G.R. No.

L-32052 July 25, 1975

PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION, petitioner,

vs.
COURT OF INDUSTRIAL RELATIONS

The principal issue that calls for resolution in this appeal by certiorari from
an order of respondent Court of Industrial Relations is one of constitutional
significance. It is concerned with the expanded role of government
necessitated by the increased responsibility to provide for the general
welfare. More specifically, it deals with the question of whether petitioner,
the Philippine Virginia Tobacco Administration, discharges governmental and
not proprietary functions. The landmark opinion of the then Justice, row Chief
Justice, Makalintal in Agricultural Credit and Cooperative Financing
Administration v. Confederation of Unions in Government Corporations and
offices, points the way to the right answer. 1 It interpreted the then
fundamental law as hostile to the view of a limited or negative state. It is
antithetical to the laissez faire concept. For as noted in an earlier decision,
the welfare state concept "is not alien to the philosophy of [the 1935]
Constitution." 2 It is much more so under the present Charter, which is
impressed with an even more explicit recognition of social and economic
rights. 3 There is manifest, to recall Laski, "a definite increase in the
profundity of the social conscience," resulting in "a state which seeks to
realize more fully the common good of its members." 4 It does not necessarily
follow, however, just because petitioner is engaged in governmental rather
than proprietary functions, that the labor controversy was beyond the
jurisdiction of the now defunct respondent Court. Nor is the objection raised
that petitioner does not come within the coverage of the Eight-Hour Labor
Law persuasive. 5 We cannot then grant the reversal sought. We affirm.

The facts are undisputed. On December 20, 1966, claimants, now private
respondents, filed with respondent Court a petition wherein they alleged
their employment relationship, the overtime services in excess of the regular
eight hours a day rendered by them, and the failure to pay them overtime
compensation in accordance with Commonwealth Act No. 444. Their prayer
was for the differential between the amount actually paid to them and the
amount allegedly due them. 6 There was an answer filed by petitioner
Philippine Virginia Tobacco Administration denying the allegations and raising
the special defenses of lack of a cause of action and lack of jurisdiction. 7 The
issues were thereafter joined, and the case set for trial, with both parties
presenting their evidence. 8 After the parties submitted the case for decision,
the then Presiding Judge Arsenio T. Martinez of respondent Court issued an
order sustaining the claims of private respondents for overtime services from
December 23, 1963 up to the date the decision was rendered on March 21,
1970, and directing petitioner to pay the same, minus what it had already
paid. 9 There was a motion for reconsideration, but respondent Court en
banc denied the same. 10 Hence this petition for certiorari.

Petitioner Philippine Virginia Tobacco Administration, as had been noted,

would predicate its plea for the reversal of the order complained of on the
basic proposition that it is beyond the jurisdiction of respondent Court as it is
exercising governmental functions and that it is exempt from the operation
of Commonwealth Act No. 444. 11While, to repeat, its submission as to the
governmental character of its operation is to be given credence, it is not a
necessary consequence that respondent Court is devoid of jurisdiction. Nor
could the challenged order be set aside on the additional argument that the
Eight-Hour Labor Law is not applicable to it. So it was, at the outset, made
clear.

1. A reference to the enactments creating petitioner corporation suffices to

demonstrate the merit of petitioner's plea that it performs governmental and
not proprietary functions. As originally established by Republic Act No.
2265, 12 its purposes and objectives were set forth thus: "(a) To promote the
effective merchandising of Virginia tobacco in the domestic and foreign
markets so that those engaged in the industry will be placed on a basis of
economic security; (b) To establish and maintain balanced production and
consumption of Virginia tobacco and its manufactured products, and such
marketing conditions as will insure and stabilize the price of a level sufficient
to cover the cost of production plus reasonable profit both in the local as well
as in the foreign market; (c) To create, establish, maintain, and operate
processing, warehousing and marketing facilities in suitable centers and
supervise the selling and buying of Virginia tobacco so that the farmers will
enjoy reasonable prices that secure a fair return of their investments; (d) To
prescribe rules and regulations governing the grading, classifying, and
inspecting of Virginia tobacco; and (e) To improve the living and economic
conditions of the people engaged in the tobacco industry." 13 The
amendatory statute, Republic Act No. 4155, 14renders even more evident its
nature as a governmental agency. Its first section on the declaration of policy
reads: "It is declared to be the national policy, with respect to the local
Virginia tobacco industry, to encourage the production of local Virginia
tobacco of the qualities needed and in quantities marketable in both
domestic and foreign markets, to establish this industry on an efficient and
economic basis, and, to create a climate conducive to local cigarette
manufacture of the qualities desired by the consuming public, blending
imported and native Virginia leaf tobacco to improve the quality of locally
manufactured cigarettes." 15 The objectives are set forth thus: "To attain this
national policy the following objectives are hereby adopted: 1. Financing; 2.
Marketing; 3. The disposal of stocks of the Agricultural Credit Administration
(ACA) and the Philippine Virginia Tobacco Administration (PVTA) at the best
obtainable prices and conditions in order that a reinvigorated Virginia
tobacco industry may be established on a sound basis; and 4. Improving the
quality of locally manufactured cigarettes through blending of imported and
native Virginia leaf tobacco; such importation with corresponding exportation
at a ratio of one kilo of imported to four kilos of exported Virginia tobacco,
purchased by the importer-exporter from the Philippine Virginia Tobacco
Administration." 16

It is thus readily apparent from a cursory perusal of such statutory provisions

why petitioner can rightfully invoke the doctrine announced in the leading
Agricultural Credit and Cooperative Financing Administration decision 17and
why the objection of private respondents with its overtones of the distinction
between constituent and ministrant functions of governments as set forth in
Bacani v. National Coconut Corporation 18 if futile. The irrelevance of such a
distinction considering the needs of the times was clearly pointed out by the
present Chief Justice, who took note, speaking of the reconstituted
Agricultural Credit Administration, that functions of that sort "may not be
strictly what President Wilson described as "constituent" (as distinguished
from "ministrant"),such as those relating to the maintenance of peace and
the prevention of crime, those regulating property and property rights, those
relating to the administration of justice and the determination of political
duties of citizens, and those relating to national defense and foreign
relations. Under this traditional classification, such constituent functions are
exercised by the State as attributes of sovereignty, and not merely to
promote the welfare, progress and prosperity of the people these latter
functions being ministrant, the exercise of which is optional on the part of
the government." 19 Nonetheless, as he explained so persuasively: "The
growing complexities of modern society, however, have rendered this
traditional classification of the functions of government quite unrealistic, not
to say obsolete. The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter optionally, and
only "because it was better equipped to administer for the public welfare
than is any private individual or group of individuals", continue to lose their
well-defined boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it is to meet the
increasing social challenges of the times. Here as almost everywhere else
the tendency is undoubtedly towards a greater socialization of economic
forces. Here of course this development was envisioned, indeed adopted as a
national policy, by the Constitution itself in its declaration of principle
concerning the promotion of social justice." 20 Thus was laid to rest the
doctrine in Bacani v. National Coconut Corporation,21 based on the Wilsonian
classification of the tasks incumbent on government into constituent and
ministrant in accordance with the laissez faire principle. That concept, then
dominant in economics, was carried into the governmental sphere, as noted
in a textbook on political science, 22 the first edition of which was published
in 1898, its author being the then Professor, later American President,
Woodrow Wilson. He took pains to emphasize that what was categorized by
him as constituent functions had its basis in a recognition of what was
demanded by the "strictest [concept of] laissez faire, [as they] are indeed
the very bonds of society." 23 The other functions he would minimize as
ministrant or optional.

It is a matter of law that in the Philippines, the laissez faire principle hardly
commanded the authoritative position which at one time it held in the United
States. As early as 1919, Justice Malcolm in Rubi v. Provincial Board 24could
affirm: "The doctrines of laissez faire and of unrestricted freedom of the
individual, as axioms of economic and political theory, are of the past. The
modern period has shown a widespread belief in the amplest possible
demonstration of government activity." 25 The 1935 Constitution, as was
indicated earlier, continued that approach. As noted in Edu v. Ericta:26 "What
is more, to erase any doubts, the Constitutional Convention saw to it that the
concept of laissez-faire was rejected. It entrusted to our government the
responsibility of coping with social and economic problems with the
commensurate power of control over economic affairs. Thereby it could live
up to its commitment to promote the general welfare through state
action." 27 Nor did the opinion in Edu stop there: "To repeat, our Constitution
which took effect in 1935 erased whatever doubts there might be on that
score. Its philosophy is a repudiation of laissez-faire. One of the leading
members of the Constitutional Convention, Manuel A. Roxas, later the first
President of the Republic, made it clear when he disposed of the objection of
Delegate Jose Reyes of Sorsogon, who noted the "vast extensions in the
sphere of governmental functions" and the "almost unlimited power to
interfere in the affairs of industry and agriculture as well as to compete with
existing business" as "reflections of the fascination exerted by [the then]
current tendencies' in other jurisdictions. He spoke thus: "My answer is that
this constitution has a definite and well defined philosophy, not only political
but social and economic.... If in this Constitution the gentlemen will find
declarations of economic policy they are there because they are necessary to
safeguard the interest and welfare of the Filipino people because we believe
that the days have come when in self-defense, a nation may provide in its
constitution those safeguards, the patrimony, the freedom to grow, the
freedom to develop national aspirations and national interests, not to be
hampered by the artificial boundaries which a constitutional provision
automatically imposes." 28

It would be then to reject what was so emphatically stressed in the

Agricultural Credit Administration decision about which the observation was
earlier made that it reflected the philosophy of the 1935 Constitution and is
even more in consonance with the expanded role of government accorded
recognition in the present Charter if the plea of petitioner that it discharges
governmental function were not heeded. That path this Court is not prepared
to take. That would be to go backward, to retreat rather than to advance.
Nothing can thus be clearer than that there is no constitutional obstacle to a
government pursuing lines of endeavor, formerly reserved for private
enterprise. This is one way, in the language of Laski, by which through such
activities, "the harsh contract which [does] obtain between the levels of the
rich and the poor" may be minimized. 29 It is a response to a trend noted by
Justice Laurel in Calalang v. Williams 30 for the humanization of laws and the
promotion of the interest of all component elements of society so that man's
innate aspirations, in what was so felicitously termed by the First Lady as "a
compassionate society" be attained. 31

2. The success that attended the efforts of petitioner to be adjudged as

performing governmental rather than proprietary functions cannot militate
against respondent Court assuming jurisdiction over this labor dispute. So it
was mentioned earlier. As far back as Tabora v. Montelibano, 32 this Court,
speaking through Justice Padilla, declared: The NARIC was established by the
Government to protect the people against excessive or unreasonable rise in
the price of cereals by unscrupulous dealers. With that main objective there
is no reason why its function should not be deemed governmental. The
Government owes its very existence to that aim and purpose to protect
the people." 33 In a subsequent case, Naric Worker's Union v. Hon.
Alvendia, 34 decided four years later, this Court, relying on Philippine
Association of Free Labor Unions v. Tan, 35 which specified the cases within
the exclusive jurisdiction of the Court of Industrial Relations, included among
which is one that involves hours of employment under the Eight-Hour Labor
Law, ruled that it is precisely respondent Court and not ordinary courts that
should pass upon that particular labor controversy. For Justice J. B. L. Reyes,
the ponente, the fact that there were judicial as well as administrative and
executive pronouncements to the effect that the Naric was performing
governmental functions did not suffice to confer competence on the then
respondent Judge to issue a preliminary injunction and to entertain a
complaint for damages, which as pointed out by the labor union, was
connected with an unfair labor practice. This is emphasized by the
dispositive portion of the decision: "Wherefore, the restraining orders
complained of, dated May 19, 1958 and May 27, 1958, are set aside, and the
complaint is ordered dismissed, without prejudice to the National Rice and
Corn Corporation's seeking whatever remedy it is entitled to in the Court of
Industrial Relations." 36 Then, too, in a case involving petitioner itself,
Philippine Virginia Tobacco Administration, 37 where the point in dispute was
whether it was respondent Court or a court of first instance that is possessed
of competence in a declaratory relief petition for the interpretation of a
collective bargaining agreement, one that could readily be thought of as
pertaining to the judiciary, the answer was that "unless the law speaks
clearly and unequivocally, the choice should fall on the Court of Industrial
Relations." 38 Reference to a number of decisions which recognized in the
then respondent Court the jurisdiction to determine labor controversies by
government-owned or controlled corporations lends to support to such an
approach. 39 Nor could it be explained only on the assumption that
proprietary rather than governmental functions did call for such a conclusion.
It is to be admitted that such a view was not previously bereft of plausibility.
With the aforecited Agricultural Credit and Cooperative Financing
Administration decision rendering obsolete the Bacani doctrine, it has, to use
a Wilsonian phrase, now lapsed into "innocuous desuetude." 40 Respondent
Court clearly was vested with jurisdiction.

3. The contention of petitioner that the Eight-Hour Labor Law 41 does not
apply to it hardly deserves any extended consideration. There is an air of
casualness in the way such an argument was advanced in its petition for
review as well as in its brief. In both pleadings, it devoted less than a full
page to its discussion. There is much to be said for brevity, but not in this
case. Such a terse and summary treatment appears to be a reflection more
of the inherent weakness of the plea rather than the possession of an
advocate's enviable talent for concision. It did cite Section 2 of the Act, but
its very language leaves no doubt that "it shall apply to all persons employed
in any industry or occupation, whether public or private ... ." 42 Nor are
private respondents included among the employees who are thereby barred
from enjoying the statutory benefits. It cited Marcelo v. Philippine National
Red Cross 43 and Boy Scouts of the Philippines v. Araos. 44 Certainly, the
activities to which the two above public corporations devote themselves can
easily be distinguished from that engaged in by petitioner. A reference to the
pertinent sections of both Republic Acts 2265 and 2155 on which it relies to
obtain a ruling as to its governmental character should render clear the
differentiation that exists. If as a result of the appealed order, financial
burden would have to be borne by petitioner, it has only itself to blame. It
need not have required private respondents to render overtime service. It
can hardly be surmised that one of its chief problems is paucity of personnel.
That would indeed be a cause for astonishment. It would appear, therefore,
that such an objection based on this ground certainly cannot suffice for a
reversal. To repeat, respondent Court must be sustained.

