Constitutional Law Chapter III – The Equal Protection Clause

CONSTITUTIONAL LAW

CHAPTER III – THE EQUAL PROTECTION CLAUSE

…nor shall any person be denied the equal protection of the laws.

1. The scope of the equal protection clause, 95 SCRA      420

2.  Equal protection of the law, 13 SCRA 266

3. Requisites for a valid classification-

Read:

1.            People vs. Cayat, 68 Phil. 12

a.            There must be real and substantial distinctions;

b.            It must be germane tot he purposes of the law;

c.            It must not be limited to existing conditions only; and

d.            It must apply equally to all members of the same class.

2. Read again, Association of Small Landowners vs.  Sec. of Agrarian reform, July 14, 1989

4. Equal protection in general-

Read:

1.            P. vs. Vera, 65 Phil. 56

2.            TIU VS. CA, 301 SCRA 278  (There is real and substantial distinction between business inside  the Subic Special Economic Zone and outside wherein those inside are exempt from other taxes as a result of the policy of the government to accelerate the development of the portion of Subic left by the Americans)

3.            MELDA MARCOS VS. CA, 278 SCRA 843

4.            HIMAGAN VS. PEOPLE, October 7, 1994

The fact that policemen charged with a criminal offense punishable by more than 6 years are to be suspended during the entire duration of the case unlike other government employees is valid since it rests on valid classification because policemen carry weapons and the badge of the law which can be used to harass or intimidate witnesses against them.

2-A  Gumabon vs. Director of Prisons, 37 SCRA 420

2-b. PANFILO LACSON VS. SANDIGANBAYAN, January 20, 1999

2-b-1. BASCO VS. PAGCOR, May 14, 1991

No violation of the equal protection clause if Congress would legalize cock-fighting and horse racing since police power could regulate gambling.

1.            PHILIPPINE JUDGES ASSOCIATION VS. PRADO, November 11, 1993

There is no valid distinction for a law removing the franking privilege of the judiciary while leaving the same to the Executive and Legislative despite the fact that there is considerable volume of mails from the courts. Loss of revenue is not a valid ground unless it would be withdrawn to all government offices.

FRANCISCO TATAD vs.  THE SECRETARY OF DEPARTMENT OF ENERGY, G. R. No. 124360, November 5, 1997

 

EDCEL LAGMAN, JOKER ARROYO, ENRIQUE GARCIA, WIGBERTO TANADA,  FLAG HUMAN RIGHTS FOUNDATION vs. HON. RUBEN TORRES, HON. FRANCISCO VIRAY, PETRON, FILIPINAS SHELL and CALTEX PHILIPPINES, G.R. No. 127867, November 5, 1997.

PUNO, J.

These petitions challenge the constitutionality of Republic Act No. 8180 entitled “An Act Deregulating the Downstream Oil Industry and for Other Purposes”. RA   8180 seeks to end  26 years of  government regulation of the downstream  oil industry.

The facts:

1.            Prior to 1971, no government agency  was regulating the oil industry. New players were free to enter the oil market without any government interference. There were four (4) refining companies at that time.  SHELL, CALTEX, BATAAN REFINING COMPANY and FILOIL MARKETING and six (6) petroleum marketing companies: ESSO, FILOIL, CALTEX, GETTY, MOBIL and SHELL;

2.            In 1971, the country was driven to its knees by the crippling oil crisis and in order to remedy the same,  the OIL INDUSTRY COMMISSION ACT was enacted  REGULATING the oil industry ;

3.            On November 9, 1973, then President Marcos  created the Philippine national Oil Corporation (PNOC) t break the control of the foreigners to the oil industry. It  acquired ownership of ESSO Philippines and Filoil and likewise bought controlling shares of the Bataan Refining Corporation. PNOC then operated under the business name PETRON CORPORATION and for the first time, there was a Filipino presence in the Philippine oil market;

4.            In 1984, Pres. Marcos through section 8 of PD 1956 created the OIL PRICE STABILIZATION FUND (OPSF) to cushion the effects of frequent changes in the price of oil caused by the exchange rate adjustments or increase of the world market prices crude oil and imported petroleum products;

5.            By 1985, only three (3) oil companies were left operating in the country. These are: CALTEX, FILIPINAS SHELL and PNOC;

