FAVORITE BAR AREAS IN THE LAST TWO DIGITALIZED BAR EXAMINATIONS; POLITICAL LAW - POLICE POWER OF THE STATE (PART III).
POLITICAL LAW; POLICE POWER.
One of the most important areas in the Political Law Bar Examinations is the exercise of state police power. According to most notable authors, the Bar Examinations would not be considered complete if the examiners did not ask questions about the State's Police Power. As a result, it is essential to provide a brief discussion about this Bar area as well as actual Bar questions for the benefit of our readers, particularly our future Bar takers.
In Gerochi v. Department of Energy, the Court passed upon one of the inherent powers of the state, the police power, where it emphasized, thus:
“[P]olice power is the power of the state to promote public welfare by restraining and regulating the use of liberty and property. It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the State. The justification is found in the Latin maxim salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as not to injure the property of others).”
“As an inherent attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply of instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers. We have held that the power to "regulate" means the power to protect, foster, promote, preserve, and control, with due regard for the interests, first and foremost, of the public, then of the utility and of its patrons.”
The following are sample bar questions from the last two digitalized bar examinations involving the State's Police Power. Take note that while some questions may not directly address the concept of Police Power, we felt it was necessary to include them for the purposes of this article because they involved the exercise of State Police Power.
The case of South Luzon Drug Corporation, [G.R. No. 199669 April 25, 2017] is instructive in further discussing the concept of Police Power.
In that case, the Court upheld the Constitutionality of “The Senior Citizens Act” as a valid exercise of Police Power of the State:
“The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building, and to grant benefits and privileges to them for their improvement and well-being as the State considers them an integral part of our society.”
FULL SUMMARY OF THE CASE:
[G.R. No. 199669 April 25, 2017]
SOUTHERN LUZON DRUG CORPORATION, Petitioner,
vs.
THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT, THE NATIONAL COUNCIL FOR THE WELFARE OF DISABLED PERSONS, THE DEPARTMENT OF FINANCE, and THE BUREAU OF INTERNAL REVENUE, Respondents
REYES, J.
The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself. (SEC. 2. [R.A.] No. 7432 ).
To implement the above policy, the law grants a twenty percent discount to senior citizens for medical and dental services, and diagnostic and laboratory fees; admission fees charged by theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and amusement; fares for domestic land, air and sea travel; utilization of services in hotels and similar lodging establishments, restaurants and recreation centers; and purchases of medicines for the exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law provides that business establishments extending the twenty percent discount to senior citizens may claim the discount as a tax deduction.
The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest benefits.
Accordingly, it has been described as "the most essential, insistent and the least limitable of powers, extending as it does to all the great public needs." It is "[t]he power vested in the legislature by the constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the subjects of the same."
For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because proper rights, though sheltered by due process, must yield to general welfare.
In Gerochi v. Department of Energy, the Court passed upon one of the inherent powers of the state, the police power, where it emphasized, thus:
[P]olice power is the power of the state to promote public welfare by restraining and regulating the use of liberty and property. It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the State. The justification is found in the Latin maxim salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as not to injure the property of others). As an inherent attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply of instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers. We have held that the power to "regulate" means the power to protect, foster, promote, preserve, and control, with due regard for the interests, first and foremost, of the public, then of the utility and of its patrons.
In the exercise of police power, "property rights of private individuals are subjected to restraints and burdens in order to secure the general comfort, health, and prosperity of the State." Even then, the State's claim of police power cannot be arbitrary or unreasonable. After all, the overriding purpose of the exercise of the power is to promote general welfare, public health and safety, among others. It is a measure, which by sheer necessity, the State exercises, even to the point of interfering with personal liberties or property rights in order to advance common good.
To warrant such interference, two requisites must concur:
(a) the interests of the public generally, as distinguished from those of a particular class, require the interference of the State (The Subject Test); and
(b) the means employed are reasonably necessary to the attainment of the object sought to be accomplished and not unduly oppressive upon individuals. (The Lawful Means Test).
