Association of Philippine Coconut Desiccators vs. Philippine Coconut Authority

An administrative agency cannot, by its own resolution, abdicate or renounce the power to regulate conferred upon it by law, nor dismantle a regulatory framework established by statute; any change in regulatory policy must be made by the legislative department.

The Philippine Coconut Authority (PCA) was created by P.D. No. 232 on June 30, 1973, to take over the powers and functions of the Coconut Coordinating Council, the Philippine Coconut Administration, and the Philippine Coconut Research Institute. By P.D. No. 1468, it was made an independent public corporation directly reporting to and supervised by the President, charged with carrying out the State's policy to promote the rapid integrated development and growth of the coconut and other palm oil industry through a regulatory scheme set up by law. The Association of Philippine Coconut Desiccators (APCD) is an association of seven desiccated coconut processing companies. The regulatory scheme had been exercised through restrictions on entry into the field, phase-outs of existing plants during periods of overproduction, and licensing requirements administered by the PCA subject to presidential approval.

The Association of Philippine Coconut Desiccators (APCD) is an association of seven desiccated coconut processing companies. On November 5, 1992, these companies brought suit in the Regional Trial Court, National Capital Judicial Region in Makati, to enjoin the Philippine Coconut Authority (PCA) from issuing permits to certain applicants for the establishment of new desiccated coconut processing plants. Petitioner alleged that the issuance of licenses to the applicants would violate PCA Administrative Order No. 02, series of 1991, as the applicants were seeking permits to operate in areas considered "congested" under that administrative order. The trial court issued a temporary restraining order on November 6, 1992, and a writ of preliminary injunction on November 25, 1992, enjoining the PCA from processing and issuing licenses to Primex Products, Inc., Coco Manila, Superstar (Candelaria), and Superstar (Davao), upon the posting of a bond in the amount of ₱100,000.

While the case was pending in the RTC, the Governing Board of the PCA issued on March 24, 1993 Resolution No. 018-93, providing for the withdrawal of the PCA from all regulation of the coconut product processing industry. The resolution declared that henceforth the PCA would no longer require any coconut oil mill, refinery, desiccator, processor, or similar plant to apply for a license or permit as a condition prior to establishment or operation, and that the PCA would limit itself to registering processors for the purpose of monitoring their volumes of production and administering quality standards with corresponding service fees. The PCA then proceeded to issue "certificates of registration" to those wishing to operate desiccated coconut processing plants.

Petitioner appealed to the Office of the President on April 26, 1993, requesting that the resolution not be approved. Despite follow-up letters sent on May 25 and June 2, 1993, petitioner received no reply. The certificates of registration issued in the meantime by the PCA enabled a number of new coconut mills to operate. Petitioner alleged that the PCA adopted the resolution to render moot the pending RTC case, as the resolution effectively eliminated the licensing requirement that the injunction had sought to enforce. These allegations were not denied by the respondent.

• Ultra Vires Exercise of Legislative Power: Petitioner alleged that Board Resolution No. 018-93 is null and void for being an undue exercise of legislative power by an administrative body, as the PCA dismantled a regulatory framework established by law.
• Violation of Substantive Due Process: Petitioner argued that aside from being ultra vires, the resolution is without any basis, arbitrary, unreasonable, and therefore in violation of substantive due process of law.
• Violation of Procedural Due Process: Petitioner contended that in passing Board Resolution No. 018-93, the PCA violated the procedural due process requirement of consultation provided in P.D. No. 1644, Executive Order No. 826, and PCA Administrative Order No. 002, series of 1991.

• Failure to Exhaust Administrative Remedies: Respondent argued that the petition should be denied on the ground that petitioner has a pending appeal before the Office of the President, invoking the general rule that one who brings an action under Rule 65 must show that there is no appeal nor any plain, speedy, and adequate remedy in the ordinary course of law.
• Forum Shopping: Respondent accused petitioner of forum-shopping in filing the petition and of failing to exhaust available administrative remedies before coming to the Court.

• Exhaustion of Administrative Remedies: Whether the doctrine of exhaustion of administrative remedies applies to bar the petition, given petitioner's pending appeal before the Office of the President.
• Validity of Deregulation Resolution: Whether the PCA can renounce the power to regulate implicit in the law creating it by adopting Resolution No. 018-93, which withdraws the PCA from regulation of the coconut processing industry and limits its function to registration and monitoring.
• Constitutionality of Deregulation vs. Regulatory Framework: Whether the PCA's deregulation of the coconut industry is consistent with the constitutional policy of free enterprise subject to the State's reserved power to intervene when the common good demands.

