THE CITY OF ILOILO, Represented by HON. JERRY P. TREÑAS

G.R. No. 154614             November 25, 2004
THE CITY OF ILOILO, Represented by HON. JERRY P. TREÑAS, City Mayor, petitioner,
vs.
HON. JUDGE EMILIO LEGASPI, Presiding Judge, RTC, Iloilo City, Branch 22, and HEIRS OF MANUELA YUSAY, Represented by SYLVIA YUSAY DEL ROSARIO and ENRIQUE YUSAY, JR., respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Via a Petition for Certiorari and Prohibition with Prayer for Issuance of a Writ of Preliminary Injunction and Temporary Restraining Order, the City of Iloilo, represented by Mayor Jerry P. Treñas, seeks the nullification and/or modification of the Order dated 05 June 2002 of Honorable Emilio Legaspi, Presiding Judge, Regional Trial Court, Branch 22, Iloilo City, denying its Motion for Reconsideration of the court’s Order dated 15 April 2002, holding in abeyance the resolution of the Motion for Issuance of Writ of Possession until after it shall have rested its case.

The factual antecedents are the following:

On 07 March 2001, the Sangguniang Panlungsod of the City of Iloilo enacted Regulation Ordinance No. 2001-037 granting authority to its City Mayor to institute expropriation proceedings on Lot No. 935, registered in the name of Manuela Yusay, located at Barangay Sto. Niño Norte, Arevalo, Iloilo City. The regulation ordinance was approved by then City Mayor Mansueto A. Malabor.¹

On 14 March 2001, Mayor Malabor wrote the heirs of Manuela Yusay, through Mrs. Sylvia Yusay del Rosario, Administratrix of the estate of Manuela Yusay, making a formal offer to purchase their property known as Cadastral Lot No. 935 with an area of 85,320 square meters covered by Transfer Certificate of Title (TCT) No. T-67506 of the Registry of Deeds of Iloilo City for P250 per square meter for the purpose of converting the same as an on-site relocation for the poor and landless residents of the city in line with the city’s housing development program.²

In a letter dated 26 June 2001, Mayor Malabor informed Administrators Sylvia Y. del Rosario and Enrique Yusay, Jr. that their counter-proposal to the City’s proposal to purchase Lot No. 935 was not acceptable to the City Government, particularly to the City Council, which insisted that an expropriation case be filed per SP Resolution No. 01-445. With their apparent refusal to sell the property, the City terminated further proceedings on the matter.³

Petitioner City of Iloilo, represented by Mayor Jerry P. Treñas, filed an Amended Complaint⁴ for Eminent Domain against private respondents Heirs of Manuela Yusay, represented by Sylvia Yusay del Rosario and Enrique Yusay, Jr.⁵ The subject of the same is Lot No. 935 of the Cadastral Survey of Arevalo covered by TCT No. T-67506.

Private respondents filed an Answer,⁶ dated 25 September 2001, to which petitioner filed a Reply,⁷ dated 19 October 2001.

On 23 October 2001, private respondents filed a Motion to Set Case for Preliminary Hearing on the Special and Affirmative Defenses they have raised in the Answer.⁸ Petitioner opposed⁹ the motion to which private respondents filed a Reply.¹⁰

In an Order dated 04 February 2002, public respondent Hon. Emilio B. Legaspi, Presiding Judge, Regional Trial Court of Iloilo City, Branch 22, found the motion to be in order and meritorious, and the grounds of the opposition to be untenable; thus, he set the case for Preliminary Hearing on the Special and Affirmative Defenses.¹¹

Petitioner moved for the reconsideration¹² of the order which private respondents opposed.¹³

On 01 April 2002, public respondent set the case for Pre-Trial after Atty. Amelita K. del Rosario-Benedicto, counsel for private respondents, manifested she was withdrawing the Motion for Preliminary Hearing on the Special and Affirmative Defenses. Petitioner did not interpose any objection.¹⁴

On 11 April 2002, petitioner filed a Motion for Issuance of Writ of Possession alleging that since it has deposited with the Court the amount of P2,809,696.50 representing fifteen percent (15%) of the fair market value of the property sought to be expropriated based on its current tax declaration, it may immediately take possession of the property in accordance with Section 19, Republic Act No. 7160.¹⁵

On 15 April 2002, public respondent issued an Order with the following disposition:

WHEREFORE, in view of the foregoing, Atty. Benedicto is given ten (10) days from today within which to file an Opposition to the pending Motion For Issuance of Writ of Possession, furnishing copy of the same to plaintiff’s counsel who has the same period to file a Reply.

Parties agreed that the Court will resolve the Motion For Issuance of Writ of Possession after the plaintiffs shall have rested their case after the trial on the merits.¹⁶

Private respondents filed their Opposition to the Motion for Issuance of Writ of Possession¹⁷ to which petitioner filed a Reply.¹⁸

On 09 May 2002, petitioner filed a Motion for Reconsideration praying that the lower court reconsider its order of 15 April 2002, and to consider its Motion for Issuance of Writ of Possession submitted for resolution after the filing of its Reply to private respondents’ Opposition to the motion. Citing the case of Robern Development Corp. v. Judge Jesus V. Quitain, et al.,¹⁹ it maintains "there is no need for a hearing before the Honorable Court can grant [its] Motion for Issuance of Writ of Possession."²⁰

Private respondents filed an Opposition to the Motion for Reconsideration with Rejoinder to Reply to Opposition. They vehemently opposed the motion arguing that counsels of the parties had agreed that the lower court will resolve the Motion for Issuance of Writ of Possession after petitioner shall have rested its case after trial on the merits. They added that in view of the defects as to form and substance of the amended complaint, the issuance of a writ of possession ceases to be a ministerial duty on the court; hence, there is a need for a court hearing.²¹

On 05 June 2002, the assailed order was issued, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the Motion for Reconsideration is DENIED and resolution of the Motion for Writ of Possession is hereby held in abeyance until further orders from this Court.²²

Hence, this petition.

The petition raises the following alleged errors of the lower court:

A. THAT THE LOWER COURT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DENYING THE MOTION FOR RECONSIDERATION DATED MAY 9, 2002 AS CONTAINED IN ITS ORDER OF JUNE 5, 2002, AND IN HOLDING THAT PETITIONER’S MOTION FOR ISSUANCE OF WRIT OF POSSESSION BE RESOLVED AFTER HEREIN PETITIONER HAS CONVINCED THE TRIAL COURT THAT IT HAS A MERITORIOUS CASE OF EMINENT DOMAIN, DESPITE THE PROVISIONS OF SECTION 2, RULE 67 OF THE 1997 RULES OF CIVIL PROCEDURE AND DESPITE THE RULING OF THE SUPREME COURT IN THE CASE OF "ROBERN DEVELOPMENT CORPORATION VS. JUDGE JESUS V. QUITAIN, ET AL."

B. THAT THE LOWER COURT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING THE ORDER OF JUNE 5, 2002 WHICH IN EFFECT UPHELD THE CONTENTION OF PRIVATE RESPONDENTS THAT THE AMENDED COMPLAINT FOR EXPROPRIATION FILED BY HEREIN PETITIONER IS NOT SUFFICIENT IN FORM AND SUBSTANCE, HENCE THE LATTER IS NOT ENTITLED TO AN IMMEDIATE ISSUANCE OF A WRIT OF POSSESSION.²³

As to its Amended Complaint, petitioner maintains that the same is sufficient in form and substance since it has complied with Section 19 of Rep. Act No. 7160 (1991 Local Government Code) and Section 1, Rule 67 of the 1997 Rules of Civil Procedure. It explains that since public respondent has ordered the parties to proceed with the Pre-Trial Conference and trial of the case, it can be concluded that the Amended Complaint is sufficient in form and substance.

In compliance with Section 19 of the 1991 Local Government Code, petitioner says it deposited the amount of P2,809,696.50 with the Regional Trial Court of Iloilo, which is equivalent to fifteen percent (15%) of the fair market value of the property sought to be expropriated based on its current tax declaration. It further argues that in the cases of Robern Development Corporation v. Judge Jesus Quitain, et al.,²⁴ and Salvador Biglang-Awa v. Hon. Judge Marciano I. Bacalla, et al.,²⁵ the duty to issue a Writ of Possession becomes a ministerial duty upon the trial court without necessity of a hearing once the provisional deposit under Section 2 of Rule 67²⁶ has been complied with.

In their Comment, private respondents maintain that there was nothing for the lower court to reconsider because the order dated 15 April 2002 which was dictated in open court, and which petitioner sought to be reconsidered, was already final (on 30 April 2002) when the latter filed its Motion for Reconsideration on 09 May 2002. Second, they insist that petitioner is estopped to change its position with respect to the immediate issuance of the writ of possession. The agreement entered into is binding and is the law between the parties and should be accorded respect since it was approved by public respondent. Third, they claim there is waiver on the part of petitioner to ask for the immediate possession of Lot No. 935 since it took the latter eight (8) months and twelve (12) days from the filing of the Amended Complaint, and nine (9) months and thirteen (13) days from the filing of the Original Complaint before it filed the Motion for Issuance of Writ of Possession. Moreover, they assert that there is a need for a court hearing before a writ of possession can be issued, because the amended complaint is being assailed before the lower court for not being sufficient in form and substance. Finally, they aver that the issuance of the writ of possession ceases to be ministerial when the complaint for expropriation fails to allege compliance with the mandatory requirements for the exercise of the power of eminent domain for purposes of socialized housing as interpreted in the cases of Filstream International Incorporated v. Court of Appeals, et al.²⁷

In its Reply, petitioner avers that the order of 15 April 2002 became final only after fifteen (15) days from the time the same was received by it on 26 April 2002, and not fifteen (15) days from the time the order was made in open court on 15 April 2002.

