G.R. No.

L-32052 July 25, 1975

PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION, petitioner,

vs.
COURT OF INDUSTRIAL RELATIONS

The principal issue that calls for resolution in this appeal by certiorari from an order of
respondent Court of Industrial Relations is one of constitutional significance. It is concerned
with the expanded role of government necessitated by the increased responsibility to provide
for the general welfare. More specifically, it deals with the question of whether petitioner, the
Philippine Virginia Tobacco Administration, discharges governmental and not proprietary
functions. The landmark opinion of the then Justice, row Chief Justice, Makalintal in Agricultural
Credit and Cooperative Financing Administration v. Confederation of Unions in Government
Corporations and offices, points the way to the right answer. 1 It interpreted the then
fundamental law as hostile to the view of a limited or negative state. It is antithetical to
the laissez faire concept. For as noted in an earlier decision, the welfare state concept "is not
alien to the philosophy of [the 1935] Constitution." 2 It is much more so under the present
Charter, which is impressed with an even more explicit recognition of social and economic
rights. 3 There is manifest, to recall Laski, "a definite increase in the profundity of the social
conscience," resulting in "a state which seeks to realize more fully the common good of its
members." 4 It does not necessarily follow, however, just because petitioner is engaged in
governmental rather than proprietary functions, that the labor controversy was beyond the
jurisdiction of the now defunct respondent Court. Nor is the objection raised that petitioner
does not come within the coverage of the Eight-Hour Labor Law persuasive. 5 We cannot then
grant the reversal sought. We affirm.

The facts are undisputed. On December 20, 1966, claimants, now private respondents, filed
with respondent Court a petition wherein they alleged their employment relationship, the
overtime services in excess of the regular eight hours a day rendered by them, and the failure
to pay them overtime compensation in accordance with Commonwealth Act No. 444. Their
prayer was for the differential between the amount actually paid to them and the amount
allegedly due them. 6 There was an answer filed by petitioner Philippine Virginia Tobacco
Administration denying the allegations and raising the special defenses of lack of a cause of
action and lack of jurisdiction. 7 The issues were thereafter joined, and the case set for trial,
with both parties presenting their evidence. 8 After the parties submitted the case for decision,
the then Presiding Judge Arsenio T. Martinez of respondent Court issued an order sustaining
the claims of private respondents for overtime services from December 23, 1963 up to the date
the decision was rendered on March 21, 1970, and directing petitioner to pay the same, minus
what it had already paid. 9 There was a motion for reconsideration, but respondent Court en
banc denied the same. 10 Hence this petition for certiorari.

Petitioner Philippine Virginia Tobacco Administration, as had been noted, would predicate its
plea for the reversal of the order complained of on the basic proposition that it is beyond the
jurisdiction of respondent Court as it is exercising governmental functions and that it is exempt
from the operation of Commonwealth Act No. 444. 11While, to repeat, its submission as to the
governmental character of its operation is to be given credence, it is not a necessary
consequence that respondent Court is devoid of jurisdiction. Nor could the challenged order be
set aside on the additional argument that the Eight-Hour Labor Law is not applicable to it. So it
was, at the outset, made clear.

1. A reference to the enactments creating petitioner corporation suffices to demonstrate the

merit of petitioner's plea that it performs governmental and not proprietary functions. As
originally established by Republic Act No. 2265, 12 its purposes and objectives were set forth
thus: "(a) To promote the effective merchandising of Virginia tobacco in the domestic and
foreign markets so that those engaged in the industry will be placed on a basis of economic
security; (b) To establish and maintain balanced production and consumption of Virginia
tobacco and its manufactured products, and such marketing conditions as will insure and
stabilize the price of a level sufficient to cover the cost of production plus reasonable profit
both in the local as well as in the foreign market; (c) To create, establish, maintain, and operate
processing, warehousing and marketing facilities in suitable centers and supervise the selling
and buying of Virginia tobacco so that the farmers will enjoy reasonable prices that secure a fair
return of their investments; (d) To prescribe rules and regulations governing the grading,
classifying, and inspecting of Virginia tobacco; and (e) To improve the living and economic
conditions of the people engaged in the tobacco industry." 13 The amendatory statute, Republic
Act No. 4155, 14renders even more evident its nature as a governmental agency. Its first section
on the declaration of policy reads: "It is declared to be the national policy, with respect to the
local Virginia tobacco industry, to encourage the production of local Virginia tobacco of the
qualities needed and in quantities marketable in both domestic and foreign markets, to
establish this industry on an efficient and economic basis, and, to create a climate conducive to
local cigarette manufacture of the qualities desired by the consuming public, blending imported
and native Virginia leaf tobacco to improve the quality of locally manufactured
cigarettes." 15 The objectives are set forth thus: "To attain this national policy the following
objectives are hereby adopted: 1. Financing; 2. Marketing; 3. The disposal of stocks of the
Agricultural Credit Administration (ACA) and the Philippine Virginia Tobacco Administration
(PVTA) at the best obtainable prices and conditions in order that a reinvigorated Virginia
tobacco industry may be established on a sound basis; and 4. Improving the quality of locally
manufactured cigarettes through blending of imported and native Virginia leaf tobacco; such
importation with corresponding exportation at a ratio of one kilo of imported to four kilos of
exported Virginia tobacco, purchased by the importer-exporter from the Philippine Virginia
Tobacco Administration." 16

It is thus readily apparent from a cursory perusal of such statutory provisions why petitioner
can rightfully invoke the doctrine announced in the leading Agricultural Credit and Cooperative
Financing Administration decision 17and why the objection of private respondents with its
overtones of the distinction between constituent and ministrant functions of governments as
set forth in Bacani v. National Coconut Corporation 18 if futile. The irrelevance of such a
distinction considering the needs of the times was clearly pointed out by the present Chief
Justice, who took note, speaking of the reconstituted Agricultural Credit Administration, that
functions of that sort "may not be strictly what President Wilson described as "constituent" (as
distinguished from "ministrant"),such as those relating to the maintenance of peace and the
prevention of crime, those regulating property and property rights, those relating to the
administration of justice and the determination of political duties of citizens, and those relating
to national defense and foreign relations. Under this traditional classification, such constituent
functions are exercised by the State as attributes of sovereignty, and not merely to promote the
welfare, progress and prosperity of the people these latter functions being ministrant, the
exercise of which is optional on the part of the government." 19 Nonetheless, as he explained so
persuasively: "The growing complexities of modern society, however, have rendered this
traditional classification of the functions of government quite unrealistic, not to say obsolete.
The areas which used to be left to private enterprise and initiative and which the government
was called upon to enter optionally, and only "because it was better equipped to administer for
the public welfare than is any private individual or group of individuals", continue to lose their
well-defined boundaries and to be absorbed within activities that the government must
undertake in its sovereign capacity if it is to meet the increasing social challenges of the times.
Here as almost everywhere else the tendency is undoubtedly towards a greater socialization of
economic forces. Here of course this development was envisioned, indeed adopted as a
national policy, by the Constitution itself in its declaration of principle concerning the
promotion of social justice." 20 Thus was laid to rest the doctrine in Bacani v. National Coconut
Corporation,21 based on the Wilsonian classification of the tasks incumbent on government into
constituent and ministrant in accordance with the laissez faire principle. That concept, then
dominant in economics, was carried into the governmental sphere, as noted in a textbook on
political science, 22 the first edition of which was published in 1898, its author being the then
Professor, later American President, Woodrow Wilson. He took pains to emphasize that what
was categorized by him as constituent functions had its basis in a recognition of what was
demanded by the "strictest [concept of] laissez faire, [as they] are indeed the very bonds of
society." 23 The other functions he would minimize as ministrant or optional.
It is a matter of law that in the Philippines, the laissez faire principle hardly commanded the
authoritative position which at one time it held in the United States. As early as 1919, Justice
Malcolm in Rubi v. Provincial Board 24could affirm: "The doctrines of laissez faire and of
unrestricted freedom of the individual, as axioms of economic and political theory, are of the
past. The modern period has shown a widespread belief in the amplest possible demonstration
of government activity." 25 The 1935 Constitution, as was indicated earlier, continued that
approach. As noted in Edu v. Ericta:26 "What is more, to erase any doubts, the Constitutional
Convention saw to it that the concept of laissez-faire was rejected. It entrusted to our
government the responsibility of coping with social and economic problems with the
commensurate power of control over economic affairs. Thereby it could live up to its
commitment to promote the general welfare through state action." 27 Nor did the opinion in
Edu stop there: "To repeat, our Constitution which took effect in 1935 erased whatever doubts
there might be on that score. Its philosophy is a repudiation of laissez-faire. One of the leading
members of the Constitutional Convention, Manuel A. Roxas, later the first President of the
Republic, made it clear when he disposed of the objection of Delegate Jose Reyes of Sorsogon,
who noted the "vast extensions in the sphere of governmental functions" and the "almost
unlimited power to interfere in the affairs of industry and agriculture as well as to compete
with existing business" as "reflections of the fascination exerted by [the then] current
tendencies' in other jurisdictions. He spoke thus: "My answer is that this constitution has a
definite and well defined philosophy, not only political but social and economic.... If in this
Constitution the gentlemen will find declarations of economic policy they are there because
they are necessary to safeguard the interest and welfare of the Filipino people because we
believe that the days have come when in self-defense, a nation may provide in its constitution
those safeguards, the patrimony, the freedom to grow, the freedom to develop national
aspirations and national interests, not to be hampered by the artificial boundaries which a
constitutional provision automatically imposes." 28

It would be then to reject what was so emphatically stressed in the Agricultural Credit
Administration decision about which the observation was earlier made that it reflected the
philosophy of the 1935 Constitution and is even more in consonance with the expanded role of
government accorded recognition in the present Charter if the plea of petitioner that it
discharges governmental function were not heeded. That path this Court is not prepared to
take. That would be to go backward, to retreat rather than to advance. Nothing can thus be
clearer than that there is no constitutional obstacle to a government pursuing lines of
endeavor, formerly reserved for private enterprise. This is one way, in the language of Laski, by
which through such activities, "the harsh contract which [does] obtain between the levels of
the rich and the poor" may be minimized. 29 It is a response to a trend noted by Justice Laurel
in Calalang v. Williams 30 for the humanization of laws and the promotion of the interest of all
component elements of society so that man's innate aspirations, in what was so felicitously
termed by the First Lady as "a compassionate society" be attained. 31

2. The success that attended the efforts of petitioner to be adjudged as performing

governmental rather than proprietary functions cannot militate against respondent Court
assuming jurisdiction over this labor dispute. So it was mentioned earlier. As far back as Tabora
v. Montelibano, 32 this Court, speaking through Justice Padilla, declared: The NARIC was
established by the Government to protect the people against excessive or unreasonable rise in
the price of cereals by unscrupulous dealers. With that main objective there is no reason why
its function should not be deemed governmental. The Government owes its very existence to
that aim and purpose to protect the people." 33 In a subsequent case, Naric Worker's Union
v. Hon. Alvendia, 34 decided four years later, this Court, relying on Philippine Association of Free
Labor Unions v. Tan, 35 which specified the cases within the exclusive jurisdiction of the Court of
Industrial Relations, included among which is one that involves hours of employment under the
Eight-Hour Labor Law, ruled that it is precisely respondent Court and not ordinary courts that
should pass upon that particular labor controversy. For Justice J. B. L. Reyes, the ponente, the
fact that there were judicial as well as administrative and executive pronouncements to the
effect that the Naric was performing governmental functions did not suffice to confer
competence on the then respondent Judge to issue a preliminary injunction and to entertain a
complaint for damages, which as pointed out by the labor union, was connected with an unfair
labor practice. This is emphasized by the dispositive portion of the decision: "Wherefore, the
restraining orders complained of, dated May 19, 1958 and May 27, 1958, are set aside, and the
complaint is ordered dismissed, without prejudice to the National Rice and Corn Corporation's
seeking whatever remedy it is entitled to in the Court of Industrial Relations." 36 Then, too, in a
case involving petitioner itself, Philippine Virginia Tobacco Administration, 37 where the point in
dispute was whether it was respondent Court or a court of first instance that is possessed of
competence in a declaratory relief petition for the interpretation of a collective bargaining
agreement, one that could readily be thought of as pertaining to the judiciary, the answer was
that "unless the law speaks clearly and unequivocally, the choice should fall on the Court of
Industrial Relations." 38 Reference to a number of decisions which recognized in the then
respondent Court the jurisdiction to determine labor controversies by government-owned or
controlled corporations lends to support to such an approach. 39 Nor could it be explained only
on the assumption that proprietary rather than governmental functions did call for such a
conclusion. It is to be admitted that such a view was not previously bereft of plausibility. With
the aforecited Agricultural Credit and Cooperative Financing Administration decision rendering
obsolete the Bacani doctrine, it has, to use a Wilsonian phrase, now lapsed into "innocuous
desuetude." 40 Respondent Court clearly was vested with jurisdiction.

3. The contention of petitioner that the Eight-Hour Labor Law 41 does not apply to it hardly
deserves any extended consideration. There is an air of casualness in the way such an argument
was advanced in its petition for review as well as in its brief. In both pleadings, it devoted less
than a full page to its discussion. There is much to be said for brevity, but not in this case. Such
a terse and summary treatment appears to be a reflection more of the inherent weakness of
the plea rather than the possession of an advocate's enviable talent for concision. It did cite
Section 2 of the Act, but its very language leaves no doubt that "it shall apply to all persons
employed in any industry or occupation, whether public or private ... ." 42 Nor are private
respondents included among the employees who are thereby barred from enjoying the
statutory benefits. It cited Marcelo v. Philippine National Red Cross 43 and Boy Scouts of the
Philippines v. Araos. 44 Certainly, the activities to which the two above public corporations
devote themselves can easily be distinguished from that engaged in by petitioner. A reference
to the pertinent sections of both Republic Acts 2265 and 2155 on which it relies to obtain a
ruling as to its governmental character should render clear the differentiation that exists. If as a
result of the appealed order, financial burden would have to be borne by petitioner, it has only
itself to blame. It need not have required private respondents to render overtime service. It can
hardly be surmised that one of its chief problems is paucity of personnel. That would indeed be
a cause for astonishment. It would appear, therefore, that such an objection based on this
ground certainly cannot suffice for a reversal. To repeat, respondent Court must be sustained.

