ADMIN LAW CASES SET 8
G.R. No. 163980 August 3, 2006
HOLY SPIRIT HOMEOWNERS ASSOCIATION, INC. and NESTORIO F. APOLINARIO, in
his personal capacity and as President of Holy Spirit Homeowners Association,
Inc., Petitioners, vs. SECRETARY MICHAEL DEFENSOR, in his capacity as Chairman
of the Housing and Urban Development Coordinating Council (HUDCC), ATTY.
EDGARDO PAMINTUAN, in his capacity as General Manager of the National
Housing Authority (NHA), MR. PERCIVAL CHAVEZ, in his capacity as Chairman of
the Presidential Commission for the Urban Poor (PCUP), MAYOR FELICIANO
BELMONTE, in his capacity as Mayor of Quezon City, SECRETARY ELISEA GOZUN,
in her capacity as Secretary of the Department of Environment and Natural
Resources (DENR) and SECRETARY FLORENTE SORIQUEZ, in his capacity as
Secretary of the Department of Public Works and Highways (DPWH) as ex-officio
members of the NATIONAL GOVERNMENT CENTER ADMINISTRATION
COMMITTEE, Respondents.
The instant petition for prohibition under Rule 65 of the 1997 Rules of Civil Procedure, with
prayer for the issuance of a temporary restraining order and/or writ of preliminary
injunction, seeks to prevent respondents from enforcing the implementing rules and
regulations (IRR) of Republic Act No. 9207, otherwise known as the "National Government
Center (NGC) Housing and Land Utilization Act of 2003."
Petitioner Holy Spirit Homeowners Association, Inc. (Association) is a homeowners
association from the West Side of the NGC. It is represented by its president, Nestorio F.
Apolinario, Jr., who is a co-petitioner in his own personal capacity and on behalf of the
association.
Named respondents are the ex-officio members of the National Government Center
Administration Committee (Committee). At the filing of the instant petition, the Committee
was composed of Secretary Michael Defensor, Chairman of the Housing and Urban
Development Coordinating Council (HUDCC), Atty. Edgardo Pamintuan, General Manager of
the National Housing Authority (NHA), Mr. Percival Chavez, Chairman of the Presidential
Commission for Urban Poor (PCUP), Mayor Feliciano Belmonte of Quezon City, Secretary
Elisea Gozun of the Department of Environment and Natural Resources (DENR), and
Secretary Florante Soriquez of the Department of Public Works and Highways (DPWH).
Prior to the passage of R.A. No. 9207, a number of presidential issuances authorized the
creation and development of what is now known as the National Government Center
(NGC).
On March 5, 1972, former President Ferdinand Marcos issued Proclamation No. 1826,
reserving a parcel of land in Constitution Hills, Quezon City, covering a little over 440
hectares as a national government site to be known as the NGC. 1
On August 11, 1987, then President Corazon Aquino issued Proclamation No. 137,
excluding 150 of the 440 hectares of the reserved site from the coverage of Proclamation
No. 1826 and authorizing instead the disposition of the excluded portion by direct sale to
the bona fide residents therein. 2
In view of the rapid increase in population density in the portion excluded by Proclamation
No. 137 from the coverage of Proclamation No. 1826, former President Fidel Ramos issued
Proclamation No. 248 on September 7, 1993, authorizing the vertical development of the
excluded portion to maximize the number of families who can effectively become
beneficiaries of the governments socialized housing program. 3
On May 14, 2003, President Gloria Macapagal-Arroyo signed into law R.A. No. 9207. Among
the salient provisions of the law are the following:
Sec. 2. Declaration of Policy. It is hereby declared the policy of the State to secure the
land tenure of the urban poor. Toward this end, lands located in the NGC, Quezon City shall
be utilized for housing, socioeconomic, civic, educational, religious and other purposes.
Sec. 3. Disposition of Certain Portions of the National Government Center Site to Bona Fide
Residents. Proclamation No. 1826, Series of 1979, is hereby amended by excluding from
the coverage thereof, 184 hectares on the west side and 238 hectares on the east side of
Commonwealth Avenue, and declaring the same open for disposition to bona fide residents
therein: Provided, That the determination of the bona fide residents on the west side shall
be based on the census survey conducted in 1994 and the determination of the bona
fide residents on the east side shall be based on the census survey conducted in 1994 and
occupancy verification survey conducted in 2000: Provided, further, That all existing legal
agreements, programs and plans signed, drawn up or implemented and actions taken,
consistent with the provisions of this Act are hereby adopted.
Sec. 4. Disposition of Certain Portions of the National Government Center Site for Local
Government or Community Facilities, Socioeconomic, Charitable, Educational and
Religious Purposes. Certain portions of land within the aforesaid area for local
government or community facilities, socioeconomic, charitable, educational and religious
institutions are hereby reserved for disposition for such purposes: Provided, That only
those institutions already operating and with existing facilities or structures, or those
occupying the land may avail of the disposition program established under the provisions
this Act; Provided, further, That in ascertaining the specific areas that may be disposed of
in favor of these institutions, the existing site allocation shall be used as basis
therefore: Provided, finally. That in determining the reasonable lot allocation of
such institutions without specific lot allocations, the land area that may be allocated to
them shall be based on the area actually used by said institutions at the time of effectivity
of this Act. (Emphasis supplied.)
In accordance with Section 5 of R.A. No. 9207, 4 the Committee formulated the
Implementing Rules and Regulations (IRR) of R.A. No. 9207 on June 29, 2004. Petitioners
subsequently filed the instant petition, raising the following issues:
1

WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE RULES AND
REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS "NATIONAL
GOVERNMENT CENTER (NGC) HOUSING AND LAND UTILIZATION ACT OF 2003" SHOULD BE
DECLARED NULL AND VOID FOR BEING INCONSISTENT WITH THE LAW IT SEEKS TO
IMPLEMENT.
WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE RULES AND
REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS "NATIONAL
GOVERNMENT CENTER (NGC) HOUSING AND LAND UTILIZATION ACT OF 2003" SHOULD BE
DECLARED NULL AND VOID FOR BEING ARBITRARY, CAPRICIOUS AND WHIMSICAL. 5
First, the procedural matters.
The Office of the Solicitor General (OSG) argues that petitioner Association cannot question
the implementation of Section 3.1 (b.2) and Section 3.2 (c.1) since it does not claim any
right over the NGC East Side. Section 3.1 (b.2) provides for the maximum lot area that may
be awarded to a resident-beneficiary of the NGC East Side, while Section 3.2 (c.1) imposes
a lot price escalation penalty to a qualified beneficiary who fails to execute a contract to
sell within the prescribed period. 6 Also, the OSG contends that since petitioner association
is not the duly recognized peoples organization in the NGC and since petitioners not
qualify as beneficiaries, they cannot question the manner of disposition of lots in the
NGC. 7
"Legal standing" or locus standi has been defined as a personal and substantial interest in
the case such that the party has sustained or will sustain direct injury as a result of the
governmental act that is being challenged. The gist of the question of standing is
whether a party alleges "such personal stake in the outcome of the controversy as to
assure that concrete adverseness which sharpens the presentation of issues upon which
the court depends for illumination of difficult constitutional questions." 8
Petitioner association has the legal standing to institute the instant petition, whether or not
it is the duly recognized association of homeowners in the NGC. There is no dispute that
the individual members of petitioner association are residents of the NGC. As such they are
covered and stand to be either benefited or injured by the enforcement of the IRR,
particularly as regards the selection process of beneficiaries and lot allocation to qualified
beneficiaries. Thus, petitioner association may assail those provisions in the IRR which it
believes to be unfavorable to the rights of its members. Contrary to the OSGs allegation
that the failure of petitioner association and its members to qualify as beneficiaries
effectively bars them from questioning the provisions of the IRR, such circumstance
precisely operates to confer on them the legal personality to assail the IRR. Certainly,
petitioner and its members have sustained direct injury arising from the enforcement of
the IRR in that they have been disqualified and eliminated from the selection process.
While it is true that petitioners claim rights over the NGC West Side only and thus cannot
be affected by the implementation of Section 3.1 (b.2), which refers to the NGC East Side,
the rest of the assailed provisions of the IRR, namely, Sections 3.1 (a.4), 3.2 (a.1) and 3.2
(c.1), govern the disposition of lots in the West Side itself or all the lots in the NGC.
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We cannot, therefore, agree with the OSG on the issue of locus standi. The petition does
not merit dismissal on that ground.
There are, however, other procedural impediments to the granting of the instant petition.
The OSG claims that the instant petition for prohibition is an improper remedy because the
writ of prohibition does not lie against the exercise of a quasi-legislative function. 9 Since in
issuing the questioned IRR of R.A. No. 9207, the Committee was not exercising judicial,
quasi-judicial or ministerial function, which is the scope of a petition for prohibition under
Section 2, Rule 65 of the 1997 Rules of Civil Procedure, the instant prohibition should be
dismissed outright, the OSG contends. For their part, respondent Mayor of Quezon
City 10 and respondent NHA 11 contend that petitioners violated the doctrine of hierarchy of
courts in filing the instant petition with this Court and not with the Court of Appeals, which
has concurrent jurisdiction over a petition for prohibition.
The cited breaches are mortal. The petition deserves to be spurned as a consequence.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial
or administrative adjudicatory powers. Quasi-legislative or rule-making power is the power
to make rules and regulations which results in delegated legislation that is within the
confines of the granting statute and the doctrine of non-delegability and separability of
powers. 12
In questioning the validity or constitutionality of a rule or regulation issued by an
administrative agency, a party need not exhaust administrative remedies before going to
court. This principle, however, applies only where the act of the administrative agency
concerned was performed pursuant to its quasi-judicial function, and not when the assailed
act pertained to its rule-making or quasi-legislative power. 13
The assailed IRR was issued pursuant to the quasi-legislative power of the Committee
expressly authorized by R.A. No. 9207. The petition rests mainly on the theory that the
assailed IRR issued by the Committee is invalid on the ground that it is not germane to the
object and purpose of the statute it seeks to implement. Where what is assailed is the
validity or constitutionality of a rule or regulation issued by the administrative agency in
the performance of its quasi-legislative function, the regular courts have jurisdiction to
pass upon the same. 14
Since the regular courts have jurisdiction to pass upon the validity of the assailed IRR
issued by the Committee in the exercise of its quasi-legislative power, the judicial course to
assail its validity must follow the doctrine of hierarchy of courts. Although the Supreme
Court, Court of Appeals and the Regional Trial Courts have concurrent jurisdiction to issue
writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction,
such concurrence does not give the petitioner unrestricted freedom of choice of court
forum. 15
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True, this Court has the full discretionary power to take cognizance of the petition filed procedural rules may be relaxed or suspended in the interest of substantial justice. And the
directly with it if compelling reasons, or the nature and importance of the issues raised, so power of the Court to except a particular case from its rules whenever the purposes of
warrant. 16 A direct invocation of the Courts original jurisdiction to issue these writs should justice require it cannot be questioned. 25
be allowed only when there are special and important reasons therefor, clearly and
specifically set out in the petition. 17 Now, we turn to the substantive aspects of the petition. The outcome, however, is just as
dismal for petitioners.
In Heirs of Bertuldo Hinog v. Melicor, 18 the Court said that it will not entertain direct resort
to it unless the redress desired cannot be obtained in the appropriate courts, and Petitioners assail the following provisions of the IRR:
exceptional and compelling circumstances, such as cases of national interest and of
serious implications, justify the availment of the extraordinary remedy of writ of certiorari,
Section 3. Disposition of Certain portions of the NGC Site to the bonafide residents
calling for the exercise of its primary jurisdiction. 19 A perusal, however, of the petition for
prohibition shows no compelling, special or important reasons to warrant the Courts taking
cognizance of the petition in the first instance. Petitioner also failed to state any reason 3.1. Period for Qualification of Beneficiaries
that precludes the lower courts from passing upon the validity of the questioned IRR.
Moreover, as provided in Section 5, Article VIII of the xxxx

Constitution, 20 the Courts power to evaluate the validity of an implementing rule or (a.4) Processing and evaluation of qualifications shall be based on the Code of Policies and
regulation is generally appellate in nature. Thus, following the doctrine of hierarchy of subject to the condition that a beneficiary is qualified to acquire only one (1) lot with a
courts, the instant petition should have been initially filed with the Regional Trial Court. minimum of 36 sq. m. and maximum of 54 sq. m. and subject further to the availability of
lots.
A petition for prohibition is also not the proper remedy to assail an IRR issued in the
exercise of a quasi-legislative function. Prohibition is an extraordinary writ directed against xxxx
any tribunal, corporation, board, officer or person, whether exercising judicial, quasi-
judicial or ministerial functions, ordering said entity or person to desist from further (b.2) Applications for qualification as beneficiary shall be processed and evaluated based
proceedings when said proceedings are without or in excess of said entitys or persons on the Code of Policies including the minimum and maximum lot allocation of 35 sq. m.
jurisdiction, or are accompanied with grave abuse of discretion, and there is no appeal or and 60 sq. m.
any other plain, speedy and adequate remedy in the ordinary course of law. 21 Prohibition
lies against judicial or ministerial functions, but not against legislative or quasi-legislative
xxxx
functions. Generally, the purpose of a writ of prohibition is to keep a lower court within the
limits of its jurisdiction in order to maintain the administration of justice in orderly
channels. 22Prohibition is the proper remedy to afford relief against usurpation of 3.2. Execution of the Contract to Sell
jurisdiction or power by an inferior court, or when, in the exercise of jurisdiction in handling
matters clearly within its cognizance the inferior court transgresses the bounds prescribed (a) Westside
to it by the law, or where there is no adequate remedy available in the ordinary course of
law by which such relief can be obtained. 23 Where the principal relief sought is to (a.1) All qualified beneficiaries shall execute Contract to Sell (CTS) within sixty (60) days
invalidate an IRR, petitioners remedy is an ordinary action for its nullification, an action from the effectivity of the IRR in order to avail of the lot at P700.00 per sq. m.
which properly falls under the jurisdiction of the Regional Trial Court. In any case,
petitioners allegation that "respondents are performing or threatening to perform
xxxx
functions without or in excess of their jurisdiction" may appropriately be enjoined by the
trial court through a writ of injunction or a temporary restraining order.
(c) for both eastside and westside
In a number of petitions, the Court adequately resolved them on other grounds without
24

adjudicating on the constitutionality issue when there were no compelling reasons to pass (c.1) Qualified beneficiaries who failed to execute CTS on the deadline set in item a.1
upon the same. In like manner, the instant petition may be dismissed based on the above in case of westside and in case of eastside six (6) months after approval of the
foregoing procedural grounds. Yet, the Court will not shirk from its duty to rule on the subdivision plan shall be subjected to lot price escalation.
merits of this petition to facilitate the speedy resolution of this case. In proper cases,

3

The rate shall be based on the formula to be set by the National Housing Authority
factoring therein the affordability criteria. The new rate shall be approved by the NGC-
Administration Committee (NGC-AC).
Petitioners contend that the aforequoted provisions of the IRR are constitutionally infirm as
they are not germane to and/or are in conflict with the object and purpose of the law
sought to be implemented.
First. According to petitioners, the limitation on the areas to be awarded to qualified
beneficiaries under Sec. 3.1 (a.4) and (b.2) of the IRR is not in harmony with the provisions
of R.A. No. 9207, which mandates that the lot allocation to qualified beneficiaries shall be
based on the area actually used or occupied by bona fide residents without limitation to
area. The argument is utterly baseless.
The beneficiaries of lot allocations in the NGC may be classified into two groups, namely,
the urban poor or the bona fide residents within the NGC site and certain government
institutions including the local government. Section 3, R.A. No. 9207 mandates the
allocation of additional property within the NGC for disposition to its bona fide residents
and the manner by which this area may be distributed to qualified beneficiaries. Section 4,
R.A. No. 9207, on the other hand, governs the lot disposition to government institutions.
While it is true that Section 4 of R.A. No. 9207 has a proviso mandating that the lot
allocation shall be based on the land area actually used or occupied at the time of the
laws effectivity, this proviso applies only to institutional beneficiaries consisting of the
local government, socioeconomic, charitable, educational and religious institutions which
do not have specific lot allocations, and not to the bona fide residents of NGC. There is no
proviso which even hints that a bona fide resident of the NGC is likewise entitled to the lot
area actually occupied by him.
Petitioners interpretation is also not supported by the policy of R.A. No. 9207 and the prior
proclamations establishing the NGC. The governments policy to set aside public property
aims to benefit not only the urban poor but also the local government and various
government institutions devoted to socioeconomic, charitable, educational and
religious purposes. 26 Thus, although Proclamation No. 137 authorized the sale of lots
to bona fide residents in the NGC, only a third of the entire area of the NGC was declared
open for disposition subject to the condition that those portions being used or earmarked
for public or quasi-public purposes would be excluded from the housing program for NGC
residents. The same policy of rational and optimal land use can be read in Proclamation
No. 248 issued by then President Ramos. Although the proclamation recognized the rapid
increase in the population density in the NGC, it did not allocate additional property within
the NGC for urban poor housing but instead authorized the vertical development of the
same 150 hectares identified previously by Proclamation No. 137 since the distribution of
individual lots would not adequately provide for the housing needs of all the bona
fide residents in the NGC.
ADMIN LAW CASES SET 8
In addition, as provided in Section 4 of R.A. No. 9207, the institutional beneficiaries shall be
allocated the areas actually occupied by them; hence, the portions intended for the
institutional beneficiaries is fixed and cannot be allocated for other non-institutional
beneficiaries. Thus, the areas not intended for institutional beneficiaries would have to be
equitably distributed among the bona fide residents of the NGC. In order to accommodate
all qualified residents, a limitation on the area to be awarded to each beneficiary must be
fixed as a necessary consequence.
Second. Petitioners note that while Sec. 3.2 (a.1) of the IRR fixes the selling rate of a lot
at P700.00 per sq. m., R.A. No. 9207 does not provide for the price. They add Sec. 3.2 (c.1)
penalizes a beneficiary who fails to execute a contract to sell within six (6) months from
the approval of the subdivision plan by imposing a price escalation, while there is no such
penalty imposed by R.A. No. 9207. Thus, they conclude that the assailed provisions conflict
with R.A. No. 9207 and should be nullified. The argument deserves scant consideration.
Where a rule or regulation has a provision not expressly stated or contained in the statute
being implemented, that provision does not necessarily contradict the statute. A legislative
rule is in the nature of subordinate legislation, designed to implement a primary legislation
by providing the details thereof. 27 All that is required is that the regulation should be
germane to the objects and purposes of the law; that the regulation be not in contradiction
to but in conformity with the standards prescribed by the law. 28
In Section 5 of R.A. No. 9207, the Committee is granted the power to administer, formulate
guidelines and policies, and implement the disposition of the areas covered by the law.
Implicit in this authority and the statutes objective of urban poor housing is the power of
the Committee to formulate the manner by which the reserved property may be allocated
to the beneficiaries. Under this broad power, the Committee is mandated to fill in the
details such as the qualifications of beneficiaries, the selling price of the lots, the terms
and conditions governing the sale and other key particulars necessary to implement the
objective of the law. These details are purposely omitted from the statute and their
determination is left to the discretion of the Committee because the latter possesses
special knowledge and technical expertise over these matters.
The Committees authority to fix the selling price of the lots may be likened to the rate-
fixing power of administrative agencies. In case of a delegation of rate-fixing power, the
only standard which the legislature is required to prescribe for the guidance of the
administrative authority is that the rate be reasonable and just. However, it has been held
that even in the absence of an express requirement as to reasonableness, this standard
may be implied. 29 In this regard, petitioners do not even claim that the selling price of the
lots is unreasonable.
The provision on the price escalation clause as a penalty imposed to a beneficiary who fails
to execute a contract to sell within the prescribed period is also within the Committees
authority to formulate guidelines and policies to implement R.A. No. 9207. The Committee
has the power to lay down the terms and conditions governing the disposition of said lots,
provided that these are reasonable and just. There is nothing objectionable about
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prescribing a period within which the parties must execute the contract to sell. This
condition can ordinarily be found in a contract to sell and is not contrary to law, morals,
good customs, public order, or public policy.

Third. Petitioners also suggest that the adoption of the assailed IRR suffers from a
procedural flaw. According to them the IRR was adopted and concurred in by several
representatives of peoples organizations contrary to the express mandate of R.A. No. 9207
that only two representatives from duly recognized peoples organizations must compose
the NGCAC which promulgated the assailed IRR. It is worth noting that petitioner
association is not a duly recognized peoples organization.

In subordinate legislation, as long as the passage of the rule or regulation had the benefit
of a hearing, the procedural due process requirement is deemed complied with. That there
is observance of more than the minimum requirements of due process in the adoption of
the questioned IRR is not a ground to invalidate the same.

In sum, the petition lacks merit and suffers from procedural deficiencies.

WHEREFORE, the instant petition for prohibition is DISMISSED. Costs against petitioners.
SO ORDERED.

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G.R. No. 190837 March 5, 2014
REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF FOOD AND
DRUGS (now FOOD AND DRUG ADMINISTRATION), Petitioner, vs. DRUGMAKER'S
LABORATORIES, INC. and TERRAMEDIC, INC., Respondents.
This is a direct recourse to the Court from the Regional Trial Court of Muntinlupa City,
Branch 256 (RTC), through a petition for review on certiorari, 1 raising a pure question of
law. In particular, petitioner Republic of the Philippines, represented by the Bureau.of Food
and Drugs (BFAD), now Food and Drug Administration (FDA), assails the Order 2 dated
December 18, 2009 of the RTC in Civil Case No. 08-124 which: (a) declared BF AD Circular
Nos. 1 and 8, series of 1997 (Circular Nos. 1 and 8, s. 1997) null and void; (b) ordered the
issuance of writs of permanent injunction and prohibition against the FDA in implementing
the aforesaid circulars; and ( c) directed the FDA to issue Certificates of Product
Registration (CPR) in favor of respondents Drugmaker's Laboratories, Inc. and Terrarriedic,
Inc. (respondents).
The Facts
The FDA was created pursuant to Republic Act No. (RA) 3720, otherwise known as the
3 4
"Food, Drug, and Cosmetic Act," primarily in order "to establish safety or efficacy standards
and quality measures for foods, drugs and devices, and cosmetic product[s]." 5 On March
15, 1989, the Department of Health (DOH), thru then-Secretary Alfredo R.A. Bengzon,
issued Administrative Order No. (AO) 67, s. 1989, entitled "Revised Rules and Regulations
on Registration of Pharmaceutical Products." Among others, it required drug manufacturers
to register certain drug and medicine products with the FDA before they may release the
same to the market for sale. In this relation, a satisfactory
bioavailability6/bioequivalence7 (BA/BE) test is needed for a manufacturer to secure a CPR
for these products. However, the implementation of the BA/BE testing requirement was put
on hold because there was no local facility capable of conducting the same. The issuance
of Circular No. 1, s. 19978 resumed the FDAs implementation of the BA/BE testing
requirement with the establishment of BA/BE testing facilities in the country. Thereafter,
the FDA issued Circular No. 8, s. 1997 9 which provided additional implementation details
concerning the BA/BE testing requirement on drug products. 10
Respondents manufacture and trade a "multisource pharmaceutical product" 11 with the
generic name of rifampicin12 branded as "Refam 200mg/5mL Suspension" (Refam) for
the treatment of adults and children suffering from pulmonary and extra-pulmonary
tuberculosis.13 On November 15, 1996, respondents applied for and were issued a CPR for
such drug, valid for five (5) years, or until November 15, 2001. 14 At the time of the CPRs
issuance, Refam did not undergo BA/BE testing since there was still no facility capable of
conducting BA/BE testing. Sometime in 2001, respondents applied for and were granted
numerous yearly renewals of their CPR for Refam, which lasted until November 15, 2006,
albeit with the condition that they submit satisfactory BA/BE test results for said drug. 15
ADMIN LAW CASES SET 8
Accordingly, respondents engaged the services of the University of the Philippines (Manila)
Department of Pharmacology and Toxicology, College of Medicine to conduct BA/BE testing
on Refam, the results of which were submitted to the FDA. 16 In turn, the FDA sent a letter
dated July 31, 2006 to respondents, stating that Refam is "not bioequivalent with the
reference drug."17 This notwithstanding, the FDA still revalidated respondents CPR for
Refam two (2) more times, effective until November 15, 2008, the second of which came
with a warning that no more further revalidations shall be granted until respondents submit
satisfactory BA/BE test results for Refam.18
Instead of submitting satisfactory BA/BE test results for Refam, respondents filed a petition
for prohibition and annulment of Circular Nos. 1 and 8, s. 1997 before the RTC, alleging
that it is the DOH, and not the FDA, which was granted the authority to issue and
implement rules concerning RA 3720. As such, the issuance of the aforesaid circulars and
the manner of their promulgation contravened the law and the Constitution. 19 They further
averred that that the non-renewal of the CPR due to failure to submit satisfactory BA/BE
test results would not only affect Refam, but their other products as well. 20
During the pendency of the case, RA 9711, 21 otherwise known as the "Food and Drug
Administration [FDA] Act of 2009," was enacted into law.
The RTC Ruling
In an Order22 dated December 18, 2009, the RTC ruled in favor of respondents, and thereby
declared Circular Nos. 1 and 8, s. 1997 null and void, ordered the issuance of writs of
permanent injunction and prohibition against the FDA in implementing the aforesaid
circulars, and directed the FDA to issue CPRs in favor of respondents products.
The RTC held that there is nothing in RA 3720 which granted either the FDA the authority
to issue and implement the subject circulars, or the Secretary of Health the authority to
delegate his powers to the FDA. For these reasons, it concluded that the issuance of
Circular Nos. 1 and 8, s.
1997 constituted an illegal exercise of legislative and administrative powers and, hence,
must be struck down.23
Accordingly, the RTC issued a Writ of Permanent Injunction24 dated January 19, 2010,
enjoining the FDA and all persons acting for and under it from enforcing Circular Nos. 1 and
8, s. 1997 and directing them to approve the renewal and revalidation of respondents
products without submitting satisfactory BA/BE test results.
Aggrieved, the FDA sought direct recourse to the Court through the instant petition with an
urgent prayer for the immediate issuance of a temporary restraining order and/or a writ of
preliminary injunction against the implementation of the RTCs Order dated December 18,
2009 and Writ of Permanent Injunction dated January 19, 2010. 25 The Court granted FDAs
6

