but
would tend to render the judgment of this Honorable Court ineffectual;
9. That the commission or continuance of the acts complained of during the present litigation
would not only cause great and irreparable injury, but will also work injustice to the plaintiff, and
would complicate, aggravate and multiply the issues in this case;
10. That the plaintiff is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the acts complained of, or in the
performance of acts, either for a limited period or perpetually;
11. That great and irreparable injury would inevitably result to the plaintiff before the matter can
be heard on notice, hence, immediate issuance of a restraining order is necessary and proper;
12. That the plaintiff is willing and able to file the necessary bond executed to the defendants, in
an amount to be fixed by the court, to the effect that the plaintiff will pay to the defendants all
damages which they may sustain by reason of the injunction if the court should finally decide
that the plaintiff was not entitled thereto.
MIWPI, likewise, alleges that in wantonly and imprudently procuring the Writ of Execution
against it, which DAVENCOR and Philip Co seek to enforce a 2.5 Million Peso liability of plaintiff,
the latter has been constrained to bring the present action, thereby incurring damages in the
sum of P500,000.00 in concept of actual and compensatory damages, and P250,000.00 in
attorney's fees, which amount petitioner now seeks to recover.
The trial court issued a temporary restraining order the next day, February 12, 1987, restraining
and/or enjoining the private respondents and the Hon. Secretary of Natural Resources from
enforcing, implementing and/or carrying into effect, the decision of the respondent Secretary
dated October 1, 1986, as well as the order of execution dated January 6, 1987.
On February 17, 1987, private respondents filed a Motion to Dismiss 13 alleging that the trial
court had no jurisdiction over the case under Presidential Decree No. 705, to which Motion to
Dismiss, petitioner filed an Opposition 14 dated February 1987. On March 9, 1987, the trial court
issued an order 15 denying private respondent's Motion to Dismiss. Hence, private respondents
filed their Answer 16 dated March 13, 1987 and an Amended Answer 17 dated July 16, 1987.
In the latter pleading, private respondents raised the following special and affirmative defenses:
7. That neither Milagros Matuguina nor Matuguina Integrated Wood Products, Inc. advised
defendant Davencor of the change of name, and transfer of management of PTL No. 30 from
Milagros Matuguina to Matuguina Integrated Wood Products, Inc., during the pendency of MNR
Case No. 6540 before the Bureau of Forest Development and the Ministry of Natural Resources,
notwithstanding that the lawyer of Matuguina Integrated Wood Products, Inc., who was also a
stockholder thereof, had appeared for Milagros Matuguina in said administrative case.
8. That plaintiff has acted in bad faith and is now in estoppel from questioning the Writ of
Execution issued against Milagros Matuguina (now Matuguina Integrated Wood Products, Inc.)
to satisfy the judgment in MNR Case No. 6540.
9. This Honorable Court has no jurisdiction over the nature and subject matter of this action,
especially because:
a) The plaintiff has not exhausted administrative remedies available to it before initiating
this action;
b) In the guise of entertaining an action for damages, this Court is being misled by the
plaintiff into deciding questions properly for the Department of Natural Resources to
decide exclusively in the lawful exercise of its regulatory jurisdiction;
c) The plaintiff is now precluded and estopped from filing this action.
10. The plaintiff has no cause of action against the defendants and has not stated any in its
complaint, especially because:
(a) Having failed to exhaust administrative remedies, plaintiff is without a ripe cause of
action that can be pleaded before this Honorable Court;
(b) In substance, there is no justiciable question raised under the facts and circumstances
of this case.
Meanwhile, on June 2, 1987, the trial court issued on order 18 granting the petitioner's prayer for
the issuance of a writ of preliminary injunction against the private respondents and the Secretary
of Natural Resources, ordering them to desist, refrain and prevent from enforcing respondent
Secretary's Decision dated October 1, 1986 as well as the writ of execution dated January 8,
1987.
On May 10, 1989, the trial court rendered its Decision 19
in favor of the petitioner, disposing of
the action as follows:
WHEREFORE, in view of the foregoing, finding the evidence of plaintiff, Matuguina Integrated
Wood Products, Inc. sufficient to sustain a preponderance of evidence, showing that the order of
execution dated January 6, 1987, issued by the Minister of Natural Resources, through
Alexander C. Castro, Assistant Minister for Legal Affairs, included therein, plaintiff Matuguina
Integrated Wood Products, Inc., despite non-inclusion of plaintiff in the decision of the then
Minister of Natural Resources, dated October 1, 1986, already final and executory before the
issuance of the order and execution, said order or execution is hereby declared null and void
and without any legal effect.
As a consequence thereof, the writ of preliminary injunction issued by this court, dated June 2,
1987 is hereby made permanent.
Moreover, as a result of the filing of this case, defendant Philip Co and Davencor Corporation,
are ordered to jointly and severally pay the amount of P100,000.00 as actual and compensatory
damages, along with another amount of P20,000.00 as attorney's fees and costs of this action,
in favor of plaintiff Matuguina Integrated Wood Products, Inc. SO ORDERED.
Private respondents appealed the trial court's decision on May 19, 1989. Their notice of appeal
was approved by the trial court. The appealed case was docketed with respondent Honorable
Court of Appeals as CA-G.R. SP No. 19887.
20
On February 25, 1991, the respondent Court rendered its Decision, reversing the lower court's
pronouncement. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, the decision appealed from is reversed and set aside and
the Order of Execution issued by the Minister of Natural Resources dated January 6, 1987 is
affirmed. Without pronouncement as to costs. SO ORDERED.
In due time, petitioner filed a motion for reconsideration. 21 Private respondents filed their
opposition 22 to the same on April 2, 1991. In a Resolution 23 dated April 12, 1991, the motion
was denied by the respondent Court.
Not content with the court's pronouncement, petitioner is now before us on a Petition for Review
on Certiorari, 24alleging that the respondent court acted with grave abuse of discretion in
rendering the questioned decision and its companion resolution, denying the motion for
reconsideration.
The reasons relied upon by the Petitioner in filing its petition are hereby restated:
I.PETITIONER WAS DENIED DUE PROCESS OF LAW WHEN IT WAS MADE LIABLE BY
RESPONDENT SECRETARY OF NATURAL RESOURCES IN HIS ORDER OF EXECUTION
DATED 06 JANUARY 1987 (EXHIBIT "B" OF ATTACHMENT "O") ISSUED IN MNR CASE NO.
6540 DESPITE THE FACT THAT PETITIONER WAS NEVER A PARTY NOR A PARTICIPANT
IN THE SAID CASE: IN FACT, PETITIONER NEVER HAD NOTICE OF THE PROCEEDINGS IN
MNR CASE NO. 6540.
II.THE FAILURE TO AFFORD PETITIONER THE OPPORTUNITY TO BE HEARD IN THE
ADMINISTRATIVE LEVEL (MNR CASE NO. 6540) COULD NOT HAVE BEEN CURED BY THE
INSTITUTION OF THE ACTION FOR PROHIBITION IN THE TRIAL COURT BECAUSE SAID
COURT HAD NO JURISDICTION TO DETERMINE WHETHER PETITIONER WAS GUILTY OF
ENCROACHMENT ON PRIVATE RESPONDENT DAVENCOR'S TIMBER CONCESSION;
FURTHERMORE, THE QUESTION ON WHETHER PETITIONER WAS GUILTY OF
ENCROACHMENT WAS NEVER PUT IN ISSUE IN THE CASE BEFORE THE TRIAL COURT.
III.THE LIABILITY OF MILAGROS/MLE AS FOUND BY RESPONDENT SECRETARY IN ITS
DECISION DATED 01 OCTOBER 1986 (EXHIBIT "A" OF THE ATTACHMENT "0") CANNOT BE
IMPUTED AGAINST PETITIONER SINCE THE LATTER IS A CORPORATION HAVING A
PERSONALITY SEPARATE AND DISTINCT FROM MILAGROS/MLE.
IV.PETITIONER CANNOT BE MADE LIABLE TO PRIVATE RESPONDENTS UNDER THE
DEED OF TRANSFER DATED 18 JULY 1975 (EXHIBIT "3" OF ATTACHMENT "P") AND
SECTION 61 OF THE REVISED FORESTRY CODE OF THE PHILIPPINES (P.D. 705, AS
AMENDED):
A. THE ALLEGED TRANSFER OF PTL NO. 30 FROM MILAGROS/MLE TO PETITIONER
NEVER BECAME BINDING AND EFFECTIVE SINCE PTL NO. 30 REMAINED IN THE NAME
OF MILAGROS/MLE UNTIL ITS EXPIRATION ON 30 JUNE 1977: THIS IS DUE TO THE FACT
THAT SAID TRANSFER WAS NEVER APPROVED BY THE SECRETARY OF NATURAL
RESOURCES.
B. GRANTING ARGUENDO THAT THERE WAS AN EFFECTIVE TRANSFER OF PTL NO. 30
FROM MILAGROS/MLE TO PETITIONER, THE TRANSFER COULD NOT MAKE PETITIONER
LIABLE FOR THE ALLEGED ENCROACHMENT OF PRIVATE RESPONDENT DAVENCOR'S
TIMBER CONCESSION, SINCE:
1. SAID TRANSFER WAS EXECUTED PRIOR TO THE COMMISSION OF THE ALLEGED
ENCROACHMENT AND THE FILING THE ADMINISTRATIVE COMPLAINT FOR
ENCROACHMENT DATED 28 JULY 1975; THUS, PETITIONER CANNOT BE MADE LIABLE
FOR OBLIGATIONS OF MILAGROS/MLE WHICH WERE INCURRED AFTER THE DATE OF
THE SAID TRANSFER.