WHEREFORE, the appealed Order of March 21, 1970 and the Resolution of
respondent Court en banc of May 8, 1970 denying a motion for
reconsideration are hereby affirmed. The last sentence of the Order of March
21, 1970 reads as follows: "To find how much each of them [private
respondents] is entitled under this judgment, the Chief of the Examining
Division, or any of his authorized representative, is hereby directed to make
a reexamination of records, papers and documents in the possession of
respondent PVTA pertinent and proper under the premises and to submit his
report of his findings to the Court for further disposition thereof." Accordingly,
as provided by the New Labor Code, this case is referred to the National
Labor Relations Commission for further proceedings conformably to law. No
costs.

G.R. No. 104226 August 12, 1993

CONCHITA ROMUALDEZ-YAP, petitioner,

vs.
THE CIVIL SERVICE COMMISSION and THE PHILIPPINE NATIONAL
BANK, respondents.

This is a special civil action for certiorari under Rule 65 of the Rules of Court,
assailing Resolution No. 92-201 of the respondent Civil Service Commission,
which upheld the petitioner's separation from the Philippine National
Bank(PNB) as a result of the abolition of the Fund Transfer Department
pursuant to a reorganization under Executive Order No. 80, dated 3
December 1986.

Petitioner Conchita Romualdez-Yap started working with the Philippine

National Bank on 20 September 1972 as special assistant with the rank of
Second Assistant Manager assigned to the office of the PNB President. After
several promotions, she was appointed in 1983 Senior Vice President
assigned to the Fund Transfer Department.

Starting 1 April 1986 up to 20 February 1987, petitioner filed several

applications for leave of absence (due to medical reasons) which were duly
approved. While she was on leave, Executive Order No. 80 (Revised Charter
of the PNB) was approved on 3 December 1986. Said executive order
authorized the restructure/reorganization and rehabilitation of PNB. Pursuant
to the reorganization plan, the Fund Transfer Department was abolished and
its functions transferred to the International Department.

Consequently, petitioner was notified of her separation from the service in a

letter dated 30 January 1987, thus:

Pursuant to the Transitory Provision of the 1986 Revised Charter

of the Bank, please be informed that Management has approved
your separation from the service effective February 16, 1986. You
shall be entitled to the regular benefits allowed under existing
law. (emphasis supplied)

Please be informed further that under Sec. 37 of the Bank's 1986

Revised Charter, any officer or employee who feels aggrieved by
any matter treated above may submit his case to the Civil
Service
Commission. 1

This letter was received by petitioner's secretary at the PNB head office on
16 February 1987.

Petitioner's first recorded appeal to the Civil Service Commission questioning

her separation is a letter dated 4 August 1989. Then CSC Chairman Samilo N.
Barlongay upheld the validity of her separation from the service in a
letter/opinion dated 30 August 1989 (this was allegedly received by
petitioner only on 26 February 1990) stating thus:

xxx xxx xxx

It may be mentioned in this connection, that inasmuch as you did

not avail of the ERIP/Supplementary Retirement Plans adopted by
the PNB in 1986, you have therefore lost your right thereto.
Moreover, since you lack the required number of years of service
to entitle you to retirement benefits under existing laws, you may
be entitled to the return of your GSIS personal contributions.
Considering further that you have exhausted all your
accumulated leave credits as you went on leave of absence for
the period from April 1, 1986 to February 20, 1987, there is no
legal or valid basis to entitle you to payment of terminal leave.

Finally, pursuant to Section 16, Article XVIII of the Transitory

Provisions of the 1987 Philippine Constitution, you may be
entitled to payment of separation subject to auditing rules and
regulations. 2

In her motion for reconsideration with the Civil Service Commission, dated 5
March 1990, questioning Chairman Barlongay's ruling, petitioner claimed:

1. The opinion/ruling was not fully supported by the evidence on record;

2. Errors of law prejudicial to the interest of the movant have been

committed. She argued:

. . . that her separation from the service was illegal and was done
in bad faith considering that her termination on February 16,
1986 was made effective prior to the effectivity of Executive
Order No. 80 on December 3, 1986, which law authorized the
reorganization of the PNB, and even before February 25, 1986,
when President Corazon C. Aquino came into power. She further
claims that although the notice of termination was dated January
30, 1987 it was only served upon her on February 16, 1987 when
the new Constitution which guarantees security of tenure to
public employees was already in effect. 3
xxx xxx xxx

. . . the bad faith in her separation from the service in 1987 was
evident from the recent restoration of the Fund Transfer
Department as a separate and distinct unit from the International
Department . . .4

Denying the motion for reconsideration, the Civil Service Commission in its
aforecited Resolution No. 92-201, dated 30 January, 1992, ruled:

Sec. 33 of EO 80 (1986 Revised Charter of the PNB) provides:

Sec. 33. Authority to Reorganize. In view of reduced

operations contemplated under this charter in pursuance of the
national policy expressed in the "Whereas" clause hereof, a
reorganization of the Bank and a reduction in force are hereby
authorized to achieve greater efficiency and economy in
operations, including the adoption of a new staffing pattern to
suit the reduced operations envisioned. The program of
reorganization shall begin immediately after the approval of this
Order, and shall be completed within six (6) months and shall be
fully implemented within eighteen (18) months thereafter."
Clearly; as aforequoted, PNB was authorized to undergo
reorganization and to effect a reduction in force to "achieve
greater efficiency and economy in operations". It cannot, be
disputed that reduction in force necessitates, among others, the
abolition of positions/offices. The records show that prior to its
reorganization, PNB originally had 7,537 positions which were
reduced to 5,405 after the reorganization. Indeed, 2,132
positions were abolished, that is, the original positions in PNB
were reduced by 28%. This reduction in force likewise included
the senior officer positions, in PNB, which were reduced, thus:

Positions Incumbents Proposed Position

President 1 1 1
Sr. Exec. VP 1 1 0
Exec. VP 3 2 2
Senior VP 12 11 7
Vice Pres. 33 27 15

The position of movant Yap (SVP) was one among the original
twelve (12) SVP positions. It was one among the five (5) SVP
positions which were abolished. In fact, the FTD of which she was
then the incumbent SVP, was merged with the International
Department to which its functions were closedly related.

It should be noted that as ruled by the Supreme Court in Dario

vs. Mison (G.R. NO. 81954):

Reorganizations in this jurisdiction have been

regarded as valid provided they are pursued in good
faith. As a general rule, a reorganization is carried
out in "good faith" if it is for the purpose of economy
or to make bureaucracy more efficient. In that event,
no dismissal or separation actually occurs because
the position itself ceases to exist. And in that case,
security of tenure would not be a Chinese Wall. . . . .

. . . Good faith, as a component of a reorganization

under a constitutional regime is judged from the
facts of each case.

In the instant case, therefore, this Commission is inclined to

believe that the reorganization of PNB was done in good faith.
For indeed, the reorganization was pursued to achieve economy.
It undertook reduction in force as a means to streamline the
numbers of the workforce. It was incidental that movant Yap's
position was one among those abolished. Movant Yap failed to
substantiate her claim by clear and convincing evidence that the
abolition of her position was a result of her close identification
with the previous regime, being a sister of former First Lady
Imelda Romualdez Marcos. This being so, and pursuant to the
presumption of regularity in the performance of official functions,
the abolition of movant Yap's position should be upheld. PNB, in
the instant case, has clearly proved by substantial evidence that
its act in terminating the services of some of its employees was
done in good faith. 5

Overruling her imputation of bad faith, i.e. her separation was illegal because
it took effect on 16 February 1986 or even before the promulgation of EO No.
80 on 3 December 1986, the CSC noted that the year "1986" stated in the
notice of her separation from the service was a typographical error. PNB
submitted documents (p. 6 of Resolution No. 92-201) supporting its stand
that the separation actually took effect on 16 February 1987.

On the issue of bad faith as related to the later restoration of the Fund
Transfer Department, the subject CSC resolution adds:

xxx xxx xxx

It may be mentioned that the recent restoration of the Fund

Transfer Department, actually was a merger of the Fund Transfer
Group, the Foreign Remittance Development and Coordinating
Unit based on board Resolution No. 60 of March 12, 1991, or
after the lapse of over four (4) years from the date it was
abolished in 1987. Moreover, the restoration of the Fund Transfer
Department and other offices in the PNB was primarily caused by
the improved financial capability and present needs of the Bank.
This improved financial condition of the PNB is evident from the
1990 Annual Report it submitted. It may be further stated that
the re-established FTD is headed by a Vice President, a position
much lower in rank than the former department headed by a
Senior Vice President.

Furthermore, it should be noted that granting arguendo that

movant Yap's termination from the service was tainted with bad
faith, she however, is now barred from assailing the same as she
did not seasonably assert her right thereto. Records show that
she was separated from PNB on February 16, 1987 and it was
only in 1989 or about 2 years thereafter when she brought this
matter to this Commission. By her inaction in questioning her
termination within a period of one year, she is considered to
have acquiesced to her separation from the service and
abandoned her right to the position. 6

In the present petition before the Court, the following issues are raised:

1. Existence of bad faith in the reorganization of the Philippine National Bank

resulting in the separation from the service of petitioner.

2. Erroneous application of the Dario v. Mison doctrine vis-a-vis PNB's

reorganization.

3. Erroneous application of the one (1) year prescriptive period for quo
warranto proceedings in petitioner's case.

Dario v. Mison 7 laid down the requirement of good faith in the reorganization
of a government bureau wherein offices are abolished. It says:

. . . Reorganizations in this jurisdiction have been regarded as

valid provided they are pursued in good faith. As a general rule,
a reorganization is carried out in "good faith" if it is for the
purpose of economy or to make bureaucracy more efficient. In
that event, no dismissal (in case of dismissal) or separation
actually occurs because the position itself ceases to exist. And in
that case, security of tenure would not be a Chinese wall. Be that
as it may, if the "abolition," which is nothing else but a
separation or removal, is done for political reasons or purposely
to defeat security of tenure, or otherwise not in good faith, no
valid "abolition" takes place and whatever "abolition" is done, is
void ab initio. There is an invalid "abolition" as where there is
merely a change of nomenclature of positions, or where claims of
economy are belied by the existence of ample funds. It is to be
stressed that by predisposing a reorganization to the yardstick of
good faith, we are not, as a consequence, imposing a "cause" for
restructuring. Retrenchment in the course of a reorganization in
good faith is still removal "not for cause" if by "cause" we refer to
"grounds" or conditions that call for disciplinary action. Good
faith, as a component of a reorganization under a constitutional
regime, is judged from the facts of each case.

In Petitioner's case, the following instances are cited by her as indicia of bad
faith:

1. The abolished department was later restored and the number

of senior vice presidents was increased.

2. PNB did not follow the prescribed sequence of separation of

employees from the service contained in Rep. Act No. 6656
which is:
Sec. 3. In the separation of personnel pursuant to
reorganization, the following order of removal shall
be followed:

(a) Casual employees with less than five

(5) years of government service;

(b) Casual employees with five (5) years

or more of government service;

(c) Employees holding temporary

appointments; and

(d) Employees holding permanent

appointments: Provided, That those in
the same category as enumerated
above, who are least qualified in terms of
performance and merit shall be laid off
first, length of service notwithstanding.

3. Petitioner was not extended preference in appointment to the

positions in the new staffing pattern as mandated by Sec. 4 of
Rep. Act 6656, her qualification and fitness for new positions
were never evaluated or considered in violation of Sec. 27 of P.D.
807 which was incorporated as Sec. 29 Ch. 5 Subtitle A, Book V
of the Administrative Code of 1987.

4. Lack of notice and bearing before separation from the service.

5. Petitioner was forced to take a leave of absence and prevented

from reporting for work.

6. There is a discrepancy in the date of her separation from the

service and the effectivity thereof.

7. PNB employees in the Fund Transfer Department identified

with her were reassigned or frozen.

8. She is listed as having resigned instead of being separated or

dismissed which was what actually happened.

9. The dismissal was politically motivated, she being a sister of

Mrs. Imelda Romualdez Marcos, wife of deposed President
Ferdinand Marcos.

Executive Order No. 80 conferred upon the PNB the authority to reorganize.
The order was issued by then Pres. Corazon Aquino on 3 December 1986
while she was exercising the powers vested in the President of the
Philippines by the Freedom Constitution. After 3 December 1986, what
remained to be done was the implementation of the reorganization. There is
no doubt as to the legal basis for PNB's reorganization. The real question is:
was it done in good faith, tested by the Dario v. Mison doctrine?

To start with it is almost absurd for petitioner to insist that her termination
from the service was antedated to 16 February 1986. At that time, the
reorganization of PNB had not even been conceived. In most of PNB's
pleadings, it has documented and supported its stand that the year of
petitioner's separation is 1987 not 1986. The antedating of the termination
date, aside from being clearly a typographical error, is a periphernal issue.
The real issue is existence of bad faith consisting of tangible
bureaucratic/management pressures exerted to ease her out of office. Bad
faith has been defined as a state of mind affirmatively operating with furtive
design or with some motive of self interest or ill will or for an ulterior
purpose. 8 It is the performance of an act with the knowledge that the actor is
violating the fundamental law or right, even without willful intent to injure or
purposive malice to perpetrate a damnifying harm. 9

PNB's reorganization, to repeat, was by virtue of a valid law. At the time of

reorganization, due to the critical financial situation of the bank,
departments, positions and functions were abolished or merged. The
abolition of the Fund Transfer Department (FTD) was deemed necessary.
This, to the Court's mind, was a management prerogative exercised pursuant
to a business judgment. At this point, a distinction can be made in ruling on
the validity of a reorganization between a government bureau or office
performing constituent functions (like the Customs) and a government-
owned or controlled corporation performing ministrant functions (like the
PNB).