application and issued a Temporary Restraining Order 26
dated February 24, 2010, effective
immediately and continuing until further orders.
The Issue Before the Court
The primordial issue in this case is whether or not the FDA may validly issue and
implement Circular Nos. 1 and 8, s. 1997. In resolving this issue, there is a need to
determine whether or not the aforesaid circulars partake of administrative rules and
regulations and, as such, must comply with the requirements of the law for its issuance.
The FDA contends that it has the authority to issue Circular Nos. 1 and 8, s. 1997 as it is
the agency mandated by law to administer and enforce laws, including rules and
regulations issued by the DOH, that pertain to the registration of pharmaceutical
products.27
For their part, respondents maintain that under RA 3720, the power to make rules to
implement the law is lodged with the Secretary of Health, not with the FDA. 28 They also
argue that the assailed circulars are void for lack of prior hearing, consultation, and
publication.29
The Courts Ruling The petition is meritorious.
Administrative agencies may exercise quasi-legislative or rule-making powers only if there
exists a law which delegates these powers to them. Accordingly, the rules so promulgated
must be within the confines of the granting statute and must involve no discretion as to
what the law shall be, but merely the authority to fix the details in the execution or
enforcement of the policy set out in the law itself, so as to conform with the doctrine of
separation of powers and, as an adjunct, the doctrine of non-delegability of legislative
power.30
An administrative regulation may be classified as a legislative rule, an interpretative rule,
or a contingent rule. Legislative rules are in the nature of subordinate legislation and
designed to implement a primary legislation by providing the details thereof. 31 They usually
implement existing law, imposing general, extra-statutory obligations pursuant to authority
properly delegated by Congress32 and effect a change in existing law or policy which
affects individual rights and obligations. 33 Meanwhile, interpretative rules are intended to
interpret, clarify or explain existing statutory regulations under which the administrative
body operates. Their purpose or objective is merely to construe the statute being
administered and purport to do no more than interpret the statute. Simply, they try to say
what the statute means and refer to no single person or party in particular but concern all
those belonging to the same class which may be covered by the said rules. 34 Finally,
contingent rules are those issued by an administrative authority based on the existence of
certain facts or things upon which the enforcement of the law depends. 35
ADMIN LAW CASES SET 8
In general, an administrative regulation needs to comply with the requirements laid down
by Executive Order No. 292, s. 1987, otherwise known as the "Administrative Code of
1987," on prior notice, hearing, and publication in order to be valid and binding, except
when the same is merely an interpretative rule. This is because "[w]hen an administrative
rule is merely interpretative in nature, its applicability needs nothing further than its bare
issuance, for it gives no real consequence more than what the law itself has already
prescribed. When, on the other hand, the administrative rule goes beyond merely
providing for the means that can facilitate or render least cumbersome the implementation
of the law but substantially increases the burden of those governed, it behooves the
agency to accord at least to those directly affected a chance to be heard, and thereafter to
be duly informed, before that new issuance is given the force and effect of law." 36
In the case at bar, it is undisputed that RA 3720, as amended by Executive Order No. 175,
s. 198737 prohibits, inter alia, the manufacture and sale of pharmaceutical products without
obtaining the proper CPR from the FDA. 38In this regard, the FDA has been deputized by the
same law to accept applications for registration of pharmaceuticals and, after due course,
grant or reject such applications. 39 To this end, the said law expressly authorized the
Secretary of Health, upon the recommendation of the FDA Director, to issue rules and
regulations that pertain to the registration of pharmaceutical products. 40
In accordance with his rule-making power under RA 3720, the Secretary of Health issued
AO 67, s. 1989 in order to provide a comprehensive set of guidelines covering the
registration of pharmaceutical products. AO 67, s. 1989, required, among others, that
certain pharmaceutical products undergo BA/BE testing prior to the issuance of CPR,
contrary to respondents assertion that it was Circular Nos. 1 and 8, s. 1997 that required
such tests.41
Despite the fact that the BA/BE testing requirement was already in place as early as the
date of effectivity of AO 67, s. 1989, its implementation was indefinitely shelved due to
lack of facilities capable of conducting the same. It was only sometime in 1997 when
technological advances in the country paved the way for the establishment of BA/BE
testing facilities, thus allowing the rules enforcement. Owing to these developments, the
FDA (then, the BFAD) issued Circular No. 1, s. 1997, the full text of which reads:
In Annex 1 of A.O. 67 s. 1989 which is entitled Requirement for Registration provides that
"Bioavailability/Bioequivalence study for certain drugs as determined by BFAD" is required
for [(i)] Tried and Tested Drug, (ii) Established Drug, and (iii) Pharmaceutical Innovation of
Tried and Tested or Established Drug.
Drugs requiring strict precaution in prescribing and dispensing contained in the List-B
(Prime) were the drugs identified by BFAD in the process of registration that will be
required "Bioavailability/Bioequivalence" studies. However, due to the supervening factor
that there had yet been no bioavailability testing unit in the country when the A.O. 67 s.
1989 became effective, the Bureau did not strictly enforce the said requirement.
7

The supervening factor no longer exist [sic] as of date. As a matter of fact, one of the
registered products tested by the Bioavailability Testing Unit at the University of Sto. Tomas
under the NDP Cooperation Project of the Philippines and Australia failed to meet the
standard of bioavailability. This finding brings forth the fact that there may be registered
products which do not or may no longer meet bioavailability standard.
ADMIN LAW CASES SET 8
As a final note, while the proliferation of generic drugs and medicines is indeed a welcome
development as it effectively ensures access to affordable quality drugs and medicines for
all through their lower prices, the State, through the FDA, which is the government
instrumentality tasked on this matter, must nevertheless be vigilant in ensuring that the
generic drugs and medicines released to the market are safe and effective for use.

Wherefore, all drugs manufacturers, traders, distributor-importers of products contained or
identified in the list b (prime) provided for by BFAD, a copy of which is made part of this
circular, are advised that all pending initial and renewal registration of the products
aforementioned, as well as all applications for initial and renewal registration of the same,
shall henceforth be required to submit bioavailability test with satisfactory results on the
products sought to be registered or renewed conducted by any bioavailability testing units
here or abroad, duly recognized by the BFAD under the Dept. of Health.1wphi1 (Emphases
and underscoring supplied)
WHEREFORE, the petition is GRANTED. The Order dated December 18, 2009 and the Writ
of Permanent Injunction dated January 19, 2010 of the Regional Trial Court of Muntinlupa
City, Branch 256 in Civil Case No. 08-124 are hereby SET ASIDE. BFAD Circular Nos. 1 and
8, series of 1997 are declared VALID. Accordingly, the Court's Temporary Restraining Order
dated February 24, 2010 is hereby made PERMANENT.
SO ORDERED.

The FDA then issued Circular No. 8, s. 1997 to supplement Circular No. 1, s. 1997 in that it
reiterates the importance of the BA/BE testing requirement originally provided for by AO
67, s. 1989.1wphi1

A careful scrutiny of the foregoing issuances would reveal that AO 67, s. 1989 is actually
the rule that originally introduced the BA/BE testing requirement as a component of
applications for the issuance of CPRs covering certain pharmaceutical products. As such, it
is considered an administrative regulation a legislative rule to be exact issued by the
Secretary of Health in consonance with the express authority granted to him by RA 3720 to
implement the statutory mandate that all drugs and devices should first be registered with
the FDA prior to their manufacture and sale. Considering that neither party contested the
validity of its issuance, the Court deems that AO 67, s. 1989 complied with the
requirements of prior hearing, notice, and publication pursuant to the presumption of
regularity accorded to the government in the exercise of its official duties. 42

On the other hand, Circular Nos. 1 and 8, s. 1997 cannot be considered as administrative
regulations because they do not: (a) implement a primary legislation by providing the
details thereof; (b) interpret, clarify, or explain existing statutory regulations under which
the FDA operates; and/or (c) ascertain the existence of certain facts or things upon which
the enforcement of RA 3720 depends. In fact, the only purpose of these circulars is for the
FDA to administer and supervise the implementation of the provisions of AO 67, s. 1989,
including those covering the BA/BE testing requirement, consistent with and pursuant to
RA 3720.43 Therefore, the FDA has sufficient authority to issue the said circulars and since
they would not affect the substantive rights of the parties that they seek to govern as
they are not, strictly speaking, administrative regulations in the first place no prior
hearing, consultation, and publication are needed for their validity.

In sum, the Court holds that Circular Nos. 1 and 8, s. 1997 are valid issuances and binding
to all concerned parties, including the respondents in this case.

8

G.R. No. 158793 June 8, 2006
JAMES MIRASOL, RICHARD SANTIAGO, and LUZON MOTORCYCLISTS FEDERATION,
INC., Petitioners, vs. DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and TOLL
REGULATORY BOARD, Respondents.
This petition for review on certiorari 1 seeks to reverse the Decision dated 10 March 2003 of
the Regional Trial Court, Branch 147, Makati City (RTC) in Civil Case No. 01-034, as well as
the RTCs Order dated 16 June 2003 which denied petitioners Motion for Reconsideration.
Petitioners assert that Department of Public Works and Highways (DPWH) Department
Order No. 74 (DO 74), Department Order No. 215 (DO 215), and the Revised Rules and
Regulations on Limited Access Facilities of the Toll Regulatory Board (TRB) violate Republic
Act No. 2000 (RA 2000) or the Limited Access Highway Act. Petitioners also seek to declare
Department Order No. 123 (DO 123) and Administrative Order No. 1 (AO
1)2 unconstitutional.
Antecedent Facts
The facts are not in dispute. As summarized by the Solicitor General, the facts are as
follows:
1. On January 10, 2001, petitioners filed before the trial court a Petition for
Declaratory Judgment with Application for Temporary Restraining Order and
Injunction docketed as Civil Case No. 01-034. The petition sought the declaration of
nullity of the following administrative issuances for being inconsistent with the
provisions of Republic Act 2000, entitled "Limited Access Highway Act" enacted in
1957:
a. DPWH Administrative Order No. 1, Series of 1968;
b. DPWH Department Order No. 74, Series of 1993;
c. Art. II, Sec. 3(a) of the Revised Rules on Limited Access Facilities
promulgated in 199[8] by the DPWH thru the Toll Regulatory Board (TRB).
2. Previously, pursuant to its mandate under R.A. 2000, DPWH issued on June 25,
1998 Department Order (DO) No. 215 declaring the Manila-Cavite (Coastal Road)
Toll Expressway as limited access facilities.
3. Accordingly, petitioners filed an Amended Petition on February 8, 2001 wherein
petitioners sought the declaration of nullity of the aforesaid administrative
issuances. Moreover, petitioners prayed for the issuance of a temporary restraining
order and/or preliminary injunction to prevent the enforcement of the total ban on
motorcycles along the entire breadth of North and South Luzon Expressways and
the Manila-Cavite (Coastal Road) Toll Expressway under DO 215.
ADMIN LAW CASES SET 8
4. On June 28, 2001, the trial court, thru then Presiding Judge Teofilo Guadiz, after
due hearing, issued an order granting petitioners application for preliminary
injunction. On July 16, 2001, a writ of preliminary injunction was issued by the trial
court, conditioned upon petitioners filing of cash bond in the amount
of P100,000.00, which petitioners subsequently complied with.
5. On July 18, 2001, the DPWH acting thru the TRB, issued Department Order No.
123 allowing motorcycles with engine displacement of 400 cubic centimeters
inside limited access facilities (toll ways).
6. Upon the assumption of Honorable Presiding Judge Ma. Cristina Cornejo, both
the petitioners and respondents were required to file their respective Memoranda.
Petitioners likewise filed [their] Supplemental Memorandum. Thereafter, the case
was deemed submitted for decision.
7. Consequently, on March 10, 2003, the trial court issued the assailed decision
dismissing the petition but declaring invalid DO 123. Petitioners moved for a
reconsideration of the dismissal of their petition; but it was denied by the trial
court in its Order dated June 16, 2003.3
Hence, this petition.
The RTCs Ruling
The dispositive portion of the RTCs Decision dated 10 March 2003 reads:
WHEREFORE, [t]he Petition is denied/dismissed insofar as petitioners seek to declare null
and void ab initio DPWH Department Order No. 74, Series of 1993, Administrative Order
No. 1, and Art. II, Sec. 3(a) of the Revised Rules on Limited Access Facilities promulgated by
the DPWH thru the TRB, the presumed validity thereof not having been overcome; but the
petition is granted insofar as DPWH Department Order No. 123 is concerned, declaring the
same to be invalid for being violative of the equal protection clause of the Constitution.
SO ORDERED.4
The Issues
Petitioners seek a reversal and raise the following issues for resolution:
1. WHETHER THE RTCS DECISION IS ALREADY BARRED BY RES JUDICATA;
2. WHETHER DO 74, DO 215 AND THE TRB REGULATIONS CONTRAVENE RA 2000;
AND
9
 ADMIN LAW CASES SET 8
3. WHETHER AO 1 AND DO 123 ARE UNCONSTITUTIONAL. 5
access facilities to or from abutting lands, except at such designated points at which
access may be permitted, upon such terms and conditions as may be specified from time
The Ruling of the Court to time. (Emphasis supplied)

The petition is partly meritorious. On 19 February 1968, Secretary Antonio V. Raquiza of the Department of Public Works
and Communications issued AO 1, which, among others, prohibited motorcycles on
limited access highways. The pertinent provisions of AO 1 read:
Whether the RTCs Decision Dismissing Petitioners Case is Barred by Res Judicata

SUBJECT: Revised Rules and Regulations Governing Limited Access Highways

Petitioners rely on the RTCs Order dated 28 June 2001, which granted their prayer for a
writ of preliminary injunction. Since respondents did not appeal from that Order,
petitioners argue that the Order became "a final judgment" on the issues. Petitioners By virtue of the authority granted the Secretary [of] Public Works and
conclude that the RTC erred when it subsequently dismissed their petition in its Decision Communications under Section 3 of R.A. 2000, otherwise known as the Limited
dated 10 March 2003. Access Highway Act, the following rules and regulations governing limited access highways
are hereby promulgated for the guidance of all concerned:
Petitioners are mistaken. As the RTC correctly stated, the Order dated 28 June 2001 was
not an adjudication on the merits of the case that would trigger res judicata. A preliminary xxxx
injunction does not serve as a final determination of the issues. It is a provisional remedy,
which merely serves to preserve the status quo until the court could hear the merits of the Section 3 On limited access highways, it is unlawful for any person or group of
case.6 Thus, Section 9 of Rule 58 of the 1997 Rules of Civil Procedure requires the issuance persons to:
of a final injunction to confirm the preliminary injunction should the court during trial
determine that the acts complained of deserve to be permanently enjoined. A preliminary xxxx
injunction is a mere adjunct, an ancillary remedy which exists only as an incident of the
main proceeding.7
(h) Drive any bicycle, tricycle, pedicab, motorcycle or any vehicle (not motorized);

Validity of DO 74, DO 215 and the TRB Regulations

x x x x12 (Emphasis supplied)

Petitioners claim that DO 74,8 DO 215,9 and the TRBs Rules and Regulations issued under
On 5 April 1993, Acting Secretary Edmundo V. Mir of the Department of Public Works
them violate the provisions of RA 2000. They contend that the two issuances unduly
and Highways issued DO 74:
expanded the power of the DPWH in Section 4 of RA 2000 to regulate toll ways. Petitioners
assert that the DPWHs regulatory authority is limited to acts like redesigning curbings or
central dividing sections. They claim that the DPWH is only allowed to re-design the SUBJECT: Declaration of the North Luzon Expressway from Balintawak to Tabang and the
physical structure of toll ways, and not to determine "who or what can be qualified as toll South Luzon Expressway from Nichols to Alabang as Limited Access Facilities
way users."10
Pursuant to Section 2 of Republic Act No. 2000, a limited access facility is defined as "a
Section 4 of RA 200011 reads: highway or street especially designed for through traffic, and over, from, or to which
owners or occupants of abutting land or other persons have no right or easement or only a
limited right or easement of access, light, air or view by reason of the fact that their
SEC. 4. Design of limited access facility. The Department of Public Works and
proper[t]y abuts upon such limited access facility or for any other reason. Such highways
Communications is authorized to so design any limited access facility and to so
or streets may be parkways, from which trucks, buses, and other commerical [sic] vehicles
regulate, restrict, or prohibit access as to best serve the traffic for which such
shall be excluded; or they may be free ways open to use by all customary forms of street
facility is intended; and its determination of such design shall be final. In this
and highway traffic."
connection, it is authorized to divide and separate any limited access facility into separate
roadways by the construction of raised curbings, central dividing sections, or other
physical separations, or by designating such separate roadways by signs, markers, stripes, Section 3 of the same Act authorizes the Department of Public Works and Communications
and the proper lane for such traffic by appropriate signs, markers, stripes and other (now Department of Public Works and Highways) "to plan, designate, establish, regulate,
devices. No person, shall have any right of ingress or egress to, from or across limited vacate, alter, improve, maintain, and provide limited access facilities for public use

10

wherever it is of the opinion that traffic conditions, present or future, will justify such
special facilities."
Therefore, by virtue of the authority granted above, the Department of Public Works and
Highways hereby designates and declares the Balintawak to Tabang Sections of the North
Luzon Expressway, and the Nichols to Alabang Sections of the South Luzon Expressways,
to be LIMITED ACCESS HIGHWAYS/FACILITIES subject to such rules and regulations that
may be imposed by the DPWH thru the Toll Regulatory Board (TRB).
In view thereof, the National Capital Region (NCR) of this Department is hereby ordered,
after consultation with the TRB and in coordination with the Philippine National Police
(PNP), to close all illegal openings along the said Limited Access Highways/Facilities. In this
connection, the NCR is instructed to organize its own enforcement and security group for
the purpose of assuring the continued closure of the right-of-way fences and the
implementation of the rules and regulations that may be imposed by the DPWH thru the
TRB.
This Order shall take effect immediately.13
On 25 June 1998, then DPWH Secretary Gregorio R. Vigilar issued DO 215:
SUBJECT: Declaration of the R-1 Expressway, from Seaside drive to Zapote, C-5 Link
Expressway, from Zapote to Noveleta, of the Manila Cavite Toll Expressway as Limited
Access Facility.
Pursuant to Section 2 of Republic Act No. 2000, a limited access facility is defined as "a
highway or street especially designed for through traffic, and over, from, or to which
owners or occupants of abutting land or other persons have no right or easement or only a
limited right or easement of access, light, air or view by reason of the fact that their
property abuts upon such limited access facility or for any other reason. Such highways or
streets may be parkways, from which trucks, buses, and other commercial vehicles shall
be excluded; or they may be free ways open to use by all customary forms of street and
highway traffic."
Section 3 of the same Act authorizes the Department of Public Works and Communications
(now Department of Public Works and Highways) "to plan, designate, establish, regulate,
vacate, alter, improve, maintain, and provide limited access facilities for public use
wherever it is of the opinion that traffic conditions, present or future, will justify such
special facilities."
Therefore, by virtue of the authority granted above, the Department of Public Works and
Highways hereby designates and declares the R-1 Expressway, C-5 Link Expressway and
the R-1 Extension Expressway Sections of the Manila Cavite Toll Expressway to be LIMITED
ACCESS HIGHWAYS/FACILITIES subject to such rules and regulations that may be imposed
by the DPWH thru the Toll Regulatory Board (TRB).
ADMIN LAW CASES SET 8
In view thereof, the National Capital Region (NCR) of this Department is hereby ordered,
after consultation with the TRB and in coordination with the Philippine National Police
(PNP), to close all illegal openings along the said Limited Access Highways/Facilities. In this
connection, the NCR is instructed to organize its own enforcement and security group for
the purpose of assuring the continued closure of the right-of-way fences and the
implementation of the rules and regulations that may be imposed by the DPWH thru the
TRB.
This Order shall take effect immediately.14
The RTC held that Section 4 of RA 2000 expressly authorized the DPWH to design limited
access facilities and to regulate, restrict, or prohibit access as to serve the traffic for which
such facilities are intended. According to the RTC, such authority to regulate, restrict, or
prohibit logically includes the determination of who and what can and cannot be permitted
entry or access into the limited access facilities. Thus, the RTC concluded that AO 1, DO 74,
and the Revised Rules and Regulations on Limited Access Facilities, which ban motorcycles
entry or access to the limited access facilities, are not inconsistent with RA 2000.
RA 2000, otherwise known as the Limited Access Highway Act, was approved on 22 June
1957. Section 4 of RA 2000 provides that "[t]he Department of Public Works and
Communications is authorized to so design any limited access facility and to so regulate,
restrict, or prohibit access as to best serve the traffic for which such facility is intended."
The RTC construed this authorization to regulate, restrict, or prohibit access to limited
access facilities to apply to the Department of Public Works and Highways (DPWH).
The RTCs ruling is based on a wrong premise. The RTC assumed that the DPWH derived its
authority from its predecessor, the Department of Public Works and Communications,
which is expressly authorized to regulate, restrict, or prohibit access to limited access
facilities under Section 4 of RA 2000. However, such assumption fails to consider the
evolution of the Department of Public Works and Communications.
Under Act No. 2711, otherwise known as the Revised Administrative Code, approved on 10
March 1917, there were only seven executive departments, namely: the Department of the
Interior, the Department of Finance, the Department of Justice, the Department of
Agriculture and Commerce, the Department of Public Works and Communications,
the Department of Public Instruction, and the Department of Labor. 15 On 20 June 1964,
Republic Act No. 413616 created the Land Transportation Commission under the
Department of Public Works and Communications. Later, the Department of Public Works
and Communications was restructured into the Department of Public Works,
Transportation and Communications.
On 16 May 1974, Presidential Decree No. 458 (PD 458) separated the Bureau of Public
Highways from the Department of Public Works, Transportation and Communications and
created it as a department to be known as Department of Public Highways. Under Section
3 of PD 458, the Department of Public Highways is "responsible for developing and
11

implementing programs on the construction and maintenance of roads, bridges and airport
runways."
With the amendment of the 1973 Philippine Constitution in 1976, resulting in the shift in
the form of government, national agencies were renamed from Departments to Ministries.
Thus, the Department of Public Works, Transportation and Communications became
the Ministry of Public Works, Transportation and Communications.
On 23 July 1979, then President Ferdinand E. Marcos issued Executive Order No. 546 (EO
546), creating a Ministry of Public Works and a Ministry of Transportation and
Communications.17 Under Section 1 of EO 546, the Ministry of Public Works assumed
the public works functions of the Ministry of Public Works, Transportation and
Communications. The functions of the Ministry of Public Works were the
"construction, maintenance and repair of port works, harbor facilities, lighthouses,
navigational aids, shore protection works, airport buildings and associated facilities, public
buildings and school buildings, monuments and other related structures, as well as
undertaking harbor and river dredging works, reclamation of foreshore and swampland
areas, water supply, and flood control and drainage works."18
On the other hand, the Ministry of Transportation and Communications became the
"primary policy, planning, programming, coordinating, implementing, regulating and
administrative entity of the executive branch of the government in the promotion,
development, and regulation of a dependable and coordinated network of transportation
and communication systems."19 The functions of the Ministry of Transportation and
Communications were:
a. Coordinate and supervise all activities of the Ministry relative to transportation
and communications;
b. Formulate and recommend national policies and guidelines for the
preparation and implementation of an integrated and comprehensive
transportation and communications system at the national, regional and
local levels;
c. Establish and administer comprehensive and integrated programs for
transportation and communication, and for this purpose, may call on any agency,
corporation, or organization, whether government or private, whose development
programs include transportation and communications as an integral part to
participate and assist in the preparation and implementation of such programs;
d. Regulate, whenever necessary, activities relative to transportation and
communications and prescribe and collect fees in the exercise of such
power;
ADMIN LAW CASES SET 8
e. Assess, review and provide direction to transportation and communications
research and development programs of the government in coordination with other
institutions concerned; and
f. Perform such other functions as may be necessary to carry into effect the
provisions of this Executive Order.20 (Emphasis supplied)
On 27 July 1981, then President Marcos issued Executive Order No. 710 (EO 710), which
merged the Ministry of Public Works and the Ministry of Public Highways for "greater
simplicity and economy in operations."21 The restructured agency became known as
the Ministry of Public Works and Highways. Under Section 1 of EO 710 the functions of
the Ministry of Public Works and the Ministry of Public Highways 22 were transferred to the
Ministry of Public Works and Highways.
Upon the ratification of the 1987 Constitution in February 1987, the former Ministry of
Public Works and Highways became the Department of Public Works and
Highways (DPWH) and the former Ministry of Transportation and Communications
became the Department of Transportation and Communications (DOTC).
DPWH issued DO 74 and DO 215 declaring certain expressways as limited access facilities
on 5 April 1993 and 25 June 1998, respectively. Later, the TRB, under the DPWH, issued the
Revised Rules and Regulations on Limited Access Facilities. However, on 23 July 1979, long
before these department orders and regulations were issued, the Ministry of Public
Works, Transportation and Communications was divided into two agencies
the Ministry of Public Works and the Ministry of Transportation and
Communications by virtue of EO 546. The question is, which of these two agencies is
now authorized to regulate, restrict, or prohibit access to limited access facilities? 23
Under Section 1 of EO 546, the Ministry of Public Works (now DPWH) assumed
the public works functions of the Ministry of Public Works, Transportation and
Communications. On the other hand, among the functions of the Ministry of
Transportation and Communications (now Department of Transportation and
Communications [DOTC]) were to (1) formulate and recommend national policies and
guidelines for the preparation and implementation of an integrated and comprehensive
transportation and communications systems at the national, regional, and local levels; and
(2) regulate, whenever necessary, activities relative to transportation and communications
and prescribe and collect fees in the exercise of such power. Clearly, under EO 546, it is the
DOTC, not the DPWH, which has authority to regulate, restrict, or prohibit access to limited
access facilities.
Even under Executive Order No. 125 (EO 125) 24 and Executive Order No. 125-A (EO 125-
A),25 which further reorganized the DOTC, the authority to administer and enforce all laws,
rules and regulations relative to transportation is clearly with the DOTC. 26
12