WHEREFORE, the appealed Order of March 21, 1970 and the Resolution of respondent Court en
banc of May 8, 1970 denying a motion for reconsideration are hereby affirmed. The last
sentence of the Order of March 21, 1970 reads as follows: "To find how much each of them
[private respondents] is entitled under this judgment, the Chief of the Examining Division, or
any of his authorized representative, is hereby directed to make a reexamination of records,
papers and documents in the possession of respondent PVTA pertinent and proper under the
premises and to submit his report of his findings to the Court for further disposition thereof."
Accordingly, as provided by the New Labor Code, this case is referred to the National Labor
Relations Commission for further proceedings conformably to law. No costs.
G.R. No. 104226 August 12, 1993

CONCHITA ROMUALDEZ-YAP, petitioner,

vs.
THE CIVIL SERVICE COMMISSION and THE PHILIPPINE NATIONAL BANK, respondents.

This is a special civil action for certiorari under Rule 65 of the Rules of Court, assailing
Resolution No. 92-201 of the respondent Civil Service Commission, which upheld the
petitioner's separation from the Philippine National Bank(PNB) as a result of the abolition of the
Fund Transfer Department pursuant to a reorganization under Executive Order No. 80, dated 3
December 1986.

Petitioner Conchita Romualdez-Yap started working with the Philippine National Bank on 20
September 1972 as special assistant with the rank of Second Assistant Manager assigned to the
office of the PNB President. After several promotions, she was appointed in 1983 Senior Vice
President assigned to the Fund Transfer Department.

Starting 1 April 1986 up to 20 February 1987, petitioner filed several applications for leave of
absence (due to medical reasons) which were duly approved. While she was on leave, Executive
Order No. 80 (Revised Charter of the PNB) was approved on 3 December 1986. Said executive
order authorized the restructure/reorganization and rehabilitation of PNB. Pursuant to the
reorganization plan, the Fund Transfer Department was abolished and its functions transferred
to the International Department.

Consequently, petitioner was notified of her separation from the service in a letter dated 30
January 1987, thus:

Pursuant to the Transitory Provision of the 1986 Revised Charter of the Bank,
please be informed that Management has approved your separation from the
service effective February 16, 1986. You shall be entitled to the regular benefits
allowed under existing law. (emphasis supplied)

Please be informed further that under Sec. 37 of the Bank's 1986 Revised
Charter, any officer or employee who feels aggrieved by any matter treated
above may submit his case to the Civil Service
Commission. 1

This letter was received by petitioner's secretary at the PNB head office on 16 February 1987.

Petitioner's first recorded appeal to the Civil Service Commission questioning her separation is a
letter dated 4 August 1989. Then CSC Chairman Samilo N. Barlongay upheld the validity of her
separation from the service in a letter/opinion dated 30 August 1989 (this was allegedly
received by petitioner only on 26 February 1990) stating thus:

xxx xxx xxx

It may be mentioned in this connection, that inasmuch as you did not avail of the
ERIP/Supplementary Retirement Plans adopted by the PNB in 1986, you have
therefore lost your right thereto. Moreover, since you lack the required number
of years of service to entitle you to retirement benefits under existing laws, you
may be entitled to the return of your GSIS personal contributions. Considering
further that you have exhausted all your accumulated leave credits as you went
on leave of absence for the period from April 1, 1986 to February 20, 1987, there
is no legal or valid basis to entitle you to payment of terminal leave.
 Finally, pursuant to Section 16, Article XVIII of the Transitory Provisions of the
1987 Philippine Constitution, you may be entitled to payment of separation
subject to auditing rules and regulations. 2

In her motion for reconsideration with the Civil Service Commission, dated 5 March 1990,
questioning Chairman Barlongay's ruling, petitioner claimed:

1. The opinion/ruling was not fully supported by the evidence on record;

2. Errors of law prejudicial to the interest of the movant have been committed. She argued:

. . . that her separation from the service was illegal and was done in bad faith
considering that her termination on February 16, 1986 was made effective prior
to the effectivity of Executive Order No. 80 on December 3, 1986, which law
authorized the reorganization of the PNB, and even before February 25, 1986,
when President Corazon C. Aquino came into power. She further claims that
although the notice of termination was dated January 30, 1987 it was only
served upon her on February 16, 1987 when the new Constitution which
guarantees security of tenure to public employees was already in effect. 3

xxx xxx xxx

. . . the bad faith in her separation from the service in 1987 was evident from the
recent restoration of the Fund Transfer Department as a separate and distinct
unit from the International Department . . .4

Denying the motion for reconsideration, the Civil Service Commission in its aforecited
Resolution No. 92-201, dated 30 January, 1992, ruled:

Sec. 33 of EO 80 (1986 Revised Charter of the PNB) provides:

Sec. 33. Authority to Reorganize. In view of reduced operations contemplated

under this charter in pursuance of the national policy expressed in the
"Whereas" clause hereof, a reorganization of the Bank and a reduction in force
are hereby authorized to achieve greater efficiency and economy in operations,
including the adoption of a new staffing pattern to suit the reduced operations
envisioned. The program of reorganization shall begin immediately after the
approval of this Order, and shall be completed within six (6) months and shall be
fully implemented within eighteen (18) months thereafter." Clearly; as
aforequoted, PNB was authorized to undergo reorganization and to effect a
reduction in force to "achieve greater efficiency and economy in operations". It
cannot, be disputed that reduction in force necessitates, among others, the
abolition of positions/offices. The records show that prior to its reorganization,
PNB originally had 7,537 positions which were reduced to 5,405 after the
reorganization. Indeed, 2,132 positions were abolished, that is, the original
positions in PNB were reduced by 28%. This reduction in force likewise included
the senior officer positions, in PNB, which were reduced, thus:

Positions Incumbents Proposed Position

President 1 1 1
Sr. Exec. VP 1 1 0
Exec. VP 3 2 2
Senior VP 12 11 7
Vice Pres. 33 27 15

The position of movant Yap (SVP) was one among the original twelve (12) SVP
positions. It was one among the five (5) SVP positions which were abolished. In
 fact, the FTD of which she was then the incumbent SVP, was merged with the
International Department to which its functions were closedly related.

It should be noted that as ruled by the Supreme Court in Dario vs. Mison (G.R.
NO. 81954):

Reorganizations in this jurisdiction have been regarded as valid

provided they are pursued in good faith. As a general rule, a
reorganization is carried out in "good faith" if it is for the purpose
of economy or to make bureaucracy more efficient. In that event,
no dismissal or separation actually occurs because the position
itself ceases to exist. And in that case, security of tenure would
not be a Chinese Wall. . . . .

. . . Good faith, as a component of a reorganization under a

constitutional regime is judged from the facts of each case.

In the instant case, therefore, this Commission is inclined to believe that the
reorganization of PNB was done in good faith. For indeed, the reorganization
was pursued to achieve economy. It undertook reduction in force as a means to
streamline the numbers of the workforce. It was incidental that movant Yap's
position was one among those abolished. Movant Yap failed to substantiate her
claim by clear and convincing evidence that the abolition of her position was a
result of her close identification with the previous regime, being a sister of
former First Lady Imelda Romualdez Marcos. This being so, and pursuant to the
presumption of regularity in the performance of official functions, the abolition
of movant Yap's position should be upheld. PNB, in the instant case, has clearly
proved by substantial evidence that its act in terminating the services of some of
its employees was done in good faith. 5

Overruling her imputation of bad faith, i.e. her separation was illegal because it took effect on
16 February 1986 or even before the promulgation of EO No. 80 on 3 December 1986, the CSC
noted that the year "1986" stated in the notice of her separation from the service was a
typographical error. PNB submitted documents (p. 6 of Resolution No. 92-201) supporting its
stand that the separation actually took effect on 16 February 1987.

On the issue of bad faith as related to the later restoration of the Fund Transfer Department,
the subject CSC resolution adds:

xxx xxx xxx

It may be mentioned that the recent restoration of the Fund Transfer

Department, actually was a merger of the Fund Transfer Group, the Foreign
Remittance Development and Coordinating Unit based on board Resolution No.
60 of March 12, 1991, or after the lapse of over four (4) years from the date it
was abolished in 1987. Moreover, the restoration of the Fund Transfer
Department and other offices in the PNB was primarily caused by the improved
financial capability and present needs of the Bank. This improved financial
condition of the PNB is evident from the 1990 Annual Report it submitted. It may
be further stated that the re-established FTD is headed by a Vice President, a
position much lower in rank than the former department headed by a Senior
Vice President.

Furthermore, it should be noted that granting arguendo that movant Yap's

termination from the service was tainted with bad faith, she however, is now
barred from assailing the same as she did not seasonably assert her right
thereto. Records show that she was separated from PNB on February 16, 1987
and it was only in 1989 or about 2 years thereafter when she brought this matter
to this Commission. By her inaction in questioning her termination within a
 period of one year, she is considered to have acquiesced to her separation from
the service and abandoned her right to the position. 6

In the present petition before the Court, the following issues are raised:

1. Existence of bad faith in the reorganization of the Philippine National Bank resulting in the
separation from the service of petitioner.

2. Erroneous application of the Dario v. Mison doctrine vis-a-vis PNB's reorganization.

3. Erroneous application of the one (1) year prescriptive period for quo warranto proceedings in
petitioner's case.

Dario v. Mison 7 laid down the requirement of good faith in the reorganization of a government
bureau wherein offices are abolished. It says:

. . . Reorganizations in this jurisdiction have been regarded as valid provided they

are pursued in good faith. As a general rule, a reorganization is carried out in
"good faith" if it is for the purpose of economy or to make bureaucracy more
efficient. In that event, no dismissal (in case of dismissal) or separation actually
occurs because the position itself ceases to exist. And in that case, security of
tenure would not be a Chinese wall. Be that as it may, if the "abolition," which is
nothing else but a separation or removal, is done for political reasons or
purposely to defeat security of tenure, or otherwise not in good faith, no valid
"abolition" takes place and whatever "abolition" is done, is void ab initio. There
is an invalid "abolition" as where there is merely a change of nomenclature of
positions, or where claims of economy are belied by the existence of ample
funds. It is to be stressed that by predisposing a reorganization to the yardstick
of good faith, we are not, as a consequence, imposing a "cause" for
restructuring. Retrenchment in the course of a reorganization in good faith is still
removal "not for cause" if by "cause" we refer to "grounds" or conditions that
call for disciplinary action. Good faith, as a component of a reorganization under
a constitutional regime, is judged from the facts of each case.

In Petitioner's case, the following instances are cited by her as indicia of bad faith:

1. The abolished department was later restored and the number of senior vice
presidents was increased.

2. PNB did not follow the prescribed sequence of separation of employees from
the service contained in Rep. Act No. 6656 which is:

Sec. 3. In the separation of personnel pursuant to reorganization,

the following order of removal shall be followed:

(a) Casual employees with less than five (5) years of

government service;

(b) Casual employees with five (5) years or more of

government service;

(c) Employees holding temporary appointments;

and

(d) Employees holding permanent

appointments: Provided, That those in the same
category as enumerated above, who are least
qualified in terms of performance and merit shall
be laid off first, length of service notwithstanding.
 3. Petitioner was not extended preference in appointment to the positions in the
new staffing pattern as mandated by Sec. 4 of Rep. Act 6656, her qualification
and fitness for new positions were never evaluated or considered in violation of
Sec. 27 of P.D. 807 which was incorporated as Sec. 29 Ch. 5 Subtitle A, Book V of
the Administrative Code of 1987.

4. Lack of notice and bearing before separation from the service.

5. Petitioner was forced to take a leave of absence and prevented from reporting
for work.

6. There is a discrepancy in the date of her separation from the service and the
effectivity thereof.

7. PNB employees in the Fund Transfer Department identified with her were
reassigned or frozen.

8. She is listed as having resigned instead of being separated or dismissed which

was what actually happened.

9. The dismissal was politically motivated, she being a sister of Mrs. Imelda
Romualdez Marcos, wife of deposed President Ferdinand Marcos.

Executive Order No. 80 conferred upon the PNB the authority to reorganize. The order was
issued by then Pres. Corazon Aquino on 3 December 1986 while she was exercising the powers
vested in the President of the Philippines by the Freedom Constitution. After 3 December 1986,
what remained to be done was the implementation of the reorganization. There is no doubt as
to the legal basis for PNB's reorganization. The real question is: was it done in good faith, tested
by the Dario v. Mison doctrine?

To start with it is almost absurd for petitioner to insist that her termination from the service
was antedated to 16 February 1986. At that time, the reorganization of PNB had not even been
conceived. In most of PNB's pleadings, it has documented and supported its stand that the year
of petitioner's separation is 1987 not 1986. The antedating of the termination date, aside from
being clearly a typographical error, is a periphernal issue. The real issue is existence of bad faith
consisting of tangible bureaucratic/management pressures exerted to ease her out of office.
Bad faith has been defined as a state of mind affirmatively operating with furtive design or with
some motive of self interest or ill will or for an ulterior purpose. 8 It is the performance of an act
with the knowledge that the actor is violating the fundamental law or right, even without willful
intent to injure or purposive malice to perpetrate a damnifying harm. 9

PNB's reorganization, to repeat, was by virtue of a valid law. At the time of reorganization, due
to the critical financial situation of the bank, departments, positions and functions were
abolished or merged. The abolition of the Fund Transfer Department (FTD) was deemed
necessary. This, to the Court's mind, was a management prerogative exercised pursuant to a
business judgment. At this point, a distinction can be made in ruling on the validity of a
reorganization between a government bureau or office performing constituent functions (like
the Customs) and a government-owned or controlled corporation performing ministrant
functions (like the PNB).

