1

Republic of the PhilippinesSUPREME COURT

ManilaEN BANC

G.R. No. L-20886 April 27, 1967NATIONAL MARKETING CORPORATION (NAMARCO), plaintiff-appellant,vs.ASSOCIATED FINANCE COMPANY, INC., and FRANCISCO SYCIP, defendants. FRANCISCO SYCIP, defendant-appellee.Tomas   P.   Matic,   Jr,.   for   plaintiff   and   appellant.Francisco Sycip in his behalf as defendant and appellee.

D E C I S I O NDIZON, J.:Appeal by the National Marketing Corporation — hereinafter referred to as NAMARCO, from the decision of the Court of First Instance of Manila in Civil Case No. 45770 ordering the Associated Finance Company, Inc. — hereinafter referred to as the ASSOCIATED — to pay the NAMARCO the sum of P403,514.28, with legal interest thereon from the date of filing of the action until fully paid, P80,702.26 as liquidated damages, P5,000.00 as attorney’s fees, plus costs, but dismissing the complaint insofar as defendant Francisco Sycip was concerned, as well as the latter’s counterclaim. The appeal is only from that portion of the decision dismissing the case as against Francisco Sycip.On March 25, 1958, ASSOCIATED, a domestic corporation, through its President, appellee Francisco Sycip, entered into an agreement to exchange sugar with NAMARCO, represented by its then General Manager, Benjamin Estrella, whereby the former would deliver to the latter 22,516 bags (each weighing 100 pounds) of “Victorias” and/or “National” refined sugar in exchange for 7,732.71 bags of “Busilak” and 17,285.08 piculs of “Pasumil” raw sugar belonging to NAMARCO, both agreeing to pay liquidated damages equivalent to 20% of the contractual value of the sugar should either party fail to comply with the terms and conditions stipulated (Exhibit A). Pursuant thereto, on May 19,1958, NAMARCO delivered to ASSOCIATED 7,732.71 bags of “Busilak” and 17,285.08 piculs of “Pasumil” domestic raw sugar. As ASSOCIATED failed to deliver to NAMARCO the 22,516 bags of “Victoria” and/or “National” refined sugar agreed upon, the latter, on January 12, 1959, demanded in writing from the ASSOCIATED either (a) immediate delivery thereof before January 20, or (b) payment of its equivalent cash value amounting to P372,639.80.On January 19, 1959, ASSOCIATED, through Sycip, offered to pay NAMARCO the value of 22,516 bags of refined sugar at the rate of P15.30 per bag, but the latter rejected the offer. Instead, on January 21 of the same year it demanded payment of the 7,732.71 bags of “Busilak” raw sugar at P15.30 per bag, amounting to P118,310.40 and of the 17,285.08 piculs of “Pasumil” raw sugar at P16.50 per picul, amounting, to P285.203.82, or a total price of P403,514.28 for both kinds of sugar, based on the sugar quotations (Exh. H) as of March 20, 1958 — the date when the exchange agreement was entered into.As ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar delivered to it, inspite of repeated demands therefore, NAMARCO instituted the present action in the lower court to recover the sum of P403,514.28 in payment of the raw sugar received by defendants from it; P80,702.86 as liquidated damages; P10,000.00 as attorney’s fees, expenses of litigation and exemplary damages, with legal interest thereon from the filing of the complaint until fully paid.In their amended answer defendants, by way of affirmative defenses, alleged that the correct value of the sugar delivered by NAMARCO to them was P259,451.09 or P13.30 per bag of 100 lbs. weight (quedan basis) and not P403,514.38 as claimed by NAMARCO. As counterclaim they prayed for the award of P500,000.00 as moral damages, P100,000.00 as exemplary damages and P10,000.00 as attorney’s fees.After due trial court rendered the appealed judgment. The appeal was taken to the Court of Appeals, but on January 15, 1963 the latter certified the case to us for final adjudication pursuant to sections 17 and 31 of the Judiciary Act of 1948, as amended, the amount involved being more than P200,000.00, exclusive of interests and cost.The only issue to be resolved is whether, upon the facts found by the trial court, — which, in our opinion, are fully supported by the evidence — Francisco Sycip may be held liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor of NAMARCO.The evidence of record shows that, of the capital stock of ASSOCIATED, Sycip owned P60,000.00 worth of shares, while his wife — the second biggest stockholder — owned P20,000.00 worth of shares; that the par value of the subscribed capital stock of ASSOCIATED was only P105,000.00; that negotiations that lead to the execution of the exchange agreement in question were conducted exclusively by Sycip on behalf of ASSOCIATED; that, as a matter of fact, in the course of his testimony, Sycip referred to himself as the one who contracted or transacted the business in his personal capacity, and asserted that the exchange agreement was his personal contract; that it was Sycip who made personal representations and gave assurances that ASSOCIATED was in actual

2

possession of the 22,516 bags of “Victorias” and/or “National” refined sugar which the latter had agreed to deliver to NAMARCO, and that the same was ready for delivery; that, as a matter of fact, ASSOCIATED was at that time already insolvent; that when NAMARCO made demands upon ASSOCIATED to deliver the 22,516 bags of refined sugar it was under obligation to deliver to the former, ASSOCIATED and Sycip, instead of making delivery of the sugar, offered to pay its value at the rate of P15.30 per bag — a clear indication that they did not have the sugar contracted for.The foregoing facts, fully established by the evidence, can lead to no other conclusion than that Sycip was guilty of fraud because through false representations he succeeded in inducing NAMARCO to enter into the aforesaid exchange agreement, with full knowledge, on his part, on the fact that ASSOCIATED whom he represented and over whose business and affairs he had absolute control, was in no position to comply with the obligation it had assumed. Consequently, he cannot now seek refuge behind the general principle that a corporation has a personality distinct and separate from that of its stockholders and that the latter are not personally liable for the corporate obligations. To the contrary, upon the proven facts, We feel perfectly justified in “piercing the veil of corporate fiction” and in holding Sycip personally liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor of appellant. It is settled law in this and other jurisdictions that when the corporation is the mere alter ego of a person, the corporate fiction may be disregarded; the same being true when the corporation is controlled, and its affairs are so conducted as to make it merely an instrumentality, agency or conduit of another (Koppel Phils., etc. vs. Yatco, etc., 43 O.G. No. 11. Nov. 1947; Yutivo Sons, etc. vs. Court of Tax Appeals, etc., G.R. No. L-13203, promulgated on January 28, 1961).Wherefore, the decision appealed from is modified by sentencing defendant-appellee Francisco Sycip to pay, jointly and severally with the Associated Finance Company, Inc., the sum of money which the trial court sentenced the latter to pay to the National Marketing Corporation, as follows: the sum of FOUR HUNDRED THREE THOUSAND FIVE HUNDRED FOURTEEN PESOS, and TWENTY-EIGHT CENTAVOS P403,514.28), with interest at the legal rate from the date of the filing of the action until fully paid plus an additional amount of EIGHTY THOUSAND SEVEN HUNDRED TWO PESOS and EIGHTY-SIX CENTAVOS (P80,702.86) as liquidated damages and P5,000.00 as attorney’s fees and further to pay the costs. With costs.Concepcion,   C.J.,   Reyes,   J.B.L.,   Regala,   Makalintal,   Bengzon,   J.P.,   Zaldivar   and   Sanchez   JJ.,   concur.Castro, J., took no part.

SUPREME COURT FIRST DIVISION A.C. RANSOM LABOR UNION-CCLU, Petitioner, -versus- G.R. No. L-69494 June 10, 1986 NATIONAL LABOR RELATIONS COMMISSION, First Division, A.C. RANSOM (PHILS.) CORPORATION, RUBEN HERNANDEZ, MAXIMO C. HERNANDEZ, JR., PORFIRIO R. VALENCIA, LAURA H. CORNEJO, FRANCISCO HERNANDEZ, CELESTINO C. HERNANDEZ & MA. ROSARIO HERNANDEZ, Respondents. x---------------------------------------------------x D E C I S I O N

3

MELENCIO-HERRERA, J.: The facts relevant to this case may be related as follows: 1. Respondent A. C. Ransom (Philippines) Corporation (RANSOM, for short) was established in 1933 by Maximo C. Hernandez, Sr. It was a “family” corporation, the stockholders of which were/are members of the Hernandez family. It has a compound in Las Piñas, Rizal, where it has been engaged in the manufacture mainly of ink and articles associated with ink. chanroblespublishingcompany 2. On June 6, 1961, employees of RANSOM, most of them being members of petitioner Labor UNION, went on strike and established a picket line which, however, was lifted on June 21st with most of the strikers returning and being allowed to resume their work by RANSOM. Twenty-two (22) strikers were refused reinstatement by the Company. 3. During 1969, the same Hernandez family organized another corporation, Rosario Industrial Corporation (ROSARIO, for short) which also engaged, in the RANSOM Compound, in the business of manufacture of ink and products associated with ink. chanroblespublishingcompany 4. The strike became the subject of Cases Nos. 2848 - ULP and 2880 - ULP of the Court of Industrial Relations which, on December 19, 1972, ordered RANSOM “its officers and agents”, to reinstate the 22 strikers with back wages from July 25, 1969. 5. On April 2, 1973, RANSOM filed an application for clearance to close or cease operations effective May 1, 1973, which was granted by the Ministry of Labor and Employment in its Order of June 7, 1973, without prejudice to the right of employees to seek redress of grievance, if any. Although it has stopped operations. RANSOM has continued its personality as a corporation. For practical purposes, reinstatement of the 22 strikers has been precluded. As a matter of fact, reinstatement is not an issue in this case. chanroblespublishingcompany 6. Back wages of the 22 strikers were subsequently computed at P164,984.00, probably in early 1974. The exact date is not reflected in the record. chanroblespublishingcompany 7 Up to September 9, 1976, petitioner UNION had filed about ten (10) motions for execution against RANSOM; but all of them could not be implemented, presumably for failure to find leviable assets of RANSOM; although it appears that, in 1975, RANSOM had sold machineries and equipment for P2 million to Revelations Manufacturing Corporation. chanroblespublishingcompany 8. Directly related to this case is the last Motion for Execution, dated December 18, 1978, filed by petitioner UNION wherein it asked that officers and agents of RANSOM be held personally liable for payment of the back wages. That Motion was granted by Labor Arbiter, Tito F. Genilo, on March 11, 1980 (The GENILO ORDER), wherein he expressly authorized a Writ of Execution to be issued for P164,984.00 (the back wages) against RANSOM

4

and seven officers and directors of the Company who are the named individual respondents herein. RANSOM took an appeal to NLRC which affirmed the GENILO ORDER, except as modified in the body of its decision of July 31, 1984. chanroblespublishingcompany 9. In RANSOM’s appeal to the NLRC, two issues were raised: (a) One of the issues was: “THE DECISION OF THE INDUSTRIAL RELATIONS COURT HAVING BECOME FINAL AND EXECUTORY IN 1973, IS IT ENFORCEABLE BY A WRIT OF EXECUTION ISSUED IN 1980 OR MORE THAN FIVE YEARS AFTER THE FINALITY OF THE DECISION SOUGHT TO BE ENFORCED?” The corresponding ruling made by NLRC was: “Perforce, respondent’s theory that execution proceedings must stop after the lapse of five (5) years and that a motion to revive need be filed, must fail. Suffice it to state also that the statute of limitations has been devised to operate primarily against those who sleep on their rights, not against those who assert their right but fail for causes beyond their control. The above recital of facts contradicts respondent’s contention that the CIR decision of August 19, 1972 had remained dormant to require a motion to revive.” (b) The second issue raised was: “IS THE JUDGMENT AGAINST A CORPORATION TO REINSTATE ITS DISMISSED EMPLOYEES WITH BACKWAGES, ENFORCEABLE AGAINST ITS OFFICERS AND AGENTS, IN THEIR INDIVIDUAL, PRIVATE AND PERSONAL CAPACITIES, WHO WERE NOT PARTIES IN THE CASE WHERE THE JUDGMENT WAS RENDERED;” chanroblespublishingcompany The NLRC ruling was: “As to the liability of the respondent’s officers and agents, we agree with the contention of the respondent-appellant that there is nothing in the Order dated May 11, 1980 that would justify the holding of the individual officers and agents of respondent in their personal capacity. As a general rule, officers of the corporation are not liable personally for the official acts unless they have exceeded the scope of their authority. In the absence of evidence showing that the officers mentioned in the Order of the Labor Arbiter dated March 11, 1980 have exceeded their authority, the writ of execution can not be enforced against them, especially so since they were not given a chance to be heard.” chanroblespublishingcompany

5

RANSOM and the seven individual respondents in this case have not appealed from the ruling of the NLRC that Section 6, Rule 39, is not inviolable by them in regards to the execution of the decision of December 19, 1972. Hence, the issue can no longer be raised herein. Even if the said section were applicable, the 5-year period therein mentioned may not have expired by December 18, 1978 because the period should be counted only from the time the back wages were determined, which could have been in early 1974. chanroblespublishingcompany We now come to the NLRC’s decision upholding non-personal liabilities of the individual respondents herein for back wages of the 22 strikers. (a) Article 265 of the Labor Code, in part, expressly provides: “Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full back wages.” Article 273 of the Code provides that: “Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months.” (b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides: “(c) ‘Employer’ includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer.” The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the “person acting in the interest of (the) employer” RANSOM. The corporation, only in the technical sense, is the employer. chanroblespublishingcompany The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law. In the Minimum Wage Law, Section 15(b) provided: “(b) If any violation of this Act is committed by a corporation, trust, partnership or association, the manager or in his default, the person acting as such when the violation took place, shall be responsible. In the case of a government corporation, the managing head shall be made responsible, except when shown that the violation was due to an act or commission of some other person, over whom he has no control, in which case the latter shall be held responsible.” chanroblespublishingcompany In PD 525, where a corporation fails to pay the emergency

6

allowance therein provided, the prescribed penalty “shall be imposed upon the guilty officer or officers” of the corporation. chanroblespublishingcompany (c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM. (d) The record does not clearly identify “the officer or officers” of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal responsibility is with the “Manager or in his default, the person acting as such.” In RANSOM, the President appears to be the Manager. chanroblespublishingcompany (e) Considering that non-payment of the back wages of the 22 strikers has been a continuing situation, it is our opinion that the personal liability of the RANSOM President, at the time the back wages were ordered to be paid should also be a continuing joint and several personal liabilities of all who may have thereafter succeeded to the office of president; otherwise, the 22 strikers may be deprived of their rights by the election of a president without leviable assets. chanroblespublishingcompany WHEREFORE, the questioned Decision of the National Labor Relations Commission is SET ASIDE, and the Order of Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated with the modification that personal liability for the back wages due the 22 strikers shall be limited to Ruben Hernandez, who was President of RANSOM in 1974, jointly and severally with other Presidents of the same corporation who had been elected as such after 1972 or up to the time the corporate life was terminated. chanroblespublishingcompany SO ORDERED. chanroblespublishingcompany Abad Santos, Yap, Cruz and Paras,[**] JJ., concur. chanroblespublishingcompany Narvasa, J., no part. C

.