Petitioner argues that there is nothing in the rules which prohibits it from reversing its position with respect to the issuance of the writ of possession in light of Section 2, Rule 67 of the 1997 Rules of Civil Procedure which allows taking immediate possession of property sought to be expropriated upon compliance with said section. Further, it adds that its stand to seek immediate possession of the property is supported by the Robern and Biglang-awa cases.

It insists that there is no waiver or estoppel on its part. There is no provision of law which sets a time limit within which to file a motion for the issuance of a writ of possession. It reiterated that the sufficiency of the form and substance of the Amended Complaint can be determined and resolved by the lower court through an examination of the allegations contained therein and if the same complies with the requisites set forth in Section 19 of Rep. Act No. 7160 and Section 1 of Rule 67.²⁸ Thus, there is no necessity of a trial before the lower court can resolve the Motion for Issuance of a Writ of Possession.

Finally, it argues that the Filstream²⁹ cases are not applicable. It adds that the provisions of Rep. Act No. 7279 which private respondents allege as not to have been complied with are not conditions precedent for the exercise of the power of eminent domain.

We first rule on the issue of whether the Order dated 15 April 2002, which was dictated in open court, was already final when petitioner filed a Motion for Reconsideration on 09 May 2002. Petitioner maintains that the motion for reconsideration was filed before the order became final fifteen (15) days from the time it received a copy thereof in writing, and not from the time the same was dictated in open court as claimed by private respondents.

Time-honored and of constant observance is the principle that no judgment, or order, whether final or interlocutory, has juridical existence until and unless it is set in writing, signed, and promulgated, i.e., delivered by the Judge to the Clerk of Court for filing, release to the parties and implementation, and that indeed, even after promulgation, it does not bind the parties until and unless notice thereof is duly served on them by any of the modes prescribed by law. This is so even if the order or judgment has in fact been orally pronounced in the presence of the parties, or a draft thereof drawn up and signed and/or a copy thereof somehow read or acquired by any party.³⁰

In the case at bar, the Motion for Reconsideration filed by petitioner was filed before the 15 April 2002 order became final. The order dictated in open court had no juridical existence before it is set in writing, signed, promulgated and served on the parties. Since the order orally pronounced in court had no juridical existence yet, the period within which to file a motion for reconsideration cannot be reckoned therefrom, but from the time the same was received in writing. Petitioner had fifteen (15) days from its receipt of the written order on 26 April 2002 within which to file a motion for reconsideration. Thus, when it filed the motion for reconsideration on 09 May 2002, the said motion was timely filed.

Petitioner has the irrefutable right to exercise its power of eminent domain. It being a local government unit, the basis for its exercise is granted under Section 19 of Rep. Act No. 7160, to wit:

Sec. 19. Eminent Domain. - A local government unit may, through its chief executive and acting pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose, or welfare for the benefit of the poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and pertinent laws: Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided, finally, That the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property.

The requisites for authorizing immediate entry are as follows: (1) the filing of a complaint for expropriation sufficient in form and substance; and (2) the deposit of the amount equivalent to fifteen percent (15%) of the fair market value of the property to be expropriated based on its current tax declaration.³¹ Upon compliance with these requirements, the issuance of a writ of possession becomes ministerial.³²

In the case at bar, petitioner avers that the Amended Complaint it filed complies with both requisites, thus entitling it to a writ of possession as a matter of right and the issuance thereof becoming ministerial on the part of the lower court even without any hearing. On the other hand, private respondents allege that the Amended Complaint is not sufficient in form and substance since it failed to allege compliance with the mandatory requirements for the exercise of the power of eminent domain for purposes of socialized housing.

Section 1 of Rule 67 of the Revised Rules of Civil Procedure reads:

Section 1. The complaint. – The right of eminent domain shall be exercised by the filing of a verified complaint which shall state with certainty the right and purpose of expropriation, describe the real or personal property sought to be expropriated, and join as defendants all persons owning or claiming to own, or occupying, any part hereof or interest therein, showing, so far as practicable, the separate interest of each defendant. If the title to any property sought to be expropriated appears to be in the Republic of the Philippines, although occupied by private individuals, or if the title is otherwise obscure or doubtful so that the plaintiff cannot with accuracy or certainty specify who are the real owners, averment to that effect shall be made in the complaint.

The Court finds the Amended Complaint sufficient in form and substance, and the amount of P2,809,696.50 deposited with the Regional Trial Court of Iloilo is equivalent to fifteen percent (15%)³³ of the fair market value of the property sought to be expropriated per current tax declaration.

On the averment of private respondents that the Amended Complaint failed to allege compliance with the mandatory requirements³⁴ for the exercise of the power of eminent domain for purposes of socialized housing as interpreted in the Filstream cases, it appears that the Amended Complaint did contain allegations showing compliance therewith.³⁵ However, whether there is, indeed, compliance with these requirements, the Court deems it not proper to resolve the issue at this time. Hearing must be held to establish compliance.

In City of Manila v. Serrano,³⁶ this Court ruled that "hearing is still to be held to determine whether or not petitioner indeed complied with the requirements provided in Rep. Act No. 7279. x x x The determination of this question must await the hearing on the complaint for expropriation, particularly the hearing for the condemnation of the properties sought to be expropriated." From the foregoing, it is clear that an evidentiary hearing must be conducted if compliance with the requirements for socialized housing has been made. This hearing, however, is not a hearing to determine if a writ of possession is to be issued, but whether there was compliance with the requirements for socialized housing.

For a writ of possession to issue, only two requirements are required: the sufficiency in form and substance of the complaint and the required provisional deposit. In fact, no hearing is required for the issuance of a writ of possession. The sufficiency in form and substance of the complaint for expropriation can be determined by the mere examination of the allegations of the complaint. In this case, the sufficiency of the Amended Complaint was further confirmed by public respondent when he set the case for pre-trial and hearing.

We likewise find private respondents’ claim that petitioner cannot change its position regarding the immediate issuance of the writ of possession on the ground of estoppel, to be untenable.

First, estoppel may be successfully invoked only if the party fails to raise the question in the early stages of the proceedings.³⁷ In the case before us, petitioner, through its counsel, undeniably committed a mistake when it agreed that the resolution of its Motion for Issuance of Writ of Possession be made by public respondent after a hearing is conducted and after it has adduced its evidence. To remedy this, petitioner immediately filed a Motion for Reconsideration. The filing thereof was precisely for the purpose of rectifying the error it committed. With the timely filing of the motion for reconsideration, petitioner cannot be held in estoppel because it right away asked the court to nullify the agreement it entered into. The filing of the motion for reconsideration which was done at the earliest possible time clearly negates the presence of estoppel.

Second, under the facts of the case, estoppel should not apply because petitioner is simply following the procedure laid down by the rules and jurisprudence. Under Section 19³⁸ of Rep. Act No. 7160 (law governing exercise of eminent domain by local government units [LGU]) and Section 2³⁹ of Rule 67 of the Revised Rules of Civil Procedure (law governing exercise of eminent domain by entities other than LGUs), and in the cases of Robern Development Corporation v. Quitain, et al., and Biglang-awa v. Bacalla, et al., a prior hearing is not required before a writ of possession can be issued. As above discussed, a complaint, sufficient in form and substance, and the required deposit, are the only requirements before a writ of possession can be issued. Thus, petitioner should not be prevented from changing and correcting its position when the same is in accord with the rules and jurisprudence.

Private respondents argue that petitioner waived its right to ask for the immediate possession of Lot No. 935 since it took the latter eight (8) months and twelve (12) days from the filing of the Amended Complaint, and nine (9) months and thirteen (13) days from the filing of the Original Complaint, before it filed the Motion for Issuance of Writ of Possession.

Petitioner did not waive its right. Section 19 of Rep. Act No. 7160 does not put a time limit as to when a local government may immediately take possession of the real property. Said section provides that the local government unit may take immediate possession of the property upon the filing of the expropriation proceedings and upon making a deposit of at least fifteen percent (15%) of the fair market value of the property based on its current tax declaration. As long as the expropriation proceedings have been commenced and the deposit has been made, the local government unit cannot be barred from praying for the issuance of a writ of possession.

WHEREFORE, the instant petition is GRANTED. The assailed orders of respondent judge in Civil Case No. 01-26801 dated 05 June 2002 and 15 April 2002 are set aside. Respondent Judge is directed to issue the writ of possession prayed for and to continue hearing the case. No costs.

SO ORDERED.

