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Jurisprudence: G.R. No. 101083 July 30, 1993

EN BANC

G.R. No. 101083 July 30, 1993

    JUAN ANTONIO, ANNA ROSARIO and JOSE ALFONSO, all surnamed OPOSA, minors, and represented by their parents ANTONIO and RIZALINA OPOSA, ROBERTA NICOLE SADIUA, minor, represented by her parents CALVIN and ROBERTA SADIUA, CARLO, AMANDA SALUD and PATRISHA, all surnamed FLORES, minors and represented by their parents ENRICO and NIDA FLORES, GIANINA DITA R. FORTUN, minor, represented by her parents SIGRID and DOLORES FORTUN, GEORGE II and MA. CONCEPCION, all surnamed MISA, minors and represented by their parents GEORGE and MYRA MISA, BENJAMIN ALAN V. PESIGAN, minor, represented by his parents ANTONIO and ALICE PESIGAN, JOVIE MARIE ALFARO, minor, represented by her parents JOSE and MARIA VIOLETA ALFARO, MARIA CONCEPCION T. CASTRO, minor, represented by her parents FREDENIL and JANE CASTRO, JOHANNA DESAMPARADO,
    minor, represented by her parents JOSE and ANGELA DESAMPRADO, CARLO JOAQUIN T. NARVASA, minor, represented by his parents GREGORIO II and CRISTINE CHARITY NARVASA, MA. MARGARITA, JESUS IGNACIO, MA. ANGELA and MARIE GABRIELLE, all surnamed SAENZ, minors, represented by their parents ROBERTO and AURORA SAENZ, KRISTINE, MARY ELLEN, MAY, GOLDA MARTHE and DAVID IAN, all surnamed KING, minors, represented by their parents MARIO and HAYDEE KING, DAVID, FRANCISCO and THERESE VICTORIA, all surnamed ENDRIGA, minors, represented by their parents BALTAZAR and TERESITA ENDRIGA, JOSE MA. and REGINA MA., all surnamed ABAYA, minors, represented by their parents ANTONIO and MARICA ABAYA, MARILIN, MARIO, JR. and MARIETTE, all surnamed CARDAMA, minors, represented by their parents MARIO and LINA CARDAMA, CLARISSA, ANN MARIE, NAGEL, and IMEE LYN, all surnamed OPOSA, minors and represented by their parents RICARDO and MARISSA OPOSA, PHILIP JOSEPH, STEPHEN JOHN and ISAIAH JAMES, all surnamed QUIPIT, minors, represented by their parents JOSE MAX and VILMI QUIPIT, BUGHAW CIELO, CRISANTO, ANNA, DANIEL and FRANCISCO, all surnamed BIBAL, minors, represented by their parents FRANCISCO, JR. and MILAGROS BIBAL, and THE PHILIPPINE ECOLOGICAL NETWORK, INC., petitioners,
    vs.
    THE HONORABLE FULGENCIO S. FACTORAN, JR., in his capacity as the Secretary of the Department of Environment and Natural Resources, and THE HONORABLE ERIBERTO U. ROSARIO, Presiding Judge of the RTC, Makati, Branch 66, respondents.

    Oposa Law Office for petitioners.

    The Solicitor General for respondents.

    

    DAVIDE, JR., J.:

    In a broader sense, this petition bears upon the right of Filipinos to a balanced and healthful ecology which the petitioners dramatically associate with the twin concepts of "inter-generational responsibility" and "inter-generational justice." Specifically, it touches on the issue of whether the said petitioners have a cause of action to "prevent the misappropriation or impairment" of Philippine rainforests and "arrest the unabated hemorrhage of the country's vital life support systems and continued rape of Mother Earth."

    The controversy has its genesis in Civil Case No. 90-77 which was filed before Branch 66 (Makati, Metro Manila) of the Regional Trial Court (RTC), National Capital Judicial Region. The principal plaintiffs therein, now the principal petitioners, are all minors duly represented and joined by their respective parents. Impleaded as an additional plaintiff is the Philippine Ecological Network, Inc. (PENI), a domestic, non-stock and non-profit corporation organized for the purpose of, inter alia, engaging in concerted action geared for the protection of our environment and natural resources. The original defendant was the Honorable Fulgencio S. Factoran, Jr., then Secretary of the Department of Environment and Natural Resources (DENR). His substitution in this petition by the new Secretary, the Honorable Angel C. Alcala, was subsequently ordered upon proper motion by the petitioners. 1 The complaint 2 was instituted as a taxpayers' class suit 3 and alleges that the plaintiffs "are all citizens of the Republic of the Philippines, taxpayers, and entitled to the full benefit, use and enjoyment of the natural resource treasure that is the country's virgin tropical forests." The same was filed for themselves and others who are equally concerned about the preservation of said resource but are "so numerous that it is impracticable to bring them all before the Court." The minors further asseverate that they "represent their generation as well as generations yet unborn." 4 Consequently, it is prayed for that judgment be rendered:

    . . . ordering defendant, his agents, representatives and other persons acting in his behalf to —

    (1) Cancel all existing timber license agreements in the country;

    (2) Cease and desist from receiving, accepting, processing, renewing or approving new timber license agreements.

    and granting the plaintiffs ". . . such other reliefs just and equitable under the premises." 5

    The complaint starts off with the general averments that the Philippine archipelago of 7,100 islands has a land area of thirty million (30,000,000) hectares and is endowed with rich, lush and verdant rainforests in which varied, rare and unique species of flora and fauna may be found; these rainforests contain a genetic, biological and chemical pool which is irreplaceable; they are also the habitat of indigenous Philippine cultures which have existed, endured and flourished since time immemorial; scientific evidence reveals that in order to maintain a balanced and healthful ecology, the country's land area should be utilized on the basis of a ratio of fifty-four per cent (54%) for forest cover and forty-six per cent (46%) for agricultural, residential, industrial, commercial and other uses; the distortion and disturbance of this balance as a consequence of deforestation have resulted in a host of environmental tragedies, such as (a) water shortages resulting from drying up of the water table, otherwise known as the "aquifer," as well as of rivers, brooks and streams, (b) salinization of the water table as a result of the intrusion therein of salt water, incontrovertible examples of which may be found in the island of Cebu and the Municipality of Bacoor, Cavite, (c) massive erosion and the consequential loss of soil fertility and agricultural productivity, with the volume of soil eroded estimated at one billion (1,000,000,000) cubic meters per annum — approximately the size of the entire island of Catanduanes, (d) the endangering and extinction of the country's unique, rare and varied flora and fauna, (e) the disturbance and dislocation of cultural communities, including the disappearance of the Filipino's indigenous cultures, (f) the siltation of rivers and seabeds and consequential destruction of corals and other aquatic life leading to a critical reduction in marine resource productivity, (g) recurrent spells of drought as is presently experienced by the entire country, (h) increasing velocity of typhoon winds which result from the absence of windbreakers, (i) the floodings of lowlands and agricultural plains arising from the absence of the absorbent mechanism of forests, (j) the siltation and shortening of the lifespan of multi-billion peso dams constructed and operated for the purpose of supplying water for domestic uses, irrigation and the generation of electric power, and (k) the reduction of the earth's capacity to process carbon dioxide gases which has led to perplexing and catastrophic climatic changes such as the phenomenon of global warming, otherwise known as the "greenhouse effect."

    Plaintiffs further assert that the adverse and detrimental consequences of continued and deforestation are so capable of unquestionable demonstration that the same may be submitted as a matter of judicial notice. This notwithstanding, they expressed their intention to present expert witnesses as well as documentary, photographic and film evidence in the course of the trial.

    As their cause of action, they specifically allege that:

    CAUSE OF ACTION

    7. Plaintiffs replead by reference the foregoing allegations.

    8. Twenty-five (25) years ago, the Philippines had some sixteen (16) million hectares of rainforests constituting roughly 53% of the country's land mass.

    9. Satellite images taken in 1987 reveal that there remained no more than 1.2 million hectares of said rainforests or four per cent (4.0%) of the country's land area.

    10. More recent surveys reveal that a mere 850,000 hectares of virgin old-growth rainforests are left, barely 2.8% of the entire land mass of the Philippine archipelago and about 3.0 million hectares of immature and uneconomical secondary growth forests.

    11. Public records reveal that the defendant's, predecessors have granted timber license agreements ('TLA's') to various corporations to cut the aggregate area of 3.89 million hectares for commercial logging purposes.

    A copy of the TLA holders and the corresponding areas covered is hereto attached as Annex "A".

    12. At the present rate of deforestation, i.e. about 200,000 hectares per annum or 25 hectares per hour — nighttime, Saturdays, Sundays and holidays included — the Philippines will be bereft of forest resources after the end of this ensuing decade, if not earlier.

    13. The adverse effects, disastrous consequences, serious injury and irreparable damage of this continued trend of deforestation to the plaintiff minor's generation and to generations yet unborn are evident and incontrovertible. As a matter of fact, the environmental damages enumerated in paragraph 6 hereof are already being felt, experienced and suffered by the generation of plaintiff adults.

    14. The continued allowance by defendant of TLA holders to cut and deforest the remaining forest stands will work great damage and irreparable injury to plaintiffs — especially plaintiff minors and their successors — who may never see, use, benefit from and enjoy this rare and unique natural resource treasure.

    This act of defendant constitutes a misappropriation and/or impairment of the natural resource property he holds in trust for the benefit of plaintiff minors and succeeding generations.

    15. Plaintiffs have a clear and constitutional right to a balanced and healthful ecology and are entitled to protection by the State in its capacity as the parens patriae.

    16. Plaintiff have exhausted all administrative remedies with the defendant's office. On March 2, 1990, plaintiffs served upon defendant a final demand to cancel all logging permits in the country.

    A copy of the plaintiffs' letter dated March 1, 1990 is hereto attached as Annex "B".

    17. Defendant, however, fails and refuses to cancel the existing TLA's to the continuing serious damage and extreme prejudice of plaintiffs.

    18. The continued failure and refusal by defendant to cancel the TLA's is an act violative of the rights of plaintiffs, especially plaintiff minors who may be left with a country that is desertified (sic), bare, barren and devoid of the wonderful flora, fauna and indigenous cultures which the Philippines had been abundantly blessed with.

    19. Defendant's refusal to cancel the aforementioned TLA's is manifestly contrary to the public policy enunciated in the Philippine Environmental Policy which, in pertinent part, states that it is the policy of the State —

    (a) to create, develop, maintain and improve conditions under which man and nature can thrive in productive and enjoyable harmony with each other;

    (b) to fulfill the social, economic and other requirements of present and future generations of Filipinos and;

    (c) to ensure the attainment of an environmental quality that is conductive to a life of dignity and well-being. (P.D. 1151, 6 June 1977)

    20. Furthermore, defendant's continued refusal to cancel the aforementioned TLA's is contradictory to the Constitutional policy of the State to —

    a. effect "a more equitable distribution of opportunities, income and wealth" and "make full and efficient use of natural resources (sic)." (Section 1, Article XII of the Constitution);

    b. "protect the nation's marine wealth." (Section 2, ibid);

    c. "conserve and promote the nation's cultural heritage and resources (sic)" (Section 14, Article XIV, id.);

    d. "protect and advance the right of the people to a balanced and healthful ecology in accord with the rhythm and harmony of nature." (Section 16, Article II, id.)

    21. Finally, defendant's act is contrary to the highest law of humankind — the natural law — and violative of plaintiffs' right to self-preservation and perpetuation.

    22. There is no other plain, speedy and adequate remedy in law other than the instant action to arrest the unabated hemorrhage of the country's vital life support systems and continued rape of Mother Earth. 6

    On 22 June 1990, the original defendant, Secretary Factoran, Jr., filed a Motion to Dismiss the complaint based on two (2) grounds, namely: (1) the plaintiffs have no cause of action against him and (2) the issue raised by the plaintiffs is a political question which properly pertains to the legislative or executive branches of Government. In their 12 July 1990 Opposition to the Motion, the petitioners maintain that (1) the complaint shows a clear and unmistakable cause of action, (2) the motion is dilatory and (3) the action presents a justiciable question as it involves the defendant's abuse of discretion.

    On 18 July 1991, respondent Judge issued an order granting the aforementioned motion to dismiss. 7 In the said order, not only was the defendant's claim — that the complaint states no cause of action against him and that it raises a political question — sustained, the respondent Judge further ruled that the granting of the relief prayed for would result in the impairment of contracts which is prohibited by the fundamental law of the land.

    Plaintiffs thus filed the instant special civil action for certiorari under Rule 65 of the Revised Rules of Court and ask this Court to rescind and set aside the dismissal order on the ground that the respondent Judge gravely abused his discretion in dismissing the action. Again, the parents of the plaintiffs-minors not only represent their children, but have also joined the latter in this case. 8

    On 14 May 1992, We resolved to give due course to the petition and required the parties to submit their respective Memoranda after the Office of the Solicitor General (OSG) filed a Comment in behalf of the respondents and the petitioners filed a reply thereto.

    Petitioners contend that the complaint clearly and unmistakably states a cause of action as it contains sufficient allegations concerning their right to a sound environment based on Articles 19, 20 and 21 of the Civil Code (Human Relations), Section 4 of Executive Order (E.O.) No. 192 creating the DENR, Section 3 of Presidential Decree (P.D.) No. 1151 (Philippine Environmental Policy), Section 16, Article II of the 1987 Constitution recognizing the right of the people to a balanced and healthful ecology, the concept of generational genocide in Criminal Law and the concept of man's inalienable right to self-preservation and self-perpetuation embodied in natural law. Petitioners likewise rely on the respondent's correlative obligation per Section 4 of E.O. No. 192, to safeguard the people's right to a healthful environment.

    It is further claimed that the issue of the respondent Secretary's alleged grave abuse of discretion in granting Timber License Agreements (TLAs) to cover more areas for logging than what is available involves a judicial question.