7

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION G.R. No. 79907 March 16, 1989SAMUEL CASAS LIM, petitioner, vs.THE NATIONAL LABOR RELATIONS COMMISSION and VICTORIA R. CALSADO, respondents. G.R. No. 79975. March 16, 1989 SWEET LINES, INC., petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION; HON. NESTOR C. LIM (In his capacity as Labor Arbiter of the Ministry of Labor and Employment and VICTORIA R. CALSADO, respondents. Puruganan, Chato, Chato & Tan Law Office for petitioner. Leo C. Romero for petitioner Sweet Lines, Inc. Andrea R. dela Cueva for Victoria R. Calsado.  CRUZ, J.:These two cases have been consolidated because they relate to the same factual antecedents and the same private respondent. The issues are:

1. In G.R. No. 79975, whether or not the private respondent was an employee of the petitioner and, if so, had been illegally dismissed; and corollarily, whether or not the NLRC had jurisdiction over their dispute. 2. In G.R. No. 79907, whether or not the petitioner could be held solidarity liable with Sweet Lines, Inc. to the private respondent.

The record shows that private respondent Victoria Calsado was hired by Sweet Lines, Inc. on March 5, 1981, as Senior Branch Officer of its International Accounts Department for a fixed salary and a stipulated 5 % commission on sales production. On December 1, 1983, after tendering her resignation to accept another offer of employment, she was persuaded to remain with an offer of her promotion to Manager of the Department with corresponding increase in compensation, which she accepted. She was also allowed to buy a second-hand Colt Lancer pursuant to a liberal car plan under which one-half of the cost was to be paid by the company and the other half was to be deducted from her salary. Relations began to sour later, however, when she repeatedly asked for payment of her commissions, which had accumulated and were long overdue. She also complained of the inordinate demands on her time even when she was sick and in the hospital. Finally, on July 16, 1985, she was served with a letter from Samuel Casas Lim, the other petitioner, informing her that her "employment with Sweet Lines" would terminate on August 5, 1985. Efforts were also taken by Sweet Lines to forcibly take the car from her, culminating in an action for replevin against her in the regional trial court of Manila. On August 14, 1985, Calsado filed a complaint against both petitioners for illegal dismissal, illegal deduction, and unpaid wages and commissions plus moral and exemplary damages, among other claims. 1 There followed an extended hearing where she testified on the details of her employment, emphasizing her unsatisfactory treatment by the management of Sweet Lines and especially the termination of her services without the required notice and hearing and without valid cause. She also presented four other witnesses to corroborate her charges. The respondents' defenses were based mainly on the claim that Calsado was not an employee of Sweet Lines but an independent contractor and that therefore their dispute with her came under the jurisdiction of the civil courts and not of the Labor Arbiter. 2 On this matter the private respondent pointedly comments:

At this point, private respondent would like to underscore the fact that while private respondent in the proceedings before the Labor Arbiter presented five witnesses including herself, all of whom were cross-examined by petitioners, and numerous documents which were marked as Exhs. "A" to "GG-8d" and 858 receipts and bills, all of which were duly identified and testified to by private respondent and her witnesses and examined by petitioners, petitioner failed to present any single evidence, testimonial or documentary, to controvert private respondent's evidence. All that they presented were their unsubstantiated pleadings not one of which was under oath, not even their position paper which, under the NLRC rules (Sec. 2, Rule 7, Revised Rules of the NLRC), have to be verified. 3

On December 29, 1986, decision was rendered against the two petitioners by the Labor Arbiter 4 who held them liable in solidum to the complainant for the following amounts:

8

(a) Separation pay equivalent to one month pay for every year of service based on her latest basic salary of P2,500.00 plus allowance of P500.00, or a total monthly pay of P3,000.00; (b) Backwages based on her last monthly pay rate of P3,000.00 to be computed from the time of her dismissal to the actual payment of her separation pay; (c) Proportionate 13th month pay for the year 1985; (d) Sales commission in the sum of P432,656.68; (e) Moral damages of P100,000.00; (f) Exemplary damages of P10,000.00; and (g) Attorney's fees of P10,000.00 plus 25 % of the total monetary awards in favor of the complainant.

The decision was appealed to the National Labor Relations Commission and affirmed in toto except as to the attorney's fees, which were reduced to 10% of the total award. 5 Both Sweet Lines and Lim then came to us in separate petitions to raise the above-stated issues. On October 14, 1987, we issued a temporary restraining order against the enforcement of the decision of the public respondent dated September 11, 1987. 6 The petitions were consolidated on December 7, 1987, and given due course on May 16, 1987, with the parties being required to submit their respective memoranda. On the first question, we hold that the employee-employer relations between Calsado and Sweet Lines have been sufficiently established. The following documents submitted by the former and not controverted by the latter should belie the claim that Calsado was only an independent contractor over whom Sweet Lines had no control.

1. Certification issued by Sweet Lines, lnc. dated May 2l,1984, stating that private respondent 'is employed with this company since March 5, 1982 up to the present, presently designated as International Accounts Manager of the Sweet Lines, Inc., Manila Branch." (Exh. "W" )2. Termination letter issued by Samuel Casas Lim to private respondent reading. 'Your employment with Sweet lines, Inc. will cease effective August 15, 1985. In connection with the foregoing, you are entitled to (1) separation pay equivalent to one half month of every year of service ... ; (2) The computed money value of unused vacation leave ... ; (3) Thirteenth month pay ... ;" (Exh. "W")3. Notice of private respondent's promotion effective December 1, 1982 from Senior Branch Officer to Manager, International Accounts, with an increase in basic salary from P1,250 to P2,500 a month; (Exh. "D") 4. Computation of her salary, allowance and 13th month pay differentials on account of her promotion, prepared and approved by the proper officials of petitioner Sweet Lines, Inc. whose signatures appear thereon; (Exh. "E") 5. Certification dated September 6, 19M issued by the petitioner company, subscribed and sworn to before a notary public declaring that private respondent was then an Account Executive of Sweet Lines, Inc.; (Exh. "E") 6. Certification, notarized on January 10, 1985, by Atty. Gregorio Francisco, counsel for petitioner company, that private respondent "is a bona fide employee of Sweet Lines, Inc. and presently holding the position of Manager, International Account.' (Exh. "Y") 7. Approved application for sick leave of private respondent for 15 days from March 7, 1985 to April 3, 1985. (Exh. "I")

There is in the above exhibits a consistent and categorical recognition of Calsado as an employee of petitioner Sweet Lines. Indeed, its notarized certification that Calsado was its bona fide employee is irrefutable. The petitioner cannot now argue that the grant to her of the 13th month pay and even the differential pay was a mere accomodation like the car plan (which, for that matter, is a benefit usually extended only to employees). If it is true that Sweet Lines had no control over her and left her free to determine her work schedule, there would have been no reason at all for its approval of her application for sick leave from March 7, 1985 to April 3, 1985. The termination letter itself, which was signed by the other petitioner as Vice President of Sweet Lines, said she was "entitled" to certain payments as a result of the cessation of her "employment with Sweet Lines, Inc." Sweet Lines has also failed to substantiate its allegation that Calsado was an independent contractor, as it should have, with evidence showing inter alia that she had the financial resources and other means or equipment to operate as such. One must prove what one alleges, but Sweet Lines confined itself to mere denials. At any rate, the determination of the existence of employee-employer relations is a factual finding which this Court will not disturb or reverse in the absence of a showing of grave abuse of discretion. We do not see such justification here. On the contrary, the ascertainment of the employment status of the private respondent was made on the basis of the criteria consistently employed by the Court in the determination of the employee- employer relationship. 7 We find from the record that all these test have been satisfied. Such relationship having been established, the third issue is automatically resolved and requires not much elaboration. Suffice it only to stress that the damages claimed by private respondent as a result of her illegal dismissal and the violation of the terms and conditions of her employment also come within the jurisdiction of the Labor Arbiter as a contrary rule would result in the splitting of

9

actions and the consequent multiplication of suits. So we recently affirmed in Limquiaco v. Ramolete 8 and more positively in National Union of Bank Employees v. Lazaro, 9 where we declared:

As we stated, the damages (allegedly) suffered by the petitioners only form part of the civil component of the injury arising from the unfair labor practice. Under Article 247 of the Code, "the civil aspects of all cases involving unfair labor practices which may include claims for damages and other affirmative relief, shall be under the jurisdiction of the labor arbiters.

On the fourth issue, we agree with petitioner Lim that he cannot be held personally liable with Sweet Lines for merely having signed the letter informing Calsado of her separation. There is no evidence that he acted with malice or bad faith. The letter, in fact, informed her not only of her separation but also of the benefits due her as a result of the termination of her services. It is true that Lim has raised this matter rather tardily and also that he belongs to a closed corporation controlled by the members of one family only. But these circumstances should not be allowed to operate against him if he is to be accorded substantial justice in the resolution of the private respondent's claim. As we said in Ortigas vs. Lufthansa German Airlines, 10 the Court is "clothed with ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that its consideration is necessary in arriving at a just decision of the case." As for the second charge, the mere fact that Lim is part of the family corporation does not mean that all its acts are imputable to him directly and personally. His acts were official acts, done in his capacity as Vice President of Sweet Lines and on its behalf. There is no showing that he acted without or in excess of his authority or was motivated by personal ill-will toward Calsado. The applicable decision is Sunio v. NLRC, 11 where it was held:

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents' back salaries.

The case of Ransom v. NLRC 12 is not in point because there the debtor corporation actually ceased operations after the decision of the Court of Industrial Relations was promulgated against it, making it necessary to enforce it against its former president. Sweet lines is still existing and able to satisfy the judgment in favor of the private respondent. The Solicitor General, invoking equity rather than law, observes that making Lim solidarity liable with Sweet Lines will ensure payment of Calsado's claim. But this precaution, even assuming it to be valid, is really unnecessary. in fact, as a condition for the issuance of our temporary restraining order of October 14, 1987, Sweet Lines posted as required a bond in the amount of P850,000.00, which should cover the amounts awarded to the private respondent.13 We especially uphold the award of moral and exemplary damages in view of the acts of harassment and bad faith testified to by the private respondent and not refuted by Sweet Lines. Her treatment during her employment, the delays in the payment of her commissions, the pressures exerted upon her even when she was sick in the hospital, the suggestion of one of the company officers that she discuss her complaints with him alone in a private place, her arbitrary separation, the questionable attempts to get the vehicle from her after her dismissal, among other aggravations, clearly demonstrate the validity of the private respondent's complaints. Finally, we hold that the contention of Sweet Lines that separation pay and back wages are inconsistent with each other is not well-taken. Separation pay is granted where reinstatement is no longer advisable because of strained relations between the employee and the employer. Back wages represent compensation that should have been earned but were not collected because of the unjust dismissal. The bases for computing the two are different, the first being usually the length of the employee's service and the second the actual period when he was unlawfully prevented from working. We have ordered the payment of both in proper case 14 as otherwise the employee might be deprived of benefits justly due him. Thus, if an employee who has worked only one year is sustained by the labor court after three years from his unjust dismissal, granting him separation pay only would entitle him to only one month salary. There is no reason why he should not also be paid three years back wages corresponding to the period when he could not return to his work or could not find employment elsewhere. WHEREFORE, subject to the modification that the award of backwages shall be limited to only three years, in accordance with existing policy, G.R. No. 79975 is DISMISSED, with costs against the petitioner, G.R. No. 79907 is GRANTED and petitioner Samuel Casas Lim is hereby absolved of liability in his personal capacity. The temporary restraining order dated October 14, 1987, is LIFTED. It is so ordered. Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.  Footnotes

10

1 Rollo, p. 29, (Annex "A' of Petition), G.R. No. 79975. 2 Ibid., p. 110. 3 Id., p. 342, Private Respondent's Memorandum p. 6. 4 Nestor C. Lim. 5 Rollo, p. 148, G.R. No. 79975. 6 Ibid., p. 151. 7 To determine whether an employer-employee relationship exists, the following elements are generally considered; (a) the selection and engagement of the employee; (b) the payment of wages; (c) the Power of dismissal; and (d) the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished as held in Bautista v. Inciong, 158 SCRA 665; Broadway Motors, Inc. v. NLRC, 156 SCRA 522; Besa v. Trajano, 146 SCRA 501; Rosario Brothers, Inc. v. Ople, 131 SCRA 72; Shipside, Inc. v. NLRC, 118 SCRA 99; Mafinco Trading Corp. v. Ople, 70 SCRA 139. 8 156 SCRA 162.9 157 SCRA 123. 10 64 SCRA 610, Perez vs. Court of Appeals, 127 SCRA 636; Ernesto vs. Court of Appeals, 131 SCRA 347; Asiatic Integrated Corporation v. Alikpala, 67 SCRA 60. 11 127 SCRA 390. 12 142 SCRA 269. 13 Rollo p. 162, G.R. No. 79975. 14 City Trust Finance Corp. v. NLRC, 157 SCRA 87; Santos v. NLRC, 154 SCRA 166; Metro Drug v. NLRC, et al., 143 SCRA 132; Luzon Brokerage v. Luzon Labor Union, 7 SCRA 116.

Republic of the PhilippinesSUPREME COURT

ManilaFIRST DIVISION

G.R. No. 90856 July 23, 1992ARTURO DE GUZMAN, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER MA. LOURDES A. SALES, AVELINO D. VALLESTEROL, ALEJANDRO Q. FRIAS, LINDA DE LA CRUZ, CORAZON M. DE LA FUENTE, LILIA F. FLORO, and MARIO F. JAYME, respondents. CRUZ, J.:

It is a fundamental principle of law and human conduct that a person "must, in the exercise of his rights and in the performance of his duties, act with justice, give every one his due, and observe honesty and good faith." 1 This is the principle we shall apply in the case at bar to gauge the petitioner's motives in his dealings with the private respondents.Arturo de Guzman was the general manager of the Manila office of the Affiliated Machineries Agency, Ltd., which was based in Hongkong. On June 30, 1986, he received a telex message from Leo A. Fialla, managing director of AMAL in its main office, advising him of the closure of the company due to financial reverses. This message triggered the series of events that are the subject of this litigation.Immediately upon receipt of the advise, De Guzman notified all the personnel of the Manila office. The employees then sent a letter to AMAL accepting its decision to close, subject to the payment to them of their current salaries, severance pay, and other statutory benefits. De Guzman joined them in these representations.These requests were, however, not heeded. Consequently, the employees, now herein private respondents, lodged a complaint with the NLRC against AMAL, through Leo A. Fialla and Arturo de Guzman, for illegal dismissal, unpaid wages or commissions, separation pay, sick and vacation leave benefits, 13th month pay, and bonus.For his part, the petitioner began selling some of AMAL's assets and applied the proceeds thereof, as well as the remaining assets, to the payment of his claims against the company. He also organized Susarco, Inc., with himself as its president and his wife as one of the incorporators and a member of the board of directors. This company is engaged in the same line of business and has the same clients as that of the dissolved AMAL.With this development, Susarco and its officers were impleaded in the amended complaint of the private respondents. Later, William Quasha and/or Cirilo Asperilla were also included in the suit as the resident agents of AMAL of the Philippines.

