FIRST DIVISION

[G.R. No. 151908. August 12, 2003]

SMART COMMUNICATIONS, INC. (SMART) and

PILIPINO TELEPHONE CORPORATION (PILTEL),
petitioners, vs. NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC),
respondent.
[G.R. No. 152063. August 12, 2003]

GLOBE TELECOM, INC. (GLOBE) and ISLA

COMMUNICATIONS CO., INC. (ISLACOM),
petitioners, vs. COURT OF APPEALS (The Former
6th Division) and the NATIONAL
TELECOMMUNICATIONS COMMISSION,
respondents.
DECISION
YNARES-SANTIAGO, J.:

Pursuant to its rule-making and regulatory powers, the National

Telecommunications Commission (NTC) issued on June 16, 2000
Memorandum Circular No. 13-6-2000, promulgating rules and
regulations on the billing of telecommunications services. Among its
pertinent provisions are the following:
(1) The billing statements shall be received by the subscriber of the
telephone service not later than 30 days from the end of each billing
cycle. In case the statement is received beyond this period, the subscriber
shall have a specified grace period within which to pay the bill and the
public telecommunications entity (PTEs) shall not be allowed to disconnect
the service within the grace period.
(2) There shall be no charge for calls that are diverted to a voice mailbox,
voice prompt, recorded message or similar facility excluding the customers

own equipment.
(3) PTEs shall verify the identification and address of each purchaser of
prepaid SIM cards. Prepaid call cards and SIM cards shall be valid for at
least 2 years from the date of first use. Holders of prepaid SIM cards shall
be given 45 days from the date the prepaid SIM card is fully consumed but
not beyond 2 years and 45 days from date of first use to replenish the SIM
card, otherwise the SIM card shall be rendered invalid. The validity of an
invalid SIM card, however, shall be installed upon request of the customer at
no additional charge except the presentation of a valid prepaid call card.
(4) Subscribers shall be updated of the remaining value of their cards
before the start of every call using the cards.
(5) The unit of billing for the cellular mobile telephone service whether
postpaid or prepaid shall be reduced from 1 minute per pulse to 6 seconds
per pulse. The authorized rates per minute shall thus be divided by 10.[if
!supportFootnotes][1][endif]

The Memorandum Circular provided that it shall take effect 15 days

after its publication in a newspaper of general circulation and three
certified true copies thereof furnished the UP Law Center. It was
published in the newspaper, The Philippine Star, on June 22, 2000.[if
!supportFootnotes][2][endif]
Meanwhile, the provisions of the Memorandum Circular
pertaining to the sale and use of prepaid cards and the unit of billing
for cellular mobile telephone service took effect 90 days from the
effectivity of the Memorandum Circular.
On August 30, 2000, the NTC issued a Memorandum to all cellular
mobile telephone service (CMTS) operators which contained
measures to minimize if not totally eliminate the incidence of stealing
of cellular phone units. The Memorandum directed CMTS operators
to:
a. strictly comply with Section B(1) of MC 13-6-2000 requiring the
presentation and verification of the identity and addresses of prepaid
SIM card customers;
b. require all your respective prepaid SIM cards dealers to comply
with Section B(1) of MC 13-6-2000;
c. deny acceptance to your respective networks prepaid and/or

postpaid customers using stolen cellphone units or cellphone units

registered to somebody other than the applicant when properly
informed of all information relative to the stolen cellphone units;
d. share all necessary information of stolen cellphone units to all
other CMTS operators in order to prevent the use of stolen cellphone
units; and
e. require all your existing prepaid SIM card customers to register
and present valid identification cards.[if !supportFootnotes][3][endif]
This was followed by another Memorandum dated October 6, 2000
addressed to all public telecommunications entities, which reads:
This is to remind you that the validity of all prepaid cards sold on 07
October 2000 and beyond shall be valid for at least two (2) years from date
of first use pursuant to MC 13-6-2000.
In addition, all CMTS operators are reminded that all SIM packs used by
subscribers of prepaid cards sold on 07 October 2000 and beyond shall be
valid for at least two (2) years from date of first use. Also, the billing unit
shall be on a six (6) seconds pulse effective 07 October 2000.
For strict compliance.[if !supportFootnotes][4][endif]
On October 20, 2000, petitioners Isla Communications Co., Inc. and
Pilipino Telephone Corporation filed against the National
Telecommunications Commission, Commissioner Joseph A.
Santiago, Deputy Commissioner Aurelio M. Umali and Deputy
Commissioner Nestor C. Dacanay, an action for declaration of nullity
of NTC Memorandum Circular No. 13-6-2000 (the Billing Circular)
and the NTC Memorandum dated October 6, 2000, with prayer for
the issuance of a writ of preliminary injunction and temporary
restraining order. The complaint was docketed as Civil Case No. Q00-42221
at the Regional Trial Court of Quezon City, Branch 77.[if
!supportFootnotes][5][endif]
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no
jurisdiction to regulate the sale of consumer goods such as the
prepaid call cards since such jurisdiction belongs to the Department
of Trade and Industry under the Consumer Act of the Philippines; that
the Billing Circular is oppressive, confiscatory and violative of the