2. SAID TRANSFER COVERED ONLY FORESTRY CHARGES AND OTHER GOVERNMENT
FEES, AND DID NOT INCLUDE THE PERSONAL LIABILITY OF MILAGROS/MLE THAT
AROSE FROM THE ENCROACHMENT OF THE TIMBER CONCESSION OF RESPONDENT
DAVENCOR. 25
Private Respondents DAVENCOR and the public respondent Hon. Minister (now Secretary) of
Natural Resources filed separate Comments 26 on September 5, 1991 and June 8, 1992
respectively.
The essential issues of the present controversy boil down to the following:
Was the Petitioner denied due process when it was adjudged liable with MLE for encroaching
upon the timber concession of DAVENCOR in the respondent Minister's Order of Execution?
Is the petitioner a transferee of MLE's interest, as to make it liable for the latter's illegal logging
operations in DAVENCOR's timber concession, or more specially, is it possible to pierce the veil
of MIWPI's corporate existence, making it a mere conduit or successor of MLE?
Generally accepted is the principle that no man shall be affected by any proceeding to which he
is a stranger, and strangers to a case not bound by judgment rendered by the court. In the same
manner an execution can be issued only against a party and not against one who did not have
his day in court. In Lorenzo vs. Cayetano, 78 SCRA 485 [1987], this Court held that only real
parties in interest in an action are bound by judgment therein and by writs of execution and
demolition issued pursuant thereto. 27
Indeed a judgment cannot bind persons who are not parties to the
action. 28 It is elementary that strangers to a case are not bound by the judgment rendered by
the court and such judgment is not available as an adjudication either against or in favor of such
other person. A decision of a court will not operate to divest the rights of a person who has not
and has never been a party to a litigation, either as plaintiff or as defendant. Execution of a
judgment can only be issued against one who is a party to the action, and not against one who,
not being a party in the action has not yet had his day in court. 29
The writ of execution must conform to the judgment which is to be executed, as it may not vary
the terms of the judgment it seeks to enforce. 30 Nor may it go beyond the terms of the judgment
sought to be executed. Where the execution is not in harmony with the judgment which gives it
life and exceeds it, it has pro tanto no validity. To maintain otherwise would be to ignore the
constitutional provision against depriving a person of his property without due process of law. 31
The writ of execution issued by the Secretary of Natural Resources on January 8, 1987 clearly
varies the term of his Decision of October 1, 1986, inasmuch as the Writ includes the MIWPI as
party liable whereas the Decision only mentions Milagros Matuguina/MLE.
There is no basis for the issuance of the Order of Execution against the petitioner. The same
was issued without giving the petitioner an opportunity to defend itself and oppose the request of
DAVENCOR for the issuance of a writ of execution against it. In fact, it does not appear that
petitioner was at all furnished with a copy of DAVENCOR's letter requesting for the Execution of
the Honorable Secretary's decision against it. Petitioner was suddenly made liable upon the
order of execution by the respondent Secretary's expedient conclusions that MLE and MIWPI
are one and the same, apparently on the basis merely of DAVENCOR's letter requesting for the
Order, and without hearing or impleading MIWPI. Until the issuance of the Order of execution,
petitioner was not included or mentioned in the proceedings as having any participation in the
encroachment in DAVENCOR's timber concession. This action of the respondent Secretary
disregards the most basis tenets of due process and elementary fairness.
The liberal atmosphere which pervades the procedure in administrative proceedings does not
empower the presiding officer to make conclusions of fact before hearing all the parties
concerned. 32 In Police Commission vs. Hon. Judge Lood, 33 we held that the formalities usually
attendant in court hearings need not be present in an administrative investigation, provided that
the parties are heard given the opportunity to adduce their evidence. The right to notice and
hearing is essential to due process and its non-observance will, as a rule, invalidate the
administrative proceedings.
As observed by the appellate court, to writ: the appellant should have filed a Motion with the
Minister with Notice to the appellee to include the latter as party liable for the judgment in order
to afford the appellee an opportunity to be heard on its liability for the judgment rendered against
Ma. Milagros Matuguina doing business under the name Matuguina Logging Enterprises. 34
Continuing, the said court stated further that: Nevertheless, the failure to comply with the
procedure in order to satisfy the requirements of due process was cured by the present action
for prohibition where the liability of appellee has been ventilated.
We do not agree. Essential, Prohibition is a remedy to prevent inferior courts, corporations,
boards or persons from usurping or exercising a jurisdiction or power with which they have not
been vested by law 35 As we have held in Mafinco Trading Corporation vs. Ople, et al, 36 in
a certiorari or prohibition case, only issues affecting the jurisdiction of the tribunal, board and
offices involved may be resolved on the basis of undisputed facts.
The issue of whether or not petitioner is an alter ego of Milagros Matuguina/MLE, is one of fact,
and which should have been threshed out in the administrative proceedings, and not in the
prohibition proceedings in the trial court, where it is precisely the failure of the respondent
Minister of Natural Resources to proceed as mandated by law in the execution of its order which
is under scrutiny.
Assuming, arguendo, that prohibition is the proper remedy for determining the propriety of
piercing the separate personality of petitioner with its stockholders, the evidence presented at
said trial does not warrant such action.
It is settled that a corporation is clothed with personality separate and distinct from that of the
persons composing it. It may not generally be held liable for that of the persons composing it. It
may not be held liable for the personal indebtedness of its stockholders or those of the entities
connected with it. Conversely, a stockholder cannot be made to answer for any of its financial
obligations even if he should be its president. 3 7 But when the juridical personality of the
corporation is used to defeat public convenience, justify wrong, protect fraud or defend crime,
the corporation shall be considered as a mere association of persons (Koppel, Inc. vs. Yatco, 77
Phil 496, Palay, Inc. vs. Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638), and its
responsible officers and/or stockholders shall be individually liable (Namarco vs. Associated
Finance Co., Inc., G.R. No. L-20886, April 27, 1967, 19 SCRA 962). For the same reasons, a
corporation shall be liable for the obligations of a stockholder (Palacio vs. Fely Transportation
Co., G.R No. L-15121, August 31, 1963, 5 SCRA 1011), or a corporation and its successor-in-
interest shall be considered as one and the liability of the former shall attach to the latter. 38
But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must
be clearly and convincingly established. It cannot be presumed. 39
In the case at bar, there is, insufficient basis for the appellate court's ruling that MIWPI is the
same as Matuguina. The trial court's observation is enlightening.
Despite apparently opposing evidence of both parties, the Court gathered and finds, that
defendant's attempt to pierce the veil of corporate personality of plaintiff corporation, as to
consider plaintiff corporations merely an adjunct or alter ego of Maria Milagros Matuguina
Logging Enterprises, to justify defendant's claim against plaintiff corporation, suffers heavily from
insufficiency of evidence.
It is the vehement contention of defendants, to bolster its claim, that plaintiff corporation is the
alter ego of Maria Milagros Matuguina Logging Enterprises, because when Milagros Matuguina
became the Chairman of the Board of Directors of plaintiff corporation, she requested for the
change of name and transfer of management of PTL No. 30, from her single proprietorship, to
plaintiff corporation.
Secondly, when Milagros Matuguina executed the deed of transfer, transferring her forest
concession under PTL No. 30, together with all the structures and improvements therein, to
plaintiff corporation, for a consideration of P14,800.00 representing 148,000 shares of stocks of
plaintiff corporation actually all existing shares of stocks of Milagros Matuguina, in plaintiff
corporation represents 77.4% therein; suffice to say that plaintiff corporation practically became
an alter ego of Milagros Matuguina.
Defendant's arguments on this peripheral aspect of corporate existence, do not at all indicate
that such a legal fiction, was granted.
In the first place, the alleged control of plaintiff corporation was not evident in any particular
corporate acts of plaintiff corporation, wherein Maria Milagros Matuguina Logging Enterprises
using plaintiff corporation, executed acts or powers directly involving plaintiff corporation.
Neither was there any evidence of defendants, that Maria Milagros Matuguina Logging
Enterprises, using the facilities and resources of plaintiff corporation, involved itself in transaction
using both single proprietorship and plaintiff corporation in such particular line of business
undertakings.
As stated by this court in resolving plaintiff's prayer for issuance of a writ or preliminary
injunction, said:
There is actually, no evidence presented by defendant, showing that sometime on March 15,
1986, to January 1987, during which period, the subject decision of Hon. Secretary of Natural
Resources and corresponding writ of execution, Maria Milagros Matuguina was a stockholder of
plaintiff corporation in such amount or was she an officer of plaintiff corporation in whatever
capacity.
The above circumstances is relevant and significant to assume any such justification of including
plaintiff corporation in the subject writ of execution, otherwise, as maintained by defendants,
what matters most was the control of Milagros Matuguina Logging Enterprises of plaintiff
corporation in 1974 and 1975, when the administrative case was pending, this circumstance
alone without formally including plaintiff corporation in said case, will not create any valid and
sufficient justification for plaintiff corporation, to have been supposedly included in the suit
against defendants and Maria Milagros Matuguina Logging Enterprises, in the administrative
case.
Yet, granting as claimed by defendants, that in 1974 or in 1975, Maria Milagros Matuguina
became the controlling stockholder of plaintiff corporation, on account of the change of name
and transfer of management of PTL No. 30, this circumstance, we repeat, does not of itself
prove that plaintiff corporation was the alter ego of Maria Milagros Matuguina Logging
Enterprises, as enunciated in various decisions of this Court, to writ:
It is important to bear in mind that mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stocks of the corporation, is not itself a sufficient
warrant for disregarding the fiction of separate personality (Liddel and Co. vs. Collector of
Internal Revenue, G.R. No. 9687, June 30, 1961).
