Garcia vs. Corona

The date and manner of full deregulation of the downstream oil industry are policy determinations committed to Congress and the President; absent a clear constitutional violation or grave abuse of discretion, the judiciary will not invalidate Section 19 of R.A. No. 8479 merely because it disagrees with the wisdom or timeliness of deregulation.

Petitioner Enrique T. Garcia was a member of Congress. Private respondents Caltex Philippines Inc., Pilipinas Shell Petroleum Corp., and Petron Corp. are oil companies that, before deregulation, controlled the entire oil industry in the Philippines. R.A. No. 8180, the first downstream oil industry deregulation law, was enacted to implement Article XII, Section 19 of the 1987 Constitution, which mandates regulation or prohibition of monopolies when public interest requires and prohibits combinations in restraint of trade or unfair competition. In Tatad vs. Secretary of the Department of Energy and Lagman vs. Hon. Ruben Torres, the Supreme Court declared R.A. No. 8180 unconstitutional and E.O. No. 392 void because three provisions—tariff differential, inventory requirement, and predatory pricing—promoted monopoly and restraint of trade. Congress thereafter enacted R.A. No. 8479, a new deregulation law without those offending provisions.

On November 5, 1997, in Tatad vs. Secretary of the Department of Energy and Lagman vs. Hon. Ruben Torres, the Supreme Court declared R.A. No. 8180 unconstitutional and E.O. No. 392 void. The law was struck down because three key provisions—tariff differential, stocking of inventories, and predatory pricing—were shown to inhibit fair competition, encourage monopolistic power, and interfere with free market forces. Although R.A. No. 8180 contained a separability clause, the entire statute was invalidated because the offending provisions so permeated the law.

After the Tatad decision, Congress enacted R.A. No. 8479, a new deregulation law without the offending provisions of the earlier law. Section 19 of R.A. No. 8479 provides that full deregulation of the industry shall start five months following the effectivity of the Act. When public interest so requires, the President may accelerate the start of full deregulation upon the recommendation of the Department of Energy and the Department of Finance when the prices of crude oil and petroleum products in the world market are declining and the value of the peso in relation to the US dollar is stable. The five-month transition phase continues to apply to LPG, regular gasoline, and kerosene as socially-sensitive petroleum products, and these products are covered by the automatic pricing mechanism during that period. Upon implementation of full deregulation, the transition phase is deemed terminated and enumerated laws are repealed.

Petitioner Enrique T. Garcia, a member of Congress, filed the present petition seeking to declare Section 19 unconstitutional. He alleged that within the short span of five months, the market was still dominated and controlled by an oligopoly of Shell, Caltex, and Petron. He argued that Section 19 is pro-oligopoly, anti-competition, and anti-people; that it violates Article XII, Section 19 of the Constitution and the objective of R.A. No. 8479 to ensure a truly competitive market under a regime of fair prices; and that it constitutes grave abuse of discretion. He proposed indefinite and open-ended price controls, which he called “partial deregulation,” to prevent the Big 3 from price-fixing and overpricing.

Public and private respondents argued that the challenged provision is a policy decision of Congress and that the wisdom of the provision is outside the authority of the Court to consider. New players in the oil industry intervened, stating that the free market policy and atmosphere of deregulation attracted them and that the co-existence of many viable rivals induces competition in product quality and performance and makes available to consumers an expanded range of choices. The case was filed directly with the Supreme Court as an original action.

• Article XII, Section 19 Violation: Petitioner argued that Section 19 of R.A. No. 8479 is glaringly pro-oligopoly, anti-competition, and anti-people, and is patently unconstitutional for being in gross and cynical contravention of the constitutional policy and command against monopolies and combinations in restraint of trade.
• Violation of Statutory Purpose: Petitioner maintained that Section 19 palpably and cynically violates the very objective and purpose of R.A. No. 8479, which is to ensure a truly competitive market under a regime of fair prices.
• Grave Abuse of Discretion: Petitioner contended that Section 19 is a very grave and grievous abuse of discretion on the part of the legislative and executive branches of government.
• Severability and Partial Deregulation: Petitioner argued that premature full deregulation under Section 19 should be declared null and void even as the rest of the law remains in force, such as the transition phase or partial deregulation with price controls that ensures protection of public interest by preventing the Big 3 oligopoly’s price-fixing and overpricing.
• Necessity of Price Controls: Petitioner argued that public interest requires price controls while the oligopoly exists, and that indefinite and open-ended price control is the only way the public can be protected from monopoly or oligopoly pricing.