Puno, Acting C.J., Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Footnotes
¹ Rollo, pp. 49-50.
² Id. at 51.
³ Id. at 52.
⁴ Original Complaint was not appended.
⁵ Id. at 39-54.
⁶ Id. at 55-63.
⁷ Id. at 73-77.
⁸ Id. at 78-79.
⁹ Id. at 80-86.
¹⁰ Id. at 87-90.
¹¹ Id. at 91-92.
¹² Id. at 93-97.
¹³ Id. at 101-103.
¹⁴ Id. at 107.
¹⁵ Id. at 108-112.
¹⁶ Id. at 113.
¹⁷ Id. at 115-117.
¹⁸ Id. at 127-129.
¹⁹ G.R. No. 135042, 23 September 1999, 315 SCRA 150.
²⁰ Id. at 130-133.
²¹ Id. at 134-136.
²²Id. at 38.
²³ Rollo, pp. 16-17.
²⁴ Supra, note 19.
²⁵ G.R. Nos. 139927-139936, 22 November 2000, 345 SCRA 562.
²⁶ 1997 Rules of Civil Procedure.
²⁷ G.R. Nos. 125218 and 128077, 23 January 1998, 248 SCRA 716.
²⁸ Rules of Civil Procedure.
²⁹ Supra.
³⁰ Echaus v. Court of Appeals, G.R. No. 57343, 23 July 1990, 187 SCRA 672, 674.
³¹ Bardillon v. Barangay Masili of Calamba, Laguna, G.R. No. 146886, 30 April 2003, 402 SCRA 440; citing Biglang-awa v. Bacalla, supra.
³² City of Manila v. Serrano, G.R. No. 142304, 20 June 2001, 359 SCRA 231.
³³ As petitioner is a local government unit, the basis for the amount of the deposit before it can take possession of the property is Section 19 of Rep. Act No. 7160 and not Section 2 of Rule 67 of the 1997 Rules of Civil Procedure (See III Oscar Herrera, Remedial Law, p. 317 [1999 Ed.]).
³⁴ Sections 9 and 10, Urban Development and Housing Act of 1992 (Republic Act No. 7279).
SEC. 9. Priorities in the Acquisition of Land. -- Lands for socialized housing shall be acquired in the following order:
(a) Those owned by the Government or any of its subdivisions, instrumentalities, or agencies, including government-owned or controlled corporations and their subsidiaries;
(b) Alienable lands of the public domain;
(c) Unregistered or abandoned and idle lands;
(d) Those within the declared Areas or Priority Development, Zonal Improvement Program sites, and Slum Improvement and Resettlement Program sites which have not yet been acquired;
(e) Bagong Lipunan Improvement of Sites and Services or BLISS sites which have not yet been acquired; and
(f) Privately-owned lands. Where on-site development is found more practicable and advantageous to the beneficiaries, the priorities mentioned in this section shall not apply, the local government units shall give budgetary priority to on-site development of government lands.
SEC. 10. Modes of Land Acquisition. – The modes of acquiring lands for purposes of this Act shall include, among others, community mortgage, land swapping, land assembly or consolidation, land banking, donation to the Government, joint venture agreement, negotiated purchase, and expropriation: Provided, however, That expropriation shall be resorted to only when other modes of acquisition have been exhausted: Provided, further, That where expropriation is resorted to, parcels of land owned by small property owners shall be exempted for purposes of this Act: Provided, finally, That abandoned property, as herein defined, shall be reverted and escheated to the State in a proceeding analogous to the procedure laid down in Rule 91 of the Rules of Court.
For the purpose of socialized housing, government-owned and foreclosed properties shall be acquired by the local government units, or by the National Housing Authority primarily through negotiated purchase: Provided, That qualified beneficiaries who are actual occupants of the land shall be given the right of first refusal. ³⁵ Petitioner, in its Amended Complaint, alleged that:
4. That plaintiff urgently needs said property for the purpose of converting the same into an On-Site Relocation and Housing Development for the underprivileged and homeless residents of the City of Iloilo;
5. That the acquisition of said property by plaintiff will benefit hundreds of underprivileged and homeless/landless residents of the City through the various improvements and projects which could be introduced thereon by the City Government;
6. That offers to acquire the above-described property by negotiated sale have been made by plaintiff to defendants, but the same have been tacitly rejected by the latter, hence plaintiff was constrained to seek the condemnation of said property by filing the above-case. Lately, defendant Sylvia Yusay del Rosario announced in radio that they will never sell Lot [No.] 935 to herein plaintiff;
7. That plaintiff through the incumbent Mayor Jerry P. Treñas is authorized to acquire the aforementioned parcel of land through condemnation proceedings by virtue of Regulation Ordinance No. 2001-037 enacted on March 7, 2001 by the Sangguniang Panlungsod of the City of Iloilo, machine copy of which is hereto attached as Annex "B";
8. That acting pursuant to the aforesaid Regulation Ordinance No. 2001-037, plaintiff sent a letter dated 14 March 2001 to defendants formally offering to purchase Lot No. 935 for the amount of Two Hundred Fifty (P250.00) Pesos per square meter, a machine copy of which is hereto attached as Annex "C";
9. That notwithstanding the formal offer to purchase aforesaid Lot and several conferences held, defendants have not made any concrete counter-offer but instead indulged in written semantics which constrained plaintiff to terminate further negotiations per letter dated 26 June 2001, a machine copy of which is hereto attached as Annex "D"; . . . . (Rollo, pp. 207-208) ³⁶ Supra, note 32 at 239-240.
³⁷ Huerta Alba Resort, Inc. v. Court of Appeals, G.R. No. 128567, 01 September 2000, 339 SCRA 534.
³⁸ Sec. 19. Eminent Domain. - A local government unit may, through its chief executive and acting pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose, or welfare for the benefit of the poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and pertinent laws: Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided, finally, That the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property.
³⁹ SEC. 2. Entry of plaintiff upon depositing value with authorized government depositary. – Upon the filing of the complaint or at any time thereafter and after due notice to the defendant, the plaintiff shall have the right to take or enter upon the possession of the real property involved if he deposits with the authorized government depositary an amount equivalent to the assessed value of the property for purposes of taxation to be held by such bank subject to the orders of the court. Such deposit shall be in money, unless in lieu thereof the court authorizes the deposit of a certificate of deposit of a government bank of the Republic of the Philippines payable on demand to the authorized government depositary.
If personal property is involved, its value shall be provisionally ascertained and the amount to be deposited shall be promptly fixed by the court.
After such deposit is made the court shall order the sheriff or other proper officer to forthwith place the plaintiff in possession of the property involved and promptly submit a report thereof to the court with service of copies to the parties.
Section 4 of Rep. Act No. 8974 (An Act To Facilitate The Acquisition Of Right-Of-Way, Site Or Location For National Government Infrastructure Projects And For Other Purposes) provides for the guidelines for expropriation proceedings. It reads:
SECTION 4. Guidelines for Expropriation Proceedings. – Whenever it is necessary to acquire real property for the right-of-way, site or location for any national government infrastructure project through expropriation, the appropriate implementing agency shall initiate the expropriation proceedings before the proper court under the following guidelines:
(a) Upon the filing of the complaint, and after due notice to the defendant, the implementing agency shall immediately pay the owner of the property the amount equivalent to the sum of (1) one hundred percent (100%) of the value of the property based on the current relevant zonal valuation of the Bureau of Internal Revenue (BIR); and (2) the value of the improvements and/or structures as determined under Section 7 hereof; . .

SURIGAO DEL NORTE ELECTRIC COOPERATIVE, INC. (SURNECO)

G.R. No. 183626               October 4, 2010
SURIGAO DEL NORTE ELECTRIC COOPERATIVE, INC. (SURNECO), Petitioner,
vs.
ENERGY REGULATORY COMMISSION, Respondent.

D E C I S I O N

NACHURA, J.:

Assailed in this petition for review on certiorari¹ under Rule 45 of the Rules of Court are the Decision dated April 17, 2008² and the Resolution dated June 25, 2008³ of the Court of Appeals (CA) in CA-G.R. SP No. 99781.

The antecedent facts and proceedings follow—

Petitioner Surigao Del Norte Electric Cooperative, Inc. (SURNECO) is a rural electric cooperative organized and existing by virtue of Presidential Decree No. 269.

On February 8, 1996, the Association of Mindanao Rural Electric Cooperatives, as representative of SURNECO and of the other 33 rural electric cooperatives in Mindanao, filed a petition before the then Energy Regulatory Board (ERB) for the approval of the formula for automatic cost adjustment and adoption of the National Power Corporation (NPC) restructured rate adjustment to comply with Republic Act (R.A.) No. 7832.⁴ The case was docketed as ERB Case No. 96-49, and later consolidated with identical petitions of other associations of electric cooperatives in the Philippines.

The relevant provisions of R.A. No. 7832 for compliance are Sections 10 and 14, which provide—

Sec. 10. Rationalization of System Losses by Phasing Out Pilferage Losses as a Component Thereof. – There is hereby established a cap on the recoverable rate of system losses as follows:

x x x x

(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 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.

x x x x

Sec. 14. Rules and Regulations. – The ERB shall, within thirty (30) working days after the conduct of hearings which must commence within thirty (30) working days upon the effectivity of this Act, issue the rules and regulation as may be necessary to ensure the efficient and effective implementation of the provisions of this Act, to include but not limited to, the development of methodologies for computing the amount of electricity illegally used and the amount of payment or deposit contemplated in Section 7 hereof as a result of the presence of the prima facie evidence discovered.