It is recognized as lawful to obtain a corporation charter, even with a single substantial
stockholder, to engage in specific activity and such activity may co-exist with other private
activities of the stockholder.
If the corporation is substantial one, conducted lawfully; without fraud on another, its separate
identity is to be respected. 40
In this jurisdiction, it is a settled rule that conclusions and findings of fact by the trial court are
entitled to great weight on appeal and should not be disturbed unless for strong and cogent
reasons because the trial court is in a better position to examine real evidence, as well as to
observe the demeanor of the witnesses while testifying in the case. 41
It is likewise improper to state that the MIWPI is the privy or the successor-in-interest of MLE, as
the liability for the encroachment over DAVENCOR's timber concession is concerned, by reason
of the transfer of interest in PTL No. 30 from MLE to MIWPI.
First of all, it does not appear indubitable that the said transfer ever became effective, since PTL
No. 30 remained in the name of Milagros Matuguina/MLE until it expired on June 30, 1977. 42
More importantly, even if it is deemed that there was a valid change of name and transfer of
interest in the PTL No. 30, this only signifies a transfer of authority, from MLE to MIWPI, to
conduct logging operations in the area covered by PTL No. 30. It does not show indubitable
proof that MIWPI was a mere conduit or successor of Milagros Matuguina/MLE, as far the latter's
liability for the encroachment upon DAVENCOR's concession is concerned. This is the only
conclusion which we can discern from the language of Section 61 of P.D. 750, 43 and the letters
of the Acting Minister of Natural Resources to Milagros Matuguina/MLE and to MIWPI, on
September 16, 1975. 44 In Soriano vs. Court of Appeals, this Court stated in clear language, that
It is the general rule that the protective mantle of a corporation's separate and distinct
personality could only be pierced and liability attached directly to its officers and/or members
stockholders, when the same is used for fraudulent, unfair, or illegal purpose. In the case at bar,
there is no showing that the Association entered into the transaction with the private respondent
for the purpose of defrauding the latter of his goods or the payment thereof. . . . Therefore, the
general rule on corporate liability, not the exception, should be applied in resolving this case.
(G.R. No. 49834, June 22, 1989)
The respondents cite Section 61 of P.D. 705 to establish MIWPI's succession to the liability of
Milagros Matuguina/MLE:
Sec. 61. Transfers. Unless authorized by the Department Head, no licensee, lessee, or
permittee may transfer, exchange, sell, or convey his license agreement, license, lease or
permit, or any of his rights or interests therein, or any of his assets used in connection therewith.
The licensee, lessee, or permittee shall be allowed to transfer or convey his license agreement,
license, lease, or permit only if he has not violated any forestry law, rule or regulation; has been
faithfully complying with the terms and conditions of the license agreement, license, lease or
permit; the transferee has all the qualifications and none of the disqualifications to hold a license
agreement, license, lease or permit; there is no evidence that such transfer or conveyance is
being made for purposes of speculation; and the transferee shall assume all the obligations of
the transferor.
The transferor shall forever be barred from acquiring another license agreement, license, lease
or permit.
Even if it is mandated in the abovestated provision that "the transferee shall assume all the
obligations of the transferor" this does not mean that all obligations are assumed,
indiscriminately.
Invariably, it is not the letter, but the spirit of the law and intent of the legislature that is important.
When the interpretation of a statute according to the exact and literal import of its words would
lead to absurdity, it should be construed according to the spirit and reason, disregarding if
necessary the letter of the law. 45
In construing statutes, the terms used therein are generally to be given their ordinary meaning,
that is, such meaning which is ascribed to them when they are commonly used, to the end that
absurdity in the law must be avoided. 46 The term "obligations" as used in the final clause of the
second paragraph of Section 61 of P.D. 705 is construed to mean those obligations incurred by
the transferor in the ordinary course of business. It cannot be construed to mean those
obligations or liabilities incurred by the transferor as a result of transgressions of the law, as
these are personal obligations of the transferor, and could not have been included in the term
"obligations" absent any modifying provision to that effect.
In the September 16, 1975 letters of Acting Director of the Bureau of Forest Development of
Milagros Matuguina and MIWPI informing them of the approval of Matuguina's request for the
change of name and transfer of management of PTL No. 30, the following statements were
made by the Acting Director:
In view hereof, (Matuguina Integrated Wood Products, Inc.) shall assume
the responsibility of paying whatever pending liabilities and/or accounts
remaining unsettled, if any, by the former licensee, Milagros Matuguina, with
the government. (Emphasis ours) 4 7
Accordingly, the letter's language implies that the obligations which MIWPI are to assume as
transferee of Milagros Matuguina/MLE are those obligations in favor of the government only, and
not to any other entity. Thus this would include Forestry Charges, Taxes, Fees, and similar
accountabilities.
In sum, the Court makes the following pronouncements:
(a) The respondent Honorable Minister of Natural Resources gravely abused its discretion when
it issued its Order of Execution on January 6, 1987, including therein as one of the parties liable
the petitioner Matuguina Integrated Wood Products, Inc., which was never a party to the
assailed proceeding resulting in the issuance of such Order and, without affording the same an
opportunity to be heard before it was adjudged liable.
(b) The petitioner is a corporate entity separate and distinct from Milagros Matuguina/Matuguina
Logging Enterprises, there being no clear basis for considering it as a mere conduit or alter ego
of Matuguina/MLE, and therefore, cannot be made liable for the obligations of the same for
encroachment over the timber concession of private respondent DAVENCOR.
IN VIEW OF THE FOREGOING, the Petition is hereby GRANTED, and the Decision dated
February 25, 1991, is SET ASIDE. The decision of the Regional Trial Court is hereby
REINSTATED, and correspondingly, Order of Execution of the respondent Secretary of Natural
Resources is declared NULL and VOID and without effect.
No pronouncement as to costs. SO ORDERED.
G.R. No. 73155 July 11, 1986
PATRICIO TAN, FELIX FERRER, JUAN M. HAGAD, SERGIO HILADO, VIRGILIO GASTON,
CONCHITA MINAYA, TERESITA ESTACIO, DESIDERIO DEFERIA, ROMEO GAMBOA,
ALBERTO LACSON, FE HOFILENA, EMILY JISON, NIEVES LOPEZ AND CECILIA
MAGSAYSAY, petitioners,
vs.
THE COMMISSION ON ELECTIONS and THE PROVINCIAL TREASURER OF NEGROS
OCCIDENTAL, respondents.
ALAMPAY, J.:
Prompted by the enactment of Batas Pambansa Blg. 885-An Act Creating a New Province in the
Island of Negros to be known as the Province of Negros del Norte, which took effect on
December 3, 1985, Petitioners herein, who are residents of the Province of Negros Occidental,
in the various cities and municipalities therein, on December 23, 1985, filed with this Court a
case for Prohibition for the purpose of stopping respondents Commission on Elections from
conducting the plebiscite which, pursuant to and in implementation of the aforesaid law, was
scheduled for January 3, 1986. Said law provides:
SECTION 1. The Cities of Silay, Cadiz, and San Carlos and the municipalities of Calatrava,
Taboso, Escalante, Sagay, Manapla, Victorias, E.R. Magalona; and Salvador Benedicto, all in
the northern portion of the Island of Negros, are hereby separated from the province to be
known as the Province of Negros del Norte.
SEC. 2. The boundaries of the new province shall be the southern limits of the City of Silay, the
Municipality of Salvador Benedicto and the City of San Carlos on the south and the territorial
limits of the northern portion to the Island of Negros on the west, north and east, comprising a
territory of 4,019.95 square kilometers more or less.
SEC. 3. The seat of government of the new province shall be the City of Cadiz.
SEC. 4. A plebiscite shall be conducted in the proposed new province which are the areas
affected within a period of one hundred and twenty days from the approval of this Act. After the
ratification of the creation of the Province of Negros del Norte by a majority of the votes cast in
such plebiscite, the President of the Philippines shall appoint the first officials of the province.
SEC. 5. The Commission on Elections shall conduct and supervise the plebiscite herein
provided, the expenses for which shall be charged to local funds.
SEC. 6. This Act shall takeeffect upon its approval.(Rollo, pp. 23-24)
Petitioners contend that Batas Pambansa Blg. 885 is unconstitutional and it is not in complete
accord with the Local Government Code as in Article XI, Section 3 of our Constitution, it is
expressly mandated that See. 3. No province, city, municipality or barrio may be created,
divided, merged, abolished, or its boundary substantially altered, except in accordance with the
criteria established in the local government code, and subject to the approval by a majority of the
votes in a plebiscite in the unit or units affected.
Section 197 of the Local Government Code enumerates the conditions which must exist to
provide the legal basis for the creation of a provincial unit and these requisites are:
SEC. 197. Requisites for Creation. A province may be created if it has a territory of at least three
thousand five hundred square kilometers, a population of at least five hundred thousand
persons, an average estimated annual income, as certified by the Ministry of Finance, of not less
than ten million pesos for the last three consecutive years, and its creation shall not reduce the
population and income of the mother province or provinces at the time of said creation to less
than the minimum requirements under this section. The territory need not be contiguous if it
comprises two or more islands.
The average estimated annual income shall include the income alloted for both the general and
infrastructural funds, exclusive of trust funds, transfers and nonrecurring income. (Rollo, p. 6)
Due to the constraints brought about by the supervening Christmas holidays during which the
Court was in recess and unable to timely consider the petition, a supplemental pleading was
filed by petitioners on January 4, 1986, averring therein that the plebiscite sought to be
restrained by them was held on January 3, 1986 as scheduled but that there are still serious
issues raised in the instant case affecting the legality, constitutionality and validity of such
exercise which should properly be passed upon and resolved by this Court.
