EN BANC

REPUBLIC OF THE PHILIPPINES, G.R. No. 152578

Represented by the Presidential
Commission on Good Government,
Petitioner,
Present:
DAVIDE, JR., C.J.,
- versus - PUNO,
PANGANIBAN,
QUISUMBING,
YNARES-SANTIAGO,
ESTATE OF HANS MENZI SANDOVAL-GUTIERREZ,
(Through its Executor, CARPIO,
MANUEL G. MONTECILLO), AUSTRIA-MARTINEZ,
EMILIO T. YAP, EDUARDO CORONA,
M. COJUANGCO, JR., CARPIO-MORALES,
ESTATE OF FERDINAND CALLEJO, SR.,
MARCOS, SR., and IMELDA AZCUNA,
R. MARCOS, TINGA,
Respondents. CHICO-NAZARIO, and GARCIA, JJ.

Promulgated:

November 23, 2005

x----------------------------------------- x

EDUARDO M. COJUANGCO, JR., G.R. No. 154487

Petitioner,

- versus

REPUBLIC OF THE PHILIPPINES,

Respondent.

x ------------------------------------x
ESTATE OF HANS M. MENZI G.R. No. 154518
(Through its Executor, Manuel G.
Montecillo), and HANS M. MENZI
HOLDINGS AND MANAGEMENT,
INC. (HMHMI),
Petitioners,

- versus

REPUBLIC OF THE PHILIPPINES,

(represented by the PRESIDENTIAL
COMMISSION ON GOOD
GOVERNMENT),
Respondents.
x-------------------------------------------------------------------x

DECISION

TINGA, J.:

In the hope-filled but problem-laden aftermath of the EDSA

Revolution, President Corazon C. Aquino issued Executive Order (EO)
No. 1, creating the Presidential Commission on Good Government
(PCGG) tasked with, among others, the recovery of all ill-gotten
wealth accumulated by former President Ferdinand Marcos, his
immediate family, relatives, subordinates and close associates. This
was followed by EO Nos. 2 and 14, respectively freezing all assets and
properties in the Philippines in which the former President, his wife,
their close relatives, subordinates, business associates, dummies,
agents or nominees have any interest or participation, and defining
the jurisdiction over cases involving the ill-gotten wealth. Pursuant
to the executive orders, several writs of sequestration were issued by
the PCGG in pursuit of the reputedly vast Marcos fortune.
 Following a lead that Marcos had substantial holdings in
Bulletin Publishing Corporation (Bulletin), the PCGG issued a Writ of
Sequestration dated April 22, 1986, sequestering the shares of
Marcos, Emilio T. Yap (Yap), Eduardo M. Cojuangco, Jr. (Cojuangco),
and their nominees and agents in Bulletin.

This was followed by another Writ of Sequestration issued on

February 12, 1987, this time sequestering the shares of stock, assets,
properties, records and documents of Hans Menzi Holdings and
Management, Inc. (HMHMI).

The Republic then instituted before the Sandiganbayan on July

29, 1987, a complaint for reconveyance, reversion, accounting,
restitution and damages entitled Republic of the Philippines v. Emilio
T. Yap, Manuel G. Montecillo, Eduardo M. Cojuangco, Jr., Cesar C.
Zalamea, Ferdinand E. Marcos and Imelda R. Marcos and docketed as
Civil Case No. 0022. The complaint substantially averred that Yap
knowingly and willingly acted as the dummy, nominee or agent of the
Marcos spouses in appropriating shares of stock in domestic
corporations such as the Bulletin, and for the purpose of preventing
disclosure and recovery of illegally obtained assets. It also averred
that Cesar Zalamea (Zalamea) acted, together with Cojuangco, as
dummies, nominees and/or agents of the Marcos spouses in
acquiring substantial shares in Bulletin in order to prevent
disclosure and recovery of illegally obtained assets, and that Zalamea
established, together with third persons, HMHMI which acquired
Bulletin.

On March 10, 1988, the complaint was amended joining

Cojuangco as Zalameas co-actor instead of mere collaborator. The
complaint was amended for the second time on October 17, 1990.
The amendment consisted of dropping Zalamea as defendant in view
of the Deed of Assignment dated October 15, 1987 which he
executed, assigning, transferring and ceding to the Government the
121,178 Bulletin shares registered in his name. These shares, as will
be explained forthwith, formed part of the 214,424.5 shares (214
block) which became the subject of a case[1] that reached this Court.

The Second Amended Complaint also included the Estate of

Hans M. Menzi (Estate of Menzi), through its executor, Atty. Manuel
G. Montecillo (Atty. Montecillo), as one of the defendants.

The issues presented for resolution as stated in the

Sandiganbayans Pre-Trial Order dated November 11, 1991 were:

1) Whether or not the sale of 154,470 shares of stock of

Bulletin Publishing Co., Inc., subject of this case by the late
Hans M. Menzi to the U.S. Automotive Co. Inc. is valid and
legal; and

2) Whether or not the shares of stock of Bulletin Publishing

Co. Inc. registered and/or issued in the name of defendants
Emilio T. Yap, Eduardo Cojuangco, Jr., Cesar Zalamea and the
late Hans M. Menzi (and/or his estate and/or his holding
company, HM Holding & Investment Corp.) are ill-gotten wealth
of the defendants Marcos spouses.

Make of record the oral manifestation of Atty. Estelito

Mendoza, counsel for defendant Eduardo Cojuangco. That: (a)
whether or not the said 154,470 shares of stock of Bulletin
Publishing Co. Inc. legally belonged to the late Hans Menzi before
he sold the same to U.S. Automotive Co. Inc. and (b) whether or
not plaintiff Republic is entitled to the same, should also be
threshed out during the trial on the merits.[2]

After protracted proceedings which spawned a number of

cases[3] that went up to this Court, the Sandiganbayan rendered
a Decision[4] dated March 14, 2002,[5] the dispositive portion of which
states:

WHEREFORE, judgment is hereby rendered:

1. Declaring that the following Bulletin shares are the ill-
gotten wealth of the defendant Marcos spouses:

A. The 46,626 Bulletin shares in the name of defendant

Eduardo M. Cojuangco, Jr., subject of the Resolution of the
Supreme Court dated April 15, 1988 in G.R. No. 79126.

Pursuant to alternative A mentioned therein, plaintiff

Republic of the Philippines through the PCGG is hereby
declared the legal owner of these shares, and is further
directed to execute, in accordance with the Agreement which
is entered into with Bulletin Publishing Corporation on June
9, 1988, the necessary documents in order to effect transfer
of ownership over these shares to the Bulletin Publishing
Corporation.

B. The 198,052.5 Bulletin shares in the names of:

No. of Shares
Jose Y. Campos 90,866.5
Eduardo M. Cojuangco, Jr. 90,877
Cesar C. Zalamea 16,309
Total 198,052.5

which they transferred to HM Holdings and Management,

Inc. on August 17, 1983, and which the latter sold to Bulletin
Publishing Corporation on February 21, 1986. The proceeds
from this sale are frozen pursuant to PCGGs Writ of
Sequestration dated February 12, 1987, and this writ is the
subject of the Decision of the Supreme Court dated January
31, 2002 in G.R. No. 135789.

Accordingly, the proceeds from the sale of these 198,052.5

Bulletin shares, under Philtrust Bank Time Deposit
Certificate No. 136301 dated March 3, 1986 in the amount
of P19,390,156.68 plus interest earned, in the amount of
P104,967,112.62 as of February 28, 2002, per Philtrust
Banks Motion for Leave to Intervene and to consign the
Proceeds of Time Deposits of HMHMI, filed on February 28,
2002 with the Supreme Court in G.R. No. 135789, are
 hereby declared forfeited in favor of the plaintiff Republic of
the Philippines.

2. Ordering the defendant Estate of Hans M. Menzi

through its Executor, Manuel G. Montecillo, to surrender for
cancellation the original eight Bulletin certificates of stock in
its possession, which were presented in court as Exhibits .,
which are part of the 212,424.5 Bulletin shares subject of
the Resolution of the Supreme Court dated April 15, 1988 in
G.R. No. 79126.

3. Declaring that the following Bulletin shares

are not the ill-gotten wealth of the defendant Marcos
spouses:

a. The 154,472 Bulletin shares sold by the late Hans

M. Menzi to U.S. Automotive Co., Inc., the sale thereof
being valid and legal;

b. The 2,617 Bulletin shares in the name of defendant

Emilio T. Yap which he owns in his own right; and

c. The 1 Bulletin share in the name of the Estate of

Hans M. Menzi which it owns in its own right.

4. Dismissing, for lack of sufficient evidence,

plaintiffs claim for damages, and defendants respective
counterclaims.

SO ORDERED.[6]

In the present consolidated petitions, the foregoing

Sandiganbayan Decision is assailed on different grounds.

The Republic, in G.R. No. 152758, assails the afore-

quoted Decision insofar as it declared as not ill-gotten wealth of the
Marcos spouses the 154,472 shares (154 block) sold by Menzi to U.S.
Automotive Co., Inc. (US Automotive) and dismissed the Republics
claim for damages.

In G.R. No. 154487, Cojuangco questions paragraphs 1 and 2

of the Sandiganbayan Decision.

In G.R. No. 154518, on the other hand, the Estate of Menzi

imputes grave error and misinterpretation of facts and evidence
against the Sandiganbayan in declaring that the 46,626 Bulletin
shares in the name of Cojuangco, and the 198,052.5 shares (198
block) in the names of Jose Campos (Campos), Cojuangco and
Zalamea are ill-gotten wealth of the Marcoses.

The three blocks of Bulletin shares of stock subject of these

consolidated petitions are:

1. 154,472 shares (154 block) sold by the late Menzi

and/or Atty. Montecillo to US Automotive on May 15, 1985
for P24,969,200.09;

2. 198,052.50 (198 block) issued and registered in the

names of Campos, Cojuangco, and Zalamea which were
transferred to HMHMI and subsequently sold by HMHMI
(through Atty. Montecillo) to Bulletin on February 21, 1986
for P23,675,195.85; and

3. 214,424.5 shares (214 block) issued and registered in

the names of Campos, Cojuangco, and Zalamea which were
the subject of the unanimous Resolution of this Court,
through Mr. Chief Justice Claudio Teehankee, in Bulletin v.
PCGG[7](Teehankee Resolution) dated April 15, 1988 and the
Sandiganbayan Resolutions dated January 2, 1995 and April
25, 1996 in Civil Case No. 0022.

For clarity of presentation, the 154 block, which is the subject

of the Republics petition in G.R. No. 152578, is treated separately
from the 198 and 214 blocks, which are the subjects of the petitions
in G.R. No. 154487 and G.R. No. 154518.

154 Block

In 1957, Menzi purchased the entire interest in Bulletin from

its founder and owner, Mr. Carson Taylor. In 1961, Yap, owner of US
Automotive, purchased Bulletin shares from Menzi and became one
of the corporations major stockholders.

On April 2, 1968, a stock option was executed by and between

Menzi and Menzi and Co. on the one hand, and Yap and US
Automotive on the other, whereby the parties gave the each other
preferential right to buy the others Bulletin shares.

On April 22, 1968, the stockholders of Bulletin approved certain

amendments to Bulletins Articles of Incorporation, consisting of
some restrictions on the transfer of Bulletin shares to non-
stockholders.[8] The amendments were approved by the Board of
Directors of Bulletin and by the Securities and Exchange
Commission (SEC).

Several years later, on June 5, 1984, Atty. Amorsolo V. Mendoza

(Atty. Mendoza), Vice President of US Automotive, executed a
promissory note with his personal guarantee in favor of Menzi,
promising to pay the latter the sum of P21,304,921.16 with interest
at 18% per annum as consideration for Menzis sale of his 154 block
on or before December 31, 1984.

One day after Menzis death on June 27, 1984, a petition for the
probate of his last will and testament was filed in the Regional Trial
Court (RTC) of Manila, Branch 29, by the named executor, Atty.
Montecillo, and docketed as Special Proceeding No. 84-25244.
 On January 10, 1985, Atty. Montecillo filed a motion praying
for the confirmation of the sale to US Automotive of Menzis 154 block.
The probate court confirmed the sale in its Order dated February 1,
1985.

Accordingly, on May 15, 1985, Atty. Montecillo received from US

Automotive two (2) checks in the amounts of P21,304,778.24
and P3,664,421.85 in full payment of the agreed purchase price and
interest for the sale of the 154 block. On the same day, Atty.
Montecillo signed a company voucher acknowledging receipt of the
payment for the shares, indicating on the dorsal portion thereof the
certificate numbers of the 12 stock certificates covering the 154
block, the number of shares covered by each certificate and the date
of issuance thereof.
Atty. Montecillo also wrote on the lower portion of the
promissory note executed by Atty. Mendoza the words Paid May 15,
1985 (signed) M.G. Montecillo, Executor of the Estate of Hans M.
Menzi.

Upon these facts, the Sandiganbayan ruled that the sale of the
154 block to US Automotive is valid and legal. According to the
Sandiganbayan, the sale was made pursuant to the stock option
executed in 1968 between the parties to the sale. Negotiations took
place and were concluded before Menzis death, and full payment was
made only after the probate court had judicially confirmed the sale.

The Sandiganbayan dismissed the Republics claim, based on

the affidavit of Mariano B. Quimson, Jr. (Quimson) dated October 9,
1986, that the sale should be nullified because US Automotive only
acted as a dummy of Marcos who was the real buyer of the shares.
According to the court, the Republic failed to overcome its burden of
proof since Quimsons affidavit was not corroborated by other
evidence and was, in fact, refuted by Atty. Montecillo.

In its Memorandum[9] dated July 7, 2003 in G.R. No. 152578,

the Republic argues that the Sandiganbayan failed to take into
account the fact that despite Menzis claim that he acquired Bulletin
in 1957, he did not include any Bulletin shares in his Last Will and
Testament executed in 1977. Atty. Montecillo, the executor of Menzis
estate, likewise did not include any Bulletin share in the initial
inventory of Menzis properties filed on May 15, 1985. Neither were
any Bulletin shares declared by Atty. Montecillo even after the
probate court issued an Order dated November 17, 1992 for the
submission of an updated inventory of Menzis assets.

The Republic claims that despite these circumstances, coupled

with Quimsons affidavit detailing how Marcos used his dummies to
conceal his control over Bulletin, as well as the letters and
correspondence between Marcos and Menzi indicating that Menzi
consistently updated Marcos on the affairs of Bulletin, the
Sandiganbayan ruled that the 154 block was not ill-gotten wealth of
the Marcoses. The Sandiganbayans erroneous inference allegedly
warrants a review of its findings.

Moreover, the Republic disputes the Sandiganbayans ruling

that it heavily leaned on the affidavit of Quimson without presenting
any other corroborating evidence.[10] It argues that in the proceedings
before the PCGG, Quimson was subjected to cross-examination by
the lawyers of Bulletin which is controlled by Yap. Further, the
evidence it presented before the PCGG purportedly showing that the
transfer of Bulletin shares from Menzi to US Automotive was
undertaken due to pressure exerted by Marcos on Menzi should have
been taken into account.

The Republic insists that the sale between Menzi and U.S.
Automotive was a sham because the parties failed to comply with the
basic requirement of a deed of sale in the transfer of the subject
shares. Further, a number of questions were allegedly not resolved,
such as: (a) Who was the seller of the subject sharesthe late Menzi as
the alleged owner or Atty. Montecillo as then special administrator
and later executor of Menzis estate; (b) If Menzi sold the shares, was
there a need to confirm the sale? If Atty. Montecillo was the one who
sold them, what was his authority to sell the said shares?

The Republic also contends that Menzi and Yap were both
dummies of the late President Marcos, used by the latter in order to
conceal his interest in Bulletin. Hence, the 154 block should also
have been declared ill-gotten wealth and forfeited in favor the
Government.

The foregoing allegedly warrants the award of damages in favor

of the Republic which the Sandiganbayan erroneously failed to do.

The Republic, therefore, prays that the

Sandiganbayan Decision, insofar as it declares the sale of the 154
block to be valid and legal, be reconsidered and judgment accordingly
rendered declaring the 154 block as ill-gotten wealth, forfeiting the
same or the proceeds thereof in favor of the Republic, and awarding
actual, temperate and nominal damages in the Courts discretion,
moral damages in the amount of 50 Billion Pesos, exemplary
damages of 1 Billion Pesos, attorneys fees, litigation expenses and
treble judicial costs.
The Estate of Menzi and HMHMI filed a Memorandum[11] dated
March 10, 2005, averring that the Republic failed to adduce evidence
of any kind that the 154 block was ill-gotten wealth of the Marcoses.
They claim that the requirements for a valid transfer of stocks,
namely: (1) there must be delivery of the stock certificate; (2) the
certificate must be indorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and (3) the
transfer must be recorded in the books of the corporation in order to
be valid against third parties, have all been met.

The parties to the sale allegedly confirm the indorsement and

delivery of the Bulletin shares of stock representing the 154 block.
The requirement that the transfer be recorded in the books of the
corporation was also met because US Automotive exercised its rights
as shareholder.
 It is also allegedly immaterial whether it was Menzi or Atty.
Montecillo who indorsed the stock certificates. If it was Menzi, then
his indorsement was an act of ownership; if it was Montecillo, then
the indorsement was pursuant to the duly executed General Power
of Attorney filed with the SEC and, subsequently, on the basis of his
authority as Special Administrator and Executor of Menzis estate.

In his Memorandum[12] dated May 10, 2005, Yap also maintains

that the sale of the 154 block was valid and legal. The non-inclusion
of the said block of shares in the inventory of Menzis estate was
purportedly due to the fact that the same had, by then, been sold to
US Automotive. Yap also claims that Atty. Montecillo was duly
authorized to effect the sale by virtue of the General Power of
Authority and the Last Will and Testament executed by Menzi.

The absence of a deed of sale evidencing the sale is allegedly not

irregular because the law itself does not require any deed for the
validity of the transfer of shares of stock, it being sufficient that such
transfer be effected by delivery of the stock certificates duly indorsed.
At any rate, a duly notarized Receipt covering the sale was
executed.[13]

Moreover, the BIR certified that the Estate of Menzi paid the
final tax on capital gains derived from the sale of the 154 block and
authorized the Corporate Secretary to register the transfer of the said
shares in the name of US Automotive. Further, a stock certificate
covering the 154 block was issued to US Automotive by Quimson
himself as Corporate Secretary.

Sec. 63 of the Corporation Code provides the requisites for a

valid transfer of shares:
 Sec. 63. Certificate of stock and transfer of shares.The
capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice-
president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall
be issued in accordance with the by-laws. Shares of stock
so issued are personal property and may be transferred
by delivery of the certificate or certificates indorsed by
the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the
date of the transfer, the number of the certificate or
certificates and the number of shares transferred.

No shares of stock against which the corporation holds

any unpaid claim shall be transferable in the books of the
corporation. [Emphasis supplied]

The Corporation Code acknowledges that the delivery of a duly

indorsed stock certificate is sufficient to transfer ownership of shares
of stock in stock corporations. Such mode of transfer is valid between
the parties. In order to bind third persons, however, the transfer must
be recorded in the books of the corporation.

Clearly then, the absence of a deed of assignment is not a fatal

flaw which renders the transfer invalid as the Republic posits. In fact,
as has been held in Rural Bank of Lipa City, Inc. v. Court of
Appeals,[14] the execution of a deed of sale does not necessarily make
the transfer effective.

In that case, petitioners argued that by virtue of the deed of

assignment, private respondents had relinquished to them all their
rights as stockholders of the bank. This Court, however, ruled that
the delivery of the stock certificate duly indorsed by the owner is the
operative act that transfers the shares. The absence of delivery is a
fatal defect which is not cured by mere execution of a deed of
assignment. Consequently, petitioners, as mere assignees, cannot
enjoy the status of a stockholder, cannot vote nor be voted for, and
will not be entitled to dividends, insofar as the assigned shares are
concerned.

There appears to be no dispute in this case that the stock

certificates covering the 154 block were duly indorsed and delivered
to the buyer, US Automotive. The parties to the sale, in fact, do not
question the validity and legality of the transfer.

The objection raised by the Republic actually concerns the

authority of Atty. Montecillo, the executor of Menzis estate, to indorse
the said certificates. However, Atty. Montecillos authority to negotiate
the transfer and execute the necessary documents for the sale of the
154 block is found in the General Power of Attorney executed by
Menzi on May 23, 1984, which specifically authorizes Atty. Montecillo
[T]o sell, assign, transfer, convey and set over upon such
consideration and under such terms and conditions as he may deem
proper, any and all stocks or shares of stock, now standing or which
may thereafter stand in my name on the books of any and all
company or corporation, and for that purpose to make, sign and
execute all necessary instruments, contracts, documents or acts of
assignment or transfer.[15]

Atty. Montecillos authority to accept payment of the purchase

price for the 154 block sold to US Automotive after Menzis death
springs from the latters Last Will and Testament and the Order of the
probate court confirming the sale and authorizing Atty. Montecillo to
accept payment therefor. Hence, before and after Menzis death, Atty.
Montecillo was vested with ample authority to effect the sale of the
154 block to US Automotive.

That the 154 block was not included in the inventory is

plausibly explained by the fact that at the time the inventory of the
assets of Menzis estate was taken, the sale of the 154 block had
already been consummated. Besides, the non-inclusion of the
proceeds of the sale in the inventory does not affect the validity and
legality of the sale itself.

At any rate, the Sandiganbayans factual findings that the 154

block was sold to US Automotive while Menzi was still alive, and that
Atty. Montecillo merely accepted payment by virtue of the authority
conferred upon him by Menzi himself are conclusive upon this Court,
supported, as they are, by the evidence on record.[16] As held by the
Sandiganbayan:

The sale was made pursuant to the Stock Option executed

in 1968 between the parties to the sale, considering the
restrictions contained in Bulletins Articles of Incorporation
as amended in 1968 limiting the transferability of its shares.
Negotiations for the sale took place and were concluded
before the death of Menzi. After his death, full payment of
the entire consideration of the sale, principal and interest,
was made only after judicial confirmation thereof in the
Probate Case. The transaction was duly supported by the
corresponding receipt, voucher, cancelled checks, cancelled
promissory note, and BIR certification of payment of the
corresponding taxes due thereon.[17]

The Supreme Court is not a trier of facts. It is not our function

to examine and weigh all over again the evidence presented by the
parties in the proceedings before the Sandiganbayan.[18]

It is also significant that even Quimsons affidavit does not state,

in a categorical manner, that Yap was a Marcos dummy used by the
latter to conceal his Bulletin shareholdings. In contrast, Quimson
unqualifiedly declared that Campos, Cojuangco and Zalamea were
the former dictators nominees to Bulletin.[19]

We, therefore, agree with the Sandiganbayan that the sale of the
154 block to US Automotive was valid and legal.

198 and 214 blocks

HMHMI was incorporated on May 20, 1982 by Menzi, Campos,
Cojuangco, Rolando C. Gapud (Gapud) and Zalamea, with an
authorized capital stock of P1,000,000.00 divided into 100,000
shares with par value of P10.00 each.

A Deed of Transfer and Conveyance was executed by Menzi,

Campos, Cojuangco and Zalamea on August 17, 1983, transferring
the shares of stock registered in their names in various corporations
to HMHMI in exchange for 6,000,000 shares of the latters capital
stock, subject to the approval by the SEC of HMHMIs Certificate of
Increase of Capital Stock. The shares of stock transferred included
the 198 block of Bulletin shares, 90,866.5 of which were registered
in the name of Campos; 90,877 in the name of Cojuangco; and
16,309 in the name of Zalamea.

On February 14, 1984, HMHMI amended its Articles of

Incorporation by increasing its authorized capital stock
to P100,000,000.00 divided into 10,000,000 shares with par value of
P10.00 per share.

On January 15, 1986, the law firm of Siguion Reyna, Montecillo

& Ongsiako wrote a letter to Bulletins corporate secretary, Atty.
Mendoza, requesting that three (3) certificates of stock representing
90,866.5, 90,877, and 16,309 Bulletin shares be issued in favor of
HMHMI in exchange for 21 certificates of stock in HMHMI.

Atty. Mendoza acknowledged receipt of the 21 certificates of

stock but replied that the transfer by Campos, Cojuangco and
Zalamea of their Bulletin shares to HMHMI cannot be recorded in the
books of Bulletin because it was made in violation of Bulletins
Articles of Incorporation which provides restrictions and limitations
on the transferability of the shares of the company by its
stockholders. Bulletin, however, offered to buy the shares at the price
fixed in the Articles of Incorporation. The offer appears to have been
accepted by HMHMI through its President, Atty. Montecillo.
 Thus, on January 30, 1986, HMHMIs Board of Directors passed
a resolution approving the sale to Bulletin of the 198 block and
authorizing its President or Corporate Secretary to sign and execute
the corresponding deed of sale. Accordingly, a Deed of Sale was
executed on February 21, 1986 by Atty. Montecillo whereby HMHMI
sold the 198 block to Bulletin for the amount of P23,675,195.85.

On April 22, 1986, the shares of Marcos, Yap, Cojuangco and

their nominees or agents in the Bulletin were sequestered by virtue
of a Sequestration Order issued by the PCGG.

The SEC issued a certification to the effect that as of February

21, 1986, the total subscribed shares of Bulletin was 756,861. Of
these, 198,052.5 were treasury shares, leaving the total outstanding
shares at 567,808.5. The stockholders of Bulletin and the shares of
stock held by each of them were listed as follows:

Name No. of Shares

Emilio T. Yap 2,617
Menzi Trust Fund 28,977
Estate of Hans M. Menzi 1
U.S. Automotive Co. Inc. 318,084
xxx xxx
Cesar Zalamea 121,178
Jose Campos 46,620.5
Eduardo Cojuangco 46,626
Xxx xxx
Total 567,808.5

On February 12, 1987, another Writ of Sequestration was

issued by the PCGG, sequestering all the shares of stock, as well as
the assets, properties, records and documents of HMHMI. Because of
this Sequestration Order, the proceeds from the sale of the 198 block
which were deposited with Philtrust Bank were frozen.[20]
 On March 16, 1987, the sequestration of the 2,617 Bulletin
shares of Yap was lifted upon the latters motion.

On April 14, 1987, the PCGG wrote a letter/order to the

Corporate Secretary of Bulletin, asking for the schedule of the annual
stockholders meeting of the corporation because the sequestered
shares consisting of the 214 block will be voted by the Commission.
This letter became the subject of a petition[21] filed by Bulletin with
this Court questioning the validity of the PCGGs letter/order and
seeking to compel PCGG to accept Bulletins offer of a cash deposit in
the amount of P34,592,903.34 representing the value of the 214
block of sequestered Bulletin shares. The Court issued a temporary
restraining order.

On July 31, 1987, the PCGG received from Bulletin the amount
of P8,173,506.06 as full payment of 46,620.5 Bulletin shares
registered in the name of Campos. The receipt stated that Mr. Jose
Y. Campos has waived the ownership of said shares in favor of the
Republic of the Philippines through the Presidential Commission on
Good Government.

A Deed of Assignment was likewise executed by Zalamea on

October 15, 1987, assigning and waiving in favor of the Republic his
rights to 121,178 Bulletin shares registered in his name. On the same
day, Bulletin issued in favor of PCGG a check in the amount
of P21,244,926.96 as full payment of Zalameas shares.

This Court, on April 15, 1988, issued the Teehankee Resolution,

the dispositive portion of which pertinently states:

2. Directing the Commission to accept the cash deposit of

P8,174,470.32 offered by petitioner for the 46,626
sequestered shares in the name of Mr. Eduardo M.
Cojuangco, Jr. expressly subject to the alternative
conditions (A and B) hereinabove set forth, and likewise
 directing the Commission to accept the cash deposit, if it has
not actually sold the Cesar C. Zalamea Bulletin shares to
petitioner (supra, p. 13, par [2]) of P21,244,926.96 for the
sequestered shares of Bulletin in the name of Mr. Cesar
Zalamea under the same alternatives already mentioned;
and

3. Remanding the case regarding the issue of ownership of

the said sequestered Bulletin shares for determination and
adjudication to the Sandiganbayan.[22]

An agreement was thereafter executed between PCGG and

Bulletin on June 9, 1988 regarding the 46,626 Bulletin shares of
Cojuangco whereby PCGG accepted Bulletins deposit in the amount
of P8,174,470.32, subject to the alternatives set forth in the
Teehankee Resolution, as follows:

Alternative ATo standby as full payment plus whatever

interest earnings thereon upon final judgment of the Court
declaring the Republic of the Philippines as owners of the
46,626 shares, accompanied by the corresponding original
stock certificates, issued in the name of the government,
duly endorsed in favor of the Bulletin Publishing
Corporation, free from liens and encumbrances; or

Alternative BTo immediately return to Bulletin

Publishing Corporation the cash deposit in the amount of
P8,174,470.32 plus whatever interest earnings thereon upon
final judgment by the Court declaring that Mr. Eduardo
Cojuangco, Jr. is the true owner of the 46,626 shares.[23]

With this factual backdrop, the Sandiganbayan ruled that

Campos, Cojuangco and Zalamea were nominees and dummies of
Marcos. Hence, the 198 block which these nominees transferred to
HMHMI and which, in turn, were sold to Bulletin are ill-gotten
wealth.
 The Sandiganbayan anchored its finding on the Deposition of
Campos taken on November 25, 1994 before the Philippine Consulate
General in Vancouver, British Columbia, Canada, that he held shares
in Bulletin and HMHMI per instruction of President Marcos; that the
beneficial owner of these shares must be President Marcos; and that
he received three (3) dividend checks from Bulletin for the benefit of
President Marcos.

Based on the Deed of Assignment executed by Zalamea on

October 15, 1987, wherein he manifested that he does not claim true
and beneficial ownership of the 121,178 Bulletin shares registered in
his name and that he voluntarily waived and assigned these shares
in favor of PCGG, the Sandiganbayan concluded that Zalamea could
not have been a nominee of Menzi, as the latters estate claims, but
of Marcos.

The Sandiganbayan likewise rejected Cojuangcos contention

that the Bulletin and HMHMI shares registered in his name were not
acquired and held by him as dummy, nominee and/or agent of
defendants Ferdinand E. Marcos and Imelda Romualdez Marcos, but
upon the request, and as nominee, of the late Hans Menzi who owned
and delivered to him said shares. According to the Sandiganbayan,
Cojuangco failed to present evidence necessary to establish his
affirmative defense.
As regards the 214 block, the Sandiganbayan ruled that there
is no longer any dispute concerning the ownership of the 46,620.5
shares held by Campos and the 121,178 shares held by Zalamea in
view of the Teehankee Resolution and the fact that these shares have
been waived and assigned to PCGG.
The Sandiganbayan went on to declare that the only remaining
issue pertaining to Cojuangcos claim to his alleged portion of the 214
block should be resolved in favor of the Republic because of
Cojuangcos consistent disavowal of any proprietary interest in the
shares which are the subject matter of the instant case and his claim
that he held the shares as nominee of Menzi.
 The Sandiganbayan further ruled that Yaps shares, which were
acquired by him in 1961 before Marcos became President, are not ill-
gotten wealth of the Marcoses. Moreover, the one (1) Bulletin share
for which dividend checks were issued to and received by the Estate
of Menzi was deemed to belong to the latter.

In G.R. No. 154487, petitioner Cojuangco assails paragraphs 1

and 2 of the Sandiganbayan Decision. Allegedly, the Government
does not claim that in acquiring the Bulletin shares registered in
Cojuangcos name, the late President Marcos used government funds
or resources. Cojuangco raises several issues, namely: (a) Were the
Bulletin shares, at any time, of government ownership? (b) Were the
Bulletin shares acquired by Marcos and, if so, did he use government
funds to acquire them? (c) Did petitioner Cojuangco act as the
dummy or nominee of Marcos to acquire, or to conceal the acquisition
of the shares by the latter?

In the Memorandum for Eduardo M. Cojuangco, Jr.[24] dated May

6, 2005, Cojuangco argues that the Republic neither alleged nor
presented evidence to prove that that the Bulletin shares registered
in his name were owned by the Republic but were taken by the
Marcoses by taking advantage of their public office and/or using their
powers, authority, influence, connections or relationship or that they
were acquired by the Marcoses from Menzi with the use of
government or public funds. Hence, the conclusion should be
sustained that the shares were owned by Menzi and never by the
Republic, and no public funds were used in their acquisition.

Cojuangco attacks the Sandiganbayans reliance on Quimsons

affidavit saying that it is hearsay because Quimson was not
presented in court to affirm the contents of his affidavit and was not
subjected to cross-examination as he had already passed away when
Civil Case No. 0022 was tried. Quimsons affidavit is allegedly double
hearsay insofar as it alleges that Marcos owned the Bulletin shares
and that Cojuangco was merely Marcos nominee because Quimson
had no contact with Marcos and his knowledge of the latters
purported ownership of the Bulletin shares was merely relayed to him
by Menzi.

Even the supposed corroborating evidence, consisting of the

affidavits of Pedro Teodoro, Evelyn S. Singson, Gapud, and Angelita
Reyes, have allegedly been declared as having no probative value
inasmuch as the affiants did not take the witness stand and could
not be cross-examined.

The Republic likewise allegedly failed to prove its contention

that Bulletin issued checks in favor of Campos, Cojuangco and
Zalamea which were deposited into numbered accounts in Security
Bank & Trust Company owned by the Marcoses. Moreover, the
dividend checks supposedly indorsed by Cojuangco in blank do not
conclusively demonstrate that they were indorsed in favor of the
Marcoses.

On the other hand, there is allegedly sufficient evidence on

record to prove that Cojuangco was a nominee of Menzi. These
documents consist of the testimony of Atty. Montecillo to the effect
that, as far as he knew, Cojuangco really acted as nominee for the
General, and the originals of the stock certificates covering the
Bulletin shares registered in Cojuangcos name.

