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THIRD DIVISION
[G.R. NO. 166006 : March 14, 2008]
PLANTERS PROD!TS, IN!., Petitioner, v. "ERTIPHIL !ORPORATION, Respondent.
D E ! I S I O N
RE#ES, R.T., J.:
THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the constitutionality of statutes, executive orders,
presidential decrees and other issuances. The Constitution vests that power not only in the upre!e Court "ut in all Regional
Trial Courts.
The principle is relevant in this #etition for Review on Certiorari of the $ecision
%
of the Court of &ppeals (C&) affir!ing with
!odification that of the RTC in 'a(ati City,
)
finding petitioner #lanters #roducts, *nc. (##*) lia"le to private respondent +ertiphil
Corporation (+ertiphil) for the levies it paid under ,etter of *nstruction (,-*) .o. %/01.
Th$ "ac%&
#etitioner ##* and private respondent +ertiphil are private corporations incorporated under #hilippine laws.
2
They are "oth
engaged in the i!portation and distri"ution of fertili3ers, pesticides and agricultural che!icals.
-n 4une 2, %561, then #resident +erdinand 'arcos, exercising his legislative powers, issued ,-* .o. %/01 which provided,
a!ong others, for the i!position of a capital recovery co!ponent (CRC) on the do!estic sale of all grades of fertili3ers in the
#hilippines.
/
The ,-* provides7
2. The &d!inistrator of the +ertili3er #esticide &uthority to include in its fertili3er pricing for!ula a capital contri"ution co!ponent
of not less than # %8 per "ag. This capital contri"ution shall "e collected until ade9uate capital is raised to !a(e ##* via"le . uch
capital contri"ution shall "e applied "y +#& to all do!estic sales of fertili3ers in the #hilippines.
1
(Underscoring
supplied)cralawli"rary
#ursuant to the ,-*, +ertiphil paid #%8 for every "ag of fertili3er it sold in the do!estic !ar(et to the +ertili3er and #esticide
&uthority (+#&). +#& then re!itted the a!ount collected to the +ar East :an( and Trust Co!pany, the depositary "an( of ##*.
+ertiphil paid #0,065,%// to +#& fro! 4uly 6, %561 to 4anuary )/, %560.
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&fter the %560 Edsa Revolution, +#& voluntarily stopped the i!position of the #%8 levy. <ith the return of de!ocracy, +ertiphil
de!anded fro! ##* a refund of the a!ounts it paid under ,-* .o. %/01, "ut ##* refused to accede to the
de!and.
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+ertiphil filed a co!plaint for collection and da!ages
6
against +#& and ##* with the RTC in 'a(ati. *t 9uestioned the
constitutionality of ,-* .o. %/01 for "eing unjust, unreasona"le, oppressive, invalid and an unlawful i!position that a!ounted to
a denial of due process of law.
5
+ertiphil alleged that the ,-* solely favored ##*, a privately owned corporation, which used the
proceeds to !aintain its !onopoly of the fertili3er industry.
*n its &nswer,
%8
+#&, through the olicitor >eneral, countered that the issuance of ,-* .o. %/01 was a valid exercise of the police
power of the tate in ensuring the sta"ility of the fertili3er industry in the country. *t also averred that +ertiphil did not sustain any
da!age fro! the ,-* "ecause the "urden i!posed "y the levy fell on the ulti!ate consu!er, not the seller.
RT! D'&()&'%')*
-n .ove!"er )8, %55%, the RTC rendered judg!ent in favor of +ertiphil, disposing as follows7
<HERE+-RE, in view of the foregoing, the Court here"y renders judg!ent in favor of the plaintiff and against the defendant
#lanters #roduct, *nc., ordering the latter to pay the for!er7
%) the su! of #0,056,%//.88 with interest at %)? fro! the ti!e of judicial de!and@
)) the su! of #%88,888 as attorneyAs fees@
2) the cost of suit.
- -R$ERE$.
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Ruling that the i!position of the #%8 CRC was an exercise of the tateAs inherent power of taxation, the RTC invalidated the levy
for violating the "asic principle that taxes can only "e levied for pu"lic purpose, vi3.7
*t is apparent that the i!position of #%8 per fertili3er "ag sold in the country "y ,-* %/01 is purportedly in the exercise of the
power of taxation. *t is a settled principle that the power of taxation "y the state is plenary. Co!prehensive and supre!e, the
principal chec( upon its a"use resting in the responsi"ility of the !e!"ers of the legislature to their constituents. However, there
are two (inds of li!itations on the power of taxation7 the inherent li!itations and the constitutional li!itations.
-ne of the inherent li!itations is that a tax !ay "e levied only for pu"lic purposes7
The power to tax can "e resorted to only for a constitutionally valid pu"lic purpose. :y the sa!e to(en, taxes !ay not "e levied
for purely private purposes, for "uilding up of private fortunes, or for the redress of private wrongs. They cannot "e levied for the
i!prove!ent of private property, or for the "enefit, and pro!otion of private enterprises, except where the aid is incident to the
pu"lic "enefit. *t is wellBsettled principle of constitutional law that no general tax can "e levied except for the purpose of raising
!oney which is to "e expended for pu"lic use. +unds cannot "e exacted under the guise of taxation to pro!ote a purpose that is
not of pu"lic interest. <ithout such li!itation, the power to tax could "e exercised or e!ployed as an authority to destroy the
econo!y of the people. & tax, however, is not held void on the ground of want of pu"lic interest unless the want of such interest
is clear. (=% &!. 4ur. pp. 2=%B2=))
*n the case at "ar, the plaintiff paid the a!ount of #0,056,%//.88 to the +ertili3er and #esticide &uthority pursuant to the #%8 per
"ag of fertili3er sold i!position under ,-* %/01 which, in turn, re!itted the a!ount to the defendant #lanters #roducts, *nc. thru
the latterAs depository "an(, +ar East :an( and Trust Co. Thus, "y virtue of ,-* %/01 the plaintiff, +ertiphil Corporation, which is
a private do!estic corporation, "eca!e poorer "y the a!ount of #0,056,%//.88 and the defendant, #lanters #roduct, *nc.,
another private do!estic corporation, "eca!e richer "y the a!ount of #0,056,%//.88.
Tested "y the standards of constitutionality as set forth in the aforeB9uoted jurisprudence, it is 9uite evident that ,-* %/01 insofar
as it i!poses the a!ount of #%8 per fertili3er "ag sold in the country and orders that the said a!ount should go to the defendant
#lanters #roduct, *nc. is unlawful "ecause it violates the !andate that a tax can "e levied only for a pu"lic purpose and not to
"enefit, aid and pro!ote a private enterprise such as #lanters #roduct, *nc.
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##* !oved for reconsideration "ut its !otion was denied.
%2
##* then filed a notice of appeal with the RTC "ut it failed to pay the
re9uisite appeal doc(et fee. *n a separate "ut related proceeding, this Court
%/
allowed the appeal of ##* and re!anded the case
to the C& for proper disposition.
!A D$c'&')*
-n .ove!"er )6, )882, the C& handed down its decision affir!ing with !odification that of the RTC, with the following fallo7
*. C*E< -+ &,, THE +-RE>-*.>, the decision appealed fro! is here"y &++*R'E$, su"ject to the '-$*+*C&T*-. that the
award of attorneyAs fees is here"y $E,ETE$.
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*n affir!ing the RTC decision, the C& ruled that the lis !ota of the co!plaint for collection was the constitutionality of ,-* .o.
%/01, thus7
The 9uestion then is whether it was proper for the trial court to exercise its power to judicially deter!ine the constitutionality of
the su"ject statute in the instant case.
&s a rule, where the controversy can "e settled on other grounds, the courts will not resolve the constitutionality of a law (,i! v.
#ac9uing, )/8 CR& 0/5 D%551E). The policy of the courts is to avoid ruling on constitutional 9uestions and to presu!e that the
acts of political depart!ents are valid, a"sent a clear and un!ista(a"le showing to the contrary.
However, the courts are not precluded fro! exercising such power when the following re9uisites are o"taining in a controversy
"efore it7 +irst, there !ust "e "efore the court an actual case calling for the exercise of judicial review. econd, the 9uestion !ust
"e ripe for adjudication. Third, the person challenging the validity of the act !ust have standing to challenge. +ourth, the 9uestion
of constitutionality !ust have "een raised at the earliest opportunity@ and lastly, the issue of constitutionality !ust "e the very lis
!ota of the case (*ntegrated :ar of the #hilippines v. Fa!ora, 226 CR& 6% D)888E).
*ndisputa"ly, the present case was pri!arily instituted for collection and da!ages. However, a perusal of the co!plaint also
reveals that the instant action is founded on the clai! that the levy i!posed was an unlawful and unconstitutional special
assess!ent. Conse9uently, the re9uisite that the constitutionality of the law in 9uestion "e the very lis !ota of the case is
present, !a(ing it proper for the trial court to rule on the constitutionality of ,-* %/01.
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The C& held that even on the assu!ption that ,-* .o. %/01 was issued under the police power of the state, it is still
unconstitutional "ecause it did not pro!ote pu"lic welfare. The C& explained7
*n declaring ,-* %/01 unconstitutional, the trial court held that the levy i!posed under the said law was an invalid exercise of the
tateAs power of taxation inas!uch as it violated the inherent and constitutional prescription that taxes "e levied only for pu"lic
purposes. *t reasoned out that the a!ount collected under the levy was re!itted to the depository "an( of ##*, which the latter
used to advance its private interest.
-n the other hand, appellant su"!its that the su"ject statuteAs passage was a valid exercise of police power. *n addition, it
disputes the court a 9uoAs findings arguing that the collections under ,-* %/01 was for the "enefit of #lanters +oundation,
*ncorporated (#+*), a foundation created "y law to hold in trust for !illions of far!ers, the stoc( ownership of ##*.
-f the three funda!ental powers of the tate, the exercise of police power has "een characteri3ed as the !ost essential,
insistent and the least li!ita"le of powers, extending as it does to all the great pu"lic needs. *t !ay "e exercised as long as the
activity or the property sought to "e regulated has so!e relevance to pu"lic welfare (Constitutional ,aw, "y *sagani &. Cru3, p.
26, %551 Edition).
Cast as the power is, however, it !ust "e exercised within the li!its set "y the Constitution, which re9uires the concurrence of a
lawful su"ject and a lawful !ethod. Thus, our courts have laid down the test to deter!ine the validity of a police !easure as
follows7 (%) the interests of the pu"lic generally, as distinguished fro! those of a particular class, re9uires its exercise@ and ()) the
!eans e!ployed are reasona"ly necessary for the acco!plish!ent of the purpose and not unduly oppressive upon individuals
(.ational $evelop!ent Co!pany v. #hilippine Ceterans :an(, %5) CR& )1= D%558E).
*t is upon applying this esta"lished tests that <e sustain the trial courtAs holding ,-* %/01 unconstitutional. To "e sure, ensuring
the continued supply and distri"ution of fertili3er in the country is an underta(ing i!"ued with pu"lic interest. However, the
!ethod "y which ,-* %/01 sought to achieve this is "y no !eans a !easure that will pro!ote the pu"lic welfare. The
govern!entAs co!!it!ent to support the successful reha"ilitation and continued via"ility of ##*, a private corporation, is an
un!ista(a"le atte!pt to !as( the su"ject statuteAs i!partiality. There is no way to treat the selfBinterest of a favored entity, li(e
##*, as identical with the general interest of the countryAs far!ers or even the +ilipino people in general. <ell to stress,
su"stantive due process exacts fairness and e9ual protection disallows distinction where none is needed. <hen a statuteAs
pu"lic purpose is spoiled "y private interest, the use of police power "eco!es a travesty which !ust "e struc( down for "eing an
ar"itrary exercise of govern!ent power. To rule in favor of appellant would contravene the general principle that revenues
derived fro! taxes cannot "e used for purely private purposes or for the exclusive "enefit of private
individuals.
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The C& did not accept ##*As clai! that the levy i!posed under ,-* .o. %/01 was for the "enefit of #lanters +oundation, *nc., a
foundation created to hold in trust the stoc( ownership of ##*. The C& stated7
&ppellant next clai!s that the collections under ,-* %/01 was for the "enefit of #lanters +oundation, *ncorporated (#+*), a
foundation created "y law to hold in trust for !illions of far!ers, the stoc( ownership of #+* on the strength of ,etter of
Gnderta(ing (,-G) issued "y then #ri!e 'inister Cesar Cirata on &pril %6, %561 and affir!ed "y the ecretary of 4ustice in an
-pinion dated -cto"er %), %56=, to wit7
H). Gpon the effective date of this ,etter of Gnderta(ing, the Repu"lic shall cause +#& to include in its fertili3er pricing for!ula a
capital recovery co!ponent, the proceeds of which will "e used initially for the purpose of funding the unpaid portion of the
outstanding capital stoc( of #lanters presently held in trust "y #lanters +oundation, *nc. (#lanters +oundation), which unpaid
capital is esti!ated at approxi!ately #)80 !illion (su"ject to validation "y #lanters and #lanters +oundation) (such unpaid
portion of the outstanding capital stoc( of #lanters "eing hereafter referred to as the AGnpaid CapitalA ), and su"se9uently for
such capital increases as !ay "e re9uired for the continuing via"ility of #lanters.
The capital recovery co!ponent shall "e in the !ini!u! a!ount of #%8 per "ag, which will "e added to the price of all do!estic
sales of fertili3er in the #hilippines "y any i!porter andIor fertili3er !other co!pany. *n this connection, the Repu"lic here"y
ac(nowledges that the advances "y #lanters to #lanters +oundation which were applied to the pay!ent of the #lanters shares
now held in trust "y #lanters +oundation, have "een assigned to, a!ong others, the Creditors. &ccordingly, the Repu"lic,
through +#&, here"y agrees to deposit the proceeds of the capital recovery co!ponent in the special trust account designated in
the notice dated &pril ), %561, addressed "y counsel for the Creditors to #lanters +oundation. uch proceeds shall "e deposited
"y +#& on or "efore the %1th day of each !onth.
The capital recovery co!ponent shall continue to "e charged and collected until pay!ent in full of (a) the Gnpaid Capital andIor
(") any shortfall in the pay!ent of the u"sidy Receiva"les, (c) any carrying cost accruing fro! the date hereof on the a!ounts
which !ay "e outstanding fro! ti!e to ti!e of the Gnpaid Capital andIor the u"sidy Receiva"les and (d) the capital increases
conte!plated in paragraph ) hereof. +or the purpose of the foregoing clause (c), the Acarrying costA shall "e at such rate as will
represent the full and reasona"le cost to #lanters of servicing its de"ts, ta(ing into account "oth its peso and foreign currencyB
deno!inated o"ligations.H (Records, pp. /)B/2)
&ppellantAs proposition is open to 9uestion, to say the least. The ,-G issued "y then #ri!e 'inister Cirata ta(en together with
the 4ustice ecretaryAs -pinion does not preponderantly de!onstrate that the collections !ade were held in trust in favor of
!illions of far!ers. Gnfortunately for appellant, in the a"sence of sufficient evidence to esta"lish its clai!s, this Court is
constrained to rely on what is explicitly provided in ,-* %/01 B that one of the pri!ary ai!s in i!posing the levy is to support the
successful reha"ilitation and continued via"ility of ##*.
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##* !oved for reconsideration "ut its !otion was denied.
%5
*t then filed the present petition with this Court.
I&&+$&
#etitioner ##* raises four issues for -ur consideration, vi3.7
*
THE C-.T*TGT*-.&,*TJ -+ ,-* %/01 C&..-T :E C-,,&TER&,,J &TT&CKE$ &.$ :E $ECREE$ C*& & $E+&G,T
4G$>'E.T *. & C&E +*,E$ +-R C-,,ECT*-. &.$ $&'&>E <HERE THE *GE -+ C-.T*TGT*-.&,*TJ * .-T
THE CERJ ,* '-T& -+ THE C&E. .E*THER C&. ,-* %/01 :E CH&,,E.>E$ :J &.J #ER-. -R E.T*TJ <H*CH H&
.- T&.$*.> T- $- -.
**
,-* %/01, :E*.> & ,&< *'#,E'E.TE$ +-R THE #GR#-E -+ &GR*.> THE +ERT*,*FER G##,J &.$
$*TR*:GT*-. *. THE C-G.TRJ, &.$ +-R :E.E+*T*.> & +-G.$&T*-. CRE&TE$ :J ,&< T- H-,$ *. TRGT +-R
'*,,*-. -+ +&R'ER THE*R T-CK -<.ERH*# *. ##* C-.T*TGTE & C&,*$ ,E>*,&T*-. #GRG&.T T- THE
ELERC*E -+ T&L&T*-. &.$ #-,*CE #-<ER +-R #G:,*C #GR#-E.
***
THE &'-G.T C-,,ECTE$ G.$ER THE C&#*T&, REC-CERJ C-'#-.E.T <& RE'*TTE$ T- THE >-CER.'E.T,
&.$ :EC&'E >-CER.'E.T +G.$ #GRG&.T T- &. E++ECT*CE &.$ C&,*$,J E.&CTE$ ,&< <H*CH *'#-E$
$GT*E &.$ C-.+ERRE$ R*>HT :J C*RTGE -+ THE #R*.C*#,E -+ H-#ER&T*CE +&CTH #R*-R T- &.J
$EC,&R&T*-. -+ G.C-.T*TGT*-.&,*TJ -+ ,-* %/01.
*C
THE #R*.C*#,E -+ G.4GT CEL&T*-. (H-G,$ :E E.R*CH'E.T) +*.$ .- &##,*C&T*-. *. THE *.T&.T C&E.
)8
(Underscoring supplied)cralawli"rary
O+r R+,'*-
<e shall first tac(le the procedural issues of locus standi and the jurisdiction of the RTC to resolve constitutional issues.
+ertiphil has locus standi "ecause it suffered direct injury@ doctrine of standing is a !ere procedural technicality which !ay "e
waived.
##* argues that +ertiphil has no locus standi to 9uestion the constitutionality of ,-* .o. %/01 "ecause it does not have a
Hpersonal and su"stantial interest in the case or will sustain direct injury as a result of its enforce!ent.H
)%
*t asserts that +ertiphil
did not suffer any da!age fro! the CRC i!position "ecause Hincidence of the levy fell on the ulti!ate consu!er or the far!ers
the!selves, not on the seller fertili3er co!pany.H
))
cr;l;wvirtuali"r;ry
<e cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has "een ade9uately discussed "y
this Court in a catena of cases. uccinctly put, the doctrine re9uires a litigant to have a !aterial interest in the outco!e of a
case. *n private suits, locus standi re9uires a litigant to "e a Hreal party in interest,H which is defined as Hthe party who stands to
"e "enefited or injured "y the judg!ent in the suit or the party entitled to the avails of the suit.H
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*n pu"lic suits, this Court recogni3es the difficulty of applying the doctrine especially when plaintiff asserts a pu"lic right on "ehalf
of the general pu"lic "ecause of conflicting pu"lic policy issues.
)/
-n one end, there is the right of the ordinary citi3en to petition
the courts to "e freed fro! unlawful govern!ent intrusion and illegal official action. &t the other end, there is the pu"lic policy
precluding excessive judicial interference in official acts, which !ay unnecessarily hinder the delivery of "asic pu"lic services.
*n this jurisdiction, <e have adopted the Hdirect injury testH to deter!ine locus standi in pu"lic suits. *n #eople v. Cera,
)1
it was
held that a person who i!pugns the validity of a statute !ust have Ha personal and su"stantial interest in the case such that he
has sustained, or will sustain direct injury as a result.H The Hdirect injury testH in pu"lic suits is si!ilar to the Hreal party in interestH
rule for private suits under ection ), Rule 2 of the %55= Rules of Civil #rocedure.
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Recogni3ing that a strict application of the Hdirect injuryH test !ay ha!per pu"lic interest, this Court relaxed the re9uire!ent in
cases of Htranscendental i!portanceH or with Hfar reaching i!plications.H :eing a !ere procedural technicality, it has also "een
held that locus standi !ay "e waived in the pu"lic interest.
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<hether or not the co!plaint for collection is characteri3ed as a private or pu"lic suit, +ertiphil has locus standi to file it. +ertiphil
suffered a direct injury fro! the enforce!ent of ,-* .o. %/01. *t was re9uired, and it did pay, the #%8 levy i!posed for every "ag
of fertili3er sold on the do!estic !ar(et. *t !ay "e true that +ertiphil has passed so!e or all of the levy to the ulti!ate consu!er,
"ut that does not dis9ualify it fro! attac(ing the constitutionality of the ,-* or fro! see(ing a refund. &s seller, it "ore the ulti!ate
"urden of paying the levy. *t faced the possi"ility of severe sanctions for failure to pay the levy. The fact of pay!ent is sufficient
injury to +ertiphil.
'oreover, +ertiphil suffered har! fro! the enforce!ent of the ,-* "ecause it was co!pelled to factor in its product the levy. The
levy certainly rendered the fertili3er products of +ertiphil and other do!estic sellers !uch !ore expensive. The har! to their
"usiness consists not only in fewer clients "ecause of the increased price, "ut also in adopting alternative corporate strategies to
!eet the de!ands of ,-* .o. %/01. +ertiphil and other fertili3er sellers !ay have shouldered all or part of the levy just to "e
co!petitive in the !ar(et. The har! occasioned on the "usiness of +ertiphil is sufficient injury for purposes of locus standi.
Even assu!ing arguendo that there is no direct injury, <e find that the li"eral policy consistently adopted "y this Court on locus
standi !ust apply. The issues raised "y +ertiphil are of para!ount pu"lic i!portance. *t involves not only the constitutionality of a
tax law "ut, !ore i!portantly, the use of taxes for pu"lic purpose. +or!er #resident 'arcos issued ,-* .o. %/01 with the
intention of reha"ilitating an ailing private co!pany. This is clear fro! the text of the ,-*. ##* is expressly na!ed in the ,-* as
the direct "eneficiary of the levy. <orse, the levy was !ade dependent and conditional upon ##* "eco!ing financially via"le.
The ,-* provided that Hthe capital contri"ution shall "e collected until ade9uate capital is raised to !a(e ##* via"le.H
The constitutionality of the levy is already in dou"t on a plain reading of the statute. *t is -ur constitutional duty to s9uarely
resolve the issue as the final ar"iter of all justicia"le controversies. The doctrine of standing, "eing a !ere procedural
technicality, should "e waived, if at all, to ade9uately thresh out an i!portant constitutional issue.
RTC !ay resolve constitutional issues@ the constitutional issue was ade9uately raised in the co!plaint@ it is the lis !ota of the
case.
##* insists that the RTC and the C& erred in ruling on the constitutionality of the ,-*. *t asserts that the constitutionality of the
,-* cannot "e collaterally attac(ed in a co!plaint for collection.
)6
&lternatively, the resolution of the constitutional issue is not
necessary for a deter!ination of the co!plaint for collection.
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+ertiphil counters that the constitutionality of the ,-* was ade9uately pleaded in its co!plaint. *t clai!s that the constitutionality
of ,-* .o. %/01 is the very lis !ota of the case "ecause the trial court cannot deter!ine its clai! without resolving the
issue.
28
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*t is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential decree or an executive order.
This is clear fro! ection 1, &rticle C*** of the %56= Constitution, which provides7
ECT*-. 1. The upre!e Court shall have the following powers7
x x x
()) Review, revise, reverse, !odify, or affir! on appeal or certiorari , as the law or the Rules of Court !ay provide, final
judg!ents and orders of lower courts in7
(a) &ll cases in which the constitutionality or validity of any treaty, international or executive agree!ent, law, presidential decree,
procla!ation, order, instruction, ordinance, or regulation is in 9uestion. (Underscoring supplied)cralawli"rary
*n 'irasol v. Court of &ppeals,
2%
this Court recogni3ed the power of the RTC to resolve constitutional issues, thus7
-n the first issue. *t is settled that Regional Trial Courts have the authority and jurisdiction to consider the constitutionality of a
statute, presidential decree, or executive order. The Constitution vests the power of judicial review or the power to declare a law,
treaty, international or executive agree!ent, presidential decree, order, instruction, ordinance, or regulation not only in this Court,
"ut in all Regional Trial Courts.
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cr;l;wvirtuali"r;ry
*n the recent case of E9uiB&sia #lace!ent, *nc. v. $epart!ent of +oreign &ffairs,
22
this Court reiterated7
There is no denying that regular courts have jurisdiction over cases involving the validity or constitutionality of a rule or regulation
issued "y ad!inistrative agencies. uch jurisdiction, however, is not li!ited to the Court of &ppeals or to this Court alone for
even the regional trial courts can ta(e cogni3ance of actions assailing a specific rule or set of rules pro!ulgated "y ad!inistrative
"odies. *ndeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive
agree!ent, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial
courts.
2/
cr;l;wvirtuali"r;ry
4udicial review of official acts on the ground of unconstitutionality !ay "e sought or availed of through any of the actions
cogni3a"le "y courts of justice, not necessarily in a suit for declaratory relief. uch review !ay "e had in cri!inal actions, as in
#eople v. +errer
21
involving the constitutionality of the now defunct &ntiBu"version law, or in ordinary actions, as in Kriven(o v.
Register of $eeds
20
involving the constitutionality of laws prohi"iting aliens fro! ac9uiring pu"lic lands. The constitutional issue,
however, (a) !ust "e properly raised and presented in the case, and (") its resolution is necessary to a deter!ination of the
case, i.e., the issue of constitutionality !ust "e the very lis !ota presented.
2=
chanro"lesvirtuallawli"rary
Contrary to ##*As clai!, the constitutionality of ,-* .o. %/01 was properly and ade9uately raised in the co!plaint for collection
filed with the RTC. The pertinent portions of the co!plaint allege7
0. The CRC of #%8 per "ag levied under ,-* %/01 on do!estic sales of all grades of fertili3er in the #hilippines, is unlawful,
unjust, uncalled for, unreasona"le, ine9uita"le and oppressive "ecause7
x x x
(c) *t favors only one private do!estic corporation, i.e., defendant ###*, and i!posed at the expense and disadvantage of the
other fertili3er i!portersIdistri"utors who were the!selves in tight "usiness situation and were then exerting all efforts and
!axi!i3ing !anage!ent and !ar(eting s(ills to re!ain via"le@
x x x
(e) *t was a glaring exa!ple of crony capitalis!, a forced progra! through which the ##*, having "een presu!ptuously
!as9ueraded as HtheH fertili3er industry itself, was the sole and anointed "eneficiary@
=. The CRC was an unlawful@ and unconstitutional special assess!ent and its i!position is tanta!ount to illegal exaction
a!ounting to a denial of due process since the persons of entities which had to "ear the "urden of paying the CRC derived no
"enefit therefro!@ that on the contrary it was used "y ##* in trying to regain its for!er despica"le !onopoly of the fertili3er
industry to the detri!ent of other distri"utors and i!porters.
26
(Underscoring supplied)cralawli"rary
The constitutionality of ,-* .o. %/01 is also the very lis !ota of the co!plaint for collection. +ertiphil filed the co!plaint to
co!pel ##* to refund the levies paid under the statute on the ground that the law i!posing the levy is unconstitutional. The thesis
is that an unconstitutional law is void. *t has no legal effect. :eing void, +ertiphil had no legal o"ligation to pay the levy.
.ecessarily, all levies duly paid pursuant to an unconstitutional law should "e refunded under the civil code principle against
unjust enrich!ent. The refund is a !ere conse9uence of the law "eing declared unconstitutional. The RTC surely cannot order
##* to refund +ertiphil if it does not declare the ,-* unconstitutional. *t is the unconstitutionality of the ,-* which triggers the
refund. The issue of constitutionality is the very lis !ota of the co!plaint with the RTC.
The #%8 levy under ,-* .o. %/01 is an exercise of the power of taxation.
&t any rate, the Court holds that the RTC and the C& did not err in ruling against the constitutionality of the ,-*.
##* insists that ,-* .o. %/01 is a valid exercise either of the police power or the power of taxation. *t clai!s that the ,-* was
i!ple!ented for the purpose of assuring the fertili3er supply and distri"ution in the country and for "enefiting a foundation
created "y law to hold in trust for !illions of far!ers their stoc( ownership in ##*.
+ertiphil counters that the ,-* is unconstitutional "ecause it was enacted to give "enefit to a private co!pany. The levy was
i!posed to pay the corporate de"t of ##*. +ertiphil also argues that, even if the ,-* is enacted under the police power, it is still
unconstitutional "ecause it did not pro!ote the general welfare of the people or pu"lic interest.
#olice power and the power of taxation are inherent powers of the tate. These powers are distinct and have different tests for
validity. #olice power is the power of the tate to enact legislation that !ay interfere with personal li"erty or property in order to
pro!ote the general welfare,
25
while the power of taxation is the power to levy taxes to "e used for pu"lic purpose. The !ain
purpose of police power is the regulation of a "ehavior or conduct, while taxation is revenue generation. The Hlawful su"jectsH
and Hlawful !eansH tests are used to deter!ine the validity of a law enacted under the police power.
/8
The power of taxation, on
the other hand, is circu!scri"ed "y inherent and constitutional li!itations.
<e agree with the RTC that the i!position of the levy was an exercise "y the tate of its taxation power. <hile it is true that the
power of taxation can "e used as an i!ple!ent of police power,
/%
the pri!ary purpose of the levy is revenue generation. *f the
purpose is pri!arily revenue, or if revenue is, at least, one of the real and su"stantial purposes, then the exaction is properly
called a tax.
/)
cr;l;wvirtuali"r;ry
*n #hilippine &irlines, *nc. v. Edu,
/2
it was held that the i!position of a vehicle registration fee is not an exercise "y the tate of its
police power, "ut of its taxation power, thus7
*t is clear fro! the provisions of ection =2 of Co!!onwealth &ct %)2 and ection 0% of the ,and Transportation and Traffic
Code that the legislative intent and purpose "ehind the law re9uiring owners of vehicles to pay for their registration is !ainly to
raise funds for the construction and !aintenance of highways and to a !uch lesser degree, pay for the operating expenses of
the ad!inistering agency. x x x +ees !ay "e properly regarded as taxes even though they also serve as an instru!ent of
regulation.
Taxation !ay "e !ade the i!ple!ent of the stateAs police power (,ut3 v. &raneta, 56 #hil. %/6). *f the purpose is pri!arily
revenue, or if revenue is, at least, one of the real and su"stantial purposes, then the exaction is properly called a tax. uch is the
case of !otor vehicle registration fees. The sa!e provision appears as ection 15(") in the ,and Transportation Code. *t is
patent therefro! that the legislators had in !ind a regulatory tax as the law refers to the i!position on the registration, operation
or ownership of a !otor vehicle as a Htax or fee.H x x x i!ply put, if the exaction under Rep. &ct /%20 were !erely a regulatory
fee, the i!position in Rep. &ct 1//6 need not "e an HadditionalH tax. Rep. &ct /%20 also spea(s of other HfeesH such as the
special per!it fees for certain types of !otor vehicles (ec. %8) and additional fees for change of registration (ec. %%). These
are not to "e understood as taxes "ecause such fees are very !ini!al to "e revenueBraising. Thus, they are not !entioned "y
ec. 15(") of the Code as taxes li(e the !otor vehicle registration fee and chauffeursA license fee. uch fees are to go into the
expenditures of the ,and Transportation Co!!ission as provided for in the last proviso of ec. 0%.
//
(Underscoring
supplied)cralawli"rary
The #%8 levy under ,-* .o. %/01 is too excessive to serve a !ere regulatory purpose. The levy, no dou"t, was a "ig "urden on
the seller or the ulti!ate consu!er. *t increased the price of a "ag of fertili3er "y as !uch as five percent.
/1
& plain reading of the
,-* also supports the conclusion that the levy was for revenue generation. The ,-* expressly provided that the levy was
i!posed Huntil ade9uate capital is raised to !a(e ##* via"le.H
Taxes are exacted only for a pu"lic purpose. The #%8 levy is unconstitutional "ecause it was not for a pu"lic purpose. The levy
was i!posed to give undue "enefit to ##*.
&n inherent li!itation on the power of taxation is pu"lic purpose. Taxes are exacted only for a pu"lic purpose. They cannot "e
used for purely private purposes or for the exclusive "enefit of private persons.
/0
The reason for this is si!ple. The power to tax
exists for the general welfare@ hence, i!plicit in its power is the li!itation that it should "e used only for a pu"lic purpose. *t would
"e a ro""ery for the tate to tax its citi3ens and use the funds generated for a private purpose. &s an old Gnited tates case
"luntly put it7 HTo lay with one hand, the power of the govern!ent on the property of the citi3en, and with the other to "estow it
upon favored individuals to aid private enterprises and "uild up private fortunes, is nonetheless a ro""ery "ecause it is done
under the for!s of law and is called taxation.H
/=
cr;l;wvirtuali"r;ry
The ter! Hpu"lic purposeH is not defined. *t is an elastic concept that can "e ha!!ered to fit !odern standards. 4urisprudence
states that Hpu"lic purposeH should "e given a "road interpretation. *t does not only pertain to those purposes which are
traditionally viewed as essentially govern!ent functions, such as "uilding roads and delivery of "asic services, "ut also includes
those purposes designed to pro!ote social justice. Thus, pu"lic !oney !ay now "e used for the relocation of illegal settlers,
lowBcost housing and ur"an or agrarian refor!.
<hile the categories of what !ay constitute a pu"lic purpose are continually expanding in light of the expansion of govern!ent
functions, the inherent re9uire!ent that taxes can only "e exacted for a pu"lic purpose still stands. #u"lic purpose is the heart of
a tax law. <hen a tax law is only a !as( to exact funds fro! the pu"lic when its true intent is to give undue "enefit and
advantage to a private enterprise, that law will not satisfy the re9uire!ent of Hpu"lic purpose.H
The purpose of a law is evident fro! its text or infera"le fro! other secondary sources. Here, <e agree with the RTC and that
C& that the levy i!posed under ,-* .o. %/01 was not for a pu"lic purpose.
+irst, the ,-* expressly provided that the levy "e i!posed to "enefit ##*, a private co!pany. The purpose is explicit fro! Clause
2 of the law, thus7
2. The &d!inistrator of the +ertili3er #esticide &uthority to include in its fertili3er pricing for!ula a capital contri"ution co!ponent
of not less than # %8 per "ag. This capital contri"ution shall "e collected until ade9uate capital is raised to !a(e ##* via"le . uch
capital contri"ution shall "e applied "y +#& to all do!estic sales of fertili3ers in the #hilippines.
/6
(Underscoring
supplied)cralawli"rary
*t is a "asic rule of statutory construction that the text of a statute should "e given a literal !eaning. *n this case, the text of the
,-* is plain that the levy was i!posed in order to raise capital for ##*. The fra!ers of the ,-* did not even hide the insidious
purpose of the law. They were cavalier enough to na!e ##* as the ulti!ate "eneficiary of the taxes levied under the ,-*. <e find
it utterly repulsive that a tax law would expressly na!e a private co!pany as the ulti!ate "eneficiary of the taxes to "e levied
fro! the pu"lic. This is a clear case of crony capitalis!.
econd, the ,-* provides that the i!position of the #%8 levy was conditional and dependent upon ##* "eco!ing financially
Hvia"le.H This suggests that the levy was actually i!posed to "enefit ##*. The ,-* nota"ly does not fix a !axi!u! a!ount when
##* is dee!ed financially Hvia"le.H <orse, the lia"ility of +ertiphil and other do!estic sellers of fertili3er to pay the levy is !ade
indefinite. They are re9uired to continuously pay the levy until ade9uate capital is raised for ##*.
Third, the RTC and the C& held that the levies paid under the ,-* were directly re!itted and deposited "y +#& to +ar East :an(
and Trust Co!pany, the depositary "an( of ##*.
/5
This proves that ##* "enefited fro! the ,-*. *t is also proves that the !ain
purpose of the law was to give undue "enefit and advantage to ##*.