The plebiscite was confined only to the inhabitants of the territory of Negros del Nrte, namely:
the Cities of Silay, Cadiz, and San Carlos, and the municipalities of Calatrava, Taboso,
Escalante, Sagay, Manapla, Victorias, E.B. Magalona and Don Salvador Benedicto. Because of
the exclusions of the voters from the rest of the province of Negros Occidental, petitioners found
need to change the prayer of their petition "to the end that the constitutional issues which they
have raised in the action will be ventilated and given final resolution.'"At the same time, they
asked that the effects of the plebiscite which they sought to stop be suspended until the
Supreme Court shall have rendered its decision on the very fundamental and far-reaching
questions that petitioners have brought out.
Acknowledging in their supplemental petition that supervening events rendered moot the prayer
in their initial petition that the plebiscite scheduled for January 3, 1986, be enjoined, petitioners
plead, nevertheless, that-
... a writ of Prohibition be issued, directed to Respondent Commission on Elections to desist
from issuing official proclamation of the results of the plebiscite held on January 3, 1986.
Finding that the exclusion and non-participation of the voters of the Province of Negros
Occidental other than those living within the territory of the new province of Negros del Norte to
be not in accordance with the Constitution, that a writ of mandamus be issued, directed to the
respondent Commission on Elections, to schedule the holding of another plebiscite at which all
the qualified voters of the entire Province of Negros Occidental as now existing shall participate,
at the same time making pronouncement that the plebiscite held on January 3, 1986 has no
legal effect, being a patent legal nullity;
And that a similar writ of Prohibition be issued, directed to the respondent Provincial Treasurer,
to desist from ordering the release of any local funds to answer for expenses incurred in the
holding of such plebiscite until ordered by the Court. (Rollo pp. 9-10).
Petitioners further prayed that the respondent COMELEC hold in abeyance the issuance of any
official proclamation of the results of the aforestated plebiscite.
During the pendency of this case, a motion that he be allowed to appear as amicus curiae in this
case (dated December 27, 1985 and filed with the Court on January 2, 1986) was submitted by
former Senator Ambrosio Padilla. Said motion was granted in Our resolution of January 2, 1986.
Acting on the petition, as well as on the supplemental petition for prohibition with preliminary
injunction with prayer for restraining order, the Court, on January 7, 1986 resolved, without
giving due course to the same, to require respondents to comment, not to file a motion to
dismiss. Complying with said resolution, public respondents, represented by the Office of the
Solicitor General, on January 14, 1986, filed their Comment, arguing therein that the challenged
statute.-Batas Pambansa 885, should be accorded the presumption of legality. They submit that
the said law is not void on its face and that the petition does not show a clear, categorical and
undeniable demonstration of the supposed infringement of the Constitution. Respondents state
that the powers of the Batasang-Pambansa to enact the assailed law is beyond question. They
claim that Batas Pambansa Big. 885 does not infringe the Constitution because the requisites of
the Local Government Code have been complied with. Furthermore, they submit that this case
has now become moot and academic with the proclamation of the new Province of Negros del
Norte.
Respondents argue that the remaining cities and municipalities of the Province of Negros
Occidental not included in the area of the new Province of Negros del Norte, de not fall within
the meaning and scope of the term "unit or units affected", as referred to in Section 3 of Art. XI of
our Constitution. On this reasoning, respondents maintain that Batas Pambansa Blg. 885 does
not violate the Constitution, invoking and citing the case of Governor Zosimo Paredes versus the
Honorable Executive Secretary to the President, et al. (G.R. No. 55628, March 2, 1984 (128
SCRA 61), particularly the pronouncements therein, hereunder quoted:
1. Admittedly,this is one of those cases where the discretion of the Court is allowed considerable
leeway. There is indeed an element of ambiguity in the use of the expression 'unit or units
affected'. It is plausible to assert as petitioners do that when certain Barangays are separated
from a parent municipality to form a new one, all the voters therein are affected. It is much more
persuasive, however, to contend as respondents do that the acceptable construction is for those
voters, who are not from the barangays to be separated, should be excluded in the plebiscite.
2. For one thing, it is in accordance with the settled doctrine that between two possible
constructions, one avoiding a finding of unconstitutionality and the other yielding such a result,
the former is to be preferred. That which will save, not that which will destroy, commends itself
for acceptance. After all, the basic presumption all these years is one of validity. ...
3. ... Adherence to such philosophy compels the conclusion that when there are indications that
the inhabitants of several barangays are inclined to separate from a parent municipality they
should be allowed to do so. What is more logical than to ascertain their will in a plebiscite called
for that purpose. It is they, and they alone, who shall constitute the new unit. New responsibilities
will be assumed. New burdens will be imposed. A new municipal corporation will come into
existence. Its birth will be a matter of choice-their choice. They should be left alone then to
decide for themselves. To allow other voters to participate will not yield a true expression of their
will. They may even frustrate it, That certainly will be so if they vote against it for selfish reasons,
and they constitute the majority. That is not to abide by the fundamental principle of the
Constitution to promote local autonomy, the preference being for smaller units. To rule as this
Tribunal does is to follow an accepted principle of constitutional construction, that in ascertaining
the meaning of a particular provision that may give rise to doubts, the intent of the framers and
of the people may be gleaned from provisions in pari materia.
Respondents submit that said ruling in the aforecited case applies equally with force in the case
at bar. Respondents also maintain that the requisites under the Local Government Code (P.D.
337) for the creation of the new province of Negros del Norte have all been duly complied with,
Respondents discredit petitioners' allegations that the requisite area of 3,500 square kilometers
as so prescribed in the Local Government Code for a new province to be created has not been
satisfied. Petitioners insist that the area which would comprise the new province of Negros del
Norte, would only be about 2,856.56 square kilometers and which evidently would be lesser than
the minimum area prescribed by the governing statute. Respondents, in this regard, point out
and stress that Section 2 of Batas Pambansa Blg. 885 creating said new province plainly
declares that the territorial boundaries of Negros del Norte comprise an area of 4,019.95 square
kilometers, more or less.
As a final argument, respondents insist that instant petition has been rendered moot and
academic considering that a plebiscite has been already conducted on January 3, 1986; that as
a result thereof, the corresponding certificate of canvass indicated that out of 195,134 total votes
cast in said plebiscite, 164,734 were in favor of the creation of Negros del Norte and 30,400
were against it; and because "the affirmative votes cast represented a majority of the total votes
cast in said plebiscite, the Chairman of the Board of Canvassers proclaimed the new province
which shall be known as "Negros del Norte". Thus, respondents stress the fact that following the
proclamation of Negros del Norte province, the appointments of the officials of said province
created were announced. On these considerations, respondents urge that this case should be
dismissed for having been rendered moot and academic as the creation of the new province is
now a "fait accompli."
In resolving this case, it will be useful to note and emphasize the facts which appear to be
agreed to by the parties herein or stand unchallenged.
Firstly, there is no disagreement that the Provincial Treasurer of the Province of Negros
Occidental has not disbursed, nor was required to disburse any public funds in connection with
the plebiscite held on January 3, 1986 as so disclosed in the Comment to the Petition filed by
the respondent Provincial Treasurer of Negros Occidental dated January 20, 1986 (Rollo, pp.
36-37). Thus, the prayer of the petitioners that said Provincial Treasurer be directed by this Court
to desist from ordering the release of any public funds on account of such plebiscite should not
longer deserve further consideration.
Secondly, in Parliamentary Bill No. 3644 which led to the enactment of Batas Pambansa Blg.
885 and the creation of the new Province of Negros del Norte, it expressly declared in Sec. 2 of
the aforementioned Parliamentary Bill, the following:
SEC. 2. The boundaries of the new province shall be the southern limits of the City of Silay, the
Municipality of Salvador Benedicto and the City of San Carlos on the South and the natural
boundaries of the northern portion of the Island of Negros on the West, North and
East, containing an area of 285,656 hectares more or less. (Emphasis supplied).
However, when said Parliamentary Bill No. 3644 was very quickly enacted into Batas Pambansa
Blg. 885, the boundaries of the new Province of Negros del Norte were defined therein and its
boundaries then stated to be as follows:
SECTION 1. The Cities of Silay, Cadiz, and San Carlos and the municipalities of Calatrava,
Toboso, Escalante, Sagay, Manapla, Victorias, E.R. Magalona; and Salvador Benedicto, all in
the northern portion of the Island of Negros, are hereby separated from the Province of Negros
Occidental and constituted into a new province to be known as the Province of Negros del Norte.
SEC. 1. The boundaries of the new province shall be the southern limits of the City of Silay, the
Municipality of Salvador Benedicto and the City of San Carlos on the south and the territorial
limits of the northern portion of the Island of Negros on the West, North and East, comprising a
territory of 4,019.95 square kilometers more or less.
Equally accepted by the parties is the fact that under the certification issued by Provincial
Treasurer Julian L. Ramirez of the Province of Negros Occidental, dated July 16, 1985, it was
therein certified as follows:
This is to certify that the following cities and municipalities of Negros Occidental have the land
area as indicated hereunder based on the Special Report No. 3, Philippines 1980, Population,
Land Area and Density: 1970, 1975 and 1980 by the National Census and Statistics Office,
Manila.
Land Area (Sq. Km.)
1. Silay City ...................................................................214.8
2. E.B. Magalona............................................................113.3
3. Victorias.....................................................................133.9
4. Manapla......................................................................112.9
5. Cadiz City ..................................................................516.5
6. Sagay .........................................................................389.6
7. Escalante ....................................................................124.0
8. Toboso.......................................................................123.4
9. Calatrava.....................................................................504.5
10. San Carlos City...........................................................451.3
11. Don Salvador Benedicto.................................... (not available)
This certification is issued upon the request of Dr. Patricio Y. Tan for whatever purpose it may
serve him.
