SISKA DEVELOPMENT CORP V.

OFFICE OF THE PRES- ALVAREZ V

PICOP RESOURCES

SISKA DEVELOPMENT CORP V. OFFICE OF THE PRES

FACTS: On April 28, 1967, petitioner, a subdivision owner-developer, entered into a

Contract to Sell with Guadalupe Sering, involving a lot situated at the Mira-Nila
Subdivision in Quezon City.

On August 16, 1968, Guadalupe Sering, with the consent of petitioner, transferred
all her rights and interests over the aforesaid lot in favor of respondent Socorro
Sering, wife of respondent Jose Sering. Thereafter, private respondents assumed the
transferor's obligation by paying the monthly amortizations for the lot.

On several occasions, private respondents defaulted in the payment of their

monthly amortizations, but petitioner still accepted the late payments.

On October 18, 1974, petitioner sent private respondents a notice of rescission of

the Contract to Sell for failure to pay the monthly amortizations on time. Petitioner,
however, cancelled the said notice of rescission on
November 12, 1974, after private respondents updated their payments. Petitioner,
however, imposed the condition that private respondents' account "must be kept
current" and that should it be necessary to rescind the contract for a second time,
the second rescission would be final. Private respondents again defaulted in paying
their monthly amortizations from January to September 1, 1975. When respondent
Jose Sering offered to pay the remaining balance of the purchase price on
September 18, 1975, an employee of petitioner refused to accept the payment,
alleging that the contract had already been cancelled. However, said respondent
protested that he had not received any notice of rescission from petitioner.

To compel the execution by petitioner of the final deed of sale, private respondents
filed an action for specific performance in the Court of First Instance of Surigao.
Petitioner questioned the order of the trial court, upholding the venue, before the
Court of Appeals, which in turn ruled for petitioner and dismissed the case.

Private respondents filed another case in the Court of First Instance of Quezon City,
but said court dismissed the case on the grounds that under
P.D. No. 957, it was the National Housing Authority (NHA) that had exclusive
jurisdiction over the action. Hence, another complaint was filed with the NHA.

The case was later transferred to the HSRC by virtue of Executive Order No. 648
dated Feb. 7, 1981 (HSRC Case No. REM-A-0156). After hearing, the Office of
Appeals Adjudication and Legal Affairs (OAALA) of the HSRC denied private
respondents' request for specific performance of the Contract to Sell and directed
petitioner to refund to private respondents the amount of P15,960.73.

Their motion for reconsideration having been denied, private respondents appealed
the OAALA decision to the HSRC. In a resolution dated May 16, 1986, the HSRC
dismissed private respondents' appeal for lack of merit and affirmed the decision of
the OAALA. Dissatisfied with the HSRC resolution, private respondents elevated the
case to the Office of the President.

On November 23, 1988, the Office of the President ruled as follows:

Clearly, it could be gleaned from the foregoing payment record of appellants that
appellee tolerated, in not just one but in several instances, late and delayed
payments by the former when it accepted updated payments covering past due
accounts. Thus, it would be grossly unfair and unjustified for appellee to refuse
to accept the last payment for the remaining balance in order to cancel the
contract to sell on the ground of delay. If such be the case, the contract could
have been cancelled on several occasions, yet appellee continued receiving late
payments, save for the last one where it vigorously insisted on cancelling the
contract due to delayed payments by appellants who readily offered to settle the
whole balance.

Second, receipt of the notice of rescission adverted to by appellee as having

been sent to appellants remains doubtful, as appellee failed to show proof of
service thereof to appellants. It must be remembered that when Jose Sering
went to appellee's office on September 18, 1975 to pay the whole unpaid
balance of the purchase price, appellee's representative, a certain Mr.
Valenzuela, did not inform Jose Sering that a notice of rescission had earlier been
prepared. It must be stressed at this point that said notice of rescission serves
no real purpose if the same was not actually received by appellants. Hence, Jose
Sering would not have gone to appellee's office to pay the last balance had he
known earlier of the notice of rescission.

Consequently, appellee is now estopped to insist on rescinding the contract to

sell by the mere expedience of refusing to accept the last payment on the
ground of delay when it has, in several instances, accepted delayed payments
from appellants. There is here an evident bad faith on appellee's part in taking
undue advantage of appellant's last delayed payment by invoking Section 6 of
the Contract to Sell. To allow such a situation to arise would enable appellee to
enrich itself at the expense of appellants. Under the circumstances, it is but fair
that the original intention of the contracting parties should be made to prevail,
that is, for the vendor subdivision developer to transfer all the rights and interest
on the land
 to appellants upon payment by the latter of the whole purchase price (Rollo, pp.
38-39).

Hence, this petition.

ISSUE: whether or not the respondent office of the president committed a grave
abuse of discretion in finding that the notice of rescission sent by the petitioner to
the respondent spouses served no real purpose since it was not received by the
latter.

RULING:No. The Office of the President found that private respondents never
received the notice of rescission sent by petitioner. This is a finding of fact of an
administrative agency which we shall not disturb (Chong Guan Trading v. National
Labor Relations Commission, 172 SCRA 831 [1989]).

Petitioner, however, claims that a notice of rescission is not necessary under

paragraph 6 of the contract, which provides:

6. Failure to Pay Installments.- In case the BUYER fails to satisfy any

monthly installment, or any other payments herein agreed upon, an
interest of 1% per month will be charged on the amount he should
have paid. Should a period of ninety (90) days elapse from the time of
default, and the BUYER has not paid all amounts he should have paid
with the corresponding interest up to that date then this contract shall
automatically and without any further formality, become null and void
(Rollo, p. 12).

The sending of a notice of cancellation to the buyer is mandated by

R.A. 6552 entitled "An Act to Provide Protection to Buyers of Real Estate on
Installment Payments," (the Maceda Law) which took effect on September 14, 1972
(Jison v. Court of Appeals, 164 SCRA 339 [1988]). In Section 3(b) thereof, it provides
that "the actual cancellation of the contract shall take place thirty days from receipt
of the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to the
buyer."

Petitioner argues that the relationship between the parties is governed solely by the
Contract to Sell because said contract was entered into long before the passage of
the Maceda Law (Rollo, p. 7).

Without expressly stating so, petitioner's line of argument invokes the non-
impairment clause of the Constitution (Art. III, Sec. 10). The purpose of said clause
is to safeguard the integrity of contracts against unwarranted interference by the
State. As a rule, contracts should not be tampered with by subsequent laws that
would change or modify the rights and obligations of the parties. As noted by Justice
Isagani A. Cruz "[T]he will of the obligor and obligee must be observed; the
obligation of their contract must not be impaired" (Constitutional Law, 1991 ed., p.
239).

Impairment is anything that diminishes the efficacy of the contract. There is an

impairment if a subsequent law changes the terms of a contract between the
parties, imposes new conditions, dispenses with those agreed upon or withdraws
remedies for the enforcement of the rights of the parties (Clemons v. Nolting,
42 Phil. 702 [1922]).

The requirement of notice of the rescission under the Maceda Law does not change
the time or mode of performance or impose new conditions or dispense with the
stipulations regarding the binding effect of the contract. Neither does it withdraw
the remedy for its enforcement. At most, it merely provides for a procedure in aid of
the remedy of rescission.

While the contract was entered into before the effectivity of the Maceda Law, the
rescission took place when the said law was in full force and effect. But even before
the effectivity of said law, jurisprudence made necessary a notice of rescission.

While juridical action for the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of any of its
terms and conditions, jurisprudence requires that a written notice be sent to the
defaulter informing him of the rescission (Palay, Inc. v. Clave,
124 SCRA 638 [1983]). As stressed in University of the Philippines v. Walfrido De los
Angeles 35 SCRA 102 (1970), the act of the party in treating a contract as cancelled
should be made known to the other.

MANILA ELECTRIC COMPANY V PROVINCE OF LAGUNA

FACTS: On various dates, certain municipalities of the Province of Laguna,

including, Bian, Sta. Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by virtue of
existing laws then in effect, issued resolutions through their respective municipal
councils granting franchise in favor of petitioner Manila Electric Company
("MERALCO") for the supply of electric light, heat and power within their concerned
areas. On 19 January 1983, MERALCO was likewise granted a franchise by the
National Electrification Administration to operate an electric light and power service
in the Municipality of Calamba, Laguna.

On 12 September 1991, Republic Act No. 7160, otherwise known as the "Local
Government Code of 1991," was enacted to take effect on 01 January 1992
enjoining local government units to create their own sources of revenue and to levy
taxes, fees and charges, subject to the limitations expressed therein, consistent
with the basic policy of local autonomy. Pursuant to the provisions of the Code,
respondent province enacted Laguna Provincial Ordinance No. 01-92, effective 01
January 1993, providing, in part, as follows:

Sec. 2.09. Franchise Tax. There is hereby imposed a tax on

businesses enjoying a franchise, at a rate of fifty percent (50%) of one
percent (1%) of the gross annual receipts, which shall include both
cash sales and sales on account realized during the preceding calendar
year within this province, including the territorial limits on any city
located in the province.

On the basis of the above ordinance, respondent Provincial Treasurer sent a demand
letter to MERALCO for the corresponding tax payment. Petitioner MERALCO paid the
tax, which then amounted to P19,520.628.42, under protest. A formal claim for
refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna
claiming that the franchise tax it had paid and continued to pay to the National
Government pursuant to P.D. 551 already included the franchise tax imposed by the
Provincial Tax Ordinance. MERALCO, contended that the imposition of a franchise
tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it
concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which
read:

Any provision of law or local ordinance to the contrary notwithstanding, the

franchise tax payable by all grantees of franchises to generate, distribute and
sell electric current for light, heat and power shall be two per cent (2%) of their
gross receipts received from the sale of electric current and from transactions
incident to the generation, distribution and sale of electric current.

Such franchise tax shall be payable to the Commissioner of Internal Revenue or

his duly authorized representative on or before the twentieth day of the month
following the end of each calendar quarter or month, as may be provided in the
respective franchise or pertinent municipal regulation and shall, any provision of
the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of
all taxes and assessments of whatever nature imposed by any national or local
authority on earnings, receipts, income and privilege of generation, distribution
and sale of electric current.

On 28 August 1995, the claim for refund of petitioner was denied in a letter signed
by Governor Jose D. Lina relied on a more recent law, i.e. Republic Act No. 7160 or
the Local Government Code of 1991, than the old decree invoked by petitioner.

On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of Sta.
Cruz, Laguna, a complaint for refund, with a prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order, against the Province of
Laguna and also Benito R. Balazo in his capacity as the Provincial Treasurer of
Laguna. Aside from the amount of P19,520,628.42 for which petitioner MERALCO
had priorly made a formal request for refund, petitioner thereafter likewise made
additional payments under protest on various dates totaling P27,669,566.91.

The trial court, in its assailed decision of 30 September 1997, dismissed the
complaint

ISSUE: Whether the imposition of a franchise tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar as petitioner is concerned, is violative of the
non-impairment clause of the Constitution and Section 1 of Presidential Decree No.
551.

RULING: No. Prefatorily, it might be well to recall that local governments do not
have the inherent power to tax 4 except to the extent that such power might be
delegated to them either by the basic law or by statute. Presently, under Article X of
the 1987 Constitution, a general delegation of that power has been given in favor of
local government units. Thus:

Sec. 3. The Congress shall enact a local government code which shall
provide for a more responsive and accountable local government
structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the
different local government units their powers, responsibilities, and
resources, and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions, and duties of local
officials, and all other matters relating to the organization and
operation of the local units.

xxx xxx xxx

Sec. 5. Each local government unit shall have the power to create its
own sources of revenues and to levy taxes, fees, and charges subject
to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local governments.

The 1987 Constitution has a counterpart provision in the 1973 Constitution

which did come out with a similar delegation of revenue making powers to
local governments. 5

Under regime of the 1935 Constitution no similar delegation of tax powers was
provided, and local government units instead derived their tax powers under a
limited statutory authority. Whereas, then, the delegation of tax powers granted at
that time by statute to local governments was confined and defined (outside of
which the power was deemed withheld), the present constitutional rule (starting
with the 1973 Constitution), however, would broadly confer such tax powers subject
only to specific exceptions that the law might prescribe.

Under the now prevailing Constitution, where there is neither a grant nor a
prohibition by statute, the tax power must be deemed to exist although Congress
may provide statutory limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government units
are being strengthened and made more autonomous, 6 the legislature must still see
to it that (a) the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair share of
available resources; (c) the resources of the national government will not be unduly
disturbed; and (d) local taxation will be fair, uniform, and just.

The Local Government Code of 1991 has incorporated and adopted, by and large,
the provisions of the now repealed Local Tax Code, which had been in effect since
01 July 1973, promulgated into law by Presidential Decree
7
No. 231 pursuant to the then provisions of Section 2, Article XI, of the 1973
Constitution. The 1991 Code explicitly authorizes provincial governments,
notwithstanding "any exemption granted by any law or other special law, . . . (to)
impose a tax on businesses enjoying a franchise." Section 137 thereof provides:

Sec. 137. Franchise Tax Notwithstanding any exemption granted by

any law or other special law, the province may impose a tax on
businesses enjoying a franchise, at a rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction. In the case of a newly started business,
the tax shall not exceed one-twentieth (1/20) of one percent (1%) of
the capital investment. In the succeeding calendar year, regardless of
when the business started to operate, the tax shall be based on the
gross receipts for the preceding calendar year, or any fraction thereof,
as provided herein. (Underscoring supplied for emphasis)

Indicative of the legislative intent to carry out the Constitutional mandate of vesting
broad tax powers to local government units, the Local Government Code has
effectively withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities. This law states:
 Sec. 193. Withdrawal of Tax Exemption Privileges Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (Underscoring supplied for
emphasis)

The Code, in addition, contains a general repealing clause in its Section 534; thus:

Sec. 534. Repealing Clause. . . .

(f) All general and special laws, acts, city charters, decrees, executive
orders, proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this Code
are hereby repealed or modified accordingly. (Underscoring supplied
for emphasis) 8

To exemplify, in Mactan Cebu International Airport Authority vs. Marcos, 9 the Court
upheld the withdrawal of the real estate tax exemption previously enjoyed by
Mactan Cebu International Airport Authority. The Court ratiocinated:

. . . These policy considerations are consistent with the State policy to

ensure autonomy to local governments and the objective of the LGC
that they enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development as self-reliant communities
and make them effective partners in the attainment of national goals.
The power to tax is the most effective instrument to raise needed
revenues to finance and support myriad activities if local government
units for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and
prosperity of the people. It may also be relevant to recall that the
original reasons for the withdrawal of tax exemption privileges granted
to government-owned and controlled corporations and all other units of
government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarity situated
enterprises, and there was a need for these entities to share in the
requirements of development, fiscal or otherwise, by paying the taxes
and other charges due from them. 10

Petitioner in its complaint before the Regional Trial Court cited the ruling of this
Court in Province of Misamis Oriental vs. Cagayan Electric Power and Light
Company, Inc.; 11 thus:
 In an earlier case, the phrase "shall be in lieu of all taxes and at any time levied,
established by, or collected by any authority" found in the franchise of the
Visayan Electric Company was held to exempt the company from payment of
the 5% tax on corporate franchise provided in Section 259 of the Internal
Revenue Code (Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385)

Similarly, we ruled that the provision: "shall be in lieu of all taxes of every name
and nature" in the franchise of the Manila Railroad (Subsection 12, Section 1,
Act No. 1510) exempts the Manila Railroad from payment of internal revenue
tax for its importations of coal and oil under Act No. 2432 and the Amendatory
Acts of the Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).