    Anent the invocation by the respondent Judge of the Constitution's non-impairment clause, petitioners maintain that the same does not apply in this case because TLAs are not contracts. They likewise submit that even if TLAs may be considered protected by the said clause, it is well settled that they may still be revoked by the State when the public interest so requires.

    On the other hand, the respondents aver that the petitioners failed to allege in their complaint a specific legal right violated by the respondent Secretary for which any relief is provided by law. They see nothing in the complaint but vague and nebulous allegations concerning an "environmental right" which supposedly entitles the petitioners to the "protection by the state in its capacity as parens patriae." Such allegations, according to them, do not reveal a valid cause of action. They then reiterate the theory that the question of whether logging should be permitted in the country is a political question which should be properly addressed to the executive or legislative branches of Government. They therefore assert that the petitioners' resources is not to file an action to court, but to lobby before Congress for the passage of a bill that would ban logging totally.

    As to the matter of the cancellation of the TLAs, respondents submit that the same cannot be done by the State without due process of law. Once issued, a TLA remains effective for a certain period of time — usually for twenty-five (25) years. During its effectivity, the same can neither be revised nor cancelled unless the holder has been found, after due notice and hearing, to have violated the terms of the agreement or other forestry laws and regulations. Petitioners' proposition to have all the TLAs indiscriminately cancelled without the requisite hearing would be violative of the requirements of due process.

    Before going any further, We must first focus on some procedural matters. Petitioners instituted Civil Case No. 90-777 as a class suit. The original defendant and the present respondents did not take issue with this matter. Nevertheless, We hereby rule that the said civil case is indeed a class suit. The subject matter of the complaint is of common and general interest not just to several, but to all citizens of the Philippines. Consequently, since the parties are so numerous, it, becomes impracticable, if not totally impossible, to bring all of them before the court. We likewise declare that the plaintiffs therein are numerous and representative enough to ensure the full protection of all concerned interests. Hence, all the requisites for the filing of a valid class suit under Section 12, Rule 3 of the Revised Rules of Court are present both in the said civil case and in the instant petition, the latter being but an incident to the former.

    This case, however, has a special and novel element. Petitioners minors assert that they represent their generation as well as generations yet unborn. We find no difficulty in ruling that they can, for themselves, for others of their generation and for the succeeding generations, file a class suit. Their personality to sue in behalf of the succeeding generations can only be based on the concept of intergenerational responsibility insofar as the right to a balanced and healthful ecology is concerned. Such a right, as hereinafter expounded, considers
    the "rhythm and harmony of nature." Nature means the created world in its entirety. 9 Such rhythm and harmony indispensably include, inter alia, the judicious disposition, utilization, management, renewal and conservation of the country's forest, mineral, land, waters, fisheries, wildlife, off-shore areas and other natural resources to the end that their exploration, development and utilization be equitably accessible to the present as well as future generations. 10 Needless to say, every generation has a responsibility to the next to preserve that rhythm and harmony for the full enjoyment of a balanced and healthful ecology. Put a little differently, the minors' assertion of their right to a sound environment constitutes, at the same time, the performance of their obligation to ensure the protection of that right for the generations to come.

    The locus standi of the petitioners having thus been addressed, We shall now proceed to the merits of the petition.

    After a careful perusal of the complaint in question and a meticulous consideration and evaluation of the issues raised and arguments adduced by the parties, We do not hesitate to find for the petitioners and rule against the respondent Judge's challenged order for having been issued with grave abuse of discretion amounting to lack of jurisdiction. The pertinent portions of the said order reads as follows:

    xxx xxx xxx

    After a careful and circumspect evaluation of the Complaint, the Court cannot help but agree with the defendant. For although we believe that plaintiffs have but the noblest of all intentions, it (sic) fell short of alleging, with sufficient definiteness, a specific legal right they are seeking to enforce and protect, or a specific legal wrong they are seeking to prevent and redress (Sec. 1, Rule 2, RRC). Furthermore, the Court notes that the Complaint is replete with vague assumptions and vague conclusions based on unverified data. In fine, plaintiffs fail to state a cause of action in its Complaint against the herein defendant.

    Furthermore, the Court firmly believes that the matter before it, being impressed with political color and involving a matter of public policy, may not be taken cognizance of by this Court without doing violence to the sacred principle of "Separation of Powers" of the 3 co-equal branches of the Government.

    The Court is likewise of the impression that it cannot, no matter how we stretch our jurisdiction, grant the reliefs prayed for by the plaintiffs, i.e., to cancel all existing timber license agreements in the country and to cease and desist from receiving, accepting, processing, renewing or approving new timber license agreements. For to do otherwise would amount to "impairment of contracts" abhored (sic) by the fundamental law. 11

    We do not agree with the trial court's conclusions that the plaintiffs failed to allege with sufficient definiteness a specific legal right involved or a specific legal wrong committed, and that the complaint is replete with vague assumptions and conclusions based on unverified data. A reading of the complaint itself belies these conclusions.

    The complaint focuses on one specific fundamental legal right — the right to a balanced and healthful ecology which, for the first time in our nation's constitutional history, is solemnly incorporated in the fundamental law. Section 16, Article II of the 1987 Constitution explicitly provides:

    Sec. 16. The State shall protect and advance the right of the people to a balanced and healthful ecology in accord with the rhythm and harmony of nature.

    This right unites with the right to health which is provided for in the preceding section of the same article:

    Sec. 15. The State shall protect and promote the right to health of the people and instill health consciousness among them.

    While the right to a balanced and healthful ecology is to be found under the Declaration of Principles and State Policies and not under the Bill of Rights, it does not follow that it is less important than any of the civil and political rights enumerated in the latter. Such a right belongs to a different category of rights altogether for it concerns nothing less than self-preservation and self-perpetuation — aptly and fittingly stressed by the petitioners — the advancement of which may even be said to predate all governments and constitutions. As a matter of fact, these basic rights need not even be written in the Constitution for they are assumed to exist from the inception of humankind. If they are now explicitly mentioned in the fundamental charter, it is because of the well-founded fear of its framers that unless the rights to a balanced and healthful ecology and to health are mandated as state policies by the Constitution itself, thereby highlighting their continuing importance and imposing upon the state a solemn obligation to preserve the first and protect and advance the second, the day would not be too far when all else would be lost not only for the present generation, but also for those to come — generations which stand to inherit nothing but parched earth incapable of sustaining life.

    The right to a balanced and healthful ecology carries with it the correlative duty to refrain from impairing the environment. During the debates on this right in one of the plenary sessions of the 1986 Constitutional Commission, the following exchange transpired between Commissioner Wilfrido Villacorta and Commissioner Adolfo Azcuna who sponsored the section in question:

    MR. VILLACORTA:

    Does this section mandate the State to provide sanctions against all forms of pollution — air, water and noise pollution?

    MR. AZCUNA:

    Yes, Madam President. The right to healthful (sic) environment necessarily carries with it the correlative duty of not impairing the same and, therefore, sanctions may be provided for impairment of environmental balance. 12

    The said right implies, among many other things, the judicious management and conservation of the country's forests.

    Without such forests, the ecological or environmental balance would be irreversiby disrupted.

    Conformably with the enunciated right to a balanced and healthful ecology and the right to health, as well as the other related provisions of the Constitution concerning the conservation, development and utilization of the country's natural resources, 13 then President Corazon C. Aquino promulgated on 10 June 1987 E.O. No. 192, 14 Section 4 of which expressly mandates that the Department of Environment and Natural Resources "shall be the primary government agency responsible for the conservation, management, development and proper use of the country's environment and natural resources, specifically forest and grazing lands, mineral, resources, including those in reservation and watershed areas, and lands of the public domain, as well as the licensing and regulation of all natural resources as may be provided for by law in order to ensure equitable sharing of the benefits derived therefrom for the welfare of the present and future generations of Filipinos." Section 3 thereof makes the following statement of policy:

    Sec. 3. Declaration of Policy. — It is hereby declared the policy of the State to ensure the sustainable use, development, management, renewal, and conservation of the country's forest, mineral, land, off-shore areas and other natural resources, including the protection and enhancement of the quality of the environment, and equitable access of the different segments of the population to the development and the use of the country's natural resources, not only for the present generation but for future generations as well. It is also the policy of the state to recognize and apply a true value system including social and environmental cost implications relative to their utilization, development and conservation of our natural resources.

    This policy declaration is substantially re-stated it Title XIV, Book IV of the Administrative Code of 1987, 15 specifically in Section 1 thereof which reads:

    Sec. 1. Declaration of Policy. — (1) The State shall ensure, for the benefit of the Filipino people, the full exploration and development as well as the judicious disposition, utilization, management, renewal and conservation of the country's forest, mineral, land, waters, fisheries, wildlife, off-shore areas and other natural resources, consistent with the necessity of maintaining a sound ecological balance and protecting and enhancing the quality of the environment and the objective of making the exploration, development and utilization of such natural resources equitably accessible to the different segments of the present as well as future generations.

    (2) The State shall likewise recognize and apply a true value system that takes into account social and environmental cost implications relative to the utilization, development and conservation of our natural resources.

    The above provision stresses "the necessity of maintaining a sound ecological balance and protecting and enhancing the quality of the environment." Section 2 of the same Title, on the other hand, specifically speaks of the mandate of the DENR; however, it makes particular reference to the fact of the agency's being subject to law and higher authority. Said section provides:

    Sec. 2. Mandate. — (1) The Department of Environment and Natural Resources shall be primarily responsible for the implementation of the foregoing policy.

    (2) It shall, subject to law and higher authority, be in charge of carrying out the State's constitutional mandate to control and supervise the exploration, development, utilization, and conservation of the country's natural resources.

    Both E.O. NO. 192 and the Administrative Code of 1987 have set the objectives which will serve as the bases for policy formulation, and have defined the powers and functions of the DENR.

    It may, however, be recalled that even before the ratification of the 1987 Constitution, specific statutes already paid special attention to the "environmental right" of the present and future generations. On 6 June 1977, P.D. No. 1151 (Philippine Environmental Policy) and P.D. No. 1152 (Philippine Environment Code) were issued. The former "declared a continuing policy of the State (a) to create, develop, maintain and improve conditions under which man and nature can thrive in productive and enjoyable harmony with each other, (b) to fulfill the social, economic and other requirements of present and future generations of Filipinos, and (c) to insure the attainment of an environmental quality that is conducive to a life of dignity and well-being." 16 As its goal, it speaks of the "responsibilities of each generation as trustee and guardian of the environment for succeeding generations." 17 The latter statute, on the other hand, gave flesh to the said policy.

    Thus, the right of the petitioners (and all those they represent) to a balanced and healthful ecology is as clear as the DENR's duty — under its mandate and by virtue of its powers and functions under E.O. No. 192 and the Administrative Code of 1987 — to protect and advance the said right.

    A denial or violation of that right by the other who has the corelative duty or obligation to respect or protect the same gives rise to a cause of action. Petitioners maintain that the granting of the TLAs, which they claim was done with grave abuse of discretion, violated their right to a balanced and healthful ecology; hence, the full protection thereof requires that no further TLAs should be renewed or granted.

    A cause of action is defined as:

    . . . an act or omission of one party in violation of the legal right or rights of the other; and its essential elements are legal right of the plaintiff, correlative obligation of the defendant, and act or omission of the defendant in violation of said legal right. 18

    It is settled in this jurisdiction that in a motion to dismiss based on the ground that the complaint fails to state a cause of action, 19 the question submitted to the court for resolution involves the sufficiency of the facts alleged in the complaint itself. No other matter should be considered; furthermore, the truth of falsity of the said allegations is beside the point for the truth thereof is deemed hypothetically admitted. The only issue to be resolved in such a case is: admitting such alleged facts to be true, may the court render a valid judgment in accordance with the prayer in the complaint? 20 In Militante vs. Edrosolano, 21 this Court laid down the rule that the judiciary should "exercise the utmost care and circumspection in passing upon a motion to dismiss on the ground of the absence thereof [cause of action] lest, by its failure to manifest a correct appreciation of the facts alleged and deemed hypothetically admitted, what the law grants or recognizes is effectively nullified. If that happens, there is a blot on the legal order. The law itself stands in disrepute."

    After careful examination of the petitioners' complaint, We find the statements under the introductory affirmative allegations, as well as the specific averments under the sub-heading CAUSE OF ACTION, to be adequate enough to show, prima facie, the claimed violation of their rights. On the basis thereof, they may thus be granted, wholly or partly, the reliefs prayed for. It bears stressing, however, that insofar as the cancellation of the TLAs is concerned, there is the need to implead, as party defendants, the grantees thereof for they are indispensable parties.

    The foregoing considered, Civil Case No. 90-777 be said to raise a political question. Policy formulation or determination by the executive or legislative branches of Government is not squarely put in issue. What is principally involved is the enforcement of a right vis-a-vis policies already formulated and expressed in legislation. It must, nonetheless, be emphasized that the political question doctrine is no longer, the insurmountable obstacle to the exercise of judicial power or the impenetrable shield that protects executive and legislative actions from judicial inquiry or review. The second paragraph of section 1, Article VIII of the Constitution states that:

    Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

    Commenting on this provision in his book, Philippine Political Law, 22 Mr. Justice Isagani A. Cruz, a distinguished member of this Court, says:

    The first part of the authority represents the traditional concept of judicial power, involving the settlement of conflicting rights as conferred as law. The second part of the authority represents a broadening of judicial power to enable the courts of justice to review what was before forbidden territory, to wit, the discretion of the political departments of the government.

    As worded, the new provision vests in the judiciary, and particularly the Supreme Court, the power to rule upon even the wisdom of the decisions of the executive and the legislature and to declare their acts invalid for lack or excess of jurisdiction because tainted with grave abuse of discretion. The catch, of course, is the meaning of "grave abuse of discretion," which is a very elastic phrase that can expand or contract according to the disposition of the judiciary.