Corollary thereto, Sections 4 and 5 of Rule IX of the Implementing Rules and Regulations (IRR) of R.A. No. 7832 provide—

Section 4. Caps on System Loss allowed to Rural Electric Cooperatives. – The maximum rate of system loss that the cooperative can pass on to its customers shall be as follows:

a. Twenty-two percent (22%) effective on February 1996 billing.

b. Twenty percent (20%) effective on February 1997 billing.

c. Eighteen percent (18%) effective on February 1998 billing.

d. Sixteen percent (16%) effective on February 1999 billing.

e. Fourteen percent (14%) effective on February 2000 billing.

Section 5. Automatic Cost Adjustment Formula. – Each and every cooperative shall file with the ERB, on or before September 30, 1995, an application for approval of an amended Purchased Power Adjustment Clause that would reflect the new system loss cap to be included in its schedule of rates.

The automatic cost adjustment of every electric cooperative shall be guided by the following formula:

Purchased Power Adjustment Clause

(PPA) =

A 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

E = Applicable base cost of power equal to the amount incorporated into their basic rate per kwh.

In an Order⁵ dated February 19, 1997, the ERB granted SURNECO and other rural electric cooperatives provisional authority to use and implement the Purchased Power Adjustment (PPA) formula pursuant to the mandatory provisions of R.A. No. 7832 and its IRR, with a directive to submit relevant and pertinent documents for the Board’s review, verification, and confirmation.

In the meantime, the passage of R.A. No. 9136⁶ led to the creation of the Energy Regulatory Commission (ERC), replacing and succeeding the ERB. All pending cases before the ERB were transferred to the ERC. ERB Case No. 96-49 was re-docketed as ERC Case No. 2001-343.

In the Order dated June 17, 2003, the ERC clarified ERB’s earlier policy regarding the PPA formula to be used by the electric cooperatives, viz.—

After a careful evaluation of the records, the Commission noted 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 the discounts.

Let it be noted that the power cost is said to be at "gross" if the discounts are not passed-on to the end-users whereas it is said to be at "net" if the said discounts are passed-on to the end-users.

To attain uniformity in the implementation of the PPA formula, 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."

The electric cooperatives filed their respective motions for clarification and/or reconsideration. Hence, the ERC issued an Order⁷ dated January 14, 2005, stating that the PPA was a cost-recovery mechanism, not a revenue-generating scheme, so that the distribution utilities or the electric cooperatives must recover from their customers only the actual cost of purchased power. The ERC thus adopted a new PPA policy, to wit—

A. The computation and confirmation of the PPA prior to the Commission’s Order dated June 17, 2003 shall be based on the approved PPA Formula;

B. The computation and confirmation of the PPA after the Commission’s 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.⁸

Thereafter, the ERC continued its review, verification, and confirmation of the electric cooperatives’ implementation of the PPA formula based on the available data and information submitted by the latter.

On March 19, 2007, the ERC issued its assailed Order,⁹ mandating that the discounts earned by SURNECO from its power supplier should be deducted from the computation of the power cost, disposing in this wise ¾

WHEREFORE, the foregoing premises considered, the Commission hereby confirms the Purchased Power Adjustment (PPA) of Surigao del Norte Electric Cooperative, Inc. (SURNECO) for the period February 1996 to July 2004 which resulted to an over-recovery amounting to EIGHTEEN MILLION ONE HUNDRED EIGHTY EIGHT THOUSAND SEVEN HUNDRED NINETY FOUR PESOS (PhP18,188,794.00) equivalent to PhP0.0500/kwh. In this connection, SURNECO is hereby directed to refund the amount of PhP0.0500/kwh to its Main Island consumers starting the next billing cycle from receipt of this Order until such time that the full amount shall have been refunded.

The Commission likewise confirms the PPA of SURNECO for its Hikdop Island consumers for the period February 1996 to July 2004 which resulted to an under-recovery amounting to TWO MILLION FOUR HUNDRED SEVENTY EIGHT THOUSAND FORTY FIVE PESOS (PhP2,478,045.00). SURNECO is hereby authorized to collect from its Hikdop Island consumers the amount of PhP0.0100/kwh starting the next billing cycle from receipt of this Order until such time that the full amount shall have been collected.

Accordingly, SURNECO is directed to:

a) Reflect the PPA refund/collection as a separate item in the bill using the phrase "Previous Years’ Adjustment on Power Cost";

b) Submit, within ten (10) days from its initial implementation of the refund/collection, a sworn statement indicating its compliance with the aforecited directive; and

c) Accomplish and submit a report in accordance with the attached prescribed format, on or before the 30th day of January of the succeeding year and every year thereafter until the amount shall have been fully refunded/collected.

SO ORDERED.¹⁰

SURNECO filed a motion for reconsideration, but it was denied by the ERC in its Order¹¹ dated May 29, 2007 on the ground that the motion did not raise any new matter which was not already passed upon by the ERC.

Aggrieved, SURNECO went to the CA via a petition for review,¹² with prayer for the issuance of a temporary restraining order and preliminary injunction, seeking the annulment of the ERC Orders dated March 19, 2007 and May 29, 2007.

In its Decision dated April 17, 2008, the CA denied SURNECO’s petition and affirmed the assailed Orders of the ERC.

On June 25, 2008, upon motion for reconsideration¹³ of SURNECO, the CA issued its Resolution denying the same.

Hence, this petition, with SURNECO ascribing error to the CA and the ERC in: (1) disallowing its use of the multiplier scheme to compute its system’s loss; (2) ordering it to deduct from the power cost or refund to its consumers the discounts extended to it by its power supplier, NPC; and (3) ordering it to refund alleged over-recoveries arrived at by the ERC without giving SURNECO the opportunity to be heard.

The petition should be denied.

First. SURNECO points out that the National Electrification Administration (NEA), which used to be the government authority charged by law with the power to fix rates of rural electric cooperatives, entered into a loan agreement with the Asian Development Bank (ADB). The proceeds of the loan were intended for use by qualified rural electric cooperatives, SURNECO included, in their rehabilitation and expansion projects. The loan agreement imposed a 15% system loss cap, but provided a Power Cost Adjustment Clause authorizing cooperatives to charge and show "system losses in excess of 15%" as a separate item in their consumer’s bill. Thus, the cooperatives charged their consumer-members "System Loss Levy" for system losses in excess of the 15% cap.

SURNECO states that, in January 1984, it was authorized by the NEA that all increases in the NPC power cost (in case of NPC-connected cooperatives) shall be uniformly passed on to the member-consumers using the 1.4 multiplier, which is divided into 1.3 as allowance for 23% system loss and 0.1 as provision for the corresponding increase in operating expenses to partly offset the effects of inflation.¹⁴ Subsequently, the NEA, through NEA Memorandum No. 1-A dated March 30, 1992, revised the aforesaid issuance as follows—

Pursuant to NEA Board Resolution No. 98, Series of 1991, x x x, the revised cooperatives’ multiplier will be as follows:

1.2 – Rural Electric Cooperatives (RECs) with system loss of 15% and below;

1.3 – RECs with system loss ranging from 16% to 22%;

1.4 – RECs with system loss of 23% and above.

SURNECO posits that, per NEA Memorandum No. 1-A, the NEA had authorized it to adopt a multiplier scheme as the method to recover system loss. It claims that this cannot be abrogated, revoked, or superseded by any order, resolution, or issuance by the ERC prescribing a certain formula to implement the caps of recoverable rate of system loss under R.A. No. 7832 without violating the non-impairment clause¹⁵ of the Constitution.

We disagree. SURNECO cannot insist on using the multiplier scheme even after the imposition of the system loss caps under Section 10 of R.A. No. 7832. The law took effect on January 17, 1995. Perusing Section 10, and also Section 11,¹⁶ providing for the application of the caps as of the date of the effectivity of R.A. No. 7832, readily shows that the imposition of the caps was self-executory and did not require the issuance of any enabling set of rules or any action by the then ERB, now ERC. Thus, the caps should have been applied as of January 17, 1995 when R.A. No. 7832 took effect.

Indeed, under NEA Memorandum No. 1-A, the use of the multiplier scheme allows the recovery of system losses even beyond the caps mandated in R.A. No. 7832, which is intended to gradually phase out pilferage losses as a component of the recoverable system losses by the distributing utilities such as SURNECO. However, it is totally repugnant to and incompatible with the system loss caps established in R.A. No. 7832, and is repealed by Section 16¹⁷ of the law. As between NEA Memorandum No. 1-A, a mere administrative issuance, and R.A. No. 7832, a legislative enactment, the latter must prevail.¹⁸

Second. The ERC was merely implementing the system loss caps in R.A. No. 7832 when it reviewed and confirmed SURNECO’S PPA charges, and ordered the refund of the amount collected in excess of the allowable system loss caps through its continued use of the multiplier scheme. As the ERC held in its March 19, 2007 Order—

On January 14, 2005, the Commission issued an Order adopting a new PPA policy as follows: (a) the computation and confirmation of the PPA prior to the Commission’s Order dated June 17, 2003 shall be based on the approved PPA Formula; (b) the computation and confirmation of the PPA after the Commission’s Order dated June 17, 2003 shall be based on the power cost "net" of discount; and (c) if the approved PPA Formula is silent in terms of discount, the computation and confirmation of the PPA shall be based on the power cost at "gross" reduced by the amount of discounts extended to customers, subject to the submission of proofs that said discounts are indeed being extended to customers.