The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13,
Act No. 1497) justified the exemption of the Philippine Railway Company from
payment of the tax on its corporate franchise under Section 259 of the Internal
Revenue Code, as amended by R.A. No. 39 (Philippine Railway Co vs. Collector
of Internal Revenue, 91 Phil. 35).

Those magic words, "shall be in lieu of all taxes" also excused the Cotabato
Light and Ice Plant Company from the payment of the tax imposed by
Ordinance No. 7 of the City of Cotabato (Cotabato Light and Power Co. vs. City
of Cotabato, 32 SCRA 231).

So was the exemption upheld in favor of the Carcar Electric and Ice Plant
Company when it was required to pay the corporate franchise tax under Section
259 of the Internal Revenue Code, as amended by R.A. No. 39 (Carcar Electric &
Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4]. 1068). This Court
pointed out that such exemption is part of the inducement for the acceptance of
the franchise and the rendition of public service by the grantee. 2

In the recent case of the City Government of San Pablo, etc., et al. vs. Hon.
Bienvenido V. Reyes, et al., 13 the Court has held that the phrase in lieu of all taxes
"have to give way to the peremptory language of the Local Government Code
specifically providing for the withdrawal of such exemptions, privileges," and that
"upon the effectivity of the Local Government Code all exemptions except only as
provided therein can no longer be invoked by MERALCO to disclaim liability for the
local tax." In fine, the Court has viewed its previous rulings as laying stress more on
the legislative intent of the amendatory law whether the tax exemption privilege
is to be withdrawn or not rather than on whether the law can withdraw, without
violating the Constitution, the tax exemption or not.

While the Court has, not too infrequently, referred to tax exemptions contained in
special franchises as being in the nature of contracts and a part of the inducement
for carrying on the franchise, these exemptions, nevertheless, are far from being
strictly contractual in nature. Contractual tax exemptions, in the real sense of the
term and where the non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by them under
enabling laws in which the government, acting in its private capacity, sheds its
cloak of authority and waives its governmental immunity. Truly, tax exemptions of
this kind may not be revoked without impairing the obligations of
contracts. 14 These contractual tax exemptions, however, are not to be confused
with tax exemptions granted under franchises. A franchise partakes the nature of a
grant which is beyond the purview of the non-impairment clause of the
Constitution. 15 Indeed, Article XII, Section 11, of the 1987 Constitution, like its
precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no
franchise for the operation of a public utility shall be granted except under the
condition that such privilege shall be subject to amendment, alteration or repeal by
Congress as and when the common good so requires.

PEDRO V PROVINCIAL BOARD OF RIZAL

FACTS: On May 8, 1926, there was organized in the municipality of Caloocan,

Province of Rizal, an association for the construction and exploitation of cockpits,
called "La Sociedad Bighani."

On May 22, 1926, Eugenio Tansioco, the president of the association, applied to the
municipal president of Caloocan and obtain a permit to construct a building of
strong materials at Galas, in said municipality, to be used as cockpit, upon payment
of the proper fees. (Exhibit 1.)

While the construction was under way, Pablo, then president of Caloocan, addressed
a communication to Eugenio Tansioco on June 15, 1926, warning him that the site of
the building was not the one designated by the chief of police, and that it was within
the radius of 1,500 meters from the hospital of the Philippine Antituberculosis
Society in Santol, in direct contravention of Ordinance No. 15, series of 1926,
enacted on May, 1926.

The permit having been annulled, and the payments theretofore made forfeited, the
"Sociedad Bighani" filed civil case No. 30537 in the Court of First Instance of Manila
on September 21, 1926, against said Pablo Pablo, as municipal president of
Caloocan, et al., for a preliminary injunction requiring them to refrain from impeding
or obstructing the operation and exploitation of the Bighani cockpit, which at that
time was completed and ready to be thrown open to the public.

On August 26, 1927, the Court of first Instance of Manila rendered judgment
absolving the defendants from the complaint, which was affirmed by this court on
October 15, 1928. (Company "Bighani" vs. 53 Phil., 886.)
On September 18, 1927, the municipal council of Caloocan enacted Ordinance No.
34, providing in the first section, among other things, that outside the barrios of
Loma, Talipapa, and Novaliches, where only one cockpit might be established,
cockpits might be established at a distance of not less than 1,500 meters from
another licensed cockpit, public schoolhouse, or any hospital or charitable
institution existing within the municipal radius.

As a result of the general election held on June 5, 1928, in the municipality of

Caloocan, Rizal, the municipal council, formerly comprising Pablo Pablo, as
president, Blas Bernardino, as vice-president, and Severino Paganiban, Diego Justo,
Esteban Sanchez, Patricio Galuran, Raymundo Andres, Emiliano Samson, Vicente
Sevilla, Lucas Pascual, Placido C. del Mundo, Delfin Rodriguez, Jorge Nadurata,
Anacleto Victoria, Emilio Acab, and Mateo Austria, as councilors, was substituted by
another comprising the newly elected Dominador Aquino, as president, Diego Justo,
as vice-president, and Blas Bernardino, Flaviano de Jesus, Pedro Galang, Celestino
C. Celosa, Nicolas Carpio, Lucas Pascual, Basilio Biglang-awa, and Lucas
Bustamante, as councilors, who were inducted into office on October 16th of that
year.

On December 21, 1928, the plaintiff herein, Gregorio Pedro, acquired by absolute
sale all the rights and interests of the "Sociedad Bighani" in the cockpit bearing its
name. (Exhibit M.)

On the same date, December 21, 1928, said plaintiff, Gregorio Pedro, addressed a
communication to the municipal council of Caloocan soliciting a permit to open,
operate, maintain, and exploit said cockpit for a period of four years, binding
himself to observe to the letter all municipal ordinances on cockpits. (Exhibit A.)

On December 26, 1928, the municipal council of Caloocan passed resolution No.
202 approving Ordinance No. 35, series of 1928, amending section 1 of Ordinance
No. 34, series of 1927, providing, among other things that only one cockpit could be
established in each of the barrios of Galas, Loma, Talipapa, and Novaliches, and any
other place outside said barrios, provided, in the latter case, said cockpits are at a
distance of not less than 1,000 meters from another licensed cockpit, and 500
meters from any hospital or charitable institution within the municipality of
Caloocan. (Exhibit C.)

On the same date, December 26, 1928, the municipal councilors of Caloocan, Blas
Bernardino, Flaviano de Jesus, and Pedro Galang, signed and forwarded to the
provincial governor of Rizal an accusation against Dominador Aquino, the municipal
president, and the other councilors who approved Ordinance No. 35, series of 1928,
alleging that they had been bribed to vote in favor of that ordinance. (Exhibit 4.)
The provincial governor endorsed the accusation to the provincial board of Rizal,
which through resolution No. 1110 dated December 27, 1928, ordered the
temporary suspension of the members denounced pending the administrative
investigation of the accusation. By virtue of said resolution No. 1110 of the
provincial board of Rizal, and using one of the powers conferred upon him by law,
the provincial governor of Rizal, Eligio Naval, suspended the municipal president
and the denounced members from their respective offices on December 28, 1928.
(Exhibits 5 to 5-E.)

On the same date, December 28, 1928, between 9 and 10 o'clock in the morning,
the appellant Gregorio Pedro paid into the municipal treasury the sum of P2,050 as
a license fee on his cockpit for the first quarter of the year 1929, and the proper
receipt (Exhibit L), and the permit (Exhibit D), were issued to him authorizing him to
operate, maintain, exploit, and open to the public a day cockpit in the barrio of
Galas, Caloocan, Rizal, for a period of four years.

On December 29, 1928, the municipal council ad interim in Caloocan, passed

resolution No. 9, series of 1928, approving Ordinance No. 36, series of 1928,
suspending the effects of resolution No. 202 of the suspended council, approving
Ordinance No. 35, series of 1928, while a special committee created by the same
ordinance investigated the expediency of permitting the exploitation and opening of
the Galas cockpit at the site applied for by the proprietor, Gregorio Pedro. (Exhibit
6.)

On the same date, December 29, 1928, the provincial board of Rizal passed
resolution No. 1135 suspending the effects of resolution No. 202 of the municipal
council of Caloocan approving Ordinance No. 35, series of 1928, pending final
decision on the validity of said ordinance by said board. (Exhibit H.)

On January 16, 1929, the Director of the Santol Tuberculosis Sanatorium addressed
a communication to the temporary president of the municipal council of Caloocan,
Flaviano de Jesus, stating that a cockpit established in the barrio of Galas, owing to
the noise and clamor of the crowd, would retard the recovery of the patients in said
sanatorium, and would tend to increase the danger of spreading the disease among
those visiting the cockpit. (Exhibit 11.)

On February 1, 1929, the Chief of the Executive Bureau confirmed the resolution of
the provincial board of Rizal holding the respondents in the administrative
investigation mentioned above guilty of maladministration, and imposing upon each
of them a punishment of thirty days' suspension. (Exhibit 7.)

On the same date, February 1, 1929, following the decision of the Executive Bureau
mentioned above, the provincial board of Rizal, through resolution No. 154,
disapproved said resolution No. 202 of the municipal council of Caloocan, approving
Ordinance No. 35, series of 1928. (Exhibit 1.)

On February 2, 1929, the president of the third sanitary division of Rizal, acting
upon the appellant's application filed on January 30, 1929, issued a certificate to the
effect that after a proper inspection of the Galas cockpit, he had found it to be in
good sanitary condition.

On February 7, 1929, Gregorio Pedro furnished a bond of P10,000 in favor of the

municipality of Caloocan to secure the payment of the fees accruing during the
years from 1929 to 1932, which is the period included in the license issued to him
for the opening and operation of his cockpit in Galas, and this bond was accepted
and approved by the respondent municipal president, Dominador Aquino, and
certified by the provincial treasurer, Jose Villegas. (Exhibit E.)

On February 13, 1929, councilor Lucas Bustamante submitted a resolution at a

special session of the municipal council of Caloocan, whereby said council appealed
to the Executive Bureau from the aforementioned resolution No. 154 of the
provincial board of Rizal, but the resolution did not pass owing to the lack of two-
thirds of the members necessary, with five members voting in favor and three
against it.

On February 14, 1929, the appellant Gregorio Pedro sent the municipal president of
Caloocan a communication, informing him that having fulfilled all the requirements
of the law and the ordinances then in force, he would open his cockpit in Galas to
the public in the morning of February 17, 1929. (Exhibit J.)

On February 15, 1929, the respondent municipal president of Caloocan addressed a

communication to the appellant Gregorio Pedro informing him that under no
circumstance could said president permit the appellant to open his cockpit in Galas,
Caloocan, to the public, for Ordinance No. 35, series of 1928, under which a permit
had been given him to open and exploit his aforesaid cockpit had been disapproved
by the provincial board of Rizal in its resolution No. 154, series of 1928, as a result
of which the aforementioned ordinance became null and void.

ISSUE: Whether there is a violation of the non-impairment clause

RULING: No. The petitioner-appellant contends that, having obtained the proper
permit to maintain, exploit, and open to the public the cockpit in question, having
paid the license fee and fulfilled all the requirements provided by Ordinance No. 35,
series of 1928, he has acquired a right which cannot be taken away from him by
Ordinance No. 36, series of 1928, which was subsequently approved. This court has
already held that an ordinance regulating the functioning of cockpits does not
create irrevocable rights and may be abrogated by another ordinance. (Vinco vs.
Municipality of Hinigaran, 41 Phil., 790; Joaquin vs. Herrera, 37 Phil., 705; 12 Corpus
Juris, 958, sec. 494; 37 Corpus Juris, 168.)

The petitioner-appellant also contends that said Ordinance No. 36 was passed due
to prejudice "because it was intended for a special and not a general purpose,
namely to prevent, at any cost, the opening, maintenance, and exploitation of the
cockpit of the said petitioner." The aforesaid Ordinance No. 36 was not approved for
the purpose of injuring the petitioner, but to correct an irregularity consisting in the
passage of Ordinance No. 35, which had been enacted to favor the said petitioner-
appellant. The "Sociedad Bighani," from which the herein petitioner-appellant
acquired the ownership of the cockpit here in question, was denied a license to
operate it, because it had been constructed in violation of Ordinance No. 15, series
of 1926, later amended by Ordinance No. 34, series of 1927. The "Sociedad Bighani"
instituted proceedings against the president and municipal council of Caloocan,
Rizal, in civil case No. 30537 of the Court of First Instance of Manila, to prevent said
defendants from impeding the operation and exploitation of the Bighani cockpit,
and the court decided in favor of said defendants, absolving them from the
complaint on the ground among other reasons, that the Bighani cockpit had been
constructed within the prohibited distance from the Antitubercular Sanatorium of
Santol, and that decision was affirmed by this court on appeal. (Company
"Bighani" vs. Pablo, supra.) The cockpit in question now is the former Bighani
cockpit mentioned above; it occupies the same site; and the same hygienic reasons
which prompted the enactment of Ordinance No. 15, amended by Ordinance No. 34,
cited above, exist now; therefore, when this was amended by Ordinance No. 35,
reducing the distance between a cockpit and any hospital, so that the Bighani
cockpit would be beyond said distance, the municipal council which amended it
acted with partiality towards a certain person, namely, the petitioner-appellant, to
the prejudice of the patients in the aforesaid sanatorium. According to Elliot in his
work "Municipal Corporations," cited by said petitioner-appellant himself, said
Ordinance No. 35 is void because it is partial. (Elliot, Municipal Corporations, sec.
147; Dillon, Municipal Corporations, p. 915).

Ordinance No. 36, which seeks to correct said irregularity, suspended the effects of
said Ordinance No. 35, impliedly reestablishing Ordinance No. 34, is therefore valid.

The other reason given by the petitioner-appellant to show that Ordinance No. 36, is
void is that the municipal council in approving it delegated its legislative powers to
a special sanitary committee.

Section 2 of Ordinance No. 36, series of 1928, provides as follows:

SEC. 2. A committee is hereby provided for, to be composed of the president

of the third sanitary division of Caloocan, Rizal, a practising physician residing
in this municipality, and a member of the municipal council, whose duty it
 shall be to make the necessary investigation to determine whether or not the
exploitation of the cockpit in the barrio of Galas for which Gregorio Pedro has
applied for a permit, would be injurious to any public or private interest. This
special committee shall make such investigation and submit a report in due
form to this municipal council within the shortest time possible for its definite
action.

The municipal council of Caloocan pro tempore therefore does not delegate by that
ordinance to the special committee thereby created any legislative function, but
only entrusts to it the study of the effect of the operation and exploitation of the
cockpit under consideration upon public and private interests, in order to determine
whether or not the license should issue. Informational work of this nature, owing to
its technical character, may be entrusted to technical committees. (12 Corpus Juris,
846.)

Having arrived at the conclusion that Ordinance No. 36 is valid and that the
petitioner-appellant has acquired no irrevocable right by virtue of the license
granted him under Ordinance No. 35, approved to favor him, which is therefore
void, we need not discuss the other assignments of error by the petitioner-
appellant.

Wherefore, we are of opinion and so hold: (1) That a license authorizing

the operation and exploitation of a cockpit is not property of which the
holder may not be deprived without due process of law, but a mere
privilege which may be revoked when the public interests so require; (2)
that the work entrusted by a municipal council to a special sanitary
committee to make a study of the sanitary effects upon the neighborhood
of the establishment of a cockpit, is not legislative in character, but only
informational, and may be delegated; and (3) that an ordinance, approved
by a municipal council duly constituted, which suspends the effects of
another which had been enacted to favor the grantee of a cockpit license,
is valid and legal.

