Cases 4 10

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 113375 May 5, 1994

KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAÑADA, and REP. JOKER P. ARROYO, petitioners, vs.TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the President; RENATO CORONA, in his capacity as Assistant Executive Secretary and Chairman of the Presidential review Committee on the Lotto, Office of the President; PHILIPPINE CHARITY SWEEPSTAKES OFFICE; and PHILIPPINE GAMING MANAGEMENT CORPORATION, respondents.

Jovito R. Salonga, Fernando Santiago, Emilio C. Capulong, Jr. and Felipe L. Gozon for petitioners.

Renato L. Cayetano and Eleazar B. Reyes for PGMC.

Gamaliel G. Bongco, Oscar Karaan and Jedideoh Sincero for intervenors.

DAVIDE, JR., J.:

This is a special civil action for prohibition and injunction, with a prayer for a temporary restraining order and preliminary injunction, which seeks to prohibit and restrain the implementation of the "Contract of Lease" executed by the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming Management Corporation (PGMC) in connection with the on- line lottery system, also known as "lotto."

Petitioner Kilosbayan, Incorporated (KILOSBAYAN) avers that it is a non-stock domestic corporation composed of civic-spirited citizens, pastors, priests, nuns, and lay leaders who are committed to the cause of truth, justice, and national renewal. The rest of the petitioners, except Senators Freddie Webb and Wigberto Tañada and Representative Joker P. Arroyo, are suing in their capacities as members of the Board

of Trustees of KILOSBAYAN and as taxpayers and concerned citizens. Senators Webb and Tañada and Representative Arroyo are suing in their capacities as members of Congress and as taxpayers and concerned citizens of the Philippines.

The pleadings of the parties disclose the factual antecedents which triggered off the filing of this petition.

Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants it the authority to hold and conduct "charity sweepstakes races, lotteries and other similar activities," the PCSO decided to establish an on- line lottery system for the purpose of increasing its revenue base and diversifying its sources of funds. Sometime before March 1993, after learning that the PCSO was interested in operating an on-line lottery system, the Berjaya Group Berhad, "a multinational company and one of the ten largest public companies in Malaysia," long "engaged in, among others, successful lottery operations in Asia, running both Lotto and Digit games, thru its subsidiary, Sports Toto Malaysia," with its "affiliate, the International Totalizator Systems, Inc., . . . an American public company engaged in the international sale or provision of computer systems, softwares, terminals, training and other technical services to the gaming industry," "became interested to offer its services and resources to PCSO." As an initial step, Berjaya Group Berhad (through its individual nominees) organized with some Filipino investors in March 1993 a Philippine corporation known as the Philippine Gaming Management Corporation (PGMC), which "was intended to be the medium through which the technical and management services required for the project would be offered and delivered to PCSO." 1

Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of an on-line lottery system for the PCSO. 2 Relevant provisions of the RFP are the following:

1. EXECUTIVE SUMMARY

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1.2. PCSO is seeking a suitable contractor which shall build, at its own expense, all the facilities ('Facilities') needed to operate and maintain a nationwide on-line lottery system. PCSO shall lease the Facilities for a fixed percentage ofquarterly gross receipts. All receipts from ticket sales shall be turned over directly to PCSO. All capital, operating expenses and expansion expenses and risks shall be for the exclusive account of the Lessor.

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1.4. The lease shall be for a period not exceeding fifteen (15) years.

1.5. The Lessor is expected to submit a comprehensive nationwide lottery development plan ("Development Plan") which will include the game, the marketing of the games, and the logistics to introduce the games to all the cities and municipalities of the country within five (5) years.

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1.7. The Lessor shall be selected based on its technical expertise, hardware and software capability, maintenance support, and financial resources. The Development Plan shall have a substantial bearing on the choice of the Lessor. The Lessor shall be a domestic corporation, with at least sixty percent (60%) of its shares owned by Filipino shareholders.

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The Office of the President, the National Disaster Control Coordinating Council, the Philippine National Police, and the National Bureau of Investigation shall be authorized to use the nationwide telecommunications system of the Facilities Free of Charge.

1.8. Upon expiration of the lease, the Facilities shall be owned by PCSO without any additional consideration.3

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2.2. OBJECTIVES

The objectives of PCSO in leasing the Facilities from a private entity are as follows:

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2.2.2. Enable PCSO to operate a nationwide on-line Lottery system at no expense or risk to the government.

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2.4. DUTIES AND RESPONSIBILITIES OF THE LESSOR

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2.4.2. THE LESSOR

The Proponent is expected to furnish and maintain the Facilities, including the personnel needed to operate the computers, the communications network and sales offices under a build-lease basis. The printing of tickets shall be undertaken under the supervision and control of PCSO. The Facilities shall enable PCSO to computerize the entire gaming system.

The Proponent is expected to formulate and design consumer-oriented Master Games Plan suited to the marketplace, especially geared to Filipino gaming habits and preferences. In addition, the Master Games Plan is expected to include a Product Plan for each game and explain how each will be introduced into the market. This will be an integral part of the Development Plan which PCSO will require from the Proponent.

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The Proponent is expected to provide upgrades to modernize the entire gaming system over the life ofthe lease contract.

The Proponent is expected to provide technology transfer to PCSO technical personnel. 4

7. GENERAL GUIDELINES FOR PROPONENTS

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Finally, the Proponent must be able to stand the acid test of proving that it is an entity able to take on the role of responsible maintainer of the on-line lottery system, and able to achieve PSCO's goal of formalizing an on-line lottery system to achieve its mandated objective. 5

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16. DEFINITION OF TERMS

Facilities: All capital equipment, computers, terminals, software, nationwide telecommunication network, ticket sales offices, furnishings, and fixtures; printing costs; cost of salaries and wages; advertising and promotion expenses; maintenance costs; expansion and replacement costs; security and insurance, and all other related expenses needed to operate nationwide on-line lottery system. 6

Considering the above citizenship requirement, the PGMC claims that the Berjaya Group "undertook to reduce its equity stakes in PGMC to 40%," by selling 35% out of the original 75% foreign stockholdings to local investors.

On 15 August 1993, PGMC submitted its bid to the PCSO. 7

The bids were evaluated by the Special Pre-Qualification Bids and Awards Committee (SPBAC) for the on-line lottery and its Bid Report was thereafter submitted to the Office of the President. 8 The submission was preceded by complaints by the Committee's Chairperson, Dr. Mita Pardo de Tavera. 9

On 21 October 1993, the Office of the President announced that it had given the respondent PGMC the go-signal to operate the country's on-line lottery system and that the corresponding implementing contract would be submitted not later than 8 November 1993 "for final clearance and approval by the Chief Executive." 10 This announcement was published in the Manila Standard, Philippine Daily Inquirer, and the Manila Times on 29 October 1993. 11

On 4 November 1993, KILOSBAYAN sent an open letter to Presidential Fidel V. Ramos strongly opposing the setting up to the on-line lottery system on the basis of serious moral and ethical considerations. 12

At the meeting of the Committee on Games and Amusements of the Senate on 12 November 1993, KILOSBAYAN reiterated its vigorous opposition to the on-line lottery on account of its immorality and illegality. 13

On 19 November 1993, the media reported that despite the opposition, "Malacañang will push through with the operation of an on-line lottery system nationwide" and that it is actually the respondent PCSO which will operate the lottery while the winning corporate bidders are merely "lessors." 14

On 1 December 1993, KILOSBAYAN requested copies of all documents pertaining to the lottery award from Executive Secretary Teofisto Guingona, Jr. In his answer of 17 December 1993, the Executive Secretary informed KILOSBAYAN that the requested documents would be duly transmitted before the end of the month. 15. However, on that same date, an agreement denominated as "Contract of Lease" was finally executed by respondent PCSO and respondent PGMC. 16 The President, per the press statement issued by the Office of the President, approved it on 20 December 1993. 17

In view of their materiality and relevance, we quote the following salient provisions of the Contract of Lease:

1. DEFINITIONS

The following words and terms shall have the following respective meanings:

1.1 Rental Fee — Amount to be paid by PCSO to the LESSOR as compensation for the fulfillment of the obligations of the LESSOR under this Contract, including, but not limited to the lease of the Facilities.

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1.3 Facilities — All capital equipment, computers, terminals, software (including source codes for the On-Line Lottery application software for the terminals, telecommunications and central systems), technology, intellectual property rights, telecommunications network, and furnishings and fixtures.

1.4 Maintenance and Other Costs — All costs and expenses relating to printing, manpower, salaries and wages, advertising and promotion, maintenance, expansion and replacement, security and insurance, and all other related expenses needed to operate an On-Line Lottery System, which shall be for the account of the LESSOR. All expenses relating to the setting-up, operation and maintenance of ticket sales offices of dealers and retailers shall be borne by PCSO's dealers and retailers.