+ourth, the levy was used to pay the corporate de"ts of ##*. & reading of the ,etter of Gnderstanding
18
dated 'ay %6, %561
signed "y then #ri!e 'inister Cesar Cirata reveals that ##* was in deep financial pro"le! "ecause of its huge corporate de"ts.
There were pending petitions for reha"ilitation against ##* "efore the ecurities and Exchange Co!!ission. The govern!ent
guaranteed pay!ent of ##*As de"ts to its foreign creditors. To fund the pay!ent, #resident 'arcos issued ,-* .o. %/01. The
pertinent portions of the letter of understanding read7
Repu"lic of the #hilippines
-ffice of the #ri!e 'inister
'anila
,ETTER -+ G.$ERT&K*.>
'ay %6, %561
T-7 THE :&.K*.> &.$ +*.&.C*&, *.T*TGT*-.
,*TE$ *. &..EL & HERET- <H*CH &RE
CRE$*T-R (C-,,ECT*CE,J, THE HCRE$*T-RH)
-+ #,&.TER #R-$GCT, *.C. (H#,&.TERH)
>entle!en7
This has reference to #lanters which is the principal i!porter and distri"utor of fertili3er, pesticides and agricultural che!icals in
the #hilippines. &s regards #lanters, the #hilippine >overn!ent confir!s its awareness of the following7 (%) that #lanters has
outstanding o"ligations in foreign currency andIor pesos, to the Creditors, ()) that #lanters is currently experiencing financial
difficulties, and (2) that there are presently pending with the ecurities and Exchange Co!!ission of the #hilippines a petition
filed at #lantersA own "ehest for the suspension of pay!ent of all its o"ligations, and a separate petition filed "y 'anufacturers
Hanover Trust Co!pany, 'anila -ffshore :ranch for the appoint!ent of a reha"ilitation receiver for #lanters.
*n connection with the foregoing, the Repu"lic of the #hilippines (the HRepu"licH) confir!s that it considers and continues to
consider #lanters as a !ajor fertili3er distri"utor. &ccordingly, for and in consideration of your expressed willingness to consider
and participate in the effort to reha"ilitate #lanters, the Repu"lic here"y !anifests its full and un9ualified support of the
successful reha"ilitation and continuing via"ility of #lanters, and to that end, here"y "inds and o"ligates itself to the creditors and
#lanters, as follows7
x x x
). Gpon the effective date of this ,etter of Gnderta(ing, the Repu"lic shall cause +#& to include in its fertili3er pricing for!ula a
capital recovery co!ponent, the proceeds of which will "e used initially for the purpose of funding the unpaid portion of the
outstanding capital stoc( of #lanters presently held in trust "y #lanters +oundation, *nc. (H#lanters +oundationH), which unpaid
capital is esti!ated at approxi!ately #)80 !illion (su"ject to validation "y #lanters and #lanters +oundation) such unpaid portion
of the outstanding capital stoc( of #lanters "eing hereafter referred to as the HGnpaid CapitalH), and su"se9uently for such capital
increases as !ay "e re9uired for the continuing via"ility of #lanters.
x x x
The capital recovery co!ponent shall continue to "e charged and collected until pay!ent in full of (a) the Gnpaid Capital andIor
(") any shortfall in the pay!ent of the u"sidy Receiva"les, (c) any carrying cost accruing fro! the date hereof on the a!ounts
which !ay "e outstanding fro! ti!e to ti!e of the Gnpaid Capital andIor the u"sidy Receiva"les, and (d) the capital increases
conte!plated in paragraph ) hereof. +or the purpose of the foregoing clause (c), the Hcarrying costH shall "e at such rate as will
represent the full and reasona"le cost to #lanters of servicing its de"ts, ta(ing into account "oth its peso and foreign currencyB
deno!inated o"ligations.
RE#G:,*C -+ THE #H*,*##*.E
:y7
(signed)
CE&R E. &. C*R&T&
#ri!e 'inister and 'inister of +inance
1%

*t is clear fro! the ,etter of Gnderstanding that the levy was i!posed precisely to pay the corporate de"ts of ##*. <e cannot
agree with ##* that the levy was i!posed to ensure the sta"ility of the fertili3er industry in the country. The letter of understanding
and the plain text of the ,-* clearly indicate that the levy was exacted for the "enefit of a private corporation.
&ll told, the RTC and the C& did not err in holding that the levy i!posed under ,-* .o. %/01 was not for a pu"lic purpose. ,-*
.o. %/01 failed to co!ply with the pu"lic purpose re9uire!ent for tax laws.
The ,-* is still unconstitutional even if enacted under the police power@ it did not pro!ote pu"lic interest.
Even if <e consider ,-* .o. %051 enacted under the police power of the tate, it would still "e invalid for failing to co!ply with
the test of Hlawful su"jectsH and Hlawful !eans.H 4urisprudence states the test as follows7 (%) the interest of the pu"lic generally,
as distinguished fro! those of particular class, re9uires its exercise@ and ()) the !eans e!ployed are reasona"ly necessary for
the acco!plish!ent of the purpose and not unduly oppressive upon individuals.
1)
cr;l;wvirtuali"r;ry
+or the sa!e reasons as discussed, ,-* .o. %051 is invalid "ecause it did not pro!ote pu"lic interest. The law was enacted to
give undue advantage to a private corporation. <e 9uote with approval the C& ratiocination on this point, thus7
*t is upon applying this esta"lished tests that <e sustain the trial courtAs holding ,-* %/01
unconstitutional.MNOPrQ"lRS TUrVWOl lOX lU"rOrY
To "e sure, ensuring the continued supply and distri"ution of fertili3er in the country is an underta(ing i!"ued with pu"lic interest.
However, the !ethod "y which ,-* %/01 sought to achieve this is "y no !eans a !easure that will pro!ote the pu"lic welfare.
The govern!entAs co!!it!ent to support the successful reha"ilitation and continued via"ility of ##*, a private corporation, is an
un!ista(a"le atte!pt to !as( the su"ject statuteAs i!partiality. There is no way to treat the selfBinterest of a favored entity, li(e
##*, as identical with the general interest of the countryAs far!ers or even the +ilipino people in general . <ell to stress,
su"stantive due process exacts fairness and e9ual protection disallows distinction where none is needed. <hen a statuteAs
pu"lic purpose is spoiled "y private interest, the use of police power "eco!es a travesty which !ust "e struc( down for "eing an
ar"itrary exercise of govern!ent power. To rule in favor of appellant would contravene the general principle that revenues
derived fro! taxes cannot "e used for purely private purposes or for the exclusive "enefit of private individuals. ( Underscoring
supplied)cralawli"rary
The general rule is that an unconstitutional law is void@ the doctrine of operative fact is inapplica"le.
##* also argues that +ertiphil cannot see( a refund even if ,-* .o. %/01 is declared unconstitutional. *t "an(s on the doctrine of
operative fact, which provides that an unconstitutional law has an effect "efore "eing declared unconstitutional. ##* wants to
retain the levies paid under ,-* .o. %/01 even if it is su"se9uently declared to "e unconstitutional.
<e cannot agree. *t is settled that no 9uestion, issue or argu!ent will "e entertained on appeal, unless it has "een raised in the
court a 9uo.
12
##* did not raise the applica"ility of the doctrine of operative fact with the RTC and the C&. *t cannot "elatedly
raise the issue with Gs in order to extricate itself fro! the dire effects of an unconstitutional law.
&t any rate, <e find the doctrine inapplica"le. The general rule is that an unconstitutional law is void. *t produces no rights,
i!poses no duties and affords no protection. *t has no legal effect. *t is, in legal conte!plation, inoperative as if it has not "een
passed.
1/
:eing void, +ertiphil is not re9uired to pay the levy. &ll levies paid should "e refunded in accordance with the general
civil code principle against unjust enrich!ent. The general rule is supported "y &rticle = of the Civil Code, which provides7
&RT. =. ,aws are repealed only "y su"se9uent ones, and their violation or nonBo"servance shall not "e excused "y disuse or
custo! or practice to the contrary.
<hen the courts declare a law to "e inconsistent with the Constitution, the for!er shall "e void and the latter shall govern.
The doctrine of operative fact, as an exception to the general rule, only applies as a !atter of e9uity and fair play.
11
*t nullifies the
effects of an unconstitutional law "y recogni3ing that the existence of a statute prior to a deter!ination of unconstitutionality is an
operative fact and !ay have conse9uences which cannot always "e ignored. The past cannot always "e erased "y a new
judicial declaration.
10
cr;l;wvirtuali"r;ry
The doctrine is applica"le when a declaration of unconstitutionality will i!pose an undue "urden on those who have relied on the
invalid law. Thus, it was applied to a cri!inal case when a declaration of unconstitutionality would put the accused in dou"le
jeopardy
1=
or would put in li!"o the acts done "y a !unicipality in reliance upon a law creating it.
16
cr;l;wvirtuali"r;ry
Here, <e do not find anything ini9uitous in ordering ##* to refund the a!ounts paid "y +ertiphil under ,-* .o. %/01. *t unduly
"enefited fro! the levy. *t was proven during the trial that the levies paid were re!itted and deposited to its "an( account. Zuite
the reverse, it would "e ine9uita"le and unjust not to order a refund. To do so would unjustly enrich ##* at the expense of
+ertiphil. &rticle )) of the Civil Code explicitly provides that Hevery person who, through an act of perfor!ance "y another co!es
into possession of so!ething at the expense of the latter without just or legal ground shall return the sa!e to hi!.H <e cannot
allow ##* to profit fro! an unconstitutional law. 4ustice and e9uity dictate that ##* !ust refund the a!ounts paid "y +ertiphil.
<HERE+-RE, the petition is $E.*E$. The Court of &ppeals $ecision dated .ove!"er )6, )882 is &++*R'E$.
SO ORDERED.
G.R. N). 180.0/ N)0$12$r 2., 2012
EDARDO M. !O3ANG!O, 3R., #etitioner,
vs.
REP4LI! O" THE PHILIPPINES, Respondent.
$ E C * * - .
VELAS!O, 3R., J.:
The Case
-f the several coconut levy appealed cases that ste!!ed fro! certain issuances of the andigan"ayan in its Civil Case .o.
8822, the present recourse proves to "e one of the !ost difficult.
*n particular, the instant petition for review under Rule /1 of the Rules of Court assails and see(s to annul a portion of the #artial
u!!ary 4udg!ent dated 4uly %%, )882, as affir!ed in a Resolution of $ece!"er )6, )88/, "oth rendered "y the
andigan"ayan in its Civil Case (HCCH) .o. 8822B& (the judg!ent shall hereinafter "e referred to as H#4B&H), entitled HRepu"lic
of the #hilippines, #laintiff, v. Eduardo '. Cojuangco, 4r., et al., $efendants, C-C-+E$, et al., :&,,&RE, et al., Class &ction
'ovants.H CC .o. 8822B& is the result of the splitting into eight (6) a!ended co!plaints of CC .o. 8822 entitled, HRepu"lic of the
#hilippines v. Eduardo Cojuangco, 4r., et al.,H a suit for recovery of illBgotten wealth co!!enced "y the #residential Co!!ission
on >ood >overn!ent (H#C>>H), for the Repu"lic of the #hilippines (HRepu"licH), against Eduardo '. Cojuangco, 4r.
(HCojuangcoH) and several individuals, a!ong the!, +erdinand E. 'arcos, 'aria Clara ,o"regat (H,o"regatH), and $anilo .
Grsua (HGrsuaH). Each of the eight (6) su"divided co!plaints, CC .o. 8822B& to CC .o. 8822BH, correspondingly i!pleaded as
defendants only the alleged participants in the transactionIs su"ject of the suit, or who are averred as ownerIs of the assets
involved.
&part fro! this recourse, <e clarify right off that #4B& was challenged in two other separate "ut consolidated petitions for
review, one co!!enced "y C-C-+E$ et al., doc(eted as >.R. .os. %==61=B16, and the other, interposed "y $anilo . Grsua,
and doc(eted as >.R. .o. %=6%52.
:y $ecision dated 4anuary )/, )8%), in the aforesaid >.R. .os. %==61=B16 (C-C-+E$ et al. v. Repu"lic) and >.R. .o. %=6%52
(Grsua v. Repu"lic) consolidated cases
%
(hereinafter collectively referred to as HC-C-+E$ v. Repu"licH), the Court addressed
and resolved all (ey !atters elevated to it in relation to #4B&, except for the issues raised in the instant petition which have not
yet "een resolved therein. *n the sa!e decision, <e !ade clear that7 (%) #4B& is su"ject of another petition for review
interposed "y Eduardo Cojuangco, 4r., in >.R. .o. %68=81, entitled Eduardo '. Cojuangco, 4r. v. Repu"lic of the #hilippines,
which shall "e decided separately "y the Court,
)
and ()) the issues raised in the instant petition should not "e affected "y the
earlier decision Hsave for deter!inatively legal issues directly addressed therein.H
2
+or a "etter perspective, the instant recourse see(s to reverse the #artial u!!ary 4udg!ent
/
of the antiBgraft court dated 4uly
%%, )882, as reiterated in a Resolution
1
of $ece!"er )6, )88/, denying C-C-+E$[s !otion for reconsideration, and the 'ay %%,
)88= Resolution
0
denying
C-C-+E$[s !otion to set case for trial and declaring the partial su!!ary judg!ent final and appeala"le, all issued in #4B&. *n
our adverted 4anuary )/, )8%) $ecision in C-C-+E$ v. Repu"lic, we affir!ed with !odification #4B& of the andigan"ayan,
and its #artial u!!ary 4udg!ent in Civil Case .o. 8822B+, dated 'ay =, )88/ (hereinafter referred to as H#4B+[).
=
'ore specifically, <e upheld the andigan"ayan[s ruling that the coconut levy funds are special pu"lic funds of the >overn!ent.
Conse9uently, <e affir!ed the andigan"ayan[s declaration that ections % and ) of #residential $ecree (H#.$.H) =11, ection 2,
&rticle *** of #.$. 50% and ection 2, &rticle *** of #.$. %/06, as well as the pertinent i!ple!enting regulations of the #hilippine
Coconut &uthority (H#C&H), are unconstitutional for allowing the use andIor the distri"ution of properties ac9uired through the
coconut levy funds to private individuals for their own direct "enefit and a"solute ownership. The $ecision also affir!ed the
>overn!ent[s ownership of the six C**+ co!panies, the fourteen holding co!panies, and the C**+ "loc( of an 'iguel
Corporation shares of stoc(, for having li(ewise "een ac9uired using the coconut levy funds. &ccordingly, the properties su"ject
of the 4anuary )/, )8%) $ecision were declared owned "y and ordered reconveyed to the >overn!ent, to "e used only for the
"enefit of all coconut far!ers and for the develop!ent of the coconut industry.
:y Resolution of epte!"er /, )8%),
6
the Court affir!ed the a"oveBstated $ecision pro!ulgated on 4anuary )/, )8%).
*t "ears to stress at this juncture that the only portion of the appealed #artial u!!ary 4udg!ent dated 4uly %%, )882 (H#4B&H)
which re!ains at issue revolves around the following decretal holdings of that court relating to the Hco!pensationH paid to
petitioner for exercising his personal and exclusive option to ac9uire the +G:IGC#: shares.
5
*t will "e recalled that the
andigan"ayan declared the &gree!ent "etween the #C& and Cojuangco containing the assailed Hco!pensationH null and void
for not having the re9uired valua"le consideration. Conse9uently, the GC#: shares of stoc(s that are su"ject of the &gree!ent
were declared conclusively owned "y the >overn!ent. *t also held that the &gree!ent did not have the effect of law as it was not
pu"lished as part of #.$. =11, even if ection % thereof !ade reference to the sa!e.
+acts
<e reproduce, "elow, portions of the state!ent of facts in C-C-+E$ v. Repu"lic relevant to the present case7
%8
*n %5=%, Repu"lic &ct .o. (HR.&.H) 0)08 was enacted creating the Coconut *nvest!ent Co!pany (HC*CH) to ad!inister the
Coconut *nvest!ent +und (HC*+H), which, under ection 6 thereof, was to "e sourced fro! a #h# 8.11 levy on the sale of every
%88 (g. of copra. -f the #h# 8.11 levy of which the copra seller was \ or ought to "e \ issued C-C-+G.$ receipts, #h# 8.8)
was placed at the disposition of C-C-+E$, the national association of coconut producers declared "y the
#hilippine Coconut &d!inistration (H#H*,C-&H now H#C&H) as having the largest !e!"ership.
The declaration of !artial law in epte!"er %5=) saw the issuance of several presidential decrees (H#.$.H) purportedly designed
to i!prove the coconut industry through the collection and use of the coconut levy fund. <hile co!ing generally fro! i!positions
on the first sale of copra, the coconut levy fund ca!e under various na!es x x x. Charged with the duty of collecting and
ad!inistering the +und was #C&. ,i(e C-C-+E$ with which it had a legal lin(age, the #C&, "y statutory provisions scattered in
different coco levy decrees, had its share of the coco levy.
The following were so!e of the issuances on the coco levy, its collection and utili3ation, how the proceeds of the levy will "e
!anaged and "y who! and the purpose it was supposed to serve7
%. #.$. .o. )=0 esta"lished the Coconut Consu!ers ta"ili3ation +und (HCC+H) and declared the proceeds of the CC+ levy as
trust fund, to "e utili3ed to su"sidi3e the sale of coconutB"ased products, thus sta"ili3ing the price of edi"le oil.
). #.$. .o. 16) created the Coconut *ndustry $evelop!ent +und (HC*$+H) to finance the operation of a hy"rid coconut seed far!.
2. Then ca!e #.$. .o. =11 providing under its ection % the following7
*t is here"y declared that the policy of the tate is to provide readily availa"le credit facilities to the coconut far!ers at
preferential rates@ that this policy can "e expeditiously and efficiently reali3ed "y the i!ple!entation of the H&gree!ent for the
&c9uisition of a Co!!ercial :an( for the "enefit of Coconut +ar!ersH executed "y the #C&]@ and that the #C& is here"y
authori3ed to distri"ute, for free, the shares of stoc( of the "an( it ac9uired to the coconut far!ers].
Towards achieving the policy thus declared, #.$. .o. =11, under its ection ), authori3ed #C& to utili3e the CC+ and the C*$+
collections to ac9uire a co!!ercial "an( and deposit the CC+ levy collections in said "an( interest free, the deposit
withdrawa"le only when the "an( has attained a certain level of sufficiency in its e9uity capital. The sa!e section also decreed
that all levies #C& is authori3ed to collect shall not "e considered as special andIor fiduciary funds or for! part of the general
funds of the govern!ent within the conte!plation of #.$. .o. =%%.
/. #.$. .o. 50% codified the various laws relating to the develop!ent of coconutIpal! oil industries.
1. The relevant provisions of #.$. .o. 50%, as later a!ended "y #.$. .o. %/06 (Revised Coconut *ndustry Code), read7
&RT*C,E ***
,evies
ection %. Coconut Consu!ers ta"ili3ation +und ,evy. ^ The #C& is here"y e!powered to i!pose and collect ] the Coconut
Consu!ers ta"ili3ation +und ,evy, ].
].
ection 1. Exe!ption. ^ The CC+ and theC*$+ as well as all dis"urse!ents as herein authori3ed, shall not "e construed ] as
special andIor fiduciary funds, or as part of the general funds of the national govern!ent within the conte!plation of #$ =%%@ ]
the intention "eing that said +und and the dis"urse!ents thereof as herein authori3ed for the "enefit of the coconut far!ers shall
"e owned "y the! in their private capacities7 ]. (E!phasis supplied)
0. ,etter of *nstructions .o. (H,-*H) 5)0, s. of %5=5, !ade reference to the creation, out of other coco levy funds, of the Coconut
*ndustry *nvest!ent +und (HC**+H) in #.$. .o. %/06 and entrusted a portion of the C**+ levy to GC#: for invest!ent, on "ehalf of
coconut far!ers, in oil !ills and other private corporations, with the following e9uity ownership structure7
ection ). -rgani3ation of the Cooperative Endeavor. \ The GC#:, in its capacity as the invest!ent ar! of the coconut far!ers
thru the C**+ ] is here"y directed to invest, on "ehalf of the coconut far!ers, such portion of the C**+ ] in private corporations
] under the following guidelines7
a) The coconut far!ers shall own or control at least ] (18?) of the outstanding voting capital stoc( of the private corporation
ac9uired thru the C**+ andIor corporation owned or controlled "y the far!ers thru the C**+ ]. (<ords in "rac(et added.)
Through the years, a part of the coconut levy funds went directly or indirectly to finance various projects andIor was converted
into various assets or invest!ents.
%%
Relevant to the present petition is the ac9uisition of the +irst Gnited :an( (H+G:H), which
was su"se9uently rena!ed as Gnited Coconut #lanters :an( (HGC#:H).
%)
&propos the intended ac9uisition of a co!!ercial "an( for the purpose stated earlier, it would appear that +G: was the "an( of
choice which #edro Cojuangco[s group (collectively, H#edro CojuangcoH) had control of. The plan, then, was for #C& to "uy all of
#edro Cojuangco[s shares in +G:. However, as later events unfolded, a si!ple direct sale fro! the seller (#edro) to #C& did not
ensue as it was !ade to appear that Cojuangco had the exclusive option to ac9uire the for!er[s +G: controlling interests.
E!erging fro! this ela"orate, circuitous arrange!ent were two deeds. The first one was si!ply deno!inated as &gree!ent,
dated 'ay %5=1, entered into "y and "etween Cojuangco for and in his "ehalf and in "ehalf of Hcertain other "uyersH, and #edro
Cojuangco in which the for!er was purportedly accorded the option to "uy =).)? of +G:[s outstanding capital stoc(, or %2=,600
shares (the Hoption shares,H for "revity), at #h# )88 per share. -n its face, this agree!ent does not !ention the word Hoption.H
The second "ut related contract, dated 'ay )1, %5=1, was deno!inated as &gree!ent for the &c9uisition of a Co!!ercial :an(
for the :enefit of the Coconut +ar!ers of the #hilippines. *t had #C&, for itself and for the "enefit of the coconut far!ers,
purchase fro! Cojuangco the shares of stoc( su"ject of the +irst &gree!ent for #h#)88.88 per share. &s additional
consideration for #C&[s "uyBout of what Cojuangco would later clai! to "e his exclusive and personal option, it was stipulated
that, fro! #C&, Cojuangco shall receive e9uity in +G: a!ounting to %8?, or =.))?, of the =).)?, or fully paid shares. &nd so as
not to dilute Cojuangco[s e9uity position in +G:, later GC#:, the #C& agreed under paragraph 0 (") of the second agree!ent to
cede over to the for!er a nu!"er of fully paid +G: shares out of the shares it (#C&) underta(es to eventually su"scri"e. *t was
further stipulated that Cojuangco would act as "an( president for an extendi"le period of 1 years.
&part fro! the afore!entioned =).)?, #C& purchased fro! other +G: shareholders 0,12/ shares of which Cojuangco, as !ay
"e gathered fro! the records, got %8?..
<hile the 0/.56? portion of the option shares (=).)? \ =.))? _ 0/.56?) ostensi"ly pertained to the far!ers, the corresponding
stoc( certificates supposedly representing the far!ers[ e9uity were in the na!e of and delivered to #C&. There were, however,
shares for!ing part of the aforesaid 0/.56? portion, which ended up in the hands of nonBfar!ers. The re!aining )=.6? of the
+G: capital stoc( were not covered "y any of the agree!ents.
Gnder paragraph ` 6 of the second agree!ent, #C& agreed to expeditiously distri"ute the +G: shares purchased to such
Hcoconut far!ers holding registered C-C-+G.$ receiptsH on e9uita"le "asis.
&s found "y the andigan"ayan, the #C& appropriated, out of its own fund, an a!ount for the purchase of the said =).)? e9uity,
al"eit it would later rei!"urse itself fro! the coconut levy fund.
&nd per Cojuangco[s own ad!ission, #C& paid, out of the CC+, the entire ac9uisition price for the =).)? option shares.
%2
&s of 4une 28, %5=1, the list of +G: stoc(holders included Cojuangco with %/,//8 shares and #C& with %)5,511 shares.
%/
*t
would appear later that, pursuant to the stipulation on !aintaining Cojuangco[s e9uity position in the "an(, #C& would cede to
hi! %8? of its su"scriptions to (a) the authori3ed "ut unissued shares of +G: and (") the increase in +G:[s capital stoc( (the
e9uivalent of %16,6/8 and 0/5,688 shares, respectively). *n all, fro! the H!otherH #C& shares, Cojuangco would receive a total
of 51,28/ +G: (GC#:) shares "ro(en down as follows7 %/,//8 shares a %8? (%16,6/8 shares) a %8? (0/5,688 shares) _
51,28/.
%1
<e further 9uote, fro! C-C-+E$ v. Repu"lic, facts relevant to the instant case7
%0
hortly after the execution of the #C& \ Cojuangco &gree!ent, #resident 'arcos issued, on 4uly )5, %5=1, #.$. .o. =11
directing x x x as narrated, #C& to use the CC+ and C*$+ to ac9uire a co!!ercial "an( to provide coco far!ers with Hreadily
availa"le credit facilities at preferential rateH x x x.
Then ca!e the %560 E$& event. -ne of the priorities of then #resident Cora3on C. &9uino[s revolutionary govern!ent was the
recovery of illBgotten wealth reportedly a!assed "y the 'arcos fa!ily and close relatives, their no!inees and associates.
&propos thereto, she issued Executive -rder .os. (E-) %, ) and %/, as a!ended "y E.-. %/B&, all series of %560. E.-. %
created the #C>> and provided it with the tools and processes it !ay avail of in the recovery efforts@
%=
E.-. .o. ) asserted that
the illBgotten assets and properties co!e in the for! of shares of stoc(s, etc., while E.-. .o. %/ conferred on the andigan"ayan
exclusive and original jurisdiction over illBgotten wealth cases, with the proviso that Htechnical rules of procedure and evidence
shall not "e applied strictlyH to the civil cases filed under the E-. #ursuant to these issuances, the #C>> issued nu!erous
orders of se9uestration, a!ong which were those handed out x x x against shares of stoc( in GC#: purportedly owned "y or
registered in the na!es of (a) the !ore than a !illion coconut far!ers, (") the C**+ co!panies and (c) Cojuangco, 4r., including
the 'C shares held "y the C**+ co!panies. -n 4uly 2%, %56=, the #C>> instituted "efore the andigan"ayan a recovery suit
doc(eted thereat as CC .o. 8822.
x x x x
2. Civil Case 8822 x x x would "e su"divided into eight co!plaints, doc(eted as CC 8822B& to CC 8822BH.
x x x x
1. :y $ecision of $ece!"er %/, )88%, in >.R. .os. %/=80)B0/ (Repu"lic v. C-C-+E$),
%6
the Court declared the coco levy funds
as pri!a facie pu"lic funds. &nd purchased as the se9uestered GC#: shares were "y such funds, "eneficial ownership thereon
and the corollary voting rights pri!a facie pertain, according to the Court, to the govern!ent.
x x x x
Correlatively, the Repu"lic, on the strength of the $ece!"er %/, )88% ruling in Repu"lic v. C-C-+E$ and on the argu!ent,
a!ong others, that the clai! of C-C-+E$ and :allares et al., over the su"ject GC#: shares is "ased solely on the supposed
C-C-+G.$ receipts issued for pay!ent of the R& 0)08 C*+ levy, filed a 'otion for #artial u!!ary 4udg!ent RE7 C-C-+E$,
et al. and :allares, et al. dated &pril )), )88), praying that a su!!ary judg!ent "e rendered declaring7
a. That ection ) of D#$E =11, ection 1, &rticle *** of #.$. 50% and ection 1, &rticle *** of #.$. .o. %/06 are unconstitutional@
". That x x x (C*+) pay!ents under x x x (R.&.) .o. 0)08 are not valid and legal "ases for ownership clai!s over GC#: shares@
and
c. That C-C-+E$, et al., and :allares, et al. have not legally and validly o"tained title over the su"ject GC#: shares.
Right after it filed the 'otion for #artial u!!ary 4udg!ent RE7 C-C-+E$, et al. and :allares, et al., the Repu"lic interposed a
'otion for #artial u!!ary 4udg!ent Re7 Eduardo '. Cojuangco, 4r., praying that a su!!ary judg!ent "e rendered7
a. $eclaring that ection % of #.$. .o. =11 is unconstitutional insofar as it validates the provisions in the H#C&BCojuangco
&gree!ent x x xH dated 'ay )1, %5=1 providing pay!ent of ten percent (%8?) co!!ission to defendant Cojuangco with respect
to the +G:, now GC#: shares su"ject !atter thereof@
". $eclaring that x x x Cojuangco, 4r. and his fronts, no!inees and du!!ies, including x x x and $anilo . Grsua, have not
legally and validly o"tained title over the su"ject GC#: shares@ and
c. $eclaring that the govern!ent is the lawful and true owner of the su"ject GC#: shares registered in the na!es of ]
Cojuangco, 4r. and the entities and persons a"oveBenu!erated, for the "enefit of all coconut far!ers. x x x
+ollowing an exchange of pleadings, the Repu"lic filed its surBrejoinder praying that it "e conclusively declared the true and
a"solute owner of the coconut levy funds and the GC#: shares ac9uired therefro!.
%5
<e 9uote fro! C-C-+E$ v. Repu"lic7
)8
& joint hearing on the separate !otions for su!!ary judg!ent to deter!ine what !aterial facts exist with or without controversy
then ensued. :y -rder of 'arch %%, )882, the andigan"ayan detailed, "ased on this Court[s ruling in related illBgotten cases,
the parties[ !anifestations !ade in open court and the pleadings and evidence on record, the facts it found to "e without
su"stantial controversy, together with the ad!issions andIor extent of the ad!ission !ade "y the parties respecting relevant
facts, as follows7
&s culled fro! the exhaustive discussions and !anifestations of the parties in open court of their respective pleadings and
evidence on record, the facts which exist without any su"stantial controversy are set forth hereunder, together with the
ad!issions andIor the extent or scope of the ad!issions !ade "y the parties relating to the relevant facts7
%. The late #resident +erdinand E. 'arcos was #resident x x x for two ter!s under the %521 Constitution and, during the second
ter!, he declared 'artial ,aw through #rocla!ation .o. %86% dated epte!"er )%, %5=).
). -n 4anuary %=, %5=2, he issued #rocla!ation .o. %%8) announcing the ratification of the %5=2 Constitution.
2. +ro! 4anuary %=, %5=2 to &pril =, %56%, he x x x exercised the powers and prerogative of #resident under the %521
Constitution and the powers and prerogative of #resident x x x the %5=2 Constitution.
He x x x pro!ulgated various #.$.s, a!ong which were #.$. .o. )2), #.$. .o. )=0, #.$. .o. /%/, #.$. .o. =11, #.$. .o. 50% and
#.$. .o. %/06.
/. -n &pril %=, %56%, a!end!ents to the %5=2 Constitution were effected and, on 4une 28, %56%, he, after "eing elected
#resident, Hreassu!ed the title and exercised the powers of the #resident until )1 +e"ruary %560.H
1. $efendants 'aria Clara ,o"regat and 4ose R. Elea3ar, 4r. were #C& $irectors x x x during the period %5=8 to %560 x x x.
0. #laintiff ad!its the existence of the following agree!ents which are attached as &nnexes H&H and H:H to the -pposition dated
-cto"er %8, )88) of defendant Eduardo '. Cojuangco, 4r. to the a"oveBcited 'otion for #artial u!!ary 4udg!ent7
a) HThis &gree!ent !ade and entered into this bbbbbb day of 'ay, %5=1 at 'a(ati, Ri3al, #hilippines, "y and "etween7
#E$R- C-4G&.>C-, +ilipino, of legal age and with residence at %1=1 #rinceton t., 'andaluyong, Ri3al, for and in his own
"ehalf and in "ehalf of certain other stoc(holders of +irst Gnited :an( listed in &nnex H&H attached hereto (hereinafter collectively
called the E,,ER)@
\ and \
E$G&R$- C-4G&.>C-, 4R., +ilipino, of legal age and with residence at %20 5th treet corner :alete $rive, Zue3on City,
represented in this act "y his duly authori3ed attorneyBinBfact, E$>&R$- 4. &.>&R&, for and in his own "ehalf and in "ehalf of
certain other "uyers, (hereinafter collectively called the :GJER)H@
<*T.EETH7 That
<HERE&, the E,,ER own of record and "eneficially a total of %2=,600 shares of stoc(, with a par value of #%88.88 each, of
the co!!on stoc( of the +irst Gnited :an( (the H:an(H), a co!!ercial "an(ing corporation existing under the laws of the
#hilippines@
<HERE&, the :GJER desire to purchase, and the E,,ER are willing to sell, the afore!entioned shares of stoc( totaling
%2=,600 shares (hereinafter called the HContract haresH) owned "y the E,,ER due to their special relationship to E$G&R$-
C-4G&.>C-, 4R.@
.-<, THERE+-RE, for and in consideration of the pre!ises and the !utual covenants herein contained, the parties agree as
follows7
%. ale and #urchase of Contract hares
u"ject to the ter!s and conditions of this &gree!ent, the E,,ER here"y sell, assign, transfer and convey unto the :GJER,
and the :GJER here"y purchase and ac9uire, the Contract hares free and clear of all liens and encu!"rances thereon.
). Contract #rice
The purchase price per share of the Contract hares paya"le "y the :GJER is #)88.88 or an aggregate price of
#)=,1=2,)88.88 (the HContract #riceH).
2. $elivery of, and pay!ent for, stoc( certificates
Gpon the execution of this &gree!ent, (i) the E,,ER shall deliver to the :GJER the stoc( certificates representing the
Contract hares, free and clear of all liens, encu!"rances, o"ligations, lia"ilities and other "urdens in favor of the :an( or third
parties, duly endorsed in "lan( or with stoc( powers sufficient to transfer the shares to "earer@ and (ii) :GJER shall deliver to
the E,,ER #)=,1%%,)51.18 representing the Contract #rice less the a!ount of stoc( transfer taxes paya"le "y the E,,ER,
which the :GJER underta(e to re!it to the appropriate authorities. (E!phasis added.)
/. Representation and <arranties of ellers
The E,,ER respectively and independently of each other represent and warrant that7
(a) The E,,ER are the lawful owners of, with good !ar(eta"le title to, the Contract hares and that (i) the certificates to "e
delivered pursuant thereto have "een validly issued and are fully paid and nonBassessa"le@ (ii) the Contract hares are free and
clear of all liens, encu!"rances, o"ligations, lia"ilities and other "urdens in favor of the :an( or third parties x x x.
This representation shall survive the execution and delivery of this &gree!ent and the consu!!ation or transfer here"y
conte!plated.
(") The execution, delivery and perfor!ance of this &gree!ent "y the E,,ER does not conflict with or constitute any "reach
of any provision in any agree!ent to which they are a party or "y which they !ay "e "ound.
(c) They have co!plied with the condition set forth in &rticle L of the &!ended &rticles of *ncorporation of the :an(.
1. Representation of :GJER
x x x x
0. *!ple!entation
The parties hereto here"y agree to execute or cause to "e executed such docu!ents and instru!ents as !ay "e re9uired in
order to carry out the intent and purpose of this &gree!ent.
=. .otices
x x x x
*. <*T.E <HERE-+, the parties hereto have hereunto set their hands at the place and on the date first a"ove written.
#E$R- C-4G&.>C-
(on his own "ehalf and in
"ehalf of the other
listed in &nnex H&H hereof)
(E,,ER)
E$G&R$- C-4G&.>C-, 4R.