TAN V DIRECTOR OF FORESTRY

FACTS: Sometime in April 1961, the Bureau of Forestry issued Notice No. 2087,
advertising for public bidding a certain tract of public forest land situated in
Olongapo, Zambales, provided tenders were received on or before May 22, 1961 (p.
15, CFI rec.). This public forest land, consisting of 6,420 hectares, is located within
the former U.S. Naval Reservation comprising 7,252 hectares of timberland, which
was turned over by the United States Government to the Philippine Government (P.
99, CFI rec.).
On May 5, 1961, petitioner-appellant Wenceslao Vinzons Tan submitted his
application in due form after paying the necessary fees and posting tile required
bond therefor. Nine other applicants submitted their offers before the deadline (p.
29, rec.).

Thereafter, questions arose as to the wisdom of having the area declared as a forest
reserve or allow the same to be awarded to the most qualified bidder. On June 7,
1961, then President Carlos P. Garcia issued a directive to the Director of the Bureau
of Forestry, which read as follows:

It is desired that the area formerly covered by the Naval Reservation

be made a forest reserve for watershed purposes. Prepare and submit
immediately a draft of a proclamation establishing the said area as a
watershed forest reserve for Olongapo, Zambales. It is also desired
that the bids received by the Bureau of Forestry for the issuance of the
timber license in the area during the public bidding conducted last May
22, 1961 be rejected in order that the area may be reserved as above
stated. ...

(SGD.
)
CARL
OS P.
GARCI
A

(pp. 98, CFI rec.).

On August 3, 1961, Secretary Cesar M. Fortich of Agriculture and Natural Resources

sustained the findings and re comendations of the Director of Forestry who
concluded that "it would be beneficial to the public interest if the area is made
available for exploitation under certain conditions," and

We quote:

Respectfully forwarded to the honorable, the Executive Secretary

Malacanang. Manila inviting particular attention to the comment and
recommendation of the Director of Forestry in the proceeding in
indorsement in which this Of fice fully concurs.

The observations of responsible forest officials are most revealing of

their zeal to promote forest conservation and watershed protection
especially in Olongapo, Zambales area. In convincing fashion, they
have demonstrated that to declare the forest area involved as a forest
 reserve ratify than open it for timber exploitation under license and
regulation would do more harm than of to the public interest. To
convert the area into a forest reserve without an adequate forest
protection force, would make of it a 'Free Zone and Logging Paradise,'
to the ever 'Problem Loggers' of Dinalupihan, Bataan . . . an open
target of timber smugglers, kaingineros and other forms of forest
vandals and despoilers. On the other hand, to award the area, as
planned, to a reputable and responsible licensee who shall conduct
logging operations therein under the selective logging method and who
shall be obliged to employ a sufficient number of forest guards to
patrol and protect the forest consecration and watershed protection.

Worthy of mention is the fact that the Bureau of Forestry had already
conducted a public bidding to determine the most qualified bidder to
whom the area advertised should be awarded. Needless to stress, the
decision of the Director of Forestry to dispose of the area thusly was
arrived at after much thought and deliberation and after having been
convinced that to do so would not adversely affect the watershed in
that sector. The result of the bidding only have to be announced. To be
sure, some of the participating bidders like Mr. Edgardo Pascual, went
to much expense in the hope of winning a virgin forest concession. To
suddenly make a turn about of this decision without strong justifiable
grounds, would cause the Bureau of Forestry and this Office no end of
embarrassment.

In view of the foregoing, it is earnestly urged that the Director of

Forestry be allowed to proceed with the announcement of the results of
the bidding for the subject forest area (p. 13, CFI rec.).

The Office of the President in its 4th Indorsement dated February 2, 1962, signed by
Atty. Juan Cancio, Acting Legal Officer, "respectfully returned to the Honorable
Secretary of the Department of Agriculture and Natural Resources for appropriate
action," the papers subject of Forestry Notice No. 2087 which was referred to the
Bureau of Forestry for decision (p. 14, CFI rec.).

Finally, of the ten persons who submitted proposed the area was awarded to herein
petitioner-appellant Wenceslao Vinzons Tan, on April 15, 1963 by the Bureau of
Forestry (p. 17, CFI rec.). Against this award, bidders Ravago Commercial Company
and Jorge Lao Happick filed motions for reconsideration which were denied by the
Director of Forestry on December 6, 1963.

On May 30, 1963, the Secretary of Agriculture and Natural Resources Benjamin M.
Gozon who succeeded Secretary Cesar M. Fortich in office issued General
Memorandum Order No. 46, series of 1963, pertinent portions of which state:
 xxx xxx xxx

SUBJECT: ... ... ...

(D)elegation of authority to the Director of Forestry to grant ordinary

timber licenses.

1. ... ... ...

2. The Director of Forestry is hereby authorized to grant (a) new

ordinary timber licenses where the area covered thereby is not more
than 3,000 hectares each; and (be the extension of ordinary timber
licenses for areas not exceeding 5,000 hectares each;

3. This Order shall take effect immediately (p. 267, CFI rec.).

Thereafter, Jose Y. Feliciano was appointed as Acting secretary of Agriculture and

Natural Resources, replacing secretary Benjamin M. Gozon. Upon assumption of
office he Immediately promulgate on December 19, 19b3 General memorandum
Order No. 60, revoking the authority delegated to the Director of Forestry, under
General Memorandum order No. 46, to grant ordinary timber licenses, which order
took effect on the same day, December 19, 1963. Pertinent portions of the said
Order read as follows:

xxx xxx xxx

SUBJECT: Revocation of General Memorandum Order No 46 dated May

30, 1963

1. In order to acquaint the undersigned with the volume and Nature of

the work of the Department, the authority delegated to the Director of
forestry under General Memorandum Order No. 46, dated May 30,
1963, to grant (a) new ordinary timber licenses where the area covered
thereby is not more than 3,000 hectares each; and (b) the extension of
ordinary timber licenses for areas not exceeding 3,000 hectares each is
hereby revoked. Until further notice, the issuance of' new licenses ,
including amendments thereto, shall be signed by the secretary of
Agriculture and Natural Resources.

2. This Order shall take effect immediately and all other previous
orders, directives, circulars, memoranda, rules and regulations
inconsistent with this Order are hereby revoked (p. 268, CFl rec.;
Emphasis supplied).
On the same date that the above-quoted memorandum took effect, December 19,
1963, Ordinary Timber License No. 20-'64 (NEW) dated April 22, 1963, in the name
of Wenceslao Vinzons Tan, was signed by then Acting Director of Forestry Estanislao
R. Bernal without the approval of the Secretary of Agriculture and Natural
Resources. On January 6, 1964, the license was released by the Office of the
Director of Forestry (p. 30, CFI rec.; p. 77, rec.). It was not signed by the Secretary of
Agriculture and Natural Resources as required by Order No. 60 aforequoted.

On February 12, 1964, Ravago Commercial Company wrote a letter to the Secretary
of Agriculture and Natural Resources shall be considered by tile Natural Resources
praying that, pending resolution of the appeal filed by Ravago Commercial Company
and Jorge Lao Happick from the order of the Director of Forestry denying their
motion for reconsideration, OTI No. 20-'64 in the name of Wenceslao V. Tan be
cancelled or revoked on the ground that the grant thereof was irregular, anomalous
and contrary to existing forestry laws, rules and regulations.

On March 9, 1964, acting on the said representation made by Ravago Commercial

Company, the Secretary of Agriculture and Natural Resources promulgated an order
declaring Ordinary Timber License No. 20-'64 issued in the name of Wenceslao
Vinzons Tan, as having been issued by the Director of Forestry without authority,
and is therefore void ab initio. The dispositive portion of said order reads as follows:

WHEREFORE, premises considered, this Office is of the opinion and so

holds that O.T. License No. 20-'64 in the name of Wenceslao Vinzons
Tan should be, as hereby it is, REVOKED AND DECLARED without force
and effect whatsoever from the issuance thereof.

The Director of Forestry is hereby directed to stop the logging

operations of Wenceslao Vinzons Tan, if there be any, in the area in
question and shall see to it that the appellee shall not introduce any
further improvements thereon pending the disposition of the appeals
filed by Ravago Commercial Company and Jorge lao Happick in this
case" (pp. 30-31, CFI rec.).

Petitioner-appellant moved for a reconsideration of the order, but the Secretary of

Agriculture and Natural Resources denied the motion in an Order dated March 25,
1964, wherein this paragraph appears:

In this connection, it has been observed by the Acting Director of

Forestry in his 2nd indorsement of February 12, 1964, that the area in
question composes of water basin overlooking Olongapo, including the
proposed Olongapo watershed Reservation; and that the United States
as well as the Bureau of Forestry has earmarked this entire watershed
for a watershed pilot forest for experiment treatment Concerning
 erosion and water conservation and flood control in relation to wise
utilization of the forest, denudation, shifting cultivation, increase or
decrease of crop harvest of agricultural areas influenced by the
watershed, etc. .... (pp. 3839, CFI rec.; p. 78, rec.).

On April 11, 1964, the Secretary of Agriculture and Natural Resources, acting on the
separate appeals filed by Jorge Lao Happick and Ravago Commercial Company,
from the order of the Director of Forestry dated April 15, 1963, awarding to
Wenceslao Vinzons Tan the area under Notive No. 2087, and rejecting the proposals
of the other applicants covering the same area, promulgated an order commenting
that in view of the observations of the Director of Forestry just quoted, "to grant the
area in question to any of the parties herein, would undoubtedly adversely affect
public interest which is paramount to private interests," and concluding that, "for
this reason, this Office is of the opinion and so holds, that without the necessity of
discussing the appeals of the herein appellants, the said appeals should be, as
hereby they are, dismissed and this case is considered a closed matter insofar as
this Office is concerned" (p. 78, rec.).

ISSUE: Whether the non-impairment of contracts is violated

RULING: No. Granting arguendo, that petitioner-appellant's timber license is valid,

still respondents-appellees can validly revoke his timber license. As pointed out
earlier, paragraph 27 of the rules and regulations included in the ordinary timber
license states: "The terms and conditions of this license are subject to change at
the discretion of the Director of Forestry, and that this license may be made to
expire at an earlier date, when public interests so require" (Exh. D, p. 22, CFI rec.).
A timber license is an instrument by which the State regulates the utilization and
disposition of forest resources to the end that public welfare is promoted. A timber
license is not a contract within the purview of the due process clause; it is only a
license or privilege, which can be validly withdrawn whenever dictated by public
interest or public welfare as in this ceise

"A license is merely a permit or privilege to do what otherwise would be unlawful,

and is not a contract between the authority, federal, state, or municipal, granting it
and the person to whom it is granted; neither is it property or a property right, nor
does it create a vested right; nor is it taxation" (37 C.J. 168). Thus, this Court held
that the granting of license does not create irrevocable rights, neither is it property
or property rights (People vs. Ong Tin 54 O.G. 7576). In the case of Pedro vs.
Provincial Board of Rizal (56 Phil. 123), it was held that:

A license authorizing the operation and exploitation of a cockpit is not

property of which the holder may not be deprived without due process
 of law, but a mere privilege which may be revoked when public
interests so require.

The welfare of the people is the supreme law. Thus, no franchise or right can be
availed of to defeat the proper exercise of police power (Surigao Electric Co., Inc. vs.
Municipality of Surigao, 24 SCRA 898, Aug. 30, 1968). The State has inherent power
enabling it to prohibit all things hurtful to comfort, safety, and welfare of society
(Edu vs. Ericta, 35 SCRA 481, Oct. 24,1970).

As provided in the aforecited provision, timber licenses are subject to the authority
of the Director of Forestry. The utilization and disposition of forest resources is
directly under the control and supervision of the Director of Forestry. However,
"while Section 1831 of the Revised Administrative Code provides that forest
products shall be cut, gathered and removed from any forest only upon license from
the Director of Forestry, it is no less true that as a subordinate officer, the Director
of Forestry is subject to the control of the Department Head or the Secretary of
Agriculture and Natural Resources (See. 79[c], Rev. Adm. Code), who, therefore,
may impose reasonable regulations in the exercise of the powers of the subordinate
officer" (Director of Forestry vs. Benedicto, 104 SCRA 309, May 5, 1981). The power
of control of the Department Head over bureaus and offices includes the power to
modify, reverse or set aside acts of subordinate officials. Accordingly, respondent-
appellee Secretary of Agriculture and Natural Resources has the authority to revoke,
on valid grounds, timber licenses issued by the Director of Forestry. There being
supporting evidence, the revocation of petitioner-appellant's timber license was a
wise exercise of the power of the respondent- appellee (Secretary of Agriculture and
Natural Resources) and therefore, valid.

Thus, "this Court had rigorously adhered to the principle of conserving forest
resources, as corollary to which the alleged right to them of private individuals or
entities was meticulously inquired into and more often than not rejected. We do so
again" (Director of Forestry vs. Benedicto, supra). WE reiterate Our fidelity to the
basic policy of conserving the national patrimony as ordained by the Constitution.

ALVAREZ V PICOP RESOURCES

FACTS: In 1952, Bislig Bay Lumber Co., Inc. (BBLCI), the predecessor of Paper
Industries Corporation of the Philippines (Picop) was granted Timber License
Agreement (TLA) No. 43. The Agreement covered an area of 75,545 hectares in
Surigao del Sur, Agusan del Sur, Compostela Valley, and Davao Oriental.

The late President Ferdinand E. Marcos allegedly issued, sometime in 1969, a

Presidential Warranty confirming that TLA No. 43 definitely establishes the
boundary lines of [BBLCIs] concession area. Upon its expiry in 1977, this
Agreement -- as amended -- was renewed for another 25 years, to terminate on
ApriL 25, 2002.

On December 23, 1999, the Department of Environment and Natural Resources

(DENR) promulgated DENR Administrative Order (DAO) No. 99-53 or the
Regulations Governing the Integrated Forest Management Program (IFMP).

In a letter dated August 28 2000, Picop signified its intention to convert TLA No. 43
into an Integrated Forest Management Agreement (IFMA), pursuant to DAO No. 99-
53.

During the performance evaluation of Picop, the DENR found that respondent had
violated the rules and regulations governing TLA No. 43. Some of these violations
were the non-submission of a five-year forest protection plan and a seven year
reforestation plan; nonpayment of overdue forest and other charges in the total
amount of P167,592,440.90 as of August 30, 2002; and failure to secure a clearance
from the National Commission on Indigenous Peoples (NCIP), considering the
presence of indigenous peoples in the area, as well as a Certificate of Ancestral
Domain Claims covering part of the area.

Meanwhile, Picop received from the DENR secretary a letter, which reads thus:

Dear Mr. Bernardino:

Consistent with our attached Memorandum to Her Excellency, the President, dated
17 October 2001 and in response to your Letter of Intent dated 25 February 2001,
we wish to inform you that, pursuant to DENR Administrative Order No. 99-53, we
have cleared the conversion of PICOPs Timber License Agreement (TLA) No. 43 to
Integrated Forest Management Agreement (IFMA) effective from the expiration of
said TLA on April 26, 2002.

In this regard, you are hereby requested to designate PICOPs representative(s) to

discuss with the DENR Team, created under Special Order No. 2001-638, the
conditions and details of the said IFMA, including the production sharing agreement
between PICOP and the government.

By virtue of this letter, Picop claimed that the TLA has been converted. The DENR
believed, however, that Respondents application for an IFMA should undergo the
process as provided in DAO No. 99-53. Thus, petitioner required Picop to submit
the following to the DENR:

1. Certificate of Filing of Amended Articles of Incorporation issued on 12 August

2002 that extended PICOPs corporate term for another fifty (50) years;
2. Proof of Payment of forest charges;
3. Proof of Payment of Reforestation Deposit;
4. Response to social issues, particularly clearance from the NCIP; and
5. Map showing reforestation activities on an annual basis.