• Political Question and Policy: Respondents argued that the challenged provision is a policy decision of Congress and that the wisdom of the provision is outside the authority of the Court to consider.
• Anti-Trust Safeguards: The Solicitor General cited provisions of R.A. No. 8479 intended to prevent competition from being corrupted or manipulated, and argued that the remedy against unreasonable price increases is not the nullification of Section 19 but the setting into motion of its various other provisions.
• Investor Certainty: Respondent Petron asserted that full deregulation protects the public from the greed and exploitation of business, and that competition can be ushered in only with the certainty of price deregulation; an indefinite transition period would discourage new investors.
• Effect of Nullification: Respondent Shell argued that to prolong the transition period would revive the automatic pricing mechanism and merely replace one mode of price regulation with another; if Section 19 were struck down, full deregulation would never take place and the entire law would be rendered different from what Congress passed.
• Acceleration Basis: Public respondents asserted that the acceleration of full deregulation was based on existing conditions and sound economic theory.

• Constitutionality of Section 19: Whether Section 19 of R.A. No. 8479, setting full deregulation five months after effectivity and allowing acceleration, is unconstitutional for being pro-oligopoly, anti-competition, and contrary to Article XII, Section 19 of the 1987 Constitution.
• Violation of Statutory Purpose: Whether Section 19 violates the objective of R.A. No. 8479 to ensure a truly competitive market under a regime of fair prices.
• Grave Abuse of Discretion: Whether the legislative and executive branches gravely abused their discretion in adopting and implementing full deregulation under Section 19.
• Necessity of Price Controls: Whether indefinite or open-ended price control is the only feasible and legal means to enforce the constitutional mandate against monopolies and combinations in restraint of trade.
• Severability and Partial Deregulation: Whether Section 19 should be nullified while the rest of R.A. No. 8479 remains in force, preserving the transition phase or partial deregulation with price controls.

• Constitutionality of Section 19: No. Section 19 is not unconstitutional; the challenge concerns the timeliness or wisdom of full deregulation, a policy determination for Congress and the President, and no clear constitutional violation was shown.
• Violation of Statutory Purpose: No. Congress enacted R.A. No. 8479 to implement deregulation and included anti-trust safeguards; the Court cannot substitute its judgment on the wisdom of the chosen method.
• Grave Abuse of Discretion: No. No capricious, whimsical, arbitrary, or despotic exercise of judgment was shown; mere disagreement with policy is not grave abuse.
• Necessity of Price Controls: No. Indefinite price control is not the only means; Congress instead enacted anti-trust measures in R.A. No. 8479 to promote free and fair competition.
• Severability and Partial Deregulation: No. Nullifying Section 19 would effectively suspend or rewrite the law and intrude into legislative policy; the petition was dismissed.

• Constitutionality of Section 19: Article XII, Section 19 is anti-trust in history and spirit and espouses competition. Tatad invalidated R.A. No. 8180 not because deregulation is unconstitutional but because its tariff differential, inventory, and predatory pricing provisions encouraged monopoly and restraint of trade. R.A. No. 8479 removed those provisions. Petitioner’s allegations were a general dissertation on the evils of monopoly and lacked relevant, reliable, and substantial evidence that Section 19 itself violates the Constitution. Deregulation means lifting price control; retaining price control while calling it “partial deregulation” is a legal paradox. The choice to deregulate speedily is a legislative and executive policy determination. No clear constitutional violation was shown.
• Violation of Statutory Purpose: Congress enacted R.A. No. 8479 to implement the constitutional policy and to promote free and fair competition. It included anti-trust safeguards: Section 11 defines and prohibits cartelization and predatory pricing; Section 14 creates a DOE-DOJ Task Force; Sections 8 and 9 encourage entry of new participants; Section 6 provides uniform tariffs; Sections 13, 14, and 15 provide remedies and monitoring. Instead of price controls, Congress chose these measures. The remedy against unreasonable price increases is enforcement of these provisions, not nullification of Section 19. The Court cannot substitute its judgment for Congress’s on the efficacy of solutions.
• Grave Abuse of Discretion: Deregulation is a policy determination of the highest order and a priority program under the Department of Energy Act of 1992. Courts do not pass upon the wisdom, justice, or expediency of legislation; only congressional power or competence, not wisdom, may be the basis for invalidating a statute. The principle of separation of powers confines each department to its sphere. Petitioner showed no capricious, whimsical, arbitrary, or despotic exercise of judgment. The prior resolution in Tatad already held that the date fixed by Congress for full deregulation was not unconstitutional per se and that the judgment call could not be impugned.
• Necessity of Price Controls: Indefinite price control is not the only feasible and legal way to enforce the constitutional mandate against oligopolies. Article 186 of the Revised Penal Code punishes monopolies and combinations in restraint of trade, and R.A. No. 8479 contains anti-trust safeguards. Control is the antithesis of competition; indefinite price control would continue legislated regulation where free competition cannot flourish. The Court noted that new players intervened and stated that deregulation attracted them, and that the co-existence of many viable rivals induces competition. The evils petitioner described arose during price control, and Congress chose deregulation as the remedy.
• Severability and Partial Deregulation: To grant the petition would effectively suspend or rewrite a valid statute and intrude into legislative policy. The operation of a statute may be suspended only by legislative authority, not by judicial act. The Court is not inclined to stifle deregulation at its start; reasonable time will prove the wisdom or folly of the deregulation program, for which Congress and not the Court is accountable. The petition was dismissed.