1.5 Development Plan — The detailed plan of all games, the marketing thereof, number of players, value of winnings and the logistics required to introduce the games, including the Master Games Plan as approved by PCSO, attached hereto as Annex "A", modified as necessary by the provisions of this Contract.

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1.8 Escrow Deposit — The proposal deposit in the sum of Three Hundred Million Pesos (P300,000,000.00) submitted by the LESSOR to PCSO pursuant to the requirements of the Request for Proposals.

2. SUBJECT MATTER OF THE LEASE

The LESSOR shall build, furnish and maintain at its own expense and risk the Facilities for the On-Line Lottery System of PCSO in the Territory on an exclusive basis. The LESSOR shall bear all Maintenance and Other Costs as defined herein.

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3. RENTAL FEE

For and in consideration of the performance by the LESSOR of its obligations herein, PCSO shall pay LESSOR a fixed Rental Fee equal to four point nine percent (4.9%) of gross receipts from ticket sales, payable net of taxes required by law to be withheld, on a semi-monthly basis. Goodwill, franchise and similar fees shall belong to PCSO.

4. LEASE PERIOD

The period of the lease shall commence ninety (90) days from the date of effectivity of this Contract and shall run for a period of eight (8) years thereafter, unless sooner terminated in accordance with this Contract.

5. RIGHTS AND OBLIGATIONS OF PCSO AS OPERATOR OF THE ON-LINE LOTTERY SYSTEM

PCSO shall be the sole and individual operator of the On-Line Lottery System. Consequently:

5.1 PCSO shall have sole responsibility to decide whether to implement, fully or partially, the Master Games Plan of the LESSOR. PCSO shall have the sole responsibility to determine the time for introducing new games to the market. The Master Games Plan included in Annex "A" hereof is hereby approved by PCSO.

5.2 PCSO shall have control over revenues and receipts of whatever nature from the On-Line Lottery System. After paying the Rental Fee to the LESSOR, PCSO shall have exclusive responsibility to determine the Revenue Allocation Plan; Provided, that the same shall be consistent with the requirement of R.A. No. 1169, as amended, which fixes a prize fund of fifty five percent (55%) on the average.

5.3 PCSO shall have exclusive control over the printing of tickets, including but not limited to the design, text, and contents thereof.

5.4 PCSO shall have sole responsibility over the appointment of dealers or retailers throughout the country. PCSO shall appoint the dealers and retailers in a timely manner with due regard to the implementation timetable of the On-Line Lottery System. Nothing herein shall preclude the LESSOR from recommending dealers or retailers for appointment by PCSO, which shall act on said recommendation within forty-eight (48) hours.

5.5 PCSO shall designate the necessary personnel to monitor and audit the daily performance of the On-Line Lottery System. For this

purpose, PCSO designees shall be given, free of charge, suitable and adequate space, furniture and fixtures, in all offices of the LESSOR, including but not limited to its headquarters, alternate site, regional and area offices.

5.6 PCSO shall have the responsibility to resolve, and exclusive jurisdiction over, all matters involving the operation of the On-Line Lottery System not otherwise provided in this Contract.

5.7 PCSO shall promulgate procedural and coordinating rules governing all activities relating to the On-Line Lottery System.

5.8 PCSO will be responsible for the payment of prize monies, commissions to agents and dealers, and taxes and levies (if any) chargeable to the operator of the On-Line Lottery System. The LESSOR will bear all other Maintenance and Other Costs, except as provided in Section 1.4.

5.9 PCSO shall assist the LESSOR in the following:

5.9.1 Work permits for the LESSOR's staff;

5.9.2 Approvals for importation of the Facilities;

5.9.3 Approvals and consents for the On-Line Lottery System; and

5.9.4 Business and premises licenses for all offices of the LESSOR and licenses for the telecommunications network.

5.10 In the event that PCSO shall pre-terminate this Contract or suspend the operation of the On-Line Lottery System, in breach of this Contract and through no fault of the LESSOR, PCSO shall promptly, and in any event not later than sixty (60) days, reimburse the LESSOR the amount of its total investment cost associated with the On-Line Lottery System, including but not limited to the cost of the Facilities, and further compensate the LESSOR for loss of expected net profit after tax, computed over the unexpired term of the lease.

6. DUTIES AND RESPONSIBILITIES OF THE LESSOR

The LESSOR is one of not more than three (3) lessors of similar facilities for the nationwide On-Line Lottery System of PCSO. It is understood that the rights of the LESSOR are primarily those of a

lessor of the Facilities, and consequently, all rights involving the business aspects of the use of the Facilities are within the jurisdiction of PCSO. During the term of the lease, the LESSOR shall.

6.1 Maintain and preserve its corporate existence, rights and privileges, and conduct its business in an orderly, efficient, and customary manner.

6.2 Maintain insurance coverage with insurers acceptable to PCSO on all Facilities.

6.3 Comply with all laws, statues, rules and regulations, orders and directives, obligations and duties by which it is legally bound.

6.4 Duly pay and discharge all taxes, assessments and government charges now and hereafter imposed of whatever nature that may be legally levied upon it.

6.5 Keep all the Facilities in fail safe condition and, if necessary, upgrade, replace and improve the Facilities from time to time as new technology develops, in order to make the On-Line Lottery System more cost-effective and/or competitive, and as may be required by PCSO shall not impose such requirements unreasonably nor arbitrarily.

6.6 Provide PCSO with management terminals which will allow real-time monitoring of the On-Line Lottery System.

6.7 Upon effectivity of this Contract, commence the training of PCSO and other local personnel and the transfer of technology and expertise, such that at the end of the term of this Contract, PCSO will be able to effectively take-over the Facilities and efficiently operate the On-Line Lottery System.

6.8 Undertake a positive advertising and promotions campaign for both institutional and product lines without engaging in negative advertising against other lessors.

6.9 Bear all expenses and risks relating to the Facilities including, but not limited to, Maintenance and Other Costs and:

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6.10 Bear all risks if the revenues from ticket sales, on an annualized basis, are insufficient to pay the entire prize money.

6.11 Be, and is hereby, authorized to collect and retain for its own account, a security deposit from dealers and retailers, in an amount determined with the approval of PCSO, in respect of equipment supplied by the LESSOR. PCSO's approval shall not be unreasonably withheld.

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6.12 Comply with procedural and coordinating rules issued by PCSO.

7. REPRESENTATIONS AND WARRANTIES

The LESSOR represents and warrants that:

7.1 The LESSOR is corporation duly organized and existing under the laws of the Republic of the Philippines, at least sixty percent (60%) of the outstanding capital stock of which is owned by Filipino shareholders. The minimum required Filipino equity participation shall not be impaired through voluntary or involuntary transfer, disposition, or sale of shares of stock by the present stockholders.

7.2 The LESSOR and its Affiliates have the full corporate and legal power and authority to own and operate their properties and to carry on their business in the place where such properties are now or may be conducted. . . .

7.3 The LESSOR has or has access to all the financing and funding requirements to promptly and effectively carry out the terms of this Contract. . . .

7.4 The LESSOR has or has access to all the managerial and technical expertise to promptly and effectively carry out the terms of this Contract. . . .

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10. TELECOMMUNICATIONS NETWORK

The LESSOR shall establish a telecommunications network that will connect all municipalities and cities in the Territory in accordance with, at the LESSOR's option, either of the LESSOR's proposals (or a combinations of both such proposals) attached hereto as Annex "B," and under the following PCSO schedule:

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PCSO may, at its option, require the LESSOR to establish the telecommunications network in accordance with the above Timetable in provinces where the LESSOR has not yet installed terminals. Provided, that such provinces have existing nodes. Once a municipality or city is serviced by land lines of a licensed public telephone company, and such lines are connected to Metro Manila, then the obligation of the LESSOR to connect such municipality or city through a telecommunications network shall cease with respect to such municipality or city. The voice facility will cover the four offices of the Office of the President, National Disaster Control Coordinating Council, Philippine National Police and the National Bureau of Investigation, and each city and municipality in the Territory except Metro Manila, and those cities and municipalities which have easy telephone access from these four offices. Voice calls from the four offices shall be transmitted via radio or VSAT to the remote municipalities which will be connected to this voice facility through wired network or by radio. The facility shall be designed to handle four private conversations at any one time.

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13. STOCK DISPERSAL PLAN

Within two (2) years from the effectivity of this Contract, the LESSOR shall cause itself to be listed in the local stock exchange and offer at least twenty five percent (25%) of its equity to the public.

14. NON-COMPETITION

The LESSOR shall not, directly or indirectly, undertake any activity or business in competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the latter's prior written consent thereto.