Upon evaluation of the documents subsequently submitted, the DENR notedas

follows:

a) PICOP did not submit the required NCIP clearance;

b) The proof of payments for forest charges covers only the production period
from 1 July 2001 to 21 September 2001;

c) The proof of payment of reforestation deposits covers only the period from the
first quarter of CY 1999 to the second quarter of CY 2001;

d) The map of the areas planted through supplemental planting and social
forestry is not sufficient compliance per Performance Evaluation Teams 11 July 2001
report on PICOPs performance on its TLA No. 43, pursuant to Section 6.6 of DAO 79-
87; and

e) PICOP failed to respond completely to all the social issues raised.

Insisting that the conversion of its TLA No. 43 had been completed, Picop filed a
Petition for Mandamus (mandamus case) against then DENR Secretary Heherson
T. Alvarez before the Regional Trial Court (RTC) of Quezon City. The RTC granted the
Petition in its October 11, 2002 Decision, which was later affirmed by the Court

of Appeals (CA).

Meanwhile, on November 25, 2002, President Gloria Macapagal-Arroyo issued

Proclamation No. 297, Excluding a Certain Area from the Operation of Proclamation
No. 369 Dated February 27, 1931, and Declaring the Same as Mineral Reservation
and as Environmentally Critical Area. The excluded area consisted of about 8,100
hectares of respondents TLA No. 43.

On January 21, 2003, Picop filed a Petition for the Declaration of Nullity of the
aforesaid presidential proclamation, as well as of the implementing order, DAO No.
2002-35 (nullity case ) on the ground that it violates the non-impairment clause

ISSUE: Whether the presidential warranty was a contract, by virtue of which Picop
acquired a vested right over its forest concession area

RULING: No. The Court had consistently held that licenses concerning the
harvesting of timber in the countrys forests could not be considered contracts that
would bind the government regardless of changes in policy and the demands of
public interest and welfare.

Thus, the argument that the Presidential Warranty was a contract because there
were mutual considerations taken into account consisting of investments on Picops
part was considered preposterous. All licensees put up investments in pursuing
their businesses. To construe these investments as consideration in a contract
would be to stealthily render ineffective the settled jurisprudence that a license or
a permit is not a contract between the sovereignty and the licensee or permittee,
and is not a property in the constitutional sense, as to which the constitutional
proscription against the impairment of contracts may extend. Neither should a
circumvention of the
doctrine be allowed by terming the permit a warranty.

6. REPUBLIC OF THE PHILIPPINES V. PAGADIAN CITY TIMBER CO., INC.

FACTS: The Republic of the Philippines, through DENR, and respondent Pagadian
City Timber Co., Inc. executed Industrial Forest Management Agreement (IFMA)
whereby petitioner authorized respondent to develop, utilize, and manage a
specified forest area covering 1,999.14 hectares located in Barangays Langapod,
Cogonan, and Datagan, Municipality of Labangan, Zamboanga del Sur, for the
production of timber and other forest products subject to a production-sharing
scheme. Respondent later submitted the required Comprehensive Development and
Management Plant (CDMP) which the DENR approved.

Members of the Subanen tribe filed numerous complaint, alleging respondents

failure to implement the CDMP, disrespect of their rights as indigenous people, and
constant threats and harassment by armed men employed by respondent. A
regional team was later created to evaluate and assess the IFMA No. R-9-040.
Further, it was found that the facilities and other necessary implements of the area
were sub par.

For the foregoing reasons, respondents received an Order of the Cancellation of the
IFMA, The president appealed, asking that a re-investigation conducted to comply
with due process. The respondents elevated the case until the Court of Appeals
which overturned the original order on the basis of the infringement of respondents
rights to due process and against impairment of contracts.

In response to the complaints, DENR conducted an evaluation and assessment of

the area, where the department discovered that the respondents had been
misrepresenting their reports regarding the subject area of the IFMA.

ISSUE: Whether or not the license agreement (IFMA) granted by the State to
respondents is subject to the impairment clause.
HELD: No. The impairment clause does not cover licenses. An IFMA has for its
precursor the Timber License Agreement (TLA), one of the tenurial instruments
issued by the State to its grantees for the efficient management of the countrys
dwindling forest resources. Jurisprudence has been consistent in holding that license
agreements are not contracts within the purview of the due process and the non-
impairment of contracts clauses enshrined in the Constitution.

Citing Oposa v. Factoran, the court ruled, Needless to say, all licenses may thus be
revoked or rescinded by executive action. It is not a contract, property or a property
right protected by the due process clause of the constitution.

7. MISSISSIPPI V. MILLER, 276 U.S. 174

FACTS: The present case was brought by the state in the circuit courts of Hinds
County by plaintiff Robinson who had been the state revenue agent against his
immediate successor, defendant Miller, and the surety on his official bond. The
purpose is to recover amounts collected by the defendant on account of past-due
taxes for which plaintiff, while in office, had brought suits. Plaintiff claims the
authority to file such suits under Section 7056 of the Code authorized the state to
appoint deputies to sue for past-due taxes in concordance with Section 7066 and
7068, thereof, in which the latter directs the successor to allow suits commenced to
be conducted in his name provided that the person who commenced the suit shall
pay all attorneys fees and expenses thereof, and receive the commission, if any.
Plaintiff, based on these precepts, appointed deputies to assist in making collections
and agreed to pay them one half the commission allowed by the law.

Plaintiff, therefor, appointed attorneys to be paid one-fourth of the commissions,

thereby allowing him to retain 5% of the amounts collected. Certain suits brought by
plaintiff were pending before his term ended, and come remained unpaid.

The passage of c. 170, Laws 1924, amended Section 7068 and mandated the
successor of the state revenue agent to be conducted in the latters name only
upon motion and petition, showing that he has investigated its merits and believes
it is just and should be maintained, and the section declares that contracts of the
former agent with his attorneys and employees shall be binding upon the successor.
After the passage of the act, various tax payers paid defendant in the amount of
$9,784.07. However, it does not appear that defendant successor took any of the
necessary steps to carry on the suit in this name. Yet, defendant claims to be
entitled to the commissions of the plaintiff, his attorneys, and his deputies.

ISSUE: Whether or not c. 170 may be applied retroactively,

RULING: No. The selection of plaintiff to be the revenue agent amounted to a

request or direction by the state that he exert the authority and discharge all the
duties of that office. In the performance of services so required of him, plaintiff
made the investigations and brought the suits to discover and collect the delinquent
taxes. Under the statutes then in force as construed by the highest court of the
state, he thereupon became entitled to the specified percentages of the amounts
subsequently collected on account of the taxes sued for. The retroactive application
of c. 170 would take from him a part of the amount that he had theretofore earned.
That would impair the obligation of the implied contract under which he became
entitled to the commissions.

8. LIM V. REGISTER OF DEEDS OF RIZAL, O.G. 3665

FACTS: On 02 December 1940, petitioners mortgaged four parcels of land with its
improvement, described in the TCT No. 21738 of the office of the Register of Deeds
of Rizal, with the Agricultural and Industrial Bank for P10,500, payable in
installments. They had been making partial payments to the mortgage obligation
and thereafter paid the balance in full. They later executed a deed of cancellation of
the mortgage which were filed with the Register of Deeds of the City of Manila on 03
October 1944. Upon payment of the corresponding registration fees, petitioners
were issued official receipt no. 0508458. The deed of cancellation was entered into
the Day Book, Volume 9, of the Registry of Deeds on 03 October 1944, according to
the certificate issued by the Register of Deeds of Manila.

In lieu of the liberation of Manila and the owners copy of the title either having
been burned or lost during the siege, the Court of First Instance of the Province of
Rizal issued an order requiring the register of deeds o issue a new duplicate of the
title of the subject properties with the following annotation, subject to such
further disposition as the Government may adopt regarding transactions
consummated during the Japanese occupation."

Petitioners contested the annotation, and elevated the matter before the Supreme
Court after having been issued a decision against their favor.

ISSUE: Whether or not the Secretary f Justice has power or authority to order or
direct, by Circular No. 14 series of 1945 the respondent register of deeds to insert
such annotation.

RULING: No. Under section 79 (B) of the Administrative Code the Secretary of
Justice is only empowered to promulgate rules, regulations, orders, circulars and
other instructions not contrary to law, to all offices and dependencies of his
department; and compliance with the instruction in question would be contrary to
the Constitution, for it would impair the obligations of contract or deprive a person
of his property without due process of law. It can not be contended that the
Secretary of Justice issued said circular in the exercise of the police power
of the State, because Congress has not delegated such power to the
Secretary of Justice. The sovereign police power is exercised by the State through
its legislative branch; and its valid exercise may end are, generally delegated to
towns, municipalities, and cities, and sometimes also to the Chief Executive in case
of national emergency. (Primicias vs. Fugoso, L-1800, promulgated January 27,
1948, 45 Off Gaz., 3280.1) But it is well settled rule that a legislative power
delegated to a body pr person cannot be delegated by the latter to another.

9. SERRANO V. GALLANT MARITIME SERVICES, INC.

FACTS: Petitioner claims that Section 10 of Republic Act No. 8042 which provides:

Sec. 10. Money Claims. - x x x In case of termination of overseas employment

without just, valid or authorized cause as defined by law or contract, the workers
shall be entitled to the full reimbursement of his placement fee with interest of
twelve percent (12%) per annum, plus his salaries for the unexpired portion of his
employment contract or for three (3) months for every year of the unexpired
term, whichever is less.

Petitioner claims that the last clause violates the constitutional rights of OFWs in
that it impairs the terms of their contract, deprives them of equal protection, and
denies them of due process.

Petitioner was employed by respondent on a twelve-month contract and with the

promise that he would be promoted to Chief Officer with a salary of US$1,400 at
the end of April 1998. Based on this agreement, Petitioner accepted the contract
and was constrained to a downgraded employment for the position of Second
Officer with the salary of US$1,000. The respondents did not deliver on the promise,
hence, petitioner refused to stay on the ship and was repatriated on 26 May 1998.

ISSUE: Whether or not the subject clause violates the non-impairment of contracts
embodied in Section 10, Article III of the Constitution.

RULING: No. The prohibition is aligned with the general principle that laws newly
enacted have only a prospective operation, and cannot affect acts or contracts
already perfected; however, as to laws already in existence, their provisions are
read into contracts and deemed a part thereof.60 Thus, the non-impairment clause
under Section 10, Article III is limited in application to laws about to be enacted that
would in any way derogate from existing acts or contracts by enlarging, abridging or
in any manner changing the intention of the parties thereto.

As aptly observed by the OSG, the enactment of R.A. No. 8042 in 1995 preceded the
execution of the employment contract between petitioner and respondents in 1998.
Hence, it cannot be argued that R.A. No. 8042, particularly the subject clause,
impaired the employment contract of the parties. Rather, when the parties executed
their 1998 employment contract, they were deemed to have incorporated into it all
the provisions of R.A. No. 8042.

But even if the Court were to disregard the timeline, the subject clause may not be
declared unconstitutional on the ground that it impinges on the impairment clause,
for the law was enacted in the exercise of the police power of the State to regulate a
business, profession or calling, particularly the recruitment and deployment of
OFWs, with the noble end in view of ensuring respect for the dignity and well-being
of OFWs wherever they may be employed. Police power legislations adopted by the
State to promote the health, morals, peace, education, good order, safety, and
general welfare of the people are generally applicable not only to future contracts
but even to those already in existence, for all private contracts must yield to the
superior and legitimate measures taken by the State to promote public welfare.

10. BANAT V. COMELEC

FACTS: R.A. No. 9369 is a consolidation of Senate Bill No. 2231 and House Bill No.
5352 which was enacted into law four months before the 14 May 2007 local
elections. Petitioner filed the present petition assailing the constitutionality of
Sections 37 and38 of the law, among others.

Petitioners argue that Sections 37 and 38 of R.A. No. 9369 violates the Constitution
by impairing the powers of the Presidential Electoral Tribunal and the Senate
Electoral Tribunal. According to petitioner, under the amended provisions, Congress
as the National Board of Canvassers for the election of president and vice president,
and the COMELEC en banc as the national board of canvassers, for the election of
senators may now entertain pre-procalmation cases in the election of the president,
vice president, and senators. In entertaining such cases, the Congress and the
COMELEC En Banc undermine the independence and enroach ipon the jurisdiction of
the PER and the SET.

ISSUE: Whether or not Sections 37 and 28 of R.A. No. 9369 violates the impairment
clause.

RULING: No. There is no violation of the non-impairment clause. First, the non-
impairment clause is limited in application to laws that derogate from prior acts or
contracts by enlarging, abridging or in any manner changing the intention of the
parties.There is impairment if a subsequent law changes the terms of a contract
between the parties, imposes new conditions, dispenses with those agreed upon or
withdraws remedies for the enforcement of the rights of the parties.

As observed by the OSG, there is no existing contract yet and, therefore, no

enforceable right or demandable obligation will be impaired. RA 9369 was enacted
more than three months prior to the 14 May 2007 elections. Hence, when the
dominant majority and minority parties hired their respective poll watchers for the
14 May 2007 elections, they were deemed to have incorporated in their contracts all
the provisions of RA 9369.

Second, it is settled that police power is superior to the non-impairment clause. The
constitutional guaranty of non-impairment of contracts is limited by the exercise of
the police power of the State, in the interest of public health, safety, morals, and
general welfare of the community.

Therefore, assuming there were existing contracts, Section 34 would still be

constitutional because the law was enacted in the exercise of the police power of
the State to promote the general welfare of the people. We agree with the COMELEC
that the role of poll watchers is invested with public interest.

11. Goldenway merchandise v Equitable PCI

Facts: On November 29, 1985, Goldenway Merchandising Corporation (petitioner)

executed a Real Estate Mortgage in favor of Equitable PCI Bank (respondent) over
its real properties situated in Valenzuela, Bulacan (now Valenzuela City). The
mortgage secured the Two Million Pesos (P2,000,000.00) loan granted by
respondent to petitioner and was duly registered. 4 As petitioner failed to settle its
loan obligation, respondent extrajudicially foreclosed the mortgage on December
13, 2000. During the public auction, the mortgaged properties were sold
for P3,500,000.00 to respondent. Accordingly, a Certificate of Sale was issued to
respondent on January 26, 2001. On February 16, 2001, the Certificate of Sale was
registered. Petitioners counsel offered to redeem the foreclosed properties by
tendering a check in the amount of P3,500,000.00. On March 12, 2001, petitioners
counsel met with respondents counsel reiterating petitioners intention to exercise
the right of redemption.6 However, petitioner was told that such redemption is no
longer possible because the certificate of sale had already been registered.

On December 7, 2001, petitioner filed a complaint 7 for specific performance and

damages against the respondent, asserting that it is the one-year period of
redemption under Act No. 3135 which should apply and not the shorter redemption
period provided in Republic Act (R.A.) No. 8791. Petitioner argued that applying
Section 47 of R.A. 8791 to the real estate mortgage executed in 1985 would result
in the impairment of obligation of contracts and violation of the equal protection
clause under the Constitution. Additionally, petitioner faulted the respondent for
allegedly failing to furnish it and the Office of the Clerk of Court, RTC of Valenzuela
City with a Statement of Account as directed in the Certificate of Sale, due to which
petitioner was not apprised of the assessment and fees incurred by respondent,
thus depriving petitioner of the opportunity to exercise its right of redemption prior
to the registration of the certificate of sale.

It is contended that Section 47 of R.A. No. 8791 is inapplicable considering that the
contracting parties expressly and categorically agreed that the foreclosure of the
real estate mortgage shall be in accordance with Act No. 3135. Petitioner then
argues that applying Section 47 of R.A. No. 8791 to the present case would be a
substantial impairment of its vested right of redemption under the real estate
mortgage contract. Such impairment would be violative of the constitutional
proscription against impairment of obligations of contract, a patent derogation of
petitioners vested right and clearly changes the intention of the contracting
parties. Moreover, citing this Courts ruling in Rural Bank of Davao City, Inc. v. Court
of Appeals12 where it was held that "Section 119 prevails over statutes which
provide for a shorter period of redemption in extrajudicial foreclosure sales", and in
Sulit v. Court of Appeals,13 petitioner stresses that it has always been the policy of
this Court to aid rather than defeat the mortgagors right to redeem his property.

