REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ABDUGAJIR NUR, IN HIS CAPACITY AS DIVISION SUPERINTENDENT OF LANAO DEL NORTE, BUREAU OF PUBLIC SCHOOLS, PETITIONER, VS. THE HON. PRES…

Republic versus Nur

The Case

This is a petition for review on certiorari brought by the Republic of the Philippines, represented by Abdugajir Nur as Division Superintendent of Lanao del Norte of the Bureau of Public Schools, against the decision of the Court of First Instance of Lanao del Norte, Branch Two, in a civil case for injunction filed by Jose C. Deleste, doing business under the name and style of Iligan Small Loans and Credit Facilities. The private respondent is a duly licensed financing institution that extended loans to public school teachers, taking promissory notes and special powers of attorney authorizing it to collect the teachers' salary checks. When the Division Superintendent stopped honoring those powers of attorney, invoking a memorandum circular of the Executive Office, the lender went to court and obtained an injunction. The case matters because it fixes the boundary between administrative rule-making and judicial interpretation: a court does not amend a circular when it construes the circular's scope and purpose, and it may enjoin an administrative act that threatens the constitutional freedom to contract.

Procedural History

Jose C. Deleste, as plaintiff, sued Abdugajir Nur, in his capacity as Division Superintendent of Lanao del Norte, before the Court of First Instance of Lanao del Norte, Branch Two, in a civil action for injunction. The trial court rendered judgment granting the injunction and directing the defendant to honor and give due course to the special powers of attorney executed by public school teachers in favor of the plaintiff and to deliver the checks corresponding to them. The Republic, through the Solicitor General's office, then came to the Supreme Court by petition for review on certiorari, raising the lone issue of whether the trial court committed grave abuse of discretion amounting to lack of jurisdiction in so directing the defendant.

Facts

Jose C. Deleste operated a legitimate and duly licensed financing institution, Iligan Small Loans and Credit Facilities, which extended loans and credit facilities to public school teachers of the Division of Public Schools of Lanao del Norte. In connection with those loans, the teachers executed promissory notes and special powers of attorney in favor of the lender. On May 30, 1968, the lender wrote the Director of Public Schools in Manila, asking that the Division Superintendent of Schools of Lanao del Norte and the City Superintendent of Schools of Iligan City be authorized to honor the special powers of attorney executed by the teachers. On June 25, 1968, the Director of Public Schools, by first indorsement, authorized the Division Superintendent of Schools to honor those special powers of attorney, and a copy of that indorsement was transmitted to the lender on June 28, 1968.

Relying fully on that favorable action, the lender continued to extend loans and credit facilities to the teachers in varying amounts, and it continuously received the teachers' treasury warrants or checks in payment. This procedure went on uninterruptedly, without complaint from the teachers themselves or from the Division Superintendent of Schools of Lanao del Norte.

Then, on October 18, 1969, Florentino S. Bunao, then in charge of the Division of Lanao del Norte, sent a letter to the District Supervisor quoting a telegram directing that, effective upon receipt and in conformity with Memorandum Order No. 93 of the Executive Office, all communications emanating from the General Office allowing persons with special power of attorney to receive treasury warrants of teachers be disregarded, with strict compliance enjoined. As a result, the lender could no longer receive the teachers' treasury warrants or checks in payment of their loans, the terms of the special powers of attorney and promissory notes were impaired, and the lender suffered damages. Hence the action for injunction.

Issues

• Whether or not the Court of First Instance lawfully acquired jurisdiction over the action for injunction in defense of the lender's right to enter into contracts.
• Whether or not the trial court committed grave abuse of discretion amounting to lack of jurisdiction when it directed the Division Superintendent to honor and give due course to the special powers of attorney executed by the public school teachers in favor of the lender.

Applicable Provisions

Section 44 of Republic Act 296, as amended, on the original jurisdiction of Courts of First Instance, provides:

Courts of First Instance shall have original jurisdiction over all civil actions in which the subject of the litigation is not capable of pecuniary estimation.