6.            In May, 1987, Pres. Corazon Aquino signed Executive Order No. 172 creating the ENERGY REULATORY BOARD to regulate the business of importing, exporting, shipping, transporting, processing, refining, marketing and distributing energy resources “WHEN WARRANTED AND ONLY  WHEN PUBLIC NECESSITY REQUIRES”. The Board was empowered to “fix and regulate the prices of petroleum products and other related merchandise;

7.            In March, 1996, Congress enacted RA 8180 deregulating the Oil Industry not later than March, 1997. The law requires that the implementation of the regulation, shall as far as practicable be made at a time WHEN THE PRICES OF CRUDE OIL AND PETROLEUM PRODUCTS IN THE WORLD ARE DECLINING AND WHEN THE EXCHANGE RATE OF THE PESO IN RELATION TO THE US DOLLAR; IS STABLE;

8.            On February 8, 1997, Executive Order No. 372  was issued by President Fidel  Ramos  implementing full deregulation ON THE GROUND THAT THE OPSF FUND HAS BEEN DEPLETED;

9.            The petitioners questioned the constitutionality of RA 8180 on the following grounds:

a.            Section 5 of RA 8180 violates the equal protection clause of the Constitution;

b.            The imposition of different tariff rates does not deregulate the oil industry and even bars the entry of other players in the oil industry but instead effectively protects the interest  of the oil companies with existing refineries. Thus, it runs counter to the objective of the law “to foster a truly competitive market”; The inclusion of  Sec. 5 [b]  providing for tariff differential violates Section 26 [1] of Art. VI of the 1987 Constitution which requires  every law to have only one subject which should be expressed in the title thereof;

c.            Section 15 of RA 8180 and EO No. 392 are unconstitutional  for undue delegation of legislative power to the President and the Secretary of Energy;

d.            EO 392 implementing the full deregulation of the oil industry is unconstitutional since it is arbitrary and unreasonable since it was enacted due to the alleged depletion of the OPSF fund, a condition which is not found in RA No. 8180;

e.            Section 15  of RA 8180  is unconstitutional for it allows the formation of a de facto cartel among three existing oil companies in violation of the Constitution prohibiting against monopolies, combination in restraint of trade and unfair competition.

The provisions of the law being questioned as unconstitutional are Section 5 [b] and Section 15 which provide:

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

x x x

“Section 15. Implementation of  full deregulation. Pursuant to Section 5 [e] of RA 7638, the DOE, upon approval of the President, implement full deregulation of the downstream oil industry not later than March, 1997. As far as practicable, the DOE shall time the full deregulation when the prices of crude oil and petroleum products in the world market are declining and when the exchange rate of the peso in relation to the US dollar is stable.”

The issues are:

Procedural Issues:

a.            Whether or not the petitions raise justiciable controversy; and

b.            Whether or not  the petitioners  have the standing to question the validity of the subject law and executive order.

Substantive Issues:

a.            Whether or not Section 5 of RA 8180 violates the one title—one subject requirement of the Constitution;

b.            Whether or not Section 5 of RA 8180 violates the equal protection clause of the Constitution;

c.            Whether section 15 violates the  constitutional prohibition on undue delegation of legislative power;

d.            Whether or not EO 392 is arbitrary and unreasonable; and

e.            Whether or not RA 8180 violates the constitutional prohibition against monopolies, combinations in restraint of trade and unfair competition.

HELD:

1.            Judicial power includes not only the duty of the courts to settle controversies involving rights but also the duty to determine  whether or not there has been grave abuse of  discretion amounting to lack or excess of jurisdiction on the part of any agency or branch of the government. The courts, as guardians of the Constitution, have the inherent  authority to determine whether a statute enacted by the legislature transcends the limit imposed by the fundamental law. When the statute violates the Constitution, it is not only the right  of the judiciary to declare such act as unconstitutional and void.

2.            The question of locus standi must likewise fall . As held in KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC. VS. TAN, it was held that:

“Objections to taxpayer’s suit for lack of sufficient personality, standing, or interest are , however, in the main procedural matters. CONSIDERING THE IMPORTANCE OF THE CASES TO THE PUBLIC, AND IN KEEPING WITH THE COURT’S DUTY TO DETERMINE WHETHER OR NOT THE OTHER BRANCHEDS OF GOVERNMENT HAVE KEPT THEMSELVES WITHIN THE LIMITS OF THE CONSTITUTION AND  THE LAWS AND THAT THEY HAVE NOT ABUSE THE DISCRETION GIVEN TO THEM, THE COURT HAS BRUSHED ASIDE TECHNICALITIES OF PROCEDURE AND HAS TAKEN COGNIZANCE OF THESE PETITIONS.”