(on his own "ehalf and in "ehalf
ellers of the other :uyers)
(:GJER)
:y7
E$>&R$- 4. &.>&R&
&ttorneyBinB+act
x x x x
") H&gree!ent for the &c9uisition of a Co!!ercial :an( for the :enefit of the Coconut +ar!ers of the #hilippines, !ade and
entered into this )1th day of 'ay %5=1 at 'a(ati, Ri3al, #hilippines, "y and "etween7
E$G&R$- '. C-4G&.>C-, 4R., +ilipino, of legal age, with "usiness address at %8th +loor, i(atuna :uilding, &yala &venue,
'a(ati, Ri3al, hereinafter referred to as the E,,ER@
\ and \
#H*,*##*.E C-C-.GT &GTH-R*TJ, a pu"lic corporation created "y #residential $ecree .o. )2), as a!ended, for itself and
for the "enefit of the coconut far!ers of the #hilippines, (hereinafter called the :GJER)H
<*T.EETH7 That
<HERE&, on 'ay %=, %5=1, the #hilippine Coconut #roducers +ederation (H#C#+H), through its :oard of $irectors, expressed
the desire of the coconut far!ers to own a co!!ercial "an( which will "e an effective instru!ent to solve the perennial credit
pro"le!s and, for that purpose, passed a resolution re9uesting the #C& to negotiate with the E,,ER for the transfer to the
coconut far!ers of the E,,ER[s option to "uy the +irst Gnited :an( (the H:an(H) under such ter!s and conditions as :GJER
!ay dee! to "e in the "est interest of the coconut far!ers and instructed 'rs. 'aria Clara ,o"regat to convey such re9uest to
the :GJER@
<HERE&, the #C#+ further instructed 'rs. 'aria Clara ,o"regat to !a(e representations with the :GJER to utili3e its funds
to finance the purchase of the :an(@
<HERE&, the E,,ER has the exclusive and personal option to "uy %//,/88 shares (the H-ption haresH) of the :an(,
constituting =).)? of the present outstanding shares of stoc( of the :an(, at the price of #)88.88 per share, which option only
the E,,ER can validly exercise@
<HERE&, in response to the representations !ade "y the coconut far!ers, the :GJER has re9uested the E,,ER to
exercise his personal option for the "enefit of the coconut far!ers@
<HERE&, the E,,ER is willing to transfer the -ption hares to the :GJER at a price e9ual to his option price of #)88 per
share@
<HERE&, recogni3ing that ownership "y the coconut far!ers of a co!!ercial "an( is a per!anent solution to their perennial
credit pro"le!s, that it will accelerate the growth and develop!ent of the coconut industry and that the policy of the state which
the :GJER is re9uired to i!ple!ent is to achieve vertical integration thereof so that coconut far!ers will "eco!e participants in,
and "eneficiaries of the develop!ent and growth of the coconut industry, the :GJER approved the re9uest of #C#+ that it
ac9uire a co!!ercial "an( to "e owned "y the coconut far!ers and, appropriated, for that purpose, the su! of #%18 'illion to
ena"le the far!ers to "uy the :an( and capitali3e the :an( to such an extension as to "e in a position to adopt a credit policy for
the coconut far!ers at preferential rates@
<HERE&, x x x the :GJER is willing to su"scri"e to additional shares (Hu"scri"ed haresH) and place the :an( in a !ore
favora"le financial position to extend loans and credit facilities to coconut far!ers at preferential rates@
.-<, THERE+-RE, for and in consideration of the foregoing pre!ises and the other ter!s and conditions hereinafter
contained, the parties here"y declare and affir! that their principal contractual intent is (%) to ensure that the coconut far!ers
own at least 08? of the outstanding capital stoc( of the :an(@ and ()) that the E,,ER shall receive co!pensation for exercising
his personal and exclusive option to ac9uire the -ption hares, for transferring such shares to the coconut far!ers at the option
price of #)88 per share, and for perfor!ing the !anage!ent services re9uired of hi! hereunder.
%. To ensure that the transfer to the coconut far!ers of the -ption hares is effected with the least possi"le delay and to provide
for the faithful perfor!ance of the o"ligations of the parties hereunder, the parties here"y appoint the #hilippine .ational :an( as
their escrow agent (the HEscrow &gentH).
Gpon execution of this &gree!ent, the :GJER shall deposit with the Escrow &gent such a!ount as !ay "e necessary to
i!ple!ent the ter!s of this &gree!ent x x x.
). &s pro!ptly as practica"le after execution of this &gree!ent, the E,,ER shall exercise his option to ac9uire the -ption
hare and E,,ER shall i!!ediately thereafter deliver and turn over to the Escrow &gent such stoc( certificates as are herein
provided to "e received fro! the existing stoc(holders of the :an( "y virtue of the exercise on the afore!entioned option x x x.
2. To ensure the sta"ility of the :an( and continuity of !anage!ent and credit policies to "e adopted for the "enefit of the
coconut far!ers, the parties underta(e to cause the stoc(holders and the :oard of $irectors of the :an( to authori3e and
approve a !anage!ent contract "etween the :an( and the E,,ER under the following ter!s7
(a) The !anage!ent contract shall "e for a period of five (1) years, renewa"le for another five (1) years "y !utual agree!ent of
the E,,ER and the :an(@
(") The E,,ER shall "e elected #resident and shall hold office at the pleasure of the :oard of $irectors. <hile serving in such
capacity, he shall "e entitled to such salaries and e!olu!ents as the :oard of $irectors !ay deter!ine@
(c) The E,,ER shall recruit and develop a professional !anage!ent tea! to !anage and operate the :an( under the control
and supervision of the :oard of $irectors of the :an(@
(d) The :GJER underta(es to cause three (2) persons designated "y the E,,ER to "e elected to the :oard of $irectors of the
:an(@
(e) The E,,ER shall receive no co!pensation for !anaging the :an(, other than such salaries or e!olu!ents to which he !ay
"e entitled "y virtue of the discharge of his function and duties as #resident, provided x x x and
(f) The !anage!ent contract !ay "e assigned to a !anage!ent co!pany owned and controlled "y the E,,ER.
/. &s co!pensation for exercising his personal and exclusive option to ac9uire the -ption hares and for transferring such
shares to the coconut far!ers, as well as for perfor!ing the !anage!ent services re9uired of hi!, E,,ER shall receive e9uity
in the :an( a!ounting, in the aggregate, to 51,28/ fully paid shares in accordance with the procedure set forth in paragraph 0
"elow@
1. *n order to co!ply with the Central :an( progra! for increased capitali3ation of "an(s and to ensure that the :an( will "e in a
!ore favora"le financial position to attain its o"jective to extend to the coconut far!ers loans and credit facilities, the :GJER
underta(es to su"scri"e to shares with an aggregate par value of #68,60/,888 (the Hu"scri"ed haresH). The o"ligation of the
:GJER with respect to the u"scri"ed hares shall "e as follows7
(a) The :GJER underta(es to su"scri"e, for the "enefit of the coconut far!ers, to shares with an aggregate par value of
#%1,66/,888 fro! the present authori3ed "ut unissued shares of the :an(@ and
(") The :GJER underta(es to su"scri"e, for the "enefit of the coconut far!ers, to shares with an aggregate par value of
#0/,568,888 fro! the increased capital stoc( of the :an(, which su"scriptions shall "e dee!ed !ade upon the approval "y the
stoc(holders of the increase of the authori3ed capital stoc( of the :an( fro! #18 'illion to #%/8 'illion.
The parties underta(e to declare stoc( dividends of #6 'illion out of the present authori3ed "ut unissued capital stoc( of #28
'illion.
0. To carry into effect the agree!ent of the parties that the E,,ER shall receive as his co!pensation 51,28/ shares7
(a) The Escrow &gent shall, upon receipt fro! the E,,ER of the stoc( certificates representing the -ption hares, duly
endorsed in "lan( or with stoc( powers sufficient to transfer the sa!e to "earer, present such stoc( certificates to the Transfer
&gent of the :an( and shall cause such Transfer &gent to issue stoc( certificates of the :an( in the following ratio7 one share in
the na!e of the E,,ER for every nine shares in the na!e of the :GJER.
(") <ith respect to the u"scri"ed hares, the :GJER underta(es, in order to prevent the dilution of E,,ER[s e9uity position,
that it shall cede over to the E,,ER 0/,568 fullyBpaid shares out of the u"scri"ed hares. uch underta(ing shall "e co!plied
with in the following !anner7 upon receipt of advice that the :GJER has su"scri"ed to the u"scri"ed hares upon approval "y
the stoc(holders of the increase of the authori3ed capital stoc( of the :an(, the Escrow &gent shall thereupon issue a chec( in
favor of the :an( covering the total pay!ent for the u"scri"ed hares. The Escrow &gent shall thereafter cause the Transfer
&gent to issue a stoc( certificates of the :an( in the following ratio7 one share in the na!e of the E,,ER for every nine shares
in the na!e of the :GJER.
=. The parties further underta(e that the :oard of $irectors and !anage!ent of the :an( shall esta"lish and i!ple!ent a loan
policy for the :an( of !a(ing availa"le for loans at preferential rates of interest to the coconut far!ers x x x.
6. The :GJER shall expeditiously distri"ute fro! ti!e to ti!e the shares of the :an(, that shall "e held "y it for the "enefit of the
coconut far!ers of the #hilippines under the provisions of this &gree!ent, to such, coconut far!ers holding registered
C-C-+G.$ receipts on such e9uita"le "asis as !ay "e deter!ine "y the :GJER in its sound discretion.
5. x x x x
%8. To ensure that not only existing "ut future coconut far!ers shall "e participants in and "eneficiaries of the credit policies, and
shall "e entitled to the "enefit of loans and credit facilities to "e extended "y the :an( to coconut far!ers at preferential rates,
the shares held "y the coconut far!ers shall not "e entitled to preBe!ptive rights with respect to the unissued portion of the
authori3ed capital stoc( or any increase thereof.
%%. &fter the parties shall have ac9uired twoBthirds ()I2) of the outstanding shares of the :an(, the parties shall call a special
stoc(holders[ !eeting of the :an(7
(a) To classify the present authori3ed capital stoc( of #18,888,888 divided into 188,888 shares, with a par value of #%88.88 per
share into7 20%,888 Class & shares, with an aggregate par value of #20,%88,888 and %25,888 Class : shares, with an aggregate
par value of #%2,588,888. &ll of the -ption hares constituting =).)? of the outstanding shares, shall "e classified as Class &
shares and the "alance of the outstanding shares, constituting )=.6? of the outstanding shares, as Class : shares@
(") To a!end the articles of incorporation of the :an( to effect the following changes7
(i) change of corporate na!e to +irst Gnited Coconut :an(@
(ii) replace the present provision restricting the transfera"ility of the shares with a li!itation on ownership "y any individual or
entity to not !ore than %8? of the outstanding shares of the :an(@
(iii) provide that the holders of Class & shares shall not "e entitled to preBe!ptive rights with respect to the unissued portion of
the authori3ed capital stoc( or any increase thereof@ and
(iv) provide that the holders of Class : shares shall "e a"solutely entitled to preBe!ptive rights, with respect to the unissued
portion of Class : shares co!prising part of the authori3ed capital stoc( or any increase thereof, to su"scri"e to Class : shares
in proportion t the su"scriptions of Class & shares, and to pay for their su"scriptions to Class : shares within a period of five (1)
years fro! the call of the :oard of $irectors.
(c) To increase the authori3ed capital stoc( of the :an( fro! #18 'illion to #%/8 'illion, divided into %,8%8,688 Class & shares
and 265,)88 Class : shares, each with a par value of #%88 per share@
(d) To declare a stoc( dividend of #6 'illion paya"le to the E,,ER, the :GJER and other stoc(holders of the :an( out of the
present authori3ed "ut unissued capital stoc( of #28 'illion@
(e) To a!end the "yBlaws of the :an( accordingly@ and
(f) To authori3e and approve the !anage!ent contract provided in paragraph ) a"ove.
The parties agree that they shall vote their shares and ta(e all the necessary corporate action in order to carry into effect the
foregoing provisions of this paragraph %%, including such other a!end!ents of the articles of incorporation and "yBlaws of the
:an( as are necessary in order to i!ple!ent the intention of the parties with respect thereto.
%). *t is the conte!plation of the parties that the :an( shall achieve a financial and e9uity position to "e a"le to lend to the
coconut far!ers at preferential rates.
*n order to achieve such o"jective, the parties shall cause the :an( to adopt a policy of reinvest!ent, "y way of stoc( dividends,
of such percentage of the profits of the :an( as !ay "e necessary.
%2. The parties agree to execute or cause to "e executed such docu!ents and instru!ents as !ay "e re9uired in order to carry
out the intent and purpose of this &gree!ent.
*. <*T.E <HERE-+ x x x
#H*,*##*.E C-C-.GT &GTH-R*TJ
(:GJER)
:y7
E$G&R$- C-4G&.>C-, 4R.
(E,,ER)
'&R*& C,&R& ,. ,-:RE>&T
x x x x
=. $efendants ,o"regat, et al. and C-C-+E$, et al. and :allares, et al. ad!it that the x x x (#C&) was the Hother "uyersH
represented "y defendant Eduardo '. Cojuangco, 4r. in the 'ay %5=1 &gree!ent entered into "etween #edro Cojuangco (on his
own "ehalf and in "ehalf of other sellers listed in &nnex H&Hof the agree!ent) and defendant Eduardo '. Cojuangco, 4r. (on his
own "ehalf and in "ehalf of the other "uyers). $efendant Cojuangco insists he was the Honly "uyerH under the aforesaid
&gree!ent.
6. $efendant Eduardo '. Cojuangco, 4r. did not own any share in the x x x (+G:) prior to the execution of the two &gree!ents x
x x.
5. $efendants ,o"regat, et al., and C-C-+E$, et al., and :allares, et al. ad!it that in addition to the %2=,600 +G: shares of
#edro Cojuangco, et al. covered "y the &gree!ent, other +G: stoc(holders sold their shares to #C& such that the total nu!"er
of +G: shares purchased "y #C& ] increased fro! %2=,600 shares to %//,/88 shares, the -#T*-. H&RE referred to in the
&gree!ent of 'ay )1, %5=1. $efendant Cojuangco did not !a(e said ad!ission as to the said 0,12/ shares in excess of the
%2=,600 shares covered "y the &gree!ent with #edro Cojuangco.
%8. $efendants ,o"regat, et al. and C-C-+E$, et al. and :allares, et al. ad!it that the &gree!ent, descri"ed in ection % of
#residential $ecree (#.$.) .o. =11 dated 4uly )5, %5=1 as the H&gree!ent for the &c9uisition of a Co!!ercial :an( for the
:enefit of Coconut +ar!ersH executed "y the #hilippine Coconut &uthorityH and incorporated in ection % of #.$. .o. =11 "y
reference, refers to the H&>REE'E.T +-R THE &CZG**T*-. -+ & C-''ERC*&, :&.K +-R THE :E.E+*T -+ THE
C-C-.GT +&R'ER -+ THE #H*,*##*.EH dated 'ay )1, %5=1 "etween defendant Eduardo '. Cojuangco, 4r. and the #C&
(&nnex H:H for defendant Cojuangco[s -##-*T*-. T- #,&*.T*++[ '-T*-. +-R #&RT*&, G''&RJ 4G$>'E.T RE7
E$G&R$- '. C-4G&.>C-, 4R. dated epte!"er %6, )88)).
#laintiff refused to !a(e the sa!e ad!ission.
%%. &s to whether #.$. .o. =11 and the text of the agree!ent descri"ed therein was pu"lished, the Court ta(es judicial notice that
#.$. .o. =11 was pu"lished in x x x volu!e =% of the -fficial >a3ette "ut the text of the agree!ent x x x was not so pu"lished
with #.$. .o. =11.
%). $efendants ,o"regat, et al. and C-C-+E$, et al. and :allares, et al. ad!it that the #C& used pu"lic funds x x x in the total
a!ount of #%18 !illion, to purchase the +G: shares a!ounting to =).)? of the authori3ed capital stoc( of the +G:, although the
#C& was later rei!"ursed fro! the coconut levy funds and that the #C& su"scription in the increased capitali3ation of the +G:,
which was later rena!ed the x x x (GC#:), ca!e fro! the said coconut levy funds x x x.
%2. #ursuant to the 'ay )1, %5=1 &gree!ent, out of the =).)? shares of the authori3ed and the increased capital stoc( of the
+G: (later GC#:), entirely paid for "y #C&, 0/.56? of the shares were placed in the na!e of the H#C& for the "enefit of the
coconut far!ersH and =,))? were given to defendant Cojuangco. The re!aining )=.6? shares of stoc( in the +G: which later
"eca!e the GC#: were not covered "y the two ()) agree!ents referred to in ite! no. 0, par. (a) and (") a"ove. HThere were
shares for!ing part of the afore!entioned 0/.56? which were later sold or transferred to nonBcoconut far!ers.
%/. Gnder the 'ay )=, %5=1 &gree!ent, defendant Cojuangco[s e9uity in the +G: (now GC#:) was ten percent (%8?) of the
shares of stoc( ac9uired "y the #C& for the "enefit of the coconut far!ers.
%1. That the fully paid 51.28/ shares of the +G:, later the GC#:, ac9uired "y defendant x x x Cojuangco, 4r. pursuant to the 'ay
)1, %5=1 &gree!ent were paid for "y the #C& in accordance with the ter!s and conditions provided in the said &gree!ent. %0.
$efendants ,o"regat, et al. and C-C-+E$, et al. and :allares, et al. ad!it that the affidavits of the coconut far!ers (specifically,
Exhi"it H%B+ar!erH to H=8B+ar!erH) unifor!ly state that7
a. they are coconut far!ers who sold coconut products@
". in the sale thereof, they received C-C-+G.$ receipts pursuant to R.&. .o. 0)08@
c. they registered the said C-C-+G.$ receipts@ and
d. "y virtue thereof, and under R.&. .o. 0)08, #.$. .os. =11, 50% and %/06, they are allegedly entitled to the su"ject GC#:
shares.
"ut su"ject to the following 9ualifications7
a. there were other coconut far!ers who received GC#: shares although they did not present said C-C-+G.$ receipt "ecause
the #C& distri"uted the unclai!ed GC#: shares not only to those who already received their GC#: shares in exchange for their
C-C-+G.$ receipts "ut also to the coconut far!ers deter!ined "y a national census conducted pursuant to #C&
ad!inistrative issuances@
". there were other affidavits executed "y ,o"regat, Elea3ar, :allares and &ldeguer relative to the said distri"ution of the
unclai!ed GC#: shares@ and
c. the coconut far!ers clai! the GC#: shares "y virtue of their co!pliance not only with the laws !entioned in ite! (d) a"ove
"ut also with the relevant issuances of the #C& such as, #C& &d!inistrative -rder .o. %, dated &ugust )8, %5=1 (Exh. H)56B
+ar!erH)@ #C& Resolution .o. 822B=6 dated +e"ruary %0, %5=6].
The plaintiff did not !a(e any ad!ission as to the foregoing 9ualifications.
%=. $efendants ,o"regat, et al. and C-C-+E$, et al. and :allares, et al. clai! that the GC#: shares in 9uestion have
legiti!ately "eco!e the private properties of the %,/81,200 coconut far!ers solely on the "asis of their having ac9uired said
shares in co!pliance with R.&. .o. 0)08, #.$. .os. =11, 50% and %/06 and the ad!inistrative issuances of the #C& cited a"ove.
%6. -n the other hand, defendant ] Cojuangco, 4r. clai!s ownership of the GC#: shares, which he holds, solely on the "asis of
the two &gree!ents]. (E!phasis and words in "rac(ets added.)
-n 4uly %%, )882, the andigan"ayan issued the assailed #4B&, ruling in favor of the Repu"lic, disposing insofar as pertinent as
follows7
)%
<HERE+-RE, in view of the foregoing, we rule as follows7
x x x x
C. Re7 '-T*-. +-R #&RT*&, G''&RJ 4G$>'E.T (RE7 E$G&R$- '. C-4G&.>C-, 4R.) dated epte!"er %6, )88)
filed "y plaintiff.
%. ec. % of #.$. .o. =11 did not validate the &gree!ent "etween #C& and defendant Eduardo '. Cojuangco, 4r. dated 'ay )1,
%5=1 nor did it give the &gree!ent the "inding force of a law "ecause of the nonBpu"lication of the said &gree!ent.
). Regarding the 9uestioned transfer of the shares of stoc( of +G: (later GC#:) "y #C& to defendant Cojuangco or the soBcalled
HCojuangco GC#: sharesH which cost the #C& !ore than Ten 'illion #esos in CC+ in %5=1, we declare, that the transfer of the
following +G:IGC#: shares to defendant Eduardo '. Cojuangco, 4r. was not supported "y valua"le consideration, and therefore
null and void7
a. The %/,/88 shares fro! the H-ption haresH@
". &dditional :an( hares u"scri"ed and #aid "y #C&, consisting of7
%. +ifteen Thousand Eight Hundred EightyB+our (%1,66/) shares out of the authori3ed "ut unissued shares of the "an(,
su"scri"ed and paid "y #C&@
). ixty +our Thousand .ine Hundred Eighty (0/,568) shares of the increased capital stoc( su"scri"ed and paid "y #C&@ and
2. toc( dividends declared pursuant to paragraph 1 and paragraph %% (iv) (d) of the &gree!ent.
2. The a"oveB!entioned shares of stoc( of the +G:IGC#: transferred to defendant Cojuangco are here"y declared conclusively
owned "y the plaintiff Repu"lic of the #hilippines.
/. The GC#: shares of stoc( of the alleged fronts, no!inees and du!!ies of defendant Eduardo '. Cojuangco, 4r. which for!
part of the =).)? shares of the +G:IGC#: paid for "y the
#C& with pu"lic funds later charged to the coconut levy funds, particularly the CC+, "elong to the plaintiff Repu"lic of the
#hilippines as their true and "eneficial owner.
,et trial of this Civil Case proceed with respect to the issues which have not "een disposed of in this #artial u!!ary 4udg!ent.
+or this purpose, the plaintiff[s 'otion &d Cautela! to #resent
&dditional Evidence dated 'arch )6, )88% is here"y >R&.TE$.
))
(E!phasis and underlining added.)
&s earlier explained, the core issue in this instant petition is #art C of the dispositive portion in #4B& declaring the =.))? +G:
(now GC#:) shares transferred to Cojuangco, plus the other shares paid "y the #C& as HconclusivelyH owned "y the Repu"lic.
#arts & and : of the sa!e dispositive portion have already "een finally resolved and adjudicated "y this Court in C-C-+E$ v.
Repu"lic on 4anuary )/, )8%).
)2
+ro! #4B&, Cojuangco !oved for partial reconsideration "ut the andigan"ayan, "y Resolution
)/
of $ece!"er )6, )88/,
denied the !otion.
Hence, the instant petition.
The *ssues
Cojuangco[s petition for!ulates the issues in 9uestion for!, as follows7
)1
a. *s the ac9uisition of the soBcalled Cojuangco, 4r. GC#: shares "y petitioner Cojuangco x x x Hnot supported "y valua"le
consideration and, therefore, null and voidHc
". $id the andigan"ayan have jurisdiction, in Civil Case .o. 8822B&, an HillBgotten wealthH case "rought under E- .os. % and ),
to declare the Cojuangco GC#: shares ac9uired "y virtue of the #edro Cojuangco, et al. &gree!ent andIor the #C& &gree!ent
null and void "ecause Hnot supported "y valua"le considerationHc
c. <as the clai! that the ac9uisition "y petitioner Cojuangco of shares representing =.)? of the outstanding capital stoc( of +G:
(later GC#:) Hnot supported "y valua"le considerationH, a Hclai!H pleaded in the co!plaint and !ay therefore "e the "asis of a
Hsu!!ary judg!entH under ection %, Rule 21 of the Rules of Courtc
d. :y declaring the Cojuangco GC#: shares as Hnot supported "y valua"le consideration, and therefore, null and voidH, did the
andigan"ayan effectively nullify the #C& &gree!entc 'ay the andigan"ayan nullify the #C& &gree!ent when the parties to
the &gree!ent, na!ely7 x x x concede its validityc *f the #C& &gree!ent "e dee!ed Hnull and voidH, should not the +G: (later
GC#:) shares revert to petitioner Cojuangco (under the #C& &gree!ent) or to #edro Cojuangco, et al. x x xc <ould there "e a
"asis then, even assu!ing the a"sence of consideration x x x, to declare =.)? GC#: shares of petitioner Cojuangco as
Hconclusively owned "y the plaintiff Repu"lic of the #hilippinesHc
)0
The Court[s Ruling
*
THE &.$*>&.:&J&. H& 4GR*$*CT*-. -CER THE G:4ECT '&TTER -+ THE G:$*C*$E$ &'E.$E$
C-'#,&*.T, *.C,G$*.> THE H&RE &,,E>E$,J &CZG*RE$ :J C-4G&.>C- :J C*RTGE -+ THE #C&
&>REE'E.T.
The issue of jurisdiction over the su"ject !atter of the su"divided a!ended co!plaints has pere!ptorily "een put to rest "y the
Court in its 4anuary )/, )8%) $ecision in C-C-+E$ v. Repu"lic. There, the Court, citing Regalado
)=
and settled jurisprudence,
stressed the following interloc(ing precepts7 u"ject !atter jurisdiction is conferred "y law, not "y the consent or ac9uiescence of
any or all of the parties. *n turn, the issue on whether a suit co!es within the penu!"ra of a statutory confer!ent is deter!ined
"y the allegations in the co!plaint, regardless of whether or not the suitor will "e entitled to recover upon all or part of the clai!s
asserted.
The Repu"lic[s !aterial aver!ents in its co!plaint su"divided in CC .o. 8822B& included the following7
CC .o. 8822B&
%). $efendant Eduardo '. Cojuangco, 4r. served as a pu"lic officer during the 'arcos ad!inistration. $uring the period of his
incu!"ency as a pu"lic officer, he ac9uired assets, funds and other property grossly and !anifestly disproportionate to his
salaries, lawful inco!e and inco!e fro! legiti!ately ac9uired property.
%2. $efendant Eduardo '. Cojuangco, 4r., ta(ing undue advantage of his association, influence, connection, and acting in
unlawful concert with $efendants +erdinand E. 'arcos and *!elda R. 'arcos, &.$ THE *.$*C*$G&, $E+E.$&.T,
e!"ar(ed upon devices, sche!es and stratage!s, to unjustly enrich the!selves at the expense of #laintiff and the +ilipino
people, such as when he \
a) !anipulated, "eginning the year %5=1 with the active colla"oration of $efendants x x x 'aria Clara ,o"regat, $anilo Grsua
etc., the purchase "y . . . (#C&) of =).)? of the outstanding capital stoc( of the x x x (+G:) which was su"se9uently converted
into a universal "an( na!ed x x x (GC#:) through the use of the Coconut Consu!ers ta"ili3ation +und (CC+) "eing initially in
the a!ount of #61,==2,%88.88 in a !anner contrary to law and to the specific purposes for which said coconut levy funds were
i!posed and collected under #.$. )=0, and with sinister designs and under ano!alous circu!stances, to wit7
(i) $efendant Eduardo Cojuangco, 4r. coveted the coconut levy funds as a cheap, lucrative and ris(Bfree source of funds with
which to exercise his private option to "uy the controlling interest in +G:@ thus, clai!ing that the =).)? of the outstanding capital
stoc( of +G: could only "e purchased and transferred through the exercise of his Hpersonal and exclusive action option to
ac9uire the %//,888 sharesH of the "an(, $efendant Eduardo '. Cojuangco, 4r. and #C&, x x x executed on 'ay )0, %5=1 a
purchase agree!ent which provides, a!ong others, for the pay!ent to hi! in fully paid shares as co!pensation thereof 51,26/
shares worth #%,///,888.88 with the further condition that he shall !anage and control the "an( as $irector and #resident for a
ter! of five (1) years renewa"le for another five (1) years and to designate three (2) persons of his choice who shall "e elected
as !e!"ers of the :oard of $irectors of the :an(@
(ii) to legiti!i3e a posteriori his highly ano!alous and irregular use and diversion of govern!ent funds to advance his own private
and co!!ercial interests, $efendant Eduardo Cojuangco, 4r. caused the issuance "y $efendant +erdinand E. 'arcos of #$ =11
(a) declaring that the coconut levy funds shall not "e considered special and fiduciary and trust funds and do not for! part of the
general funds of the .ational >overn!ent, conveniently repealing for that purpose a series of previous decrees, #$s )=0 and
/%/, esta"lishing the character of the coconut levy funds as special, fiduciary, trust and govern!ental funds@ (") confir!ing the
agree!ent "etween $efendant Eduardo Cojuangco, 4r. and #C& on the purchase of +G: "y incorporating "y reference said
private co!!ercial agree!ent in #$ =11@
(iii)To further consolidate his hold on GC#:, $efendant Eduardo Cojuangco, 4r. i!posed as consideration and conditions for the
purchase that (a) he gets one out of every nine shares given to #C&, and (") he gets to !anage and control GC#: as president
for a ter! of five (1) years renewa"le for another five (1) years@
(iv) To perpetuate his opportunity to deal with and !a(e use of the coconut levy funds x x x Cojuangco, 4r. caused the issuance
"y $efendant +erdinand E. 'arcos of an unconstitutional decree (#$ %/06) re9uiring the deposit of all coconut levy funds with
GC#:, interest free to the prejudice of the govern!ent.
(v) *n gross violation of their fiduciary positions and in contravention of the goal to create a "an( for the coconut far!ers of the
country, the capital stoc( of GC#: as of +e"ruary )1, %560 was actually held "y the defendants, their lawyers, factotu! and
"usiness associates, there"y finally gaining control of the GC#: "y !isusing the na!es and identities of the soBcalled H!ore
than one !illion coconut far!ers.H
%/. The acts of $efendants, singly or collectively, andIor in unlawful concert with one another, constitute gross a"use of official
position and authority, flagrant "reach of pu"lic trust and fiduciary o"ligations, "ra3en a"use of right and power, and unjust
enrich!ent, violation of the constitution and laws of the Repu"lic of the #hilippines, to the grave and irrepara"le da!age of
#laintiff and the +ilipino people.
)6
*n no uncertain ter!s, the Court has upheld the andigan"ayan[s assu!ption of jurisdiction over the su"ject !atter of Civil Case
.os. 8822B& and 8822B+.
)5
The Court wrote7
4udging fro! the allegations of the defendants[ illegal acts thereat !ade, it is fairly o"vious that "oth CC .os. 8822B& and CC
8822B+ parta(e, in the context of E- .os. %, ) and %/, series of %560, the nature of illBgotten wealth suits. :oth deal with the
recovery of se9uestered shares, property or "usiness enterprises clai!ed, as alleged in the corresponding "asic co!plaints, to
"e illBgotten assets of #resident 'arcos, his cronies and no!inees and ac9uired "y ta(ing undue advantage of relationships or
influence andIor through or as a result of i!proper use, conversion or diversion of govern!ent funds or property. Recovery of
these assets\\deter!ined as shall hereinafter "e discussed as pri!a facie illBgotten\\falls within the un9uestiona"le jurisdiction
of the andigan"ayan.
28
#.$. .o. %080, as a!ended "y R.&. =5=1 and E.-. .o. %/, eries of %560, vests the andigan"ayan with, a!ong others, original
jurisdiction over civil and cri!inal cases instituted pursuant to and in connection with E.-. .os. %, ), %/ and %/B&. Correlatively,
the #C>> Rules and Regulations defines the ter! H*llB>otten <ealthH as Hany asset, property, "usiness enterprise or !aterial
possession of persons within the purview of E.-. .os. % and ), ac9uired "y the! directly, or indirectly thru du!!ies, no!inees,
agents, su"ordinates andIor "usiness associates "y any of the following !eans or si!ilar sche!esH7
(%) Through !isappropriation, conversion, !isuse or !alversation of pu"lic funds or raids on the pu"lic treasury@
()) x x x x
(2) :y the illegal or fraudulent conveyance or disposition of assets "elonging to the govern!ent or any of its su"divisions,
agencies or instru!entalities or govern!entBowned or controlled corporations@
(/) :y o"taining, receiving or accepting directly or indirectly any shares of stoc(, e9uity or any other for! of interest or
participation in any "usiness enterprise or underta(ing@
(1) Through the esta"lish!ent of agricultural, industrial or co!!ercial !onopolies or other co!"ination andIor "y the issuance,
pro!ulgation andIor i!ple!entation of decrees and orders intended to "enefit particular persons or special interests@ and
(0) :y ta(ing undue advantage of official position, authority, relationship or influence for personal gain or "enefit. (E!phasis
supplied)
ection )(a) of E.-. .o. % charged the #C>> with the tas( of assisting the #resident in HThe recovery of all illBgotten wealth
accu!ulated "y for!er ] #resident 'arcos, his i!!ediate fa!ily, relatives, su"ordinates and close associates ] including the
ta(eover or se9uestration of all "usiness enterprises and entities owned or controlled "y the!, during his ad!inistration, directly
or through no!inees, "y ta(ing undue advantage of their pu"lic office andIor using their powers, authority, influence, connections
or relationship.H Co!ple!enting the aforesaid ection )(a) is ection % of E.-. .o. ) decreeing the free3ing of all assets Hin
which the 'arcoses their close relatives, su"ordinates, "usiness associates, du!!ies, agents or no!inees have any interest or
participation.H
The Repu"lic[s aver!ents in the a!ended co!plaints, particularly those detailing the alleged wrongful acts of the defendants,
sufficiently reveal that the su"ject !atter thereof co!prises the recovery "y the >overn!ent of illBgotten wealth ac9uired "y then
#resident 'arcos, his cronies or their associates and du!!ies through the unlawful, i!proper utili3ation or diversion of coconut
levy funds aided "y #.$. .o. =11 and other sister decrees. #resident 'arcos hi!self issued these decrees in a "ra3en "id to
legali3e what a!ounts to private ta(ing of the said pu"lic funds.
x x x x
There was no actual need for Repu"lic, as plaintiff a 9uo, to adduce evidence to show that the andigan"ayan has jurisdiction
over the su"ject !atter of the co!plaints as it leaned on the aver!ents in the initiatory pleadings to !a(e visi"le the jurisdiction
of the andigan"ayan over the illBgotten wealth co!plaints. &s previously discussed, a perusal of the allegations easily reveals
the sufficiency of the state!ent of !atters disclosing the clai! of the govern!ent against the coco levy funds and the assets
ac9uired directly or indirectly through said funds as illBgotten wealth. 'oreover, the Court finds no rule that directs the plaintiff to
first prove the su"ject !atter jurisdiction of the court "efore which the co!plaint is filed. Rather, such "urden falls on the
shoulders of defendant in the hearing of a !otion to dis!iss anchored on said ground or a preli!inary hearing thereon when
such ground is alleged in the answer.
x x x x
,est it "e overloo(ed, this Court has already decided that the se9uestered shares are pri!a facie illBgotten wealth rendering the
issue of the validity of their se9uestration and of the jurisdiction of the andigan"ayan over the case "eyond dou"t. *n the case of
C-C-+E$ v. #C>>, <e stated that7
*t is of course not for this Court to pass upon the factual issues thus raised. That function pertains to the andigan"ayan in the
first instance. +or purposes of this proceeding, all that the Court needs to deter!ine is whether or not there is pri!a facie
justification for the se9uestration ordered "y the #C>>. The Court is satisfied that there is. The cited incidents, given the pu"lic
character of the coconut levy funds, place petitioners C-C-+E$ and its leaders and officials, at least pri!a facie, s9uarely
within the purview of Executive -rders .os. %, ) and %/, as construed and applied in :&EC-, to wit7
H%. that illBgotten properties (were) a!assed "y the leaders and supporters of the previous regi!e@
Ha. !ore particularly, that d(i) *llBgotten wealth was accu!ulated "y x x x 'arcos, his i!!ediate fa!ily, relatives, su"ordinates and
close associates, x x x (and) "usiness enterprises and entities (ca!e to "e) owned or controlled "y the!, during x x x (the
'arcos) ad!inistration, directly or through no!inees, "y ta(ing undue advantage of their pu"lic office and using their powers,
authority, influence, connections or relationships[@
H". otherwise stated, that dthere are assets and properties purportedly pertaining to the 'arcoses, their close relatives,
su"ordinates, "usiness associates, du!!ies, agents or no!inees which had "een or were ac9uired "y the! directly or
indirectly, through or as a result of the i!proper or illegal use of funds or properties owned "y the >overn!ent x x x or any of its
"ranches, instru!entalities, enterprises, "an(s or financial institutions, or "y ta(ing undue advantage of their office, authority,
influence, connections or relationship, resulting in their unjust enrich!ent x x x@
x x x x
). The petitioners[ clai! that the assets ac9uired with the coconut levy funds are privately owned "y the coconut far!ers is
founded on certain provisions of law, to wit ec. =, R& 0)08 and ec. 1, &rt. ***, #$ %/06] (<ords in "rac(et added@ italics in the
original).
x x x x
E.-. %, ), %/ and %/B&, it "ears to stress, were issued precisely to effect the recovery of illBgotten assets a!assed "y the
'arcoses, their associates, su"ordinates and cronies, or through their no!inees. :e that as it !ay, it stands to reason that
persons listed as associated with the 'arcoses refer to those in possession of such illBgotten wealth "ut holding the sa!e in
"ehalf of the actual, al"eit undisclosed owner, to prevent discovery and conse9uently recovery. Certainly, it is wellBnigh
inconceiva"le that illBgotten assets would "e distri"uted to and left in the hands of individuals or entities with o"vious tracea"le
connections to 'r. 'arcos and his cronies. The Court can ta(e, as it has in fact ta(en, judicial notice of sche!es and
!achinations that have "een put in place to (eep illBgotten assets under wraps. These would include the setting up of layers after
layers of shell or du!!y, "ut controlled, corporations
2%
or !anipulated instru!ents calculated to confuse if not altogether !islead
wouldB"e investigators fro! recovering wealth deceitfully a!assed at the expense of the people or si!ply the fruits thereof.