Thus, DO 74 and DO 215 are void because the DPWH has no authority to declare certain
expressways as limited access facilities. Under the law, it is the DOTC which is authorized
to administer and enforce all laws, rules and regulations in the field of transportation and
to regulate related activities.
Since the DPWH has no authority to regulate activities relative to transportation, the
TRB27 cannot derive its power from the DPWH to issue regulations governing limited access
facilities. The DPWH cannot delegate a power or function which it does not possess in the
first place. Since DO 74 and DO 215 are void, it follows that the rules implementing them
are likewise void.
Whether AO 1 and DO 123 are Unconstitutional
DPWH Secretary Simeon A. Datumanong issued DO 123 on 18 July 2001. DO 123 reads in
part:
SUBJECT: Revised Rules and Regulations Governing Limited Access Highways
By virtue of the authority granted the Secretary of Public Works and Highways
under Section 3 of R.A. 2000, otherwise known as the Limited Access Highway
Act, the following revised rules and regulations governing limited access highways are
hereby promulgated for the guidance of all concerned:
1. Administrative Order No. 1 dated February 19, 1968, issued by the Secretary of the then
Department of Public Works and Communications, is hereby amended by deleting the word
"motorcycles" mentioned in Section 3(h) thereof. Therefore, motorcycles are hereby
allowed to operate inside the toll roads and limited access highways, subject to
the following:
a. Motorcycles shall have an engine displacement of at least 400 cubic
centimeters (cc) provided that:
x x x x28 (Emphasis supplied)
The RTCs Decision dated 10 March 2003 declared DO 123 unconstitutional on the ground
that it violates the equal protection clause by allowing only motorcycles with at least 400
cubic centimeters engine displacement to use the toll ways. The RTC reasoned that the
creation of a distinction within the class of motorcycles was not based on real differences.
We need not pass upon the constitutionality of the classification of motorcycles under DO
123. As previously discussed, the DPWH has no authority to regulate limited access
highways since EO 546 has devolved this function to the DOTC. Thus, DO 123 is void for
want of authority of the DPWH to promulgate it.
ADMIN LAW CASES SET 8
On the other hand, the assailed portion of AO 1 states:
Section 3. On limited access highways, it is unlawful for any person or group of persons to:
xxxx
(h) Drive any bicycle, tricycle, pedicab, motorcycle or any vehicle (not motorized);
xxxx
Petitioners assail the DPWHs failure to provide "scientific" and "objective" data on the
danger of having motorcycles plying our highways. They attack this exercise of police
power as baseless and unwarranted. Petitioners belabor the fact that there are studies that
provide proof that motorcycles are safe modes of transport. They also claim that AO 1
introduces an unreasonable classification by singling-out motorcycles from other motorized
modes of transport. Finally, petitioners argue that AO 1 violates their right to travel.
Petitioners arguments do not convince us.
We emphasize that the Secretary of the Department of Public Works and
Communications issued AO 1 on 19 February 1968.
Section 3 of RA 200029 authorized the issuance of the guidelines. In contrast, DPWH issued
DO 74, DO 215 and DO 123 after EO 546 devolved to the DOTC the authority to regulate
limited access highways.
We now discuss the constitutionality of AO 1. Administrative issuances have the force and
effect of law.30 They benefit from the same presumption of validity and constitutionality
enjoyed by statutes.31 These two precepts place a heavy burden upon any party assailing
governmental regulations. The burden of proving unconstitutionality rests on such
party.32 The burden becomes heavier when the police power is at issue.
The use of public highways by motor vehicles is subject to regulation as an exercise of the
police power of the state.33 The police power is far-reaching in scope and is the "most
essential, insistent and illimitable" of all government powers. 34 The tendency is to extend
rather than to restrict the use of police power. The sole standard in measuring its exercise
is reasonableness.35 What is "reasonable" is not subject to exact definition or scientific
formulation. No all-embracing test of reasonableness exists, 36 for its determination rests
upon human judgment applied to the facts and circumstances of each particular case. 37
We find that AO 1 does not impose unreasonable restrictions. It merely outlines several
precautionary measures, to which toll way users must adhere. These rules were designed
to ensure public safety and the uninhibited flow of traffic within limited access facilities.
They cover several subjects, from what lanes should be used by a certain vehicle, to
13

maximum vehicle height. The prohibition of certain types of vehicles is but one of these.
None of these rules violates reason. The purpose of these rules and the logic behind them
are quite evident. A toll way is not an ordinary road. The special purpose for which a toll
way is constructed necessitates the imposition of guidelines in the manner of its use and
operation. Inevitably, such rules will restrict certain rights. But the mere fact that certain
rights are restricted does not invalidate the rules.
Consider Section 3(g) of AO 1, which prohibits the conduct of rallies inside toll ways. 38 The
regulation affects the right to peaceably assemble. The exercise of police power involves
restriction, restriction being implicit in the power itself. Thus, the test of constitutionality of
a police power measure is limited to an inquiry on whether the restriction imposed on
constitutional rights is reasonable, and not whether it imposes a restriction on those rights.
None of the rules outlined in AO 1 strikes us as arbitrary and capricious. The DPWH,
through the Solicitor General, maintains that the toll ways were not designed to
accommodate motorcycles and that their presence in the toll ways will compromise safety
and traffic considerations. The DPWH points out that the same study the petitioners rely on
cites that the inability of other drivers to detect motorcycles is the predominant cause of
accidents.39 Arguably, prohibiting the use of motorcycles in toll ways may not be the "best"
measure to ensure the safety and comfort of those who ply the toll ways.
However, the means by which the government chooses to act is not judged in terms of
what is "best," rather, on simply whether the act is reasonable. The validity of a police
power measure does not depend upon the absolute assurance that the purpose desired
can in fact be probably fully accomplished, or upon the certainty that it will best serve the
purpose intended.40 Reason, not scientific exactitude, is the measure of the validity of the
governmental regulation. Arguments based on what is "best" are arguments reserved for
the Legislatures discussion. Judicial intervention in such matters will only be warranted if
the assailed regulation is patently whimsical. We do not find the situation in this case to be
so.
Neither do we find AO 1 oppressive. Petitioners are not being deprived of their right to use
the limited access facility. They are merely being required, just like the rest of the public, to
adhere to the rules on how to use the facility. AO 1 does not infringe upon petitioners right
to travel but merely bars motorcycles, bicycles, tricycles, pedicabs, and any non-
motorized vehicles as the mode of traveling along limited access highways. 41 Several
cheap, accessible and practical alternative modes of transport are open to petitioners.
There is nothing oppressive in being required to take a bus or drive a car instead of ones
scooter, bicycle, calesa, or motorcycle upon using a toll way.
Petitioners reliance on the studies they gathered is misplaced. Police power does not rely
upon the existence of definitive studies to support its use. Indeed, no requirement exists
that the exercise of police power must first be conclusively justified by research. The
yardstick has always been simply whether the governments act is reasonable and not
oppressive.42 The use of "reason" in this sense is simply meant to guard against arbitrary
ADMIN LAW CASES SET 8
and capricious government action. Scientific certainty and conclusiveness, though
desirable, may not be demanded in every situation. Otherwise, no government will be able
to act in situations demanding the exercise of its residual powers because it will be tied up
conducting studies.
A police power measure may be assailed upon proof that it unduly violates constitutional
limitations like due process and equal protection of the law. 43 Petitioners attempt to seek
redress from the motorcycle ban under the aegis of equal protection must fail. Petitioners
contention that AO 1 unreasonably singles out motorcycles is specious. To begin with,
classification by itself is not prohibited.44
A classification can only be assailed if it is deemed invidious, that is, it is not based on real
or substantial differences. As explained by Chief Justice Fernando in Bautista v. Juinio:45
x x x To assure that the general welfare be promoted, which is the end of law, a regulatory
measure may cut into the rights to liberty and property. Those adversely affected may
under such circumstances invoked the equal protection clause only if they can show that
the governmental act assailed, far from being inspired by the attainment of the common
weal was prompted by the spirit of hostility, or at the very least, discrimination that finds
no support in reason. It suffices then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred and the
liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is
that equal protection and security shall be given to every person under circumstances,
which if not identical is analogous. If law be looked upon in terms of burden or charges,
those that fall within a class should be treated in the same fashion, whatever restrictions
cast on some in the group equally binding the rest.
We find that it is neither warranted nor reasonable for petitioners to say that the only
justifiable classification among modes of transport is the motorized against the non-
motorized. Not all motorized vehicles are created equal. A 16-wheeler truck is substantially
different from other light vehicles. The first may be denied access to some roads where the
latter are free to drive. Old vehicles may be reasonably differentiated from newer
models.46 We find that real and substantial differences exist between a motorcycle and
other forms of transport sufficient to justify its classification among those prohibited from
plying the toll ways. Amongst all types of motorized transport, it is obvious, even to a child,
that a motorcycle is quite different from a car, a bus or a truck. The most obvious and
troubling difference would be that a two-wheeled vehicle is less stable and more easily
overturned than a four-wheeled vehicle.
A classification based on practical convenience and common knowledge is not
unconstitutional simply because it may lack purely theoretical or scientific uniformity.
Moreover, we take note that the Philippines is home to a host of unique motorized modes
of transport ranging from modified hand-carts (kuliglig) to bicycle "sidecars" outfitted with
a motor. To follow petitioners argument to its logical conclusion would open up toll ways to
14
 ADMIN LAW CASES SET 8
all these contraptions. Both safety and traffic considerations militate against any ruling Limited Access Facilities of the Toll Regulatory Board. We declare VALID Administrative
that would bring about such a nightmare. Order No. 1 of the Department of Public Works and Communications.

Petitioners complain that the prohibition on the use of motorcycles in toll ways unduly SO ORDERED.
deprive them of their right to travel.
G.R. No. 119761 August 29, 1996
We are not persuaded. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF APPEALS,
HON. COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION, respondents
A toll way is not an ordinary road. As a facility designed to promote the fastest access to
certain destinations, its use, operation, and maintenance require close regulation. Public
interest and safety require the imposition of certain restrictions on toll ways that do not The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995,
apply to ordinary roads. As a special kind of road, it is but reasonable that not all forms of of respondent Court of Appeals 1 affirming the 10th August 1994 decision and the 11th
transport could use it. October 1994 resolution of the Court of Tax Appeals 2("CTA") in C.T.A. Case No. 5015,
entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in her capacity as
Commissioner of Internal Revenue."
The right to travel does not mean the right to choose any vehicle in traversing a toll way.
The right to travel refers to the right to move from one place to another. Petitioners can
The facts, by and large, are not in dispute.
traverse the toll way any time they choose using private or public four-wheeled vehicles.
Petitioners are not denied the right to move from Point A to Point B along the toll way.
Petitioners are free to access the toll way, much as the rest of the public can. The mode by Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of
different brands of cigarettes.
which petitioners wish to travel pertains to the manner of using the toll way, a subject that
can be validly limited by regulation.
On various dates, the Philippine Patent Office issued to the corporation separate
certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. In a
Petitioners themselves admit that alternative routes are available to them. Their complaint letter, dated 06 January 1987, of then Commissioner of Internal Revenue Bienvenido A.
is that these routes are not the safest and most convenient. Even if their claim is true, it Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential Commission on Good
hardly qualifies as an undue curtailment of their freedom of movement and travel. The Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and
right to travel does not entitle a person to the best form of transport or to the most 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging
convenient route to his destination. The obstructions found in normal streets, which to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to
petitioners complain of (i.e., potholes, manholes, construction barriers, etc.), are not 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the
suffered by them alone. foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR'])
that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local
Finally, petitioners assert that their possession of a drivers license from the Land brand." 3 Ad Valorem taxes were imposed on these brands, 4 at the following rates:
Transportation Office (LTO) and the fact that their vehicles are registered with that office
entitle them to use all kinds of roads in the country. Again, petitioners are mistaken. There BRAND AD VALOREM TAX RATE
exists no absolute right to drive. On the contrary, this privilege, is heavily regulated. Only a E.O. 22 and E.O. 273 RA 6956
qualified group is allowed to drive motor vehicles: those who pass the tests administered 06-23-86 07-25-87 06-18-90
by the LTO. A drivers license issued by the LTO merely allows one to drive a particular 07-01-86 01-01-88 07-05-90
mode of transport. It is not a license to drive or operate any form of transportation on any
type of road. Vehicle registration in the LTO on the other hand merely signifies the Hope Luxury M. 100's
roadworthiness of a vehicle. This does not preclude the government from prescribing which Sec. 142, (c), (2) 40% 45%
roads are accessible to certain vehicles. Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
WHEREFORE, we PARTLY GRANT the petition. We MODIFY the Decision dated 10 March Sec. 142, (c), (2) 40% 45%
2003 of the Regional Trial Court, Branch 147, Makati City and its Order dated 16 June 2003 More Premium International
in Civil Case No. 01-034. We declare VOID Department Order Nos. 74, 215, and 123 of the Sec. 142, (c), (2) 40% 45%
Department of Public Works and Highways, and the Revised Rules and Regulations on Champion Int'l. M. 100's

15

Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20%
ADMIN LAW CASES SET 8
REVENUE MEMORANDUM CIRCULAR NO. 37-93
SUBJECT: Reclassification of Cigarettes Subject to Excise Tax
TO: All Internal Revenue Officers and Others Concerned.
5

In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION"

A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June
1993, by the legislature and signed into law, on 14 June 1993, by the President of
the Philippines. The new law became effective on 03 July 1993. It amended Section
142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as follows:
Sec. 142. Cigars and Cigarettes.
cigarettes which are locally manufactured are appropriately considered as
locally manufactured cigarettes bearing a foreign brand, this Office is
compelled to review the previous rulings on the matter.
Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No.
6956, provides:

xxx xxx xxx
(c) Cigarettes packed by machine. There shall be levied, assessed and
collected on cigarettes packed by machine a tax at the rates prescribed
below based on the constructive manufacturer's wholesale price or the
actual manufacturer's wholesale price, whichever is higher:
(1) On locally manufactured cigarettes which are currently classified and
taxed at fifty-five percent (55%) or the exportation of which is not
authorized by contract or otherwise, fifty-five (55%) provided that the
minimum tax shall not be less than Five Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent
(45%) provided that the minimum tax shall not be less than Three Pesos
(P3.00) per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the actual
manufacturer's wholesale price whichever is higher of existing brands of
cigarettes, including the amounts intended to cover the taxes, of cigarettes
packed in twenties does not exceed Four Pesos and eighty centavos
(P4.80) per pack, the rate shall be twenty percent (20%). 7 (Emphasis
supplied)
About a month after the enactment and two (2) days before the effectivity of RA
7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the
BIR the full text of which expressed:
REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
On locally manufactured cigarettes bearing a foreign brand, fifty-
five percent (55%) Provided, That this rate shall apply regardless of
whether or not the right to use or title to the foreign brand was
sold or transferred by its owner to the local manufacturer.
Whenever it has to be determined whether or not a cigarette bears
a foreign brand, the listing of brands manufactured in foreign
countries appearing in the current World Tobacco Directory shall
govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on
cigarettes is that the locally manufactured cigarettes bear a foreign brand
regardless of whether or not the right to use or title to the foreign brand
was sold or transferred by its owner to the local manufacturer. The brand
must be originally owned by a foreign manufacturer or producer. If
ownership of the cigarette brand is, however, not definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in
the current World Tobacco Directory shall govern. . . ."
"HOPE" is listed in the World Tobacco Directory as being manufactured by
(a) Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is
listed in the said directory as being manufactured by: (a) Fills de Julia Reig,
Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald Canada; (d) Rettig-
Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds,
Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds,
Switzerland; and (m) R.J. Reynolds, USA. "Champion" is registered in the
said directory as being manufactured by (a) Commonwealth Bangladesh;
(b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco,
Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.
Since there is no showing who among the above-listed manufacturers of
the cigarettes bearing the said brands are the real owner/s thereof, then it
follows that the same shall be considered foreign brand for purposes of
determining the ad valorem tax pursuant to Section 142 of the National
16

Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24,
1988, "in cases where it cannot be established or there is dearth of
evidence as to whether a brand is foreign or not, resort to the World
Tobacco Directory should be made."
In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE,"
"MORE" and "CHAMPION" being manufactured by Fortune Tobacco
Corporation are hereby considered locally manufactured cigarettes bearing
a foreign brand subject to the 55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
(SGD) LIWAYWAY VINZONS-CHATO
Commissioner
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A.
Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was
addressed to no one in particular. On 15 July 1993, Fortune Tobacco received, by
ordinary mail, a certified xerox copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the BIR,
Fortune Tobacco requested for a review, reconsideration and recall of RMC 37-93.
The request was denied on 29 July 1993. The following day, or on 30 July 1993, the
CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to
P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8
On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the
brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being
manufactured by Fortune Tobacco Corporation as locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on
cigarettes is found to be defective, invalid and unenforceable, such that
when R.A. No. 7654 took effect on July 3, 1993, the brands in question were
not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section
1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were
therefore still classified as other locally manufactured cigarettes and taxed
at 45% or 20% as the case may be.
Accordingly, the deficiency ad valorem tax assessment issued on petitioner
Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of
surcharge and interest, is hereby canceled for lack of legal basis.
ADMIN LAW CASES SET 8
Respondent Commissioner of Internal Revenue is hereby enjoined from
collecting the deficiency tax assessment made and issued on petitioner in
relation to the implementation of RMC No. 37-93.
SO ORDERED. 9
In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the
motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals, questioning
the CTA's 10th August 1994 decision and 11th October 1994 resolution. On 31
March 1993, the appellate court's Special Thirteenth Division affirmed in all
respects the assailed decision and resolution.
In the instant petition, the Solicitor General argues: That
I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF
INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE.
II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF
RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND
PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND
ENFORCEABILITY.
III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-
93 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY
MANUFACTURED CIGARETTES SIMILARLY SITUATED AS "HOPE," "MORE"
AND "CHAMPION" CIGARETTES.
V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING
"HOPE," "MORE" AND "CHAMPION" CIGARETTES BEFORE THE EFFECTIVITY
OF R.A. NO. 7654.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT
INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS
CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT. 10
In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the
BIR which can thus become effective without any prior need for notice and hearing,
nor publication, and that its issuance is not discriminatory since it would apply
under similar circumstances to all locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
17

Petitioner stresses on the wide and ample authority of the BIR in the issuance of
rulings for the effective implementation of the provisions of the National Internal
Revenue Code. Let it be made clear that such authority of the Commissioner is not
here doubted. Like any other government agency, however, the CIR may not
disregard legal requirements or applicable principles in the exercise of its quasi-
legislative powers.
Let us first distinguish between two kinds of administrative issuances
a legislative rule and an interpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance
Secretary, 11 the Court expressed:
. . . a legislative rule is in the nature of subordinate legislation, designed to
implement a primary legislation by providing the details thereof . In the
same way that laws must have the benefit of public hearing, it is generally
required that before a legislative rule is adopted there must be hearing. In
this connection, the Administrative Code of 1987 provides:
Public Participation. If not otherwise required by law, an agency shall, as
far as practicable, publish or circulate notices of proposed rules and afford
interested parties the opportunity to submit their views prior to the
adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the
proposed rates shall have been published in a newspaper of general
circulation at least two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.
In addition such rule must be published. On the other hand, interpretative
rules are designed to provide guidelines to the law which the
administrative agency is in charge of enforcing. 12
It should be understandable that when an administrative rule is merely
interpretative in nature, its applicability needs nothing further than its bare
issuance for it gives no real consequence more than what the law itself has already
prescribed. When, upon the other hand, the administrative rule goes beyond
merely providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially adds to or increases the burden of
those governed, it behooves the agency to accord at least to those directly
affected a chance to be heard, and thereafter to be duly informed, before that new
issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under which it
has been issued, convinces us that the circular cannot be viewed simply as a
corrective measure (revoking in the process the previous holdings of past
ADMIN LAW CASES SET 8
Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as
amended, but has, in fact and most importantly, been made in order to place
"Hope Luxury," "Premium More" and "Champion" within the classification of locally
manufactured cigarettes bearing foreign brands and to thereby have them covered
by RA 7654. Specifically, the new law would have its amendatory provisions
applied to locally manufactured cigarettes which at the time of its effectivity were
not so classified as bearing foreign brands. Prior to the issuance of the questioned
circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the
category of locally manufactured cigarettes not bearing foreign brand subject to
45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would
have had no new tax rate consequence on private respondent's products.
Evidently, in order to place "Hope Luxury," "Premium More," and "Champion"
cigarettes within the scope of the amendatory law and subject them to an
increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the
BIR not simply intrepreted the law; verily, it legislated under its quasi-
legislative authority. The due observance of the requirements of notice, of hearing,
and of publication should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas bearing on compliance
with Internal Revenue Tax rules and regulations is lack or insufficiency of
due notice to the tax paying public. Unless there is due notice, due
compliance therewith may not be reasonably expected. And most
importantly, their strict enforcement could possibly suffer from legal
infirmity in the light of the constitutional provision on "due process of law"
and the essence of the Civil Code provision concerning effectivity of laws,
whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution;
Art. 2, New Civil Code).
In order that there shall be a just enforcement of rules and regulations, in
conformity with the basic element of due process, the following procedures
are hereby prescribed for the drafting, issuance and implementation of the
said Revenue Tax Issuances:
(1) This Circular shall apply only to (a) Revenue Regulations; (b)
Revenue Audit Memorandum Orders; and (c) Revenue
Memorandum Circulars and Revenue Memorandum Orders bearing
on internal revenue tax rules and regulations.
(2) Except when the law otherwise expressly provides, the
aforesaid internal revenue tax issuances shall not begin to be
operative until after due notice thereof may be fairly presumed.
18

Due notice of the said issuances may be fairly presumed only after
the following procedures have been taken;
xxx xxx xxx
(5) Strict compliance with the foregoing procedures is
enjoined. 13
Nothing on record could tell us that it was either impossible or impracticable for
the BIR to observe and comply with the above requirements before giving effect to
its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of
taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to
be uniform and equitable. Uniformity requires that all subjects or objects of
taxation, similarly situated, are to be treated alike or put on equal footing both in
privileges and liabilities. 14 Thus, all taxable articles or kinds of property of the
same class must be taxed at the same rate 15 and the tax must operate with the
same force and effect in every place where the subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and
"Champion" cigarettes and, unless petitioner would be willing to concede to the
submission of private respondent that the circular should, as in fact my esteemed
colleague Mr. Justice Bellosillo so expresses in his separate opinion, be
considered adjudicatory in nature and thus violative of due process following
the Ang Tibay 16 doctrine, the measure suffers from lack of uniformity of taxation.
In its decision, the CTA has keenly noted that other cigarettes bearing foreign
brands have not been similarly included within the scope of the circular, such as
1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
(a) "PALM TREE" is listed as manufactured by office of Monopoly, Korea
(Exhibit "R")
2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY
(a) "GOLDEN KEY" is listed being manufactured by United Tobacco,
Pakistan (Exhibit "S")
(b) "CANNON" is listed as being manufactured by Alpha Tobacco,
Bangladesh (Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
ADMIN LAW CASES SET 8
(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia
(Exhibit "U")
(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks, Sweden
(Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia
(Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) "UNION" is listed as being manufactured by Sumatra Tobacco, Indonesia
and Brown and Williamson, USA (Exhibit "U-3")
(b) "WINNER" is listed as being manufactured by Alpha Tobacco,
Bangladesh; Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco
Co., Pakistan; Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-
4"). 17
The court quoted at length from the transcript of the hearing conducted on 10
August 1993 by the Committee on Ways and Means of the House of
Representatives; viz:
THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You
don't have specific information on other tobacco manufacturers. Now, there are
other brands which are similarly situated. They are locally manufactured bearing
foreign brands. And may I enumerate to you all these brands, which are also listed
in the World Tobacco Directory . . . Why were these brand not reclassified at 55 if
your want to give a level playing filed to foreign manufacturers?
MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue
Memorandum Circular that was supposed to come after RMC No. 37-93 which have
really named specifically the list of locally manufactured cigarettes bearing a
foreign brand for excise tax purposes and includes all these brands that you
mentioned at 55 percent except that at that time, when we had to come up with
this, we were forced to study the brands of Hope, More and Champion because we
were given documents that would indicate the that these brands were actually
being claimed or patented in other countries because we went by Revenue
Memorandum Circular 1488 and we wanted to give some rationality to how it came
about but we couldn't find the rationale there. And we really found based on our
own interpretation that the only test that is given by that existing law would be
registration in the World Tobacco Directory. So we came out with this proposed
revenue memorandum circular which we forwarded to the Secretary of Finance
except that at that point in time, we went by the Republic Act 7654 in Section 1
which amended Section 142, C-1, it said, that on locally manufactured cigarettes
19
 ADMIN LAW CASES SET 8
which are currently classified and taxed at 55 percent. So we were saying that SO ORDERED.
when this law took effect in July 3 and if we are going to come up with this revenue
circular thereafter, then I think our action would really be subject to question but
we feel that . . . Memorandum Circular Number 37-93 would really cover even
similarly situated brands. And in fact, it was really because of the study, the short
time that we were given to study the matter that we could not include all the rest
of the other brands that would have been really classified as foreign brand if we
went by the law itself. I am sure that by the reading of the law, you would without
that ruling by Commissioner Tan they would really have been included in the
definition or in the classification of foregoing brands. These brands that you
referred to or just read to us and in fact just for your information, we really came
out with a proposed revenue memorandum circular for those brands. (Emphasis
supplied)

(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).

xxx xxx xxx

MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I
felt that we . . . I wanted to come up with a more extensive coverage and precisely
why I asked that revenue memorandum circular that would cover all those
similarly situated would be prepared but because of the lack of time and I came
out with a study of RA 7654, it would not have been possible to really come up
with the reclassification or the proper classification of all brands that are listed
there. . .(emphasis supplied) (Exhibit "FF-2d," page IX-1)

xxx xxx xxx

HON. DIAZ. But did you not consider that there are similarly situated?

MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue
Memorandum Circular No. 37-93, the other brands came about the would have also
clarified RMC 37-93 by I was saying really because of the fact that I was just
recently appointed and the lack of time, the period that was allotted to us to come
up with the right actions on the matter, we were really caught by the July 3
deadline. But in fact, We have already prepared a revenue memorandum circular
clarifying with the other . . . does not yet, would have been a list of locally
manufactured cigarettes bearing a foreign brand for excise tax purposes which
would include all the other brands that were mentioned by the Honorable
Chairman. (Emphasis supplied) (Exhibit "FF-2-d," par. IX-4). 18

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short
of a valid and effective administrative issuance.

WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax
Appeals, is AFFIRMED. No costs.

20

G.R. No. L-63915 April 24, 1985
LORENZO M. TAADA, ABRAHAM F. SARMIENTO, and MOVEMENT OF ATTORNEYS
FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. [MABINI], petitioners, vs.
HON. JUAN C. TUVERA, in his capacity as Executive Assistant to the President,
HON. JOAQUIN VENUS, in his capacity as Deputy Executive Assistant to the
President , MELQUIADES P. DE LA CRUZ, in his capacity as Director, Malacaang
Records Office, and FLORENDO S. PABLO, in his capacity as Director, Bureau of
Printing, respondents.
Invoking the people's right to be informed on matters of public concern, a right recognized
in Section 6, Article IV of the 1973 Philippine Constitution, 1 as well as the principle that
laws to be valid and enforceable must be published in the Official Gazette or otherwise
effectively promulgated, petitioners seek a writ of mandamus to compel respondent public
officials to publish, and/or cause the publication in the Official Gazette of various
presidential decrees, letters of instructions, general orders, proclamations, executive
orders, letter of implementation and administrative orders.
Specifically, the publication of the following presidential issuances is sought:
a] Presidential Decrees Nos. 12, 22, 37, 38, 59, 64, 103, 171, 179, 184, 197, 200,
234, 265, 286, 298, 303, 312, 324, 325, 326, 337, 355, 358, 359, 360, 361, 368,
404, 406, 415, 427, 429, 445, 447, 473, 486, 491, 503, 504, 521, 528, 551, 566,
573, 574, 594, 599, 644, 658, 661, 718, 731, 733, 793, 800, 802, 835, 836, 923,
935, 961, 1017-1030, 1050, 1060-1061, 1085, 1143, 1165, 1166, 1242, 1246,
1250, 1278, 1279, 1300, 1644, 1772, 1808, 1810, 1813-1817, 1819-1826, 1829-
1840, 1842-1847.
b] Letter of Instructions Nos.: 10, 39, 49, 72, 107, 108, 116, 130, 136, 141, 150,
153, 155, 161, 173, 180, 187, 188, 192, 193, 199, 202, 204, 205, 209, 211-213,
215-224, 226-228, 231-239, 241-245, 248, 251, 253-261, 263-269, 271-273, 275-
283, 285-289, 291, 293, 297-299, 301-303, 309, 312-315, 325, 327, 343, 346, 349,
357, 358, 362, 367, 370, 382, 385, 386, 396-397, 405, 438-440, 444- 445, 473,
486, 488, 498, 501, 399, 527, 561, 576, 587, 594, 599, 600, 602, 609, 610, 611,
612, 615, 641, 642, 665, 702, 712-713, 726, 837-839, 878-879, 881, 882, 939-940,
964,997,1149-1178,1180-1278.
c] General Orders Nos.: 14, 52, 58, 59, 60, 62, 63, 64 & 65.
d] Proclamation Nos.: 1126, 1144, 1147, 1151, 1196, 1270, 1281, 1319-1526,
1529, 1532, 1535, 1538, 1540-1547, 1550-1558, 1561-1588, 1590-1595, 1594-
1600, 1606-1609, 1612-1628, 1630-1649, 1694-1695, 1697-1701, 1705-1723,
1731-1734, 1737-1742, 1744, 1746-1751, 1752, 1754, 1762, 1764-1787, 1789-
1795, 1797, 1800, 1802-1804, 1806-1807, 1812-1814, 1816, 1825-1826, 1829,
1831-1832, 1835-1836, 1839-1840, 1843-1844, 1846-1847, 1849, 1853-1858,
1860, 1866, 1868, 1870, 1876-1889, 1892, 1900, 1918, 1923, 1933, 1952, 1963,
1965-1966, 1968-1984, 1986-2028, 2030-2044, 2046-2145, 2147-2161, 2163-
2244.
e] Executive Orders Nos.: 411, 413, 414, 427, 429-454, 457- 471, 474-492, 494-
507, 509-510, 522, 524-528, 531-532, 536, 538, 543-544, 549, 551-553, 560, 563,
567-568, 570, 574, 593, 594, 598-604, 609, 611- 647, 649-677, 679-703, 705-707,
712-786, 788-852, 854-857.
ADMIN LAW CASES SET 8
f] Letters of Implementation Nos.: 7, 8, 9, 10, 11-22, 25-27, 39, 50, 51, 59, 76, 80-
81, 92, 94, 95, 107, 120, 122, 123.
g] Administrative Orders Nos.: 347, 348, 352-354, 360- 378, 380-433, 436-439.
The respondents, through the Solicitor General, would have this case dismissed outright on
the ground that petitioners have no legal personality or standing to bring the instant
petition. The view is submitted that in the absence of any showing that petitioners are
personally and directly affected or prejudiced by the alleged non-publication of the
presidential issuances in question 2 said petitioners are without the requisite legal
personality to institute this mandamus proceeding, they are not being "aggrieved parties"
within the meaning of Section 3, Rule 65 of the Rules of Court, which we quote:
SEC. 3. Petition for Mandamus.When any tribunal, corporation, board or person
unlawfully neglects the performance of an act which the law specifically enjoins as
a duty resulting from an office, trust, or station, or unlawfully excludes another
from the use a rd enjoyment of a right or office to which such other is entitled, and
there is no other plain, speedy and adequate remedy in the ordinary course of law,
the person aggrieved thereby may file a verified petition in the proper court
alleging the facts with certainty and praying that judgment be rendered
commanding the defendant, immediately or at some other specified time, to do
the act required to be done to Protect the rights of the petitioner, and to pay the
damages sustained by the petitioner by reason of the wrongful acts of the
defendant.
Upon the other hand, petitioners maintain that since the subject of the petition concerns a
public right and its object is to compel the performance of a public duty, they need not
show any specific interest for their petition to be given due course.
The issue posed is not one of first impression. As early as the 1910 case of Severino vs.
Governor General, 3 this Court held that while the general rule is that "a writ of mandamus
would be granted to a private individual only in those cases where he has some private or
particular interest to be subserved, or some particular right to be protected, independent
of that which he holds with the public at large," and "it is for the public officers exclusively
to apply for the writ when public rights are to be subserved [Mithchell vs. Boardmen, 79
M.e., 469]," nevertheless, "when the question is one of public right and the object of the
mandamus is to procure the enforcement of a public duty, the people are regarded as the
real party in interest and the relator at whose instigation the proceedings are instituted
need not show that he has any legal or special interest in the result, it being sufficient to
show that he is a citizen and as such interested in the execution of the laws [High,
Extraordinary Legal Remedies, 3rd ed., sec. 431].
Thus, in said case, this Court recognized the relator Lope Severino, a private individual, as
a proper party to the mandamus proceedings brought to compel the Governor General to
call a special election for the position of municipal president in the town of Silay, Negros
Occidental. Speaking for this Court, Mr. Justice Grant T. Trent said:
21

We are therefore of the opinion that the weight of authority supports the
proposition that the relator is a proper party to proceedings of this character when
a public right is sought to be enforced. If the general rule in America were
otherwise, we think that it would not be applicable to the case at bar for the reason
'that it is always dangerous to apply a general rule to a particular case without
keeping in mind the reason for the rule, because, if under the particular
circumstances the reason for the rule does not exist, the rule itself is not applicable
and reliance upon the rule may well lead to error'
No reason exists in the case at bar for applying the general rule insisted upon by
counsel for the respondent. The circumstances which surround this case are
different from those in the United States, inasmuch as if the relator is not a proper
party to these proceedings no other person could be, as we have seen that it is not
the duty of the law officer of the Government to appear and represent the people
in cases of this character.
The reasons given by the Court in recognizing a private citizen's legal personality in the
aforementioned case apply squarely to the present petition. Clearly, the right sought to be
enforced by petitioners herein is a public right recognized by no less than the fundamental
law of the land. If petitioners were not allowed to institute this proceeding, it would indeed
be difficult to conceive of any other person to initiate the same, considering that the
Solicitor General, the government officer generally empowered to represent the people,
has entered his appearance for respondents in this case.
Respondents further contend that publication in the Official Gazette is not a sine qua non
requirement for the effectivity of laws where the laws themselves provide for their own
effectivity dates. It is thus submitted that since the presidential issuances in question
contain special provisions as to the date they are to take effect, publication in the Official
Gazette is not indispensable for their effectivity. The point stressed is anchored on Article 2
of the Civil Code:
Art. 2. Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette, unless it is otherwise provided, ...
The interpretation given by respondent is in accord with this Court's construction of said
article. In a long line of decisions, 4 this Court has ruled that publication in the Official
Gazette is necessary in those cases where the legislation itself does not provide for its
effectivity date-for then the date of publication is material for determining its date of
effectivity, which is the fifteenth day following its publication-but not when the law itself
provides for the date when it goes into effect.
Respondents' argument, however, is logically correct only insofar as it equates the
effectivity of laws with the fact of publication. Considered in the light of other statutes
applicable to the issue at hand, the conclusion is easily reached that said Article 2 does not
preclude the requirement of publication in the Official Gazette, even if the law itself
provides for the date of its effectivity. Thus, Section 1 of Commonwealth Act 638 provides
as follows:
ADMIN LAW CASES SET 8
Section 1. There shall be published in the Official Gazette [1] all important
legisiative acts and resolutions of a public nature of the, Congress of the
Philippines; [2] all executive and administrative orders and proclamations, except
such as have no general applicability; [3] decisions or abstracts of decisions of the
Supreme Court and the Court of Appeals as may be deemed by said courts of
sufficient importance to be so published; [4] such documents or classes of
documents as may be required so to be published by law; and [5] such documents
or classes of documents as the President of the Philippines shall determine from
time to time to have general applicability and legal effect, or which he may
authorize so to be published. ...
The clear object of the above-quoted provision is to give the general public adequate
notice of the various laws which are to regulate their actions and conduct as citizens.
Without such notice and publication, there would be no basis for the application of the
maxim "ignorantia legis non excusat." It would be the height of injustice to punish or
otherwise burden a citizen for the transgression of a law of which he had no notice
whatsoever, not even a constructive one.
Perhaps at no time since the establishment of the Philippine Republic has the publication of
laws taken so vital significance that at this time when the people have bestowed upon the
President a power heretofore enjoyed solely by the legislature. While the people are kept
abreast by the mass media of the debates and deliberations in the Batasan Pambansa
and for the diligent ones, ready access to the legislative recordsno such publicity
accompanies the law-making process of the President. Thus, without publication, the
people have no means of knowing what presidential decrees have actually been
promulgated, much less a definite way of informing themselves of the specific contents
and texts of such decrees. As the Supreme Court of Spain ruled: "Bajo la denominacion
generica de leyes, se comprenden tambien los reglamentos, Reales decretos,
Instrucciones, Circulares y Reales ordines dictadas de conformidad con las mismas por el
Gobierno en uso de su potestad. 5
The very first clause of Section I of Commonwealth Act 638 reads: "There shall be
published in the Official Gazette .." The word "shall" used therein imposes upon respondent
officials an imperative duty. That duty must be enforced if the Constitutional right of the
people to be informed on matters of public concern is to be given substance and reality.
The law itself makes a list of what should be published in the Official Gazette. Such listing,
to our mind, leaves respondents with no discretion whatsoever as to what must be
included or excluded from such publication.
The publication of all presidential issuances "of a public nature" or "of general applicability"
is mandated by law. Obviously, presidential decrees that provide for fines, forfeitures or
penalties for their violation or otherwise impose a burden or. the people, such as tax and
revenue measures, fall within this category. Other presidential issuances which apply only
to particular persons or class of persons such as administrative and executive orders need
not be published on the assumption that they have been circularized to all concerned. 6
It is needless to add that the publication of presidential issuances "of a public nature" or
"of general applicability" is a requirement of due process. It is a rule of law that before a
22

person may be bound by law, he must first be officially and specifically informed of its
contents. As Justice Claudio Teehankee said in Peralta vs. COMELEC 7:
In a time of proliferating decrees, orders and letters of instructions which all form
part of the law of the land, the requirement of due process and the Rule of Law
demand that the Official Gazette as the official government repository promulgate
and publish the texts of all such decrees, orders and instructions so that the people
may know where to obtain their official and specific contents.
The Court therefore declares that presidential issuances of general application, which have
not been published, shall have no force and effect. Some members of the Court, quite
apprehensive about the possible unsettling effect this decision might have on acts done in
reliance of the validity of those presidential decrees which were published only during the
pendency of this petition, have put the question as to whether the Court's declaration of
invalidity apply to P.D.s which had been enforced or implemented prior to their publication.
The answer is all too familiar. In similar situations in the past this Court had taken the
pragmatic and realistic course set forth in Chicot County Drainage District vs. Baxter
Bank 8 to wit:
ADMIN LAW CASES SET 8
Presidential Decrees Nos. 1019 to 1030, inclusive, 1278, and 1937 to 1939, inclusive, have
not been so published. 10 Neither the subject matters nor the texts of these PDs can be
ascertained since no copies thereof are available. But whatever their subject matter may
be, it is undisputed that none of these unpublished PDs has ever been implemented or
enforced by the government. In Pesigan vs. Angeles, 11 the Court, through Justice Ramon
Aquino, ruled that "publication is necessary to apprise the public of the contents of [penal]
regulations and make the said penalties binding on the persons affected thereby. " The
cogency of this holding is apparently recognized by respondent officials considering the
manifestation in their comment that "the government, as a matter of policy, refrains from
prosecuting violations of criminal laws until the same shall have been published in the
Official Gazette or in some other publication, even though some criminal laws provide that
they shall take effect immediately.
WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all
unpublished presidential issuances which are of general application, and unless so
published, they shall have no binding force and effect. SO ORDERED.

The courts below have proceeded on the theory that the Act of Congress, having
been found to be unconstitutional, was not a law; that it was inoperative,
conferring no rights and imposing no duties, and hence affording no basis for the
challenged decree. Norton v. Shelby County, 118 U.S. 425, 442; Chicago, 1. & L. Ry.
Co. v. Hackett, 228 U.S. 559, 566. It is quite clear, however, that such broad
statements as to the effect of a determination of unconstitutionality must be taken
with qualifications. The actual existence of a statute, prior to such a determination,
is an operative fact and may have consequences which cannot justly be ignored.
The past cannot always be erased by a new judicial declaration. The effect of the
subsequent ruling as to invalidity may have to be considered in various aspects-
with respect to particular conduct, private and official. Questions of rights claimed
to have become vested, of status, of prior determinations deemed to have finality
and acted upon accordingly, of public policy in the light of the nature both of the
statute and of its previous application, demand examination. These questions are
among the most difficult of those which have engaged the attention of courts,
state and federal and it is manifest from numerous decisions that an all-inclusive
statement of a principle of absolute retroactive invalidity cannot be justified.

Consistently with the above principle, this Court in Rutter vs. Esteban 9 sustained the right
of a party under the Moratorium Law, albeit said right had accrued in his favor before said
law was declared unconstitutional by this Court.

Similarly, the implementation/enforcement of presidential decrees prior to their publication

in the Official Gazette is "an operative fact which may have consequences which cannot be
justly ignored. The past cannot always be erased by a new judicial declaration ... that an
all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified."

From the report submitted to the Court by the Clerk of Court, it appears that of the
presidential decrees sought by petitioners to be published in the Official Gazette, only

23

G.R. No. 192117 September 18, 2012
ASSOCIATION OF SOUTHERN TAGALOG ELECTRIC COOPERATIVES, INC. (ASTEC),
BATANGAS I ELECTRIC COOPERATIVE, INC. (BATELEC I), QUEZON I ELECTRIC
COOPERATIVE, INC. (QUEZELCO I), and QUEZON II ELECTRIC COOPERATIVE, INC.
(QUEZELCO II), Petitioners, vs. ENERGY REGULATORY COMMISSION, Respondent.
x-----------------------x
G.R. No. 192118
CENTRAL LUZON ELECTRIC COOPERATIVES ASSOCIATION, INC. (CLEA) and
PAMPANGA RURAL ELECTRIC SERVICE COOPERATIVE, INC.
(PRESCO), Petitioners, vs. ENERGY REGULATORY COMMISSION, Respondent.
The Case
This is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court. The petition
assails the 23 December 2008 Decision 2 and 26 April 2010 Resolution 3 of the Court of
Appeals in the consolidated cases, including CA-G.R. SP Nos. 99249 and 99253. 4 The Court
of Appeals affirmed the Orders of the Energy Regulatory Commission (ERC) directing
various rural electric cooperatives to refund their over-recoveries arising from the
implementation of the Purchased Power Adjustment (PPA) Clause under Republic Act (R.A.)
No. 7832 or the Anti-Electricity and Electric Transmission Lines/Materials Pilferage Act of
1994.
The Facts
Petitioners Batangas I Electric Cooperative, Inc. (BATELEC I), Quezon I Electric Cooperative,
Inc. (QUEZELCO I), Quezon II Electric Cooperative, Inc. (QUEZELCO II) and Pampanga Rural
Electric Service Cooperative, Inc. (PRESCO) are rural electric cooperatives established
under Presidential Decree (P.D.) No. 269 or the National Electrification Administration
Decree.5 BATELEC I, QUEZELCO I and QUEZELCO II are members of the Association of
Southern Tagalog Electric Cooperatives, Inc. (ASTEC). PRESCO is a member of the Central
Luzon Electric Cooperatives Association, Inc. (CLECA). Petitioners are engaged in the
distribution of electricity "on a non-profit basis for the mutual benefit of its members and
patrons."6
On 8 December 1994, R.A. No. 7832 was enacted. The law imposed a cap on the
recoverable rate of system loss7 that may be charged by rural electric cooperatives to their
consumers. Section 10 of R.A. No. 7832 provides:
Section 10. Rationalization of System Losses by Phasing out Pilferage Losses as Component
Thereof. There is hereby established a cap on the recoverable rate of system losses as
follows:
ADMIN LAW CASES SET 8
xxxx
(b) For rural electric cooperatives:
(i) Twenty-two percent (22%) at the end of the first year following the effectivity of
this Act;
(ii) Twenty percent (20%) at the end of the second year following the effectivity of
this Act;
(iii) Eighteen percent (18%) at the end of the third year following the effectivity of
this Act;
(iv) Sixteen percent (16%) at the end of the fourth year following the effectivity of
this Act; and
(v) Fourteen percent (14%) at the end of the fifth year following the effectivity of
this Act.
Provided, That the ERB is hereby authorized to determine at the end of the fifth year
following the effectivity of this Act, and as often as is necessary, taking into account the
viability of rural electric cooperatives and the interest of the consumers, whether the caps
herein or theretofore established shall be reduced further which shall, in no case, be lower
than nine percent (9%) and accordingly fix the date of the effectivity of the new caps.
xxxx
The Implementing Rules and Regulations (IRR) of R.A. No. 7832 required every rural
electric cooperative to file with the Energy Regulatory Board (ERB), on or before 30
September 1995, an application for approval of an amended PPA Clause incorporating the
cap on the recoverable rate of system loss to be included in its schedule of rates. 8 Section
5, Rule IX of the IRR of R.A. No. 7832 provided for the following guiding formula for the
amended PPA Clause:
Section 5. Automatic Cost Adjustment Formula.
xxxx
The automatic cost adjustment of every electric cooperative shall be guided by the
following formula:
Purchased Power Adjustment Clause
24
 ADMIN LAW CASES SET 8
A C= Actual system loss but not to exceed themaximum recoverable rate of system loss
in Kwh
(PPA) = -E
C1 = Actual company use in Kwhrs but not to exceed 1% of total Kwhrs purchased and
B-(C + D)
generated
Where:
D= Kwh consumed by subsidized consumers
A= Cost of electricity purchased and generated for the previous month
E= Applicable base cost of power equal to the amount incorporated into their basic rate
B= Total Kwh purchased and generated for the previous month per Kwh

C= The actual system loss but not to exceed the maximum recoverable rate of system The ERB further directed petitioners to submit relevant documents regarding the monthly
loss in Kwh plus actual company use in Kwhrs but not to exceed 1% of total Kwhrs implementation of the PPA formula for review, verification and confirmation. The Orders
purchased and generated dated 19 February 1997 and 25 April 1997 commonly provide:

D= Kwh consumed by subsidized consumers Accordingly, all electric cooperatives are hereby directed to submit to the Board within ten
(10) days from notice hereof their monthly implementation of the PPA formula from the
February, 1996 to January, 1997 for the Boards review, verification and confirmation. The
E= Applicable base cost of power equal to the amount incorporated into their basic rate
submission should include the following documents:
per Kwh

1. PPA computation following the formula provided above

In compliance with the IRR of R.A. No. 7832, various associations of rural electric
cooperatives throughout the Philippines filed on behalf of their members applications for
approval of amended PPA Clauses. On 8 February 1996, ASTEC filed on behalf of its
members (including BATELEC I, QUEZELCO I and QUEZELCO II) a verified petition for the
approval of the amended PPA Clause. The verified petition of ASTEC was docketed as ERB
Case No. 96-35.9 On 9 February 1996, CLECA also filed on behalf of its members (including
PRESCO) a verified petition for the approval of the amended PPA Clause. The verified
petition of CLECA was docketed as ERB Case No. 96-37. 10
The ERB issued Orders on 19 February 1997 11 and 25 April 199712 provisionally authorizing
the petitioners and the other rural electric cooperatives to use and implement the
following PPA formula, subject to review, verification and confirmation by the ERB:
A
(PPA) = -E
B-(C + CI + D)
Where:
A = Cost of Electricity purchased and generated for the previous month less amount
recovered from pilferages, if any
2. Monthly NPC bill or such other power bill purchased or generated not yet forwarded to
ERB from January 1995 onward
3. Monthly Financial and Statistical Report (MFSRs) not yet forwarded to ERB from January
1995 onward
4. Sample bills for the month subject to confirmation for different types of customers.
Thereafter, (from February 1997 and onward) all electric cooperatives are hereby directed
to submit on or before the 20th day of the current month, their implementation of the PPA
formula of the previous month for the same purposes as indicated above. 13
On 8 June 2001, R.A. No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA)
was enacted. Section 38 of the EPIRA abolished the ERB, and created the Energy
Regulatory Commission (ERC). The ERC is an independent and quasi-judicial regulatory
body mandated to "promote competition, encourage market development, ensure
customer choice and penalize abuse of market power in the restructured electricity
industry."14 The powers and functions of the ERB not inconsistent with the provisions of the
EPIRA were transferred to the ERC, together with the applicable funds and appropriations,
records, equipment, property and personnel of the ERB. 15