    In Daza vs. Singson, 23 Mr. Justice Cruz, now speaking for this Court, noted:

    In the case now before us, the jurisdictional objection becomes even less tenable and decisive. The reason is that, even if we were to assume that the issue presented before us was political in nature, we would still not be precluded from revolving it under the expanded jurisdiction conferred upon us that now covers, in proper cases, even the political question. Article VII, Section 1, of the Constitution clearly provides: . . .

    The last ground invoked by the trial court in dismissing the complaint is the non-impairment of contracts clause found in the Constitution. The court a quo declared that:

    The Court is likewise of the impression that it cannot, no matter how we stretch our jurisdiction, grant the reliefs prayed for by the plaintiffs, i.e., to cancel all existing timber license agreements in the country and to cease and desist from receiving, accepting, processing, renewing or approving new timber license agreements. For to do otherwise would amount to "impairment of contracts" abhored (sic) by the fundamental law. 24

    We are not persuaded at all; on the contrary, We are amazed, if not shocked, by such a sweeping pronouncement. In the first place, the respondent Secretary did not, for obvious reasons, even invoke in his motion to dismiss the non-impairment clause. If he had done so, he would have acted with utmost infidelity to the Government by providing undue and unwarranted benefits and advantages to the timber license holders because he would have forever bound the Government to strictly respect the said licenses according to their terms and conditions regardless of changes in policy and the demands of public interest and welfare. He was aware that as correctly pointed out by the petitioners, into every timber license must be read Section 20 of the Forestry Reform Code (P.D. No. 705) which provides:

    . . . Provided, That when the national interest so requires, the President may amend, modify, replace or rescind any contract, concession, permit, licenses or any other form of privilege granted herein . . .

    Needless to say, all licenses may thus be revoked or rescinded by executive action. It is not a contract, property or a property right protested by the due process clause of the Constitution. In Tan vs. Director of Forestry, 25 this Court held:

    . . . A timber license is an instrument by which the State regulates the utilization and disposition of forest resources to the end that public welfare is promoted. A timber license is not a contract within the purview of the due process clause; it is only a license or privilege, which can be validly withdrawn whenever dictated by public interest or public welfare as in this case.

    A license is merely a permit or privilege to do what otherwise would be unlawful, and is not a contract between the authority, federal, state, or municipal, granting it and the person to whom it is granted; neither is it property or a property right, nor does it create a vested right; nor is it taxation (37 C.J. 168). Thus, this Court held that the granting of license does not create irrevocable rights, neither is it property or property rights (People vs. Ong Tin, 54 O.G. 7576).

    We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy Executive Secretary: 26

    . . . Timber licenses, permits and license agreements are the principal instruments by which the State regulates the utilization and disposition of forest resources to the end that public welfare is promoted. And it can hardly be gainsaid that they merely evidence a privilege granted by the State to qualified entities, and do not vest in the latter a permanent or irrevocable right to the particular concession area and the forest products therein. They may be validly amended, modified, replaced or rescinded by the Chief Executive when national interests so require. Thus, they are not deemed contracts within the purview of the due process of law clause [See Sections 3(ee) and 20 of Pres. Decree No. 705, as amended. Also, Tan v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA 302].

    Since timber licenses are not contracts, the non-impairment clause, which reads:

    Sec. 10. No law impairing, the obligation of contracts shall be passed. 27

    cannot be invoked.

    In the second place, even if it is to be assumed that the same are contracts, the instant case does not involve a law or even an executive issuance declaring the cancellation or modification of existing timber licenses. Hence, the non-impairment clause cannot as yet be invoked. Nevertheless, granting further that a law has actually been passed mandating cancellations or modifications, the same cannot still be stigmatized as a violation of the non-impairment clause. This is because by its very nature and purpose, such as law could have only been passed in the exercise of the police power of the state for the purpose of advancing the right of the people to a balanced and healthful ecology, promoting their health and enhancing the general welfare. In Abe vs. Foster Wheeler
    Corp. 28 this Court stated:

    The freedom of contract, under our system of government, is not meant to be absolute. The same is understood to be subject to reasonable legislative regulation aimed at the promotion of public health, moral, safety and welfare. In other words, the constitutional guaranty of non-impairment of obligations of contract is limited by the exercise of the police power of the State, in the interest of public health, safety, moral and general welfare.

    The reason for this is emphatically set forth in Nebia vs. New York, 29 quoted in Philippine American Life Insurance Co. vs. Auditor General, 30 to wit:

    Under our form of government the use of property and the making of contracts are normally matters of private and not of public concern. The general rule is that both shall be free of governmental interference. But neither property rights nor contract rights are absolute; for government cannot exist if the citizen may at will use his property to the detriment of his fellows, or exercise his freedom of contract to work them harm. Equally fundamental with the private right is that of the public to regulate it in the common interest.

    In short, the non-impairment clause must yield to the police power of the state. 31

    Finally, it is difficult to imagine, as the trial court did, how the non-impairment clause could apply with respect to the prayer to enjoin the respondent Secretary from receiving, accepting, processing, renewing or approving new timber licenses for, save in cases of renewal, no contract would have as of yet existed in the other instances. Moreover, with respect to renewal, the holder is not entitled to it as a matter of right.

    WHEREFORE, being impressed with merit, the instant Petition is hereby GRANTED, and the challenged Order of respondent Judge of 18 July 1991 dismissing Civil Case No. 90-777 is hereby set aside. The petitioners may therefore amend their complaint to implead as defendants the holders or grantees of the questioned timber license agreements.

    No pronouncement as to costs.

    SO ORDERED.

    Cruz, Padilla, Bidin, Griño-Aquino, Regalado, Romero, Nocon, Bellosillo, Melo and Quiason, JJ., concur.

    Narvasa, C.J., Puno and Vitug, JJ., took no part.

    

    

    

    Separate Opinions

    

    FELICIANO, J., concurring

    I join in the result reached by my distinguished brother in the Court, Davide, Jr., J., in this case which, to my mind, is one of the most important cases decided by this Court in the last few years. The seminal principles laid down in this decision are likely to influence profoundly the direction and course of the protection and management of the environment, which of course embraces the utilization of all the natural resources in the territorial base of our polity. I have therefore sought to clarify, basically to myself, what the Court appears to be saying.

    The Court explicitly states that petitioners have the locus standi necessary to sustain the bringing and, maintenance of this suit (Decision, pp. 11-12). Locus standi is not a function of petitioners' claim that their suit is properly regarded as a class suit. I understand locus standi to refer to the legal interest which a plaintiff must have in the subject matter of the suit. Because of the very broadness of the concept of "class" here involved — membership in this "class" appears to embrace everyone living in the country whether now or in the
    future — it appears to me that everyone who may be expected to benefit from the course of action petitioners seek to require public respondents to take, is vested with the necessary locus standi. The Court may be seen therefore to be recognizing a beneficiaries' right of action in the field of environmental protection, as against both the public administrative agency directly concerned and the private persons or entities operating in the field or sector of activity involved. Whether such beneficiaries' right of action may be found under any and all circumstances, or whether some failure to act, in the first instance, on the part of the governmental agency concerned must be shown ("prior exhaustion of administrative remedies"), is not discussed in the decision and presumably is left for future determination in an appropriate case.

    The Court has also declared that the complaint has alleged and focused upon "one specific fundamental legal right — the right to a balanced and healthful ecology" (Decision, p. 14). There is no question that "the right to a balanced and healthful ecology" is "fundamental" and that, accordingly, it has been "constitutionalized." But although it is fundamental in character, I suggest, with very great respect, that it cannot be characterized as "specific," without doing excessive violence to language. It is in fact very difficult to fashion language more comprehensive in scope and generalized in character than a right to "a balanced and healthful ecology." The list of particular claims which can be subsumed under this rubic appears to be entirely open-ended: prevention and control of emission of toxic fumes and smoke from factories and motor vehicles; of discharge of oil, chemical effluents, garbage and raw sewage into rivers, inland and coastal waters by vessels, oil rigs, factories, mines and whole communities; of dumping of organic and inorganic wastes on open land, streets and thoroughfares; failure to rehabilitate land after strip-mining or open-pit mining; kaingin or slash-and-burn farming; destruction of fisheries, coral reefs and other living sea resources through the use of dynamite or cyanide and other chemicals; contamination of ground water resources; loss of certain species of fauna and flora; and so on. The other statements pointed out by the Court: Section 3, Executive Order No. 192 dated 10 June 1987; Section 1, Title XIV, Book IV of the 1987 Administrative Code; and P.D. No. 1151, dated 6 June 1977 — all appear to be formulations of policy, as general and abstract as the constitutional statements of basic policy in Article II, Section 16 ("the right — to a balanced and healthful ecology") and 15 ("the right to health").

    P.D. No. 1152, also dated 6 June 1977, entitled "The Philippine Environment Code," is, upon the other hand, a compendious collection of more "specific environment management policies" and "environment quality standards" (fourth "Whereas" clause, Preamble) relating to an extremely wide range of topics:

    (a) air quality management;

    (b) water quality management;

    (c) land use management;

    (d) natural resources management and conservation embracing:

    (i) fisheries and aquatic resources;

    (ii) wild life;

    (iii) forestry and soil conservation;

    (iv) flood control and natural calamities;

    (v) energy development;

    (vi) conservation and utilization of surface and ground water

    (vii) mineral resources

    Two (2) points are worth making in this connection. Firstly, neither petitioners nor the Court has identified the particular provision or provisions (if any) of the Philippine Environment Code which give rise to a specific legal right which petitioners are seeking to enforce. Secondly, the Philippine Environment Code identifies with notable care the particular government agency charged with the formulation and implementation of guidelines and programs dealing with each of the headings and sub-headings mentioned above. The Philippine Environment Code does not, in other words, appear to contemplate action on the part of private persons who are beneficiaries of implementation of that Code.

    As a matter of logic, by finding petitioners' cause of action as anchored on a legal right comprised in the constitutional statements above noted, the Court is in effect saying that Section 15 (and Section 16) of Article II of the Constitution are self-executing and judicially enforceable even in their present form. The implications of this doctrine will have to be explored in future cases; those implications are too large and far-reaching in nature even to be hinted at here.

    My suggestion is simply that petitioners must, before the trial court, show a more specific legal right — a right cast in language of a significantly lower order of generality than Article II (15) of the Constitution — that is or may be violated by the actions, or failures to act, imputed to the public respondent by petitioners so that the trial court can validly render judgment granting all or part of the relief prayed for. To my mind, the Court should be understood as simply saying that such a more specific legal right or rights may well exist in our corpus of law, considering the general policy principles found in the Constitution and the existence of the Philippine Environment Code, and that the trial court should have given petitioners an effective opportunity so to demonstrate, instead of aborting the proceedings on a motion to dismiss.

    It seems to me important that the legal right which is an essential component of a cause of action be a specific, operable legal right, rather than a constitutional or statutory policy, for at least two (2) reasons. One is that unless the legal right claimed to have been violated or disregarded is given specification in operational terms, defendants may well be unable to defend themselves intelligently and effectively; in other words, there are due process dimensions to this matter.

    The second is a broader-gauge consideration — where a specific violation of law or applicable regulation is not alleged or proved, petitioners can be expected to fall back on the expanded conception of judicial power in the second paragraph of Section 1 of Article VIII of the Constitution which reads:

    Section 1. . . .

    Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)

    When substantive standards as general as "the right to a balanced and healthy ecology" and "the right to health" are combined with remedial standards as broad ranging as "a grave abuse of discretion amounting to lack or excess of jurisdiction," the result will be, it is respectfully submitted, to propel courts into the uncharted ocean of social and economic policy making. At least in respect of the vast area of environmental protection and management, our courts have no claim to special technical competence and experience and professional qualification. Where no specific, operable norms and standards are shown to exist, then the policy making departments — the legislative and executive departments — must be given a real and effective opportunity to fashion and promulgate those norms and standards, and to implement them before the courts should intervene.

    My learned brother Davide, Jr., J., rightly insists that the timber companies, whose concession agreements or TLA's petitioners demand public respondents should cancel, must be impleaded in the proceedings below. It might be asked that, if petitioners' entitlement to the relief demanded is not dependent upon proof of breach by the timber companies of one or more of the specific terms and conditions of their concession agreements (and this, petitioners implicitly assume), what will those companies litigate about? The answer I suggest is that they may seek to dispute the existence of the specific legal right petitioners should allege, as well as the reality of the claimed factual nexus between petitioners' specific legal rights and the claimed wrongful acts or failures to act of public respondent administrative agency. They may also controvert the appropriateness of the remedy or remedies demanded by petitioners, under all the circumstances which exist.

    I vote to grant the Petition for Certiorari because the protection of the environment, including the forest cover of our territory, is of extreme importance for the country. The doctrines set out in the Court's decision issued today should, however, be subjected to closer examination.

    

    

    # Separate Opinions

    FELICIANO, J., concurring

    I join in the result reached by my distinguished brother in the Court, Davide, Jr., J., in this case which, to my mind, is one of the most important cases decided by this Court in the last few years. The seminal principles laid down in this decision are likely to influence profoundly the direction and course of the protection and management of the environment, which of course embraces the utilization of all the natural resources in the territorial base of our polity. I have therefore sought to clarify, basically to myself, what the Court appears to be saying.

    The Court explicitly states that petitioners have the locus standi necessary to sustain the bringing and, maintenance of this suit (Decision, pp. 11-12). Locus standi is not a function of petitioners' claim that their suit is properly regarded as a class suit. I understand locus standi to refer to the legal interest which a plaintiff must have in the subject matter of the suit. Because of the very broadness of the concept of "class" here involved — membership in this "class" appears to embrace everyone living in the country whether now or in the
    future — it appears to me that everyone who may be expected to benefit from the course of action petitioners seek to require public respondents to take, is vested with the necessary locus standi. The Court may be seen therefore to be recognizing a beneficiaries' right of action in the field of environmental protection, as against both the public administrative agency directly concerned and the private persons or entities operating in the field or sector of activity involved. Whether such beneficiaries' right of action may be found under any and all circumstances, or whether some failure to act, in the first instance, on the part of the governmental agency concerned must be shown ("prior exhaustion of administrative remedies"), is not discussed in the decision and presumably is left for future determination in an appropriate case.