Transferring the illegal assets to third parties not readily perceived as 'arcos cronies would "e another. o it was that in #C>>
v. #ena, the Court, descri"ing the rule of 'arcos as a Hwell entrenched plundering regi!e of twenty years,H noted the !agnitude
of the past regi!e[s organi3ed pillage and the ingenuity of the plunderers and pillagers with the assistance of experts and the
"est legal !inds in the !ar(et.
2)
#rescinding fro! the foregoing pre!ises, there can no longer "e any serious challenge as to the andigan"ayan[s su"ject
!atter jurisdiction. &nd in connection therewith, the Court wrote in C-C-+E$ v. Repu"lic, that the instant petition shall "e
decided separately and should not "e affected "y the 4anuary )/, )8%) $ecision, Hsave for deter!inatively legal issues directly
addressedH therein.
22
Thus7
<e clarify that #4B& is su"ject of another petition for review interposed "y Eduardo Cojuangco, 4r., in >.R. .o. %68=81 entitled,
Eduardo '. Cojuangco, 4r. v. Repu"lic of the #hilippines, which shall "e decided separately "y this Court. aid petition should
accordingly not "e affected "y this $ecision save for deter!inatively legal issues directly addressed herein.
2/
(E!phasis -urs.)
<e, therefore, reiterate our holding in C-C-+E$ v. Repu"lic respecting the andigan"ayan[s jurisdiction over the su"ject !atter
of Civil Case .o. 8822B&, including those !atters whose adjudication <e shall resolve in the present case.
**
#RE,*'*.&R*,J, THE &>REE'E.T :ET<EE. THE #C& &.$ E$G&R$- '. C-4G&.>C-, 4R. $&TE$ '&J )1, %5=1
C&..-T :E &CC-R$E$ THE T&TG -+ & ,&< +-R THE ,&CK -+ THE REZG**TE #G:,*C&T*-..
*t will "e recalled that Cojuangco[s clai! of ownership over the GC#: shares is hinged on two contract docu!ents the respective
contents of which for!ed part of and reproduced in their entirety in the aforecited -rder
21
of the andigan"ayan dated 'arch %%,
)882. The first contract refers to the agree!ent entered into "y and "etween #edro Cojuangco and his group, on one hand, and
Eduardo '. Cojuangco, 4r., on the other, "earing date H'ay %5=1H
20
(hereinafter referred to as H#CBEC4 &gree!entH), while the
second relates to the accord "etween the #C& and Eduardo '. Cojuangco, 4r. dated 'ay )1, %5=1 (hereinafter referred to as
H#C&BCojuangco &gree!entH). The #CBEC4 &gree!ent allegedly contains, inter alia, Cojuangco[s personal and exclusive option
to ac9uire the +G: (HGC#:H) shares fro! #edro and his group. The #C&BCojuangco &gree!ent shows #C&[s ac9uisition of the
said option fro! Eduardo '. Cojuangco, 4r.
ection % of #.$. .o. =11 incorporated, "y reference, the H&gree!ent for the &c9uisition of a Co!!ercial :an( for the :enefit of
the Coconut +ar!ersH executed "y the #C&. #articularly, ection % states7
ection %. $eclaration of .ational #olicy. *t is here"y declared that the policy of the tate is to provide readily availa"le credit
facilities to the coconut far!ers at preferential rates@ that this policy can "e expeditiously and efficiently reali3ed "y the
i!ple!entation of the H&gree!ent for the &c9uisition of a Co!!ercial :an( for the "enefit of the Coconut +ar!ersH executed "y
the #hilippine Coconut &uthority, the ter!s of which H&gree!entH are here"y incorporated "y reference@ and that the #hilippine
Coconut &uthority is here"y authori3ed to distri"ute, for free, the shares of stoc( of the "an( it ac9uired to the coconut far!ers
under such rules and regulations it !ay pro!ulgate. (E!phasis -urs.)
*t "ears to stress at this point that the #C&BCojuangco &gree!ent referred to a"ove in ection % of #.$. =11 was not reproduced
or attached as an annex to the sa!e law. &nd it is wellBsettled that laws !ust "e pu"lished to "e valid. *n fact, pu"lication is an
indispensa"le condition for the effectivity of a law. TaPada v. Tuvera
2=
said as !uch7
#u"lication of the law is indispensa"le in every case x x x.
x x x x
<e note at this point the conclusive presu!ption that every person (nows the law, which of course presupposes that the law has
"een pu"lished if the presu!ption is to have any legal justification at all. *t is no less i!portant to re!e!"er that ection 0 of the
:ill of Rights recogni3es Hthe right of the people to infor!ation on !atters of pu"lic concern,H and this certainly applies to, a!ong
others, and indeed especially, the legislative enact!ents of the govern!ent.
x x x x
<e hold therefore that all statutes, including those of local application and private laws, shall "e pu"lished as a condition for their
effectivity, which shall "egin fifteen days after pu"lication unless a different effectivity date is fixed "y the legislature.
Covered "y this rule are presidential decrees and executive orders pro!ulgated "y the #resident in the exercise of legislative
powers whenever the sa!e are validly delegated "y the legislature, or, at present, directly conferred "y the Constitution.
&d!inistrative rules and regulations !ust also "e pu"lished if their purpose is to enforce or i!ple!ent existing law pursuant also
to a valid delegation.
26
<e even went further in TaPada to say that7
,aws !ust co!e out in the open in the clear light of the sun instead of s(ul(ing in the shadows with their dar(, deep secrets.
'ysterious pronounce!ents and ru!ored rules cannot "e recogni3ed as "inding unless their existence and contents are
confir!ed "y a valid pu"lication intended to !a(e full disclosure and give proper notice to the people. The furtive law is li(e a
sca""arded sa"er that cannot feint, parry or cut unless the na(ed "lade is drawn.
25
The pu"lication, as further held in TaPada, !ust "e of the full text of the law since the purpose of pu"lication is to infor! the
pu"lic of the contents of the law. 'ere referencing the nu!"er of the presidential decree, its title or wherea"outs and its
supposed date of effectivity would not satisfy the pu"lication re9uire!ent.
/8
*n this case, while it incorporated the #C&BCojuangco &gree!ent "y reference, ection % of #.$. =11 did not in any way
reproduce the exact ter!s of the contract in the decree. .either was acopy thereof attached to the decree when pu"lished. <e
cannot, therefore, extend to the said
&gree!ent the status of a law. Conse9uently, <e join the andigan"ayan in its holding that the #C&BCojuangco &gree!ent shall
"e treated as an ordinary transaction "etween agreeing !inds to "e governed "y contract law under the Civil Code.
***
THE #C&BC-4G&.>C- &>REE'E.T * & C&,*$ C-.TR&CT +-R H&C*.> THE REZG**TE C-.*$ER&T*-..
*n #4B&, the andigan"ayan struc( down the #C&BCojuangco &gree!ent as void for lac( of considerationIcause as re9uired
under &rticle %2%6, paragraph 2 in relation to &rticle %/85, paragraph 2 of the Civil Code. The andigan"ayan stated7
*n su!, the evidence on record relied upon "y defendant Cojuangco negates the presence of7 (%) his clai!ed personal and
exclusive option to "uy the %2=,600 +G: shares@ and ()) any pecuniary advantage to the govern!ent of the said option, which
could co!pensate for generous pay!ent to hi! "y #C& of valua"le shares of stoc(, as stipulated in the 'ay )1, %5=1
&gree!ent "etween hi! and the #C&.
/%
-n the other hand, the afore!entioned provisions of the Civil Code state7
&rt. %2%6. There is no contract unless the following re9uisites concur7
(%) Consent of the contracting parties@
()) -"ject certain which is the su"ject !atter of the contract@
(2) Cause of the o"ligation which is esta"lished. (E!phasis supplied)
/)
&rt. %/85. The following contracts are inexistent and void fro! the "eginning7
x x x x
(2) Those whose cause or o"ject did not exist at the ti!e of the transaction@
/2
The andigan"ayan found and so tagged the alleged cause for the agree!ent in 9uestion, i.e., Cojuangco[s Hpersonal and
exclusive option to ac9uire the -ption hares,H as fictitious. & reading of the purchase agree!ent "etween Cojuangco and #C&,
so the andigan"ayan ruled, would show that Cojuangco was not the only seller@ thus, the option was, as to hi!, neither
personal nor exclusive as he clai!ed it to "e. 'oreover, as the andigan"ayan deduced, that option was inexistent on the day of
execution of the #C&BCojuangco &gree!ent as the pecial #ower of &ttorney executed "y Cojuangco in favor of now enator
Edgardo 4. &ngara, for the latter to sign the #CBEC4 &gree!ent, was dated 'ay )1, %5=1 while the #C&BCojuangco &gree!ent
was also signed on 'ay )1, %5=1. Thus, the andigan"ayan "elieved that when the parties affixed their signatures on the
second &gree!ent, Cojuangco[s option to purchase the +G: shares of stoc( did not yet exist. The andigan"ayan further ruled
that there was no justification in the second &gree!ent for the co!pensation of Cojuangco of %/,/88 shares, which it viewed as
exor"itant. &dditionally, the andigan"ayan ruled that #C& could not validly enter, in "ehalf of +G:IGC#:, into a verita"le "an(
!anage!ent contract with Cojuangco, #C& having a personality separate and distinct fro! that of +G:. &s such, the
andigan"ayan concluded that the #C&BCojuangco &gree!ent was null and void. Correspondingly, the andigan"ayan also
ruled that the se9uestered +G: (GC#:) shares of stoc( in the na!e of Cojuangco are conclusively owned "y the Repu"lic.
&fter a circu!spect study, the Court finds as inconclusive the evidence relied upon "y andigan"ayan to support its ruling that
the #C&BCojuangco &gree!ent is devoid of sufficient consideration. <e shall explain.
Rule %2%, ection 2(r) of the Rules of Court states7
ec. 2. $isputa"le presu!ptions.^The following presu!ptions are satisfactory if uncontradicted, "ut !ay "e contradicted and
overco!e "y other evidence7
x x x x
(r) That there was a sufficient consideration for a contract@
The Court had the occasion to explain the reach of the a"ove provision in urtida v. Rural :an( of 'alinao (&l"ay), *nc.,
//
to wit7
Gnder ection 2, Rule %2% of the Rules of Court, the following are disputa"le presu!ptions7 (%) private transactions have "een
fair and regular@ ()) the ordinary course of "usiness has "een followed@ and (2) there was sufficient consideration for a contract. &
presu!ption !ay operate against an adversary who has not introduced proof to re"ut it. The effect of a legal presu!ption upon a
"urden of proof is to create the necessity of presenting evidence to !eet the legal presu!ption or the pri!a facie case created
there"y, and which if no proof to the contrary is presented and offered, will prevail. The "urden of proof re!ains where it is, "ut
"y the presu!ption, the one who has that "urden is relieved for the ti!e "eing fro! introducing evidence in support of the
aver!ent, "ecause the presu!ption stands in the place of evidence unless re"utted.
The presu!ption that a contract has sufficient consideration cannot "e overthrown "y the "are uncorro"orated and selfBserving
assertion of petitioners that it has no consideration. To overco!e the presu!ption of consideration, the alleged lac( of
consideration !ust "e shown "y preponderance of evidence. #etitioners failed to discharge this "urden x x x. (E!phasis -urs.)
The assu!ption that a!ple consideration is present in a contract is further elucidated in #entacapital *nvest!ent Corporation v.
'ahinay7
/1
Gnder &rticle %21/ of the Civil Code, it is presu!ed that consideration exists and is lawful unless the de"tor proves the contrary.
'oreover, under ection 2, Rule %2% of the Rules of Court, the following are disputa"le presu!ptions7 (%) private transactions
have "een fair and regular@ ()) the ordinary course of "usiness has "een followed@ and (2) there was sufficient consideration for a
contract. & presu!ption !ay operate against an adversary who has not introduced proof to re"ut it. The effect of a legal
presu!ption upon a "urden of proof is to create the necessity of presenting evidence to !eet the legal presu!ption or the pri!a
facie case created there"y, and which, if no proof to the contrary is presented and offered, will prevail. The "urden of proof
re!ains where it is, "ut "y the presu!ption, the one who has that "urden is relieved for the ti!e "eing fro! introducing evidence
in support of the aver!ent, "ecause the presu!ption stands in the place of evidence unless re"utted.
/0
(E!phasis supplied.)
The rule then is that the party who stands to profit fro! a declaration of the nullity of a contract on the ground of insufficiency of
consideration\\which would necessarily refer to one who asserts such nullity\\has the "urden of overthrowing the presu!ption
offered "y the afore9uoted ection 2(r). -"viously then, the presu!ption contextually operates in favor of Cojuangco and against
the Repu"lic, as plaintiff a 9uo, which then had the "urden to prove that indeed there was no sufficient consideration for the
econd &gree!ent. The andigan"ayan[s stated o"servation, therefore, that "ased on the wordings of the econd &gree!ent,
Cojuangco had no personal and exclusive option to purchase the +G: shares fro! #edro Cojuangco had really little to co!!end
itself for acceptance. This, as opposed to the fact that such sale and purchase agree!ent is !e!oriali3ed in a notari3ed
docu!ent where"y "oth Eduardo Cojuangco, 4r. and #edro Cojuangco attested to the correctness of the provisions thereof,
a!ong which was that Eduardo had such option to purchase. & notari3ed docu!ent, ,a3aro v. &gustin
/=
teaches, Hgenerally
carries the evidentiary weight conferred upon it with respect to its due execution, and docu!ents ac(nowledged "efore a notary
pu"lic have in their favor the disputa"le presu!ption of regularity.H
*n a!anilla v. Cajuco!,
/6
the Court clarified that the presu!ption of a valid consideration cannot "e discarded on a si!ple clai!
of a"sence of consideration, especially when the contract itself states that consideration was given7
x x x This presu!ption appellants cannot overco!e "y a si!ple assertion of lac( of consideration. Especially !ay not the
presu!ption "e so lightly set aside when the contract itself states that consideration was given, and the sa!e has "een reduced
into a pu"lic instru!ent will all due for!alities and sole!nities as in this case. (E!phasis ours.)
& perusal of the #C&BCojuangco &gree!ent disclosed an express state!ent of consideration for the transaction7
.-<, THERE+-RE, for and in consideration of the foregoing pre!ises and the other ter!s and conditions hereinafter
contained, the parties here"y declare and affir! that their principal contractual intent is (%) to ensure that the coconut far!ers
own at least 08? of the outstanding capital stoc( of the :an(, and ()) that the E,,ER shall receive co!pensation for exercising
his personal and exclusive option to ac9uire the -ption hares, for transferring such shares to the coconut far!ers at the option
price of #)88 per share, and for perfor!ing the !anage!ent services re9uired of hi! hereunder.
x x x x
/. &s co!pensation for exercising his personal and exclusive option to ac9uire the -ption hare&pplying a!anilla to the case
at "ar, the express and positive declaration "y the parties of the presence of ade9uate consideration in the contract !a(es
conclusive the presu!ption of sufficient consideration in the #C& &gree!ent. 'oreover, the option to purchase shares and
!anage!ent services for GC#: was already availed of "y petitioner Cojuangco for the "enefit of the #C&. The exercise of such
right resulted in the execution of the #CBEC4 &gree!ent, which fact is not disputed. The docu!ent itself is incontroverti"le proof
and hard evidence that petitioner Cojuangco had the right to purchase the su"ject +G: (now GC#:) shares. Res ipsa lo9uitur.
The andigan"ayan, however, pointed to the perceived Hlac( of any pecuniary value or advantage to the govern!ent of the said
option, which could co!pensate for the generous pay!ent to hi! "y #C& of valua"le shares of stoc(, as stipulated in the 'ay
)1, %5=1 &gree!ent "etween hi! and the #C&.H
/5
*nade9uacy of the consideration, however, does not render a contract void under &rticle %211 of the Civil Code7
&rt. %211. Except in cases specified "y law, lesion or inade9uacy of cause shall not invalidate a contract, unless there has "een
fraud, !ista(e or undue influence. (E!phasis supplied.)
&lsuaB:etts v. Court of &ppeals
18
is instructive that lac( of a!ple consideration does not nullify the contract7
*nade9uacy of consideration does not vitiate a contract unless it is proven which in the case at "ar was not, that there was fraud,
!ista(e or undue influence. (&rticle %211, .ew Civil Code). <e do not find the stipulated price as so inade9uate to shoc( the
court[s conscience, considering that the price paid was !uch higher than the assessed value of the su"ject properties and
considering that the sales were effected "y a father to her daughter in which case filial love !ust "e ta(en into account.
(E!phasis supplied.)s and for transferring such shares to the coconut far!ers, as well as for perfor!ing the !anage!ent
services re9uired of hi!, E,,ER shall receive e9uity in the :an( a!ounting, in the aggregate, to 51,28/ fully paid shares in
accordance with the procedure set forth in paragraph 0 "elow. (E!phasis supplied.)
Cales v. Cilla
1%
elucidates why a "ad transaction cannot serve as "asis for voiding a contract7
x x x Courts cannot follow one every step of his life and extricate hi! fro! "ad "argains, protect hi! fro! unwise invest!ents,
relieve hi! fro! oneBsided contracts, or annul the effects of foolish acts. x x x 'en !ay do foolish things, !a(e ridiculous
contracts, use !isera"le judg!ent, and lose !oney "y the! \ indeed, all they have in the world@ "ut not for that alone can the
law intervene and restore. There !ust "e, in addition, a violation of law, the co!!ission of what the law (nows as an actiona"le
wrong, "efore the courts are authori3ed to lay hold of the situation and re!edy it. (E!phasis ours.)
<hile one !ay posit that the #C&BCojuangco &gree!ent puts #C& and the coconut far!ers at a disadvantage, the facts do not
!a(e out a clear case of violation of any law that will necessitate the recall of said contract. *ndeed, the antiBgraft court has not
put forward any specific stipulation therein that is at war with any law, or the Constitution, for that !atter. *t is even clear as day
that none of the parties who entered into the two agree!ents with petitioner Cojuangco contested nor sought the nullification of
said agree!ents, !ore particularly the #C& who is always provided legal advice in said transactions "y the >overn!ent
corporate counsel, and a "attery of lawyers and presu!a"ly the C-& auditor assigned to said agency. & govern!ent agency, li(e
the #C&, stoops down to level of an ordinary citi3en when it enters into a private transaction with private individuals. *n this
setting, #C& is "ound "y the law on contracts and is "ound to co!ply with the ter!s of the #C&BCojuangco &gree!ent which is
the law "etween the parties. <ith the silence of #C& not to challenge the validity of the #C&BCojuangco &gree!ent and the
ina"ility of govern!ent to de!onstrate the lac( of a!ple consideration in the transaction, the Court is left with no other choice "ut
to uphold the validity of said agree!ents.
<hile consideration is usually in the for! of !oney or property, it need not "e !onetary. This is clear fro! &rticle %218 which
reads7
&rt. %218. *n onerous contracts the cause is understood to "e, for each contracting party, the prestation or pro!ise of a thing or
service "y the other@ in re!uneratory ones, the service or "enefit which is re!unerated@ and in contracts of pure "eneficence, the
!ere lia"ility of the "enefactor. (E!phasis supplied.)
>a"riel v. 'onte de #iedad y Caja de &horros
1)
tells us of the !eaning of consideration7
x x x & consideration, in the legal sense of the word, is so!e right, interest, "enefit, or advantage conferred upon the pro!isor, to
which he is otherwise not lawfully entitled, or any detri!ent, prejudice, loss, or disadvantage suffered or underta(en "y the
pro!isee other than to such as he is at the ti!e of consent "ound to suffer. (E!phasis -urs.)
The Court rules that the transfer of the su"ject GC#: shares is clearly supported "y valua"le consideration.
To justify the nullification of the #C&BCojuangco &gree!ent, the andigan"ayan centered on the alleged i!aginary option
clai!ed "y petitioner to "uy the +G: shares fro! the #edro Cojuangco group. *t relied on the phrase Hin "ehalf of certain other
"uyersH !entioned in the #CBEC4 &gree!ent as "asis for the finding that petitioner[s option is neither personal nor exclusive.
The pertinent portion of said agree!ent reads7
E$G&R$- C-4G&.>C-, 4R., +ilipino, of legal age and with residence at %20 5th treet corner :alete $rive, Zue3on City,
represented in this act "y his duly authori3ed attorneyBinBfact, E$>&R$- 4. &.>&R&, for and in his own "ehalf and in "ehalf of
certain other "uyers, (hereinafter collectively called the H:GJERH)@ x x x.
& plain reading of the afore9uoted description of petitioner as a party to the #CBEC4 &gree!ent reveals that petitioner is not only
the "uyer. He is the na!ed "uyer and there are other "uyers who were unna!ed. This is clear fro! the word H:GJER.H *f
petitioner is the only "uyer, then his description as a party to the sale would only "e H:GJER.H *t !ay "e true that petitioner
intended to include other "uyers. The fact re!ains, however, that the identities of the unna!ed "uyers were not revealed up to
the present day. <hile one can conjure or speculate that #C& !ay "e one of the "uyers, the fact that #C& entered into an
agree!ent to purchase the +G: shares with petitioner !ilitates against such conjecture since there would "e no need at all to
enter into the second agree!ent if #C& was already a "uyer of the shares in the first contract. *t is only the parties to the #CBEC4
&gree!ent that can plausi"ly shed light on the i!port of the phrase Hcertain other "uyersH "ut, unfortunately, petitioner was no
longer allowed to testify on the !atter and was precluded fro! explaining the transactions "ecause of the !otion for partial
su!!ary judg!ent and the eventual pro!ulgation of the 4uly %%, )882 #artial u!!ary 4udg!ent.
Even if conceding for the sa(e of argu!ent that #C& is one of the "uyers of the +G: shares in the #CBEC4 &gree!ent, still it
does not necessarily follow that petitioner had no option to "uy said shares fro! the group of #edro Cojuangco. *n fact, the very
execution of the first agree!ent undenia"ly shows that he had the rights or option to "uy said shares fro! the #edro Cojuangco
group. -therwise, the #CBEC4 &gree!ent could not have "een consu!!ated and enforced. The conclusion is incontesta"le that
petitioner indeed had the right or option to "uy the +G: shares as "uttressed "y the execution and enforce!ent of the very
docu!ent itself.
<e can opt to treat the #CBEC4 &gree!ent as a totally separate agree!ent fro! the #C&BCojuangco &gree!ent "ut it will not
detract fro! the fact that petitioner actually ac9uired the rights to the ownership of the +G: shares fro! the #edro Cojuangco
group. The conse9uence is he can legally sell the shares to #C&. *n this scenario, he would resell the shares to #C& for a profit
and #C& would still end up paying a higher price for the +G: shares. The HprofitH that will accrue to petitioner !ay just "e e9ual
to the value of the shares that were given to petitioner as co!!ission. till we can only speculate as to the true intentions of the
parties. <ithout any evidence adduced on this issue, the Court will not venture on any unproven conclusion or finding which
should "e avoided in judicial adjudication.
The antiBgraft court also inferred fro! the date of execution of the special power of attorney in favor of now enator Edgardo 4.
&ngara, which is 'ay )1, %5=1, that the #CBEC4 &gree!ent appears to have "een executed on the sa!e day as the #C&B
Cojuangco &gree!ent (dated 'ay )1, %5=1). The coincidence on the dates casts Hdou"ts as to the existence of defendant
Cojuangco[s prior dpersonal and exclusive[ option to the +G: shares.H
The fact that the execution of the #& and the #C&BCojuangco &gree!ent occurred se9uentially on the sa!e day cannot,
without !ore, "e the "asis for the conclusion as to the nonBexistence of the option of petitioner. uch conjecture cannot prevail
over the fact that without petitioner Cojuangco, none of the two agree!ents in 9uestion would have "een executed and
i!ple!ented and the +G: shares could not have "een successfully conveyed to #C&.
&gain, only the parties can explain the reasons "ehind the execution of the two agree!ents and the #& on the sa!e day. They
were, however, precluded fro! elucidating the reasons "ehind such occurrence. *n the a"sence of such illu!inating proof, the
proposition that the option does not exist has no leg to stand on.
'ore i!portantly, the fact that the #CBEC4 &gree!ent was executed not earlier than 'ay )1, %5=1 proves that petitioner
Cojuangco had an option to "uy the +G: shares prior to that date. &gain, it !ust "e e!phasi3ed that fro! its ter!s, the first
&gree!ent did not create the option.*t, however, proved the exercise of the option "y petitioner.
The execution of the #CBEC4 &gree!ent on the sa!e day as the #C&BCojuangco &gree!ent !ore than satisfies paragraph )
thereof which re9uires petitioner to exercise his option to purchase the +G: shares as pro!ptly as practica"le after, and not
"efore, the execution of the second agree!ent, thus7
). &s pro!ptly as practica"le after execution of this &gree!ent, the E,,ER shall exercise his option to ac9uire the -ption
hares and E,,ER shall i!!ediately thereafter deliver and turn over to the Escrow &gent such stoc( certificates as are herein
provided to "e received fro! the existing stoc(holders of the "an( "y virtue of the exercise on the afore!entioned option. The
Escrow &gent shall thereupon issue its chec( in favor of the E,,ER covering the purchase price for the shares delivered.
(E!phasis supplied.)
The andigan"ayan viewed the co!pensation of petitioner of %/,/88 +G: shares as exor"itant. *n the a"sence of proof to the
contrary and considering the a"sence of any co!plaint of illegality or fraud fro! any of the contracting parties, then the
presu!ption that Hprivate transactions have "een fair and regularH
12
!ust apply.
,astly, respondent interjects the thesis that #C& could not validly enter into a "an( !anage!ent agree!ent with petitioner since
#C& has a personality separate and distinct fro! that of +G:. Evidently, it is #C& which has the right to challenge the
stipulations on the !anage!ent contract as unenforcea"le. However, #C& chose not to assail said stipulations and instead even
co!plied with and i!ple!ented its prestations contained in said stipulations "y installing petitioner as Chair!an of GC#:. Thus,
#C& has waived and forfeited its right to nullify said stipulations and is now estopped fro! 9uestioning the sa!e.
*n view of the foregoing, the Court is left with no option "ut to uphold the validity of the two agree!ents in 9uestion.
*C
C-4G&.>C- * .-T E.T*T,E$ T- THE GC#: H&RE <H*CH <ERE :-G>HT <*TH #G:,*C +G.$ &.$ HE.CE, &RE
#G:,*C #R-#ERTJ.
The coconut levy funds were exacted for a
special pu"lic purpose. Conse9uently, any
use or transfer of the funds that directly
"enefits private individuals should "e
invalidated.
The issue of whether or not taxpayers[ !oney, or funds and property ac9uired through the i!position of taxes !ay "e used to
"enefit a private individual is once again posed. #reli!inarily, the instant case in9uires whether the coconut levy funds, and
accordingly, the GC#: shares ac9uired using the coconut levy funds are pu"lic funds. *ndeed, the very sa!e issue too( center
stage, discussed and was directly addressed in C-C-+E$ v. Repu"lic. &nd there is hardly any 9uestion a"out the su"ject funds[
pu"lic and special character. The following excerpts fro! C-C-+E$ v. Repu"lic,
1/
citing Repu"lic v. C-C-+E$ and related
cases, settle once and for all this core, deter!inative issue7
*ndeed, <e have hitherto discussed, the coconut levy was i!posed in the exercise of the tate[s inherent power of taxation. &s
<e wrote in Repu"lic v. C-C-+E$7
*ndeed, coconut levy funds parta(e of the nature of taxes, which, in general, are enforced proportional contri"utions fro! persons
and properties, exacted "y the tate "y virtue of its sovereignty for the support of govern!ent and for all pu"lic needs.
:ased on its definition, a tax has three ele!ents, na!ely7 a) it is an enforced proportional contri"ution fro! persons and
properties@ ") it is i!posed "y the tate "y virtue of its sovereignty@ and c) it is levied for the support of the govern!ent. The
coconut levy funds fall s9uarely into these ele!ents for the following reasons7
(a) They were generated "y virtue of statutory enact!ents i!posed on the coconut far!ers re9uiring the pay!ent of prescri"ed
a!ounts. Thus, #$ .o. )=0, which created the ] (CC+), !andated the following7
Ha. & levy, initially, of #%1.88 per %88 (ilogra!s of copra resecada or its e9uivalent in other coconut products, shall "e i!posed
on every first sale, in accordance with the !echanics esta"lished under R& 0)08, effective at the start of "usiness hours on
&ugust %8, %5=2.
HThe proceeds fro! the levy shall "e deposited with the #hilippine .ational :an( or any other govern!ent "an( to the account of
the Coconut Consu!ers ta"ili3ation +und, as a separate trust fund which shall not for! part of the general fund of the
govern!ent.H
The coco levies were further clarified in a!endatory laws, specifically #$ .o. 50% and #$ .o. %/06 \ in this wise7
HThe &uthority (#C&) is here"y e!powered to i!pose and collect a levy, to "e (nown as the Coconut Consu!ers ta"ili3ation
+und ,evy, on every one hundred (ilos of copra resecada, or its e9uivalent ] delivered to, andIor purchased "y, copra
exporters, oil !illers, desiccators and other endBusers of copra or its e9uivalent in other coconut products. The levy shall "e paid
"y such copra exporters, oil !illers, desiccators and other endBusers of copra or its e9uivalent in other coconut products under
such rules and regulations as the &uthority !ay prescri"e. Gntil otherwise prescri"ed "y the &uthority, the current levy "eing
collected shall "e continued.H
,i(e other tax !easures, they were not voluntary pay!ents or donations "y the people. They were enforced contri"utions
exacted on pain of penal sanctions, as provided under #$ .o. )=07
H2. &ny person or fir! who violates any provision of this $ecree or the rules and regulations pro!ulgated thereunder, shall, in
addition to penalties already prescri"ed under existing ad!inistrative and special law, pay a fine of not less than #), 188 or !ore
than #%8,888, or suffer cancellation of licenses to operate, or "oth, at the discretion of the Court.H
uch penalties were later a!ended thus7 ].
(") The coconut levies were i!posed pursuant to the laws enacted "y the proper legislative authorities of the tate. *ndeed, the
CC+ was collected under #$ .o. )=0, ].H
(c) They were clearly i!posed for a pu"lic purpose. There is a"solutely no 9uestion that they were collected to advance the
govern!ent[s avowed policy of protecting the coconut industry.
This Court ta(es judicial notice of the fact that the coconut industry is one of the great econo!ic pillars of our nation, and
coconuts and their "yproducts occupy a leading position a!ong the country[s export products@ ].
Taxation is done not !erely to raise revenues to support the govern!ent, "ut also to provide !eans for the reha"ilitation and the
sta"ili3ation of a threatened industry, which is so affected with pu"lic interest as to "e within the police power of the tate ].
Even if the !oney is allocated for a special purpose and raised "y special !eans, it is still pu"lic in character]. *n Cocofed v.
#C>>, the Court o"served that certain agencies or enterprises Hwere organi3ed and financed with revenues derived fro!
coconut levies i!posed under a succession of law of the late dictatorship ] with deposed +erdinand 'arcos and his cronies as
the suspected authors and chief "eneficiaries of the resulting coconut industry !onopoly.H The Court continued7 H]. *t cannot "e
denied that the coconut industry is one of the !ajor industries supporting the national econo!y. *t is, therefore, the tate[s
concern to !a(e it a strong and secure source not only of the livelihood of a significant seg!ent of the population, "ut also of
export earnings the sustained growth of which is one of the i!peratives of econo!ic sta"ility. (E!phasis -urs.)
The following parallel doctrinal lines fro! #a!"ansang Koalisyon ng !ga a!ahang 'agsasa(a at 'anggagawa sa .iyugan
(#K''.) v. Executive ecretary
11
ca!e next7
The Court was satisfied that the cocoBlevy funds were raised pursuant to law to support a proper govern!ental purpose. They
were raised with the use of the police and taxing powers of the tate for the "enefit of the coconut industry and its far!ers in
general. The C-& reviewed the use of the funds. The :ureau of *nternal Revenue (:*R) treated the! as pu"lic funds and the
very laws governing coconut levies recogni3e their pu"lic character.
The Court has also recently declared that the cocoBlevy funds are in the nature of taxes and can only "e used for pu"lic purpose.
Taxes are enforced proportional contri"utions fro! persons and property, levied "y the tate "y virtue of its sovereignty for the
support of the govern!ent and for all its pu"lic needs. Here, the cocoBlevy funds were i!posed pursuant to law, na!ely, R.&.
0)08 and #.$. )=0. The funds were collected and !anaged "y the #C&, an independent govern!ent corporation directly under
the #resident. &nd, as the respondent pu"lic officials pointed out, the pertinent laws used the ter! levy, which !eans to tax, in
descri"ing the exaction.
-f course, unli(e ordinary revenue laws, R.&. 0)08 and #.$. )=0 did not raise !oney to "oost the govern!ent[s general funds
"ut to provide !eans for the reha"ilitation and sta"ili3ation of a threatened industry, the coconut industry, which is so affected
with pu"lic interest as to "e within the police power of the tate. The funds sought to support the coconut industry, one of the
!ain econo!ic "ac("ones of the country, and to secure econo!ic "enefits for the coconut far!ers and far wor(ers. The su"ject
laws are a(in to the sugar liens i!posed "y ec. =(") of #.$. 266, and the oil price sta"ili3ation funds under #.$. %510, as
a!ended "y E.-. %2=.