• Exhaustion of Administrative Remedies: No. The exhaustion doctrine applies only to judicial review of decisions of administrative agencies made in the exercise of their quasi-judicial function, not to rules issued in the exercise of rule-making or legislative power, which become effective upon promulgation.
• Validity of Deregulation Resolution: No. The PCA cannot renounce the power to regulate implicit in the law creating it; the licensing system is the mechanism for regulation, and without it the PCA cannot regulate coconut plants or mills. The regulatory system having been set up by law, it is beyond the power of an administrative agency to dismantle it.
• Constitutionality of Deregulation vs. Regulatory Framework: The Constitution enshrines free enterprise but reserves to the government the power to intervene whenever necessary to promote the general welfare; free enterprise does not call for removal of protective regulations, and any change in regulatory policy must be made by the legislative department.

• Exhaustion of Administrative Remedies: The resolution in question was issued by the PCA in the exercise of its rule-making or legislative power. The exhaustion doctrine stands as a bar to an action which is not yet complete, but here the resolution became effective upon promulgation. Nothing in P.D. No. 232, P.D. No. 961, P.D. No. 1468, or P.D. No. 1644 requires rules and regulations issued by the PCA to be approved by the President before they become effective. Moreover, petitioner was justified in filing the case on June 25, 1993, after writing the Office of the President on April 26, 1993, and sending follow-up inquiries on May 25 and June 2, 1993, without receiving any reply, while the PCA was issuing certificates of registration indiscriminately to new coconut millers.

• Validity of Deregulation Resolution: The PCA was created by law to promote the rapid integrated development and growth of the coconut industry through a regulatory scheme. The power given to the PCA "to formulate and adopt a general program of development for the coconut and other palm oil industry" is not a roving commission but one to be exercised within the regulatory structure established by statute. By limiting registration to mere "monitoring" of volumes of production and administration of quality standards, the PCA abdicates its role and leaves industry development almost entirely to market forces. Art. II, §3(h) of P.D. No. 1468 requires the PCA to regulate the marketing and exportation of copra and its by-products by establishing standards and conducting inspections. P.D. No. 1644 grants the PCA full power and authority to regulate the marketing and export of copra, coconut oil, and their by-products, including the imposition of floor and ceiling prices, prescription of quality standards, and establishment of maximum quantities. The licensing system is the mechanism for regulation; without it, the PCA cannot stop firms from operating in congested areas or order cutbacks in production. The regulatory system having been set up by law, it is beyond the power of an administrative agency to dismantle it. The PCA cannot rely on President Aquino's 1988 memorandum, as what she approved was the establishment of new DCN plants subject to PCA guidelines, not the abolition of the regulatory framework; moreover, she could not have amended the laws by mere memorandum, and when she issued it she was no longer vested with legislative authority.

• Constitutionality of Deregulation vs. Regulatory Framework: Philippine Constitutions, beginning with the 1935 document, have repudiated laissez-faire as an economic principle. Although the present Constitution enshrines free enterprise as a policy, it nonetheless reserves to the government the power to intervene whenever necessary to promote the general welfare. Art. XII, Sec. 6 provides that the right to own and operate economic enterprises is "subject to the duty of the State to promote distributive justice and to intervene when the common good so demands." Art. XII, Sec. 19 authorizes the State to "regulate or prohibit monopolies when the public interest so requires." Free enterprise does not call for removal of "protective regulations." Any change in policy must be made by the legislative department of the government, as the regulatory system has been set up by law and it is beyond the power of an administrative agency to dismantle it.

• Exhaustion of Administrative Remedies — The doctrine requires that administrative remedies be exhausted before seeking judicial review, but it applies only to decisions of administrative agencies made in the exercise of their quasi-judicial function. It does not apply to rules issued in the exercise of rule-making or legislative power, which become effective upon promulgation. The doctrine stands as a bar to an action which is not yet complete; where the administrative action is already effective, the doctrine has no application.

• Non-Renunciation of Regulatory Power by Administrative Agencies — An administrative agency conferred by law with the power to regulate an industry cannot, by its own resolution, abdicate or renounce that power. The licensing system is the mechanism for regulation; without it, the agency cannot regulate the industry. A regulatory framework established by statute can only be dismantled by the legislative department, not by the administrative agency charged with implementing it. The power "to formulate and adopt a general program of development" is not a roving commission to adopt any program deemed necessary, but must be exercised within the regulatory structure established by law.

• Free Enterprise Subject to State Intervention — While the Constitution enshrines free enterprise as a policy, it reserves to the government the power to intervene whenever necessary to promote the general welfare. Free enterprise does not call for removal of protective regulations. Philippine Constitutions, beginning with the 1935 document, have repudiated laissez-faire as an economic principle.

• "The issue is not whether the PCA has the power to adopt this resolution to carry out its mandate under the law 'to promote the accelerated growth and development of the coconut and other palm oil industry.' The issue rather is whether it can renounce the power to regulate implicit in the law creating it for that is what the resolution in question actually is." — This passage frames the central issue of the case, distinguishing between the exercise of regulatory power and the renunciation of it.