11

On November 7, 1986, the petitioner filed his own complaint with the NLRC against AMAL for his remaining unsatisfied claims.On May 29, 1987, Labor Arbiter Eduardo G. Magno, to whom the petitioner's complaint was assigned, rendered a decision ordering AMAL to pay the petitioner the amount of P371,469.59 as separation pay, unpaid salary and commissions, after deducting the value of the assets earlier appropriated by the petitioner. 2

On September 30, 1987, Labor Arbiter Ma. Lourdes A. Sales, who tried the private respondents' complaint, rendered a decision —1. Ordering Respondents AMAL and Arturo de Guzman to pay jointly and severally to each Complainant separation pay computed at one-half month pay for every year of service, backwages for one month, unpaid salaries for June 16-30, 1986, 13th month pay from January to June 30, 1986 and incentive leave pay equivalent to two and-a-half days pay;2. Dismissing the complaint against respondents Leo Fialla, William Quasha, Susarco, Inc. and its directors Susan de Guzman, Pacita Castaneda, George Estomata and Cynthia Serrano for lack of basis and/or merit;3. Dismissing the claims for damages for lack of basis;4. Ordering respondents AMAL and Arturo de Guzman to pay jointly and severally attorney's fees to Complainants equivalent to 10% of the monetary awards herein. 3

This decision was on appeal affirmed in toto by the NLRC, which is now faulted for grave abuse of discretion in this petition for certiorari.The petitioner does not dispute the jurisdiction of the Labor Arbiter and NLRC over the complaint of the private respondents against AMAL in view of their previous employment relationship. He argues, however, that the public respondents acted without or in excess of jurisdiction in holding him jointly and severally liable with AMAL as he was not an employer of the private respondents.The Solicitor General and the private respondents disagree. They maintain that the petitioner, being AMAL's highest local representative in the Philippines, may be held personally answerable for the private respondents' claims because he is included in the term "employer" under Art. 212 (c),(now e) of the Labor Code which provides:

Art. 212. Definitions. —xxx xxx xxx

c. "Employer" includes any person acting in the interest of an employer, directly or indirectly. . . .In the leading case of A.C. Ransom Labor Union-CCLU vs. NLRC, 4 as affirmed in the subsequent cases of Gudez vs.NLRC, 5 and Maglutac vs.NLRC, 6 this Court treated the president of the employer corporation as an "employer" and held him solidarily liable with the said corporation for the payment of the employees' money claims. So was the vice-president of the employer corporation in the case of Chua vs. NLRC. 7

The aforecited cases will not apply to the instant case, however, because the persons who were there made personally liable for the employees' claims were stockholders-officers of the respondent corporation. In the case at bar, the petitioner, while admittedly the highest ranking local representative of AMAL in the Philippines, is nevertheless not a stockholder and much less a member of the board of directors or an officer thereof. He is at most only a managerial employee under Art. 212 (m) of the Labor Code, which reads in relevant part as follows:

Art 212. Definitions. —xxx xxx xxx

m. Managerial employee is one who is vested with powers and prerogatives to lay down and execute management policies and/or tohire, transfer, suspend, lay off, recall, discharge, assign or discipline employees. . . .

As such, the petitioner cannot be held directly responsible for the decision to close the business that resulted in his separation and that of the private respondents. That decision came directly and exclusively from AMAL. The petitioner's participation was limited to the enforcement of this decision in line with his duties as general manager of the company. Even in a normal situation, in fact, he would not be liable, as a managerial employee of AMAL, for the monetary claims of its employees. There should be no question that the private respondents' recourse for such claims cannot be against the petitioner but against AMAL and AMAL alone.The judgment in favor of the private respondents could have been enforced against the properties of AMAL located in this country except for one difficulty. The problem is that these properties have already been appropriated by the petitioner to satisfy his own claims against the company.By so doing, has the petitioner incurred liability to the private respondents?The Labor Arbiter believed he had because of his bad faith and ruled as follows:

Considering that Respondent A. de Guzman is guilty of bad faith in appropriating for himself the properties of Respondent AMAL to the prejudice of Complainants herein whose claims are known to Respondent at the time he made the disposition of AMAL's properties, he is held jointly and severally liable with Respondent AMAL for the

12

award of unpaid wages, separation pay, backwages for one month, 13th month pay and cash value of unused vacation leave.

In Velayo v. Shell Co. of the Philippines, 8 Commercial Air Lines, Inc. (CALI), knowing that it did not have enough assets to pay off its liabilities, called a meeting of its creditors where it announced that in case of non-agreement on a pro-rata distribution of its assets, including the C-54 plant in California, it would file insolvency proceedings. Shell Company of the Philippines, one of its creditors, took advantage of this information and immediately made a telegraphic assignment of its credits in favor of its sister corporation in the United States. The latter thereupon promptly attached the plane in California and disposed of the same, thus depriving the other creditors of their proportionate share in its value. The Court declared that Shell had acted in bad faith and betrayed the trust of the other creditors of CALI. The said company was ordered to pay them compensatory damages in a sum equal to the value of the C-54 plane at the time it assigned its credit and exemplary damages in the sum of P25,000.00.We quote with approval the following observations of Labor Arbiter Sales in her decision:

While the legitimacy of Respondent A. de Guzman's claims against AMAL is not questioned, it must be stated that the manner and the means by which he satisfied such claims are evidently characterized by bad faith on his part. For one, Respondent A. de Guzman took advantage of his position as General Manager and arrogated to himself the right to retain possession and ownership of all properties owned and left by AMAL in the Philippines, even if he knew that Complainants herein have similar valid claims for unpaid wages and other employee benefits from the Respondent AMAL. . . .Another strong indication of bad faith on the part of Respondent A. de Guzman is his filing of a separate complaint against AMAL before the NLRC Arbitration Branch about four (4) months after the filing of the instant case without informing this Office about the existence of said case during the proceedings in the instant case. This case was deemed submitted for decision on May 18, 1987 but it was only on June 2, 1987 that Respondent A. de Guzman formally notified this Office through his Supplemental Position Paper of his pending complaint before Arbiter Eduardo Magno docketed as NLRC Case No. 11-4441-86. Under Rule V, Section 4 of the revised rules of the NLRC, it is provided that:

Sec. 4. CONSOLIDATION OF CASES — where there are two or more cases pending before different Labor Arbiters in the same Regional Arbitration Branch involving thesame employer and issues or the same parties with different issues, the case which was filed last shall be consolidated with the first to avoid unnecessary costs or delay. Such cases shall be disposed of by the Labor Arbiter to whom the first case was assigned. (Emphasis supplied).

Had Respondent A. de Guzman given timely notice of his complaint, his case could have been consolidated with this case and the issues in both cases could have been resolved in a manner that would give due consideration to the rights and liabilities of all parties in interest at the least, in case consolidation is objected to or no longer possible, the Complainants herein could have been given a chance to intervene in the other case so that whatever disposition might be rendered by Arbiter Magno would include consideration of Complainants' claims herein.

It is not disputed that the petitioner in the case at bar had his own claims against AMAL and consequently had some proportionate right over its assets. However, this right ceased to exist when, knowing fully well that the private respondents had similarly valid claims, he took advantage of his position as general manager and applied AMAL's assets in payment exclusively of his own claims.According to Tolentino in his distinguished work on the Civil Code:

The exercise of a right ends when the right disappears, and it disappears when it is abused, especially to the prejudice of others. The mask of a right without the spirit of justice which gives it life, is repugnant to the modern concept of social law. It cannot be said that a person exercises a right when he unnecessarily prejudices another or offends morals or good customs. Over and above the specific precepts of positive law are the supreme norms of justice which the law develops and which are expressed in three principles: honeste vivere, alterum non laedre and just suum quique tribuere; and he who violates them violates the law. For this reason, it is not permissible to abuse our rights to prejudice others. 9

The modern tendency, he continues, is to depart from the classical and traditional theory, and to grant indemnity for damages in cases where there is an abuse of rights, even when the act is not illicit. Law cannot be given an anti-social effect. If mere fault or negligence in one's acts can make him liable for damages for injury caused thereby, with more reason should abuse or bad faith make him liable. A person should be protected only when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in good faith; but not when he acts with negligence or abuse. 10

The above-mentioned principles are contained in Article 19 of the Civil Code which provides:Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

This is supplemented by Article 21 of the same Code thus:

13

Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

Applying these provisions, we hold that although the petitioner cannot be made solidarily liable with AMAL for the monetary demand of its employees, he is nevertheless directly liable to them for his questionable conduct in attempting to deprive them of their just share in the assets of AMAL. Under Art. 2219, (10) of the Civil Code, moral damages may be recovered for the acts referred to in Art. 21. InBert Osmeña & Associates vs. Court of Appeals, 11 we held that "fraud and bad faith having been established, the award of moral damages is in order." And in Pan Pacific Company (Phil.) vs. Phil. Advertising Corp., 12 moral damages were awarded against the defendant for its wanton and deliberate refusal to pay the just debt due the plaintiff.It is settled that the court can grant the relief warranted by the allegation and the proof even if it is not specifically sought by the injured party. 13 In the case at bar, while the private respondents did not categorically pray for damages, they did allege that the petitioner, taking advantage of his position as general manager, had appropriated the properties of AMAL in payment of his own claims against the company. That was averment enough of the injury they suffered as a result of the petitioner's bad faith.The fact that no actual or compensatory damages was proven before the trial court does not adversely affect the private respondents' right to recover moral damages. We have held that moral damages may be awarded in the cases referred to in the chapter on Human Relations of the Civil Code (Articles 19-36) without need of proof that the wrongful act complained of had caused any physical injury upon the complainant. 14

When moral damages are awarded, exemplary damages may also be decreed. 15 Exemplary damages are imposed by the way of example or correction for the public good, in additional to moral, temperate, liquidated or compensatory damages. 16 According to the Code Commission, "exemplary damages are required by public policy, for wanton acts must be suppressed. They are an antidote so that the poison of wickedness may not run through the body politic." 17 These damages are legally assessible against him.The petitioner asserts that, assuming the private respondents to have a cause of action against him for his alleged bad faith, the civil courts and not the Labor Arbiter have jurisdiction over the case.In Associated Citizen Bank, et al. vs. Judge Japson, 18 this Court held:

Primarily, the issue to be resolved is whether or not the respondent court has jurisdiction to hear and decide an action for damages based on the dismissal of the employee.On all fours to the above issue is the ruling of this Court in Primero v. Intermediate Appellate Court(156 SCRA 435 [1987]) which once again reiterated the doctrine that the jurisdiction of the Labor Arbiter under Article 217 of the Labor Code is broad and comprehensive enough to include claims for moral and exemplary damages sought to be recovered by an employee whose services has been illegally terminated by is employer (Ebon v. De Guzman, 113 SCRA 55 [1982]; Aguda v. Vallejos, 113 SCRA 69 [1982]; Getz Corporation v. Court of Appeals, 116 SCRA 86 [1982]).For the unlawful termination of employment, this Court in Primero v. Intermediate Appellate Court, supra, ruled that the Labor Arbiter had the exclusive and original jurisdiction over claims for moral and other forms of damages, so that the employee in the proceedings before the Labor Arbiter should prosecute his claims not only for reliefs specified under the Labor Code but also for damages under the Civil Code.. . . Question of damages which arose out of or connected with the labor dispute should be determined by the labor tribunal to the exclusion of the regular courts of justice (Limquiaco, Jr. v. Ramolete, 156 SCRA 162 [1987]). The regular courts have no jurisdiction over claims for moral and exemplary damages arising from illegal dismissal of an employee (Vargas v. Akai Philippines, Inc., 156 SCRA 531 [1987]).

Although the question of damages arising from the petitioner's bad faith has not directly sprung from the illegal dismissal, it is clearly intertwined therewith. The predicament of the private respondents caused by their dismissal was aggravated by the petitioner's act in the arrogating to himself all of AMAL's assets to the exclusion of its other creditors, including its employees. The issue of bad faith is incidental to the main action for illegal dismissal and is thus properly cognizable by the Labor Arbiter.We agree that, strictly speaking, the determination of the amount thereof would require a remand to the Labor Arbiter. However, inasmuch as the private respondents were separated in 1986 and this case has been pending since then, the interests of justice demand the direct resolution of this motion in this proceeding.As this Court has consistently declared:

. . . it is a cherished rule of procedure for this Court to always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if this case is remanded to the trial court only to have its decision raised again tot the Indeterminate Appellate Court and from there to this Court. (Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37)Remand of the case to the lower court for further reception of evidence is not necessary where the court is in a position to resolve the dispute based on the records before it. On many occasions, the Court, in the public interest and the expeditious administration of justice, has resolved actions on the merits instead of remanding them to the trial court for further proceedings, such as where the ends of justice would not be subserved by the remand of the

14

case or when public interest demands an early disposition of the case. (Lianga Bay Logging Co., Inc. v. CA, 157 SCRA 357)Sound practice seeks to accommodate the theory which avoids waste of time, effort and expense, both to the parties and the government, not to speak of delay in the disposal of the case (cf. Fernandez v. Garcia, 92 Phil. 592, 597). A marked characteristics of our judicial set-up is that where the dictates of justice so demand . . . the Supreme Court should act, and act with finality. (Li Siu Liat v. Republic, 21 SCRA 1039, 1046, citing Samal v. CA, 99 Phil. 230 and U.S. v. Gimenez, 34 Phil. 74). In this case, the dictates of justice do demand that this Court act, and act with finality. (Beautifont, Inc. v. CA, 157 SCRA 481)

It is stressed that the petitioner's liability to the private respondents is a direct liability in the form of moral and exemplary damages and not a solidary liability with AMAL for the claims of its employees against the company. He is being held liable not because he is the general manager of AMAL but because he took advantage of his position by applying the properties of AMAL to the payment exclusively of his own claims to the detriment of other employees.WHEREFORE, the questioned decision is AFFIRMED but with the modification that the petitioner shall not be held jointly and severally liable with AMAL for the private respondents' money claims against the latter. However, for his bad faith in arrogating to himself AMAL's properties to the prejudice of the private respondents, the petitioner is ordered: 1) to pay the private respondents moral damages in the sum of P20,00.00 and exemplary damages in the sum of P20,00.00; and 2) to return the assets of AMAL that he has appropriated, or the value thereof, with legal interests thereon from the date of the appropriation until they are actually restored, these amounts to be proportionately distributed among the private respondents in satisfaction of the judgment rendered in their favor against AMAL.SO ORDERED.Griño-Aquino, Medialdea and Bellosillo, JJ., concur. Footnotes

1 Article 19, Civil Code of the Philippines.2 Rollo, p. 56.3 Rollo p. 32.4 142 SCRA 269.5 183 SCRA 644.6 189 SCRA 767.7 182 SCRA 353.8 100 Phil. 186.9 Tolentino, Civil Code of the Philippines, 1990 Ed., Vol, 1, p. 61.10 Ibid.11 120 SCRA 395.12 23 SCRA 977.13 Ras vs. Sua, 25 SCRA 153; Northern Cement Corp. vs. IAC, 158 SCRA 408; Heirs of Celso Amarante vs. CA, 185 SCRA 585.14 Patricio vs. Leviste, 172 SCRA 774.15 Bert Osmeña and Associates vs. CA, 120 SCRA 395.16 Art. 2229, Civil Code of the Philippines.17 Report of the Code Commission, pp. 75-76.18 196 SCRA 404.