+ro! the foregoing, it is at once apparent that any property ac9uired "y !eans of the coconut levy funds, such as the su"ject
GC#: shares, should "e treated as pu"lic funds or pu"lic property, su"ject to the "urdens and restrictions attached "y law to
such property. C-C-+E$ v. Repu"lic, delved into such li!itations, thusly7
<e have ruled ti!e and again that taxes are i!posed only for a pu"lic purpose. HThey cannot "e used for purely private
purposes or for the exclusive "enefit of private persons.H <hen a law i!poses taxes or levies fro! the pu"lic, with the intent to
give undue "enefit or advantage to private persons, or the pro!otion of private enterprises, that law cannot "e said to satisfy the
re9uire!ent of pu"lic purpose. *n >aston v. Repu"lic #lanters :an(, the petitioning sugar producers, sugarcane planters and
!illers sought the distri"ution of the shares of stoc( of the Repu"lic #lanters :an( (R#:), alleging that they are the true
"eneficial owners thereof. *n that case, the invest!ent, i.e., the purchase of R#:, was funded "y the deduction of #h# %.88 per
picul fro! the sugar proceeds of the sugar producers pursuant to #.$. .o. 266. *n ruling against the petitioners, the Court held
that to rule in their favor would contravene the general principle that revenues received fro! the i!position of taxes or levies
Hcannot "e used for purely private purposes or for the exclusive "enefit of private persons.H The Court a!ply reasoned that the
sugar sta"ili3ation fund is to H"e utili3ed for the "enefit of the entire sugar industry, and all its co!ponents, sta"ili3ation of the
do!estic !ar(et including foreign !ar(et, the industry "eing of vital i!portance to the country[s econo!y and to national
interest.H
i!ilarly in this case, the coconut levy funds were sourced fro! forced exactions decreed under #.$. .os. )2), )=0 and 16),
a!ong others, with the endBgoal of developing the entire coconut industry. Clearly, to hold therefore, even "y law, that the
revenues received fro! the i!position of the coconut levies "e used purely for private purposes to "e owned "y private
individuals in their private capacity and for their "enefit, would contravene the rationale "ehind the i!position of taxes or levies.
.eedless to stress, courts do not, as they cannot, allow "y judicial fiat the conversion of special funds into a private fund for the
"enefit of private individuals. *n the sa!e vein, <e cannot su"scri"e to the idea of what appears to "e an indirect \ if not exactly
direct \ conversion of special funds into private funds, i.e., "y using special funds to purchase shares of stoc(s, which in turn
would "e distri"uted for free to private individuals. Even if these private individuals "elong to, or are a part of the coconut
industry, the free distri"ution of shares of stoc(s purchased with special pu"lic funds to the!, nevertheless cannot "e justified.
The ratio in >aston, as articulated "elow, applies !utatis !utandis to this case7
The sta"ili3ation fees in 9uestion are levied "y the tate ] for a special purpose \ that of Hfinancing the growth and develop!ent
of the sugar industry and all its co!ponents, sta"ili3ation of the do!estic !ar(et including the foreign !ar(et.H The fact that the
tate has ta(en possession of !oneys pursuant to law is sufficient to constitute the! as state funds even though they are held
for a special purpose].
That the fees were collected fro! sugar producers etc., and that the funds were channeled to the purchase of shares of stoc( in
respondent :an( do not convert the funds into a trust fund for their "enefit nor !a(e the! the "eneficial owners of the shares so
purchased. *t is "ut rational that the fees "e collected fro! the! since it is also they who are "enefited fro! the expenditure of
the funds derived fro! it. ].
10
*n this case, the coconut levy funds were "eing exacted fro! copra exporters, oil !illers, desiccators and other endBusers of
copra or its e9uivalent in other coconut products.
1=
,i(ewise so, the funds here were channeled to the purchase of the shares of
stoc( in GC#:. $rawing a clear parallelis! "etween >aston and this case, the fact that the coconut levy funds were collected
fro! the persons or entities in the coconut industry, a!ong others, does not and cannot entitle the! to "e "eneficial owners of
the su"ject funds \ or !ore "luntly, owners thereof in their private capacity. #arenthetically, the said private individuals cannot
own the GC#: shares of stoc(s so purchased using the said special funds of the govern!ent.
16
(E!phasis -urs.)
&s the coconut levy funds parta(e of the nature of taxes and can only "e used for pu"lic purpose, and i!portantly, for the
purpose for which it was exacted, i.e., the develop!ent, reha"ilitation and sta"ili3ation of the coconut industry, they cannot "e
used to "enefit\\whether directly or indirectly\\ private individuals, "e it "y way of a co!!ission, or as the su"ject &gree!ent
interestingly words it, co!pensation. Conse9uently, Cojuangco cannot stand to "enefit "y receiving, in his private capacity,
=.))? of the +G: shares without violating the constitutional caveat that pu"lic funds can only "e used for pu"lic purpose.
&ccordingly, the =.))? +G: (GC#:) shares that were given to Cojuangco shall "e returned to the >overn!ent, to "e used Honly
for the "enefit of all coconut far!ers and for the develop!ent of the coconut industry.H
15
The ensuing are the underlying rationale for declaring, as unconstitutional, provisions that convert pu"lic property into private
funds to "e used ulti!ately for personal "enefit7
] not only were the laws unconstitutional for decreeing the distri"ution of the shares of stoc( for free to the coconut far!ers and
therefore negating the pu"lic purposed declared "y #.$. .o. )=0, i.e., to sta"ili3e the price of edi"le oil and to protect the coconut
industry. They li(ewise reclassified the coconut levy fund as private fund, to "e owned "y private individuals in their private
capacities, contrary to the original purpose for the creation of such fund. To co!pound the situation, the offending provisions
effectively re!oved the coconut levy fund away fro! the cavil of pu"lic funds which nor!ally can "e paid out only pursuant to an
appropriation !ade "y law. The conversion of pu"lic funds into private assets was illegally allowed, in fact !andated, "y these
provisions. Clearly therefore, the pertinent provisions of #.$. .os. =11, 50% and %/06 are unconstitutional for violating &rticle C*,
ection )5 (2) of the Constitution. *n this context, the distri"ution "y #C& of the GC#: shares purchased "y !eans of the
coconut levy fund \ a special fund of the govern!ent \ to the coconut far!ers is, therefore, void.
08
*t is precisely for the foregoing that i!pels the Court to stri(e down as unconstitutional the provisions of the #C&BCojuangco
&gree!ent that allow petitioner Cojuangco to personally and exclusively own pu"lic funds or property, the dis"urse!ent of which
<e so greatly protect if only to give light and !eaning to the !andates of the Constitution.
&s heretofore a!ply discussed, taxes are i!posed only for a pu"lic purpose.
0%
They !ust, therefore, "e used for the "enefit of
the pu"lic and not for the exclusive profit or gain of private persons.
0)
-therwise, grave injustice is inflicted not only upon the
>overn!ent "ut !ost especially upon the citi3enry\\the taxpayers\\to who! <e owe a great deal of accounta"ility.
*n this case, out of the =).)? +G: (now GC#:) shares of stoc(s #C& purchased using the coconut levy funds, the 'ay )1, %5=1
&gree!ent "etween the #C& and Cojuangco provided for the transfer to the latter, "y way of co!pensation, of %8? of the shares
su"ject of the agree!ent, or a total of =.))? fully paid shares. *n su!, Cojuangco received pu"lic assets \ in the for! of +G:
(GC#:) shares with a value then of ten !illion eight hundred eightyBsix thousand pesos (#h# %8,660,888) in %5=1, paid "y
coconut levy funds. *n effect, Cojuangco received the afore!entioned asset as a result of the #C&BCojuangco &gree!ent, and
exclusively "enefited hi!self "y owning property ac9uired using solely pu"lic funds. Cojuangco, no less, ad!itted that the #C&
paid, out of the CC+, the entire ac9uisition price for the =).)? option shares.
02
This is in clear violation of the prohi"ition, which
the Court see(s to uphold.1âwphi1
<e, therefore, affir!, on this ground, the decision of the andigan"ayan nullifying the shares of stoc( transfer to Cojuangco.
&ccordingly, the GC#: shares of stoc( representing the =.))? fully paid shares su"ject of the instant petition, with all dividends
declared, paid or issued thereon, as well as any incre!ents thereto arising fro!, "ut not li!ited to, the exercise of preBe!ptive
rights, shall "e reconveyed to the >overn!ent of the Repu"lic of the #hilippines, which as <e previously clarified, shall H"e used
only for the "enefit of all coconut far!ers and for the develop!ent of the coconut industry.H
0/
:ut apart fro! the stipulation in the #C&BCojuangco &gree!ent, !ore specifically paragraph / in relation to paragraph 0 thereof,
providing for the transfer to Cojuangco for the GC#: shares adverted to i!!ediately a"ove, other provisions are valid and shall
"e enforced, or shall "e respected, if the corresponding prestation had already "een perfor!ed. *nvalid stipulations that are
independent of, and divisi"le fro!, the rest of the agree!ent and which can easily "e separated therefro! without doing violence
to the !anifest intention of the contracting !inds do not nullify the entire contract.
01
<HERE+-RE, #art C of the appealed #artial u!!ary 4udg!ent in andigan"ayan Civil Case .o. 8822B& is &++*R'E$ with
!odification. &s '-$*+*E$, the dispositive portion in #art C of the andigan"ayan[s #artial u!!ary 4udg!ent in Civil Case
.o. 8822B&, shall read as follows7
C. Re7 '-T*-. +-R #&RT*&, G''&RJ 4G$>'E.T (RE7 E$G&R$- '. C-4G&.>C-, 4R.) dated epte!"er %6, )88)
filed "y #laintiff.
%. ec. % of #.$. .o. =11 did not validate the &gree!ent "etween #C& and defendant Eduardo '. Cojuangco, 4r. dated 'ay )1,
%5=1 nor did it give the &gree!ent the "inding force of a law "ecause of the nonBpu"lication of the said &gree!ent.
). The &gree!ent "etween #C& and defendant Eduardo '. Cojuangco, 4r. dated 'ay )1, %5=1 is a valid contract for having the
re9uisite consideration under &rticle %2%6 of the Civil Code.
2. The transfer "y #C& to defendant Eduardo '. Cojuangco, 4r. of %/,/88 shares of stoc( of +G: (later GC#:) fro! the H-ption
haresH and the additional +G: shares su"scri"ed and paid "y #C&, consisting of
a. +ifteen Thousand Eight Hundred EightyB+our (%1,66/) shares out of the authori3ed "ut unissued shares of the "an(,
su"scri"ed and paid "y #C&@
". ixty +our Thousand .ine Hundred Eighty (0/,568) shares of the increased capital stoc( su"scri"ed and paid "y #C&@ and
c. toc( dividends declared pursuant to paragraph 1 and paragraph %% (iv) (d) of the #C&BCojuangco &gree!ent dated 'ay )1,
%5=1. or the soBcalled HCojuangcoBGC#: sharesH is declared unconstitutional, hence null and void.1âwphi1
/. The a"oveB!entioned shares of stoc( of the +G:IGC#: transferred to defendant Cojuangco are here"y declared conclusively
owned "y the Repu"lic of the #hilippines to "e used only for the "enefit of all coconut far!ers and for the develop!ent of the
coconut industry, and ordered reconveyed to the >overn!ent.
1. The GC#: shares of stoc( of the alleged fronts, no!inees and du!!ies of defendant Eduardo '. Cojuangco, 4r. which for!
part of the =).)? shares of the +G:IGC#: paid for "y the #C& with pu"lic funds later charged to the coconut levy funds,
particularly the CC+, "elong to the plaintiff Repu"lic of the #hilippines as their true and "eneficial owner.
&ccordingly, the instant petition is here"y $E.*E$.
Costs against petitioner Cojuangco.
Repu"lic of the #hilippines
SPREME !ORT
:aguio
E. :&.C
G.R. N)&. 14.05665. A(r', 10, 2012
P$%'%')*$r6Or-a*'7a%')*&, *a1$,8: PAM4ANSANG 9OALIS#ON NG MGA SAMAHANG MAGSASA9A AT MANGGAGA:A
SA NI#GAN ;P9SMMN<, !O!ONT INDSTR# RE"ORM MOVEMENT ;!OIR<, 49LOD NG MALA#ANG MAG449ID,
PAM4ANSANG 9ILSAN NG MGA SAMAHANG MAGSASA9A ;PA9ISAMA<, !ENTER "OR AGRARIAN RE"ORM,
EMPO:ERMENT AND TRANS"ORMATION ;!ARET<, PAM4ANSANG 9ATIPNAN NG MGA SAMAHAN SA 9ANA#NAN
;P9S9<= P$%'%')*$r6L$-'&,a%)r: REPRESENTATIVE LORETA ANN ROSALES= a*> P$%'%')*$r6I*>'0'>+a,&, *a1$,8: VIRGILIO
V. DAVID, 3OSE MARIE "ASTINO, 3OSE !ON!EP!ION, ROMEO RO#ANDO#AN, 3OSE V. ROMERO, 3R., ATT#. !AMILO
L. SA4IO, a*> ATT#. ANTONIO T. !ARPIO, #etitioners,
vs.
E?E!TIVE SE!RETAR#, SE!RETAR# O" AGRI!LTRE, SE!RETAR# O" AGRARIAN RE"ORM, PRESIDENTIAL
!OMMISSION ON GOOD GOVERNMENT, THE SOLI!ITOR GENERAL, PHILIPPINE !O!ONT PROD!ERS
"EDERATION, IN!. ;!O!O"ED<, a*> NITED !O!ONT PLANTERS 4AN9 ;!P4<,Respondents.
x B B B B B B B B B B B B B B B B B B B B B B B x
G.R. N). 14.811
TEODORO 3. AMOR, r$(r$&$*%'*- %h$ P$a&a*% A,,'a*c$ )@ Sa1ar a*> L$8%$ ;PASALE#<, DOMINGO !. EN!ALLADO,
r$(r$&$*%'*- A*'2a* *- Ma-&a&aAa a% Ma*--a-aBa &a N'8+-a* ;AMMANI<, a*> VIDAL M. PILIIN, r$(r$&$*%'*- %h$
La-+*a !)a,'%')*, #etitioners,
vs.
E?E!TIVE SE!RETAR#, SE!RETAR# O" AGRI!LTRE, SE!RETAR# O" AGRARIAN RE"ORM, PRESIDENTIAL
!OMMISSION ON GOOD GOVERNMENT, THE SOLI!ITOR GENERAL, PHILIPPINE !O!ONT PROD!ERS
"EDERATION, NITED !O!ONT PLANTERS 4AN9, Respondents.
$ E C * * - .
A4AD, J.:
These are consolidated petitions to declare unconstitutional certain presidential decrees and executive orders of the !artial law
era relating to the raising and use of cocoBlevy funds.
The +acts and the Case
-n 4une %5, %5=% Congress enacted Repu"lic &ct (R.&.) 0)08
%
that esta"lished a Coconut *nvest!ent +und (C* +und) for the
develop!ent of the coconut industry through capital financing.
)
Coconut far!ers were to capitali3e and ad!inister the +und
through the Coconut *nvest!ent Co!pany (C*C)
2
whose o"jective was, a!ong others, to advance the coconut far!ers[ interests.
+or this purpose, the law i!posed a levy of #8.11 on the coconut far!er[s first do!estic sale of every %88 (ilogra!s of copra, or
its e9uivalent, for which levy he was to get a receipt converti"le into C*C shares of stoc(.
/
&"out a year following his procla!ation of !artial law in the country or on &ugust )8, %5=2 #resident +erdinand E. 'arcos
issued #residential $ecree (#.$.) )=0,
1
which esta"lished a Coconut Consu!ers ta"ili3ation +und (CC +und), to address the
crisis at that ti!e in the do!estic !ar(et for coconutB"ased consu!er goods. The CC +und was to "e "uilt up through the
i!position of a #%1.88Blevy for every first sale of %88 (ilogra!s of copra resecada.
0
The levy was to cease after a year or earlier
provided the crisis was over. &ny re!aining "alance of the +und was to revert to the C* +und esta"lished under R.&. 0)08.
=
& year later or on .ove!"er %/, %5=/ #resident 'arcos issued #.$. 16),
6
creating a per!anent fund called the Coconut *ndustry
$evelop!ent +und (C*$ +und) to channel for the ulti!ate direct "enefit of coconut far!ers part of the levies that they were
already paying. The #hilippine Coconut &uthority (#C&) was to provide#%88 !illion as initial capital of the C*$ +und and,
thereafter, give the +und at least #8.)8 per (ilogra! of copra resecada out of the #C&[s collection of coconut consu!ers
sta"ili3ation levy. *n case of the lifting of this levy, the #C& was then to i!pose a per!anent levy of #8.)8 on the first sale of
every (ilogra! of copra to for! part of the C*$ +und.
5
&lso, under #.$. 16), the #hilippine .ational :an( (#.:), then owned "y
the >overn!ent, was to receive on deposit, ad!inister, and use the C*$ +und.
%8
#.$. 16) authori3ed the #.: to invest the
unused portion of the C*$ +und in easily converti"le invest!ents, the earnings of which were to for! part of the +und.
%%
*n %5=1 #resident 'arcos enacted #.$. =11
%)
which approved the ac9uisition of a co!!ercial "an( for the "enefit of the coconut
far!ers to ena"le such "an( to pro!ptly and efficiently reali3e the industry[s credit policy.
%2
Thus, the #C& "ought =).)? of the
shares of stoc( of +irst Gnited :an(, headed "y #edroCojuangco.
%/
$ue to changes in its corporate identity and purpose, the
"an([s articles of incorporation were a!ended in 4uly %5=1, resulting in a change in the "an([s na!e fro! +irst Gnited :an( to
Gnited Coconut #lanters :an( (GC#:).
%1
-n 4uly %/, %5=0 #resident 'arcos enacted #.$. 50%,
%0
the Coconut *ndustry Code, which consolidated and codified existing
laws relating to the coconut industry. The Code provided that surpluses fro! the CC +und and the C*$ +und collections, not
used for replanting and other authori3ed purposes, were to "e invested "y ac9uiring shares of stoc( of corporations, including
the an 'iguel Corporation ('C), engaged in underta(ings related to the coconut and pal! oil industries.
%=
GC#: was to !a(e
such invest!ents and e9uita"ly distri"ute these for free to coconut far!ers.
%6
These invest!ents constituted the Coconut
*ndustry *nvest!ent +und (C**+). #.$. 50% also provided that the coconut levy funds (cocoBlevy funds) shall "e owned "y the
coconut far!ers in their private capacities.
%5
This was reiterated in the #$ %/06
)8
a!end!ent of 4une %%, %5=6.
*n %568, #resident 'arcos issued #.$. %055,
)%
suspending the collections of the CC +und and the C*$ +und. :ut in %56% he
issued #.$. %6/%
))
which revived the collection of coconut levies. #.$. %6/% rena!ed the CC +und into the Coconut *ndustry
ta"ili3ation +und (C* +und).
)2
This +und was to "e ear!ar(ed proportionately a!ong several develop!ent progra!s, such as
coconut hy"rid replanting progra!, insurance coverage for the coconut far!ers, and scholarship progra! for their children.
)/
*n .ove!"er )888 then #resident 4oseph Estrada issued Executive -rder (E.-.) 2%),
)1
esta"lishing a agip .iyugan #rogra!
which sought to provide i!!ediate inco!e supple!ent to coconut far!ers and encourage the creation of a sustaina"le local
!ar(et de!and for coconut oil and other coconut products.
)0
The Executive -rder sought to esta"lish a #%B"illion fund "y
disposing of assets ac9uired using cocoBlevy funds or assets of entities supported "y those funds.
)=
& co!!ittee was created to
!anage the fund under this progra!.
)6
& !ajority vote of its !e!"ers could engage the services of a reputa"le auditing fir! to
conduct periodic audits.
)5
&t a"out the sa!e ti!e, #resident Estrada issued E.-. 2%2,
28
which created an irrevoca"le trust fund (nown as the Coconut
Trust +und (the Trust +und). This ai!ed to provide financial assistance to coconut far!ers, to the coconut industry, and to other
agriBrelated progra!s.
2%
The shares of stoc( of 'C were to serve as the Trust +und[s initial capital.
2)
These shares were
ac9uired with C** +unds and constituted approxi!ately )=? of the outstanding capital stoc( of 'C. E.-. 2%2 designated GC#:,
through its Trust $epart!ent, as the Trust +und[s trustee "an(. The Trust +und Co!!ittee would ad!inister, !anage, and
supervise the operations of the Trust +und.
22
The Co!!ittee would designate an external auditor to do an annual audit or as
often as needed "ut it !ay also re9uest the Co!!ission on &udit (C-&) to intervene.
2/
To i!ple!ent its !andate, E.-. 2%2 directed the #residential Co!!ission on >ood >overn!ent, the -ffice of the olicitor
>eneral, and other govern!ent agencies to exclude the )=? C**+ 'C shares fro! Civil Case 8822, entitled Repu"lic of the
#hilippines v. Eduardo Cojuangco, 4r., et al., which was then pending "efore the andigan"ayan and to lift the se9uestration over
those shares.
21
-n 4anuary )0, )88%, however, for!er #resident >loria 'acapagalB&rroyo ordered the suspension of E.-.s 2%) and 2%2.
20
This
notwithstanding, on 'arch %, )88% petitioner organi3ations and individuals "rought the present action in >.R. %/=820B2= to
declare E.-.s 2%) and 2%2 as well as &rticle ***, ection 1 of #.$. %/06 unconstitutional. -n &pril )/, )88% the other sets of
petitioner organi3ations and individuals instituted >.R. %/=6%% to nullify ection ) of #.$. =11 and &rticle ***, ection 1 of #.$.s
50% and %/06 also for "eing unconstitutional.
The *ssues #resented
The parties su"!it the following issues for adjudication7
#rocedurally \
%. <hether or not petitioners[ special civil actions of certiorari under Rule 01 constituted the proper re!edy for their
actions@ and
). <hether or not petitioners have legal standing to "ring the sa!e to court.
-n the su"stance \
2. <hether or not the cocoBlevy funds are pu"lic funds@ and
/. <hether or not (a) ection ) of #.$. =11, (") &rticle ***, ection 1 of #.$.s 50% and %/06, (c) E.-. 2%), and (d) E.-.
2%2 are unconstitutional.
The Rulings of the Court
+irst. GC#: 9uestions the propriety of the present petitions for certiorari and !anda!us under Rule 01 on the ground that there
are no ongoing proceedings in any tri"unal or "oard or "efore a govern!ent official exercising judicial, 9uasiBjudicial, or
!inisterial functions.
2=
GC#: insists that the Court exercises appellate jurisdiction with respect to issues of constitutionality or
validity of laws and presidential orders.
26
:ut, as the Court previously held, where there are serious allegations that a law has infringed the Constitution, it "eco!es not
only the right "ut the duty of the Court to loo( into such allegations and, when warranted, uphold the supre!acy of the
Constitution.
25
'oreover, where the issues raised are of para!ount i!portance to the pu"lic, as in this case, the Court has the
discretion to "rush aside technicalities of procedure.
/8
econd. The Court has to uphold petitioners[ right to institute these petitions. The petitioner organi3ations in these cases
represent coconut far!ers on who! the "urden of the cocoBlevies attaches. *t is also pri!arily for their "enefit that the levies
were i!posed.
The individual petitioners, on the other hand, join the petitions as taxpayers. The Court recogni3es their right to restrain officials
fro! wasting pu"lic funds through the enforce!ent of an unconstitutional statute.
/%
This soBcalled taxpayer[s suit is "ased on the
theory that expenditure of pu"lic funds for the purpose of executing an unconstitutional act is a !isapplication of such funds.
/)
:esides, the %56= Constitution accords to the citi3ens a greater participation in the affairs of govern!ent. *ndeed, it provides for
peopleAs initiative, the right to infor!ation on !atters of pu"lic concern (including the right to (now the state of health of their
#resident), as well as the right to file cases 9uestioning the factual "ases for the suspension of the privilege of writ of habeas
corpus or declaration of !artial law. These provisions enlarge the people[s right in the political as well as the judicial field. *t
grants the! the right to interfere in the affairs of govern!ent and challenge any act tending to prejudice their interest.
Third. +or so!e ti!e, different and conflicting notions had "een for!ed as to the nature and ownership of the cocoBlevy funds.
The Court, however, finally put an end to the dispute when it categorically ruled in Repu"lic of the #hilippines v. C-C-+E$
/2
that
these funds are not only affected with pu"lic interest@ they are, in fact, prima facie pu"lic funds. #ri!a facie !eans a fact
presu!ed to "e true unless disproved "y so!e evidence to the contrary.
//
The Court was satisfied that the cocoBlevy funds were raised pursuant to law to support a proper govern!ental purpose. They
were raised with the use of the police and taxing powers of the tate for the "enefit of the coconut industry and its far!ers in
general. The C-& reviewed the use of the funds. The :ureau of *nternal Revenue (:*R) treated the! as pu"lic funds and the
very laws governing coconut levies recogni3e their pu"lic character.
/1
The Court has also recently declared that the cocoBlevy funds are in the nature of taxes and can only "e used for pu"lic
purpose.
/0
Taxes are enforced proportional contri"utions fro! persons and property, levied "y the tate "y virtue of its
sovereignty for the support of the govern!ent and for all its pu"lic needs.
/=
Here, the cocoBlevy funds were i!posed pursuant to
law, na!ely, R.&. 0)08 and #.$. )=0. The funds were collected and !anaged "y the #C&, an independent govern!ent
corporation directly under the #resident.
/6
&nd, as the respondent pu"lic officials pointed out, the pertinent laws used the ter!
levy,
/5
which !eans to tax,
18
in descri"ing the exaction.
-f course, unli(e ordinary revenue laws, R.&. 0)08 and #.$. )=0 did not raise !oney to "oost the govern!ent[s general funds
"ut to provide !eans for the reha"ilitation and sta"ili3ation of a threatened industry, the coconut industry, which is so affected
with pu"lic interest as to "e within the police power of the tate.
1%
The funds sought to support the coconut industry, one of the
!ain econo!ic "ac("ones of the country, and to secure econo!ic "enefits for the coconut far!ers and far! wor(ers. The
su"ject laws are a(in to the sugar liens i!posed "y ec. =(") of #.$. 266,
1)
and the oil price sta"ili3ation funds under #.$.
%510,
12
as a!ended "y E.-. %2=.
1/
Respondent GC#: suggests that the cocoBlevy funds are closely si!ilar to the ocial ecurity yste! () funds, which have
"een declared to "e not pu"lic funds "ut properties of the !e!"ers and held !erely in trust "y the govern!ent.
11
:ut the
,aw
10
collects pre!iu! contri"utions. *t does not collect taxes fro! !e!"ers for a specific pu"lic purpose. They pay
contri"utions in exchange for insurance protection and "enefits li(e loans, !edical or health services, and retire!ent pac(ages.
The "enefits accrue to every !e!"er, not to the pu"lic, in general.
1=
+urther!ore, !e!"ers do not lose ownership of their contri"utions. The govern!ent !erely holds these in trust, together
with his e!ployer[s contri"ution, to answer for his future "enefits.
16
The cocoBlevy funds, on the other hand, "elong to the
govern!ent and are su"ject to its ad!inistration and disposition. Thus, these funds, including its inco!es, interests, proceeds, or
profits, as well as all its assets, properties, and shares of stoc(s procured with such funds !ust "e treated, used, ad!inistered,
and !anaged as pu"lic funds.
15
,astly, the cocoBlevy funds are evidently special funds. *n Gaston v. Republic Planters Bank,
08
the Court held that the tate
collected sta"ili3ation fees fro! sugar !illers, planters, and producers for a special purpose7 to finance the growth and
develop!ent of the sugar industry and all its co!ponents. The fees were levied for a special purpose and, therefore, constituted
special fund when collected. *ts character as such fund was !ade clear "y the fact that they were deposited in the #.: (then a
wholly owned govern!ent "an() and not in the #hilippine Treasury. *n sme!a v. rbos,
0%
the Court held that the oil price
sta"ili3ation fund was a special fund !ainly "ecause this was segregated fro! the general fund and placed in what the law
referred to as a trust account. Jet it re!ained su"ject to C-& scrutiny and review. The Court finds no su"stantial distinction
"etween these funds and the cocoBlevy funds, except as to the industry they each support.
+ourth. #etitioners in >.R. %/=6%% assert that ection ) of #.$. =11 a"ove is void and unconstitutional for disregarding the pu"lic
character of cocoBlevy funds. The su"ject section provides7
S$c%')* 2. "inancial #ssistance. x x x and since the operations, and activities of the #hilippine Coconut &uthority are all in
accord with the present social econo!ic plans and progra!s of the >overn!ent, all collections and levies which the #hilippine
Coconut &uthority is authori3ed to levy and collect such as "ut not li!ited to the Coconut Consu!ers[ ta"ili3ation ,evy, and the
Coconut *ndustry $evelop!ent +und as prescri"ed "y #residential $ecree .o. 16) shall not "e considered or construed, under
any law or regulation, special andIor fiduciary funds and do not for! part of the general funds of the national govern!ent within
the conte!plation of #residential $ecree .o. =%%. (E!phasis ours)
The Court has, however, already passed upon this 9uestion in #hilippine Coconut #roducers +ederation, *nc. (C-C-+E$) v.
Repu"lic of the #hilippines.
0)
*t held as unconstitutional ection ) of #.$. =11 for Heffectively authori3ing the #C& to utili3e
portions of the CC +und to pay the financial co!!it!ent of the far!ers to ac9uire GC#: and to deposit portions of the CC
+und levies with GC#: interest free. &nd as there also provided, the CC +und, C*$ +und and li(e levies that #C& is authori3ed
to collect shall "e considered as nonBspecial or fiduciary funds to "e transferred to the general fund of the >overn!ent, !eaning
they shall "e dee!ed private funds.H
*dentical provisions of su"se9uent presidential decrees li(ewise declared cocoBlevy funds private properties of coconut far!ers.
&rticle ***, ection 1 of #.$. 50% reads7
S$c%')* /. $%emptions. The Coconut Consu!ers ta"ili3ation +und and the Coconut *ndustry $evelop!ent +und as well as all
dis"urse!ents of said funds for the "enefit of the coconut far!ers as herein authori3ed shall not "e construed or interpreted,
under any law or regulation, as special andIor fiduciary funds, or as part of the general funds of the national govern!ent within
the conte!plation of #.$. .o. =%%@ nor as a su"sidy, donation, levy, govern!ent funded invest!ent, or govern!ent share within
the conte!plation of #.$. 656, the intention "eing that said +und and the dis"urse!ents thereof as herein authori3ed for the
"enefit of the coconut far!ers shall "e owned "y the! in their own private capacities. (E!phasis ours)
ection 1 of #.$. %/06 "asically reproduces the a"ove provision, thus\
S$c%')* /. Exe!ption. ^ The Coconut Consu!ers ta"ili3ation +und and the Coconut *ndustry $evelop!ent +und, as well as
all dis"urse!ents as herein authori3ed, &ha,, *)% 2$ c)*&%r+$> )r '*%$r(r$%$>, +*>$r a*8 ,aB )r r$-+,a%')*, a& &($c'a,
a*>C)r @'>+c'ar8 @+*>&, )r a& (ar% )@ %h$ -$*$ra, @+*>& )@ %h$ *a%')*a, -)0$r*1$*% within the conte!plation of #.$. =%%@ *)r
a& &+2&'>8, >)*a%')*, ,$08 -)0$r*1$*% @+*>$> '*0$&%1$*%, )r -)0$r*1$*% &har$ B'%h'* %h$ c)*%$1(,a%')* )@ P.D.
8D8, %h$ '*%$*%')* 2$'*- %ha% &a'> "+*> a*> %h$ >'&2+r&$1$*%& %h$r$)@ a& h$r$'* a+%h)r'7$> @)r %h$ 2$*$@'% )@ %h$
c)c)*+% @ar1$r& &ha,, 2$ )B*$> 28 %h$1 '* %h$'r (r'0a%$ ca(ac'%'$&7 #rovided, however, That the #resident !ay at any ti!e
authori3e the Co!!ission on &udit or any other officer of the govern!ent to audit the "usiness affairs, ad!inistration, and
condition of persons and entities who receive su"sidy for coconutB"ased consu!er products x x x. (E!phasis ours)
.ota"ly, the raising of !oney "y levy on coconut far! production, a for! of taxation as already stated, "egan in %5=% for the
purpose of developing the coconut industry and pro!oting the interest of coconut far!ers. The use of the fund was expanded in
%5=2 to include the sta"ili3ation of the do!estic !ar(et for coconutB"ased consu!er goods and in %5=/ to divert part of the
funds for o"taining direct "enefit to coconut far!ers. &fter five years or in %5=0, however, #.$. 50% declared the cocoBlevy funds
private property of the far!ers. #.$. %/06 reiterated this declaration in %5=6. :ut neither presidential decree actually turned over
possession or control of the funds to the far!ers in their private capacity. The govern!ent continued to wield undi!inished
authority over the !anage!ent and disposition of those funds.
*n any event, such declaration is void. There is ownership when a thing pertaining to a person is co!pletely su"jected to his will
in everything that is not prohi"ited "y law or the concurrence with the rights of another.
02
&n owner is free to exercise all
attri"utes of ownership7 the right, a!ong others, to possess, use and enjoy, a"use or consu!e, and dispose or alienate the thing
owned.
0/
The owner is of course free to waive all or so!e of these rights in favor of others. :ut in the case of the coconut
far!ers, they could not, individually or collectively, waive what have not "een and could not "e legally i!parted to the!.
ection ) of #.$. =11, &rticle ***, ection 1 of #.$. 50%, and &rticle ***, ection 1 of #.$. %/06 co!pletely ignore the fact that cocoB
levy funds are pu"lic funds raised through taxation. &nd since taxes could "e exacted only for a pu"lic purpose, they cannot "e
declared private properties of individuals although such individuals fall within a distinct group of persons.
01
The Court of course grants that there is no hardBandBfast rule for deter!ining what constitutes pu"lic purpose. *t is an elastic
concept that could "e !ade to fit into !odern standards. #u"lic purpose, for instance, is no longer restricted to traditional
govern!ent functions li(e "uilding roads and school houses or safeguarding pu"lic health and safety. #u"lic purpose has "een
construed as including the pro!otion of social justice. Thus, pu"lic funds !ay "e used for relocating illegal settlers, "uilding lowB
cost housing for the!, and financing "oth ur"an and agrarian refor!s that "enefit certain poor individuals. till, these uses
relieve volatile ini9uities in society and, therefore, i!pact on pu"lic order and welfare as a whole.
:ut the assailed provisions, which re!oved the cocoBlevy funds fro! the general funds of the govern!ent and declared the!
private properties of coconut far!ers, do not appear to have a color of social justice for their purpose. The levy on copra that
far!ers produce appears, in the first place, to "e a "usiness tax judging "y its tax "ase. The concept of far!ersB"usiness!en is
inco!pati"le with the idea that coconut far!ers are victi!s of social injustice and so should "e "eneficiaries of the taxes raised
fro! their earnings.
*t would altogether "e different of course if the laws !entioned set apart a portion of the cocoBlevy fund for i!proving the lives of
destitute coconut far! owners or wor(ers for their social a!elioration to esta"lish a proper govern!ent purpose. The support for
the poor is generally recogni3ed as a pu"lic duty and has long "een an accepted exercise of police power in the pro!otion of the
co!!on good.
00
:ut the declarations do not distinguish "etween wealthy coconut far!ers and the i!poverished ones. &nd even
if they did, the >overn!ent cannot just e!"ar( on a philanthropic orgy of inordinate doleBouts for !otives political or
otherwise.
0=
Conse9uently, such declarations are void since they appropriate pu"lic funds for private purpose and, therefore,
violate the citi3ens[ right to su"stantive due process.
06
-n another point, in stating that the cocoBlevy fund Hshall not "e construed or interpreted, under any law or regulation, as special
andIor fiduciary funds, or as part of the general funds of the national govern!ent,H #.$.s 50% and %/06 see( to re!ove such fund
fro! C-& scrutiny.