constitutional prohibition against deprivation of property without due

process of law; that the Circular will result in the impairment of the
viability of the prepaid cellular service by unduly prolonging the
validity and expiration of the prepaid SIM and call cards; and that the
requirements of identification of prepaid card buyers and call balance
announcement are unreasonable. Hence, they prayed that the Billing
Circular be declared null and void ab initio.
Soon thereafter, petitioners Globe Telecom, Inc and Smart
Communications, Inc. filed a joint Motion for Leave to Intervene and
to Admit Complaint-in-Intervention.[if !supportFootnotes][6][endif] This was granted
by the trial court.
On October 27, 2000, the trial court issued a temporary restraining
order enjoining the NTC from implementing Memorandum Circular
No.
13-6-2000 and the Memorandum dated October 6, 2000.[if
!supportFootnotes][7][endif]
In the meantime, respondent NTC and its co-defendants filed a
motion to dismiss the case on the ground of petitioners failure to
exhaust administrative remedies.
Subsequently, after hearing petitioners application for preliminary
injunction as well as respondents motion to dismiss, the trial court
issued on November 20, 2000 an Order, the dispositive portion of
which reads:
WHEREFORE, premises considered, the defendants motion to dismiss is
hereby denied for lack of merit. The plaintiffs application for the issuance
of a writ of preliminary injunction is hereby granted. Accordingly, the
defendants are hereby enjoined from implementing NTC Memorandum
Circular 13-6-2000 and the NTC Memorandum, dated October 6, 2000,
pending the issuance and finality of the decision in this case. The plaintiffs
and intervenors are, however, required to file a bond in the sum of FIVE
HUNDRED THOUSAND PESOS (P500,000.00), Philippine currency.
SO ORDERED.[if !supportFootnotes][8][endif]
Defendants filed a motion for reconsideration, which was denied in an
Order dated February 1, 2001.[if !supportFootnotes][9][endif]
Respondent NTC thus filed a special civil action for certiorari and

prohibition with the Court of Appeals, which was docketed as CAG.R. SP. No. 64274. On October 9, 2001, a decision was rendered,
the decretal portion of which reads:
WHEREFORE, premises considered, the instant petition for certiorari and
prohibition is GRANTED, in that, the order of the court a quo denying the
petitioners motion to dismiss as well as the order of the court a quo granting
the private respondents prayer for a writ of preliminary injunction, and the
writ of preliminary injunction issued thereby, are hereby ANNULLED and
SET ASIDE. The private respondents complaint and complaint-inintervention below are hereby DISMISSED, without prejudice to the referral
of the private respondents grievances and disputes on the assailed issuances
of the NTC with the said agency.
SO ORDERED.[if !supportFootnotes][10][endif]
Petitioners motions for reconsideration were denied in a Resolution
dated January 10, 2002 for lack of merit.[if !supportFootnotes][11][endif]
Hence, the instant petition for review filed by Smart and Piltel, which
was docketed as G.R. No. 151908, anchored on the following
grounds:
A.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT THE NATIONAL TELECOMMUNICATIONS
COMMISSION (NTC) AND NOT THE REGULAR COURTS HAS
JURISDICTION OVER THE CASE.
B.
THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED
IN HOLDING THAT THE PRIVATE RESPONDENTS FAILED TO
EXHAUST AN AVAILABLE ADMINISTRATIVE REMEDY.
C.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE BILLING CIRCULAR ISSUED BY THE
RESPONDENT NTC IS UNCONSTITUTIONAL AND CONTRARY
TO LAW AND PUBLIC POLICY.