Constituent function are those which constitute the very bonds of society and are compulsory
in nature; ministrant functions are those undertaken by way of advancing the general interests
of society, and are merely optional. Commercial or universal banking is, ideally, not a
governmental but a private sector, endeavor. It is an optional function of government.

. . . The principles determining whether or not a government shall exercise

certain of these optional functions are: (1) that a government should do for the
public welfare those things which private capital would not naturally undertake
and (2) that a government should do those things which by its very, nature it is
 better equipped to administer for the public welfare than is any private
individual or group of individuals (Malcolm, The Government of the Philippine
Islands, pp. 19-20)

From the above we may infer that, strictly speaking, there are functions which
our government is required to exercise to promote its objectives as expressed in
our Constitution and which are exercised by it as an attribute of sovereignty, and
those which it may exercise to promote merely the welfare, progress and
prosperity of the people. To this latter class belongs the organization of those
corporations owned or controlled by the government to promote certain aspects
of the economic life of our people such as the National Coconut Corporation.
These are what we call government-owned or controlled corporations which
may take on the form of a private enterprise or one organized with powers and
formal characteristics of a private corporation under the Corporation Law.
(Bacani vs. Nacoco, No, L-9657, November 29, 1956, 100 Phil. 468)

But a reorganization whether in a government bureau performing constituent functions or in a

government-owned or controlled corporation performing ministrant functions must meet a
common test, the test of good faith. In this connection, the philosophy behind PNB's
reorganization is spelled out in the whereas clauses of Executive Order No. 80:

WHEREAS, within the context of the general policy there nevertheless exists a
clear role for direct government-participation in the banking system, particularly
in servicing the requirements of agriculture, small and medium scale industry,
export development, and the government sector.

WHEREAS, in pursuit of this national policy there is need to restructure the

government financial institutions, particularly the Philippine National Bank, to
achieve a more efficient and effective use of available scarce resources, to
improve its viability, and to avoid unfair competition with the private sector, and

WHEREAS, the reorganization and rehabilitation of the Philippine National Bank

into a similar but stronger and more operationally viable bank is an important
component of the nationalization programs for both the financial system and the
government corporation sector; . . . .

Whether there was a hidden political agenda to persecute petitioner due to her consanguinial
relation to Mrs. Imelda Romualdez Marcos, the widow of former President Marcos, is not
clearly shown. On the other hand, it is entirely possible that, precisely because of such
consanguinial relation, petitioner may have been the object of deferential, if not special
treatment under the Marcos regime. It is part of the Filipino culture to extend such deferential,
if not special treatment to close relatives of persons in power. Many times this is carried to
unwholesome extremes. But a discontinuance of such deferential or special treatment in the
wake of a change in government or administration is not bad faith per se. It may be merely
putting things in their proper places.

Due to the restructuring and this is empirically verifiable PNB became once more a viable
banking institution. The restoration of the FTD four years after it was abolished and its
functions transferred to the International Department, can be attributed to the bank's growth
after reorganizations, thereby negating malice or bad faith in that reorganization. The essence
of good faith lies in an honest belief in the validity of one's right. 10 It consists of an honest
intention to abstain from taking an unconscionable and unscrupulous advantage of another, its
absence should be established by convincing evidence. 11

The records also clearly indicate that starting April 1986 to February 1987, petitioner went on
leave of absence for medical reasons. While she was not reporting to the office, the bank's
reorganization got underway. She continued, however, receiving her salaries, allowances,
emoluments, honoraria and fees up to March 1987. Employees who were affected by the
reorganization had the option to avail of the bank's Separation Benefits Plan/Early Retirement
Plan (SBP/ERIP). Petitioner opted not to avail of such plan and instead submitted to the result
of the bank's ongoing reorganization and management's discretion. If petitioner had the desire
for continued employment with the bank, she could have asserted it for management's
consideration. There is no proof on record that she affirmatively expressed willingness to be
employed. Since she cannot rebut the CSC finding that her earliest appeal was made on 4
August 1989, there is no reason for this Court to hold that she did not sleep on her rights. On
the contrary, her present argument that bad faith existed at the time of the abolition of the FTD
because it was restored four years later is a little too late. Who could have predicted in 1986 or
1987 that PNB would be able to rise from its financial crisis and become a viable commercial
bank again? The decision to abolish the FTD at the time it was abolished, to repeat, was a
business judgment made in good faith.

PNB for its part submits that its reorganization was effected in good faith
because

a) There was not only a perceptible but substantial restructuring of the PNB
hierarchy showing reduction of personnel, consolidation of offices and abolition
of positions.

b) Two thousand one hundred thirty two (2,132) positions were abolished during
the period from February 16, 1986 to January 14, 1987 leaving a lean workforce
of five thousand four hundred five (5,405) as of latter date per B.R. No. 34 hereto
attached as Annex "R".

c) The number of senior officers, including Senior Vice Presidents, was

accordingly reduced.

Another issue raised by petitioner is PNB's alleged non-compliance with the mandate of
Sections 2 and 4 of Rep. Act No. 6656. These Sections provide:

Sec. 2. No officer or employee in the career service shall be removed except for a
valid cause and after due notice and hearing. A valid cause for removal exists
when, pursuant to a bona fide reorganization, a position has been abolished or
rendered redundant or there is a need to merge, divide, or consolidate positions
in order to meet the exigencies of the service, or other lawful causes allowed by
the Civil Service Law. The existence of any or some of the following
circumstances may be considered as evidence of bad faith in the removals made
as a result of reorganization, giving to a claim for reinstatement or
reappointment by an aggrieved party.

(a) Where there is a significant increase in the number of positions in the new
staffing pattern of the department or agency concerned;

(b) Where an office is abolished and another performing substantially the same
functions is created;

(c) Where incumbents are replaced by those less qualified in terms of status of
appointment, performance and merit;

(d) Where there is a reclassification of offices in the department or agency

concerned and the reclassified offices perform substantially the same functions
as the original offices;

(e) Where the removal violates the order of separation provided in Section 3
hereof.

Sec. 4. Officers and employees holding permanent, appointments shall be given

preference for appointment to the new position in the approved staffing pattern
 comparable to their former positions or in case there are not enough
comparable positions, to positions next lower in rank.

No new employees shall be taken in until all permanent officers and employees
have been appointed, including temporary and casual employees who possess
the necessary qualification requirements, among which is the appropriate civil
service eligibility, for permanent appointment to positions in the approved
staffing pattern, in case there are still positions to be filled, unless such positions
are policy-determining, primarily confidential or highly technical in nature.

In the first place, Rep. Act No. 6656 cannot be invoked by petitioner because it took effect on
15 June 1987, or after PNB's reorganization had already been implemented. But assuming, ex
gratia argumenti, that it is applicable here and petitioner must be accorded preferential right to
appointment in the bank, PNB in its rejoinder impressively asserts:

Needless to say, there were various committees that were created in the
implementation of the organizational restructuring of the Bank based on the
foregoing policy guidelines. Each personnel to be retained was evaluated in
terms of relative fitness and merit along with the other personnel of the Bank.
Thus, when then SVP Federico Pascual was chosen to head the International
Department from among other officers of the Bank, including Ms. Yap, his
qualifications far exceeded those of the other candidates for the position.

We attach hereto as Annexes "G-1" and "G-2" the service records of Mr.
Federico Pascual and Petitioner Ms. Yap, respectively, which clearly show that
the qualifications of Mr. Pascual far exceed those of Petitioner Yap. Aside from
being a lawyer having been a law graduate from the University of the Philippines,
he is also a Bachelor of Arts degree holder from Ateneo de Manila and a Master
of Laws graduate o Columbia Law School. He had studied Masteral Arts in Public
Administration at the London School of Economics and had undergone extensive
seminars since 1974 at the International Department and had been assigned in
several foreign branches of the Bank. Before he resigned from the Bank, he held
the second highest position of Executive Vice President and served as Acting
President of the Bank before the incumbent president, President Gabriel Singson
assumed his position.

On the other hand, the service record of Petitioner Yap will show that she only
holds a Bachelor of Science in Commerce Degree from Assumption Convent and
has undergone only one seminar on Management and Leadersbip Training
Program. She entered the Bank service in 1972. (Rollo at pp. 312 to 313)

The prayer in the petition at bar seeks petitioner's immediate reinstatement to her former
position as senior vice president and head of the Fund Transfer Department, or reappointment
to a position of comparable or equivalent rank without loss of seniority rights and pay, etc.,
under the bank's new staffing pattern.

A person claiming to be entitled to a public office or position usurped or unlawfully held or

exercised by another may bring an action for quo warranto (Rule 66, Sec. 6, Rules of Court). The
petitioner therein must show a clear legal right to the office allegedly held unlawfully by
another. 12

An action for quo warranto should be brought within one (1) year after ouster from
office; 13 the failure to institute the same within the reglementary period constitutes more than
a sufficient basis for its dismissal 14 since it is not proper that the title to a public office be
subjected to continued
uncertainty . . . 15 An exception to this prescriptive period lies only if the failure to file the action
can be attributed to the acts of a responsible government officer and not of the dismissed
employee. 16
Measured by the above jurisprudence, petitioner's action may be said to be one for quo
warranto, seeking reinstatement to her former position which at present is occupied by
another. She cannot invoke De Tavera v.Phil. Tuberculosis Society, Inc., et. al. 17 and contend
that there is no claim of usurpation of office, and that quo warrantomay be availed of to assert
one's right to an office in the situation obtaining in the case at bar.

Santos v. CA, et. al. 18 and Magno v. PNNC Corp. 19 are invoked by petitioner to illustrate that
this action is one for separation without just cause, hence, the prescriptive period is allegedly
four (4) years in accordance with Article 1146 of the Civil Code. 20 We do not agree. Petitioner's
separation from the service was due to the abolition of her office in implementation of a valid
reorganization. This is not the unjustifiable cause which results in injury to the rights of a person
contemplated by Article 1146. The abolition of the office was not a whimsical, thoughtless
move. It was a thoroughly evaluated action for streamlining functions based on a rehabilitation
plan. 21 At the time of the abolition of the Fund Transfer Department in 1986, foreign exchange
losses of the bank amounted to P81.1 Million. 22 The head of office was a Senior Vice President.
At the time of restoration of the department in 1991, it was headed by a vice president (lower
in rank) and showed earnings of P2,620.0 Million. 23 Other departments abolished in 1986 were
also subsequently restored.

Restoring petitioner to her previous position with backwages would be unjust enrichment to
her, considering that she had abandoned or showed lack of interest in reclaiming the same
position when the bank was not yet fully rehabilitated and she only insisted on reinstatement in
August 1989 or two (2) years after her alleged unjustified separation.

To those who feel that their unjustified separation from the service is for a cause beyond their
control, the aforecited Magno case teaches:

. . . while We fully recognize the special protection which the Constitution, labor laws,
and social legislation accord the workingman, We cannot, however, alter or amend the
law on prescription to relieve him of the consequences of his inaction. Vigilantibus, non
dormientibus, jura subveniunt (Laws come to the assistance of the vigilant, not of the
sleeping). His explanation that he could not have filed the complaint earlier because "he
was prevented to do so beyond his control for the simple reason that private
respondent have (sic) tried to circumvent the law by merely floating" him is very flimsy
and does not even evoke sympathetic consideration, if at all it is proper and necessary.
We note that petitioner herein is not an unlettered man; he seems to be educated and
assertive of his rights and appears to be familiar with judicial procedures. He filed a
motion for extension of time to file the petition and the petition itself without the
assistance of counsel. We cannot believe that if indeed he had a valid grievance against
PNCC he would not have taken immediate positive steps for its redress.

WHEREFORE, premises considered, the assailed CSC resolution is AFFIRMED. The petition is DISMISSED
for failure to show grave abuse of discretion on the part of said CSC in rendering the questioned
resolution. No pronouncement as to costs. SO ORDERED.

G.R. No. L-9959 December 13, 1916

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, represented by the Treasurer of the

Philippine Islands,plaintiff-appellee,
vs.
EL MONTE DE PIEDAD Y CAJA DE AHORRAS DE MANILA, defendant-appellant.

TRENT, J.:

About $400,000, were subscribed and paid into the treasury of the Philippine Islands by the
inhabitants of the Spanish Dominions of the relief of those damaged by the earthquake which
took place in the Philippine Islands on June 3, 1863. Subsequent thereto and on October 6 of
that year, a central relief board was appointed, by authority of the King of Spain, to distribute
the moneys thus voluntarily contributed. After a thorough investigation and consideration, the
relief board allotted $365,703.50 to the various sufferers named in its resolution, dated
September 22, 1866, and, by order of the Governor-General of the Philippine Islands, a list of
these allotments, together with the names of those entitled thereto, was published in the
Official Gazette of Manila dated April 7, 1870. There was later distributed, inaccordance with
the above-mentioned allotments, the sum of $30,299.65, leaving a balance of S365,403.85 for
distribution. Upon the petition of the governing body of the Monte de Piedad, dated February
1, 1833, the Philippine Government, by order dated the 1st of that month, directed its treasurer
to turn over to the Monte de Piedad the sum of $80,000 of the relief fund in installments of
$20,000 each. These amounts were received on the following dates: February 15, March 12,
April 14, and June 2, 1883, and are still in the possession of the Monte de Piedad. On account of
various petitions of the persons, and heirs of others to whom the above-mentioned allotments
were made by the central relief board for the payment of those amounts, the Philippine Islands
to bring suit against the Monte de Piedad a recover, "through the Attorney-General and in
representation of the Government of the Philippine Islands," the $80.000, together with
interest, for the benefit of those persons or their heirs appearing in the list of names published
in the Official Gazette instituted on May 3, 1912, by the Government of the Philippine Islands,
represented by the Insular Treasurer, and after due trial, judgment was entered in favor of the
plaintiff for the sum of $80,000 gold or its equivalent in Philippine currency, together with legal
interest from February 28, 1912, and the costs of the cause. The defendant appealed and
makes the following assignment of errors:

1. The court erred in not finding that the eighty thousand dollars ($80,000), give to
the Monte de Piedad y Caja de Ahorros, were so given as a donation subject to one
condition, to wit: the return of such sum of money to the Spanish Government of these
Islands, within eight days following the day when claimed, in case the Supreme
Government of Spain should not approve the action taken by the former government.