    The Court has also declared that the complaint has alleged and focused upon "one specific fundamental legal right — the right to a balanced and healthful ecology" (Decision, p. 14). There is no question that "the right to a balanced and healthful ecology" is "fundamental" and that, accordingly, it has been "constitutionalized." But although it is fundamental in character, I suggest, with very great respect, that it cannot be characterized as "specific," without doing excessive violence to language. It is in fact very difficult to fashion language more comprehensive in scope and generalized in character than a right to "a balanced and healthful ecology." The list of particular claims which can be subsumed under this rubic appears to be entirely open-ended: prevention and control of emission of toxic fumes and smoke from factories and motor vehicles; of discharge of oil, chemical effluents, garbage and raw sewage into rivers, inland and coastal waters by vessels, oil rigs, factories, mines and whole communities; of dumping of organic and inorganic wastes on open land, streets and thoroughfares; failure to rehabilitate land after strip-mining or open-pit mining; kaingin or slash-and-burn farming; destruction of fisheries, coral reefs and other living sea resources through the use of dynamite or cyanide and other chemicals; contamination of ground water resources; loss of certain species of fauna and flora; and so on. The other statements pointed out by the Court: Section 3, Executive Order No. 192 dated 10 June 1987; Section 1, Title XIV, Book IV of the 1987 Administrative Code; and P.D. No. 1151, dated 6 June 1977 — all appear to be formulations of policy, as general and abstract as the constitutional statements of basic policy in Article II, Section 16 ("the right — to a balanced and healthful ecology") and 15 ("the right to health").

    P.D. No. 1152, also dated 6 June 1977, entitled "The Philippine Environment Code," is, upon the other hand, a compendious collection of more "specific environment management policies" and "environment quality standards" (fourth "Whereas" clause, Preamble) relating to an extremely wide range of topics:

    (a) air quality management;

    (b) water quality management;

    (c) land use management;

    (d) natural resources management and conservation embracing:

    (i) fisheries and aquatic resources;

    (ii) wild life;

    (iii) forestry and soil conservation;

    (iv) flood control and natural calamities;

    (v) energy development;

    (vi) conservation and utilization of surface and ground water

    (vii) mineral resources

    Two (2) points are worth making in this connection. Firstly, neither petitioners nor the Court has identified the particular provision or provisions (if any) of the Philippine Environment Code which give rise to a specific legal right which petitioners are seeking to enforce. Secondly, the Philippine Environment Code identifies with notable care the particular government agency charged with the formulation and implementation of guidelines and programs dealing with each of the headings and sub-headings mentioned above. The Philippine Environment Code does not, in other words, appear to contemplate action on the part of private persons who are beneficiaries of implementation of that Code.

    As a matter of logic, by finding petitioners' cause of action as anchored on a legal right comprised in the constitutional statements above noted, the Court is in effect saying that Section 15 (and Section 16) of Article II of the Constitution are self-executing and judicially enforceable even in their present form. The implications of this doctrine will have to be explored in future cases; those implications are too large and far-reaching in nature even to be hinted at here.

    My suggestion is simply that petitioners must, before the trial court, show a more specific legal right — a right cast in language of a significantly lower order of generality than Article II (15) of the Constitution — that is or may be violated by the actions, or failures to act, imputed to the public respondent by petitioners so that the trial court can validly render judgment granting all or part of the relief prayed for. To my mind, the Court should be understood as simply saying that such a more specific legal right or rights may well exist in our corpus of law, considering the general policy principles found in the Constitution and the existence of the Philippine Environment Code, and that the trial court should have given petitioners an effective opportunity so to demonstrate, instead of aborting the proceedings on a motion to dismiss.

    It seems to me important that the legal right which is an essential component of a cause of action be a specific, operable legal right, rather than a constitutional or statutory policy, for at least two (2) reasons. One is that unless the legal right claimed to have been violated or disregarded is given specification in operational terms, defendants may well be unable to defend themselves intelligently and effectively; in other words, there are due process dimensions to this matter.

    The second is a broader-gauge consideration — where a specific violation of law or applicable regulation is not alleged or proved, petitioners can be expected to fall back on the expanded conception of judicial power in the second paragraph of Section 1 of Article VIII of the Constitution which reads:

    Section 1. . . .

    Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)

    When substantive standards as general as "the right to a balanced and healthy ecology" and "the right to health" are combined with remedial standards as broad ranging as "a grave abuse of discretion amounting to lack or excess of jurisdiction," the result will be, it is respectfully submitted, to propel courts into the uncharted ocean of social and economic policy making. At least in respect of the vast area of environmental protection and management, our courts have no claim to special technical competence and experience and professional qualification. Where no specific, operable norms and standards are shown to exist, then the policy making departments — the legislative and executive departments — must be given a real and effective opportunity to fashion and promulgate those norms and standards, and to implement them before the courts should intervene.

    My learned brother Davide, Jr., J., rightly insists that the timber companies, whose concession agreements or TLA's petitioners demand public respondents should cancel, must be impleaded in the proceedings below. It might be asked that, if petitioners' entitlement to the relief demanded is not dependent upon proof of breach by the timber companies of one or more of the specific terms and conditions of their concession agreements (and this, petitioners implicitly assume), what will those companies litigate about? The answer I suggest is that they may seek to dispute the existence of the specific legal right petitioners should allege, as well as the reality of the claimed factual nexus between petitioners' specific legal rights and the claimed wrongful acts or failures to act of public respondent administrative agency. They may also controvert the appropriateness of the remedy or remedies demanded by petitioners, under all the circumstances which exist.

    I vote to grant the Petition for Certiorari because the protection of the environment, including the forest cover of our territory, is of extreme importance for the country. The doctrines set out in the Court's decision issued today should, however, be subjected to closer examination.

Jurisprudence: G.R. No. 173915 February 22, 2010

FIRST  DIVISION

IRENE SANTE AND REYNALDO SANTE v. HON. EDILBERTO T. CLARAVALL, in his capacity as Presiding Judge of Branch 60, Regional Trial Court of Baguio City, and VITA N. KALASHIAN,

G.R. No. 173915  February 22, 2010

DECISION

VILLARAMA, JR., J.:

          Before this Court is a petition for certiorari[1] under Rule 65 of the 1997 Rules of Civil Procedure, as amended, filed by petitioners Irene and Reynaldo Sante assailing the Decision[2] dated January 31, 2006 and the Resolution[3] dated June 23, 2006 of the Seventeenth Division of the Court of Appeals in CA-G.R. SP No. 87563. The assailed decision affirmed the orders of the Regional Trial Court (RTC) of Baguio City, Branch 60, denying their motion to dismiss the complaint for damages filed by respondent Vita Kalashian against them.

          The facts, culled from the records, are as follows:

          On April 5, 2004, respondent filed before the RTC of Baguio City a complaint for damages[4] against petitioners.  In her complaint, docketed as Civil Case No. 5794-R, respondent alleged that while she was inside the Police Station of Natividad, Pangasinan, and in the presence of other persons and police officers, petitioner Irene Sante uttered words, which when translated in English are as follows, “How many rounds of sex did you have last night with your boss, Bert? You fuckin’ bitch!” Bert refers to Albert Gacusan, respondent’s friend and one (1) of her hired personal security guards detained at the said station and who is a suspect in the killing of petitioners’ close relative.  Petitioners also allegedly went around Natividad, Pangasinan telling people that she is protecting and cuddling the suspects in the aforesaid killing. Thus, respondent prayed that petitioners be held liable to pay moral damages in the amount of P300,000.00; P50,000.00 as exemplary damages; P50,000.00 attorney’s fees; P20,000.00 litigation expenses; and costs of suit.

          Petitioners filed a Motion to Dismiss[5] on the ground that it was the Municipal Trial Court in Cities (MTCC) and not the RTC of Baguio, that had jurisdiction over the case.  They argued that the amount of the claim for moral damages was not more than the jurisdictional amount of P300,000.00, because the claim for exemplary damages should be excluded in computing the total claim.

          On June 24, 2004,[6] the trial court denied the motion to dismiss citing our ruling in Movers-Baseco Integrated Port Services, Inc. v. Cyborg Leasing Corporation.[7]  The trial court held that the total claim of respondent amounted to P420,000.00 which was above the jurisdictional amount for MTCCs outside Metro Manila.  The trial court also later issued Orders on July 7, 2004[8] and July 19, 2004,[9] respectively reiterating its denial of the motion to dismiss and denying petitioners’ motion for reconsideration.

          Aggrieved, petitioners filed on August 2, 2004, a Petition for Certiorari and Prohibition,[10] docketed as CA-G.R. SP No. 85465, before the Court of Appeals. Meanwhile, on July 14, 2004, respondent and her husband filed an Amended Complaint[11] increasing the claim for moral damages from P300,000.00 to P1,000,000.00.  Petitioners filed a Motion to Dismiss with Answer Ad Cautelam and Counterclaim, but the trial court denied their motion in an Order[12] dated September 17, 2004.

          Hence, petitioners again filed a Petition for Certiorari and Prohibition[13] before the Court of Appeals, docketed as CA-G.R. SP No. 87563, claiming that the trial court committed grave abuse of discretion in allowing the amendment of the complaint to increase the amount of moral damages from P300,000.00 to P1,000,000.00. The case was raffled to the Seventeenth Division of the Court of Appeals.

          On January 23, 2006, the Court of Appeals, Seventh Division, promulgated a decision in CA-G.R. SP No. 85465, as follows:

          WHEREFORE, finding grave abuse of discretion on the part of [the] Regional Trial Court of Baguio, Branch 60, in rendering the assailed Orders dated June 24, 2004 and July [19], 2004 in Civil Case No. 5794-R the instant petition for certiorari is GRANTED.  The assailed Orders are hereby             ANNULLED and SET ASIDE.  Civil Case No. 5794-R for damages is ordered DISMISSED for lack of       jurisdiction.



                        SO ORDERED.[14]

          The Court of Appeals held that the case clearly falls under the jurisdiction of the MTCC as the allegations show that plaintiff was seeking to recover moral damages in the amount of P300,000.00, which amount was well within the jurisdictional amount of the MTCC.  The Court of Appeals added that the totality of claim rule used for determining which court had jurisdiction could not be applied to the instant case because plaintiff’s claim for exemplary damages was not a separate and distinct cause of action from her claim of moral damages, but merely incidental to it.   Thus, the prayer for exemplary damages should be excluded in computing the total amount of the claim.

          On January 31, 2006, the Court of Appeals, this time in CA-G.R. SP No. 87563, rendered a decision affirming the September 17, 2004 Order of the RTC  denying petitioners’ Motion to Dismiss Ad Cautelam.  In the said decision, the appellate court held that the total or aggregate amount demanded in the complaint constitutes the basis of jurisdiction. The Court of Appeals did not find merit in petitioners’ posture that the claims for exemplary damages and attorney’s fees are merely incidental to the main cause and should not be included in the computation of the total claim.

          The Court of Appeals additionally ruled that respondent can amend her complaint by increasing the amount of moral damages from P300,000.00 to P1,000,000.00, on the ground that the trial court has jurisdiction over the original complaint and respondent is entitled to amend her complaint as a matter of right under the Rules.

          Unable to accept the decision, petitioners are now before us raising the following issues:

I.

WHETHER OR NOT THERE WAS GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION ON THE PART OF THE (FORMER) SEVENTEENTH DIVISION OF THE HONORABLE COURT OF APPEALS WHEN IT RESOLVED THAT THE REGIONAL TRIAL COURT OF BAGUIO CITY BRANCH 60 HAS JURISDICTION OVER THE SUBJECT MATTER OF THE CASE FOR DAMAGES AMOUNTING TO P300,000.00;

II.

WHETHER OR NOT THERE WAS GRAVE ABUSE OF DISCRETION ON THE PART OF THE HONORABLE RESPONDENT JUDGE OF THE REGIONAL TRIAL COURT OF BAGUIO BRANCH 60 FOR ALLOWING THE COMPLAINANT TO AMEND THE COMPLAINT (INCREASING THE AMOUNT OF DAMAGES TO 1,000,000.00 TO CONFER JURISDICTION OVER THE SUBJECT MATTER OF THE CASE DESPITE THE PENDENCY OF A PETITION FOR CERTIORARI FILED AT THE COURT OF APPEALS, SEVENTH DIVISION, DOCKETED AS CA G.R. NO. 85465.[15]

          In essence, the basic issues for our resolution are:

1)                Did the RTC acquire jurisdiction over the case? and

2)                Did the RTC commit grave abuse of discretion in allowing the amendment of the complaint?

          Petitioners insist that the complaint falls under the exclusive jurisdiction of the MTCC.  They maintain that the claim for moral damages, in the amount of P300,000.00 in the original complaint, is the main action. The exemplary damages being discretionary should not be included in the computation of the jurisdictional amount.  And having no jurisdiction over the subject matter of the case, the RTC acted with grave abuse of discretion when it allowed the amendment of the complaint to increase the claim for moral damages in order to confer jurisdiction.

          In her Comment,[16] respondent averred that the nature of her complaint is for recovery of damages.  As such, the totality of the claim for damages, including the exemplary damages as well as the other damages alleged and prayed in the complaint, such as attorney’s fees and litigation expenses, should be included in determining jurisdiction.  The total claim being P420,000.00, the RTC has jurisdiction over the complaint.

          We deny the petition, which although denominated as a petition for certiorari, we treat as a petition for review on certiorari under Rule 45 in view of the issues raised.

          Section 19(8) of Batas Pambansa Blg. 129,[17] as amended by Republic Act No. 7691,[18] states:

          SEC. 19. Jurisdiction in civil cases. – Regional Trial Courts shall exercise exclusive original jurisdiction:

            x x x x

            (8) In all other cases in which the demand, exclusive of interest, damages of whatever kind, attorney’s fees, litigation expenses, and costs or the value of the property in controversy exceeds One hundred thousand pesos (P100,000.00) or, in such other cases in Metro Manila, where the demand, exclusive of the abovementioned items exceeds Two hundred thousand pesos (P200,000.00).