Cojuangco further avers that the allegation that the Bulletin

shares were registered in his name upon the request, and as
nominee, of Menzi is a specific denial and not an affirmative defense
as the Sandiganbayan declared. As a specific denial, the allegation
need not be proven unless the Republic presents adequate evidence
proving the allegations in its complaint which, Cojuangco insists, the
Republic failed to do.

He likewise argues that the Republic is not entitled to damages

of any kind because it failed to establish that it has any proprietary
interest in the Bulletin shares registered in his name; that the said
shares are owned by the Marcoses; and that it suffered any pecuniary
loss by reason of such ownership.

Based on these allegations, Cojuangco prays that he be declared

the owner of the 46,626 Bulletin shares registered in his name,
together with all cash and stock dividends which have accrued in
favor of said shares from October 15, 1987, and ordering the PCGG
to return the cash deposit of P8,174,470.32 plus interest to Bulletin.

In its Memorandum[25] dated March 17, 2005, the Republic

maintains that Cojuangco has consistently denied any proprietary
interest in the Bulletin shares. Hence, he cannot claim ownership of
the Bulletin shares registered in his name. His allegation that that
he was a nominee of Menzi was pleaded by way of defense. Thus, he
has the burden of proving this material allegation, set up as new
matter, that the shares were not his but Menzis.

Since the Bulletin shares were not included in the inventory of

Menzis assets, it allegedly follows that Cojuangco could not have been
a nominee of Menzi who did not own the subject Bulletin shares.

As regards the contention that the Republic failed to show that

the shares belong to the Government or were acquired using public
funds, the Republic maintains that Marcos acquired the Bulletin
shares using his political clout. His very act of participating in a
business enterprise using nominees to conceal his ownership of
Bulletin shares is already a violation of the Constitution.

Furthermore, Campos and Zalamea, who, like Cojuangco, held

shares in the 198 and 214 blocks, have already surrendered and
assigned their respective shares to the Government and
acknowledged the right of the Government over the Bulletin
registered in their names. Such is allegedly a clear indication that
they acted as dummies of Marcos. The admission of Campos and
Zalamea that their shares in the 214 block belonged to Marcos may
allegedly be used to prove that the 198 block was likewise held by
them as dummies of the former dictator.

The Sandiganbayan also allegedly did not rely on the Teehankee

Resolution to support its conclusion that the 198 and 214 blocks are
ill-gotten wealth but made its own finding after a full-blown trial at
which all the parties, except Cojuangco, presented their respective
evidence.

Moreover, the evidence presented by the Republic allegedly

preponderates in favor of its theory that the Bulletin shares in the
names of Campos, Cojuangco and Zalamea were actually held in
trust for the benefit of the Marcoses. Notably, the PCGG Resolution
dated May 22, 1987, presented by the Republic as its Exhibit I
declares that Quimson and Teodoro, close associates of Menzi, stated
under oath that when Marcos allowed the Bulletin to reopen during
Martial Law, Menzi was allowed only 20% participation, and that
Marcos put his shares in the names of Campos, Cojuangco and
Zalamea.

Besides, Menzi did not execute any deed of trust in his favor as
trustor and Campos, Cojuangco and Zalamea as trustees. Neither did
the Estate of Menzi claim that Campos, Cojuangco and Zalamea were
nominees of Menzi as no cross-claim was filed by the Estate of Menzi
even as it claimed ownership of the 198 and 214 blocks.

In their Memorandum[26] dated March 10, 2005 in G.R. Nos.

154487 and 154518, the Estate of Menzi and HMHMI argue that the
Sandiganbayan erred in not resolving the issue of the ownership of
the 198 and 214 blocks. The Sandiganbayan instead allegedly relied
on its misinterpretation of the Teehankee Resolution to the effect that
there is no longer any controversy as regards the ownership of the
portion of the 214 block held by Zalamea. According to said
respondents, the Teehankee Resolution clearly directed the
Sandiganbayan to resolve the issue of ownership of both the Zalamea
and Cojuangco portions of the 214 block.
 Respondents Estate of Menzi and HMHMI also contend that the
Quimson affidavit should have been treated as having no probative
value with respect to the 154 block and the 198 and 214 blocks alike.
The affidavit was allegedly not at all corroborated by the other
documents presented by the Republic and cited in the
assailed Decision.

They insist that Campos, Cojuangco and Zalamea were

nominees of Menzi, not dummies of Marcos, because, as allegedly
established during trial, the stock certificates covering the contested
blocks of shares were indorsed in blank and remained in Menzis
possession. Even Campos allegedly testified that he was never in
possession of the stock certificates.

Assuming that Campos was indeed a Marcos dummy, his

admission should apply solely to the Bulletin shares registered in his
name. Likewise, Zalamea allegedly never declared himself to be a
Marcos nominee, only that he does not claim true and beneficial
ownership of the Bulletin shares recorded in his name. The dividend
checks for Zalameas shareholdings, in fact, allegedly indicate the
Estate of Menzi as the payee, proving that Zalamea was Menzis
nominee.

Respondents Estate of Menzi and HMHMI further claim that the

198 and 214 blocks were not mentioned in Menzis Last Will and
Testament because Menzi knew of the impending promulgation of a
decree which would limit to only 20% the ownership of media
enterprises by one person or family. Allegedly, in order to get around
this restriction, Menzi devised the nominee structure whereby he
used three (3) nominees to enable him to retain his 80% stake in
Bulletin. Besides, there was allegedly a legal question as to whether
sequestered shares need to be declared for estate tax purposes in the
meantime that a case involving these shares was pending.
 Said respondents finally posit that assuming that the 198 and
214 blocks are ill-gotten, the shares themselves, and not merely the
proceeds, should be forfeited in favor of the Government.

Yap, on the other hand, claims in his Memorandum[27] dated

May 10, 2005 filed in G.R. Nos. 154487 and 154518 that Cojuangco
may not raise in his petition a new specific relief consisting of the
prayer that he be declared the owner of the 46,626 Bulletin shares
registered in his name which Cojuangco never asked for during the
proceedings before the Sandiganbayan. Cojuangco is allegedly bound
by his judicial admission that he has no proprietary interest over the
said Bulletin shares.

Purportedly, because of this judicial admission, Alternative B

mentioned in the Teehankee Resolution was eliminated. The only
option which remained was, as held by the Sandiganbayan, to
declare that the Government is the legal owner of the shares and
direct the PCGG to execute the necessary documents to effect the
transfer thereof in accordance with Alternative A.

As regards the prayer that the shares themselves be forfeited in

favor of the Government, Yap contends that this cannot be done
because the Government is barred by the Constitution from acquiring
ownership of private mass media.

The Estate of Menzi and HMHMI should also not be allowed to

claim the portion of the 214 block held by Campos and Zalamea
whose ownership has allegedly been settled by this Court in the
Teehankee Resolution.

Yap also claims that the Estate of Menzi and HMHMI have
unlawfully concealed the stock certificates representing a portion of
the shares held by Campos and Zalamea. Their lawyers, specifically
Atty. Montecillo, have also allegedly staked an unfounded claim on
the Bulletin shares in violation of their duty, as lawyers of Bulletin
for several years, to protect the latters interests.

Cojuangco filed a Reply Memorandum[28] dated October 17,

2005, substantially reiterating his argument that the Sandiganbayan
failed to make a finding that the Bulletin shares are ill-gotten as
defined by the pertinent executive orders and that they were owned
by the Marcoses. Consequently, he insists that there is no basis for
the Sandiganbayans conclusion that the Republic is the legal owner
of the said shares.

The Republic also filed a Memorandum[29] dated March 17, 2005

in G.R. No. 154518, averring that the petition raises factual issues
not proper in a petition for review under Rule 45 of the Rules of Court.

The Republic insists that the Decision of the Sandiganbayan

relative to the 198 and 214 blocks was not based on Quimsons
affidavit alone but on the totality of the evidence presented to support
the complaint. Quimsons affidavit was allegedly given prominence
because it related in detail how Campos, Cojuangco and Zalamea
came to be nominees of Marcos. The allegations in Quimsons affidavit
were allegedly confirmed by Menzis Last Will and Testament, the
initial inventory of his assets, the letters and correspondence
between Marcos and Menzi, Campos deposition, and the dividend
checks issued to Campos, Cojuangco and Zalamea even after they
have supposedly transferred their Bulletin shares to HMHMI.

Moreover, Atty. Montecillo did not institute any action against

Campos, Cojuangco and Zalamea to recover the shares. This
allegedly indicates that the shares were not owned by Menzi and that
Campos, Cojuangco and Zalamea did not act as Menzis nominees.

As regards the claim that Menzi owned the shares registered in

the names of Campos, Cojuangco and Zalamea because the stock
certificates covering them were in Menzis possession, the Republic
maintains that mere possession of the stock certificates does not
operate to vest ownership on Menzi considering that Campos already
declared that Marcos owned those shares and Zalamea surrendered
his shares to the Government.

Furthermore, the Republic alleges that the Sandiganbayan had

already ruled with finality that the Estate of Menzi and HMHMI
cannot recover the Campos and Zalamea portions of the 214 block.
Specifically, in the Resolution dated January 2, 1995, the
Sandiganbayan declared that the Estate of Menzi cannot recover the
Campos shares because the latter, who was not a co-defendant in
the case, had already voluntarily surrendered the same to the PCGG.
Zalameas shares could likewise not be recovered because he was also
not a party, either as defendant, cross-defendant or third-party
defendant. Moreover, in another Resolution dated July 10, 1993, the
Sandiganbayan held that the Estate of Menzi has not pleaded any
claim of ownership over the Bulletin shares in the names of Campos,
Cojuangco and Zalamea, much less has it intervened to express any
prejudice to it should any judgment be rendered for or against
Campos, Cojuangco and Zalamea.

We again affirm the ruling of the Sandiganbayan.

It should be noted at the outset that there is no more dispute

as regards the Bulletin shares registered in the name of Campos. In
fact, Campos was not included as a defendant in Civil Case No. 0022.
The Bulletin shares registered in his name have been voluntarily
surrendered to the PCGG and the proceeds thereof have accordingly
been forfeited in favor of the Government.

The Pre-Trial Order of the Sandiganbayan dated November 11,

1991 likewise does not mention as an issue the ownership of the
Campos-held Bulletin shares.

The same cannot be said, however, of the Bulletin shares

registered in the name of Zalamea. Although he was dropped as a
party-defendant in the Second Amended Complaint dated October
17, 1990 purportedly by reason of the Deed of Assignment he
executed on October 15, 1987, the Zalamea-held shares are clearly
still covered by the Teehankee Resolution remanding the issue on the
ownership of the sequestered Cojuangco and Zalamea shares for
determination and adjudication by the Sandiganbayan.

Having said that, we now proceed to determine whether the

Sandiganbayan committed reversible error in rendering the
assailed Decision.

As with the 154 block, the issues raised by the petitioners

assailing the Sandiganbayans disposition of the 198 and 214 blocks
are largely factual and, therefore, generally beyond the scope of our
review under Rule 45 of the Rules of Court. Nonetheless, as will be
shown in the following disquisition, there is no cause for this Court
to reverse the Sandiganbayan because the evidence on record amply
supports its findings and conclusions.

The 46,626 shares registered in the name of Cojuangco which

formed part of the 214 block were declared to be ill-gotten wealth
based on the evidence presented by the Republic to show that
Cojuangco acted as a nominee of Marcos and on Cojuangcos
unsubstantiated allegation that he acted as a nominee not of Marcos
but of Menzi.

Cojuangco counters, however, that the allegation that he acted

as Menzis nominee is a specific denial which he does not have the
burden of proving.

Notably, in the Answer of Defendant Eduardo M. Cojuangco,

Jr. dated March 16, 1989, Cojuangco claimed as part of his denial
that whatever shares of stock he may have in Bulletin Publishing
Corporation and/or H.M. Holdings and Management, Inc. were not
acquired and held by him as dummy, nominee and/or agent of
defendants Ferdinand E. Marcos and Imelda Romualdez Marcos, but
upon the request, and as nominee, of the late Hans Menzi who owned
and delivered to him said shares.[30]

Likewise, in his Pre-Trial Brief dated January 15, 1992,

Cojuangco stated that [I]n regard shares of stock in the name of
defendant Cojuangco in Bulletin Publishing Corporation and/or HM
Holdings & Management, Inc., he was never, and is not, a nominee
of any other person but the late Brig. Gen. Hans M. Menzi. Defendant
Cojuangco therefore reiterates that he has no proprietary interest in
the shares which are the subject matter of the instant case. They
properly belong to the estate of the late Hans Menzi.[31]

It is procedurally required for each party in a case to prove his

own affirmative allegations by the degree of evidence required by law.
In civil cases such as this one, the degree of evidence required of a
party in order to support his claim is preponderance of evidence, or
that evidence adduced by one party which is more conclusive and
credible than that of the other party. It is therefore incumbent upon
the plaintiff who is claiming a right to prove his case. Corollarily, the
defendant must likewise prove its own allegations to buttress its
claim that it is not liable.[32]

The party who alleges a fact has the burden of proving it. The
burden of proof[33] may be on the plaintiff or the defendant. It is on
the defendant if he alleges an affirmative defense which is not a denial
of an essential ingredient in the plaintiffs cause of action, but is one
which, if established, will be a good defense i.e., an avoidance of the
claim.[34]

In the instant case, Cojuangcos allegations are in the nature of

affirmative defenses which should be adequately substantiated. He
did not deny that Bulletin shares were registered in his name but
alleged that he held these shares not as nominee of Marcos, as the
Republic claimed, but as nominee of Menzi. He did not, however,
present any evidence to support his claim and, in fact, filed
a Manifestation dated July 20, 1999 stating that he sees no need to
present any evidence in his behalf.[35]

In contrast to Cojuangcos consistent, albeit unsupported,

disclaimer, the Sandiganbayan found the Republics evidence to be
preponderant. These pieces of evidence consist of: the affidavit of
Quimson detailing how Campos, Cojuangco and Zalamea became
Marcos nominees in Bulletin; the affidavit Teodoro relative to the
circumstances surrounding the sale of Menzis substantial shares in
Bulletin to Marcos nominees and Menzis retention of only 20% of the
corporation; the sworn statement of Gapud describing the business
interests and associates of Marcos and stating that Bulletin checks
were periodically issued to Campos, Cojuangco and Zalamea but
were deposited after indorsement to Security Bank numbered
accounts owned by the Marcoses dividend checks issued to Campos,
Cojuangco and Zalamea even after their shares have been transferred
to HMHMI; the Certificate of Incorporation, Articles of Incorporation
and Amended Articles of Incorporation of HMHMI showing that
Bulletin shares held by Campos, Cojuangco and Zalamea were used
to set up HMHMI; Deed of Transfer and Conveyance showing that
Campos, Cojuangco, Zalamea and Menzi transferred several shares,
including Bulletin shares, to HMHMI in exchange for shares of stock
in the latter which shares were not issued; the Inventory of Menzis
assets as of May 15, 1985 which does not include Bulletin shares;
notes written by Marcos regarding Menzis resignation as aide-de-
camp to devote his time to run Bulletins operations and the reduction
of his shares in the corporation to 12%; and letters and
correspondence between Marcos and Menzi regarding the affairs of
Bulletin.

These pieces of uncontradicted evidence suffice to establish that

the 198 and 214 blocks are indeed ill-gotten wealth as defined under
the Rules and Regulations of the PCGG, viz:

Sec. 1. Definition.(A) Ill-gotten wealth is hereby defined

as any asset, property, business enterprise or material
 possession of persons within the purview of Executive
Orders Nos. 1 and 2, acquired by them directly, or indirectly
thru dummies, nominees, agents, subordinates and/or
business associates by any of the following means or similar
schemes:

(1) Through misappropriation, conversion, misuse

or malversation of public funds or raids on the public
treasury;

(2) Through the receipt, directly or indirectly, of any

commission, gift, share, percentage, kickbacks or any
other form of pecuniary benefit from any person and/or
entity in connection with any government contract or
project or by reason of the office or position of the official
concerned;

(3) By the illegal or fraudulent conveyance or

disposition of assets belonging to the government or any
of its subdivisions, agencies or instrumentalities or
government-owned or controlled corporations;

(4) By obtaining, receiving or accepting directly or

indirectly any shares of stock, equity or any other form of
interest or participation in any business enterprise or
undertaking;

(5) Through the establishment of agricultural,

industrial or commercial monopolies or other
combination and/or by the issuance, promulgation
and/or implementation of decrees and orders intended to
benefit particular persons or special interests; and

(6) By taking undue advantage of official position,

authority, relationship or influence for personal gain or
benefit.

Cojuangcos disavowal of any proprietary interest in the Bulletin

shares is conclusive upon him. His prayer that he be declared the
owner of the said shares, together with all the cash and stock
dividends which have accrued thereto since October 15, 1987, and
that the PCGG be ordered to return the cash deposit
of P8,174,470.32 to Bulletin, therefore, has no legal basis and should
perforce be denied.
In this connection, it should be said that Cojuangco apparently
desisted from presenting evidence and chose instead to stake his
claim with the Estate of Menzi and HMHMI. As found by the
Sandiganbayan, however, the Estate of Menzi and HMHMI failed to
prove their allegation that Campos, Cojuangco and Zalamea were
Menzis nominees. Neither did the Estate of Menzi and HMHMI
institute an action to recover the shares from Menzis nominees.

Significantly, even as they claimed ownership of the Bulletin

shares in their Answer to the Republics Second Amended Complaint,
the Estate of Menzi and HMHMI did not file any cross-claim against
the purported Menzi nominees.

Quite revealing, too, is the fact that Campos, in his Answers to

Direct Interrogatories[36] taken before the Consul General at the
Philippine Consulate General in Vancouver, British Columbia,
Canada on November 25, 1994, repeatedly declared that he owned a
portion of the 198 block per instruction of President Marcos [37] and
that he became the shareholder, per instruction of President
Marcos.[38]

Likewise, in his Deed of Assignment dated October 15, 1987,

Zalamea manifested that he does not claim true and beneficial
ownership of the Bulletin shares registered in his name and that he
voluntarily waived and assigned the same in favor of the PCGG.

These declarations should have alerted the Estate of Menzi and

HMHMI to file cross-claims against Campos and Zalamea. The fact
that they did not enfeebles their claim of ownership.

It is also important to note that the Estate of Menzi did not include
the 198 and 214 blocks in the inventory of the estates assets dated
May 15, 1985. If, as it claims, the Bulletin shares of Campos,
Cojuangco and Zalamea were held by them as nominees of Menzi,
then these shares should have been included in the inventory. The
justification advanced for the said non-inclusion, which is that the
stock certificates covering them were not in the possession of Atty.
Montecillo, is nothing but a hollow pretext given the fact that even
after the certificates came to Atty. Montecillos possession in 1987, an
updated inventory declaring the said shares as part of Menzis estate
was not filed pursuant to the Order of the probate court dated
November 17, 1992.

Further, the claim that Menzi would need dummies because of

the impending promulgation of a decree which would limit to 20%
the ownership of media enterprises by one person or family is
incredulous since no such decree was ever issued.

Parenthetically, the fact that the stock certificates covering the

shares registered under the names of Campos, Cojuangco and
Zalamea were found in Menzis possession does not necessarily prove
that the latter owned the shares. A stock certificate is merely a
tangible evidence of ownership of shares of stock.[39] Its presence or
absence does not affect the right of the registered owner to dispose of
the shares covered by the stock certificate. Hence, as registered
owners, Campos and Zalamea validly ceded their shares in favor of
the Government. This assignment is now a fait accompli for the
benefit of the entire nation.

The contention that the sale of the 214 block to the Bulletin was
null and void as the PCGG failed to obtain approval from the
Sandiganbayan is likewise unmeritorious. While it is true that the
PCGG is not empowered to sell sequestered assets without prior
Sandiganbayan approval,[40] this case presents a clear exception
because this Court itself, in the Teehankee Resolution, directed the
PCGG to accept the cash deposit offered by Bulletin in payment for
the Cojuangco and Zalamea sequestered shares subject to the
alternatives mentioned therein and the outcome of the remand to the
Sandiganbayan on the question of ownership of these sequestered
shares.

In light of the foregoing, we are not inclined to disturb the

Sandiganbayans evaluation of the weight and sufficiency of the
evidence presented by the Republic and its finding that the evidence
adduced by the Estate of Menzi and HMHMI do not prove their
allegation that Campos, Cojuangco and Zalamea are Menzis
nominees, taking into account the express admission of Campos that
he owned the shares upon Marcos instruction, the declaration of
Zalamea that he does not claim true and beneficial ownership of the
shares, and the absolute dearth of evidence regarding Cojuangcos
assertion that he is Menzis nominee.

With regard to the Republics prayer for damages, we find the

same not supported by sufficient evidence.

An award of actual or compensatory damages requires proof of

pecuniary loss. In this case, the Republic has not proven with a
reasonable degree of certainty, premised on competent proof and the
best evidence obtainable, that it has suffered any actual pecuniary
loss by reason of the acts of the defendants. Hence, actual or
compensatory damages may not be awarded.[41]
On the other hand, while no proof of pecuniary loss is necessary
in order that moral, temperate, nominal and exemplary damages may
be adjudicated, proof of damage or injury should nonetheless be
adduced. As found by the Sandiganbayan, however, the Republic
failed to show the factual basis for the award of moral damages and
its causal connection to defendants acts. Thus, moral damages,
which are designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer,[42] may not
be awarded. Temperate, nominal, and exemplary damages, attorneys
fees, litigation expenses and judicial costs may likewise not be
adjudicated for failure to present sufficient evidence to establish
entitlement to these awards.
 WHEREFORE, the petitions in G.R. No. 152578, G.R. No.
154487 and G.R. No. 154518 are DENIED. The Decision of the
Sandiganbayan dated March 14, 2002 is AFFIRMED.

SO ORDERED.

G.R. No. 198756, January 13, 2015

BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING CORPORATION, METROPOLITAN BANK &
TRUST COMPANY, PHILIPPINE BANK OF COMMUNICATIONS, PHILIPPINE NATIONAL BANK,
PHILIPPINE VETERANS BANK AND PLANTERS DEVELOPMENT BANK, Petitioners,

RIZAL COMMERCIAL BANKING CORPORATION AND RCBC CAPITAL CORPORATION, Petitioners,

CAUCUS OF DEVELOPMENT NGO NETWORKS, Petitioner-Intervenor, v. REPUBLIC OF THE

PHILIPPINES, THE COMMISSIONER OF INTERNAL REVENUE, BUREAU OF INTERNAL REVENUE,
SECRETARY OF FINANCE, DEPARTMENT OF FINANCE, THE NATIONAL TREASURER AND BUREAU
OF TREASURY, Respondents.

DECISION

LEONEN, J.:

The case involves the proper tax treatment of the discount or interest income arising from the P35 billion
worth of 10-year zero-coupon treasury bonds issued by the Bureau of Treasury on October 18, 2001
(denominated as the Poverty Eradication and Alleviation Certificates or the PEACe Bonds by the Caucus of
Development NGO Networks).

On October 7, 2011, the Commissioner of Internal Revenue issued BIR Ruling No. 370-20111 (2011 BIR
Ruling), declaring that the PEACe Bonds being deposit substitutes are subject to the 20% final withholding
tax. Pursuant to this ruling, the Secretary of Finance directed the Bureau of Treasury to withhold a 20%
final tax from the face value of the PEACe Bonds upon their payment at maturity on October 18, 2011.

This is a petition for certiorari, prohibition and/or mandamus2 filed by petitioners under Rule 65 of the Rules
of Court seeking to:chanrob lesvi rtua llawli bra ry

a. ANNUL Respondent BIR’s Ruling No. 370-2011 dated 7 October 2011 [and] other related rulings issued
by BIR of similar tenor and import, for being unconstitutional and for having been issued without jurisdiction
or with grave abuse of discretion amounting to lack or excess of jurisdiction. . .;

b. PROHIBIT Respondents, particularly the BTr, from withholding or collecting the 20% FWT from the
payment of the face value of the Government Bonds upon their maturity;

c. COMMAND Respondents, particularly the BTr, to pay the full amount of the face value of the Government
Bonds upon maturity. . .; and

d. SECURE a temporary restraining order (TRO), and subsequently a writ of preliminary injunction, enjoining
Respondents, particularly the BIR and the BTr, from withholding or collecting 20% FWT on the Government
Bonds and the respondent BIR from enforcing the assailed 2011 BIR Ruling, as well as other related rulings
issued by the BIR of similar tenor and import, pending the resolution by [the court] of the merits of [the]
Petition.3

Factual background

By letter4 dated March 23, 2001, the Caucus of Development NGO Networks (CODE-NGO) “with the
assistance of its financial advisors, Rizal Commercial Banking Corp. (“RCBC”), RCBC Capital Corp. (“RCBC
Capital”), CAPEX Finance and Investment Corp. (“CAPEX”) and SEED Capital Ventures, Inc.
(SEED),”5requested an approval from the Department of Finance for the issuance by the Bureau of Treasury
of 10-year zero-coupon Treasury Certificates (T-notes).6 The T-notes would initially be purchased by a
special purpose vehicle on behalf of CODE-NGO, repackaged and sold at a premium to investors as the
PEACe Bonds.7 The net proceeds from the sale of the Bonds “will be used to endow a permanent fund
(Hanapbuhay® Fund) to finance meritorious activities and projects of accredited non-government
organizations (NGOs) throughout the country.”8 chanRoblesvi rtua lLawl ibra ry

Prior to and around the time of the proposal of CODE-NGO, other proposals for the issuance of zero-coupon
bonds were also presented by banks and financial institutions, such as First Metro Investment Corporation
(proposal dated March 1, 2001),9 International Exchange Bank (proposal dated July 27, 2000),10 Security
Bank Corporation and SB Capital Investment Corporation (proposal dated July 25, 2001),11 and ATR-Kim
Eng Fixed Income, Inc. (proposal dated August 25, 1999).12 “[B]oth the proposals of First Metro Investment
Corp. and ATR-Kim Eng Fixed Income indicate that the interest income or discount earned on the proposed
zero-coupon bonds would be subject to the prevailing withholding tax.”13 chanRoblesv irt ual Lawlib rary

A zero-coupon bond is a bond bought at a price substantially lower than its face value (or at a deep
discount), with the face value repaid at the time of maturity.14 It does not make periodic interest payments,
or have so-called “coupons,” hence the term zero-coupon bond.15 However, the discount to face value
constitutes the return to the bondholder.16 cha nRoblesv irt ual Lawlib rary

On May 31, 2001, the Bureau of Internal Revenue, in reply to CODE-NGO’s letters dated May 10, 15, and
25, 2001, issued BIR Ruling No. 020-200117 on the tax treatment of the proposed PEACe Bonds. BIR Ruling
No. 020-2001, signed by then Commissioner of Internal Revenue René G. Bañez confirmed that the PEACe
Bonds would not be classified as deposit substitutes and would not be subject to the corresponding
withholding tax:chan roble svirtual lawlib rary

Thus, to be classified as “deposit substitutes”, the borrowing of funds must be obtained from twenty (20) or
more individuals or corporate lenders at any one time. In the light of your representation that the PEACe
Bonds will be issued only to one entity, i.e., Code NGO, the same shall not be considered as “deposit
substitutes” falling within the purview of the above definition. Hence, the withholding tax on deposit
substitutes will not apply.18(Emphasis supplied)

The tax treatment of the proposed PEACe Bonds in BIR Ruling No. 020-2001 was subsequently reiterated in
BIR Ruling No. 035-200119 dated August 16, 2001 and BIR Ruling No. DA-175-0120 dated September 29,
2001 (collectively, the 2001 Rulings). In sum, these rulings pronounced that to be able to determine
whether the financial assets, i.e., debt instruments and securities are deposit substitutes, the “20 or more
individual or corporate lenders” rule must apply. Moreover, the determination of the phrase “at any one
time” for purposes of determining the “20 or more lenders” is to be determined at the time of the original
issuance. Such being the case, the PEACe Bonds were not to be treated as deposit substitutes.

Meanwhile, in the memorandum21 dated July 4, 2001, Former Treasurer Eduardo Sergio G. Edeza (Former
Treasurer Edeza) questioned the propriety of issuing the bonds directly to a special purpose vehicle
considering that the latter was not a Government Securities Eligible Dealer (GSED).22 Former Treasurer
Edeza recommended that the issuance of the Bonds “be done through the ADAPS”23 and that CODE-NGO
“should get a GSED to bid in [sic] its behalf.”24 chanRoble svirtual Lawli bra ry

Subsequently, in the notice to all GSEDs entitled Public Offering of Treasury Bonds25 (Public Offering) dated
October 9, 2001, the Bureau of Treasury announced that “P30.0B worth of 10-year Zero[-] Coupon Bonds
[would] be auctioned on October 16, 2001[.]”26 The notice stated that the Bonds “shall be issued to not
more than 19 buyers/lenders hence, the necessity of a manual auction for this maiden issue.”27 It also
required the GSEDs to submit their bids not later than 12 noon on auction date and to disclose in their bid
submissions the names of the institutions bidding through them to ensure strict compliance with the 19
lender limit.28 Lastly, it stated that “the issue being limited to 19 lenders and while taxable shall not be
subject to the 20% final withholding [tax].”29 chanRoblesv irt ual Lawlib rary

On October 12, 2001, the Bureau of Treasury released a memo30 on the “Formula for the Zero-Coupon
Bond.” The memo stated in part that the formula (in determining the purchase price and settlement
amount) “is only applicable to the zeroes that are not subject to the 20% final withholding due to the 19
buyer/lender limit.”31 chanRoble svirtual Lawli bra ry

A day before the auction date or on October 15, 2001, the Bureau of Treasury issued the “Auction Guidelines
for the 10-year Zero-Coupon Treasury Bond to be Issued on October 16, 2001” (Auction Guidelines).32 The
Auction Guidelines reiterated that the Bonds to be auctioned are “[n]ot subject to 20% withholding tax as
the issue will be limited to a maximum of 19 lenders in the primary market (pursuant to BIR Revenue
Regulation No. 020 2001).”33 The Auction Guidelines, for the first time, also stated that the Bonds are
“[e]ligible as liquidity reserves (pursuant to MB Resolution No. 1545 dated 27 September 2001)[.]”34 chanRo blesvi rtua lLawl ib rary

On October 16, 2001, the Bureau of Treasury held an auction for the 10-year zero-coupon bonds.35 Also on
the same date, the Bureau of Treasury issued another memorandum36 quoting excerpts of the ruling issued
by the Bureau of Internal Revenue concerning the Bonds’ exemption from 20% final withholding tax and the
opinion of the Monetary Board on reserve eligibility.37 cha nRoblesv irt ual Lawlib rary

During the auction, there were 45 bids from 15 GSEDs.38 The bidding range was very wide, from as low as
12.248% to as high as 18.000%.39 Nonetheless, the Bureau of Treasury accepted the auction results.40 The
cut-off was at 12.75%.41chanRoblesvi rtua lLawl ibra ry

After the auction, RCBC which participated on behalf of CODE-NGO was declared as the winning bidder
having tendered the lowest bids.42 Accordingly, on October 18, 2001, the Bureau of Treasury issued P35
billion worth of Bonds at yield-to-maturity of 12.75% to RCBC for approximately P10.17 billion,43resulting in
a discount of approximately P24.83 billion.

Also on October 16, 2001, RCBC Capital entered into an underwriting agreement44 with CODE-NGO, whereby
RCBC Capital was appointed as the Issue Manager and Lead Underwriter for the offering of the PEACe
Bonds.45 RCBC Capital agreed to underwrite46 on a firm basis the offering, distribution and sale of the P35
billion Bonds at the price of P11,995,513,716.51.47 In Section 7(r) of the underwriting agreement, CODE-
NGO represented that “[a]ll income derived from the Bonds, inclusive of premium on redemption and gains
on the trading of the same, are exempt from all forms of taxation as confirmed by Bureau of Internal
Revenue (BIR) letter rulings dated 31 May 2001 and 16 August 2001, respectively.”48 chanRoble svirtual Lawli bra ry

RCBC Capital sold the Government Bonds in the secondary market for an issue price of
P11,995,513,716.51. Petitioners purchased the PEACe Bonds on different dates.49 chanRoblesvi rt ualLawl ibra ry

BIR rulings

On October 7, 2011, “the BIR issued the assailed 2011 BIR Ruling imposing a 20% FWT on the Government
Bonds and directing the BIR to withhold said final tax at the maturity thereof, [allegedly without]
consultation with Petitioners as bondholders, and without conducting any hearing.”50 chanRoblesvi rtua lLawl ibra ry

“It appears that the assailed 2011 BIR Ruling was issued in response to a query of the Secretary of Finance
on the proper tax treatment of the discount or interest income derived from the Government Bonds.”51 The
Bureau of Internal Revenue, citing three (3) of its rulings rendered in 2004 and 2005, namely: BIR Ruling
No. 007-0452 dated July 16, 2004; BIR Ruling No. DA-491-0453 dated September 13, 2004; and BIR Ruling
No. 008-0554 dated July 28, 2005, declared the following: chan roblesv irtuallawl ib rary

The Php 24.3 billion discount on the issuance of the PEACe Bonds should be subject to 20% Final Tax on
interest income from deposit substitutes. It is now settled that all treasury bonds (including PEACe Bonds),
regardless of the number of purchasers/lenders at the time of origination/issuance are considered deposit
substitutes. In the case of zero-coupon bonds, the discount (i.e. difference between face value and
purchase price/discounted value of the bond) is treated as interest income of the purchaser/holder. Thus,
the Php 24.3 interest income should have been properly subject to the 20% Final Tax as provided in Section
27(D)(1) of the Tax Code of 1997. . . .

....