15

Republic of the PhilippinesSUPREME COURT

ManilaEN BANC

G.R. No. 132451 December 17, 1999CONGRESSMAN ENRIQUE T. GARCIA, petitioner, vs.HON. RENATO C. CORONA, in his capacity as the Executive Secretary, HON. FRANCISCO VIRAY, in his capacity as the Secretary of Energy, CALTEX PHILIPPINES INC., PILIPINAS SHELL PETROLEUM CORP. and PETRON CORP., respondents. YNARES-SANTIAGO, J.:On November 5, 1997, this Court in Tatad v. Secretary of the Department of Energy and Lagman, et al., v. Hon.Ruben Torres, et al., 1 declared Republic Act No. 8180, entitled "An Act Deregulating the Downstream Oil Industry and For Other Purposes", unconstitutional, and its implementing Executive Order No. 392 void.R.A. 8180 was struck down as invalid because three key provisions intended to promote free competition were shown to achieve the opposite result. More specifically, this Court ruled that its provisions on tariff differential, stocking of inventories, and predatory pricing inhibit fair competition, encourage monopolistic power, and interfere with the free interaction of the market forces.While R.A. 8180 contained a separability clause, it was declared unconstitutional in its entirety since the three (3) offending provisions so permeated the law that they were so intimately the esse of the law. Thus, the whole statute had to be invalidated.As a result of the Tatad decision, Congress enacted Republic Act No. 8479, a new deregulation law without the offending provisions of the earlier law. Petitioner Enrique T. Garcia, a member of Congress, has now brought this petition seeking to declare Section 19 thereof, which sets the time of full deregulation, unconstitutional. After failing in his attempts to have Congress incorporate in the law the economic theory he espouses, petitioner now asks us, in the name of upholding the Constitution, to undo a violation which he claims Congress has committed.The assailed Section 19 of R.A. 8479 states in full:

Sec. 19. Start of Full Deregulation. — Full deregulation of the Industry shall start five (5) months following the effectivity of this Act: Provided, however, That when the public interest so requires, the President may accelerate the start of full deregulation upon the recommendation of the DOE and the Department of Finance (DOF) when the prices of crude oil and petroleum products in the world market are declining and the value of the peso in relation to the US dollar is stable, taking into account relevant trends and prospects; Provided, further, That the foregoing provision notwithstanding, the five (5)-month Transition Phase shall continue to apply to LPG, regular gasoline and kerosene as socially-sensitive petroleum products and said petroleum products shall be covered by the automatic pricing mechanism during the said period.Upon the implementation of full deregulation as provided herein, the Transition Phase is deemed terminated and the following laws are repealed:a) Republic Act No. 6173, as amended;b) Section 5 of Executive Order No. 172, as amended;c) Letter of Instruction No. 1431, dated October 15, 1984;d) Letter of Instruction No. 1441, dated November 20, 1984, as amended;e) Letter of Instruction No. 1460, dated May 9, 1985;f) Presidential Decree No. 1889; andg) Presidential Decree No. 1956, as amended by Executive Order No. 137:Provided, however, That in case full deregulation is started by the President in the exercise of the authority provided in this Section, the foregoing laws shall continue to be in force and effect with respect to LPG, regular gasoline and kerosene for the rest of the five (5)-month period.

Petitioner contends that Section 19 of R.A. 8479, which prescribes the period for the removal of price control on gasoline and other finished products and for the full deregulation of the local downstream oil industry, is patently contrary to public interest and therefore unconstitutional because within the short span of five months, the market is still dominated and controlled by an oligopoly of the three (3) private respondents, namely, Shell, Caltex and Petron.The objective of the petition is deceptively simple. It states that if the constitutional mandate against monopolies and combinations in restraint oftrade 2 is to be obeyed, there should be indefinite and open-ended price controls on gasoline and other oil products for as long as

16

necessary. This will allegedly prevent the "Big 3" — Shell, Caltex and Petron — from price-fixing and overpricing. Petitioner calls the indefinite retention of price controls as "partial deregulation".The grounds relied upon in the petition are:

A.Sec. 19 OF R.A. NO. 8479 WHICH PROVIDES FOR FULL DEREGULATION FIVE (5) MONTHS OR EARLIER FOLLOWING THE EFFECTIVITY OF THE LAW, IS GLARINGLY PRO-OLIGOPOLY, ANTI-COMPETITION AND ANTI-PEOPLE, AND IS THEREFORE PATENTLY UNCONSTITUTIONAL FOR BEING IN GROSS AND CYNICAL CONTRAVENTION OF THE CONSTITUTIONAL POLICY AND COMMAND EMBODIED IN ARTCLE XII, SECTION 19 OF THE 1987 CONSTITUTION AGAINST MONOPOLIES AND COMBINATIONS IN RESTRAINT OF TRADE.

B.SAID SECTION 19 OF R.A. No. 8479 IS GLARINGLY PRO-OLIGOPOLY, ANTI-COMPETITION AND ANTI-PEOPLE, FOR THE FURTHER REASON THAT IT PALPABLY AND CYNICALLY VIOLATES THE VERY OBJECTIVE AND PURPOSE OF R.A. NO. 8479, WHICH IS TO ENSURE A TRULY COMPETITIVE MARKET UNDER A REGIME OF FAIR PRICES.

C.SAID SECTION 19 OF R.A. No. 8479, BEING GLARINGLY PRO-OLIGOPOLY, ANTI-COMPETITION AND ANTI-PEOPLE, BEING PATENTLY UNCONSTITUTIONAL AND BEING PALPABLY VIOLATIVE OF THE LAW'S POLICY AND PURPOSE OF ENSURING A TRULY COMPETITIVE MARKET UNDER A REGIME OF FAIR PRICES, IS A VERY GRAVE AND GRIEVOUS ABUSE OF DISCRETION ON THE PART OF THE LEGISLATIVE AND EXECUTIVE BRANCHES OF GOVERNMENT.

D.PREMATURE FULL DEREGULATION UNDER SECTION 19 OF R.A. NO. 8479 MAY AND SHOULD THEREFORE BE DECLARED NULL AND VOID EVEN AS THE REST OF ITS PROVISIONS REMAIN IN FORCE, SUCH AS THE TRANSITION PHASE OR PARTIAL DEREGULATION WITH PRICE CONTROLS THAT ENSURES THE PROTECTION OF THE PUBLIC INTEREST BY PREVENTING THE BIG 3 OLIGOPOLY'S PRICE-FIXING AND OVERPRICING. 3

The issues involved in the deregulation of the downstream oil industry are of paramount significance. The ramifications, international and local in scope, are complex. The impact on the nation's economy is pervasive and far-reaching. The amounts involved in the oil business are immense. Fluctuations in the supply and price of oil products have a dramatic effect on economic development and public welfare. As pointed out in the Tatad decision, few cases carry a surpassing importance on the daily life of every Filipino. The issues affect everybody from the poorest wage-earners and their families to the richest entrepreneurs, from industrial giants to humble consumers.Our decision in this case is complicated by the unstable oil prices in the world market. Even as this case is pending, the price of OPEC oil is escalating to record levels. We have to emphasize that our decision has nothing to do with worldwide fluctuations in oil prices and the counter-measures of Government each time a new development takes place.The most important part of deregulation is freedom from price control. Indeed, the free play of market forces through deregulation and when to implement it represent one option to solve the problems of the oil-consuming public. There are other considerations which may be taken into account such as the reduction of taxes on oil products, the reinstitution of an Oil Price Stabilization Fund, the choice between government subsidies taken from the regular taxpaying public on one hand and the increased costs being shouldered only by users of oil products on the other, and most important, the immediate repeal of the oil deregulation law as wrong policy. Petitioner wants the setting of prices to be done by Government instead of being determined by free market forces. His preference is continued price control with no fixed end in sight. A simple glance at the factors surrounding the present problems besetting the oil industry shows that they are economic in nature.R.A. 8479, the present deregulation law, was enacted to implement Article XII, Section 19 of the Constitution which provides:

The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.

This is so because the Government believes that deregulation will eventually prevent monopoly. The simplest form of monopoly exists when there is only one seller or producer of a product or service for which there are no substitutes. In its more complex form, monopoly is defined as the joint acquisition or maintenance by members of a conspiracy, formed for that purpose, of the power to control and dominate trade and commerce in a commodity to such an extent that they are able, as a group, to exclude actual or potential competitors from the field, accompanied with the intention and purpose to exercise such power. 4

Where two or three or a few companies act in concert to control market prices and resultant profits, the monopoly is called an oligopoly or cartel. It is a combination in restraint of trade.The perennial shortage of oil supply in the Philippines is exacerbated by the further fact that the importation, refining, and marketing of this precious commodity are in the hands of a cartel, local but made up of foreign-owned corporations. Before the start of deregulation, the three private respondents controlled the entire oil industry in the Philippines.

17

It bears reiterating at the outset that the deregulation of the oil industry is a policy determination of the highest order. It is unquestionably a priority program of Government. The Department of Energy Act of 1992 5 expressly mandates that the development and updating of the existing Philippine energy program "shall include a policy direction towards deregulation of the power and energy industry."Be that as it may, we are not concerned with whether or not there should be deregulation. This is outside our jurisdiction. The judgment on the issue is a settled matter and only Congress can reverse it. Rather, the question that we should address here is — are the method and the manner chosen by Government to accomplish its cherished goal offensive to the Constitution? Is indefinite price control in the manner proposed by petitioner the only feasible and legal way to achieve it?Petitioner has taken upon himself a most challenging task. Unquestionably, the direction towards which the nation's efforts at economic and social upliftment should be addressed is a function of Congress and the President. In the exercise of this function, Congress and the President have obviously determined that speedy deregulation is the answer to the acknowledged dominion by oligopolistic forces of the oil industry. Thus, immediately after R.A. 8180 was declared unconstitutional in the Tatad case, Congress took resolute steps to fashion new legislation towards the objective of the earlier law. Invoking the Constitution, petitioner now wants to slow down the process.While the Court respects the firm resolve displayed by Congress and the President, all departments of Government are equally bound by the sovereign will expressed in the commands of the Constitution. There is a need for utmost care if this Court is to faithfully discharge its duties as arbitral guardian of the Constitution. We cannot encroach on the policy functions of the two other great departments of Government. But neither can we ignore any overstepping of constitutional limitations. Locating the correct balance between legality and policy, constitutional boundaries and freedom of action, and validity and expedition is this Court's dilemma as it resolves the legitimacy of a Government program aimed at giving every Filipino a more secure, fulfilling and abundant life.Our ruling in Tatad is categorical that the Constitution's Article XII, Section 19, is anti-trust in history and spirit. It espouses competition. We have stated that only competition which is fair can release the creative forces of the market. We ruled that the principle which underlies the constitutional provision is competition. Thus:

Sec. 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition. The desirability of competition is the reason for the prohibition against restraint of trade, the reason for the interdiction of unfair competition, and the reason for regulation of unmitigated monopolies. Competition is thus the underlying principle of section 19, Article XII of our Constitution which cannot be violated by R.A. No. 8180. We subscribe to the observation of Prof. Gellhorn that the objective of anti-trust law is "to assure a competitive economy, based upon the belief that through competition producers will strive to satisfy consumer wants at the lowest price with the sacrifice of the fewest resources. Competition among producers allows consumers to bid for goods and services, and thus matches their desires with society's opportunity costs." He adds with appropriateness that there is a reliance upon "the operation of the "market" system (free enterprise) to decide what shall be produced, how resources shall be allocated in the production process, and to whom the various products will be distributed. The market system relies on the consumer to decide what and how much shall be produced, and on competition, among producers to determine who will manufacture it." 6

In his recital of the antecedent circumstances, petitioner repeats in abbreviated form the factual findings and conclusions which led the Court to declare R.A. 8180 unconstitutional. The foreign oligopoly or cartel formed by respondents Shell, Caltex and Petron, their indulging in price-fixing and overpricing, their blockade tactics which effectively obstructed the entry of genuine competitors, the dangers posed by the oil cartel to national security and economic development, and other prevailing sentiments are stated as axiomatic truths. They are repeated in capsulized context as the current background facts of the present petition.The empirical existence of this deplorable situation was precisely the reason why Congress enacted the oil deregulation law. The evils arising from conspiratorial acts of monopoly are recognized as clear and present. But the enumeration of the evils by our Tatad decision was not for the purpose of justifying continued government control, especially price control. The objective was, rather, the opposite. The evils were emphasized to show the need for free competition in a deregulated industry. And to be sure, the measures to address these evils are for Congress to determine, but they have to meet the test of constitutional validity.The Court respects the legislative finding that deregulation is the policy answer to the problems. It bears stressing that R.A. 8180 was declared invalid not because deregulation is unconstitutional. The law was struck down because, as crafted, three key provisions plainly encouraged the continued existence if not the proliferation of the constitutionally proscribed evils of monopoly and restraint of trade.In sharp contrast, the present petition lacks a factual foundation specifically highlighting the need to declare the challenged provision unconstitutional. There is a dearth of relevant, reliable, and substantial evidence to support petitioner's theory that price control must continue even as Government is trying its best to get out of regulating the oil industry. The facts of the petition are, in the main, a general dissertation on the evils of monopoly.