B= Total Kwh purchased and generated for the previous month

25

As a result, ERB Case No. 96-35 involving ASTEC and its members (including BATELEC I,
QUEZELCO I and QUEZELCO II) was renamed and renumbered as ERC Case No. 2001-
338.16 ERB Case No. 96-37 involving CLECA and its members (including PRESCO) was also
renamed and renumbered as ERC Case No. 2001-340. 17The records further show that these
two cases were consolidated, together with the other cases previously consolidated with
then ERB Case No. 96-35.18
Subsequently, the ERC issued an Order dated 17 June 2003. The ERC noted therein "that
the PPA formula which was approved by the ERB was silent on whether the calculation of
the cost of electricity purchased and generated in the formula should be gross or net of
discounts."19 The cost of electricity is computed at "gross" if the discounts extended by the
power supplier to the rural electric cooperative are not passed on to end-users, while the
cost of electricity is computed at "net" if the discounts are passed on to end-users. 20 The
ERC ruled:
To attain uniformity in the implementation of the PPA formulae, the Commission has
resolved that:
1. In the confirmation of past PPAs, the power cost shall still be based on "gross"; and
2. In the confirmation of future PPAs, the power cost shall be based on "net".
Relative thereto, petitioners are directed to implement their respective PPA using the
power cost based on net at the next billing cycle upon receipt of this Order until such time
that their respective rates have already been unbundled.
Petitioners are hereby directed to submit to the Commission on or before the 20th day of
the following month, their implementation of the PPA formula for review, verification and
confirmation by the Commission.21
On 29 March 2004, the ERC issued an Order in the consolidated cases resolving the
motions for reconsideration filed by several rural electric cooperatives. In the said Order,
the ERC explained the general framework of the new PPA confirmation scheme to be
adopted by the regulatory body. The ERC stated:
Majority of the issues raised in the motions for reconsideration can be properly addressed
by the new PPA confirmation scheme to be adopted by this Commission. Under this
scheme, the electric cooperatives shall be allowed to collect/refund the true cost of power
due them vis-a-vis the amount already collected from their end-users. In turn, the end-
users shall only be charged the true cost of power consumed.
The Commission recognizes that the electric cooperatives implemented their PPA in the
manner by which majority of them were implementing the same. Thus, they had no
alternative but to adopt the most recent available data for the respective billing months
which were based on estimates due to time lag differences. Under the new scheme, the
ADMIN LAW CASES SET 8
actual data for the billing month shall be adopted as they are available at the time the
verification is undertaken.
In this regard, all the other issues raised by the electric cooperatives shall be properly
addressed in the confirmation of their respective PPAs. 22
Several rural electric cooperatives subsequently filed motions for clarification and/or
reconsideration with respect to the ERCs process of computation and confirmation of the
PPA. The rural electric cooperatives advanced the following allegations:
1. They are non-profit organizations and their rate components do not include any possible
extra revenue except the discounts; and
2. They are burdened with expenses in their continuing expansion programs of rural
electrification to the remotest barangays and sitios of their respective franchise areas and
could not give any benefit or incentive to their employees. 23
On 14 January 2005, the ERC issued an Order addressing the motions for clarification
and/or reconsideration filed by the rural electric cooperatives. In the said Order, the ERC
expounded on the general framework of the new PPA confirmation scheme. The ERC stated
that "the new PPA scheme creates a venue where both the electric cooperatives can
recover and the end-users can be charged the true cost of power." 24 The ERC stressed that
"the purchased power cost is a pass through cost to customers and as such, the same
should be revenue neutral."25 In other words, rural electric cooperatives should only
recover from their members and patrons the actual cost of power purchased from power
suppliers.26
In the same Order, the ERC clarified certain aspects of the new PPA confirmation scheme.
With respect to the data to be utilized in the confirmation of the PPA, the ERC stated:
All electric cooperatives were directed to implement the PPA in the manner the then
Energy Regulatory Board (ERB) had prescribed. In calculating their respective PPAs, the
electric cooperatives had no alternative but to adopt the most available data for the
respective billing months, i.e. the previous month, due to time lag differences. Under the
new PPA confirmation scheme, the actual data for the billing month shall be adopted
primarily because they reflect the true cost of power, they are available at the time the
confirmation is undertaken and they have already been charged to the end-users. Thus,
the new PPA scheme creates a venue where both the electric cooperatives can recover and
the end-users can be charged the true cost of power. There will also be proper matching of
revenue and cost.27
As regards the cap on the recoverable rate of system loss, the ERC explained:
The caps on the recoverable system loss provided in R.A. 7832 were established to
encourage distribution utilities to operate efficiently. Since the PPA is merely a cost
26

recovery mechanism, the electric cooperatives are not supposed to earn revenue nor
suffer losses therefrom. To allow them to adopt the caps even in cases where the system
losses are actually lower would be contrary to the underlying principle of a recovery
mechanism.28
Finally, with respect to the Prompt Payment Discount (PPD) extended by power suppliers to
rural electric cooperatives, the ERC reiterated that rural electric cooperatives should only
recover the actual costs of purchased power. 29 Thus, any discounts extended to rural
electric cooperatives must necessarily be extended to end-users by charging only the "net"
cost of purchased power.
In light of the foregoing clarifications, the ERC outlined the following directives in the said
Order:
A. The computation and confirmation of the PPA prior to the Commissions Order dated
June 17, 2003 shall be based on the approved PPA formula;
B. The computation and confirmation of the PPA after the Commissions Order dated June
17, 2003 shall be based on the power cost "net" of discount; and
C. If the approved PPA formula is silent on the terms of discount, the computation and
confirmation of the PPA shall be based on the power cost at "gross", subject to the
submission of proofs that said discounts are being extended to the end-users. 30
Subsequently, the ERC issued the following Orders:
1. 22 March 2006 Order in ERC Case No. 2001-338 regarding the monthly PPA
implementation of BATELEC I;
2. 16 February 2007 Order in ERC Case No. 2001-338 regarding the monthly PPA
implementation of QUEZELCO I;
3. 7 December 2005 Order in ERC Case No. 2001-338 regarding the monthly PPA
implementation of QUEZELCO II; and
4. 27 March 2006 Order in ERC Case No. 2001-340 regarding the monthly PPA
implementation of PRESCO.
In the said Orders, the ERC clarified its policy on the PPA confirmation scheme previously
adopted in its Order dated 14 January 2005. For the distribution utilities to recover only the
actual costs of purchased power, the ERC stated the following principles governing the
treatment of the PPD granted by power suppliers to distribution utilities including rural
electric cooperatives:
ADMIN LAW CASES SET 8
I. The over-or-under recovery will be determined by comparing the Allowable Power Cost
with the Distribution Utilitys Actual Revenue (AR) billed to end-users.
II. Calculation of the Allowable Power Cost as prescribed in the PPA Formula:
a. For a Distribution Utility which PPA formula explicitly provides the manner by which
discounts availed from the power supplier/s shall be treated, the allowable power cost will
be computed based on the specific provision of the formula, which may either be at "net"
or "gross"; and
b. For a Distribution Utility which PPA formula is silent in terms of discounts, the allowable
power cost will be computed at "net" of discounts availed from the power supplier/s, if
there is any.
III. Calculation of the Distribution Utilitys Actual Revenues/Actual Amount Billed to End-
users.
a. On Actual PPA Computed at Net of Discounts Availed from Power Supplier/s:
a.1. If a Distribution Utility bills at net of discounts availed from the power supplier/s (i.e.
Gross power cost minus discounts from power supplier/s) and the Distribution Utility is not
extending discounts to end-users, the actual revenue should be equal to the allowable
power cost; and
a.2. If a Distribution Utility bills at net of discounts availed from the power supplier/s (i.e.
Gross power cost minus discounts from power supplier/s) and the Distribution Utility is
extending discounts to end-users, the discount extended to end-users will be added back
to actual revenue.
b. On Actual PPA Computed at Gross
b.1. If a Distribution Utility bills at gross (i.e. Gross power cost not reduced by discounts
from power supplier/s) and the Distribution Utility is extending discounts to end-users, the
actual revenue will be calculated as: Gross Power Revenue less Discounts extended to end-
users. The result will then be compared to the allowable power cost; and
b.2. If a Distribution Utility bills at gross (i.e. Gross power cost not reduced by discounts
from power supplier/s) and the distribution utility is not extending discounts to end-users,
the actual revenue will be taken as is which shall be compared to the allowable power cost.
IV. In calculating the Distribution Utilitys actual revenues, in no case shall the amount of
discounts extended to end-users be higher than the discounts availed by the Distribution
Utility from its power supplier/s.31
27

The ERC then directed petitioners to refund their respective over-recoveries to end-users
arising from the implementation of the PPA Clause under R.A. No. 7832 and its IRR, as
follows:
1. 22 March 2006 Order32
In the Order dated 22 March 2006, the ERC evaluated the monthly PPA implementation of
BATELEC I covering the period from February 1996 to September 2004. The verification
and confirmation of the PPA implementation was based on the monthly implementation
reports, documents and information submitted by BATELEC I in compliance with the Order
dated 19 February 1997 issued by the ERB. The ERC determined that there were over-
recoveries amounting to Fifty Nine Million Twenty One Thousand Nine Hundred Five Pesos
(P 59,021,905.00) equivalent to P0.0532/kWh. The ERC outlined the following bases for the
over-recoveries:
1. For the period August 1998 to May 1999, NPC made an erroneous reading on BATELEC
Is meter which resulted to the application of PPA charges at higher sales volume vis-a-vis
those utilized in the PPA computation. The system loss adopted in the PPA formula was the
running average of the preceding twelve (12) months, which is the period when the
erroneous meter reading had not yet occurred. As a result, the PPA formulas denominator
which represents the sales volume was lower than the actual sales for the period when the
PPA was implemented and the impact of the different "E" (basic charge power cost
component) on the said period resulted to a net over-recovery of PhP 38,317,933.00;
2. For the period July 2003 to August 2004, BATELEC I erroneously added back the Power
Act Reduction amounting to PhP 20,565,981.00 to its total power cost; and
3. The new grossed-up factor mechanism adopted by the Commission which provided a
true-up mechanism that allows the distribution utilities to recover the actual cost of
purchased power.33
The ERC confirmed the PPA of BATELEC I covering the period from February 1996 to
September 2004, and directed BATELEC I "to refund the amount of P0.0532/kWh starting
on the next billing cycle from receipt of this Order until such time that the full amount shall
have been refunded."34
2. 16 February 2007 Order35
In the Order dated 16 February 2007, the ERC evaluated the monthlyPPA implementation
of QUEZELCO I for the period from January 1999 to April 2004. QUEZELCO I previously
submitted its monthly implementation reports, documents and information for review,
verification and confirmation pursuant to the Order dated 19 February 1997 issued by the
ERB. The ERC determined that there were over-recoveries amounting to Twenty Million
Twenty Seven Thousand Five Hundred Fifty Two Pesos (P 20,027,552.00) equivalent to
P0.0486/kWh. The ERC outlined the following bases for the over-recoveries:
ADMIN LAW CASES SET 8
1. For the period July 2003 to April 2004, QUEZELCO Is power cost was not reduced by the
PPD availed from its suppliers resulting to an over-recovery of PhP 8,457,824.00;
2. QUEZELCO I failed to comply with the Implementing Rules and Regulations (IRR) of
Republic Act No. 7832 x x x which provides that the pilferage recoveries should be
deducted from the total purchased power cost used in the PPA computation. Thus,
QUEZELCO Is actual PPA should have been reduced by the pilferage recoveries amounting
to PhP 580,855.00;
3. QUEZELCO I failed to reflect the power cost adjustments on its PPA as a result of the
billing adjustments of NPC under the Credit Memo for the month of June 2003 amounting
to PhP 4,210,855.00;
4. QUEZELCO Is power supply agreement with Camarines Norte Electric Cooperative, Inc.
(CANORECO) was not approved by the Commission. Thus, the Commission pegged
CANORECOs power cost at NPCs total average rate which resulted to an over-recovery of
PhP 849,324.00;
5. In computing its PPA, QUEZELCO I included the subsidized consumptions of 2,051,753
kWh which resulted to an over-recovery of PhP 1,611,036.00;
6. The new grossed-up factor mechanism adopted by the Commission which provides a
true-up mechanism to allow the DUs to recover the actual costs of purchased power. 36
The PPA of QUEZELCO I for the period of January 1999 to April 2004 was confirmed by the
ERC. In light of the over-recovery, QUEZELCO I was directed "to refund the amount of
P0.0486/kWh starting the next billing cycle from receipt of this Order until such time that
the full amount shall have been refunded."37
3. 7 December 2005 Order38
In the Order dated 7 December 2005, the ERC reviewed and verified the monthly PPA
implementation of QUEZELCO II covering the period from January 2000 to November 2003,
based on the monthly implementation reports, documents and information submitted by
the rural electric cooperative. The ERC established that there were over-recoveries
amounting to Five Million Two Hundred Forty Eight Thousand Two Hundred Eighty Two Pesos
(P 5,248,282.00) equivalent to P0.1000/kWh.
The bases of the over-recoveries are as follows:
1. QUEZELCO II treated the penalty on excess/below contracted demand in April 2000 as a
discount;
28

2. For the period May 2000 to November 2000, QUEZELCO II overstated its power cost due
to accounts payable for fuel oil consumption from November 1999 to June 2000;
3. The new grossed-up factor scheme adopted by the Commission which provided a
different result vis-a-vis the originally approved formula; and
4. The Purchased Power Cost was reduced by the Prompt Payment Discount availed from
the power suppliers.39
The ERC confirmed the PPA of QUEZELCO II for the period of January 2000 to November
2003, and directed QUEZELCO II "to refund the amount of P0.1000/kWh starting on the
next billing cycle from receipt of this Order until such time that the full amount shall have
been refunded."40
4. 27 March 2006 Order41
In the Order dated 27 March 2006, the ERC evaluated the monthly PPA implementation of
PRESCO covering the period of February 1996 to June 2004. PRESCO previously submitted
its monthly PPA implementation reports, documents and information for review, verification
and confirmation pursuant to the Order dated 25 April 1997 issued by the ERB. The ERC
determined that there were over-recoveries amounting to Eighteen Million Four Hundred
Thirty Eight Thousand Nine Hundred Six Pesos (P 18,438,906.00) equivalent to
P0.1851/kWh. The over-recoveries were based on the following:
1. In its PPA computation, PRESCO excluded its subsidized consumers in the components of
the kWh sales despite that these consumers where being charged with PPA;
2. Since PRESCO sources its power from the National Power Corporation (NPC) and Angeles
Power Incorporated (API), the Commission used PRESCOs actual power cost from API for
the years 1998, 1999 (except August), 2000, 2001 and 2002 (January to April only) being
lower than NPCs rate. However, for the years 2002 (May to December), 2003 and 2004,
the Commission applied NPCs rate being lower than API. x x x x
3. For the period February 1996 to April 1999, PRESCO utilized the 1.4 multiplier scheme
which is roughly equivalent to 29% system loss which resulted to an over-recovery of
PhP 5,701,173.00; and
4. The Commission computed PRESCOs allowable power cost at "net" of the Power Factor
Discount (PFD) and Prompt Payment Discount (PPD) availed from NPC at PhP 2,185,812.00.
PRESCO did not extend the discounts to the end users. Thus, the Commission considered
PRESCOs actual revenue.42
The ERC confirmed the PPA of PRESCO for the period of February 1996 to June 2004, and
directed PRESCO "to refund the amount of P0.1851/kWh starting the next billing cycle from
receipt of this Order until such time that the full amount shall have been refunded." 43
ADMIN LAW CASES SET 8
Petitioners thereafter filed their respective motions for reconsideration of the foregoing
Orders. On 9 May 2007, the ERC issued Orders denying the motions for reconsideration
filed by the petitioners.44
On 28 June 2007, BATELEC I, QUEZELCO I and QUEZELCO II filed with the Court of Appeals
a Petition for Review under Rule 43 of the Rules of Court, assailing the 22 March 2006
Order, 16 February 2007 Order and 7 December 2005 Order of the ERC directing the rural
electric cooperatives to refund their respective over-recoveries. The petition also assailed
the 9 May 2007 Orders of the ERC denying the motions for reconsideration of BATELEC I,
QUEZELCO I and QUEZELCO II. The case was docketed as CA-G.R. SP No. 99249. On the
same date, PRESCO also filed with the Court of Appeals a Petition for Review under Rule 43
of the Rules of Court, assailing the 27 March 2006 Order of the ERC directing the rural
electric cooperative to refund its over-recoveries. The petition likewise assailed the 9 May
2007 Order of the ERC denying the motion for reconsideration of PRESCO. The case was
docketed as CA-G.R. SP No. 99253. The Court of Appeals subsequently consolidated these
cases with the petitions filed by other rural electric cooperatives and their associations in
relation to the refund of their respective over-recoveries. The consolidated cases include
CA-G.R. SP Nos. 99249, 99250,45 99251,46 99252,47 99253,
99267, 99269, 99270, 99271, 99272, 99273, 99323,54 99462,55 99782,56 100671,57
48 49 50 51 52 53
and 100822.58
The rural electric cooperatives similarly raised the following issues in the consolidated
cases:
1. Whether the system loss caps prescribed under Section 10 of R.A. 7832 are arbitrary
and violative of the non-impairment clause, therefore, invalid and unconstitutional;
2. Whether the system loss caps should still be imposed even after the effectivity of R.A.
9136;
3. Whether the ERC may validly issue rules and regulations for the implementation of the
provisions of R.A. No. 7832 by way of Orders or Decisions with retroactive effect;
4. Whether petitioners were denied due process of law by the non-disclosure and non-
issuance of guidelines or rules in the implementation of the alleged "Gross Up Factor
Mechanism" in the "confirmation process";
5. Whether the ERC observed the proper issuance of orders and resolutions;
6. Whether the denial of petitioners motions for reconsideration of the assailed Orders
with only one Commissioner affixing his signature thereto is valid;
7. Whether the ERC has legal and factual bases to charge petitioners with over-recoveries
and to order the refund thereof for having (1) implemented an "E" that is different from
29

that imposed in the ERB formula and (2) used the multiplier scheme originally approved by
the NEA;
8. Whether the prompt payment discount and other discounts extended to petitioners by
their power supplier, the NPC, may validly be refunded to the consumers;
9. Whether the alleged over-recoveries were arrived at without giving petitioners the
opportunity to be heard.59
The Ruling of the Court of Appeals
In its 23 December 2008 Decision, the Court of Appeals denied the petitions for review of
the rural electric cooperatives, and affirmed the Orders of the ERC directing the various
rural electric cooperatives to refund their respective over-recoveries. At the outset, the
Court of Appeals stated that "to the extent that the administrative agency has not been
arbitrary or capricious in the exercise of its power, the time-honored principle is that courts
should not interfere."60
With respect to the constitutionality of Section 10 of R.A. No. 7832, the Court of Appeals
ruled that the challenge amounts to a collateral attack that is prohibited by public policy. 61
With regard to the imposition of the system loss caps after the effectivity of the EPIRA, the
Court of Appeals recognized the amendment to Section 10 of R.A. No. 7832. Section 43 (f)
of the EPIRA provides that "the cap on the recoverable rate of system losses prescribed in
Section 10 of Republic Act No. 7832, is hereby amended and shall be replaced by caps
which shall be determined by the ERC based on load density, sales mix, cost of service,
delivery voltage and other technical considerations it may promulgate." The Court of
Appeals, however, stated:
While the EPIRA had already specifically amended the system loss caps mandated under
Section 10 of R.A. No. 7832, respondent ERC still had to go through the tedious process of
determining the technical considerations in order to come up with the rate-setting
methodology that shall promote the efficiency of distribution utilities as envisioned by the
law. Before they could be replaced, however, the caps used in the ERB formula remain, as
asserted by the OSG. For this reason, petitioners cannot insist that the reinforcement of
said system loss caps be discontinued after the passage of the EPIRA on June 8, 2001. In
fact, as already stated, it was only in October, 2004 that respondent ERC was able to
promulgate the AGRA or the Automatic Adjustment of Generation Rates and System Loss
Rates by Distribution Utilities, which could effectively replace the PPA. Thus, for the periods
covered by the ERC confirmation (February 1996 to September 2004), respondent ERC did
not abuse its discretion in using the system loss caps in the ERB formula. 62
The Court of Appeals likewise rejected the contention of petitioners that the ERC issued
rules and regulations for the implementation of the provisions of R.A. No. 7832 by way of
orders or decisions with retroactive effect. According to the Court of Appeals, the
ADMIN LAW CASES SET 8
confirmation process of the ERC encompassed PPA implementation periods after the
effectivity of R.A. No. 7832, particularly from February 1996 to September 2004. 63 Thus,
the Court of Appeals concluded that there was no retroactive application of the law.
The Court of Appeals further rejected the claim of denial of due process. The Court of
Appeals ruled:
Petitioners likewise failed to show to Our satisfaction that the guidelines contained in the
assailed Orders of respondent ERC went beyond merely providing for the means that can
facilitate or render less cumbersome the implementation of the law. Interpretative rules
give no real consequence more than what the law itself has already prescribed, and are
designed merely to provide guidelines to the law which the administrative agency is in
charge of enforcing.64
As regards the validity of the denial of petitioners motions for reconsideration, the Court of
Appeals noted that the Orders specifically indicated that the signature of the Commissioner
was "FOR AND BY AUTHORITY OF THE COMMISSION." 65 The Court of Appeals stated that
the ERC examined the motions for reconsideration as a collegial body. 66 It further
emphasized that the interests of substantial justice prevail over the strict application of
technical rules.67
The Court of Appeals further ruled that the ERC had legal and factual bases in charging
petitioners with over-recoveries. The Court of Appeals stated:
Prior to the enactment of R.A. No. 7832, petitioners used the Multiplier Scheme
implemented by the NEA [National Electrification Administration] to recover incremental
costs in the power purchased from NPC the sole agency authorized to generate electric
power before the enactment of the EPIRA and consequent system losses that are not
included in their respective approved basic rates. With the use of multipliers ranging from
1.2 to 1.4, depending on their actual system losses, petitioners were allowed to
automatically adjust their rates when cost of power purchased from NPC changes, thus:
1.2 Multiplier For ECs with system loss of 15% and below;
1.3 Multiplier For ECs with system loss ranging from 16% to 22%; and
1.4 Multiplier For ECs with system loss ranging from 23% and above.
The NEA likewise approved the inclusion in the basic rates of a separate item for Loss Levy
Charge for those electric cooperatives (ECs) whose loan covenants with financial
institutions such as the Asian Development Bank (ADB) limit their recoverable system loss
to 15%.
Thus, petitioners charged their consumers "System Loss Levy" for system losses in excess
of 15%.
30

Petitioners admitted having continued to use the pricing mechanisms authorized by the
NEA even after the passage of R.A. No. 7832, which repealed the same. Needless to say,
the use of said mechanisms allowed the recovery of system losses beyond the caps set by
the said law. Petitioners cannot, therefore, successfully argue that respondent ERC had no
basis in charging them of over-recoveries as a result of their failure to comply with the
law.68
With respect to the PPD and other discounts extended by power suppliers, the Court of
Appeals emphasized that rural electric cooperatives may only recover the actual cost of
purchased power. The Court of Appeals stated:
No error can likewise be attributed to respondent ERC in directing the implementation of
the respective PPA of the petitioners using the power cost net of discounts. As held in the
case of National Power Corporation vs. Philippine Electric Plant Owners Associaton (PEPOA),
Inc., discounts are not amounts paid or charged for the sale of electricity, but are
reductions in rates. Moreover, We emphasized here that rate fixing calls for a technical
examination and specialized review of specific details which the courts are ill-equipped to
enter, hence, such matters are primarily entrusted to the administrative or regulating
authority. Towards this end, the administrative agency, respondent ERC in this case,
possesses the power to issue rules and regulations to implement the statute which it is
tasked to enforce, and whatever is incidentally necessary to a full implementation of the
legislative intent should be upheld as germane to the law. Respondent ERC is mandated to
prescribe a rate-setting methodology "in the public interest" and "to promote efficiency",
hence its goal of fixing purchased power at actual cost should be upheld. 69
The Court of Appeals further rejected the claim that petitioners were deprived of the
opportunity to be heard. The Court of Appeals gave credence to the assertion of the Office
of the Solicitor General that "petitioners were allowed to justify their PPA charges through
the documents that they were required to file; that the technical staff of the ERC conducted
exit conferences with petitioners representatives to discuss preliminary figures and they
were authorized to go over the working papers to check out inaccuracies; and that
petitioners were allowed to file their respective motions for reconsideration after the
issuance of the PPA confirmation Orders."70
The rural electric cooperatives thereafter filed their respective motions for reconsideration
of the 23 December 2008 Decision of the Court of Appeals. In its 26 April 2010 Resolution,
the Court of Appeals denied the motions for reconsideration. The Court of Appeals
observed that the issues raised in the motions for reconsideration were "mere reiterations"
of the issues addressed in the 23 December 2008 Decision. 71 The Court of Appeals further
stated:
Nonetheless, We find that the following disquisition of the Office of the Solicitor General
amply supports the affirmance of the assailed Decision, thus:
"12. Notably, respondent did not impose rules to set new rates, rather, it merely confirmed
whether petitioners have faithfully complied with the requirements of recoveries under the
ADMIN LAW CASES SET 8
provisionally approved PPA formula. There is therefore nothing new or novel about the
confirmation policies of respondent as to give any occasion to retroactivity.
13. Equally significant, it should be underscored that from the beginning, petitioners
authority to recover their losses based on the PPA formula were PROVISIONAL, that is, the
authority granted to petitioners for recoveries and the mode of its implementation is
subject to further reconfirmation by respondent ERC. The erstwhile ERB earlier allowed
electric cooperatives to implement their PPA based on the PPA formula that the ERB
provisionally approved. As spelled out in the Order of approval, however, such
authorization was provisional and temporary, that is, it is subject to regulation and post
hoc review, verification and confirmation by the ERB.
xxx
14. By its very nature, the PPA confirmation process is a post hoc review of charges already
implemented. It is therefore crystal clear from the approval of the application of the PPA
that such authorization was conditioned on subsequent review by the regulating body.
Thus, the Order did not only approve the implementation of the PPA but also (a) directed
the electric cooperatives to submit their monthly implementation of the PPA formula for
the boards review, verification and confirmation; and (b) directed the Commission on
Audit to cause an audit of all the accounts and other records of all the electric cooperatives
to aid the Board in the determination of rates.
15. That the electric cooperatives were allowed to implement their PPA after the
provisional approval of the PPA formula did not divest the regulator of the power to
determine the reasonableness of the said charges or the electric cooperatives entitlement
thereto. Such power necessarily includes the power to adopt such policies as would assist
the regulator in its determination of the reasonableness of such PPA charges implemented
by electric cooperatives. The implementation was provisionally approved and subject to
the changes that the regulator can make, in the exercise of its rate-setting authority and
subject to the reasonableness standard under the law x x x."
Suffice to state that with regard to rate-determination, the government is not hidebound to
apply any particular method or formula. What is a just and reasonable rate cannot be fixed
by any immutable method or formula. In other words, no public utility has the vested right
to any particular method of valuation. The administrative agency is not duty bound to
apply any one particular formula or method simply because the same method has been
previously used and applied.
The issues on the alleged retroactive application and denial of due process had been
adequately addressed in the Decision dated December 23, 2008. We reiterate that the
periods covered by the ERC confirmation subject of the petitions, spanning from February
1996 to September 2004, fell after the effectivity of R.A. No. 7832, the constitutionality of
which petitioners continue, albeit erroneously, to assail in the instant motions. With respect
to the alleged lack of trial-type hearing, it is settled that the essence of due process in
administrative proceedings is merely the opportunity to explain ones side or to seek
31