In other words, the proper exercise of the police power requires the concurrence of a lawful subject and a lawful method.
Illuminating on this point is the discussion of the Court on the concept of taking in City of Manila v. Hon. Laguio, Jr., viz.:
There are two different types of taking that can be identified. A "possessory" taking occurs when the government confiscates or physically occupies property. A "regulatory" taking occurs when the government's regulation leaves no reasonable economically viable use of the property.
x x x x
No formula or rule can be devised to answer the questions of what is too far and when regulation becomes a taking. In Mahon, Justice Holmes recognized that it was "a question of degree and therefore cannot be disposed of by general propositions." On many other occasions as well, the U.S. Supreme Court has said that the issue of when regulation constitutes a taking is a matter of considering the facts in each case. x x x.
What is crucial in judicial consideration of regulatory takings is that government regulation is a taking if it leaves no reasonable economically viable use of property in a manner that interferes with reasonable expectations for use. A regulation that permanently denies all economically beneficial or productive use of land is, from the owner's point of view, equivalent to a "taking" unless principles of nuisance or property law that existed when the owner acquired the land make the use prohibitable. When the owner of real property has been called upon to sacrifice all economically beneficial uses in the name of the common good, that is, to leave his property economically idle, he has suffered a taking.
x x x x
A restriction on use of property may also constitute a "taking" if not reasonably necessary to the effectuation of a substantial public purpose or if it has an unduly harsh impact on the distinct investment-backed expectations of the owner.
The petitioner herein attempts to prove its claim that the pertinent provisions of R.A. Nos. 9257 and 9442 amount to taking by presenting financial statements purportedly showing financial losses incurred by them due to the adoption of the tax deduction scheme.
For the petitioner's clarification, the presentation of the financial statement is not of compelling significance in justifying its claim for just compensation. What is imperative is for it to establish that there was taking in the constitutional sense or that, in the imposition of the mandatory discount, the power exercised by the state was eminent domain.
According to Republic of the Philippines v. Vda. de Castellvi, five circumstances must be present in order to qualify "taking" as an exercise of eminent domain. First, the expropriator must enter a private property. Second, the entrance into private property must be for more than a momentary period. Third, the entry into the property should be under warrant or color of legal authority. Fourth, the property must be devoted to a public use or otherwise informally appropriated or injuriously affected. Fifth, the utilization of the property for public use must be in such a way as to oust the owner and deprive him of all beneficial enjoyment of the property.
The first requirement speaks of entry into a private property which clearly does not obtain in this case. There is no private property that is; invaded or appropriated by the State. As it is, the petitioner precipitately deemed future profits as private property and then proceeded to argue that the State took it away without full compensation. This seemed preposterous considering that the subject of what the petitioner supposed as taking was not even earned profits but merely an expectation of profits, which may not even occur. For obvious reasons, there cannot be taking of a contingency or of a mere possibility because it lacks physical existence that is necessary before there could be any taking. Further, it is impossible to quantify the compensation for the loss of supposed profits before it is earned.
The supposed taking also lacked the characteristics of permanence and consistency. The presence of these characteristics is significant because they can establish that the effect of the questioned provisions is the same on all establishments and those losses are indeed its unavoidable consequence. But apparently these indications are wanting in this case. The reason is that the impact on the establishments varies depending on their response to the changes brought about by the subject provisions. To be clear, establishments, are not prevented from adjusting their prices to accommodate the effects of the granting of the discount and retain their profitability while being fully compliant to the laws. It follows that losses are not inevitable because establishments are free to take business measures to accommodate the contingency. Lacking in permanence and consistency, there can be no taking in the constitutional sense.
There cannot be taking in one establishment and none in another, such that the former can claim compensation but the other may not. Simply told, there is no taking to justify compensation; there is only poor business decision to blame.