2. The court erred in not having decreed that this donation had been cleared; said eighty
thousand dollars ($80,000) being at present the exclusive property of the appellant
the Monte de Piedad y Caja de Ahorros.

3. That the court erred in stating that the Government of the Philippine Islands has
subrogated the Spanish Government in its rights, as regards an important sum of money
resulting from a national subscription opened by reason of the earthquake of June 3,
1863, in these Island.

4. That the court erred in not declaring that Act Numbered 2109, passed by the
Philippine Legislature on January 30, 1912, is unconstitutional.

5. That the court erred in holding in its decision that there is no title for the prescription
of this suit brought by the Insular Government against the Monte de Piedad y Caja de
Ahorros for the reimbursement of the eighty thousand dollars ($80,000) given to it by
the late Spanish Government of these Islands.

6. That the court erred in sentencing the Monte de Piedad y Caja de Ahorros to
reimburse the Philippine Government in the sum of eighty thousand dollars ($80,000)
gold coin, or the equivalent thereof in the present legal tender currency in circulation,
with legal interest thereon from February 28th, 1912, and the costs of this suit.

In the royal order of June 29, 1879, the Governor-General of the Philippine Islands was directed
to inform the home Government in what manner the indemnity might be paid to which, by
virtue of the resolutions of the relief board, the persons who suffered damage by the
earthquake might be entitled, in order to perform the sacred obligation which the Government
of Spain had assumed toward the donors.

The next pertinent document in order is the defendant's petition, dated February 1, 1883,
addressed to the Governor-General of the Philippine Islands, which reads:
Board of Directors of the Monte de Piedad of Manila Presidencia.

Excellency: The Board of Directors of the Monte de Piedad y Caja de Ahorros of Manila
informs your Excellency, First: That the funds which it has up to the present been able to
dispose of have been exhausted in loans on jewelry, and there only remains the sum of
one thousand and odd pesos, which will be expended between to-day and day after
tomorrow. Second: That, to maintain the credit of the establishment, which would be
greatly injured were its operations suspended, it is necessary to procure money. Third:
That your Excellency has proposed to His Majesty's Government to apply to the funds of
theMonte de Piedad a part of the funds held in the treasury derived form the national
subscription for the relief of the distress caused by the earthquake of 1863. Fourth: That
in the public treasury there is held at the disposal of the central earthquake relief board
over $1090,000 which was deposited in the said treasury by order of your general
Government, it having been transferred thereto from the Spanish-Filipino Bank where it
had been held. fifth: That in the straightened circumstances of the moment, your
Excellency can, to avert impending disaster to the Monte de Piedad, order that, out of
that sum of one hundred thousand pesos held in the Treasury at the disposal of the
central relief board, there be transferred to the Monte de Piedadthe sum of $80,000,
there to be held under the same conditions as at present in the Treasury, to wit, at the
disposal of the Relief Board. Sixth: That should this transfer not be approved for any
reason, either because of the failure of His Majesty's Government to approve the
proposal made by your Excellency relative to the application to the needs of the Monte
de Piedad of a pat of the subscription intended to believe the distress caused by the
earthquake of 1863, or for any other reason, the board of directors of the Monte de
Piedad obligates itself to return any sums which it may have received on account of the
eighty thousand pesos, or the whole thereof, should it have received the same, by
securing a loan from whichever bank or banks may lend it the money at the cheapest
rate upon the security of pawned jewelry. This is an urgent measure to save
the Monte de Piedad in the present crisis and the board of directors trusts to secure
your Excellency's entire cooperation and that of the other officials who have take part in
the transaction.

The Governor-General's resolution on the foregoing petition is as follows:

GENERAL GOVERNMENT OF THE PHILIPPINES.

MANILA, February 1, 1883.

In view of the foregoing petition addressed to me by the board of directors of

the Monte de Piedad of this city, in which it is stated that the funds which the said
institution counted upon are nearly all invested in loans on jewelry and that the small
account remaining will scarcely suffice to cover the transactions of the next two days,
for which reason it entreats the general Government that, in pursuance of its
telegraphic advice to H. M. Government, the latter direct that there be turned over to
said Monte de Piedad $80,000 out of the funds in the public treasury obtained from the
national subscription for the relief of the distress caused by the earthquake of 1863, said
board obligating itself to return this sum should H. M. Government, for any reason, not
approve the said proposal, and for this purpose it will procure funds by means of loans
raised on pawned jewelry; it stated further that if the aid so solicited is not furnished, it
will be compelled to suspend operations, which would seriously injure the credit of so
beneficient an institution; and in view of the report upon the matter made by the
Intendencia General de Hacienda; and considering the fact that the public treasury has
on hand a much greater sum from the source mentioned than that solicited; and
considering that this general Government has submitted for the determination of H. M.
Government that the balance which, after strictly applying the proceeds obtained from
the subscription referred to, may remain as a surplus should be delivered to the Monte
de Piedad, either as a donation, or as a loan upon the security of the credit of the
institution, believing that in so doing the wishes of the donors would be faithfully
interpreted inasmuch as those wishes were no other than to relieve distress, an act of
 charity which is exercised in the highest degree by the Monte de Piedad, for it liberates
needy person from the pernicious effects of usury; and

Considering that the lofty purposes that brought about the creation of the pious
institution referred to would be frustrated, and that the great and laudable work of its
establishment, and that the great and laudable and valuable if the aid it urgently seeks is
not granted, since the suspension of its operations would seriously and regrettably
damage the ever-growing credit of the Monte de Piedad; and

Considering that if such a thing would at any time cause deep distress in the public
mind, it might be said that at the present juncture it would assume the nature of a
disturbance of public order because of the extreme poverty of the poorer classes
resulting from the late calamities, and because it is the only institution which can
mitigate the effects of such poverty; and

Considering that no reasonable objection can be made to granting the request herein
contained, for the funds in question are sufficiently secured in the unlikely event that H>
M. Government does not approve the recommendation mentioned, this general
Government, in the exercise of the extraordinary powers conferred upon it and in
conformity with the report of the Intendencia de Hacienda, resolves as follows:

First. Authority is hereby given to deliver to the Monte de Piedad, out of the sum held in
the public treasury of these Islands obtained from the national subscription opened by
reason of the earthquakes of 1863, amounts up to the sum $80,000, as its needs may
require, in installments of $20,000.

Second. The board of directors of the Monte de Piedad is solemnly bound to return,
within eight days after demand, the sums it may have so received, if H. M. Government
does not approve this resolution.

Third. The Intendencia General de Hacienda shall forthwith, and in preference to all
other work, proceed to prepare the necessary papers so that with the least possible
delay the payment referred to may be made and the danger that menaces the Monte de
Piedad of having to suspend its operations may be averted.

H. M. Government shall be advised hereof.lawphi1.net

(Signed) P. DE RIVERA.

By the royal order of December 3, 1892, the Governor-General of the Philippine Islands was
ordered to "inform this ministerio what is the total sum available at the present time, taking
into consideration the sums delivered to the Monte de Piedad pursuant to the decree issued by
your general Government on February 1, 1883," and after the rights of the claimants, whose
names were published in the Official Gazette of Manila on April 7, 1870, and their heirs had
been established, as therein provided, as such persons "have an unquestionable right to be paid
the donations assigned to them therein, your general Government shall convoke them all
within a reasonable period and shall pay their shares to such as shall identify themselves,
without regard to their financial status," and finally "that when all the proceedings and
operations herein mentioned have been concluded and the Government can consider itself free
from all kinds of claims on the part of those interested in the distribution of the funds
deposited in the vaults of the Treasury, such action may be taken as the circumstances shall
require, after first consulting the relief board and your general Government and taking account
of what sums have been delivered to the Monte de Piedad and those that were expended in
1888 to relieve public calamities," and "in order that all the points in connection with the
proceedings had as a result of the earthquake be clearly understood, it is indispensable that the
offices hereinbefore mentioned comply with the provisions contained in paragraphs 2 and 3 of
the royal order of June 25, 1879." On receipt of this Finance order by the Governor-General, the
Department of Finance was called upon for a report in reference to the $80,000 turned over to
the defendant, and that Department's report to the Governor-General dated June 28, 1893,
reads:
Intendencia General de Hacienda de Filipinas (General Treasury of the Philippines)
Excellency. By Royal Order No. 1044 of December 3, last, it is provided that the
persons who sustained losses by the earthquakes that occurred in your capital in the
year 1863 shall be paid the amounts allotted to them out of the sums sent from Spain
for this purpose, with observance of the rules specified in the said royal order, one of
them being that before making the payment to the interested parties the assets shall be
reduced to money. These assets, during the long period of time that has elapsed since
they were turned over to the Treasury of the Philippine Islands, were used to cover the
general needs of the appropriation, a part besides being invested in the relief of
charitable institutions and another part to meet pressing needs occasioned by public
calamities. On January 30, last, your Excellency was please to order the fulfillment of
that sovereign mandate and referred the same to this Intendencia for its information
and the purposes desired (that is, for compliance with its directions and, as aforesaid,
one of these being the liquidation, recovery, and deposit with the Treasury of the sums
paid out of that fund and which were expended in a different way from that intended by
the donors) and this Intendencia believed the moment had arrived to claim from the
board of directors of the Monte de Piedad y Caja de Ahorros the sum of 80,000 pesos
which, by decree of your general Government of the date of February 1, 1883, was
loaned to it out of the said funds, the (Monte de Piedad) obligating itself to return the
same within the period of eight days if H. M. Government did not approve the delivery.
On this Intendencia's demanding from the Monte de Piedad the eighty thousand pesos,
thus complying with the provisions of the Royal Order, it was to be supposed that no
objection to its return would be made by the Monte de Piedad for, when it received the
loan, it formally engaged itself to return it; and, besides, it was indisputable that the
moment to do so had arrived, inasmuch as H. M. Government, in ordering that the
assets of the earthquake relief fund should he collected, makes express mention of the
80,000 pesos loaned to the Monte de Piedad, without doubt considering as sufficient
the period of ten years during which it has been using this large sum which lawfully
belongs to their persons. This Intendencia also supposed that the Monte de Piedad no
longer needed the amount of that loan, inasmuch as, far from investing it in beneficient
transactions, it had turned the whole amount into the voluntary deposit funds bearing 5
per cent interests, the result of this operation being that the debtor loaned to the
creditor on interest what the former had gratuitously received. But the Monte de
Piedad, instead of fulfilling the promise it made on receiving the sum, after repeated
demands refused to return the money on the ground that only your Excellency, and not
the Intendencia (Treasury), is entitled to order the reimbursement, taking no account of
the fact that this Intendencia was acting in the discharge of a sovereign command, the
fulfillment of which your Excellency was pleased to order; and on the further ground
that the sum of 80,000 pesos which it received from the fund intended for the
earthquake victims was not received as a loan, but as a donation, this in the opinion of
this Intendencia, erroneously interpreting both the last royal order which directed the
apportionment of the amount of the subscription raised in the year 1863 and the
superior decree which granted the loan, inasmuch as in this letter no donation is made
to the Monte de Piedad of the 80,000 pesos, but simply a loan; besides, no donation
whatever could be made of funds derived from a private subscription raised for a
specific purpose, which funds are already distributed and the names of the beneficiaries
have been published in the Gaceta, there being lacking only the mere material act of the
delivery, which has been unduly delayed. In view of the unexpected reply made by
the Monte de Piedad, and believing it useless to insist further in the matter of the claim
for the aforementioned loan, or to argue in support thereof, this Intendencia believes
the intervention of your Excellency necessary in this matter, if the royal Order No. 1044
of December 3, last, is to be complied with, and for this purpose I beg your Excellency
kindly to order the Monte de Piedad to reimburse within the period of eight days the
80,000 which it owes, and that you give this Intendencia power to carry out the
provisions of the said royal order. I must call to the attention of your Excellency that the
said pious establishment, during the last few days and after demand was made upon it,
has endorsed to the Spanish-Filipino Bank nearly the whole of the sum which it had on
deposit in the general deposit funds.
The record in the case under consideration fails to disclose any further definite action taken by
either the Philippine Government or the Spanish Government in regard to the $80,000 turned
over to the Monte de Piedad.

In the defendant's general ledger the following entries appear: "Public Treasury: February 15,
1883, $20,000; March 12, 1883, $20,000; April 14, 1883, $20,000; June 2, 1883, $20,000, total
$80,000." The book entry for this total is as follows: "To the public Treasury derived from the
subscription for the earthquake of 1863, $80,000 received from general Treasury as a
returnable loan, and without interest." The account was carried in this manner until January 1,
1899, when it was closed by transferring the amount to an account called "Sagrada Mitra,"
which latter account was a loan of $15,000 made to the defendant by the Archbishop of Manila,
without interest, thereby placing the "Sagrada Mitra" account at $95,000 instead of $15,000.
The above-mentioned journal entry for January 1, 1899, reads: "Sagrada Mitra and
subscription, balance of these two account which on this date are united in accordance with an
order of the Exmo. Sr. Presidente of the Council transmitted verbally to the Presidente
Gerente of these institutions, $95,000."

On March 16, 1902, the Philippine government called upon the defendant for information
concerning the status of the $80,000 and received the following reply:

MANILA, March 31, 1902.

To the Attorney-General of the Department of Justice of the Philippine Islands.