• Political Question and Separation of Powers — Policy determinations, including whether and when to deregulate the oil industry, are committed to Congress and the President. Courts do not inquire into the wisdom, justice, or expediency of legislation; only congressional power or competence, not the wisdom of the action, may be the basis for declaring a statute invalid. Applied: the challenge to the timeliness of full deregulation was a policy question outside judicial review.
• Presumption of Constitutionality — Every law is presumed constitutional; unconstitutionality must be shown by clear and unequivocal repugnancy to the Constitution. Applied: petitioner failed to present sufficient factual and legal basis to overcome the presumption.
• Anti-Trust and Free Competition under Article XII, Section 19 — The provision is anti-trust in history and spirit and espouses competition; it prohibits monopolies and combinations in restraint of trade or unfair competition. Applied: R.A. No. 8180 was struck down for provisions that encouraged monopoly, but deregulation itself is not unconstitutional; R.A. No. 8479 removed those provisions and adopted anti-trust safeguards.
• Deregulation as Lifting of Price Control — Deregulation means the lifting of control, governance, and direction through rule or regulation; the regulated industry is freed from controls, guidance, and restrictions. Applied: petitioner’s proposal to retain price control while calling it “partial deregulation” was a legal paradox and not true deregulation.
• Grave Abuse of Discretion — Grave abuse of discretion means capricious and whimsical exercise of judgment equivalent to lack of jurisdiction; mere abuse is not enough; it must be patent and gross. Applied: no arbitrariness, despotism, passion, or hostility was shown in the adoption of Section 19.
• Reasonable Time as Non-Judicial Determination — What constitutes reasonable time involves appraisal of political, social, and economic conditions not within the appropriate range of evidence in a court of justice; judicial notice cannot be the basis. Applied: the five-month period and timeliness of full deregulation were not for judicial determination.
• Anti-Trust Safeguards as Alternative to Price Control — Congress may choose measures other than price control to promote competition. Applied: R.A. No. 8479’s anti-trust safeguards, task force, incentives, uniform tariffs, and monitoring provisions were the legislative remedy against unreasonable price increases.

• "The Court respects the legislative finding that deregulation is the policy answer to the problems. It bears stressing that R.A. 8180 was declared invalid not because deregulation is unconstitutional. The law was struck down because, as crafted, three key provisions plainly encouraged the continued existence if not the proliferation of the constitutionally proscribed evils of monopoly and restraint of trade." — This passage distinguishes the invalidation of R.A. No. 8180 from the validity of deregulation as a policy, and is central to the Court’s refusal to strike down Section 19 of R.A. No. 8479.
• "In this regard, what constitutes reasonable time is not for judicial determination. Reasonable time involves the appraisal of a great variety of relevant conditions, political, social and economic. They are not within the appropriate range of evidence in a court of justice. It would be an extravagant extension of judicial authority to assert judicial notice as the basis for the determination." — This states the ratio decidendi on the non-justiciability of the timing of full deregulation.
• "Petitioner, therefore, engages in a legal paradox. He fails to show how there can be deregulation while retaining government price control. Deregulation means the lifting of control, governance and direction through rule or regulation. It means that the regulated industry is freed from the controls, guidance, and restrictions to which it used to be subjected. The use of the word "partial" to qualify deregulation is sugar-coating. Petitioner is really against deregulation at this time." — This defines deregulation and rejects petitioner’s proposed indefinite price-control regime as inconsistent with the statutory policy.
• "It can be seen, therefore, that instead of the price controls advocated by the petitioner, Congress has enacted anti-trust measures which it believes will promote free and fair competition. Upon the other hand, the disciplined, determined, consistent and faithful execution of the law is the function of the President. As stated by public respondents, the remedy against unreasonable price increases is not the nullification of Section 19 of R.A. 8479 but the setting into motion of its various other provisions." — This explains the alternative legislative remedy and reinforces the separation-of-powers rationale.