This provision supplied the jurisdictional basis for the trial court to take cognizance of an action defending a legal right against administrative action.

Memorandum Circular No. 93, dated February 5, 1968, of the Executive Office, provides in its pertinent portion:

To curb this unwholesome practice, it is hereby directed that henceforth, no cashier or disbursing officer shall pay to attorneys-in-fact or other persons who may be authorized under a power of attorney or other form of authority to collect the salary of the employee, except when the persons so designated and authorized is an immediate member of the family of the employee concerned, and in all other cases, except upon proper authorization of the Assistant Executive Secretary for Legal and Administrative Matters, with the recommendation of the Financial Assistant.

This is the circular whose scope and application the trial court construed and which the petitioner claimed had been amended by the injunction.

Ruling

On the first issue, the Court held that the trial court lawfully acquired jurisdiction. The plaintiff asked for injunction in defense of a legal right, the freedom to enter into contracts, to prevent the Division Superintendent from implementing the letter of October 18, 1969 prohibiting delivery of the teachers' treasury warrants, allegedly in contravention of the promissory notes and special powers of attorney. There was a clear infringement of the private respondent's constitutional right to enter into agreements not contrary to law, a right at risk from the threatened implementation of the circular. The Court stressed that the trial court is not only right but duty bound to take cognizance of cases in which a constitutional and statutory right is allegedly infringed by the administrative action of a government office, and that Courts of First Instance have original jurisdiction over all civil actions in which the subject of the litigation is not capable of pecuniary estimation.

On the second issue, the Court held that there was no grave abuse of discretion. It painstakingly examined the questioned decision and found that nowhere in it could the alleged alteration, amendment, reversal, or modification of the circular be found. The trial court merely interpreted the contents of the circular, taking into consideration the purpose of the prohibition, and concluded that the prohibition is not applicable to the case. The trial court reasoned that the prohibition extends only to persons and not to duly licensed banking and financing institutions, that the purpose of the memorandum is to protect government employees from loan sharks charging highly usurious interests, and that a restrictive, all-embracing interpretation would drive employees to loan sharks who work beyond the pale of the law. The Court added that administrative memoranda and circulars, like laws, must be interpreted in such a manner as to breathe into them life, logic, and reason.

The Court also noted that the prohibition in the circular is not absolute, since exceptions are provided therein, and that the trial court was completely correct in stating that the circular is not all-embracing in its restrictive policy and that some latitude of discretion appears to be allowed the defendant in its implementation and definition of exception. If the strict implementation of the prohibition would result in subverting the very reason for the prohibition, then logic dictates that the memorandum circular containing the prohibition be not implemented in this particular case. The petitioner may contend that the trial court erred in its conclusion, but to claim grave abuse of discretion is far-fetched and unfounded.

Doctrine

A court does not amend, reverse, or modify an administrative circular when it construes the circular's scope and purpose and concludes that the prohibition does not apply to the case before it. That is a lawful exercise of jurisdiction, not grave abuse of discretion.

Administrative memoranda and circulars, like laws, must be interpreted in such a manner as to breathe into them life, logic, and reason, and where a strict implementation would subvert the very reason for the prohibition, the prohibition is not applied to that particular case.

Courts of First Instance have original jurisdiction over all civil actions in which the subject of the litigation is not capable of pecuniary estimation, and a court is not only right but duty bound to take cognizance of cases in which a constitutional and statutory right, such as the freedom to enter into contracts, is allegedly infringed by the administrative action of a government office.

Disposition

The Supreme Court affirmed the decision of the trial court and made the injunction embodied therein permanent, without costs; the Republic lost and the lender prevailed.

Remember This

Memorize the line that administrative circulars, like laws, must be interpreted so as to breathe into them life, logic, and reason, and that a court construing a circular's scope does not amend it. Examiners use this case on the limits of judicial review of administrative acts, on grave abuse of discretion, and on the jurisdiction of Courts of First Instance over actions not capable of pecuniary estimation.