However, at the time of the issuance of the PEACe Bonds in 2001, the BTr was not able to collect the final
tax on the discount/interest income realized by RCBC as a result of the 2001 Rulings. Subsequently, the
issuance of BIR Ruling No. 007-04 dated July 16, 2004 effectively modifies and supersedes the 2001 Rulings
by stating that the [1997] Tax Code is clear that the “term public means borrowing from twenty (20) or
more individual or corporate lenders at any one time.” The word “any” plainly indicates that the period
contemplated is the entire term of the bond, and not merely the point of origination or issuance. . . . Thus,
by taking the PEACe bonds out of the ambit of deposits [sic] substitutes and exempting it from the 20%
Final Tax, an exemption in favour of the PEACe Bonds was created when no such exemption is found in the
law.55
On October 11, 2011, a “Memo for Trading Participants No. 58-2011 was issued by the Philippine Dealing
System Holdings Corporation and Subsidiaries (“PDS Group”). The Memo provides that in view of the
pronouncement of the DOF and the BIR on the applicability of the 20% FWT on the Government Bonds, no
transfer of the same shall be allowed to be recorded in the Registry of Scripless Securities (“ROSS”) from 12
October 2011 until the redemption payment date on 18 October 2011. Thus, the bondholders of record
appearing on the ROSS as of 18 October 2011, which include the Petitioners, shall be treated by the BTr as
the beneficial owners of such securities for the relevant [tax] payments to be imposed thereon.”56 chanRoble svirtual Lawlib ra ry

On October 17, 2011, replying to an urgent query from the Bureau of Treasury, the Bureau of Internal
Revenue issued BIR Ruling No. DA 378-201157 clarifying that the final withholding tax due on the
discount or interest earned on the PEACe Bonds should “be imposed and withheld not only on RCBC/CODE
NGO but also [on] ‘all subsequent holders of the Bonds.’”58 chanRoblesv irt ual Lawlib rary

On October 17, 2011, petitioners filed a petition for certiorari, prohibition, and/or mandamus (with urgent
application for a temporary restraining order and/or writ of preliminary injunction)59 before this court.

On October 18, 2011, this court issued a temporary restraining order (TRO)60 “enjoining the implementation
of BIR Ruling No. 370-2011 against the [PEACe Bonds,] . . . subject to the condition that the 20% final
withholding tax on interest income therefrom shall be withheld by the petitioner banks and placed in escrow
pending resolution of [the] petition.”61 chanRob lesvi rtua lLawl ibra ry

On October 28, 2011, RCBC and RCBC Capital filed a motion for leave of court to intervene and to admit
petition-in-intervention62 dated October 27, 2011, which was granted by this court on November 15,
2011.63chanRoble svi rtual Lawli bra ry

Meanwhile, on November 9, 2011, petitioners filed their “Manifestation with Urgent Ex Parte Motion to Direct
Respondents to Comply with the TRO.”64 They alleged that on the same day that the temporary restraining
order was issued, the Bureau of Treasury paid to petitioners and other bondholders the amounts
representing the face value of the Bonds, net however of the amounts corresponding to the 20% final
withholding tax on interest income, and that the Bureau of Treasury refused to release the amounts
corresponding to the 20% final withholding tax.65 chanRoble svirtual Lawlib ra ry

On November 15, 2011, this court directed respondents to: “(1) SHOW CAUSE why they failed to comply
with the October 18, 2011 resolution; and (2) COMPLY with the Court’s resolution in order that petitioners
may place the corresponding funds in escrow pending resolution of the petition.”66 chanRob lesvi rtualLaw lib rary

On the same day, CODE-NGO filed a motion for leave to intervene (and to admit attached petition-in-
intervention with comment on the petition-in-intervention of RCBC and RCBC Capital).67 The motion was
granted by this court on November 22, 2011.68 chanRob lesvi rtua lLawl ibra ry

On December 1, 2011, public respondents filed their compliance.69 They explained that: 1) “the
implementation of [BIR Ruling No. 370-2011], which has already been performed on October 18, 2011 with
the withholding of the 20% final withholding tax on the face value of the PEACe bonds, is already fait
accompli . . . when the Resolution and TRO were served to and received by respondents BTr and National
Treasurer [on October 19, 2011]”;70 and 2) the withheld amount has ipso facto become public funds and
cannot be disbursed or released to petitioners without congressional appropriation.71 Respondents further
aver that “[i]nasmuch as the . . . TRO has already become moot . . . the condition attached to it, i.e., ‘that
the 20% final withholding tax on interest income therefrom shall be withheld by the banks and placed in
escrow . . .’ has also been rendered moot[.]”72 chanRob lesvi rtua lLawl ibra ry

On December 6, 2011, this court noted respondents' compliance.73 chanRob lesvi rtua lLawl ibra ry

On February 22, 2012, respondents filed their consolidated comment74 on the petitions-in-intervention filed
by RCBC and RCBC Capital and CODE-NGO.

On November 27, 2012, petitioners filed their “Manifestation with Urgent Reiterative Motion (To Direct
Respondents to Comply with the Temporary Restraining Order).”75 chanRob lesvi rtual Lawli bra ry

On December 4, 2012, this court: (a) noted petitioners’ manifestation with urgent reiterative motion (to
direct respondents to comply with the temporary restraining order); and (b) required respondents to
comment thereon.76 chanRoblesv irt ual Lawlib rary
Respondents’ comment77 was filed on April 15, 2013, and petitioners filed their reply78 on June 5, 2013. cralawred

Issues

The main issues to be resolved are: ChanRobles Vi rtua lawlib rary

I. Whether the PEACe Bonds are “deposit substitutes” and thus subject to 20% final
withholding tax under the 1997 National Internal Revenue Code. Related to this question is
the interpretation of the phrase “borrowing from twenty (20) or more individual or
corporate lenders at any one time” under Section 22(Y) of the 1997 National Internal
Revenue Code, particularly on whether the reckoning of the 20 lenders includes trading of
the bonds in the secondary market; and

II. If the PEACe Bonds are considered “deposit substitutes,” whether the government or the
Bureau of Internal Revenue is estopped from imposing and/or collecting the 20% final
withholding tax from the face value of these Bonds

a. Will the imposition of the 20% final withholding tax violate the non-impairment
clause of the Constitution?

b. Will it constitute a deprivation of property without due process of law?

c. Will it violate Section 245 of the 1997 National Internal Revenue Code on non-
retroactivity of rulings?

Arguments of petitioners, RCBC and RCBC

Capital, and CODE-NGO

Petitioners argue that “[a]s the issuer of the Government Bonds acting through the BTr, the Government is
obligated . . . to pay the face value amount of PhP35 Billion upon maturity without any deduction
whatsoever.”79 They add that “the Government cannot impair the efficacy of the [Bonds] by arbitrarily,
oppressively and unreasonably imposing the withholding of 20% FWT upon the [Bonds] a mere eleven (11)
days before maturity and after several, consistent categorical declarations that such bonds are exempt from
the 20% FWT, without violating due process”80 and the constitutional principle on non-impairment of
contracts.81 Petitioners aver that at the time they purchased the Bonds, they had the right to expect that
they would receive the full face value of the Bonds upon maturity, in view of the 2001 BIR
Rulings.82 “[R]egardless of whether or not the 2001 BIR Rulings are correct, the fact remains that [they]
relied [on] good faith thereon.”83 chanRoblesvi rtua lLawl ibra ry

At any rate, petitioners insist that the PEACe Bonds are not deposit substitutes as defined under Section
22(Y) of the 1997 National Internal Revenue Code because there was only one lender (RCBC) to whom the
Bureau of Treasury issued the Bonds.84 They allege that the 2004, 2005, and 2011 BIR Rulings “erroneously
interpreted that the number of investors that participate in the ‘secondary market’ is the determining factor
in reckoning the existence or non-existence of twenty (20) or more individual or corporate
lenders.”85 Furthermore, they contend that the Bureau of Internal Revenue unduly expanded the definition
of deposit substitutes under Section 22 of the 1997 National Internal Revenue Code in concluding that “the
mere issuance of government debt instruments and securities is deemed as falling within the coverage of
‘deposit substitutes[.]’”86 Thus, “[t]he 2011 BIR Ruling clearly amount[ed] to an unauthorized act of
administrative legislation[.]”87
chanRob lesvi rtual Lawli bra ry

Petitioners further argue that their income from the Bonds is a “trading gain,” which is exempt from income
tax.88 They insist that “[t]hey are not lenders whose income is considered as ‘interest income or yield’
subject to the 20% FWT under Section 27 (D)(1) of the [1997 National Internal Revenue Code]”89because
they “acquired the Government Bonds in the secondary or tertiary market.”90 chanRoblesvi rt ual Lawlib rary

Even assuming without admitting that the Government Bonds are deposit substitutes, petitioners argue that
the collection of the final tax was barred by prescription.91 They point out that under Section 7 of DOF
Department Order No. 141-95,92 the final withholding tax “should have been withheld at the time of their
issuance[.]”93 Also, under Section 203 of the 1997 National Internal Revenue Code, “internal revenue taxes,
such as the final tax, [should] be assessed within three (3) years after the last day prescribed by law for the
filing of the return.”94 chanRob lesvi rtua lLawl ibra ry

Moreover, petitioners contend that the retroactive application of the 2011 BIR Ruling without prior notice to
them was in violation of their property rights,95 their constitutional right to due process96 as well as Section
246 of the 1997 National Internal Revenue Code on non-retroactivity of rulings.97 Allegedly, it would also
have “an adverse effect of colossal magnitude on the investors, both local and foreign, the Philippine capital
market, and most importantly, the country’s standing in the international commercial
community.”98 Petitioners explained that “unless enjoined, the government’s threatened refusal to pay the
full value of the Government Bonds will negatively impact on the image of the country in terms of protection
for property rights (including financial assets), degree of legal protection for lender’s rights, and strength of
investor protection.”99 They cited the country’s ranking in the World Economic Forum: 75th in the world in
its 2011–2012 Global Competitiveness Index, 111th out of 142 countries worldwide and 2nd to the last
among ASEAN countries in terms of Strength of Investor Protection, and 105thworldwide and last among
ASEAN countries in terms of Property Rights Index and Legal Rights Index.100 It would also allegedly “send
a reverberating message to the whole world that there is no certainty, predictability, and stability of financial
transactions in the capital markets[.]”101 “[T]he integrity of Government-issued bonds and notes will be
greatly shattered and the credit of the Philippine Government will suffer”102 if the sudden turnaround of the
government will be allowed,103 and it will reinforce “investors’ perception that the level of regulatory risk for
contracts entered into by the Philippine Government is high,”104 thus resulting in higher interest rate for
government-issued debt instruments and lowered credit rating.105 chanRoble svirtual Lawli bra ry

Petitioners-intervenors RCBC and RCBC Capital contend that respondent Commissioner of Internal Revenue
“gravely and seriously abused her discretion in the exercise of her rule-making power”106 when she issued
the assailed 2011 BIR Ruling which ruled that “all treasury bonds are ‘deposit substitutes’ regardless of the
number of lenders, in clear disregard of the requirement of twenty (20) or more lenders mandated under
the NIRC.”107 They argue that “[b]y her blanket and arbitrary classification of treasury bonds as deposit
substitutes, respondent CIR not only amended and expanded the NIRC, but effectively imposed a new tax
on privately-placed treasury bonds.”108 Petitioners-intervenors RCBC and RCBC Capital further argue that
the 2011 BIR Ruling will cause substantial impairment of their vested rights109under the Bonds since the
ruling imposes new conditions by “subjecting the PEACe Bonds to the twenty percent (20%) final
withholding tax notwithstanding the fact that the terms and conditions thereof as previously represented by
the Government, through respondents BTr and BIR, expressly state that it is not subject to final withholding
tax upon their maturity.”110 They added that “[t]he exemption from the twenty percent (20%) final
withholding tax [was] the primary inducement and principal consideration for [their] participat[ion] in the
auction and underwriting of the PEACe Bonds.”111 chanRoblesvi rtua lLawl ibra ry

Like petitioners, petitioners-intervenors RCBC and RCBC Capital also contend that respondent Commissioner
of Internal Revenue violated their rights to due process when she arbitrarily issued the 2011 BIR Ruling
without prior notice and hearing, and the oppressive timing of such ruling deprived them of the opportunity
to challenge the same.112 chanRoblesv irt ual Lawlib rary

Assuming the 20% final withholding tax was due on the PEACe Bonds, petitioners-intervenors RCBC and
RCBC Capital claim that respondents Bureau of Treasury and CODE-NGO should be held liable “as [these]
parties explicitly represented . . . that the said bonds are exempt from the final withholding tax.”113 chanRoblesv irt ual Lawlib rary

Finally, petitioners-intervenors RCBC and RCBC Capital argue that “the implementation of the [2011 assailed
BIR Ruling and BIR Ruling No. DA 378-2011] will have pernicious effects on the integrity of existing
securities, which is contrary to the State policies of stabilizing the financial system and of developing capital
markets.”114chanRoblesvi rtual Lawl ibra ry

For its part, CODE-NGO argues that: (a) the 2011 BIR Ruling and BIR Ruling No. DA 378-2011 are “invalid
because they contravene Section 22(Y) of the 1997 [NIRC] when the said rulings disregarded the
applicability of the ‘20 or more lender’ rule to government debt instruments”[;]115 (b) “when [it] sold the
PEACe Bonds in the secondary market instead of holding them until maturity, [it] derived . . . long-term
trading gain[s], not interest income, which [are] exempt . . . under Section 32(B)(7)(g) of the 1997
NIRC”[;]116 (c) “the tax exemption privilege relating to the issuance of the PEACe Bonds . . . partakes of a
contractual commitment granted by the Government in exchange for a valid and material consideration [i.e.,
the issue price paid and savings in borrowing cost derived by the Government,] thus protected by the non-
impairment clause of the 1987 Constitution”[;]117 and (d) the 2004, 2005, and 2011 BIR Rulings “did not
validly revoke the 2001 BIR Rulings since no notice of revocation was issued to [it], RCBC and [RCBC
Capital] and petitioners[-bondholders], nor was there any BIR administrative guidance issued and
published[.]”118 CODE-NGO additionally argues that impleading it in a Rule 65 petition was improper
because: (a) it involves determination of a factual question;119 and (b) it is premature and states no cause
of action as it amounts to an anticipatory third-party claim.120 chanRoble svirtual Lawlib ra ry

Arguments of respondents

Respondents argue that petitioners’ direct resort to this court to challenge the 2011 BIR Ruling violates the
doctrines of exhaustion of administrative remedies and hierarchy of courts, resulting in a lack of cause of
action that justifies the dismissal of the petition.121 According to them, “the jurisdiction to review the rulings
of the [Commissioner of Internal Revenue], after the aggrieved party exhausted the administrative
remedies, pertains to the Court of Tax Appeals.”122 They point out that “a case similar to the present
Petition was [in fact] filed with the CTA on October 13, 2011[,] [docketed as] CTA Case No. 8351 [and]
entitled, ‘Rizal Commercial Banking Corporation and RCBC Capital Corporation vs. Commissioner of Internal
Revenue, et al.’”123 chanRoblesv irt ual Lawlib rary

Respondents further take issue on the timeliness of the filing of the petition and petitions-in-
intervention.124 They argue that under the guise of mainly assailing the 2011 BIR Ruling, petitioners are
indirectly attacking the 2004 and 2005 BIR Rulings, of which the attack is legally prohibited, and the petition
insofar as it seeks to nullify the 2004 and 2005 BIR Rulings was filed way out of time pursuant to Rule 65,
Section 4.125 chanRoblesv irt ual Lawlib rary

Respondents contend that the discount/interest income derived from the PEACe Bonds is not a trading gain
but interest income subject to income tax.126 They explain that “[w]ith the payment of the PhP35 Billion
proceeds on maturity of the PEACe Bonds, Petitioners receive an amount of money equivalent to about
PhP24.8 Billion as payment for interest. Such interest is clearly an income of the Petitioners considering
that the same is a flow of wealth and not merely a return of capital – the capital initially invested in the
Bonds being approximately PhP10.2 Billion[.]”127 chanRoble svi rtual Lawli bra ry

Maintaining that the imposition of the 20% final withholding tax on the PEACe Bonds does not constitute an
impairment of the obligations of contract, respondents aver that: “The BTr has no power to contractually
grant a tax exemption in favour of Petitioners thus the 2001 BIR Rulings cannot be considered a material
term of the Bonds”[;]128 “[t]here has been no change in the laws governing the taxability of interest income
from deposit substitutes and said laws are read into every contract”[;]129“[t]he assailed BIR Rulings merely
interpret the term “deposit substitute” in accordance with the letter and spirit of the Tax Code”[;]130 “[t]he
withholding of the 20% FWT does not result in a default by the Government as the latter performed its
obligations to the bondholders in full”[;]131 and “[i]f there was a breach of contract or a misrepresentation it
was between RCBC/CODE-NGO/RCBC Cap and the succeeding purchasers of the PEACe Bonds.”132 chanRoblesvi rt ualLawlib rary

Similarly, respondents counter that the withholding of “[t]he 20% final withholding tax on the PEACe Bonds
does not amount to a deprivation of property without due process of law.”133 Their imposition of the 20%
final withholding tax is not arbitrary because they were only performing a duty imposed by law;134 “[t]he
2011 BIR Ruling is an interpretative rule which merely interprets the meaning of deposit substitutes [and
upheld] the earlier construction given to the term by the 2004 and 2005 BIR Rulings.”135 Hence,
respondents argue that “there was no need to observe the requirements of notice, hearing, and
publication[.]”136 cha nRoblesvi rt ualLaw lib rary

Nonetheless, respondents add that “there is every reason to believe that Petitioners — all major financial
institutions equipped with both internal and external accounting and compliance departments as well as
access to both internal and external legal counsel; actively involved in industry organizations such as the
Bankers Association of the Philippines and the Capital Market Development Council; all actively taking part
in the regular and special debt issuances of the BTr and indeed regularly proposing products for issue by BTr
— had actual notice of the 2004 and 2005 BIR Rulings.”137 Allegedly, “the sudden and drastic drop —
including virtually zero trading for extended periods of six months to almost a year — in the trading volume
of the PEACe Bonds after the release of BIR Ruling No. 007-04 on July 16, 2004 tend to indicate that market
participants, including the Petitioners herein, were aware of the ruling and its consequences for the PEACe
Bonds.”138chanRoblesvirtual Lawli bra ry

Moreover, they contend that the assailed 2011 BIR Ruling is a valid exercise of the Commissioner of Internal
Revenue’s rule-making power;139 that it and the 2004 and 2005 BIR Rulings did not unduly expand the
definition of deposit substitutes by creating an unwarranted exception to the requirement of having 20 or
more lenders/purchasers;140 and the word “any” in Section 22(Y) of the National Internal Revenue Code
plainly indicates that the period contemplated is the entire term of the bond and not merely the point of
origination or issuance.141chanRo blesvi rtua lLawl ib rary

Respondents further argue that a retroactive application of the 2011 BIR Ruling will not unjustifiably
prejudice petitioners.142 “[W]ith or without the 2011 BIR Ruling, Petitioners would be liable to pay a 20%
final withholding tax just the same because the PEACe Bonds in their possession are legally in the nature of
deposit substitutes subject to a 20% final withholding tax under the NIRC.”143 Section 7 of DOF Department
Order No. 141-95 also provides that income derived from Treasury bonds is subject to the 20% final
withholding tax.144 “[W]hile revenue regulations as a general rule have no retroactive effect, if the
revocation is due to the fact that the regulation is erroneous or contrary to law, such revocation shall have
retroactive operation as to affect past transactions, because a wrong construction of the law cannot give rise
to a vested right that can be invoked by a taxpayer.”145 chanRoblesv irtualLaw lib rary

Finally, respondents submit that “there are a number of variables and factors affecting a capital
market.”146 “[C]apital market itself is inherently unstable.”147 Thus, “[p]etitioners’ argument that the 20%
final withholding tax . . . will wreak havoc on the financial stability of the country is a mere supposition that
is not a justiciable issue.”148 chan Roblesvirtual Lawlib ra ry

On the prayer for the temporary restraining order, respondents argue that this order “could no longer be
implemented [because] the acts sought to be enjoined are already fait accompli.”149 They add that “to
disburse the funds withheld to the Petitioners at this time would violate Section 29[,] Article VI of the
Constitution prohibiting ‘money being paid out of the Treasury except in pursuance of an appropriation made
by law[.]’”150 “The remedy of petitioners is to claim a tax refund under Section 204(c) of the Tax Code
should their position be upheld by the Honorable Court.”151 chanRob lesvi rtua lLawl ibra ry

Respondents also argue that “the implementation of the TRO would violate Section 218 of the Tax Code in
relation to Section 11 of Republic Act No. 1125 (as amended by Section 9 of Republic Act No. 9282) which
prohibits courts, except the Court of Tax Appeals, from issuing injunctions to restrain the collection of any
national internal revenue tax imposed by the Tax Code.”152 chanRoblesv irtual Lawlib rary

Summary of arguments

In sum, petitioners and petitioners-intervenors, namely, RCBC, RCBC Capital, and CODE-NGO argue that:

1. The 2011 BIR Ruling is ultra vires because it is contrary to the 1997 National Internal Revenue Code
when it declared that all government debt instruments are deposit substitutes regardless of the 20-
lender rule; and

2. The 2011 BIR Ruling cannot be applied retroactively because:

a) It will violate the contract clause;

o It constitutes a unilateral amendment of a material term (tax exempt status) in the Bonds,
represented by the government as an inducement and important consideration for the
purchase of the Bonds;

b) It constitutes deprivation of property without due process because there was no prior notice to
bondholders and hearing and publication;

c) It violates the rule on non-retroactivity under the 1997 National Internal Revenue Code;

d) It violates the constitutional provision on supporting activities of non-government organizations

and development of the capital market; and

e) The assessment had already prescribed.

Respondents counter that:

1) Respondent Commissioner of Internal Revenue did not act with grave abuse of discretion in issuing the
challenged 2011 BIR Ruling:
 a. The 2011 BIR Ruling, being an interpretative rule, was issued by virtue of the Commissioner of
Internal Revenue’s power to interpret the provisions of the 1997 National Internal Revenue Code
and other tax laws;

b. Commissioner of Internal Revenue merely restates and confirms the interpretations contained in
previously issued BIR Ruling Nos. 007-2004, DA-491-04, and 008-05, which have already
effectively abandoned or revoked the 2001 BIR Rulings;

c. Commissioner of Internal Revenue is not bound by his or her predecessor’s rulings especially when
the latter’s rulings are not in harmony with the law; and

d. The wrong construction of the law that the 2001 BIR Rulings have perpetrated cannot give rise to a
vested right. Therefore, the 2011 BIR Ruling can be given retroactive effect.

2) Rule 65 can be resorted to only if there is no appeal or any plain, speedy, and adequate remedy in the
ordinary course of law:

a. Petitioners had the basic remedy of filing a claim for refund of the 20% final withholding tax they
allege to have been wrongfully collected; and
b. Non-observance of the doctrine of exhaustion of administrative remedies and of hierarchy of courts.

Court’s ruling

Procedural Issues

Non-exhaustion of administrative
remedies proper

Under Section 4 of the 1997 National Internal Revenue Code, interpretative rulings are reviewable by the
Secretary of Finance.

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.- The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction
of the Commissioner, subject to review by the Secretary of Finance. (Emphasis supplied)

Thus, it was held that “[i]f superior administrative officers [can] grant the relief prayed for, [then] special
civil actions are generally not entertained.”153 The remedy within the administrative machinery must be
resorted to first and pursued to its appropriate conclusion before the court’s judicial power can be
sought.154chanRoblesv irt ual Lawlib rary

Nonetheless, jurisprudence allows certain exceptions to the rule on exhaustion of administrative

remedies: chan roble svirtual lawlib rary

[The doctrine of exhaustion of administrative remedies] is a relative one and its flexibility is called upon by
the peculiarity and uniqueness of the factual and circumstantial settings of a case. Hence, it is disregarded
(1) when there is a violation of due process, (2) when the issue involved is purely a legal question,155 (3)
when the administrative action is patently illegal amounting to lack or excess of jurisdiction,(4) when there
is estoppel on the part of the administrative agency concerned,(5) when there is irreparable injury, (6) when
the respondent is a department secretary whose acts as an alter ego of the President bears the implied and
assumed approval of the latter, (7) when to require exhaustion of administrative remedies would be
unreasonable, (8) when it would amount to a nullification of a claim, (9) when the subject matter is a
private land in land case proceedings, (10) when the rule does not provide a plain, speedy and adequate
remedy, (11) when there are circumstances indicating the urgency of judicial intervention.156 (Emphasis
supplied, citations omitted)

The exceptions under (2) and (11) are present in this case. The question involved is purely legal, namely:
(a) the interpretation of the 20-lender rule in the definition of the terms public and deposit substitutes under
the 1997 National Internal Revenue Code; and (b) whether the imposition of the 20% final withholding tax
on the PEACe Bonds upon maturity violates the constitutional provisions on non-impairment of contracts and
due process. Judicial intervention is likewise urgent with the impending maturity of the PEACe Bonds on
October 18, 2011.

The rule on exhaustion of administrative remedies also finds no application when the exhaustion will result
in an exercise in futility.157
chanRob lesvi rtua l Lawlib rary

In this case, an appeal to the Secretary of Finance from the questioned 2011 BIR Ruling would be a futile
exercise because it was upon the request of the Secretary of Finance that the 2011 BIR Ruling was issued
by the Bureau of Internal Revenue. It appears that the Secretary of Finance adopted the Commissioner of
Internal Revenue’s opinions as his own.158 This position was in fact confirmed in the letter159 dated October
10, 2011 where he ordered the Bureau of Treasury to withhold the amount corresponding to the 20% final
withholding tax on the interest or discounts allegedly due from the bondholders on the strength of the 2011
BIR Ruling.

Doctrine on hierarchy of courts

We agree with respondents that the jurisdiction to review the rulings of the Commissioner of Internal
Revenue pertains to the Court of Tax Appeals. The questioned BIR Ruling Nos. 370-2011 and DA 378-2011
were issued in connection with the implementation of the 1997 National Internal Revenue Code on the
taxability of the interest income from zero-coupon bonds issued by the government.

Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), as amended by Republic Act No.
9282,160 such rulings of the Commissioner of Internal Revenue are appealable to that court, thus: chanroblesv irt uallawl ibra ry

SEC. 7. Jurisdiction. - The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;

....

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision,
ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of
Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of
Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days
after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as
referred to in Section 7(a)(2) herein.

....

SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving matters arising under
the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be
maintained, except as herein provided, until and unless an appeal has been previously filed with the CTA
and disposed of in accordance with the provisions of this Act.

In Commissioner of Internal Revenue v. Leal,161 citing Rodriguez v. Blaquera,162 this court emphasized the
jurisdiction of the Court of Tax Appeals over rulings of the Bureau of Internal Revenue, thus: chanroble svirtual lawlib rary

While the Court of Appeals correctly took cognizance of the petition for certiorari, however, let it be stressed
that the jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of
Tax Appeals, not to the RTC.

The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner
implementing the Tax Code on the taxability of pawnshops. . . .
....

Such revenue orders were issued pursuant to petitioner's powers under Section 245 of the Tax Code, which
states:chanrob lesvi rtual lawlib rary

“SEC. 245. Authority of the Secretary of Finance to promulgate rules and regulations. — The Secretary of
Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for
the effective enforcement of the provisions of this Code.

The authority of the Secretary of Finance to determine articles similar or analogous to those subject to a
rate of sales tax under certain category enumerated in Section 163 and 165 of this Code shall be without
prejudice to the power of the Commissioner of Internal Revenue to make rulings or opinions in connection
with the implementation of the provisions of internal revenue laws, including ruling on the classification of
articles of sales and similar purposes.” (Emphasis in the original)

....

The Court, in Rodriguez, etc. vs. Blaquera, etc., ruled: chanrob lesvi rtua lla wlibra ry

“Plaintiff maintains that this is not an appeal from a ruling of the Collector of Internal Revenue, but merely
an attempt to nullify General Circular No. V-148, which does not adjudicate or settle any controversy, and
that, accordingly, this case is not within the jurisdiction of the Court of Tax Appeals.

We find no merit in this pretense. General Circular No. V-148 directs the officers charged with the collection
of taxes and license fees to adhere strictly to the interpretation given by the defendant to the statutory
provisions abovementioned, as set forth in the Circular. The same incorporates, therefore, a decision of the
Collector of Internal Revenue (now Commissioner of Internal Revenue) on the manner of enforcement of the
said statute, the administration of which is entrusted by law to the Bureau of Internal Revenue. As such, it
comes within the purview of Republic Act No. 1125, Section 7 of which provides that the Court of Tax
Appeals ‘shall exercise exclusive appellate jurisdiction to review by appeal . . . decisions of the Collector of
Internal Revenue in . . . matters arising under the National Internal Revenue Code or other law or part of
the law administered by the Bureau of Internal Revenue.’”163

In exceptional cases, however, this court entertained direct recourse to it when “dictated by public welfare
and the advancement of public policy, or demanded by the broader interest of justice, or the orders
complained of were found to be patent nullities, or the appeal was considered as clearly an inappropriate
remedy.”164 chanRob lesvi rtual Lawli bra ry

In Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of
Interior and Local Government,165 this court noted that the petition for prohibition was filed directly before it
“in disregard of the rule on hierarchy of courts. However, [this court] opt[ed] to take primary jurisdiction
over the . . . petition and decide the same on its merits in view of the significant constitutional issues raised
by the parties dealing with the tax treatment of cooperatives under existing laws and in the interest of
speedy justice and prompt disposition of the matter.”166 chanRoble svirt ual Lawlib rary

Here, the nature and importance of the issues raised167 to the investment and banking industry with regard
to a definitive declaration of whether government debt instruments are deposit substitutes under existing
laws, and the novelty thereof, constitute exceptional and compelling circumstances to justify resort to this
court in the first instance.

The tax provision on deposit substitutes affects not only the PEACe Bonds but also any other financial
instrument or product that may be issued and traded in the market. Due to the changing positions of the
Bureau of Internal Revenue on this issue, there is a need for a final ruling from this court to stabilize the
expectations in the financial market.

Finally, non-compliance with the rules on exhaustion of administrative remedies and hierarchy of courts had
been rendered moot by this court’s issuance of the temporary restraining order enjoining the
implementation of the 2011 BIR Ruling. The temporary restraining order effectively recognized the urgency
and necessity of direct resort to this court.
 Substantive issues

Tax treatment of deposit substitutes

Under Sections 24(B)(1), 27(D)(1), and 28(A)(7) of the 1997 National Internal Revenue Code, a final
withholding tax at the rate of 20% is imposed on interest on any currency bank deposit and yield or any
other monetary benefit from deposit substitutes and from trust funds and similar arrangements. These
provisions read:c hanro blesvi rt uallawl ibra ry

SEC. 24. Income Tax Rates.

....

(B) Rate of Tax on Certain Passive Income.

(1) Interests, Royalties, Prizes, and Other Winnings. - A final tax at the rate of twenty percent (20%) is
hereby imposed upon the amount of interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar arrangements; . . . Provided,
further, That interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt
from the tax imposed under this Subsection: Provided, finally, That should the holder of the certificate pre-
terminate the deposit or investment before the fifth (5th) year, a final tax shall be imposed on the entire
income and shall be deducted and withheld by the depository bank from the proceeds of the long-term
deposit or investment certificate based on the remaining maturity thereof: chanro blesvi rt uallawl ibra ry

Four (4) years to less than five (5) years - 5%;

Three (3) years to less than four (4) years - 12%; and
Less than three (3) years - 20%. (Emphasis supplied)

SEC. 27. Rates of Income Tax on Domestic Corporations. -

....

(D) Rates of Tax on Certain Passive Incomes. -

(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes and from Trust
Funds and Similar Arrangements, and Royalties. - A final tax at the rate of twenty percent (20%) is hereby
imposed upon the amount of interest on currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements received by domestic corporations, and
royalties, derived from sources within the Philippines: Provided, however, That interest income derived by a
domestic corporation from a depository bank under the expanded foreign currency deposit system shall be
subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest income.
(Emphasis supplied)

SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -

....

(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. -

(a) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes, Trust Funds
and Similar Arrangements and Royalties. - Interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties
derived from sources within the Philippines shall be subject to a final income tax at the rate of twenty
percent (20%) of such interest: Provided, however, That interest income derived by a resident foreign
corporation from a depository bank under the expanded foreign currency deposit system shall be subject to
a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest income. (Emphasis
supplied)

This tax treatment of interest from bank deposits and yield from deposit substitutes was first introduced in
the 1977 National Internal Revenue Code through Presidential Decree No. 1739168 issued in 1980. Later,
Presidential Decree No. 1959, effective on October 15, 1984, formally added the definition of deposit
substitutes, viz:
chan roble svirtual lawlib rary

(y) ‘Deposit substitutes’ shall mean an alternative form of obtaining funds from the public, other than
deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own
account, for the purpose of relending or purchasing of receivables and other obligations, or financing their
own needs or the needs of their agent or dealer. These promissory notes, repurchase agreements,
certificates of assignment or participation and similar instrument with recourse as may be authorized by the
Central Bank of the Philippines, for banks and non-bank financial intermediaries or by the Securities and
Exchange Commission of the Philippines for commercial, industrial, finance companies and either non-
financial companies: Provided, however, that only debt instruments issued for inter-bank call loans to cover
deficiency in reserves against deposit liabilities including those between or among banks and quasi-banks
shall not be considered as deposit substitute debt instruments. (Emphasis supplied)

Revenue Regulations No. 17-84, issued to implement Presidential Decree No. 1959, adopted verbatim the
same definition and specifically identified the following borrowings as “deposit substitutes”: chanrob lesvi rtua llawli bra ry

SECTION 2. Definitions of Terms. . . .

(h) “Deposit substitutes” shall mean –

....

(a) All interbank borrowings by or among banks and non-bank financial institutions authorized to engage in
quasi-banking functions evidenced by deposit substitutes instruments, except interbank call loans to cover
deficiency in reserves against deposit liabilities as evidenced by interbank loan advice or repayment transfer
tickets.