Petitioner further argues that since R.A. No. 8791 does not provide for its retroactive
application, courts therefore cannot retroactively apply its provisions to contracts
executed and consummated before its effectivity. Also, since R.A. 8791 is a general
law pertaining to the banking industry while Act No. 3135 is a special law
specifically governing real estate mortgage and foreclosure, under the rules of
statutory construction that in case of conflict a special law prevails over a general
law regardless of the dates of enactment of both laws, Act No. 3135 clearly should
prevail on the redemption period to be applied in this case.

The law governing cases of extrajudicial foreclosure of mortgage is Act No.

3135,14 as amended by Act No. 4118. Section 6 thereof provides:

SEC. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors-in-interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of

trust under which the property is sold, may redeem the same at any time within the
term of one year from and after the date of the sale; and such redemption shall be
governed by the provisions of sections four hundred and sixty-four to four hundred
and sixty-six, inclusive, of the Code of

Civil Procedure,15 in so far as these are not inconsistent with the provisions of this
Act.

The one-year period of redemption is counted from the date of the registration of
the certificate of sale. In this case, the parties provided in their real estate mortgage
contract that upon petitioners default and the latters entire loan obligation
becoming due, respondent may immediately foreclose the mortgage judicially in
accordance with the Rules of Court, or extrajudicially in accordance with Act No.
3135, as amended.

However, Section 47 of R.A. No. 8791 otherwise known as "The General Banking
Law of 2000" which took effect on June 13, 2000, amended Act No. 3135. Said
provision reads:

SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure,

whether judicially or extrajudicially, of any mortgage on real estate which is security
for any loan or other credit accommodation granted, the mortgagor or debtor whose
real property has been sold for the full or partial payment of his obligation shall
have the right within one year after the sale of the real estate, to redeem the
property by paying the amount due under the mortgage deed, with interest thereon
at the rate specified in the mortgage, and all the costs and expenses incurred by
the bank or institution from the sale and custody of said property less the income
derived therefrom. However, the purchaser at the auction sale concerned whether
in a judicial or extrajudicial foreclosure shall have the right to enter upon and take
possession of such property immediately after the date of the confirmation of the
auction sale and administer the same in accordance with law. Any petition in court
to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to
this provision shall be given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will pay all the damages
which the bank may suffer by the enjoining or the restraint of the foreclosure
proceeding.

Under the new law, an exception is thus made in the case of juridical persons which
are allowed to exercise the right of redemption only "until, but not after, the
registration of the certificate of foreclosure sale" and in no case more than three (3)
months after foreclosure, whichever comes first. 16

Issue: May the foregoing amendment be validly applied in this case when the real
estate mortgage contract was executed in 1985 and the mortgage foreclosed when
R.A. No. 8791 was already in effect?

Held: YES, Petitioners contention that Section 47 of R.A. 8791 violates the
constitutional proscription against impairment of the obligation of contract has no
basis.

The purpose of the non-impairment clause of the Constitution 20 is to safeguard the

integrity of contracts against unwarranted interference by the State. As a rule,
contracts should not be tampered with by subsequent laws that would change or
modify the rights and obligations of the parties. 21 Impairment is anything that
diminishes the efficacy of the contract. There is an impairment if a subsequent law
changes the terms of a contract between the parties, imposes new conditions,
dispenses with those agreed upon or withdraws remedies for the enforcement of the
rights of the parties.22

Section 47 did not divest juridical persons of the right to redeem their foreclosed
properties but only modified the time for the exercise of such right by reducing the
one-year period originally provided in Act No. 3135. The new redemption period
commences from the date of foreclosure sale, and expires upon registration of the
certificate of sale or three months after foreclosure, whichever is earlier. There is
likewise no retroactive application of the new redemption period because Section 47
exempts from its operation those properties foreclosed prior to its effectivity and
whose owners shall retain their redemption rights under Act No. 3135.
Petitioners claim that Section 47 infringes the equal protection clause as it
discriminates mortgagors/property owners who are juridical persons is equally
bereft of merit.

The equal protection clause is directed principally against undue favor and
individual or class privilege.1wphi1 It is not intended to prohibit legislation which is
limited to the object to which it is directed or by the territory in which it is to
operate. It does not require absolute equality, but merely that all persons be treated
alike under like conditions both as to privileges conferred and liabilities
imposed.23 Equal protection permits of reasonable classification. 24 We have ruled
that one class may be treated differently from another where the groupings are
based on reasonable and real distinctions. 25 If classification is germane to the
purpose of the law, concerns all members of the class, and applies equally to
present and future conditions, the classification does not violate the equal
protection guarantee.26

It must be underscored that the General Banking Law of 2000, crafted in the
aftermath of the 1997 Southeast Asian financial crisis, sought to reform the General
Banking Act of 1949 by fashioning a legal framework for maintaining a safe and
sound banking system.28 In this context, the amendment introduced by Section 47
embodied one of such safe and sound practices aimed at ensuring the solvency and
liquidity of our banks.1wphi1 It cannot therefore be disputed that the said
provision amending the redemption period in Act 3135 was based on a reasonable
classification and germane to the purpose of the law.

This legitimate public interest pursued by the legislature further enfeebles

petitioners impairment of contract theory.

The right of redemption being statutory, it must be exercised in the manner

prescribed by the statute,29 and within the prescribed time limit, to make it
effective. Furthermore, as with other individual rights to contract and to property, it
has to give way to police power exercised for public welfare. 30

The freedom to contract is not absolute; all contracts and all rights are subject to
the police power of the State and not only may regulations which affect them be
established by the State, but all such regulations must be subject to change from
time to time, as the general well-being of the community may require, or as the
circumstances may change, or as experience may demonstrate the
necessity.32 Settled is the rule that the non-impairment clause of the Constitution
must yield to the loftier purposes targeted by the Government. The right granted by
this provision must submit to the demands and necessities of the States power of
regulation.33 Such authority to regulate businesses extends to the banking industry
which, as this Court has time and again emphasized, is undeniably imbued with
public interest.34
12. Manila Trading Co. V Reyes

Facts: Act No. 4122, known as the Installment Sales Law, reading as follows:

AN ACT TO AMEND THE CIVIL CODE BY INSERTING BETWEEN SECTlONS

FOURTEEN HUNDRED AND FIFTY-FOUR AND FOURTEEN HUNDRED AND FIFTY-
FIVE THEREOF A NEW SECTION, TO BE KNOWN AS SECTION FOURTEEN
HUNDRED AND FIFTY-FOUR-A.

"SEC. 1454-A. In a contract for the sale of personal property payable in installments,
failure to pay two or more installments shall confer upon the vendor the right to
cancel the sale or foreclose the mortgage if one has been given the property,
without reimbursement to the purchaser of the installments already paid, if there be
an agreement to this effect.

"However, if the vendor has chosen to foreclose the mortgage he shall have no
further action against the purchaser for the recovery of any unpaid balance owing
by the same, and any agreement to the contrary shall be null and void.

"The same rule shall apply to leases of personal property with option to purchase,
when the lessor has chosen to deprive the lessee of the enjoyment of such personal
property."

On December 13, 1933 that is, subsequent to the enactment of Act No, 4122
E.M. Reyes executed in favor of the Manila Trading & Supply Co., a chattel mortgage
on an automobile as security for the payment of the sum of P400, which Reyes
agreed to pay in ten equal monthly installments. As found by the trial judge, Reyes
failed to pay some of the installments due on his obligation. Thereupon the Manila
Trading & Supply Co., proceeded to foreclose its chattel mortgage. The mortgaged
property was sold at public auction by the sheriff of the City of Manila for the sum of
P200, After applying this sum, with interest, costs, and liquidated damages to
Reyes' indebtedness, the latter owed the company a balance of P275.47, with
interest thereon at the rate of 12 percent per annum from February 19, 1934.

When Reyes failed to pay the deficiency on the debt, the company instituted an
action in the Court of First Instance of Manila for the recovery thereof. To plaintiff's
complaint defendant filed an answer in which he pleaded as a defense that plaintiff,
having chosen to foreclose its chattel mortgage, had no further action against
defendant for the recovery of the unpaid balance owed by him to plaintiff, as
provided by Act No. 4122. After trial the lower court sustained defendant's defense
and rendered a judgment absolving him from the complaint, with costs.

Issue: whether Act No. 4122, known as the Installment Sales Law is valid

Held: YES
Liberty of contract, class legislation, and equal protection of the laws

Act No. 4122 aims to correct a social and economic evil, the inordinate love for
luxury of those who, without sufficient means, purchase personal effects, and the
ruinous practice of some commercial houses of purchasing back the goods sold for a
nominal price besides keeping a part of the price already paid and collecting the
balance, with stipulated interest, costs, and attorney's fees. For instance, a
company sells a truck for P6,500. The purchaser makes down payment of P500, the
balance to be paid in twenty-four equal installments of P250 each. Pursuant to the
practice before the enactment of Act No. 4122, if the purchaser fails to pay the first
two installments, the company takes possession of the truck and has it sold to at
public auction at which sale it purchases the truck for a nominal price, at most
P500, without prejudice to its right to collect the balance of P5,500, plus interest,
costs and attorney's fees. As a consequence, the vendor does not only recover the
goods sold, used hardly two months perhaps with only slight wear and tear, but also
collects the entire stipulated purchase price, which probably swelled up fifty per
cent including interest, costs, and attorney's fees. This practice is worse than
usurious in many instances. And although, of course, the purchaser must suffer the
consequences of his imprudence and lack of foresight, the chastisement must not
be to the extent of ruining the vendor in a manner which shocks the conscience.
The object of the law is highly commendable. As to whether or not the means
employed to do away with the evil above-mentioned are arbitrary will be presently
set out.

Undoubtedly the principal object of the above amendment was to remedy the
abuses committed in connection with the foreclosure of chattel mortgages. This
amendment prevents mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a
deficiency judgment.

In other words, under this amendment, in all proceedings for the foreclosure of
chattel mortgages, executed on chattels which have been sold on the installment
plan, the mortgagee is limited to the property included in the mortgage."

As we understand it, parties have no vested right in particular remedies or modes of

procedure, and the Legislature may change existing remedies or modes of
procedure without impairing the obligation of contracts, provided an efficacious
remedy remains enforcement. But changes in the remedies available for the
enforcement of a mortgage may not, even when publicly policy is invoked as an
excuse, be pressed so far as to cut down the security of a mortgage without
moderation or reason or in a spirit of oppression.

Three remedies are available to the vendor who has sold personal property on the
installment plan. (1) He may elect to exact the fulfillment of the obligation.
(Bachrach Motor Co. vs. Millan, supra.) (2) If the vendee shall have failed to pay two
or more installments, the vendor may cancel the sale. (3) If the vendee shall have
failed to pay two or more installments, the vendor may foreclose the mortgage, if
one has been given on the property. The basis of the first option is the Civil Code.
The basis of the last two options is Act No. 4112, amendatory of the Civil Code. And
the proviso to the right to foreclose is, that if the vendor has chosen this remedy, he
shall have no further action against the purchaser for the recovery of any unpaid
balance owing by the same. In other words, as we see it, the Act does no no more
than qualify the remedy.

The controlling purpose of Act No. 4122 is revealed to be to close the door to abuses
committed in connection with the foreclosure of chattel mortgages when sales were
payable in installments. That public policy, obvious from the statute, was defined
and established by legislative authority. It is for the courts to perpetuate it.

We are of the opinion that the Legislature may change judicial methods and
remedies for the enforcement of contracts, as it has done by the enactment of Act
No. 4122, without unduly interfering with the obligation of the contracts, without
sanctioning class legislation, and without a denial of the equal protection of the
laws. We rule that Act No. 4122 is valid and enforceable. As a consequence, the
errors assigned by the appellant are overruled, and the judgment affirmed, the
costs of this instance to be taxed against the losing party.

13. Beltran V Secretary of Health

Facts: Republic Act No. 7719 or the National Blood Services Act of 1994 was enacted
into law on April 2, 1994. The Act seeks to provide an adequate supply of safe blood
by promoting voluntary blood donation and by regulating blood banks in the
country. It was approved by then President Fidel V. Ramos on May 15, 1994 and was
subsequently published in the Official Gazette on August 18, 1994. The law took
effect on August 23, 1994.

On April 28, 1995, Administrative Order No. 9, Series of 1995, constituting the
Implementing Rules and Regulations of said law was promulgated by respondent
Secretary of the Department of Health (DOH).[6]

[7]
Section 7 of R.A. 7719 provides:

Section 7. Phase-out of Commercial Blood Banks - All commercial blood banks

shall be phased-out over a period of two (2) years after the effectivity of this Act,
extendable to a maximum period of two (2) years by the Secretary.

Section 23 of Administrative Order No. 9 provides:

Section 23. Process of Phasing Out. -- The Department shall effect the phasing-
out of all commercial blood banks over a period of two (2) years, extendible for a
maximum period of two (2) years after the effectivity of R.A. 7719. The decision to
extend shall be based on the result of a careful study and review of the blood supply
and demand and public safety. [8]

Years prior to the passage of the National Blood Services Act of 1994, petitioners
have already been operating commercial blood banks under Republic Act No. 1517,
entitled An Act Regulating the Collection, Processing and Sale of Human Blood, and
the Establishment and Operation of Blood Banks and Blood Processing Laboratories.
The law, which was enacted on June 16, 1956, allowed the establishment and
operation by licensed physicians of blood banks and blood processing laboratories.
The Bureau of Research and Laboratories (BRL) was created in 1958 and was given
the power to regulate clinical laboratories in 1966 under Republic Act No. 4688. In
1971, the Licensure Section was created within the BRL. It was given the duty to
enforce the licensure requirements for blood banks as well as clinical laboratories.
Due to this development, Administrative Order No. 156, Series of 1971, was issued.
The new rules and regulations triggered a stricter enforcement of the Blood Banking
Law, which was characterized by frequent spot checks, immediate suspension and
communication of such suspensions to hospitals, a more systematic record-keeping
and frequent communication with blood banks through monthly information
bulletins. Unfortunately, by the 1980s, financial difficulties constrained the BRL to
reduce the frequency of its supervisory visits to the blood banks. [9]

In January of 1994, the New Tropical Medicine Foundation, with the assistance of the
U.S. Agency for International Development (USAID) released its final report of a
study on the Philippine blood banking system entitled Project to Evaluate the Safety
of the Philippine Blood Banking System. It was revealed that of the blood units
collected in 1992, 64.4 % were supplied by commercial blood banks, 14.5% by the
PNRC, 13.7% by government hospital-based blood banks, and 7.4% by private
hospital-based blood banks. During the time the study was made, there were only
twenty-four (24) registered or licensed free-standing or commercial blood banks in
the country. Hence, with these numbers in mind, the study deduced that each
commercial blood bank produces five times more blood than the Red Cross and
fifteen times more than the government-run blood banks. The study, therefore,
showed that the Philippines heavily relied on commercial sources of blood. The
study likewise revealed that 99.6% of the donors of commercial blood banks and
77.0% of the donors of private-hospital based blood banks are paid donors. Paid
donors are those who receive remuneration for donating their blood. Blood donors
of the PNRC and government-run hospitals, on the other hand, are mostly voluntary.
[14]

It was further found, among other things, that blood sold by persons to blood
commercial banks are three times more likely to have any of the four (4) tested
infections or blood transfusion transmissible diseases, namely, malaria, syphilis,
Hepatitis B and Acquired Immune Deficiency Syndrome (AIDS) than those donated
to PNRC.[15]

Commercial blood banks give paid donors varying rates around P50 to P150, and
because of this arrangement, many of these donors are poor, and often they are
students, who need cash immediately. Since they need the money, these donors are
not usually honest about their medical or social history. Thus, blood from healthy,
voluntary donors who give their true medical and social history are about three
times much safer than blood from paid donors. [16]

Issue: whether Section 7 of Republic Act No. 7719, otherwise known as the National
Blood Services Act of 1994, and Administrative Order (A.O.) No. 9, series of 1995 or
the Rules and Regulations Implementing Republic Act No. 7719 is unconstitutional

Held: NO

The promotion of public health is a fundamental obligation of the State. The health
of the people is a primordial governmental concern. Basically, the National Blood
Services Act was enacted in the exercise of the States police power in order to
promote and preserve public health and safety.