(SGD.) JULIAN L. RAMIREZ
Provincial Treasurer (Exh. "C" of Petition, Rollo, p. 90).
Although in the above certification it is stated that the land area of the relatively new municipality
of Don Salvador Benedicto is not available, it is an uncontradicted fact that the area comprising
Don Salvador municipality, one of the component units of the new province, was derived from
the City of San Carlos and from the Municipality of Calatrava, Negros Occidental, and added
thereto was a portion of about one-fourth the land area of the town of Murcia, Negros
Occidental. It is significant to note the uncontroverted submission of petitioners that the total land
area of the entire municipality of Murcia, Negros Occidental is only 322.9 square
kilometers (Exh. "D", Rollo, p. 91). One-fourth of this total land area of Murcia that was added to
the portions derived from the land area of Calatrava, Negros Occidental and San Carlos City
(Negros Occidental) would constitute, therefore, only 80.2 square kilometers. This area of 80.2
square kilometers if then added to 2,685.2 square kilometers, representing the total land area of
the Cities of Silay, San Carlos and Cadiz and the Municipalities of E.R. Magalona, Victorias,
Manapla, Sagay, Escalante, Taboso and Calatrava, will result in approximately an area of only
2,765.4 square kilometers using as basis the Special Report, Philippines 1980, Population, Land
Area and Density: 1970, 1975 and 1980 of the National Census and Statistics Office, Manila
(see Exhibit "C", Rollo, p. 90).
No controversion has been made by respondent with respect to the allegations of petitioners that
the original provision in the draft legislation, Parliamentary Bill No. 3644, reads:
SEC. 4. A plebiscite shall be conducted in the areas affected within a period of one hundred and
twenty days from the approval of this Act. After the ratification of the creation of the Province of
Negros del Norte by a majority of the votes cast in such plebiscite, the President shall appoint
the first officials of the new province.
However, when Batas Pambansa Blg. 885 was enacted, there was a significant change in the
above provision. The statute, as modified, provides that the requisite plebiscite "shall be
conducted in the proposed new province which are the areas affected."
It is this legislative determination limiting the plebiscite exclusively to the cities and towns which
would comprise the new province that is assailed by the petitioners as violative of the provisions
of our Constitution. Petitioners submit that Sec. 3, ART XI thereof, contemplates a plebiscite that
would be held in the unit or units affected by the creation of the new province as a result of the
consequent division of and substantial alteration of the boundaries of the existing province. In
this instance, the voters in the remaining areas of the province of Negros Occidental should
have been allowed to participate in the questioned plebiscite.
Considering that the legality of the plebiscite itself is challenged for non-compliance with
constitutional requisites, the fact that such plebiscite had been held and a new province
proclaimed and its officials appointed, the case before Us cannot truly be viewed as already
moot and academic. Continuation of the existence of this newly proclaimed province which
petitioners strongly profess to have been illegally born, deserves to be inquired into by this
Tribunal so that, if indeed, illegality attaches to its creation, the commission of that error should
not provide the very excuse for perpetuation of such wrong. For this Court to yield to the
respondents' urging that, as there has been fait accompli then this Court should passively accept
and accede to the prevailing situation is an unacceptable suggestion. Dismissal of the instant
petition, as respondents so propose is a proposition fraught with mischief. Respondents'
submission will create a dangerous precedent. Should this Court decline now to perform its duty
of interpreting and indicating what the law is and should be, this might tempt again those who
strut about in the corridors of power to recklessly and with ulterior motives, create, merge, divide
and/or alter the boundaries of political subdivisions, either brazenly or stealthily, confident that
this Court will abstain from entertaining future challenges to their acts if they manage to bring
about a fait accompli.
In the light of the facts and circumstances alluded to by petitioners as attending to the unusually
rapid creation of the instant province of Negros del Norte after a swiftly scheduled plebiscite, this
Tribunal has the duty to repudiate and discourage the commission of acts which run counter to
the mandate of our fundamental law, done by whatever branch of our government. This Court
gives notice that it will not look with favor upon those who may be hereafter inclined to ram
through all sorts of legislative measures and then implement the same with indecent haste, even
if such acts would violate the Constitution and the prevailing statutes of our land. It is illogical to
ask that this Tribunal be blind and deaf to protests on the ground that what is already done is
done. To such untenable argument the reply would be that, be this so, the Court, nevertheless,
still has the duty and right to correct and rectify the wrong brought to its attention.
On the merits of the case.
Aside from the simpler factual issue relative to the land area of the new province of Negros del
Norte, the more significant and pivotal issue in the present case revolves around in the
interpretation and application in the case at bar of Article XI, Section 3 of the Constitution, which
being brief and for convenience, We again quote:
SEC. 3. No province, city, municipality or barrio may be created, divided, merged abolished, or
its boundary substantially altered, except in accordance with the criteria established in the local
government code, and subject to the approval by a majority of the votes in a plebiscite in the unit
or units affected.
It can be plainly seen that the aforecited constitutional provision makes it imperative that there
be first obtained "the approval of a majority of votes in the plebiscite in the unit or units affected"
whenever a province is created, divided or merged and there is substantial alteration of the
boundaries. It is thus inescapable to conclude that the boundaries of the existing province of
Negros Occidental would necessarily be substantially altered by the division of its existing
boundaries in order that there can be created the proposed new province of Negros del Norte.
Plain and simple logic will demonstrate than that two political units would be affected. The first
would be the parent province of Negros Occidental because its boundaries would be
substantially altered. The other affected entity would be composed of those in the area
subtracted from the mother province to constitute the proposed province of Negros del Norte.
We find no way to reconcile the holding of a plebiscite that should conform to said constitutional
requirement but eliminates the participation of either of these two component political units. No
amount of rhetorical flourishes can justify exclusion of the parent province in the plebiscite
because of an alleged intent on the part of the authors and implementors of the challenged
statute to carry out what is claimed to be a mandate to guarantee and promote autonomy of
local government units. The alleged good intentions cannot prevail and overrule the cardinal
precept that what our Constitution categorically directs to be done or imposes as a requirement
must first be observed, respected and complied with. No one should be allowed to pay homage
to a supposed fundamental policy intended to guarantee and promote autonomy of local
government units but at the same time transgress, ignore and disregard what the Constitution
commands in Article XI Section 3 thereof. Respondents would be no different from one who
hurries to pray at the temple but then spits at the Idol therein.
We find no merit in the submission of the respondents that the petition should be dismissed
because the motive and wisdom in enacting the law may not be challenged by petitioners. The
principal point raised by the petitioners is not the wisdom and motive in enacting the law but the
infringement of the Constitution which is a proper subject of judicial inquiry.
Petitioners' discussion regarding the motives behind the enactment of B.P. Blg. 885 to say the
least, are most enlightening and provoking but are factual issues the Court cannot properly pass
upon in this case. Mention by petitioners of the unexplained changes or differences in the
proposed Parliamentary Bill No. 3644 and the enacted Batas Pambansa Blg. 885; the swift and
surreptitious manner of passage and approval of said law; the abrupt scheduling of the
plebiscite; the reference to news articles regarding the questionable conduct of the said
plebiscite held on January 3, 1986; all serve as interesting reading but are not the decisive
matters which should be reckoned in the resolution of this case.
What the Court considers the only significant submissions lending a little support to respondents'
case is their reliance on the rulings and pronouncements made by this Court in the case of
Governor Zosimo Paredes versus The Honorable Executive Secretary to the President, et al.,
G.R. No. 55628, March 2, 1984 (128 SCRA 6). In said case relating to a plebiscite held to ratify
the creation of a new municipality from existing barangays, this Court upheld the legality of the
plebiscite which was participated in exclusively by the people of the barangay that would
constitute the new municipality.
This Court is not unmindful of this solitary case alluded to by respondents. What is, however,
highly significant are the prefatory statements therein stating that said case is "one of those
cases where the discretion of the Court is allowed considerable leeway" and that "there is
indeed an element of ambiguity in the use of the expression unit or units affected." The ruling
rendered in said case was based on a claimed prerogative of the Court then to exercise its
discretion on the matter. It did not resolve the question of how the pertinent provision of the
Constitution should be correctly interpreted.
The ruling in the aforestated case of Paredes vs. The Honorable Executive Secretary, et al.
(supra) should not be taken as a doctrinal or compelling precedent when it is acknowledged
therein that "it is plausible to assert, as petitioners do, that when certain Barangays are
separated from a parent municipality to form a new one, all the voters therein are affected."
It is relevant and most proper to mention that in the aforecited case of Paredes vs. Executive
Secretary, invoked by respondents, We find very lucidly expressed the strong dissenting view of
Justice Vicente Abad Santos, a distinguished member of this Court, as he therein voiced his
opinion, which We hereunder quote:
2. ... when the Constitution speaks of "the unit or units affected" it means all of the people of the
municipality if the municipality is to be divided such as in the case at bar or an of the people of
two or more municipalities if there be a merger. I see no ambiguity in the Constitutional
provision.
This dissenting opinion of Justice Vicente Abad Santos is the forerunner of the ruling which
We now consider applicable to the case at bar, In the analogous case of Emilio C. Lopez, Jr.,
versus the Honorable Commission on Elections, L-56022, May 31, 1985, 136 SCRA 633, this
dissent was reiterated by Justice Abad Santos as he therein assailed as suffering from a
constitutional infirmity a referendum which did not include all the people of Bulacan and Rizal,
when such referendum was intended to ascertain if the people of said provinces were willing to
give up some of their towns to Metropolitan Manila. His dissenting opinion served as a useful
guideline in the instant case.