Constituent function are those which constitute the very bonds of society
and are compulsory in nature; ministrant functions are those undertaken by
way of advancing the general interests of society, and are merely optional.
Commercial or universal banking is, ideally, not a governmental but a private
sector, endeavor. It is an optional function of government.

. . . The principles determining whether or not a government

shall exercise certain of these optional functions are: (1) that a
government should do for the public welfare those things which
private capital would not naturally undertake and (2) that a
government should do those things which by its very, nature it is
better equipped to administer for the public welfare than is any
private individual or group of individuals (Malcolm, The
Government of the Philippine Islands, pp. 19-20)

From the above we may infer that, strictly speaking, there are
functions which our government is required to exercise to
promote its objectives as expressed in our Constitution and
which are exercised by it as an attribute of sovereignty, and
those which it may exercise to promote merely the welfare,
progress and prosperity of the people. To this latter class belongs
the organization of those corporations owned or controlled by the
government to promote certain aspects of the economic life of
our people such as the National Coconut Corporation. These are
what we call government-owned or controlled corporations which
may take on the form of a private enterprise or one organized
with powers and formal characteristics of a private corporation
under the Corporation Law. (Bacani vs. Nacoco, No, L-9657,
November 29, 1956, 100 Phil. 468)
But a reorganization whether in a government bureau performing constituent
functions or in a government-owned or controlled corporation performing
ministrant functions must meet a common test, the test of good faith. In this
connection, the philosophy behind PNB's reorganization is spelled out in the
whereas clauses of Executive Order No. 80:

WHEREAS, within the context of the general policy there

nevertheless exists a clear role for direct government-
participation in the banking system, particularly in servicing the
requirements of agriculture, small and medium scale industry,
export development, and the government sector.

WHEREAS, in pursuit of this national policy there is need to

restructure the government financial institutions, particularly the
Philippine National Bank, to achieve a more efficient and
effective use of available scarce resources, to improve its
viability, and to avoid unfair competition with the private sector,
and

WHEREAS, the reorganization and rehabilitation of the Philippine

National Bank into a similar but stronger and more operationally
viable bank is an important component of the nationalization
programs for both the financial system and the government
corporation sector; . . . .

Whether there was a hidden political agenda to persecute petitioner due to

her consanguinial relation to Mrs. Imelda Romualdez Marcos, the widow of
former President Marcos, is not clearly shown. On the other hand, it is
entirely possible that, precisely because of such consanguinial relation,
petitioner may have been the object of deferential, if not special treatment
under the Marcos regime. It is part of the Filipino culture to extend such
deferential, if not special treatment to close relatives of persons in power.
Many times this is carried to unwholesome extremes. But a discontinuance of
such deferential or special treatment in the wake of a change in government
or administration is not bad faith per se. It may be merely putting things in
their proper places.

Due to the restructuring and this is empirically verifiable PNB became

once more a viable banking institution. The restoration of the FTD four years
after it was abolished and its functions transferred to the International
Department, can be attributed to the bank's growth after reorganizations,
thereby negating malice or bad faith in that reorganization. The essence of
good faith lies in an honest belief in the validity of one's right. 10 It consists of
an honest intention to abstain from taking an unconscionable and
unscrupulous advantage of another, its absence should be established by
convincing evidence. 11

The records also clearly indicate that starting April 1986 to February 1987,
petitioner went on leave of absence for medical reasons. While she was not
reporting to the office, the bank's reorganization got underway. She
continued, however, receiving her salaries, allowances, emoluments,
honoraria and fees up to March 1987. Employees who were affected by the
reorganization had the option to avail of the bank's Separation Benefits
Plan/Early Retirement Plan (SBP/ERIP). Petitioner opted not to avail of such
plan and instead submitted to the result of the bank's ongoing reorganization
and management's discretion. If petitioner had the desire for continued
employment with the bank, she could have asserted it for management's
consideration. There is no proof on record that she affirmatively expressed
willingness to be employed. Since she cannot rebut the CSC finding that her
earliest appeal was made on 4 August 1989, there is no reason for this Court
to hold that she did not sleep on her rights. On the contrary, her present
argument that bad faith existed at the time of the abolition of the FTD
because it was restored four years later is a little too late. Who could have
predicted in 1986 or 1987 that PNB would be able to rise from its financial
crisis and become a viable commercial bank again? The decision to abolish
the FTD at the time it was abolished, to repeat, was a business judgment
made in good faith.

PNB for its part submits that its reorganization was effected in good faith
because

a) There was not only a perceptible but substantial restructuring

of the PNB hierarchy showing reduction of personnel,
consolidation of offices and abolition of positions.

b) Two thousand one hundred thirty two (2,132) positions were

abolished during the period from February 16, 1986 to January
14, 1987 leaving a lean workforce of five thousand four hundred
five (5,405) as of latter date per B.R. No. 34 hereto attached as
Annex "R".

c) The number of senior officers, including Senior Vice Presidents,

was accordingly reduced.

Another issue raised by petitioner is PNB's alleged non-compliance with the

mandate of Sections 2 and 4 of Rep. Act No. 6656. These Sections provide:

Sec. 2. No officer or employee in the career service shall be

removed except for a valid cause and after due notice and
hearing. A valid cause for removal exists when, pursuant to a
bona fide reorganization, a position has been abolished or
rendered redundant or there is a need to merge, divide, or
consolidate positions in order to meet the exigencies of the
service, or other lawful causes allowed by the Civil Service Law.
The existence of any or some of the following circumstances may
be considered as evidence of bad faith in the removals made as
a result of reorganization, giving to a claim for reinstatement or
reappointment by an aggrieved party.

(a) Where there is a significant increase in the number of

positions in the new staffing pattern of the department or agency
concerned;

(b) Where an office is abolished and another performing

substantially the same functions is created;

(c) Where incumbents are replaced by those less qualified in

terms of status of appointment, performance and merit;
(d) Where there is a reclassification of offices in the department
or agency concerned and the reclassified offices perform
substantially the same functions as the original offices;

(e) Where the removal violates the order of separation provided

in Section 3 hereof.

Sec. 4. Officers and employees holding permanent, appointments

shall be given preference for appointment to the new position in
the approved staffing pattern comparable to their former
positions or in case there are not enough comparable positions,
to positions next lower in rank.

No new employees shall be taken in until all permanent officers

and employees have been appointed, including temporary and
casual employees who possess the necessary qualification
requirements, among which is the appropriate civil service
eligibility, for permanent appointment to positions in the
approved staffing pattern, in case there are still positions to be
filled, unless such positions are policy-determining, primarily
confidential or highly technical in nature.

In the first place, Rep. Act No. 6656 cannot be invoked by petitioner because
it took effect on 15 June 1987, or after PNB's reorganization had already been
implemented. But assuming, ex gratia argumenti, that it is applicable here
and petitioner must be accorded preferential right to appointment in the
bank, PNB in its rejoinder impressively asserts:

Needless to say, there were various committees that were

created in the implementation of the organizational restructuring
of the Bank based on the foregoing policy guidelines. Each
personnel to be retained was evaluated in terms of relative
fitness and merit along with the other personnel of the Bank.
Thus, when then SVP Federico Pascual was chosen to head the
International Department from among other officers of the Bank,
including Ms. Yap, his qualifications far exceeded those of the
other candidates for the position.

We attach hereto as Annexes "G-1" and "G-2" the service records

of Mr. Federico Pascual and Petitioner Ms. Yap, respectively,
which clearly show that the qualifications of Mr. Pascual far
exceed those of Petitioner Yap. Aside from being a lawyer having
been a law graduate from the University of the Philippines, he is
also a Bachelor of Arts degree holder from Ateneo de Manila and
a Master of Laws graduate o Columbia Law School. He had
studied Masteral Arts in Public Administration at the London
School of Economics and had undergone extensive seminars
since 1974 at the International Department and had been
assigned in several foreign branches of the Bank. Before he
resigned from the Bank, he held the second highest position of
Executive Vice President and served as Acting President of the
Bank before the incumbent president, President Gabriel Singson
assumed his position.
On the other hand, the service record of Petitioner Yap will show
that she only holds a Bachelor of Science in Commerce Degree
from Assumption Convent and has undergone only one seminar
on Management and Leadersbip Training Program. She entered
the Bank service in 1972. (Rollo at pp. 312 to 313)

The prayer in the petition at bar seeks petitioner's immediate reinstatement

to her former position as senior vice president and head of the Fund Transfer
Department, or reappointment to a position of comparable or equivalent
rank without loss of seniority rights and pay, etc., under the bank's new
staffing pattern.

A person claiming to be entitled to a public office or position usurped or

unlawfully held or exercised by another may bring an action for quo
warranto (Rule 66, Sec. 6, Rules of Court). The petitioner therein must show a
clear legal right to the office allegedly held unlawfully by another. 12

An action for quo warranto should be brought within one (1) year after ouster
from office; 13 the failure to institute the same within the reglementary period
constitutes more than a sufficient basis for its dismissal 14 since it is not
proper that the title to a public office be subjected to continued
uncertainty . . . 15 An exception to this prescriptive period lies only if the
failure to file the action can be attributed to the acts of a responsible
government officer and not of the dismissed employee. 16

Measured by the above jurisprudence, petitioner's action may be said to be

one for quo warranto, seeking reinstatement to her former position which at
present is occupied by another. She cannot invoke De Tavera
[Link]. Tuberculosis Society, Inc., et. al. 17 and contend that there is no claim
of usurpation of office, and that quo warrantomay be availed of to assert
one's right to an office in the situation obtaining in the case at bar.

Santos v. CA, et. al. 18 and Magno v. PNNC Corp. 19 are invoked by petitioner
to illustrate that this action is one for separation without just cause, hence,
the prescriptive period is allegedly four (4) years in accordance with Article
1146 of the Civil Code. 20 We do not agree. Petitioner's separation from the
service was due to the abolition of her office in implementation of a valid
reorganization. This is not the unjustifiable cause which results in injury to
the rights of a person contemplated by Article 1146. The abolition of the
office was not a whimsical, thoughtless move. It was a thoroughly evaluated
action for streamlining functions based on a rehabilitation plan. 21 At the time
of the abolition of the Fund Transfer Department in 1986, foreign exchange
losses of the bank amounted to P81.1 Million. 22 The head of office was a
Senior Vice President. At the time of restoration of the department in 1991, it
was headed by a vice president (lower in rank) and showed earnings of
P2,620.0 Million. 23 Other departments abolished in 1986 were also
subsequently restored.

Restoring petitioner to her previous position with backwages would be unjust

enrichment to her, considering that she had abandoned or showed lack of
interest in reclaiming the same position when the bank was not yet fully
rehabilitated and she only insisted on reinstatement in August 1989 or two
(2) years after her alleged unjustified separation.
To those who feel that their unjustified separation from the service is for a
cause beyond their control, the aforecited Magno case teaches:

. . . while We fully recognize the special protection which the

Constitution, labor laws, and social legislation accord the workingman,
We cannot, however, alter or amend the law on prescription to relieve
him of the consequences of his inaction. Vigilantibus, non
dormientibus, jura subveniunt (Laws come to the assistance of the
vigilant, not of the sleeping). His explanation that he could not have
filed the complaint earlier because "he was prevented to do so beyond
his control for the simple reason that private respondent have (sic)
tried to circumvent the law by merely floating" him is very flimsy and
does not even evoke sympathetic consideration, if at all it is proper
and necessary. We note that petitioner herein is not an unlettered man;
he seems to be educated and assertive of his rights and appears to be
familiar with judicial procedures. He filed a motion for extension of time
to file the petition and the petition itself without the assistance of
counsel. We cannot believe that if indeed he had a valid grievance
against PNCC he would not have taken immediate positive steps for its
redress.

WHEREFORE, premises considered, the assailed CSC resolution is AFFIRMED. The

petition is DISMISSED for failure to show grave abuse of discretion on the part of
said CSC in rendering the questioned resolution. No pronouncement as to costs. SO
ORDERED.

G.R. No. L-9959 December 13, 1916

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, represented by the

Treasurer of the Philippine Islands,plaintiff-appellee,
vs.
EL MONTE DE PIEDAD Y CAJA DE AHORRAS DE MANILA, defendant-
appellant.

TRENT, J.:

About $400,000, were subscribed and paid into the treasury of the Philippine
Islands by the inhabitants of the Spanish Dominions of the relief of those
damaged by the earthquake which took place in the Philippine Islands on
June 3, 1863. Subsequent thereto and on October 6 of that year, a central
relief board was appointed, by authority of the King of Spain, to distribute the
moneys thus voluntarily contributed. After a thorough investigation and
consideration, the relief board allotted $365,703.50 to the various sufferers
named in its resolution, dated September 22, 1866, and, by order of the
Governor-General of the Philippine Islands, a list of these allotments,
together with the names of those entitled thereto, was published in the
Official Gazette of Manila dated April 7, 1870. There was later distributed,
inaccordance with the above-mentioned allotments, the sum of $30,299.65,
leaving a balance of S365,403.85 for distribution. Upon the petition of the
governing body of the Monte de Piedad, dated February 1, 1833, the
Philippine Government, by order dated the 1st of that month, directed its
treasurer to turn over to the Monte de Piedad the sum of $80,000 of the
relief fund in installments of $20,000 each. These amounts were received on
the following dates: February 15, March 12, April 14, and June 2, 1883, and
are still in the possession of the Monte de Piedad. On account of various
petitions of the persons, and heirs of others to whom the above-mentioned
allotments were made by the central relief board for the payment of those
amounts, the Philippine Islands to bring suit against the Monte de Piedad a
recover, "through the Attorney-General and in representation of the
Government of the Philippine Islands," the $80.000, together with interest,
for the benefit of those persons or their heirs appearing in the list of names
published in the Official Gazette instituted on May 3, 1912, by the
Government of the Philippine Islands, represented by the Insular Treasurer,
and after due trial, judgment was entered in favor of the plaintiff for the sum
of $80,000 gold or its equivalent in Philippine currency, together with legal
interest from February 28, 1912, and the costs of the cause. The defendant
appealed and makes the following assignment of errors:

1. The court erred in not finding that the eighty thousand dollars
($80,000), give to the Monte de Piedad y Caja de Ahorros, were so
given as a donation subject to one condition, to wit: the return of such
sum of money to the Spanish Government of these Islands, within eight
days following the day when claimed, in case the Supreme
Government of Spain should not approve the action taken by the
former government.