15. HOLD HARMLESS CLAUSE

15.1 The LESSOR shall at all times protect and defend, at its cost and expense, PCSO from and against any and all liabilities and claims for damages and/or suits for or by reason of any deaths of, or any injury or injuries to any person or persons, or damages to property of any kind whatsoever, caused by the LESSOR, its subcontractors, its authorized agents or employees, from any cause or causes whatsoever.

15.2 The LESSOR hereby covenants and agrees to indemnify and hold PCSO harmless from all liabilities, charges, expenses (including reasonable counsel fees) and costs on account of or by reason of any such death or deaths, injury or injuries, liabilities, claims, suits or losses caused by the LESSOR's fault or negligence.

15.3 The LESSOR shall at all times protect and defend, at its own cost and expense, its title to the facilities and PCSO's interest therein from and against any and all claims for the duration of the Contract until transfer to PCSO of ownership of the serviceable Facilities.

16. SECURITY

16.1 To ensure faithful compliance by the LESSOR with the terms of the Contract, the LESSOR shall secure a Performance Bond from a reputable insurance company or companies acceptable to PCSO.

16.2 The Performance Bond shall be in the initial amount of Three Hundred Million Pesos (P300,000,000.00), to its U.S. dollar equivalent, and shall be renewed to cover the duration of the Contract. However, the Performance Bond shall be reduced proportionately to the percentage of unencumbered terminals installed; Provided, that the Performance Bond shall in no case be less than One Hundred Fifty Million Pesos (P150,000,000.00).

16.3 The LESSOR may at its option maintain its Escrow Deposit as the Performance Bond. . . .

17. PENALTIES

17.1 Except as may be provided in Section 17.2, should the LESSOR fail to take remedial measures within seven (7) days, and rectify the breach within thirty (30) days, from written notice by PCSO of any wilfull or grossly negligent violation of the material terms and conditions of this Contract, all unencumbered Facilities shall automatically become the property of PCSO without consideration and without need for further notice or demand by PCSO. The Performance Bond shall likewise be forfeited in favor of PCSO.

17.2 Should the LESSOR fail to comply with the terms of the Timetables provided in Section 9 and 10, it shall be subject to an initial Penalty of Twenty Thousand Pesos (P20,000.00), per city or municipality per every month of delay; Provided, that the Penalty shall increase, every ninety (90) days, by the amount of Twenty Thousand Pesos (P20,000.00) per city or municipality per month, whilst shall failure to comply persists. The penalty shall be deducted by PCSO from the rental fee.

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20. OWNERSHIP OF THE FACILITIES

After expiration of the term of the lease as provided in Section 4, the Facilities directly required for the On-Line Lottery System mentioned in Section 1.3 shall automatically belong in full ownership to PCSO without any further consideration other than the Rental Fees already paid during the effectivity of the lease.

21. TERMINATION OF THE LEASE

PCSO may terminate this Contract for any breach of the material provisions of this Contract, including the following:

21.1 The LESSOR is insolvent or bankrupt or unable to pay its debts, stops or suspends or threatens to stop or suspend payment of all or a material part of its debts, or proposes or makes a general assignment or an arrangement or compositions with or for the benefit of its creditors; or

21.2 An order is made or an effective resolution passed for the winding up or dissolution of the LESSOR or when it ceases or threatens to cease to carry on all or a material part of its operations or business; or

21.3 Any material statement, representation or warranty made or furnished by the LESSOR proved to be materially false or misleading;

said termination to take effect upon receipt of written notice of termination by the LESSOR and failure to take remedial action within seven (7) days and cure or remedy the same within thirty (30) days from notice.

Any suspension, cancellation or termination of this Contract shall not relieve the LESSOR of any liability that may have already accrued hereunder.

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Considering the denial by the Office of the President of its protest and the statement of Assistant Executive Secretary Renato Corona that "only a court injunction can stop Malacañang," and the imminent implementation of the Contract of Lease in February 1994, KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this petition.

In support of the petition, the petitioners claim that:

. . . X X THE OFFICE OF THE PRESIDENT, ACTING THROUGH RESPONDENTS EXECUTIVE SECRETARY AND/OR ASSISTANT EXECUTIVE SECRETARY FOR LEGAL AFFAIRS, AND THE PCSO GRAVELY ABUSE[D] THEIR DISCRETION AND/OR FUNCTIONS TANTAMOUNT TO LACK OF JURISDICTION AND/OR AUTHORITY IN RESPECTIVELY: (A) APPROVING THE AWARD OF THE CONTRACT TO, AND (B) ENTERING INTO THE SO-CALLED "CONTRACT OF LEASE" WITH, RESPONDENT PGMC FOR THE INSTALLATION, ESTABLISHMENT AND OPERATION OF THE ON-LINE LOTTERY AND TELECOMMUNICATION SYSTEMS REQUIRED AND/OR AUTHORIZED UNDER THE SAID CONTRACT, CONSIDERING THAT:

a) Under Section 1 of the Charter of the PCSO, the PCSO is prohibited from holding and conducting lotteries "in collaboration, association or joint venture with any person, association, company or entity";

b) Under Act No. 3846 and established jurisprudence, a Congressional franchise is required before any person may be allowed to establish and operate said telecommunications system;

c) Under Section 11, Article XII of the Constitution, a less than 60% Filipino-owned and/or controlled corporation, like the PGMC, is disqualified from operating a public service, like the said telecommunications system; and

d) Respondent PGMC is not authorized by its charter and under the Foreign Investment Act (R.A. No. 7042) to install, establish and operate the on-line lotto and telecommunications systems. 18

Petitioners submit that the PCSO cannot validly enter into the assailed Contract of Lease with the PGMC because it is an arrangement wherein the PCSO would hold and conduct the on-line lottery system in "collaboration" or "association" with the PGMC, in violation of Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting charity sweepstakes races, lotteries, and other similar activities "in collaboration, association or joint venture with any person, association, company or entity, foreign or domestic." Even granting arguendo that a lease of facilities is not within the contemplation of "collaboration" or "association," an analysis, however, of the Contract of Lease clearly shows that there is a "collaboration, association, or joint venture between respondents PCSO and PGMC in the holding of the On-Line Lottery System," and that there are terms and conditions of the Contract "showing that respondent PGMC is the actual lotto operator and not respondent PCSO." 19

The petitioners also point out that paragraph 10 of the Contract of Lease requires or authorizes PGMC to establish a telecommunications network that will connect all the municipalities and cities in the territory. However, PGMC cannot do that because it has no franchise from Congress to construct, install, establish, or operate the network pursuant to Section 1 of Act No. 3846, as amended. Moreover, PGMC is a 75% foreign-owned or controlled corporation and cannot, therefore, be granted a franchise for that purpose because of Section 11, Article XII of the 1987 Constitution. Furthermore, since "the subscribed foreign capital" of the PGMC "comes to about 75%, as shown by paragraph EIGHT of its Articles of Incorporation," it cannot lawfully enter into the contract in question because all forms of gambling — and lottery is one of them — are included in the so-called foreign investments negative list under the Foreign Investments Act (R.A. No. 7042) where only up to 40% foreign capital is allowed. 20

Finally, the petitioners insist that the Articles of Incorporation of PGMC do not authorize it to establish and operate an on-line lottery and telecommunications systems. 21

Accordingly, the petitioners pray that we issue a temporary restraining order and a writ of preliminary injunction commanding the respondents or any person acting in their places or upon their instructions to cease and desist from implementing the challenged Contract of Lease and, after hearing the merits of the petition, that we render judgment declaring the Contract of Lease void and without effect and making the injunction permanent. 22

We required the respondents to comment on the petition.

In its Comment filed on 1 March 1994, private respondent PGMC asserts that "(1) [it] is merely an independent contractor for a piece of work, (i.e., the building and maintenance of a lottery system to be used by PCSO in the operation of its lottery

franchise); and (2) as such independent contractor, PGMC is not a co-operator of the lottery franchise with PCSO, nor is PCSO sharing its franchise, 'in collaboration, association or joint venture' with PGMC — as such statutory limitation is viewed from the context, intent, and spirit of Republic Act 1169, as amended by Batas Pambansa 42." It further claims that as an independent contractor for a piece of work, it is neither engaged in "gambling" nor in "public service" relative to the telecommunications network, which the petitioners even consider as an "indispensable requirement" of an on-line lottery system. Finally, it states that the execution and implementation of the contract does not violate the Constitution and the laws; that the issue on the "morality" of the lottery franchise granted to the PCSO is political and not judicial or legal, which should be ventilated in another forum; and that the "petitioners do not appear to have the legal standing or real interest in the subject contract and in obtaining the reliefs sought." 23

In their Comment filed by the Office of the Solicitor General, public respondents Executive Secretary Teofisto Guingona, Jr., Assistant Executive Secretary Renato Corona, and the PCSO maintain that the contract of lease in question does not violate Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and that the petitioner's interpretation of the phrase "in collaboration, association or joint venture" in Section 1 is "much too narrow, strained and utterly devoid of logic" for it "ignores the reality that PCSO, as a corporate entity, is vested with the basic and essential prerogative to enter into all kinds of transactions or contracts as may be necessary for the attainment of its purposes and objectives." What the PCSO charter "seeks to prohibit is that arrangement akin to a "joint venture" or partnership where there is "community of interest in the business, sharing of profits and losses, and a mutual right of control," a characteristic which does not obtain in a contract of lease." With respect to the challenged Contract of Lease, the "role of PGMC is limited to that of a lessor of the facilities" for the on-line lottery system; in "strict technical and legal sense," said contract "can be categorized as a contract for a piece of work as defined in Articles 1467, 1713 and 1644 of the Civil Code."