• "The licensing system is the mechanism for regulation. Without it the PCA will not be able to regulate coconut plants or mills." — This states the key rationale for why the removal of licensing requirements constitutes an abdication of the power to regulate, not merely a change in regulatory method.

• "The regulatory system has been set up by law. It is beyond the power of an administrative agency to dismantle it." — This articulates the principle that administrative agencies cannot undo statutory frameworks, reserving such changes for the legislative department.

• "Although the present Constitution enshrines free enterprise as a policy, it nonetheless reserves to the government the power to intervene whenever necessary to promote the general welfare." — This explains the constitutional balance between free enterprise and State intervention, rejecting the PCA's invocation of free enterprise to justify deregulation.

• Antamok Goldfields Mining Co. vs. CIR, 70 Phil. 340 (1940) — Cited for the proposition that Philippine Constitutions, beginning with the 1935 document, have repudiated laissez-faire as an economic principle.
• Edu vs. Ericta, 35 SCRA 481 (1970) — Cited alongside Antamok Goldfields for the same proposition regarding the constitutional rejection of laissez-faire economics.
• Alzate vs. Aldana, 107 Phil. 298 (1960) — Cited by comparison ("Cf.") in support of the Court's holding that petitioner was justified in filing the case after the Office of the President failed to respond to its appeals.

• Art. I, §1, P.D. No. 1468 (Revised Coconut Code) — Makes the PCA an independent public corporation directly reporting to and supervised by the President of the Philippines.
• Art. I, §2, P.D. No. 1468; Art. I, §2, P.D. No. 961; §1, P.D. No. 232 — Charge the PCA with carrying out the State's policy to promote the rapid integrated development and growth of the coconut and other palm oil industry through a regulatory scheme set up by law.
• Art. II, §3(a), P.D. No. 1468 — Defines the PCA's role as "To formulate and adopt a general program of development for the coconut and other palm oil industry in all its aspects," which the Court held is not a roving commission but must be exercised within the regulatory structure.
• Art. II, §3(h), P.D. No. 1468 — Requires the PCA to regulate the marketing and exportation of copra and its by-products by establishing standards for domestic trade and export and conducting inspections, a function undermined by the deregulation resolution.
• Art. II, §3(m), P.D. No. 1468 — Grants the PCA full power and authority to regulate the production, distribution, and utilization of all subsidized coconut-based products.
• Sections 1 and 2, P.D. No. 1644 — Grant the PCA full power and authority to regulate the marketing and export of copra, coconut oil, and their by-products, including imposition of floor and ceiling prices, prescription of quality standards, and establishment of maximum quantities, which the Court held are put at risk by the deregulation resolution.
• Section 1, Executive Order No. 826 (August 28, 1982) — Prohibits establishment of new desiccated coconut processing plants without PCA authorization based on evaluation of market demand, production capacity, raw material levels, and other circumstances, subject to presidential approval.
• Executive Order No. 854 (December 6, 1982) — Ordered the PCA to reduce the number of existing desiccated coconut processing plants to ensure survival of the remaining plants, reflecting the regulatory framework's purpose.
• Art. XII, Sec. 6, 1987 Constitution — Provides that the right to own and operate economic enterprises is subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.
• Art. XII, Sec. 19, 1987 Constitution — Authorizes the State to regulate or prohibit monopolies when the public interest so requires and prohibits combinations in restraint of trade or unfair competition.
• Art. VI, §1, 1987 Constitution — Vests legislative power in the Congress, cited to show that President Aquino could not have amended the regulatory laws by mere memorandum, as she was no longer vested with legislative authority when she issued the 1988 memorandum.

Narvasa, C.J., Regalado, Davide, Jr., Puno, Kapunan, Francisco, Panganiban, and Martinez, JJ., concurred.

• Justice Romero — Argued that PCA-BR No. 018-93 was a valid exercise of delegated legislation, with sufficient standards found in the policy and purpose of the laws creating the PCA, namely "to promote accelerated growth and development of the coconut and other palm oil industry" and "the rapid integrated development and growth of the coconut and other palm oil industry." Contended that trimming down PCA's functions to registration is not an abdication of the power to regulate but is regulation itself, as registration enables the PCA to monitor production volumes and administer quality standards, both of which are substantial aspects of the power to regulate. Argued that the Court should not encroach on the economic arena, which is better left to the administrative agency tasked to promote industry growth, and that the Court is only concerned with the question of authority, not the wisdom of the measure. Emphasized the worldwide trend toward economic deregulation and globalization, invoking the constitutional mandate that the State must adopt measures to help make locally produced goods competitive. Noted that the PCA retains the power to impose sanctions for violations of its guidelines under existing laws and administrative orders. Joined by Bellosillo, Melo, Vitug, Quisumbing, and Purisima, JJ.