(b) All borrowings of the national and local government and its instrumentalities including the Central Bank
of the Philippines, evidenced by debt instruments denoted as treasury bonds, bills, notes, certificates of
indebtedness and similar instruments.

(c) All borrowings of banks, non-bank financial intermediaries, finance companies, investment companies,
trust companies, including the trust department of banks and investment houses, evidenced by deposit
substitutes instruments. (Emphasis supplied)

The definition of deposit substitutes was amended under the 1997 National Internal Revenue Code with the
addition of the qualifying phrase for public – borrowing from 20 or more individual or corporate lenders at
any one time. Under Section 22(Y), deposit substitute is defined thus: chan roble svirtual lawlib rary

SEC. 22. Definitions - When used in this Title:

....

(Y) The term ‘deposit substitutes’ shall mean an alternative form of obtaining funds from the public (the
term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any
one time) other than deposits, through the issuance, endorsement, or acceptance of debt instruments for
the borrower’s own account, for the purpose of relending or purchasing of receivables and other obligations,
or financing their own needs or the needs of their agent or dealer. These instruments may include, but need
not be limited to, bankers’ acceptances, promissory notes, repurchase agreements, including reverse
repurchase agreements entered into by and between the Bangko Sentral ng Pilipinas (BSP) and any
authorized agent bank, certificates of assignment or participation and similar instruments with recourse:
Provided, however, That debt instruments issued for interbank call loans with maturity of not more than five
(5) days to cover deficiency in reserves against deposit liabilities, including those between or among banks
and quasi-banks, shall not be considered as deposit substitute debt instruments. (Emphasis supplied)

Under the 1997 National Internal Revenue Code, Congress specifically defined “public” to mean “twenty (20)
or more individual or corporate lenders at any one time.” Hence, the number of lenders is determinative of
whether a debt instrument should be considered a deposit substitute and consequently subject to the 20%
final withholding tax.

20-lender rule

Petitioners contend that “there [is] only one (1) lender (i.e. RCBC) to whom the BTr issued the Government
Bonds.”169 On the other hand, respondents theorize that the word “any” “indicates that the period
contemplated is the entire term of the bond and not merely the point of origination or issuance[,]”170 such
that if the debt instruments “were subsequently sold in secondary markets and so on, in such a way that
twenty (20) or more buyers eventually own the instruments, then it becomes indubitable that funds would
be obtained from the “public” as defined in Section 22(Y) of the NIRC.”171 Indeed, in the context of the
financial market, the words “at any one time” create an ambiguity.

Financial markets

Financial markets provide the channel through which funds from the surplus units (households and business
firms that have savings or excess funds) flow to the deficit units (mainly business firms and government
that need funds to finance their operations or growth). They bring suppliers and users of funds together and
provide the means by which the lenders transform their funds into financial assets, and the borrowers
receive these funds now considered as their financial liabilities. The transfer of funds is represented by a
security, such as stocks and bonds. Fund suppliers earn a return on their investment; the return is
necessary to ensure that funds are supplied to the financial markets.172 chanRoble svirtual Lawlib ra ry

“The financial markets that facilitate the transfer of debt securities are commonly classified by the maturity
of the securities[,]”173 namely: (1) the money market, which facilitates the flow of short-term funds (with
maturities of one year or less); and (2) the capital market, which facilitates the flow of long-term funds
(with maturities of more than one year).174 chanRoblesv irtual Lawlib rary

Whether referring to money market securities or capital market securities, transactions occur either in
the primary market or in the secondary market.175 “Primary markets facilitate the issuance of new
securities. Secondary markets facilitate the trading of existing securities, which allows for a change in the
ownership of the securities.”176 The transactions in primary markets exist between issuers and investors,
while secondary market transactions exist among investors.177 chanRob lesvi rtual Lawl ibra ry

“Over time, the system of financial markets has evolved from simple to more complex ways of carrying out
financial transactions.”178 Still, all systems perform one basic function: the quick mobilization of money
from the lenders/investors to the borrowers.179 cha nRoblesv irt ual Lawlib rary

Fund transfers are accomplished in three ways: (1) direct finance; (2) semidirect finance; and (3) indirect
finance.180
chanRoblesv irt ual Lawlib rary

With direct financing, the “borrower and lender meet each other and exchange funds in return for financial
assets”181 (e.g., purchasing bonds directly from the company issuing them). This method provides certain
limitations such as: (a) “both borrower and lender must desire to exchange the same amount of funds at the
same time”[;]182 and (b) “both lender and borrower must frequently incur substantial information costs
simply to find each other.”183 chanRoble svirtual Lawli bra ry

In semidirect financing, a securities broker or dealer brings surplus and deficit units together, thereby
reducing information costs.184 A broker185 is “an individual or financial institution who provides information
concerning possible purchases and sales of securities. Either a buyer or a seller of securities may contact a
broker, whose job is simply to bring buyers and sellers together.”186 A dealer187 “also serves as a
middleman between buyers and sellers, but the dealer actually acquires the seller’s securities in the hope of
selling them at a later time at a more favorable price.”188 Frequently, “a dealer will split up a large issue of
primary securities into smaller units affordable by . . . buyers . . . and thereby expand the flow of savings
into investment.”189 In semidirect financing, “[t]he ultimate lender still winds up holding the borrower’s
securities, and therefore the lender must be willing to accept the risk, liquidity, and maturity characteristics
of the borrower’s [debt security]. There still must be a fundamental coincidence of wants and needs
between [lenders and borrowers] for semidirect financial transactions to take place.”190 chanRob lesvi rtua lLawl ibra ry

“The limitations of both direct and semidirect finance stimulated the development of indirect financial
transactions, carried out with the help of financial intermediaries”191 or financial institutions, like banks,
investment banks, finance companies, insurance companies, and mutual funds.192 Financial intermediaries
accept funds from surplus units and channel the funds to deficit units.193 “Depository institutions [such as
banks] accept deposits from surplus units and provide credit to deficit units through loans and purchase of
[debt] securities.”194 Nondepository institutions, like mutual funds, issue securities of their own (usually in
smaller and affordable denominations) to surplus units and at the same time purchase debt securities of
deficit units.195 “By pooling the resources of [small savers, a financial intermediary] can service the credit
needs of large firms simultaneously.”196 chanRoblesv irt ual Lawlib rary

The financial market, therefore, is an agglomeration of financial transactions in securities performed by

market participants that works to transfer the funds from the surplus units (or investors/lenders) to those
who need them (deficit units or borrowers).

Meaning of “at any one time”

Thus, from the point of view of the financial market, the phrase “at any one time” for purposes of
determining the “20 or more lenders” would mean every transaction executed in the primary or secondary
market in connection with the purchase or sale of securities.

For example, where the financial assets involved are government securities like bonds, the reckoning of “20
or more lenders/investors” is made at any transaction in connection with the purchase or sale of the
Government Bonds, such as:

1. Issuance by the Bureau of Treasury of the bonds to GSEDs in the primary market;

2. Sale and distribution by GSEDs to various lenders/investors in the secondary market;

3. Subsequent sale or trading by a bondholder to another lender/investor in the secondary market

usually through a broker or dealer; or

4. Sale by a financial intermediary-bondholder of its participation interests in the bonds to individual or

corporate lenders in the secondary market.

When, through any of the foregoing transactions, funds are simultaneously obtained from 20 or more
lenders/investors, there is deemed to be a public borrowing and the bonds at that point in time are deemed
deposit substitutes. Consequently, the seller is required to withhold the 20% final withholding tax on the
imputed interest income from the bonds.

For debt instruments that are

not deposit substitutes, regular
income tax applies

It must be emphasized, however, that debt instruments that do not qualify as deposit substitutes under the
1997 National Internal Revenue Code are subject to the regular income tax.

The phrase “all income derived from whatever source” in Chapter VI, Computation of Gross Income,Section
32(A) of the 1997 National Internal Revenue Code discloses a legislative policy to include all income not
expressly exempted as within the class of taxable income under our laws.

“The definition of gross income is broad enough to include all passive incomes subject to specific tax rates or
final taxes.”197 Hence, interest income from deposit substitutes are necessarily part of taxable
income. “However, since these passive incomes are already subject to different rates and taxed finally at
source, they are no longer included in the computation of gross income, which determines taxable
income.”198 “Stated otherwise . . . if there were no withholding tax system in place in this country, this 20
percent portion of the ‘passive’ income of [creditors/lenders] would actually be paid to the
[creditors/lenders] and then remitted by them to the government in payment of their income tax.”199 chanRoblesvi rtua lLawl ibra ry

This court, in Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo,200 explained the rationale
behind the withholding tax system: chanroblesv irt uallawl ibra ry

The withholding [of tax at source] was devised for three primary reasons: first, to provide the taxpayer a
convenient manner to meet his probable income tax liability; second, to ensure the collection of income tax
which can otherwise be lost or substantially reduced through failure to file the corresponding returns[;] and
third, to improve the government’s cash flow. This results in administrative savings, prompt and efficient
collection of taxes, prevention of delinquencies and reduction of governmental effort to collect taxes through
more complicated means and remedies.201 (Citations omitted)

“The application of the withholdings system to interest on bank deposits or yield from deposit substitutes is
essentially to maximize and expedite the collection of income taxes by requiring its payment at the
source.”202
chanRoblesv irt ual Lawlib rary

Hence, when there are 20 or more lenders/investors in a transaction for a specific bond issue, the seller is
required to withhold the 20% final income tax on the imputed interest income from the bonds.

Interest income v. gains from sale or redemption

The interest income earned from bonds is not synonymous with the “gains” contemplated under Section
32(B)(7)(g)203 of the 1997 National Internal Revenue Code, which exempts gains derived from trading,
redemption, or retirement of long-term securities from ordinary income tax.

The term “gain” as used in Section 32(B)(7)(g) does not include interest, which represents forbearance for
the use of money. Gains from sale or exchange or retirement of bonds or other certificate of indebtedness
fall within the general category of “gains derived from dealings in property” under Section 32(A)(3), while
interest from bonds or other certificate of indebtedness falls within the category of “interests” under Section
32(A)(4).204 The use of the term “gains from sale” in Section 32(B)(7)(g) shows the intent of Congress not
to include interest as referred under Sections 24, 25, 27, and 28 in the exemption.205 ch anRoblesvi rtua lLawl ibra ry

Hence, the “gains” contemplated in Section 32(B)(7)(g) refers to: (1) gain realized from the trading of the
bonds before their maturity date, which is the difference between the selling price of the bonds in the
secondary market and the price at which the bonds were purchased by the seller; and (2) gain realized by
the last holder of the bonds when the bonds are redeemed at maturity, which is the difference between the
proceeds from the retirement of the bonds and the price at which such last holder acquired the bonds. For
discounted instruments, like the zero-coupon bonds, the trading gain shall be the excess of the selling price
over the book value or accreted value (original issue price plus accumulated discount from the time of
purchase up to the time of sale) of the instruments.206 chanRoble svirtual Law libra ry

The Bureau of Internal

Revenue rulings

The Bureau of Internal Revenue’s interpretation as expressed in the three 2001 BIR Rulings is not consistent
with law.207 Its interpretation of “at any one time” to mean at the point of origination alone is unduly
restrictive.

BIR Ruling No. 370-2011 is likewise erroneous insofar as it stated (relying on the 2004 and 2005 BIR
Rulings) that “all treasury bonds . . . regardless of the number of purchasers/lenders at the time of
origination/issuance are considered deposit substitutes.”208 Being the subject of this petition, it is, thus,
declared void because it completely disregarded the 20 or more lender rule added by Congress in the 1997
National Internal Revenue Code. It also created a distinction for government debt instruments as against
those issued by private corporations when there was none in the law.

Tax statutes must be reasonably construed as to give effect to the whole act. Their constituent provisions
must be read together, endeavoring to make every part effective, harmonious, and sensible.209 That
construction which will leave every word operative will be favored over one that leaves some word, clause,
or sentence meaningless and insignificant.210 cha nRoblesv irt ual Lawlib rary

It may be granted that the interpretation of the Commissioner of Internal Revenue in charge of executing
the 1997 National Internal Revenue Code is an authoritative construction of great weight, but the principle is
not absolute and may be overcome by strong reasons to the contrary. If through a misapprehension of law
an officer has issued an erroneous interpretation, the error must be corrected when the true construction is
ascertained.

In Philippine Bank of Communications v. Commissioner of Internal Revenue,211 this court upheld the
nullification of Revenue Memorandum Circular (RMC) No. 7-85 issued by the Acting Commissioner of
Internal Revenue because it was contrary to the express provision of Section 230 of the 1977 National
Internal Revenue Code and, hence, “[cannot] be given weight for to do so would, in effect, amend the
statute.”212 Thus: chanroblesv irt uallawl ibra ry

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of
two years to ten years on claims of excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the
law; rather it legislated guidelines contrary to the statute passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense
of more specific and less general interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by
the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will
not countenance administrative issuances that override, instead of remaining consistent and in harmony
with, the law they seek to apply and implement.213 (Citations omitted)

This court further held that “[a] memorandum-circular of a bureau head could not operate to vest a
taxpayer with a shield against judicial action [because] there are no vested rights to speak of respecting a
wrong construction of the law by the administrative officials and such wrong interpretation could not place
the Government in estoppel to correct or overrule the same.”214 chanRoblesv irt ual Lawlib rary

In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,215 this court nullified Revenue
Memorandum Order (RMO) No. 15-91 and RMC No. 43-91, which imposed a 5% lending investor's tax on
pawnshops.216 It was held that “the [Commissioner] cannot, in the exercise of [its interpretative] power,
issue administrative rulings or circulars not consistent with the law sought to be applied. Indeed,
administrative issuances must not override, supplant or modify the law, but must remain consistent with the
law they intend to carry out. Only Congress can repeal or amend the law.”217 chanRoblesvirtual Lawli bra ry

In Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary,218 this court
stated that the Commissioner of Internal Revenue is not bound by the ruling of his predecessors,219 but, to
the contrary, the overruling of decisions is inherent in the interpretation of laws: cha nrob lesvi rtua llawlib ra ry

[I]n considering a legislative rule a court is free to make three inquiries: (i) whether the rule is within the
delegated authority of the administrative agency; (ii) whether it is reasonable; and (iii) whether it was
issued pursuant to proper procedure. But the court is not free to substitute its judgment as to the
desirability or wisdom of the rule for the legislative body, by its delegation of administrative judgment, has
committed those questions to administrative judgments and not to judicial judgments. In the case of an
interpretative rule, the inquiry is not into the validity but into the correctness or propriety of the rule. As a
matter of power a court, when confronted with an interpretative rule, is free to (i) give the force of law to
the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree
of authoritative weight to the interpretative rule.

In the case at bar, we find no reason for holding that respondent Commissioner erred in not considering
copra as an “agricultural food product” within the meaning of § 103(b) of the NIRC. As the Solicitor General
contends, “copra per se is not food, that is, it is not intended for human consumption. Simply stated,
nobody eats copra for food.” That previous Commissioners considered it so, is not reason for holding that
the present interpretation is wrong. The Commissioner of Internal Revenue is not bound by the ruling of his
predecessors. To the contrary, the overruling of decisions is inherent in the interpretation of
laws.220 (Emphasis supplied, citations omitted)

Tax treatment of income derived

from the PEACe Bonds

The transactions executed for the sale of the PEACe Bonds are:

1. The issuance of the P35 billion Bonds by the Bureau of Treasury to RCBC/CODE-NGO at P10.2
billion; and

2. The sale and distribution by RCBC Capital (underwriter) on behalf of CODE-NGO of the PEACe Bonds
to undisclosed investors at P11.996 billion.
It may seem that there was only one lender — RCBC on behalf of CODE-NGO — to whom the PEACe Bonds
were issued at the time of origination. However, a reading of the underwriting agreement221 and RCBC term
sheet222 reveals that the settlement dates for the sale and distribution by RCBC Capital (as underwriter for
CODE-NGO) of the PEACe Bonds to various undisclosed investors at a purchase price of approximately
P11.996 would fall on the same day, October 18, 2001, when the PEACe Bonds were supposedly issued to
CODE-NGO/RCBC. In reality, therefore, the entire P10.2 billion borrowing received by the Bureau of
Treasury in exchange for the P35 billion worth of PEACe Bonds was sourced directly from the undisclosed
number of investors to whom RCBC Capital/CODE-NGO distributed the PEACe Bonds — all at the time of
origination or issuance. At this point, however, we do not know as to how many investors the PEACe Bonds
were sold to by RCBC Capital.

Should there have been a simultaneous sale to 20 or more lenders/investors, the PEACe Bonds are deemed
deposit substitutes within the meaning of Section 22(Y) of the 1997 National Internal Revenue Code and
RCBC Capital/CODE-NGO would have been obliged to pay the 20% final withholding tax on the interest or
discount from the PEACe Bonds. Further, the obligation to withhold the 20% final tax on the corresponding
interest from the PEACe Bonds would likewise be required of any lender/investor had the latter turned
around and sold said PEACe Bonds, whether in whole or part, simultaneously to 20 or more lenders or
investors.

We note, however, that under Section 24223 of the 1997 National Internal Revenue Code, interest income
received by individuals from long-term deposits or investments with a holding period of not less than five (5)
years is exempt from the final tax.

Thus, should the PEACe Bonds be found to be within the coverage of deposit substitutes, the proper
procedure was for the Bureau of Treasury to pay the face value of the PEACe Bonds to the bondholders and
for the Bureau of Internal Revenue to collect the unpaid final withholding tax directly from RCBC
Capital/CODE-NGO, or any lender or investor if such be the case, as the withholding agents.

The collection of tax is not

barred by prescription

The three (3)-year prescriptive period under Section 203 of the 1997 National Internal Revenue Code to
assess and collect internal revenue taxes is extended to 10 years in cases of (1) fraudulent returns; (2) false
returns with intent to evade tax; and (3) failure to file a return, to be computed from the time of discovery
of the falsity, fraud, or omission. Section 203 states:chanroblesvi rt uallawl ibra ry

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222,
internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the
filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For
purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day. (Emphasis supplied)

....

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax
may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at
any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.

Thus, should it be found that RCBC Capital/CODE-NGO sold the PEACe Bonds to 20 or more
lenders/investors, the Bureau of Internal Revenue may still collect the unpaid tax from RCBC Capital/CODE-
NGO within 10 years after the discovery of the omission.

In view of the foregoing, there is no need to pass upon the other issues raised by petitioners and
petitioners-intervenors.
 Reiterative motion on the temporary restraining order

Respondents’ withholding of the

20% final withholding tax on
October 18, 2011 was justified

Under the Rules of Court, court orders are required to be “served upon the parties affected.”224 Moreover,
service may be made personally or by mail.225 And, “[p]ersonal service is complete upon actual delivery [of
the order.]”226 This court’s temporary restraining order was received only on October 19, 2011, or a day
after the PEACe Bonds had matured and the 20% final withholding tax on the interest income from the same
was withheld.

Publication of news reports in the print and broadcast media, as well as on the internet, is not a recognized
mode of service of pleadings, court orders, or processes. Moreover, the news reports227 cited by petitioners
were posted minutes before the close of office hours or late in the evening of October 18, 2011, and they
did not give the exact contents of the temporary restraining order.

“[O]ne cannot be punished for violating an injunction or an order for an injunction unless it is shown that
such injunction or order was served on him personally or that he had notice of the issuance or making of
such injunction or order.”228
chanR oblesvi rtual Lawl ibra ry

At any rate, “[i]n case of doubt, a withholding agent may always protect himself or herself by withholding
the tax due”229 and return the amount of the tax withheld should it be finally determined that the income
paid is not subject to withholding.230 Hence, respondent Bureau of Treasury was justified in withholding the
amount corresponding to the 20% final withholding tax from the proceeds of the PEACe Bonds, as it
received this court’s temporary restraining order only on October 19, 2011, or the day after this tax had
been withheld.

Respondents’ retention of the

amounts withheld is a defiance of
the temporary restraining order

Nonetheless, respondents’ continued failure to release to petitioners the amount corresponding to the 20%
final withholding tax in order that it may be placed in escrow as directed by this court constitutes a defiance
of this court’s temporary restraining order.231 chanRoble svi rtual Lawli bra ry

The temporary restraining order is not moot. The acts sought to be enjoined are not fait accompli. For an
act to be considered fait accompli, the act must have already been fully accomplished and
consummated.232 It must be irreversible, e.g., demolition of properties,233 service of the penalty of
imprisonment,234 and hearings on cases.235 When the act sought to be enjoined has not yet been fully
satisfied, and/or is still continuing in nature,236 the defense of fait accompli cannot prosper.

The temporary restraining order enjoins the entire implementation of the 2011 BIR Ruling that constitutes
both the withholding and remittance of the 20% final withholding tax to the Bureau of Internal
Revenue. Even though the Bureau of Treasury had already withheld the 20% final withholding tax237 when
it received the temporary restraining order, it had yet to remit the monies it withheld to the Bureau of
Internal Revenue, a remittance which was due only on November 10, 2011.238 The act enjoined by the
temporary restraining order had not yet been fully satisfied and was still continuing.

Under DOF-DBM Joint Circular No. 1-2000A239 dated July 31, 2001 which prescribes to national government
agencies such as the Bureau of Treasury the procedure for the remittance of all taxes it withheld to the
Bureau of Internal Revenue, a national agency shall file before the Bureau of Internal Revenue a Tax
Remittance Advice (TRA) supported by withholding tax returns on or before the 10th day of the following
month after the said taxes had been withheld.240 The Bureau of Internal Revenue shall transmit an original
copy of the TRA to the Bureau of Treasury,241 which shall be the basis for recording the remittance of the tax
collection.242 The Bureau of Internal Revenue will then record the amount of taxes reflected in the TRA as
tax collection in the Journal of Tax Remittance by government agencies based on its copies of the
TRA.243 Respondents did not submit any withholding tax return or TRA to prove that the 20% final
withholding tax was indeed remitted by the Bureau of Treasury to the Bureau of Internal Revenue on
October 18, 2011.
Respondent Bureau of Treasury’s Journal Entry Voucher No. 11-10-10395244 dated October 18, 2011
submitted to this court shows: chan roblesv irt uallawl ibra ry

Account Debit Amount Credit Amount

Code
Bonds Payable-L/T, 442-360 35,000,000,000.00
Dom-Zero
Coupon T/Bonds
(Peace Bonds) – 10 yr
Sinking Fund-Cash 198-001 30,033,792,203.59
(BSF)
Due to BIR 412-002 4,966,207,796.41

To record redemption
of 10yr Zero coupon
(Peace Bond) net of the
20% final withholding
tax pursuant to BIR
Ruling No. 378-2011,
value date, October 18,
2011 per BTr letter
authority and BSP Bank
Statements.
The foregoing journal entry, however, does not prove that the amount of P4,966,207,796.41, representing
the 20% final withholding tax on the PEACe Bonds, was disbursed by it and remitted to the Bureau of
Internal Revenue on October 18, 2011. The entries merely show that the monies corresponding to 20%
final withholding tax was set aside for remittance to the Bureau of Internal Revenue.

We recall the November 15, 2011 resolution issued by this court directing respondents to “show cause why
they failed to comply with the [TRO]; and [to] comply with the [TRO] in order that petitioners may place the
corresponding funds in escrow pending resolution of the petition.”245 The 20% final withholding tax was
effectively placed in custodia legis when this court ordered the deposit of the amount in escrow. The Bureau
of Treasury could still release the money withheld to petitioners for the latter to place in escrow pursuant to
this court’s directive. There was no legal obstacle to the release of the 20% final withholding tax to
petitioners.

Congressional appropriation is not required for the servicing of public debts in view of the automatic
appropriations clause embodied in Presidential Decree Nos. 1177 and 1967.

Section 31 of Presidential Decree No. 1177 provides: chan roble svi rtual lawlib rary

Section 31. Automatic Appropriations. All expenditures for (a) personnel retirement premiums,
government service insurance, and other similar fixed expenditures, (b) principal and interest on public
debt, (c) national government guarantees of obligations which are drawn upon, are automatically
appropriated: provided, that no obligations shall be incurred or payments made from funds thus
automatically appropriated except as issued in the form of regular budgetary allotments.

Section 1 of Presidential Decree No. 1967 states: chanrob lesvi rtua llawli bra ry
Section 1. There is hereby appropriated, out of any funds in the National Treasury not otherwise
appropriated, such amounts as may be necessary to effect payments on foreign or domestic loans, or
foreign or domestic loans whereon creditors make a call on the direct and indirect guarantee of the Republic
of the Philippines, obtained by:

a. the Republic of the Philippines the proceeds of which were relent to government-owned or controlled
corporations and/or government financial institutions;

b. government-owned or controlled corporations and/or government financial institutions the proceeds of

which were relent to public or private institutions;

c. government-owned or controlled corporations and/or financial institutions and guaranteed by the Republic
of the Philippines;

d. other public or private institutions and guaranteed by government-owned or controlled corporations

and/or government financial institutions.

The amount of P35 billion that includes the monies corresponding to 20% final withholding tax is a lawful
and valid obligation of the Republic under the Government Bonds. Since said obligation represents a public
debt, the release of the monies requires no legislative appropriation.

Section 2 of Republic Act No. 245 likewise provides that the money to be used for the payment of
Government Bonds may be lawfully taken from the continuing appropriation out of any monies in the
National Treasury and is not required to be the subject of another appropriation legislation:
chan roble svirtual lawlib rary

SEC. 2. The Secretary of Finance shall cause to be paid out of any moneys in the National Treasury not
otherwise appropriated, or from any sinking funds provided for the purpose by law, any interest falling due,
or accruing, on any portion of the public debt authorized by law. He shall also cause to be paid out of any
such money, or from any such sinking funds the principal amount of any obligations which have matured, or
which have been called for redemption or for which redemption has been demanded in accordance with
terms prescribed by him prior to date of issue . . . In the case of interest-bearing obligations, he shall pay
not less than their face value; in the case of obligations issued at a discount he shall pay the face value at
maturity; or if redeemed prior to maturity, such portion of the face value as is prescribed by the terms and
conditions under which such obligations were originally issued. There are hereby appropriated as a
continuing appropriation out of any moneys in the National Treasury not otherwise appropriated, such sums
as may be necessary from time to time to carry out the provisions of this section. The Secretary of Finance
shall transmit to Congress during the first month of each regular session a detailed statement of all
expenditures made under this section during the calendar year immediately preceding.

Thus, DOF Department Order No. 141-95, as amended, states that payment for Treasury bills and bonds
shall be made through the National Treasury’s account with the Bangko Sentral ng Pilipinas, to wit: chan roble svirtuallaw lib rary

Section 38. Demand Deposit Account. – The Treasurer of the Philippines maintains a Demand Deposit
Account with the Bangko Sentral ng Pilipinas to which all proceeds from the sale of Treasury Bills and Bonds
under R.A. No. 245, as amended, shall be credited and all payments for redemption of Treasury Bills and
Bonds shall be charged.

Regarding these legislative enactments ordaining an automatic appropriations provision for debt servicing,
this court has held:
chanrob lesvi rtua llawli bra ry

Congress . . . deliberates or acts on the budget proposals of the President, and Congress in the exercise of
its own judgment and wisdom formulates an appropriation act precisely following the process established by
the Constitution, which specifies that no money may be paid from the Treasury except in accordance with an
appropriation made by law.

Debt service is not included in the General Appropriation Act, since authorization therefor already exists
under RA Nos. 4860 and 245, as amended, and PD 1967. Precisely in the light of this subsisting
authorization as embodied in said Republic Acts and PD for debt service, Congress does not concern itself
with details for implementation by the Executive, but largely with annual levels and approval thereof upon
due deliberations as part of the whole obligation program for the year. Upon such approval, Congress has
spoken and cannot be said to have delegated its wisdom to the Executive, on whose part lies the
implementation or execution of the legislative wisdom.246 (Citation omitted)

Respondent Bureau of Treasury had the duty to obey the temporary restraining order issued by this court,
which remained in full force and effect, until set aside, vacated, or modified. Its conduct finds no
justification and is reprehensible.247
chanRob lesvi rtual Lawl ibra rycha nrob leslaw

WHEREFORE, the petition for review and petitions-in-intervention are GRANTED. BIR Ruling Nos. 370-
2011 and DA 378-2011 are NULLIFIED.

Furthermore, respondent Bureau of Treasury is REPRIMANDED for its continued retention of the amount
corresponding to the 20% final withholding tax despite this court’s directive in the temporary restraining
order and in the resolution dated November 15, 2011 to deliver the amounts to the banks to be placed in
escrow pending resolution of this case.

Respondent Bureau of Treasury is hereby ORDERED to immediately release and pay to the bondholders the
amount corresponding to the 20% final withholding tax that it withheld on October 18, 2011.

Sereno, C.J., Velasco, Jr., Leonardo-De Castro, Peralta, Bersamin, Del Castillo, Villarama, Jr., Perez,
Mendoza, Reyes, , and Perlas-Bernabe, JJ., concur.
Carpio, J., no part, former lawfirm was aprevious counsel to a party.
Brion, J., on leave.

FIRST DIVISION

G.R. No. 181293, February 23, 2015

ANA THERESIA “RISA” HONTIVEROS-BARAQUEL, DANIEL L. EDRALIN, VICTOR M. GONZALES, SR.,

JOSE APOLLO R. ADO, RENE D. SORIANO, ALLIANCE OF PROGRESSIVE LABOR, BUKLURAN NG
MANGGAGAWANG PILIPINO, LAHING PILIPINO MULTI-PURPOSE TRANSPORT SERVICE
COOPERATIVE, PNCC SKYWAY CORPORATION EMPLOYEES UNION (PSCEU), AND PNCC TRAFFIC
MANAGEMENT & SECURITY DEPARTMENT WORKERS ORGANIZATION
(PTMSDWO), Petitioners, v. TOLL REGULATORY BOARD, THE SECRETARY OF THE DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS (DOTC), PNCC SKYWAY CORPORATION, PHILIPPINE
NATIONAL CONSTRUCTION CORPORATION, SKYWAY O & M CORPORATION, AND CITRA METRO
MANILA TOLLWAYS CORP., Respondents.

DECISION

SERENO, C.J.:

This is an original petition for certiorari and prohibition under Rule 65 of the Rules of Court, with a prayer for
the issuance of a writ of preliminary injunction and/or temporary restraining order, seeking the annulment
of the following:

1. The Amendment to the Supplemental Toll Operation Agreement executed on 18 July 2007 between
the Republic of the Philippines, the Philippine National Construction Corporation, and Citra Metro
Manila Tollways Corporation; ChanRobles Vi rtua lawlib rary

2. The Memorandum dated 20 July 2007 of the Secretary of Transportation and Communications,
approving the Amendment to the Supplemental Toll Operation Agreement; ChanRobles Vi rtualaw lib rary

3. The Memorandum of Agreement executed on 21 December 2007 between the Philippine National
Construction Corporation, PNCC Skyway Corporation, and Citra Metro Manila Tollways Corporation;
and

4. The Toll Operation Certificate issued by the Toll Regulatory Board on 28 December 2007 in favor of
Skyway O & M Corporation.
The annulment of the above is sought for being unconstitutional, contrary to law, and grossly
disadvantageous to the government. Petitioners also seek to prohibit Skyway O & M Corporation from
assuming operations and maintenance responsibilities over the Skyway toll facilities. chanrob lesvi rtua llawli bra ry

ANTECEDENT FACTS

The Toll Regulatory Board (TRB) was created on 31 March 1977 by Presidential Decree No. (P.D.) 11121in
order to supervise and regulate, on behalf of the government, the collection of toll fees and the operation of
toll facilities by the private sector.

On the same date, P.D. 11132 was issued granting to the Construction and Development Corporation of the
Philippines (now Philippine National Construction Corporation or PNCC) the right, privilege, and authority to
construct, operate, and maintain toll facilities in the North and South Luzon Toll Expressways for a period of
30 years starting 1 May 1977.

TRB and PNCC later entered into a Toll Operation Agreement,3 which prescribed the operating conditions of
the right granted to PNCC under P.D. 1113.

P.D. 1113 was amended by P.D. 1894,4 which granted PNCC the right, privilege, and authority to construct,
maintain, and operate the North Luzon, South Luzon and Metro Manila Expressways, together with the toll
facilities appurtenant thereto. The term of 30 years provided under P. D. 1113 starting from 1 May 1977
remained the same for the North and the South Luzon Expressways, while the franchise granted for the
Metro Manila Expressway (MME) provided a term of 30 years commencing from the date of completion of
the project.

On 22 September 1993, PNCC entered into an agreement5 with PT Citra Lamtoro Gung Persada (CITRA), a
limited liability company organized and established under the laws of the Republic of Indonesia, whereby the
latter committed to provide PNCC with a pre-feasibility study on the proposed MME project. The agreement
was supplemented6 on 14 February 1994 with a related undertaking on the part of CITRA. CITRA was to
provide a preliminary feasibility study on the Metro Manila Skyways (MMS) project, a system of elevated
roadway networks passing through the heart of the Metropolitan Manila area. In order to accelerate the
actual implementation of both the MME and the MMS projects, PNCC and CITRA entered into a second
agreement.7 Through that agreement, CITRA committed to finance and undertake the preparation, updating,
and revalidation of previous studies on the construction, operation, and maintenance of the projects.

As a result of the feasibility and related studies, PNCC and CITRA submitted, through the TRB, a Joint
Investment Proposal (JIP) to the Republic of the Philippines.8 The JIP embodied the implementation schedule
for the financing, design and construction of the MMS in three stages: the South Metro Manila Skyway, the
North Metro Manila Skyway, and the Central Metro Manila Skyway.9 cralawred

The TRB reviewed, evaluated and approved the JIP, particularly as it related to Stage 1, Phases 1 and 2;
and Stage 2, Phase 1 of the South Metro Manila Skyway.