18

Petitioner overlooks the fact that Congress enacted the deregulation law exactly because of the monopoly evils he mentions in his petition. Congress instituted the lifting of price controls in the belief that free and fair competition was the best remedy against monopoly power. In other words, petitioner's facts are also the reasons why Congress lifted price controls and why the President accelerated the process. The facts adduced in favor of continued and indefinite price control are the same facts which supported what Congress believes is an exercise of wisdom and discretion when it chose the path of speedy deregulation and rejected Congressman Garcia's economic theory.The petition states that it is using the very thoughts and words of the Court in its Tatad decision. Those thoughts and words, however, were directed against the tariff differential, the inventory requirement, and predatory pricing, not against deregulation as a policy and not against the lifting of price controls.A dramatic, at times expansive and grandiloquent, reiteration of the same background circumstances narrated inTatad does not squarely sustain petitioner's novel thesis that there can be deregulation without lifting price controls.Petitioner may call the industry subject to price controls as deregulated. In enacting the challenged provision, Congress, on the other hand, has declared that any industry whose prices and profits are fixed by government authority remains a highly regulated one.Petitioner, therefore, engages in a legal paradox. He fails to show how there can be deregulation while retaining government price control. Deregulation means the lifting of control, governance and direction through rule or regulation. It means that the regulated industry is freed from the controls, guidance, and restrictions to which it used to be subjected. The use of the word "partial" to qualify deregulation is sugar-coating. Petitioner is really against deregulation at this time.Petitioner states that price control is good. He claims that it was the regulation of the importation of finished oil products which led to the exit of competitors and the consolidation and dominion of the market by an oligopoly, not price control. Congress and the President think otherwise.The argument that price control is not the villain in the intrusion and growth of monopoly appears to be pure theory not validated by experience. There can be no denying the fact that the evils mentioned in the petition arose while there was price control. The dominance of the so-called "Big 3" became entrenched during the regime of price control. More importantly, the ascertainment of the cause and the method of dismantling the oligopoly thus created are a matter of legislative and executive choice. The judicial process is equipped to handle legality but not wisdom of choice and the efficacy of solutions.Petitioner engages in another contradiction when he puts forward what he calls a self-evident truth. He states that a truly competitive market and fair prices cannot be legislated into existence. However, the truly competitive market is not being created or fashioned by the challenged legislation. The market is simply freed from legislative controls and allowed to grow and develop free from government interference. R.A. 8479 actually allows the free play of supply and demand to dictate prices. Petitioner wants a government official or board to continue performing this task. Indefinite and open-ended price control as advocated by petitioner would be to continue a regime of legislated regulation where free competition cannot possibly flourish. Control is the antithesis of competition. To grant the petition would mean that the Government is not keen on allowing a free market to develop. Petitioner's "self-evident truth" thus supports the validity of the provision of law he opposes.New players in the oil industry intervened in this case. According to them, it is the free market policy and atmosphere of deregulation which attracted and brought the new participants, themselves included, into the market. The intervenors express their fear that this Court would overrule legislative policy and replace it with petitioner's own legislative program.The factual allegations of the intervenors have not been refuted and we see no reason to doubt them. Their argument that the co-existence of many viable rivals create free market conditions induces competition in product quality and performance and makes available to consumers an expanded range of choices cannot be seriously disputed.On the other hand, the pleadings of public and private respondents both put forth the argument that the challenged provision is a policy decision of Congress and that the wisdom of the provision is outside the authority of this Court to consider. We agree. As we have ruled in Morfe v. Mutuc 7:

(I)t is well to remember that this Court, in the language of Justice Laurel, "does not pass upon question or wisdom, justice or expediency of legislation." As expressed by Justice Tuason: "It is not the province of the courts to supervise legislation and keep it within the bounds of propriety and common sense. That is primarily and exclusively a legislative concern." There can be no possible objection then to the observation of Justice Montemayor: "As long as laws do not violate any Constitutional provision, the Courts merely interpret and apply them regardless of whether or not they are wise or salutary." For they, according to Justice Labrador, "are not supposed to override legitimate policy and . . . never inquire into the wisdom of the law."It is thus settled, to paraphrase Chief Justice Concepcion in Gonzales v. Commission on Elections, that only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid. This is as it ought to be: The principle of separation of powers has in the main wisely allocated the respective authority of each department and confined its jurisdiction to such a sphere. There would then be intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the

19

judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last offender should be the courts of justice, to which rightly litigants submit their controversy precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be objections, even if valid and cogent, on its wisdom cannot be sustained.

In this petition, Congressman Garcia seeks to revive the long settled issue of the timeliness of full deregulation, which issue he had earlier submitted to this Court by way of a Partial Motion for Reconsideration in the Tatadcase. In our Resolution dated December 3, 1997, which has long become final and executory, we stated:

We shall first resolve petitioner Garcia's linchpin contention that the full deregulation decreed by R.A. No. 8180 to start at the end of March 1997 is unconstitutional. For prescinding from this premise, petitioner suggests that "we simply go back to the transition period, price control will be revived through the automatic pricing mechanism based on Singapore Posted Prices. The Energy Regulatory Board . . . would play a limited and ministerial role of computing the monthly price ceiling of each and every petroleum fuel product, using the automatic pricing formula. While the OPSF would return, this coverage would be limited to monthly price increases in excess of P0.50 per liter.We are not impressed by petitioner Garcia's submission. Petitioner has no basis in condemning as unconstitutional per se the date fixed by Congress for the beginning of the full deregulation of the downstream oil industry. Our Decision merely faulted the Executive for factoring the depletion of OPSF in advancing the date of full deregulation to February 1997. Nonetheless, the error of the Executive is now a non-issue for the full deregulation set by Congress itself at the end of March 1997 has already come to pass. March 1997 is not an arbitrary date. By that date, the transition period has ended and it was expected that the people would have adjusted to the role of market forces in shaping the prices of petroleum and its products. The choice of March 1997 as the date of full deregulation is a judgment of Congress and its judgment call cannot be impugned by this Court. 8

Reduced to its basic arguments, it can be seen that the challenge in this petition is not against the legality of deregulation. Petitioner does not expressly challenge deregulation. The issue, quite simply, is the timeliness or the wisdom of the date when full deregulation should be effective.In this regard, what constitutes reasonable time is not for judicial determination. Reasonable time involves the appraisal of a great variety of relevant conditions, political, social and economic. They are not within the appropriate range of evidence in a court of justice. It would be an extravagant extension of judicial authority to assert judicial notice as the basis for the determination. 9

We repeat that what petitioner decries as unsuccessful is not a final result. It is only a beginning. The Court is not inclined to stifle deregulation as enacted by Congress from its very start. We leave alone the program of deregulation at this stage. Reasonable time will prove the wisdom or folly of the deregulation program for which Congress and not the Court is accountable.Petitioner argues further that the public interest requires price controls while the oligopoly exists, for that is the only way the public can be protected from monopoly or oligopoly pricing. But is indefinite price control the only feasible and legal way to enforce the constitutional mandate against oligopolies?Art. 186 of the Revised Penal Code, as amended, punishes as a felony the creation of monopolies and combinations in restraint of trade. The Solicitor General, on the other hand, cites provisions of R.A. 8479 intended to prevent competition from being corrupted or manipulated. Section 11, entitled "Anti-Trust Safeguards", defines and prohibits cartelization and predatory pricing. It penalizes the persons and officers involved with imprisonment of three (3) to seven (7) years and fines ranging from One million to Two million pesos. For this purpose, a Joint Task Force from the Department of Energy and Department of Justice is created under Section 14 to investigate and order the prosecution of violations.Sec. 8 and 9 of the Act, meanwhile, direct the Departments of Foreign Affairs, Trade and Industry, and Energy to undertake strategies, incentives and benefits, including international information campaigns, tax holidays and various other agreements and utilizations, to invite and encourage the entry of new participants. Section 6 provides for uniform tariffs at three percent (3%).Sec. 13 of the Act provides for "Remedies", under which the filing of actions by government prosecutors and the investigation of private complaints by the Task Force is provided. Sections 14 and 15 provide how the Department of Energy shall monitor and prevent the occurrence of collusive pricing in the industry.It can be seen, therefore, that instead of the price controls advocated by the petitioner, Congress has enacted anti-trust measures which it believes will promote free and fair competition. Upon the other hand, the disciplined, determined, consistent and faithful execution of the law is the function of the President. As stated by public respondents, the remedy against unreasonable price increases is not the nullification of Section 19 of R.A. 8479 but the setting into motion of its various other provisions.For this Court to declare unconstitutional the key provision around which the law's anti-trust measures are clustered would mean a constitutionally interdicted distrust of the wisdom of Congress and of the determined exercise of executive power.Having decided that deregulation is the policy to follow, Congress and the President have the duty to set up the proper and effective machinery to ensure that it works. This is something which cannot be adjudicated into existence. This Court is only an umpire of last

20

resort whenever the Constitution or a law appears to have been violated. There is no showing of a constitutional violation in this case.WHEREFORE, the petition is DISMISSED.SO ORDERED.Bellosillo, Melo, Puno, Kapunan, Mendoza, Quisumbing, Purisima, Pardo, Buena and De Leon, Jr., JJ., concur.Davide, Jr., C.J., in the result. I also join Mr. Justice Panganiban in his separate opinion.Vitug, J., in the result.Panganiban, J., please see Separate Opinion.Gonzaga-Reyes, J., took no part. Spouse with counsel for intervenors.Separate OpinionsPANGANIBAN, J., separate opinion;In essence, deregulation shifts the burden of price control from the government to the "market forces" in order (1) to eliminate government intervention that may "do more harm than good" 1 and (2) to achieve a truly competitive market of fair prices. 2 It is also aimed at removing government abuse and corruption in price-setting. At bottom, deregulation is supposed to provide the best goods and services at the cheapest prices.The policy, however, is not an infallible cure to abuse, for the evil sought to be avoided may well pass on to the market players, particularly when they combine to restrain trade or engage in unfair competition. In the words of Prof. Romulo L. Neri of the Asian Institute of Management, "[t]he marker is motivated by price and profits (and sadly, not by moral values [or public interest]). The market does not automatically supply those who need (no matter how badly they need it) but only those who have the money to buy." 3

The buzz words of the third millennium are "deregulation," "globalization" and "liberalization." Territorial frontiers are virtually erased by these schemes, as goods and services are exchanged across borders unhampered by traditional tariffs, taxes, currency controls, quantitative restrictions and other protective barriers. Thus, states and governments tend to surrender some of their authorities and powers to the "market" and to the renewed energy of laissez faire, such that the threats to civil liberties and human rights, including economic rights, may shift from government abuses to the more bedeviling market forces that transcend boundaries and sovereignties. In developing countries more than in developed ones, such threats are real and ever present.

Judicial Reviewto Checks Abuses

This is where the power of judicial review comes in — to examine the legal effects of these new economic paradigms and, in the present controversy, to check whether the present Oil Deregulation Law (RA 8479) restrains rather than promotes free trade, in contravention of the Constitution. True, the President and Congress, not this Court, have the power and the prerogative to determine whether to adopt such market policies and, if so, under what conditions and circumstances. However, all such policies and their ramifications must conform to the Constitution. Otherwise, this Court has the duty to strike them down, not because they are unwise or inconvenient, but because they are constitutionally impermissible.Doctrinally, policies and acts of the political departments of government may be voided by this Court on either of two grounds — infringement of the Constitution or grave abuse of discretion. 4 An infringement may be proven by demonstrating that the words of the law directly contradict a provision of the fundamental law, or by presenting proof that the law authorizes or enables the respondents to violate the Constitution.

Petitioner Garcia's Thesis onUnconstitutionality Concerns Policy

Having set down the doctrinal legal parameters, let me now discuss the petitioner's thesis. Petitioner Enrique T. Garcia anchors his position on the alleged unconstitutionality of Section 19 of RA 8479, 5 which sets the full deregulation of the oil industry five months from the effectivity of the law, on the argument that said provision directly violates Section 19, Article XII of the Constitution, which reads as follows:

Sec. 19. The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.

He maintains that once Section 19 of RA 8479 is struck down, the government will be able to fix and lower petroleum prices indefinitely while awaiting the advent of "real" competition in the market.Petitioner contends that the three largest oil companies (the "Big Three") comprise an oligopoly of the downstream oil industry. Oligopolies, he claims, "negate free market competition and fair prices." He submits that "regulation through price control . . . is patently required by the public interest [and] the failure to regulate the oligopoly through price control is patently inimical to the national interest and patently negates, circumvents and contravenes Section 19, Article XII of the Constitution."In Tatad v. Secretary of the Department of Energy, 6 this Court defined a monopoly and a combination in restraint of trade as follows:

21

A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive right or power to carry on a particular business or trade, manufacture a particular article, or control the sale or the whole supply of a particular commodity. It is a form of market structure in which one or only a few firms dominate the total sales of a product or service. On the other hand, a combination in restraint of trade is an agreement or understanding between two or more persons, in the form of a contract, trust, pool, holding company, or other form of association, for the purpose of unduly restricting competition, monopolizing trade and commerce in a certain commodity, controlling its production, distribution and price, or otherwise interfering with freedom of trade without statutory authority. Combination in restraint of trade refers to the means, while monopoly refers to the end.

In that case, RA 8180, the predecessor of RA 8479, was struck down by this Court for being contrary to Section 19, Article XII of the Constitution. We took this action because we found that its provisions on (1) tariff differential, (2) minimum inventory and (3) predatory pricing "inhibit fair competition, encourage monopolistic power and interfere with the free interaction of market forces." We concluded, "The aftermath of R.A. No. 8180 is a deregulated market where competition can be corrupted and where market forces can be manipulated by oligopolies."In my Concurring Opinion in Tatad, I labeled RA 8180 as "a pseudo deregulation law which in reality restrains free trade and perpetuates a cartel, an oligopoly" because of the aforecited three provisions, and because petitioners therein demonstrated to the Court "that the Big Three oil companies were producing and processing almost identical products which they were selling to the general public at identical prices. When one company adjusted its prices upwards or downwards, the other two followed suit at the same time and by the same amount." 7

In his present Petition, petitioner persistently alleges that "[i]t is self-evident truth that public interest requires the prevention of monopolistic/oligopolitic pricing . . . ," and that such "monopolistic/oligopolistic pricing may be prevented only through price control during the regime of monopoly/oligopoly or through a truly competitive market under a regime of fair prices." In support of his allegations, he cites "self-evident truths [which] have. . . been officially recognized and implemented during more than 20 years of price control before the passage of the two oil deregulation laws" and which "have also been recognized and upheld by no less than the Supreme Court En Banc in the Tatad and Lagman cases . . . ." He contends that "the Big 3 remain as strong and dominant as ever."In other words, petitioner believes that there is no valid reason to lift price control at this time when allegedly there still exists an oligopoly in the industry. He proposes instead that government control should stand for an indefinite period until the new players are able to capture a substantial part of the market.Unfortunately, however, the foregoing thematic statements and economic theory of Petitioner Garcia are policy in nature and are arguments supporting the wisdom of interim government price control. Indeed, "self-evident truths," economic theories, deeply-held beliefs, speculative assumptions and generalizations may be the bases of legislative and executive actions, but they cannot be substitutes for evidence and legal arguments in a judicial proceeding. Considered judgment calls of the legislative and the executive departments are the issues of whether the country should adopt the policy of complete or partial deregulation, and when such policy should take effect and over what products or services. These issues come within judicial determination only when there is clear and substantial proof that said policy and its concomitant variations are violative of the Constitution or are made by those agencies in grave abuse of their discretion.

The Legal Issue Is Whether PetitionerHas Submitted Sufficient Proof That theBig Three Have Violated the Constitution

To be more specific, the pivotal issue before this Court is not whether it is wiser and more beneficial to empower the government to fix fuel prices; rather, it is whether petitioner has submitted enough factual bases to justify the legal conclusion that the Big Three — Petron, Shell and Caltex — have combined themselves "in restraint of trade or [to cause] unfair competition," to such an extent as to legally justify a striking down of Section 19 of RA 8479. The task of proving this issue is not easy; in fact, it is formidable and daunting. This is because laws are prima facie presumed constitutional and, unless clearly shown to be infirm, they will always be upheld. 8 So, too, regularity in the performance of official functions is the postulate, and any allegation of grave abuse or irregularity must be proven cogently.