            Section 5 of Rep. Act No. 7691 further provides:

            SEC. 5. After five (5) years from the effectivity of this Act, the jurisdictional amounts mentioned in Sec. 19(3), (4), and (8); and Sec. 33(1) of Batas Pambansa Blg. 129 as amended by this Act, shall be adjusted to Two hundred thousand pesos (P200,000.00). Five (5) years thereafter, such jurisdictional   amounts shall be adjusted further to Three hundred thousand pesos (P300,000.00): Provided, however, That in the case of Metro            Manila, the abovementioned jurisdictional amounts shall be adjusted after five (5) years from the effectivity of this Act to Four hundred thousand pesos (P400,000.00).

            Relatedly, Supreme Court Circular No. 21-99 was issued declaring that the first adjustment in jurisdictional amount of first level courts outside of Metro Manila from P100,000.00 to P200,000.00 took effect on March 20, 1999.  Meanwhile, the second adjustment from P200,000.00 to P300,000.00 became effective on February 22, 2004 in accordance with OCA Circular No. 65-2004 issued by the Office of the Court Administrator on May 13, 2004.

          Based on the foregoing, there is no question that at the time of the filing of the complaint on April 5, 2004, the MTCC’s jurisdictional amount has been adjusted to P300,000.00. 

          But where damages is the main cause of action, should the amount of moral damages prayed for in the complaint be the sole basis for determining which court has jurisdiction or should the total amount of all the damages claimed regardless of kind and nature, such as exemplary damages, nominal damages, and attorney’s fees, etc., be used?

          In this regard, Administrative Circular No. 09-94[19] is instructive:

            x x x x

            2.  The exclusion of the term “damages of whatever kind” in determining the jurisdictional amount under Section 19 (8) and Section 33 (1) of B.P. Blg. 129, as amended by R.A. No. 7691, applies to cases where the damages are merely incidental to or a consequence of the main cause of action.   However, in cases where the claim for damages is the main cause of action, or one of the causes of action, the amount of such claim shall be considered in determining the jurisdiction of the court. (Emphasis ours.)

          In the instant case, the complaint filed in Civil Case No. 5794-R is for   the recovery of damages for the alleged malicious acts of petitioners. The complaint principally sought an award of moral and exemplary damages, as well as attorney’s fees and litigation expenses, for the alleged shame and injury suffered by respondent by reason of petitioners’ utterance while they were at a police station in Pangasinan.  It is settled that jurisdiction is conferred by law based on the facts alleged in the complaint since the latter comprises a concise statement of the ultimate facts constituting the plaintiff’s causes of action.[20]  It is clear, based on the allegations of the complaint, that respondent’s main action is for damages.  Hence, the other forms of damages being claimed by respondent, e.g., exemplary damages, attorney’s fees and litigation expenses, are not merely incidental to or consequences of the main action but constitute the primary relief prayed for in the complaint. 

          In Mendoza v. Soriano,[21] it was held that in cases where the claim for damages is the main cause of action, or one of the causes of action, the amount of such claim shall be considered in determining the jurisdiction of the court.  In the said case, the respondent’s claim of P929,000.06 in damages and P25,000 attorney’s fees plus P500 per court appearance was held to represent the monetary equivalent for compensation of the alleged injury.  The Court therein held that the total amount of monetary claims including the claims for damages was the basis to determine the jurisdictional amount.

            Also, in Iniego v. Purganan,[22] the Court has held:

            The amount of damages claimed is within the jurisdiction    of the RTC, since it is the claim for all kinds of damages that is the basis of determining the jurisdiction of courts, whether the claims for damages arise from the same or from different causes of action.

            x x x x

            Considering that the total amount of damages claimed was P420,000.00, the Court of Appeals was correct in ruling that the RTC had jurisdiction over the case.

          Lastly, we find no error, much less grave abuse of discretion, on the part of the Court of Appeals in affirming the RTC’s order allowing the amendment of the original complaint from P300,000.00 to P1,000,000.00 despite the pendency of a petition for certiorari filed before the Court of Appeals.  While it is a basic jurisprudential principle that an amendment cannot be allowed when the court has no jurisdiction over the original complaint and the purpose of the amendment is to confer jurisdiction on the court,[23] here, the RTC clearly had jurisdiction over the original complaint and amendment of the complaint was then still a matter of right.[24]  

WHEREFORE, the petition is DENIED, for lack of merit.  The Decision and Resolution of the Court of Appeals dated   January 31, 2006 and June 23, 2006, respectively, are AFFIRMED.  The Regional Trial Court of Baguio City, Branch 60 is DIRECTED to continue with the trial proceedings in Civil Case No. 5794-R with deliberate dispatch. 

Crim Pro: GSIS v. CA G.R. No. 183905 January 19, 2009

G.R. No. 183905  January 19, 2009

Lessons Applicable: RTC v. SEC, contemplation of an election controversy properly within the jurisdiction of the regular courts

Laws Applicable:

FACTS:
  • In view of the resignation of Camilo Quiason, the position of corporate secretary of Meralco became vacant.
  • The board of directors of Meralco designated Jose Vitug to act as corporate secretary for the annual meeting. However, when the proxy validation began, the proceedings were presided over by respondent Anthony Rosete, assistant corporate secretary and in-house chief legal counsel of Meralco.
  • GSIS filed a complaint seeking  the  declaration  of  certain  proxies  as  invalid 
  • GSIS filed a Notice with the RTC manifesting the dismissal of the complaint.   On the same day, GSIS filed an Urgent Petition with the Securities and Exchange Commission (SEC) seeking to restrain Rosete from “recognizing, counting and tabulating, directly or indirectly, notionally or actually or in whatever way, form, manner or means, or otherwise honoring the shares covered by” the proxies in favor of any officer representing MERALCO Management" and to annul and declare invalid said proxies.
  • SEC issued a Show Cause Order
  • Petitioners filed a petition for certiorari with prohibition with the Court of Appeals 
  • CA: complaint filed by GSIS in the SEC is hereby DISMISSED due to SEC’s lack of jurisdiction
ISSUE:
 1. W/N SEC can be private respondents
 2. W/N it is a validation of the proxy within the SEC's jurisdiction (as opposed to Intra-Corporate Controversies  within the RTC'S jurisdiction)

HELD: EXPUNGED for lack of capacity of the petitioner to bring forth the suit

1. NO
  •  Rule 65 does recognize that the SEC and its officers should have been designated as public respondents in the petition for certiorari filed with the Court of Appeals. Yet their involvement in the instant petition is not as original party-litigants, but as the quasi-judicial agency and officers exercising the adjudicative functions over the dispute between the two contending factions within Meralco. From the onset, neither the SEC nor Martinez or Guevarra has been considered as a real party-in-interest. Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that every action must be prosecuted or defended in the name of the real party in interest, that is “the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.” It would be facetious to assume that the SEC had any real interest or stake in the intra-corporate dispute within Meralco.  At this point, only one petition remains—the petition for certiorari filed by GSIS in G.R. No. 183905.
  • Under Section 4.6 that the ability to delegate functions to a single commissioner does not extend to the exercise of the review or appellate authority of the SEC. The issuance of the CDO is an act of the SEC itself done in the exercise of its original jurisdiction to review actual cases or controversies. If it has not been clear to the SEC before, it should be clear now that its power to issue a CDO can not, under the SRC, be delegated to an individual commissioner.
2. NO.
  •  Jurisdiction is conferred by no other source but law. Both sides have relied upon provisions of Rep. Act No. 8799, otherwise known as the Securities Regulation Code (SRC), its implementing rules (Amended Implementing Rules or AIRR-SRC), and other related rules to support their competing contentions that either the SEC or the trial courts has exclusive original jurisdiction over the dispute.
  • the distinction between “proxy solicitation” and “proxy validation”  cannot  be  dismissed  offhand.  The  right  of a   stockholder   to   vote   by  proxy  is  generally   established  by  the Corporation Code, but it is the SRC which specifically regulates the form and use of proxies, more particularly the procedure of proxy solicitation, primarily through Section 20. 
  • The investigatory power of the SEC established by Section 53.1 is central to its regulatory authority, most crucial to the public interest especially as it may pertain to corporations with publicly traded shares.  For that reason, we are not keen on pursuing private respondents’ insistence that the GSIS complaint be viewed as rooted in an intra-corporate controversy solely within the jurisdiction of the trial courts to decide. It is possible that an intra-corporate controversy may animate a disgruntled shareholder to complain to the SEC a corporation’s violations of SEC rules and regulations, but that motive alone should not be sufficient to deprive the SEC of its investigatory and regulatory powers, especially so since such powers are exercisable on a motu proprio basis.
  • Note that Section 6 is immediately preceded by Section 5, which originally conferred on the SEC “original and exclusive jurisdiction to hear and decide cases” involving “controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations.”   Thus, such power of the SEC then was incidental or ancillary to the “exercise of such jurisdiction.  The cases referred to in Section 5 were transferred from the jurisdiction of the SEC to the regular courts with the passage of the SRC, specifically Section 5.2. Thus, the SEC’s power to pass upon the validity of proxies in relation to election controversies has effectively been withdrawn, tied as it is to its abrogated jurisdictional powers.  Based on the foregoing, it is evident that the linchpin in deciding the question is whether or not the cause of action of GSIS before the SEC is intimately tied to an election controversy, as defined under Section 5(c) of Presidential Decree No. 902-A. 
  • Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the solicitation or validation of proxies bore no relation at all to the scheduled election of the board of directors of Meralco during the annual meeting. GSIS very well knew that the controversy falls within the contemplation of an election controversy properly within the jurisdiction of the regular courts. Otherwise, it would have never filed its original petition with the RTC of Pasay. GSIS may have withdrawn its petition with the RTC on a new assessment made in good faith that the controversy falls within the jurisdiction of the SEC, yet the reality is that the reassessment is precisely wrong as a matter of law.

     

Jurisprudence: G.R. No. 183905 January 16, 2009 G.R. No. 184275

SECOND DIVISION

G.R. No. 183905  January 16, 2009     

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS) V. THE HONORABLE COURT OF APPEALS (TFH DIVISION), ANTHONY V. ROSETE, MANUEL M, LOPEZ, FELIPE 3. ALFONSO, JESUS P. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBANEZ AND FRANCIS GILES B. PUNO

 G.R. No.  184275

Tinga, J.:        

          These are the undisputed facts.

The annual stockholders’ meeting (annual meeting) of the Manila Electric Company (Meralco) was scheduled on 27 May 2008.[1] In connection with the annual meeting, proxies[2] were required to be submitted on or before 17 May 2008, and the proxy validation was slated for five days later, or 22 May.[3]

          In view of the resignation of Camilo Quiason,[4] the position of corporate  secretary of Meralco became vacant.[5] On 15 May 2008, the board of directors of Meralco designated Jose Vitug[6] to act as corporate secretary for the annual meeting.[7] However, when the proxy validation began on 22 May, the proceedings were presided over by respondent Anthony Rosete (Rosete), assistant corporate secretary and in-house chief legal counsel of Meralco.[8] Private respondents nonetheless argue that Rosete was the acting corporate secretary of Meralco.[9] Petitioner Government Service Insurance System (GSIS), a major shareholder in Meralco, was distressed over the proxy validation proceedings, and the resulting certification of proxies in favor of the Meralco management.[10]

On 23 May 2008, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City, docketed as R-PSY-08-05777-C4 seeking  the  declaration  of  certain  proxies  as  invalid.[11]  Three days later, on 26 May, GSIS filed a Notice with the RTC manifesting the dismissal of the complaint.[12] On the same day, GSIS filed an Urgent Petition[13] with the Securities and Exchange Commission (SEC) seeking to restrain Rosete from “recognizing, counting and tabulating, directly or indirectly, notionally or actually or in whatever way, form, manner or means, or otherwise honoring the shares covered by” the proxies in favor of respondents Manuel Lopez,[14] Felipe Alfonso,[15] Jesus Francisco,[16] Oscar Lopez, Christian Monsod,[17] Elpidio Ibañez,[18] Francisco Giles-Puno[19] “or any officer representing MERALCO Management,” and to annul and declare invalid said proxies.[20] GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to restrain the use of said proxies during the annual meeting scheduled for the following day.[21] A CDO[22] to that effect signed by SEC Commissioner Jesus Martinez was issued on 26 May 2008, the same day the complaint was filed. During the annual meeting held on the following day, Rosete announced that the meeting would push through, expressing the opinion that the CDO is null and void.[23]

On 28 May 2008, the SEC issued a Show Cause Order (SCO)[24] against private respondents, ordering them to appear before the Commission on 30 May 2008 and explain why they should not be cited in contempt. On 29 May 2008, respondents filed a petition for certiorari with prohibition[25] with the Court of Appeals, praying that the CDO and the SCO be annulled. The petition was docketed as CA-G.R. SP No. 103692.

Many developments involving the Court of Appeals’ handling of CA-G.R. SP No. 103692 and the conduct of several of its individual justices are recounted in our Resolution dated 9 September 2008 in A.M. No. 08-8-11-CA (Re: Letter Of Presiding Justice Conrado M. Vasquez, Jr. On CA-G.R. SP No. 103692).[26] On 23 July 2008, the Court of Appeals Eighth Division promulgated a decision in the case with the following dispositive portion:

WHEREFORE, premises considered, the May 26, 2008 complaint filed by GSIS in the SEC is hereby DISMISSED due to SEC’s lack of jurisdiction, due to forum shopping by respondent GSIS, and due to splitting of causes of action by respondent GSIS. Consequently, the SEC’s undated cease and desist order and the SEC’s May 28, 2008 show cause order are hereby DECLARED VOID AB INITIO and without legal effect and their implementation are hereby permanently restrained.