2. The court erred in not having decreed that this donation had been
cleared; said eighty thousand dollars ($80,000) being at present the
exclusive property of the appellant the Monte de Piedad y Caja de
Ahorros.

3. That the court erred in stating that the Government of the Philippine
Islands has subrogated the Spanish Government in its rights, as
regards an important sum of money resulting from a national
subscription opened by reason of the earthquake of June 3, 1863, in
these Island.

4. That the court erred in not declaring that Act Numbered 2109,
passed by the Philippine Legislature on January 30, 1912, is
unconstitutional.

5. That the court erred in holding in its decision that there is no title for
the prescription of this suit brought by the Insular Government against
the Monte de Piedad y Caja de Ahorros for the reimbursement of the
eighty thousand dollars ($80,000) given to it by the late Spanish
Government of these Islands.

6. That the court erred in sentencing the Monte de Piedad y Caja de

Ahorros to reimburse the Philippine Government in the sum of eighty
thousand dollars ($80,000) gold coin, or the equivalent thereof in the
present legal tender currency in circulation, with legal interest thereon
from February 28th, 1912, and the costs of this suit.

In the royal order of June 29, 1879, the Governor-General of the Philippine
Islands was directed to inform the home Government in what manner the
indemnity might be paid to which, by virtue of the resolutions of the relief
board, the persons who suffered damage by the earthquake might be
entitled, in order to perform the sacred obligation which the Government of
Spain had assumed toward the donors.

The next pertinent document in order is the defendant's petition, dated

February 1, 1883, addressed to the Governor-General of the Philippine
Islands, which reads:

Board of Directors of the Monte de Piedad of Manila Presidencia.

Excellency: The Board of Directors of the Monte de Piedad y Caja de

Ahorros of Manila informs your Excellency, First: That the funds which it
has up to the present been able to dispose of have been exhausted in
loans on jewelry, and there only remains the sum of one thousand and
odd pesos, which will be expended between to-day and day after
tomorrow. Second: That, to maintain the credit of the establishment,
which would be greatly injured were its operations suspended, it is
necessary to procure money. Third: That your Excellency has proposed
to His Majesty's Government to apply to the funds of theMonte de
Piedad a part of the funds held in the treasury derived form the
national subscription for the relief of the distress caused by the
earthquake of 1863. Fourth: That in the public treasury there is held at
the disposal of the central earthquake relief board over $1090,000
which was deposited in the said treasury by order of your general
Government, it having been transferred thereto from the Spanish-
Filipino Bank where it had been held. fifth: That in the straightened
circumstances of the moment, your Excellency can, to avert impending
disaster to the Monte de Piedad, order that, out of that sum of one
hundred thousand pesos held in the Treasury at the disposal of the
central relief board, there be transferred to the Monte de Piedadthe
sum of $80,000, there to be held under the same conditions as at
present in the Treasury, to wit, at the disposal of the Relief Board.
Sixth: That should this transfer not be approved for any reason, either
because of the failure of His Majesty's Government to approve the
proposal made by your Excellency relative to the application to the
needs of the Monte de Piedad of a pat of the subscription intended to
believe the distress caused by the earthquake of 1863, or for any other
reason, the board of directors of the Monte de Piedad obligates itself to
return any sums which it may have received on account of the eighty
thousand pesos, or the whole thereof, should it have received the
same, by securing a loan from whichever bank or banks may lend it
the money at the cheapest rate upon the security of pawned jewelry.
This is an urgent measure to save the Monte de Piedad in the present
crisis and the board of directors trusts to secure your Excellency's
entire cooperation and that of the other officials who have take part in
the transaction.

The Governor-General's resolution on the foregoing petition is as follows:

GENERAL GOVERNMENT OF THE PHILIPPINES.

MANILA, February 1, 1883.

In view of the foregoing petition addressed to me by the board of

directors of the Monte de Piedad of this city, in which it is stated that
the funds which the said institution counted upon are nearly all
invested in loans on jewelry and that the small account remaining will
scarcely suffice to cover the transactions of the next two days, for
which reason it entreats the general Government that, in pursuance of
its telegraphic advice to H. M. Government, the latter direct that there
be turned over to said Monte de Piedad $80,000 out of the funds in the
public treasury obtained from the national subscription for the relief of
the distress caused by the earthquake of 1863, said board obligating
itself to return this sum should H. M. Government, for any reason, not
approve the said proposal, and for this purpose it will procure funds by
means of loans raised on pawned jewelry; it stated further that if the
aid so solicited is not furnished, it will be compelled to suspend
operations, which would seriously injure the credit of so beneficient an
institution; and in view of the report upon the matter made by the
Intendencia General de Hacienda; and considering the fact that the
public treasury has on hand a much greater sum from the source
mentioned than that solicited; and considering that this general
Government has submitted for the determination of H. M. Government
that the balance which, after strictly applying the proceeds obtained
from the subscription referred to, may remain as a surplus should be
delivered to the Monte de Piedad, either as a donation, or as a loan
upon the security of the credit of the institution, believing that in so
doing the wishes of the donors would be faithfully interpreted
inasmuch as those wishes were no other than to relieve distress, an act
of charity which is exercised in the highest degree by the Monte de
Piedad, for it liberates needy person from the pernicious effects of
usury; and

Considering that the lofty purposes that brought about the creation of
the pious institution referred to would be frustrated, and that the great
and laudable work of its establishment, and that the great and
laudable and valuable if the aid it urgently seeks is not granted, since
the suspension of its operations would seriously and regrettably
damage the ever-growing credit of the Monte de Piedad; and

Considering that if such a thing would at any time cause deep distress
in the public mind, it might be said that at the present juncture it would
assume the nature of a disturbance of public order because of the
extreme poverty of the poorer classes resulting from the late
calamities, and because it is the only institution which can mitigate the
effects of such poverty; and

Considering that no reasonable objection can be made to granting the

request herein contained, for the funds in question are sufficiently
secured in the unlikely event that H> M. Government does not approve
the recommendation mentioned, this general Government, in the
exercise of the extraordinary powers conferred upon it and in
conformity with the report of the Intendencia de Hacienda, resolves as
follows:

First. Authority is hereby given to deliver to the Monte de Piedad, out of

the sum held in the public treasury of these Islands obtained from the
national subscription opened by reason of the earthquakes of 1863,
amounts up to the sum $80,000, as its needs may require, in
installments of $20,000.
Second. The board of directors of the Monte de Piedad is solemnly
bound to return, within eight days after demand, the sums it may have
so received, if H. M. Government does not approve this resolution.

Third. The Intendencia General de Hacienda shall forthwith, and in

preference to all other work, proceed to prepare the necessary papers
so that with the least possible delay the payment referred to may be
made and the danger that menaces the Monte de Piedad of having to
suspend its operations may be averted.

H. M. Government shall be advised [Link]

(Signed) P. DE RIVERA.

By the royal order of December 3, 1892, the Governor-General of the

Philippine Islands was ordered to "inform this ministerio what is the total sum
available at the present time, taking into consideration the sums delivered to
the Monte de Piedad pursuant to the decree issued by your general
Government on February 1, 1883," and after the rights of the claimants,
whose names were published in the Official Gazette of Manila on April 7,
1870, and their heirs had been established, as therein provided, as such
persons "have an unquestionable right to be paid the donations assigned to
them therein, your general Government shall convoke them all within a
reasonable period and shall pay their shares to such as shall identify
themselves, without regard to their financial status," and finally "that when
all the proceedings and operations herein mentioned have been concluded
and the Government can consider itself free from all kinds of claims on the
part of those interested in the distribution of the funds deposited in the
vaults of the Treasury, such action may be taken as the circumstances shall
require, after first consulting the relief board and your general Government
and taking account of what sums have been delivered to the Monte de
Piedad and those that were expended in 1888 to relieve public calamities,"
and "in order that all the points in connection with the proceedings had as a
result of the earthquake be clearly understood, it is indispensable that the
offices hereinbefore mentioned comply with the provisions contained in
paragraphs 2 and 3 of the royal order of June 25, 1879." On receipt of this
Finance order by the Governor-General, the Department of Finance was
called upon for a report in reference to the $80,000 turned over to the
defendant, and that Department's report to the Governor-General dated June
28, 1893, reads:

Intendencia General de Hacienda de Filipinas (General Treasury of the

Philippines) Excellency. By Royal Order No. 1044 of December 3,
last, it is provided that the persons who sustained losses by the
earthquakes that occurred in your capital in the year 1863 shall be
paid the amounts allotted to them out of the sums sent from Spain for
this purpose, with observance of the rules specified in the said royal
order, one of them being that before making the payment to the
interested parties the assets shall be reduced to money. These assets,
during the long period of time that has elapsed since they were turned
over to the Treasury of the Philippine Islands, were used to cover the
general needs of the appropriation, a part besides being invested in
the relief of charitable institutions and another part to meet pressing
needs occasioned by public calamities. On January 30, last, your
Excellency was please to order the fulfillment of that sovereign
mandate and referred the same to this Intendencia for its information
and the purposes desired (that is, for compliance with its directions
and, as aforesaid, one of these being the liquidation, recovery, and
deposit with the Treasury of the sums paid out of that fund and which
were expended in a different way from that intended by the donors)
and this Intendencia believed the moment had arrived to claim from
the board of directors of the Monte de Piedad y Caja de Ahorros the
sum of 80,000 pesos which, by decree of your general Government of
the date of February 1, 1883, was loaned to it out of the said funds, the
(Monte de Piedad) obligating itself to return the same within the period
of eight days if H. M. Government did not approve the delivery. On this
Intendencia's demanding from the Monte de Piedad the eighty
thousand pesos, thus complying with the provisions of the Royal Order,
it was to be supposed that no objection to its return would be made by
the Monte de Piedad for, when it received the loan, it formally engaged
itself to return it; and, besides, it was indisputable that the moment to
do so had arrived, inasmuch as H. M. Government, in ordering that the
assets of the earthquake relief fund should he collected, makes express
mention of the 80,000 pesos loaned to the Monte de Piedad, without
doubt considering as sufficient the period of ten years during which it
has been using this large sum which lawfully belongs to their persons.
This Intendencia also supposed that the Monte de Piedad no longer
needed the amount of that loan, inasmuch as, far from investing it in
beneficient transactions, it had turned the whole amount into the
voluntary deposit funds bearing 5 per cent interests, the result of this
operation being that the debtor loaned to the creditor on interest what
the former had gratuitously received. But the Monte de Piedad, instead
of fulfilling the promise it made on receiving the sum, after repeated
demands refused to return the money on the ground that only your
Excellency, and not the Intendencia (Treasury), is entitled to order the
reimbursement, taking no account of the fact that this Intendencia was
acting in the discharge of a sovereign command, the fulfillment of
which your Excellency was pleased to order; and on the further ground
that the sum of 80,000 pesos which it received from the fund intended
for the earthquake victims was not received as a loan, but as a
donation, this in the opinion of this Intendencia, erroneously
interpreting both the last royal order which directed the apportionment
of the amount of the subscription raised in the year 1863 and the
superior decree which granted the loan, inasmuch as in this letter no
donation is made to the Monte de Piedad of the 80,000 pesos, but
simply a loan; besides, no donation whatever could be made of funds
derived from a private subscription raised for a specific purpose, which
funds are already distributed and the names of the beneficiaries have
been published in the Gaceta, there being lacking only the mere
material act of the delivery, which has been unduly delayed. In view of
the unexpected reply made by the Monte de Piedad, and believing it
useless to insist further in the matter of the claim for the
aforementioned loan, or to argue in support thereof,
this Intendencia believes the intervention of your Excellency necessary
in this matter, if the royal Order No. 1044 of December 3, last, is to be
complied with, and for this purpose I beg your Excellency kindly to
order the Monte de Piedad to reimburse within the period of eight days
the 80,000 which it owes, and that you give this Intendencia power to
carry out the provisions of the said royal order. I must call to the
attention of your Excellency that the said pious establishment, during
the last few days and after demand was made upon it, has endorsed to
the Spanish-Filipino Bank nearly the whole of the sum which it had on
deposit in the general deposit funds.

The record in the case under consideration fails to disclose any further
definite action taken by either the Philippine Government or the Spanish
Government in regard to the $80,000 turned over to the Monte de Piedad.

In the defendant's general ledger the following entries appear: "Public

Treasury: February 15, 1883, $20,000; March 12, 1883, $20,000; April 14,
1883, $20,000; June 2, 1883, $20,000, total $80,000." The book entry for this
total is as follows: "To the public Treasury derived from the subscription for
the earthquake of 1863, $80,000 received from general Treasury as a
returnable loan, and without interest." The account was carried in this
manner until January 1, 1899, when it was closed by transferring the amount
to an account called "Sagrada Mitra," which latter account was a loan of
$15,000 made to the defendant by the Archbishop of Manila, without
interest, thereby placing the "Sagrada Mitra" account at $95,000 instead of
$15,000. The above-mentioned journal entry for January 1, 1899, reads:
"Sagrada Mitra and subscription, balance of these two account which on this
date are united in accordance with an order of the Exmo. Sr. Presidente of
the Council transmitted verbally to the Presidente Gerente of these
institutions, $95,000."

On March 16, 1902, the Philippine government called upon the defendant for
information concerning the status of the $80,000 and received the following
reply:

MANILA, March 31, 1902.

To the Attorney-General of the Department of Justice of the

Philippine Islands.