Apart from the foregoing, covered establishments are also provided with a mechanism to recoup the amount of discounts they grant the senior citizens and PWDs. It is provided in Section 4(a) of R.A. No. 9257 and Section 32 of R.A. No. 9442 that establishments may claim the discounts as "tax deduction based on the net cost of the goods sold or services rendered." Basically, whatever amount was given as discount, covered establishments may claim an equal amount as an expense or tax deduction. The trouble is that the petitioner, in protesting the change in the tax treatment of the discounts, apparently seeks tax incentive and not merely a return of the amount given as discounts. It premised its interpretation of financial losses in terms of the effect of the change in the tax treatment of the discount on its tax liability; hence, the claim that the measure was confiscatory. However, as mentioned earlier in the discussion, loss of profits is not the inevitable result of the change in tax treatment of the discounts; it is more appropriately a consequence of poor business decision.
The legislature may also grant rights and impose additional burdens: It may also regulate industries, in the exercise of police power, for the protection of the public. R.A. Nos. 9257 and 9442 are akin to regulatory laws, the issuance of which is within the ambit of police power. The minimum wage law, zoning ordinances, price control laws, laws regulating the operation of motels and hotels, laws limiting the working hours to eight, and the like fall under this category.
Indeed, regulatory laws are within the category of police power measures from which affected persons or entities cannot claim exclusion or compensation. For instance, private establishments cannot protest that the imposition of the minimum wage is confiscatory since it eats up a considerable chunk of its profits or that the mandated remuneration is not commensurate for the work done. The compulsory nature of the provision for minimum wages underlies the effort of the State; as R.A. No. 6727 expresses it, to promote productivity-improvement and gain-sharing measures to ensure a decent standard of living for the workers and their families; to guarantee the rights of labor to its just share in the fruits of production; to enhance employment generation in the countryside through industry dispersal; and to allow business and industry reasonable returns on investment, expansion and growth, and as the Constitution expresses it, to affirm labor as a primary social economic force.
The petitioner argues that R.A. Nos. 9257 and 9442 are violative of the equal protection clause in that it failed to distinguish between those who have the capacity to pay and those who do not, in granting the 20% discount. R.A. No. 9257, in particular, removed the income qualification in R.A. No. 7432 of'₱60,000.00 per annum before a senior citizen may be entitled to the 20o/o discount.
The contention lacks merit.
In City of Manila v. Hon. Laguio, Jr., the Court emphasized:
Equal protection requires that all persons or things similarly situated should be treated alike, both as to rights conferred and responsibilities imposed. Similar subjects, in other words, should not be treated differently, so as to give undue favor to some and unjustly discriminate against others. The guarantee means that no person or class of persons shall be denied the same protection of laws which is enjoyed by other persons or other classes in like circumstances. Citations omitted)
"The equal protection clause is not infringed by legislation which applies only to those persons falling within a specified class. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another." For a classification to be valid, (1) it must be based upon substantial distinctions, (2) it must be germane to the purposes of the law, (3) it must not be limited to existing conditions only, and (4) it must apply equally to all members of the same class.
To recognize all senior citizens as a group, without distinction as to income, is a valid classification. The Constitution itself considered the elderly as a class of their own and deemed it a priority to address their needs. When the Constitution declared its intention to prioritize the predicament of the underprivileged sick, elderly, disabled, women, and children, it did not make any reservation as to income, race, religion or any other personal circumstances. It was a blanket privilege afforded the group of citizens in the enumeration in view of the vulnerability of their class.
R.A. No. 9257 is an implementation of the avowed policy of the Constitution to enact measures that protect and enhance the right of all the people to human dignity, reduce social, economic, and political inequalities. 72 Specifically, it caters to the welfare of all senior citizens. The classification is based on age and therefore qualifies all who have attained the age of 60. Senior citizens are a class of their own, who are in need and should be entitled to government support, and the fact that they may still be earning for their own sustenance should not disqualify them from the privilege.
WHEREFORE, in view of the foregoing disquisition, Section 4(a) of Republic Act No. 9257 and Section 32 of Republic Act No. 9442 are hereby declared CONSTITUTIONAL.
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