            The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from being considered, out of equitable considerations, as an election contest in the RTC, because the prescriptive period of 15 days from the May 27, 2008 Meralco election to file an election contest in the RTC had already run its course, pursuant to Sec. 3, Rule 6 of the interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799, due to deliberate act of GSIS in filing a complaint in the SEC instead of the RTC.

            Let seventeen (17) copies of this decision be officially TRANSMITTED to the Office of the Chief Justice and three (3) copies to the Office of the Court Administrator:

(1)      for sanction by the Supreme Court against the “GSIS LAW OFFICE” for unauthorized practice of law,

(2)      for sanction and discipline by the Supreme Court of GSIS lawyers led by Atty. Estrella Elamparo-Tayag, Atty. Marcial C. Pimentel, Atty. Enrique L. Tandan III, and other GSIS lawyers for violation of Sec. 27 of Rule 138 of the Revised Rules of Court, pursuant to Santayana v. Alampay, A.C. No. 5878, March 21, 2005 454 SCRA 1, and pursuant to Land Bank of the Philippines v. Raymunda Martinez, G.R. No. 169008, August 14, 2007:

(a)          for violating express provisions of law and defying public policy in deliberately displacing the Office of the Government Corporate Counsel (OGCC) from its duty as the exclusive lawyer of GSIS, a government owned and controlled corporation (GOCC), by admittedly filing and defending cases as well as appearing as counsel for GSIS, without authority to do so, the authority belonging exclusively to the OGCC;

(b)         for violating the lawyer’s oath for failing in their duty to act as faithful officers of the court by engaging in forum shopping;

(c)          for violating express provisions of law most especially those on jurisdiction which are mandatory; and

(d)       for violating Sec. 3, Rule 2 of the 1997 Rules of Civil Procedure by deliberately splitting causes of action in order to file multiple complaints: (i) in the RTC of Pasay City and (ii) in the SEC, in order to ensure a favorable order.[27]

The promulgation of the said decision provoked a searing controversy, as detailed in our Resolution in A.M. No. 08-8-11-CA. Nonetheless, the appellate court’s decision spawned three different actions docketed with their own case numbers before this Court. One of them, G.R. No. 183933, was initiated by a Motion for Extension of Time to File Petition for Review filed by the Office of the Solicitor General (OSG) in behalf of the SEC, Commissioner Martinez in his capacity as officer-in-charge of the SEC, and Hubert Guevarra in his capacity as Director of the Compliance and Enforcement Department of the SEC.[28] However, the OSG did not follow through with the filing of the petition for review adverted to; thus, on 19 January 2009, the Court resolved to declare G.R. No. 183933 closed and terminated.[29]

The two remaining cases before us are docketed as G.R. No. 183905 and 184275. G.R. No. 183905 pertains to a petition for certiorari and prohibition filed by GSIS, against the Court of Appeals, and respondents Rosete, Lopez, Alfonso, Francisco, Monsod, Ibañez and Puno, all of whom serve in different corporate capacities with Meralco or First Philippines Holdings Corporation, a major stockholder of Meralco and an affiliate of the Lopez Group of Companies. This petition seeks of the Court to declare the 23 July 2008 decision of the Court of Appeals null and void, affirm the SEC’s jurisdiction over the petition filed before it by GSIS, and pronounce that the CDO and the SCO orders are valid. This petition was filed in behalf of GSIS by the “GSIS Law Office;” it was signed by the Chief Legal Counsel and Assistant Legal Counsel of GSIS, and three self-identified “Attorney[s],” presumably holding lawyer positions in GSIS.[30]

The OSG also filed the other petition, docketed as G.R. No. 184275. It identifies as its petitioners the SEC, Commissioner Martinez in his capacity as OIC of the SEC, and Hubert Guevarra in his capacity as Director of the Compliance and Enforcement Department of the SEC – the same petitioners in the  aborted petition for review initially docketed as G.R. No. 183933. Unlike what was adverted to in the motion for extension filed by the same petitioners in G.R. No. 183933, the petition in G.R. No. 184275 is one for certiorari under Rule 65 as indicated on page 3 thereof,[31] and not a petition for review. Interestingly, save for the first page which leaves the docket number blank, all 86 pages of this petition for certiorari carry a header wrongly identifying the pleading as the non-existent petition for review under G.R. No. 183933. This petition seeks the “reversal” of the assailed decision of the Court of Appeals, the recognition of the jurisdiction of the SEC over the petition of GSIS, and the affirmation of the CDO and SCO.

II.

Private respondents seek the expunction of the petition filed by the SEC in G.R. No. 184275. We agree that the petitioners therein, namely: the SEC, Commissioner Marquez and Guevarra, are not real parties-in-interest to the dispute and thus bereft of capacity to file the petition. By way of simple illustration, to argue otherwise is to say that the trial court judge, the National Labor Relations Commission, or any quasi-judicial agency has the right to seek the review of an appellate court decision reversing any of their rulings. That prospect, as any serious student of remedial law knows, is zero.

The Court, through the Resolution of the Third Division dated 2 September 2008, had resolved to treat the petition in G.R. No. 184275 as a petition for review on certiorari, but withheld giving due course to it.[32] Under Section 1 of Rule 45, which governs appeals by certiorari, the right to file the appeal is restricted to “a party,” meaning that only the real parties-in-interest who litigated the petition for certiorari before the Court of Appeals are entitled to appeal the same under Rule 45. The SEC and its two officers may have been designated as respondents in the petition for certiorari filed with the Court of Appeals, but under Section 5 of Rule 65 they are not entitled to be classified as real parties-in-interest. Under the provision, the judge, court, quasi-judicial agency, tribunal, corporation, board, officer or person to whom grave abuse of discretion is imputed (the SEC and its two officers in this case) are denominated only as public respondents. The provision further states that “public respondents shall not appear in or file an answer or comment to the petition or any pleading therein.”[33] Justice Regalado explains:

[R]ule 65 involves an original special civil action specifically directed against the person, court, agency or party a quo which had committed not only a mistake of judgment but an error of jurisdiction, hence should be made public respondents in that action brought to nullify their invalid acts. It shall, however be the duty of the party litigant, whether in an appeal under Rule 45 or in a special civil action in Rule 65, to defend in his behalf and the party whose adjudication is assailed, as he is the one interested in sustaining the correctness of the disposition or the validity of the proceedings.

xxx The party interested in sustaining the proceedings in the lower court must be joined as a co-respondent and he has the duty to defend in his own behalf and in behalf of the court which rendered the questioned order. While there is nothing in the Rules that prohibit the presiding judge of the court involved from filing his own answer and defending his questioned order, the Supreme Court has reminded judges of the lower courts to refrain from doing so unless ordered by the Supreme Court.[[34]] The judicial norm or mode of conduct to be observed in trial and appellate courts is now prescribed in the second paragraph of this section.

xxx

A person not a party to the proceedings in the trial court or in the Court of Appeals cannot maintain an action for certiorari in the Supreme Court to have the judgment reviewed.[35]

Rule 65 does recognize that the SEC and its officers should have been designated as public respondents in the petition for certiorari filed with the Court of Appeals. Yet their involvement in the instant petition is not as original party-litigants, but as the quasi-judicial agency and officers exercising the adjudicative functions over the dispute between the two contending factions within Meralco. From the onset, neither the SEC nor Martinez or Guevarra has been considered as a real party-in-interest. Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that every action must be prosecuted or defended in the name of the real party in interest, that is “the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.” It would be facetious to assume that the SEC had any real interest or stake in the intra-corporate dispute within Meralco.

We find our ruling in Hon. Santiago v. Court of Appeals[36] quite apposite to the question at hand. Petitioner therein, a trial court judge, had presided over an expropriation case. The litigants had arrived at an amicable settlement, but the judge refused to approve the same, even declaring it invalid. The matter was elevated to the Court of Appeals, which promptly reversed the trial court and approved the amicable settlement. The judge took the extraordinary step of filing in his own behalf a petition for review on certiorari with this Court, assailing the decision of the Court of Appeals which had reversed him. In disallowing the judge’s petition, the Court explained:

While the issue in the Court of Appeals and that raised by petitioner now is whether the latter abused his discretion in nullifying the deeds of sale and in proceeding with the expropriation proceeding, that question is eclipsed by the concern of whether Judge Pedro T. Santiago may file this petition at all.

And the answer must be in the negative, Section 1 of Rule 45 allows a party to appeal by certiorari from a judgment of the Court of Appeals by filing with this Court a petition for review on certiorari. But petitioner judge was not a party either in the expropriation proceeding or in the certiorari proceeding in the Court of Appeals. His being named as respondent in the Court of Appeals was merely to comply with the rule that in original petitions for certiorari, the court or the judge, in his capacity as such, should be named as party respondent because the question in such a proceeding is the jurisdiction of the court itself (See Mayol v. Blanco, 61 Phil. 547 [19351, cited in Comments on the Rules of Court, Moran, Vol. II, 1979 ed., p. 471). "In special proceedings, the judge whose order is under attack is merely a nominal party; wherefore, a judge in his official capacity, should not be made to appear as a party seeking reversal of a decision that is unfavorable to the action taken by him. A decent regard for the judicial hierarchy bars a judge from suing against the adverse opinion of a higher court,. . . ." (Alcasid v. Samson, 102 Phil. 785, 740 [1957])

ACCORDINGLY, this petition is DENIED for lack of legal capacity to sue by the petitioner.[37]

Justice Isagani Cruz added, in a Concurring Opinion in Santiago: “The judge is not an active combatant in such proceeding and must leave it to the parties themselves to argue their respective positions and for the appellate court to rule on the matter without his participation.”[38]

Note that in Santiago, the Court recognized the good faith of the judge, who perceived the amicable settlement “as a manifestly iniquitous and illegal contract.”[39] The SEC could have similarly felt in good faith that the assailed Court of Appeals decision had unduly impaired its prerogatives or caused some degree of hurt to it. Yet assuming that there are rights or prerogatives peculiar to the SEC itself that the appellate court had countermanded, these can be vindicated in the petition for certiorari filed by GSIS, whose legal capacity to challenge the Court of Appeals decision is without question. There simply is no plausible reason for this Court to deviate from a time-honored rule that preserves the purity of our judicial and quasi-judicial offices to accommodate the SEC’s distrust and resentment of the appellate court’s decision. The expunction of the petition in G.R. No. 184275 is accordingly in order.
          At this point, only one petition remains—the petition for certiorari filed by GSIS in G.R. No. 183905. Casting off the uncritical and unimportant aspects, the two main issues for adjudication are as follows: (1) whether the SEC has jurisdiction over the petition filed by GSIS against private respondents; and (2) whether the CDO and SCO issued by the SEC are valid.

II.

          It is our resolute inclination that this case, which raises interesting questions of law, be decided solely on the merits, without regard to the personalities involved or the well-reported drama preceding the petition. To that end, the Court has taken note of reports in the media that GSIS and the Lopez group have taken positive steps to divest or significantly reduce their respective interests in Meralco.[40] These are developments that certainly ease the tension surrounding this case, not to mention reason enough for the two groups to make an internal reassessment of their respective positions and interests in relation to this case. Still, the key legal questions raised in the petition do not depend at all on the identity of any of the parties, and would obtain the same denouement even if this case was lodged by unknowns as petitioners against similarly obscure respondents.

 With the objective to resolve the key questions of law raised in the petition, some of the issues raised diminish as peripheral. For example, petitioners raise arguments tied to the behavior of individual justices of the Court of Appeals, particularly former Justice Vicente Roxas, in relation to this case as it was pending before the appellate court. The Court takes cognizance of our Resolution in A.M. No. 08-8-11-CA dated 9 September 2008, which duly recited the various anomalous or unbecoming acts in relation to this case performed by two of the justices who decided the case in behalf of the Court of Appeals—former Justice Roxas (the ponente) and Justice Bienvenido L. Reyes (the Chairman of the 8th Division) – as well as three other members of the Court of Appeals. At the same time, the consensus of the Court as it deliberated on A.M. No. 08-8-11-CA was to reserve comment or conclusion on the assailed decision of the Court of Appeals, in recognition of the reality that however stigmatized the actions and motivations of Justice Roxas are, the decision is still the product of the Court of Appeals as a collegial judicial body, and not of one or some rogue justices. The penalties levied by the Court on these appellate court justices, in our estimation, redress the unwholesome acts which they had committed. At the same time, given the jurisprudential importance of the questions of law raised in the petition, any result reached without squarely addressing such questions would be unsatisfactory, perhaps derelict even. 

III.

          We now examine whether the SEC has jurisdiction over the petition filed by GSIS. To recall, SEC has sought to enjoin the use and annul the validation, of the proxies issued in favor of several of the private respondents, particularly in connection with the annual meeting.

A.

          Jurisdiction is conferred by no other source but law. Both sides have relied upon provisions of Rep. Act No. 8799, otherwise known as the Securities Regulation Code (SRC), its implementing rules (Amended Implementing Rules or AIRR-SRC), and other related rules to support their competing contentions that either the SEC or the trial courts has exclusive original jurisdiction over the dispute.

          GSIS primarily anchors its argument on two correlated provisions of the SRC. These are Section 53.1 and Section 20.1, which we cite:

SEC. 53.  Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency, other self-regulatory organization, and may require or permit any person to file with it a statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts and circumstances concerning the matter to be investigated. The Commission may publish information concerning any such violations, and to investigate any fact, condition, practice or matter which it may deem necessary or proper to aid in the enforcement of the provisions of this Code, in the prescribing of rules and regulations thereunder, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this Code relates: xxx (emphasis supplied)

SEC. 20. Proxy Solicitations. –  20.1. Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations to be issued by the Commission;

The argument, stripped of extravagance, is that since proxy solicitations following Section 20.1 have to be made in accordance with rules and regulations issued by the SEC, it is the SEC under Section 53.1 that has the jurisdiction to investigate alleged violations of the rules on proxy solicitations. The GSIS petition invoked AIRR-AIRR-SRC Rule 20, otherwise known as “The Proxy Rule,” which enumerates the requirements as to form of proxy and delivery of information to security holders. According to GSIS, the information statement Meralco had filed with the SEC in connection with the annual meeting did not contain any proxy form as required under AIRR-SRC Rule 20.