However, the Commission deemed it appropriate to clarify its PPA confirmation process particularly on the treatment of the Prompt Payment Discount (PPD) granted to distribution utilities (DUs) by their power suppliers, to wit:

I. The over-or-under recovery will be determined by comparing the allowable power cost with the actual revenue billed to end-users.

II. Calculation of the DU’s allowable power cost as prescribed in the PPA formula:

a. If the 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. If the 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 be any.

III. Calculation of DU’s 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 DU bills at net of discounts availed from the power supplier/s (i.e., gross power cost minus discounts from power supplier/s) and the DU is not extending discounts to end-users, the actual revenue should be equal to the allowable power cost; and

a.2. If a DU bills at net of discounts availed from the power supplier/s (i.e., gross power cost minus discounts from power supplier/s) and the DU is extending discounts to end-users, the discount extended to end-users shall be added back to the actual revenue.

b. On actual PPA computed at gross:

b.1. If a DU bills at gross (i.e., gross power cost not reduced by discounts from power supplier/s) and the DU is extending discounts to end-users, the actual revenue shall be calculated as: gross power revenue less discounts extended to end-users. The result shall then be compared to the allowable power cost; and

b.2. If a DU bills at gross (i.e., gross power cost not reduced by discounts from power supplier/s) and the DU is not extending discounts to end-users, the actual revenue shall be taken as is which shall be compared to the allowable power cost.

IV. In the calculation of the DU’s actual revenues, the amount of discounts extended to end-users shall, in no case, be higher than the discounts availed by the DU from its power supplier/s.

The foregoing clarification was intended to ensure that only the actual costs of purchased power are recovered by the DUs.

In the meantime, SURNECO submitted reports on its monthly implementation of the PPA covering the period January 1998 to July 2004 and attended the conferences conducted by the Commission on December 11, 2003 and May 4, 2005 relative thereto.

The Commission evaluated SURNECO’s monthly PPA implementation covering the period February 1996 to July 2004, which disclosed the following:

Schedule 1, Main Island

Period Covered	Over (Under) Recoveries (In PhP)	Over (Under) Recoveries (In kWh)
February 1996 to December 1998	20,737,074	0.2077
January 1999 to July 2004	(2,548,280)	(0.0097)
TOTAL	18,188,794	0.0500

Schedule 2, Municipality of Hikdop

February 1996 to December 1998 PPA Plus Basic Cha[r]ge	70,235	0.3190
January 1999 to July 2004	(2,548,280)	(0.0097)
TOTAL	(2,478,045)	(0.0100)

The over-recoveries were due to the following:

1. For the period February 1996 to December 1998, SURNECO’s PPA computation included the power cost and the corresponding kWh purchased from Hikdop end-users. The Commission excluded those months which SURNECO did not impose variable charges to Hikdop end-user which resulted to a total net over-recovery of PhP21,245,034.00; and

2. SURNECO’s basic charge for Hikdop end-users were beyond the approved basic charge for the period February 1996 to September 1998 resulting to a net over-recovery of PhP128,489.00.

SURNECO’s under recoveries for the period January 1999 to June 2004 were due to the following:

1. For the period August 2001 to June 2004, SURNECO erroneously deducted the Power Act Reduction Adjustments (PARA) in the total purchased power cost of its PPA computation resulting to an under-recovery of PhP1,377,763.00;

2. SURNECO’s power cost and kWh computation includes Dummy Load resulting to an under recovery amounting to PhP226,196.00; and

3. The new grossed-up factor scheme adopted by the Commission which provided a true-up mechanism to allow the DUs to recover the actual costs of purchased power.¹⁹

In directing SURNECO to refund its over-recoveries based on PPA policies, which only ensured that the PPA mechanism remains a purely cost-recovery mechanism and not a revenue-generating scheme for the electric cooperatives, the ERC merely exercised its authority to regulate and approve the rates imposed by the electric cooperatives on their consumers. The ERC simply performed its mandate to protect the public interest imbued in those rates.

It is beyond cavil that the State, in the exercise of police power, can regulate the rates imposed by a public utility such as SURNECO. As we held in Republic of the Philippines v. Manila Electric Company²⁰—

The regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof. When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subject to public regulation.

Likewise, SURNECO cannot validly assert that the caps set by R.A. No. 7832 are arbitrary, or that they violate the non-impairment clause of the Constitution for allegedly traversing the loan agreement between NEA and ADB. Striking down a legislative enactment, or any of its provisions, can be done only by way of a direct action, not through a collateral attack, and more so, not for the first time on appeal in order to avoid compliance. The challenge to the law’s constitutionality should also be raised at the earliest opportunity.²¹

Even assuming, merely for argument’s sake, that the ERC issuances violated the NEA and ADB covenant, the contract had to yield to the greater authority of the State’s exercise of police power. It has long been settled that police power legislation, adopted by the State to promote the health, morals, peace, education, good order, safety, and general welfare of the people prevail not only over future contracts but even over those already in existence, for all private contracts must yield to the superior and legitimate measures taken by the State to promote public welfare.²²

SURNECO also avers that the Electric Power Industry Reform Act of 2001 (EPIRA) removed the alleged arbitrary caps in R.A. No. 7832. We differ. The EPIRA allows the caps to remain until replaced by the caps to be determined by the ERC, pursuant to its delegated authority under Section 43²³ of R.A. No. 9136 to prescribe new system loss caps, based on technical parameters such as load density, sales mix, cost of service, delivery voltage, and other technical considerations it may promulgate.

Third. We also disagree with SURNECO in its insistence that the PPA confirmation policies constituted an amendment to the IRR of R.A. No. 7832 and must, therefore, comply with the publication requirement for the effectivity of administrative issuances.

The PPA formula provided in the IRR of R.A. No. 7832 was only a model to be used as a guide by the electric cooperatives in proposing their own PPA formula for approval by the then ERB. Sections 4 and 5, Rule IX of the IRR directed the electric cooperatives to apply for approval of such formula with the ERB so that the system loss caps under the law would be incorporated in their computation of power cost adjustments. The IRR did not provide for a specific formula; therefore, there was nothing in the IRR that was amended or could have been amended relative to the PPA formula. The IRR left to the ERB, now the ERC, the authority to approve and oversee the implementation of the electric cooperatives’ PPA formula in the exercise of its rate-making power over them.1avvphi1

We likewise differ from SURNECO’s stance that it was denied due process when the ERC issued its questioned Orders. Administrative due process simply requires an opportunity to explain one’s side or to seek reconsideration of the action or ruling complained of.²⁴ It means being given the opportunity to be heard before judgment, and for this purpose, a formal trial-type hearing is not even essential. It is enough that the parties are given a fair and reasonable chance to demonstrate their respective positions and to present evidence in support thereof.²⁵

Verily, the PPA confirmation necessitated a review of the electric cooperatives’ monthly documentary submissions to substantiate their PPA charges. The cooperatives were duly informed of the need for other required supporting documents and were allowed to submit them accordingly. In fact, hearings were conducted. Moreover, the ERC conducted exit conferences with the electric cooperatives’ representatives, SURNECO included, to discuss preliminary figures and to double-check these figures for inaccuracies, if there were any. In addition, after the issuance of the ERC Orders, the electric cooperatives were allowed to file their respective motions for reconsideration. It cannot be gainsaid, therefore, that SURNECO was not denied due process.

Finally, the core of the issues raised is factual in character. It needs only to be reiterated that factual findings of administrative bodies on technical matters within their area of expertise should be accorded not only respect but even finality if they are supported by substantial evidence even if not overwhelming or preponderant,²⁶ more so if affirmed by the CA. Absent any grave abuse of discretion on the part of ERC, we must sustain its findings. Hence, its assailed Orders, following the rule of non-interference on matters addressed to the sound discretion of government agencies entrusted with the regulation of activities coming their special technical knowledge and training, must be upheld.²⁷

WHEREFORE, the petition is DENIED. The Decision dated April 17, 2008 and the Resolution dated June 25, 2008 of the Court of Appeals in CA-G.R. SP No. 99781 are AFFIRMED. Costs against petitioner.

SO ORDERED.
ANTONIO EDUARDO B. NACHURA^**
Associate Justice
Acting Chairperson
WE CONCUR:

PRESBITERO J. VELASCO, JR.^*
Associate Justice

MARIA LOURDES P.A. SERENO*** Associate Justice

DIOSDADO M. PERALTA Associate Justice

JOSE CATRAL MENDOZA
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO EDUARDO B. NACHURA
Associate Justice
Acting Chairperson, Second Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes

^* Additional member in lieu of Associate Justice Antonio T. Carpio per Special Order No. 897 dated September 28, 2010.

^** In lieu of Associate Justice Antonio T. Carpio per Special Order No. 898 dated September 28, 2010.

^*** Additional member in lieu of Associate Justice Roberto A. Abad per Special Order No. 903 dated September 28, 2010.

¹ Rollo, pp. 30-61.

² Penned by Associate Justice Mariano C. del Castillo (now a member of this Court), with Associate Justices Arcangelita Romilla-Lontok and Ricardo R. Rosario, concurring; id. at 10-22.