On 30 August 1995, PNCC and CITRA entered into a Business and Joint Venture Agreement10 and created
the Citra Metro Manila Tollways Corporation (CMMTC). CMMTC was a joint venture corporation organized
under Philippine laws to serve as a channel through which CITRA shall participate in the construction and
development of the project.

On 27 November 1995, the Republic of the Philippines – through the TRB – as Grantor, CMMTC as Investor,
and PNCC as Operator executed a Supplemental Toll Operation Agreement (STOA)11 covering Stage 1,
Phases 1 and 2; and Stage 2, Phase 1 of the South Metro Manila Skyway. Under the STOA, the design and
construction of the project roads became the primary and exclusive privilege and responsibility of CMMTC.
The operation and maintenance of the project roads became the primary and exclusive privilege and
responsibility of the PNCC Skyway Corporation (PSC), a wholly owned subsidiary of PNCC, which undertook
and performed the latter’s obligations under the STOA.

CMMTC completed the design and construction of Stage 1 of the South Metro Manila Skyway, which was
operated and maintained by PSC.12 cralawred

On 18 July 2007, the Republic of the Philippines, through the TRB, CMMTC, and PNCC executed the assailed
Amendment to the Supplemental Toll Operation Agreement (ASTOA).13 The ASTOA incorporated the
amendments, revisions, and modifications necessary to cover the design and construction of Stage 2 of the
South Metro Manila Skyway. Also under the ASTOA, Skyway O & M Corporation (SOMCO) replaced PSC in
performing the operations and maintenance of Stage 1 of the South Metro Manila Skyway.

Pursuant to the authority granted to him under Executive Order No. (E.O.) 49714 dated 24 January 2006,
Department of Transportation and Communications (DOTC) Secretary Leandro Mendoza approved the
ASTOA through the challenged Memorandum dated 20 July 2007.15 cralaw red

On 21 December 2007, PNCC, PSC, and CMMTC entered into the assailed Memorandum of Agreement
(MOA)16 providing for the successful and seamless assumption by SOMCO of the operations and
maintenance of Stage 1 of the South Metro Manila Skyway. Under the MOA, PSC received the amount of
?320 million which was used for the settlement of its liabilities arising from the consequent retrenchment or
separation of its affected employees.

The TRB issued the challenged Toll Operation Certificate (TOC)17 to SOMCO on 28 December 2007,
authorizing the latter to operate and maintain Stage 1 of the South Metro Manila Skyway effective 10:00
p.m. on 31 December 2007.

Meanwhile, on 28 December 2007, petitioner PNCC Traffic Management and Security Department Workers
Organization (PTMSDWO) filed a Notice of Strike against PSC on the ground of unfair labor practice,
specifically union busting.18 The Secretary of Labor and Employment19 assumed jurisdiction over the dispute
in an Order dated 31 December 2007 and set the initial hearing of the case on 2 January 2008.20 cralawred

On 3 January 2008, petitioners PTMSDWO and PNCC Skyway Corporation Employees Union (PSCEU) filed
before the Regional Trial Court of Parañaque City, Branch 258 (RTC), a complaint against respondents TRB,
PNCC, PSC, CMMTC, and SOMCO. The complaint was for injunction and prohibition with a prayer for a writ of
preliminary injunction and/or a temporary restraining order, and sought to prohibit the implementation of
the ASTOA and the MOA, as well as the assumption of the toll operations by SOMCO.21 Petitioners PSCEU
and PTMSDWO also sought the subsequent nullification of the ASTOA and the MOA for being contrary to law
and for being grossly disadvantageous to the government.22 They later filed an Amended Complaint23 dated
8 January 2008, additionally praying that PSC be allowed to continue the toll operations. With the exception
of TRB, all defendants therein filed their Opposition.

On 23 January 2008, the RTC issued an Order24 denying the prayer for the issuance of a temporary
restraining order and/or writ of preliminary injunction. According to the RTC, petitioners were seeking to
enjoin a national government infrastructure project. Under Republic Act No. (R.A.) 8975,25 lower courts are
prohibited from issuing a temporary restraining order or preliminary injunction against the government – or
any person or entity acting under the government’s direction – to restrain the execution, implementation, or
operation of any such contract or project. Furthermore, the RTC ruled that it could no longer issue a
temporary restraining order or preliminary injunction, considering that the act sought to be restrained had
already been consummated.26 The ASTOA, the MOA, and the assumption of the toll operations by SOMCO
took effect at 10:00 p.m. on 31 December 2007, while petitioners PSCEU and PTMSDWO sought to prohibit
their implementation only on 3 January 2008.

In view of its denial of the ancillary prayer, the RTC required defendants to file their respective Answers to
the Amended Complaint.27 cralawred

On 28 January 2008, petitioners PSCEU and PTMSDWO filed a Notice of Dismissal with Urgent Ex-Parte
Motion for the Issuance of Order Confirming the Dismissal,28 considering that no Answers had yet been filed.
On the basis thereof, the RTC dismissed the case without prejudice on 29 January 2008.29 cralaw red

On 4 February 2008, petitioners filed the instant Petition30 before this Court. On 13 February 2008, we
required respondents to comment on the same.31 cralawred

Meanwhile, defendants PNCC32 and PSC33 filed their respective Motions for Partial Reconsideration of the
Order of the RTC dismissing the case without prejudice. Both argued that the RTC should have dismissed the
case with prejudice. They pointed out that petitioners PSCEU and PTMSDWO had acted in bad faith by filing
the complaint before the RTC, despite the pendency of a labor case over which the Secretary of Labor and
Employment had assumed jurisdiction. Defendant CMMTC joined PNCC and PSC in moving for a partial
reconsideration of the RTC Order.34 c ralawred

The RTC denied the Motions for Partial Reconsideration in an Order dated 13 June 2008.35 cralaw red
Before this Court, SOMCO,36 PSC,37 PNCC,38 CMMTC,39 and TRB40 filed their respective Comments on the
Petition.

THE PARTIES’ POSITIONS

Petitioners argue that the franchise for toll operations was exclusively vested by P.D. 1113 in PNCC, which
exercised the powers under its franchise through PSC in accordance with the STOA. By agreeing to the
arrangement whereby SOMCO would replace PSC in the toll operations and management, PNCC seriously
breached the terms and conditions of its undertaking under the franchise and effectively abdicated its rights
and privileges in favor of SOMCO.

Furthermore, the TOC granted to SOMCO was highly irregular and contrary to law, because 1) it did not
indicate the conditions that shall be imposed on SOMCO as provided under P.D. 1112;41 2) none of the
requirements on public bidding, negotiations, or even publication was complied with before the issuance of
the TOC to SOMCO; 3) applying the stricter “grandfather rule,” SOMCO does not qualify as a facility operator
as defined under R.A. 6957,42 as amended by R.A. 7718;43 and 4) there were no public notices and hearings
conducted wherein all legitimate issues and concerns about the transfer of the toll operations would have
been properly ventilated.

Petitioners also claim that the approval by the DOTC Secretary of the ASTOA could not take the place of the
presidential approval required under P.D. 111344 and P.D. 189445 concerning the franchise granted to PNCC.

Finally, petitioners claim that the assumption of the toll operations by SOMCO was grossly disadvantageous
to the government, because 1) for a measly capital investment of P2.5 million, SOMCO stands to earn P400
million in gross revenues based on official and historical records; 2) with its measly capital, SOMCO would
not be able to cover the direct overhead for personal services in the amount of P226 million as borne out by
Commission on Audit reports; 3) the net revenue from toll operations would go to private shareholders of
SOMCO, whereas all earnings of PSC when it was still in charge of the toll operations went to PNCC – the
mother company whose earnings, as an “acquired-asset corporation,” formed part of the public treasury; 4)
the new arrangement would result in the poor delivery of toll services by SOMCO, which had no proven track
record; 5) PSC received only P320 million as settlement for the transfer of toll operations to SOMCO.

All respondents counter that petitioners do not have the requisite legal standing to file the petition.
According to respondents, petitioner Hontiveros-Baraquel filed the instant petition as a legislator in her
capacity as party-list representative of Akbayan. As such, she was only allowed to sue to question the
validity of any official action when it infringed on her prerogative as a legislator.46 Presently, she has cited
no such prerogative, power, or privilege that is adversely affected by the assailed acts.47 cralawre d

While suing as citizens, the individual petitioners have not shown any personal or substantial interest in the
case indicating that they sustained or will sustain direct injury as a result of the implementation of the
assailed acts.48 The maintenance of the suit by petitioners as taxpayers has no merit either because the
assailed acts do not involve the disbursement of public funds.49 Finally, the bringing of the suit by petitioners
as people’s organizations does not automatically confer legal standing, especially since petitioner-
organizations do not even allege that they represent their members,50 nor do they cite any particular
constitutional provision that has been violated or disregarded by the assailed acts.51 In fact, the suit raises
only issues of contract law, and none of the petitioners is a party or is privy to the assailed agreements and
issuances.52cralawred

Respondents also argue that petitioners violate the hierarchy of courts. In particular, it is alleged that while
lower courts are prohibited from issuing temporary restraining orders or preliminary injunctions against
national government projects under R.A. 8975, the law does not preclude them from assuming jurisdiction
over complaints that seek the nullification of a national government project as ultimate relief.53 cra lawred

As a final procedural challenge to the petition, respondents aver that petitioners are guilty of forum
shopping. When petitioners filed the instant petition, the case before the RTC seeking similar reliefs was still
pending, as respondents PNCC, PSC and CMMTC had moved for the partial reconsideration of the RTC’s
Order of dismissal within the reglementary period.54 Furthermore, the instant case and the one before the
RTC were filed while petitioners’ labor grievances seeking similar reliefs were also being heard before the
Department of Labor and Employment.55 cralaw red

On the merits of the arguments in the petition, respondents argue that nothing in the ASTOA, the approval
thereof by the DOTC Secretary, the MOA, or the TOC was violative of the Constitution.

It is argued that the authority to operate a public utility can be granted by administrative agencies when
authorized by law.56 Under P.D. 1112, the TRB is empowered to grant authority and enter into contracts for
the construction, operation, and maintenance of a toll facility,57 such as the ASTOA in this case. Also, the
ASTOA was an amendment, not to the legislative franchise of PNCC, but to the STOA previously executed
between the Republic of the Philippines through the TRB, PNCC, and CMMTC.58 In fact, PNCC’s franchise was
never sold, transferred, or otherwise assigned to SOMCO59 in the same way that PSC’s previous assumption
of the operation and maintenance of the South Metro Manila Skyway did not amount to a sale, transfer or
assignment of PNCC’s franchise.60 cra lawred

There can be no valid objection to the approval of the ASTOA by the DOTC Secretary, because he was
authorized by the President to do so by virtue of E.O. 497.61 Also, the phrase “subject to the approval of the
President of the Philippines” in P.D. 1112 and 1113 does not in any way mean that the presidential approval
must be obtained prior to the execution of a contract, or that the approval be made personally by the
President.62 The presidential approval may be obtained under the doctrine of qualified political agency.63 cralaw red

Respondents argue that there is no merit in the claim that the TOC granted to SOMCO was highly irregular
and contrary to law. First, the TOC clearly states that the toll operation and maintenance by SOMCO shall be
regulated by the Republic of the Philippines in accordance with P.D. 1112, the STOA, the toll operations and
maintenance rules and regulations, and lawful orders, instructions, and conditions that may be imposed
from time to time.64 Second, there is no need to comply with the public bidding and negotiation
requirements, because the South Metro Manila Skyway is an ongoing project, not a new one.65 Furthermore,
the STOA, which was the basis for the ASTOA, was concluded way before the effectivity of R.A. 918466 in
2003.67 cralaw red

Third, SOMCO is a Filipino corporation with substantial 72% Filipino ownership.68 Fourth, the law requires
prior notice and hearing only in an administrative body’s exercise of quasi-judicial functions.69 In this case,
the transfer of the toll operations and maintenance to SOMCO was a contractual arrangement entered into in
accordance with law.70 cralawred

Finally, the assumption of the toll operation and maintenance by SOMCO is not disadvantageous to the
government. Petitioners belittle the P2.5 million capitalization of SOMCO, considering that PSC’s
capitalization at the time it was incorporated was merely P500,000.71 cralawred

Respondents claim that under the ASTOA, PNCC shall get a direct share in the toll revenues without any
corollary obligation, unlike the arrangement in the STOA whereby PNCC’s 10% share in the toll revenues
was intended primarily for the toll operation and maintenance by PSC.72 cralawred

Finally, respondents assert that there is no reason to fear that the assumption by SOMCO would result in
poor delivery of toll services. CITRA and the other shareholders of SOMCO are entities with experience and
proven track record in toll operations.73 Also, SOMCO hired or absorbed more than 300 PSC
employees,74 who brought with them their work expertise and experience. chan rob lesvi rtual lawlib rary

ISSUES

The instant case shall be resolved on the basis of the following issues:

Procedural:

I. Whether petitioners have standing;

II. Whether petitioners are guilty of forum-shopping;

Substantive:

III. Whether the TRB has the power to grant authority to operate a toll facility;
IV. Whether the TOC issued to SOMCO was valid;
V. Whether the approval of the ASTOA by the DOTC Secretary was valid; and
VI. Whether the assumption of toll operations by SOMCO is disadvantageous to the government.
 Our Ruling

I
Not all petitioners have
personality to sue.

Standing is a constitutional law concept allowing suits to be brought not necessarily by parties personally
injured by the operation of a law or official action, but by concerned citizens, taxpayers, or voters who sue
in the public interest.75 Determining the standing of concerned citizens, taxpayers, or voters requires a
partial consideration of the substantive merit of the constitutional question,76 or at least a preliminary
estimate thereof.77cralaw red

In this case, petitioners raise the power of Congress to grant franchises as a constitutional question. They
allege that the execution of the ASTOA and the MOA, the approval of the ASTOA by the DOTC Secretary and
the issuance of the TOC infringed on the constitutional power of Congress, which has the sole authority to
grant franchises for the operation of public utilities.

This Court has had a few occasions to rule that a franchise from Congress is not required before each and
every public utility may operate.78 Unless there is a law that specifically requires a franchise for the
operation of a public utility, particular agencies in the executive branch may issue authorizations and
licenses for the operation of certain classes of public utilities.79 In the instant case, there is no law that
states that a legislative franchise is necessary for the operation of toll facilities.

In PAL v. Civil Aeronautics Board,80 this Court enunciated: chanRob lesvi rtual Lawl ibra ry

Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the
operation of certain public utilities. With the growing complexity of modern life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of administering the laws, there is a
constantly growing tendency towards the delegation of greater powers by the legislature, and towards the
approval of the practice by the courts. It is generally recognized that a franchise may be derived indirectly
from the state through a duly designated agency, and to this extent, the power to grant franchises has
frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this, it
has been held that privileges conferred by grant by local authorities as agents for the state constitute as
much a legislative franchise as though the grant had been made by an act of the Legislature.81 cra lawlawlib ra ry

It is thus clear that Congress does not have the sole authority to grant franchises for the operation of public
utilities. Considering the foregoing, we find that the petition raises no issue of constitutional import. More
particularly, no legislative prerogative, power, or privilege has been impaired. Hence, legislators have no
standing to file the instant petition, for they are only allowed to sue to question the validity of any official
action when it infringes on their prerogatives as members of Congress.82 Standing is accorded to them only
if there is an unmistakable showing that the challenged official act affects or impairs their rights and
prerogatives as legislators.83 cralaw red

In line with our ruling in Kilosbayan, Inc. v. Morato,84 the rule concerning a real party in interest – which is
applicable to private litigation – rather than the liberal rule on standing, should be applied to petitioners.

A real party in interest is one who stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit.85 One’s interest must be personal and not one based on a desire to
vindicate the constitutional right of some third and unrelated party.86 The purposes of the rule are to
prevent the prosecution of actions by persons without any right or title to or interest in the case; to require
that the actual party entitled to legal relief be the one to prosecute the action; to avoid a multiplicity of
suits; and to discourage litigation and keep it within certain bounds, pursuant to sound public policy.87 cra lawred

At bottom, what is being questioned in the petition is the relinquishment by PSC of the toll operations in
favor of SOMCO, effectively leading to the cessation of the former’s business. In this case, we find that
among petitioners, the only real parties in interest are the labor unions PSCEU and PTMSDWO.

PSCEU and PTMSDWO filed the petition not as a representative suit on behalf of their members who are
rank-and-file employees of PSC, but as people’s organizations “invested with a public duty to defend the rule
of law.”88 PSCEU and PTMSDWO cite Kilosbayan v. Ermita89 as authority to support their standing to file the
instant suit.

It is well to point out that the Court, in Ermita, accorded standing to people’s organizations to file the suit,
because the matter involved therein was the qualification of a person to be appointed as a member of this
Court – “an issue of utmost and far-reaching constitutional importance.”90 As discussed, the instant petition
raises no genuine constitutional issues.

Nevertheless, for a different reason, we accord standing to PSCEU and PTMSDWO to file the instant suit.
With the transfer of toll operations to SOMCO and the resulting cessation of PSC’s business comes the
retrenchment and separation of all its employees. The existence of petitioner labor unions would terminate
with the dissolution of its employer and the separation of its members. This is why the petition also prays
that this Court issue an order “that would smoothly preserve the toll operations services of respondent PNCC
and/or respondent PSC under its legislative franchise.”91 We have recognized that the right of self-
preservation is inherent in every labor union or any organization for that matter.92 Thus, PSCEU and
PTMSDWO, as real parties in interest, have the personality to question the assumption of the toll operations
by SOMCO.

II
PSCEU and PTMSDWO are not
guilty of forum-shopping.

Forum shopping refers to the act of availing of several remedies in different courts and/or administrative
agencies, either simultaneously or successively, when these remedies are substantially founded on the same
material facts and circumstances and raise basically the same issues either pending in or already resolved
by some other court or administrative agency.93 What is pivotal in determining whether forum shopping
exists is the vexation caused to the courts and litigants and the possibility of conflicting decisions being
rendered by different courts and/or administrative agencies upon the same issues.94 cralawred

The elements of forum shopping are as follows: a) identity of parties or at least such parties that represent
the same interests in both actions; b) identity of rights asserted and the relief prayed for, the relief founded
on the same facts; and c) identity of the two preceding particulars, such that any judgment rendered in one
action will amount to res judicata in the other.95
cralawred

Respondents argue that petitioners PSCEU and PTMSDWO committed forum shopping by filing the complaint
for injunction and prohibition before the RTC during the pendency of NCMB-NCR-NS-12-188-07 entitled In
Re: Labor Dispute at PNCC Skyway Corporation. It was a case they also filed, over which the Secretary of
Labor and Employment has assumed jurisdiction.

The case involves a Notice of Strike filed against PSC on the ground of unfair labor practice. While the
specific act in question is not specified, the prohibited acts constituting unfair labor practice96 essentially
relate to violations concerning the workers’ right to self-organization.97 When compared with the complaint
filed with the RTC for injunction and prohibition seeking to prohibit the implementation of the ASTOA and
the MOA, as well as the assumption of the toll operations by SOMCO for being unconstitutional, contrary to
law and disadvantageous to the government, it is easily discernible that there is no identity of rights
asserted and relief prayed for. These cases are distinct and dissimilar in their nature and character.

For the sake of argument, let us assume that, in order to hurt the unions, PSC feigned a cessation of
business that led to the retrenchment and separation of all employees. That is an unfair labor practice. In
that complaint, the unions cannot be expected to ask for, or the Secretary of Labor and Employment to
grant, the annulment of the ASTOA and the MOA and the continuation of toll operations by PSC. The
Secretary would only focus on the legality of the retrenchment and separation, and on the presence or
absence of bad faith in PSC’s cessation of business. On the other hand, the complaint before the RTC would
require it to focus on the legality of the ASTOA, the MOA and the transfer of toll operations. Ultimately, even
if the Secretary of Labor and Employment makes a finding of unfair labor practice, this determination would
not amount to res judicata as regards the case before the RTC.

We also reject the claim of respondents that petitioners PSCEU and PTMSDWO committed forum shopping
by filing the instant petition before this Court while the motion for partial reconsideration of the RTC’s Order
of dismissal without prejudice was still pending. Section 1, Rule 17 of the Rules of Court states: chanRoblesvi rtua lLawl ibra ry
SECTION 1. Dismissal upon notice by plaintiff. – A complaint may be dismissed by the plaintiff by filing a
notice of dismissal at any time before service of the answer or of a motion for summary judgment. Upon
such notice being filed, the court shall issue an order confirming the dismissal. Unless otherwise stated in
the notice, the dismissal is without prejudice, except that a notice operates as an adjudication upon the
merits when filed by a plaintiff who has once dismissed in a competent court an action based on or including
the same claim. cralawlawlib rary

In this case, petitioners PSCEU and PTMSDWO had filed a notice of dismissal of the complaint before the
RTC on 28 January 2008, before respondents filed their Answers. The following day, the RTC issued an order
confirming the dismissal. Under the above-cited rule, this confirmation is the only qualification imposed on
the right of a party to dismiss the action before the adverse party files an answer.98 In this case, the
dismissal of the action therefore became effective upon that confirmation by the RTC despite the subsequent
filing of the motions for partial reconsideration.

Thus, when the instant petition was filed on 4 February 2008, the complaint before the RTC was no longer
pending. The complaint was dismissed without prejudice by virtue of the notice of dismissal filed by
petitioners PSCEU and PTMSDWO. Consequently, there was not even any need for petitioners to mention the
prior filing and dismissal of the complaint in the certificate of non-forum shopping in the instant
petition,99 but they did so anyway.100 cralawred

Parenthetically, in their motions for partial reconsideration, respondents PNCC and PSC insisted that the
dismissal should have been with prejudice, because petitioners allegedly acted in bad faith in filing the
notice of dismissal, were guilty of forum shopping, and did not notify respondents of their intention to file a
notice of dismissal. With regard to the first and the third allegation, petitioners may ask for dismissal at any
time before the filing of the answer as a matter of right, even if the notice cites “the most ridiculous of
grounds for dismissal.”101 As to the second, we have already ruled that there was no forum shopping as
regards the successive filings of the labor case and the complaint before the RTC. chanrob lesvi rtua llawlib ra ry

III
TRB has the power to grant
authority to operate a toll facility.

This matter has already been settled by the Court in Francisco, Jr. v. TRB,102 which ruled thus: chanRoble svirtual Lawli bra ry

It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section 4 of P.D. 1894 have
invested the TRB with sufficient power to grant a qualified person or entity with authority to construct,
maintain, and operate a toll facility and to issue the corresponding toll operating permit or TOC.

Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply provide the power to grant authority
to operate toll facilities: c hanRoblesv irtual Lawlib rary

Section 3. Powers and Duties of the Board. – The Board shall have in addition to its general powers of
administration the following powers and duties:

(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of the
Republic of the Philippines with persons, natural or juridical, for the construction, operation and maintenance
of toll facilities such as but not limited to national highways, roads, bridges, and public thoroughfares. Said
contract shall be open to citizens of the Philippines and/or to corporations or associations qualified under the
Constitution and authorized by law to engage in toll operations; ChanRobles Virtualawl ibra ry

xxxx

(e) To grant authority to operate a toll facility and to issue therefore the necessary “Toll Operation
Certificate” subject to such conditions as shall be imposed by the Board including inter alia the following:

(1) That the Operator shall desist from collecting toll upon the expiration of
the Toll Operation Certificate.
(2) That the entire facility operated as a toll system including all operation
and maintenance equipment directly related thereto shall be turned over
 to the government immediately upon the expiration of the Toll Operation
Certificate.
(3) That the toll operator shall not lease, transfer, grant the usufruct of, sell
or assign the rights or privileges acquired under the Toll Operation
Certificate to any person, firm, company, corporation or other
commercial or legal entity, nor merge with any other company or
corporation organized for the same purpose, without the prior approval
of the President of the Philippines. In the event of any valid transfer of
the Toll Operation Certificate, the Transferee shall be subject to all the
conditions, terms, restrictions and limitations of this Decree as fully and
completely and to the same extent as if the Toll Operation Certificate has
been granted to the same person, firm, company, corporation or other
commercial or legal entity.
(4) That in time of war, rebellion, public peril, emergency, calamity, disaster
or disturbance of peace and order, the President of the Philippines may
cause the total or partial closing of the toll facility or order to take over
thereof by the Government without prejudice to the payment of just
compensation.
(5) That no guarantee, Certificate of Indebtedness, collateral, securities, or
bonds shall be issued by any government agency or government-owned
or controlled corporation on any financing program of the toll operator in
connection with his undertaking under the Toll Operation Certificate.
(6) The Toll Operation Certificate may be amended, modified or revoked
whenever the public interest so requires.
(a) The Board shall promulgate rules and regulations governing the
procedures for the grant of Toll Certificates. The rights and privileges
of a grantee under a Toll Operation Certificate shall be defined by the
Board.
(b) To issue rules and regulations to carry out the purposes of this
Decree.
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and supervision over the GRANTEE with
respect to the Expressways, the toll facilities necessarily appurtenant thereto and, subject to the provisions
of Section 8 and 9 hereof, the toll that the GRANTEE will charge the users thereof.
By explicit provision of law, the TRB was given the power to grant administrative franchise for
toll facility projects.103 (Emphases supplied) c ralawlawli bra ry

We cannot abide by the contention of petitioners that the franchise for toll operations was exclusively vested
in PNCC, which effectively breached its franchise when it transferred the toll operations to SOMCO. First,
there is nothing in P.D. 1113 or P.D. 1894 that states that the franchise granted to PNCC is to the exclusion
of all others.

Second, if we were to go by the theory of petitioners, it is only the operation and maintenance of the toll
facilities that is vested with PNCC. This interpretation is contrary to the wording of P.D. 1113 and P.D. 1894
granting PNCC the right, privilege and authority to construct, operate and maintain the North Luzon, South
Luzon and Metro Manila Expressways and their toll facilities.

It appears that petitioners have confused the franchise granted under P.D. 1113 and P.D. 1894 with
particular provisions in the STOA. To clarify, the operation and maintenance of the project roads were the
primary and exclusive privilege and responsibility of PNCC through PSC under the STOA. On the other hand,
the design and construction of the project roads were the primary and exclusive privilege and responsibility
of CMMTC. However, with the execution of the ASTOA, the parties agreed that SOMCO shall replace PSC in
undertaking the operations and maintenance of the project roads. Thus, the “exclusivity clause” was a
matter of agreement between the parties, which amended it in a later contract; it was not a matter provided
under the law.

Third, aside from having been granted the power to grant administrative franchises for toll facility projects,
TRB is also empowered to modify, amend, and impose additional conditions on the franchise of PNCC in an
appropriate contract, particularly when public interest calls for it. This is provided under Section 3 of P.D.
1113 and Section 6 of P.D. 1894, to wit: chanRoble svirtual Lawli bra ry

SECTION 3. This franchise is granted subject to such conditions as may be imposed by the [Toll Regulatory]
Board in an appropriate contract to be executed for this purpose, and with the understanding and upon the
condition that it shall be subject to amendment, alteration or repeal when public interest so requires. c han robles law

xxx

SECTION 6. This franchise is granted subject to such conditions, consistent with the provisions of this
Decree, as may be imposed by the Toll Regulatory Board in the Toll Operation Agreement and such other
modifications or amendments that may be made thereto, and with the understanding and upon the
condition that it shall be subject to amendment or alteration when public interest so dictates. cralawlawli bra ry

Section 6 of P.D. 1894 specifically mentions the Toll Operation Agreement. The STOA was one such
modification or amendment of the franchise of PNCC. So was the ASTOA, which further modified the
franchise. PNCC cannot be said to have breached its franchise when it transferred the toll operations to
SOMCO. PNCC remained the franchise holder for the construction, operation, and maintenance of the project
roads; it only opted to partner with investors in the exercise of its franchise leading to the organization of
companies such as PSC and SOMCO.

Again, considering that PNCC was granted the right, privilege, and authority to construct, operate, and
maintain the North Luzon, South Luzon, and Metro Manila Expressways and their toll facilities, we have not
heard petitioners decrying the “breach” by PNCC of its franchise when it agreed to make CMMTC responsible
for the design and construction of the project roads under the STOA.

IV
The TOC issued to SOMCO was not irregular.

Petitioners argue that the conditions provided under Section 3(e) of P.D. 1112104 were not imposed on
SOMCO, because these do not appear on the face of the TOC. Petitioners are mistaken.

The TOC, as a grant of authority from the government, is subject to the latter’s control insofar as the grant
affects or concerns the public.105 Like all other franchises or licenses issued by the government, the TOC is
issued subject to terms, conditions, and limitations under existing laws and agreements. This rule especially
holds true in this instance since the TRB has the power to issue “the necessary ‘Toll Operation Certificate’
subject to such conditions as shall be imposed by the Board including inter alia” those specified under
Section 3(e) of P.D. 1112. Thus, impliedly written into every TOC are the conditions prescribed therein.

In any case, part of the TOC issued to SOMCO reads: chanRoblesvi rtual Lawli bra ry

Pursuant to Section 3(e) of Presidential Decree No. 1112 or the Toll Operation Decree, Skyway O & M
Corporation is hereby given authority to operate and maintain Stage 1 of the South Metro Manila Skyway
effective as of 10:00 p.m. of 31 December 2007.

This authorization is issued upon the clear understanding that the operation and maintenance of Stage 1 of
the South Metro Manila Skyway as a toll facility and the collection of toll fees shall be closely supervised and
regulated by the Grantor, by and through the Board of Directors, in accordance with the terms and
conditions set forth in the STOA, as amended, the rules and regulations duly promulgated by the Grantor for
toll road operations and maintenance, as well as the lawful orders, instructions and conditions which the
Grantor, through the TRB, may impose from time to time in view of the public nature of the facility. cralawlaw lib rary
As regards the allegation that none of the requirements for public bidding was observed before the TOC was
issued to SOMCO, this matter was also squarely answered by the Court in Francisco, Jr. v. TRB,106to wit: chanRoblesvi rtual Lawli bra ry

Where, in the instant case, a franchisee undertakes the tollway projects of construction, rehabilitation and
expansion of the tollways under its franchise, there is no need for a public bidding. In pursuing the projects
with the vast resource requirements, the franchisee can partner with other investors, which it may choose in
the exercise of its management prerogatives. In this case, no public bidding is required upon the franchisee
in choosing its partners as such process was done in the exercise of management prerogatives and in
pursuit of its right of delectus personae. Thus, the subject tollway projects were undertaken by companies,
which are the product of the joint ventures between PNCC and its chosen partners.107 cralawlaw lib rary

Under the STOA in this case, PNCC partnered with CMMTC in Stages 1 and 2 of the South Metro Manila
Skyway. The STOA gave birth to PSC, which was put in charge of the operation and maintenance of the
project roads. The ASTOA had to be executed for Stage 2 to accommodate changes and modifications in the
original design. The ASTOA then brought forth the incorporation of SOMCO to replace PSC in the operations
and maintenance of Stage 1 of the South Metro Manila Skyway. Clearly, no public bidding was necessary
because PNCC, the franchisee, merely exercised its management prerogative when it decided to undertake
the construction, operation, and maintenance of the project roads through companies which are products of
joint ventures with chosen partners.

Petitioners also insist that SOMCO is not qualified to operate a toll facility, because it does not meet the
nationality requirement for a corporation when scrutinized under the “grandfather rule.” Other than
advancing this argument, however, petitioners have not shown how SOMCO fails to meet the nationality
requirement for a public utility operator. Petitioners only aver in their petition that 40% of SOMCO is owned
by CMMTC, a foreign company, while the rest is owned by the following: a) Toll Road Operation and
Maintenance Venture Corporation (TROMVC), almost 40% of which is owned by a Singaporean company; b)
Assetvalues Holding Company, Inc. (AHCI), of which almost 40% is Dutch-owned; and c) Metro Strategic
Infrastructure Holdings, Inc. (MSIHI), 40% of which is owned by Metro Pacific Corporation, whose ownership
or nationality was not specified.108c ralaw red

Section 11, Article XII of the Constitution provides that “[n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens x x x.” Clearly, under the Constitution, a corporation at least 60% of whose
capital is owned by Filipinos is of Philippine nationality. Considering this constitutional provision, petitioners’
silence on the ownership of the remaining 60% of the corporations cited is very telling.

In order to rebut petitioners’ allegations, respondents readily present matrices showing the itemization of
percentage ownerships of the subscribed capital stock of SOMCO, as well as that of TROMVC, AHCI, and
MSIHI. Respondents attempt to show that all these corporations are of Philippine nationality, with 60% of
their capital stock owned by Filipino citizens. We need not reproduce the itemization here. Suffice it to say
that in their Consolidated Reply,109 petitioners did not refute the unanimous claim of respondents. It is
axiomatic that one who alleges a fact has the burden of proving it. On this matter, we find that petitioners
have failed to prove their allegation that SOMCO is not qualified to operate a toll facility for failure to meet
the nationality requirement under the Constitution.

Finally, no public notices and hearings were necessary prior to the issuance of the TOC to SOMCO. For the
same reason that a public bidding is not necessary, PNCC cannot be required to call for public hearings
concerning matters within its prerogative. At any rate, we have studied P.D. 1112 and the Implementing
Rules and Regulations Authorizing the Establishment of Toll Facilities and found no provision requiring the
issuance of public notices and the conduct of public hearings prior to the issuance of a TOC. chanroblesv irt uallawl ibra ry

V
Approval of the ASTOA by the
DOTC Secretary was approval by
the President.