SIR: In reply to your courteous letter of the 16th inst., in which you request information
from this office as to when and for what purpose the Spanish Government delivered to
the Monte de Piedad eighty thousand pesos obtained from the subscription opened in
connection with the earthquake of 1863, as well as any other information that might be
useful for the report which your office is called upon to furnish, I must state to your
department that the books kept in these Pious Institutions, and which have been
consulted for the purpose, show that on the 15th of February, 1883, they received as a
reimbursable loan and without interest, twenty thousand pesos, which they deposited
with their own funds. On the same account and on each of the dates of March 12, April
14 and June 2 of the said year, 1883, they also received and turned into their funds a
like sum of twenty thousand pesos, making a total of eighty thousand pesos. (Signed)
Emilio Moreta.

I hereby certify that the foregoing is a literal copy of that found in the letter book No. 2
of those Pious Institutions.

Manila, November 19, 1913

(Sgd.) EMILIO LAZCANOTEGUI,
Secretary

(Sgd.) O. K. EMILIO MORETA,

Managing Director.

The foregoing documentary evidence shows the nature of the transactions which took place
between the Government of Spain and the Philippine Government on the one side and
the Monte de Piedad on the other, concerning the $80,000. The Monte de Piedad, after setting
forth in its petition to the Governor-General its financial condition and its absolute necessity for
more working capital, asked that out of the sum of $100,000 held in the Treasury of the
Philippine Islands, at the disposal of the central relief board, there be transferred to it the sum
of $80,000 to be held under the same conditions, to wit, "at the disposal of the relief board."
The Monte de Piedad agreed that if the transfer of these funds should not be approved by the
Government of Spain, the same would be returned forthwith. It did not ask that the $80,000 be
given to it as a donation. The Governor-General, after reciting the substance of the petition,
stated that "this general Government has submitted for the determination of H. M.
Government that the balance which, after strictly applying the proceeds obtained from the
subscription referred to, may remain as a surplus, should be delivered to the Monte de Piedad,
either as a donation, or as a loan upon the security of the credit of the institution," and
"considering that no reasonable objection can be made to granting the request herein
contained," directed the transfer of the $80,000 to be made with the understanding that "the
Board of Directors of the Monte de Piedad is solemnly bound to return, within eight days after
demand, the sums it may have so received, if H. M. Government does not approve this
resolution." It will be noted that the first and only time the word "donation" was used in
connection with the $80,000 appears in this resolution of the Governor-General. It may be
inferred from the royal orders that the Madrid Government did tacitly approve of the transfer
of the $80,000 to the Monte de Piedad as a loan without interest, but that Government
certainly did not approve such transfer as a donation for the reason that the Governor-General
was directed by the royal order of December 3, 1892, to inform the Madrid Government of the
total available sum of the earthquake fund, "taking into consideration the sums delivered to
the Monte de Piedadpursuant to the decree issued by your general Government on February 1,
1883." This language, nothing else appearing, might admit of the interpretation that the Madrid
Government did not intend that the Governor-General of the Philippine Islands should include
the $80,000 in the total available sum, but when considered in connection with the report of
the Department of Finance there can be no doubt that it was so intended. That report refers
expressly to the royal order of December 3d, and sets forth in detail the action taken in order to
secure the return of the $80,000. The Department of Finance, acting under the orders of the
Governor-General, understood that the $80,000 was transferred to the Monte de Piedad well
knew that it received this sum as a loan interest." The amount was thus carried in its books until
January, 1899, when it was transferred to the account of the "Sagrada Mitra" and was
thereafter known as the "Sagrada Mitra and subscription account." Furthermore, the Monte de
Piedad recognized and considered as late as March 31, 1902, that it received the $80,000 "as a
returnable loan, and without interest." Therefore, there cannot be the slightest doubt the fact
that the Monte de Piedad received the $80,000 as a mere loan or deposit and not as a
donation. Consequently, the first alleged error is entirely without foundation.

Counsel for the defendant, in support of their third assignment of error, say in their principal
brief that:

The Spanish nation was professedly Roman Catholic and its King enjoyed the distinction
of being deputy ex officio of the Holy See and Apostolic Vicar-General of the Indies, and
as such it was his duty to protect all pious works and charitable institutions in his
kingdoms, especially those of the Indies; among the latter was the Monte de Piedad of
the Philippines, of which said King and his deputy the Governor-General of the
Philippines, as royal vice-patron, were, in a special and peculiar manner, the protectors;
the latter, as a result of the cession of the Philippine Islands, Implicitly renounced this
high office and tacitly returned it to the Holy See, now represented by the Archbishop of
Manila; the national subscription in question was a kind of foundation or pious work, for
a charitable purpose in these Islands; and the entire subscription not being needed for
its original purpose, the royal vice-patron, with the consent of the King, gave the surplus
thereof to an analogous purpose; the fulfillment of all these things involved, in the
majority, if not in all cases, faithful compliance with the duty imposed upon him by the
Holy See, when it conferred upon him the royal patronage of the Indies, a thing that
touched him very closely in his conscience and religion; the cessionary Government
though Christian, was not Roman Catholic and prided itself on its policy of non-
interference in religious matters, and inveterately maintained a complete separation
between the ecclesiastical and civil powers.

In view of these circumstances it must be quite clear that, even without the express
provisions of the Treaty of Paris, which apparently expressly exclude such an idea, it did
not befit the honor of either of the contracting parties to subrogate to the American
Government in lieu of the Spanish Government anything respecting the disposition of
the funds delivered by the latter to the Monte de Piedad. The same reasons that
induced the Spanish Government to take over such things would result in great
inconvenience to the American Government in attempting to do so. The question was
such a delicate one, for the reason that it affected the conscience, deeply religious, of
 the King of Spain, that it cannot be believed that it was ever his intention to confide the
exercise thereof to a Government like the American. (U. S. vs. Arredondo, 6 Pet. [U. S.],
711.)

It is thus seen that the American Government did not subrogate the Spanish
Government or rather, the King of Spain, in this regard; and as the condition annexed to
the donation was lawful and possible of fulfillment at the time the contract was made,
but became impossible of fulfillment by the cession made by the Spanish Government in
these Islands, compliance therewith is excused and the contract has been cleared
thereof.

The contention of counsel, as thus stated, in untenable for two reason, (1) because such
contention is based upon the erroneous theory that the sum in question was a donation to
the Monte de Piedad and not a loan, and (2) because the charity founded by the donations for
the earthquake sufferers is not and never was intended to be an ecclesiastical pious work. The
first proposition has already been decided adversely to the defendant's contention. As to the
second, the record shows clearly that the fund was given by the donors for a specific and
definite purpose the relief of the earthquake sufferers and for no other purpose. The
money was turned over to the Spanish Government to be devoted to that purpose. The Spanish
Government remitted the money to the Philippine Government to be distributed among the
suffers. All officials, including the King of Spain and the Governor-General of the Philippine
Islands, who took part in the disposal of the fund, acted in their purely civil, official capacity,
and the fact that they might have belonged to a certain church had nothing to do with their acts
in this matter. The church, as such, had nothing to do with the fund in any way whatever until
the $80,000 reached the coffers of the Monte de Piedad (an institution under the control of the
church) as a loan or deposit. If the charity in question had been founded as an ecclesiastical
pious work, the King of Spain and the Governor-General, in their capacities as vicar-general of
the Indies and as royal vice-patron, respectively, would have disposed of the fund as such and
not in their civil capacities, and such functions could not have been transferred to the present
Philippine Government, because the right to so act would have arisen out of the special
agreement between the Government of Spain and the Holy See, based on the union of the
church and state which was completely separated with the change of sovereignty.

And in their supplemental brief counsel say:

By the conceded facts the money in question is part of a charitable subscription. The
donors were persons in Spain, the trustee was the Spanish Government, the donees,
the cestuis que trustent, were certain persons in the Philippine Islands. The whole
matter is one of trusteeship. This is undisputed and indisputable. It follows that the
Spanish Government at no time was the owner of the fund. Not being the owner of the
fund it could not transfer the ownership. Whether or not it could transfer its trusteeship
it certainly never has expressly done so and the general terms of property transfer in the
Treaty of Paris are wholly insufficient for such a purpose even could Spain have
transferred its trusteeship without the consent of the donors and even could the United
States, as a Government, have accepted such a trust under any power granted to it by
the thirteen original States in the Constitution, which is more than doubtful. It follows
further that this Government is not a proper party to the action. The only persons who
could claim to be damaged by this payment to the Monte, if it was unlawful, are the
donors or the cestuis que trustent, and this Government is neither.

If "the whole matter is one of trusteeship," and it being true that the Spanish Government
could not, as counsel say, transfer the ownership of the fund to the Monte de Piedad, the
question arises, who may sue to recover this loan? It needs no argument to show that the
Spanish or Philippine Government, as trustee, could maintain an action for this purpose had
there been no change of sovereignty and if the right of action has not prescribed. But those
governments were something more than mere common law trustees of the fund. In order to
determine their exact status with reference to this fund, it is necessary to examine the law in
force at the time there transactions took place, which are the law of June 20, 1894, the royal
decree of April 27. 1875, and the instructions promulgated on the latter date. These legal
provisions were applicable to the Philippine Islands (Benedicto vs. De la Rama, 3 Phil. Rep., 34)

The funds collected as a result of the national subscription opened in Spain by royal order of
the Spanish Government and which were remitted to the Philippine Government to be
distributed among the earthquake sufferers by the Central Relief Board constituted, under
article 1 of the law of June 20, 1894, and article 2 of the instructions of April 27, 1875, a special
charity of a temporary nature as distinguished from a permanent public charitable institution.
As the Spanish Government initiated the creation of the fund and as the donors turned their
contributions over to that Government, it became the duty of the latter, under article 7 of the
instructions, to exercise supervision and control over the moneys thus collected to the end that
the will of the donors should be carried out. The relief board had no power whatever to dispose
of the funds confided to its charge for other purposes than to distribute them among the
sufferers, because paragraph 3 of article 11 of the instructions conferred the power upon the
secretary of the interior of Spain, and no other, to dispose of the surplus funds, should there be
any, by assigning them to some other charitable purpose or institution. The secretary could not
dispose of any of the funds in this manner so long as they were necessary for the specific
purpose for which they were contributed. The secretary had the power, under the law above
mentioned to appoint and totally or partially change the personnel of the relief board and to
authorize the board to defend the rights of the charity in the courts. The authority of the board
consisted only in carrying out the will of the donors as directed by the Government whose duty
it was to watch over the acts of the board and to see that the funds were applied to the
purposes for which they were contributed .The secretary of the interior, as the representative
of His Majesty's Government, exercised these powers and duties through the Governor-General
of the Philippine Islands. The Governments of Spain and of the Philippine Islands in complying
with their duties conferred upon them by law, acted in their governmental capacities in
attempting to carry out the intention of the contributors. It will this be seen that those
governments were something more, as we have said, than mere trustees of the fund.

It is further contended that the obligation on the part of the Monte de Piedad to return the
$80,000 to the Government, even considering it a loan, was wiped out on the change of
sovereignty, or inn other words, the present Philippine Government cannot maintain this action
for that reason. This contention, if true, "must result from settled principles of rigid law," as it
cannot rest upon any title to the fund in the Monte de Piedad acquired prior to such change.
While the obligation to return the $80,000 to the Spanish Government was still pending, war
between the United States and Spain ensued. Under the Treaty of Paris of December 10, 1898,
the Archipelago, known as the Philippine Islands, was ceded to the United States, the latter
agreeing to pay Spain the sum of $20,000,000. Under the first paragraph of the eighth article,
Spain relinquished to the United States "all buildings, wharves, barracks, forts, structures,
public highways, and other immovable property which, in conformity with law, belonged to the
public domain, and as such belonged to the crown of Spain." As the $80,000 were not included
therein, it is said that the right to recover this amount did not, therefore, pass to the present
sovereign. This, in our opinion, does not follow as a necessary consequence, as the right to
recover does not rest upon the proposition that the $80,000 must be "other immovable
property" mentioned in article 8 of the treaty, but upon contractual obligations incurred before
the Philippine Islands were ceded to the United States. We will not inquire what effect his
cession had upon the law of June 20, 1849, the royal decree of April 27, 1875, and the
instructions promulgated on the latter date. In Vilas vs. Manila (220 U. S., 345), the court said:

That there is a total abrogation of the former political relations of the inhabitants of the
ceded region is obvious. That all laws theretofore in force which are in conflict with the
political character, constitution, or institutions of the substituted sovereign, lose their
force, is also plain. (Alvarez y Sanchez vs. United States, 216 U. S., 167.) But it is equally
settled in the same public law that the great body of municipal law which regulates
private and domestic rights continues in force until abrogated or changed by the new
ruler.

If the above-mentioned legal provisions are in conflict with the political character, constitution
or institutions of the new sovereign, they became inoperative or lost their force upon the
cession of the Philippine Islands to the United States, but if they are among "that great body of
municipal law which regulates private and domestic rights," they continued in force and are still
in force unless they have been repealed by the present Government. That they fall within the
latter class is clear from their very nature and character. They are laws which are not political in
any sense of the word. They conferred upon the Spanish Government the right and duty to
supervise, regulate, and to some extent control charities and charitable institutions. The
present sovereign, in exempting "provident institutions, savings banks, etc.," all of which are in
the nature of charitable institutions, from taxation, placed such institutions, in so far as the
investment in securities are concerned, under the general supervision of the Insular Treasurer
(paragraph 4 of section 111 of Act No. 1189; see also Act No. 701).

Furthermore, upon the cession of the Philippine Islands the prerogatives of he crown of Spain
devolved upon he United States. In Magill vs. Brown (16 Fed. Cas., 408), quoted with approval
in Mormon Charch vs. United States (136 U. S.,1, 57), the court said:

The Revolution devolved on the State all the transcendent power of Parliament, and the
prerogative of the crown, and gave their Acts the same force and effect.