Opportunity to re-examine the views formerly held in said cases is now afforded the present
Court. The reasons in the mentioned cases invoked by respondents herein were formerly
considered acceptable because of the views then taken that local autonomy would be better
promoted However, even this consideration no longer retains persuasive value.
The environmental facts in the case before Us readily disclose that the subject matter under
consideration is of greater magnitude with concomitant multifarious complicated problems. In the
earlier case, what was involved was a division of a barangay which is the smallest political unit in
the Local Government Code. Understandably, few and lesser problems are involved. In the case
at bar, creation of a new province relates to the largest political unit contemplated in Section 3,
Art. XI of the Constitution. To form the new province of Negros del Norte no less than three cities
and eight municipalities will be subtracted from the parent province of Negros Occidental. This
will result in the removal of approximately 2,768.4 square kilometers from the land area of an
existing province whose boundaries will be consequently substantially altered. It becomes easy
to realize that the consequent effects cf the division of the parent province necessarily will affect
all the people living in the separate areas of Negros Occidental and the proposed province of
Negros del Norte. The economy of the parent province as well as that of the new province will be
inevitably affected, either for the better or for the worse. Whatever be the case, either or both of
these political groups will be affected and they are, therefore, the unit or units referred to in
Section 3 of Article XI of the Constitution which must be included in the plebiscite contemplated
therein.
It is a well accepted rule that "in ascertaining the meaning of a particular provision that may give
rise to doubts, the intent of the framers and of the people, may be gleaned from the provisions
in pari materia." Parliamentary Bill No. 3644 which proposed the creation of the new province of
Negros del Norte recites in Sec. 4 thereof that "the plebiscite shall be conducted in
the areas affected within a period of one hundred and twenty days from the approval of this Act."
As this draft legislation speaks of "areas," what was contemplated evidently are plurality of
areas to participate in the plebiscite. Logically, those to be included in such plebiscite would be
the people living in the area of the proposed new province and those living in the parent
province. This assumption will be consistent with the requirements set forth in the Constitution.
We fail to find any legal basis for the unexplained change made when Parliamentary Bill No.
3644 was enacted into Batas Pambansa Blg. 885 so that it is now provided in said enabling law
that the plebiscite "shall be conducted in the proposed new province which are the areas
affected." We are not disposed to agree that by mere legislative fiat the unit or units affected
referred in the fundamental law can be diminished or restricted by the Batasang Pambansa to
cities and municipalities comprising the new province, thereby ignoring the evident reality that
there are other people necessarily affected.
In the mind of the Court, the change made by those responsible for the enactment of Batas
Pambansa Blg. 885 betrays their own misgivings. They must have entertained apprehensions
that by holding the plebiscite only in the areas of the new proposed province, this tactic will be
tainted with illegality. In anticipation of a possible strong challenge to the legality of such a
plebiscite there was, therefore, deliberately added in the enacted statute a self-serving phrase
that the new province constitutes the area affected. Such additional statement serves no useful
purpose for the same is misleading, erroneous and far from truth. The remaining portion of the
parent province is as much an area affected. The substantial alteration of the boundaries of the
parent province, not to mention the other adverse economic effects it might suffer, eloquently
argue the points raised by the petitioners.
Petitioners have averred without contradiction that after the creation of Negros del Norte, the
province of Negros Occidental would be deprived of the long established Cities of Silay, Cadiz,
and San Carlos, as well as the municipality of Victorias. No controversion has been made
regarding petitioners' assertion that the areas of the Province of Negros Occidental will be
diminished by about 285,656 hectares and it will lose seven of the fifteen sugar mills which
contribute to the economy of the whole province. In the language of petitioners, "to create
Negros del Norte, the existing territory and political subdivision known as Negros Occidental has
to be partitioned and dismembered. What was involved was no 'birth' but "amputation." We
agree with the petitioners that in the case of Negros what was involved was a division, a
separation; and consequently, as Sec. 3 of Article XI of the Constitution anticipates, a substantial
alteration of boundary.
As contended by petitioners,
Indeed, the terms 'created', 'divided', 'merged', 'abolished' as used in the constitutional provision
do not contemplate distinct situation isolated from the mutually exclusive to each other. A
Province maybe created where an existing province is divided or two provinces merged. Such
cases necessarily will involve existing unit or units abolished and definitely the boundary being
substantially altered.
It would thus be inaccurate to state that where an existing political unit is divided or its boundary
substantially altered, as the Constitution provides, only some and not all the voters in the whole
unit which suffers dismemberment or substantial alteration of its boundary are affected. Rather,
the contrary is true.
It is also Our considered view that even hypothetically assuming that the merits of this case can
depend on the mere discretion that this Court may exercise, nevertheless, it is the petitioners'
case that deserve to be favored.
It is now time for this Court to set aside the equivocations and the indecisive pronouncements in
the adverted case of Paredes vs. the Honorable Executive Secretary, et al. (supra). For the
reasons already here express, We now state that the ruling in the two mentioned cases
sanctioning the exclusion of the voters belonging to an existing political unit from which the new
political unit will be derived, from participating in the plebiscite conducted for the purpose of
determining the formation of another new political unit, is hereby abandoned.
In their supplemental petition, dated January 4, 1986, it is prayed for by petitioners that a writ of
mandamus be issued, directing the respondent Commission on Elections, to schedule the
holding of another plebiscite at which all the qualified voters of the entire province of Negros
Occidental as now existing shall participate and that this Court make a pronouncement that the
plebiscite held on January 3, 1986 has no legal effect for being a patent nullity.
The Court is prepared to declare the said plebiscite held on January 3, 1986 as null and void
and violative of the provisions of Sec. 3, Article XI of the Constitution. The Court is not, however,
disposed to direct the conduct of a new plebiscite, because We find no legal basis to do so. With
constitutional infirmity attaching to the subject Batas Pambansa Big. 885 and also because the
creation of the new province of Negros del Norte is not in accordance with the criteria
established in the Local Government Code, the factual and legal basis for the creation of such
new province which should justify the holding of another plebiscite does not exist.
Whatever claim it has to validity and whatever recognition has been gained by the new province
of Negros del Norte because of the appointment of the officials thereof, must now be erased.
That Negros del Norte is but a legal fiction should be announced. Its existence should be put to
an end as quickly as possible, if only to settle the complications currently attending to its
creation. As has been manifested, the parent province of Negros del Norte has been impleaded
as the defendant in a suit filed by the new Province of Negros del Norte, before the Regional
Trial Court of Negros (del Norte), docketed as Civil Case No. 169-C, for the immediate
allocation, distribution and transfer of funds by the parent province to the new province, in an
amount claimed to be at least P10,000,000.00.
The final nail that puts to rest whatever pretension there is to the legality of the province of
Negros del Norte is the significant fact that this created province does not even satisfy the area
requirement prescribed in Section 197 of the Local Government Code, as earlier discussed.
It is of course claimed by the respondents in their Comment to the exhibits submitted by the
petitioners (Exhs. C and D, Rollo, pp. 19 and 91), that the new province has a territory of
4,019.95 square kilometers, more or less. This assertion is made to negate the proofs submitted,
disclosing that the land area of the new province cannot be more than 3,500 square kilometers
because its land area would, at most, be only about 2,856 square kilometers, taking into account
government statistics relative to the total area of the cities and municipalities constituting Negros
del Norte. Respondents insist that when Section 197 of the Local Government Code speaks of
the territory of the province to be created and requires that such territory be at least 3,500
square kilometers, what is contemplated is not only the land area but also the land and water
over which the said province has jurisdiction and control. It is even the submission of the
respondents that in this regard the marginal sea within the three mile limit should be considered
in determining the extent of the territory of the new province. Such an interpretation is strained,
incorrect, and fallacious.
The last sentence of the first paragraph of Section 197 is most revealing. As so stated therein
the "territory need not be contiguous if it comprises two or more islands." The use of the
word territory in this particular provision of the Local Government Code and in the very last
sentence thereof, clearly reflects that "territory" as therein used, has reference only to the mass
of land area and excludes the waters over which the political unit exercises control.
Said sentence states that the "territory need not be contiguous." Contiguous means (a) in
physical contact; (b) touching along all or most of one side; (c) near, text, or adjacent (Webster's
New World Dictionary, 1972 Ed., p. 307). "Contiguous", when employed as an adjective, as in
the above sentence, is only used when it describes physical contact, or a touching of sides of
two solid masses of matter. The meaning of particular terms in a statute may be ascertained by
reference to words associated with or related to them in the statute (Animal Rescue League vs.
Assessors, 138 A.L.R. p. 110). Therefore, in the context of the sentence above, what need not
be "contiguous" is the "territory" the physical mass of land area. There would arise no need for
the legislators to use the word contiguous if they had intended that the term "territory" embrace
not only land area but also territorial waters. It can be safely concluded that the word territory in
the first paragraph of Section 197 is meant to be synonymous with "land area" only. The words
and phrases used in a statute should be given the meaning intended by the legislature (82
C.J.S., p. 636). The sense in which the words are used furnished the rule of construction (In re
Winton Lumber Co., 63 p. 2d., p. 664).
The distinction between "territory" and "land area" which respondents make is an artificial or
strained construction of the disputed provision whereby the words of the statute are arrested
from their plain and obvious meaning and made to bear an entirely different meaning to justify an
absurd or unjust result. The plain meaning in the language in a statute is the safest guide to
follow in construing the statute. A construction based on a forced or artificial meaning of its
words and out of harmony of the statutory scheme is not to be favored (Helvering vs. Hutchings,
85 L. Ed., p. 909).
It would be rather preposterous to maintain that a province with a small land area but which has
a long, narrow, extended coast line, (such as La Union province) can be said to have a larger
territory than a land-locked province (such as Ifugao or Benguet) whose land area manifestly
exceeds the province first mentioned.