The doctrine of qualified political agency declares that, save in matters on which the Constitution or the
circumstances require the President to act personally, executive and administrative functions are exercised
through executive departments headed by cabinet secretaries, whose acts are presumptively the acts of the
President unless disapproved by the latter.110 As explained in Villena v. Executive Secretary,111 this doctrine
is rooted in the Constitution: chanRoble svirtual Lawli bra ry

x x x With reference to the Executive Department of the government, there is one purpose which is crystal-
clear and is readily visible without the projection of judicial searchlight, and that is, the establishment of a
single, not plural, Executive. The first section of Article VII of the Constitution, dealing with the Executive
Department, begins with the enunciation of the principle that “The executive power shall be vested in a
President of the Philippines.” This means that the President of the Philippines is the Executive of the
Government of the Philippines, and no other. The heads of the executive departments occupy political
positions and hold office in an advisory capacity, and, in the language of Thomas Jefferson, “should be of the
President's bosom confidence,” and, in the language of Attorney-General Cushing, “are subject to the
direction of the President.” Without minimizing the importance of the heads of the various departments,
their personality is in reality but the projection of that of the President. Stated otherwise, and as forcibly
characterized by Chief Justice Taft of the Supreme Court of the United States, “each head of a department
is, and must be, the President’s alter ego in the matters of that department where the President is required
by law to exercise authority.” Secretaries of departments, of course, exercise certain powers under the law
but the law cannot impair or in any way affect the constitutional power of control and direction of the
President. As a matter of executive policy, they may be granted departmental autonomy as to certain
matters but this is by mere concession of the executive, in the absence of valid legislation in the particular
field. If the President, then, is the authority in the Executive Department, he assumes the corresponding
responsibility. The head of a department is a man of his confidence; he controls and directs his acts; he
appoints him and can remove him at pleasure; he is the executive, not any of his secretaries.112 x x x
(Citations omitted) cralawlaw lib rary

Applying the doctrine of qualified political agency, we have ruled that the Secretary of Environment and
Natural Resources can validly order the transfer of a regional office by virtue of the power of the President to
reorganize the national government.113 In Constantino v. Cuisia,114 the Court upheld the authority of the
Secretary of Finance to execute debt-relief contracts. The authority emanates from the power of the
President to contract foreign loans under Section 20, Article VII of the Constitution. In Angeles v.
Gaite,115 the Court ruled that there can be no issue with regard to the President’s act of limiting his power to
review decisions and orders of the Secretary of Justice, especially since the decision or order was issued by
the secretary, the President’s “own alter ego.”116 cralawred

There can be no question that the act of the secretary is the act of the President, unless repudiated by the
latter. In this case, approval of the ASTOA by the DOTC Secretary had the same effect as approval by the
President. The same would be true even without the issuance of E.O. 497, in which the President, on 24
January 2006, specifically delegated to the DOTC Secretary the authority to approve contracts entered into
by the TRB.

Petitioners are unimpressed. They cite Section 8 of P.D. 1113 and Section 13 of P.D. 1894 as follows: chanRoble svirtual Lawli bra ry

SECTION 8. The GRANTEE shall not lease, transfer, grant the usufruct of, sell or assign this franchise nor the
rights or privileges acquired hereby, to any person, firm, company, corporation or other commercial or legal
entity, nor merge with any other company or corporation without the prior approval of the President of
the Philippines. In the event that this franchise is sold, transferred or assigned, the transferee shall be
subject to all the conditions, terms, restrictions and limitations of this Decree as fully and completely and to
the same extents as if the franchise has been granted to the same person, firm, company, corporation or
other commercial or legal entity. (Emphasis supplied)

SECTION 13. The GRANTEE shall not lease, transfer, grant the usufruct of, sell or assign this franchise nor
the rights or privileges required hereby, to any person, firm, company, corporation or other legal entity, nor
merge with any other company or corporation without the prior approval of the President of the
Philippines.

In the event that this franchise is sold, transferred or assigned, the transferee shall be subject to all the
conditions, terms, restrictions and limitations of this Decree as fully and completely and to the same extent
as if the franchise has been granted to the said person, firm, company, corporation or other legal entity.
(Emphasis supplied)
cralawlawl ibra ry

Petitioners insist that based on the above provisions, it is the President who should give personal approval
considering that the power to grant franchises was exclusively vested in Congress. Hence, to allow the DOTC
Secretary to exercise the power of approval would supposedly dilute that legislative prerogative.

The argument of petitioners is founded on the assumption that PNCC in some way leased, transferred,
granted the usufruct of, sold, or assigned to SOMCO its franchise or the rights or privileges PNCC had
acquired by it. Here lies the error in petitioners’ stand. First, as discussed above, the power to grant
franchises or issue authorizations for the operation of a public utility is not exclusively exercised by
Congress. Second, except where the situation falls within that special class that demands the exclusive and
personal exercise by the President of constitutionally vested power,117 the President acts through alter egos
whose acts are as if the Chief Executive’s own.

Third, no lease, transfer, grant of usufruct, sale, or assignment of franchise by PNCC or its merger with
another company ever took place.

The creation of the TRB and the grant of franchise to PNCC were made in the light of the recognition on the
part of the government that the private sector had to be involved as an alternative source of financing for
the pursuance of national infrastructure projects. As the franchise holder for the construction, maintenance
and operation of infrastructure toll facilities, PNCC was equipped with the right and privilege, but not
necessarily the means, to undertake the project. This is where joint ventures with private investors become
necessary.

A joint venture is an association of companies jointly undertaking a commercial endeavor, with all of them
contributing assets and sharing risks, profits, and losses.118 It is hardly distinguishable from a partnership
considering that their elements are similar and, thus, generally governed by the law on partnership.119 cra lawred

In joint ventures with investor companies, PNCC contributes the franchise it possesses, while the partner
contributes the financing – both necessary for the construction, maintenance, and operation of the toll
facilities. PNCC did not thereby lease, transfer, grant the usufruct of, sell, or assign its franchise or other
rights or privileges. This remains true even though the partnership acquires a distinct and separate
personality from that of the joint venturers or leads to the formation of a new company that is the product
of such joint venture, such as PSC and SOMCO in this case.

Hence, when we say that the approval by the DOTC Secretary in this case was approval by the President, it
was not in connection with the franchise of PNCC, as required under Section 8 of P.D. 1113 and Section 13
of P.D. 1894. Rather, the approval was in connection with the powers of the TRB to enter into contracts on
behalf of the government as provided under Section 3(a) of P.D. 1112, which states: chanRoble svirtual Lawli bra ry

SECTION 3. Powers and Duties of the Board. – The Board shall have in addition to its general powers of
administration the following powers and duties:

(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of the
Republic of the Philippines with persons, natural or juridical, for the construction, operation and maintenance
of toll facilities such as but not limited to national highways, roads, bridges, and public thoroughfares. Said
contract shall be open to citizens of the Philippines and/or to corporations or associations qualified under the
Constitution and authorized by law to engage in toll operations; (Emphasis supplied)
cralawlawl ibra ry

VI
Petitioners have not shown that the
transfer of toll operations to SOMCO was
grossly disadvantageous to the government.

In support of their contention that the transfer of toll operations from PSC to SOMCO was grossly
disadvantageous to the government, petitioners belittle the initial capital investment, private ownership, and
track record of SOMCO.

When one uses the term “grossly disadvantageous to the government,” the allegations in support thereof
must reflect the meaning accorded to the phrase. “Gross” means glaring, reprehensible, culpable, flagrant,
and shocking.120 It requires that the mere allegation shows that the disadvantage on the part of the
government is unmistakable, obvious, and certain.

In this case, we find that the allegations of petitioners are nothing more than speculations, apprehensions,
and suppositions. They speculate that with its “measly” capital investment, SOMCO would not be able to
cover the overhead expenses for personal services alone. They fear that the revenue from toll operations
would go to “private pockets” in exchange for a small settlement amount to be given to PSC. Given that
SOMCO has no proven track record, petitioners deduce that its assumption of the toll operations would lead
to poor delivery of toll services to the public.

The aim in the establishment of toll facilities is to draw from private resources the financing of government
infrastructure projects. Naturally, these private investors would want to receive reasonable return on their
investments. Thus, the collection of toll fees for the use of public improvements has been authorized,
subject to supervision and regulation by the national government.121 As regards the P320 million settlement
given to PSC, the amount was to be used principally for the payment of its liabilities of PSC arising from the
retrenchment of its employees. We note that under the MOA, the residual assets of PSC shall still be offered
for sale to CMMTC, subject to valuation.122 Thus, it would be inaccurate to say that PSC would receive only
P320 million for the entire arrangement.

It is quite understandable that SOMCO does not yet have a proven track record in toll operations,
considering that it was only the ASTOA and the MOA that gave birth to it. We are not prepared to rule that
this lack of track record would result in poor delivery of toll services, especially because most of the former
employees of PSC have been rehired by SOMCO, an allegation of respondents that was never refuted by
petitioners. Neither are we prepared to take the amount of SOMCO’s initial capital investment against it, as
it is considerably higher than ?500,000, the authorized capital stock of PSC as of 2002.123 cralaw red

A FINAL NOTE

R.A. 8975 prohibits lower courts from issuing any temporary restraining order, preliminary injunction, or
preliminary mandatory injunction against the government – or any of its subdivisions, officials or any person
or entity, whether public or private, acting under the government’s direction – to restrain, prohibit or compel
acts related to the implementation and completion of government infrastructure projects.

The rationale for the law is easily discernible. Injunctions and restraining orders tend to derail the
expeditious and efficient implementation and completion of government infrastructure projects; increase
construction, maintenance and repair costs; and delay the enjoyment of the social and economic benefits
therefrom. Thus, unless the matter is of extreme urgency involving a constitutional issue, judges of lower
courts who shall issue injunctive writs or restraining orders in violation of the law shall be administratively
liable.

The law is clear that what is prohibited is merely the issuance of provisional orders enjoining the
implementation of a national government project. R.A. 8975 does not bar lower courts from assuming
jurisdiction over complaints that seek the nullification or implementation of a national government
infrastructure project as ultimate relief.124
c ralaw red

There is no question that the ultimate prayer in the instant case is the nullification of a national government
project considering that the ASTOA involved the design and construction of Stage 2 of the South Metro
Manila Skyway, as well as the operation and maintenance of Stage 1 thereof. The prayer is grounded on the
contract’s alleged unconstitutionality, violation of the law, and gross disadvantage to the government. Such
principal action and relief were within the jurisdiction of the RTC, which acted correctly when it ordered
respondents to file their respective answers to the complaint, even while it denied the prayer for the
issuance of a writ of preliminary injunction and/or temporary restraining order in observance of R.A. 8975.

It was therefore error on the part of petitioners to come directly before this Court for the sole reason that
the lower courts will not be able to grant the prayer for the issuance of a writ of preliminary injunction
and/or temporary restraining order to enjoin the assumption of toll operations by SOMCO. The error even
takes on a whole new meaning, because SOMCO assumed responsibility for the operations and maintenance
of the South Metro Manila Skyway at 10:00 p.m. on 31 December 2007. On the other hand, the complaint
before the RTC seeking to enjoin the assumption by SOMCO was filed only on 3 January 2008, while the
instant petition was filed on 4 February 2008.

As we held in Aznar Brothers Realty, Inc. v. CA,125 injunction does not lie when the act sought to be enjoined
has already become a fait accompli or an accomplished or consummated act.

Parties must observe the hierarchy of courts before seeking relief from this Court. Observance thereof
minimizes the imposition on the already limited time of this Court and prevents delay, intended or
otherwise, in the adjudication of cases.126 We do not appreciate the litigants’ practice of directly seeking
recourse before this Court, relying on the gravitas of a personality yet making serious claims without the
proof to support them.

WHEREFORE, the petition is DISMISSED. The prayer for the issuance of a writ of preliminary injunction
and/or temporary restraining order is DENIED.

G.R. No. 174202, April 07, 2015

DYNAMIC BUILDERS & CONSTRUCTION CO. (PHIL.), INC., Petitioner, v. HON. RICARDO P.
PRESBITERO, JR., MAYOR AND HEAD OF PROCURING UNIT OF THE MUNICIPALITY OF
VALLADOLID, NEGROS OCCIDENTAL; BIDS AND AWARDS COMMITTEE, MUNICIPALITY OF
VALLADOLID, NEGROS OCCIDENTAL; AND HENRY L. JORDAN AND/OR HLJ CONSTRUCTION AND
ENTERPRISE, Respondents.

DECISION

LEONEN, J.:

Republic Act No. 8975 does not sanction splitting a cause of action in order for a party to avail itself of the
ancillary remedy of a temporary restraining order from this court. Also, this law covers only national
government infrastructure projects. This case involves a local government infrastructure project.

For local government infrastructure projects, Regional Trial Courts may issue provisional injunctive reliefs
against government infrastructure projects only when (1) there are compelling and substantial constitutional
violations; (2) there clearly exists a right in esse; (3) there is a need to prevent grave and irreparable
injuries; (4) there is a demonstrable urgency to the issuance of the injunctive relief; and (5) when there are
public interest at stake in restraining or enjoining the project while the action is pending that far outweighs
(a) the inconvenience or costs to the party to whom the project is awarded and (b) the public benefits that
will result from the completion of the project. The time periods for the validity of temporary restraining
orders issued by trial courts should be strictly followed. No preliminary injunction should issue unless the
evidence to support the injunctive relief is clear and convincing.

We are asked by Dynamic Builders & Construction Co. (Phil.), Inc. (Dynamic Builders) through this Petition
for prohibition with application for issuance of a temporary restraining order and/or writ of preliminary
injunction1 that:
chanro blesvi rtua llawli bra ry

1. Upon the filing of this petition, a temporary restraining order and/or writ of preliminary injunction be
immediately issued restraining and enjoining: chan rob lesvi rtual lawlib rary

(a) the enforcement or execution of the 12 June 2006 Decision and the 30
June 2006 Resolution by the Hon. Ricardo P. Presbitero, Jr., Mayor of the
Municipality of Valladolid and Head of the Procuring Entity in Protest
Case No. BPC-01-06 entitled "Dynamic Builders & Construction Company
(Phil.), Inc. v. Bids And Awards Committee, Municipality of Valladolid,
Negros Occidental" by the respondents, or their agents, or anyone acting
in their behalf, or anyone who stands to benefit from such order, in any
manner, during the pendency of the proceedings in Civil Case No. 1459
in order not to render further proceedings in Civil Case No. 1459 moot
and academic and any judgment in the said case ineffectual;

(b) the implementation of the award of the Construction Shoreline Protection

Project subject of Protest Case No. BPC-01-06, during the pendency of
Civil Case No. 1459, by the respondents, or their agents, or anyone
acting in their behalf, or anyone who stands to benefit from such
 implementation, in any manner, during the pendency of the proceedings
in Civil Case No. 1459 in order not to render further proceedings in Civil
Case No. 1459 moot and any judgment in the said case ineffectual; and
2. Thereafter, a writ of prohibition be issued and/or the preliminary injunction be made permanent and
continuing, during the pendency of Civil Case No. 1459 before the Regional Trial Court of Bago City.

Other reliefs just and equitable in the premises are likewise prayed for.2cra lawlawlib ra ry

On December 28, 2005, the Municipality of Valladolid, Negros Occidental, through its Bids and Awards
Committee, published an invitation to bid for the construction of a 1,050-lineal-meter rubble concrete
seawall along the municipality's shoreline.3 This infrastructure venture is known as the "Construction
Shoreline Protection Project."4

On January 17, 2006, the Bids and Awards Committee conducted a pre-bid conference attended by six (6)
prospective contractors including Dynamic Builders.5

On January 31, 2006, three (3) out of the seven (7) contractors that had secured bidding documents in
order to bid "submitted letters of withdrawal."6 Thus, only the remaining four (4) bidders "were considered
during the opening of the bids."7 The prices offered were the following:8Ch anRobles Vi rt ualawlib ra ry

Mig-wells Const Corp P35,561,015.33 Highest Bidder

ADP Const & Supply P34,778,496.72 3rd Lowest Bidder
Dynamic Builders & Const P29,750,000.00 Lowest Bidder
HLJ Const & Ent. P31,922,420.27 2 Lowest Bidder
nd

On March 27, 2006, the Bids and Awards Committee issued Resolution No. 6 recommending the award in
favor of HLJ Construction and Enterprise.9

On April 18, 2006, the Municipality of Valladolid received its "NO OBJECTION" letter from World Bank
through the LOGOFIND10 project director, advising the Bids and Awards Committee to proceed with the
issuance of the notice of award, letter of acceptance, signing of contract, and notice to proceed.11

On April 21, 2006, the Bids and Awards Committee issued Resolution No. 7 affirming the award of contract
to HLJ Construction and Enterprise for the construction of the 1,050-lineal-meter Construction Shoreline
Protection Project amounting to P31,922,420.37.12

On April 25, 2006, Bids and Awards Committee Chairperson Celina C. Segunla wrote Engr. Raul F. Balandra
of Dynamic Builders and the other participating losing bidders, ADP Construction and Mig-Wells Construction
Corporation, to inform them of the Bids and Awards Committee's findings and decision.13Dynamic Builders
was informed that "its bid proposal had been found to be 'not substantially responsive.'"14 Dynamic Builders
received this decision on May 11, 2006.15

Dynamic Builders alleged that on May 5, 2006, it submitted the letter dated April 7, 2006 containing a
request for the Bids and Awards Committee to furnish it with all submitted bid documents and relevant Bids
and Awards Committee resolutions, but this was denied by the letter dated May 5, 2006 invoking
confidentiality under Section 2.46 of the LOGOFIND guidelines.16

On May 15, 2006, the Bids and Awards Committee received the letter from Dynamic Builders seeking
reconsideration of the April 25, 2006 decision declaring Dynamic Builders' bid as not substantially
responsive.17

On May 22, 2006, the Bids and Awards Committee wrote Dynamic Builders denying the request for
reconsideration. It informed Dynamic Builders of the post-evaluation examination results showing Dynamic
Builders' failure in its Financial Contracting Capability.18

On June 6, 2006, Dynamic Builders lodged a formal protest with the head of the procuring entity, Mayor
Ricardo P. Presbitero, Jr. (Mayor Presbitero), to set aside the Bids and Awards Committee decision declaring
Dynamic Builders' bid as not substantially responsive.19

Mayor Presbitero dismissed the protest in the Decision20 dated June 12, 2006.
According to Mayor Presbitero's June 12, 2006 Decision, the bidders underwent preliminary examination and
were "subjected to the criteria of Verification, Eligibility, Bid Security, Completeness of Bid, Substantial
Responsiveness, and Acceptance for Detailed Examination[.]"21 Mig-wells Construction Corporation did not
pass the preliminary examination, while the remaining three that passed were subjected to detailed
examination. All three passed and qualified for post-evaluation examination.22

The June 12, 2006 Decision also stated that during the post-evaluation examination, the three bidders
submitted their financial statements for the last five (5) years and other documents expressly provided in
Volume 2 of the Procurement Guidelines Manual of LOGOFIND World Bank.23 The examination showed that
Dynamic Builders had a negative Financial Contracting Capability of P64,579,119.13 due to numerous other
contractual commitments or balance of works.24 HLJ Construction and Enterprise had a positive Financial
Contracting Capability of P30,921,063.86, while ADP Construction had a positive Financial Contracting
Capability of only P12,770,893.78.25 Section 4.5.e of the Instruction To Bidders requires a minimum
Financial Contracting Capability of P13,000,000.00.26

Mayor Presbitero denied Dynamic Builders' Motion for Reconsideration in the Resolution27 dated June 30,
2006.

On September 4, 2006 and pursuant to Article XVII, Section 58 of Republic Act No. 9184, otherwise known
as the Government Procurement Reform Act, Dynamic Builders filed the Petition for Certiorari before the
Regional Trial Court of Bago City, Negros Occidental, assailing Mayor Presbitero's Decision and Resolution.28

Simultaneously, Dynamic Builders filed this Petition29 dated September 4, 2006 for prohibition with
application for temporary restraining order and/or writ of preliminary injunction before this court.30 This was
received by this court on September 6, 2006.31

Petitioner Dynamic Builders submits that Article XVII, Section 58 of Republic Act No. 9184 implicitly allowed
it to simultaneously file a Petition for Certiorari before the Regional Trial Court assailing the protest case on
the merits, and another Petition before this court for injunctive remedies.32

Petitioner argues that in Section 58, the "law conferring on the Supreme Court the sole jurisdiction to issue
temporary restraining orders and injunctions relating to Infrastructure Project of Government" refers to
Republic Act No. 897533 in relation to Presidential Decree No. 1818.34 Petitioner then submits that "while
R.A. No. 8975 appears to apply only to national government infrastructure projects . . . the resulting
amendment to P.D. No. 1818 (by virtue of Sections 3 and 9 of R.A. No. 8975) removing any restriction upon
the Honorable Supreme Court to issue injunctive relief, would similarly apply to the infrastructure projects .
. . subject of, or covered by, P.D. No. 1818, which would include those infrastructure projects undertaken
for or by local governments."35

Petitioner asserts that J.V. Lagon Construction v. Pangarungan36 clarified that Regional Trial Courts can issue
injunctive relief when it is of "extreme urgency involving a constitutional issue."37 Nevertheless, petitioner
argues that this ruling was an obiter dictum, and J.V. Lagon involved a national government project.38 Thus,
it only exercised prudence when it took twin remedial routes.39

The Petition alleges that respondent HLJ Construction and Enterprise already commenced construction and
"obtained the release of the 15% advance . . . for mobilization costs as well as partial payments for the
portion . . . completed."40 Petitioner argues that the issuance of a temporary restraining order and/or
preliminary injunction was of extreme urgency, as it was illegally deprived of its constitutional rights to due
process and equal protection of law.41

The Petition then incorporates by reference its Civil Case No. 1459 Petition's discussion on the following
arguments: chanrob lesvi rtua llawlib ra ry

(1) Petitioner was denied due process when the contract was awarded to
private respondent HLJ Construction and Enterprise without first giving
the former an opportunity to avail itself of the remedies under R.A. No.
9184[;]

(2) The award of the contract to private respondent HLJ Construction and
Enterprise violated Section 57 of R.A. No. 9184[;]
(3) Contrary to the findings of public respondents, the bid submitted by
petitioner was responsive[;] [and]

(4) For having in fact submitted the Lowest Calculated Responsive Bid,
petitioner should be awarded the contract for the Construction of 1,050
Lineal Meter Rubble Concrete Seawall of the Municipality of Valladolid,
Negros Occidental.42
By Resolution dated September 18, 2006, this court ordered the parties to "MAINTAIN THE STATUS
QUO as of September 18, 2006 effective immediately until further orders from the Court."43

In their Comment44 on the Petition, public respondents counter that petitioner "grossly violated the rules
against splitting a single cause of action, multiplicity of suits, and forum shopping . . . [and] availed of an
improper remedy and disregarded the rule on 'hierarchy of courts[.]'"45 The project undertaken by HLJ
Construction 'and Enterprise was almost near completion, and prohibition [was] not intended to provide a
remedy for acts already executed or accomplished.'46 Petitioner should have asked for injunctive relief in
Civil Case No. 1459 filed before the trial court.47

Public respondents argue that Article XVII, Section 58 of Republic Act No. 9184, Presidential Decree No.
1818, and Republic Act No. 8975 do not envision simultaneous resort to remedies before the trial court and
this court.48 They submit that Section 58 provides for alternative remedies between an action under Rule 65
before the Regional Trial Court and a proper action directly before this court.49

Public respondents agree that Republic Act No. 8975 only governs national government projects but
disagree insofar as petitioner's submission that since Republic Act No. 8975 amended Presidential Decree
No. 1818 by removing the restriction on this court to issue injunctive relief, it now covers local government
projects.50

Respondent HLJ Construction and Enterprise similarly raises the issue of petitioner's forum shopping.51 It
adds that due process was not denied, as public respondent notified petitioner of its findings and decision,
heard petitioner's arguments, and entertained petitioner's motion for reconsideration.52Respondent HLJ
Construction and Enterprise stresses that the Construction Shoreline Protection Project's delay will only
result in grave injustice and irreparable injury affecting the people of the Municipality of Valladolid, Negros
Occidental.53

On December 13, 2006, petitioner filed a verified Petition to Cite Respondents for Contempt,54 alleging that
respondents did not cease work on the project in disregard of this court's status quo order.55Respondents
filed their respective comments.56

The issues for our resolution are as follows:

First, whether Article XVII, Section 58 of Republic Act No. 9184 contemplates simultaneous filing of a
petition for prohibition seeking injunctive reliefs from this court and a petition for certiorari before the
Regional Trial Court; consequently: chan roble svirtual lawlib rary

a) Whether petitioner violated the rules against the splitting of a cause of action, multiplicity of suits, and
forum shopping;

b) Whether petitioner violated the doctrine on hierarchy of courts; and

c) Whether petitioner resorted to an improper remedy when it filed a petition for prohibition with this court.
Second, whether Article XVII, Section 58 of Republic Act No. 9184, in relation to Republic Act No. 8975 and
Presidential Decree No. 1818, allows Regional Trial Courts to issue injunctive relief subject to the presence
of certain conditions; and

Lastly, whether respondents violated this court's September 18, 2006 status quo Order in relation to the
ongoing Construction Shoreline Protection Project. cra lawlawlib ra ry

I
We proceed with the procedural issue of whether petitioner availed itself of the wrong remedy in
simultaneously filing (1) a petition for certiorari before the trial court alleging that public respondent gravely
abused its discretion in rendering its June 12, 2006 Decision and June 30, 2006 Resolution and (2) a petition
for prohibition seeking injunctive reliefs from this court to enjoin the enforcement of public respondent's
June 12, 2006 Decision and June 30, 2006 Resolution during the pendency of the case before the trial court.

Public respondents submit that a simple reading of the Petition in Civil Case No. 1459 readily reveals that
petitioner also asked the trial court to nullify the same Decision and Resolution on the identical ground of
grave abuse of discretion amounting to lack or excess of jurisdiction.57

Petitioner counters that it was compelled to file the separate petitions pursuant to, and in view of, Article
XVII, Section 58 of Republic Act No. 9184:58 ChanRoblesVi rtua lawlib rary

Sec. 58. Report to Regular Courts; Certiorari. - Court action may be resorted to only after the protests
contemplated in this Article shall have been completed. Cases that are filed in violation of the process
specified in this Article shall be dismissed for lack of jurisdiction. The regional trial court shall have
jurisdiction over final decisions of the head of the procuring entity. Court actions shall be
governed by Rule 65 of the 1997 Rules of Civil Procedure.

This provision is without prejudice to any law conferring on the Supreme Court the sole jurisdiction
to issue temporary restraining orders and injunctions relating to Infrastructure Projects of
Government. (Emphasis supplied)
Section 58 could not have envisioned a simultaneous resort to this court by one that had already filed an
action before the Regional Trial Court without violating the basic rules on proscription against the splitting of
a cause of action, multiplicity of suits, and forum shopping.

Rule 2, Section 3 of the Rules of Court provides that "[a] party may not institute more than one suit for a
single cause of action." Moreover, Section 4 discusses the splitting of a single cause of action in that "if two
or more suits are instituted on the basis of the same cause of action, the filing of one or a judgment upon
the merits in any one is available as a ground for the dismissal of the others." The splitting of a cause of
action "violate[s] the policy against multiplicity of suits, whose primary objective [is] to avoid unduly
burdening the dockets of the courts."59

This Petition seeks to enjoin the execution of public respondent's Decision and Resolution on the protest —
the same Decision and Resolution sought to be set aside in the Petition before the Regional Trial Court. In
essence, petitioner seeks the same relief through two separate Petitions filed before separate courts. This
violates the rule against forum shopping.

Rule 7, Section 5 of the Rules of Court requires the plaintiff or principal party to certify under oath that he or
she has not commenced any action involving the same issues in any court. This court has discussed this rule
against forum shopping: chanrob lesvi rtual lawlib rary

In essence, forum shopping is the practice of litigants resorting to two different fora for the purpose of
obtaining the same relief, to increase their chances of obtaining a favorable judgment. In determining
whether forum shopping exists, it is important to consider the vexation caused to the courts and the parties-
litigants by a person who asks appellate courts and/or administrative entities to rule on the same related
causes and/or to grant the same or substantially the same relief, in the process creating the possibility of
conflicting decisions by the different courts or fora on the same issues. We have ruled that forum shopping
is present when, in two or more cases pending, there is identity of (1) parties (2) rights or causes of action
and reliefs prayed for and (3) the identity of the two preceding particulars is such that any judgment
rendered in the other action, will, regardless of which party is successful, amount to res judicata in the
action under consideration.60 cralawlaw lib rary

Private respondent alleges that petitioner did not even notify the Regional Trial Court of Bago City, Negros
Occidental, of its Petition filed before this court.61

The second paragraph of Article XVII, Section 58 of Republic Act No. 9184 simply means it does not
preclude a direct filing before this court in proper cases.

The Rules of Court provides for original concurrent jurisdiction by the Regional Trial Court, the Court of
Appeals, and this court in entertaining petitions for certiorari, prohibition, or mandamus.62 However, parties
must adhere to the principle of hierarchy of courts. This was discussed in Dimson (Manila), Inc., et al. v.
Local Water Utilities Administration:63 ChanRobles Vi rtua lawlib rary
Clearly, the proper recourse to a court action from decisions of the BAC, such as this one, is to file
a certiorari not before the Supreme Court but before the regional trial court which is vested by R.A. No.
9184 with jurisdiction to entertain the same. In the recent case of First United Constructors Corporation v.
Poro Point Management Corporation, we held that while indeed the certiorari jurisdiction of the regional trial
court is concurrent with this Court's, that fact alone does not allow an unrestricted freedom of choice of the
court forum. But since this is not an iron-clad rule and the full discretionary power to take cognizance of and
assume jurisdiction over special civil actions for certiorari directly filed with the Court may actually be
exercised by it, it is nevertheless imperative that the Court's intervention be called for by exceptionally
compelling reasons or be warranted by the nature of the issues involved. In other words, a direct invocation
of the Supreme Court's original jurisdiction to issue the writ will be allowed only when there are special and
important reasons clearly and specifically set out in the petition.64 (Citations omitted)
The hierarchy of courts must be respected. The doctrine with respect to hierarchy of courts was designed so
that this court will have more time to focus on its constitutional tasks without the need to deal with causes
that also fall within the lower courts' competence.65 This court acts on petitions for extraordinary writs under
Rule 65 "only when absolutely necessary or when serious and important reasons exist to justify an exception
to the policy."66

Consistent with these rules and doctrines, the remedy contemplated by Article XVII, Section 58 of Republic
Act No. 9184 is either an action under Rule 65 before the Regional Trial Court or the proper action filed
before this court. However, direct resort to this court can prosper only when the requisites for direct
invocation of this court's original jurisdiction are present. cralawlawli bra ry

II

Prohibition is a preventive remedy. This court has held that injunctive remedies will not lie for acts already
accomplished.67

The acts sought to be enjoined in this case included the implementation of the Construction Shoreline
Protection Project awarded to private respondent HLJ Construction and Enterprise. The project had already
commenced and had been ongoing at the time petitioner filed this case.

Moreover, the issue of whether these acts infringed on petitioner's rights is a matter interrelated with the
issues raised in the Petition before the trial court, emphasizing the existence of the splitting of a cause of
action.

In any case, this court has stressed that extraordinary writs of certiorari, prohibition, and mandamus are
"prerogative writs of equity[.]"68 It is within the court's sound discretion whether these writs should be
granted, and it will need to ensure that there is a clear right to the relief.69

Prohibition is defined as "an extraordinary remedy available to compel any tribunal, corporation, board, or
person exercising judicial or ministerial functions, to desist from further [proceeding] in an action or matter
when the proceedings in such tribunal, corporation, board or person are without or in excess of jurisdiction
or with grave abuse of discretion[.]"70

Grave abuse of discretion will prosper as a ground for prohibition when it is shown that "there was . . .
capricious and whimsical exercise of judgment . . . equivalent to lack of jurisdiction or that the tribunal,
corporation, board or person has exercised its power in an arbitrary or despotic manner by reason of passion
or personal hostility."71

First, public respondent had jurisdiction to rule on the protest since it was then head of the procuring
entity.72

Second, this court need not look into petitioner's allegation that its Petition before the Regional Trial Court
raised grounds warranting the reversal of public respondent's Decision.73 The merits of whether there was
grave abuse of discretion by public respondent were already subject of the Petition before the trial court.
Petitioner cannot be allowed to seek the same relief from this court.

Rule 65 likewise requires that there be "no appeal or any . . . plain, speedy, [or] adequate remedy in the
ordinary course of law."74 Section 3 of Republic Act No. 8975 provides for such a remedy when it gave an
exception to the general rule prohibiting lower courts from issuing provisional injunctive relief against
national government projects: chan roblesv irt uallawl ibra ry
Sec. 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and Preliminary
Mandatory Injunctions. - No court, except the Supreme Court, shall issue any temporary restraining order,
preliminary injunction or preliminary mandatory injunction against the government, or any of its
subdivisions, officials or any person or entity, whether public or private, acting under the government's
direction, to restrain, prohibit or compel the following acts:

....

This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but
not limited, to cases filed by bidders or those claiming to have rights through such bidders involving such
contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a
constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable
injury will arise. The applicant shall file a bond, in an amount to be fixed by the court, which bond shall
accrue in favor of the government if the court should, finally decide that the applicant was not entitled to the
relief sought. (Emphasis supplied)
When the matter is of "extreme urgency involving a constitutional issue," even Regional Trial Courts may
grant injunctive reliefs as explained in Republic v. Nolasco:75 ChanRobles Vi rt ualawlib ra ry

Republic Act No. 8975 definitively enjoins all courts, except the Supreme Court, from issuing any temporary
restraining order, preliminary injunction, or preliminary mandatory injunction against the government, or
any of its subdivisions, officials or any person or entity to restrain, prohibit or compel the bidding or
awarding of a contract or project of the national government, precisely the situation that obtains in this case
with respect to the Agno River Project. The only exception would be if the matter is of extreme
urgency involving a constitutional issue, such that unless the temporary restraining order is
issued, grave injustice and irreparable injury will arise.76(Emphasis supplied, citations omitted)
Considering that petitioner alleges that this matter is "of extreme urgency, involving as it does the . . .
constitutional right[s] to due process and equal protection of the law,"77 it should have prayed for injunctive
relief before the trial court where its Petition for Certiorari via Rule 65 was pending, together with a bond
fixed by the court.