In Fontain vs. Ravenel (17 Hw., 369, 384), Mr. Justice McLean, delivering the opinion of the
court in a charity case, said:

When this country achieved its independence, the prerogatives of the crown devolved
upon the people of the States. And this power still remains with them except so fact as
they have delegated a portion of it to the Federal Government. The sovereign will is
made known to us by legislative enactment. The State as a sovereign, is the parens
patriae.

Chancelor Kent says:

In this country, the legislature or government of the State, as parens patriae, has the
right to enforce all charities of public nature, by virtue of its general superintending
authority over the public interests, where no other person is entrusted with it. (4 Kent
Com., 508, note.)

The Supreme Court of the United States in Mormon Church vs. United States, supra, after
approving also the last quotations, said:

This prerogative of parens patriae is inherent in the supreme power of every State,
whether that power is lodged in a royal person or in the legislature, and has no affinity
to those arbitrary powers which are sometimes exerted by irresponsible monarchs to
the great detriment of the people and the destruction of their liberties. On the contrary,
it is a most beneficient functions, and often necessary to be exercised in the interest of
humanity, and for the prevention of injury to those who cannot protect themselves.

The court in the same case, after quoting from Sohier vs. Mass. General Hospital (3 Cush., 483,
497), wherein the latter court held that it is deemed indispensible that there should be a power
in the legislature to authorize the same of the estates of in facts, idiots, insane persons, and
persons not known, or not in being, who cannot act for themselves, said:

These remarks in reference to in facts, insane persons and person not known, or not in
being, apply to the beneficiaries of charities, who are often in capable of vindicating
their rights, and justly look for protection to the sovereign authority, acting as parens
patriae. They show that this beneficient functions has not ceased t exist under the
change of government from a monarchy to a republic; but that it now resides in the
legislative department, ready to be called into exercise whenever required for the
purposes of justice and right, and is a clearly capable of being exercised in cases of
charities as in any other cases whatever.
In People vs. Cogswell (113 Cal. 129, 130), it was urged that the plaintiff was not the real party
in interest; that the Attorney-General had no power to institute the action; and that there must
be an allegation and proof of a distinct right of the people as a whole, as distinguished from the
rights of individuals, before an action could be brought by the Attorney-General in the name of
the people. The court, in overruling these contentions, held that it was not only the right but
the duty of the Attorney-General to prosecute the action, which related to charities, and
approved the following quotation from Attorney-General vs. Compton (1 Younge & C. C., 417):

Where property affected by a trust for public purposes is in the hands of those who hold
it devoted to that trust, it is the privilege of the public that the crown should be entitled
to intervene by its officers for the purpose of asserting, on behalf on the public
generally, the public interest and the public right, which, probably, no individual could
be found effectually to assert, even if the interest were such as to allow it. (2 Knet's
Commentaries, 10th ed., 359; Lewin on Trusts, sec. 732.)

It is further urged, as above indicated, that "the only persons who could claim to be damaged
by this payment to the Monte, if it was unlawful, are the donors or the cestuis que trustent, and
this Government is neither. Consequently, the plaintiff is not the proper party to bring the
action." The earthquake fund was the result or the accumulation of a great number of small
contributions. The names of the contributors do not appear in the record. Their whereabouts
are unknown. They parted with the title to their respective contributions. The beneficiaries,
consisting of the original sufferers and their heirs, could have been ascertained. They are quite
numerous also. And no doubt a large number of the original sufferers have died, leaving various
heirs. It would be impracticable for them to institute an action or actions either individually or
collectively to recover the $80,000. The only course that can be satisfactorily pursued is for the
Government to again assume control of the fund and devote it to the object for which it was
originally destined.

The impracticability of pursuing a different course, however, is not the true ground upon which
the right of the Government to maintain the action rests. The true ground is that the money
being given to a charity became, in a measure, public property, only applicable, it is true, to the
specific purposes to which it was intended to be devoted, but within those limits consecrated
to the public use, and became part of the public resources for promoting the happiness and
welfare of the Philippine Government. (Mormon Church vs. U. S., supra.) To deny the
Government's right to maintain this action would be contrary to sound public policy, as tending
to discourage the prompt exercise of similar acts of humanity and Christian benevolence in like
instances in the future.

As to the question raised in the fourth assignment of error relating to the constitutionality of
Act No. 2109, little need be said for the reason that we have just held that the present
Philippine Government is the proper party to the action. The Act is only a manifestation on the
part of the Philippine Government to exercise the power or right which it undoubtedly had. The
Act is not, as contended by counsel, in conflict with the fifth section of the Act of Congress of
July 1, 1902, because it does not take property without due process of law. In fact, the
defendant is not the owner of the $80,000, but holds it as a loan subject to the disposal of the
central relief board. Therefor, there can be nothing in the Act which transcends the power of
the Philippine Legislature.

In Vilas vs. Manila, supra, the plaintiff was a creditor of the city of Manila as it existed before
the cession of the Philippine Islands to the United States by the Treaty of Paris of December 10,
1898. The action was brought upon the theory that the city, under its present charter from the
Government of the Philippine Islands, was the same juristic person, and liable upon the
obligations of the old city. This court held that the present municipality is a totally different
corporate entity and in no way liable for the debts of the Spanish municipality. The Supreme
Court of the United States, in reversing this judgment and in holding the city liable for the old
debt, said:

The juristic identity of the corporation has been in no wise affected, and, in law, the
present city is, in every legal sense, the successor of the old. As such it is entitled to the
 property and property rights of the predecessor corporation, and is, in law, subject to all
of its liabilities.

In support of the fifth assignment of error counsel for the defendant argue that as the Monte
de Piedad declined to return the $80,000 when ordered to do so by the Department of Finance
in June, 1893, the plaintiff's right of action had prescribed at the time this suit was instituted on
May 3, 1912, citing and relying upon article 1961, 1964 and 1969 of the Civil Code. While on the
other hand, the Attorney-General contends that the right of action had not prescribed (a)
because the defense of prescription cannot be set up against the Philippine Government, (b)
because the right of action to recover a deposit or trust funds does not prescribe, and (c) even
if the defense of prescription could be interposed against the Government and if the action
had, in fact, prescribed, the same was revived by Act No. 2109.

The material facts relating to this question are these: The Monte de Piedad received the
$80,000 in 1883 "to be held under the same conditions as at present in the treasury, to wit, at
the disposal of the relief board." In compliance with the provisions of the royal order of
December 3, 1892, the Department of Finance called upon the Monte de Piedad in June, 1893,
to return the $80,000. The Monte declined to comply with this order upon the ground that only
the Governor-General of the Philippine Islands and not the Department of Finance had the right
to order the reimbursement. The amount was carried on the books of the Monte as a
returnable loan until January 1, 1899, when it was transferred to the account of the "Sagrada
Mitra." On March 31, 1902, the Monte, through its legal representative, stated in writing that
the amount in question was received as a reimbursable loan, without interest. Act No. 2109
became effective January 30, 1912, and the action was instituted on May 3rd of that year.

Counsel for the defendant treat the question of prescription as if the action was one between
individuals or corporations wherein the plaintiff is seeking to recover an ordinary loan. Upon
this theory June, 1893, cannot be taken as the date when the statute of limitations began to
run, for the reason that the defendant acknowledged in writing on March 31, 1902, that the
$80,000 were received as a loan, thereby in effect admitting that it still owed the amount.
(Section 50, Code of Civil Procedure.) But if counsels' theory is the correct one the action may
have prescribed on May 3, 1912, because more than ten full years had elapsed after March 31,
1902. (Sections 38 and 43, Code of Civil Procedure.)

Is the Philippine Government bound by the statute of limitations? The Supreme Court of the
United States in U. S.vs. Nashville, Chattanooga & St. Louis Railway Co. (118 U. S., 120, 125),
said:

It is settled beyond doubt or controversy upon the foundation of the great principle
of public policy, applicable to all governments alike, which forbids that the public
interests should be prejudiced by the negligence of the officers or agents to whose care
they are confided that the United States, asserting rights vested in it as a sovereign
government, is not bound by any statute of limitations, unless Congress has clearly
manifested its intention that it should be so bound. (Lindsey vs. Miller, 6 Pet. 666; U.
S. vs.Knight, 14 Pet., 301; Gibson vs. Chouteau, 13 Wall., 92; U. S. vs. Thompson, 98 U.
S., 486; Fink vs. O'Neil, 106 U. S., 272, 281.)

In Gibson vs. Choteau, supra, the court said:

It is a matter of common knowledge that statutes of limitation do not run against the
State. That no laches can be imputed to the King, and that no time can bar his rights,
was the maxim of the common laws, and was founded on the principle of public policy,
that as he was occupied with the cares of government he ought not to suffer from the
negligence of his officer and servants. The principle is applicable to all governments,
which must necessarily act through numerous agents, and is essential to a preservation
of the interests and property of the public. It is upon this principle that in this country
the statutes of a State prescribing periods within which rights must be prosecuted are
not held to embrace the State itself, unless it is expressly designated or the mischiefs to
be remedied are of such a nature that it must necessarily be included. As legislation of a
 State can only apply to persons and thing over which the State has jurisdiction, the
United States are also necessarily excluded from the operation of such statutes.

In 25 Cyc., 1006, the rule, supported by numerous authorities, is stated as follows:

In the absence of express statutory provision to the contrary, statute of limitations do

not as a general rule run against the sovereign or government, whether state or federal.
But the rule is otherwise where the mischiefs to be remedied are of such a nature that
the state must necessarily be included, where the state goes into business in concert or
in competition with her citizens, or where a party seeks to enforces his private rights by
suit in the name of the state or government, so that the latter is only a nominal party.

In the instant case the Philippine Government is not a mere nominal party because it, in
bringing and prosecuting this action, is exercising its sovereign functions or powers and is
seeking to carry out a trust developed upon it when the Philippine Islands were ceded to the
United States. The United States having in 1852, purchased as trustee for the Chickasaw Indians
under treaty with that tribe, certain bonds of the State of Tennessee, the right of action of the
Government on the coupons of such bonds could not be barred by the statute of limitations of
Tennessee, either while it held them in trust for the Indians, or since it became the owner of
such coupons. (U. S.vs. Nashville, etc., R. Co., supra.) So where lands are held in trust by the
state and the beneficiaries have no right to sue, a statute does not run against the State's right
of action for trespass on the trust lands. (Greene Tp. vs.Campbell, 16 Ohio St., 11; see also
Atty.-Gen. vs. Midland R. Co., 3 Ont., 511 [following Reg. vs. Williams, 39 U. C. Q. B., 397].)

These principles being based "upon the foundation of the great principle of public policy" are,
in the very nature of things, applicable to the Philippine Government.

Counsel in their argument in support of the sixth and last assignments of error do not question
the amount of the judgment nor do they question the correctness of the judgment in so far as it
allows interest, and directs its payment in gold coin or in the equivalent in Philippine currency.

For the foregoing reasons the judgment appealed from is affirmed, with costs against the
appellant. So ordered.

G.R. No. L-25843 July 25, 1974

MELCHORA CABANAS, plaintiff-appellee,

vs.
FRANCISCO PILAPIL, defendant-appellant.

Seno, Mendoza & Associates for plaintiff-appellee.

Emilio Benitez, Jr. for defendant-appellant.

FERNANDO, J.:p

The disputants in this appeal from a question of law from a lower court decision are the mother
and the uncle of a minor beneficiary of the proceeds of an insurance policy issued on the life of
her deceased father. The dispute centers as to who of them should be entitled to act as trustee
thereof. The lower court applying the appropriate Civil Code provisions decided in favor of the
mother, the plaintiff in this case. Defendant uncle appealed. As noted, the lower court acted
the way it did following the specific mandate of the law. In addition, it must have taken into
account the principle that in cases of this nature the welfare of the child is the paramount
consideration. It is not an unreasonable assumption that between a mother and an uncle, the
former is likely to lavish more care on and pay greater attention to her. This is all the more
likely considering that the child is with the mother. There are no circumstances then that did
militate against what conforms to the natural order of things, even if the language of the law
were not as clear. It is not to be lost sight of either that the judiciary pursuant to its role as an
agency of the State as parens patriae, with an even greater stress on family unity under the
present Constitution, did weigh in the balance the opposing claims and did come to the
conclusion that the welfare of the child called for the mother to be entrusted with such
responsibility. We have to affirm.

The appealed decision made clear: "There is no controversy as to the facts. " 1 The insured,
Florentino Pilapil had a child, Millian Pilapil, with a married woman, the plaintiff, Melchora
Cabanas. She was ten years old at the time the complaint was filed on October 10, 1964. The
defendant, Francisco Pilapil, is the brother of the deceased. The deceased insured himself and
instituted as beneficiary, his child, with his brother to act as trustee during her minority. Upon
his death, the proceeds were paid to him. Hence this complaint by the mother, with whom the
child is living, seeking the delivery of such sum. She filed the bond required by the Civil Code.
Defendant would justify his claim to the retention of the amount in question by invoking the
terms of the insurance policy. 2

After trial duly had, the lower court in a decision of May 10, 1965, rendered judgment ordering
the defendant to deliver the proceeds of the policy in question to plaintiff. Its main reliance was
on Articles 320 and 321 of the Civil Code. The former provides: "The father, or in his absence
the mother, is the legal administrator of the property pertaining to the child under parental
authority. If the property is worth more than two thousand pesos, the father or mother shall
give a bond subject to the approval of the Court of First Instance." 3 The latter states: "The
property which the unemancipated child has acquired or may acquire with his work or industry,
or by any lucrative title, belongs to the child in ownership, and in usufruct to the father or
mother under whom he is under parental authority and whose company he lives; ... 4

Conformity to such explicit codal norm is apparent in this portion of the appealed decision:
"The insurance proceeds belong to the beneficiary. The beneficiary is a minor under the
custody and parental authority of the plaintiff, her mother. The said minor lives with plaintiff or
lives in the company of the plaintiff. The said minor acquired this property by lucrative title.
Said property, therefore, belongs to the minor child in ownership, and in usufruct to the
plaintiff, her mother. Since under our law the usufructuary is entitled to possession, the plaintiff
is entitled to possession of the insurance proceeds. The trust, insofar as it is in conflict with the
above quoted provision of law, is pro tanto null and void. In order, however, to protect the
rights of the minor, Millian Pilapil, the plaintiff should file an additional bond in the
guardianship proceedings, Sp. Proc. No. 2418-R of this Court to raise her bond therein to the
total amount of P5,000.00." 5

It is very clear, therefore, considering the above, that unless the applicability of the two cited
Civil Code provisions can be disputed, the decision must stand. There is no ambiguity in the
language employed. The words are rather clear. Their meaning is unequivocal. Time and time
again, this Court has left no doubt that where codal or statutory norms are cast in categorical
language, the task before it is not one of interpretation but of application. 6So it must be in this
case. So it was in the appealed decision.