SIR: In reply to your courteous letter of the 16th inst., in which you
request information from this office as to when and for what purpose
the Spanish Government delivered to the Monte de Piedad eighty
thousand pesos obtained from the subscription opened in connection
with the earthquake of 1863, as well as any other information that
might be useful for the report which your office is called upon to
furnish, I must state to your department that the books kept in these
Pious Institutions, and which have been consulted for the purpose,
show that on the 15th of February, 1883, they received as a
reimbursable loan and without interest, twenty thousand pesos, which
they deposited with their own funds. On the same account and on each
of the dates of March 12, April 14 and June 2 of the said year, 1883,
they also received and turned into their funds a like sum of twenty
thousand pesos, making a total of eighty thousand pesos. (Signed)
Emilio Moreta.

I hereby certify that the foregoing is a literal copy of that found in the
letter book No. 2 of those Pious Institutions.
Manila, November 19, 1913
(Sgd.) EMILIO LAZCANOTEGUI,
Secretary

(Sgd.) O. K. EMILIO MORETA,

Managing Director.

The foregoing documentary evidence shows the nature of the transactions

which took place between the Government of Spain and the Philippine
Government on the one side and the Monte de Piedad on the other,
concerning the $80,000. The Monte de Piedad, after setting forth in its
petition to the Governor-General its financial condition and its absolute
necessity for more working capital, asked that out of the sum of $100,000
held in the Treasury of the Philippine Islands, at the disposal of the central
relief board, there be transferred to it the sum of $80,000 to be held under
the same conditions, to wit, "at the disposal of the relief board." The Monte
de Piedad agreed that if the transfer of these funds should not be approved
by the Government of Spain, the same would be returned forthwith. It did not
ask that the $80,000 be given to it as a donation. The Governor-General,
after reciting the substance of the petition, stated that "this general
Government has submitted for the determination of H. M. Government that
the balance which, after strictly applying the proceeds obtained from the
subscription referred to, may remain as a surplus, should be delivered to
the Monte de Piedad, either as a donation, or as a loan upon the security of
the credit of the institution," and "considering that no reasonable objection
can be made to granting the request herein contained," directed the transfer
of the $80,000 to be made with the understanding that "the Board of
Directors of the Monte de Piedad is solemnly bound to return, within eight
days after demand, the sums it may have so received, if H. M. Government
does not approve this resolution." It will be noted that the first and only time
the word "donation" was used in connection with the $80,000 appears in this
resolution of the Governor-General. It may be inferred from the royal orders
that the Madrid Government did tacitly approve of the transfer of the
$80,000 to the Monte de Piedad as a loan without interest, but that
Government certainly did not approve such transfer as a donation for the
reason that the Governor-General was directed by the royal order of
December 3, 1892, to inform the Madrid Government of the total available
sum of the earthquake fund, "taking into consideration the sums delivered to
the Monte de Piedadpursuant to the decree issued by your general
Government on February 1, 1883." This language, nothing else appearing,
might admit of the interpretation that the Madrid Government did not intend
that the Governor-General of the Philippine Islands should include the
$80,000 in the total available sum, but when considered in connection with
the report of the Department of Finance there can be no doubt that it was so
intended. That report refers expressly to the royal order of December 3d, and
sets forth in detail the action taken in order to secure the return of the
$80,000. The Department of Finance, acting under the orders of the
Governor-General, understood that the $80,000 was transferred to the Monte
de Piedad well knew that it received this sum as a loan interest." The amount
was thus carried in its books until January, 1899, when it was transferred to
the account of the "Sagrada Mitra" and was thereafter known as the
"Sagrada Mitra and subscription account." Furthermore, the Monte de
Piedad recognized and considered as late as March 31, 1902, that it received
the $80,000 "as a returnable loan, and without interest." Therefore, there
cannot be the slightest doubt the fact that the Monte de Piedad received the
$80,000 as a mere loan or deposit and not as a donation. Consequently, the
first alleged error is entirely without foundation.

Counsel for the defendant, in support of their third assignment of error, say
in their principal brief that:

The Spanish nation was professedly Roman Catholic and its King
enjoyed the distinction of being deputy ex officio of the Holy See and
Apostolic Vicar-General of the Indies, and as such it was his duty to
protect all pious works and charitable institutions in his kingdoms,
especially those of the Indies; among the latter was the Monte de
Piedad of the Philippines, of which said King and his deputy the
Governor-General of the Philippines, as royal vice-patron, were, in a
special and peculiar manner, the protectors; the latter, as a result of
the cession of the Philippine Islands, Implicitly renounced this high
office and tacitly returned it to the Holy See, now represented by the
Archbishop of Manila; the national subscription in question was a kind
of foundation or pious work, for a charitable purpose in these Islands;
and the entire subscription not being needed for its original purpose,
the royal vice-patron, with the consent of the King, gave the surplus
thereof to an analogous purpose; the fulfillment of all these things
involved, in the majority, if not in all cases, faithful compliance with the
duty imposed upon him by the Holy See, when it conferred upon him
the royal patronage of the Indies, a thing that touched him very closely
in his conscience and religion; the cessionary Government though
Christian, was not Roman Catholic and prided itself on its policy of non-
interference in religious matters, and inveterately maintained a
complete separation between the ecclesiastical and civil powers.

In view of these circumstances it must be quite clear that, even

without the express provisions of the Treaty of Paris, which apparently
expressly exclude such an idea, it did not befit the honor of either of
the contracting parties to subrogate to the American Government in
lieu of the Spanish Government anything respecting the disposition of
the funds delivered by the latter to the Monte de Piedad. The same
reasons that induced the Spanish Government to take over such things
would result in great inconvenience to the American Government in
attempting to do so. The question was such a delicate one, for the
reason that it affected the conscience, deeply religious, of the King of
Spain, that it cannot be believed that it was ever his intention to
confide the exercise thereof to a Government like the American. (U.
S. vs. Arredondo, 6 Pet. [U. S.], 711.)

It is thus seen that the American Government did not subrogate the
Spanish Government or rather, the King of Spain, in this regard; and as
the condition annexed to the donation was lawful and possible of
fulfillment at the time the contract was made, but became impossible
of fulfillment by the cession made by the Spanish Government in these
Islands, compliance therewith is excused and the contract has been
cleared thereof.

The contention of counsel, as thus stated, in untenable for two reason, (1)
because such contention is based upon the erroneous theory that the sum in
question was a donation to the Monte de Piedad and not a loan, and (2)
because the charity founded by the donations for the earthquake sufferers is
not and never was intended to be an ecclesiastical pious work. The first
proposition has already been decided adversely to the defendant's
contention. As to the second, the record shows clearly that the fund was
given by the donors for a specific and definite purpose the relief of the
earthquake sufferers and for no other purpose. The money was turned
over to the Spanish Government to be devoted to that purpose. The Spanish
Government remitted the money to the Philippine Government to be
distributed among the suffers. All officials, including the King of Spain and
the Governor-General of the Philippine Islands, who took part in the disposal
of the fund, acted in their purely civil, official capacity, and the fact that they
might have belonged to a certain church had nothing to do with their acts in
this matter. The church, as such, had nothing to do with the fund in any way
whatever until the $80,000 reached the coffers of the Monte de Piedad (an
institution under the control of the church) as a loan or deposit. If the charity
in question had been founded as an ecclesiastical pious work, the King of
Spain and the Governor-General, in their capacities as vicar-general of the
Indies and as royal vice-patron, respectively, would have disposed of the
fund as such and not in their civil capacities, and such functions could not
have been transferred to the present Philippine Government, because the
right to so act would have arisen out of the special agreement between the
Government of Spain and the Holy See, based on the union of the church and
state which was completely separated with the change of sovereignty.

And in their supplemental brief counsel say:

By the conceded facts the money in question is part of a charitable

subscription. The donors were persons in Spain, the trustee was the
Spanish Government, the donees, the cestuis que trustent, were
certain persons in the Philippine Islands. The whole matter is one of
trusteeship. This is undisputed and indisputable. It follows that the
Spanish Government at no time was the owner of the fund. Not being
the owner of the fund it could not transfer the ownership. Whether or
not it could transfer its trusteeship it certainly never
has expressly done so and the general terms of property transfer in the
Treaty of Paris are wholly insufficient for such a purpose even could
Spain have transferred its trusteeship without the consent of the
donors and even could the United States, as a Government, have
accepted such a trust under any power granted to it by the thirteen
original States in the Constitution, which is more than doubtful. It
follows further that this Government is not a proper party to the action.
The only persons who could claim to be damaged by this payment to
the Monte, if it was unlawful, are the donors or the cestuis que
trustent, and this Government is neither.

If "the whole matter is one of trusteeship," and it being true that the Spanish
Government could not, as counsel say, transfer the ownership of the fund to
the Monte de Piedad, the question arises, who may sue to recover this loan?
It needs no argument to show that the Spanish or Philippine Government, as
trustee, could maintain an action for this purpose had there been no change
of sovereignty and if the right of action has not prescribed. But those
governments were something more than mere common law trustees of the
fund. In order to determine their exact status with reference to this fund, it is
necessary to examine the law in force at the time there transactions took
place, which are the law of June 20, 1894, the royal decree of April 27. 1875,
and the instructions promulgated on the latter date. These legal provisions
were applicable to the Philippine Islands (Benedicto vs. De la Rama, 3 Phil.
Rep., 34)

The funds collected as a result of the national subscription opened in Spain

by royal order of the Spanish Government and which were remitted to the
Philippine Government to be distributed among the earthquake sufferers by
the Central Relief Board constituted, under article 1 of the law of June 20,
1894, and article 2 of the instructions of April 27, 1875, a special charity of a
temporary nature as distinguished from a permanent public charitable
institution. As the Spanish Government initiated the creation of the fund and
as the donors turned their contributions over to that Government, it became
the duty of the latter, under article 7 of the instructions, to exercise
supervision and control over the moneys thus collected to the end that the
will of the donors should be carried out. The relief board had no power
whatever to dispose of the funds confided to its charge for other purposes
than to distribute them among the sufferers, because paragraph 3 of article
11 of the instructions conferred the power upon the secretary of the interior
of Spain, and no other, to dispose of the surplus funds, should there be any,
by assigning them to some other charitable purpose or institution. The
secretary could not dispose of any of the funds in this manner so long as
they were necessary for the specific purpose for which they were
contributed. The secretary had the power, under the law above mentioned to
appoint and totally or partially change the personnel of the relief board and
to authorize the board to defend the rights of the charity in the courts. The
authority of the board consisted only in carrying out the will of the donors as
directed by the Government whose duty it was to watch over the acts of the
board and to see that the funds were applied to the purposes for which they
were contributed .The secretary of the interior, as the representative of His
Majesty's Government, exercised these powers and duties through the
Governor-General of the Philippine Islands. The Governments of Spain and of
the Philippine Islands in complying with their duties conferred upon them by
law, acted in their governmental capacities in attempting to carry out the
intention of the contributors. It will this be seen that those governments were
something more, as we have said, than mere trustees of the fund.

It is further contended that the obligation on the part of the Monte de

Piedad to return the $80,000 to the Government, even considering it a loan,
was wiped out on the change of sovereignty, or inn other words, the present
Philippine Government cannot maintain this action for that reason. This
contention, if true, "must result from settled principles of rigid law," as it
cannot rest upon any title to the fund in the Monte de Piedad acquired prior
to such change. While the obligation to return the $80,000 to the Spanish
Government was still pending, war between the United States and Spain
ensued. Under the Treaty of Paris of December 10, 1898, the Archipelago,
known as the Philippine Islands, was ceded to the United States, the latter
agreeing to pay Spain the sum of $20,000,000. Under the first paragraph of
the eighth article, Spain relinquished to the United States "all buildings,
wharves, barracks, forts, structures, public highways, and other immovable
property which, in conformity with law, belonged to the public domain, and
as such belonged to the crown of Spain." As the $80,000 were not included
therein, it is said that the right to recover this amount did not, therefore,
pass to the present sovereign. This, in our opinion, does not follow as a
necessary consequence, as the right to recover does not rest upon the
proposition that the $80,000 must be "other immovable property" mentioned
in article 8 of the treaty, but upon contractual obligations incurred before the
Philippine Islands were ceded to the United States. We will not inquire what
effect his cession had upon the law of June 20, 1849, the royal decree of April
27, 1875, and the instructions promulgated on the latter date. In
Vilas vs. Manila (220 U. S., 345), the court said:

That there is a total abrogation of the former political relations of the

inhabitants of the ceded region is obvious. That all laws theretofore in
force which are in conflict with the political character, constitution, or
institutions of the substituted sovereign, lose their force, is also plain.
(Alvarez y Sanchez vs. United States, 216 U. S., 167.) But it is equally
settled in the same public law that the great body of municipal law
which regulates private and domestic rights continues in force until
abrogated or changed by the new ruler.

If the above-mentioned legal provisions are in conflict with the political

character, constitution or institutions of the new sovereign, they became
inoperative or lost their force upon the cession of the Philippine Islands to the
United States, but if they are among "that great body of municipal law which
regulates private and domestic rights," they continued in force and are still in
force unless they have been repealed by the present Government. That they
fall within the latter class is clear from their very nature and character. They
are laws which are not political in any sense of the word. They conferred
upon the Spanish Government the right and duty to supervise, regulate, and
to some extent control charities and charitable institutions. The present
sovereign, in exempting "provident institutions, savings banks, etc.," all of
which are in the nature of charitable institutions, from taxation, placed such
institutions, in so far as the investment in securities are concerned, under
the general supervision of the Insular Treasurer (paragraph 4 of section 111
of Act No. 1189; see also Act No. 701).

Furthermore, upon the cession of the Philippine Islands the prerogatives of

he crown of Spain devolved upon he United States. In Magill vs. Brown (16
Fed. Cas., 408), quoted with approval in Mormon Charch vs. United States
(136 U. S.,1, 57), the court said:

The Revolution devolved on the State all the transcendent power of

Parliament, and the prerogative of the crown, and gave their Acts the
same force and effect.