³ Id. at 24-27.

⁴ Otherwise referred to as the "Anti-Electricity and Electric Transmission Lines/Materials Pilferage Act of 1994," which took effect on January 17, 1995.

⁵ Rollo, pp. 111-128.
⁶ Also known as the Electric Power Industry Reforms Act of 2001 (EPIRA).
⁷ Rollo, pp. 196-212.
⁸ Id. at 204.
⁹ Id. at 134-140.
¹⁰ Id. at 139-140.
¹¹ Id. at 156-158.
¹² Id. at 159-195.
¹³ Id. at 76-105.
¹⁴ NEA Memo No. 1.

¹⁵ CONSTITUTION, Article III, Section 10. "No law impairing the obligation of contracts shall be passed."

¹⁶ Sec. 11. Area of Coverage. – The caps provided in Section 10 of this Act shall apply only to the area of coverage of private electric utilities and rural electric cooperatives as of the date of the effectivity of this Act.

¹⁷ Sec. 16. Repealing Clauses. – x x x. All other laws, ordinances, rules, regulations, and other issuances or parts thereof, which are inconsistent with this Act, are hereby repealed or modified accordingly.

¹⁸ Commissioner of Internal Revenue v. Fortune Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008, 559 SCRA 160, 178.

¹⁹ Rollo, pp.135-139.

²⁰ 440 Phil. 389, 397, citing Munn v. People of the State of Illinois, 94 U.S.113, 126 (1877).

²¹ Philippine National Bank v. Palma, 503 Phil. 917, 932 (2005).

²² Serrano v. Gallant Maritime Services, Inc., G.R. No. 167614, March 24, 2009, 582 SCRA 254, 276, citing Ortigas & Co., Ltd. v. Court of Appeals, 400 Phil. 615, 623 (2000).

²³ Sec. 43. Functions of the ERC. – x x x.

f. x x x. To achieve this objective and to ensure the complete removal of cross subsidies, 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. x x x.

²⁴ Rene Ventenilla Puse v. Ligaya delos Santos-Puse, G.R. No. 183678, March 5, 2010, citing Alcala v. Villar, 461 Phil. 617, 626 (2003).

²⁵ Perez v. Philippine Telegraph and Telephone Company, G.R. No. 152048, April 7, 2009, 584 SCRA 110, 124, citing Autobus Workers’ Union v. NLRC, 353 Phil. 419, 430 (1998).

²⁶ Republic of the Philippines v. Manila Electric Company, supra note 20, at 399.

²⁷ Philippine National Construction Corporation v. Court of Appeals, G.R. No. 159417, January 25, 2007, 512 SCRA 684, 698, citing First Lepanto Ceramics, Inc. v. Court of Appeals, 323 Phil. 657, 664 (1996).

FULGENCIO VEGA

G.R. No. L-6765             May 12, 1954
FULGENCIO VEGA and LEON GELLADA, plaintiffs-appellees,
vs.
THE MUNICIPAL BOARD OF THE CITY OF ILOILO, ET AL., ETC., defendants-appellants.
Luis G. Hofileña for appellees.
Filemon Resurecion for appellants.

CONCEPCION, J.:

This is an action for a declaratory relief (under Rule 66 of the Rules of Court) to test the validity of Municipal Ordinance No. 35 of the City of Iloilo, enacted on July 13, 1951, which provides:

SECTION 1. No motor vehicle, for public or private use, with the exception of those owned and operated by the Republic of the Philippines, the Provinces of Iloilo, Capiz and Antique, and the municipalities thereto appertaining, the City of Iloilo, and those new motor vehicles offered for sale by dealers, but not used for transportation purposes by such dealers, shall use any street, road or highway within the territorial limits of the City of Iloilo without being provided with certificate issued by the Traffic Division of the Police Department of this City, stating that said vehicle has been inspected by said Traffic Division, and found to be provided with safe brakes and appurtenances making the use of the same travel worthy and sale for passengers and pedestrians alike. The certificate shall be attached or posted in a conspicuous place in the corresponding motor vehicle, preferably on the windshield glass facing the front.

SECTION 2. All owners and/or operators of the motor vehicles hereinabove mentioned must submit his motor vehicles for inspection by the Traffic Division of the Police Department of this City within ten days upon acquisition of the same from the original owner, and within the period from January 1 to February 28, and from July 1 to August 30 of each year if the same has previously been inspected and certified to be travel worthy by said Traffic Division.

SECTION 3. For the services rendered by the Traffic Division in the inspection and certification of any motor vehicle the owner or operator of the same shall pay to the City Treasurer a fee as follows:

For every automobile, jeep, jitney or station wagon for each semester	P3.00
For every truck per semester	5.00
For every motorcycle per semester	1.00

Provided, however, That no more than two inspection fees shall be charged within one year and all other inspections on the same vehicle shall be free of charge.

SECTION 4. All motor vehicles coming from outside of the territorial limits of this City for the first time shall immediately report for inspection to the Traffic Division, and the permanent of the required fee may be made within ten days from the date of said inspection, and the issuance of the certificate shall not be delayed for non-payment when and if said motor vehicles are found to be travel worthy and a sufficient personal bond for the payment of the required fee is filed with and accepted by the Chief of Police or his authorized agent.

SECTION 5. Failure to comply with the provisions of this ordinance shall be punished with a fine not less than ten pesos (10.00) but not more than two hundred (P200.00) or an imprisonment not exceeding six (6) months, or both fine and imprisonment at the discretion of the Court.

SECTION 6. This ordinance shall take effect upon approval. (Pp 12-15, Record on Appeal.)

The case was commenced in the Court of First Instance of Iloilo by Fulgencio Vega and Leon Cellada, who own motor vehicles and are affected by the enforcement of said ordinance. They question the validity thereof upon the ground that the Municipal Board of the City of Iloilo — which was made defendant, in addition to the City Mayor — has no authority to promulgate it. On the motion of the plaintiffs, and without objection on the part of the defendants, the case was submitted for decision on the pleadings, the only issue raised therein being one purely of law. Thereafter, said court, presided over by Honorable Querube Makalintal, then Judge, rendered judgment for the plaintiffs. Hence, this appeal, taken by the defendants, who maintain that the Municipal Board of the City of Iloilo is empowered to pass the ordinance in question, under section 21 of its charter, Commonwealth Act No. 158. The provisions thereof relied upon by the appellants read:

SEC. 21. General powers and duties of the Board. — Except as otherwise provided by law, and subject to the conditions and limitations thereof, the Municipal Board shall have the following legislative powers:

(aa) To enact all ordinances it may deem necessary and proper for the sanitation and safety, the furtherance of the prosperity and the promotion of the morality, peace, good order, comfort, convenience, and general welfare of the city and its inhabitants, and such others as may be necessary to carry into effect and discharge the powers and duties conferred by this charter; and to fix penalties for the violation of ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment, for each offense.

(cc) To regulate any business or occupation and to require license from persons engaged in the same or who exercise privileges in the city, by requiring them to secure a permit for a license at the rate fixed by the Municipal Board, and to prescribe the conditions under which said permits for licenses may be revoked.

The foregoing paragraph (cc) is limited, however, to the power to regulate "any business or occupation" whereas, obviously, the use of a street, road or highway by a motor vehicle is neither a business nor an occupation. Hence, it is clear that said paragraph (cc) is not in point.

As regards paragraph (aa), the same is a counterpart of section 2238 of the Revised Administrative Code, otherwise known as the "General Welfare Clause" for regularly organized municipalities. In the case of People vs. Esguerra et al.^* (45 Off. Gaz., 4949), it was held that a municipal council may not validly enact an ordinance "prohibiting," among other things, the manufacture, production, sale, barter, giving possession of intoxicating liquor, the power of said body being limited, by section 2242 (g) of the Revised Administrative Code, to the "regulation" — which does not include the "prohibition" — of said acts, and that the police power under the general welfare clause does not amplify said authority or remove the limitation thus imposed by specific provision of law. Under Commonwealth Act No. 158, the authority of the Municipal Board of the City of Iloilo in relation to motor vehicles, is found in subdivision (m) of section 21 of said Act which grants said board the power:

(m) To tax motor and other vehicles, notwithstanding provisions to the contrary contained in Act Numbered Thirty-nine hundred and ninety-two, and draft animals not paying any national tax: Provided, however, That all automobiles and trucks belonging to the National Government or to any provincial or municipal government, and also automobiles or trucks not regularly kept in the City of Iloilo shall be exempt from such tax.

This power of taxation is distinct and different from the police power, under which, appellants claim, the ordinance in question was allegedly approved. Moreover, said Commonwealth Act No. 158 explicitly empowers the Municipal Board of the City of Iloilo to require inspection and to charge fees therefor in certain specified cases. Thus, said section 21 authorizes said board:

(n) To regulate the method of using steam engines and boilers, other marine or belonging to the Federal or National Government; to provide for the inspection thereof, and a reasonable fee for such inspection, and to regulate and fix the fees for the licenses of the engineers engaged in operating the same. (Emphasis supplied.)

x x x           x x x           x x x

(s) To regulate the inspection, weighing, and measuring of brick, coal, lumber, and other articles of merchandise.