Deregulation per se IsNot Constitutionally Infirm

A close perusal of the assailed Section 19 of RA 8479 and Section 19 of Article XII of the Constitution does not readily reveal their irreconcilability. Indeed, even petitioner admits that the deregulation policy per se is not contrary to the Constitution. Neither could it be successfully argued that the implementation of such policy within the five-month phase-in period is per se anathema to our fundamental law. It is his imperative task therefore to adduce before the Court factual and legal bases to demonstrate clearly and

22

cogently the unconstitutionality of the acts of Congress and the President in adopting and implementing full deregulation of petroleum prices at this time.In this context, I have pored over the records of this case and searched long and wide for such factual and legal bases but, other than presumptions and generalizations that are unsupported by hard evidence, I could not find any. Petitioner fails to substantiate his allegations that the three oil giants have engaged, directly or indirectly, in an unholy alliance to fix prices and restrain trade.True, retail prices of petroleum products have been increased, to the consternation of the public, but petitioner has not shown by specific fact or clear proof how the questioned provision of RA 8479 has been used to transgress the Constitution. He has not demonstrated that the Big Three arbitrarily dictate and corrupt the price of oil in a manner violative of the Constitution.Petitioner merely resurrects and relies heavily on the arguments, the statistics and the proofs he submitted two years ago in the first oil deregulation case, Tatad v. Secretary of the Department of Energy. Needless to state, those reasons were taken into consideration in said case, and they indeed helped show the unconstitutionality of RA 8180. But exactly the same old grounds cannot continue to support petitioner's present allegation that the major oil companies — Petron, Shell and Caltex — persist to this date in their oligopolistic practices, as a consequence of the current Oil Deregulation Law and in violation of the Constitution. In brief, the legal cause and effect relationship has not been amply shown.

Petitioner Has Not ProvenArbitrariness or Despotism

Petitioner harps at the five-month period of transition from price control to full deregulation provided under Section 19 of RA 8479. He claims that such short period is not enough to ensure a "truly competitive market" in the supposed oligopoly of the oil industry. Again, his statement is not backed up by evidentiary basis. He offers no substantial proof that Congress, in deciding to lift price controls five months from the effectivity of RA 8475, gravely abused its discretion. To repeat, it is not within the province of the judiciary to determine whether five months is indeed short and, for that matter, what length of time is adequate. That is a matter of legislation addressed to the discretion of our policy makers.It is basic to our form of government that the Court cannot inquire into the wisdom or expediency of the acts of the executive or the legislative department, unless there is a clear showing of constitutional infirmity or grave abuse of discretion amounting to lack or excess of jurisdiction. 9 "By grave abuse of discretion is such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. Mere abuse of discretion is not enough. It must be grave abuse of discretion, as when the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and must be so patent and so gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law." 10 These jurisprudential elements of arbitrariness, despotism, passion and hostility have not been shown to exist under the present circumstances.

Market Share of New PlayersHas Increased Under RA 8479

Historically, deregulation as a policy in the downstream oil industry was begun in 1996 when new players started to set up and operate their businesses in the country. That was practically a full three years of operations, the last two of which saw no significant barriers in terms of tariff differential, minimum inventory or predatory pricing.Obviously, the conditions prevailing when the Court struck down RA 8180 two years ago have not been proven to be prevalent at present. In 1996, the new players had a market share of barely one percent. 11 The new players have since expanded or increased in number (46 as of June 30, 1999), and they now have about nine percent share of the market. 12 Significantly, these new players have intervened in this case in defense of the law. These are the little Davids who claim that with RA 8479 as their slingshot, they can, given enough time, fight and win against the three erstwhile unbeatable Goliaths. Indeed, they believe that the questioned provision has given them the impetus to compete and thereby eventually show the benefits of deregulation; namely, the best products at the cheapest prices.With this factual backdrop and in the dire absence of contrary proof, it would be specious to conclude that under the aegis of Section 19 of RA 8479, the Big Three have restrained trade or unduly restricted competition.Moreover, the three provisions in RA 8180 which were adjudged abhorrent to the fundamental principles of free enterprise are no longer found in RA 8479. The depletion of the Oil Price Stabilization Fund, the extraneous factor that was considered by the President in accelerating the implementation of full deregulation under RA 8180, was no longer taken into account in the present milieu. The Court's reasons for declaring the unconstitutionality of RA 8180 are, therefore, not germane to the validity of RA 8479. The petitioner cannot rely on the same rationale for the purpose of successfully assailing RA 8479. Indeed, he admits that "the Tatad and Lagman cases . . . did not consider and adjudicate on the lifting of price control per se, under RA 8180, as an issue."

EpilogueIn sum, I make no secret of my sympathy for petitioner's frustration at the inability of our government to arrest the spiraling cost of fuel and energy. 13 I hear the cry of the poor that life has become more miserable day by day. I feel their anguish, pain and seeming hopelessness in securing their material needs.

23

However, the power to lower petroleum prices through the adoption or the rejection of viable economic policies or theories does not lie in the Court or its members. Furthermore, absent sufficient factual evidence and legal moorings, I cannot vote to declare a law or any provision thereof to be unconstitutional simply because, theoretically, such action may appear to be wise or beneficial or practical. Neither can I attribute grave abuse of discretion to another branch of government without an adequate showing of patent arbitrariness, whim or caprice. Should I do so, I myself will be gravely abusing my discretion, the very evil that petitioner attributes to the legislature.WHEREFORE, I vote to DISMISS the Petition. QUISUMBING, J., concurring opinion;I fully concur in the ponencia of Justice Consuelo Ynares-Santiago. What I would like to stress here and now is that, contrary to certain ill-informed comments in media, petitioner's pleadings were thoroughly dissected at the hearing where he and his counsel as well as the respondents amply presented their arguments. Questions of law and policy were also illuminated from different perspectives in sessions and in memoranda internally exchanged by members of the Court. Right away, it must be added, no delay attended the resolution of this petition. For while the Constitution allows two years, this case was decided en banc in less than half that period, from the time of submission of the parties' memoranda. Below is a full presentation of my view on the controversy generated by petitioner's insistence that the Court overturn an act passed by his own branch of government and approved by the Chief Executive.At issue in this special civil action for certiorari under Rule 65 is the constitutionality of Sec. 19 of Republic Act No. 8479, 1 entitled "An Act Deregulating the Downstream Oil Industry and for other Purposes". The law was enacted pursuant to the policy of the State to liberalize and deregulate the downstream oil industry. R.A. 8479 is the remedial legislation passed by Congress to cure the infirmities found in Republic Act No. 8180, the first oil industry deregulation law, otherwise known as the "Downstream Oil Industry Deregulation Act of 1996".In a banc decision promulgated on November 5, 1997, the Court declared R.A. 8180 unconstitutional for having transgressed the constitutional prohibition against monopolies and combinations in restraint of trade, specifically mandated in Section 19, Article XII of the Constitution. Consequently, Executive Order No. 392 (E.O. 392) implementing the provision of said law was voided. On December 3, 1997, the motions for reconsideration were denied for utter lack of merit.Now before us is a challenge to the second oil industry deregulation law, R.A. 8479. The relevant factual and procedural antecedents of the present petition are as follows:In 1992, the Philippine government welcomed more liberal economic policies and started the ground work for privatization of some government-owned or controlled corporations and deregulation of the oil industry. In due time, Congress enacted Republic Act No. 7638 on December 9, 1992. It created the Department of Energy (DOE). Among others, it was tasked, at the end of four years from the effectivity of R.A. No. 7638 and upon approval of the President, to institute the "programs and the timetable for the deregulation of appropriate projects and activities of the energy industry." 2

Following the intent of R.A. 7638, the Philippine National Oil Company (PNOC) sold 40% of its equity in Petron Corporation to the Aramco Overseas Company.Sometime in March 1996, Congress made that daring step towards the realization of liberating the oil industry from government regulation and enacted R.A. 8180. On February 8, 1997, President Fidel V. Ramos issued E.O. 392, which signaled the implementation or start of deregulation in the oil industry.Senator Francisco Tatad and Congressmen Enrique Garcia, Edcel Lagman, Joker Arroyo and Wigberto Tañada, among others, filed separate petitions docketed as G.R. Nos. 124360 and 127867, before the Court. The petitioners contended that some of the provisions of R.A. No. 8180 violated Section 19 of Article XII of the 1987 Constitution, which states:

The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.

The challenged provisions in R.A. 8180 were:(1) the provision on tariff differential found in Section 5 (b) which states:

Sec. 5 (b) — Any law to the contrary notwithstanding and starting with the effectivity of this Act, tariff duty shall be imposed and collected on imported crude oil at the rate of three percent (3%) and imported refined petroleum products at the rate of seven percent (7%), except fuel oil and LPG, the rate for which shall be the same as that for imported crude oil: Provided, that beginning on January 1, 2004 the tariff rate on imported crude oil and refined petroleum products shall be the same. Provided,further, That this provision may be amended only by an Act of Congress.

(2) the minimum inventory clause, in Section 6 which provides:

24

Sec. 6 — To ensure the security and continuity of petroleum crude and products supply, the DOE shall require the refiners and importers to maintain a minimum inventory equivalent to ten percent (10%) of their respective annual sales volume or forty (40) days of supply, whichever is lower.

(3) the predatory pricing scheme in Section 9:Sec. 9 — To ensure fair competition and prevent cartels and monopolies in the downstream oil industry, the following acts shall be prohibited:

xxx xxx xxx(b) Predatory pricing which means selling or offering to sell any product at a price unreasonably below the industry average cost so as to attract customers to the detriment of competitors.

In declaring provisions of R.A. 8180 unconstitutional, the Court held:. . . Petron, Shell and Caltex stand as the only major league players in the oil market. . . . The tariff differential of 4% therefore works to their immense benefit. . . . New players that intend to equalize the market power of Petron, Shell and Caltex by building refineries of their own will have to spend billions of pesos. Those who will not build refineries but compete with them will suffer the huge disadvantage of increasing their product cost by 4%. They will be competing on an uneven field.The provision on inventory widens the balance of advantage of Petron, Shell and Caltex against prospective new players. Petron, Shell and Caltex can easily comply with the inventory requirement of R.A. No. 8180 in view of their existing storage facilities. Prospective competitors again will find compliance with this requirement difficult as it will entail a prohibitive cost. . . .Finally, we come to the provision on predatory pricing which is defined as ". . . selling or offering to sell any product at a price unreasonably below the industry average cost so as to attract customers to the detriment of competitors." . . . The ban on predatory pricing cannot be analyzed in isolation. Its validity is interlocked with the barriers imposed by R.A. No. 8180 on the entry of new players. 3

That decision came under sharp attack by critics who accused the Court of improvidently intervening in the economic affairs of the State. Economists and businessmen remarked that the decision was a major blow to economic reforms and an additional burden to the government's already huge budget deficit as it would require reinstating a subsidy on oil products. 4 Pertinent portions of the Decision decreed:

With this Decision, some circles will chide the Court for interfering with an economic decision of Congress. Such criticism is charmless for the Court is annulling R.A. No. 8180 not because it disagrees with deregulation as an economic policy but because as cobbled by Congress in its present form, the law violates the Constitution. The right call therefor should be for Congress to write a new oil deregulation law that conforms with the Constitution and not for this Court to shirk its duty of striking down a law that offends the Constitution. . . . Indeed when confronted by a law violating the Constitution, the Court has no option but to strike it down dead. . . . Hence, for as long as the Constitution reigns supreme so long will this Court be vigilant in upholding the economic rights of our people especially from the onslaught of the powerful. Our defense of the people's economic rights may appeal heartless because it cannot be half-hearted.IN VIEW WHEREFORE, the petitions are granted. R.A. No. 8180 is declared unconstitutional and E.O. No. 372 [392] void. 5

Public respondents filed their consolidated motion for reconsideration. Some of the new players, in the industry: Eastern Petroleum Corp., Seaoil Petroleum Corp., Subic Bay Distribution, Inc., TWA, Inc., and Dubphil Gas moved to intervene and aired their stand against the total nullification of R.A. 8180. They also averred that they were in favor of declaring the three offensive provisions unconstitutional. Petitioner Enrique T. Garcia, likewise, filed a partial motion for reconsideration and pushed for a return only to partial deregulation in which the main features of deregulation would be allowed free reign, but the retail price of oil products would still be regulated through the Energy Regulatory Board.The Court found no merit in the motion for reconsideration, motion for intervention, and partial motion for reconsideration. Despite the separability clause, the Court ruled that the three questioned provisions cannot be struck down alone, for they were the ones intended to carry out the policy of the law as embodied in Section 2. 6

On the question of the validity of E.O. 392, the Court held that the Executive Department failed to follow faithfully the standards set by R.A. 8180 when it considered the extraneous factor of depletion of the Oil Price Stabilization Fund (OPSF) fund, instead of limiting the basis for the acceleration of full deregulation of the industry to only two factors, viz: (1) the time when the prices of crude oil and petroleum products in the world market are declining, and (2) the time when the exchange rate of the peso in relation to the US dollar is stable. 7 By considering another factor, the Executive Department rewrote the standards set forth in R.A. 8180. 8 In light of the uncertainty of the consideration given by the Executive department to the depletion of the OPSF fund for the full deregulation of

25

the oil industry, we ruled that E.O. 392 constituted a misapplication of R.A. 8180. In sum, the implementing order was found void, while the basic law was held unconstitutional.On reconsideration, our December 3, 1997 Resolution stressed that R.A. 8180 is unconstitutional because (1) it gave more power to an already powerful oil oligopoly; (2) it blocked the entry of effective competitors; and (3) it will sire an even more powerful oligopoly whose unchecked power will prejudice the interest of the consumers and compromise the general welfare. 9 The Court reiterated, however, that there was no impediment in re-enacting R.A. 8180 minus the provisions which are anti-competition.Consequently, Congress fast-tracked a new oil deregulation law, R.A. 8479, which was approved and duly signed on February 10, 1998. It took effect an February 12, 1998 upon the completion of its publication in a newspaper of general circulation.Dissatisfied with the amendments incorporated into the new law by his own colleagues in Congress, Honorable Enrique T. Garcia filed the instant petition.The Court is the ultimate guardian of our Constitution. By virtue of its power of judicial review, it is duty-bound in an appropriate case to ascertain whether a law is free from constitutional flaws. While favoring free competition in the oil industry, the Court struck down R.A. 8180 because of provisions therein that contravened the basic law, our Constitution. Before dwelling into the issues now raised by the petitioner, we must determine whether R.A. 8479 truly cured the invalid portions of R.A. 8180. When we advocated vigilance in upholding the economic rights of our people, we truly hoped that Congress would address the defects of R.A. 8180 and not re-enact R.A. 8180 through the guise of R.A. 8479.It bears recalling, however, that when the Supreme Court mediates to allocate constitutional boundaries or invalidates the acts of a coordinate body, what it is upholding is not its own supremacy but the supremacy of the Constitution. With this in mind, we now focus on the provisions of R.A. 8479, in particular the 4% tariff differential, minimum inventory level, and predatory pricing provisions, which aim to prevent the big three oil companies from taking advantage of deregulation as a means of cartelizing their operations, and thereby result in monopolistic and oligopolistic practices condemned by the basic law of the land.First, the 4% tariff differential. On December 31, 1997, after the Court declared with finality that R.A. 8180 is unconstitutional, President Ramos issued Executive Order No. 461. The Order imposed a three percent (3%) import duty on petroleum products enumerated therein. The President's move avoided the revival of the old tariff rates of 10% on crude oil and 20% on refined oil while the legislative department was in the process of crafting a new oil deregulation law. Noteworthy, Sec. 6 of R.A. 8479 imposed the same tariff treatment on petroleum products. Section 6 reads:

Sec. 6 — a) Any law to the contrary notwithstanding and starting with the effectivity of this Act, a single and uniform tariff duty shall be imposed and collected both on imported crude oil and imported refined petroleum products at the rate of three percent (3%): Provided, however, That the President of the Philippines may, in the exercise of his powers, reduce such tariff rate when on his judgment such reduction is warranted, pursuant to Republic Act No. 1937, as amended, otherwise known as the "Tariff and Customs Code": Provided, further, That beginning January 1, 2004 or upon implementation of the Uniform Tariff Program under the World Trade Organization and ASEAN Free Trade Area commitments, the tariff rate shall be automatically adjusted to the appropriate level notwithstanding the provisions under this Section.