There is no disagreement on the part of the parties as to the far-reaching importance of the validity of RA 8180. Thus, there is no good sense in being hyper-technical on the standing of the petitioners for they pose issues which are significant to our people and which deserve our forthright resolution.

3.            It is contended that Section 5[b[ of RA 8180 on tariff differentials violates the Constitutional prohibition requiring every law to have only one subject which should be expressed in its title. We do not concur with this contention. As a policy, the Court has adopted a liberal construction of the one title—one subject rule. We have consistently ruled that the title need not mirror, fully index or catalogue all contents and minute details of a law. A law having a single general subject indicated in the title may contain a number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying out the general subject. We hold that Section 5 providing for tariff differential is germane to the subject  of RA 8180 which is the deregulation of the downstream oil industry.

4.            The contention that there is undue delegation of legislative power when it authorized the President to determine when deregulation starts is without merit. The petitioners claim that the phrases “as far as practicable”, “decline of crude oil prices in the world market” and “stability of the peso exchange rate to the US dollar” are ambivalent, unclear and inconcrete in meaning and could not therefore provide the “determinate or determinable standards” which can guide the President in his decision to fully deregulate the oil industry. The power of Congress to delegate the execution of laws has long been settled by this Court in 1916 in the case of COMPANIA GENERAL DE TABACOS DE FILIPINA VS. THE BOARD OF PUBLIC UTILITY COMMISSIONERS WHERE IT WAS HELD THAT:

“The true distinction is between the delegation of power to make the law , which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made.”

wo tests have been  developed to determine whether the delegation of the power to execute laws does not involve the abdication of the power to make law itself. We delineated the metes and bounds of these tests in EASTERM SHIPPING LINES VS. POEA, thus:

There are two accepted tests to determine whether or not there is a valid delegation of legislative power , viz: the completeness test and the sufficiency of standard test. Under the first test, the law must be complete in all its terms and conditions when it leaves the legislative such that when it reaches the delegate, the only thing he will do is enforce it. Under the sufficient standard test, there must be adequate guidelines or limitations in the law to map out the boundaries of the delegate’s authority and prevent the delegation from running riot. BOTH TESTS ARE INTENDED TO PREVENT A TOTAL TRANSFERENCE OF LEGISLATIVE AUTHORITY TO THE DELEGATE, WHO IS NOT ALLOWED TO STEP INTO THE SHOES OF THE LEGISLATURE AND EXERCISE A POWER ESSENTIALLY LEGISLATIVE.”

The validity of delegating legislative power is now a quiet area in our constitutional landscape because such has become an inevitability in light of the increasing complexity of the task of government. In fact, in HIRABAYASHI VS. UNITED STATES, the Supreme Court through Justice ISAGANI CRUZ held that  “even if the law does not expressly pinpoint the standard, THE COURTS WILL BEND BACKWARD TO LOCATE THE SAME ELSEWHERE IN ORDER TO SPARE THE STATUTE; IF IT CAN, FROM CONSTITUTIONAL INFIRMITY.”

5.            EO  No. 392 failed  to follow faithfully the standards set by RA 8180 when it considered the extraneous factor of depletion of the OPSF Fund. The misapplication of this extra factor cannot be justified. The executive is bereft of any right to alter either by addition or subtraction the standards set by RA 8180 for it has no power to make laws. To cede to the executive the power to make laws would invite tyranny and to transgress the separation of powers. The exercise of delegated power is given a strict scrutiny by courts for the delegate is a mere agent whose action cannot infringe the terms of the agency.

6.            Section 19 of Article XII of the Constitution provides:

“The state shall regulate or prohibit monopolies when the public interests so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

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

Respondents  aver that the 4% tariff differential is designed to encourage new entrants to invest in refineries. They stress that the inventory requirement is meant to guaranty continuous domestic supply of  petroleum and to discourage fly-by-night operators. They also claim that the prohibition against predatory pricing is intended to protect prospective entrants.