(t) . . . to provide for the inspection of, fix the license fees for and regulate the openings in the same for the laying of gas, water, sewer, and other pipes, the building and repair of tunnels, sewers, and drains, and all structures in and under the same, and the erecting of poles and the stringing of wires therein; . . .

x x x           x x x           x x x

(w) To regulate, inspect, and provide measures preventing any discrimination or the exclusion of any race or races in or from any institution, establishment, or service open to the public within the city limits or in the sale and supply of gas or electricity, or in the telephone and street-railway service; to fix and regulate charges therefor where the same have not been fixed by laws of the National Assembly; to regulate and provide for the inspection of all gas, electric, telephone, and street-railway conduits, mains, meters, and other apparatus, and provide for the condemnation, substitution or removal of the same when defective or dangerous.

Among these cases, the inspection of motor vehicles and the collection of fees therefor is not included. Consequently, the power to authorize same must be considered denied under the principle expressio unius est exclusio alterius.

Indeed, the powers enumerated in said section 21 of Commonwealth Act No. 158, including, therefore, the police power under the general welfare clause therein incorporated, are granted "except as otherwise provided by law and subject to the conditions and limitations thereof." In this connection, section 70 (b) of Act No. 3992, as amended by section 17 of Republic Act No. 587, positively ordains that:

No other taxes or fees than those prescribed in this Act shall be imposed for the registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of chauffeur, by any municipal corporation, the provisions of any city charter to the contrary notwithstanding: Provided, however, That any provincial board, city or municipal council or board, or other competent authority may exact and collect such reasonable and equitable toll fees for the use of such bridges and ferries, within their respective jurisdictions, as may be authorized and approved by the Secretary of Public Works and Communications, and also for the use of such public roads, as may be authorized by the President of the Philippines upon recommendation of the Secretary of Public Works and Communications, but in none of these cases, shall any toll fees be charged and collected until and unless the approved schedule of tolls shall have been posted legibly in a conspicuous place at such toll station.

The qualification "the provisions of any city charter to the contrary notwithstanding" leaves no room for doubt that the provisions of Commonwealth Act No. 158 and its general welfare clause, under section 21 (aa), are subject to the limitations thus imposed by Act No. 3992, as amended by Republic Act No. 587. This construction becomes even more imperative when we consider that, pursuant to said Act No. 3992,

No motor vehicle shall be used or operated on, or upon any public highway of the Philippine Islands unless the same is properly registered for the current year in accordance with the provisions of this Act. (Sec. 5 [a]),

and that section 4 of the same Act places the Director of Public Works "in charge of the administration" of its provisions, and grants him, among others, the power

(h) . . . at any time to examine and inspect any motor vehicle, in order to determine whether the same is unsightly, unsafe, overloaded, improperly marked or equipped, or otherwise unfit to be operated because of possible danger to the chauffeur, to the passengers, or the public; or because of possible excessive damage to the highways, bridges or culverts. (Sec. 5, Act No. 3992.)

Thus, the power to determine whether a motor vehicle is in such a condition as to be safe for its passengers and the public in general, is vested by Act No. 3992 in the Director of Public Works. Considering the general tenor of the provisions of said Act, as well as those of the charter of the City of Iloilo, we are not prepared to hold that Congress intended to clothe the latter with authority to impose certain requirements — in addition to those provided in Act No. 3992, as amended — as a condition precedent to the use of motor vehicles within the limits of the City of Iloilo. It is even harder to believe that the latter was sought to be invested with authority to ordain that the police department of Iloilo shall check whether an officer of the National Government, namely the Director of Public Works, has complied with his duty to test the mechanical proficiency of the safety devices of motor vehicles, on which the latter is supposed to be better qualified.

Municipal corporations in the Philippines are mere creatures of Congress. As such, said corporations have only such powers as the legislative department may have deemed fit to grant them. By reason of the limited powers of local governments and the nature thereof, said powers are to be construed strictly and "any doubt or ambiguity arising out of the term used in granting" said powers "must be resolved against the municipality. . . . (Cu Unjieng vs. Patstone, 42, Phil., pp. 818, 830; Pacific Commercial Co. vs. Romualdez, 49 Phil., pp. 917, 924; Batangas Transportation Co. vs. Provincial Treasurer of Batangas, 52 Phil., pp. 190, 196; Baldwin vs. City Council, 53 Ala., pp. 437; State vs. Smith, 31 Iowa, p. 493; 38 Am. Jur., pp. 68, 72 - 73)." (Icard vs. The City Council of Baguio and the City of Baguio,¹ 46 Off. Gaz., Supplement No. 11, pp. 320, 323.) Accordingly, the lower court did not err in declaring that the ordinance in question is ultra vires.

Wherefore, the decision appealed from is hereby affirmed, without special pronouncement as to costs.

Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, and Labrador, JJ., concur.

Footnotes

^* 81 Phil., 33.

¹ 83 Phil., 870.

ATTORNEYS HUMBERTO BASCO

G.R. No. 91649 May 14, 1991
ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND LORENZO SANCHEZ, petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent.
H.B. Basco & Associates for petitioners.
Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:p

A TV ad proudly announces:

"The new PAGCOR — responding through responsible gaming."

But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter — PD 1869, because it is allegedly contrary to morals, public policy and order, and because —

A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the Manila City government's right to impose taxes and license fees, which is recognized by law;

B. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local government's right to impose local taxes and license fees. This, in contravention of the constitutionally enshrined principle of local autonomy;

C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR — conducted gambling, while most other forms of gambling are outlawed, together with prostitution, drug trafficking and other vices;

D. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo)

In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared national policy of the "new restored democracy" and the people's will as expressed in the 1987 Constitution. The decree is said to have a "gambling objective" and therefore is contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present Constitution (p. 3, Second Amended Petition; p. 21, Rollo).

The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco being also the Chairman of the Committee on Laws of the City Council of Manila), can question and seek the annulment of PD 1869 on the alleged grounds mentioned above.

The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines." Its operation was originally conducted in the well known floating casino "Philippine Tourist." The operation was considered a success for it proved to be a potential source of revenue to fund infrastructure and socio-economic projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to fully attain this objective.

Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law, under the following declared policy —

Sec. 1. Declaration of Policy. — It is hereby declared to be the policy of the State to centralize and integrate all games of chance not heretofore authorized by existing franchises or permitted by law in order to attain the following objectives:

(a) To centralize and integrate the right and authority to operate and conduct games of chance into one corporate entity to be controlled, administered and supervised by the Government.

(b) To establish and operate clubs and casinos, for amusement and recreation, including sports gaming pools, (basketball, football, lotteries, etc.) and such other forms of amusement and recreation including games of chance, which may be allowed by law within the territorial jurisdiction of the Philippines and which will: (1) generate sources of additional revenue to fund infrastructure and socio-civic projects, such as flood control programs, beautification, sewerage and sewage projects, Tulungan ng Bayan Centers, Nutritional Programs, Population Control and such other essential public services; (2) create recreation and integrated facilities which will expand and improve the country's existing tourist attractions; and (3) minimize, if not totally eradicate, all the evils, malpractices and corruptions that are normally prevalent on the conduct and operation of gambling clubs and casinos without direct government involvement. (Section 1, P.D. 1869)

To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly repealed, amended or modified.

It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and directly remitted to the National Government a total of P2.5 Billion in form of franchise tax, government's income share, the President's Social Fund and Host Cities' share. In addition, PAGCOR sponsored other socio-cultural and charitable projects on its own or in cooperation with various governmental agencies, and other private associations and organizations. In its 3 1/2 years of operation under the present administration, PAGCOR remitted to the government a total of P6.2 Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9) casinos nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families.

But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null and void" for being "contrary to morals, public policy and public order," monopolistic and tends toward "crony economy", and is violative of the equal protection clause and local autonomy as well as for running counter to the state policies enunciated in Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution.

This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate consideration by the Court, involving as it does the exercise of what has been described as "the highest and most delicate function which belongs to the judicial department of the government." (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323).

As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the government We need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence, that a statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality. This is not to say that We approach Our task with diffidence or timidity. Where it is clear that the legislature or the executive for that matter, has over-stepped the limits of its authority under the constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute (Lozano v. Martinez, supra).

In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar underscored the —

. . . thoroughly established principle which must be followed in all cases where questions of constitutionality as obtain in the instant cases are involved. All presumptions are indulged in favor of constitutionality; one who attacks a statute alleging unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may work hardship does not render it unconstitutional; that if any reasonable basis may be conceived which supports the statute, it will be upheld and the challenger must negate all possible basis; that the courts are not concerned with the wisdom, justice, policy or expediency of a statute and that a liberal interpretation of the constitution in favor of the constitutionality of legislation should be adopted. (Danner v. Hass, 194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540)

Of course, there is first, the procedural issue. The respondents are questioning the legal personality of petitioners to file the instant petition.

Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371)

With particular regard to the requirement of proper party as applied in the cases before us, We hold that the same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of the acts or measures complained of. And even if, strictly speaking they are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised.

In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were involving only an indirect and general interest shared in common with the public. The Court dismissed the objection that they were not proper parties and ruled that "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must technicalities of procedure." We have since then applied the exception in many other cases. (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).

Having disposed of the procedural issue, We will now discuss the substantive issues raised.

Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of gambling does not mean that the Government cannot regulate it in the exercise of its police power.

The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in general terms to underscore its all-comprehensive embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra)

It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, refers to it succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The police power of the State is a power co-extensive with self-protection and is most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic force that enables the state to meet the agencies of the winds of change.

What was the reason behind the enactment of P.D. 1869?

P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity — the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896.

Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local."

(2) Income and other taxes. — a) Franchise Holder: No tax of any kind or form, income or otherwise as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this franchise from the Corporation; nor shall any form or tax or charge attach in any way to the earnings of the Corporation, except a franchise tax of five (5%) percent of the gross revenues or earnings derived by the Corporation from its operations under this franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority (Section 13 [2]).

Their contention stated hereinabove is without merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445).

(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power.

(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government, thus:

Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities and other local governments to issue license, permit or other form of franchise to operate, maintain and establish horse and dog race tracks, jai-alai and other forms of gambling is hereby revoked.

Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog race tracks, jai-alai and other forms of gambling shall be issued by the national government upon proper application and verification of the qualification of the applicant . . .

Therefore, only the National Government has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila.

(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers thus:

Sec. 9. Regulatory Power. — The Corporation shall maintain a Registry of the affiliated entities, and shall exercise all the powers, authority and the responsibilities vested in the Securities and Exchange Commission over such affiliating entities mentioned under the preceding section, including, but not limited to amendments of Articles of Incorporation and By-Laws, changes in corporate term, structure, capitalization and other matters concerning the operation of the affiliated entities, the provisions of the Corporation Code of the Philippines to the contrary notwithstanding, except only with respect to original incorporation.

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.

(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides:

Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government. (emphasis supplied)

The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy.

Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization" (III Records of the 1987 Constitutional Commission, pp. 435-436, as cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local governments sovereign within the state or an "imperium in imperio."

Local Government has been described as a political subdivision of a nation or state which is constituted by law and has substantial control of local affairs. In a unitary system of government, such as the government under the Philippine Constitution, local governments can only be an intra sovereign subdivision of one sovereign nation, it cannot be an imperium in imperio. Local government in such a system can only mean a measure of decentralization of the function of government. (emphasis supplied)

As to what state powers should be "decentralized" and what may be delegated to local government units remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539).

What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to local governments.

As gambling is usually an offense against the State, legislative grant or express charter power is generally necessary to empower the local corporation to deal with the subject. . . . In the absence of express grant of power to enact, ordinance provisions on this subject which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p. 548, emphasis supplied)

Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it legalized PAGCOR — conducted gambling, while most gambling are outlawed together with prostitution, drug trafficking and other vices" (p. 82, Rollo).

We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the well-accepted meaning of the clause "equal protection of the laws." The clause does not preclude classification of individuals who may be accorded different treatment under the law as long as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989).

The "equal protection clause" does not prohibit the Legislature from establishing classes of individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not require situations which are different in fact or opinion to be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA 827).

Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting (P.D 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited, does not render the applicable laws, P.D. 1869 for one, unconstitutional.

If the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied. (Gomez v. Palomar, 25 SCRA 827)

The equal protection clause of the 14th Amendment does not mean that all occupations called by the same name must be treated the same way; the state may do what it can to prevent which is deemed as evil and stop short of those cases in which harm to the few concerned is not less than the harm to the public that would insure if the rule laid down were made mathematically exact. (Dominican Hotel v. Arizona, 249 US 2651).

Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from monopolies and crony economy and toward free enterprise and privatization" suffice it to state that this is not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the government's policies then it is for the Executive Department to recommend to Congress its repeal or amendment.

The judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should be. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state power. (Valmonte v. Belmonte, Jr., 170 SCRA 256).

On the issue of "monopoly," however, the Constitution provides that:

Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. (Art. XII, National Economy and Patrimony)

It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the Constitution. The state must still decide whether public interest demands that monopolies be regulated or prohibited. Again, this is a matter of policy for the Legislature to decide.

On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely statements of principles and, policies. As such, they are basically not self-executing, meaning a law should be passed by Congress to clearly define and effectuate such principles.

In general, therefore, the 1935 provisions were not intended to be self-executing principles ready for enforcement through the courts. They were rather directives addressed to the executive and the legislature. If the executive and the legislature failed to heed the directives of the articles the available remedy was not judicial or political. The electorate could express their displeasure with the failure of the executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2)

Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution, not merely a doubtful and equivocal one. In other words, the grounds for nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis for such a declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners to challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869 remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise, privatization as well as the state principles on social justice, role of youth and educational values" being raised, is up for Congress to determine.

As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521 —

Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its favor the presumption of validity and constitutionality which petitioners Valmonte and the KMU have not overturned. Petitioners have not undertaken to identify the provisions in the Constitution which they claim to have been violated by that statute. This Court, however, is not compelled to speculate and to imagine how the assailed legislation may possibly offend some provision of the Constitution. The Court notes, further, in this respect that petitioners have in the main put in question the wisdom, justice and expediency of the establishment of the OPSF, issues which are not properly addressed to this Court and which this Court may not constitutionally pass upon. Those issues should be addressed rather to the political departments of government: the President and the Congress.

Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when the gambling resorted to is excessive. This excessiveness necessarily depends not only on the financial resources of the gambler and his family but also on his mental, social, and spiritual outlook on life. However, the mere fact that some persons may have lost their material fortunes, mental control, physical health, or even their lives does not necessarily mean that the same are directly attributable to gambling. Gambling may have been the antecedent, but certainly not necessarily the cause. For the same consequences could have been preceded by an overdose of food, drink, exercise, work, and even sex.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Griño-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

Separate Opinions

PADILLA, J., concurring:

I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This means that I agree with the decision insofar as it holds that the prohibition, control, and regulation of the entire activity known as gambling properly pertain to "state policy." It is, therefore, the political departments of government, namely, the legislative and the executive that should decide on what government should do in the entire area of gambling, and assume full responsibility to the people for such policy.

The courts, as the decision states, cannot inquire into the wisdom, morality or expediency of policies adopted by the political departments of government in areas which fall within their authority, except only when such policies pose a clear and present danger to the life, liberty or property of the individual. This case does not involve such a factual situation.

However, I hasten to make of record that I do not subscribe to gambling in any form. It demeans the human personality, destroys self-confidence and eviscerates one's self-respect, which in the long run will corrode whatever is left of the Filipino moral character. Gambling has wrecked and will continue to wreck families and homes; it is an antithesis to individual reliance and reliability as well as personal industry which are the touchstones of real economic progress and national development.

Gambling is reprehensible whether maintained by government or privatized. The revenues realized by the government out of "legalized" gambling will, in the long run, be more than offset and negated by the irreparable damage to the people's moral values.

Also, the moral standing of the government in its repeated avowals against "illegal gambling" is fatally flawed and becomes untenable when it itself engages in the very activity it seeks to eradicate.

One can go through the Court's decision today and mentally replace the activity referred to therein as gambling, which is legal only because it is authorized by law and run by the government, with the activity known as prostitution. Would prostitution be any less reprehensible were it to be authorized by law, franchised, and "regulated" by the government, in return for the substantial revenues it would yield the government to carry out its laudable projects, such as infrastructure and social amelioration? The question, I believe, answers itself. I submit that the sooner the legislative department outlaws all forms of gambling, as a fundamental state policy, and the sooner the executive implements such policy, the better it will be for the nation.

Melencio-Herrera, J., concur.

Separate Opinions
PADILLA, J., concurring:

I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This means that I agree with the decision insofar as it holds that the prohibition, control, and regulation of the entire activity known as gambling properly pertain to "state policy." It is, therefore, the political departments of government, namely, the legislative and the executive that should decide on what government should do in the entire area of gambling, and assume full responsibility to the people for such policy.

The courts, as the decision states, cannot inquire into the wisdom, morality or expediency of policies adopted by the political departments of government in areas which fall within their authority, except only when such policies pose a clear and present danger to the life, liberty or property of the individual. This case does not involve such a factual situation.

However, I hasten to make of record that I do not subscribe to gambling in any form. It demeans the human personality, destroys self-confidence and eviscerates one's self-respect, which in the long run will corrode whatever is left of the Filipino moral character. Gambling has wrecked and will continue to wreck families and homes; it is an antithesis to individual reliance and reliability as well as personal industry which are the touchstones of real economic progress and national development.

Gambling is reprehensible whether maintained by government or privatized. The revenues realized by the government out of "legalized" gambling will, in the long run, be more than offset and negated by the irreparable damage to the people's moral values.

Also, the moral standing of the government in its repeated avowals against "illegal gambling" is fatally flawed and becomes untenable when it itself engages in the very activity it seeks to eradicate.

One can go through the Court's decision today and mentally replace the activity referred to therein as gambling, which is legal only because it is authorized by law and run by the government, with the activity known as prostitution. Would prostitution be any less reprehensible were it to be authorized by law, franchised, and "regulated" by the government, in return for the substantial revenues it would yield the government to carry out its laudable projects, such as infrastructure and social amelioration? The question, I believe, answers itself. I submit that the sooner the legislative department outlaws all forms of gambling, as a fundamental state policy, and the sooner the executive implements such policy, the better it will be for the nation.

Melencio-Herrera, J., concurs.