Second, the minimum inventory level requirement. R.A. 8479 eliminated the provision in R.A. 8180 requiring the refiners and importers to maintain a minimum inventory equivalent to ten percent (10%) of their respective annual sales volume or forty (40) days' supply. The minimum inventory requirement was removed, giving the new entrants opportunities to use their resources to be more competitive.Third, predatory pricing. In the December 3, 1997 Resolution of the Court in G.R. Nos. 124360 and 127867, we expressed the view that the definition of predatory pricing was too loose to be a real deterrent. 10 Congressman Dante O. Tinga acknowledged in his explanatory note of House Bill 10057 (H.B. 10057) that the definition of predatory pricing needed specificity, particularly with respect to the definitive benchmark price and the express anti-competitive intent. He suggested the Areeda-Turner test and proposed to redefine predatory pricing. Section 11 par. (b) of R.A. 8479 adopted Congressman Tinga's recommendation, to wit:

b) Predatory pricing which means selling or offering to sell any oil product at a price below the seller's or offeror's average variable cost for the purpose of destroying competition, eliminating a competitor or discouraging a potential competitor from entering the market: Provided, however, That pricing below average variable cost in order to match the lower price of the competitor and not for the purpose of destroying competition shall not be deemed predatory pricing. For purposes of this prohibition, "variable cost" as distinguished from "fixed cost", refers to costs such as utilities or raw materials, which vary as the output increases or decreases and "average variable cost" refers to the sum of all variable costs divided by the number of units of outputs.

To strengthen the anti-trust safeguards of R.A. 8479, respondents argue that there are enough provisions to encourage entry of new participants. For instance, R.A. 8479 allows for active participation of the private sector and cooperatives in the retail of petroleum through joint ventures to establish gasoline stations. Moreover, R.A. 8479 requires initial public offering of shares equivalent to 10%

26

of the capital investments by oil companies. Respondents also cite that the enforcement of monitoring activities by the DOE encourages consumer vigilance over unwarranted increase in the prices of petroleum products. Another safeguard against collusion among oligopolists is the creation of a task force with members from the DOE and the Department of Justice (DOJ) to investigate complaints for violations of R.A. 8479. They assert that the mere dominance of Petron, Pilipinas Shell, and Caltex, is not  per se a combination in restraint of trade. Combination in restraint of trade, they claim, is the means to achieve monopoly.Petitioner Garcia adverts to oil deregulation in phases. The new oil deregulation law has two phases: (1) the transition phase and (2) the full deregulation phase.During the transition period, all non-pricing aspects were lifted. Although the Oil Price Stabilization Fund was abolished, a buffer fund 11 was created to cover increases in the prices of petroleum products, except premium gasoline. The Automatic Oil Pricing Mechanism was maintained to approximate the domestic prices of petroleum products in the international market. The Energy Regulatory Board (ERB) approved a market-oriented formula to determine the Wholesale Posted Price of petroleum products based solely on the changes of either the Singapore Posting of refined petroleum products, the Singapore Import Parity or the crude landed cost.After the transition phase comes full deregulation as provided by Sec. 19 of R.A. 8479, which reads thus:

Sec. 19. Start of Full Deregulation. — Full deregulation of the Industry shall start five (5) months following the effectivity of this Act: Provided however, That when the public interest so requires, the President may accelerate the start of full deregulation upon the recommendation of the Department of Energy (DOE) and the Department of Finance (DOF) when the prices of crude oil and petroleum products in the world market are declining and the value of the peso in relation to the US dollar is stable, taking into account relevant trends and prospects: Provided, further, That the foregoing provision notwithstanding, the five (5)-month Transition Phase shall continue to apply to LPG, regular gasoline and kerosene as socially-sensitive petroleum products and said petroleum products shall be covered by the automatic pricing mechanism during the said period. 12

Note that the abovecited transition phase of five months could be abbreviated when public interest so requires. The President's power to accelerate the start of full deregulation, however, depended upon the recommendation of the Departments of Energy and Finance.Accordingly as recommended, on March 14, 1998, President Ramos issued E.O. 471 to accelerate the implementation of full deregulation. Partinently the E.O., which implements R.A. 8479, provides:

WHEREAS, Republic Act No. 7638, otherwise known as the "Department of Energy Act of 1992," provides that, "at the end of four years from its effectivity last December 1992, the Department [of Energy] shall, upon approval of the President, institute the programs and timetable of deregulation of appropriate energy projects and activities of the energy sector;"WHEREAS, Section 19 of Republic Act No. 8479, otherwise known as the "Downstream Oil Industry Deregulation Act of 1998," provides that [T]hat "when the public interest so requires, the President may accelerate the start of full deregulation upon the recommendation of the Department of Energy (DOE) and the Department of Finance (DOF) when the prices of crude oil and petroleum products in the world market are declining and the value of the peso in relation to the US dollar is stable, taking into account relevant trends and prospects:  Provided, further, That the foregoing provision notwithstanding, the five (5)-month Transition Phase shall continue to apply to LPG, regular gasoline and kerosene as socially-sensitive petroleum products and said petroleum products shall be covered by the automatic pricing mechanism during said period;WHEREAS, pursuant to the joint recommendation of the Department of Energy and the Department of Finance, and in the interest of the consuming public, recent developments favor the acceleration of the start of full deregulation of the downstream oil industry because: (i) the prices of crude oil and petroleum products in the world market are beginning to be stable and on a downtrend since January 1998; and (ii) the exchange rate of the peso in relation to the US dollar has been stable for the past three months, averaging at around P40.00 to one US dollar;WHEREAS, Executive Order No. 377 dated 31 October 1996 provides for an institutional framework for the administration of the deregulated industry by defining the functions and responsibilities of various government agencies;WHEREAS, pursuant to Republic Act No. 8479, the deregulation of the industry will foster a truly competitive market which can better achieve the social policy objectives of fair prices and adequate, continuous supply of environmentally-clean and high quality petroleum products;NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by the powers vested in me by law, do hereby declare the full deregulation of the downstream oil industry; provided, however, that LPG, regular gasoline and kerosene shall be covered by the Automatic Pricing Formula pursuant to R.A. No. 8479. 13

27

The implementing guidelines for the acceleration of full deregulation of the industry, set forth in E.O. 471, required the concurrence of two conditions, viz.: (1) the downtrend of prices of oil and petroleum products, and (2) stability of exchange rate of peso in relation to US dollar, taking into account relevant trends and prospects.However, E.O. 471 carried an additional proviso, the transition phase was continued for LPG, regular gas and kerosene. These socially sensitive products continued to be covered by the automatic pricing mechanism until July of 1998. Only then was full deregulation of the industry effected, and the automatic pricing mechanism was also lifted for LPG, regular gas and kerosene.Turning now to herein petition, Congressman Enrique Garcia raised the following issues to assail the provision implementing full deregulation of the oil industry:

I. Sec. 19 OF R.A. NO. 8479 which provides for full deregulation five (5) months or earlier following the effectivity of the law, is glaringly pro-oligopoly, anti-competition and anti-people, and is therefore patently unconstitutional for being in gross and cynical contravention of the constitutional policy and command embodied in Article XII, Section 19 of the 1987 Constitution against monopolies and combinations in restraint of trade.II. Said Section 19 of R.A. No. 8479 is glaringly pro-oligopoly, anti-competition and anti-people, for the further reason that it palpably and cynically violates the very objective and purpose of R.A. No. 8479, which is to ensure a truly competitive market under a regime of fair prices.III. Said Section 19 of R.A. No. 8479, being glaringly pro-oligopoly, anti-competition and anti-people, being patently unconstitutional and being palpably violative of the law's policy and purpose of ensuring a truly competitive market under a regime of fair prices, is a very grave and grievous abuse of discretion on the part of the legislative and executive branches of government.IV. Premature full deregulation under Section 19 of R.A. No. 8479 may and should therefore be declared null and void even as the rest of its provisions remain in force, such as the transition phase or partial deregulation with price controls that ensures the protection of the public interest by preventing the big 3 oligopoly's price-fixing and overpricing.

These issues may be synthesized into one: Whether or not the full implementation of deregulating the downstream oil industry as provided in Section 19 of R.A. 8479 violates the Constitutional mandate of free competition in a liberalized oil industry under Section 19, Article XII of the 1987 Philippine Constitution?Petitioner Garcia principally faults Section 19 of the new R.A. 8479 as well as E.O. 471 now for violating the constitutional prohibition against monopoly, and being anti-competition.Petitioner claims that there was a premature full deregulation under Section 19 of R.A. 8479. He protests the acceleration of the full implementation of deregulation decreed under E.O. 471. Petitioner insists that the short transition period is pro-oligopoly, anti-competition and anti-people and is patently unconstitutional because the period is too short to establish true competition in the local oil industry. True competition, he claims, exists only when there can be a sizable number of players, and at present, the new players comprise only 3% of the market share which does not put up real competition against the "Big Three" oil companies (Caltex, Shell and Petron). What he suggests is to prolong the transition phase or partial deregulation with price controls while the big oil companies are still dominating the market, to ensure the protection of the public interest and prevent the big three oligopolies from fixing the price or overpricing. He further contends that the automatic oil pricing mechanism will enable the domestic price of petroleum products to approximate and promptly reflect the price of oil in the international market. He also stressed that new players may come under an indefinite or open-ended transition phase.Commenting on the petition, respondents claim that the propriety of full deregulation involves the wisdom of Congress and is therefore, a non-justiciable issue. They counter petitioner's arguments by pointing out that the shortening of the transition period and acceleration of full deregulation were decreed pursuant to the joint recommendation of the DOE and DOF, based on the concurring conditions of a downtrend of crude oil in world market and the stability of the exchange rate of P40.00 to US$1.The respondents argue that the short transition period is not violative of the Constitution because the new players were given until July 1998 to set up their businesses as they have in fact, and they have captured at least 3% of the total oil market.Respondent Petron asserts that full deregulation protects the public from the greed and exploitation of business. Petron further contends that competition can be ushered in only with the certainty of price deregulation and the short transition period would guarantee the investors that within a manageable period, they would be able to set prices, taking into account their investment and

28

operating costs. It claims an indefinite transition period would discourage new investors because the new players had hoped that within a reasonable time, price regulation would be lifted.The Solicitor General filed a comment on behalf of the public respondents, interposing economic arguments that price regulation reduces economic efficiency and is prejudicial to the public. 14 Public respondents assert that the acceleration of full deregulation is based on existing conditions and sound economic theory.Respondent Shell filed a rejoinder, stating that to prolong the transition period will revive the automatic pricing mechanism which means that it will only replace the mode of price regulation by still another regulatory scheme. It argues that if Sec. 19 of R.A. 8479 were to be struck down, full deregulation will never take place and it would render the entire law different from what was passed by Congress.Petitioner counters that he is questioning the constitutionality rather than the wisdom of Sec. 19 of R.A. 8479; it is pro-oligopoly, hence patently unconstitutional. Petitioner further avers that condemnation against monopolies and combination in restraint of trade should be given legal sanction by the Court. Petitioner maintains that the nullification of Sec. 19 of R.A. 8479 will result in partial deregulation, where there will be no regulation as regards the importation of petroleum products and the establishment of gas station, but oil pricing would be regulated based on the Automatic Pricing Mechanism.Note that during the review of R.A. 8180 by the Court in G.R. No. 127867, petitioners Edcel C. Lagman, Arroyo, et al., likewise questioned the constitutionality of Section 15 of R.A. No. 8180 15 as well as E.O. No. 392 16 which provided for the implementation of full deregulation. The Court decreed thus:

. . . Full deregulation at the end of March 1997 is mandatory and the Executive has no discretion to postpone it for any purported reason. Thus, the law is complete on the question of the final date of full deregulation. The discretion given to the President is to advance the date of full deregulation before the end of March 1997. Section 15 lays down the standard to guide the judgment of the President — he is to time it as far as practicable when the prices of crude oil and petroleum products in the world market are declining and when the exchange rate of the peso in relation to the US dollar is stable.

xxx xxx xxxIt ought to follow that the argument that E.O. No. 392 is null and void as it was based on indeterminate standards set by R.A. 8180 must likewise fail. If that were all to the attack against the validity of E.O. No. 392, the issue need not further detain our discourse. 17

In G.R. No. 127867, Congressman Garcia filed an Urgent Motion for Partial Reconsideration from the November 5, 1997, decision of the Court. He sought to strike down only the premature full deregulation but maintain partial deregulation under R.A. No. 8180 with price controls and price mechanism based on Singapore Posted Prices. The Court resolved the issue this way:

We shall first resolve petitioner Garcia's linchpin contention that the full deregulation decreed by R.A. No. 8180 to start at the end of March 1997 is unconstitutional. For prescinding from this premise petitioner suggests that "we simply go back to the transition period under R.A. No. 8180." Under the transition period, price control will be revived through the automatic pricing mechanism based on Singapore Posted Prices. The Energy Regulatory Board . . . would play a limited and ministerial role of computing the monthly price ceiling of each and every petroleum fuel product, using the automatic pricing formula. . . .We are not impressed by petitioner Garcia's submission. Petitioner has no basis in condemning as unconstitutional per se the date fixed by Congress for the beginning of the full deregulation of the downstream oil industry. . . . The choice of March 1997 as the date of full deregulation is a judgment of Congress and its judgment call cannot be impugned by this Court. 18

Now in the present petition, Garcia insists on his old plea for a return only to partial deregulation of the downstream oil industry, wherein the main features of deregulation would be permitted but the retail prices of oil products would still be regulated through an Automatic Pricing Mechanism.However, I find his contentions to be lacking legal basis, even if his proposal appears to be expedient, or even beneficial, especially to the poor. As the Court said Tañada vs. Tuvera, 19 "[T]his Court is not called upon to rule on the wisdom of the law or to repeal it or modify it if we find it impractical. That is not our function. That function belongs to the legislator. Our task is merely to interpret and apply the law as conceived and approved by the political departments of the government in accordance with the prescribed procedure." 20