• Tatad vs. Secretary of the Department of Energy, 281 SCRA 330 (1997) — Controlling precedent. The Court declared R.A. No. 8180 unconstitutional and E.O. No. 392 void because the tariff differential, inventory, and predatory pricing provisions inhibited fair competition and encouraged monopolistic power; the decision also established that Article XII, Section 19 is anti-trust in history and spirit.
• Tatad vs. Secretary of the Department of Energy, 282 SCRA 337 (1997) — Resolution denying reconsideration; held that the date fixed by Congress for full deregulation was not unconstitutional per se and that the choice of date was a judgment call that could not be impugned by the Court.
• Morfe vs. Mutuc, 22 SCRA 424 (1968) — Cited for the rule that courts do not pass upon the question of wisdom, justice, or expediency of legislation; as long as laws do not violate the Constitution, courts merely interpret and apply them.
• Gonzales vs. Commission on Elections — Cited in the text, without citation, for the rule that only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid.
• Coleman vs. Miller, 307 U.S. 433 (1939) — Cited for the principle that what constitutes reasonable time is not for judicial determination and involves conditions not within the appropriate range of evidence in a court of justice.
• American Tobacco Co. vs. United States, 328 U.S. 781 — Cited for the definition of monopoly in its more complex form as the joint acquisition or maintenance by members of a conspiracy of the power to control and dominate trade and commerce.
• Lagman, et al. vs. Hon. Ruben Torres, et al. — Cited in the text, without citation, as the companion case in which R.A. No. 8180 was declared unconstitutional and E.O. No. 392 void.

• Article XII, Section 19, 1987 Constitution — Provides that the State shall regulate or prohibit monopolies when public interest so requires and that no combinations in restraint of trade or unfair competition shall be allowed. Applied: the Court treated it as anti-trust in history and spirit and espousing competition; R.A. No. 8479 was enacted to implement it, and Section 19 of the law was not shown to violate it.
• Section 19, Republic Act No. 8479 — Sets full deregulation five months after effectivity; allows the President to accelerate upon DOE and DOF recommendation when world oil prices are declining and the peso-dollar exchange rate is stable; continues the five-month transition phase for LPG, regular gasoline, and kerosene; and repeals enumerated laws upon full deregulation. Applied: challenged but upheld as a valid policy determination.
• Article 186, Revised Penal Code — Punishes as a felony the creation of monopolies and combinations in restraint of trade. Applied: cited as an existing legal remedy against monopolies, showing that indefinite price control is not the only means of enforcing the constitutional mandate.
• Sections 11, 14, 8, 9, 6, 13, 14, and 15, Republic Act No. 8479 — Provide anti-trust safeguards, define and prohibit cartelization and predatory pricing, create a DOE-DOJ Task Force, encourage entry of new participants, provide uniform tariffs, remedies, and monitoring. Applied: Congress chose these measures instead of price controls to promote free and fair competition.
• Section 5(b), Republic Act No. 7638 (Department of Energy Act of 1992) — Mandates that the development and updating of the Philippine energy program include a policy direction towards deregulation of the power and energy industry. Applied: deregulation was a priority program of Government and a policy determination of the highest order.

• Justices Bellosillo, Melo, Puno, Kapunan, Mendoza, Purisima, Pardo, Buena, and De Leon, Jr. concurred.
• Justice Quisumbing filed a concurring opinion.
• Justice Panganiban filed a separate opinion.
• Chief Justice Davide, Jr. concurred in the result and joined Justice Panganiban in his separate opinion.
• Justice Vitug concurred in the result.
• Justice Gonzaga-Reyes took no part because her spouse was counsel for an intervenor.