In the earlier discussion, the Court has mentioned of the avowed policy of the law
for the protection of public health by ensuring an adequate supply of safe blood in
the country through voluntary blood donation. Attaining this objective requires the
interference of the State given the disturbing condition of the Philippine blood
banking system.

In serving the interest of the public, and to give meaning to the purpose of the law,
the Legislature deemed it necessary to phase out commercial blood banks. This
action may seriously affect the owners and operators, as well as the employees, of
commercial blood banks but their interests must give way to serve a higher end for
the interest of the public.

The Court finds that the National Blood Services Act is a valid exercise of the States
police power. Therefore, the Legislature, under the circumstances, adopted a course
of action that is both necessary and reasonable for the common good. Police power
is the State authority to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare. [47]

It is in this regard that the Court finds the related grounds and/or issues raised by
petitioners, namely, deprivation of personal liberty and property, and violation of
the non-impairment clause, to be unmeritorious.
Petitioners likewise claim that the phase out of the commercial blood banks will be
disadvantageous to them as it will affect their businesses and existing contracts
with hospitals and other health institutions, hence Section 7 of the Act should be
struck down because it violates the non-impairment clause provided by the
Constitution.

As stated above, the State, in order to promote the general welfare, may interfere
with personal liberty, with property, and with business and occupations. Thus,
persons may be subjected to certain kinds of restraints and burdens in order to
secure the general welfare of the State and to this fundamental aim of government,
the rights of the individual may be subordinated.

Moreover, in the case of Philippine Association of Service Exporters, Inc. v. Drilon,

[50]
settled is the rule that the non-impairment clause of the Constitution must yield
to the loftier purposes targeted by the government. The right granted by this
provision must submit to the demands and necessities of the States power of
regulation. While the Court understands the grave implications of Section 7 of the
law in question, the concern of the Government in this case, however, is not
necessarily to maintain profits of business firms. In the ordinary sequence of events,
it is profits that suffer as a result of government regulation.
Furthermore, the freedom to contract is not absolute; all contracts and all rights are
subject to the police power of the State and not only may regulations which affect
them be established by the State, but all such regulations must be subject to
change from time to time, as the general well-being of the community may require,
or as the circumstances may change, or as experience may demonstrate the
necessity.[51] This doctrine was reiterated in the case of Vda. de Genuino v. Court of
Agrarian Relations[52] where the Court held that individual rights to contract and to
property have to give way to police power exercised for public welfare.

14. Surigao Del Norte (SURNECO) v ERC

Facts: 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

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 Boards review, verification, and confirmation.
In the meantime, the passage of R.A. No. 9136 6 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.

In the Order dated June 17, 2003, the ERC clarified ERBs 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 Order 7 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 Commissions

Order dated June 17, 2003 shall be based on the approved PPA Formula;

B. The computation and confirmation of the PPA after the Commissions Order
dated June 17, 2003 shall be based on the power cost "net" of discount; and

C. If the approved PPA Formula is silent on the terms of discount, the

computation and confirmation of the PPA shall be based on the power cost at
"gross," subject to the submission of proofs that said discounts are being
extended to the end-users.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

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.

Issue: whether the motion for reconsideration by SURNECO must be denied

Held: YES
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 consumers 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

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 16 17 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

The ERC was merely implementing the system loss caps in R.A. No. 7832 when it
reviewed and confirmed SURNECOS 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.
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

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.

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 laws constitutionality should also
be raised at the earliest opportunity.21

Even assuming, merely for arguments sake, that the ERC issuances violated the
NEA and ADB covenant, the contract had to yield to the greater authority of the
States 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

Philippine Association of Service Exporters vs. Drilon

FACTS:

The Petitioner, Philippine Association of Service Exporters, Inc., challenges the

Constitutional validity of Department Order No. 1, Series of 1988, which suspends
the deployment of Filipino domestic and household workers. The petitioner assailed
the said Order for it does not apply to all Filipino workers but only to domestic
helpers and females with similar skills, and is thus a discrimination against males
and females. In its supplement to the petition, PASEI, among others, claimed that
the said Department Order is to be in violation of the Charters non-impairment
clause, in addition to the great and irreparable injury that PASEI members face
should the Order be further enforced.

ISSUE:

Whether or not the assailed Order violates the non-impairment clause

HELD:

No. The non-impairment clause of the Constitution, invoked by the petitioner, must
yield to the loftier purposes targetted by the Government. 31 Freedom of contract
and enterprise, like all other freedoms, is not free from restrictions, more so in this
jurisdiction, where laissez faire has never been fully accepted as a controlling
economic way of life. This Court understands the grave implications the questioned
Order has on the business of recruitment. The concern of the Government, however,
is not necessarily to maintain profits of business firms. In the ordinary sequence of
events, it is profits that suffer as a result of Government regulation. The interest of
the State is to provide a decent living to its citizens. The Government has convinced
the Court in this case that this is its intent. We do not find the impugned Order to be
tainted with a grave abuse of discretion to warrant the extraordinary relief prayed
for.
Rutter v. Esteban constituted in favor of the plaintiff.
The deed of sale having been
FACTS: registered, a new title was issued in
favor of Placido J.Esteban with a
Royal L. Rutter sold to Placido mortgage duly annotated on the back
J.Esteban two parcels of land situated thereof.
in the city of Manila for the sum of
P9,600 of which P4,800 were paid Placido J. Esteban failed to pay the two
outright, and the balance of P4,800 installments as agreed upon, as well
was made payable as follows: P2,400 as the interest that had accrued there-
on or before August 7, 1942, and on, and so on August 2, 1949, Royal L.
P2,400 on or before August 27, 1943, Rutter instituted this action in the
with interest at the rate of 7 percent Court of First Instance of Manila to
per annum. recover the balance due, the interest
due thereon, and the attorney's fees
To secure the payment of said balance stipulated in the contract. The
of P4,800, a first mortgage over the complaint also contains a prayer for
same parcels of land has been sale of the properties mortgaged in
accordance with law. Placido J. We can see it and feel it as we gaze
Esteban admitted the averments of around to observe the wave of
the complaint, but set up a defense reconstruction and rehabilitation that
the moratorium clause embodied in has swept the country since liberation
Republic Act No. 342. thanks to the aid of America and the
innate progressive spirit of our people.
After a motion for summary judgment This aid and this spirit have worked
has been presented by the defendant, wonders in so short a time that it can
and the requisite evidence submitted now be safely stated that in the main
covering the relevant facts, the court the financial condition of our country
rendered judgment dismissing the and our people, individually and
complaint holding that the obligation collectively, has practically returned to
which plaintiff seeks to enforce is not normal notwithstanding occasional
yet demandable under the moratorium reverses caused by local dissidence
law. Plaintiff filed a motion for and the sporadic disturbance of peace
reconsideration wherein he raised for and order in our midst. Business,
the first time the constitutionality of industry and agriculture have picked
the moratorium law, but the motion up and developed at such stride that
was denied. Hence this appeal. we can say that we are now well on
the road to recovery and progress.
ISSUE: This is so not only as far as our
observation and knowledge are
Whether or not the Moratorium Law, if capable to take note and comprehend
declared applicable to the present but also because of the official
case, is unconstitutional for being pronouncements made by our Chief
violative of the constitutional provision Executive in public addresses and in
forbidding the impairment of the several messages he submitted to
obligation of contracts Congress on the general state of the
nation. To bear this out, it would
HELD: suffice for us to state some of those
public statements, which we deem to
Yes. It should be noted that Republic be most expressive and representative
Act No. 342 only extends relief to of the general situation.
debtors of pre-war obligations who
suffered from the ravages of the last In the face of the foregoing
war and who filed a claim for their observations, and consistent with
losses with the Philippine War Damage what we believe to be as the only
Commission. It is therein provided that course dictated by justice, fairness
said obligation shall not be due and and righteousness, we feel that the
demandable for a period of eight (8) only way open to us under the present
years from and after settlement of the circumstances is to declare that the
claim filed by the debtor with said continued operation and enforcement
Commission. The purpose of the law is of Republic Act No. 342 at the present
to afford to prewar debtors an time is unreasonable and oppressive,
opportunity to rehabilitate themselves and should not be prolonged a minute
by giving them a reasonabled time longer, and, therefore, the same
within which to pay their prewar debts should be declared null and void and
so as to prevent them from being without effect. And what we say here
victimized by their creditors. with respect to said Act also holds true
as regards Executive Orders Nos. 25
and, perhaps with greater force and Petitioners are hereby ordered to pay
reason as to the latter, considering per agri-year to respondent-
that said Orders contain no limitation landholders rentals in the amount
whatsoever in point of time as regards
appearing opposite their names.
the suspension of the enforcement
and effectivity of monetary Petitioners herein, Potenciano Ilusorio
obligations. And there is need to make
and Teresa Ilusorio, are co-owners of a
this pronouncement in view of the
revival clause embodied in said Act if parcel of land. The main respondents
and when it is declared herein i.e. the fifteen (15) winning
unconstitutional or invalid. tenants have for years worked on
said land under the share tenancy
system. Before the beginning of the
19. ILUSORIO VS COURT OF agricultural year 1960-1961, they
AGRARIAN RELATIONS (CAR) gave notice to the petitioners, in
conformity with the provisions of
Section 14. Change of System. - The
Section 14 of Republic Act No. 1199,
tenant shall have the right to change
as amended, that they (respondents)
the tenancy contract from one of
wanted to change their tenancy
share tenancy to the leasehold
contract from said system to leasehold
tenancy and vice versa and from one
tenancy. The Ilusorios having refused
crop-sharing arrangement to another
to agree thereto, said respondents
of the share tenancy. If the share
and three other tenants whose claims
tenancy contract is in writing and is
were dismissed by the Court of
duly registered, the right may be
Agrarian Relations instituted this
exercised at the expiration of the
proceedings, in said court, on
period of the contract. In the absence
November 16, 1960. The main defense
of any written contract, the right may
set up by petitioners herein, as
be exercised at the end of the
respondents in said court, is that the
agricultural year. In both cases the
aforementioned Section 14 of Republic
changed to the leasehold system shall
Act No. 1199, as amended, is
be effective one agricultural year after
unconstitutional, which was rejected
the tenant has served notice of his
by the lower court. Hence this appeal
intention to change upon the
in which the Ilusorios maintain: (1)
landholder.
that said provision is unconstitutional;
FACTS: In the decision of CAR, it held and (2) that the lower court had acted
that Section 14 of Republic Act No. arbitrarily in fixing the rentals
1199 is constitutional and the collectible by them from respondents
leasehold system of tenancy shall herein at 20% of the average harvest
govern the relationship of the parties, for the agricultural years 1959-1960,
except Nicodemus Magcalas and 1960-1961, and 1961-1962.
Miguel Santiago, starting with the
Petitioners assail the constitutionality
1961-1962 agri-year.
of Section 14 of Republic Act No. 1199,
as amended, upon the ground that it
violates the freedom of contract and him from being unjustly dispossessed
impairs property rights, as well as the by the transferee or purchaser of the
obligation of contracts. land; in other words, the purpose of
the law in question is to maintain the
ISSUE: WON RA 1199 violates the no- tenants in the peaceful possession and
impairment clause cultivation of the land or afford them
RULING: NO. The prohibition protection against unjustified dismissal
contained in constitutional provisions from their landholdings. Republic Act
against impairing the obligation of 1199 is unquestionably a remedial
contracts is not an absolute one and is legislation promulgated pursuant to
not to be read with literal exactness the social justice precepts of the
like a mathematical formula. Such Constitution and in the exercise of the
provisions are restricted to contracts police power of the State to promote
with respect property, or some object the common weal. It is a statute
of value, and confer rights which may relating to public subjects within the
be asserted in a court of justice, and domain of the general legislative
have no application to statute relating powers of the State and involving the
to public subjects within the domain of public rights and public welfare of the
the general legislative powers of the entire community affected by it.
State, and involving the public right Republic Act 1199, like the previous
and public welfare of the entire tenancy law enacted by our law-
community affected by it. They do not making body, was passed by Congress
prevent proper exercise by the State in compliance with the constitutional
of its police powers. By enacting mandate that "the promotion of social
regulations reasonably necessary to justice to insure the well-being and
secure the health, safety, morals, economic security of all the people
comfort, or general welfare of the should be the concern of the State"
community, even the contracts may (Art. II, sec. 5) and that "the State
thereby be affected; for such matter shall regulate the relations between
cannot be placed by contract beyond landlord and tenant ... in agriculture ...
the power of the State to regulate and ." (Art. XIV, see. 6).
control them. 20 & 21. ORTIGAS & CO., LIMITED
The provisions of law assailed as PARTNERSHIP VS. FEATI BANK
unconstitutional do not impair the AND TRUST CO.
right of the landowner to dispose or FACTS: Plaintiff Ortigas & Co. is a
alienate his property nor prohibit him limited partnership and defendant
to make such transfer or alienation; Feati Bank and Trust Co., is a
they only provide that in case of corporation duly organized and
transfer or in case of lease, as in the existing in accordance with the laws of
instant case, the tenancy relationship the Philippines. Plaintiff is engaged in
between the landowner and his tenant real estate business, developing and
should be preserved in order to insure selling lots to the public.
the well-being of the tenant or protect
Plaintiff, as vendor, and Augusto Flour Mills through a "Deed of
Padilla y Angeles and Natividad Exchange," likewise containing the
Angeles, as vendees, entered into same restrictions, although defendant-
separate agreements of sale on appellee claims that Republic Flour
installments over two parcels of land. Mills purchased the said that the lot
Thereafter, the said vendees was sold "in good faith. free from all
transferred their rights and interests liens and encumbrances,".
over the aforesaid lots in favor of one
Emma Chavez. Upon completion of Plaintiff-appellant claims that the
payment of the purchase price, the restrictions were imposed as part of its
plaintiff executed the corresponding general building scheme designed for
deeds of sale in favor of Emma the beautification and development of
Chavez. Both the agreements (of sale the Highway Hills Subdivision which
on installment) and the deeds of sale forms part of the big landed estate of
contained the stipulations or plaintiff-appellant where commercial
restrictions that: and industrial sites are also
designated or established.
1.The parcel of land subject of this
deed of sale shall be used the Buyer Defendant-appellee, upon the other
exclusively for residential purposes, hand, maintains that the area along
and she shall not be entitled to take or the western part of Epifanio de los
remove soil, stones or gravel from it or Santos Avenue (EDSA) from Shaw
any other lots belonging to the Seller. Boulevard to Pasig River, has been
declared a commercial and industrial
2.All buildings and other zone. It alleges that plaintiff-appellant
improvements (except the fence) 'completely sold and transferred to
which may be constructed at any time third persons all lots in said
in said lot must be, (a) of strong subdivision facing Epifanio de los
materials and properly painted, (b) Santos Avenue" and the subject lots
provided with modern sanitary thereunder were acquired by it for
installations connected either to the more than two (2) years after the area
public sewer or to an approved septic had been declared a commercial and
tank, and (c) shall not be at a distance industrial zone .
of less than two (2) meters from its
boundary lines. Thereafter, defendant-appellee began
laying the foundation and commenced
Eventually, defendant-appellee FEATI the construction of a building on the
BANK acquired 2 lots issued in its two lots, to be devoted to banking
name, and the building restrictions purposes, but which defendant-
were also annotated therein. appellee claims could also be devoted
to, and used exclusively for,
Defendant-appellee bought one lot residential purposes.
directly from Emma Chavez, "free from
all liens and encumbrances while the The following day, plaintiff-appellant
other lot was acquired from Republic demanded in writing that defendant-
appellee stop the construction of the never questioned before it. The rule is
commerical building on the said lots. that the question of law or of fact
The latter refused to comply with the which may be included in the
demand, contending that the building appellant's assignment of errors must
was being constructed in accordance be those which have been raised in
with the zoning regulations, the court below, and are within the
defendant-appellee having filed issues framed by the parties. The
building and planning permit object of requiring the parties to
applications with the Municipality of present all questions and issues to the
Mandaluyong, and it had accordingly lower court before they can be
obtained building and planning presented to the appellate court is to
permits to proceed with the enable the lower court to pass
construction. thereon, so that the appellate court
upon appeal may determine whether
Plaintiff-appellant alleges in its brief or not such ruling was erroneous. The
that the trial court erred requirement is in furtherance of justice
I. When it sustained the view that in that the other party may not be
Resolution No. 27, series of 1960 of taken by surprise. The rule against the
the Municipal Council of Mandaluyong, practice of blowing "hot and cold" by
Rizal declaring Lots Nos. 5 and 6, assuming one position in the trial
among others, as part of the court and another on appeal will, in
commercial and industrial zone, is the words of Elliot, prevent deception.
valid because it did so in the exercise For it is well-settled that issues or
of its police power; and defenses not raised or properly
litigated or pleaded in the Court
II.When it failed to consider whether or below cannot be raised or entertained
not the Municipal Council had the on appeal.
power to nullify the contractual
obligations assumed by defendant- (2) With regard to the contention that
appellee and when it did not make a said resolution cannot nullify the
finding that the building was erected contractual obligations assumed by
along the property line, when it should the defendant-appellee referring to
have been erected two meters away the restrictions incorporated in the
from said property line. deeds of sale and later in the
corresponding Transfer Certificates of
ISSUE: (1) whether Resolution No. 27 Title issued to defendant-appellee it
s-1960 is a valid exercise of police should be stressed, that while non-
power; and (2) whether the said impairment of contracts is
Resolution can nullify or supersede the constitutionally guaranteed, the rule is
contractual obligations assumed by not absolute, since it has to be
defendant-appellee. reconciled with the legitimate exercise
of police power, i.e., "the power to
RULING: (1) NO. In the first place, the prescribe regulations to promote the
validity of the said resolution was health, morals, peace, education, good
order or safety and general welfare of especially where lots Nos. 5 and 6 are
the people. Invariably described as located. The lots themselves not only
"the most essential, insistent, and front the highway; industrial and
illimitable of powers" and "in a sense, commercial complexes have flourished
the greatest and most powerful about the place. EDSA, a main traffic
attribute of government, the exercise artery which runs through several
of the power may be judicially inquired cities and municipalities in the Metro
into and corrected only if it is Manila area, supports an endless
capricious, 'whimsical, unjust or stream of traffic and the resulting
unreasonable, there having been a activity, noise and pollution are hardly
denial of due process or a violation of conducive to the health, safety or
any other applicable constitutional welfare of the residents in its route.
guarantee. 38 As this Court held Having been expressly granted the
through Justice Jose P. Bengzon in power to adopt zoning and subdivision
Philippine Long Distance Company vs. ordinances or regulations, the
City of Davao, et al. police power "is municipality of Mandaluyong, through
elastic and must be responsive to its Municipal 'council, was reasonably,
various social conditions; it is not, if not perfectly, justified under the
confined within narrow circumstances, in passing the subject
circumscriptions of precedents resting resolution.
on past conditions; it must follow the
legal progress of a democratic way of 22. THE LEARNING CHILD INC. VS
life." We were even more emphatic in AYALA ALABANG VILLAGE
Vda. de Genuino vs. The Court of ASSOCIATION
Agrarian Relations, et al., when We FACTS: At bar are three consolidated
declared: "We do not see why public Petitions for Review on Certiorari all
welfare when clashing with the concerning the operation of a
individual right to property should not preparatory and grade school located
be made to prevail through the state's in Ayala Alabang Village, more
exercise of its police power. particularly on a parcel of land. The
Resolution No. 27, s-1960 declaring Petitions two of the cases assail the
the western part of highway , now E. Decision and Resolution of the Court of
de los Santos Avenue (EDSA, for short) Appeals which enjoined said schools
from Shaw Boulevard to the Pasig continued operation on the ground
River as an industrial and commercial that the same is in violation of the
zone, was obviously passed by the Deed of Restrictions annotated on the
Municipal Council of Mandaluyong, title of the subject property that limits
Rizal in the exercise of police power to the use of the lot to the establishment
safeguard or promote the health, thereon of a preparatory (nursery and
safety, peace, good order and general kindergarten) school. The Petition in
welfare of the people in the locality, the third case challenges the Court of
Judicial notice may be taken of the Appeals Decision, which upheld the
conditions prevailing in the area, validity of a Muntinlupa Municipal
Resolution correcting an alleged additional grade levels as the pupils
typographical error in a zoning who initially enrolled advanced.
ordinance. The zoning ordinance, as
corrected by the challenged AAVA wrote several letters to TLC and
Muntinlupa Municipal Resolution, the spouses Alfonso, essentially (1)
classifies the subject property as protesting the TLCs and the spouses
"institutional" where the operation of a Alfonsos violation of the Deed of
grade school is allowed. Restrictions, (2) requesting them to
comply with the same, and (3)
Sometime in 1984, subdivision ordering them to desist from operating
developer Ayala Land, Inc. (ALI) sold a the grade school and from operating
parcel of land to the spouses Jose and the nursery and kindergarten classes
Cristina Yuson. In 1987, the spouses in excess of the two classrooms
Yuson sold the same to the spouses allowed by the ordinance.
Felipe and Mary Anne Alfonso. A Deed
of Restrictions was annotated in TCT AAVA filed with the Regional Trial Court
No. 149166 issued to the spouses (RTC) of Makati City an action for
Alfonso, as had been required by ALI. injunction against TLC and the
The Deed of Restrictions indicated spouses Alfonso, alleging breach of
that: The property shall be used contract by the defendant spouses,
exclusively for the establishment and particularly of the Deed of
maintenance thereon of a preparatory Restrictions, the contents of which
(nursery and kindergarten) school, likewise appear in the Deed of
which may include such installations Absolute Sale. It also alleged violation
as an office for school administration, of the Comprehensive Zoning
playground and garage for school Ordinance for the National Capital
vehicles. Region. MMC No. 81-01 classified
Ayala Alabang Village for zoning
ALI turned over the right and power to purposes as a low-density residential
enforce the restrictions on the area, or R-1, thereby limiting the use
properties in the Ayala Alabang of the subject property to the
Village, including the above establishment or operation of a
restrictions, to the association of nursery and kindergarten school,
homeowners therein, the Ayala which should not exceed two
Alabang Village Association (AAVA). classrooms. The aforementioned
barangay ordinance, on the other
In 1989, the spouses Alfonso opened hand, prohibited parking on either side
on the same lot The Learning Child of any street measuring eight meters
Center Pre-school (TLC), a preparatory in width. TLC is adjacent to Balabac
school which initially consisted of and Cordillera Streets, which are both
nursery and kindergarten classes. In less than eight meters in width. AAVA
1991, TLC was expanded to include a prayed that defendants be restrained
grade school program, the School of from continuing the operation of the
the Holy Cross, which provided school.
RULING: While a zoning ordinance need, not whimsical or oppressive, the
can override the deed of restrictions non-impairment of contracts clause of
on the use of a property on the basis the Constitution will not bar the
of the municipalitys exercise of police municipalitys exercise of police power.
power, the Court will reconcile
seemingly opposing provisions in the Impairment Clause
deed of restrictions and the zoning 23-25
ordinance rather than nullify one or
23. Lozano v Martinez
the other, particularly where, as here,
the continued enforcement of the Facts: The constitutionality of Batas
deed of restrictions is reasonable and Pambansa Bilang 22 (BP 22 for short),
the municipality was not asserting any popularly known as the Bouncing
interest or zoning purpose contrary to Check Law, which was approved on
the interest of the subdivision April 3, 1979, is the sole issue
presented by these petitions for
developer that is seeking to enforce
decision. The question is definitely one
the deed of restrictions. of first impression in our jurisdiction.
These petitions arose from cases
In Ortigas, the restriction of exclusive involving prosecution of offenses
use for residential purposes was under the statute. The defendants in
contained in the Deeds of Sale of the those cases moved seasonably to
subject properties at the insistence of quash the informations on the ground
developer Ortigas & Co. and was that the acts charged did not
annotated in the corresponding titles constitute an offense, the statute
being unconstitutional. The motions
thereof. Therein defendant Feati Bank
were denied by the respondent trial
and Trust Co. eventually acquired the courts, except in one case, which is
subject properties from the successor- the subject of G.R. No. 75789, wherein
in-interest of the original buyers; the the trial court declared the law
deeds of sale and the TCTs issued unconstitutional and dismissed the
likewise reflected the same restriction. case. The parties adversely affected
However, the then Municipal Council have come to us for relief.
of Mandaluyong, Rizal passed a Issue: Whether or not BP22
Resolution declaring the area to which contravenes the non-impairment
the subject property is situated as an clause
industrial and commercial zone.
Ortigas & Co. later on sued Feati Bank, Held: We find no valid ground to
seeking an injunction to restrain the sustain the contention that BP 22
impairs freedom of contract. The
latter from completing a commercial
freedom of contract which is
bank building on the premises. This constitutionally protected is freedom
Court held that the Mandaluyong to enter into "lawful" contracts.
Resolution was passed in the exercise Contracts which contravene public
of police power.33 Since the motives policy are not lawful. 33 Besides, we
behind the passage of the questioned must bear in mind that checks can not
resolution is reasonable, and it being a be categorized as mere contracts. It is
a commercial instrument which, in this
legitimate response to a felt public modern day and age, has become a
convenient substitute for money; it payee. Neither is there any provision
forms part of the banking system and in the statute that can be construed,
therefore not entirely free from the no matter how remotely, as undue
regulatory power of the state. delegation of executive power. The
Neither do we find substance in the suggestion that the statute unlawfully
claim that the statute in question delegates its enforcement to the
denies equal protection of the laws or offended party is farfetched.
is discriminatory, since it penalizes the
drawer of the check, but not the Lastly, the objection has been raised
payee. It is contended that the payee that Section 9 (2) of Article VII of the
is just as responsible for the crime as 1973 Constitution was violated by the
the drawer of the check, since without legislative body when it enacted BP 22
the indispensable participation of the into law. This constitutional provision
payee by his acceptance of the check prohibits the introduction of
there would be no crime. This amendments to a bill during the Third
argument is tantamount to saying Reading. It is claimed that during its
that, to give equal protection, the law Third Reading, the bill which
should punish both the swindler and eventually became BP 22 was
the swindled. The petitioners' posture amended in that the text of the
ignores the well-accepted meaning of second paragraph of Section 1 of the
the clause "equal protection of the bill as adopted on Second Reading was
laws." The clause does not preclude altered or changed in the printed text
classification of individuals, who may of the bill submitted for approval on
be accorded different treatment under Third Reading.
the law as long as the classification is
not unreasonable or arbitrary. 34 A careful review of the record of the
proceedings of the Interim Batasan on
It is also suggested that BP 22 this matter shows that, indeed, there
constitutes undue or improper was some confusion among Batasan
delegation of legislative powers, on Members on what was the exact text
the theory that the offense is not of the paragraph in question which the
completed by the sole act of the body approved on Second Reading. 36
maker or drawer but is made to Part of the confusion was due
depend on the will of the payee. If the apparently to the fact that during the
payee does not present the check to deliberations on Second Reading (the
the bank for payment but instead amendment period), amendments
keeps it, there would be no crime. The were proposed orally and approved by
logic of the argument stretches to the body or accepted by the sponsor,
absurdity the meaning of "delegation hence, some members might not have
of legislative power." What cannot be gotten the complete text of the
delegated is the power to legislate, or provisions of the bill as amended and
the power to make laws, 35 which approved on Second Reading.
means, as applied to the present case, However, it is clear from the records
the power to define the offense sought that the text of the second paragraph
to be punished and to prescribe the of Section 1 of BP 22 is the text which
penalty. By no stretch of logic or was actually approved by the body on
imagination can it be said that the Second Reading on February 7, 1979,
power to define the crime and as reflected in the approved Minutes
prescribe the penalty therefor has for that day. In any event, before the
been in any manner delegated to the bill was submitted for final approval on
Third Reading, the Interim Batasan view of its adverse effects on the
created a Special Committee to efficiency and morale of employees
investigate the matter, and the whose incentive to work is necessarily
Committee in its report, which was impaired, since their salary or a
approved by the entire body on March portion thereof goes to other persons.
22, 1979, stated that "the clause in
question was . . . an authorized To curb this unwholesome practice, it
amendment of the bill and the printed is hereby directed that henceforth no
copy thereof reflects accurately the cashier or disbursing officer shall pay
provision in question as approved on to attorneys-in-fact or other forms of
Second Reading. 37 We therefore, find authority to collect the salary of an
no merit in the petitioners' claim that employee, expect when the persons
in the enactment of BP 22 the so designated and authorized is a
provisions of Section 9 (2) of Article immediate member of the family of
VIII of the 1973 Constitution were the employee concerned, and in all
violated. other cases, except upon proper
authorization of the Assistant
24. TIRO v HONOSTAS Executive Secretary for legal and
Administrative Matters, with the
Facts: In Civil Case No. 11616 of the recommendation of the Financial
defunct Court of First Instance of Assistant.
Cebu, Zafra Financing Enterprise sued
Aurelio Tiro in his official capacity as All orders or regulations inconsistent
Superintendent of Schools in Cebu herewith are hereby revoked. This
City. It appears that Zafra had extend order shall take effect immediately.
loans to public school teachers in Cebu
City and the teachers concerned 2. Accordingly, it is desired that,
executed promissory notes and special henceforth, cashiers or disbursing
powers of attorney in favor of Zafra to officers pay the salary due any school
take and collect their salary checks employee or issue the treasury
from the Division Office in Cebu City of warrant of any teacher direct to such
the Bureau of Public Schools. However, employee or teacher, except when
Tiro forbade the collection of the authority to collect the salary or
checks on the basis of Circular No. 21. treasury warrant has been given to
another person, and the person so
Circular no. 21 provides: "PROHIBITING authorized is an immediate member of
PAYMENT OF SALARY TO PERSONS the family of the employee or teacher
OTHER THAN THE EMPLOYEE concerned.
CONCERNED:
3. Any previous regulation issued by
To Superintendents: this Office inconsistent with this
Circular is hereby revoked."
It has been observed that some
employees delegate the collection of Zafra sought to compel Tiro to honor
their salaries to attorneys-in-fact on the special powers of attorney; to
the strength of powers of attorney or declare Circular No. 21 to be illegal;
other forms of authority in favor of and to make Tiro pay attorney's fees
other persons, evidently in satisfaction and damages. The trial court granted
of obligations contracted by them. the prayer of Zafra but the claim for
This practice should be discouraged in money was disallowed on the ground
that he acted in good faith in administration of the business of each
implementing Circular No. 21.cdrep Bureau or office, and in such case said
circulars shall not be required to be
Issue: whether or not Circular No. 21 published." (Revised Administrative
is valid and enforceable Code.) cdphil