They further claim that the establishment of the telecommunications system stipulated in the Contract of Lease does not require a congressional franchise because PGMC will not operate a public utility; moreover, PGMC's "establishment of a telecommunications system is not intended to establish a telecommunications business," and it has been held that where the facilities are operated "not for business purposes but for its own use," a legislative franchise is not required before a certificate of public convenience can be granted. 24 Even granting arguendothat PGMC is a public utility, pursuant to Albano S.Reyes, 25 "it can establish a telecommunications system even without a legislative franchise because not every public utility is required to secure a legislative franchise before it could establish, maintain, and operate the service"; and, in any case, "PGMC's establishment of the telecommunications system stipulated in its contract of lease with PCSO falls within the exceptions under Section 1 of Act No. 3846 where a legislative franchise is not necessary for the establishment of radio stations."

They also argue that the contract does not violate the Foreign Investment Act of 1991; that the Articles of Incorporation of PGMC authorize it to enter into the Contract of Lease; and that the issues of "wisdom, morality and propriety of acts of the executive department are beyond the ambit of judicial review."

Finally, the public respondents allege that the petitioners have no standing to maintain the instant suit, citing our resolution in Valmonte vs. Philippine Charity Sweepstakes Office. 26

Several parties filed motions to intervene as petitioners in this case, 27 but only the motion of Senators Alberto Romulo, Arturo Tolentino, Francisco Tatad, Gloria Macapagal-Arroyo, Vicente Sotto III, John Osmeña, Ramon Revilla, and Jose Lina 28 was granted, and the respondents were required to comment on their petition in intervention, which the public respondents and PGMC did.

In the meantime, the petitioners filed with the Securities and Exchange Commission on 29 March 1994 a petition against PGMC for the nullification of the latter's General Information Sheets. That case, however, has no bearing in this petition.

On 11 April 1994, we heard the parties in oral arguments. Thereafter, we resolved to consider the matter submitted for resolution and pending resolution of the major issues in this case, to issue a temporary restraining order commanding the respondents or any person acting in their place or upon their instructions to cease and desist from implementing the challenged Contract of Lease.

In the deliberation on this case on 26 April 1994, we resolved to consider only these issues: (a) the locus standi of the petitioners, and (b) the legality and validity of the Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint venture with any person, association, company or entity, whether domestic or foreign." On the first issue, seven Justices voted to sustain the locus standi of the petitioners, while six voted not to. On the second issue, the seven Justices were of the opinion that the Contract of Lease violates the exception to Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid and contrary to law. The six Justices stated that they wished to express no opinion thereon in view of their stand on the first issue. The Chief Justice took no part because one of the Directors of the PCSO is his brother-in-law.

This case was then assigned to this ponente for the writing of the opinion of the Court.

The preliminary issue on the locus standi of the petitioners should, indeed, be resolved in their favor. A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers Cases, 29 this Court brushed aside this technicality because "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2821)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should be entertained," 30 or that it "enjoys an open discretion to entertain the same or not." 31 In De La Llana vs. Alba, 32 this Court declared:

1. The argument as to the lack of standing of petitioners is easily resolved. As far as Judge de la Llana is concerned, he certainly falls within the principle set forth in Justice Laurel's opinion in People vs. Vera [65 Phil. 56 (1937)]. Thus: "The unchallenged rule is that the person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement [Ibid, 89]. The other petitioners as members of the bar and officers of the court cannot be considered as devoid of "any personal and substantial interest" on the matter. There is relevance to this excerpt from a separate opinion inAquino, Jr. v. Commission on Elections [L-40004, January 31, 1975, 62 SCRA 275]: "Then there is the attack on the standing of petitioners, as vindicating at most what they consider a public right and not protecting their rights as individuals. This is to conjure the specter of the public right dogma as an inhibition to parties intent on keeping public officials staying on the path of constitutionalism. As was so well put by Jaffe; "The protection of private rights is an essential constituent of public interest and, conversely, without a well-ordered state there could be no enforcement of private rights. Private and public interests are, both in a substantive and procedural sense, aspects of the totality of the legal order." Moreover, petitioners have convincingly shown that in their capacity as taxpayers, their standing to sue has been amply demonstrated. There would be a retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by the very decision of People v. Vera where the doctrine was first fully discussed, if we act differently now. I do not think we are prepared to take that step. Respondents, however, would hard back to the American Supreme Court doctrine in Mellon v. Frothingham, with their claim that what petitioners possess "is an interest which is shared in common by other people and is comparatively so minute and indeterminate as to afford any basis and assurance that the judicial process can act on it." That is to speak in the language of a bygone era, even in the United States. For as Chief Justice Warren clearly pointed out in the later case of Flast v. Cohen, the barrier thus set up if not breached has definitely been lowered.

In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, 33 reiterated in Basco vs. Philippine Amusements and Gaming Corporation, 34 this Court stated:

Objections to taxpayers' suits for lack of sufficient personality standing or interest are, however, in the main procedural matters. Considering the importance to the public of the cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, this

Court has brushed aside technicalities of procedure and has taken cognizance of these petitions.

and in Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform, 35 it declared:

With particular regard to the requirement of proper party as applied in the cases before us, we hold that the same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of the acts or measures complained of. [Ex Parte Levitt, 303 US 633]. And even if, strictly speaking, they are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised.

In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were invoking only an indirect and general interest shared in common with the public. The Court dismissed the objective that they were not proper parties and ruled that the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure. We have since then applied this exception in many other cases. (Emphasis supplied)

In Daza vs. Singson, 36 this Court once more said:

. . . For another, we have early as in the Emergency Powers Cases that where serious constitutional questions are involved, "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure." The same policy has since then been consistently followed by the Court, as in Gonzales vs. Commission on Elections [21 SCRA 774] . . .

The Federal Supreme Court of the United States of America has also expressed its discretionary power to liberalize the rule on locus standi. In United States vs. Federal Power Commission and Virginia Rea Association vs. Federal Power Commission, 37 it held:

We hold that petitioners have standing. Differences of view, however, preclude a single opinion of the Court as to both petitioners. It would not further clarification of this complicated specialty of federal jurisdiction, the solution of whose problems is in any event more or less determined by the specific circumstances of

individual situations, to set out the divergent grounds in support of standing in these cases.

In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this Court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and to elective officials of both Houses of Congress; 38 (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other government offices or positions; 39 (c) the automatic appropriation for debt service in the General Appropriations Act; 40 (d) R.A. No. 7056 on the holding of desynchronized elections; 41 (d) R.A. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that it is contrary to morals, public policy, and order; 42 and (f) R.A. No. 6975, establishing the Philippine NationalPolice. 43

Other cases where we have followed a liberal policy regarding locus standi include those attacking the validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452; 44(b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16 October 1976; 45 (c) the bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-ku, Tokyo, Japan; 46(d) the approval without hearing by the Board of Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas; 47 (e) the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives Review Board exempting the National Power Corporation from indirect tax and duties; 48 (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow the petitioner substantial cross-examination; 49 (g) Executive Order No. 478 which levied a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil and P1.00 per liter of imported oil products; 50 (h) resolutions of the Commission on Elections concerning the apportionment, by district, of the number of elective members ofSanggunians; 51 and (i) memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City. 52

In the 1975 case of Aquino vs. Commission on Elections, 53 this Court, despite its unequivocal ruling that the petitioners therein had no personality to file the petition, resolved nevertheless to pass upon the issues raised because of the far-reaching implications of the petition. We did no less in De Guia vs. COMELEC 54 where, although we declared that De Guia "does not appear to have locus standi, a standing in law, a personal or substantial interest," we brushed aside the procedural infirmity "considering the importance of the issue involved, concerning as it does the political

exercise of qualified voters affected by the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent."