This is also the fault of #resident Estrada[s E.-. 2%) which deals with #% "illion to "e generated out of the sale of cocoBfund
ac9uired assets. Thus\
ection 1. #udit of "und and &ubmission of Report. \ The Co!!ittee, "y a !ajority vote, shall engage the services of a
reputa"le auditing fir! to conduct periodic audits of the fund. *t shall render a 9uarterly report on all pertinent transactions and
avail!ents of the fund to the -ffice of the #resident within the first three (2) wor(ing days of the succeeding 9uarter. (E!phasis
ours)
E.-. 2%2 has a su"stantially identical provision governing the !anage!ent and disposition of the Coconut Trust +und capitali3ed
with the su"stantial 'C shares of stoc( that the cocoBfund ac9uired. Thus\
S$c%')* 15. &ccounting. ^ x x x
The +und &ha,, 2$ a+>'%$> a**+a,,8 )r a& )@%$* a& *$c$&&ar8 28 a* $E%$r*a, a+>'%)r >$&'-*a%$> 28 %h$ !)11'%%$$. The
Co!!ittee 1a8 also re9uest the Co!!ission on &udit to conduct an audit of the +und. (E!phasis ours)
:ut, since cocoBlevy funds are taxes, the provisions of #.$.s =11, 50% and %/06 as well as those of E.-.s 2%) and 2%2 that
re!ove such funds and the assets ac9uired through the! fro! the jurisdiction of the C-& violate &rticle *LB$, ection )(%)
05
of
the %56= Constitution. ection )(%) vests in the C-& the power and authority to exa!ine uses of govern!ent !oney and
property. The cited #.$.s and E.-.s also contravene ection )
=8
of #.$. 656 (#roviding for the Restructuring of the Co!!ission
on &udit), which has the force of a statute.
&nd there is no legiti!ate reason why such funds should "e shielded fro! C-& review and audit. The #C&, which i!ple!ents
the cocoBlevy laws and collects the cocoBlevy funds, is a govern!entBowned and controlled corporation su"ject to C-& review
and audit.
E.-. 2%2 suffers fro! an additional infir!ity. *ts title, HRationali3ing the Gse of the Coconut ,evy +unds "y Constituting a d+und
for &ssistance to Coconut +ar!ers[ as an *rrevoca"le Trust +und and Creating a Coconut Trust +und Co!!ittee for the
'anage!ent thereofH tends to !islead. &pparently, it intends to create a trust fund out of the cocoBlevy funds to provide
econo!ic assistance to the coconut far!ers and, ulti!ately, "enefit the coconut industry.
=%
:ut on closer loo(, E.-. 2%2 strays
fro! the special purpose for which the law raises cocoBlevy funds in that it per!its the use of cocoBlevy funds for i!proving
productivity in other food areas. Thus7
S$c%')* 2. #urpose of the +und. ^ The +und shall "e esta"lished for the purpose of financing progra!s of assistance for the
"enefit of the coconut far!ers, the coconut industry, a*> )%h$r a-r'6r$,a%$> (r)-ra1& '*%$*>$> %) 1aE'1'7$ @))>
(r)>+c%'0'%8, >$0$,)( 2+&'*$&& )(()r%+*'%'$& '* %h$ c)+*%r8&'>$, (r)0'>$ ,'0$,'h))> a,%$r*a%'0$&, a*> (r)1)%$ a*%'6
()0$r%8 (r)-ra1&. (E!phasis ours)
x x x x
S$c%')* D. Gse and $isposition of the Trust *nco!e. ^ The Coconut Trust +und Co!!ittee, on an annual "asis, shall deter!ine
and esta"lish the a!ount co!prising the Trust *nco!e. &fter such deter!ination, the Co!!ittee shall ear!ar(, allocate and
dis"urse the Trust *nco!e for the following purposes, na!ely7
x x x x
(d) Th'r%8 ($rc$*% ;50F< )@ %h$ Tr+&% I*c)1$ &ha,, 2$ +&$> %) a&&'&% a*> @+*> a-r'c+,%+ra,,86r$,a%$> (r)-ra1& for the
>overn!ent, as reasona"ly deter!ined "y the Trust +und Co!!ittee, i!ple!ented for the purpose of7 (i) !axi!i3ing food
productivity in the agriculture areas of the country, (ii) enhancing the uplift!ent and wellB"eing of the living conditions of far!ers
and agricultural wor(ers, (iii) developing via"le industries and "usiness opportunities in the countryside, (iv) providing alternative
!eans of livelihood to the direct dependents of agriculture "usinesses and enterprises, and (v) providing financial assistance and
support to coconut far!ers in ti!es of econo!ic hardship due to extre!ely low prices of copra and other coconut products,
natural cala!ities, world !ar(et dislocation and si!ilar occurrences, including financial support to the ER&#[s agip .iyugan
#rogra! esta"lished under Executive -rder .o. 2%) dated .ove!"er 2, )888@ x x x. (E!phasis ours)
Clearly, E.-. 2%2 a"ove runs counter to the constitutional provision which directs that all !oney collected on any tax levied for a
special purpose shall "e treated as a special fund and paid out for such purpose only.
=)
&ssisting other agriculturallyBrelated
progra!s is way off the cocoBfund[s o"jective of pro!oting the general interests of the coconut industry and its far!ers.
& final point, the E.-.s also transgress #.$. %//1,
=2
ection 6/()),
=/
the first part "y the previously !entioned sections of E.-.
2%2 and the second part "y ection / of E.-. 2%) and ections 0 and = of E.-. 2%2. E.-. 2%2 vests the power to ad!inister,
!anage, and supervise the operations and dis"urse!ents of the Trust +und it esta"lished (capitali3ed with 'C shares "ought
out of cocoBlevy funds) in a Coconut Trust +und Co!!ittee. Thus\
S$c%')* 6. Creation of the Coconut Trust +und Co!!ittee. ^ A !)11'%%$$ '& h$r$28 cr$a%$> %) a>1'*'&%$r, 1a*a-$ a*>
&+($r0'&$ %h$ )($ra%')*& )@ %h$ Tr+&% "+*>, chaired "y the #resident with ten (%8) !e!"ers, as follows7
(a) four (/) representatives fro! the govern!ent sector, two of who! shall "e the ecretary of &griculture and the
ecretary of &grarian Refor! who shall act as Cice Chair!en@
(") four (/) representatives fro! coconut far!ers[ organi3ations, one of who! shall co!e fro! a list of no!inees fro!
the #hilippine Coconut #roducers +ederation *nc. (HC-C-+E$H)@
(c) a representative fro! the C**+@ and
(d) a representative fro! a nonBgovern!ent organi3ation (.>-) involved in agricultural and rural develop!ent.
&ll decisions of the Coconut Trust +und Co!!ittee shall "e deter!ined "y a !ajority vote of all the !e!"ers.
The Coconut Trust +und Co!!ittee shall perfor! the functions and duties set forth in ection = hereof, with the s(ill, care,
prudence and diligence necessary under the circu!stances then prevailing that a prudent !an acting in li(e capacity would
exercise.
The !e!"ers of the Coconut Trust +und Co!!ittee shall "e appointed "y the #resident and shall hold office at his pleasure.
The Coconut Trust +und Co!!ittee is authori3ed to hire ad!inistrative, technical andIor support staff as !ay "e re9uired to
ena"le it to effectively perfor! its functions and responsi"ilities. (E!phasis ours)
S$c%')* .. +unctions and Responsi"ilities of the Co!!ittee. ^ The Coconut Trust +und Co!!ittee shall have the following
functions and responsi"ilities7
(a) set the invest!ent policy of the Trust +und@
(") esta"lish priorities for assistance giving preference to s!all coconut far!ers and far!wor(ers which shall "e
reviewed periodically and revised as necessary in accordance with changing conditions@
(c) receive, process and approve project proposals for financing "y the Trust +und@
(d) >$c'>$ )* %h$ +&$ )@ %h$ Tr+&% "+*>G& '*c)1$ )r *$% $ar*'*-& '*c,+>'*- @'*a, ac%')* )* a((,'ca%')*& @)r
a&&'&%a*c$, -ra*%& a*>C)r ,)a*&@
(e) avail of professional counsel and services "y retaining an invest!ent and financial !anager, if desired@
(f) @)r1+,a%$ %h$ r+,$& a*> r$-+,a%')*& -)0$r*'*- %h$ a,,)ca%')*, +%','7a%')* a*> >'&2+r&$1$*% )@ %h$ "+*>@ and
(g) perfor! such other acts and things as !ay "e necessary proper or conducive to attain the purposes of the +und.
(E!phasis ours)
ection / of E.-. 2%) does essentially the sa!e thing. *t vests the !anage!ent and disposition of the assistance fund generated
fro! the sale of cocoBlevy fundBac9uired assets into a Co!!ittee of five !e!"ers. Thus, ection / of E.-. 2%) provides \
ection /. "unding. \ &ssets ac9uired through the coconut levy funds or "y entities financed "y the coconut levy funds identified
"y the #resident for appropriate disposal or sale, shall "e sold or disposed to generate a !axi!u! fund of -.E :*,,*-.
#E- (#%,888,888,888.88) which shall "e !anaged "y a Co!!ittee co!posed of a Chair!an and four (/) !e!"ers to "e
appointed "y the #resident whose ter! shall "e coBter!inus with the #rogra!. x x x (E!phasis ours)
*n effect, the a"ove transfers the power to allocate, use, and dis"urse cocoBlevy funds that #.$. )2) vested in the #C& and
transferred the sa!e, without legislative authori3ation and in violation of #.$. )2), to the Co!!ittees !entioned a"ove. &n
executive order cannot repeal a presidential decree which has the sa!e standing as a statute enacted "y Congress.
GC#: invo(es the principle of separa"ility to save the assailed laws fro! "eing struc( down. The general rule is that where part
of a statute is void as repugnant to the Constitution, while another part is valid, the valid portion, if suscepti"le to "eing separated
fro! the invalid, !ay stand and "e enforced. <hen the parts of a statute, however, are so !utually dependent and connected,
as conditions, considerations, or co!pensations for each other, as to warrant a "elief that the legislature intended the! as a
whole, the nullity of one part will vitiate the rest. *n which case, if so!e parts are unconstitutional, all the other provisions which
are thus dependent, conditional, or connected !ust conse9uently fall with the!.
=1
:ut, given that the provisions of E.-.s 2%) and 2%2, which as already stated invalidly transferred powers over the funds to two
co!!ittees that #resident Estrada created, the rest of their provisions "eca!e nonBoperational. *t is evident that #resident
Estrada would not have created the new funding progra!s if they were to "e !anaged "y so!e other entity. *ndeed, he !ade
hi!self Chair!an of the Coconut Trust +und and left to his discretion the appoint!ent of the !e!"ers of the other co!!ittee.
:HERE"ORE, the Court >R&.T the petition in >.R. %/=820B2=, #&RT,J >R&.T the petition in >.R. %/=6%%, and declares
the following C-*$7
a) E.-. 2%), for "eing repugnant to ection 6/()) of #.$. %//1, and &rticle *LB$, ection )(%) of the Constitution@ and
") E.-. 2%2, for "eing in contravention of ection 6/()) of #.$. %//1, and &rticle *LB$, ection )(%) and &rticle C*,
ection )5(2) of the Constitution.
The Court has previously declared ection ) of #.$. =11 and &rticle ***, ection 1 of #.$.s 50% and %/06 unconstitutional.
- -R$ERE$.
Repu"lic of the #hilippines
SPREME !ORT
'anila
EC-.$ $*C**-.
G.R. N). L65D086 3+*$ 1/, 1D88
A4RA VALLE# !OLLEGE, IN!., r$(r$&$*%$> 28 PEDRO V. 4ORGONIA, petitioner,
vs.
HON. 3AN P. AHINO, 3+>-$, !)+r% )@ "'r&% I*&%a*c$, A2ra= ARMIN M. !ARIAGA, Pr)0'*c'a, Tr$a&+r$r, A2ra= GASPAR
V. 4OSHE, M+*'c'(a, Tr$a&+r$r, 4a*-+$>, A2ra= HEIRS O" PATERNO MILLARE,respondents.

PARAS, J.:
This is a petition for review on certiorari of the decision I of the defunct Court of +irst *nstance of &"ra, :ranch *, dated 4une %/,
%5=/, rendered in Civil Case .o. 010, entitled H&"ra Calley 4unior College, *nc., represented "y #edro C. :orgonia, plaintiff vs.
&r!in '. Cariaga as #rovincial Treasurer of &"ra, >aspar C. :os9ue as 'unicipal Treasurer of :angued, &"ra and #aterno
'illare, defendants,H the decretal portion of which reads7
*. C*E< -+ &,, THE +-RE>-*.>, the Court here"y declares7
That the distraint sei3ure and sale "y the 'unicipal Treasurer of :angued, &"ra, the #rovincial Treasurer of
said province against the lot and "uilding of the &"ra Calley 4unior College, *nc., represented "y $irector
#edro :orgonia located at :angued, &"ra, is valid@
That since the school is not exe!pt fro! paying taxes, it should therefore pay all "ac( taxes in the a!ount of
#1,%/8.2% and "ac( taxes and penalties fro! the pro!ulgation of this decision@
That the a!ount deposited "y the plaintaff hi! the su! of #08,888.88 "efore the trial, "e confiscated to
apply for the pay!ent of the "ac( taxes and for the rede!ption of the property in 9uestion, if the a!ount is
less than #0,888.88, the re!ainder !ust "e returned to the $irector of #edro :orgonia, who represents the
plaintiff herein@
That the deposit of the 'unicipal Treasurer in the a!ount of #0,888.88 also "efore the trial !ust "e returned
to said 'unicipal Treasurer of :angued, &"ra@
&nd finally the case is here"y ordered dis!issed with costs against the plaintiff.
- -R$ERE$. (Rollo, pp. ))B)2)
#etitioner, an educational corporation and institution of higher learning duly incorporated with the ecurities and Exchange
Co!!ission in %5/6, filed a co!plaint (&nnex H%H of &nswer "y the respondents Heirs of #aterno 'illare@ Rollo, pp. 51B5=) on
4uly %8, %5=) in the court a 'uo to annul and declare void the H.otice of ei3ureA and the H.otice of aleH of its lot and "uilding
located at :angued, &"ra, for nonBpay!ent of real estate taxes and penalties a!ounting to #1,%/8.2%. aid H.otice of ei3ureH
of the college lot and "uilding covered "y -riginal Certificate of Title .o. ZB62 duly registered in the na!e of petitioner, plaintiff
"elow, on 4uly 0, %5=), "y respondents 'unicipal Treasurer and #rovincial Treasurer, defendants "elow, was issued for the
satisfaction of the said taxes thereon. The H.otice of aleH was caused to "e served upon the petitioner "y the respondent
treasurers on 4uly 6, %5=) for the sale at pu"lic auction of said college lot and "uilding, which sale was held on the sa!e date.
$r. #aterno 'illare, then 'unicipal 'ayor of :angued, &"ra, offered the highest "id of #0,888.88 which was duly accepted. The
certificate of sale was correspondingly issued to hi!.
-n &ugust %8, %5=), the respondent #aterno 'illare (now deceased) filed through counstel a !otion to dis!iss the co!plaint.
-n &ugust )2, %5=), the respondent #rovincial Treasurer and 'unicipal Treasurer, through then #rovincial +iscal ,oreto C.
Roldan, filed their answer (&nnex H)H of &nswer "y the respondents Heirs of #ate!o 'illare@ Rollo, pp. 56B%88) to the co!plaint.
This was followed "y an a!ended answer (&nnex H2,H ibid, Rollo, pp. %8%B%82) on &ugust 2%, %5=).
-n epte!"er %, %5=) the respondent #aterno 'illare filed his answer (&nnex H1,H ibid@ Rollo, pp. %80B%86).
-n -cto"er %), %5=), with the aforesaid sale of the school pre!ises at pu"lic auction, the respondent 4udge, Hon. 4uan #.
&9uino of the Court of +irst *nstance of &"ra, :ranch *, ordered (&nnex H0,H ibid@ Rollo, pp. %85B%%8) the respondents provincial
and !unicipal treasurers to deliver to the Cler( of Court the proceeds of the auction sale. Hence, on $ece!"er %/, %5=),
petitioner, through $irector :orgonia, deposited with the trial court the su! of #0,888.88 evidenced "y #.: Chec( .o. 58/205.
-n &pril %), %5=2, the parties entered into a stipulation of facts adopted and e!"odied "y the trial court in its 9uestioned
decision. aid tipulations reads7
T*#G,&T*-. -+ +&CT
C-'E .-< the parties, assisted "y counsels, and to this Honora"le Court respectfully enter into the
following agreed stipulation of facts7
%. That the personal circu!stances of the parties as stated in paragraph % of the co!plaint is ad!itted@ "ut
the particular person of 'r. &r!in '. Cariaga is to "e su"stituted, however, "y anyone who is actually holding
the position of #rovincial Treasurer of the #rovince of &"ra@
). That the plaintiff &"ra Calley 4unior College, *nc. is the owner of the lot and "uildings thereon located in
:angued, &"ra under -riginal Certificate of Title .o. 8B62@
2. That the defendant >aspar C. :os9ue, as 'unicipal treasurer of :angued, &"ra caused to "e served upon
the &"ra Calley 4unior College, *nc. a .otice of ei3ure on the property of said school under -riginal
Certificate of Title .o. 8B62 for the satisfaction of real property taxes thereon, a!ounting to #1,%/8.2%@ the
.otice of ei3ure "eing the one attached to the co!plaint as Exhi"it &@
/. That on 4une 6, %5=) the a"ove properties of the &"ra Calley 4unior College, *nc. was sold at pu"lic
auction for the satisfaction of the unpaid real property taxes thereon and the sa!e was sold to defendant
#aterno 'illare who offered the highest "id of #0,888.88 and a Certificate of ale in his favor was issued "y
the defendant 'unicipal Treasurer.
1. That all other !atters not particularly and specially covered "y this stipulation of facts will "e the su"ject of
evidence "y the parties.
<HERE+-RE, it is respectfully prayed of the Honora"le Court to consider and ad!it this stipulation of facts
on the point agreed upon "y the parties.
:angued, &"ra, &pril %), %5=2.
gd. &gripino :rillantes
Typ &>R*#*.- :R*,,&.TE
&ttorney for #laintiff
gd. ,oreto Roldan
Typ ,-RET- R-,$&.
#rovincial +iscal
Counsel for $efendants
#rovincial Treasurer of
&"ra and the 'unicipal
Treasurer of :angued, &"ra
gd. $e!etrio C. #re
Typ. $E'ETR*- C. #RE
&ttorney for $efendant
#aterno 'illare (Rollo, pp. %=B%6)
&side fro! the tipulation of +acts, the trial court a!ong others, found the following7 (a) that the school is recogni3ed "y the
govern!ent and is offering #ri!ary, High chool and College Courses, and has a school population of !ore than one thousand
students all in all@ (") that it is located right in the heart of the town of :angued, a few !eters fro! the pla3a and a"out %)8
!eters fro! the Court of +irst *nstance "uilding@ (c) that the ele!entary pupils are housed in a twoBstorey "uilding across the
street@ (d) that the high school and college students are housed in the !ain "uilding@ (e) that the $irector with his fa!ily is in the
second floor of the !ain "uilding@ and (f) that the annual gross inco!e of the school reaches !ore than one hundred thousand
pesos.
+ro! all the foregoing, the only issue left for the Court to deter!ine and as agreed "y the parties, is whether or not the lot and
"uilding in 9uestion are used e%clusivel( for educational purposes. (Rollo, p. )8)
The succeeding #rovincial +iscal, Hon. 4ose &. olo!on and his &ssistant, Hon. Eusta9uio F. 'ontero, filed a 'e!orandu! for
the >overn!ent on 'arch )1, %5=/, and a upple!ental 'e!orandu! on 'ay =, %5=/, wherein they opined Hthat "ased on the
evidence, the laws applica"le, court decisions and jurisprudence, the school "uilding and school lot used for educational
purposes of the &"ra Calley College, *nc., are exe!pted fro! the pay!ent of taxes.H (&nnexes H:,H H:B%H of #etition@ Rollo, pp.
)/B/5@ // and /5).
.onetheless, the trial court disagreed "ecause of the use of the second floor "y the $irector of petitioner school for residential
purposes. He thus ruled for the govern!ent and rendered the assailed decision.
&fter having "een granted "y the trial court ten (%8) days fro! &ugust 0, %5=/ within which to perfect its appeal (#er -rder dated
&ugust 0, %5=/@ &nnex H>H of #etition@ Rollo, p. 1=) petitioner instead availed of the instant petition for review on certiorari with
prayer for preli!inary injunction "efore this Court, which petition was filed on &ugust %=, %5=/ (Rollo, p.)).
*n the resolution dated &ugust %0, %5=/, this Court resolved to give $GE C-GRE to the petition (Rollo, p. 16). Respondents
were re9uired to answer said petition (Rollo, p. =/).
#etitioner raised the following assign!ents of error7
*
THE C-GRT # )U ERRE$ *. GT&*.*.> & C&,*$ THE E*FGRE &.$ &,E -+ THE C-,,E>E ,-T &.$ :G*,$*.>
GE$ +-R E$GC&T*-.&, #GR#-E -+ THE #ET*T*-.ER.
**
THE C-GRT # )U ERRE$ *. $EC,&R*.> TH&T THE C-,,E>E ,-T &.$ :G*,$*.> -+ THE #ET*T*-.ER &RE .-T
GE$ ELC,G*CE,J +-R E$GC&T*-.&, #GR#-E 'ERE,J :EC&GE THE C-,,E>E #RE*$E.T RE*$E *. -.E
R--' -+ THE C-,,E>E :G*,$*.>.
***
THE C-GRT # )U ERRE$ *. $EC,&R*.> TH&T THE C-,,E>E ,-T &.$ :G*,$*.> -+ THE #ET*T*-.ER &RE .-T
ELE'#T +R-' #R-#ERTJ T&LE &.$ *. -R$ER*.> #ET*T*-.ER T- #&J #1,%/8.2% & RE&,TJ T&LE.
*C
THE C-GRT # )U ERRE$ *. -R$ER*.> THE C-.+*C&T*-. -+ THE #0,888.88 $E#-*T '&$E *. THE C-GRT :J
#ET*T*-.ER & #&J'E.T -+ THE #1,%/8.2% RE&,TJ T&LE. (ee :rief for the #etitioner, pp. %B))
The !ain issue in this case is the proper interpretation of the phrase Hused exclusively for educational purposes.H
#etitioner contends that the pri!ary use of the lot and "uilding for educational purposes, and not the incidental use thereof,
deter!ines and exe!ption fro! property taxes under ection )) (2), &rticle C* of the %521 Constitution. Hence, the sei3ure and
sale of su"ject college lot and "uilding, which are contrary thereto as well as to the provision of Co!!onwealth &ct .o. /=8,
otherwise (nown as the &ssess!ent ,aw, are without legal "asis and therefore void.
-n the other hand, private respondents !aintain that the college lot and "uilding in 9uestion which were su"jected to sei3ure and
sale to answer for the unpaid tax are used7 (%) for the educational purposes of the college@ ()) as the per!anent residence of the
#resident and $irector thereof, 'r. #edro C. :orgonia, and his fa!ily including the inBlaws and grandchildren@ and (2) for
co!!ercial purposes "ecause the ground floor of the college "uilding is "eing used and rented "y a co!!ercial esta"lish!ent,
the .orthern 'ar(eting Corporation (ee photograph attached as &nnex H6H (Co!!ent@ Rollo, p. 58E).
$ue to its ti!e fra!e, the constitutional provision which finds application in the case at "ar is ection )), paragraph 2, &rticle C*,
of the then %521 #hilippine Constitution, which expressly grants exe!ption fro! realty taxes for HCe!eteries, churches and
parsonages or convents appurtenant thereto, and all lands, "uildings, and i!prove!ents used e%clusivel( for religious, charita"le
or educational purposes ...
Relative thereto, ection 1/, paragraph c, Co!!onwealth &ct .o. /=8 as a!ended "y Repu"lic &ct .o. /85, otherwise (nown
as the &ssess!ent ,aw, provides7
The following are exe!pted fro! real property tax under the &ssess!ent ,aw7
xxx xxx xxx
(c) churches and parsonages or convents appurtenant thereto, and all lands, "uildings, and
i!prove!ents used e%clusivel( for religious, charita"le, scientific or educational purposes.
xxx xxx xxx
*n this regard petitioner argues that the pri!ary use of the school lot and "uilding is the "asic and controlling guide, nor! and
standard to deter!ine tax exe!ption, and not the !ere incidental use thereof.
&s early as %5%0 in *+C# of +anila vs. Collector of lnternal Revenue, 22 #hil. )%= D%5%0E, this Court ruled that while it !ay "e
true that the J'C& (eeps a lodging and a "oarding house and !aintains a restaurant for its !e!"ers, still these do not
constitute "usiness in the ordinary acceptance of the word, "ut an institution used exclusively for religious, charita"le and
educational purposes, and as such, it is entitled to "e exe!pted fro! taxation.
*n the case of :ishop of ,ueva &egovia v. Provincial Board of -locos ,orte, 1% #hil. 21) D%5=)E, this Court included in the
exe!ption a vegeta"le garden in an adjacent lot and another lot for!erly used as a ce!etery. *t was clarified that the ter! Hused
exclusivelyH considers incidental use also. Thus, the exe!ption fro! pay!ent of land tax in favor of the convent includes, not
only the land actually occupied "y the "uilding "ut also the adjacent garden devoted to the incidental use of the parish priest. The
lot which is not used for co!!ercial purposes "ut serves solely as a sort of lodging place, also 9ualifies for exe!ption "ecause
this constitutes incidental use in religious functions.
The phrase Hexclusively used for educational purposesH was further clarified "y this Court in the cases of .errera vs. )ue/on
Cit( Board of assessment #ppeals, 2 CR& %60 D%50%E and Commissioner of -nternal Revenue vs. Bishop of the +issionar(
0istrict, %/ CR& 55% D%501E, thus ^
'oreover, the exe!ption in favor of property used exclusively for charita"le or educational purposes is Anot
li!ited to property actually indispensa"leA therefor (Cooley on Taxation, Col. ), p. %/28), "ut extends to
facilities which are incidental to and reasona"ly necessary for the acco!plish!ent of said purposes, such as
in the case of hospitals, Ha school for training nurses, a nursesA ho!e, property use to provide housing
facilities for interns, resident doctors, superintendents, and other !e!"ers of the hospital staff, and
recreational facilities for student nurses, interns, and residentsA (6/ C4 00)%), such as H&thletic fieldsH
including Ha fir! used for the in!ates of the institution. (Cooley on Taxation, Col. ), p. %/28).
The test of exe!ption fro! taxation is the use of the property for purposes !entioned in the Constitution (&postolic #refect v.
City Treasurer of :aguio, =% #hil, 1/= D%5/%E).
*t !ust "e stressed however, that while this Court allows a !ore li"eral and nonBrestrictive interpretation of the phrase
Hexclusively used for educational purposesH as provided for in &rticle C*, ection )), paragraph 2 of the %521 #hilippine
Constitution, reasona"le e!phasis has always "een !ade that exe!ption extends to facilities which are incidental to and
reasona"ly necessary for the acco!plish!ent of the !ain purposes. -therwise stated, the use of the school "uilding or lot for
co!!ercial purposes is neither conte!plated "y law, nor "y jurisprudence. Thus, while the use of the second floor of the !ain
"uilding in the case at "ar for residential purposes of the $irector and his fa!ily, !ay find justification under the concept of
incidental use, which is co!pli!entary to the !ain or pri!ary purpose^educational, the lease of the first floor thereof to the
.orthern 'ar(eting Corporation cannot "y any stretch of the i!agination "e considered incidental to the purpose of education.
*t will "e noted however that the afore!entioned lease appears to have "een raised for the first ti!e in this Court. That the !atter
was not ta(en up in the to court is really apparent in the decision of respondent 4udge. .o !ention thereof was !ade in the
stipulation of facts, not even in the description of the school "uilding "y the trial judge, "oth e!"odied in the decision nor as one
of the issues to resolve in order to deter!ine whether or not said properly !ay "e exe!pted fro! pay!ent of real estate taxes
(Rollo, pp. %=B)2). -n the other hand, it is noteworthy that such fact was not disputed even after it was raised in this Court.
*ndeed, it is axio!atic that facts not raised in the lower court cannot "e ta(en up for the first ti!e on appeal. .onetheless, as an
exception to the rule, this Court has held that although a factual issue is not s9uarely raised "elow, still in the interest of
su"stantial justice, this Court is not prevented fro! considering a pivotal factual !atter. HThe upre!e Court is clothed with
a!ple authority to review palpa"le errors not assigned as such if it finds that their consideration is necessary in arriving at a just
decision.H (#ere3 vs. Court of &ppeals, %)= CR& 0/1 D%56/E).
Gnder the %521 Constitution, the trial court correctly arrived at the conclusion that the school "uilding as well as the lot where it is
"uilt, should "e taxed, not "ecause the second floor of the sa!e is "eing used "y the $irector and his fa!ily for residential
purposes, "ut "ecause the first floor thereof is "eing used for co!!ercial purposes. However, since only a portion is used for
purposes of co!!erce, it is only fair that half of the assessed tax "e returned to the school involved.
#RE'*E C-.*$ERE$, the decision of the Court of +irst *nstance of &"ra, :ranch *, is here"y &++*R'E$ su"ject to the
!odification that half of the assessed tax "e returned to the petitioner.
- -R$ERE$.
[G.R. N). 1.1.42 : 3+*$ 1/, 2011]
!OMMISSIONER O" INTERNAL REVENE, PETITIONER, VS. MIRANT ;PHILIPPINES< OPERATIONS, !ORPORATION,
RESPONDENT.
[G.R. N). 1.616/]
MIRANT ;PHILIPPINES< OPERATIONS !ORPORATION ;"ORMERL#: SOTHERN ENERG# ASIA6PA!I"I! OPERATIONS
;PHILS.<, IN!.<, PETITIONER, VS. !OMMISSIONER O" INTERNAL REVENE, RESPONDENT.
D E ! I S I O N
MENDOJA, J.:
These are two consolidated petitions for review on certiorari under Rule /1 of the Rules of Court.
*n >.R. .o. %=%=/), petitioner Co!!issioner of *nternal Revenue 1C-R2 see(s the reversal of the 4anuary %=, )880 $ecision
D%E

and 'arch 5, )880 Resolution
D)E
of the Court of Tax &ppeals 1C3#2 En :anc in CT& E.:. Case .o. %)2.
*n >.R. .o. %=0%01, petitioner 'irant (#hilippines) -perations, Corporation 1+irant2 see(s the reversal of the -cto"er )0, )880
$ecision
D2E
and 4anuary 1, )88= Resolution
D/E
of the CT& En :anc in CT& E.:. Case .o. %)1.
THE "A!TS
#etitioner is e!powered to perfor! the lawful duties of his office including, a!ong others, the duty to act on and approve clai!s
for refund or tax credit as provided "y law.
Respondent 'irant is a corporation duly organi3ed and existing under and "y virtue of the laws of the Repu"lic of the #hilippines,
with principal office at :o. *"a"ang #ulo, #ag"ilao >rande *sland, #ag"ilao, Zue3on.
D1E
'irant also operated under the na!es outhern Energy &siaB#acific -perations (#hils.), *nc., CE#& -perations (#hilippines)
Corporation@ CE#& Tile!an #roject 'anage!ent Corporation@ and Hopewell Tile!an #roject 'anage!ent Corporation.
D0E
'irant, duly licensed to do "usiness in the #hilippines, is pri!arily engaged in the design, construction, asse!"ly,
co!!issioning, operation, !aintenance, reha"ilitation and !anage!ent of gas tur"ine and other power generating plants and
related facilities using coal, distillate, and other fuel provided "y and under contract with the >overn!ent of the Repu"lic of the
#hilippines or any su"division, instru!entality or agency thereof, or any govern!entBowned or controlled corporations or other
entities engaged in the develop!ent, supply or distri"ution of energy.
D=E
'irant entered into -perating and 'anage!ent &gree!ents with 'irant #ag"ilao Corporation (for!erly outhern Energy
Zue3on, *nc.) and 'irant ual Corporation (for!erly outhern Energy #angasinan, *nc.) to provide these co!panies with
!aintenance and !anage!ent services in connection with the operation, construction and co!!issioning of coalBfired power
stations situated in #ag"ilao, Zue3on, and ual, #angasinan respectively.
D6E
-n -cto"er %1, %555, 'irant filed with the :ureau of *nternal Revenue (B-R) its inco!e tax return for the fiscal year ending 4une
28, %555, declaring a net loss of #)21,)5%,80/.88 and unutili3ed tax credits of c2),)02,266.887
>ross *nco!e # (0/,/26,/2/.88)
,ess7 $eductions %=8,61),028.88
.et ,oss #()21,)5%,80/.88)
*nco!e Tax $ue #BBB
,ess7 #rior JearAs Excess Credits /,=%/,1%0.88
Credita"le Tax <ithheld
+irst Three Zuarters )%,=8),==%.88
+ourth Zuarter 1,6/0,%8%.88
Tax -verpay!ent #2),)02,266.88
D5E

-n &pril %=, )888, 'irant filed with the :*R an a!ended inco!e tax return 1-3R2 for the fiscal year ending 4une 28, %555,
reporting an increased net loss a!ount of c2=5,2)/,2/8.88 "ut reporting the sa!e unutili3ed tax credits of c2),)02,266.88,
which it opted to carry over as a tax credit to the succeeding taxa"le year, thus7
>ross *nco!e #(%%2,%%2,820.88)
,ess7 $eductions )/6,)%%,)8/.88
.et ,oss #(2=5,2)/,)/8.88)
*nco!e Tax $ue # BBB
,ess7 #rior JearAs Excess Credits /,=%/,1%0.88
Credita"le Tax <ithheld
+irst Three Zuarters )%,=8),==%.88
+ourth Zuarter 1,6/0,%8%.88
Tax -verpay!ent #2),)02,266.88
D%8E

To synchroni3e its accounting period with those of its affiliates, 'irant allegedly secured the approval of the :*R to change its
accounting period fro! fiscal year ("*) to calendar year (C*) effective $ece!"er 2%, %555. Thus, on &pril %=, )888, 'irant filed
its inco!e tax return for the interi! period 4uly %, %555 to $ece!"er 2%, %555, declaring a net loss in the a!ount of c
26%,6=/,8=0.88 and unutili3ed tax credits of c/6,0)0,=52.887
>ross *nco!e #(2)8,651,/0).88)
,ess7 $eductions 08,5=6,0%/.88
.et ,oss #(26%,6=/,8=0.88)
*nco!e Tax $ue # BBB
,ess7 #rior JearAs Excess Credits 2),)02,266.88
Credita"le Tax <ithheld
+irst Three Zuarters %0,202,/81.88
+ourth Zuarter BBB
Tax -verpay!ent #/6,0)0,=52.88
D%%E

'irant indicated the excess a!ount of c/6,0)0,=52.88 as HTo "e carried over as tax credit next yearI9uarter.H
D%)E
-n &pril %8, )88%, it filed with the :*R its inco!e tax return for the calendar year ending $ece!"er 2%, )888, reflecting a net loss
of c10,58%,618.88 and unutili3ed tax credits of c6=,2/1,%%0.88, co!puted as follows7
>ross *nco!e #(/,868,1/%.88)
,ess7 $eductions 1),6)%,285.88
.et ,oss #(10,58%,618.88)
*nco!e Tax $ue # BBB
,ess7 #rior JearAs Excess Credits /6,0)0,=52.88
Credita"le Tax <ithheld
+irst Three Zuarters )1,220,5=%.88
+ourth Zuarter %2,26%,21).88
Tax -verpay!ent #6=,2/1,%%0.88
D%2E

-n epte!"er )8, )88%, 'irant wrote the :*R a letter clai!ing a refund of c6=,2/1,%%0.88 representing overpaid inco!e tax for
the +J ending 4une 28, %555, the interi! period covering 4uly %, %555 to $ece!"er 2%, %555, and CJ ending $ece!"er 2%,
)888.
D%/E
&s the twoByear prescriptive period for the filing of a judicial clai! under ection ))5 of the .ational *nternal Revenue Code
(.*RC) of %55= was a"out to lapse without action on the part of the :*R, 'irant elevated its case to the CT& "y way of #etition
for Review on -cto"er %), )88%. The case was doc(eted as CT& Case .o. 02/8.
D%1E
The CT& +irst $ivision rendered judg!ent partially granting 'irantAs clai! for refund in the reduced a!ount of #26,0)8,/)=.88,
representing its duly su"stantiated unutili3ed credita"le withholding taxes for taxa"le year )888 out of the total clai! of c
26,=%6,2)2.88 therefor.