Mere allegation or invocation that constitutionally protected rights were violated will not automatically result
in the issuance of injunctive relief. The plaintiff or the petitioner should discharge the burden to show a clear
and compelling breach of a constitutional provision. Violations of constitutional provisions are easily alleged,
but trial courts should scrutinize diligently and deliberately the evidence showing the existence of facts that
should support the conclusion that a constitutional provision is clearly and convincingly breached. In case of
doubt, no injunctive relief should issue. In the proper cases, the aggrieved party may then avail itself of
special civil actions and elevate the matter.

This court adheres to the policy behind the prohibition under Republic Act No. 8975 and even issued
Administrative Circular No. 11-2000 entitled Re: Ban on the Issuance of Temporary Restraining Orders or
Writs of Preliminary Prohibitory or Mandatory Injunctions in Cases Involving Government Infrastructure
Projects. This circular enjoins lower court judges to strictly comply with Republic Act No. 8975.

However, the issue here does not involve the propriety of a lower court's issuance or non-issuance of
provisional injunctive relief, but petitioner's insistence that only this court can issue such injunctive relief in
justifying its simultaneous Petitions before the Regional Trial Court and this court.

Petitioner hinges its erroneous simultaneous Petitions on its reading of Republic Act No. 8975 in relation to
Presidential Decree No. 1818. cralawlawl ibra ry

III

Petitioner submits that only this court has the power to issue injunctions to enjoin government
infrastructures including those of local government.78

Petitioner explains that the "laws" referred to in Article XVII, Section 58 of Republic Act No. 9184 refer to
Republic Act No. 8975 that prohibits courts, except the Supreme Court, from issuing temporary restraining
orders and injunctions against government infrastructure projects. It adds that Republic Act No. 8975 must
be taken in relation to Presidential Decree No. 1818 prohibiting the issuances by the courts of restraining
orders or injunctions involving infrastructure projects.79 The full text of Presidential Decree No. 1818
promulgated in 1981 reads: cha nroblesvi rtual lawlib rary

PRESIDENTIAL DECREE NO. 1818

PROHIBITING COURTS FROM ISSUING RESTRAINING ORDERS OR PRELIMINARY INJUNCTIONS IN CASES
INVOLVING INFRASTRUCTURE AND NATURAL RESOURCE DEVELOPMENT PROJECTS OF, AND PUBLIC
UTILITIES OPERATED BY, THE GOVERNMENT.

WHEREAS, Presidential Decree No. 605 prohibits the issuance by the courts of restraining orders or
injunctions in cases involving concessions, licenses, and other permits issued by administrative officials or
bodies for the exploitation, development and utilization of natural resources of the country;

WHEREAS, it is in the public interest to adopt a similar prohibition against the issuance of such restraining
orders or injunctions in other areas of activity equally critical to the economic development effort of the
nation, in order not to disrupt or hamper the pursuit of essential government projects;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in
me by the Constitution, do hereby decree and order as follows:

Section 1. No court in the Philippines shall have jurisdiction to issue any restraining order, preliminary
injunction, or preliminary mandatory injunction in any case, dispute, or controversy involving an
infrastructure project, or a mining, fishery, forest or other natural resource development project of the
government, or any public utility operated by the government, including among others public utilities for the
transport of the goods or commodities, stevedoring and arrastre contracts, to prohibit any person or
persons, entity or government official from proceeding with, or continuing the execution or implementation
of any such project, or the operation of such public utility, or pursuing any lawful activity necessary for such
execution, implementation or operation.

Section 2. This decree shall take effect immediately. (Emphasis supplied)

In 2000, Republic Act No. 8975 was passed. Section 3 of the law provides: cha nrob lesvi rtua llawlib ra ry

Sec. 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and Preliminary
Mandatory Injunctions. - No court, except the Supreme Court, shall issue any temporary restraining order,
preliminary injunction or preliminary mandatory injunction against the government or any of its
subdivisions, officials or any person or entity, whether public or private, acting under the government's
direction, to restrain, prohibit or compel the following acts:
chanro blesv irt uallawl ibra ry

(a) Acquisition, clearance and development of the right-of-way and/or site or location of
any national government project;

(b) Bidding or awarding of contract/project of the national government as defined under Section 2 hereof;

(c) Commencement, prosecution, execution, implementation, operation of any such contract or project;

(d) Termination or rescission of any such contract/project; and

(e) The undertaking or authorization of any other lawful activity necessary for such contract/project.
This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but
not limited to cases filed by bidders or those claiming to have rights through such bidders involving such
contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a
constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable
injury will arise. The applicant shall file a bond, in an amount to be fixed by the court, which bond shall
accrue in favor of the government if the court should finally decide that the applicant was not entitled to the
relief sought.

If after due hearing the court finds that the award of the contract is null and void, the court may, if
appropriate under the circumstances, award the contract to the qualified and winning bidder or order a
rebidding of the same, without prejudice to any liability that the guilty party may incur under existing laws.
(Emphasis supplied)
Petitioner submits that since the repealing clause of Republic Act No. 8975 has "amended accordingly"
Presidential Decree No. 1818, the prohibition no longer extends to this court.80 Section 9 reads: chanro blesvi rtua llawli bra ry

Sec. 9. Repealing Clause. - All laws, decrees, including Presidential Decree Nos. 605, 1818 and Republic Act
No. 7160, as amended, orders, rules and regulations or parts thereof inconsistent with this Act are hereby
repealed or amended accordingly.81 c ralawlawl ibra ry
Petitioner argues that even if Republic Act No. 8975 only mentions national government infrastructure
projects, Section 9 has accordingly amended Presidential Decree No. 1818, such that the projects covered
by this earlier law, like those undertaken by local governments, are similarly covered by the removal of the
prohibition against this court.82

In other words, petitioner contends that based on these laws, only this court can issue injunctive relief
against local government infrastructure projects. Thus, it was constrained to simultaneously file two
separate Petitions before the Regional Trial Court and this court.

We cannot agree.

There is nothing in Republic Act No. 8975 or in Presidential Decree No. 1818 that allows the simultaneous
availment of legal remedies before the Regional Trial Court and this court.

Republic Act No. 8975, even when read with Presidential Decree No. 1818, does not sanction the splitting of
a cause of action in order for a party to avail itself of the ancilliary remedy of a temporary restraining order
from this court.

Petitioner's reading of Republic Act No. 8975's repealing clause, such that only this court can issue injunctive
relief, fails to persuade.

This court has set the limit on the prohibition found in Presidential Decree No. 1818 by explaining that lower
courts are not prohibited from enjoining administrative acts when questions of law exist and the acts do not
involve administrative discretion in technical cases: chanrob lesvi rtua llawli bra ry

Although Presidential Decree No. 1818 prohibits any court from issuing injunctions in cases involving
infrastructure projects, the prohibition extends only to the issuance of injunctions or restraining orders
against administrative acts in controversies involving facts or the exercise of discretion in technical cases.
On issues clearly outside this dimension and involving questions of law, this Court declared that courts could
not be prevented from exercising their power to restrain or prohibit administrative acts. In such cases, let
the hammer fall and let it fall hard.83 (Emphasis supplied, citations omitted)
We also consider the second paragraph of Republic Act No. 8975, Section 3 on the exception to the
prohibition:chan rob lesvi rtual lawlib rary

This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but
not limited to cases filed by bidders or those claiming to have rights through such bidders involving such
contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a
constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable
injury will arise. The applicant shall file a bond, in an amount to be fixed by the court, which bond shall
accrue in favor of the government if the court should finally decide that the applicant was not entitled to the
relief sought. (Emphasis supplied)
In other words, the Regional Trial Court can issue injunctive relief against government infrastructure
projects, even those undertaken by local governments, considering that the prohibition in Section 3 of
Republic Act No. 8957 only mentions national government projects. These courts can issue injunctive relief
when there are compelling constitutional violations — only when the right is clear, there is a need to prevent
grave and irreparable injuries, and the public interest at stake in restraining or enjoining the project while
the action is pending far outweighs the inconvenience or costs to the party to whom the project is awarded.

Republic Act No. 8975 mentions the constitutional provision in that "[t]he use of property bears a social
function, and all economic agents shall contribute to the common good."84

Statute cannot be interpreted as to violate protected rights. Thus, the above conditions safeguard against
lower court issuances of provisional injunctive relief in cases not falling within the exception.

These safeguards are also consistent with the law's policy for the expeditious implementation of government
projects that ultimately benefit the public: chan roble svirtuallaw lib rary

Section 1. Declaration of Policy. - Article XII, Section 6 of the Constitution states that the use of property
bears a social function, and all economic agents shall contribute to the common good. Towards this end, the
State shall ensure the expeditious and efficient- implementation and completion of government
infrastructure projects to avoid unnecessary increase in construction, maintenance and/or repair costs and
to immediately enjoy the social and economic benefits therefrom.85 (Emphasis supplied)
There is no need for this court to labor on petitioner's arguments regarding violations of due process and
equal protection of the law and the alleged grave injustice and irreparable injury petitioner suffered. The
Petition's incorporation of its discussion on these arguments, as made in its Petition before the Regional Trial
Court docketed as Civil Case No. 1459, only emphasizes the splitting of a cause of action committed.

In any event, the general rule of prohibition under Republic Act No. 8975 does not preclude lower courts
from assuming jurisdiction when the ultimate relief prayed for is to nullify a national government
infrastructure project and its implementation: cha nrob lesvi rtua llawli bra ry

However, it must be clarified that Republic Act No. 8975 does not ordinarily warrant the outright dismissal of
any complaint or petition before the lower courts seeking permanent injunctive relief from the
implementation of national government infrastructure projects. What is expre'ssly prohibited by the statute
is the issuance of the provisional reliefs of temporary restraining orders, preliminary injunctions, and
preliminary mancatory injunctions. It does not preclude the lower courts from assuming jurisdiction over
complaints or petitions that seek as ultimate relief the nullification or implementation of a national
government infrastructure project. A statute such as Republic Act No. 8975 cannot diminish the
constitutionally mandated judicial power to determine whether or not there has been a grave abuse of
discretion amounting to excess of jurisdiction on the part of any branch or instrumentality of government.
Section 3 of the law in fact mandates, thus: chanroble svirtuall awlib rary

If after due hearing the court finds that the award of the contract is null and void, the court may, if
appropriate under the circumstances, award the contract to the qualified and winning bidder or order a
rebidding of the same, without prejudice to any liability that the guilty party may incur under existing laws.
Thus, when a court is called upon to rule on an initiatory pleading ing any material aspect pertinent to a
national government infrastructure project, the court ordinarily may not dismiss the action based solely on
Republic Act No. 8975 but is merely enjoined from granting provisional reliefs. If no other ground obtains to
dismiss the action, the court should decide the case on the merits.86 (Emphasis supplied, citation omitted)
IV

We decide on petitioner's verified Petition to Cite Respondent for Contempt alleging violation of this court's
September 18, 2006 status quo Order.

In its Comment, private respondent HLJ Construction and Enterprise explains that it has no intention to
disobey the Resolution. Its decision to continue the Construction Shoreline Protection Project was based on
the definition of "status quo," meaning the "present, current, existing state of affairs."87 ChanRobles Virtualawl ibra ry

"The present[,] existing condition on September 18, 2006, was the ongoing construction."88 Moreover,
petitioner's rights were not violated as its bid was declared as "not substantially responsive."89 In the
absence of a clear legal right, no injunction can be granted.90

Similarly, public respondent contends in its Comment that the Construction Shoreline Protection Project
commenced as early as May 8, 2006.91 At the time the Petition was filed in September 2006, the
Construction Shoreline Protection Project had been ongoing for four (4) months.92 Thus, the status quo as of
the September 18, 2006 Resolution was that the project was ongoing.93

This court has explained that status quo should be the one existing at the time of the filing of the case: chan rob lesvi rtual lawlib rary

The status quo should be that existing at the time of the filing of the case. The status quousually preserved
by a preliminary injunction is the last actual, peaceable and uncontested status which preceded the actual
controversy. The status quo ante litem is, ineluctably, the state of affairs which is existing at the time of the
filing of the case. Indubitably, the trial court must not make use of its injunctive power to alter such
status.94 (Emphasis supplied, citations omitted)

The ordinary meaning of status quo is "the existing state of affairs[,]"95 while status quo ante refers to "the
state of affairs that existed previously."96

Relying in good faith on the ordinary meaning of status quo as differentiated from status quo ante,
respondents pushed through with the construction, which had been the existing state of affairs at the time
the September 18, 2006 Resolution was issued.

This is consistent with Republic Act No. 8975's policy that "the State shall ensure the expeditious and
efficient implementation and completion of government infrastructure projects to avoid unnecessary
increase in construction, maintenance and/or repair costs and to immediately enjoy the social and economic
benefits therefrom."97 This policy declaration does not distinguish between national and local government
infrastructure projects. Delay in the project will only mean additional costs for the government and prejudice
to the people of the Municipality of Valladolid who will directly benefit from the Construction Shoreline
Protection Project. cralaw red

WHEREFORE, considering the foregoing, the Petition is DISMISSED for lack of merit. The verified Petition
to Cite Respondents for Contempt dated December 11, 2006 is likewise DISMISSED for lack of merit.

SO ORDERED. chanroblesvi rtua llawli bra ry

G.R. No. 174202, April 07, 2015

DYNAMIC BUILDERS & CONSTRUCTION CO. (PHIL.), INC., Petitioner, v. HON. RICARDO P.
PRESBITERO, JR., MAYOR AND HEAD OF PROCURING UNIT OF THE MUNICIPALITY OF
VALLADOLID, NEGROS OCCIDENTAL; BIDS AND AWARDS COMMITTEE, MUNICIPALITY OF
VALLADOLID, NEGROS OCCIDENTAL; AND HENRY L. JORDAN AND/OR HLJ CONSTRUCTION AND
ENTERPRISE, Respondents.

DECISION

LEONEN, J.:

Republic Act No. 8975 does not sanction splitting a cause of action in order for a party to avail itself of the
ancillary remedy of a temporary restraining order from this court. Also, this law covers only national
government infrastructure projects. This case involves a local government infrastructure project.

For local government infrastructure projects, Regional Trial Courts may issue provisional injunctive reliefs
against government infrastructure projects only when (1) there are compelling and substantial constitutional
violations; (2) there clearly exists a right in esse; (3) there is a need to prevent grave and irreparable
injuries; (4) there is a demonstrable urgency to the issuance of the injunctive relief; and (5) when there are
public interest at stake in restraining or enjoining the project while the action is pending that far outweighs
(a) the inconvenience or costs to the party to whom the project is awarded and (b) the public benefits that
will result from the completion of the project. The time periods for the validity of temporary restraining
orders issued by trial courts should be strictly followed. No preliminary injunction should issue unless the
evidence to support the injunctive relief is clear and convincing.

We are asked by Dynamic Builders & Construction Co. (Phil.), Inc. (Dynamic Builders) through this Petition
for prohibition with application for issuance of a temporary restraining order and/or writ of preliminary
injunction1 that: chanro blesvi rtua llawli bra ry

1. Upon the filing of this petition, a temporary restraining order and/or writ of preliminary injunction be
immediately issued restraining and enjoining: chan rob lesvi rtual lawlib rary

(a) the enforcement or execution of the 12 June 2006 Decision and the 30
June 2006 Resolution by the Hon. Ricardo P. Presbitero, Jr., Mayor of the
Municipality of Valladolid and Head of the Procuring Entity in Protest
Case No. BPC-01-06 entitled "Dynamic Builders & Construction Company
(Phil.), Inc. v. Bids And Awards Committee, Municipality of Valladolid,
Negros Occidental" by the respondents, or their agents, or anyone acting
in their behalf, or anyone who stands to benefit from such order, in any
manner, during the pendency of the proceedings in Civil Case No. 1459
in order not to render further proceedings in Civil Case No. 1459 moot
and academic and any judgment in the said case ineffectual;

(b) the implementation of the award of the Construction Shoreline Protection

Project subject of Protest Case No. BPC-01-06, during the pendency of
Civil Case No. 1459, by the respondents, or their agents, or anyone
 acting in their behalf, or anyone who stands to benefit from such
implementation, in any manner, during the pendency of the proceedings
in Civil Case No. 1459 in order not to render further proceedings in Civil
Case No. 1459 moot and any judgment in the said case ineffectual; and
2. Thereafter, a writ of prohibition be issued and/or the preliminary injunction be made permanent and
continuing, during the pendency of Civil Case No. 1459 before the Regional Trial Court of Bago City.

Other reliefs just and equitable in the premises are likewise prayed for.2cra lawlawlib ra ry

On December 28, 2005, the Municipality of Valladolid, Negros Occidental, through its Bids and Awards
Committee, published an invitation to bid for the construction of a 1,050-lineal-meter rubble concrete
seawall along the municipality's shoreline.3 This infrastructure venture is known as the "Construction
Shoreline Protection Project."4

On January 17, 2006, the Bids and Awards Committee conducted a pre-bid conference attended by six (6)
prospective contractors including Dynamic Builders.5

On January 31, 2006, three (3) out of the seven (7) contractors that had secured bidding documents in
order to bid "submitted letters of withdrawal."6 Thus, only the remaining four (4) bidders "were considered
during the opening of the bids."7 The prices offered were the following:8Ch anRobles Vi rt ualawlib ra ry

Mig-wells Const Corp P35,561,015.33 Highest Bidder

ADP Const & Supply P34,778,496.72 3rd Lowest Bidder
Dynamic Builders & Const P29,750,000.00 Lowest Bidder
HLJ Const & Ent. P31,922,420.27 2 Lowest Bidder
nd

On March 27, 2006, the Bids and Awards Committee issued Resolution No. 6 recommending the award in
favor of HLJ Construction and Enterprise.9

On April 18, 2006, the Municipality of Valladolid received its "NO OBJECTION" letter from World Bank
through the LOGOFIND10 project director, advising the Bids and Awards Committee to proceed with the
issuance of the notice of award, letter of acceptance, signing of contract, and notice to proceed.11

On April 21, 2006, the Bids and Awards Committee issued Resolution No. 7 affirming the award of contract
to HLJ Construction and Enterprise for the construction of the 1,050-lineal-meter Construction Shoreline
Protection Project amounting to P31,922,420.37.12

On April 25, 2006, Bids and Awards Committee Chairperson Celina C. Segunla wrote Engr. Raul F. Balandra
of Dynamic Builders and the other participating losing bidders, ADP Construction and Mig-Wells Construction
Corporation, to inform them of the Bids and Awards Committee's findings and decision.13Dynamic Builders
was informed that "its bid proposal had been found to be 'not substantially responsive.'"14 Dynamic Builders
received this decision on May 11, 2006.15

Dynamic Builders alleged that on May 5, 2006, it submitted the letter dated April 7, 2006 containing a
request for the Bids and Awards Committee to furnish it with all submitted bid documents and relevant Bids
and Awards Committee resolutions, but this was denied by the letter dated May 5, 2006 invoking
confidentiality under Section 2.46 of the LOGOFIND guidelines.16

On May 15, 2006, the Bids and Awards Committee received the letter from Dynamic Builders seeking
reconsideration of the April 25, 2006 decision declaring Dynamic Builders' bid as not substantially
responsive.17

On May 22, 2006, the Bids and Awards Committee wrote Dynamic Builders denying the request for
reconsideration. It informed Dynamic Builders of the post-evaluation examination results showing Dynamic
Builders' failure in its Financial Contracting Capability.18

On June 6, 2006, Dynamic Builders lodged a formal protest with the head of the procuring entity, Mayor
Ricardo P. Presbitero, Jr. (Mayor Presbitero), to set aside the Bids and Awards Committee decision declaring
Dynamic Builders' bid as not substantially responsive.19

Mayor Presbitero dismissed the protest in the Decision20 dated June 12, 2006.
According to Mayor Presbitero's June 12, 2006 Decision, the bidders underwent preliminary examination and
were "subjected to the criteria of Verification, Eligibility, Bid Security, Completeness of Bid, Substantial
Responsiveness, and Acceptance for Detailed Examination[.]"21 Mig-wells Construction Corporation did not
pass the preliminary examination, while the remaining three that passed were subjected to detailed
examination. All three passed and qualified for post-evaluation examination.22

The June 12, 2006 Decision also stated that during the post-evaluation examination, the three bidders
submitted their financial statements for the last five (5) years and other documents expressly provided in
Volume 2 of the Procurement Guidelines Manual of LOGOFIND World Bank.23 The examination showed that
Dynamic Builders had a negative Financial Contracting Capability of P64,579,119.13 due to numerous other
contractual commitments or balance of works.24 HLJ Construction and Enterprise had a positive Financial
Contracting Capability of P30,921,063.86, while ADP Construction had a positive Financial Contracting
Capability of only P12,770,893.78.25 Section 4.5.e of the Instruction To Bidders requires a minimum
Financial Contracting Capability of P13,000,000.00.26

Mayor Presbitero denied Dynamic Builders' Motion for Reconsideration in the Resolution27 dated June 30,
2006.

On September 4, 2006 and pursuant to Article XVII, Section 58 of Republic Act No. 9184, otherwise known
as the Government Procurement Reform Act, Dynamic Builders filed the Petition for Certiorari before the
Regional Trial Court of Bago City, Negros Occidental, assailing Mayor Presbitero's Decision and Resolution.28

Simultaneously, Dynamic Builders filed this Petition29 dated September 4, 2006 for prohibition with
application for temporary restraining order and/or writ of preliminary injunction before this court.30 This was
received by this court on September 6, 2006.31

Petitioner Dynamic Builders submits that Article XVII, Section 58 of Republic Act No. 9184 implicitly allowed
it to simultaneously file a Petition for Certiorari before the Regional Trial Court assailing the protest case on
the merits, and another Petition before this court for injunctive remedies.32

Petitioner argues that in Section 58, the "law conferring on the Supreme Court the sole jurisdiction to issue
temporary restraining orders and injunctions relating to Infrastructure Project of Government" refers to
Republic Act No. 897533 in relation to Presidential Decree No. 1818.34 Petitioner then submits that "while
R.A. No. 8975 appears to apply only to national government infrastructure projects . . . the resulting
amendment to P.D. No. 1818 (by virtue of Sections 3 and 9 of R.A. No. 8975) removing any restriction upon
the Honorable Supreme Court to issue injunctive relief, would similarly apply to the infrastructure projects .
. . subject of, or covered by, P.D. No. 1818, which would include those infrastructure projects undertaken
for or by local governments."35

Petitioner asserts that J.V. Lagon Construction v. Pangarungan36 clarified that Regional Trial Courts can issue
injunctive relief when it is of "extreme urgency involving a constitutional issue."37 Nevertheless, petitioner
argues that this ruling was an obiter dictum, and J.V. Lagon involved a national government project.38 Thus,
it only exercised prudence when it took twin remedial routes.39

The Petition alleges that respondent HLJ Construction and Enterprise already commenced construction and
"obtained the release of the 15% advance . . . for mobilization costs as well as partial payments for the
portion . . . completed."40 Petitioner argues that the issuance of a temporary restraining order and/or
preliminary injunction was of extreme urgency, as it was illegally deprived of its constitutional rights to due
process and equal protection of law.41

The Petition then incorporates by reference its Civil Case No. 1459 Petition's discussion on the following
arguments: chanrob lesvi rtua llawlib ra ry

(1) Petitioner was denied due process when the contract was awarded to
private respondent HLJ Construction and Enterprise without first giving
the former an opportunity to avail itself of the remedies under R.A. No.
9184[;]
(2) The award of the contract to private respondent HLJ Construction and
Enterprise violated Section 57 of R.A. No. 9184[;]

(3) Contrary to the findings of public respondents, the bid submitted by

petitioner was responsive[;] [and]

(4) For having in fact submitted the Lowest Calculated Responsive Bid,
petitioner should be awarded the contract for the Construction of 1,050
Lineal Meter Rubble Concrete Seawall of the Municipality of Valladolid,
Negros Occidental.42
By Resolution dated September 18, 2006, this court ordered the parties to "MAINTAIN THE STATUS
QUO as of September 18, 2006 effective immediately until further orders from the Court."43

In their Comment44 on the Petition, public respondents counter that petitioner "grossly violated the rules
against splitting a single cause of action, multiplicity of suits, and forum shopping . . . [and] availed of an
improper remedy and disregarded the rule on 'hierarchy of courts[.]'"45 The project undertaken by HLJ
Construction 'and Enterprise was almost near completion, and prohibition [was] not intended to provide a
remedy for acts already executed or accomplished.'46 Petitioner should have asked for injunctive relief in
Civil Case No. 1459 filed before the trial court.47

Public respondents argue that Article XVII, Section 58 of Republic Act No. 9184, Presidential Decree No.
1818, and Republic Act No. 8975 do not envision simultaneous resort to remedies before the trial court and
this court.48 They submit that Section 58 provides for alternative remedies between an action under Rule 65
before the Regional Trial Court and a proper action directly before this court.49

Public respondents agree that Republic Act No. 8975 only governs national government projects but
disagree insofar as petitioner's submission that since Republic Act No. 8975 amended Presidential Decree
No. 1818 by removing the restriction on this court to issue injunctive relief, it now covers local government
projects.50

Respondent HLJ Construction and Enterprise similarly raises the issue of petitioner's forum shopping.51 It
adds that due process was not denied, as public respondent notified petitioner of its findings and decision,
heard petitioner's arguments, and entertained petitioner's motion for reconsideration.52Respondent HLJ
Construction and Enterprise stresses that the Construction Shoreline Protection Project's delay will only
result in grave injustice and irreparable injury affecting the people of the Municipality of Valladolid, Negros
Occidental.53

On December 13, 2006, petitioner filed a verified Petition to Cite Respondents for Contempt,54 alleging that
respondents did not cease work on the project in disregard of this court's status quo order.55Respondents
filed their respective comments.56

The issues for our resolution are as follows:

First, whether Article XVII, Section 58 of Republic Act No. 9184 contemplates simultaneous filing of a
petition for prohibition seeking injunctive reliefs from this court and a petition for certiorari before the
Regional Trial Court; consequently: chan roble svirtual lawlib rary

a) Whether petitioner violated the rules against the splitting of a cause of action, multiplicity of suits, and
forum shopping;

b) Whether petitioner violated the doctrine on hierarchy of courts; and

c) Whether petitioner resorted to an improper remedy when it filed a petition for prohibition with this court.
Second, whether Article XVII, Section 58 of Republic Act No. 9184, in relation to Republic Act No. 8975 and
Presidential Decree No. 1818, allows Regional Trial Courts to issue injunctive relief subject to the presence
of certain conditions; and

Lastly, whether respondents violated this court's September 18, 2006 status quo Order in relation to the
ongoing Construction Shoreline Protection Project. cra lawlawlib ra ry
 I

We proceed with the procedural issue of whether petitioner availed itself of the wrong remedy in
simultaneously filing (1) a petition for certiorari before the trial court alleging that public respondent gravely
abused its discretion in rendering its June 12, 2006 Decision and June 30, 2006 Resolution and (2) a petition
for prohibition seeking injunctive reliefs from this court to enjoin the enforcement of public respondent's
June 12, 2006 Decision and June 30, 2006 Resolution during the pendency of the case before the trial court.

Public respondents submit that a simple reading of the Petition in Civil Case No. 1459 readily reveals that
petitioner also asked the trial court to nullify the same Decision and Resolution on the identical ground of
grave abuse of discretion amounting to lack or excess of jurisdiction.57

Petitioner counters that it was compelled to file the separate petitions pursuant to, and in view of, Article
XVII, Section 58 of Republic Act No. 9184:58 ChanRoblesVi rtua lawlib rary

Sec. 58. Report to Regular Courts; Certiorari. - Court action may be resorted to only after the protests
contemplated in this Article shall have been completed. Cases that are filed in violation of the process
specified in this Article shall be dismissed for lack of jurisdiction. The regional trial court shall have
jurisdiction over final decisions of the head of the procuring entity. Court actions shall be
governed by Rule 65 of the 1997 Rules of Civil Procedure.

This provision is without prejudice to any law conferring on the Supreme Court the sole jurisdiction
to issue temporary restraining orders and injunctions relating to Infrastructure Projects of
Government. (Emphasis supplied)
Section 58 could not have envisioned a simultaneous resort to this court by one that had already filed an
action before the Regional Trial Court without violating the basic rules on proscription against the splitting of
a cause of action, multiplicity of suits, and forum shopping.

Rule 2, Section 3 of the Rules of Court provides that "[a] party may not institute more than one suit for a
single cause of action." Moreover, Section 4 discusses the splitting of a single cause of action in that "if two
or more suits are instituted on the basis of the same cause of action, the filing of one or a judgment upon
the merits in any one is available as a ground for the dismissal of the others." The splitting of a cause of
action "violate[s] the policy against multiplicity of suits, whose primary objective [is] to avoid unduly
burdening the dockets of the courts."59

This Petition seeks to enjoin the execution of public respondent's Decision and Resolution on the protest —
the same Decision and Resolution sought to be set aside in the Petition before the Regional Trial Court. In
essence, petitioner seeks the same relief through two separate Petitions filed before separate courts. This
violates the rule against forum shopping.

Rule 7, Section 5 of the Rules of Court requires the plaintiff or principal party to certify under oath that he or
she has not commenced any action involving the same issues in any court. This court has discussed this rule
against forum shopping: chanrob lesvi rtual lawlib rary

In essence, forum shopping is the practice of litigants resorting to two different fora for the purpose of
obtaining the same relief, to increase their chances of obtaining a favorable judgment. In determining
whether forum shopping exists, it is important to consider the vexation caused to the courts and the parties-
litigants by a person who asks appellate courts and/or administrative entities to rule on the same related
causes and/or to grant the same or substantially the same relief, in the process creating the possibility of
conflicting decisions by the different courts or fora on the same issues. We have ruled that forum shopping
is present when, in two or more cases pending, there is identity of (1) parties (2) rights or causes of action
and reliefs prayed for and (3) the identity of the two preceding particulars is such that any judgment
rendered in the other action, will, regardless of which party is successful, amount to res judicata in the
action under consideration.60 cralawlaw lib rary

Private respondent alleges that petitioner did not even notify the Regional Trial Court of Bago City, Negros
Occidental, of its Petition filed before this court.61

The second paragraph of Article XVII, Section 58 of Republic Act No. 9184 simply means it does not
preclude a direct filing before this court in proper cases.

The Rules of Court provides for original concurrent jurisdiction by the Regional Trial Court, the Court of
Appeals, and this court in entertaining petitions for certiorari, prohibition, or mandamus.62 However, parties
must adhere to the principle of hierarchy of courts. This was discussed in Dimson (Manila), Inc., et al. v.
Local Water Utilities Administration:63ChanRobles Vi rtua lawlib rary

Clearly, the proper recourse to a court action from decisions of the BAC, such as this one, is to file
a certiorari not before the Supreme Court but before the regional trial court which is vested by R.A. No.
9184 with jurisdiction to entertain the same. In the recent case of First United Constructors Corporation v.
Poro Point Management Corporation, we held that while indeed the certiorari jurisdiction of the regional trial
court is concurrent with this Court's, that fact alone does not allow an unrestricted freedom of choice of the
court forum. But since this is not an iron-clad rule and the full discretionary power to take cognizance of and
assume jurisdiction over special civil actions for certiorari directly filed with the Court may actually be
exercised by it, it is nevertheless imperative that the Court's intervention be called for by exceptionally
compelling reasons or be warranted by the nature of the issues involved. In other words, a direct invocation
of the Supreme Court's original jurisdiction to issue the writ will be allowed only when there are special and
important reasons clearly and specifically set out in the petition.64 (Citations omitted)
The hierarchy of courts must be respected. The doctrine with respect to hierarchy of courts was designed so
that this court will have more time to focus on its constitutional tasks without the need to deal with causes
that also fall within the lower courts' competence.65 This court acts on petitions for extraordinary writs under
Rule 65 "only when absolutely necessary or when serious and important reasons exist to justify an exception
to the policy."66

Consistent with these rules and doctrines, the remedy contemplated by Article XVII, Section 58 of Republic
Act No. 9184 is either an action under Rule 65 before the Regional Trial Court or the proper action filed
before this court. However, direct resort to this court can prosper only when the requisites for direct
invocation of this court's original jurisdiction are present. cralawlawli bra ry

II

Prohibition is a preventive remedy. This court has held that injunctive remedies will not lie for acts already
accomplished.67

The acts sought to be enjoined in this case included the implementation of the Construction Shoreline
Protection Project awarded to private respondent HLJ Construction and Enterprise. The project had already
commenced and had been ongoing at the time petitioner filed this case.

Moreover, the issue of whether these acts infringed on petitioner's rights is a matter interrelated with the
issues raised in the Petition before the trial court, emphasizing the existence of the splitting of a cause of
action.

In any case, this court has stressed that extraordinary writs of certiorari, prohibition, and mandamus are
"prerogative writs of equity[.]"68 It is within the court's sound discretion whether these writs should be
granted, and it will need to ensure that there is a clear right to the relief.69

Prohibition is defined as "an extraordinary remedy available to compel any tribunal, corporation, board, or
person exercising judicial or ministerial functions, to desist from further [proceeding] in an action or matter
when the proceedings in such tribunal, corporation, board or person are without or in excess of jurisdiction
or with grave abuse of discretion[.]"70

Grave abuse of discretion will prosper as a ground for prohibition when it is shown that "there was . . .
capricious and whimsical exercise of judgment . . . equivalent to lack of jurisdiction or that the tribunal,
corporation, board or person has exercised its power in an arbitrary or despotic manner by reason of passion
or personal hostility."71

First, public respondent had jurisdiction to rule on the protest since it was then head of the procuring
entity.72

Second, this court need not look into petitioner's allegation that its Petition before the Regional Trial Court
raised grounds warranting the reversal of public respondent's Decision.73 The merits of whether there was
grave abuse of discretion by public respondent were already subject of the Petition before the trial court.
Petitioner cannot be allowed to seek the same relief from this court.