We find the instant petition to be of transcendental importance to the public. The issues it raised are of paramount public interest and of a category even higher than those involved in many of the aforecited cases. The ramifications of such issues immeasurably affect the social, economic, and moral well-being of the people even in the remotest barangays of the country and the counter-productive and retrogressive effects of the envisioned on-line lottery system are as staggering as the billions in pesos it is expected to raise. The legal standing then of the petitioners deserves recognition and, in the exercise of its sound discretion, this Court hereby brushes aside the procedural barrier which the respondents tried to take advantage of.

And now on the substantive issue.

Section 1 of R.A. No. 1169, as amending by B.P. Blg. 42, prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint venture with any person, association, company or entity, whether domestic or foreign." Section 1 provides:

Sec. 1. The Philippine Charity Sweepstakes Office. — The Philippine Charity Sweepstakes Office, hereinafter designated the Office, shall be the principal government agency for raising and providing for funds for health programs, medical assistance and services and charities of national character, and as such shall have the general powers conferred in section thirteen of Act Numbered One thousand four hundred fifty-nine, as amended, and shall have the authority:

A. To hold and conduct charity sweepstakes races, lotteries and other similar activities, in such frequency and manner, as shall be determined, and subject to such rules and regulations as shall be promulgated by the Board of Directors.

B. Subject to the approval of the Minister of Human Settlements, to engage in health and welfare-related investments, programs, projects and activities which may be profit-oriented, by itself or in collaboration, association or joint venture with any person, association, company or entity, whether domestic or foreign, except for the activities mentioned in the preceding paragraph (A), for the purpose of providing for permanent and continuing sources of funds for health programs, including the expansion of existing ones, medical assistance and services,

and/or charitable grants: Provided, That such investment will not compete with the private sector in areas where investments are adequate as may be determined by the National Economic and Development Authority. (emphasis supplied)

The language of the section is indisputably clear that with respect to its franchise or privilege "to hold and conduct charity sweepstakes races, lotteries and other similar activities," the PCSO cannot exercise it "in collaboration, association or joint venture" with any other party. This is the unequivocal meaning and import of the phrase "except for the activities mentioned in the preceding paragraph (A)," namely, "charity sweepstakes races, lotteries and other similar activities."

B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was covered by Committee Report No. 103 as reported out by the Committee on Socio-Economic Planning and Development of the Interim Batasang Pambansa. The original text of paragraph B, Section 1 of Parliamentary Bill No. 622 reads as follows:

To engage in any and all investments and related profit-oriented projects or programs and activities by itself or in collaboration, association or joint venture with any person, association, company or entity, whether domestic or foreign, for the main purpose of raising funds for health and medical assistance and services and charitable grants. 55

During the period of committee amendments, the Committee on Socio-Economic Planning and Development, through Assemblyman Ronaldo B. Zamora, introduced an amendment by substitution to the said paragraph B such that, as amended, it should read as follows:

Subject to the approval of the Minister of Human Settlements, to engage in health-oriented investments, programs, projects and activities which may be profit- oriented, by itself or in collaboration, association, or joint venture with any person, association, company or entity, whether domestic or foreign, for the purpose of providing for permanent and continuing sources of funds for health programs, including the expansion of existing ones, medical assistance and services and/or charitable grants. 56

Before the motion of Assemblyman Zamora for the approval of the amendment could be acted upon, Assemblyman Davide introduced an amendment to the amendment:

MR. DAVIDE.

Mr. Speaker.

THE SPEAKER.

The gentleman from Cebu is recognized.

MR. DAVIDE.

May I introduce an amendment to the committee amendment? The amendment would be to insert after "foreign" in the amendment just read the following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.

When it is joint venture or in collaboration with any entity such collaboration or joint venture must not include activity activity letter (a) which is the holding and conducting of sweepstakes races, lotteries and other similar acts.

MR. ZAMORA.

We accept the amendment, Mr. Speaker.

MR. DAVIDE.

Thank you, Mr. Speaker.

THE SPEAKER.

Is there any objection to the amendment? (Silence) The amendment, as amended, is approved. 57

Further amendments to paragraph B were introduced and approved. When Assemblyman Zamora read the final text of paragraph B as further amended, the earlier approved amendment of Assemblyman Davide became "EXCEPT FOR THE ACTIVITIES MENTIONED IN PARAGRAPH (A)"; and by virtue of the amendment introduced by Assemblyman Emmanuel Pelaez, the word PRECEDING was inserted before PARAGRAPH. Assemblyman Pelaez introduced other amendments. Thereafter, the new paragraph B was approved. 58

This is now paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42.

No interpretation of the said provision to relax or circumvent the prohibition can be allowed since the privilege to hold or conduct charity sweepstakes races, lotteries, or other similar activities is a franchise granted by the legislature to the PCSO. It is a settled rule that "in all grants by the government to individuals or corporations of rights, privileges and franchises, the words are to be taken most strongly against the grantee .... [o]ne who claims a franchise or privilege in derogation of the common rights of the public must prove his title thereto by a grant which is clearly and definitely expressed, and he cannot enlarge it by equivocal or doubtful provisions or by probable inferences. Whatever is not unequivocally granted is withheld. Nothing passes by mere implication." 59

In short then, by the exception explicitly made in paragraph B, Section 1 of its charter, the PCSO cannot share its franchise with another by way of collaboration, association or joint venture. Neither can it assign, transfer, or lease such franchise. It has been said that "the rights and privileges conferred under a franchise may, without doubt, be assigned or transferred when the grant is to the grantee and assigns, or is authorized by statute. On the other hand, the right of transfer or assignment may be restricted by statute or the constitution, or be made subject to the approval of the grantor or a governmental agency, such as a public utilities commission, exception that an existing right of assignment cannot be impaired by subsequent legislation." 60

It may also be pointed out that the franchise granted to the PCSO to hold and conduct lotteries allows it to hold and conduct a species of gambling. It is settled that "a statute which authorizes the carrying on of a gambling activity or business should be strictly construed and every reasonable doubt so resolved as to limit the powers and rights claimed under its authority." 61

Does the challenged Contract of Lease violate or contravene the exception in Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint venture with" another?

We agree with the petitioners that it does, notwithstanding its denomination or designation as a (Contract of Lease). We are neither convinced nor moved or fazed by the insistence and forceful arguments of the PGMC that it does not because in reality it is only an independent contractor for a piece of work, i.e., the building and maintenance of a lottery system to be used by the PCSO in the operation of its lottery franchise. Whether the contract in question is one of lease or whether the PGMC is merely an independent contractor should not be decided on the basis of the title or designation of the contract but by the intent of the parties, which may be gathered from the provisions of the contract itself. Animus hominis est anima scripti. The intention of the party is the soul of the instrument. In order to give life or effect to an instrument, it is essential to look to the intention of the individual who executed it. 62 And, pursuant to Article 1371 of the Civil Code, "to determine the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered." To put it more bluntly, no one should be deceived by the title or designation of a contract.

A careful analysis and evaluation of the provisions of the contract and a consideration of the contemporaneous acts of the PCSO and PGMC indubitably disclose that the contract is not in reality a contract of lease under which the PGMC is merely an independent contractor for a piece of work, but one where the statutorily proscribedcollaboration or association, in the least, or joint venture, at the most, exists between the contracting parties.Collaboration is defined as the acts of working together in a joint project. 63 Association means the act of a number of persons in uniting together for some special purpose or business. 64 Joint venture is defined as an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement to share both in profit andlosses. 65

The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither funds of its own nor the expertise to operate and manage an on-line lottery system, and that although it wished to have the system, it would have it "at no expense or risks to the government." Because of these serious constraints and unwillingness to bear expenses and assume risks, the PCSO was candid enough to state in its RFP that it is seeking for "a suitable contractor which shall build, at its own expense, all the facilities needed to operate and maintain" the system; exclusively bear "all capital, operating expenses and expansion expenses and risks"; and submit "a comprehensive nationwide lottery development plan . . . which will include the game, the marketing of the games, and the logistics to introduce the game to all the cities and municipalities of the country within five (5) years"; and that the operation of the on-line lottery system should be "at no expense or risk to the government" — meaningitself, since it is a government-owned and controlled agency. The facilities referred to means "all capital equipment, computers, terminals, software, nationwide telecommunications network, ticket sales offices, furnishings and fixtures, printing costs, costs of salaries and wages, advertising and promotions expenses, maintenance costs, expansion and replacement costs, security and insurance, and all other related expenses needed to operate a nationwide on-line lottery system."