reconsideration of the action or ruling complained of. Where an opportunity to be heard is
accorded, as in this case, there is no denial of due process. Neither was there a need for
the assailed Orders of the ERC to be published as petitioners so adamantly insist. As
pointed out by the OSG, said Orders did not create a new obligation, impose a new duty, or
attach a new disability on the electric cooperatives. They merely clarified the policy
guidelines adopted in the implementation of the PPA. As We have said, interpretative rules
give no real consequence more than what the law itself has already prescribed. 72
Hence, this instant petition filed by BATELEC I, QUEZELCO I, QUEZELCO II and PRESCO.
The Issues
Petitioners raise the following issues:
1. Whether the policy guidelines issued by the ERC on the treatment of discounts extended
by power suppliers are ineffective and invalid for lack of publication, non-submission to the
University of the Philippines (U.P.) Law Center, and their retroactive application; and
2. Whether the grossed-up factor mechanism implemented by the ERC in the computation
of the over-recoveries is ineffective and invalid for lack of publication, non-submission to
the U.P. Law Center, and its retroactive application.
The Ruling of the Court
The petition is partly meritorious.
I.
Petitioners assail the validity of the 22 March 2006 Order, 73 16 February 2007 Order,74 7
December 2005 Order,75 and 27 March 2006 Order 76 of the ERC directing the refund of
over-recoveries for having been issued pursuant to ineffective and invalid policy guidelines.
Petitioners assert that the policy guidelines on the treatment of discounts extended by
power suppliers are ineffective and invalid for lack of publication, non-submission to the
U.P. Law Center, and their retroactive application.
Publication is a basic postulate of procedural due process. The purpose of publication is to
duly inform the public of the contents of the laws which govern them and regulate their
activities.77 Article 2 of the Civil Code, as amended by Section 1 of Executive Order No.
200, states that "laws shall take effect after fifteen days following the completion of their
publication either in the Official Gazette or in a newspaper of general circulation in the
Philippines, unless it is otherwise provided." Section 18, Chapter 5, Book I of Executive
Order No. 292 or the Administrative Code of 1987 similarly provides that "[l]aws shall take
effect after fifteen (15) days following the completion of their publication in the Official
Gazette or in a newspaper of general circulation, unless it is otherwise provided."
ADMIN LAW CASES SET 8
Procedural due process demands that administrative rules and regulations be published in
order to be effective.78In Taada v. Tuvera, this Court articulated the fundamental
requirement of publication, thus:
We hold therefore that all statutes, including those of local application and private laws,
shall be published as a condition for their effectivity, which shall begin fifteen days after
publication unless a different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the
President in the exercise of legislative powers whenever the same are validly delegated by
the legislature or, at present, directly conferred by the Constitution. Administrative rules
and regulations must also be published if their purpose is to enforce or implement existing
law pursuant also to a valid delegation.79 (Boldfacing supplied)
There are, however, several exceptions to the requirement of publication. First, an
interpretative regulation does not require publication in order to be effective. 80 The
applicability of an interpretative regulation "needs nothing further than its bare issuance
for it gives no real consequence more than what the law itself has already prescribed." 81 It
"adds nothing to the law" and "does not affect the substantial rights of any
person."82 Second, a regulation that is merely internal in nature does not require
publication for its effectivity.83 It seeks to regulate only the personnel of the administrative
agency and not the general public. 84 Third, a letter of instruction issued by an
administrative agency concerning rules or guidelines to be followed by subordinates in the
performance of their duties does not require publication in order to be effective. 85
The policy guidelines of the ERC on the treatment of discounts extended by power
suppliers are interpretative regulations. The policy guidelines merely interpret R.A. No.
7832 and its IRR, particularly on the computation of the cost of purchased power. The
policy guidelines did not modify, amend or supplant the IRR.
The policy guidelines were first enunciated by the ERC in its 17 June 2003 Order. In the said
Order, the ERC explained that the cost of electricity purchased and generated is computed
at "gross" if the discounts extended by the power supplier are not passed on to end-users,
while the cost of electricity is computed at "net" if the discounts are passed on to end-
users.86
The ERC subsequently issued its 14 January 2005 Order. It emphasized therein that rural
electric cooperatives should only recover the actual costs of purchased power. 87 Any
discounts extended to rural electric cooperatives must therefore be extended to end-users
by charging only the "net" cost of purchased power. The ERC issued the following directives
in the said Order:
A. The computation and confirmation of the PPA prior to the Commissions Order dated
June 17, 2003 shall be based on the approved PPA formula;
32

B. The computation and confirmation of the PPA after the Commissions Order dated June
17, 2003 shall be based on the power cost "net" of discount; and
C. If the approved PPA formula is silent on the terms of discount, the computation and
confirmation of the PPA shall be based on the power cost at "gross", subject to the
submission of proofs that said discounts are being extended to the end-users. 88
The ERC thereafter clarified its policy guidelines in the 22 March 2006 Order, 16 February
2007 Order, 7 December 2005 Order and 27 March 2006 Order. The ERC outlined the
following principles governing the treatment of the PPD extended by power suppliers to
distribution utilities including rural electric cooperatives:
I. The over-or-under recovery will be determined by comparing the Allowable Power Cost
with the Distribution Utilitys Actual Revenue (AR) billed to end-users.
II. Calculation of the Allowable Power Cost as prescribed in the PPA Formula:
a. For a Distribution Utility which PPA formula explicitly provides the manner by which
discounts availed from the power supplier/s shall be treated, the allowable power cost will
be computed based on the specific provision of the formula, which may either be at "net"
or "gross"; and
b. For a Distribution Utility which PPA formula is silent in terms of discounts, the allowable
power cost will be computed at "net" of discounts availed from the power supplier/s, if
there is any.
III. Calculation of the Distribution Utilitys Actual Revenues/Actual Amount Billed to End-
users.
a. On Actual PPA Computed at Net of Discounts Availed from Power Supplier/s:
a.1. If a Distribution Utility bills at net of discounts availed from the power supplier/s (i.e.
Gross power cost minus discounts from power supplier/s) and the distribution utility is not
extending discounts to end-users, the actual revenue should be equal to the allowable
power cost; and
a.2. If a Distribution Utility bills at net of discounts availed from the power supplier/s (i.e.
Gross power cost minus discounts from power supplier/s) and the distribution utility is
extending discounts to end-users, the discount extended to end-users will be added back
to actual revenue.
b. On Actual PPA Computed at Gross
ADMIN LAW CASES SET 8
b.1. If a Distribution Utility bills at gross (i.e. Gross power cost not reduced by discounts
from power supplier/s) and the distribution utility is extending discounts to end-users, the
actual revenue will be calculated as: Gross Power Revenue less Discounts extended to end-
users. The result will then be compared to the allowable power cost; and
b.2. If a Distribution Utility bills at gross (i.e. Gross power cost not reduced by discounts
from power supplier/s) and the distribution utility is not extending discounts to end-users,
the actual revenue will be taken as is which shall be compared to the allowable power cost.
IV. In calculating the Distribution Utilitys actual revenues, in no case shall the amount of
discounts extended to end-users be higher than the discounts availed by the Distribution
Utility from its power supplier/s.89
The above-stated policy guidelines of the ERC on the treatment of discounts merely
interpret the cost of purchased power as a component of the PPA formula provided in
Section 5, Rule IX of the IRR of R.A. No. 7832. The cost of purchased power is denominated
as the variable "A" in the numerator of the PPA formula, particularly:
Section 5. Automatic Cost Adjustment Formula.
xxxx
The automatic cost adjustment of every electric cooperative shall be guided by the
following formula:
Purchased Power Adjustment Clause
A
(PPA) = -E
B-(C + D)
Where:
A= Cost of electricity purchased and generated for the previous month
B= Total Kwh purchased and generated for the previous month
C= The actual system loss but not to exceed the maximum recoverable rate of system
loss in Kwh plus actual company use in Kwhrs but not to exceed 1% of total Kwhrs
purchased and generated
D= Kwh consumed by subsidized consumers
33

E= Applicable base cost of power equal to the amount incorporated into their basic rate
per Kwh (Boldfacing supplied)
The cost of purchased power expressed as the variable "A" in the numerator of the PPA
formula is plain and unambiguous. Websters Third New International Dictionary defines
the term "cost" as "an item of outlay incurred in the operation of a business enterprise (as
for the purchase of raw materials, labor, services, supplies) including the depreciation and
amortization of capital assets."90 Blacks Law Dictionary defines the term "cost" as "the
amount paid or charged for something; price or expenditure." 91 When the policy guidelines
of the ERC directed the exclusion of discounts extended by power suppliers in the
computation of the cost of purchased power, the guidelines merely affirmed the plain and
unambiguous meaning of "cost" in Section 5, Rule IX of the IRR of R.A. No. 7832. "Cost" is
an item of outlay, and must therefore exclude discounts since these are "not amounts paid
or charged for the sale of electricity, but are reductions in rates."92
Furthermore, the policy guidelines of the ERC uphold and preserve the nature of the PPA
formula. The nature of the PPA formula precludes an interpretation that includes discounts
in the computation of the cost of purchased power. The PPA formula is an adjustment
mechanism the purpose of which is purely for the recovery of cost. In National Association
of Electricity Consumers for Reforms (NASECORE) v. Energy Regulatory Commission, 93 this
Court noted the explanation of the ERC on the nature and purpose of an adjustment
mechanism:
It is clear from the foregoing that "escalator" or "tracker" or any other similar automatic
adjustment clauses are merely cost recovery or cost "flow-through" mechanisms; that what
they purport to cover are operating costs only which are very volatile and unstable in
nature and over which the utility has no control; and that the use of the said clauses is
deemed necessary to enable the utility to make the consequent adjustments on the
billings to its customers so that ultimately its rate of return would not be quickly eroded by
the escalations in said costs of operation. The total of all rate adjustments should not
operate to increase overall rate of return for a particular utility company above the basic
rates approved in the last previous rate case (Re Adjustment Clause in Telephone Rate
Schedules, 3 PUR 4th 298, N.J. Bd. of Pub. Util.Commrs., 1973. Affirmed 66 N.J. 476, 33
A.2d 4, 8 PUR 4th 36, N.J.,1975).94
Rural electric cooperatives cannot therefore incorporate in the PPA formula costs that they
did not incur. Consumers must not shoulder the gross cost of purchased power; otherwise,
rural electric cooperatives will unjustly profit from discounts extended to them by power
suppliers. In the Consolidated Comment of the ERC, the Solicitor General correctly pointed
out:
34.4. Second, the ERCs PPA confirmation policies were in consonance with the rule that
electric cooperatives may only recover costs to the extent of the amount they actually
incurred in the purchase of electricity. The PPA remained to be the difference between the
electric cooperatives actual allowable power costs as translated to PhP/kWh and the
ADMIN LAW CASES SET 8
electric cooperatives approved Basic Rate. This was also how the Cost Adjustment Formula
was defined in the IRR of R.A. No. 7832.
34.5. Contrary to petitioners assertions, therefore, the policy did not deviate from the
ERBs provisionally-approved PPA formula but merely implemented the policy set out in
R.A. No. 7832, that is, it is strictly for the purpose of cost recovery only. Obviously, if the
PPA is computed without factoring the discounts given by power suppliers to electric
cooperatives, electric cooperatives will impermissibly retain or even earn from the
implementation of the PPA.95
Thus, the policy guidelines of the ERC on the treatment of discounts extended by power
suppliers "give no real consequence more than what the law itself has already
prescribed."96 Publication is not necessary for the effectivity of the policy guidelines.
As interpretative regulations, the policy guidelines of the ERC on the treatment of
discounts extended by power suppliers are also not required to be filed with the U.P. Law
Center in order to be effective. Section 4, Chapter 2, Book VII of the Administrative Code of
1987 requires every rule adopted by an agency to be filed with the U.P. Law Center to be
effective. However, in Board of Trustees of the Government Service Insurance System v.
Velasco,97 this Court pronounced that "not all rules and regulations adopted by every
government agency are to be filed with the UP Law Center." 98 Interpretative regulations
and those merely internal in nature are not required to be filed with the U.P. Law
Center.99 Paragraph 9 (a) of the Guidelines for Receiving and Publication of Rules and
Regulations Filed with the U.P. Law Center100 states:
9. Rules and Regulations which need not be filed with the U.P. Law Center, shall, among
others, include but not be limited to, the following:
a. Those which are interpretative regulations and those merely internal in nature, that is,
regulating only the personnel of the Administrative agency and not the public.
Petitioners further assert that the policy guidelines are invalid for having been applied
retroactively. According to petitioners, the ERC applied the policy guidelines to periods of
PPA implementation prior to the issuance of its 14 January 2005 Order. 101 In Republic v.
Sandiganbayan,102 this Court recognized the basic rule "that no statute, decree, ordinance,
rule or regulation (or even policy) shall be given retrospective effect unless explicitly stated
so."103 A law is retrospective if it "takes away or impairs vested rights acquired under
existing laws, or creates a new obligation and imposes a new duty, or attaches a new
disability, in respect of transactions or consideration already past." 104
The policy guidelines of the ERC on the treatment of discounts extended by power
suppliers are not retrospective. The policy guidelines did not take away or impair any
vested rights of the rural electric cooperatives. The usage and implementation of the PPA
formula were provisionally approved by the ERB in its Orders dated 19 February
1997105 and 25 April 1997.106 The said Orders specifically stated that the provisional
34
 ADMIN LAW CASES SET 8
approval of the PPA formula was subject to review, verification and confirmation by the Kwh Sales 89,000 Kwh
ERB. Thus, the rural electric cooperatives did not acquire any vested rights in the usage
and implementation of the provisionally approved PPA formula. Coop Use 1,000 Kwh

Furthermore, the policy guidelines of the ERC did not create a new obligation and impose a System Loss 10% or 10,000 Kwh
new duty, nor did it attach a new disability. As previously discussed, the policy guidelines
merely interpret R.A. No. 7832 and its IRR, particularly on the computation of the cost of
Kwh Sales + Coop Use
purchased power.The policy guidelines did not modify, amend or supplant the IRR.
Gross-Up Factor =
II.
Kwh Purchased (1-% System Loss)
Petitioners further assail the validity of the 22 March 2006 Order, 16 February 2007 Order,
89,000+1,000
7 December 2005 Order and 27 March 2006 Order of the ERC directing the refund of over-
recoveries for having been issued pursuant to an ineffective and invalid grossed-up factor
Gross-up Factor =
mechanism. Petitioners claim that the grossed-up factor mechanism implemented by the
100,000 (1-10%)
ERC in the review, verification and confirmation of the PPA is ineffective and invalid for lack
of publication, non-submission to the U.P. Law Center, and its retroactive application. 90,000

Gross-up Factor = =1
It does not appear from the records that the grossed-up factor mechanism was published
or submitted to the U.P. Law Center. The ERC did not dispute the claim of petitioners that 90,000
the grossed-up factor mechanism was not published, nor did the ERC dispute the claim
that the grossed-up factor mechanism was not disclosed to the rural electric cooperatives The Gross-up Factor, which in this illustration is equivalent to 1, will be used in determining
prior to the review, verification and confirmation of the PPA. 107 The 22 March 2006 Order the recoverable power cost of an electric cooperative, such that:
and 16 February 2007 Order merely stated that one of the bases of the over-recoveries
was "the new grossed-up factor mechanism adopted by the Commission which provided a Recoverable Cost = Gross-Up Factor x Cost of Purchased Power
true-up mechanism that allows the distribution utilities to recover the actual cost of
purchased power."108 The 7 December 2005 Order similarly stated that one of the bases of
Recoverable Cost = 1 x PhP 300,000.00 = PhP 300,000.00112
the over-recoveries was "the new grossed-up factor scheme adopted by the Commission
(Boldfacing supplied)
which provided a different result vis-a-vis the originally approved formula." 109 The ERC did
not explain or disclose in the said Orders any details regarding the grossed-up factor
mechanism. In its Consolidated Comment, the ERC stated that the PPA "captures the incremental cost in
purchased and generated electricity plus recoverable system loss in excess of what had
already been included as power cost component in the electric cooperatives basic
Based on the records, the first instance wherein the ERC disclosed the details of the
rates."113 On the other hand, the grossed-up factor mechanism is a "mathematical
grossed-up factor mechanism was in its comments filed with the Court of Appeals in CA-
calculation that ensures that the electric cooperatives are able to recover costs incurred
G.R. SP Nos. 99249 and 99253 on 1 August 2008 and 9 October 2007, respectively. 110 The
from electricity purchased and generated plus system loss components within allowable
ERC reiterated the details of the grossed-up factor mechanism in its Consolidated
limits."114 The ERC proceeded to explain the relationship between the PPA and the grossed-
Comment filed with this Court on 28 February 2011. 111 The ERC illustrated the application
up factor mechanism thus:
of the grossed-up factor mechanism in the following manner:

20.2 This gross-up factor mechanism did not modify the PPA formula or state how the PPA
Given:
is to be computed. The recoverable amount derived from applying the gross-up factor is
still the maximum allowable cost to be recovered from the electric cooperatives customers
Kwh Purchased 100,000 Kwh for a given month. If the PPA collected exceeded the recoverable cost, the difference
should be refunded back to the consumers.115
Cost of Purchased Power PhP 300,000.00
35
 ADMIN LAW CASES SET 8
This Court agrees with the ERC that the grossed-up factor mechanism "did not modify the
PPA formula or state how the PPA is to be computed." 116 However, the grossed-up factor
mechanism amends the IRR of R.A. No. 7832 as it serves as an additional numerical Power
standard that must be observed and applied by rural electric cooperatives in the
implementation of the PPA. While the IRR explains, and stipulates, the PPA formula, the IRR Kwh Purchased (1-% System Loss)
neither explains nor stipulates the grossed-up factor mechanism. The reason is that the
grossed-up factor mechanism is admittedly "new" and provides a "different result," having On the other hand, the PPA formula provided in the IRR of R.A. No. 7832 does not account
been formulated only after the issuance of the IRR. for the amount of power sold. It accounts for the amount of power purchased and
generated, expressed as the variable "B" in the following PPA formula:
The grossed-up factor mechanism is not the same as the PPA formula provided in the IRR
of R.A. No. 7832. Neither is the grossed-up factor mechanism subsumed in any of the five Purchased Power Adjustment Clause
variables of the PPA formula. Although both the grossed-up factor mechanism and the PPA
formula account for system loss and use of electricity by cooperatives, they serve different A
quantitative purposes.
(PPA) = -E
The grossed-up factor mechanism serves as a threshold amount to which the PPA formula
B-(C + D)
is to be compared. According to the ERC, any amount collected under the PPA that exceeds
the Recoverable Cost computed under the grossed-up factor mechanism shall be refunded Where:
to the consumers.117 The Recoverable Cost computed under the grossed-up factor
mechanism is "the maximum allowable cost to be recovered from the electric
A= Cost of electricity purchased and generated for the previous month
cooperatives customers for a given month."118 In effect, the PPA alone does not serve as
the variable rate to be collected from the consumers. The PPA formula and the grossed-up
factor mechanism will both have to be observed and applied in the implementation of the B= Total Kwh purchased and generated for the previous month
PPA.
C= The actual system loss but not to exceed the maximum recoverable rate of
Furthermore, the grossed-up factor mechanism accounts for a variable that is not included system loss in Kwh plus actual company use in Kwhrs but not to exceed 1% of total
in the five variables of the PPA formula. In particular, the grossed-up factor mechanism Kwhrs purchased and generated
accounts for the amount of power sold in proportion to the amount of power purchased by
a rural electric cooperative, expressed as the Gross-Up Factor. It appears that the Gross-Up D= Kwh consumed by subsidized consumers
Factor limits the Recoverable Cost by allowing recovery of the Cost of Purchased Power
only in proportion to the amount of power sold. This is shown by integrating the formula of E = Applicable base cost of power equal to the amount incorporated into their
the Gross-Up Factor with the formula of the Recoverable Cost, thus: basic rate per Kwh119 (Boldfacing supplied)

The grossed-up factor mechanism consists of the following formulas: In light of these, the grossed-up factor mechanism does not merely interpret R.A. No. 7832
or its IRR.1wphi1 It is also not merely internal in nature. The grossed-up factor mechanism
Kwh Sales + Coop Use amends the IRR by providing an additional numerical standard that must be observed and
applied in the implementation of the PPA. The grossed-up factor mechanism is therefore an
Gross-Up Factor = administrative rule that should be published and submitted to the U.P. Law Center in order
to be effective.
Kwh Purchased (1-% System Loss)

Recoverable Cost = Gross-Up Factor x Cost of Purchased Power
Integrating the above-stated formulas will result in the following formula:
As previously stated, it does not appear from the records that the grossed-up factor
mechanism was published and submitted to the U.P. Law Center. Thus, it is ineffective and
may not serve as a basis for the computation of over-recoveries. The portions of the over-
recoveries arising from the application of the mechanism are therefore invalid.

Recoverable Cost = Kwh Sales + Coop Use x Cost of Purchased

36
 ADMIN LAW CASES SET 8
Furthermore, the application of the grossed-up factor mechanism to periods of PPA
implementation prior to its publication and disclosure renders the said mechanism invalid
for having been applied retroactively. The grossed-up factor mechanism imposes an
additional numerical standard that clearly "creates a new obligation and imposes a new
duty x x x in respect of transactions or consideration already past."120

Rural electric cooperatives cannot be reasonably expected to comply with and observe the
grossed-up factor mechanism without its publication. This Court recognizes that the
mechanism aims to reflect the actual cost of purchased power for the benefit of
consumers. However, this objective must at all times be balanced with the viability of rural
electric cooperatives. The ERB itself made the following observation regarding the
operational and economic condition of rural electric cooperatives in its Order dated 19
February 1997:

Electric cooperatives are created under Presidential Decree No. 269 in the nature of non-
profit organizations. Thus, they do not have the funds they can dispose of to meet their
future emergency obligations and operational needs. They are not entitled return on their
investment as their rates are based on cash flow methodology. Hence, if the appropriate
rate level x x x to keep them going or viable, shall not be provided, the finances and
operations of the said cooperatives will be jeopardized which ultimately will result in
inefficient electric service to their respective customers or worse shut down when they fail
to pay the sources of their electricity like (National Power Corporation) and their loans to
the NEA.121

Administrative compliance with due process requirements cultivates a regulatory

environment characterized by predictability and stability. These characteristics ensure that
rural electric cooperatives are given the opportunity to achieve efficiency, and that
ultimately, consumers have access to reliable services and affordable electric rates.

WHEREFORE, we PARTY GRANT the petition and rule that the grossed-up factor
mechanism is INEFFECTIVE and INVALID. We further rule that the portions of the over-
recoveries that may have arisen from the application of the grossed-up factor mechanism
in the 22 March 2006 Order, 16 February 2007 Order, 7 December 2005 Order and 27
March 2006 Order of the Energy Regulatory Commission are INVALID. Respondent Energy
Regulatory Commission is DIRECTED to compute the portions of the over-recoveries
arising from the application of the grossed-up factor mechanism and to implement the
collection of any amount previously refunded by petitioner to their respective consumers
on the basis of the grossed-up factor mechanism. The 23 December 2008 Decision and 26
April 2010 Resolution of the Court of Appeals are hereby MODIFIED accordingly.

SO ORDERED.