D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE PRIVATE RESPONDENTS FAILED TO SHOW THEIR
CLEAR POSITIVE RIGHT TO WARRANT THE ISSUANCE OF A
WRIT OF PRELIMINARY INJUNCTION.[if !supportFootnotes][12][endif]
Likewise, Globe and Islacom filed a petition for review, docketed as
G.R. No. 152063, assigning the following errors:
1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE THE DOCTRINES OF PRIMARY JURISDICTION AND
EXHAUSTION OF ADMINISTRATIVE REMEDIES DO NOT APPLY
SINCE THE INSTANT CASE IS FOR LEGAL NULLIFICATION
(BECAUSE OF LEGAL INFIRMITIES AND VIOLATIONS OF LAW)
OF A PURELY ADMINISTRATIVE REGULATION PROMULGATED
BY AN AGENCY IN THE EXERCISE OF ITS RULE MAKING
POWERS AND INVOLVES ONLY QUESTIONS OF LAW.
2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE THE DOCTRINE ON EXHAUSTION OF
ADMINISTRATIVE REMEDIES DOES NOT APPLY WHEN THE
QUESTIONS RAISED ARE PURELY LEGAL QUESTIONS.
3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE THE DOCTRINE OF EXHAUSTION OF
ADMINISTRATIVE REMEDIES DOES NOT APPLY WHERE THE
ADMINISTRATIVE ACTION IS COMPLETE AND EFFECTIVE,
WHEN THERE IS NO OTHER REMEDY, AND THE PETITIONER
STANDS TO SUFFER GRAVE AND IRREPARABLE INJURY.
4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
BECAUSE PETITIONERS IN FACT EXHAUSTED ALL
ADMINISTRATIVE REMEDIES AVAILABLE TO THEM.
5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED
IN ISSUING ITS QUESTIONED RULINGS IN THIS CASE BECAUSE
GLOBE
AND ISLA HAVE A CLEAR RIGHT TO AN INJUNCTION.[if
!supportFootnotes][13][endif]
The two petitions were consolidated in a Resolution dated February
17, 2003.[if !supportFootnotes][14][endif]

On March 24, 2003, the petitions were given due course and the
parties
were required to submit their respective memoranda.[if
!supportFootnotes][15][endif]
We find merit in the petitions.
Administrative agencies possess quasi-legislative or rule-making
powers and quasi-judicial or administrative adjudicatory
powers. Quasi-legislative or rule-making power is the power to make
rules and regulations which results in delegated legislation that is
within the confines of the granting statute and the doctrine of nondelegability and separability of powers.[if !supportFootnotes][16][endif]
The rules and regulations that administrative agencies promulgate,
which are the product of a delegated legislative power to create new
and additional legal provisions that have the effect of law, should be
within the scope of the statutory authority granted by the legislature to
the administrative agency. It is required that the regulation be
germane to the objects and purposes of the law, and be not in
contradiction to, but in conformity with, the standards prescribed by
law.[if !supportFootnotes][17][endif] They must conform to and be consistent with the
provisions of the enabling statute in order for such rule or regulation
to be valid. Constitutional and statutory provisions control with
respect to what rules and regulations may be promulgated by an
administrative body, as well as with respect to what fields are subject
to regulation by it. It may not make rules and regulations which are
inconsistent with the provisions of the Constitution or a statute,
particularly the statute it is administering or which created it, or which
are in derogation of, or defeat, the purpose of a statute. In case of
conflict between a statute and an administrative order, the former
must prevail.[if !supportFootnotes][18][endif]
Not to be confused with the quasi-legislative or rule-making power of
an administrative agency is its quasi-judicial or administrative
adjudicatory power. This is the power to hear and determine
questions of fact to which the legislative policy is to apply and to
decide in accordance with the standards laid down by the law itself in
enforcing and administering the same law. The administrative body
exercises its quasi-judicial power when it performs in a judicial
manner an act which is essentially of an executive or administrative
nature, where the power to act in such manner is incidental to or

reasonably necessary for the performance of the executive or

administrative duty entrusted to it. In carrying out their quasi-judicial
functions, the administrative officers or bodies are required to
investigate facts or ascertain the existence of facts, hold hearings,
weigh evidence, and draw conclusions from them as basis for their
official action and exercise of discretion in a judicial nature.[if
!supportFootnotes][19][endif]

In questioning the validity or constitutionality of a rule or regulation

issued by an administrative agency, a party need not exhaust
administrative remedies before going to court. This principle applies
only where the act of the administrative agency concerned was
performed pursuant to its quasi-judicial function, and not when the
assailed act pertained to its rule-making or quasi-legislative power. In
Association of Philippine Coconut Dessicators v. Philippine Coconut
Authority,[if !supportFootnotes][20][endif] it was held:
The rule of requiring exhaustion of administrative remedies before a party
may seek judicial review, so strenuously urged by the Solicitor General on
behalf of respondent, has obviously no application here. The resolution in
question was issued by the PCA in the exercise of its rule- making or
legislative power. However, only judicial review of decisions of
administrative agencies made in the exercise of their quasi-judicial function
is subject to the exhaustion doctrine.
Even assuming arguendo that the principle of exhaustion of
administrative remedies apply in this case, the records reveal that
petitioners sufficiently complied with this requirement. Even during
the drafting and deliberation stages leading to the issuance of
Memorandum Circular No. 13-6-2000, petitioners were able to
register their protests to the proposed billing guidelines. They
submitted their respective position papers setting forth their
objections and submitting proposed schemes for the billing circular.[if
!supportFootnotes][21][endif]
After the same was issued, petitioners wrote
successive letters dated July 3, 2000[if !supportFootnotes][22][endif] and July 5,
2000,[if !supportFootnotes][23][endif] asking for the suspension and reconsideration of
the so-called Billing Circular. These letters were not acted upon until
October 6, 2000, when respondent NTC issued the second assailed
Memorandum implementing certain provisions of the Billing
Circular. This was taken by petitioners as a clear denial of the
requests contained in their previous letters, thus prompting them to

seek judicial relief.