In Fontain vs. Ravenel (17 Hw., 369, 384), Mr. Justice McLean, delivering the
opinion of the court in a charity case, said:

When this country achieved its independence, the prerogatives of the

crown devolved upon the people of the States. And this power still
remains with them except so fact as they have delegated a portion of it
to the Federal Government. The sovereign will is made known to us by
legislative enactment. The State as a sovereign, is the parens patriae.

Chancelor Kent says:

In this country, the legislature or government of the State, as parens
patriae, has the right to enforce all charities of public nature, by virtue
of its general superintending authority over the public interests, where
no other person is entrusted with it. (4 Kent Com., 508, note.)

The Supreme Court of the United States in Mormon Church vs. United
States, supra, after approving also the last quotations, said:

This prerogative of parens patriae is inherent in the supreme power of

every State, whether that power is lodged in a royal person or in the
legislature, and has no affinity to those arbitrary powers which are
sometimes exerted by irresponsible monarchs to the great detriment of
the people and the destruction of their liberties. On the contrary, it is a
most beneficient functions, and often necessary to be exercised in the
interest of humanity, and for the prevention of injury to those who
cannot protect themselves.

The court in the same case, after quoting from Sohier vs. Mass. General
Hospital (3 Cush., 483, 497), wherein the latter court held that it is deemed
indispensible that there should be a power in the legislature to authorize the
same of the estates of in facts, idiots, insane persons, and persons not
known, or not in being, who cannot act for themselves, said:

These remarks in reference to in facts, insane persons and person not

known, or not in being, apply to the beneficiaries of charities, who are
often in capable of vindicating their rights, and justly look for
protection to the sovereign authority, acting as parens patriae. They
show that this beneficient functions has not ceased t exist under the
change of government from a monarchy to a republic; but that it now
resides in the legislative department, ready to be called into exercise
whenever required for the purposes of justice and right, and is a clearly
capable of being exercised in cases of charities as in any other cases
whatever.

In People vs. Cogswell (113 Cal. 129, 130), it was urged that the plaintiff was
not the real party in interest; that the Attorney-General had no power to
institute the action; and that there must be an allegation and proof of a
distinct right of the people as a whole, as distinguished from the rights of
individuals, before an action could be brought by the Attorney-General in the
name of the people. The court, in overruling these contentions, held that it
was not only the right but the duty of the Attorney-General to prosecute the
action, which related to charities, and approved the following quotation from
Attorney-General vs. Compton (1 Younge & C. C., 417):

Where property affected by a trust for public purposes is in the hands

of those who hold it devoted to that trust, it is the privilege of the
public that the crown should be entitled to intervene by its officers for
the purpose of asserting, on behalf on the public generally, the public
interest and the public right, which, probably, no individual could be
found effectually to assert, even if the interest were such as to allow it.
(2 Knet's Commentaries, 10th ed., 359; Lewin on Trusts, sec. 732.)

It is further urged, as above indicated, that "the only persons who could
claim to be damaged by this payment to the Monte, if it was unlawful, are
the donors or the cestuis que trustent, and this Government is neither.
Consequently, the plaintiff is not the proper party to bring the action." The
earthquake fund was the result or the accumulation of a great number of
small contributions. The names of the contributors do not appear in the
record. Their whereabouts are unknown. They parted with the title to their
respective contributions. The beneficiaries, consisting of the original
sufferers and their heirs, could have been ascertained. They are quite
numerous also. And no doubt a large number of the original sufferers have
died, leaving various heirs. It would be impracticable for them to institute an
action or actions either individually or collectively to recover the $80,000.
The only course that can be satisfactorily pursued is for the Government to
again assume control of the fund and devote it to the object for which it was
originally destined.

The impracticability of pursuing a different course, however, is not the true

ground upon which the right of the Government to maintain the action rests.
The true ground is that the money being given to a charity became, in a
measure, public property, only applicable, it is true, to the specific purposes
to which it was intended to be devoted, but within those limits consecrated
to the public use, and became part of the public resources for promoting the
happiness and welfare of the Philippine Government. (Mormon Church vs. U.
S., supra.) To deny the Government's right to maintain this action would be
contrary to sound public policy, as tending to discourage the prompt exercise
of similar acts of humanity and Christian benevolence in like instances in the
future.

As to the question raised in the fourth assignment of error relating to the

constitutionality of Act No. 2109, little need be said for the reason that we
have just held that the present Philippine Government is the proper party to
the action. The Act is only a manifestation on the part of the Philippine
Government to exercise the power or right which it undoubtedly had. The Act
is not, as contended by counsel, in conflict with the fifth section of the Act of
Congress of July 1, 1902, because it does not take property without due
process of law. In fact, the defendant is not the owner of the $80,000, but
holds it as a loan subject to the disposal of the central relief board. Therefor,
there can be nothing in the Act which transcends the power of the Philippine
Legislature.

In Vilas vs. Manila, supra, the plaintiff was a creditor of the city of Manila as it
existed before the cession of the Philippine Islands to the United States by
the Treaty of Paris of December 10, 1898. The action was brought upon the
theory that the city, under its present charter from the Government of the
Philippine Islands, was the same juristic person, and liable upon the
obligations of the old city. This court held that the present municipality is a
totally different corporate entity and in no way liable for the debts of the
Spanish municipality. The Supreme Court of the United States, in reversing
this judgment and in holding the city liable for the old debt, said:

The juristic identity of the corporation has been in no wise affected,

and, in law, the present city is, in every legal sense, the successor of
the old. As such it is entitled to the property and property rights of the
predecessor corporation, and is, in law, subject to all of its liabilities.
In support of the fifth assignment of error counsel for the defendant argue
that as the Monte de Piedad declined to return the $80,000 when ordered to
do so by the Department of Finance in June, 1893, the plaintiff's right of
action had prescribed at the time this suit was instituted on May 3, 1912,
citing and relying upon article 1961, 1964 and 1969 of the Civil Code. While
on the other hand, the Attorney-General contends that the right of action had
not prescribed (a) because the defense of prescription cannot be set up
against the Philippine Government, (b) because the right of action to recover
a deposit or trust funds does not prescribe, and (c) even if the defense of
prescription could be interposed against the Government and if the action
had, in fact, prescribed, the same was revived by Act No. 2109.

The material facts relating to this question are these: The Monte de
Piedad received the $80,000 in 1883 "to be held under the same conditions
as at present in the treasury, to wit, at the disposal of the relief board." In
compliance with the provisions of the royal order of December 3, 1892, the
Department of Finance called upon the Monte de Piedad in June, 1893, to
return the $80,000. The Monte declined to comply with this order upon the
ground that only the Governor-General of the Philippine Islands and not the
Department of Finance had the right to order the reimbursement. The
amount was carried on the books of the Monte as a returnable loan until
January 1, 1899, when it was transferred to the account of the "Sagrada
Mitra." On March 31, 1902, the Monte, through its legal representative,
stated in writing that the amount in question was received as a reimbursable
loan, without interest. Act No. 2109 became effective January 30, 1912, and
the action was instituted on May 3rd of that year.

Counsel for the defendant treat the question of prescription as if the action
was one between individuals or corporations wherein the plaintiff is seeking
to recover an ordinary loan. Upon this theory June, 1893, cannot be taken as
the date when the statute of limitations began to run, for the reason that the
defendant acknowledged in writing on March 31, 1902, that the $80,000
were received as a loan, thereby in effect admitting that it still owed the
amount. (Section 50, Code of Civil Procedure.) But if counsels' theory is the
correct one the action may have prescribed on May 3, 1912, because more
than ten full years had elapsed after March 31, 1902. (Sections 38 and 43,
Code of Civil Procedure.)

Is the Philippine Government bound by the statute of limitations? The

Supreme Court of the United States in U. [Link]. Nashville, Chattanooga & St.
Louis Railway Co. (118 U. S., 120, 125), said:

It is settled beyond doubt or controversy upon the foundation of the

great principle of public policy, applicable to all governments alike,
which forbids that the public interests should be prejudiced by the
negligence of the officers or agents to whose care they are confided
that the United States, asserting rights vested in it as a sovereign
government, is not bound by any statute of limitations, unless
Congress has clearly manifested its intention that it should be so
bound. (Lindsey vs. Miller, 6 Pet. 666; U. S. [Link], 14 Pet., 301;
Gibson vs. Chouteau, 13 Wall., 92; U. S. vs. Thompson, 98 U. S., 486;
Fink vs. O'Neil, 106 U. S., 272, 281.)

In Gibson vs. Choteau, supra, the court said:

It is a matter of common knowledge that statutes of limitation do not
run against the State. That no laches can be imputed to the King, and
that no time can bar his rights, was the maxim of the common laws,
and was founded on the principle of public policy, that as he was
occupied with the cares of government he ought not to suffer from the
negligence of his officer and servants. The principle is applicable to all
governments, which must necessarily act through numerous agents,
and is essential to a preservation of the interests and property of the
public. It is upon this principle that in this country the statutes of a
State prescribing periods within which rights must be prosecuted are
not held to embrace the State itself, unless it is expressly designated
or the mischiefs to be remedied are of such a nature that it must
necessarily be included. As legislation of a State can only apply to
persons and thing over which the State has jurisdiction, the United
States are also necessarily excluded from the operation of such
statutes.

In 25 Cyc., 1006, the rule, supported by numerous authorities, is stated as

follows:

In the absence of express statutory provision to the contrary, statute of

limitations do not as a general rule run against the sovereign or
government, whether state or federal. But the rule is otherwise where
the mischiefs to be remedied are of such a nature that the state must
necessarily be included, where the state goes into business in concert
or in competition with her citizens, or where a party seeks to enforces
his private rights by suit in the name of the state or government, so
that the latter is only a nominal party.

In the instant case the Philippine Government is not a mere nominal party
because it, in bringing and prosecuting this action, is exercising its sovereign
functions or powers and is seeking to carry out a trust developed upon it
when the Philippine Islands were ceded to the United States. The United
States having in 1852, purchased as trustee for the Chickasaw Indians under
treaty with that tribe, certain bonds of the State of Tennessee, the right of
action of the Government on the coupons of such bonds could not be barred
by the statute of limitations of Tennessee, either while it held them in trust
for the Indians, or since it became the owner of such coupons. (U.
[Link]. Nashville, etc., R. Co., supra.) So where lands are held in trust by the
state and the beneficiaries have no right to sue, a statute does not run
against the State's right of action for trespass on the trust lands. (Greene
Tp. [Link], 16 Ohio St., 11; see also Atty.-Gen. vs. Midland R. Co., 3
Ont., 511 [following Reg. vs. Williams, 39 U. C. Q. B., 397].)

These principles being based "upon the foundation of the great principle of
public policy" are, in the very nature of things, applicable to the Philippine
Government.

Counsel in their argument in support of the sixth and last assignments of

error do not question the amount of the judgment nor do they question the
correctness of the judgment in so far as it allows interest, and directs its
payment in gold coin or in the equivalent in Philippine currency.
For the foregoing reasons the judgment appealed from is affirmed, with costs
against the appellant. So ordered.

G.R. No. L-25843 July 25, 1974

MELCHORA CABANAS, plaintiff-appellee,

vs.
FRANCISCO PILAPIL, defendant-appellant.

Seno, Mendoza & Associates for plaintiff-appellee.

Emilio Benitez, Jr. for defendant-appellant.

FERNANDO, J.:p

The disputants in this appeal from a question of law from a lower court
decision are the mother and the uncle of a minor beneficiary of the proceeds
of an insurance policy issued on the life of her deceased father. The dispute
centers as to who of them should be entitled to act as trustee thereof. The
lower court applying the appropriate Civil Code provisions decided in favor of
the mother, the plaintiff in this case. Defendant uncle appealed. As noted,
the lower court acted the way it did following the specific mandate of the
law. In addition, it must have taken into account the principle that in cases of
this nature the welfare of the child is the paramount consideration. It is not
an unreasonable assumption that between a mother and an uncle, the
former is likely to lavish more care on and pay greater attention to her. This
is all the more likely considering that the child is with the mother. There are
no circumstances then that did militate against what conforms to the natural
order of things, even if the language of the law were not as clear. It is not to
be lost sight of either that the judiciary pursuant to its role as an agency of
the State as parens patriae, with an even greater stress on family unity
under the present Constitution, did weigh in the balance the opposing claims
and did come to the conclusion that the welfare of the child called for the
mother to be entrusted with such responsibility. We have to affirm.

The appealed decision made clear: "There is no controversy as to the facts.

" 1 The insured, Florentino Pilapil had a child, Millian Pilapil, with a married
woman, the plaintiff, Melchora Cabanas. She was ten years old at the time
the complaint was filed on October 10, 1964. The defendant, Francisco
Pilapil, is the brother of the deceased. The deceased insured himself and
instituted as beneficiary, his child, with his brother to act as trustee during
her minority. Upon his death, the proceeds were paid to him. Hence this
complaint by the mother, with whom the child is living, seeking the delivery
of such sum. She filed the bond required by the Civil Code. Defendant would
justify his claim to the retention of the amount in question by invoking the
terms of the insurance policy. 2

After trial duly had, the lower court in a decision of May 10, 1965, rendered
judgment ordering the defendant to deliver the proceeds of the policy in
question to plaintiff. Its main reliance was on Articles 320 and 321 of the Civil
Code. The former provides: "The father, or in his absence the mother, is the
legal administrator of the property pertaining to the child under parental
authority. If the property is worth more than two thousand pesos, the father
or mother shall give a bond subject to the approval of the Court of First
Instance." 3 The latter states: "The property which the unemancipated child
has acquired or may acquire with his work or industry, or by any lucrative
title, belongs to the child in ownership, and in usufruct to the father or
mother under whom he is under parental authority and whose company he
lives; ... 4

Conformity to such explicit codal norm is apparent in this portion of the

appealed decision: "The insurance proceeds belong to the beneficiary. The
beneficiary is a minor under the custody and parental authority of the
plaintiff, her mother. The said minor lives with plaintiff or lives in the
company of the plaintiff. The said minor acquired this property by lucrative
title. Said property, therefore, belongs to the minor child in ownership, and in
usufruct to the plaintiff, her mother. Since under our law the usufructuary is
entitled to possession, the plaintiff is entitled to possession of the insurance
proceeds. The trust, insofar as it is in conflict with the above quoted
provision of law, is pro tanto null and void. In order, however, to protect the
rights of the minor, Millian Pilapil, the plaintiff should file an additional bond
in the guardianship proceedings, Sp. Proc. No. 2418-R of this Court to raise
her bond therein to the total amount of P5,000.00." 5

It is very clear, therefore, considering the above, that unless the applicability
of the two cited Civil Code provisions can be disputed, the decision must
stand. There is no ambiguity in the language employed. The words are rather
clear. Their meaning is unequivocal. Time and time again, this Court has left
no doubt that where codal or statutory norms are cast in categorical
language, the task before it is not one of interpretation but of application. 6So
it must be in this case. So it was in the appealed decision.