1. It would take more than just two paragraphs as found in the brief for the defendant-
appellant 7 to blunt the force of legal commands that speak so plainly and so unqualifiedly. Even
if it were a question of policy, the conclusion will remain unaltered. What is paramount, as
mentioned at the outset, is the welfare of the child. It is in consonance with such primordial
end that Articles 320 and 321 have been worded. There is recognition in the law of the deep
ties that bind parent and child. In the event that there is less than full measure of concern for
the offspring, the protection is supplied by the bond required. With the added circumstance
that the child stays with the mother, not the uncle, without any evidence of lack of maternal
care, the decision arrived at can stand the test of the strictest scrutiny. It is further fortified by
the assumption, both logical and natural, that infidelity to the trust imposed by the deceased is
much less in the case of a mother than in the case of an uncle. Manresa, commenting on Article
159 of the Civil Code of Spain, the source of Article 320 of the Civil Code, was of that view: Thus
"El derecho y la obligacion de administrar el Patrimonio de los hijos es una consecuencia
natural y lgica de la patria potestad y de la presuncin de que nadie cuidar de los bienes de
acqullos con mas cario y solicitude que los padres. En nuestro Derecho antiguo puede decirse
que se hallaba reconocida de una manera indirecta aquelia doctrina, y asi se desprende de la
sentencia del Tribunal Supremeo de 30 de diciembre de 1864, que se refiere a la ley 24, tit. XIII
de la Partida 5. De la propia suerte aceptan en general dicho principio los Codigos extranjeros,
con las limitaciones y requisitos de que trataremos mis adelante." 8

2. The appealed decision is supported by another cogent consideration. It is buttressed by its

adherence to the concept that the judiciary, as an agency of the State acting as parens patriae,
is called upon whenever a pending suit of litigation affects one who is a minor to accord priority
to his best interest. It may happen, as it did occur here, that family relations may press their
respective claims. It would be more in consonance not only with the natural order of things but
the tradition of the country for a parent to be preferred. it could have been different if the
conflict were between father and mother. Such is not the case at all. It is a mother asserting
priority. Certainly the judiciary as the instrumentality of the State in its role of parens patriae,
cannot remain insensible to the validity of her plea. In a recent case, 9 there is this quotation
from an opinion of the United States Supreme Court: "This prerogative of parens patriae is
inherent in the supreme power of every State, whether that power is lodged in a royal person
or in the legislature, and has no affinity to those arbitrary powers which are sometimes exerted
by irresponsible monarchs to the great detriment of the people and the destruction of their
liberties." What is more, there is this constitutional provision vitalizing this concept. It reads:
"The State shall strengthen the family as a basic social institution." 10 If, as the Constitution so
wisely dictates, it is the family as a unit that has to be strengthened, it does not admit of doubt
that even if a stronger case were presented for the uncle, still deference to a constitutional
mandate would have led the lower court to decide as it did.

WHEREFORE, the decision of May 10, 1965 is affirmed. Costs against defendant-appellant.

G.R No. 187167 August 16, 2011

PROF. MERLIN M. MAGALLONA

vs.
HON. EDUARDO ERMITA,

DECISION

CARPIO, J.:

The Case

This original action for the writs of certiorari and prohibition assails the constitutionality of
Republic Act No. 95221(RA 9522) adjusting the countrys archipelagic baselines and classifying
the baseline regime of nearby territories.

The Antecedents

In 1961, Congress passed Republic Act No. 3046 (RA 3046)2 demarcating the maritime baselines
of the Philippines as an archipelagic State.3 This law followed the framing of the Convention on
the Territorial Sea and the Contiguous Zone in 1958 (UNCLOS I),4 codifying, among others, the
sovereign right of States parties over their "territorial sea," the breadth of which, however, was
left undetermined. Attempts to fill this void during the second round of negotiations in Geneva
in 1960 (UNCLOS II) proved futile. Thus, domestically, RA 3046 remained unchanged for nearly
five decades, save for legislation passed in 1968 (Republic Act No. 5446 [RA 5446]) correcting
typographical errors and reserving the drawing of baselines around Sabah in North Borneo.

In March 2009, Congress amended RA 3046 by enacting RA 9522, the statute now under
scrutiny. The change was prompted by the need to make RA 3046 compliant with the terms of
the United Nations Convention on the Law of the Sea (UNCLOS III),5 which the Philippines
ratified on 27 February 1984.6 Among others, UNCLOS III prescribes the water-land ratio,
length, and contour of baselines of archipelagic States like the Philippines7 and sets the
deadline for the filing of application for the extended continental shelf.8 Complying with these
requirements, RA 9522 shortened one baseline, optimized the location of some basepoints
around the Philippine archipelago and classified adjacent territories, namely, the Kalayaan
Island Group (KIG) and the Scarborough Shoal, as "regimes of islands" whose islands generate
their own applicable maritime zones.

Petitioners, professors of law, law students and a legislator, in their respective capacities as
"citizens, taxpayers or x x x legislators,"9 as the case may be, assail the constitutionality of RA
9522 on two principal grounds, namely: (1) RA 9522 reduces Philippine maritime territory, and
logically, the reach of the Philippine states sovereign power, in violation of Article 1 of the 1987
Constitution,10 embodying the terms of the Treaty of Paris11 and ancillary treaties,12 and (2) RA
9522 opens the countrys waters landward of the baselines to maritime passage by all vessels
and aircrafts, undermining Philippine sovereignty and national security, contravening the
countrys nuclear-free policy, and damaging marine resources, in violation of relevant
constitutional provisions.13

In addition, petitioners contend that RA 9522s treatment of the KIG as "regime of islands" not
only results in the loss of a large maritime area but also prejudices the livelihood of subsistence
fishermen.14 To buttress their argument of territorial diminution, petitioners facially attack RA
9522 for what it excluded and included its failure to reference either the Treaty of Paris or
Sabah and its use of UNCLOS IIIs framework of regime of islands to determine the maritime
zones of the KIG and the Scarborough Shoal.

Commenting on the petition, respondent officials raised threshold issues questioning (1) the
petitions compliance with the case or controversy requirement for judicial review grounded on
petitioners alleged lack of locus standiand (2) the propriety of the writs of certiorari and
prohibition to assail the constitutionality of RA 9522. On the merits, respondents defended RA
9522 as the countrys compliance with the terms of UNCLOS III, preserving Philippine territory
over the KIG or Scarborough Shoal. Respondents add that RA 9522 does not undermine the
countrys security, environment and economic interests or relinquish the Philippines claim over
Sabah.

Respondents also question the normative force, under international law, of petitioners
assertion that what Spain ceded to the United States under the Treaty of Paris were the islands
and all the waters found within the boundaries of the rectangular area drawn under the Treaty
of Paris.

We left unacted petitioners prayer for an injunctive writ.

The Issues

The petition raises the following issues:

1. Preliminarily

1. Whether petitioners possess locus standi to bring this suit; and

 2. Whether the writs of certiorari and prohibition are the proper remedies to
assail the constitutionality of RA 9522.

2. On the merits, whether RA 9522 is unconstitutional.

The Ruling of the Court

On the threshold issues, we hold that (1) petitioners possess locus standi to bring this suit as
citizens and (2) the writs of certiorari and prohibition are proper remedies to test the
constitutionality of RA 9522. On the merits, we find no basis to declare RA 9522
unconstitutional.

On the Threshold Issues

Petitioners Possess Locus
Standi as Citizens

Petitioners themselves undermine their assertion of locus standi as legislators and taxpayers
because the petition alleges neither infringement of legislative prerogative15 nor misuse of
public funds,16 occasioned by the passage and implementation of RA 9522. Nonetheless, we
recognize petitioners locus standi as citizens with constitutionally sufficient interest in the
resolution of the merits of the case which undoubtedly raises issues of national significance
necessitating urgent resolution. Indeed, owing to the peculiar nature of RA 9522, it is
understandably difficult to find other litigants possessing "a more direct and specific interest"
to bring the suit, thus satisfying one of the requirements for granting citizenship standing. 17

The Writs of Certiorari and Prohibition

Are Proper Remedies to Test
the Constitutionality of Statutes

In praying for the dismissal of the petition on preliminary grounds, respondents seek a strict
observance of the offices of the writs of certiorari and prohibition, noting that the writs cannot
issue absent any showing of grave abuse of discretion in the exercise of judicial, quasi-judicial or
ministerial powers on the part of respondents and resulting prejudice on the part of
petitioners.18

Respondents submission holds true in ordinary civil proceedings. When this Court exercises its
constitutional power of judicial review, however, we have, by tradition, viewed the writs of
certiorari and prohibition as proper remedial vehicles to test the constitutionality of
statutes,19 and indeed, of acts of other branches of government.20 Issues of constitutional
import are sometimes crafted out of statutes which, while having no bearing on the personal
interests of the petitioners, carry such relevance in the life of this nation that the Court
inevitably finds itself constrained to take cognizance of the case and pass upon the issues
raised, non-compliance with the letter of procedural rules notwithstanding. The statute sought
to be reviewed here is one such law.

RA 9522 is Not Unconstitutional

RA 9522 is a Statutory Tool
to Demarcate the Countrys
Maritime Zones and Continental
Shelf Under UNCLOS III, not to
Delineate Philippine Territory

Petitioners submit that RA 9522 "dismembers a large portion of the national

territory"21 because it discards the pre-UNCLOS III demarcation of Philippine territory under the
Treaty of Paris and related treaties, successively encoded in the definition of national territory
under the 1935, 1973 and 1987 Constitutions. Petitioners theorize that this constitutional
definition trumps any treaty or statutory provision denying the Philippines sovereign control
over waters, beyond the territorial sea recognized at the time of the Treaty of Paris, that Spain
supposedly ceded to the United States. Petitioners argue that from the Treaty of Paris
technical description, Philippine sovereignty over territorial waters extends hundreds of
nautical miles around the Philippine archipelago, embracing the rectangular area delineated in
the Treaty of Paris.22

Petitioners theory fails to persuade us.

UNCLOS III has nothing to do with the acquisition (or loss) of territory. It is a multilateral treaty
regulating, among others, sea-use rights over maritime zones (i.e., the territorial waters [12
nautical miles from the baselines], contiguous zone [24 nautical miles from the baselines],
exclusive economic zone [200 nautical miles from the baselines]), and continental shelves that
UNCLOS III delimits.23 UNCLOS III was the culmination of decades-long negotiations among
United Nations members to codify norms regulating the conduct of States in the worlds oceans
and submarine areas, recognizing coastal and archipelagic States graduated authority over a
limited span of waters and submarine lands along their coasts.

On the other hand, baselines laws such as RA 9522 are enacted by UNCLOS III States parties to
mark-out specific basepoints along their coasts from which baselines are drawn, either straight
or contoured, to serve as geographic starting points to measure the breadth of the maritime
zones and continental shelf. Article 48 of UNCLOS III on archipelagic States like ours could not
be any clearer:

Article 48. Measurement of the breadth of the territorial sea, the contiguous zone, the exclusive
economic zone and the continental shelf. The breadth of the territorial sea, the contiguous
zone, the exclusive economic zone and the continental shelf shall be measured from
archipelagic baselines drawn in accordance with article 47. (Emphasis supplied)

Thus, baselines laws are nothing but statutory mechanisms for UNCLOS III States parties to
delimit with precision the extent of their maritime zones and continental shelves. In turn, this
gives notice to the rest of the international community of the scope of the maritime space and
submarine areas within which States parties exercise treaty-based rights, namely, the exercise
of sovereignty over territorial waters (Article 2), the jurisdiction to enforce customs, fiscal,
immigration, and sanitation laws in the contiguous zone (Article 33), and the right to exploit the
living and non-living resources in the exclusive economic zone (Article 56) and continental shelf
(Article 77).