Allegations have been made that the enactment of the questioned state was marred by "dirty
tricks", in the introduction and passing of Parliamentary Bill No. 3644 "in secret haste" pursuant
to sinister designs to achieve "pure and simple gerrymandering; "that recent happenings more
than amply demonstrate that far from guaranteeing its autonomy it (Negros del Norte) has
become the fiefdom of a local strongman" (Rollo, p. 43; emphasis supplied).
It is not for this Court to affirm or reject such matters not only because the merits of this case can
be resolved without need of ascertaining the real motives and wisdom in the making of the
questioned law. No proper challenge on those grounds can also be made by petitioners in this
proceeding. Neither may this Court venture to guess the motives or wisdom in the exercise of
legislative powers. Repudiation of improper or unwise actions taken by tools of a political
machinery rests ultimately, as recent events have shown, on the electorate and the power of a
vigilant people.
Petitioners herein deserve and should receive the gratitude of the people of the Province of
Negros Occidental and even by our Nation. Commendable is the patriotism displayed by them in
daring to institute this case in order to preserve the continued existence of their historic province.
They were inspired undoubtedly by their faithful commitment to our Constitution which they wish
to be respected and obeyed. Despite the setbacks and the hardships which petitioners aver
confronted them, they valiantly and unfalteringly pursued a worthy cause. A happy destiny for
our Nation is assured as long as among our people there would be exemplary citizens such as
the petitioners herein.
WHEREFORE, Batas Pambansa Blg. 885 is hereby declared unconstitutional. The proclamation
of the new province of Negros del Norte, as well as the appointment of the officials thereof are
also declared null and void. SO ORDERED.
G.R. No. 193007 July 19, 2011
RENATO V. DIAZ and AURORA MA. F. TIMBOL, Petitioners,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.
ABAD, J.:
May toll fees collected by tollway operators be subjected to value- added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory
relief1 assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau
of Internal Revenue (BIR) on the collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as
regular users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored
the approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act
8424 (the 1997 National Internal Revenue Code or the NIRC) at the House of Representatives.
Timbol, on the other hand, claims that she served as Assistant Secretary of the Department of
Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria
Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred, however, in view of
the consistent opposition of Diaz and other sectors to such move. But, upon President Benigno
C. Aquino IIIs assumption of office in 2010, the BIR revived the idea and would impose the
challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll
fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "users
tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public
service; and that, since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the
implementation of the VAT. The Court required the government, represented by respondents
Cesar V. Purisima, Secretary of the Department of Finance, and Kim S. Jacinto-Henares,
Commissioner of Internal Revenue, to comment on the petition within 10 days from
notice.2 Later, the Court issued another resolution treating the petition as one for prohibition.3
On August 23, 2010 the Office of the Solicitor General filed the governments comment.4 The
government avers that the NIRC imposes VAT on all kinds of services of franchise grantees,
including tollway operations, except where the law provides otherwise; that the Court should
seek the meaning and intent of the law from the words used in the statute; and that the
imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR
rulings and circulars.5
The government also argues that petitioners have no right to invoke the non-impairment of
contracts clause since they clearly have no personal interest in existing toll operating
agreements (TOAs) between the government and tollway operators. At any rate, the non-
impairment clause cannot limit the States sovereign taxing power which is generally read into
contracts.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for
computing toll rates cannot exempt tollway operators from VAT. In any event, it cannot be
claimed that the rights of tollway operators to a reasonable rate of return will be impaired by the
VAT since this is imposed on top of the toll rate. Further, the imposition of VAT on toll fees would
have very minimal effect on motorists using the tollways.
In their reply6 to the governments comment, petitioners point out that tollway operators cannot
be regarded as franchise grantees under the NIRC since they do not hold legislative franchises.
Further, the BIR intends to collect the VAT by rounding off the toll rate and putting any excess
collection in an escrow account. But this would be illegal since only the Congress can modify
VAT rates and authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-2010
(BIR RMC 63-2010), which directs toll companies to record an accumulated input VAT of zero
balance in their books as of August 16, 2010, contravenes Section 111 of the NIRC which grants
entities that first become liable to VAT a transitional input tax credit of 2% on beginning inventory.
For this reason, the VAT on toll fees cannot be implemented.
The Issues Presented
The case presents two procedural issues:
a. Whether or not the Court may treat the petition for declaratory
relief as one for prohibition; and
b. Whether or not petitioners Diaz and Timbol have legal standing to
file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by
including tollway operators and tollway operations in the terms "franchise
grantees" and "sale of services" under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to a
tax on tax and not a tax on services; b) will impair the tollway operators right
to a reasonable return of investment under their TOAs; and c) is not
administratively feasible and cannot be implemented.
The Courts Rulings
A. On the Procedural Issues: television broadcasting and all other franchise grantees except those under Section 119 of this
Code and non-life insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar services regardless of whether or not the
On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition
performance thereof calls for the exercise or use of the physical or mental faculties.
rather than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave
(Underscoring supplied)
their action. The government has sought reconsideration of the Courts resolution, 7 however,
arguing that petitioners allegations clearly made out a case for declaratory relief, an action over
which the Court has no original jurisdiction. The government adds, moreover, that the petition It is plain from the above that the law imposes VAT on "all kinds of services" rendered in the
does not meet the requirements of Rule 65 for actions for prohibition since the BIR did not Philippines for a fee, including those specified in the list. The enumeration of affected services is
exercise judicial, quasi-judicial, or ministerial functions when it sought to impose VAT on toll fees. not exclusive.11 By qualifying "services" with the words "all kinds," Congress has given the term
Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate remedy in the ordinary "services" an all-encompassing meaning. The listing of specific services are intended to illustrate
course of law against the BIR action in the form of an appeal to the Secretary of Finance. how pervasive and broad is the VATs reach rather than establish concrete limits to its
application. Thus, every activity that can be imagined as a form of "service" rendered for a fee
should be deemed included unless some provision of law especially excludes it.
But there are precedents for treating a petition for declaratory relief as one for prohibition if the
case has far-reaching implications and raises questions that need to be resolved for the public
good.8 The Court has also held that a petition for prohibition is a proper remedy to prohibit or Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll
nullify acts of executive officials that amount to usurpation of legislative authority.9 Operation Decree establishes the legal basis for the services that tollway operators render.
Essentially, tollway operators construct, maintain, and operate expressways, also called
tollways, at the operators expense. Tollways serve as alternatives to regular public highways
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would
that meander through populated areas and branch out to local roads. Traffic in the regular public
impact, not only on the more than half a million motorists who use the tollways everyday, but
highways is for this reason slow-moving. In consideration for constructing tollways at their
more so on the governments effort to raise revenue for funding various projects and for reducing
expense, the operators are allowed to collect government-approved fees from motorists using
budgetary deficits.
the tollways until such operators could fully recover their expenses and earn reasonable returns
from their investments.
To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed,
could cause more mischief both to the tax-paying public and the government. A belated
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of
declaration of nullity of the BIR action would make any attempt to refund to the motorists what
the tollway facilities over which the operator enjoys private proprietary rights12 that its contract
they paid an administrative nightmare with no solution. Consequently, it is not only the right, but
and the law recognize. In this sense, the tollway operator is no different from the following
the duty of the Court to take cognizance of and resolve the issues that the petition raises.
service providers under Section 108 who allow others to use their properties or facilities for a
fee:
Although the petition does not strictly comply with the requirements of Rule 65, the Court has
ample power to waive such technical requirements when the legal questions to be resolved are
1. Lessors of property, whether personal or real;
of great importance to the public. The same may be said of the requirement of locus standi
which is a mere procedural requisite.10
2. Warehousing service operators;
B. On the Substantive Issues:
3. Lessors or distributors of cinematographic films;
One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied,
assessed, and collected, according to Section 108, on the gross receipts derived from the sale 4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses,
or exchange of services as well as from the use or lease of properties. The third paragraph of inns, resorts;
Section 108 defines "sale or exchange of services" as follows:
5. Lending investors (for use of money);
The phrase sale or exchange of services means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
6. Transportation contractors on their transport of goods or cargoes, including
rendered by construction and service contractors; stock, real estate, commercial, customs and
persons who transport goods or cargoes for hire and other domestic common
immigration brokers; lessors of property, whether personal or real; warehousing services; lessors
carriers by land relative to their transport of goods or cargoes; and
or distributors of cinematographic films; persons engaged in milling, processing, manufacturing
or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses,
pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes 7. Common carriers by air and sea relative to their transport of passengers, goods
and other eating places, including clubs and caterers; dealers in securities; lending investors; or cargoes from one place in the Philippines to another place in the Philippines.
transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative to their
It does not help petitioners cause that Section 108 subjects to VAT "all kinds of services"
transport of goods or cargoes; common carriers by air and sea relative to their transport of
rendered for a fee "regardless of whether or not the performance thereof calls for the exercise or
passengers, goods or cargoes from one place in the Philippines to another place in the
use of the physical or mental faculties." This means that "services" to be subject to VAT need not
Philippines; sales of electricity by generation companies, transmission, and distribution
companies; services of franchise grantees of electric utilities, telephone and telegraph, radio and
fall under the traditional concept of services, the personal or professional kinds that require the
use of human knowledge and skills.