In short, the only contribution the PCSO would have is its franchise or authority to operate the on-line lottery system; with the rest, including the risks of the business, being borne by the proponent or bidder. It could be for this reason that it warned that "the proponent must be able to stand to the acid test of proving that it is an entity able to take on the role of responsible maintainer of the on-line lottery system." The PCSO, however, makes it clear in its RFP that the proponent can propose a period of the contract which shall not exceed fifteen years, during which time it is assured of a "rental" which shall not exceed 12% of gross receipts. As admitted by the PGMC, upon learning of the PCSO's decision, the Berjaya Group Berhad, with its affiliates, wanted to offer itsservices and resources to the PCSO. Forthwith, it organized the PGMC as "a medium through which the technical and management services required for the project would be offered and delivered to PCSO." 66

Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an on-line lottery system, the PCSO had nothing but its franchise, which it solemnly

guaranteed it had in the General Information of the RFP. 67Howsoever viewed then, from the very inception, the PCSO and the PGMC mutually understood that any arrangement between them would necessarily leave to the PGMC the technical, operations, and managementaspects of the on-line lottery system while the PCSO would, primarily, provide the franchise. The words Gamingand Management in the corporate name of respondent Philippine Gaming Management Corporation could not have been conceived just for euphemistic purposes. Of course, the RFP cannot substitute for the Contract of Lease which was subsequently executed by the PCSO and the PGMC. Nevertheless, the Contract of Lease incorporates their intention and understanding.

The so-called Contract of Lease is not, therefore, what it purports to be. Its denomination as such is a crafty device, carefully conceived, to provide a built-in defense in the event that the agreement is questioned as violative of the exception in Section 1 (B) of the PCSO's charter. The acuity or skill of its draftsmen to accomplish that purpose easily manifests itself in the Contract of Lease. It is outstanding for its careful and meticulous drafting designed to give an immediate impression that it is a contract of lease. Yet, woven therein are provisions which negate its title and betray the true intention of the parties to be in or to have a joint venture for a period of eight years in the operation and maintenance of the on-line lottery system.

Consistent with the above observations on the RFP, the PCSO has only its franchise to offer, while the PGMC represents and warrants that it has access to all managerial and technical expertise to promptly and effectively carry out the terms of the contract. And, for a period of eight years, the PGMC is under obligation to keep all theFacilities in safe condition and if necessary, upgrade, replace, and improve them from time to time as new technology develops to make the on-line lottery system more cost-effective and competitive; exclusively bear all costs and expenses relating to the printing, manpower, salaries and wages, advertising and promotion, maintenance, expansion and replacement, security and insurance, and all other related expenses needed to operate the on-line lottery system; undertake a positive advertising and promotions campaign for both institutional and product lines without engaging in negative advertising against other lessors; bear the salaries and related costs of skilled and qualified personnel for administrative and technical operations; comply with procedural and coordinating rules issued by the PCSO; and to train PCSO and other local personnel and to effect the transfer of technology and other expertise, such that at the end of the term of the contract, the PCSO will be able to effectively take over the Facilities and efficiently operate the on-line lottery system. The latter simply means that, indeed, the managers, technicians or employees who shall operate the on-line lottery system are not managers, technicians or employees of the PCSO, but of the PGMC and that it is only after the expiration of the contract that the PCSO will operate the system. After eight years, the PCSO would automatically become the owner of the Facilities without any other further consideration.

For these reasons, too, the PGMC has the initial prerogative to prepare the detailed plan of all games and the marketing thereof, and determine the number of players, value of winnings, and the logistics required to introduce the games, including the Master Games Plan. Of course, the PCSO has the reserved authority to disapprove

them. 68 And, while the PCSO has the sole responsibility over the appointment of dealers and retailers throughout the country, the PGMC may, nevertheless, recommend for appointment dealers and retailers which shall be acted upon by the PCSO within forty-eight hours and collect and retain, for its own account, a security deposit from dealers and retailers in respect of equipment supplied by it.

This joint venture is further established by the following:

(a) Rent is defined in the lease contract as the amount to be paid to the PGMC as compensation for the fulfillment of its obligations under the contract, including, but not limited to the lease of the Facilities. However, this rent is not actually a fixed amount. Although it is stated to be 4.9% of gross receipts from ticket sales, payable net of taxes required by law to be withheld, it may be drastically reduced or, in extreme cases, nothing may be due or demandable at all because the PGMC binds itself to "bear all risks if the revenue from the ticket sales, on an annualized basis, are insufficient to pay the entire prize money." This risk-bearing provision is unusual in a lessor-lessee relationship, but inherent in a joint venture.

(b) In the event of pre-termination of the contract by the PCSO, or its suspension of operation of the on-line lottery system in breach of the contract and through no fault of the PGMC, the PCSO binds itself "to promptly, and in any event not later than sixty (60) days, reimburse the Lessor the amount of its total investment cost associated with the On-Line Lottery System, including but not limited to the cost of the Facilities, and further compensate the LESSOR for loss of expected net profit after tax, computed over the unexpired term of the lease." If the contract were indeed one of lease, the payment of the expected profits or rentals for the unexpired portion of the term of the contract would be enough.

(c) The PGMC cannot "directly or indirectly undertake any activity or business in competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the latter's prior written consent." If the PGMC is engaged in the business of leasing equipment and technology for an on-line lottery system, we fail to see any acceptable reason why it should allow a restriction on the pursuit of such business.

(d) The PGMC shall provide the PCSO the audited Annual Report sent to its stockholders, and within two years from the effectivity of the contract, cause itself to be listed in the local stock exchange and offer at least 25% of its equity to the public. If the PGMC is merely a lessor, this imposition is unreasonable and whimsical, and could only be tied up to the fact that the PGMC will actually operate and manage the system; hence, increasing public participation in the corporation would enhance public interest.

(e) The PGMC shall put up an Escrow Deposit of P300,000,000.00 pursuant to the requirements of the RFP, which it may, at its option, maintain as its initial performance bond required to ensure its faithful compliance with the terms of the contract.

(f) The PCSO shall designate the necessary personnel to monitor and audit the daily performance of the on-line lottery system; and promulgate procedural and coordinating rules governing all activities relating to the on-line lottery system. The first further confirms that it is the PGMC which will operate the system and the PCSO may, for the protection of its interest, monitor and audit the daily performance of the system. The second admits thecoordinating and cooperative powers and functions of the parties.

(g) The PCSO may validly terminate the contract if the PGMC becomes insolvent or bankrupt or is unable to pay its debts, or if it stops or suspends or threatens to stop or suspend payment of all or a material part of its debts.

All of the foregoing unmistakably confirm the indispensable role of the PGMC in the pursuit, operation, conduct, and management of the On-Line Lottery System. They exhibit and demonstrate the parties' indivisible community of interest in the conception, birth and growth of the on-line lottery, and, above all, in its profits, with each having a right in the formulation and implementation of policies related to the business and sharing, as well, in the losses — with the PGMC bearing the greatest burden because of its assumption of expenses and risks, and the PCSO the least, because of its confessed unwillingness to bear expenses and risks. In a manner of speaking, each is wed to the other for better or for worse. In the final analysis, however, in the light of the PCSO's RFP and the above highlighted provisions, as well as the "Hold Harmless Clause" of the Contract of Lease, it is even safe to conclude that the actual lessor in this case is the PCSO and the subject matter thereof is its franchise to hold and conduct lotteries since it is, in reality, the PGMC which operates and manages the on-line lottery system for a period of eight years.

We thus declare that the challenged Contract of Lease violates the exception provided for in paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law. This conclusion renders unnecessary further discussion on the other issues raised by the petitioners.

WHEREFORE, the instant petition is hereby GRANTED and the challenged Contract of Lease executed on 17 December 1993 by respondent Philippine Charity Sweepstakes Office (PCSO) and respondent Philippine Gaming Management Corporation (PGMC) is hereby DECLARED contrary to law and invalid.

The Temporary Restraining Order issued on 11 April 1994 is hereby MADE PERMANENT.

No pronouncement as to costs.

SO ORDERED.

Regalado, Romero and Bellosillo, JJ., concur.

Narvasa, C.J., took no part.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 113105 August 19, 1994

PHILIPPINE CONSTITUTION ASSOCIATION, EXEQUIEL B. GARCIA and A. GONZALES, petitioners,vs.HON. SALVADOR ENRIQUEZ, as Secretary of Budget and Management; HON. VICENTE T. TAN, as National Treasurer and COMMISSION ON AUDIT, respondents.