1. It would take more than just two paragraphs as found in the brief for the
defendant-appellant 7 to blunt the force of legal commands that speak so
plainly and so unqualifiedly. Even if it were a question of policy, the
conclusion will remain unaltered. What is paramount, as mentioned at the
outset, is the welfare of the child. It is in consonance with such primordial
end that Articles 320 and 321 have been worded. There is recognition in the
law of the deep ties that bind parent and child. In the event that there is less
than full measure of concern for the offspring, the protection is supplied by
the bond required. With the added circumstance that the child stays with the
mother, not the uncle, without any evidence of lack of maternal care, the
decision arrived at can stand the test of the strictest scrutiny. It is further
fortified by the assumption, both logical and natural, that infidelity to the
trust imposed by the deceased is much less in the case of a mother than in
the case of an uncle. Manresa, commenting on Article 159 of the Civil Code
of Spain, the source of Article 320 of the Civil Code, was of that view: Thus
"El derecho y la obligacion de administrar el Patrimonio de los hijos es una
consecuencia natural y lgica de la patria potestad y de la presuncin de que
nadie cuidar de los bienes de acqullos con mas cario y solicitude que los
padres. En nuestro Derecho antiguo puede decirse que se hallaba reconocida
de una manera indirecta aquelia doctrina, y asi se desprende de la sentencia
del Tribunal Supremeo de 30 de diciembre de 1864, que se refiere a la ley
24, tit. XIII de la Partida 5. De la propia suerte aceptan en general dicho
principio los Codigos extranjeros, con las limitaciones y requisitos de que
trataremos mis adelante." 8
2. The appealed decision is supported by another cogent consideration. It is
buttressed by its adherence to the concept that the judiciary, as an agency
of the State acting as parens patriae, is called upon whenever a pending suit
of litigation affects one who is a minor to accord priority to his best interest.
It may happen, as it did occur here, that family relations may press their
respective claims. It would be more in consonance not only with the natural
order of things but the tradition of the country for a parent to be preferred. it
could have been different if the conflict were between father and mother.
Such is not the case at all. It is a mother asserting priority. Certainly the
judiciary as the instrumentality of the State in its role of parens patriae,
cannot remain insensible to the validity of her plea. In a recent case, 9 there
is this quotation from an opinion of the United States Supreme Court: "This
prerogative of parens patriae is inherent in the supreme power of every
State, whether that power is lodged in a royal person or in the legislature,
and has no affinity to those arbitrary powers which are sometimes exerted
by irresponsible monarchs to the great detriment of the people and the
destruction of their liberties." What is more, there is this constitutional
provision vitalizing this concept. It reads: "The State shall strengthen the
family as a basic social institution." 10 If, as the Constitution so wisely
dictates, it is the family as a unit that has to be strengthened, it does not
admit of doubt that even if a stronger case were presented for the uncle, still
deference to a constitutional mandate would have led the lower court to
decide as it did.

WHEREFORE, the decision of May 10, 1965 is affirmed. Costs against

defendant-appellant.

G.R No. 187167 August 16, 2011

PROF. MERLIN M. MAGALLONA

vs.
HON. EDUARDO ERMITA,

DECISION

CARPIO, J.:

The Case

This original action for the writs of certiorari and prohibition assails the
constitutionality of Republic Act No. 95221(RA 9522) adjusting the countrys
archipelagic baselines and classifying the baseline regime of nearby
territories.

The Antecedents
In 1961, Congress passed Republic Act No. 3046 (RA 3046)2 demarcating the
maritime baselines of the Philippines as an archipelagic State.3 This law
followed the framing of the Convention on the Territorial Sea and the
Contiguous Zone in 1958 (UNCLOS I),4 codifying, among others, the
sovereign right of States parties over their "territorial sea," the breadth of
which, however, was left undetermined. Attempts to fill this void during the
second round of negotiations in Geneva in 1960 (UNCLOS II) proved futile.
Thus, domestically, RA 3046 remained unchanged for nearly five decades,
save for legislation passed in 1968 (Republic Act No. 5446 [RA 5446])
correcting typographical errors and reserving the drawing of baselines
around Sabah in North Borneo.

In March 2009, Congress amended RA 3046 by enacting RA 9522, the statute

now under scrutiny. The change was prompted by the need to make RA 3046
compliant with the terms of the United Nations Convention on the Law of the
Sea (UNCLOS III),5 which the Philippines ratified on 27 February
1984.6 Among others, UNCLOS III prescribes the water-land ratio, length, and
contour of baselines of archipelagic States like the Philippines7 and sets the
deadline for the filing of application for the extended continental
shelf.8 Complying with these requirements, RA 9522 shortened one baseline,
optimized the location of some basepoints around the Philippine archipelago
and classified adjacent territories, namely, the Kalayaan Island Group (KIG)
and the Scarborough Shoal, as "regimes of islands" whose islands generate
their own applicable maritime zones.

Petitioners, professors of law, law students and a legislator, in their

respective capacities as "citizens, taxpayers or x x x legislators,"9 as the case
may be, assail the constitutionality of RA 9522 on two principal grounds,
namely: (1) RA 9522 reduces Philippine maritime territory, and logically, the
reach of the Philippine states sovereign power, in violation of Article 1 of the
1987 Constitution,10 embodying the terms of the Treaty of Paris11 and
ancillary treaties,12 and (2) RA 9522 opens the countrys waters landward of
the baselines to maritime passage by all vessels and aircrafts, undermining
Philippine sovereignty and national security, contravening the countrys
nuclear-free policy, and damaging marine resources, in violation of relevant
constitutional provisions.13

In addition, petitioners contend that RA 9522s treatment of the KIG as

"regime of islands" not only results in the loss of a large maritime area but
also prejudices the livelihood of subsistence fishermen.14 To buttress their
argument of territorial diminution, petitioners facially attack RA 9522 for
what it excluded and included its failure to reference either the Treaty of
Paris or Sabah and its use of UNCLOS IIIs framework of regime of islands to
determine the maritime zones of the KIG and the Scarborough Shoal.

Commenting on the petition, respondent officials raised threshold issues

questioning (1) the petitions compliance with the case or controversy
requirement for judicial review grounded on petitioners alleged lack of locus
standiand (2) the propriety of the writs of certiorari and prohibition to assail
the constitutionality of RA 9522. On the merits, respondents defended RA
9522 as the countrys compliance with the terms of UNCLOS III, preserving
Philippine territory over the KIG or Scarborough Shoal. Respondents add that
RA 9522 does not undermine the countrys security, environment and
economic interests or relinquish the Philippines claim over Sabah.

Respondents also question the normative force, under international law, of

petitioners assertion that what Spain ceded to the United States under the
Treaty of Paris were the islands and all the waters found within the
boundaries of the rectangular area drawn under the Treaty of Paris.

We left unacted petitioners prayer for an injunctive writ.

The Issues

The petition raises the following issues:

1. Preliminarily

1. Whether petitioners possess locus standi to bring this suit; and

2. Whether the writs of certiorari and prohibition are the proper

remedies to assail the constitutionality of RA 9522.

2. On the merits, whether RA 9522 is unconstitutional.

The Ruling of the Court

On the threshold issues, we hold that (1) petitioners possess locus standi to
bring this suit as citizens and (2) the writs of certiorari and prohibition are
proper remedies to test the constitutionality of RA 9522. On the merits, we
find no basis to declare RA 9522 unconstitutional.

On the Threshold Issues

Petitioners Possess Locus
Standi as Citizens

Petitioners themselves undermine their assertion of locus standi as

legislators and taxpayers because the petition alleges neither infringement
of legislative prerogative15 nor misuse of public funds,16 occasioned by the
passage and implementation of RA 9522. Nonetheless, we recognize
petitioners locus standi as citizens with constitutionally sufficient interest in
the resolution of the merits of the case which undoubtedly raises issues of
national significance necessitating urgent resolution. Indeed, owing to the
peculiar nature of RA 9522, it is understandably difficult to find other litigants
possessing "a more direct and specific interest" to bring the suit, thus
satisfying one of the requirements for granting citizenship standing. 17

The Writs of Certiorari and Prohibition

Are Proper Remedies to Test
the Constitutionality of Statutes

In praying for the dismissal of the petition on preliminary grounds,

respondents seek a strict observance of the offices of the writs of certiorari
and prohibition, noting that the writs cannot issue absent any showing of
grave abuse of discretion in the exercise of judicial, quasi-judicial or
ministerial powers on the part of respondents and resulting prejudice on the
part of petitioners.18

Respondents submission holds true in ordinary civil proceedings. When this

Court exercises its constitutional power of judicial review, however, we have,
by tradition, viewed the writs of certiorari and prohibition as proper remedial
vehicles to test the constitutionality of statutes,19 and indeed, of acts of other
branches of government.20 Issues of constitutional import are sometimes
crafted out of statutes which, while having no bearing on the personal
interests of the petitioners, carry such relevance in the life of this nation that
the Court inevitably finds itself constrained to take cognizance of the case
and pass upon the issues raised, non-compliance with the letter of
procedural rules notwithstanding. The statute sought to be reviewed here is
one such law.

RA 9522 is Not Unconstitutional

RA 9522 is a Statutory Tool
to Demarcate the Countrys
Maritime Zones and Continental
Shelf Under UNCLOS III, not to
Delineate Philippine Territory

Petitioners submit that RA 9522 "dismembers a large portion of the national

territory"21 because it discards the pre-UNCLOS III demarcation of Philippine
territory under the Treaty of Paris and related treaties, successively encoded
in the definition of national territory under the 1935, 1973 and 1987
Constitutions. Petitioners theorize that this constitutional definition trumps
any treaty or statutory provision denying the Philippines sovereign control
over waters, beyond the territorial sea recognized at the time of the Treaty of
Paris, that Spain supposedly ceded to the United States. Petitioners argue
that from the Treaty of Paris technical description, Philippine sovereignty
over territorial waters extends hundreds of nautical miles around the
Philippine archipelago, embracing the rectangular area delineated in the
Treaty of Paris.22

Petitioners theory fails to persuade us.

UNCLOS III has nothing to do with the acquisition (or loss) of territory. It is a
multilateral treaty regulating, among others, sea-use rights over maritime
zones (i.e., the territorial waters [12 nautical miles from the baselines],
contiguous zone [24 nautical miles from the baselines], exclusive economic
zone [200 nautical miles from the baselines]), and continental shelves that
UNCLOS III delimits.23 UNCLOS III was the culmination of decades-long
negotiations among United Nations members to codify norms regulating the
conduct of States in the worlds oceans and submarine areas, recognizing
coastal and archipelagic States graduated authority over a limited span of
waters and submarine lands along their coasts.

On the other hand, baselines laws such as RA 9522 are enacted by UNCLOS
III States parties to mark-out specific basepoints along their coasts from
which baselines are drawn, either straight or contoured, to serve as
geographic starting points to measure the breadth of the maritime zones and
continental shelf. Article 48 of UNCLOS III on archipelagic States like ours
could not be any clearer:

Article 48. Measurement of the breadth of the territorial sea, the contiguous
zone, the exclusive economic zone and the continental shelf. The breadth
of the territorial sea, the contiguous zone, the exclusive economic zone and
the continental shelf shall be measured from archipelagic
baselines drawn in accordance with article 47. (Emphasis supplied)

Thus, baselines laws are nothing but statutory mechanisms for UNCLOS III
States parties to delimit with precision the extent of their maritime zones
and continental shelves. In turn, this gives notice to the rest of the
international community of the scope of the maritime space and submarine
areas within which States parties exercise treaty-based rights, namely, the
exercise of sovereignty over territorial waters (Article 2), the jurisdiction to
enforce customs, fiscal, immigration, and sanitation laws in the contiguous
zone (Article 33), and the right to exploit the living and non-living resources
in the exclusive economic zone (Article 56) and continental shelf (Article 77).