And not only do tollway operators come under the broad term "all kinds of services," they also
come under the specific class described in Section 108 as "all other franchise grantees" who are
subject to VAT, "except those under Section 119 of this Code."
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,
like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by
the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport
Lands and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.

x x x The operation by the government of a tollway does not change the character of the road as
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income
one for public use. Someone must pay for the maintenance of the road, either the public
radio and/or television broadcasting companies with gross annual incomes of less than 10
indirectly through the taxes they pay the government, or only those among the public who
million and gas and water utilities) that Section 11913 spares from the payment of VAT. The word
actually use the road through the toll fees they pay upon using the road. The tollway system is
"franchise" broadly covers government grants of a special right to do an act or series of acts of
even a more efficient and equitable manner of taxing the public for the maintenance of public
public concern.14
roads.

Petitioners of course contend that tollway operators cannot be considered "franchise grantees"
The charging of fees to the public does not determine the character of the property whether it is
under Section 108 since they do not hold legislative franchises. But nothing in Section 108
for public dominion or not. Article 420 of the Civil Code defines property of public dominion as
indicates that the "franchise grantees" it speaks of are those who hold legislative franchises.
"one intended for public use." Even if the government collects toll fees, the road is still "intended
Petitioners give no reason, and the Court cannot surmise any, for making a distinction between
for public use" if anyone can use the road under the same terms and conditions as the rest of
franchises granted by Congress and franchises granted by some other government agency. The
the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the
latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by
speed restrictions and other conditions for the use of the road do not affect the public character
local authorities, as agents of the state, constitute as much a legislative franchise as though the
of the road.
grant had been made by Congress itself.15 The term "franchise" has been broadly construed as
referring, not only to authorizations that Congress directly issues in the form of a special law, but
also to those granted by administrative agencies to which the power to grant franchises has The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
been delegated by Congress.16 airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection
of such fees does not change the character of MIAA as an airport for public use. Such fees are
often termed users tax. This means taxing those among the public who actually use a public
Tollway operators are, owing to the nature and object of their business, "franchise grantees." The
facility instead of taxing all the public including those who never use the particular public facility.
construction, operation, and maintenance of toll facilities on public improvements are activities of
A users tax is more equitable a principle of taxation mandated in the 1987
public consequence that necessarily require a special grant of authority from the state. Indeed,
Constitution."23(Underscoring supplied)
Congress granted special franchise for the operation of tollways to the Philippine National
Construction Company, the former tollway concessionaire for the North and South Luzon
Expressways. Apart from Congress, tollway franchises may also be granted by the TRB, Petitioners assume that what the Court said above, equating terminal fees to a "users tax" must
pursuant to the exercise of its delegated powers under P.D. 1112.17 The franchise in this case is also pertain to tollway fees. But the main issue in the MIAA case was whether or not Paraaque
evidenced by a "Toll Operation Certificate."18 City could sell airport lands and buildings under MIAA administration at public auction to satisfy
unpaid real estate taxes. Since local governments have no power to tax the national
government, the Court held that the City could not proceed with the auction sale. MIAA forms
Petitioners contend that the public nature of the services rendered by tollway operators excludes
part of the national government although not integrated in the department framework."24 Thus, its
such services from the term "sale of services" under Section 108 of the Code. But, again,
airport lands and buildings are properties of public dominion beyond the commerce of man
nothing in Section 108 supports this contention. The reverse is true. In specifically including by
under Article 420(1)25 of the Civil Code and could not be sold at public auction.
way of example electric utilities, telephone, telegraph, and broadcasting companies in its list of
VAT-covered businesses, Section 108 opens other companies rendering public service for a fee
to the imposition of VAT. Businesses of a public nature such as public utilities and the collection As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to
of tolls or charges for its use or service is a franchise.19 establish a rule that tollway fees are users tax, but to make the point that airport lands and
buildings are properties of public dominion and that the collection of terminal fees for their use
does not make them private properties. Tollway fees are not taxes. Indeed, they are not
Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the
assessed and collected by the BIR and do not go to the general coffers of the government.
course of congressional deliberations of the would-be law. As the Court said in South African
Airways v. Commissioner of Internal Revenue,20 "statements made by individual members of
Congress in the consideration of a bill do not necessarily reflect the sense of that body and are, It would of course be another matter if Congress enacts a law imposing a users tax, collectible
consequently, not controlling in the interpretation of law." The congressional will is ultimately from motorists, for the construction and maintenance of certain roadways. The tax in such a
determined by the language of the law that the lawmakers voted on. Consequently, the meaning case goes directly to the government for the replenishment of resources it spends for the
and intention of the law must first be sought "in the words of the statute itself, read and roadways. This is not the case here. What the government seeks to tax here are fees collected
considered in their natural, ordinary, commonly accepted and most obvious significations, from tollways that are constructed, maintained, and operated by private tollway operators at their
according to good and approved usage and without resorting to forced or subtle construction." own expense under the build, operate, and transfer scheme that the government has adopted
for expressways.26 Except for a fraction given to the government, the toll fees essentially end up
as earnings of the tollway operators.
Two. Petitioners argue that a toll fee is a "users tax" and to impose VAT on toll fees is
tantamount to taxing a tax.21Actually, petitioners base this argument on the following discussion
in Manila International Airport Authority (MIAA) v. Court of Appeals:22
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any
sense. A tax is imposed under the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures.27 Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure them a reasonable
margin of income. Although toll fees are charged for the use of public facilities, therefore, they
are not government exactions that can be properly treated as a tax. Taxes may be imposed only
by the government under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.28
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for the tax
and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of
VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is
not the sellers liability but merely the burden of the VAT.29
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its
burden since the amount of VAT paid by the former is added to the selling price. Once shifted,
the VAT ceases to be a tax30 and simply becomes part of the cost that the buyer must pay in
order to purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway
operator. Under Section 105 of the Code, 31 VAT is imposed on any person who, in the course of
trade or business, sells or renders services for a fee. In other words, the seller of services, who
in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the
burden of VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed
as a "users tax." VAT is assessed against the tollway operators gross receipts and not
necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway
user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply becomes
part of the toll fees that one has to pay in order to use the tollways.32
Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on
behalf of private investors in the tollway projects. She will neither be prejudiced by nor be
affected by the alleged diminution in return of investments that may result from the VAT
imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in
and right to recover investments solely belongs to the private tollway investors.
Besides, her allegation that the private investors rate of recovery will be adversely affected by
imposing VAT on tollway operations is purely speculative. Equally presumptuous is her assertion
that a stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if
VAT is thus imposed. The Court cannot rule on matters that are manifestly conjectural. Neither
can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic
grounds.
Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make
the VAT on tollway operations impractical and incapable of implementation. They cite the fact
that, in order to claim input VAT, the name, address and tax identification number of the tollway
user must be indicated in the VAT receipt or invoice. The manner by which the BIR intends to
implement the VAT by rounding off the toll rate and putting any excess collection in an escrow
account is also illegal, while the alternative of giving "change" to thousands of motorists in
order to meet the exact toll rate would be a logistical nightmare. Thus, according to them, the
VAT on tollway operations is not administratively feasible.33
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax
system should be capable of being effectively administered and enforced with the least
inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax
imposition invalid "except to the extent that specific constitutional or statutory limitations are
impaired."34 Thus, even if the imposition of VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the
Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway
operations. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate
hearing provides some clue as to how the BIR intends to go about it,35 the facts pertaining to the
matter are not sufficiently established for the Court to pass judgment on. Besides, any concern
about how the VAT on tollway operations will be enforced must first be addressed to the BIR on
whom the task of implementing tax laws primarily and exclusively rests. The Court cannot
preempt the BIRs discretion on the matter, absent any clear violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which
directs toll companies to record an accumulated input VAT of zero balance in their books as of
August 16, 2010, the date when the VAT imposition was supposed to take effect. The issuance
allegedly violates Section 111(A)36 of the Code which grants first time VAT payers a transitional
input VAT of 2% on beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of
negotiations with tollway operators who have been assessed VAT as early as 2005, but failed to
charge VAT-inclusive toll fees which by now can no longer be collected. The tollway operators
agreed to waive the 2% transitional input VAT, in exchange for cancellation of their past due VAT
liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the tollway
operators who have not questioned the circulars validity. They are thus the ones who have a
right to challenge the circular in a direct and proper action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the
VAT laws coverage when she sought to impose VAT on tollway operations. Section 108(A) of the
Code clearly states that services of all other franchise grantees are subject to VAT, except as
may be provided under Section 119 of the Code. Tollway operators are not among the franchise
grantees subject to franchise tax under the latter provision. Neither are their services among the
VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly
allege, then it would have been well for the law to clearly say so. Tax exemptions must be
justified by clear statutory grant and based on language in the law too plain to be mistaken.37 But
as the law is written, no such exemption obtains for tollway operators. The Court is thus duty-
bound to simply apply the law as it is found.1avvphi1
Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive
prerogative of Congress. The Courts role is to merely uphold this legislative policy, as reflected
first and foremost in the language of the tax statute. Thus, any unwarranted burden that may be
perceived to result from enforcing such policy must be properly referred to Congress. The Court
has no discretion on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the
Expanded Value-Added Tax law was passed. It is only now, however, that the executive has
earnestly pursued the VAT imposition against tollway operators. The executive exercises
exclusive discretion in matters pertaining to the implementation and execution of tax laws.
Consequently, the executive is more properly suited to deal with the immediate and practical
consequences of the VAT imposition.

WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of

Internal Revenues motion for reconsideration of its August 24, 2010 resolution, DISMISSES the
petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition for lack of merit, and SETS ASIDE
the Courts temporary restraining order dated August 13, 2010. SO ORDERED.