Rule 65 likewise requires that there be "no appeal or any . . . plain, speedy, [or] adequate remedy in the
ordinary course of law."74 Section 3 of Republic Act No. 8975 provides for such a remedy when it gave an
exception to the general rule prohibiting lower courts from issuing provisional injunctive relief against
national government projects: chan roblesv irt uallawl ibra ry

Sec. 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and Preliminary
Mandatory Injunctions. - No court, except the Supreme Court, shall issue any temporary restraining order,
preliminary injunction or preliminary mandatory injunction against the government, or any of its
subdivisions, officials or any person or entity, whether public or private, acting under the government's
direction, to restrain, prohibit or compel the following acts:

....

This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but
not limited, to cases filed by bidders or those claiming to have rights through such bidders involving such
contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a
constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable
injury will arise. The applicant shall file a bond, in an amount to be fixed by the court, which bond shall
accrue in favor of the government if the court should, finally decide that the applicant was not entitled to the
relief sought. (Emphasis supplied)
When the matter is of "extreme urgency involving a constitutional issue," even Regional Trial Courts may
grant injunctive reliefs as explained in Republic v. Nolasco:75 ChanRobles Vi rt ualawlib ra ry

Republic Act No. 8975 definitively enjoins all courts, except the Supreme Court, from issuing any temporary
restraining order, preliminary injunction, or preliminary mandatory injunction against the government, or
any of its subdivisions, officials or any person or entity to restrain, prohibit or compel the bidding or
awarding of a contract or project of the national government, precisely the situation that obtains in this case
with respect to the Agno River Project. The only exception would be if the matter is of extreme
urgency involving a constitutional issue, such that unless the temporary restraining order is
issued, grave injustice and irreparable injury will arise.76(Emphasis supplied, citations omitted)
Considering that petitioner alleges that this matter is "of extreme urgency, involving as it does the . . .
constitutional right[s] to due process and equal protection of the law,"77 it should have prayed for injunctive
relief before the trial court where its Petition for Certiorari via Rule 65 was pending, together with a bond
fixed by the court.

Mere allegation or invocation that constitutionally protected rights were violated will not automatically result
in the issuance of injunctive relief. The plaintiff or the petitioner should discharge the burden to show a clear
and compelling breach of a constitutional provision. Violations of constitutional provisions are easily alleged,
but trial courts should scrutinize diligently and deliberately the evidence showing the existence of facts that
should support the conclusion that a constitutional provision is clearly and convincingly breached. In case of
doubt, no injunctive relief should issue. In the proper cases, the aggrieved party may then avail itself of
special civil actions and elevate the matter.

This court adheres to the policy behind the prohibition under Republic Act No. 8975 and even issued
Administrative Circular No. 11-2000 entitled Re: Ban on the Issuance of Temporary Restraining Orders or
Writs of Preliminary Prohibitory or Mandatory Injunctions in Cases Involving Government Infrastructure
Projects. This circular enjoins lower court judges to strictly comply with Republic Act No. 8975.

However, the issue here does not involve the propriety of a lower court's issuance or non-issuance of
provisional injunctive relief, but petitioner's insistence that only this court can issue such injunctive relief in
justifying its simultaneous Petitions before the Regional Trial Court and this court.

Petitioner hinges its erroneous simultaneous Petitions on its reading of Republic Act No. 8975 in relation to
Presidential Decree No. 1818. cralawlawl ibra ry

III

Petitioner submits that only this court has the power to issue injunctions to enjoin government
infrastructures including those of local government.78

Petitioner explains that the "laws" referred to in Article XVII, Section 58 of Republic Act No. 9184 refer to
Republic Act No. 8975 that prohibits courts, except the Supreme Court, from issuing temporary restraining
orders and injunctions against government infrastructure projects. It adds that Republic Act No. 8975 must
be taken in relation to Presidential Decree No. 1818 prohibiting the issuances by the courts of restraining
orders or injunctions involving infrastructure projects.79 The full text of Presidential Decree No. 1818
promulgated in 1981 reads: cha nroblesvi rtual lawlib rary

PRESIDENTIAL DECREE NO. 1818

PROHIBITING COURTS FROM ISSUING RESTRAINING ORDERS OR PRELIMINARY INJUNCTIONS IN CASES

INVOLVING INFRASTRUCTURE AND NATURAL RESOURCE DEVELOPMENT PROJECTS OF, AND PUBLIC
UTILITIES OPERATED BY, THE GOVERNMENT.

WHEREAS, Presidential Decree No. 605 prohibits the issuance by the courts of restraining orders or
injunctions in cases involving concessions, licenses, and other permits issued by administrative officials or
bodies for the exploitation, development and utilization of natural resources of the country;

WHEREAS, it is in the public interest to adopt a similar prohibition against the issuance of such restraining
orders or injunctions in other areas of activity equally critical to the economic development effort of the
nation, in order not to disrupt or hamper the pursuit of essential government projects;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in
me by the Constitution, do hereby decree and order as follows:

Section 1. No court in the Philippines shall have jurisdiction to issue any restraining order, preliminary
injunction, or preliminary mandatory injunction in any case, dispute, or controversy involving an
infrastructure project, or a mining, fishery, forest or other natural resource development project of the
government, or any public utility operated by the government, including among others public utilities for the
transport of the goods or commodities, stevedoring and arrastre contracts, to prohibit any person or
persons, entity or government official from proceeding with, or continuing the execution or implementation
of any such project, or the operation of such public utility, or pursuing any lawful activity necessary for such
execution, implementation or operation.

Section 2. This decree shall take effect immediately. (Emphasis supplied)

In 2000, Republic Act No. 8975 was passed. Section 3 of the law provides: cha nrob lesvi rtua llawlib ra ry

Sec. 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and Preliminary
Mandatory Injunctions. - No court, except the Supreme Court, shall issue any temporary restraining order,
preliminary injunction or preliminary mandatory injunction against the government or any of its
subdivisions, officials or any person or entity, whether public or private, acting under the government's
direction, to restrain, prohibit or compel the following acts: chanro blesv irt uallawl ibra ry

(a) Acquisition, clearance and development of the right-of-way and/or site or location of
any national government project;

(b) Bidding or awarding of contract/project of the national government as defined under Section 2 hereof;

(c) Commencement, prosecution, execution, implementation, operation of any such contract or project;

(d) Termination or rescission of any such contract/project; and

(e) The undertaking or authorization of any other lawful activity necessary for such contract/project.
This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but
not limited to cases filed by bidders or those claiming to have rights through such bidders involving such
contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a
constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable
injury will arise. The applicant shall file a bond, in an amount to be fixed by the court, which bond shall
accrue in favor of the government if the court should finally decide that the applicant was not entitled to the
relief sought.

If after due hearing the court finds that the award of the contract is null and void, the court may, if
appropriate under the circumstances, award the contract to the qualified and winning bidder or order a
rebidding of the same, without prejudice to any liability that the guilty party may incur under existing laws.
(Emphasis supplied)
Petitioner submits that since the repealing clause of Republic Act No. 8975 has "amended accordingly"
Presidential Decree No. 1818, the prohibition no longer extends to this court.80 Section 9 reads: chanro blesvi rtua llawli bra ry
Sec. 9. Repealing Clause. - All laws, decrees, including Presidential Decree Nos. 605, 1818 and Republic Act
No. 7160, as amended, orders, rules and regulations or parts thereof inconsistent with this Act are hereby
repealed or amended accordingly.81 c ralawlawl ibra ry

Petitioner argues that even if Republic Act No. 8975 only mentions national government infrastructure
projects, Section 9 has accordingly amended Presidential Decree No. 1818, such that the projects covered
by this earlier law, like those undertaken by local governments, are similarly covered by the removal of the
prohibition against this court.82

In other words, petitioner contends that based on these laws, only this court can issue injunctive relief
against local government infrastructure projects. Thus, it was constrained to simultaneously file two
separate Petitions before the Regional Trial Court and this court.

We cannot agree.

There is nothing in Republic Act No. 8975 or in Presidential Decree No. 1818 that allows the simultaneous
availment of legal remedies before the Regional Trial Court and this court.

Republic Act No. 8975, even when read with Presidential Decree No. 1818, does not sanction the splitting of
a cause of action in order for a party to avail itself of the ancilliary remedy of a temporary restraining order
from this court.

Petitioner's reading of Republic Act No. 8975's repealing clause, such that only this court can issue injunctive
relief, fails to persuade.

This court has set the limit on the prohibition found in Presidential Decree No. 1818 by explaining that lower
courts are not prohibited from enjoining administrative acts when questions of law exist and the acts do not
involve administrative discretion in technical cases: chanrob lesvi rtua llawli bra ry

Although Presidential Decree No. 1818 prohibits any court from issuing injunctions in cases involving
infrastructure projects, the prohibition extends only to the issuance of injunctions or restraining orders
against administrative acts in controversies involving facts or the exercise of discretion in technical cases.
On issues clearly outside this dimension and involving questions of law, this Court declared that courts could
not be prevented from exercising their power to restrain or prohibit administrative acts. In such cases, let
the hammer fall and let it fall hard.83 (Emphasis supplied, citations omitted)
We also consider the second paragraph of Republic Act No. 8975, Section 3 on the exception to the
prohibition:chan rob lesvi rtual lawlib rary

This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but
not limited to cases filed by bidders or those claiming to have rights through such bidders involving such
contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a
constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable
injury will arise. The applicant shall file a bond, in an amount to be fixed by the court, which bond shall
accrue in favor of the government if the court should finally decide that the applicant was not entitled to the
relief sought. (Emphasis supplied)
In other words, the Regional Trial Court can issue injunctive relief against government infrastructure
projects, even those undertaken by local governments, considering that the prohibition in Section 3 of
Republic Act No. 8957 only mentions national government projects. These courts can issue injunctive relief
when there are compelling constitutional violations — only when the right is clear, there is a need to prevent
grave and irreparable injuries, and the public interest at stake in restraining or enjoining the project while
the action is pending far outweighs the inconvenience or costs to the party to whom the project is awarded.

Republic Act No. 8975 mentions the constitutional provision in that "[t]he use of property bears a social
function, and all economic agents shall contribute to the common good."84

Statute cannot be interpreted as to violate protected rights. Thus, the above conditions safeguard against
lower court issuances of provisional injunctive relief in cases not falling within the exception.

These safeguards are also consistent with the law's policy for the expeditious implementation of government
projects that ultimately benefit the public: chan roble svirtuallaw lib rary

Section 1. Declaration of Policy. - Article XII, Section 6 of the Constitution states that the use of property
bears a social function, and all economic agents shall contribute to the common good. Towards this end, the
State shall ensure the expeditious and efficient- implementation and completion of government
infrastructure projects to avoid unnecessary increase in construction, maintenance and/or repair costs and
to immediately enjoy the social and economic benefits therefrom.85 (Emphasis supplied)
There is no need for this court to labor on petitioner's arguments regarding violations of due process and
equal protection of the law and the alleged grave injustice and irreparable injury petitioner suffered. The
Petition's incorporation of its discussion on these arguments, as made in its Petition before the Regional Trial
Court docketed as Civil Case No. 1459, only emphasizes the splitting of a cause of action committed.

In any event, the general rule of prohibition under Republic Act No. 8975 does not preclude lower courts
from assuming jurisdiction when the ultimate relief prayed for is to nullify a national government
infrastructure project and its implementation: cha nrob lesvi rtua llawli bra ry

However, it must be clarified that Republic Act No. 8975 does not ordinarily warrant the outright dismissal of
any complaint or petition before the lower courts seeking permanent injunctive relief from the
implementation of national government infrastructure projects. What is expre'ssly prohibited by the statute
is the issuance of the provisional reliefs of temporary restraining orders, preliminary injunctions, and
preliminary mancatory injunctions. It does not preclude the lower courts from assuming jurisdiction over
complaints or petitions that seek as ultimate relief the nullification or implementation of a national
government infrastructure project. A statute such as Republic Act No. 8975 cannot diminish the
constitutionally mandated judicial power to determine whether or not there has been a grave abuse of
discretion amounting to excess of jurisdiction on the part of any branch or instrumentality of government.
Section 3 of the law in fact mandates, thus: chanroble svirtuall awlib rary

If after due hearing the court finds that the award of the contract is null and void, the court may, if
appropriate under the circumstances, award the contract to the qualified and winning bidder or order a
rebidding of the same, without prejudice to any liability that the guilty party may incur under existing laws.
Thus, when a court is called upon to rule on an initiatory pleading ing any material aspect pertinent to a
national government infrastructure project, the court ordinarily may not dismiss the action based solely on
Republic Act No. 8975 but is merely enjoined from granting provisional reliefs. If no other ground obtains to
dismiss the action, the court should decide the case on the merits.86 (Emphasis supplied, citation omitted)
IV

We decide on petitioner's verified Petition to Cite Respondent for Contempt alleging violation of this court's
September 18, 2006 status quo Order.

In its Comment, private respondent HLJ Construction and Enterprise explains that it has no intention to
disobey the Resolution. Its decision to continue the Construction Shoreline Protection Project was based on
the definition of "status quo," meaning the "present, current, existing state of affairs."87 ChanRobles Virtualawl ibra ry

"The present[,] existing condition on September 18, 2006, was the ongoing construction."88 Moreover,
petitioner's rights were not violated as its bid was declared as "not substantially responsive."89 In the
absence of a clear legal right, no injunction can be granted.90

Similarly, public respondent contends in its Comment that the Construction Shoreline Protection Project
commenced as early as May 8, 2006.91 At the time the Petition was filed in September 2006, the
Construction Shoreline Protection Project had been ongoing for four (4) months.92 Thus, the status quo as of
the September 18, 2006 Resolution was that the project was ongoing.93

This court has explained that status quo should be the one existing at the time of the filing of the case: chan rob lesvi rtual lawlib rary

The status quo should be that existing at the time of the filing of the case. The status quousually preserved
by a preliminary injunction is the last actual, peaceable and uncontested status which preceded the actual
controversy. The status quo ante litem is, ineluctably, the state of affairs which is existing at the time of the
filing of the case. Indubitably, the trial court must not make use of its injunctive power to alter such
status.94 (Emphasis supplied, citations omitted)

The ordinary meaning of status quo is "the existing state of affairs[,]"95 while status quo ante refers to "the
state of affairs that existed previously."96

Relying in good faith on the ordinary meaning of status quo as differentiated from status quo ante,
respondents pushed through with the construction, which had been the existing state of affairs at the time
the September 18, 2006 Resolution was issued.

This is consistent with Republic Act No. 8975's policy that "the State shall ensure the expeditious and
 efficient implementation and completion of government infrastructure projects to avoid unnecessary
increase in construction, maintenance and/or repair costs and to immediately enjoy the social and economic
benefits therefrom."97 This policy declaration does not distinguish between national and local government
infrastructure projects. Delay in the project will only mean additional costs for the government and prejudice
to the people of the Municipality of Valladolid who will directly benefit from the Construction Shoreline
Protection Project.
cralaw red

WHEREFORE, considering the foregoing, the Petition is DISMISSED for lack of merit. The verified Petition
to Cite Respondents for Contempt dated December 11, 2006 is likewise DISMISSED for lack of merit.

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DIVISION
G.R. No. 190028, February 26, 2014

LETICIA P. LIGON, Petitioner, v. THE REGIONAL TRIAL COURT, BRANCH 56 AT MAKATI CITY AND
ITS PRESIDING JUDGE, JUDGE REYNALDO M. LAIGO, SHERIFF IV LUCITO V. ALEJO, ATTY.
SILVERIO GARING, MR. LEONARDO J. TING, AND MR. BENITO G. TECHICO, Respondents.

DECISION

PERLAS–BERNABE, J.:

Assailed in this petition for review on certiorari1 is the Decision2 dated October 30, 2009 of the Court of
Appeals (CA) in CA–G.R. SP No. 106175, finding no grave abuse of discretion on the part of the Regional
Trial Court of Makati City, Branch 56 (Makati City RTC) in issuing the following orders (Assailed Orders) in
Civil Case No. 03–186:

(a) the Order3 dated February 9, 2007 which directed the Register of Deeds of Muntinlupa City, respondent
Atty. Silverio Garing (Atty. Garing), to (1) register the Officer’s Final Deed of Sale issued by respondent
Sheriff Lucito V. Alejo (Sheriff Alejo) on October 27, 2006 in favor of the highest bidder, respondent
Leonardo J. Ting (Ting), (2) cancel Transfer Certificate of Title (TCT) No. 8502/T44 in the name of Spouses
Rosario and Saturnino Baladjay (Sps. Baladjay), and (3) issue a new certificate of title in favor of Ting, free
from any liens and encumbrances;

(b) the Order4 dated March 20, 2007 which directed Atty. Garing to comply with the February 9, 2007 Order
under pain of contempt of court; and

(c) the Order5 dated April 25, 2007 which reiterated the directive to Atty. Garing to issue a new title in favor
of Ting after the latter’s payment of capital gains, documentary and transfer taxes, as required.

The Facts

On November 20, 2002, petitioner Leticia P. Ligon (Ligon) filed an amended complaint6 before the Regional
Trial Court of Quezon City, Branch 101 (Quezon City RTC) for collection of sum of money and damages,
rescission of contract, and nullification of title with prayer for the issuance of a writ of preliminary
attachment, docketed as Civil Case No. Q–10–48145 (Quezon City Case), against Sps. Baladjay, a certain
Olivia Marasigan (Marasigan), Polished Arrow Holdings, Inc. (Polished Arrow), and its
incorporators,7 namely, Spouses Julius Gonzalo and Charaine Doreece Anne Fuentebella (Sps. Fuentebella),
Ma. Linda Mendoza (Mendoza), Barbara C. Clavo (Clavo), Bayani E. Arit, Jr. (Arit, Jr.), and Peter M. Kairuz
(Kairuz), as well as the latter’s spouses (individual defendants).

In her complaint, Ligon alleged, inter alia, that Rosario Baladjay (Rosario) enticed her to extend a short–
term loan in the amount of P3,000,000.00, payable in a month’s time and secured by an Allied Bank post–
dated check for the same amount.8 Ligon likewise claimed that Rosario, as further enticement for the loan
extension, represented that she and her husband Saturnino were in the process of selling their property in
Ayala Alabang Village, Muntinlupa City (subject property), covered by a clean title, i.e., TCT No. 8502[9 in
the name of Rosario Baladjay, married to Saturnino Baladjay, and that the proceeds of the said sale
could easily pay–off the loan.10 Unfortunately, the Allied Bank check was dishonored upon presentment and,
despite assurances to replace it with cash, Rosario failed to do so. Moreover, Ligon discovered that the
subject property had already been transferred to Polished Arrow, alleged to be a dummy corporation of Sps.
Baladjay and the individual defendants (defendants). As a result, TCT No. 8502 was cancelled and replaced
on October 11, 2002 by TCT No. 9273[11 in the name of Polished Arrow. Thus, Ligon prayed that all
defendants be held solidarily liable to pay her the amount of P3,000,000.00, with interest due, as well as
P1,000,000.00 as attorney’s fees and another P1,000,000.00 by way of moral and exemplary damages.
Asserting that the transfer of the subject property to Polished Arrow was made in fraud of Sps. Baladjay’s
creditors, Ligon also prayed that the said transfer be nullified, and that a writ of preliminary attachment be
issued in the interim against defendants’ assets, including the subject property. Subsequently, an
Amended Writ of Preliminary Attachment12 was issued on November 26, 2002, and annotated on
the dorsal portion13 of TCT No. 9273 on December 3, 2002 (December 3, 2002 attachment
annotation).

On February 18, 2003, a similar complaint for collection of sum of money, damages, and cancellation of title
with prayer for issuance of a writ of preliminary attachment was lodged before the Makati City RTC,
docketed as Civil Case No. 03–186 (Makati City Case), by Spouses Cecilia and Gil Vicente (Sps. Vicente)
against Sps. Baladjay, Polished Arrow, and other corporations.14 In that case, it was established that Sps.
Baladjay solicited millions of pesos in investments from Sps. Vicente using conduit companies that were
controlled by Rosario, as President and Chairperson. During the proceedings therein, a writ of
preliminary attachment also against the subject property was issued and annotated on the dorsal
portion of TCT No. 9273 on March 12, 2003. Thereafter, but before the Quezon City Case was
concluded, the Makati City RTC rendered a Decision15 dated December 9, 2004 (December 9, 2004
Decision), rescinding the transfer of the subject property from Sps. Baladjay to Polished Arrow upon a
finding that the same was made in fraud of creditors.16 Consequently, the Makati City RTC directed the
Register of Deeds of Muntinlupa City to: (a) cancel TCT No. 9273 in the name of Polished Arrow; and (b)
restore TCT No. 8502 “in its previous condition” in the name of Rosario Baladjay, married to Saturnino
Baladjay.

Meanwhile, in the pending Quezon City Case, Polished Arrow and the individual defendants (with the
exception of Marasigan) were successively dropped17 as party–defendants, after it was established that they,
by themselves directly or through other persons, had no more ownership, interest, title, or claim over the
subject property. The parties stipulated on the existence of the December 9, 2004 Decision of the Makati
City RTC, and the fact that the same was no longer questioned by defendants Sps. Fuentebella, Arit, Jr., and
Polished Arrow were made conditions for their dropping as party–defendants in the case.18 In view of the
foregoing, the Quezon City Case proceeded only against Sps. Baladjay and Marasigan and, after due
proceedings, the Quezon City RTC rendered a Decision19 dated March 26, 2008 (March 26, 2008 Decision),
directing Sps. Baladjay to pay Ligon the amount of P3,000,000.00 with interest, as well as attorney’s fees
and costs of suit.

On September 25, 2008, the March 26, 2008 Decision of the Quezon City RTC became final and
executory.20 However, when Ligon sought its execution, she discovered that the December 3, 2002
attachment annotation had been deleted from TCT No. 9273 when the subject property was sold by way of
public auction on September 9, 2005 to the highest bidder, respondent Ting, for the amount of
P9,000,000.00 during the execution proceedings in the Makati City Case, as evidenced by the Officer’s Final
Deed of Sale21 dated October 27, 2006 (Officer’s Final Deed of Sale) issued by Sheriff Alejo. In this regard,
Ligon learned that the Makati City RTC had issued its first assailed Order22dated February 9, 2007 (First
Assailed Order), directing Atty. Garing, as the Register of Deeds of Muntinlupa City, to: (a) register the
Officer’s Final Deed of Sale on the official Record Book of the Register of Deeds of Muntinlupa City; and (b)
cancel TCT No. 8502 in the name of Sps. Baladjay and issue a new title in the name of Ting, free from
any liens and encumbrances.
Atty. Garing manifested23 before the Makati City RTC that it submitted the matter en consulta24 to the Land
Registration Authority (LRA) as he was uncertain whether the annotations on TCT No. 9273 should be
carried over to TCT No. 8502. In response to the manifestation, the Makati City RTC issued its second
assailed Order25 dated March 20, 2007 (Second Assailed Order), directing Atty. Garing to comply with the
First Assailed Order under pain of contempt. It explained that it could not allow the LRA to carry over all
annotations previously annotated on TCT No. 9273 in the name of Polished Arrow as said course of action
would run counter to its December 9, 2004 Decision which specifically ordered the cancellation of said TCT
and the restoration of TCT No. 8502 in its previous condition. It further clarified that:26

[I]f there were liens or encumbrances annotated on TCT No. 8502 in the name of Rosario Baladjay when the
same was cancelled and TCT No. 9273 was issued by the Register of Deeds of Muntinlupa City in favor of
Polished Arrow Holdings, Inc. based on the Deed of Absolute Sale executed between the former and the
latter, only such liens or encumbrances will have to be carried over to the new Transfer Certificate
of Title that he (Atty. Garing) is mandated to immediately issue in favor of Leonardo J. Ting even
as the Order of the Court dated February 9, 2007 decreed that a new TCT be issued in the name
of Mr. Leonardo J. Ting, free from any encumbrance.On the other hand, if TCT No. 8502 in the name of
Rosario Baladjay was free from any liens or encumbrances when the same was cancelled and TCT No. 9273
was issued by the Register of Deeds of Muntinlupa City in favor of Polished Arrow Holdings, Inc. by virtue of
that Deed of Absolute Sale executed between Rosario Baladjay and Polished Arrow Holdings, Inc., it
necessarily follows that the new Transfer of Certificate of Title that the said Registrar of Deeds is
duty bound to issue immediately in favor of Leonardo Ting will also be freed from any liens and
encumbrances, as simple as that. (Emphases and underscoring supplied)

Based on the foregoing, it pronounced that it was Atty. Garing’s ministerial duty “to promptly cancel TCT No.
8502/T–44 in the name of defendant–spouses Baladjay and to issue a new Transfer Certificate of Title in the
name of the highest bidder, Leonardo J. Ting.”27

Separately, Ting filed a motion before the Makati City RTC on account of Atty. Garing’s letter28 dated March
26, 2006 requiring him to comply with certain documentary requirements and to pay the appropriate capital
gains, documentary stamp and transfer taxes before a new title could be issued in his name. In its third
assailed Order29 dated April 25, 2007 (Third Assailed Order), the Makati City RTC directed Ting to pay the
aforesaid taxes and ordered Atty. Garing to immediately cancel TCT No. 8502 and issue a new title in the
former’s name.

On June 7, 2007, Atty. Garing issued TCT No. 19756[30 in the name of Ting, free from any liens and
encumbrances. Later, Ting sold31 the subject property to respondent Benito G. Techico (Techico), resulting
in the cancellation of TCT No. 19756 and the issuance of TCT No. 31001[32 in Techico’s name.

In view of the preceding circumstances, Ligon filed, inter alia, a certiorari petition33 against respondent
Presiding Judge Reynaldo Laigo (Judge Laigo), Sheriff Alejo, Atty. Garing, Ting, and Techico (respondents),
alleging, among others, that the Makati City RTC committed grave abuse of discretion in issuing the Assailed
Orders. In this relation, she prayed that the said orders be declared null and void for having been issued in
violation of her right to due process, and resulting in (a) the deletion of the December 3, 2002 attachment
annotation on TCT No. 9273 which evidences her prior attachment lien over the subject property, and (b)
the issuance of new titles in the names of Ting and Techico.

Consolidated with Ligon’s certiorari petition is a complaint for indirect contempt34 against respondents,
whereby it was alleged that the latter unlawfully interfered with the court processes of the Quezon City RTC,
particularly by deleting the December 3, 2002 attachment annotation on TCT No. 9273 which thereby
prevented the execution of the Quezon City RTC’s March 26, 2008 Decision.

The CA Ruling

In a Decision35 dated October 30, 2009, the CA dismissed Ligon’s certiorari petition, finding that the Makati
City RTC did not gravely abuse its discretion in issuing the Assailed Orders, adding further that the same
was tantamount to a collateral attack against the titles of both Ting and Techico, which is prohibited under
Section 4836 of Presidential Decree No. (PD) 1529.37 Likewise, it dismissed the indirect contempt charge for
lack of sufficient basis, emphasizing that the Assailed Orders were issued prior to the Quezon City RTC’s
Decision, meaning that the said issuances could not have been issued in disregard of the latter decision.
Aggrieved, Ligon filed the present petition.

The Issues Before the Court

The Court resolves the following essential issues: (a) whether or not the CA erred in ruling that the Makati
City RTC did not gravely abuse its discretion in issuing the Assailed Orders; and (b) whether or not Judge
Laigo should be cited in contempt and penalized administratively.

The Court’s Ruling

The petition is partly meritorious.

A. Issuance of the Assailed Orders vis–à–vis Grave Abuse of Discretion.

Attachment is defined as a provisional remedy by which the property of an adverse party is taken into legal
custody, either at the commencement of an action or at any time thereafter, as a security for the
satisfaction of any judgment that may be recovered by the plaintiff or any proper party.38 Case law instructs
that an attachment is a proceeding in rem, and, hence, is against the particular property, enforceable
against the whole world. Accordingly, the attaching creditor acquires a specific lien on the attached property
which nothing can subsequently destroy except the very dissolution of the attachment or levy itself. Such a
proceeding, in effect, means that the property attached is an indebted thing and a virtual condemnation of it
to pay the owner’s debt. The lien continues until the debt is paid, or sale is had under execution issued on
the judgment, or until the judgment is satisfied, or the attachment discharged or vacated in some manner
provided by law.39 Thus, a prior registration40 of an attachment lien creates a preference,41 such that when
an attachment has been duly levied upon a property, a purchaser thereof subsequent to the attachment
takes the property subject to the said attachment.42 As provided under PD 1529, said registration operates
as a form of constructive notice to all persons.43

Applying these principles to this case, the Court finds that the CA erred in holding that the RTC did not
gravely abuse its discretion in issuing the Assailed Orders as these issuances essentially disregarded,inter
alia, Ligon’s prior attachment lien over the subject property patently anathema to the nature of attachment
proceedings which is well–established in law and jurisprudence.44 In this case, Ligon, in order to secure the
satisfaction of a favorable judgment in the Quezon City Case, applied for and was eventually able to secure
a writ of preliminary attachment45 over the subject property on November 25, 2002, which was later
annotated on the dorsal portion46 of TCT No. 9273 in the name of Polished Arrow on December 3, 2002.
Notwithstanding the subsequent cancellation of TCT No. 9273 due to the Makati City RTC’s December 9,
2004 Decision rescinding the transfer of the subject property from Sps. Baladjay to Polished Arrow upon a
finding that the same was made in fraud of creditors, Ligon’s attachment lien over the subject property
continued to subsist since the attachment she had earlier secured binds the property itself, and, hence,
continues until the judgment debt of Sps. Baladjay to Ligon as adjudged in the Quezon City Case is satisfied,
or the attachment discharged or vacated in some manner provided by law. The grave abuse of discretion of
the Makati City RTC lies with its directive to issue a new certificate of title in the name of Ting (i.e., TCT No.
19756),47 free from any liens and encumbrances. This course of action clearly negates the efficacy of Ligon’s
attachment lien and, also, defies the legal characterization of attachment proceedings. It bears noting that
Ligon’s claim, secured by the aforesaid attachment, is against Sps. Baladjay whose ownership over the
subject property had been effectively restored in view of the RTC’s rescission of the property’s previous sale
to Polished Arrow.48 Thus, Sps. Ligon’s attachment lien against Sps. Baladjay as well as their successors–in–
interest should have been preserved, and the annotation thereof carried over to any subsequent certificate
of title,49 the most recent of which as it appears on record is TCT No. 31001 in the name of Techico, without
prejudice to the latter’s right to protect his own ownership interest over the subject property.

That said, the Court now proceeds to resolve the second and final issue on indirect contempt.

B. Indirect Contempt Charges.

While the Court agrees with Ligon’s position on the issue of grave abuse of discretion, it holds an opposite
view anent its complaint for indirect contempt against Judge Laigo and/or the respondents in this case.
Contempt of court has been defined as a willful disregard or disobedience of a public authority. In its
broad sense, contempt is a disregard of, or disobedience to, the rules or orders of a legislative or judicial
body or an interruption of its proceedings by disorderly behavior or insolent language in its presence or so
near thereto as to disturb its proceedings or to impair the respect due to such a body. In its restricted and
more usual sense, contempt comprehends a despising of the authority, justice, or dignity of a court.50

Contempt of court is of two (2) kinds, namely: direct and indirect contempt. Indirect contempt or
constructive contempt is that which is committed out of the presence of the court. Any improper conduct
tending, directly or indirectly, to impede, obstruct, or degrade the administration of justice would constitute
indirect contempt.51

The indirect contempt charges in this case involve an invocation of paragraphs b, c, and d, Section 3, Rule
71 of the Rules of Court which read as follows:

Section 3. Indirect contempt to be punished after charge and hearing. — After a charge in writing has been
filed, and an opportunity given to the respondent to comment thereon within such period as may be fixed by
the court and to be heard by himself or counsel, a person guilty of any of the following acts may be
punished for indirect contempt:

xxxx

(b) Disobedience of or resistance to a lawful writ, x x x;

(c) Any abuse of or any unlawful interference with the processes or proceedings of a court not constituting
direct contempt under section 1 of this Rule;

(d) Any improper conduct tending, directly or indirectly, to impede, obstruct, or degrade the administration
of justice;

Examining the petition, the Court finds that Ligon failed to sufficiently show how the acts of each of the
respondents, or more specifically, Judge Laigo, constituted any of the acts punishable under the foregoing
section tending towards a wilful disregard or disobedience of a public authority. In issuing the Assailed
Orders, Judge Laigo merely performed his judicial functions pursuant to the December 9, 2004 Decision in
the Makati City Case which had already attained finality. Thus, without Ligon’s proper substantiation,
considering too that Judge Laigo’s official acts are accorded with the presumption of regularity,52 the Court is
constrained to dismiss the indirect contempt charges in this case.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated October 30, 2009 of the Court of
Appeals in CA–G.R. SP No. 106175 is REVERSED and SET ASIDE. Accordingly, the Assailed Orders subject
of this case are hereby declared NULL and VOID only insofar as they relate to the issuance of Transfer
Certificate of Title No. 19756 in the name of respondent Leonardo J. Ting free from any liens and
encumbrances. The Register of Deeds of Muntinlupa City is DIRECTED to carry over and annotate on TCT
No. 31001 in the name of respondent Benito G. Techico the original attachment lien of petitioner Leticia P.
Ligon as described in this Decision. The indirect contempt charges are, however, DISMISSED.

SO ORDERED.

Carpio, J., Acting C.J.,* (Chairperson), Del Castillo, Perez, and Leonen,** JJ., concur.