D%0E
*t appears that the total clai! was reduced "y #5=,650.88 for the following reasons7 the a!ount of
#5),550.88 was deducted "ecause the CT& +irst $ivision found that it was not covered "y the withholding tax certificate issued
"y outhern Energy Zue3on, *nc. for the period -cto"er %, )888 to $ece!"er 2%, )888. 'oreover the additional a!ount of
#/,588.88 was also deducted "ecause "ased on the reconciliation schedule for the credita"le taxes of #=/1,)58.88 withheld "y
outhern Energy Zue3on, *nc. for the period -cto"er %, )888 to $ece!"er 2%, )888 on 'irantAs #hilippine peso "illings under
*nvoice .o. 88%1, the corresponding credita"le taxes clai!ed "y 'irant in its )888 inco!e tax return a!ounted to #=18,%58.88
which was higher "y c/,588.88 than that reflected in the certificate.
D%=E
&dditionally, 'irantAs clai! for the refund of its unutili3ed tax credits for the taxa"le year %555 in the total a!ount of
#/6,0)0,=52.88, was denied as it exercised the carryBover option with regard to the said unutili3ed tax credits, which is
irrevoca"le pursuant to the provisions of ection =0 of the %55= .*RC.
D%6E
The dispositive portion of the assailed 'ay %6, )881 $ecision
D%5E
of the CT& +irst $ivision reads7
IN VIE: O" ALL THE "OREGOING, the instant #etition for Review is here"y GRANTED "ut in a reduced a!ount of
#26,0)8,/)=.88. &ccordingly, respondent is ORDERED TO RE"ND, or in the alternative, ISSE A TA? !REDIT
!ERTI"I!ATE in favor of the petitioner in the a!ount of #26,0)8,/)=.88 representing unutili3ed credita"le withholding taxes for
taxa"le year )888.
:oth parties filed their respective !otions for partial reconsideration of the a"ove decision, "ut these were "oth denied for lac( of
!erit in a Resolution
D)8E
dated epte!"er )), )881.
:oth parties sought redress "efore the CT& En :anc in two separate petitions for review doc(eted as CT& E: Case .o. %)2 and
CT& E: Case .o. %)1, respectively.
&ccording to the CT&, although arising fro! the sa!e case, CT& Case .o. 02/8, these two cases were not consolidated
"ecause CT& E: Case .o. %)1 was initially dis!issed due to procedural infir!ities.
*n a Resolution dated &pril )6, )880, however, acting on 'irantAs !otion for reconsideration, the CT& En :anc recalled its earlier
resolution and reinstated the case.
D)%E
Eventually, the CT& En :anc in separate decisions, denied due course and dis!issed the
two cases. The C*R and 'irant filed their respective !otions for reconsideration "ut "oth were denied. Thus, the C*R and
'irant filed their respective petitions for review with this Court, doc(eted as >.R. .o. %=%=/) and >.R. .o. %=0%01, respectively.
ISSES
*n >.R. .o. %=%=/), the C*R raises the following issue7
:HETHER OR NOT THE !ORT O" TA? APPEALS ERRED ON A HESTION O" LA: IN HOLDING RESPONDENT
ENTITLED TO A RE"ND OR TA? !REDIT IN THE AMONT O" P58,620,42..00.
*n >.R. .o. %=0%01, 'irant raises the following issue7
:HETHER OR NOT PETITIONER IS ENTITLED TO A !LAIM "OR ADDITIONAL RE"ND OR ISSAN!E O" A TA?
!REDIT !ERTI"I!ATE IN THE AMONT O" P48,626,.D5.00 REPRESENTING E?!ESS !REDITA4LE :ITHHOLDING
TA?ES "OR THE "IS!AL #EAR ENDED 3NE 50, 1DDD AND THE INTERIM PERIOD "ROM 3L# 1, 1DDD TO DE!EM4ER
51, 1DDD.
*n essence, the issue is whether 'irant is entitled to a tax refund or to the issuance of a tax credit certificate and, if it is, then
what is the a!ount to which it is entitled.
RLING O" THE !ORT
The Court finds the assailed decisions and resolutions of the CT& En :anc in CT& E.:. Case .os. %)2 and %)1 to "e consistent
with law and jurisprudence.
Once exercised, the option
to carry over is irrevocable.
ection =0 of the .ational *nternal Revenue Code (#residential $ecree .o. %%16, as a!ended) provides7
SE!. .6. 6 Final Adjustment Return. B Every corporation lia"le to tax under ection )= shall file a final adjust!ent return
covering the total taxa"le inco!e for the preceding calendar or fiscal year. *f the su! of the 9uarterly tax pay!ents !ade during
the said taxa"le year is not e9ual to the total tax due on the entire taxa"le inco!e of that year, the corporation shall either7
(&) #ay the "alance of tax still due@ or
(:) CarryBover the excess credit@ or
(C) :e credited or refunded with the excess a!ount paid, as the case !ay "e.
*n case the corporation is entitled to a tax credit or refund of the excess esti!ated 9uarterly inco!e taxes paid, the excess
a!ount shown on its final adjust!ent return !ay "e carried over and credited against the esti!ated 9uarterly inco!e tax
lia"ilities for the taxa"le 9uarters of the succeeding taxa"le years. O*c$ %h$ )(%')* %) carr86)0$r a*> a((,8 %h$ $Ec$&&
K+ar%$r,8 '*c)1$ %aE a-a'*&% '*c)1$ %aE >+$ @)r %h$ %aEa2,$ K+ar%$r& )@ %h$ &+cc$$>'*- %aEa2,$ 8$ar& ha& 2$$* 1a>$,
&+ch )(%')* &ha,, 2$ c)*&'>$r$> 'rr$0)ca2,$ @)r %ha% %aEa2,$ ($r')> a*> *) a((,'ca%')* @)r ca&h r$@+*> )r '&&+a*c$ )@ a
%aE cr$>'% c$r%'@'ca%$ &ha,, 2$ a,,)B$> %h$r$@)r. (Gnderscoring and e!phasis supplied.)
The last sentence of ection =0 is clear in its !andate. -nce a corporation exercises the option to carryBover and apply the
excess 9uarterly inco!e tax against the tax due for the taxa"le 9uarters of the succeeding taxa"le years, such option is
irrevoca"le for that taxa"le period. Having chosen to carryBover the excess 9uarterly inco!e tax, the corporation cannot
thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the a!ount representing such
overpay!ent.
*n the recent case of Commissioner of -nternal Revenue v. P4 +anagement -nternational Philippines5 -nc.,
D))E
the Court discussed
the irrevoca"ility rule of ection =0 in this wise7
The predecessor provision of ection =0 of the .*RC of %55= is ection =5 of the .*RC of %561, which provides7
ection =5. "inal #d6ustment Return. B Every corporation lia"le to tax under ection )/ shall file a final adjust!ent return
covering the total net inco!e for the preceding calendar or fiscal year. *f the su! of the 9uarterly tax pay!ents !ade during the
said taxa"le year is not e9ual to the total tax due on the entire taxa"le net inco!e of that year the corporation shall either7
(a) #ay the excess tax still due@ or
(") :e refunded the excess a!ount paid, as the case !ay "e.
*n case the corporation is entitled to a refund of the excess esti!ated 9uarterly inco!e taxesBpaid, the refunda"le a!ount shown
on its final adjust!ent return !ay "e credited against the esti!ated 9uarterly inco!e tax lia"ilities for the taxa"le 9uarters of the
succeeding taxa"le year.
&s can "e seen, Congress added a sentence to ection =0 of the .*RC of %55= in order to lay down the irrevoca"ility rule, to wit 7
xxx -nce the option to carryBover and apply the excess 9uarterly inco!e tax against inco!e tax due for the taxa"le 9uarters of
the succeeding taxa"le years has "een !ade, such option shall "e considered irrevoca"le for that taxa"le period and no
application for tax refund or issuance of a tax credit certificate shall "e allowed therefor
.
*n Philam #sset +anagement5 -nc. v. Commissioner of -nternal Revenue5
D)2E
the Court expounds on the two alternative options of
a corporate taxpayer whose total 9uarterly inco!e tax pay!ents exceed its tax lia"ility, and on how the choice of one option
precludes the other, vi/7
The first option is relatively si!ple.&ny tax on inco!e that is paid in excess of the a!ount due the govern!ent !ay "e refunded,
provided that a taxpayer properly applies for the refund.
The second option wor(s "y applying the refunda"le a!ount, as shown on the +&R of a given taxa"le year, against the
esti!ated 9uarterly inco!e tax lia"ilities of the succeeding taxa"le year.
Th$&$ %B) )(%')*& +*>$r S$c%')* .6 ar$ a,%$r*a%'0$ '* *a%+r$. Th$ ch)'c$ )@ )*$ (r$c,+>$& %h$ )%h$r. I*>$$>, '*
Philippine Ban o! "ommunications v. "ommissioner o! #nternal Revenue,
D)/E
%h$ !)+r% r+,$> %ha% a c)r()ra%')* 1+&%
&'-*'@8 '%& '*%$*%')* 6 Bh$%h$r %) r$K+$&% a %aE r$@+*> )r c,a'1 a %aE cr$>'% 6 28 1arA'*- %h$ c)rr$&()*>'*- )(%')* 2)E
(r)0'>$> '* %h$ "AR.:h',$ a %aE(a8$r '& r$K+'r$> %) 1arA '%& ch)'c$ '* %h$ @)r1 (r)0'>$> 28 %h$ 4IR, %h'& r$K+'r$1$*% '&
)*,8 @)r %h$ (+r()&$ )@ @ac','%a%'*- %aE c),,$c%')*.
O*$ ca**)% -$% a %aE r$@+*> a*> a %aE cr$>'% a% %h$ &a1$ %'1$ @)r %h$ &a1$ $Ec$&& '*c)1$ %aE$& (a'>. xxx
*n Commissioner of -nternal Revenue v. Bankof the Philippine -slands5
D)1E
the Court, citing the afore9uoted pronounce!ent in
Philam #sset +anagement5 -nc.5 points out that ection =0 of the .*RC of %55= is clear and une9uivocal in providing that the
carryBover option, once actually or constructively chosen "y a corporate taxpayer, "eco!es irrevocable. The Court explains7
Hence, the controlling factor for the operation of the irrevoca"ility rule is that the taxpayer chose an option@ and once it had
already done so, it could no longer !a(e another one. Conse9uently, after the taxpayer opts to carryBover its excess tax credit to
the following taxa"le period, the 9uestion of whether or not it actually gets to apply said tax credit is irrelevant. ection =0 of the
.*RC of %55= is explicit in stating that once the option to carry over has "een !ade, Hno application for tax refund or issuance of
a tax credit certificate shall "e allowed therefor.H
The last sentence of ection =0 of the .*RC of %55= reads7 H-nce the option to carryBover and apply the excess 9uarterly
inco!e tax against inco!e tax due for the taxa"le 9uarters of the succeeding taxa"le years has "een !ade, such option shall "e
considered irrevoca"le for that taxa"le period and no application for tax refund or issuance of a tax credit certificate shall "e
allowed therefor.H The phrase Hfor that taxa"le periodH !erely identifies the excess inco!e tax, su"ject of the option, "y referring
to the taxa"le period when it was ac9uired "y the taxpayer. *n the present case, the excess inco!e tax credit, which :#* opted to
carry over, was ac9uired "y the said "an( during the taxa"le year %556. The option of :#* to carry over its %556 excess inco!e
tax credit is irrevoca"le@ it cannot later on opt to apply for a refund of the very sa!e %556 excess inco!e tax credit.
The Court of &ppeals !ista(enly understood the phrase Hfor that taxa"le periodH as a prescriptive period for the irrevoca"ility
rule. This would !ean that since the tax credit in this case was ac9uired in %556, and :#* opted to carry it over to %555, then the
irrevoca"ility of the option to carry over expired "y the end of %555, leaving :#* free to again ta(e another option as regards its
%556 excess inco!e tax credit. This construal effectively renders nugatory the irrevoca"ility rule. The evident intent of the
legislature, in adding the last sentence to ection =0 of the .*RC of %55=, is to (eep the taxpayer fro! flipBflopping on its options,
and avoid confusion and co!plication as regards said taxpayerAs excess tax credit. The interpretation of the Court of &ppeals
only delays the flipBflopping to the end of each succeeding taxa"le period.
The Court si!ilarly disagrees in the declaration of the Court of &ppeals that to deny the clai! for refund of :#*, "ecause of the
irrevoca"ility rule, would "e tanta!ount to unjust enrich!ent on the part of the govern!ent. The Court addressed the very sa!e
argu!ent in Philam, where it elucidated that there would "e no unjust enrich!ent in the event of denial of the clai! for refund
under such circu!stances, "ecause there would "e no forfeiture of any a!ount in favor of the govern!ent. Th$ a1)+*% 2$'*-
c,a'1$> a& a r$@+*> B)+,> r$1a'* '* %h$ acc)+*% )@ %h$ %aE(a8$r +*%', +%','7$> '* &+cc$$>'*- %aEa2,$ 8$ar&, a& (r)0'>$>
'* S$c%')* .6 )@ %h$ NIR! )@ 1DD.. I% '& B)r%h8 %) *)%$ %ha% +*,'A$ %h$ )(%')* @)r r$@+*> )@ $Ec$&& '*c)1$ %aE, Bh'ch
(r$&cr'2$& a@%$r %B) 8$ar& @r)1 %h$ @','*- )@ %h$ "AR, %h$r$ '& *) (r$&cr'(%'0$ ($r')> @)r %h$ carr8'*- )0$r )@ %h$ &a1$.
Th$r$@)r$, %h$ $Ec$&& '*c)1$ %aE cr$>'% )@ 4PI, Bh'ch '% acK+'r$> '* 1DD8 a*> )(%$> %) carr8 )0$r, 1a8 2$ r$($a%$>,8
carr'$> )0$r %) &+cc$$>'*- %aEa2,$ 8$ar&, i.e., %) 1DDD, 2000, 2001, a*> &) )* a*> &) @)r%h, +*%', ac%+a,,8 a((,'$> )r
cr$>'%$> %) a %aE ,'a2','%8 )@ 4PI.
*nas!uch as the respondent already opted to carry over its unutili3ed credita"le withholding tax of #%,)88,888.88 to taxa"le year
%556, the carryBover could no longer "e converted into a clai! for tax refund "ecause of the irrevoca"ility rule provided in ection
=0 of the .*RC of %55=. There"y, the respondent "eca!e "arred fro! clai!ing the refund. DGnderscoring suppliedE
D)0E
*n this case, in its a!ended *TR for the year ended 4uly 28, %555
D)=E
and for the interi! period ended $ece!"er 2%, %555,
D)6E

'irant clearly tic(ed the "ox signifying that the overpay!ent was HTo "e carried over as tax credit next yearI9uarter.H *te! 2% of
the &nnual *nco!e Tax Return +or! (:*R +or! .o. %=8)) also clearly indicated H*f overpay!ent, !ar( one "ox only. (once the
choice is !ade, the sa!e is irrevoca"le).H
&pplying the irrevoca"ility rule in ection =0, 'irant having opted to carry over its tax overpay!ent for the fiscal year ending 4uly
28, %555 and for the interi! period ending $ece!"er 2%, %555, it is now "arred fro! applying for the refund of the said a!ount
or for the issuance of a tax credit certificate therefor, and for the unutili3ed tax credits carried over fro! the fiscal year ended
4une 28, %556.
$irant is entitled to the re!und o! its unutili%ed creditable
&ithholdin' taxes !or the taxable year ())).
*t is apt to restate here the ti!eBhonored doctrine that the findings and conclusions of the CT& are accorded the highest respect
and will not "e lightly set aside. The CT&, "y the very nature of its functions, is dedicated exclusively to the resolution of tax
pro"le!s and has accordingly developed an expertise on the su"ject unless there has "een an a"usive or i!provident exercise
of authority.
D)5E
Citing Barcelon5 Ro%as &ecurities5 -nc. 1now known as UBP &ecurities5 -nc.2 v. Commissioner of -nternal
Revenue,
D28E
this Court in 3oshiba -nformation $'uipment 1Phils.25 -nc. v. Commissioner of -nternal Revenue5
D2%E
explicitly
pronounced B
4urisprudence has consistently shown that this Court accords the findings of fact "y the CT& with the highest respect. *n &ea7
4and &ervice -nc. v. Court of #ppeals D>.R. .o. %))081, 28 &pril )88%, 21= CR& //%, //1B//0E, this Court recogni3es that the
Court of Tax &ppeals, which "y the very nature of its function is dedicated exclusively to the consideration of tax pro"le!s, has
necessarily developed an expertise on the su"ject, and its conclusions will not "e overturned unless there has "een an a"use or
i!provident exercise of authority. uch findings can only "e distur"ed on appeal if they are not supported "y su"stantial
evidence or there is a showing of gross error or a"use on the part of the Tax Court. *n the a"sence of any clear and convincing
proof to the contrary, this Court !ust presu!e that the CT& rendered a decision which is valid in every respect.
D2)E
*n this case, having studied the applica"le law and jurisprudence, the Court agrees with the conclusion of the CT& that 'irant
co!plied with all the re9uire!ents for the refund of its unutili3ed credita"le withholding taxes for taxa"le year )888.
*n Commissioner of -nternal Revenue v. "ar $ast Bank 8 3rust Compan( 1now Bank of the Philippine -slands2,
D22E
the Court
enu!erated the re9uisites for clai!ing a tax credit or a refund of credita"le withholding tax7
%) The clai! !ust "e filed with the C*R within the twoByear period fro! the date of pay!ent of the tax@
)) *t !ust "e shown on the return that the inco!e received was declared as part of the gross inco!e@ and
2) The fact of withholding !ust "e esta"lished "y a copy of a state!ent duly issued "y the payor to the payee showing the
a!ount paid and the a!ount of the tax withheld.
D2/E
"irst, 'irant clearly co!plied with the twoByear period. This re9uire!ent is "ased on ection ))5 of the .*RC of %55= which
provides7
SE!. 22D. Recovery o! *ax +rroneously or #lle'ally "ollected. , .o suit or proceeding shall "e !aintained in any court for the
recovery of any national internal revenue tax hereafter alleged to have "een erroneously or illegally assessed or collected, or of
any penalty clai!ed to have "een collected without authority, or of any su! alleged to have "een excessively or in any !anner
wrongfully collected, until a clai! for refund or credit has "een duly filed with the Co!!issioner@ "ut such suit or proceeding !ay
"e !aintained, whether or not such tax, penalty, or su! has "een paid under protest or duress.
*n any case, no such suit or proceeding shall "e filed after the expiration of two ()) years fro! the date of pay!ent of the tax or
penalty regardless of any supervening cause that !ay arise after pay!ent7 Provided5 however5 That the Co!!issioner !ay,
even without a written clai! therefor, refund or credit any tax, where on the face of the return upon which pay!ent was !ade,
such pay!ent appears clearly to have "een erroneously paid. DGnderscoring suppliedE
'irant filed its inco!e tax return for the taxa"le year ending $ece!"er 2%, )888 on &pril %8, )88%. Thus, fro! such date of filing,
petitioner had until &pril %8, )882 within which to file its clai! for refund or for the issuance of a tax credit certificate in its favor.
D21E
'irant filed its ad!inistrative clai! with the :*R on epte!"er )8, )88%. *t thereafter filed its #etition for Review with the CT& on
-cto"er %), )88%,
D20E
or clearly within the prescri"ed twoByear period.
&econd, 'irant was also a"le to esta"lish that the inco!e, upon which the credita"le withholding taxes were paid, was declared
as part of its gross inco!e in its *TR. &s the CT& En :anc concluded7
&s regards petitioner C*RAs contention that respondent 'irant was not a"le to esta"lish that the inco!e upon which the credita"le
withholding taxes were paid was included in respondentAs *nco!e Tax Returns, a perusal of the records reveals otherwise. The
reported credita"le taxes withheld of c26,=%6,2)2.88 were withheld fro! the services fees of c6=%,%)=,)12.88 received "y
respondent fro! its affiliates, the outhern Energy Zue3on, *nc. and the outhern Energy #angasinan, *nc., pursuant to the
-perating and 'aintenance ervice &gree!ents entered into "y respondent 'irant with said entities ($%hibits 9..95 9:95 and 9:7
19). The gross inco!e figure of c6=%,%)=,)12.88 is the very sa!e a!ount declared "y respondent in its inco!e tax return for
taxa"le year )888 ($%hibits 97119 8 971;9).
D2=E
The C*R disagrees "ut !erely alleges without any clear argu!ent or "asis that 'irant failed to prove that the inco!e fro! which
its credita"le taxes were withheld were duly declared as part of its inco!e in its annual *TR.
Thus, there "eing no cogent reason presented to reverse the findings and conclusions of the CT&, the Court affir!s its finding
that the inco!e received was declared as part of the gross inco!e, as shown in 'irantAs tax return.
"inall(, 'irant was also a"le to esta"lish the fact of withholding of the credita"le withholding tax.
The C*R is of the opinion that 'irantAs nonBpresentation of the various payors or withholding agents to verify the Certificates of
Credita"le Tax <ithheld at ource (C<3=s), the registered "oo(s of accounts and the audited financial state!ents for the various
periods covered to corro"orate its other allegations, and its failure to offer other evidence to prove and corro"orate the propriety
of its clai! for refund and failure to esta"lish the fact of re!ittance of the alleged withheld taxes "y various payors to the :*R, are
all fatal to its clai!.
D26E
Citing the CT& +irst $ivision, 'irant argues that since the C<TAs were duly signed and prepared under pain of perjury, the
figures appearing therein are presu!ed to "e true and correct.
D25E
The C<TAs were presented and duly identified "y its witness,
'agdalena 'ar9ue3, and further verified "y the duly co!!issioned independent C#&, Ru"en R. Ru"io, on separate hearing
dates, "efore the CT& +irst $ivision.
D/8E
'oreover, these certificates were found "y the duly co!!issioned independent C#& to
"e faithful reproductions of the originals, as stated in his supple!entary report dated 'arch )/, )882.
D/%E
The Court agrees with the conclusion of the CT& En :anc7
Contrary to petitioner C*RAs contention, the fact of withholding was li(ewise esta"lished through respondentAs presentation of the
Certificates of Credita"le Tax <ithheld &t ource, duly issued to it "y outhern Energy #angasinan, *nc. and outhern Energy
Zue3on, *nc., for the year )888 ($%hibits 9*95 9>95 9##9 to 9""9). These certificates were found "y the duly co!!issioned
independent C#& to "e faithful reproductions of the original copies, as per his upple!entary Report dated 'arch )/, )882
($%hibit 9RR9).
&s to petitioner C*RAs contention that the Report of the independent C#& dated +e"ruary )%, )882 shows several discrepancies,
<e sustain the findings of the +irst $ivision. -n direct exa!ination, 'r. Ru"en Ru"io, the duly co!!issioned independent C#&,
testified and explained that the discrepancy was !erely "rought a"out "y7 (%) the difference in foreign exchange (forex) rates at
the ti!e the certificates were recorded "y respondent 'irant and the forex rates used at the ti!e the certificates were issued "y
its custo!ers@ and ()) the ti!ing difference "etween the point when respondent 'irant recogni3ed or accrued its inco!e and the
ti!e when the corresponding credita"le tax was withheld "y its custo!ers. x x x
x x x
&s extensively discussed "y the +irst $ivision7
HThe credita"le withholding taxes of #/8,088,5=%.=5 reflected in the certificates were higher "y #%,66),0/6.=5 when co!pared
with the credita"le withholding taxes of #26,=%6,2)2.88 reported "y petitioner in its inco!e tax return for taxa"le year )888
(Exhi"it -B=). &s stated "y >C e Co. in its report dated +e"ruary )%, )882 (Exhi"it ..), tax credits were clai!ed "y petitioner in
its inco!e tax return for taxa"le year )888 prior to its receipt of the certificates fro! the withholding agents. &t the ti!e it
recogni3ed and accrued its inco!e, petitioner also reported the related credita"le withholding taxes, which was prior to the
receipt of the certificates fro! the withholding agents. Hence, the discrepancy of #%,66),0/6.=5 in credita"le withholding taxes
was !ainly "rought a"out "y the difference "etween the foreign exchange (forex) rates used at the ti!e when petitioner
recorded its inco!e and the related tax credits and the forex rates used "y the withholding agents at the ti!e when inco!e
pay!ents were !ade to petitioner in reporting its tax credits, the sa!e do not have a "earing on petitionerAs total clai! "ecause
the resulting increase in the a!ounts of credita"le withholding taxes reflected in the certificates were not declared "y the
petitioner in its inco!e tax return for the said year. However, for the credita"le taxes withheld "y outhern Energy Zue3on, *nc.
for the period -cto"er %, )888 to $ece!"er 2%, )888 totalling #=,0=8,=/0.88 (which for!ed part of the credita"le withholding
taxes of #6,62/,)68.%% shown in the certificate !ar(ed as Exhi"it EE), the sa!e were "ased on forex rates which were lower
than those used "y petitioner in recogni3ing the tax credits of #=,=02,=/).88 for the sa!e transactions. *n other words,
petitionerAs clai!ed unutili3ed tax credits of #5),550.88 (#=,=02,=/).88 less #=,0=8,=/0.88) were not covered "y the withholding
tax certificate issued "y outhern Energy, Zue3on *nc. for the period -cto"er %, )888 to $ece!"er 2%, )888 and should
therefore "e deducted fro! the total clai! of #26,=%6,2)2.88 :elow is the "rea(down of the a!ount of #5),550.887
Credita"le <ithholding Taxes -verclai!ed Tax Credits
Exhi"its #eriod Covered <ithholding &gent #er Certificate
(a)
#er *TR
(")
(") B (a)
EE, ZZ %8I8%I88 B %)I2%I88 outhern Energy Zue3on, *nc. #/,)56,65).88 #/,218,2)=.88 #1%,/21.88
2,2=%,61/.88 2,/%2,/%1.88 /%,10%.88
#=,0=8,=/0.88 #=,=02,=/).88 #5),550.88
The reconciliation schedule also shows that for the credita"le taxes of #=/1,)58.88 withheld "y outhern Energy Zue3on *nc. for
the period -cto"er %, )888 to $ece!"er 2%, )888 on petitionerAs #hilippine peso "illings under *nvoice .o. 88%1, the
corresponding credita"le taxes clai!ed "y petitioner in its )888 inco!e tax return a!ounted to #=18,%58.88 which were higher
"y #/,588.88 than those reflected in the certificate. &ccordingly, the a!ount of #/,588.88 shall "e deducted fro! petitionerAs total
clai!.
*n fine, this Court finds that of the total unutili3ed credits of #26,=%6, 2)2.88 declared "y petitioner in its )888 inco!e tax return,
only the a!ount of #26,0)8,/)=.88 (#26,=%6,2)2.88 less #5),550.88) was duly su"stantiated "y withholding tax certificates.H
Therefore, as the CT& ruled, 'irant co!plied with all the legal re9uire!ents and it is entitled, as it opted, to a refund of its excess
credita"le withholding tax for the taxa"le year )888 in the a!ount of c26,0)8,/)=.88.
The Court finds no a"usive or i!provident exercise of authority on the part of the CT&. ince there is no showing of gross error
or a"use on the part of the CT&, and its findings are supported "y su"stantial evidence, there is no cogent reason to distur" its
findings and conclusions.
:HERE"ORE, the petitions in >.R. .o. %=%=/) and >.R. .o. %=0%01 are DENIED.
SO ORDERED.
"arpio, -"hairperson., /eonardo,0e "astro,
1
Peralta, a*> Abad, JJ., c)*c+r
+*RT $*C**-.
G.R. N). 11.D82 "$2r+ar8 6, 1DD.
!OMMISSIONER O" INTERNAL REVENE, Petitioner, vs. !ORT O" APPEALS, !ORT O" TA? APPEALS a*>
ALHAM4RA INDSTRIES, IN!., Respondents.

4ELLOSILLO, J.:
&,H&':R& *.$GTR*E, *.C., is a do!estic corporation engaged in the !anufacture and sale of cigar and cigarette products.
-n = 'ay %55% private respondent received a letter dated )0 &pril %55% fro! the Co!!issioner of *nternal Revenue assessing it
deficiency &d Calore! Tax (&CT) in the total a!ount of +our Hundred EightyBEight Thousand Three Hundred .inetyBix #esos
and ixtyBTwo Centavos (#/66,250.0)), inclusive of incre!ents, on the re!ovals of cigarette products fro! their place of
production during the period ) .ove!"er %558 to )) 4anuary %55%.
1
#etitioner co!putes the deficiency thus B
Total &CT due per !anufacturerAs declaration # /,)=5,8/).22
,ess7 &CT paid under :*R Ruling .o. /=2B66 2,581,2/6.61
BBBBBB
$eficiency &CT 2=2,052./6
&dd7 #enalties7
)1? urcharge (ec. )/6DcED2E .*RC) 52,/)2.2=
)8? *nterest (#/0=,%%0.61 x 6)I208 days) )%,)=5.)=
BBBBBB
Total &!ount $ue # /66,250.0)
*n a letter dated )) 'ay %55% received "y petitioner on even date, private respondent thru counsel filed a protest against the
proposed assess!ent with a re9uest that the sa!e "e withdrawn and cancelled. -n 2% 'ay %55% private respondent received
petitionerAs reply dated )= 'ay %55% denying its protest and re9uest for cancellation stating that the decision was final, and at the
sa!e ti!e re9uesting pay!ent of the revised a!ount of +ive Hundred Twenty Thousand Eight Hundred ThirtyB+ive #esos and
TwentyB.ine Centavos (#1)8,621.)5), with interest updated, within ten (%8) days fro! receipt thereof. *n a letter dated %8 4une
%55% which petitioner received on the sa!e day, private respondent re9uested for the reconsideration of petitionerAs denial of its
protest. <ithout waiting for petitionerAs reply to its re9uest for reconsideration, private respondent filed on %5 4une %55% a petition
for review with the Court of Tax &ppeals. -n )1 4une %55% private respondent received fro! petitioner a letter dated )% 4une
%55% denying its re9uest for reconsideration declaring again that its decision was final. -n 6 4uly %55% private respondent paid
under protest the disputed ad valore! tax in the su! of #1)8,621.)5.
2
*n its $ecision
5
of % $ece!"er %552 the Court of Tax &ppeals ordered petitioner to refund to private respondent the a!ount of
+ive Hundred Twenty Thousand Eight Hundred ThirtyB+ive #esos and TwentyB.ine Centavos (#1)8,621.)5) representing
erroneously paid ad valore! tax for the period ) .ove!"er %558 to )) 4anuary %55%.
The Court of Tax &ppeals explained that the su"ject deficiency excise tax assess!ent resulted fro! private respondentAs use of
the co!putation !andated "y :*R Ruling /=2B66 dated / -cto"er %566 as "asis for co!puting the fifteen percent (%1?) ad
valore! tax due on its re!ovals of cigarettes fro! ) .ove!"er %558 to )) 4anuary %55%. :*R Circular /=2B66 was issued "y
$eputy Co!!issioner Eufracio $. antos to *nsularBJe"ana To"acco Corporation allowing the latter to exclude the valueBadded
tax (C&T) in the deter!ination of the gross selling price for purposes of co!puting the ad valore! tax of its cigar and cigarette
products in accordance with ec. %)= of the Tax Code as a!ended "y Executive -rder .o. )=2 which provides as follows7
ec. %)=. Pa(ment of e%cise ta%es on domestic products. B . . . . (") $eter!ination of gross selling price of goods su"ject to ad
valore! tax. B Gnless otherwise provided, the price, excluding the valueBadded tax, at which the goods are sold at wholesale in
the place of production or through their sales agents to the pu"lic shall constitute the gross selling price.
The co!putation, pursuant to the ruling, is illustrated "y way of exa!ple thus B
# //.88x%I% _ # /.88 C&T
# //.88 B # /.88 _ # /8.88 price without C&T
# /8.88 x %1? _ # 0.88 &d Calore! Tax
+or the period ) .ove!"er %558 to )) 4anuary %55% private respondent paid #2,581,2/6.61 ad valore! tax, applying ec. %)=
(") of the .*RC as interpreted "y :*R Ruling /=2B66 "y excluding the C&T in the deter!ination of the gross selling price.
Thereafter, on %% +e"ruary %55%, petitioner issued :*R Ruling 8%=B5% to *nsularBJe"ana To"acco Corporation revo(ing :*R
Ruling /=2B66 for "eing violative of ec. %/) of the Tax Code. *t included "ac( the C&T to the gross selling price in deter!ining
the tax "ase for co!puting the ad valore! tax on cigarettes. Cited as "asis "y petitioner is ec. %/) of the Tax Code, as
a!ended "y E.-. .o. )=2 B
ec. %/). Cigar and cigarettes B . . . +or purposes of this section, !anufacturerAs or i!porterAs registered. wholesale price shall
include the ad valore! tax i!posed in paragraphs (a), ("), (c) or (d) hereof and the a!ount intended to cover the value added
tax i!posed under Title *C of this Code.
#etitioner sought to apply the revocation retroactively to private respondentAs re!ovals of cigarettes for the period starting )
.ove!"er %558 to )) 4anuary %55% on the ground that private respondent allegedly acted in "ad faith which is an exception to
the rule on nonBretroactivity of :*R Rulings.
4
-n appeal, the Court of &ppeals affir!ed the Court of Tax &ppeals holding that the retroactive application of :*R Ruling 8%=B5%
cannot "e allowed since private respondent did not act in "ad faith@ private respondentAs co!putation under :*R Ruling /=2B66
was not shown to "e !otivated "y ill will or dishonesty parta(ing the nature of fraud@ hence, this petition.
#etitioner i!putes error to the Court of &ppeals7 (%) in failing to consider that private respondentAs reliance on :*R Ruling /=2B66
"eing contrary to ec. %/) of the Tax Code does not confer vested rights to private respondent in the co!putation of its ad
valore! tax@ ()) in failing to consider that good faith and prejudice to the taxpayer in cases of reliance on a void :*R Ruling is
i!!aterial and irrelevant and does not place the govern!ent in estoppel in collecting taxes legally due@ (2) in holding that private
respondent acted in good faith in applying :*R Ruling /=2B66@ and, (/) in failing to consider that the assess!ent of petitioner is
presu!ed to "e regular and the clai! for tax refund !ust "e strictly construed against private respondent for "eing in derogation
of sovereign authority.
#etitioner clai!s that the !ain issue "efore us is whether private respondentAs reliance on a void :*R ruling conferred upon the
latter a vested right to apply the sa!e in the co!putation of its ad valore! tax and clai! for tax refund. ec. %/) (d) of the Tax
Code, which provides for the inclusion of the C&T in the tax "ase for purposes of co!puting the %1? ad valore! tax, is the
applica"le law in the instant case as it specifically applies to the !anufacturerAs wholesale price of cigar and cigarette products
and not ec. %)= (") of the Tax Code which applies in general to the wholesale of goods or do!estic products. ec. %/) "eing a
specific provision applica"le to cigar and cigarettes !ust perforce prevail over ec. %)= ("), a general provision of law insofar as
the i!position of the ad valore! tax on cigar and cigarettes is concerned.
/
Conse9uently, the application of ec. %)= (") to the
wholesale price of cigar and cigarette products for purposes of co!puting the ad valore! tax is patently erroneous. &ccordingly,
:*R Ruling /=2B66 is void ab initio as it contravenes the express provisions of ec. %/) (d) of the Tax Code.
6
#etitioner contends that :*R Ruling /=2B66 "eing an erroneous interpretation of ec. %/) (") of the Tax Code does not confer
any vested right to private respondent as to exe!pt it fro! the retroactive application of :*R Ruling 8%=B5%. Thus &rt. ))1/ of the
.ew Civil Code is explicit that H(n)o vested or ac9uired right can arise fro! acts or o!issions which are against the law . . . H
.