Held: The salary check of a "SEC. 21 Deductive Prohibited. No

government officer or employee such person shall make any deduction
as a teacher does not belong to him whatsoever from the salaries of
before it is physically delivered to him. teachers except under specific
Until that time the check belongs to authority of law authorizing such
the Government. Accordingly, before deductions: Provided, however, that
there is actual delivery of the check, upon written authority executed by
the payee has no power over it; he the teacher concerned, (1) lawful dues
cannot assign it without the consent of and fees owing to the Philippine Public
the Government. On this basis Circular School Teachers Association, and (2)
No. 21 stands on firm legal footing. premiums properly due on insurance
policies, shall be deductible." (Magna
The Circular is question is authorized Carta For Teachers, R.A. No. 4670.)
by relevant statutes extant when it
was issued such as the following: Zafra's claim that the Circular impairs
the obligation of contracts with the
"SEC. 79(b). Power to regulate. The teachers is baseless. For the Circular
Department Head shall have power to does not prevent Zafra from collecting
promulgate, whoever he may see fit to the loans. The Circular merely makes
do so, all rules, regulations, orders, the Government a non-participant in
circular, memorandums, not contrary their collection which is within its
to law, necessary to regulate the competence to do.
proper working and harmonious and
efficient administration of each and all
of the offices and dependencies of his
Department, and for the strict 25. Ganzon v Inserto
enforcement and proper execution of
the laws relative to matters under the Facts: May the respondent court order
jurisdiction of said Department; but that a mortgage on real property be
none of said rules or orders shall substituted by a surety bond and
prescribe penalties. All rules, direct the Register of Deeds to cancel
regulations, order or instructions of a the mortgage lien annotated on the
general and permanent character Torrens Title since the surety bond
promulgated in conformity with this already secures the obligation earlier
section shall be numbered by be secured by the cancelled mortgage?
numbered by each Department
consecutively each year, and shall be The petitioner comes to us stating that
duly published. the lower court acted with grave
abuse of discretion and in excess of its
Chiefs of Bureaus or office may, jurisdiction in so ruling.
however, be authorized to promulgate
circulars of information or instructions Petitioner Rodolfo Ganzon initiated
for the government of the officers and proceedings to extra-judicially
employees in the interior foreclose a real estate mortgage
executed by the private respondents
in his favor. The Deed of Real Estate Held: No. The questioned court orders
Mortgage executed on March 19, 1979 violate the non-impairment of
between Randolph Tajanlangit and contracts clause guaranteed under the
Esteban Tajanlangit as mortgagors on Constitution. Substitution of the
one hand and Rodolfo Ganzon as mortgage with a surely bond to secure
mortgagee on the other hand was to the payment of the P40.000.00 note
secure the payment by the would in effect change the terms and
Tajanlangits of a promissory note conditions of the mortgage contract.
amounting to P40,000.00 in favor of Even before trial on the very issues
Ganzon. affecting the contract, the respondent
court has directed a deviation from its
Thereafter, petitioner Gregorio Lira, in terms, diminished its efficiency and
his capacity as ex-oficio provincial dispensed with a primary condition.
sheriff of Iloilo served personal notice
of the foreclosure proceedings on the A mortgage is but an accessory
private respondents. Lira also caused contract. The consideration of the
the publication in a newspaper of mortgage is the same consideration of
general circulation in the City and the principal contract without which it
Province of Iloilo of a Notice of Extra cannot exist as an independent
Judicial Sale of Mortgaged Property, contract.
setting the sale at public auction of
the mortgaged property at 10:00 a.m. It is a right in rem, a lien on the
on September 28, 1979, at his office property.
at the Provincial Capitol, Iloilo City.
This conversion can not be ordered for
Before actual trial, the private it would abridge the rights of the
respondents filed a "Motion For mortgagee under the mortgage
Release Of Real Estate And For The contract.
Clerk Of Court To Accept Bond Or Cash
In Lieu Thereof," to which the Moreover, the questioned orders
petitioners interposed an Opposition. violate the non-impairment of
The respondent court granted the contracts clause guaranteed under the
respondents' motion. Constitution. Substitution of the
mortgage with a surety bond to secure
the payment of the P40,000.00 note
would in effect change the terms and
conditions of the mortgage contract.
Even before trial on the very issues
affecting the contract, the respondent
court has directed a deviation from its
terms, diminished its efficiency, and
dispensed with a primary condition
Issue: Whether or not the trial court
may order the cancellation of a
mortgage lien annotated in a Torrens
Certificate of Title to secure the 26. Pagcor v BIR
payment of a promissory note and
substitute such mortgage lien with a Facts: petitioner Philippine Amusement
surety bond approved by the same and Gaming Corporation (PAGCOR),
court to secure the payment of the seeking the declaration of nullity of
promissory note? Section 1 of Republic Act (R.A.) No.
9337 insofar as it amends Section 27 The particular amendment that is at
(c) of the National Internal Revenue issue in this case is Section 1 of R.A.
Code of 1997, by excluding petitioner No. 9337, which amended Section 27
from exemption from corporate (c) of the National Internal Revenue
income tax for being repugnant to Code of 1997 by excluding PAGCOR
Sections 1 and 10 of Article III of the from the enumeration of GOCCs that
Constitution. Petitioner further seeks are exempt from payment of corporate
to prohibit the implementation of income tax.
Bureau of Internal Revenue (BIR)
Revenue Regulations No. 16-2005 for Different groups came to this Court via
being contrary to law. petitions for certiorari and prohibition
assailing the validity and
The undisputed facts follow. constitutionality of R.A. No. 9337, in
particular:
PAGCOR was created pursuant to
Presidential Decree (P.D.) No. 1067-A2 1) Section 4, which imposes a 10%
on January 1, 1977. Simultaneous to Value Added Tax (VAT) on sale of
its creation, P.D. No. 1067-B3 goods and properties; Section 5, which
(supplementing P.D. No. 1067-A) was imposes a 10% VAT on importation of
issued exempting PAGCOR from the goods; and Section 6, which imposes a
payment of any type of tax, except a 10% VAT on sale of services and use or
franchise tax of five percent (5%) of lease of properties, all contain a
the gross revenue.4 Thereafter, on uniform proviso authorizing the
June 2, 1978, P.D. No. 1399 was issued President, upon the recommendation
expanding the scope of PAGCOR's of the Secretary of Finance, to raise
exemption. the VAT rate to 12%. The said
provisions were alleged to be violative
PAGCOR's tax exemption was removed of Section 28 (2), Article VI of the
in June 1984 through P.D. No. 1931, Constitution, which section vests in
but it was later restored by Letter of Congress the exclusive authority to fix
Instruction No. 1430, which was issued the rate of taxes, and of Section 1,
in September 1984. Article III of the Constitution on due
process, as well as of Section 26 (2),
On January 1, 1998, R.A. No. 8424,8 Article VI of the Constitution, which
otherwise known as the National section provides for the "no
Internal Revenue Code of 1997, took amendment rule" upon the last
effect. Section 27 (c) of R.A. No. 8424 reading of a bill;
provides that government-owned and
controlled corporations (GOCCs) shall 2) Sections 8 and 12 were alleged to
pay corporate income tax, except be violative of Section 1, Article III of
petitioner PAGCOR, the Government the Constitution, or the guarantee of
Service and Insurance Corporation, the equal protection of the laws, and
Social Security System, the Philippine Section 28 (1), Article VI of the
Health Insurance Corporation, and the Constitution; and
Philippine Charity Sweepstakes Office
3) other technical aspects of the
With the enactment of R.A. No. passage of the law, questioning the
933710 on May 24, 2005, certain manner it was passed.
sections of the National Internal
Revenue Code of 1997 were amended.
On September 1, 2005, the Court BEING REPUGNANT TO THE NON-
dismissed all the petitions and upheld IMPAIRMENT [CLAUSE] EMBODIED IN
the constitutionality of R.A. No. SECTION 10, ARTICLE III OF THE 1987
9337.12 CONSTITUTION.

On the same date, respondent BIR Held: The non-impairment clause is

issued Revenue Regulations (RR) No. contained in Section 10, Article III of
16-2005,13 specifically identifying the Constitution, which provides that
PAGCOR as one of the franchisees no law impairing the obligation of
subject to 10% VAT imposed under contracts shall be passed. The non-
Section 108 of the National Internal impairment clause is limited in
Revenue Code of 1997, as amended application to laws that derogate from
by R.A. No. 9337. prior acts or contracts by enlarging,
abridging or in any manner changing
Gross Receipts of all other franchisees, the intention of the parties.29 There is
other than those covered by Sec. 119 impairment if a subsequent law
of the Tax Code, regardless of how changes the terms of a contract
their franchisees may have been between the parties, imposes new
granted, shall be subject to the 10% conditions, dispenses with those
VAT imposed under Sec.108 of the Tax agreed upon or withdraws remedies
Code. This includes, among others, the for the enforcement of the rights of
Philippine Amusement and Gaming the parties.
Corporation (PAGCOR), and its
licensees or franchisees. As regards franchises, Section 11,
Article XII of the Constitution31
Petitioner further contends that provides that no franchise or right
Section 1 (c) of R.A. No. 9337 is null shall be granted except under the
and void ab initio for violating the non- condition that it shall be subject to
impairment clause of the Constitution. amendment, alteration, or repeal by
Petitioner avers that laws form part of, the Congress when the common good
and is read into, the contract even so requires.
without the parties expressly saying
so. Petitioner states that the private In Manila Electric Company v. Province
parties/investors transacting with it of Laguna, the Court held that a
considered the tax exemptions, which franchise partakes the nature of a
inure to their benefit, as the main grant, which is beyond the purview of
consideration and inducement for their the non-impairment clause of the
decision to transact/invest with it. Constitution.The pertinent portion of
Petitioner argues that the withdrawal the case states:
of its exemption from corporate
income tax by R.A. No. 9337 has the While the Court has, not too
effect of changing the main infrequently, referred to tax
consideration and inducement for the exemptions contained in special
transactions of private parties with it; franchises as being in the nature of
thus, the amendatory provision is contracts and a part of the
violative of the non-impairment clause inducement for carrying on the
of the Constitution. franchise, these exemptions,
nevertheless, are far from being
Issue: WHETHER OR NOT SEC 1 of RA strictly contractual in nature.
9337 IS NULL AND VOID AB INITIO FOR Contractual tax exemptions, in the real
sense of the term and where the non- corporate income tax, which may
impairment clause of the Constitution affect any benefits to PAGCORs
can rightly be invoked, are those transactions with private parties, is
agreed to by the taxing authority in not violative of the non-impairment
contracts, such as those contained in clause of the Constitution.
government bonds or debentures,
lawfully entered into by them under Anent the validity of RR No. 16-2005,
enabling laws in which the the Court holds that the provision
government, acting in its private subjecting PAGCOR to 10% VAT is
capacity, sheds its cloak of authority invalid for being contrary to R.A. No.
and waives its governmental 9337. Nowhere in R.A. No. 9337 is it
immunity. Truly, tax exemptions of this provided that petitioner can be
kind may not be revoked without subjected to VAT. R.A. No. 9337 is clear
impairing the obligations of contracts. only as to the removal of petitioner's
These contractual tax exemptions, exemption from the payment of
however, are not to be confused with corporate income tax, which was
tax exemptions granted under already addressed above by this
franchises. A franchise partakes the Court.
nature of a grant which is beyond the
purview of the non-impairment clause s pointed out by petitioner, although
of the Constitution. Indeed, Article XII, R.A. No. 9337 introduced amendments
Section 11, of the 1987 Constitution, to Section 108 of R.A. No. 8424 by
like its precursor provisions in the imposing VAT on other services not
1935 and the 1973 Constitutions, is previously covered, it did not amend
explicit that no franchise for the the portion of Section 108 (B) (3) that
operation of a public utility shall be subjects to zero percent rate services
granted except under the condition performed by VAT-registered persons
that such privilege shall be subject to to persons or entities whose
amendment, alteration or repeal by exemption under special laws or
Congress as and when the common international agreements to which the
good so requires. Philippines is a signatory effectively
subjects the supply of such services to
In this case, PAGCOR was granted a 0% rate.
franchise to operate and maintain
gambling casinos, clubs and other
recreation or amusement places,
sports, gaming pools, i.e., basketball, Petitioner's exemption from VAT under
football, lotteries, etc., whether on Section 108 (B) (3) of R.A. No. 8424
land or sea, within the territorial has been thoroughly and extensively
jurisdiction of the Republic of the discussed in Commissioner of Internal
Philippines.36 Under Section 11, Revenue v. Acesite (Philippines) Hotel
Article XII of the Constitution, Corporation.39 Acesite was the owner
PAGCORs franchise is subject to and operator of the Holiday Inn Manila
amendment, alteration or repeal by Pavilion Hotel. It leased a portion of
Congress such as the amendment the hotels premises to PAGCOR. It
under Section 1 of R.A. No. 9377. incurred VAT amounting to
Hence, the provision in Section 1 of P30,152,892.02 from its rental income
R.A. No. 9337, amending Section 27 and sale of food and beverages to
(c) of R.A. No. 8424 by withdrawing PAGCOR from January 1996 to April
the exemption of PAGCOR from 1997. Acesite tried to shift the said
taxes to PAGCOR by incorporating it in from taxes persons or entities
the amount assessed to PAGCOR. contracting with PAGCOR in casino
However, PAGCOR refused to pay the operations. Although, differently
taxes because of its tax-exempt worded, the provision clearly exempts
status. PAGCOR paid only the amount PAGCOR from indirect taxes. In fact, it
due to Acesite minus VAT in the sum of goes one step further by granting tax
P30,152,892.02. Acesite paid VAT in exempt status to persons dealing with
the amount of P30,152,892.02 to the PAGCOR in casino operations. The
Commissioner of Internal Revenue, unmistakable conclusion is that
fearing the legal consequences of its PAGCOR is not liable for the P30,
non-payment. In May 1998, Acesite 152,892.02 VAT and neither is Acesite
sought the refund of the amount it as the latter is effectively subject to
paid as VAT on the ground that its zero percent rate under Sec. 108 B (3),
transaction with PAGCOR was subject R.A. 8424. (Emphasis supplied.)
to zero rate as it was rendered to a
tax-exempt entity. Indeed, by extending the exemption to
entities or individuals dealing with
PAGCOR, the legislature clearly
granted exemption also from indirect
Petitioner contends that the above tax taxes. It must be noted that the
exemption refers only to PAGCOR's indirect tax of VAT, as in the instant
direct tax liability and not to indirect case, can be shifted or passed to the
taxes, like the VAT. buyer, transferee, or lessee of the
goods, properties, or services subject
We disagree. to VAT. Thus, by extending the tax
exemption to entities or individuals
A close scrutiny of the above provisos dealing with PAGCOR in casino
clearly gives PAGCOR a blanket operations, it is exempting PAGCOR
exemption to taxes with no distinction from being liable to indirect taxes.
on whether the taxes are direct or
indirect. We are one with the CA ruling Assailed section constitutional.
that PAGCOR is also exempt from
indirect taxes, like VAT, as follows:

Under the above provision [Section 13

(2) (b) of P.D. 1869], the term
"Corporation" or operator refers to
PAGCOR. Although the law does not
specifically mention PAGCOR's
exemption from indirect taxes,
PAGCOR is undoubtedly exempt from
such taxes because the law exempts