On the other hand, private respondents argue before us that under Section 5.2 of the SRC, the SEC’s jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A was transferred to the courts of general jurisdiction or the appropriate regional trial court. The two particular classes of cases in the enumeration under Section 5 of Presidential Decree No. 902-A which private respondents especially refer to are as follows:

xxx



(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; or association of which they are stockholders, members, or associates, respectively;



3) Controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations;

xxx



In addition, private respondents cite the Interim Rules on Intra-Corporate Controversies (Interim Rules) promulgated by this Court in 2001, most pertinently, Section 2 of Rule 6 (on Election Contests), which defines “election contests” as follows:



SEC. 2. Definition. – An election contest refers to any controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation, the validation of proxies, the manner and validity of elections and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a nonstock corporation where the articles of incorporation or bylaws so provide. (emphasis supplied)



          The correct answer is not clear-cut, but there is one. In private respondents’ favor, the provisions of law they cite pertain directly and exclusively to the statutory jurisdiction of trial courts acquired by virtue of the transfer of jurisdiction following the passage of the SRC. In contrast, the SRC provisions relied upon by GSIS do not immediately or directly establish that body’s jurisdiction over the petition, since it necessitates the linkage of Section 20 to Section 53.1 of the SRC before the point can bear on us.

          On the other hand, the distinction between “proxy solicitation” and “proxy validation”  cannot  be  dismissed  offhand.  The  right  of a   stockholder   to   vote   by  proxy  is  generally   established  by  the Corporation Code,[41] but it is the SRC which specifically regulates the form and use of proxies, more particularly the procedure of proxy solicitation, primarily through Section 20.[42] AIRR-SRC Rule 20 defines the terms solicit and solicitation:

          The terms solicit and solicitation include:

A.      any request for a proxy whether or not accompanied by or included in a form of proxy

B.       any request to execute or not to execute, or to revoke, a proxy; or

C.       the furnishing of a form of proxy or other communication to security holders under circumstance reasonably calculated to result in the procurement, withholding or revocation of a proxy.



It is plain that proxy solicitation is a procedure that antecedes proxy validation. The former involves the securing and submission of proxies, while the latter concerns the validation of such secured and submitted proxies. GSIS raises the sensible point that there was no election yet at the time it filed its petition with the SEC, hence no proper election contest or controversy yet over which the regular courts may have jurisdiction. And the point ties its cause of action to alleged irregularities in the proxy solicitation procedure, a process that precedes either the validation of proxies or the annual meeting itself.

Under Section 20.1, the solicitation of proxies must be in accordance with rules and regulations issued by the SEC, such as AIRR-SRC Rule 4. And by virtue of Section 53.1, the SEC has the discretion “to make such investigations as it deems necessary to determine whether any person has violated” any rule issued by it, such as AIRR-SRC Rule 4. The investigatory power of the SEC established by Section 53.1 is central to its regulatory authority, most crucial to the public interest especially as it may pertain to corporations with publicly traded shares. For that reason, we are not keen on pursuing private respondents’ insistence that the GSIS complaint be viewed as rooted in an intra-corporate controversy solely within the jurisdiction of the trial courts to decide. It is possible that an intra-corporate controversy may animate a disgruntled shareholder to complain to the SEC a corporation’s violations of SEC rules and regulations, but that motive alone should not be sufficient to deprive the SEC of its investigatory and regulatory powers, especially so since such powers are exercisable on a motu proprio basis.

At the same time, Meralco raises the substantial point that nothing in the SRC empowers the SEC to annul or invalidate improper proxies issued in contravention of Section 20. It cites that the penalties defined by the SEC itself for violation of Section 20 or AIRR-SRC Rule 20 are limited to a reprimand/warning for the first offense, and pecuniary fines for succeeding offenses.[43] Indeed, if the SEC does not have the power to invalidate proxies solicited in violation of its promulgated rules, serious questions may be raised whether it has the power to adjudicate claims of violation in the first place, since the relief it may extend does not directly redress the cause of action of the complainant seeking the exclusion of the proxies.

There is an interesting point, which neither party raises, and it concerns Section 6(g) of Presidential Decree No. 902-A, which states:

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

xxx

(g) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent stockholders or members;

xxx

          As promulgated then, the provision would confer on the SEC the power to adjudicate controversies relating not only to proxy solicitation, but also to proxy validation. Should the proposition hold true up to the present, the position of GSIS would have merit, especially since Section 6 of Presidential Decree No. 902-A was not expressly repealed or abrogated by the SRC.[44]

Yet a closer reading of the provision indicates that such power of the SEC then was incidental or ancillary to the “exercise of such jurisdiction.” Note that Section 6 is immediately preceded by Section 5, which originally conferred on the SEC “original and exclusive jurisdiction to hear and decide cases” involving “controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations.” The cases referred to in Section 5 were transferred from the jurisdiction of the SEC to the regular courts with the passage of the SRC, specifically Section 5.2. Thus, the SEC’s power to pass upon the validity of proxies in relation to election controversies has effectively been withdrawn, tied as it is to its abrogated jurisdictional powers.

Based on the foregoing, it is evident that the linchpin in deciding the question is whether or not the cause of action of GSIS before the SEC is intimately tied to an election controversy, as defined under Section 5(c) of Presidential Decree No. 902-A. To answer that, we need to properly ascertain the scope of the power of trial courts to resolve controversies in corporate elections.

B.

          Shares of stock in corporations may be divided into voting shares and non-voting shares, which are generally issued as “preferred” or “redeemable” shares.[45] Voting rights are exercised during regular or special meetings of stockholders; regular meetings to be held annually on a fixed date, while special meetings may be held at any time necessary or as provided in the by-laws, upon due notice.[46] The Corporation Code provides for a whole range of matters which can be voted upon by stockholders, including a limited set on which even non-voting stockholders are entitled to vote on.[47] On any of these matters which may be voted upon by stockholders, the proxy device is generally available.[48]



          Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts with respect to election-related controversies is specifically confined to “controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations.” Evidently, the jurisdiction of the regular courts over so-called election contests or controversies under Section 5(c) does not extend to every potential subject that may be voted on by shareholders, but only to the election of directors or trustees, in  which stockholders are authorized to participate under Section 24 of the Corporation Code.[49]

This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to regulate proxy solicitation, and the statutory jurisdiction of regular courts over election contests or controversies. The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential Decree No. 902-A.

          The conferment of original and exclusive jurisdiction on the regular courts over such controversies in the election of corporate directors must be seen as intended to confine to one body the adjudication of all related claims and controversy arising from the election of such directors. For that reason, the aforequoted Section 2, Rule 6 of the Interim Rules broadly defines the term “election contest” as encompassing all plausible incidents arising from the election of corporate directors, including: (1) any controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation, (2) the validation of proxies, (3) the manner and validity of elections and (4) the qualifications of candidates, including the proclamation of winners. If all matters anteceding the holding of such election which affect its manner and conduct, such as the proxy solicitation process, are deemed within the original and exclusive jurisdiction of the SEC, then the prospect of overlapping and competing jurisdictions between that body and the regular courts becomes frighteningly real. From the language of Section 5(c) of Presidential Decree No. 902-A, it is indubitable that controversies as to the qualification of voting shares, or the validity of votes cast in favor of a candidate for election to the board of directors are properly cognizable and adjudicable by the regular courts exercising original and exclusive jurisdiction over election cases. Questions relating to the proper solicitation of proxies used in such election are indisputably related to such issues, yet if the position of GSIS were to be upheld, they would be resolved by the SEC and not the regular courts, even if they fall within “controversies in the election” of directors.

          The Court recognizes that GSIS’s position flirts with the abhorrent evil of split jurisdiction,[50] allowing as it does both the SEC and the regular courts to assert jurisdiction over the same controversies surrounding an election contest. Should the argument of GSIS be sustained, we would be perpetually confronted with the spectacle of election controversies being heard and adjudicated by both the SEC and the regular courts, made possible through a mere allegation that the anteceding proxy solicitation process was errant, but the competing cases filed with one objective in mind – to affect the outcome of the election of the board of directors. There is no definitive statutory provision that expressly mandates so untidy a framework, and we are disinclined to construe the SRC in such a manner as to pave the way for the splitting of jurisdiction.

          Unlike either Section 20.1 or Section 53.1, which merely alludes to the rule-making or investigatory power of the SEC, Section 5 of Pres. Decree No. 902-A sets forth a definitive rule on jurisdiction, expressly granting as it does “original and exclusive jurisdiction” first to the SEC, and now to the regular courts. The fact that the jurisdiction of the regular courts under Section 5(c) is confined to the voting on election of officers, and not on all matters which may be voted upon by stockholders, elucidates that the power of the SEC to regulate proxies remains extant and could very well be exercised when stockholders vote on matters other than the election of directors.



          That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The controversy was engendered by the looming annual meeting, during which the stockholders of Meralco were to elect the directors of the corporation. GSIS very well knew of that fact. On 17 March 2008, the Meralco board of directors adopted a board resolution stating:

            RESOLVED that the board of directors of the Manila Electric Company (MERALCO) delegate, as it hereby delegates to the Nomination & Governance Committee the authority to approve and adopt appropriate rules on: (1) nomination of candidates for election to the board of directors; (2) appreciation of ballots during the election of members of the board of directors; and (3) validation of proxies for regular or special meetings of the stockholders.[51]

          In addition, the Information Statement/Proxy form filed by First Philippine Holdings Corporation  with the SEC pursuant to Section 20 of the SRC, states:

REASON FOR SOLICITATION OF VOTES

            The Solicitor is soliciting proxies from stockholders of the Company for the purpose of electing the directors named under the subject headed ‘Directors’ in this Statement as well as to vote the matters in the agenda of the meeting as provided for in the Information Statement of the Company. All of the nominees are current directors of the Company.[52]



          Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the solicitation or validation of proxies bore no relation at all to the scheduled election of the board of directors of Meralco during the annual meeting. GSIS very well knew that the controversy falls within the contemplation of an election controversy properly within the jurisdiction of the regular courts. Otherwise, it would have never filed its original petition with the RTC of Pasay. GSIS may have withdrawn its petition with the RTC on a new assessment made in good faith that the controversy falls within the jurisdiction of the SEC, yet the reality is that the reassessment is precisely wrong as a matter of law.

IV.

The lack of jurisdiction of the SEC over the subject matter of GSIS’s petition necessarily invalidates the CDO and SDO issued by that body. However, especially with respect to the CDO, there is need for this Court to squarely rule on the question pertaining to its validity, if only for jurisprudential value and for the guidance of the SEC.

To recount the facts surrounding the issuance of the CDO, GSIS filed its petition with the SEC on 26 May 2008. The CDO, six (6) pages in all with three (3) pages devoted to the tenability of granting the injunctive relief, was issued on the very same day, 26 May 2008, without notice or hearing. The CDO bore the signature of Commissioner Jesus Martinez, identified therein as “Officer-in-Charge,” and nobody else’s.

The provisions of the SRC relevant to the issuance of a CDO are as follows:





SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions:



xxx



(i) Issue cease and desist orders to prevent fraud or injury to the investing public;



xxx



[SEC.] 53.3. Whenever it shall appear to the Commission that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory organization, it may issue an order to such person to desist from committing such act or practice: Provided, however, That the Commission shall not charge any person with violation of the rules of an Exchange or other self regulatory organization unless it appears to the Commission that such Exchange or other self-regulatory organization is unable or unwilling to take action against such person.  After finding that such person has engaged in any such act or practice and that there is a reasonable likelihood of continuing, further or future violations by such person, the Commission may issue ex-parte a cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling compliance with such provision.  The Commission may transmit such evidence as may be available concerning any violation of any provision of this Code, or any rule, regulation or order thereunder, to the Department of Justice, which may institute the appropriate criminal proceedings under this Code.



SEC. 64. Cease and Desist Order. –  64.1. The Commission, after proper investigation or verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.

 









64.2. Until the Commission issues a cease and desist order, the fact that an investigation has been initiated or that a complaint has been filed, including the contents of the complaint, shall be confidential. Upon issuance of a cease and desist order, the Commission shall make public such order and a copy thereof shall be immediately furnished to each person subject to the order.



64.3. Any person against whom a cease and desist order was issued may, within five (5) days from receipt of the order, file a formal request for a lifting thereof.  Said request shall be set for hearing by the Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the request within the time herein prescribed, the cease and desist order shall automatically be lifted.



          There are three distinct bases for the issuance by the SEC of the CDO. The first, allocated by Section 5(i), is predicated on a necessity “to prevent fraud or injury to the investing public”. No other requisite or detail is tied to this CDO authorized under Section 5(i).

          The second basis, found in Section 53.3, involves a determination by the SEC that “any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory organization.” The provision additionally requires a finding that “there is a reasonable likelihood of continuing [or engaging in] further or future violations by such person.” The maximum duration of the CDO issued under Section 53.3 is ten (10) days.





          The third basis for the issuance of a CDO is Section 64. This CDO is founded on a determination of an act or practice, which unless restrained, “will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public”. Section 64.1 plainly provides three segregate instances upon which the SEC may issue the CDO under this provision: (1) after proper investigation or verification, (2) motu proprio, or (3) upon verified complaint by any aggrieved party. While no lifetime is expressly specified for the CDO under Section 64, the respondent to the CDO may file a formal request for the lifting thereof, which the SEC must hear within fifteen (15) days from filing and decide within ten (10) days from the hearing.