Even under petitioners theory that the Philippine territory embraces the
islands and all the waters within the rectangular area delimited in the Treaty
of Paris, the baselines of the Philippines would still have to be drawn in
accordance with RA 9522 because this is the only way to draw the baselines
in conformity with UNCLOS III. The baselines cannot be drawn from the
boundaries or other portions of the rectangular area delineated in the Treaty
of Paris, but from the "outermost islands and drying reefs of the
archipelago."24
UNCLOS III and its ancillary baselines laws play no role in the acquisition,
enlargement or, as petitioners claim, diminution of territory. Under traditional
international law typology, States acquire (or conversely, lose) territory
through occupation, accretion, cession and prescription, 25 not by executing
multilateral treaties on the regulations of sea-use rights or enacting statutes
to comply with the treatys terms to delimit maritime zones and continental
shelves. Territorial claims to land features are outside UNCLOS III, and are
instead governed by the rules on general international law.26

RA 9522s Use of the Framework

of Regime of Islands to Determine the
Maritime Zones of the KIG and the
Scarborough Shoal, not Inconsistent
with the Philippines Claim of Sovereignty
Over these Areas

Petitioners next submit that RA 9522s use of UNCLOS IIIs regime of islands
framework to draw the baselines, and to measure the breadth of the
applicable maritime zones of the KIG, "weakens our territorial claim" over
that area.27 Petitioners add that the KIGs (and Scarborough Shoals)
exclusion from the Philippine archipelagic baselines results in the loss of
"about 15,000 square nautical miles of territorial waters," prejudicing the
livelihood of subsistence fishermen.28 A comparison of the configuration of
the baselines drawn under RA 3046 and RA 9522 and the extent of maritime
space encompassed by each law, coupled with a reading of the text of RA
9522 and its congressional deliberations, vis--vis the Philippines obligations
under UNCLOS III, belie this view.1avvphi1

The configuration of the baselines drawn under RA 3046 and RA 9522 shows
that RA 9522 merely followed the basepoints mapped by RA 3046, save for
at least nine basepoints that RA 9522 skipped to optimize the location of
basepoints and adjust the length of one baseline (and thus comply with
UNCLOS IIIs limitation on the maximum length of baselines). Under RA 3046,
as under RA 9522, the KIG and the Scarborough Shoal lie outside of the
baselines drawn around the Philippine archipelago. This undeniable
cartographic fact takes the wind out of petitioners argument branding RA
9522 as a statutory renunciation of the Philippines claim over the KIG,
assuming that baselines are relevant for this purpose.

Petitioners assertion of loss of "about 15,000 square nautical miles of

territorial waters" under RA 9522 is similarly unfounded both in fact and law.
On the contrary, RA 9522, by optimizing the location of
basepoints, increased the Philippines total maritime space (covering its
internal waters, territorial sea and exclusive economic zone) by 145,216
square nautical miles, as shown in the table below:29

Extent of
maritime area Extent of
using RA 3046, maritime area
as amended, using RA 9522,
taking into taking into
account the account
Treaty of Paris UNCLOS III (in
delimitation (in square nautical
square nautical miles)
miles)

Internal or 166,858 171,435

archipelagic
waters
Territorial
Sea 274,136 32,106
Exclusive
Economic
Zone 382,669
TOTAL 440,994 586,210

Thus, as the map below shows, the reach of the exclusive economic zone
drawn under RA 9522 even extends way beyond the waters covered by the
rectangular demarcation under the Treaty of Paris. Of course, where there are
overlapping exclusive economic zones of opposite or adjacent States, there
will have to be a delineation of maritime boundaries in accordance with
UNCLOS III.30

Further, petitioners argument that the KIG now lies outside Philippine
territory because the baselines that RA 9522 draws do not enclose the KIG is
negated by RA 9522 itself. Section 2 of the law commits to text the
Philippines continued claim of sovereignty and jurisdiction over the KIG and
the Scarborough Shoal:

SEC. 2. The baselines in the following areas over which the Philippines
likewise exercises sovereignty and jurisdiction shall be determined as
"Regime of Islands" under the Republic of the Philippines consistent with
Article 121 of the United Nations Convention on the Law of the Sea
(UNCLOS):
a) The Kalayaan Island Group as constituted under Presidential Decree
No. 1596 and

b) Bajo de Masinloc, also known as Scarborough Shoal. (Emphasis

supplied)

Had Congress in RA 9522 enclosed the KIG and the Scarborough Shoal as
part of the Philippine archipelago, adverse legal effects would have ensued.
The Philippines would have committed a breach of two provisions of UNCLOS
III. First, Article 47 (3) of UNCLOS III requires that "[t]he drawing of such
baselines shall not depart to any appreciable extent from the general
configuration of the archipelago." Second, Article 47 (2) of UNCLOS III
requires that "the length of the baselines shall not exceed 100 nautical
miles," save for three per cent (3%) of the total number of baselines which
can reach up to 125 nautical miles.31

Although the Philippines has consistently claimed sovereignty over the

KIG32 and the Scarborough Shoal for several decades, these outlying areas
are located at an appreciable distance from the nearest shoreline of the
Philippine archipelago,33 such that any straight baseline loped around them
from the nearest basepoint will inevitably "depart to an appreciable extent
from the general configuration of the archipelago."

The principal sponsor of RA 9522 in the Senate, Senator Miriam Defensor-

Santiago, took pains to emphasize the foregoing during the Senate
deliberations:

What we call the Kalayaan Island Group or what the rest of the world call[]
the Spratlys and the Scarborough Shoal are outside our archipelagic baseline
because if we put them inside our baselines we might be accused of
violating the provision of international law which states: "The drawing of
such baseline shall not depart to any appreciable extent from the general
configuration of the archipelago." So sa loob ng ating baseline, dapat
magkalapit ang mga islands. Dahil malayo ang Scarborough Shoal, hindi
natin masasabing malapit sila sa atin although we are still allowed by
international law to claim them as our own.

This is called contested islands outside our configuration. We see that our
archipelago is defined by the orange line which [we] call[] archipelagic
baseline. Ngayon, tingnan ninyo ang maliit na circle doon sa itaas, that is
Scarborough Shoal, itong malaking circle sa ibaba, that is Kalayaan Group or
the Spratlys. Malayo na sila sa ating archipelago kaya kung ilihis pa natin
ang dating archipelagic baselines para lamang masama itong dalawang
circles, hindi na sila magkalapit at baka hindi na tatanggapin ng United
Nations because of the rule that it should follow the natural configuration of
the archipelago.34 (Emphasis supplied)

Similarly, the length of one baseline that RA 3046 drew exceeded UNCLOS
IIIs limits.1avvphi1 The need to shorten this baseline, and in addition, to
optimize the location of basepoints using current maps, became imperative
as discussed by respondents:

[T]he amendment of the baselines law was necessary to enable the

Philippines to draw the outer limits of its maritime zones including the
extended continental shelf in the manner provided by Article 47 of [UNCLOS
III]. As defined by R.A. 3046, as amended by R.A. 5446, the baselines suffer
from some technical deficiencies, to wit:

1. The length of the baseline across Moro Gulf (from Middle of 3 Rock
Awash to Tongquil Point) is 140.06 nautical miles x x x. This exceeds
the maximum length allowed under Article 47(2) of the [UNCLOS III],
which states that "The length of such baselines shall not exceed 100
nautical miles, except that up to 3 per cent of the total number of
baselines enclosing any archipelago may exceed that length, up to a
maximum length of 125 nautical miles."

2. The selection of basepoints is not optimal. At least 9 basepoints can

be skipped or deleted from the baselines system. This will enclose an
additional 2,195 nautical miles of water.

3. Finally, the basepoints were drawn from maps existing in 1968, and
not established by geodetic survey methods. Accordingly, some of the
points, particularly along the west coasts of Luzon down to Palawan
were later found to be located either inland or on water, not on low-
water line and drying reefs as prescribed by Article 47.35

Hence, far from surrendering the Philippines claim over the KIG and the
Scarborough Shoal, Congress decision to classify the KIG and the
Scarborough Shoal as "Regime[s] of Islands under the Republic of the
Philippines consistent with Article 121"36 of UNCLOS III manifests the
Philippine States responsible observance of its pacta sunt
servanda obligation under UNCLOS III. Under Article 121 of UNCLOS III, any
"naturally formed area of land, surrounded by water, which is above water at
high tide," such as portions of the KIG, qualifies under the category of
"regime of islands," whose islands generate their own applicable maritime
zones.37

Statutory Claim Over Sabah under

RA 5446 Retained

Petitioners argument for the invalidity of RA 9522 for its failure to textualize
the Philippines claim over Sabah in North Borneo is also untenable. Section
2 of RA 5446, which RA 9522 did not repeal, keeps open the door for drawing
the baselines of Sabah:

Section 2. The definition of the baselines of the territorial sea of the

Philippine Archipelago as provided in this Actis without prejudice to the
delineation of the baselines of the territorial sea around the
territory of Sabah, situated in North Borneo, over which the
Republic of the Philippines has acquired dominion and sovereignty.
(Emphasis supplied)

UNCLOS III and RA 9522 not

Incompatible with the Constitutions
Delineation of Internal Waters

As their final argument against the validity of RA 9522, petitioners contend

that the law unconstitutionally "converts" internal waters into archipelagic
waters, hence subjecting these waters to the right of innocent and sea lanes
passage under UNCLOS III, including overflight. Petitioners extrapolate that
these passage rights indubitably expose Philippine internal waters to nuclear
and maritime pollution hazards, in violation of the Constitution.38

Whether referred to as Philippine "internal waters" under Article I of the

Constitution39 or as "archipelagic waters" under UNCLOS III (Article 49 [1]),
the Philippines exercises sovereignty over the body of water lying landward
of the baselines, including the air space over it and the submarine areas
underneath. UNCLOS III affirms this:

Article 49. Legal status of archipelagic waters, of the air space over
archipelagic waters and of their bed and subsoil.
1. The sovereignty of an archipelagic State extends to the
waters enclosed by the archipelagic baselines drawn in
accordance with article 47, described as archipelagic waters,
regardless of their depth or distance from the coast.

2. This sovereignty extends to the air space over the

archipelagic waters, as well as to their bed and subsoil, and
the resources contained therein.

4. The regime of archipelagic sea lanes passage established in this

Part shall not in other respects affect the status of the
archipelagic waters, including the sea lanes, or the exercise by
the archipelagic State of its sovereignty over such waters and
their air space, bed and subsoil, and the resources contained
therein. (Emphasis supplied)

The fact of sovereignty, however, does not preclude the operation of

municipal and international law norms subjecting the territorial sea or
archipelagic waters to necessary, if not marginal, burdens in the interest of
maintaining unimpeded, expeditious international navigation, consistent with
the international law principle of freedom of navigation. Thus, domestically,
the political branches of the Philippine government, in the competent
discharge of their constitutional powers, may pass legislation designating
routes within the archipelagic waters to regulate innocent and sea lanes
passage.40 Indeed, bills drawing nautical highways for sea lanes passage are
now pending in Congress.41

In the absence of municipal legislation, international law norms, now codified

in UNCLOS III, operate to grant innocent passage rights over the territorial
sea or archipelagic waters, subject to the treatys limitations and conditions
for their exercise.42 Significantly, the right of innocent passage is a
customary international law,43 thus automatically incorporated in the corpus
of Philippine law.44 No modern State can validly invoke its sovereignty to
absolutely forbid innocent passage that is exercised in accordance with
customary international law without risking retaliatory measures from the
international community.

The fact that for archipelagic States, their archipelagic waters are subject to
both the right of innocent passage and sea lanes passage45 does not place
them in lesser footing vis--vis continental coastal States which are subject,
in their territorial sea, to the right of innocent passage and the right of transit
passage through international straits. The imposition of these passage rights
through archipelagic waters under UNCLOS III was a concession by
archipelagic States, in exchange for their right to claim all the waters
landward of their baselines,regardless of their depth or distance from the
coast, as archipelagic waters subject to their territorial sovereignty. More
importantly, the recognition of archipelagic States archipelago and the
waters enclosed by their baselines as one cohesive entity prevents the
treatment of their islands as separate islands under UNCLOS III.46 Separate
islands generate their own maritime zones, placing the waters between
islands separated by more than 24 nautical miles beyond the States
territorial sovereignty, subjecting these waters to the rights of other States
under UNCLOS III.47

Petitioners invocation of non-executory constitutional provisions in Article II

(Declaration of Principles and State Policies)48 must also fail. Our present
state of jurisprudence considers the provisions in Article II as mere legislative
guides, which, absent enabling legislation, "do not embody judicially
enforceable constitutional rights x x x."49 Article II provisions serve as guides
in formulating and interpreting implementing legislation, as well as in
interpreting executory provisions of the Constitution. Although Oposa v.
Factoran50 treated the right to a healthful and balanced ecology under
Section 16 of Article II as an exception, the present petition lacks factual
basis to substantiate the claimed constitutional violation. The other
provisions petitioners cite, relating to the protection of marine wealth (Article
XII, Section 2, paragraph 251 ) and subsistence fishermen (Article XIII, Section
752 ), are not violated by RA 9522.

In fact, the demarcation of the baselines enables the Philippines to delimit its
exclusive economic zone, reserving solely to the Philippines the exploitation
of all living and non-living resources within such zone. Such a maritime
delineation binds the international community since the delineation is in
strict observance of UNCLOS III. If the maritime delineation is contrary to
UNCLOS III, the international community will of course reject it and will refuse
to be bound by it.

UNCLOS III favors States with a long coastline like the Philippines. UNCLOS III
creates a sui generis maritime space the exclusive economic zone in
waters previously part of the high seas. UNCLOS III grants new rights to
coastal States to exclusively exploit the resources found within this zone up
to 200 nautical miles.53 UNCLOS III, however, preserves the traditional
freedom of navigation of other States that attached to this zone beyond the
territorial sea before UNCLOS III.

RA 9522 and the Philippines Maritime Zones

Petitioners hold the view that, based on the permissive text of UNCLOS III,
Congress was not bound to pass RA 9522.54 We have looked at the relevant
provision of UNCLOS III55 and we find petitioners reading plausible.
Nevertheless, the prerogative of choosing this option belongs to Congress,
not to this Court. Moreover, the luxury of choosing this option comes at a
very steep price. Absent an UNCLOS III compliant baselines law, an
archipelagic State like the Philippines will find itself devoid of internationally
acceptable baselines from where the breadth of its maritime zones and
continental shelf is measured. This is recipe for a two-fronted disaster: first, it
sends an open invitation to the seafaring powers to freely enter and exploit
the resources in the waters and submarine areas around our archipelago;
and second, it weakens the countrys case in any international dispute over
Philippine maritime space. These are consequences Congress wisely avoided.

The enactment of UNCLOS III compliant baselines law for the Philippine
archipelago and adjacent areas, as embodied in RA 9522, allows an
internationally-recognized delimitation of the breadth of the Philippines
maritime zones and continental shelf. RA 9522 is therefore a most vital step
on the part of the Philippines in safeguarding its maritime zones, consistent
with the Constitution and our national interest.

WHEREFORE, we DISMISS the petition.