37

G.R. Nos. 76142-43 December 27, 1993
VDA FISH BROKER and/or VENERANDO ALONZO, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, RUPERTO BULA and VIRGILIO SALAC, respondents.
The ruling of public respondent National Labor Relations Commission (NLRC) that "[t]he
resolution of a corollary issue in a case does not constitute res judicata to a subsequent
case involving the same question of a employer-employee relationship," 1 is disputed by
the petitioner and the Office of the Solicitor General (OSG).
Petitioner VDA Fish Broker (VDA), a duly licensed fish broker, owned, operated and
represented herein by petitioner Venerando D. Alonzo, is in the business of selling fish. It
engaged the services of private respondents Ruperto Bula and Virgilio Salac, among
others, as batilyos "to arrange the fish in the baera . . . (including) emptying or filling
the baera or pulling or dragging the baeras in or out of the designated area." 2
On 14 May 1982, a complaint for non-payment of service incentive leave pay, emergency
cost of living allowance, thirteenth month pay, legal holiday and premium pay for rest day
and holiday was filed against VDA, and Venerando and Corazon Alonzo by Samahan ng
Nagkakaisang Batilyo-NFL represented by its local president and herein respondent
Ruperto Bula. Respondent Virgilio Salac also signed the complaint, subsequently docketed
as Case No. NLRC-NCR-5-3832-82.
On 26 May 1983, Labor Arbiter Porfirio E. Villanueva dismissed the case for lack of merit.
He ruled that there was no employer-employee relationship between VDA and
the batilyos as the latter did their tasks
. . . in their own way so that they could earn more, as a matter of fact, a batilyo
could earn from P60.00 to P150.00 a day for two to four hours work. They are paid
by the results according to the number of baeras they have completed. Fish
brokers have no control and supervision over the batilyos. After completing their
job for two or four hours they could abandon the fish brokers and transfer to
another fish broker. They don't observe any regular working hours nor (do) the
accomplish any time record . . . . 3
The Labor Arbiter discarded the alleged written agreement of 20 March 1975
between Samahan ng Nagkakaisang Batilyo-NFL and the Fish Brokers Association of the
Philippines which recognize the existence of direct employer-employee relationship
between fish brokers and batilyos because it did not appear that VDA was a signatory
therein. No appeal was taken from this decision.
Claiming that they were terminated from the service by VDA on or about 1 January 1984,
Salac and Bula filed separate complaints against VDA and/or Venerando Alonzo for illegal
dismissal and for recovery of moral and exemplary damages docketed as Case Nos. NLRC-
NCR-1-153-84 and NLRC-NCR-1-169-84.
ADMIN LAW CASES SET 8
On 28 August 1984, Labor Arbiter Adelaido F. Martinez dismissed the complaints on the
ground that there was no employer-employee relationship between the opposing parties.
He took note of the earlier decision in Case No. NLRC-NCR-5-3832-82 but nonetheless
made his own finding that Salac and Bula
. . . are independent contractors and they are, as such, laborers or employees of
the respondents (VDA). They undertake to do a piece of work for their own
account, under their own responsibility and with minimum interference on the part
of the respondents . . . . They offer their services to the other fish brokers, dealers,
catchers and the general public and are only paid only when they render service.
They are without any employer. 4
This decision was appealed to the NLRC. On 8 August 1986, the NLRC reversed the decision
of the Labor Arbiter, directed VDA and Alonzo to reinstate Salac and Bula to their former
positions without loss of seniority rights and privileges, and to pay their back wages from 1
January 1984 until actual reinstatement.
On 17 October 1986, this petition for certiorari, prohibition and mandamus with prayer for
the issuance of a restraining order was filed seeking reversal of the decision of the NLRC
primarily on the ground that a previous case ruling that no employment relationship
existed between the private parties constituted a bar to the present suit. On 27 October
1986, we issued a temporary restraining order enjoining respondents from taking further
action on the assailed decision. 5
In its comment, the OSG subscribed to the res judicata theory of petitioner. Consequently,
the NLRC had to file its own comment sustaining its assailed decision. Private respondents
did not submit any comment.
We have several times applied the concept of res judicata to administrative decisions.
In San Luis v. Court of Appeals, 6 through Mme. Justice Irene R. Cortes, we made the
following pronouncement:
. . . . It is well-established in our jurisprudence that the decisions and orders of
administrative agencies, rendered pursuant to their quasi-judicial authority, have
upon their finality, the force and binding effect of a final judgment within the
purview of the doctrine of res judicata (Brillantes v. Castro, 99 Phil. 497 [1956],
Ipekdjian Merchandising Co., Inc. v. Court of Tax Appeals, G.R. No. L-15430,
September 30, 1963, 9 SCRA 72). The rule of res judicata which forbids the
reopening of a matter once judicially determined by competent authority applies
as well to the judicial and quasi-judicial acts of public, executive or administrative
officers and boards acting within their jurisdiction as to the judgments of courts
having general judicial powers (Brillantes v. Castro, supra at 503).
Indeed, the principle of conclusiveness of prior adjudications is not confined in its
operation to the judgments of what are ordinarily known as courts, but it extends
to all bodies upon whom judicial powers had been conferred. Hence, whenever any
board, tribunal or person is by law vested with authority to judicially determine a
38

question . . . such determination, when it has become final, is as conclusive
between the same parties litigating for the same cause as though the adjudication
had been made by a court of general jurisdiction (Ipekdjian Merchandising Co., Inc.
v. Court of Tax Appeals, supra at 76).
The NLRC however claims that res judicata cannot be applied here because the causes of
action and issues in the two cases are different. For a while it is true that the earlier case,
Case No. NLRC-NCR-5-3832-82, pertains to non-payment of service incentive leave pay,
emergency cost of living allowance, thirteenth month pay, legal holiday and premium pay
for rest day and holiday, and the later case, Case Nos. NLRC-NCR-1-153-84 and NLRC-NCR-
1-169-84, is for illegal dismissal and for moral and exemplary damages, nonetheless, we
find that the issue of employer-employee relationship is crucial in the determination of the
rights of the parties in both cases. Moreover, it is erroneous to suggest that res
judicata applies only where there are similar cases of action. In Nabus v. Court of
Appeals, 7 we stated:
The principle of res judicata actually embraces two different concepts: (1) bar by
former judgment and (2) conclusiveness of judgment. There is "bar by former
judgment" when, between the first case where the judgment was rendered, and
the second case where such judgment is invoked, there is identity of parties,
subject matter and cause of action. When the three identities are present, the
judgment on the merits rendered in the first constitutes as absolute bar to the
subsequent action. It is final as to the claim or demand in controversy, including
the parties and those in privity with them, not only as to every matter which was
offered and received to sustain or defeat the claim or demand, but as to any other
admissible matter which might have been offered for that purpose. But where
between the first case wherein judgment is invoked, there is identity of parties, but
there is no identity of cause of action, the judgment is conclusive in the second
case, only as those matters actually and directly controverted and determined, and
not as to matters merely involved therein. This is what is termed conclusiveness of
the judgment (Viray, etc. vs. Marinas, etc., et al. 49 SCRA 44 [1973]).
American jurisprudence on the matter, 8
although merely persuasive, is even more
categorical:
An administrative determination may also operate by way of collateral estoppel
(or res judicata in a limited sense) in a subsequent proceeding in regard to the
parties to a prior proceeding and as to matters actually and legally determined
therein (Farm Invest. Co. v. Carpenter, 9 Wyo 110, 61 P 258 . . . .). Where the
underlying issue in the two proceedings is the same, the adjudication of the issue
in the first proceeding is determinative of the same issue in the second (United
States v. Willard Tablet Co. [CA 7 Ind] 141 F2d 141, 152 ALR 1194 [where remedies
sought by government in two proceedings were different, the first before the
Federal Trade Commission and the second before a court, the identical issue of
falsity of labeling was involved in each]. See also Federal Trade Com. v. Morton Salt
Co. 334 US 37, 92 L ed 1196, 68 S Ct 822, 1 ALR 2d 269). An issue of fact litigated
and determined by an administrative decision, and essential to the decision, is
conclusive between the parties in a subsequent action, even though a different
claim is involved (See People v. Western Airlines, Inc. 42 Cal 2d 621, 268 P2d 723,
ADMIN LAW CASES SET 8
app dismd 348 US 859, 99 L ed 677, 75 S Ct 87. In an action at law, a party is
estopped to deny the truth of a finding which was essential to the administrative
determination, and may not offer evidence to show that the determination was not
justified as matter of law Lumberman's Mut. Casualty Co. v. Bissell, 220 Mich 352,
190 NW 283, 28 ALR 874. As to matters of fact within the scope of the authority of
the officers of the Land Department of the United States, their findings must be
taken as conclusive in the absence of fraud and mistake, upon the principle of
estoppel by former adjudication Whitehill v. Victoria Land & Cattle Co. 18 NM 520,
139 P 184).
It is undisputed that the factual issue of the existence of employer-employee relationship
has been determined with finality in the earlier case of Case No. NLRC-NCR-5-3832-82,
hence, that same finding should have been deemed conclusive in Case Nos. NLRC-NCR-1-
153-84 and NLRC-NCR-1-169-84. Were we to ignore the principle of res judicata, an absurd
situation would arise where the same administrative agency would have diametrically
opposed conclusions based on apparently similar circumstances. The effect may even be
more farcical in the sense that private respondents are given dual or conditional
status, i.e., they are employees for the purpose of reinstatement, but independent
contractors for purposes of entitlement to service incentive leave pay, etc.
This is the dilemma the principle of res judicata seeks to avoid. Both private parties have
already submitted the question of the existence of employer-employee relationship before
the Labor Arbiter in Case No. NLRC-NCR-5-3832-82 which, incidentally, private respondents
have allowed to become final by not appealing from it; consequently, they are precluded
from disputing the same findings a second time. We thus rule that the administrative
finding on the merit of the absence of employer-employee relationship between petitioner
and private respondents in Case No. NLRC-NCR-5-3832-82, absent any showing of change
in the circumstances of the parties, or that the decision in Case No. NLRC-NCR-5-3832-82
has been reversed or vacated, is conclusive upon Case Nos. NLRC-NCR-1-153-84 and NLRC-
NCR-1-169-84 should have been dismissed.
Petitioner also disputes the ruling of the NLRC sustaining private respondents' argument
that "since the complainants (herein private respondents) are bona fide members
of Samahang Nagkakaisang Batilyos-NFL, certified as the sole and exclusive bargaining
representative of the rank-and-file employees in VDA RC3 Fish Broker per Order of 10
August 1982 in Case No. NCR-LRD-M-4-143-82, the issue of their status as employees of
respondent (herein petitioner) is rendered moot and academic." 9 Petitioner argues that no
inference of employer-employee relation may be deduced from this alleged circumstance
because no such relationship actually existed, and neither was there any order to that
effect presented at the hearing.
This is not wholly correct for photocopies of such copies were in the records and attached
as annexes to two of private respondents' pleadings submitted for the consideration of the
Labor Arbiter and the NLRC. 10 But the determination in Case No. NCR-LRD-M-4-143-82 (for
certification election) cannot be considered more conclusive as to the existence of
employer-employee relationship that the decision in Case No. NLRC-NCR-5-3832-82 (for
money claims).
39

In the decision of the Labor Arbiter, which was set aside by the assailed NLRC decision, it
was stated:
We note that the Order in Case NCR-LRD-183-82 relied upon the complainants was
issued on August 10, 1982, while the Decision in Case NLRC-NCR-5-3832-82 relied
upon by respondents was promulgated on May 20, 1983. The later pronouncement
should prevail, according to which there is no employer-employee relationship
between respondents and individual complainants. 11
We have checked their records and found correct the finding of the Labor Arbiter that the
Order in Case No. NCR-LRD-M-4-143-82 was issued on 10 August 1982, while the Order in
Case No. NLRC-NCR-5-3832-82 was promulgated on 20 May 1983. Yet the NLRC, without
showing why or how, casually concluded that Case No. NCR-LRD-M-4-143-82 is "the later
case" which "put to rest the latter's (herein private respondents') status as
employees." 12 NLRC justified its disregard of the findings of the Labor Arbiter in Case No.
NLRC-NCR-5-3832-82 on the basis that the matter of employer-employee relation was
allegedly only a corollary issue therein.
ADMIN LAW CASES SET 8
view of the unreversed finding of the Arbiter that the control requirement was wanting in
this case, there is no occasion to apply the ruling in RJL Martinez Fishing Corporation
v. NLRC.
There obviously being grave abuse of discretion, the assailed decision of respondent NLRC
must be set aside.
WHEREFORE, the petition for issuance of a writ of certiorari is granted and the assailed
decision of respondent National Labor Relations Commission of 8 August 1986 is SET
ASIDE. The decision of Labor Arbiter Adelaido F. Martinez dated 28 August 1984 in Case
Nos. NLRC-NCR-1-153-84 and NLRC-NCR-1-169-84 is REINSTATED and AFFIRMED. The
restraining order we issued on 27 October 1986 is made permanent.
SO ORDERED.

We do not subscribe to this observation considering that the certification order in Case No.
NCR-LRD-M-4-143-82 was a poor basis for concluding the existence of employer-employee
relation not only because there was no categorical statement thereon but also because
there was no finding of facts on which a determination of employment relation could be
based.

As regards the decision of the Labor Arbiter to ignore the earlier Order in Case No. NCR-
LRD-M-4-143-82, the general rule is that, as between prior conflicting judgments involving
the same parties or their privies, the last in
point of time is controlling (Perkins v. Benguet Consol. Min. Co. 55 Cal App 2d 720 . . . .). In
such case, it is the later, and not the earlier, judgment is operative as res
judicata (California Bank v. Traeger, 215 Cal 346 . . . .). The rule is where in two successive
actions between the same parties inconsistent judgments are rendered, the judgment in
the second action is controlling in a third action between the parties. 13

While the foregoing may already be sufficient to warrant reversal of the assailed decision
and to grant the writ prayed for in the petition, a discussion on the application of the ruling
in RJL Martinez Fishing Corporation v. NLRC 14 is in order to correct any misimpression
thereon.

The statement in RJL Martinez Fishing Corporation v. NLRC that "the continuity of
employment is not the determining factor, but rather, whether the work of the laborer is
part of the regular business or occupation of the employer," 15 citing Art. 281 (now 280) of
the Labor Code and Philippine Fishing Boat Officers and Engineers Union v. CIR, 16 does not
mean that the essential elements of employer-employee relationship are done away with.
The statement simply means that where the elements are present, the existence of
employer-employee relationship is not affected by the fact that the work is seasonal or
intermittent or in the meantime suspended. Otherwise, agents and independent
contractors, e.g., playing bands in bars, would be comprehended whenever their services
are said to be necessary to the business of one who engages or hires them. Moreover, in

40

G.R. No. L-19850 January 30, 1964
VIGAN ELECTRIC LIGHT COMPANY, INC., petitioner, vs. THE PUBLIC SERVICE
COMMISSION, respondent.
This is an original action for certiorari to annul an order of respondent Public Service
Commission. Upon the filing of the petition and the submission and approval of the
corresponding bond, we issued a writ of injunction restraining said respondent from
enforcing the order complained of Republic Act No. 316, approved on June 19, 1948,
granted petitioner Vigan Electric Light Company, Inc., a franchise to construct, maintain
and operate an electric light, heat and/or power plant for the purpose of generating and
distributing light, heat and/or power, for sale within the limits of several municipalities of
the province of Ilocos Sur. Accordingly, petitioner secured from respondent on May 31,
1950, a certificate of public convenience to render electric light, heat and/or power
services in said municipalities and to charge its customers and/or consumers the following
rates:
FLAT RATE
1 20 watt bulb per month ............................................................
1 25 watt bulb per month ............................................................
1 40 watt bulb per month ............................................................
1 50 watt bulb per month ............................................................
1 60 watt bulb per month ............................................................
1 75 watt bulb per month ............................................................
1 80 watt bulb per month ............................................................
1 100 watt bulb per month ............................................................
1 150 watt bulb per month ............................................................
1 200 watt bulb per month ............................................................
METER RATE
For the first 15
For the first 15 Kw. hrs. ............................................................
For the next 35 Kw. hrs. ............................................................
For the next 50 Kw. hrs. ............................................................
For all over 100 Kw. hrs. ............................................................
ADMIN LAW CASES SET 8
Minimum Charge: P6.00 per month for connection of 200 watts
or less; plus P0.01 per watt per month for connection in excess
of 200 watts.
TEMPORARY RATE
P0.01 per watt per night.
On May 22, 1957, petitioner, acting with respondent's approval, entered into a contract for
the purchase of electric power and energy from the National Power Corporation, for resale,
in the course of the business of said petitioner, to its customers, to whom, in fact,
petitioner resold said electric power and energy, in accordance with the above schedule of
rates. About five (5) years later, or on January 16, 1962, respondent advised petitioner of a
conference to be held on February 12, 1962 for the purpose of revising its authorized rates.
Soon thereafter, petitioner received a letter of respondent informing the former of an
alleged letter-petition of "Congressman Floro Crisologo and 107 alleged residents of Vigan
Ilocos Sur", charging the following:
P2.30
We also denounce the sale of TWO THOUSAND (2,000) ELECTRIC METERS in
3.00 blackmarket by the Vigan Electric Light Company to Avegon Co., as anomalous and
illegal. Said electric meters were imported from Japan by the Vigan Electric Light
4.50 Company in behalf of the consumers of electric current from said electric company.
The Vigan Electric Light Company has commercialized these privilege which
5.50
property belong to the people.
6.50
We also report that the electric meters in Vigan used by the consumers had been
7.50
installed in bad faith and they register excessive rates much more than the actual
8.00 consumption.1wph1.t
9.00 and directing the petitioner to comment on these charges. In reply to said
13.00 communications, petitioner's counsel wrote to respondent, on February 1, 1962, a letter
asking that the conference scheduled for February 12 be postponed to March 12, and
17.00 another letter stating inter alia:
In connection therewith, please be informed that my client, the Vigan Electric Light
Co., Inc., has not had any dealing with the Avegon Co., Inc., relative to the 2,000
electric meter mentioned in the petition. Attached hereto as Annex "1" and made
an integral part thereof is a certification to that effect by Avegon Co., Inc.
P0.40
Furthermore, as counsel for Vigan Electric Light Co., Inc., I wish to inform this
.30 Honorable Commission that the charge that said company installed the electric
meters in bad faith and that said meters registered excessive rates could have no
.25 valid basis because all of these meters have been inspected checked, tested and
sealed by your office.
.20
41

On March 15, 1962, petitioner received a communication form the General Auditing Office
notifying him that one Mr. Cesar A. Damole had "been instructed to make an audit and
examination of the books and other records of account" of said petitioner, "under the
provisions of Commonwealth Act No. 325 and in accordance with the request of the Public
Service Commission contained in its letter dated March 12, 1962", and directing petitioner
to cooperate with said Mr. Damole "for the successful accomplishment of his work".
Subsequently, respondent issued a subpoena duces tecum requiring petitioner to produce
before the former, during a conference scheduled for April 10, 1962, certain books of
account and financial statements specified in said process. On the date last mentioned
petitioner moved to quash the subpoena duces tecum. The motion was not acted upon in
said conference of April 10, 1962. However, it was then decided that the next conference
be held on April 30, 1962, which was later postponed to May 21, 1962. When petitioner's
representatives appeared before respondent, on the date last mentioned, they were
advised by the latter that the scheduled conference had been cancelled, that the petition
to quash the subpoena duces tecum had been granted, and that, on May 17, 1962,
respondent had issued an order, from which we quote:
We now have the audit report of the General Auditing Office dated May 4, 1962,
covering the operation of the Vigan Electric Light Co., Inc. in Vigan, Bantay and
Cagayan, Ilocos Sur, for the period from January 1 to December 31, 1961. We find
from the report that the total invested capital of the utility as of December 31,
1961, entitled to return amounted to P118,132.55, and its net operating income for
rate purposes of P53,692.34 represents 45.45% of its invested capital; that in order
to earn 12% per annum, the utility should have a computed revenue by rates of
P182,012.78; and that since it realized an actual revenue by rates of P221,529.17,
it had an excess revenue by rates of P39,516.39, which is 17.84% of the actual
revenue by rates and 33.45% of the invested capital. In other words, the present
rates of the Vigan Electric Light Co., Inc. may be reduced by 17.84%, or in round
figure, by 18%.
Upon consideration of the foregoing, and finding that the Vigan Electric Light Co.,
Inc. is making a net operating profit in excess of the allowable return of 12% on its
invested capital, we believe that it is in the public interest and in consonance with
Section 3 of Republic Act No. 3043 that reduction of its rates to the extent of its
excess revenue be put into effect immediately.
WHEREFORE, Vigan Electric Light Co., Inc. is hereby ordered to reduce the present
meter rates for its electric service effective upon the billing for the month of June,
1962, to wit:
METER RATE 24-HOUR SERVICE
For the first 15 kwh per month at P0.328 per kwh
For the next 35 kwh per month at P0.246 per kwh
For the next 50 kwh per month at P0.205 per kwh
ADMIN LAW CASES SET 8
For all over 100 kwh per month at P0.164 per kwh
Minimum Charge: P4.90 per month for connection of 200 was or less plus
P0.01 per watt per month for connection in excess of 200 watts.
TEMPORARY LIGHTING
P0.01 per watt per night.
Minimum Charge: P1.00
Billings to customers shall be made to the nearest multiple of five centavos. The above
rates may be revised, modified or altered at anytime for any just cause and/or in the public
service.
Soon later, or on June 25, 1962, petitioner herein instituted the present action
for certiorari to annul said order of May 17, 1962, upon the ground that, since its Corporate
inception in 1948, petitioner it "never was able to give and never made a single dividend
declaration in favor of its stockholders" because its operation from 1949 to 1961 had
resulted in an aggregate loss of P113,351.523; that in the conference above mentioned
petitioner had called the attention of respondent to the fact that the latter had not
furnished the former a "copy of the alleged letter-petition of Congressman Crisologo and
others"; that respondent then expressed the view that there was no necessity of serving
copy of said letter to petitioner, because respondent was merely holding informal
conferences to ascertain whether petitioner would consent to the reduction of its rates;
that petitioner objected to said reduction without a hearing, alleging that its rates could be
reduced only if proven by evidence validly adduced to be excessive; that petitioner offered
to introduce evidence to show the reasonableness of its aforementioned rates, and even
the fairness of its increase; that petitioner was then assured that it would be furnished a
copy of the aforementioned letter-petition and that a hearing would be held, if a reduction
of its rates could not be agreed upon; that petitioner had not even been served a copy of
the auditor's report upon which the order complained of is based; that such order had been
issued without notice and hearing; and that, accordingly, petitioner had been denied due
process.
In its answer respondent admitted some allegations of the complaint and denied other
allegations thereof, particularly the conclusions drawn by petitioner. Likewise, respondent
alleged that it granted petitioner's motion to quash the aforementioned subpoena duces
tecum because the documents therein referred to had already been audited and examined
by the General Auditing Office, the report on which was on file with said respondent; that
the latter had directed that petitioner be served a copy of said report; and that, although
this has not, as yet, been actually done, petitioner could have seen and examined said
report had it really wanted to do so. By way of special defenses, respondent, moreover,
alleged that the disputed order had been issued under its delegated legislative authority,
the exercise of which does not require previous notice and hearing; and that petitioner had
not sought a reconsideration of said order, and had, accordingly, failed to exhaust all
administrative remedies.
42

In support of its first special defense respondent maintains that rate-fixing is a legislative
function; that legislative or rule-making powers may constitutionally be exercised without
previous notice of hearing; and that the decision in Ang Tibay vs. Court of Industrial
Relations (69 Phil., 635) in which we held that such notice and hearing are essential to
the validity of a decision of the Public Service Commission is not in point because, unlike
the order complained of which respondent claims to be legislative in nature the Ang
Tibay case referred to a proceeding involving the exercise of judicial functions.
At the outset, it should be noted, however, that, consistently with the principle of
separation of powers, which underlies our constitutional system, legislative powers may
not be delegated except to local governments, and only to matters purely of local concern
(Rubi vs. Provincia Board, 39 Phil., 660; U.S. vs. Heinszen, 206 U.S. 370). However,
Congress may delegate to administrative agencies of the government the power to supply
the details in the execution or enforcement of a policy laid down by a which is complete in
itself (Calalang vs. Williams, 70 Phil. 726; Pangasinan Trans. Co. vs. Public Service
Commission, 70 Phil., 221; People vs. Rosenthal, 68 Phil., 328; People vs. Vera, 65 Phil., 56;
Cruz vs. Youngberg, 56 Phil. 234; Alegre vs. Collector of Customs, 53 Phil., 394; U.S. vs.
Ang Tang Ho 43 Phil., 1; Schechter vs. U.S., 295 U.S., 495 Mulford vs. Smith, 307 U.S., 38;
Bowles vs. Willingham, 321 U.S., 503). Such law is not deemed complete unless it lays
down a standard or pattern sufficiently fixed or determinate, or, at least, determinable
without requiring another legislation, to guide the administrative body concerned in the
performance of its duty to implement or enforce said Policy (People vs. Lim Ho, L-12091,
January 28, 1960; Araneta vs. Gatmaitan, L-8895, April 30, 1957; Cervantes vs. Auditor
General, L-4043, May 26, 1952; Philippine Association of Colleges vs. Secretary of
Education, 51 Off. Gaz., 6230; People vs. Arnault, 48 Off. Gaz., 4805; Antamok Gold Fields
vs. Court of Industrial Relations, 68 Phil., 340; U.S. vs. Barrias, 11 Phil., 327; Yakus vs.
White, 321 U.S., 414; Ammann vs. Mallonce, 332 U.S., 245; U.S. vs. Rock Royal Corp. 307
U.S., 533; Mutual Film Corp. vs. Industrial Commission, 276 U.S., 230). Otherwise, there
would be no reasonable means to ascertain whether or not said body has acted within the
scope of its authority, and, as a consequence, the power of legislation would eventually be
exercised by a branch of the Government other than that in which it is lodged by the
Constitution, in violation, not only of the allocation of powers therein made, but, also, of
the principle of separation of powers. Hence, Congress his not delegated, and cannot
delegate legislative powers to the Public Service Commission.
Moreover, although the rule-making power and even the power to fix rates when such
rules and/or rates are meant to apply to all enterprises of a given kind throughout the
Philippines may partake of a legislative character, such is not the nature of the order
complained of. Indeed, the same applies exclusively to petitioner herein. What is more, it is
predicated upon the finding of fact based upon a report submitted by the General
Auditing Office that petitioner is making a profit of more than 12% of its invested
capital, which is denied by petitioner. Obviously, the latter is entitled to cross-examine the
maker of said report, and to introduce evidence to disprove the contents thereof and/or
explain or complement the same, as well as to refute the conclusion drawn therefrom by
the respondent. In other words, in making said finding of fact, respondent performed a
function partaking of a quasi-judicial character the valid exercise of which demands
previous notice and hearing.
ADMIN LAW CASES SET 8
Indeed, sections 16(c) and 20 (a) of Commonwealth Act No. 146, explicitly require notice
Indeed hearing. The pertinent parts thereof provide:
SEC. 16. The Commission shall have the power, upon proper notice and hearing in
accordance with the rules and provision of this Act, subject to the limitations and
exception mentioned and saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls charges, classifications, or
schedules thereof, as well as commutation, mileage kilometrage, and other special
rates which shall be imposed, observed, and followed thereafter by any public
service: Provided, That the Commission may in its discretion approve rates
proposed by public services provisionally and without necessity of any hearing; but
it shall call a hearing thereof within thirty days thereafter, upon publication and
notice to the concerns operating in the territory affected: Provided, further, That in
case the public service equipment of an operator is use principally or secondarily
for the promotion of a private business the net profits of said private business shall
be considered in relation with the public service of such operator for the purpose of
fixing the rates.
SEC. 20. Acts requiring the approval of the Commission. Subject to established
limitations and exception and saving provisions to the contrary, it shall be unlawful
for any public service or for the owner, lessee or operator thereof, without the
approval and authorization of the Commission previously had
(a) To adopt, establish, fix, impose, maintain, collect or carry into effect any
individual or joint rates, commutation mileage or other special rate, toll, fare,
charge, classification or itinerary. The Commission shall approve only those that
are just and reasonable and not any that are unjustly discriminatory or unduly
preferential, only upon reasonable notice to the public services and other parties
concerned, giving them reasonable opportunity to be heard, ... . (Emphasis
supplied.)
Since compliance with law must be presumed, it should be assumed that petitioner's
current rates were fixed by respondent after proper notice and hearing. Hence,
modification of such rates cannot be made, over petitioner's objection, without such notice
and hearing, particularly considering that the factual basis of the action taken by
respondent is assailed by petitioner. The rule applicable is set forth in the American
Jurisprudence the following language:
Whether notice and a hearing in proceedings before a public service commission
are necessary depends chiefly upon statutory or constitutional provisions
applicable to such proceedings, which make notice and hearing, prerequisite to
action by the commission, and upon the nature and object of such proceedings,
that is, whether the proceedings, are, on the one hand, legislative and rule-making
in character, or are, on the other hand, determinative and judicial or quasi-judicial,
affecting the rights an property of private or specific persons. As a general rule, a
43
 ADMIN LAW CASES SET 8
public utility must be afforded some opportunity to be heard as to the propriety
and reasonableness of rates fixed for its services by a public service commission.
(43 Am. Jur. 716; Emphasis supplied.)