G.R. No. 113174 August 19, 1994

RAUL S. ROCO, as Member of the Philippine Senate, NEPTALI A. GONZALES, Chairman of the Committee on Finance of the Philippine Senate, and EDGARDO J. ANGARA, as President and Chief Executive of the Philippine Senate, all of whom also sue as taxpayers, in their own behalf and in representation of Senators HEHERSON ALVAREZ, AGAPITO A. AQUINO, RODOLFO G. BIAZON, JOSE D. LINA, JR., ERNESTO F. HERRERA, BLAS F. OPLE, JOHN H. OSMENA, GLORIA MACAPAGAL- ARROYO, VICENTE C. SOTTO III, ARTURO M. TOLENTINO, FRANCISCO S. TATAD, WIGBERTO E. TAÑADA and FREDDIE N. WEBB, petitioners,vs.THE EXECUTIVE SECRETARY, THE DEPARTMENT OF BUDGET AND MANAGEMENT, and THE NATIONAL TREASURER, THE COMMISSION ON AUDIT, impleaded herein as an unwillingco-petitioner, respondents.

G.R. No. 113766 August 19, 1994

WIGBERTO E. TAÑADA and ALBERTO G. ROMULO, as Members of the Senate and as taxpayers, and FREEDOM FROM DEBT COALITION, petitioners,vs.HON. TEOFISTO T. GUINGONA, JR. in his capacity as Executive Secretary, HON. SALVADOR ENRIQUEZ, JR., in his capacity as Secretary of the Department of Budget and Management, HON. CARIDAD VALDEHUESA, in her capacity as National Treasurer, and THE COMMISSION ON AUDIT, respondents.

G.R. No. 113888 August 19, 1994

WIGBERTO E. TAÑADA and ALBERTO G. ROMULO, as Members of the Senate and as taxpayers, petitioners,vs.HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary,

HON. SALVADOR ENRIQUEZ, JR., in his capacity as Secretary of the Department of Budget and Management, HON. CARIDAD VALDEHUESA, in her capacity as National Treasurer, and THE COMMISSION ON AUDIT, respondents.

Ramon R. Gonzales for petitioners in G.R. No. 113105.

Eddie Tamondong for petitioners in G.R. Nos. 113766 & 113888.

Roco, Buñag, Kapunan, Migallos & Jardeleza for petitioners Raul S. Roco, Neptali A. Gonzales and Edgardo Angara.

Ceferino Padua Law Office fro intervenor Lawyers Against Monopoly and Poverty (Lamp).

QUIASON, J.:

Once again this Court is called upon to rule on the conflicting claims of authority between the Legislative and the Executive in the clash of the powers of the purse and the sword. Providing the focus for the contest between the President and the Congress over control of the national budget are the four cases at bench. Judicial intervention is being sought by a group of concerned taxpayers on the claim that Congress and the President have impermissibly exceeded their respective authorities, and by several Senators on the claim that the President has committed grave abuse of discretion or acted without jurisdiction in the exercise of his veto power.

I

House Bill No. 10900, the General Appropriation Bill of 1994 (GAB of 1994), was passed and approved by both houses of Congress on December 17, 1993. As passed, it imposed conditions and limitations on certain items of appropriations in the proposed budget previously submitted by the President. It also authorized members of Congress to propose and identify projects in the “pork barrels” allotted to them and to realign their respective operating budgets.

Pursuant to the procedure on the passage and enactment of bills as prescribed by the Constitution, Congress presented the said bill to the President for consideration and approval.

On December 30, 1993, the President signed the bill into law, and declared the same to have become Republic Act No. 7663, entitled “AN ACT APPROPRIATING FUNDS FOR THE OPERATION OF THE GOVERNMENT OF THE PHILIPPINES FROM JANUARY ONE TO DECEMBER THIRTY ONE, NINETEEN HUNDRED AND NINETY-FOUR, AND FOR OTHER PURPOSES” (GAA of 1994). On the same day, the President delivered his Presidential

Veto Message, specifying the provisions of the bill he vetoed and on which he imposed certain conditions.

No step was taken in either House of Congress to override the vetoes.

In G.R. No. 113105, the Philippine Constitution Association, Exequiel B. Garcia and Ramon A. Gonzales as taxpayers, prayed for a writ of prohibition to declare as unconstitutional and void: (a) Article XLI on the Countrywide Development Fund, the special provision in Article I entitled Realignment of Allocation for Operational Expenses, and Article XLVIII on the Appropriation for Debt Service or the amount appropriated under said Article XLVIII in excess of the P37.9 Billion allocated for the Department of Education, Culture and Sports; and (b) the veto of the President of the Special Provision ofArticle XLVIII of the GAA of 1994 (Rollo, pp. 88-90, 104-105)

In G.R. No. 113174, sixteen members of the Senate led by Senate President Edgardo J. Angara, Senator Neptali A. Gonzales, the Chairman of the Committee on Finance, and Senator Raul S. Roco, sought the issuance of the writs of certiorari, prohibition and mandamus against the Executive Secretary, the Secretary of the Department of Budget and Management, and the National Treasurer.

Suing as members of the Senate and taxpayers, petitioners question: (1) the constitutionality of the conditions imposed by the President in the items of the GAA of 1994: (a) for the Supreme Court, (b) Commission on Audit (COA), (c) Ombudsman, (d) Commission on Human Rights (CHR), (e) Citizen Armed Forces Geographical Units (CAFGU’S) and (f) State Universities and Colleges (SUC’s); and (2) the constitutionality of the veto of the special provision in the appropriation for debt service.

In G.R. No. 113766, Senators Alberto G. Romulo and Wigberto Tañada (a co-petitioner in G.R. No. 113174), together with the Freedom from Debt Coalition, a non-stock domestic corporation, sought the issuance of the writs of prohibition and mandamus against the Executive Secretary, the Secretary of the Department of Budget and Management, the National Treasurer, and the COA.

Petitioners Tañada and Romulo sued as members of the Philippine Senate and taxpayers, while petitioner Freedom from Debt Coalition sued as a taxpayer. They challenge the constitutionality of the Presidential veto of the special provision in the appropriations for debt service and the automatic appropriation of funds therefor.

In G.R. No. 11388, Senators Tañada and Romulo sought the issuance of the writs of prohibition and mandamus against the same respondents in G.R. No. 113766. In this petition, petitioners contest the constitutionality of: (1) the veto on four special provision added to items in the GAA of 1994 for the Armed Forces of the Philippines (AFP) and the Department of Public Works and Highways (DPWH); and (2) the conditions imposed by the President in the implementation of certain appropriations for the CAFGU’s, the DPWH, and the National Housing Authority (NHA).

Petitioners also sought the issuance of temporary restraining orders to enjoin respondents Secretary of Budget and Management, National Treasurer and COA from enforcing the questioned provisions of the GAA of 1994, but the Court declined to grant said provisional reliefs on the time- honored principle of according the presumption of validity to statutes and the presumption of regularity to official acts.

In view of the importance and novelty of most of the issues raised in the four petitions, the Court invited former Chief Justice Enrique M. Fernando and former Associate Justice Irene Cortes to submit their respective memoranda as Amicus curiae, which they graciously did.

II

Locus Standi

When issues of constitutionality are raised, the Court can exercise its power of judicial review only if the following requisites are compresent: (1) the existence of an actual and appropriate case; (2) a personal and substantial interest of the party raising the constitutional question; (3) the exercise of judicial review is pleaded at the earliest opportunity; and (4) the constitutional question is the lis mota of the case (Luz Farms v. Secretary of the Department of Agrarian Reform, 192 SCRA 51 [1990]; Dumlao v. Commission on Elections, 95 SCRA 392 [1980]; People v. Vera, 65 Phil. 56 [1937]).

While the Solicitor General did not question the locus standi of petitioners in G.R. No. 113105, he claimed that the remedy of the Senators in the other petitions is political (i.e., to override the vetoes) in effect saying that they do not have the requisite legal standing to bring the suits.

The legal standing of the Senate, as an institution, was recognized in Gonzales v. Macaraig, Jr., 191 SCRA 452 (1990). In said case, 23 Senators, comprising the entire membership of the Upper House of Congress, filed a petition to nullify the presidential veto of Section 55 of the GAA of 1989. The filing of the suit was authorized by Senate Resolution No. 381, adopted on February 2, 1989, and which reads as follows:

Authorizing and Directing the Committee on Finance to Bring in the Name of the Senate of the Philippines the Proper Suit with the Supreme Court of the Philippines contesting the Constitutionality of the Veto by the President of Special and General Provisions, particularly Section 55, of the General Appropriation Bill of 1989 (H.B. No. 19186) and For Other Purposes.

In the United States, the legal standing of a House of Congress to sue has been recognized (United States v. American Tel. & Tel. Co., 551 F. 2d 384, 391 [1976]; Notes: Congressional Access To The Federal Courts, 90 Harvard Law Review 1632 [1977]).