The validity of the assailed provisions of RA 8180 has to be decided in the light of the letter and spirit of Section 19, Art. XII of the Constitution. While the Constitution embraced free enterprise as an economic creed, it did not prohibit per se the operation of monopolies which can, however,  be regulated in the public interest. This distinct free enterprise system is dictated by the need to achieve the goals of our national economy as defined under Section 1, Art. XII of the Constitution which are: more equitable distribution of opportunities, income and wealth; a sustained increase in the amount of goods and services produced by the nation for all, especially the underprivileged. It also calls for the State to protect Filipino enterprises against unfair and trades practices.

The provisions on 4% tariff differential, predatory pricing and inventory requirement blocks the entry of other players and give undue advantage to the 3 oil companies resulting to monopolies or unfair competition. This is so because it would take billions for new players to construct refineries, and to have big inventories. This would effectively prevent new players.

In the case at bar, it cannot be denied that our oil industry is operated and controlled by an oligopoly (dominated by a handful of players) and a foreign oligopoly at that. As the dominant players, SHELL, CALTEX & PETRON boast of  existing refineries of various capacities. The tariff differential of 4% works to their immense advantage. Yet, this is only one edge on tariff differential. THE OTHER EDGE CUTS AND CUTS DEEP IN THE HEART OF THEIR COMPETITORS. IT ERECTS HIGH BARRIERS TO NE PLAYERS. New players in order to equalize must build their refineries worth billions of pesos. Those without refineries had to compete with a higher cost of 4%.They will be competing on an uneven field.

The provision on inventory widens the advantage of PETRON, SHELL AND CALTEX against prospective new players. The three (3) could easily comply with the inventory requirement in view of their numerous storage facilities. Prospective competitors  again find compliance oft his requirement  difficult because of prohibitive cost in constructing new  storage facilities. The net effect would be to effectively prohibit the entrance of new players.

Now comes the prohibition on predatory pricing or “selling or offering to sell any product at a price unreasonably below the industry average cost so as to attract customers to the detriment of the competitors”. According to HOVENKAMP:

“The rationale for predatory pricing is the sustaining of losses today that will give a firm monopoly profits in the future. The monopoly profits will never materialize, however, if the market is flooded with new entrants as soon as the successful predator attempts to raise its price. Predatory pricing will be profitable only if the market contains significant barriers to new entry.”

Coupled with the 4% tariff differential and the inventory requirement, the predatory pricing is a significant barrier which discourage new players to enter the oil market thereby promoting unfair competition, monopoly and restraint of trade which are prohibited by the Constitution.

Reference:

Constitutional Law Reviewer by Atty. Larry D. Gacayan (2008)

College of Law

University of the Cordilleras

________________________

2-d.LACSON VS. SANDIGANBAYAN, January 20, 1999

3. Taxicab Operators vs. BOT, September 30,l982

4. Bautista vs. Juinio,127 SCRA 329

5. Dumlao vs. COMELEC, 95 SCRA 392

6. Villegas vs. Hiu, 86 SCRA 270

7. Ceniza vs. COMELEC, 95 SCRA 763

8. UNIDO vs. COMELEC, 104 SCRA 38

9. Nunez vs. Sandiganbayan, 111 SCRA 433(Read also the dissenting opinion of Justice Makasiar

10. Sison vs. Ancheta, 130 SCRA 654

11. Citizens Surety vs. Puno, 119 SCRA 216

12. Peralta vs. COMELEC, 82 SCRA 30

13. Hawaiian-Phil. Co. vs. Asociacion, 151 SCRA 306

14. Ormoc Sugar Co. vs. Ormoc City, 22 SCRA 603

15. Flores vs. COMELEC, 184 SCRA 484

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About Magz

First of all, I am not a lawyer. I'm a graduate of AB Political Science and went to the College of Law but stopped going to law school for some reasons. I'm a passionate teacher who has been teaching English to speakers of other languages and a person who likes writing and blogging. I lost some important files and software when my computer broke down so the reason I created this website is to preserve the notes, reviewers and digests I collected when I was at the law school and at the same time, I want to help out law students who do not have enough time to go and read books in the library.

Posted on May 10, 2011, in Constitutional Law and tagged . Bookmark the permalink. 1 Comment.

  1. THANKS FOR THE INFO it really help me a lot!!!!

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