In like manner, the doctrine of primary jurisdiction applies only where
the administrative agency exercises its quasi-judicial or adjudicatory
function. Thus, in cases involving specialized disputes, the practice
has been to refer the same to an administrative agency of special
competence pursuant to the doctrine of primary jurisdiction. The
courts will not determine a controversy involving a question which is
within the jurisdiction of the administrative tribunal prior to the
resolution of that question by the administrative tribunal, where the
question demands the exercise of sound administrative discretion
requiring the special knowledge, experience and services of the
administrative tribunal to determine technical and intricate matters of
fact, and a uniformity of ruling is essential to comply with the
premises of the regulatory statute administered. The objective of the
doctrine of primary jurisdiction is to guide a court in determining
whether it should refrain from exercising its jurisdiction until after an
administrative agency has determined some question or some aspect
of some question arising in the proceeding before the court. It
applies where the claim is originally cognizable in the courts and
comes into play whenever enforcement of the claim requires the
resolution of issues which, under a regulatory scheme, has been
placed within the special competence of an administrative body; in
such case, the judicial process is suspended pending referral of such
issues to the administrative body for its view.[if !supportFootnotes][24][endif]
However, where what is assailed is the validity or constitutionality of a
rule or regulation issued by the administrative agency in the
performance of its quasi-legislative function, the regular courts have
jurisdiction to pass upon the same. The determination of whether a
specific rule or set of rules issued by an administrative agency
contravenes the law or the constitution is within the jurisdiction of the
regular courts. Indeed, the Constitution vests the power of judicial
review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or
regulation in the courts, including the regional trial courts.[if
!supportFootnotes][25][endif]
This is within the scope of judicial power, which
includes the authority of the courts to determine in an appropriate
action the validity of the acts of the political departments.[if
!supportFootnotes][26][endif]
Judicial power includes the duty of the courts of justice

to settle actual controversies involving rights which are legally

demandable and enforceable, and to determine whether or not there
has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the
Government.[if !supportFootnotes][27][endif]
In the case at bar, the issuance by the NTC of Memorandum Circular
No. 13-6-2000 and its Memorandum dated October 6, 2000 was
pursuant to its quasi-legislative or rule-making power. As such,
petitioners were justified in invoking the judicial power of the Regional
Trial Court to assail the constitutionality and validity of the said
issuances. In Drilon v. Lim,[if !supportFootnotes][28][endif] it was held:
We stress at the outset that the lower court had jurisdiction to consider the
constitutionality of Section 187, this authority being embraced in the general
definition of the judicial power to determine what are the valid and binding
laws by the criterion of their conformity to the fundamental
law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over
all civil cases in which the subject of the litigation is incapable of pecuniary
estimation, even as the accused in a criminal action has the right to question
in his defense the constitutionality of a law he is charged with violating and
of the proceedings taken against him, particularly as they contravene the Bill
of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the
Supreme Court appellate jurisdiction over final judgments and orders of
lower courts in all cases in which the constitutionality or validity of any
treaty, international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in question.[if
!supportFootnotes][29][endif]

In their complaint before the Regional Trial Court, petitioners averred

that the Circular contravened Civil Code provisions on sales and
violated the constitutional prohibition against the deprivation of
property without due process of law. These are within the
competence of the trial judge. Contrary to the finding of the Court of
Appeals, the issues raised in the complaint do not entail highly
technical matters. Rather, what is required of the judge who will
resolve this issue is a basic familiarity with the workings of the cellular
telephone service, including prepaid SIM and call cards and this is
judicially known to be within the knowledge of a good percentage of
our population and expertise in fundamental principles of civil law
and the Constitution.

Hence, the Regional Trial Court has jurisdiction to hear and decide
Civil Case No. Q-00-42221. The Court of Appeals erred in setting
aside the orders of the trial court and in dismissing the case.
WHEREFORE, in view of the foregoing, the consolidated
petitions are GRANTED. The decision of the Court of Appeals in CAG.R. SP No. 64274 dated October 9, 2001 and its Resolution dated
January 10, 2002 are REVERSED and SET ASIDE. The Order dated
November 20, 2000 of the Regional Trial Court of Quezon City,
Branch 77, in Civil Case No. Q-00-42221 is REINSTATED. This case
is REMANDED to the court a quo for continuation of the proceedings.
SO ORDERED.
!