For if we allow an open-ended transition period to maintain government pricing regulation, we would have suspended the much-needed liberalization of the downstream oil industry. It would certainly run counter to the government's policy of allowing free interplay of market forces, with minimal government supervision. In fact, it could defeat full deregulation to ensure fair competition in the downstream oil industry, where new and prospective players are on even level playing field with the Big Three.Furthermore, to base the implementation of full deregulation on the presence of a sizable number of new investors, as petitioner would want us to do, would be to legislate a floating provision dependent on the happening of a contingent event. To do so, would

29

be to undermine the very purpose of the law, which is to liberalize and deregulate the downstream oil industry in order to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply, environmentally clean and high-quality petroleum products.Consequently, to heed the petitioner's prayer, this Court would have to legislate, a power granted only to Congress. The operation of a statute may be duly suspended only by authority of the legislature. 21 Indeed, a suspension of a valid statute must rest upon legislative action; 22 it may not be effected solely by a judicial act. 23 Clearly it is a policy decision of the legislative and executive departments in whose turf we must not tread, under the principle of separation of powers. The term "political question" connotes what it means in ordinary parlance, namely, a question of policy. 24 It refers to "those questions which, under the Constitution, are to be decided by the people in their sovereign capacity, or in regard to which full discretionary authority has been delegated to the legislative or executive of the government." 25 If is concerned with issues dependent upon the wisdom, not legality, of a particular measure. 26 The judiciary does not directly settle policy issues. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state powers. 27

In PLDT vs. National Telecommunications Commission, 28 the ultimate considerations cited in matters affecting vital industries, are the public need, public interest, and the common good. In that case, the Court said:

Free competition in the industry may also provide the answer to a much-desired improvement in the quality and delivery of this type of public utility, to improved technology, fast and handy mobile service, and reduced user dissatisfaction. 29

Similarly, the above-mentioned considerations could undergird the nation's energy and other economic policies. The liberalization of the oil industry is a reform program initiated by Congress to free the government from the obligation of infusing funds to subsidize increases in the prices of oil products. Such funds may now be utilized for other much needed programs with a public purpose.Well-established is the principle that every law has in its favor the presumption of constitutionality. 30 To declare a law unconstitutional, the repugnancy of that law to the Constitution must be clear and unequivocal. But we recognize that even if a law is aimed at the attainment of some public good, still its provisions cannot infringe upon constitutional rights. 31That infringement, however, must be proved and established persuasively to invalidate a provision of a law, if not the entire law itself.Petitioner ought to have demonstrated the need for the extension of the transition period. But, in fact, he could not downplay the DOE report that new players accounted for a sizable share of the market, some 18.1 percent of the total product imports, and competing companies are keen in joining the Philippine oil industry since the full implementation of deregulation. And, as stressed by the public respondents in the rejoinder dated January 7, 1999:

Since 1996, new players have taken a significant share in the market, to wit: (a) seven (7) new players have entered the downstream oil industry before RA No. 8180; (b) during the effectivity of RA No. 8180, twenty eight (28) new players have engaged in a number of downstream oil industry activities; and (c) three (3) new players have engaged in fuel bulk marketing, while two (2) new players have started to establish gasoline service stations immediately before and during the effectivity of RA No. 8479. At the same time, many more companies have indicated their intention to enter the downstream oil industry business. 32

The new players, according to industry experts, are gradually making a dent in the local market and their share is expected to surge in a few years when their retail stations are established. 33

However, the presence or entry of numerous players in the oil industry is not a condition precedent before a full deregulated petroleum industry could be had. But we recognize that it is precisely the implementation of full deregulation that would serve to entice new players to compete against the so-called Big Three. Hopefully, this move would prevent the powerful oil companies from manipulating prices, to the prejudice of the consumers and the public in general.The petitioner strongly manifested his fears concerning pernicious consequences of total lifting of price control in the oil industry. His main concern is that the government might be helpless in case the Big 3 (Shell, Petron and Caltex) overprice their petroleum products. But the people are not without legal recourse. The public can manifest outright objections to overpricing and report to the Department of Energy any unreasonable increase in the prices of these oil products. The monitoring power of the DOE is embodied in Sec. 14 of R.A. 8479, and its implementing rule, Section 18 of DOE Circular No. 98-03-004, thus:

R.A. 8479, Sec. 14 — Powers and Functions of the DOE and DOE Secretary:Monitoring —a) The DOE shall monitor and publish daily international crude oil prices, as well as follow the movements of domestic oil prices. It shall likewise monitor the quality of petroleum products and stop the operation of business involved in the sale of petroleum products which do not comply with the national standards of quality that are aligned with the national standards/protocols of quality. . . .

xxx xxx xxxd) Any report from any person of an unreasonable rise in the prices of petroleum products shall be immediately acted upon. For this purpose, the creation of DOE-DOJ Task Force is hereby mandated to determine within thirty

30

(30) days the merits of the report and initiate the necessary actions warranted under the circumstances: Provided that nothing herein shall prevent the said task force from investigating and/or filing the necessary complaint with the proper court or agency motu propio.Department Circular No. 98-03-004, Sec. 18 — Powers and Functions of the DOE and DOE SecretaryMonitoring —The DOE shall monitor the following pursuant to Section 14 of the Act. Any misrepresentation, mislabeling, concealment or fraud, shall be subject to penalties under existing applicable laws.a. Prices

The DOE shall monitor and publish international oil prices as well as follow the movement of domestic oil prices.(1) Price Display Boards

For the convenience of the public, all retailers of petroleum products shall display the prices of each type of petroleum product sold in gasoline stations in prominently installed price display boards with backgrounds preferably conforming to the color coding scheme for the product, such as: green for Unleaded Premium Gasoline, red for Premium Low Lead Gasoline, orange for Regular Gasoline, yellow for Diesel Fuel, and white for Kerosene. In the case of LPG (which has no product color), the price display board may be light blue in color. The numeric entries in these boards shall be at least six (6) inches in height.The price display boards shall be properly installed and labeled not later than June 30, 1998. Failure to comply with this requirements shall be penalized pursuant to Section 24 of the Act.(2) Unreasonable Rise in PricesAny report from any person of an unreasonable rise in the prices of petroleum products shall be immediately acted upon by the DOE-DOJ Task Force in accordance with Section 17 of this IRR. The said Task force shall determine within thirty (30) days the merits of the report and shall initiate the necessary actions warranted under the circumstances.

A calculus of fear and pessimism, however, does not justify the remedy petitioner seeks: that we now overturn a law enacted by Congress and approved by the Chief Executive. The Court must act on valid legal reasons that will explain why we should interfere with vital legislation. 34 To strike down a provision of law we need a clear showing that what the Constitution prohibits, the statute has allowed to be done. 35 Since there is no clear showing that Section 19 of R.A. 8479 has violated the constitutional prohibition against monopolies and combinations in restraint of trade, I vote that the present petition be DISMISSED.Footnotes

1 281 SCRA 330 (197).2 CONSTITUTION, Article XII, Section 19.3 Rollo, pp. 15-16.4 American Tobacco Co. v. United States, 328 U.S. 781; 90 L. Ed. 1575.5 Republic Act No. 7638.6 supra., at 358; citing Gellhorn, Anti Trust Law and Economics in a Nutshell, 1986 ed., p. 45.7 22 SCRA 424, at 450-51 (1968); citations omitted.8 Tatad v. Secretary of the Department of Energy, 282 SCRA 337, 353 (1997).9 Coleman v. Miller 307 U.S. 433; 59 S. Ct. 972; 83 L. Ed. 1385 (1939).PANGANIBAN, J., separate opinion;1 See public respondent's Memorandum, p. 19, citing Samuelson and Nordhaus, Economics, 1992 ed., p. 341.2 § 2, RA 8479.3 Neri, Economics and Public Policy, 1999 ed., p. 23. Parentheses in original but brackets supplied.4 Tañada v. Angara, 272 SCRA 18, May 2, 1997; Tatad v. Secretary of the Department of Energy, infra; Santiago v. Guingona Jr., GR. No. 134577, November 18, 1998.5 Sec. 19. Start of Full Deregulation. — Full deregulation of the [Downstream Oil] Industry shall start five (5) months following the effectivity of this Act: Provided, however, That when the public interest so requires, the President may accelerate the start of full deregulation upon the recommendation of the DOE and the Department of Finance (DOF) when

31

the prices of crude oil and petroleum products in the world market are declining and the value of the peso in relation to the US dollar is stable, taking into account relevant trends and prospects . . . .6 281 SCRA 330, 355; November 5, 1997; per Puno, J.9 This quote is taken from a comment I made in Battles in the Supreme Court, 1998 ed., p. 121.8 Lim v. Pacquing, 240 SCRA 649, January 27, 1995; Tano v. Socrates, 278 SCRA 154, 1997; Tan v. People, 290 SCRA 117, May 19, 1998.9 Tañada v. Angara, supra; Santiago v. Guingona Jr., supra. See also Garcia v. Comelec, 227 SCRA 100, October 5, 1993; Tañada v. Cuenco, 103 Phil 1051, February 28, 1957; Magtajas v. Pyrce Properties Corp., 223 SCRA 255, July 20, 1994.10 Tañada v. Angara, supra, citing Zarate v. Olegario, 260 SCRA 1; October 7, 1996; San Sebastian College v. Court of Appeals, 197 SCRA 138, 144, May 15, 1991; Commissioner of Internal Revenue v. Court of Tax Appeals, 195 SCRA 444, 458, March 20, 1991; Simon v. Civil Service Commission, 215 SCRA 410, November 5, 1992; Bustamante v. Commissioner on Audit, 216 SCRA 134, 136, November 27, 1992.11 Solicitor general's Memorandum, p. 44.12 Ibid.13 During the Oral Argument on July 13, 1999, I compared petitioner to a Don Quixote bravely battling petroleum-powered windmills. If only for his gutsy Quixotic quest, I have, like many members of the Court, lent a sympathetic ear to petitioner, not only in this case but also in the earlier Tatad in which I wrote a Concurring Opinion to the Court's Decision striking down RA 8180, the Oil Deregulation Law then.QUISUMBING, J., concurring opinion;1 Rollo, pp. 40-47.2 Sec. 5 [b] of R.A. 7638.3 Tatad vs. Secretary of the Department of Energy, 281 SCRA 330, 359-360 (1997).4 See Philippine Star issue of Dec. 4, 1997.5 Supra, note 3 at 370.6 Tatad vs. Secretary of the Department of Energy, 282 SCRA 337, 354 (1997).7 Supra, note 3, at 353.8 Ibid.9 Supra, note 6, at 358.10 Supra, see note 6 at 345.11 Sec. 17 of Republic Act Number 8479 — Buffer Fund: The President may, when the interest of the consumers so requires, taking into account the rise in the domestic prices of petroleum products, use the "Reserve Control Account" as a buffer fund in the amount not exceeding Two billion nine hundred million pesos (2,900,000,000.00) to cover increases in the prices of petroleum products, except premium gasoline, during the Transition Phase over the prices prevailing as of the date of the effectivity of this Act. . . . .12 Rollo, p. 46.13 "Annex 2" of Public Respondent's Comment.14 See David Weimer and Aidan Vining, "Policy Analysis: Concepts and Practice, 1992 ed., pp. 124, 126 — Comment — Solicitor General for Public Respondents p. 15-16. According to the article, there have been two major lines of criticism to the use of price regulation (1) regulators are quickly captured by the firms that they regulate and (2) such regulation induces inefficient and wasteful behavior. The outcome of such incentives are inefficiency and overuse of capital under rate of return regulation.

15 Sec. 15. Implementation of Full Deregulation. — Pursuant to Section 5(e) of Republic Act No. 7638, the DOE shall, upon approval of the President, implement the full deregulation of the downstream oil industry not later than March, 1997. As far as practicable, the DOE shall time the full deregulation when the prices of crude oil and petroleum products in the world market are declining and when the exchange rate of the peso in relation to the US dollar is stable. Upon the implementation of the full deregulation as provided herein, the transition phase is deemed terminated and the following laws are deemed repealed:

xxx xxx xxx16 xxx xxx xxxWHEREAS, Section 15 of Republic Act No. 8180, otherwise known as the "Downstream Oil Industry Deregulation Act of 1996," provides that "the DOE shall, upon approval of the President, implement the full deregulation of the downstream oil industry not later than March, 1997. As far as practicable, the DOE shall time the full deregulation when the prices of crude oil and petroleum products in the world market are declining and when the exchange rate of the peso in relation to the US dollar is stable;

32

WHEREAS, pursuant to the recommendation of the Department of Energy, there is an imperative need to implement the full deregulation of the downstream oil industry because of the following recent developments: (i) depletion of the buffer fund on or about 7 February 1997 pursuant to the Energy Regulatory Board's Order dated 16 January 1997; (ii) the prices of crude oil had been stable at $21-$23 per barrel since October 1996 while prices of petroleum products in the world market had been stable since mid-December of last year. Moreover, crude oil prices are beginning to soften for the last few days while prices of some petroleum products had already declined' and (iii) the exchange rate of the peso in relation to the US dollar has been stable for the past twelve (12) months, averaging at around P26.20 to ONE US dollar;

xxx xxx xxx17 Supra, note 3, at 352-353.18 Supra, note 6, at 353.19 146 SCRA 446 (1986).20 Id., at 455, 456.21 73 Am. Jur. 2d. Sec. 374.22 Id., citing Winslow v. Fleischner, 112 Or 23, 228 P 101, 34 ALR 826.23 Id., citing King v. State, 87 Tenn 304, 10 SW 509.24 Daza vs. Singson 180 SCRA 496, 500 (1989); citing Tanada vs. Cuenco, 103 Phil. 1051 (1957), Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform, 175 SCRA 343, 377 (1989).25 Ibid.26 Ibid.27 Valmonte vs. Belmonte, Jr., 170 SCRA 256, 268 (1989).28 190 SCRA 717 (1990).29 Id. at 737.30 Basco vs. Phil. Amusements and Gaming Corporation, 197 SCRA 52, 68 (1991); citing Yu Cong Eng vs. Trinidad, 47 Phil. 385 (1925); Salas vs. Jarencio, 46 SCRA 734 (1972); Peralta vs. COMELEC, 82 SCRA 30 (1978); Abbas vs. COMELEC, 179 SCRA 287 (1989).31 Salas vs. Jarencio, 46 SCRA 734, 749 (1972).32 Public respondents' Rejoinder, p. 7.33 The Philippine Star, November 23, 1998 issue.34 Tolentino vs. Secretary of Finance, 235 SCRA 630, 674 (1994); citing Alalayan vs. National Power Corp., 24 SCRA 172 (1968); Cordero vs. Cabatuando, 6 SCRA 418 (1962); Sumulong vs. COMELEC, 73 Phil. 288 (1941). As of December 10, 1999, Philippine Star, p. 26, reports that "the deregulation of the oil industry under Republic Act (RA) 8479 has resulted in the entry of 53 new players, 10 of which are foreign players. . . Their entry has forced the industry to offer more competitive prices and products."35 Morfe vs. Mutuc, 22 SCRA 424, 435 (1968)