Wherefore, we hold that the determination of the issue involved in the order complained of
partakes of the nature of a quasi-judicial function and that having been issued without
previous notice and hearing said order is clearly violative of the due process clause, and,
hence, null and void, so that a motion for reconsideration thereof is not an absolute
prerequisite to the institution of the present action for certiorari (Ayson vs. Republic. 50
Off. Gaz., 5810). For this reason considering that said order was being made effective on
June 1, 1962, or almost immediately after its issuance (on May 17, 1962), we find that
petitioner was justified in commencing this proceedings without first filing said motion
(Guerrero vs. Carbonell, L-7180, March 15, 1955).

WHEREFORE, the writ prayed for is granted and the preliminary injunction issued by this
Court hereby made permanent. It is so ordered.

44

G.R. No. 85502 February 24, 1992
SUNVILLE TIMBER PRODUCTS, INC., petitioner, vs. HON. ALFONSO G. ABAD, as
Judge RTC, Br. 22 of Pagadian City, COURT OF APPEALS, ISIDRO GILBOLINGO AND
ROBUSTIANO BUGTAI, respondents.
The Court will focus its attention only on one of the issues raised in this petition the
correct application of the doctrine of exhaustion of administrative remedies.
The petitioner was granted a Timber License Agreement (TLA), authorizing it to cut,
remove and utilize timber within the concession area covering 29,500 hectares of forest
land in Zamboanga del Sur, for a period of ten years expiring on September 31, 1992.
On July 31, 1987, the herein private respondents filed a petition with the Department of
Environment and Natural Resources for the cancellation of the TLA on the ground of
serious violations of its conditions and the provisions of forestry laws and regulations.
The same charges were subsequently made, also by the herein private respondents, in a
complaint for injunction with damages against the petitioner, which was docketed as Civil
Case No. 2732 in the Regional Trial Court of Pagadian City.
The petitioner moved to dismiss this case on three grounds, to wit: 1) the court had no
jurisdiction over the complaint; 2) the plaintiffs had not yet exhausted administrative
remedies; and 3) the injunction sought was expressly prohibited by section 1 of PD 605.
Judge Alfonso G. Abad denied the motion to dismiss on December 11, 1987, 1 and the
motion for reconsideration on February 15, 1988. 2 The petitioner then elevated the matter
to the respondent Court of Appeals, which sustained the trial court in a decision dated July
4, 1988, 3 and in its resolution of September 27, 1988, denying the motion for
reconsideration. 4
The Court of Appeals held that the doctrine of exhaustion of administrative remedies was
not without exception and pointed to the several instances approved by this Court where it
could be dispensed with. The respondent court found that in the case before it, the
applicable exception was the urgent need for judicial intervention, which it explained thus:
The lower court found out that sometime on July 1981, the City Council of Pagadian
in its Resolution No. 111 requested the Bureau of Forest Development to reserve
1,000 hectares in Lison Valley. This request remained unacted upon. Instead in
1982, a TLA covering 29,500 hectares, including the area requested, was given to
petitioner.
Then the fear expressed by the City Council of Pagadian in its resolution became
reality.
"As averred in the complaint, the erosion caused by the logging operations
of the defendant has caused heavy siltation not only in the Labangan River
ADMIN LAW CASES SET 8
(as predicted by the City Council of Pagadian City in 1981) but also in the
Tukuran River, Salug River, Sindangan River, and Sibuguey River. In other
words, the adverse effects of the logging operations of the defendant have
already covered a wider area than that feared to be adversely affected by
the City Council of Pagadian City.
Floods are unknown phenomena in heavily forested areas years back,
particularly in the Island of Mindanao. When the grant of logging
concessions started, so was the denudation of forests. . . . It is common
knowledge that heavy floods have occurred in areas/places adjoining
logging concessions. (Resolution dated December 11, 1987, p. 5).
Thus, it is urgent that indiscriminate logging be stopped. Irreparable damage would
ensue unless the court intervenes. Reliance on the DENR may not be enough,
judging from its inaction on the council's request seven years back.
The respondent court cited in support of this conclusion the case of De Lara
v. Cloribel, 5 where "irreparable damage and injury" was allowed as an exceptional ground,
and Arrow Transportation Corporation v. Board of Transportation, 6 where the doctrine was
waived because of "the strong public interest in having the matter settled" as soon as
possible.
The decision also declared invalid Section 1 of PD 605, which provides:
Sec. 1. No court of the Philippines shall have jurisdiction to issue any restraining
order, preliminary injunction or preliminary mandatory injunction in any case
involving or growing out of the issuance, approval or disapproval, revocation or
suspension of, or any action whatsoever by the proper administrative official or
body on concessions, licenses, permits, patents, or public grants of any kind in
connection with the disposition, exploitation, utilization, exploration and/or
development of the natural resources of the Philippines.
This was held to be an encroachment on the judicial power vested in the Supreme Court
and the lower courts by Article VIII, Section 1, of the Constitution. The respondent court
cited Export Processing Zone Authority v. Dulay, 7where several presidential decrees were
declared unconstitutional for divesting the courts of the judicial power to determine just
compensation in expropriation cases.
The petitioner is now before the Court, contending that the doctrine of exhaustion of
administrative remedies was not correctly applied and that the declaration of the
unconstitutionality of Section 1 of PD 605 was improper.
The doctrine of exhaustion of administrative remedies calls for resort first to the
appropriate administrative authorities in the resolution of a controversy falling under their
jurisdiction before the same may be elevated to the courts of justice for review. Non-
observance of the doctrine results in lack of a cause of action, 8 which is one of the
45

grounds allowed in the Rules of Court for the dismissal of the complaint. The deficiency is
not jurisdictional. Failure to invoke it operates as a waiver of the objection as a ground for a
motion to dismiss and the court may then proceed with the case as if the doctrine had
been observed.
One of the reasons for the doctrine of exhaustion is the separation of powers, which
enjoins upon the Judiciary a becoming policy of non-interference with matters coming
primarily (albeit not exclusively) within the competence of the other departments. The
theory is that the administrative authorities are in a better position to resolve questions
addressed to their particular expertise and that errors committed by subordinates in their
resolution may be rectified by their superiors if given a chance to do so. A no less
important consideration is that administrative decisions are usually questioned in the
special civil actions of certiorari, prohibition and mandamus, which are allowed only when
there is no other plain, speedy and adequate remedy available to the petitioner. It may be
added that strict enforcement of the rule could also relieve the courts of a considerable
number of avoidable cases which otherwise would burden their heavily loaded dockets. 9
As correctly suggested by he respondent court, however, there are a number of instances
when the doctrine may be dispensed with and judicial action validly resorted to
immediately. Among these exceptional cases are: 1) when the question raised is purely
legal; 10 2) when the administrative body is in estoppel; 11 3) when the act complained of is
patently illegal; 12 4) when there is urgent need for judicial intervention; 13 5) when the
claim involved is small; 14 6) when irreparable damage will be suffered; 15 7) when there is
no other plain, speedy and adequate remedy; 16 8) when strong public interest is
involved; 17 9) when the subject of the controversy is private land; 18 and 10) in quo
warranto proceedings. 19
The private respondents now submit that their complaint comes under the exceptions
because forestry laws do not require observance of the doctrine as a condition precedent
to judicial action; the question they are raising is purely legal; application of the doctrine
will cause great and irreparable damage; and public interest is involved.
We rule for the petitioner.
Even if it be assumed that the forestry laws do not expressly require prior resort to
administrative remedies, the reasons for the doctrine above given, if nothing else, would
suffice to still require its observance. Even if such reasons were disregarded, there would
still be the explicit language of pertinent laws vesting in the DENR the power and function
"to regulate the development, disposition, extraction, exploration and use of the country's
forests" and "to exercise exclusive jurisdiction" in the "management and disposition of all
lands of the public domain," 20 and in the Forest Management Bureau (formerly the Bureau
of Forest Development) the responsibility for the enforcement of the forestry laws aid
regulations 21 here claimed to have been violated. This comprehensive conferment
clearly implies at the very least that the DENR should be allowed to rule in the first
instance on any controversy coming under its express powers before the courts of justice
may intervene.
ADMIN LAW CASES SET 8
The argument that the questions raised in the petition are purely legal is also not
acceptable. The private respondents have charged, both in the administrative case before
the DENR and in the civil case before the Regional Trial Court of Pagadian City, that the
petitioner has violated the terms and conditions of the TLA and the provisions of forestry
laws and regulations. The charge involves factual issues calling for the presentation of
supporting evidence. Such evidence is best evaluated first by the administrative
authorities, employing their specialized knowledge of the agreement and the rules
allegedly violated, before the courts may step in to exercise their powers of review.
As for the alleged urgent necessity for judicial action and the claimed adverse impact of
the case on the national interest, the record does not show that the petitioners have
satisfactorily established these extraordinary circumstances to justify deviation from the
doctrine by exhaustion of administrative remedies and immediate resort to the courts of
justice. In fact, this particular submission must fall flat against the petitioner's uncontested
contention that it has since 1988 stopped its operations under the TLA in compliance with
the order of the DENR.
In the Petition for prohibition filed with the respondent court, the petitioner alleged that its
logging operations had been suspended pursuant to a telegram 22 received on February 23,
1988, by the District Forester from the Regional Executive Director of the DENR,
Zamboanga City; reading as follows:
DISTRICT FORESTER
PAGADIAN CITY
QUOTED HEREUNDER IS RADIO MESSAGE DATED FEBRUARY 22, 1988 FROM
SECRETARY FULGENCIO S. FACTORAN, JR. QUOTE EFFECTIVE IMMEDIATELY CMA
SUSPEND ALL LOGGING OPERATIONS OF SUNVILLE IN VIEW OF SERIOUS
VIOLATIONS OF FOREST PROTECTION AND REFORESTATION UNQUOTE SUBMIT
REPORT ASAP.
RED BATCAGAN
The petition now before us contains the allegations that the "petition for cancellation of
petitioner's TLA is still pending up to this date and that petitioner's logging operations
(were) ordered suspended by the Secretary of the DENR pending further investigation." 23
In the memorandum filed by the petitioner with this Court, it is informed that "the
Secretary of the DENR suspended petitioner's logging operations until further
investigation. The suspension is still in force up to this date after the lapse of almost 3
years." 24
These statements have not been disputed by the private respondents in their pleadings
before the respondent court and this Court and are therefore deemed admitted.
There in no question that Civil Case No. 2732 comes within the jurisdiction of the
respondent court. Nevertheless, as the wrong alleged in the complaint was supposedly
46
 ADMIN LAW CASES SET 8
committed as a result of the unlawful logging activities of the petitioner, it will be
necessary first to determine whether or not the TLA and the forestry laws and regulations
had indeed been violated. To repeat for emphasis, determination of this question is the
primary responsibility of the Forest Management Bureau of the DENR. The application of
the expertise of the administrative agency in the resolution of the issue raised is a
condition precedent for the eventual examination, if still necessary, of the same question
by a court of justice.

In view of the above observations, we find that there was no need for the respondent court
to declare the unconstitutionality of Section 1 of PD 605. The rule is that a question of
constitutionality must be avoided where the case can be decided on some other available
ground, 25 as we have done in the case before us. The resolution of this same question
must await another case, where all the indispensable requisites of a judicial inquiry into a
constitutional question are satisfactorily established. In such an event, it will be time for
the Court "to make the hammer fall, and heavily," in the words of Justice Laurel, if such
action is warranted.

WHEREFORE, the petition is GRANTED. The decision of the respondent court dated July 4,
1988, and its resolution dated September 27, 1988, as well as the resolutions of the trial
court dated December 11, 1987 and February 15, 1988, are all REVERSED and SET ASIDE.
Civil Case No. 2732 in the Regional Trial Court of Pagadian City is hereby DISMISSED.

SO ORDERED.

47

G.R. No. 191427 May 30, 2011
UNIVERSAL ROBINA CORP. (CORN DIVISION), Petitioner, vs. LAGUNA LAKE
DEVELOPMENT AUTHORITY, Respondent.
The present petition for review on certiorari assails the Court of Appeals Decision 1 dated
October 27, 2009 and Resolution dated February 23, 2010 in CA-G. R. SP No. 107449.
Universal Robina Corp. (petitioner) is engaged in, among other things, the manufacture of
animal feeds at its plant in Bagong Ilog, Pasig City.
Laguna Lake Development Authority (LLDA), respondent, through its Pollution Control
Division Monitoring and Enforcement Section, after conducting on March 14, 2000 a
laboratory analysis of petitioners corn oil refinery plants wastewater, found that it failed
to comply with government standards provided under Department of Environment and
Natural Resources (DENR) Administrative Orders (DAOs) Nos. 34 and 35, series of 1990.
LLDA later issued on May 30, 2000 an Ex-Parte Order requiring petitioner to explain why no
order should be issued for the cessation of its operations due to its discharge of pollutive
effluents into the Pasig River and why it was operating without a clearance/permit from the
LLDA.
Still later, the LLDA, after receiving a phone-in complaint conducted on August 31, 2000,
another analysis of petitioners wastewater, which showed its continued failure to conform
to its effluent standard in terms of Total Suspended Solids (TSS), Biochemical Oxygen
Demand (BOD), Color and Oil/Grease.
Hearings on petitioners pollution case were thereafter commenced on March 1, 2001.
Despite subsequent compliance monitoring and inspections conducted by the LLDA,
petitioners wastewater failed to conform to the parameters set by the aforementioned
DAOs.
In early 2003, petitioner notified LLDA of its plan to upgrade the wastewater treatment
facility (WTF) of its corn oil refinery plant in an effort to comply with environmental laws,
an upgrade that was completed only in 2007.
On May 9, 2007 on its request,2 a re-sampling of petitioners wastewater was conducted
which showed that petitioners plant finally complied with government standards.
Petitioner soon requested for a reduction of penalties, by Manifestation and Motion 3 filed
on August 24, 2007 to which it attached copies of its Daily Operation Reports and
Certifications4 to show that accrued daily penalties should only cover a period of 560 days.
ADMIN LAW CASES SET 8
After conducting hearings, the LLDA issued its Order to Pay 5 (OP) dated January 21, 2008,
the pertinent portion of which reads:
After careful evaluation of the case, respondent is found to be discharging pollutive
wastewater computed in two periods reckoned from March 14, 2000 the date of initial
sampling until November 3, 2003 the date it requested for a re-
sampling covering 932 days in consideration of the interval of time when subsequent
monitoring was conducted after an interval of more than 2 years and from March 15, 2006
the date when re-sampling was done until April 17, 2007 covering 448 days6 for a total
of 1,247 days.
WHEREFORE, premises considered, respondent is hereby ordered to pay within fifteen (15)
days from receipt hereof the accumulated daily penalties amounting to a total of Pesos:
One Million Two Hundred Forty-Seven (Thousand) Pesos Only (PHP 1,247,000.00) prior to
dismissal of the case and without prejudice of filing another case for its subsequent
violations. (emphasis and underscoring supplied)
Petitioner moved to reconsider, praying that it be ordered to pay only accumulated daily
penalties in the sum of Five Hundred Sixty Thousand (P560,000) Pesos7 on grounds that
the LLDA erred in first, adopting a straight computation of the periods of violation based
on the flawed assumption that petitioner was operating on a daily basis without
excluding, among others, the period during which the LLDA Laboratory underwent
rehabilitation work from December 1, 2000 to June 30, 2001 (covering 212 days); and
second, in disregarding the Daily Operation Reports and Certifications which petitioner
submitted to attest to the actual number of its operating days, i.e., 560 days.
By Order8 of July 11, 2008, the LLDA denied petitioners motion for reconsideration and
reiterated its order to pay the aforestated penalties, disposing of the issues thusly:
On the first issue, while it is true that the Authority failed to state in its OP dated 21
January 2008 the basis for actual computation of the accumulated daily penalties, the
Authority would like to explain that its computation was based on the following, to wit:
The computation of accumulated daily penalties was reckoned period [sic] from 14 March
2000 the date of initial sampling to 03 November 2003 the date when its letter request
for re-sampling was received which covers 932 days computed at 6 days per week
operation as reflected in the Reports of Inspection. Since subsequent inspection conducted
after two (2) years and four (4) months, such period was deducted from the computation.
Likewise, the period when the LLDA Laboratory was rehabilitated from December 1, 2000
to June 30, 2001 was also deducted with a total of Two Hundred Twelve (212) days.
On the second claim, the same cannot be granted for lack of legal basis since the
documents submitted are self-serving. The period from 15 March 2006 to 17 April 2007
was computed from the date of re-sampling when it failed to conform to the standards set
48

by law up to the date of receipt of its letter request for re-sampling prior to its compliance
on May 9, 2007. The period covers 342 days.
Hence, respondent is found to be discharging pollutive wastewater not conforming with the
standards set by law computed from March 14, 2000 November 3, 2003 covering 932
days and from March 15, 2006 April 17, 2007 covering 342 days for a total of 1,274 days.
Petitioner challenged by certiorari the twin orders before the Court of Appeals, attributing
to LLDA grave abuse of discretion in disregarding its documentary evidence, and
maintaining that the lack of any plain, speedy or adequate remedy from the enforcement
of LLDAs order justified such recourse as an exception to the rule requiring exhaustion of
administrative remedies prior to judicial action.
By Decision of October 27, 2009 the appellate court affirmed both LLDA orders, which it
found to be amply supported by substantial evidence, the computation of the accumulated
daily penalties being in accord with prevailing DENR guidelines. The appellate court held
that while petitioner may have offered documentary evidence to support its assertion that
the days when it did not operate must be excluded from the computation, the LLDA has
the prerogative to disregard the same for being unverified, hence, unreliable.
The appellate court went on to chide petitioners petition for certiorari as premature since
the law provides for an appeal from decisions or orders of the LLDA to the DENR Secretary
or the Office of the President, a remedy which should have first been exhausted before
invoking judicial intervention.9
Petitioners motion for reconsideration having been denied by Resolution of February 23,
2010, it filed the present petition.
Petitioner cites deprivation of due process and lack of any plain, speedy or adequate
remedy as grounds which exempted it from complying with the rule on exhaustion of
administrative remedies.
The petition fails.
The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial
system. The thrust of the rule is that courts must allow administrative agencies to carry
out their functions and discharge their responsibilities within the specialized areas of their
respective competence.10 The rationale for this doctrine is obvious. It entails lesser
expenses and provides for the speedier resolution of controversies. Comity and
convenience also impel courts of justice to shy away from a dispute until the system of
administrative redress has been completed.11
Executive Order No. 19212 (EO 192) was issued on June 10, 1987 for the salutary purpose
of reorganizing the DENR, charging it with the task of promulgating rules and regulations
for the control of water, air and land pollution as well as of promulgating ambient and
ADMIN LAW CASES SET 8
effluent standards for water and air quality including the allowable levels of other
pollutants and radiations. EO 192 also created the Pollution Adjudication Board under the
Office of the DENR Secretary which took over the powers and functions of the National
Pollution Control Commission with respect to the adjudication of pollution cases, including
the latters role as arbitrator for determining reparation, or restitution of the damages and
losses resulting from pollution.13
Petitioner had thus available administrative remedy of appeal to the DENR Secretary. Its
contrary arguments to show that an appeal to the DENR Secretary would be an exercise in
futility as the latter merely adopts the LLDAs findings is at best, speculative and
presumptuous.
As for petitioners invocation of due process, it fails too. The appellate court thus aptly
brushed aside this claim, in this wise:
Due process, as a constitutional precept, does not always and in all situations require a
trial-type proceeding. Due process is satisfied when a person is notified of the charge
against him and given an opportunity to explain or defend himself. In administrative
proceedings, the filing of charges and giving reasonable opportunity for the person so
charged to answer the accusations against him constitute the minimum requirements of
due process. The essence of due process is simply to be heard, or as applied to
administrative proceedings, an opportunity to explain ones side, or an opportunity to seek
a reconsideration of the action or ruling complained of.
. . . Administrative due process cannot be fully equated with due process in its strict
judicial sense for it is enough that the party is given the chance to be heard before the
case against him is decided.
Here, petitioner URC was given ample opportunities to be heard it was given show cause
orders and allowed to participate in hearing to rebut the allegation against it of discharging
pollutive wastewater to the Pasig River, it was given the chance to present evidences in
support of its claims, it was notified of the assailed "Order to Pay," and it was allowed to
file a motion for reconsideration. Given these, we are of the view that the minimum
requirements of administrative due process have been complied with in this
case.14 (emphasis in the original)
In fine, the assailed LLDA orders of January 21, 2008 and July 11, 2008 correctly reckoned
the two periods within which petitioner was found to have continued discharging pollutive
wastewater and applied the penalty as provided for under Article VI, Section 32 of LLDA
Resolution No. 33, Series of 1996. 15 LLDAs explanation that behind its inclusion of certain
days in its computation of the imposable penalties that it had already deducted not just
the period during which the LLDA Laboratory underwent rehabilitation work from
December 1, 2000 to June 30, 2001 (covering 212 days) but had also excluded from the
computation the period during which no inspections or compliance monitorings were
conducted (a period covering two years and four months) is well-taken.
49

It is noted that during the hearing on June 19, 2007, the LLDA gave petitioner the
opportunity "to submit within fifteen (15) days.any valid documents to show proof of its
non-operating dates that would be necessary for the possible reduction of the accumulated
daily penalties,"16 but petitioner failed to comply therewith.
As earlier noted, petitioner filed a Manifestation and Motion to which it attached Daily
Operation Reports and Certifications, which voluminous documents were, however,
unverified in derogation of Rule X, Section 2 17 of the 2004 Revised Rules, Regulations and
Procedures Implementing Republic Act No. 4850. Absent such verification, the LLDA may
not be faulted for treating such evidence to be purely self-serving.
Respecting LLDAs decision not to attach any evidentiary weight to the Daily Operation
Reports or Certifications, recall that the LLDA conducted an analysis of petitioners
wastewater discharge on August 31, 2000, upon receiving a phone-in complaint. And it
conducted too an analysis on May 3, 2002 in the course of periodic compliance monitoring.
The Daily Operation Reports for both August 31, 2000 18 and May 3, 200219 submitted by
petitioner clearly manifest that the plant did not operate on those dates. On the other
hand, LLDAs Investigation Report and Report of Inspection 20 dated August 31, 2000 and
May 3, 2002, respectively, disclose otherwise. Petitioner never disputed the factual
findings reflected in these reports. Thus spawns doubts on the veracity and accuracy of the
Daily Operation Reports.lawphi1
Petitioner asserts that LLDA had not credited it for undertaking remedial measures to
rehabilitate its wastewater treatment facility, despite the prohibitive costs and at a time
ADMIN LAW CASES SET 8
when its income from the agro-industrial business was already severely affected by a poor
business climate; and that the enforcement of the assailed LLDA orders amounted to a
gross disincentive to its business.
Without belaboring petitioners assertions, it must be underscored that the protection of
the environment, including bodies of water, is no less urgent or vital than the pressing
concerns of private enterprises, big or small. Everyone must do their share to conserve the
national patrimonys meager resources for the benefit of not only this generation, but of
those to follow. The length of time alone it took petitioner to upgrade its WTF (from 2003 to
2007), a move arrived at only under threat of continuing sanctions, militates against any
genuine concern for the well-being of the countrys waterways.
WHEREFORE, the petition is DENIED. The October 27, 2009 Decision and the February 23,
2010 Resolution, of the Court of Appeals in CA-G. R. SP No. 107449, are AFFIRMED.
SO ORDERED.
50