Even under petitioners theory that the Philippine territory embraces the islands and all the
waters within the rectangular area delimited in the Treaty of Paris, the baselines of the
Philippines would still have to be drawn in accordance with RA 9522 because this is the only
way to draw the baselines in conformity with UNCLOS III. The baselines cannot be drawn from
the boundaries or other portions of the rectangular area delineated in the Treaty of Paris, but
from the "outermost islands and drying reefs of the archipelago."24

UNCLOS III and its ancillary baselines laws play no role in the acquisition, enlargement or, as
petitioners claim, diminution of territory. Under traditional international law typology, States
acquire (or conversely, lose) territory through occupation, accretion, cession and
prescription,25 not by executing multilateral treaties on the regulations of sea-use rights or
enacting statutes to comply with the treatys terms to delimit maritime zones and continental
shelves. Territorial claims to land features are outside UNCLOS III, and are instead governed by
the rules on general international law.26

RA 9522s Use of the Framework

of Regime of Islands to Determine the
Maritime Zones of the KIG and the
Scarborough Shoal, not Inconsistent
with the Philippines Claim of Sovereignty
Over these Areas

Petitioners next submit that RA 9522s use of UNCLOS IIIs regime of islands framework to draw
the baselines, and to measure the breadth of the applicable maritime zones of the KIG,
"weakens our territorial claim" over that area.27 Petitioners add that the KIGs (and
Scarborough Shoals) exclusion from the Philippine archipelagic baselines results in the loss of
"about 15,000 square nautical miles of territorial waters," prejudicing the livelihood of
subsistence fishermen.28 A comparison of the configuration of the baselines drawn under RA
3046 and RA 9522 and the extent of maritime space encompassed by each law, coupled with a
reading of the text of RA 9522 and its congressional deliberations, vis--vis the Philippines
obligations under UNCLOS III, belie this view.1avvphi1

The configuration of the baselines drawn under RA 3046 and RA 9522 shows that RA 9522
merely followed the basepoints mapped by RA 3046, save for at least nine basepoints that RA
9522 skipped to optimize the location of basepoints and adjust the length of one baseline (and
thus comply with UNCLOS IIIs limitation on the maximum length of baselines). Under RA 3046,
as under RA 9522, the KIG and the Scarborough Shoal lie outside of the baselines drawn around
the Philippine archipelago. This undeniable cartographic fact takes the wind out of petitioners
argument branding RA 9522 as a statutory renunciation of the Philippines claim over the KIG,
assuming that baselines are relevant for this purpose.

Petitioners assertion of loss of "about 15,000 square nautical miles of territorial waters" under
RA 9522 is similarly unfounded both in fact and law. On the contrary, RA 9522, by optimizing
the location of basepoints, increased the Philippines total maritime space (covering its internal
waters, territorial sea and exclusive economic zone) by 145,216 square nautical miles, as shown
in the table below:29

Extent of maritime
area using RA 3046, Extent of maritime
as amended, taking area using RA 9522,
into account the taking into account
Treaty of Paris UNCLOS III (in
delimitation (in square nautical
square nautical miles)
miles)
Internal or
archipelagic
waters 166,858 171,435
Territorial Sea 274,136 32,106
Exclusive
Economic Zone 382,669
TOTAL 440,994 586,210

Thus, as the map below shows, the reach of the exclusive economic zone drawn under RA 9522
even extends way beyond the waters covered by the rectangular demarcation under the Treaty
of Paris. Of course, where there are overlapping exclusive economic zones of opposite or
adjacent States, there will have to be a delineation of maritime boundaries in accordance with
UNCLOS III.30
Further, petitioners argument that the KIG now lies outside Philippine territory because the
baselines that RA 9522 draws do not enclose the KIG is negated by RA 9522 itself. Section 2 of
the law commits to text the Philippines continued claim of sovereignty and jurisdiction over
the KIG and the Scarborough Shoal:

SEC. 2. The baselines in the following areas over which the Philippines likewise exercises
sovereignty and jurisdiction shall be determined as "Regime of Islands" under the Republic of
the Philippines consistent with Article 121 of the United Nations Convention on the Law of the
Sea (UNCLOS):

a) The Kalayaan Island Group as constituted under Presidential Decree No. 1596 and

b) Bajo de Masinloc, also known as Scarborough Shoal. (Emphasis supplied)

Had Congress in RA 9522 enclosed the KIG and the Scarborough Shoal as part of the Philippine
archipelago, adverse legal effects would have ensued. The Philippines would have committed a
breach of two provisions of UNCLOS III. First, Article 47 (3) of UNCLOS III requires that "[t]he
drawing of such baselines shall not depart to any appreciable extent from the general
configuration of the archipelago." Second, Article 47 (2) of UNCLOS III requires that "the length
of the baselines shall not exceed 100 nautical miles," save for three per cent (3%) of the total
number of baselines which can reach up to 125 nautical miles.31

Although the Philippines has consistently claimed sovereignty over the KIG32 and the
Scarborough Shoal for several decades, these outlying areas are located at an appreciable
distance from the nearest shoreline of the Philippine archipelago,33 such that any straight
baseline loped around them from the nearest basepoint will inevitably "depart to an
appreciable extent from the general configuration of the archipelago."
The principal sponsor of RA 9522 in the Senate, Senator Miriam Defensor-Santiago, took pains
to emphasize the foregoing during the Senate deliberations:

What we call the Kalayaan Island Group or what the rest of the world call[] the Spratlys and the
Scarborough Shoal are outside our archipelagic baseline because if we put them inside our
baselines we might be accused of violating the provision of international law which states: "The
drawing of such baseline shall not depart to any appreciable extent from the general
configuration of the archipelago." So sa loob ng ating baseline, dapat magkalapit ang mga
islands. Dahil malayo ang Scarborough Shoal, hindi natin masasabing malapit sila sa atin
although we are still allowed by international law to claim them as our own.

This is called contested islands outside our configuration. We see that our archipelago is
defined by the orange line which [we] call[] archipelagic baseline. Ngayon, tingnan ninyo ang
maliit na circle doon sa itaas, that is Scarborough Shoal, itong malaking circle sa ibaba, that is
Kalayaan Group or the Spratlys. Malayo na sila sa ating archipelago kaya kung ilihis pa natin
ang dating archipelagic baselines para lamang masama itong dalawang circles, hindi na sila
magkalapit at baka hindi na tatanggapin ng United Nations because of the rule that it should
follow the natural configuration of the archipelago.34 (Emphasis supplied)

Similarly, the length of one baseline that RA 3046 drew exceeded UNCLOS IIIs
limits.1avvphi1 The need to shorten this baseline, and in addition, to optimize the location of
basepoints using current maps, became imperative as discussed by respondents:

[T]he amendment of the baselines law was necessary to enable the Philippines to draw the
outer limits of its maritime zones including the extended continental shelf in the manner
provided by Article 47 of [UNCLOS III]. As defined by R.A. 3046, as amended by R.A. 5446, the
baselines suffer from some technical deficiencies, to wit:

1. The length of the baseline across Moro Gulf (from Middle of 3 Rock Awash to
Tongquil Point) is 140.06 nautical miles x x x. This exceeds the maximum length allowed
under Article 47(2) of the [UNCLOS III], which states that "The length of such baselines
shall not exceed 100 nautical miles, except that up to 3 per cent of the total number of
baselines enclosing any archipelago may exceed that length, up to a maximum length of
125 nautical miles."

2. The selection of basepoints is not optimal. At least 9 basepoints can be skipped or

deleted from the baselines system. This will enclose an additional 2,195 nautical miles of
water.

3. Finally, the basepoints were drawn from maps existing in 1968, and not established
by geodetic survey methods. Accordingly, some of the points, particularly along the
west coasts of Luzon down to Palawan were later found to be located either inland or
on water, not on low-water line and drying reefs as prescribed by Article 47.35

Hence, far from surrendering the Philippines claim over the KIG and the Scarborough Shoal,
Congress decision to classify the KIG and the Scarborough Shoal as "Regime[s] of Islands
under the Republic of the Philippines consistent with Article 121"36 of UNCLOS III manifests the
Philippine States responsible observance of its pacta sunt servanda obligation under UNCLOS
III. Under Article 121 of UNCLOS III, any "naturally formed area of land, surrounded by water,
which is above water at high tide," such as portions of the KIG, qualifies under the category of
"regime of islands," whose islands generate their own applicable maritime zones.37

Statutory Claim Over Sabah under

RA 5446 Retained

Petitioners argument for the invalidity of RA 9522 for its failure to textualize the Philippines
claim over Sabah in North Borneo is also untenable. Section 2 of RA 5446, which RA 9522 did
not repeal, keeps open the door for drawing the baselines of Sabah:
Section 2. The definition of the baselines of the territorial sea of the Philippine Archipelago as
provided in this Actis without prejudice to the delineation of the baselines of the territorial
sea around the territory of Sabah, situated in North Borneo, over which the Republic of the
Philippines has acquired dominion and sovereignty. (Emphasis supplied)

UNCLOS III and RA 9522 not

Incompatible with the Constitutions
Delineation of Internal Waters

As their final argument against the validity of RA 9522, petitioners contend that the law
unconstitutionally "converts" internal waters into archipelagic waters, hence subjecting these
waters to the right of innocent and sea lanes passage under UNCLOS III, including overflight.
Petitioners extrapolate that these passage rights indubitably expose Philippine internal waters
to nuclear and maritime pollution hazards, in violation of the Constitution.38

Whether referred to as Philippine "internal waters" under Article I of the Constitution 39 or as

"archipelagic waters" under UNCLOS III (Article 49 [1]), the Philippines exercises sovereignty
over the body of water lying landward of the baselines, including the air space over it and the
submarine areas underneath. UNCLOS III affirms this:

Article 49. Legal status of archipelagic waters, of the air space over archipelagic waters and of
their bed and subsoil.

1. The sovereignty of an archipelagic State extends to the waters enclosed by the

archipelagic baselines drawn in accordance with article 47, described as archipelagic
waters, regardless of their depth or distance from the coast.

2. This sovereignty extends to the air space over the archipelagic waters, as well as to
their bed and subsoil, and the resources contained therein.

4. The regime of archipelagic sea lanes passage established in this Part shall not in other
respects affect the status of the archipelagic waters, including the sea lanes, or the
exercise by the archipelagic State of its sovereignty over such waters and their air
space, bed and subsoil, and the resources contained therein. (Emphasis supplied)

The fact of sovereignty, however, does not preclude the operation of municipal and
international law norms subjecting the territorial sea or archipelagic waters to necessary, if not
marginal, burdens in the interest of maintaining unimpeded, expeditious international
navigation, consistent with the international law principle of freedom of navigation. Thus,
domestically, the political branches of the Philippine government, in the competent discharge
of their constitutional powers, may pass legislation designating routes within the archipelagic
waters to regulate innocent and sea lanes passage.40 Indeed, bills drawing nautical highways for
sea lanes passage are now pending in Congress.41

In the absence of municipal legislation, international law norms, now codified in UNCLOS III,
operate to grant innocent passage rights over the territorial sea or archipelagic waters, subject
to the treatys limitations and conditions for their exercise.42 Significantly, the right of innocent
passage is a customary international law,43 thus automatically incorporated in the corpus of
Philippine law.44 No modern State can validly invoke its sovereignty to absolutely forbid
innocent passage that is exercised in accordance with customary international law without
risking retaliatory measures from the international community.

The fact that for archipelagic States, their archipelagic waters are subject to both the right of
innocent passage and sea lanes passage45 does not place them in lesser footing vis--
vis continental coastal States which are subject, in their territorial sea, to the right of innocent
passage and the right of transit passage through international straits. The imposition of these
passage rights through archipelagic waters under UNCLOS III was a concession by archipelagic
States, in exchange for their right to claim all the waters landward of their baselines,regardless
of their depth or distance from the coast, as archipelagic waters subject to their territorial
sovereignty. More importantly, the recognition of archipelagic States archipelago and the
waters enclosed by their baselines as one cohesive entity prevents the treatment of their
islands as separate islands under UNCLOS III.46 Separate islands generate their own maritime
zones, placing the waters between islands separated by more than 24 nautical miles beyond
the States territorial sovereignty, subjecting these waters to the rights of other States under
UNCLOS III.47

Petitioners invocation of non-executory constitutional provisions in Article II (Declaration of

Principles and State Policies)48 must also fail. Our present state of jurisprudence considers the
provisions in Article II as mere legislative guides, which, absent enabling legislation, "do not
embody judicially enforceable constitutional rights x x x."49 Article II provisions serve as guides
in formulating and interpreting implementing legislation, as well as in interpreting executory
provisions of the Constitution. Although Oposa v. Factoran50 treated the right to a healthful and
balanced ecology under Section 16 of Article II as an exception, the present petition lacks
factual basis to substantiate the claimed constitutional violation. The other provisions
petitioners cite, relating to the protection of marine wealth (Article XII, Section 2, paragraph
251 ) and subsistence fishermen (Article XIII, Section 752 ), are not violated by RA 9522.

In fact, the demarcation of the baselines enables the Philippines to delimit its exclusive
economic zone, reserving solely to the Philippines the exploitation of all living and non-living
resources within such zone. Such a maritime delineation binds the international community
since the delineation is in strict observance of UNCLOS III. If the maritime delineation is
contrary to UNCLOS III, the international community will of course reject it and will refuse to be
bound by it.

UNCLOS III favors States with a long coastline like the Philippines. UNCLOS III creates a sui
generis maritime space the exclusive economic zone in waters previously part of the high
seas. UNCLOS III grants new rights to coastal States to exclusively exploit the resources found
within this zone up to 200 nautical miles.53 UNCLOS III, however, preserves the traditional
freedom of navigation of other States that attached to this zone beyond the territorial sea
before UNCLOS III.

RA 9522 and the Philippines Maritime Zones

Petitioners hold the view that, based on the permissive text of UNCLOS III, Congress was not
bound to pass RA 9522.54 We have looked at the relevant provision of UNCLOS III55 and we find
petitioners reading plausible. Nevertheless, the prerogative of choosing this option belongs to
Congress, not to this Court. Moreover, the luxury of choosing this option comes at a very steep
price. Absent an UNCLOS III compliant baselines law, an archipelagic State like the Philippines
will find itself devoid of internationally acceptable baselines from where the breadth of its
maritime zones and continental shelf is measured. This is recipe for a two-fronted disaster: first,
it sends an open invitation to the seafaring powers to freely enter and exploit the resources in
the waters and submarine areas around our archipelago; and second, it weakens the countrys
case in any international dispute over Philippine maritime space. These are consequences
Congress wisely avoided.

The enactment of UNCLOS III compliant baselines law for the Philippine archipelago and
adjacent areas, as embodied in RA 9522, allows an internationally-recognized delimitation of
the breadth of the Philippines maritime zones and continental shelf. RA 9522 is therefore a
most vital step on the part of the Philippines in safeguarding its maritime zones, consistent with
the Constitution and our national interest.

WHEREFORE, we DISMISS the petition.