          It appears that the CDO under Section 5(i) is similar to the CDO under Section 64.1. Both require a common finding of a need to prevent fraud or injury to the investing public. At the same time, no mention is made whether the CDO defined under Section 5(i) may be issued ex-parte, while the CDO under Section 64.1 requires “grave and irreparable” injury, language absent in Section 5(i). Notwithstanding the similarities between Section 5(i) and Section 64.1, it remains clear that the CDO issued under Section 53.3 is a distinct creation from that under Section 64.



          The Court of Appeals cited the CDO as having been issued in violation of the constitutional provision on due process, which requires both prior notice and prior hearing.[53] Yet interestingly, the CDO as contemplated in Section 53.3 or in Section 64, may be issued “ex-parte” (under Section 53.3) or “without necessity of hearing” (under Section 64.1). Nothing in these provisions impose a requisite hearing before the CDO may be issued thereunder. Nonetheless, there are identifiable requisite actions on the part of the SEC that must be undertaken before the CDO may be issued either under Section 53.3 or Section 64. In the case of Section 53.3, the SEC must make two findings: (1) that such person has engaged in any such act or practice, and (2) that there is a reasonable likelihood of continuing, (or engaging in) further or future violations by such person. In the case of Section 64, the SEC must adjudge that the act, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.”



Noticeably, the CDO is not precisely clear whether it was issued on the basis of Section 5.1, Section 53.3 or Section 64 of the SRC. The CDO actually refers and cites all three provisions, yet it is apparent that a singular CDO could not be founded on Section 5.1,  Section 53.3 and Section 64 collectively. At the very least, the CDO under Section 53.3 and under Section 64 have their respective requisites and terms.



GSIS was similarly cagey in its petition before the SEC, it demurring to state whether it was seeking the CDO under Section 5.1, Section 53.3, or Section 64. Considering that injunctive relief generally avails upon the showing of a clear legal right to such relief, the inability or unwillingness to lay bare the precise statutory basis for the  prayer  for  injunction  is  an  obvious  impediment to a successful

application. Nonetheless, the error of the SEC in granting the CDO without stating which kind of CDO it was issuing is more unpardonable, as it is an act that contravenes due process of law.



We have particularly required, in administrative proceedings, that the body or tribunal “in all controversial questions, render its decision in such a manner that the parties to the proceeding can know the various issues involved, and the reason for the decision rendered.”[54] This requirement is vital, as its fulfillment would afford the adverse party the opportunity to interpose a reasoned and intelligent appeal that is responsive to the grounds cited against it. The CDO extended by the SEC fails to provide the needed reasonable clarity of the rationale behind its issuance.



The subject CDO first refers to Section 64, citing its provisions, then stating: “[p]rescinding from the aforequoted, there can be no doubt whatsoever that the Commission is in fact mandated to take up, if expeditiously, any verified complaint praying for the provisional remedy of a cease and desist order.”[55] The CDO then discusses the nature of the right of GSIS to obtain the CDO, as well as “the urgent and paramount necessity to prevent serious damage because the stockholders’ meeting is scheduled on May 28, 2008 x x x” Had the CDO stopped there, the unequivocal impression would have been that the order is based on Section 64.



But the CDO goes on to cite Section 5.1, quoting paragraphs (i) and (n) in full, ratiocinating that under these provisions, the SEC had “the power to issue cease and desist orders to prevent fraud or injury to the public and such other measures necessary to carry out the Commission’s role as regulator.”[56] Immediately thence, the CDO cites Section 53.3 as providing “that whenever it shall appear to the Commission that nay person has engaged or is about to engage in any act or practice constituting a violation of any provision, any rule, regulation or order thereunder, the Commission may issue ex-parte a cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling compliance therewith.”[57]



The citation in the CDO of Section 5.1, Section 53.3 and Section 64 together may leave the impression that it is grounded on all three provisions, and that may very well have been the intention of the SEC. Assuming that is so, it is legally impermissible for the SEC to have utilized both Section 53.3 and Section 64 as basis for the CDO at the same time. The CDO under Section 53.3 is premised on distinctly different requisites than the CDO under Section 64.  Even more crucially, the lifetime of the CDO under Section 53.3 is confined to a definite span of ten (10) days, which is not the case with the CDO under Section 64. This CDO under Section 64 may be the object of a formal request for lifting within five (5) days from its issuance, a remedy not expressly afforded to the CDO under Section 53.3.



Any respondent to a CDO which cites both Section 53.3 and Section 64 would not have an intelligent or adequate basis to respond to the same. Such respondent would not know whether the CDO would have a determinate lifespan of ten (10) days, as in Section 53.3, or would necessitate a formal request for lifting within five (5) days, as required under Section 64.1. This lack of clarity is to the obvious prejudice of the respondent, and is in clear defiance of the constitutional right to due process of law. Indeed, the veritable mélange that the assailed CDO is, with its jumbled mixture of premises and conclusions, the antithesis of due process.



Had the CDO issued by the SEC expressed the length of its term, perhaps greater clarity would have been offered on what Section of the SRC it is based. However, the CDO is precisely silent as to its lifetime, thereby precluding much needed clarification. In view of the statutory differences among the three CDOs under the SRC, it is essential that the SEC, in issuing such injunctive relief, identify the exact provision of the SRC on which the CDO is founded. Only by doing so could the adversely affected party be able to properly evaluate whatever his responses under the law.



To make matters worse for the SEC, the fact that the CDO was signed, much less apparently deliberated upon, by only by one commissioner likewise renders the order fatally infirm.
The SEC is a collegial body composed of a Chairperson and four (4) Commissioners.[58] In order to constitute a quorum to conduct business, the presence of at least three (3) Commissioners is required.[59] In the leading case of GMCR v. Bell,[60] we definitively explained the nature of a collegial body, and how the act of one member of such body, even if the head, could not be considered as that of the entire body itself. Thus:

We hereby declare that the NTC is a collegial body requiring a majority vote out of the three members of the commission in order to validly decide a case or any incident therein.  Corollarily, the vote alone of the chairman of the commission, as in this case, the vote of Commissioner Kintanar, absent the required concurring vote coming from the rest of the membership of the commission to at least arrive at a majority decision, is not sufficient to legally render an NTC order, resolution or decision.

Simply put, Commissioner Kintanar is not the National Telecommunications Commission.  He alone does not speak for and in behalf of the NTC.  The NTC acts through a three-man body, and the three members of the commission each has one vote to cast in every deliberation concerning a case or any incident therein that is subject to the jurisdiction of the NTC.  When we consider the historical milieu in which the NTC evolved into the quasi-judicial agency it is now under Executive Order No. 146 which organized the NTC as a three-man commission and expose the illegality of all memorandum circulars negating the collegial nature of the NTC under Executive Order No. 146, we are left with only one logical conclusion:  the NTC is a collegial body and was a collegial body even during the time when it was acting as a one-man regime.[61]

          We can adopt a virtually word-for-word observation with respect to former Commissioner Martinez and the SEC. Simply put, Commissioner Martinez is not the SEC. He alone does not speak for and in behalf of the SEC. The SEC acts through a five-person body, and the five members of the commission each has one vote to cast in every deliberation concerning a case or any incident therein that is subject to the jurisdiction of the SEC.

          GSIS attempts to defend former Commissioner Martinez’s action, but its argument is without merit. It cites SEC Order No. 169, Series of 2008, whereby Martinez was designated as “Officer-in-Charge of the Commission for the duration of the official travel of the Chairperson to Paris, France, to attend the 33rd Annual Conference of the [IOSCO] from May 26-30, 2008.”[62] As officer-in-charge (OIC), Martinez was “authorized to sign all documents and papers and perform all other acts and deeds as may be necessary in the day-to-day operation of the Commission”.

 It is clear that Martinez was designated as OIC because of the official travel of only one member, Chairperson Fe Barin. Martinez was not commissioned to act as the SEC itself. At most, he was to act in place of Chairperson Barin in the exercise of her duties as Chairperson of the SEC. Under Section 4.3 of the SRC, the Chairperson is the chief executive officer of the SEC, and thus empowered to “execute and administer the policies, decisions, orders and  resolutions approved by the Commission,” as well as to “have the



general executive direction and supervision of the work and operation of the Commission.”[63] It is in relation to the exercise of these duties of the Chairperson, and not to the functions of the Commission, that Martinez was “authorized to sign all documents and papers and perform all other acts and deeds as may be necessary in the day-to-day operation of the Commission.”

GSIS likewise cites, as authority for Martinez’s unilateral issuance of the CDO, Section 4.6 of the SRC, which states that the SEC “may, for purposes of efficiency, delegate any of its functions to any department or office of the Commission, an individual Commissioner or staff member of the Commission except its review or appellate authority and its power to adopt, alter and supplement any rule or regulation.” Reliance on this provision is inappropriate. First, there is no convincing demonstration that the SEC had delegated to Martinez the authority to issue the CDO. The SEC Order designating Martinez as OIC only authorized him to exercise the functions of the absent Chairperson, and not of the Commission. If the Order is read as enabling Martinez to issue the CDO in behalf of the Commission, it would be akin to conceding that the SEC Chairperson, acting alone, can issue the CDO in behalf of the SEC itself. That again contravenes our holding in GMCR v. Bell.

In addition, it is clear under Section 4.6 that the ability to delegate functions to a single commissioner does not extend to the exercise of the review or appellate authority of the SEC. The issuance of the CDO is an act of the SEC itself done in the exercise of its original jurisdiction to review actual cases or controversies. If it has not been clear to the SEC before, it should be clear now that its power to issue a CDO can not, under the SRC, be delegated to an individual commissioner.



V.

          In the end, even assuming that the events narrated in our Resolution in A.M. No. 08-8-11-CA constitute sufficient basis to nullify the assailed decision of the Court of Appeals, still it remains clear that the reliefs GSIS seeks of this Court have no basis in law. Notwithstanding the black mark that stains the appellate court’s decision, the first paragraph of its fallo, to the extent that it dismissed the complaint of GSIS with the SEC for lack of jurisdiction and consequently nullified the CDO and SDO, defies unbiased scrutiny and deserves affirmation.



A.



          In its dispositive portion, the Court of Appeals likewise pronounced that the complaint filed by GSIS with the SEC should be barred from being considered “as an election contest in the RTC”, given that the fifteen (15) day prescriptive period to file an election contest with the RTC, under Section 3, Rule 6 of the Interim Rules, had already run its course.[64] Yet no such relief was requested by private respondents in their petition for certiorari filed with the Court of Appeals[65]. Without disputing the legal predicates surrounding this pronouncement, we note that its tenor, if not the text, unduly suggests an unwholesome pre-emptive strike. Given our observations in A.M. No. 08-8-11-CA of the “undue interest” exhibited by the author of the appellate court decision, such declaration is best deleted. Nonetheless, we do trust that any court or tribunal that may be confronted with that premise adverted to by the Court of Appeals would know how to properly treat the same.



B.



Finally, we turn to the sanction on the lawyers of GSIS imposed by the Court of Appeals.

          Nonetheless, we find that as a matter of law the sanctions are unwarranted. The charter of GSIS[66] is unique among government owned or controlled corporations with original charter in that it allocates a role for its internal legal counsel that is in conjunction with or complementary to the Office of the Government Corporate Counsel (OGCC), which is the statutory legal counsel for GOCCs. Section 47 of GSIS charter reads:

            SEC. 47. Legal Counsel.—The Government Corporate Counsel shall be the legal adviser and consultant of GSIS, but GSIS may assign to the Office of the Government Corporate Counsel (OGCC) cases for legal action or trial, issues for legal opinions, preparation and review of contracts/agreements and others, as GSIS may decide or determine from time to time: Provided, however, That the present legal services group in GSIS shall serve as its in-house legal counsel.

 The GSIS may, subject to approval by the proper court, deputize any personnel of the legal service group to act as special sheriff in the enforcement of writs and processes issued by the court, quasi-judicial agencies or administrative bodies in cases involving GSIS.[67]

          The designation of the OGCC as the legal counsel for GOCCs is set forth by statute, initially by Rep. Act No. 3838, then reiterated by the Administrative Code of 1987.[68] Given that the designation is statutory in nature, there is no impediment for Congress to impose a different role for the OGCC with respect to particular GOCCs it may charter. Congress appears to have done so with respect to GSIS, designating the OGCC as a “legal adviser and consultant,” rather than as counsel to GSIS. Further, the law clearly vests unto GSIS the discretion, rather than the duty, to assign cases to the OGCC for legal action, while designating the present legal services group of GSIS as “in-house legal counsel.” This situates GSIS differently from the Land Bank of the Philippines, whose own in-house lawyers have persistently  argued  before this Court to no avail on their alleged right to file petitions before us instead of the OGCC.[69] Nothing in the Land Bank  charter[70]  vested  it with the discretion to choose when to assign cases to the OGCC, notwithstanding the establishment of its own Legal Department.[71]

Congress is not bound to retain the OGCC as the primary or exclusive legal counsel of GSIS even if it performs such a role for other GOCCs. To bind Congress to perform in that manner would be akin to elevating the OGCC’s statutory role to irrepealable status, and it is basic that Congress is barred from passing irrepealable laws.[72]



C.
We close by acknowledging that the surrounding circumstances behind these petitions are unfortunate, given the events as narrated in A.M. No. 08-8-11-CA. While due punishment has been meted on the errant magistrates, the corporate world may very well be reminded that  the  members  of  the  judiciary  are not to be viewed or treated asmere pawns or puppets in the internecine fights businessmen and their associates wage against other businessmen in the quest for corporate dominance. In the end, the petitions did afford this Court to clarify consequential points of law, points rooted in principles which will endure long after the names of the participants in these cases have been forgotten.



          WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack of capacity of the petitioner to bring forth the suit.

          The petition in G.R. No. 183905 is DISMISSED for lack of merit except that the second and third paragraphs of the fallo of the assailed decision dated 23 July 2008 of the Court of Appeals, including subparagraphs (1), (2), 2(a), 2(b), 2(c) and 2(d) under the second paragraph, are hereby DELETED.



          No pronouncements as to costs.



SO ORDERED.

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