*t is
argued that the Court of &ppeals erred in ruling that retroactive application cannot "e !ade since private respondent acted in
good faith. The following circu!stances would show that private respondentAs reliance on :*R Ruling /=2B66 was induced "y ill
will7 first, private respondent despite (nowledge that ec. %/) of the Tax Code was the specific provision applica"le still shifted its
accounting !ethod pursuant to ec. %)= (") of the Tax Code@ and, second, the shift in accounting !ethod was !ade without any
prior consultation with the :*R.
8
*t is further contended "y petitioner that clai!s for tax refund !ust "e construed against private respondent. & tax refund "eing in
the nature of a tax exe!ption is regarded as in derogation of the sovereign authority and is strictly construed against private
respondent as the sa!e parta(es the nature of a tax exe!ption. Tax exe!ptions cannot !erely "e i!plied "ut !ust "e
categorically and un!ista(a"ly expressed.
D
<e cannot sustain petitioner. The deficiency tax assess!ent issued "y petitioner against private respondent is without legal
"asis "ecause of the prohi"ition against the retroactive application of the revocation of :*R rulings in the a"sence of "ad faith on
the part of private respondent.
The present dispute arose fro! the discrepancy in the taxa"le "ase on which the excise tax is to apply on account of two
incongruous :*R Rulings7 (%) :*R Ruling /=2B66 dated / -cto"er %566 which e%cluded the C&T fro! the tax "ase in co!puting
the fifteen percent (%1?) excise tax due@ and, ()) :*R Ruling 8%=B5% dated %% +e"ruary %55% which included "ac( the C&T in
co!puting the tax "ase for purposes of the fifteen percent (%1?) ad valore! tax.
The 9uestion as to the correct co!putation of the excise tax on cigarettes in the case at "ar has "een sufficiently addressed "y
:*R Ruling 8%=B5% dated %% +e"ruary %55% which revo(ed :*R Ruling /=2B66 dated / -cto"er %566 B
*t is to "e noted that ection %)= (") of the Tax Code as a!ended applies in general to do!estic products and excludes the
valueBadded tax in the deter!ination of the gross selling price, which is the tax "ase for purposes of the i!position of ad valore!
tax. -n the other hand, the last paragraph of ection %/) of the sa!e Code which includes the valueBadded tax in the
co!putation of the ad valore! tax, refers specifically to cigar and cigarettes only. *t does not includeIapply to any other articles or
goods su"ject to the ad valore! tax. &ccordingly, ection %/) !ust perforce prevail over ection %)= (") which is a general
provision of law insofar as the i!position of the ad valore! tax on cigar and cigarettes is concerned.
'oreover, the phrase unless otherwise provided in ection %)= (") purports of exceptions to the general rule contained therein,
such as that of ection %/), last paragraph thereof which explicitly provides that in the case of cigarettes, the tax "ase for
purposes of the ad valore! tax shall include, a!ong others, the valueBadded tax.
#rivate respondent did not 9uestion the correctness of the a"ove :*R ruling. *n fact, upon (nowledge of the effectivity of :*R
Ruling .o. 8%=B5%, private respondent i!!ediately i!ple!ented the !ethod of co!putation !andated therein "y restoring the
C&T in co!puting the tax "ase for purposes of the %1? ad valore! tax.
However, wellBentrenched is the rule that rulings and circulars5 rules and regulations promulgated b( the Commissioner of
-nternal Revenue would have no retroactive application if to so appl( them would be pre6udicial to the ta%pa(ers.
10
The applica"le law is ec. )/0 of the Tax Code which provides B
ec. )/0. ,on7retroactivit( of rulings. B &ny revocation, !odification, or reversal of any rules and regulations pro!ulgated in
accordance with the preceding section or any of the rulings or circulars pro!ulgated "y the Co!!issioner of *nternal Revenue
shall not "e given retroactive application if the revocation, !odification, or reversal will "e prejudicial to the taxpayers except in
the following cases7 a) where the taxpayer deli"erately !isstates or o!its !aterial facts fro! his return or in any docu!ent
re9uired of hi! "y the :ureau of *nternal Revenue@ ") where the facts su"se9uently gathered "y the :ureau of *nternal Revenue
are !aterially different fro! the facts on which the ruling is "ased@ or c) where the taxpayer acted in "ad faith.
<ithout dou"t, private respondent would "e prejudiced "y the retroactive application of the revocation as it would "e assessed
deficiency excise tax.
<hat is left to "e resolved is petitionerAs clai! that private respondent falls under the third exception in ec. )/0, i.e., that the
taxpayer has acted in "ad faith.
:ad faith i!ports a dishonest purpose or so!e !oral o"li9uity and conscious doing of wrong. *t parta(es of the nature of fraud@ a
"reach of a (nown duty through so!e !otive of interest or ill will.
11
<e find no convincing evidence that private respondentAs
i!ple!entation of the co!putation !andated "y :*R Ruling /=2B66 was illB!otivated or attended with a dishonest purpose. To
the contrary, as a sign of good faith, private respondent i!!ediately reverted to the co!putation !andated "y :*R Ruling 8%=B5%
upon (nowledge of its issuance on %% +e"ruary %55%.
&s regards petitionerAs argu!ent that private respondent should have !ade consultations with it "efore private respondent used
the co!putation !andated "y :*R Ruling /=2B66, suffice it to state that the aforesaid :*R Ruling was clear and categorical thus
leaving no roo! for interpretation. The failure of private respondent to consult petitioner does not i!ply "ad faith on the part of
the for!er.
&d!ittedly the govern!ent is not estopped fro! collecting taxes legally due "ecause of !ista(es or errors of its agents. :ut li(e
other principles of law, this ad!its of exceptions in the interest of justice and fair play, as where injustice will result to the
taxpayer.
12
<HERE+-RE, there "eing no reversi"le error co!!itted "y respondent Court of &ppeals, the petition is $E.*E$ and petitioner
C-''**-.ER -+ *.TER.&, RECE.GE is ordered to refund private respondent &,H&':R& *.$GTR*E, *.C., the
a!ount of #1)8,621.)5 upon finality of this $ecision.
SO ORDERED.
G.R. N). 12.10/ 3+*$ 2/, 1DDD
!OMMISSIONER O" INTERNAL REVENE, petitioner,
vs.
S.!. 3OHNSON AND SON, IN!., a*> !ORT O" APPEALS, respondents.

GONJAGA6RE#ES, J.:
This is a petition for review on certiorari under Rule /1 of the Rules of Court see(ing to set aside the decision of the Court of
&ppeals dated .ove!"er =, %550 in C&B>R # .o. /868) affir!ing the decision of the Court of Tax &ppeals in CT& Case .o.
1%20.
The antecedent facts as found "y the Court of Tax &ppeals are not disputed, to wit7
DRespondentE, a do!estic corporation organi3ed and operating under the #hilippine laws, entered into a
license agree!ent with C 4ohnson and on, Gnited tates of &!erica (G&), a nonBresident foreign
corporation "ased in the G..&. pursuant to which the DrespondentE was granted the right to use the
trade!ar(, patents and technology owned "y the latter including the right to !anufacture, pac(age and
distri"ute the products covered "y the &gree!ent and secure assistance in !anage!ent, !ar(eting and
production fro! C 4ohnson and on, G. . &.
The said ,icense &gree!ent was duly registered with the Technology Transfer :oard of the :ureau of
#atents, Trade 'ar(s and Technology Transfer under Certificate of Registration .o. 680/ (Exh. H&H).
+or the use of the trade!ar( or technology, DrespondentE was o"liged to pay C 4ohnson and on, G&
royalties "ased on a percentage of net sales and su"jected the sa!e to )1? withholding tax on royalty
pay!ents which DrespondentE paid for the period covering 4uly %55) to 'ay %552 in the total a!ount of
#%,082,//2.88 (Exhs. H:H to H,H and su"!ar(ings).
-n -cto"er )5, %552, DrespondentE filed with the *nternational Tax &ffairs $ivision (*T&$) of the :*R a clai!
for refund of overpaid withholding tax on royalties arguing that, Hthe antecedent facts attending DrespondentAsE
case fall s9uarely within the sa!e circu!stances under which said +acGeorge and Gillete rulings were
issued. ince the agree!ent was approved "y the Technology Transfer :oard, the preferential tax rate of
%8? should apply to the DrespondentE. <e therefore su"!it that royalties paid "y the DrespondentE to C
4ohnson and on, G& is only su"ject to %8? withholding tax pursuant to the !ostBfavored nation clause of
the R#BG Tax Treaty D&rticle %2 #aragraph ) (") (iii)E in relation to the R#B<est >er!any Tax Treaty D&rticle
%) ()) (")EH (#etition for Review Dfiled with the Court of &ppealsE, par. %)). DRespondentAsE clai! for there fund
of #502,)00.88 was co!puted as follows7
>ross )1? %8?
'onthI Royalty <ithholding <ithholding
Jear +ee Tax #aid Tax :alance
^^^ ^^^ ^^^ ^^^ ^^^
4uly %55) 115,6=6 %25,5=8 11,566 62,56)
&ugust 10=,521 %/%,56/ 10,=5/ 61,%58
epte!"er 151,510 %/6,565 15,150 65,252
-cto"er 02/,/81 %16,08% 02,//% 51,%0%
.ove!"er 0)8,661 %11,))% 0),865 52,%22
$ece!"er 262,)=0 51,6%5 20,2)6 1=,/5%
4an %552 08),/1% %=8,028 06,)/1 %8),206
+e"ruary 101,6/1 %/%,/0% 10,161 6/,6==
'arch 1/=,)12 %20,6%2 1/,=)1 6),866
&pril 008,6%8 %01,)82 00,86% 55,%))
'ay 082,8=0 %18,=05 08,286 58,/0%
^^^^ ^^^^ ^^^^ ^^^
#0,/)%,==8 #%,081,//2 #0/),%== #502,)00
1
________ ________ ________ ________
The Co!!issioner did not act on said clai! for refund. #rivate respondent .C. 4ohnson e on, *nc. (.C. 4ohnson) then filed a
petition for review "efore the Court of Tax &ppeals (CT&) where the case was doc(eted as CT& Case .o. 1%20, to clai! a refund
of the overpaid withholding tax on royalty pay!ents fro! 4uly %55) to 'ay %552.
-n 'ay =, %550, the Court of Tax &ppeals rendered its decision in favor of .C. 4ohnson and ordered the Co!!issioner of
*nternal Revenue to issue a tax credit certificate in the a!ount of #502,)00.88 representing overpaid withholding tax on royalty
pay!ents, "eginning 4uly, %55) to 'ay, %552.
2
The Co!!issioner of *nternal Revenue thus filed a petition for review with the Court of &ppeals which rendered the decision
su"ject of this appeal on .ove!"er =, %550 finding no !erit in the petition and affir!ing in toto the CT& ruling.
5
This petition for review was filed "y the Co!!issioner of *nternal Revenue raising the following issue7
THE C-GRT -+ &##E&, ERRE$ *. RG,*.> TH&T C 4-H.-. &.$ -., G& * E.T*T,E$ T-
THE H'-T +&C-RE$ .&T*-.H T&L R&TE -+ %8? -. R-J&,T*E & #R-C*$E$ *. THE R#BG T&L
TRE&TJ *. RE,&T*-. T- THE R#B<ET >ER'&.J T&L TRE&TJ.
#etitioner contends that under &rticle %2()) (") (iii) of the R#BG Tax Treaty, which is (nown as the H!ost favored nationH clause,
the lowest rate of the #hilippine tax at %8? !ay "e i!posed on royalties derived "y a resident of the Gnited tates fro! sources
within the #hilippines only if the circu!stances of the resident of the Gnited tates are si!ilar to those of the resident of <est
>er!any. ince the R#BG Tax Treaty contains no H!atching creditH provision as that provided under &rticle )/ of the R#B<est
>er!any Tax Treaty, the tax on royalties under the R#BG Tax Treaty is not paid under si!ilar circu!stances as those o"taining
in the R#B<est >er!any Tax Treaty. Even assu!ing that the phrase Hpaid under si!ilar circu!stancesH refers to the pay!ent of
royalties, and not taxes, as held "y the Court of &ppeals, still, the H!ost favored nationH clause cannot "e invo(ed for the reason
that when a tax treaty conte!plates circu!stances attendant to the pay!ent of a tax, or royalty re!ittances for that !atter, these
!ust necessarily refer to circu!stances that are taxBrelated. +inally, petitioner argues that since .C. 4ohnsonAs invocation of the
H!ost favored nationH clause is in the nature of a clai! for exe!ption fro! the application of the regular tax rate of )1? for
royalties, the provisions of the treaty !ust "e construed strictly against it.
*n its Co!!ent, private respondent .C. 4ohnson avers that the instant petition should "e denied (%) "ecause it contains a
defective certification against foru! shopping as re9uired under C Circular .o. )6B5%, that is, the certification was not executed
"y the petitioner herself "ut "y her counsel@ and ()) that the H!ost favored nationH clause under the R#BG Tax Treaty refers to
royalties paid under si!ilar circu!stances as those royalties su"ject to tax in other treaties@ that the phrase Hpaid under si!ilar
circu!stancesH does not refer to pay!ent of the tax "ut to the su"ject !atter of the tax, that is, royalties, "ecause the H!ost
favored nationH clause is intended to allow the taxpayer in one state to avail of !ore li"eral provisions contained in another tax
treaty wherein the country of residence of such taxpayer is also a party thereto, su"ject to the "asic condition that the su"ject
!atter of taxation in that other tax treaty is the sa!e as that in the original tax treaty under which the taxpayer is lia"le@ thus, the
R#BG Tax Treaty spea(s of Hroyalties of the sa!e (ind paid under si!ilar circu!stancesH. .C. 4ohnson also contends that the
Co!!issioner is estopped fro! insisting on her interpretation that the phrase Hpaid under si!ilar circu!stancesH refers to the
!anner in which the tax is paid, for the reason that said interpretation is e!"odied in Revenue 'e!orandu! Circular (HR'CH)
25B5) which was already a"andoned "y the Co!!issionerAs predecessor in %552@ and was expressly revo(ed in :*R Ruling .o.
81)B51 which stated that royalties paid to an &!erican licensor are su"ject only to %8? withholding tax pursuant to &rt %2())(")
(iii) of the R#BG Tax Treaty in relation to the R#B<est >er!any Tax Treaty. aid ruling should "e given retroactive effect except
if such is prejudicial to the taxpayer pursuant to ection )/0 of the .ational *nternal Revenue Code.
#etitioner filed Reply alleging that the fact that the certification against foru! shopping was signed "y petitionerAs counsel is not a
fatal defect as to warrant the dis!issal of this petition since Circular .o. )6B5% applies only to original actions and not to appeals,
as in the instant case. 'oreover, the re9uire!ent that the certification should "e signed "y petitioner and not "y counsel does not
apply to petitioner who has only the -ffice of the olicitor >eneral as statutory counsel. #etitioner reiterates that even if the
phrase Hpaid under si!ilar circu!stancesH e!"odied in the !ost favored nation clause of the R#BG Tax Treaty refers to the
pay!ent of royalties and not taxes, still the presence or a"sence of a H!atching creditH provision in the said R#BG Tax Treaty
would constitute a !aterial circu!stance to such pay!ent and would "e deter!inative of the said clauseAs
application.1âwphi1.n?t
<e address first the o"jection raised "y private respondent that the certification against foru! shopping was not executed "y the
petitioner herself "ut "y her counsel, the -ffice of the olicitor >eneral (-..>.) through one of its olicitors, &tty. To!as '.
.avarro.
C Circular .o. )6B5% provides7
G:4ECT7 &$$*T*-.&, REZG**TE +-R
#ET*T*-. +*,E$ <*TH THE G#RE'E
C-GRT &.$ THE C-GRT -+ &##E&, T-
#RECE.T +-RG' H-##*.> -R 'G,T*#,E
+*,*.> -+ #ET*T*-. &.$ C-'#,&*.T
T-7 xxx xxx xxx
The attention of the Court has "een called to the filing of !ultiple petitions and co!plaints involving the sa!e
issues in the upre!e Court, the Court of &ppeals or other tri"unals or agencies, with the result that said
courts, tri"unals or agencies have to resolve the sa!e issues.
(%) To avoid the foregoing, in every petition filed with the upre!e Court or the Court of &ppeals, the
petitioner aside fro! co!plying with pertinent provisions of the Rules of Court and existing circulars, !ust
certify under oath to all of the following facts or underta(ings7 (a) he has not theretofore co!!enced any
other action or proceeding involving the sa!e issues in the upre!e Court, the Court of &ppeals, or any
tri"unal or
agency@ . . .
()) &ny violation of this revised Circular will entail the following sanctions7 (a) it shall "e a cause for the
su!!ary dis!issal of the !ultiple petitions or co!plaints@ . . .
The circular expressly re9uires that a certificate of nonBforu! shopping should "e attached to petitions filed "efore this Court and
the Court of &ppeals. #etitionerAs allegation that Circular .o. )6B5% applies only to original actions and not to appeals as in the
instant case is not supported "y the text nor "y the o"vious intent of the Circular which is to prevent !ultiple petitions that will
result in the sa!e issue "eing resolved "y different courts.
&nent the re9uire!ent that the party, not counsel, !ust certify under oath that he has not co!!enced any other action involving
the sa!e issues in this Court or the Court of &ppeals or any other tri"unal or agency, we are inclined to accept petitionerAs
su"!ission that since the -> is the only lawyer for the petitioner, which is a govern!ent agency !andated under ection 21,
Chapter %), title ***, :oo( *C of the %56= &d!inistrative Code
4
to "e represented only "y the olicitor >eneral, the certification
executed "y the -> in this case constitutes su"stantial co!pliance with Circular .o. )6B5%.
<ith respect to the !erits of this petition, the !ain point of contention in this appeal is the interpretation of &rticle %2 ()) (") (iii) of
the R#BG Tax Treaty regarding the rate of tax to "e i!posed "y the #hilippines upon royalties received "y a nonBresident
foreign corporation. The provision states insofar as pertinent
that ^
%) Royalties derived "y a resident of one of the Contracting tates fro! sources within
the other Contracting tate !ay "e taxed "y "oth Contracting tates.
)) However, the tax i!posed "y that Contracting tate shall not exceed.
a) *n the case of the Gnited tates, %1 percent of the gross a!ount of
the royalties, and
") *n the case of the #hilippines, the least of7
(i) )1 percent of the gross a!ount of the
royalties@
(ii) %1 percent of the gross a!ount of the
royalties, where the royalties are paid "y a
corporation registered with the #hilippine :oard
of *nvest!ents and engaged in preferred areas of
activities@ and
(iii) the lowest rate of Philippine ta% that ma( be
imposed on ro(alties of the same kind paid under
similar circumstances to a resident of a third
&tate.
xxx xxx xxx
(e!phasis supplied)
Respondent . C. 4ohnson and on, *nc. clai!s that on the "asis of the 9uoted provision, it is entitled to the concessional tax
rate of %8 percent on royalties "ased on &rticle %) ()) (") of the R#B>er!any Tax Treaty which provides7
()) However, such royalties !ay also "e taxed in the Contracting tate in which they
arise, and according to the law of that tate, "ut the tax so charged shall not exceed7
xxx xxx xxx
") %8 percent of the gross a!ount of royalties arising fro! the use of,
or the right to use, any patent, trade!ar(, design or !odel, plan,
secret for!ula or process, or fro! the use of or the right to use,
industrial, co!!ercial, or scientific e9uip!ent, or for infor!ation
concerning industrial, co!!ercial or scientific experience.
+or as long as the transfer of technology, under #hilippine law, is su"ject to approval, the li!itation of the tax
rate !entioned under ") shall, in the case of royalties arising in the Repu"lic of the #hilippines, only apply if
the contract giving rise to such royalties has "een approved "y the #hilippine co!petent authorities.
Gnli(e the R#BG Tax Treaty, the R#B>er!any Tax Treaty allows a tax credit of )8 percent of the gross a!ount of such royalties
against >er!an inco!e and corporation tax for the taxes paya"le in the #hilippines on such royalties where the tax rate is
reduced to %8 or %1 percent under such treaty. &rticle )/ of the R#B>er!any Tax Treaty states ^
%) Tax shall "e deter!ined in the case of a resident of the +ederal Repu"lic of >er!any
as follows7
xxx xxx xxx
") u"ject to the provisions of >er!an tax law regarding credit for
foreign tax, there shall "e allowed as a credit against >er!an inco!e
and corporation tax paya"le in respect of the following ite!s of
inco!e arising in the Repu"lic of the #hilippines, the tax paid under
the laws of the #hilippines in accordance with this &gree!ent on7
xxx xxx xxx
dd) royalties, as defined in paragraph 2 of &rticle
%)@
xxx xxx xxx
c) +or the purpose of the credit referred in su"paragraph@ ") the
#hilippine tax shall "e dee!ed to "e
xxx xxx xxx
cc) in the case of royalties for which the tax is
reduced to %8 or %1 per cent according to
paragraph ) of &rticle %), )8 percent of the gross
a!ount of such royalties.
xxx xxx xxx
&ccording to petitioner, the taxes upon royalties under the R#BG Tax Treaty are not paid under circu!stances si!ilar to those in
the R#B<est >er!any Tax Treaty since there is no provision for a )8 percent !atching credit in the for!er convention and
private respondent cannot invo(e the concessional tax rate on the strength of the !ost favored nation clause in the R#BG Tax
Treaty. #etitionerAs position is explained thus7
Gnder the foregoing provision of the R#B<est >er!any Tax Treaty, the #hilippine tax paid on inco!e fro!
sources within the #hilippines is allowed as a credit against >er!an inco!e and corporation tax on the sa!e
inco!e. *n the case of royalties for which the tax is reduced to %8 or %1 percent according to paragraph ) of
&rticle %) of the R#B<est >er!any Tax Treaty, the credit shall "e )8? of the gross a!ount of such royalty.
To illustrate, the royalty inco!e of a >er!an resident fro! sources within the #hilippines arising fro! the use
of, or the right to use, any patent, trade !ar(, design or !odel, plan, secret for!ula or process, is taxed at
%8? of the gross a!ount of said royalty under certain conditions. The rate of %8? is i!posed if credit against
the >er!an inco!e and corporation tax on said royalty is allowed in favor of the >er!an resident. That
!eans the rate of %8? is granted to the >er!an taxpayer if he is si!ilarly granted a credit against the
inco!e and corporation tax of <est >er!any. The clear intent of the H!atching creditH is to soften the i!pact
of dou"le taxation "y different jurisdictions.
The R#BG Tax Treaty contains no si!ilar H!atching creditH as that provided under the R#B<est >er!any
Tax Treaty. Hence, the tax on royalties under the R#BG Tax Treaty is not paid under si!ilar circu!stances
as those o"taining in the R#B<est >er!any Tax Treaty. Therefore, the H!ost favored nationH clause in the
R#B<est >er!any Tax Treaty cannot "e availed of in interpreting the provisions of the R#BG Tax Treaty.
/
The petition is !eritorious.
<e are una"le to sustain the position of the Court of Tax &ppeals, which was upheld "y the Court of &ppeals, that the phrase
Hpaid under si!ilar circu!stances in &rticle %2 ()) ("), (iii) of the R#BG Tax Treaty should "e interpreted to refer to pay!ent of
royalty, and not to the pay!ent of the tax, for the reason that the phrase Hpaid under si!ilar circu!stancesH is followed "y the
phrase Hto a resident of a third stateH. The respondent court held that H<ords are to "e understood in the context in which they
are usedH, and since what is paid to a resident of a third state is not a tax "ut a royalty Hlogic instructsH that the treaty provision in
9uestion should refer to royalties of the sa!e (ind paid under si!ilar circu!stances.
The a"ove construction is "ased principally on syntax or sentence structure "ut fails to ta(e into account the purpose ani!ating
the treaty provisions in point. To "egin with, we are not aware of any law or rule pertinent to the pay!ent of royalties, and none
has "een "rought to our attention, which provides for the pay!ent of royalties under dissi!ilar circu!stances. The tax rates on
royalties and the circu!stances of pay!ent thereof are the sa!e for all the recipients of such royalties and there is no disparity
"ased on nationality in the circu!stances of such pay!ent.
6
-n the other hand, a cursory reading of the various tax treaties will
show that there is no si!ilarity in the provisions on relief fro! or avoidance of dou"le taxation
.
as this is a !atter of negotiation
"etween the contracting parties.
8
&s will "e shown later, this dissi!ilarity is true particularly in the treaties "etween the
#hilippines and the Gnited tates and "etween the #hilippines and <est >er!any.
The R#BG Tax Treaty is just one of a nu!"er of "ilateral treaties which the #hilippines has entered into for the avoidance of
dou"le taxation.
D
The purpose of these international agree!ents is to reconcile the national fiscal legislations of the contracting
parties in order to help the taxpayer avoid si!ultaneous taxation in two different jurisdictions.
10
'ore precisely, the tax
conventions are drafted with a view towards the eli!ination of international juridical dou"le taxation, which is defined as the
i!position of co!para"le taxes in two or !ore states on the sa!e taxpayer in respect of the sa!e su"ject !atter and for
identical periods.
11
The apparent rationale for doing away with dou"le taxation is of encourage the free flow of goods and
services and the !ove!ent of capital, technology and persons "etween countries, conditions dee!ed vital in creating ro"ust and
dyna!ic econo!ies.
12
+oreign invest!ents will only thrive in a fairly predicta"le and reasona"le international invest!ent cli!ate
and the protection against dou"le taxation is crucial in creating such a cli!ate.
15
$ou"le taxation usually ta(es place when a person is resident of a contracting state and derives inco!e fro!, or owns capital in,
the other contracting state and "oth states i!pose tax on that inco!e or capital. *n order to eli!inate dou"le taxation, a tax treaty
resorts to several !ethods. +irst, it sets out the respective rights to tax of the state of source or situs and of the state of
residence with regard to certain classes of inco!e or capital. *n so!e cases, an exclusive right to tax is conferred on one of the
contracting states@ however, for other ite!s of inco!e or capital, "oth states are given the right to tax, although the a!ount of tax
that !ay "e i!posed "y the state of source is li!ited.
14
The second !ethod for the eli!ination of dou"le taxation applies whenever the state of source is given a full or li!ited right to
tax together with the state of residence. *n this case, the treaties !a(e it incu!"ent upon the state of residence to allow relief in
order to avoid dou"le taxation. There are two !ethods of relief ^ the exe!ption !ethod and the credit !ethod. *n the exe!ption
!ethod, the inco!e or capital which is taxa"le in the state of source or situs is exe!pted in the state of residence, although in
so!e instances it !ay "e ta(en into account in deter!ining the rate of tax applica"le to the taxpayerAs re!aining inco!e or
capital. -n the other hand, in the credit !ethod, although the inco!e or capital which is taxed in the state of source is still
taxa"le in the state of residence, the tax paid in the for!er is credited against the tax levied in the latter. The "asic difference
"etween the two !ethods is that in the exe!ption !ethod, the focus is on the inco!e or capital itself, whereas the credit !ethod
focuses upon the tax.
1/
*n negotiating tax treaties, the underlying rationale for reducing the tax rate is that the #hilippines will give up a part of the tax in
the expectation that the tax given up for this particular invest!ent is not taxed "y the other
country.
16
Thus the petitioner correctly opined that the phrase Hroyalties paid under si!ilar circu!stancesH in the !ost favored
nation clause of the GBR# Tax Treaty necessarily conte!plated Hcircu!stances that are taxBrelatedH.
*n the case at "ar, the state of source is the #hilippines "ecause the royalties are paid for the right to use property or rights, i.e.
trade!ar(s, patents and technology, located within the #hilippines.
1.
The Gnited tates is the state of residence since the
taxpayer, . C. 4ohnson and on, G. . &., is "ased there. Gnder the R#BG Tax Treaty, the state of residence and the state of
source are "oth per!itted to tax the royalties, with a restraint on the tax that !ay "e collected "y the state of
source.
18
+urther!ore, the !ethod e!ployed to give relief fro! dou"le taxation is the allowance of a tax credit to citi3ens or
residents of the Gnited tates (in an appropriate a!ount "ased upon the taxes paid or accrued to the #hilippines) against the
Gnited tates tax, "ut such a!ount shall not exceed the li!itations provided "y Gnited tates law for the taxa"le year.
1D
Gnder
&rticle %2 thereof, the #hilippines !ay i!pose one of three rates ^ )1 percent of the gross a!ount of the royalties@ %1 percent
when the royalties are paid "y a corporation registered with the #hilippine :oard of *nvest!ents and engaged in preferred areas
of activities@ or the lowest rate of #hilippine tax that !ay "e i!posed on royalties of the sa!e (ind paid under si!ilar
circu!stances to a resident of a third state.
>iven the purpose underlying tax treaties and the rationale for the !ost favored nation clause, the concessional tax rate of %8
percent provided for in the R#B>er!any Tax Treaty should apply only if the taxes i!posed upon royalties in the R#BG Tax
Treaty and in the R#B>er!any Tax Treaty are paid under si!ilar circu!stances. This would !ean that private respondent !ust
prove that the R#BG Tax Treaty grants si!ilar tax reliefs to residents of the Gnited tates in respect of the taxes i!posa"le
upon royalties earned fro! sources within the #hilippines as those allowed to their >er!an counterparts under the R#B>er!any
Tax Treaty.
The R#BG and the R#B<est >er!any Tax Treaties do not contain si!ilar provisions on tax crediting. &rticle )/ of the R#B
>er!any Tax Treaty, supra, expressly allows crediting against >er!an inco!e and corporation tax of )8? of the gross a!ount
of royalties paid under the law of the #hilippines. -n the other hand, &rticle )2 of the R#BG Tax Treaty, which is the counterpart
provision with respect to relief for dou"le taxation, does not provide for si!ilar crediting of )8? of the gross a!ount of royalties
paid. aid &rticle )2 reads7
&rticle )2
Relief fro! dou"le taxation
$ou"le taxation of inco!e shall "e avoided in the following !anner7
%) *n accordance with the provisions and su"ject to the li!itations of the law of the Gnited
tates (as it !ay "e a!ended fro! ti!e to ti!e without changing the general principle
thereof), the Gnited tates shall allow to a citi3en or resident of the Gnited tates as a
credit against the Gnited tates tax the appropriate a!ount of taxes paid or accrued to
the #hilippines and, in the case of a Gnited tates corporation owning at least %8 percent
of the voting stoc( of a #hilippine corporation fro! which it receives dividends in any
taxa"le year, shall allow credit for the appropriate a!ount of taxes paid or accrued to the
#hilippines "y the #hilippine corporation paying such dividends with respect to the profits
out of which such dividends are paid. uch appropriate a!ount shall "e "ased upon the
a!ount of tax paid or accrued to the #hilippines, "ut the credit shall not exceed the
li!itations (for the purpose of li!iting the credit to the Gnited tates tax on inco!e fro!
sources within the #hilippines or on inco!e fro! sources outside the Gnited tates)
provided "y Gnited tates law for the taxa"le year. . . .
The reason for construing the phrase Hpaid under si!ilar circu!stancesH as used in &rticle %2 ()) (") (iii) of the R#BG Tax Treaty
as referring to taxes is anchored upon a logical reading of the text in the light of the funda!ental purpose of such treaty which is
to grant an incentive to the foreign investor "y lowering the tax and at the sa!e ti!e crediting against the do!estic tax a"road a
figure higher than what was collected in the #hilippines.
*n one case, the upre!e Court pointed out that laws are not just !ere co!positions, "ut have ends to "e achieved and that the
general purpose is a !ore i!portant aid to the !eaning of a law than any rule which gra!!ar !ay lay down.
20
*t is the duty of
the courts to loo( to the o"ject to "e acco!plished, the evils to "e re!edied, or the purpose to "e su"served, and should give the
law a reasona"le or li"eral construction which will "est effectuate its purpose.
21
The Cienna Convention on the ,aw of Treaties
states that a treaty shall "e interpreted in good faith in accordance with the ordinary !eaning to "e given to the ter!s of the
treaty in their context and in the light of its o"ject and
purpose.
22
&s stated earlier, the ulti!ate reason for avoiding dou"le taxation is to encourage foreign investors to invest in the #hilippines ^
a crucial econo!ic goal for developing countries.
25
The goal of dou"le taxation conventions would "e thwarted if such treaties
did not provide for effective !easures to !ini!i3e, if not co!pletely eli!inate, the tax "urden laid upon the inco!e or capital of
the investor. Thus, if the rates of tax are lowered "y the state of source, in this case, "y the #hilippines, there should "e a
conco!itant co!!it!ent on the part of the state of residence to grant so!e for! of tax relief, whether this "e in the for! of a tax
credit or exe!ption.
24
-therwise, the tax which could have "een collected "y the #hilippine govern!ent will si!ply "e collected
"y another state, defeating the o"ject of the tax treaty since the tax "urden i!posed upon the investor would re!ain unrelieved.
*f the state of residence does not grant so!e for! of tax relief to the investor, no "enefit would redound to the #hilippines, i.e.,
increased invest!ent resulting fro! a favora"le tax regi!e, should it i!pose a lower tax rate on the royalty earnings of the
investor, and it would "e "etter to i!pose the regular rate rather than lose !uchBneeded revenues to another country.
&t the sa!e ti!e, the intention "ehind the adoption of the provision on Hrelief fro! dou"le taxationH in the two tax treaties in
9uestion should "e considered in light of the purpose "ehind the !ost favored nation clause.
The purpose of a !ost favored nation clause is to grant to the contracting party treat!ent not less favora"le than that which has
"een or !ay "e granted to the H!ost favoredH a!ong other countries.
2/
The !ost favored nation clause is intended to esta"lish
the principle of e9uality of international treat!ent "y providing that the citi3ens or su"jects of the contracting nations !ay enjoy
the privileges accorded "y either party to those of the !ost favored nation.
26
The essence of the principle is to allow the taxpayer
in one state to avail of !ore li"eral provisions granted in another tax treaty to which the country of residence of such taxpayer is
also a party provided that the su"ject !atter of taxation, in this case royalty inco!e, is the sa!e as that in the tax treaty under
which the taxpayer is lia"le. :oth &rticle %2 of the R#BG Tax Treaty and &rticle %) ()) (") of the R#B<est >er!any Tax Treaty,
a"oveB9uoted, spea(s of tax on royalties for the use of trade!ar(, patent, and technology. The entitle!ent of the %8? rate "y
G.. fir!s despite the a"sence of a !atching credit ()8? for royalties) would derogate fro! the design "ehind the !ost grant
e9uality of international treat!ent since the tax "urden laid upon the inco!e of the investor is not the sa!e in the two countries.
The si!ilarity in the circu!stances of pay!ent of taxes is a condition for the enjoy!ent of !ost favored nation treat!ent
precisely to underscore the need for e9uality of treat!ent.
<e accordingly agree with petitioner that since the R#BG Tax Treaty does not give a !atching tax credit of )8 percent for the
taxes paid to the #hilippines on royalties as allowed under the R#B<est >er!any Tax Treaty, private respondent cannot "e
dee!ed entitled to the %8 percent rate granted under the latter treaty for the reason that there is no pay!ent of taxes on royalties
under si!ilar circu!stances.
*t "ears stress that tax refunds are in the nature of tax exe!ptions. &s such they are regarded as in derogation of sovereign
authority and to "e construed strictissimi 6uris against the person or entity clai!ing the exe!ption.
2.
The "urden of proof is upon
hi! who clai!s the exe!ption in his favor and he !ust "e a"le to justify his clai! "y the clearest grant of organic or statute
law.
28
#rivate respondent is clai!ing for a refund of the alleged overpay!ent of tax on royalties@ however, there is nothing on
record to support a clai! that the tax on royalties under the R#BG Tax Treaty is paid under si!ilar circu!stances as the tax on
royalties under the R#B<est >er!any Tax Treaty.
<HERE+-RE, for all the foregoing, the instant petition is >R&.TE$. The decision dated 'ay =, %550 of the Court of Tax
&ppeals and the decision dated .ove!"er =, %550 of the Court of &ppeals are here"y ET &*$E.
- -R$ERE$.

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