While the petition in G.R. No. 113174 was filed by 16 Senators, including the Senate President and the Chairman of the Committee on Finance, the suit was not

authorized by the Senate itself. Likewise, the petitions inG.R. Nos. 113766 and 113888 were filed without an enabling resolution for the purpose.

Therefore, the question of the legal standing of petitioners in the three cases becomes a preliminary issue before this Court can inquire into the validity of the presidential veto and the conditions for the implementation of some items in the GAA of 1994.

We rule that a member of the Senate, and of the House of Representatives for that matter, has the legal standing to question the validity of a presidential veto or a condition imposed on an item in an appropriation bill.

Where the veto is claimed to have been made without or in excess of the authority vested on the President by the Constitution, the issue of an impermissible intrusion of the Executive into the domain of the Legislature arises (Notes: Congressional Standing To Challenge Executive Action, 122 University of Pennsylvania Law Review 1366 [1974]).

To the extent the power of Congress are impaired, so is the power of each member thereof, since his office confers a right to participate in the exercise of the powers of that institution (Coleman v. Miller, 307 U.S. 433 [1939]; Holtzman v. Schlesinger, 484 F. 2d 1307 [1973]).

An act of the Executive which injures the institution of Congress causes a derivative but nonetheless substantial injury, which can be questioned by a member of Congress (Kennedy v. Jones, 412 F. Supp. 353 [1976]). In such a case, any member of Congress can have a resort to the courts.

Former Chief Justice Enrique M. Fernando, as Amicus Curiae, noted:

This is, then, the clearest case of the Senate as a whole or individual Senators as such having a substantial interest in the question at issue. It could likewise be said that there was the requisite injury to their rights as Senators. It would then be futile to raise any locus standi issue. Any intrusion into the domain appertaining to the Senate is to be resisted. Similarly, if the situation were reversed, and it is the Executive Branch that could allege a transgression, its officials could likewise file the corresponding action. What cannot be denied is that a Senator has standing to maintain inviolate the prerogatives, powers and privileges vested by the Constitution in his office (Memorandum, p. 14).

It is true that the Constitution provides a mechanism for overriding a veto (Art. VI, Sec. 27 [1]). Said remedy, however, is available only when the presidential veto is based on policy or political considerations but not when the veto is claimed to be ultra vires. In the latter case, it becomes the duty of the Court to draw the dividing line where the exercise of executive power ends and the bounds of legislative jurisdiction begin.

III

G.R. No. 113105

1. Countrywide Development Fund

Article XLI of the GAA of 1994 sets up a Countrywide Development Fund of P2,977,000,000.00 to “be used for infrastructure, purchase of ambulances and computers and other priority projects and activities and credit facilities to qualified beneficiaries.” Said Article provides:

COUNTRYWIDE DEVELOPMENT FUND

For Fund requirements of countrywidedevelopment projects P 2,977,000,000———————

New Appropriations, by PurposeCurrent Operating Expenditures

A. PURPOSE

Personal Maintenance Capital TotalServices and Other OutlaysOperatingExpenses

1. For CountrywideDevelopments Projects P250,000,000 P2,727,000,000 P2,977,000,000

TOTAL NEWAPPROPRIATIONS P250,000,000 P2,727,000,000 P2,977,000,000

Special Provisions

1. Use and Release of Funds. The amount herein appropriated shall be used for infrastructure, purchase of ambulances and computers and other priority projects and activities, and credit facilities to qualified beneficiaries as proposed and identified by officials concerned according to the following allocations: Representatives, P12,500,000 each; Senators, P18,000,000 each; Vice-President, P20,000,000; PROVIDED, That, the said credit facilities shall be constituted as a revolving fund to be administered by a government financial institution (GFI) as a trust fund for lending operations. Prior years releases to local government units and national government agencies for this purpose shall be turned over to the government financial institution which shall be the sole administrator of credit facilities released from this fund.

The fund shall be automatically released quarterly by way of Advice of Allotments and Notice of Cash Allocation directly to the assigned implementing agency not later

than five (5) days after the beginning of each quarter upon submission of the list of projects and activities by the officials concerned.

2. Submission of Quarterly Reports. The Department of Budget and Management shall submit within thirty (30) days after the end of each quarter a report to the Senate Committee on Finance and the House Committee on Appropriations on the releases made from this Fund. The report shall include the listing of the projects, locations, implementing agencies and the endorsing officials (GAA of 1994, p. 1245).

Petitioners claim that the power given to the members of Congress to propose and identify the projects and activities to be funded by the Countrywide Development Fund is an encroachment by the legislature on executive power, since said power in an appropriation act in implementation of a law. They argue that the proposal and identification of the projects do not involve the making of laws or the repeal and amendment thereof, the only function given to the Congress by the Constitution (Rollo, pp. 78- 86).

Under the Constitution, the spending power called by James Madison as “the power of the purse,” belongs to Congress, subject only to the veto power of the President. The President may propose the budget, but still the final say on the matter of appropriations is lodged in the Congress.

The power of appropriation carries with it the power to specify the project or activity to be funded under the appropriation law. It can be as detailed and as broad as Congress wants it to be.

The Countrywide Development Fund is explicit that it shall be used “for infrastructure, purchase of ambulances and computers and other priority projects and activities and credit facilities to qualified beneficiaries . . .” It was Congress itself that determined the purposes for the appropriation.

Executive function under the Countrywide Development Fund involves implementation of the priority projects specified in the law.

The authority given to the members of Congress is only to propose and identify projects to be implemented by the President. Under Article XLI of the GAA of 1994, the President must perforce examine whether the proposals submitted by the members of Congress fall within the specific items of expenditures for which the Fund was set up, and if qualified, he next determines whether they are in line with other projects planned for the locality. Thereafter, if the proposed projects qualify for funding under the Funds, it is the President who shall implement them. In short, the proposals and identifications made by the members of Congress are merely recommendatory.

The procedure of proposing and identifying by members of Congress of particular projects or activities under Article XLI of the GAA of 1994 is imaginative as it is innovative.

The Constitution is a framework of a workable government and its interpretation must take into account the complexities, realities and politics attendant to the operation of the political branches of government. Prior to the GAA of 1991, there was an uneven allocation of appropriations for the constituents of the members of Congress, with the members close to the Congressional leadership or who hold cards for “horse-trading,” getting more than their less favored colleagues. The members of Congress also had to reckon with an unsympathetic President, who could exercise his veto power to cancel from the appropriation bill a pet project of a Representative or Senator.

The Countrywide Development Fund attempts to make equal the unequal. It is also a recognition that individual members of Congress, far more than the President and their congressional colleagues are likely to be knowledgeable about the needs of their respective constituents and the priority to be given each project.

2. Realignment of Operating Expenses

Under the GAA of 1994, the appropriation for the Senate is P472,000,000.00 of which P464,447,000.00 is appropriated for current operating expenditures, while the appropriation for the House of Representatives is P1,171,924,000.00 of which P1,165,297,000.00 is appropriated for current operating expenditures (GAA of 1994, pp. 2, 4, 9, 12).

The 1994 operating expenditures for the Senate are as follows:

Personal Services

Salaries, Permanent 153,347Salaries/Wage, Contractual/Emergency 6,870————Total Salaries and Wages 160,217=======

Other Compensation

Step Increments 1,073Honoraria and Commutable Allowances 3,731Compensation Insurance Premiums 1,579Pag-I.B.I.G. Contributions 1,184Medicare Premiums 888Bonus and Cash Gift 14,791Terminal Leave Benefits 2,000Personnel Economic Relief Allowance 10,266Additional Compensation of P500 under A.O. 53 11,130Others 57,173————Total Other Compensation 103,815

————01 Total Personal Services 264,032=======

Maintenance and Other Operating Expenses

02 Traveling Expenses 32,84103 Communication Services 7,66604 Repair and Maintenance of Government Facilities 1,22005 Repair and Maintenance of Government Vehicles 31806 Transportation Services 12807 Supplies and Materials 20,18908 Rents 24,58414 Water/Illumination and Power 6,56115 Social Security Benefits and Other Claims 3,27017 Training and Seminars Expenses 2,22518 Extraordinary and Miscellaneous Expenses 9,36023 Advertising and Publication24 Fidelity Bonds and Insurance Premiums 1,32529 Other Services 89,778————Total Maintenance and Other Operating Expenditures 200,415————Total Current Operating Expenditures 464,447=======

(GAA of 1994, pp. 3-4)

The 1994 operating expenditures for the House of Representatives are as follows:

Personal Services

Salaries, Permanent 261,557Salaries/Wages, Contractual/Emergency 143,643————Total Salaries and Wages 405,200=======

Other Compensation

Step Increments 4,312Honoraria and CommutableAllowances 4,764Compensation InsurancePremiums 1,159Pag-I.B.I.G. Contributions 5,231Medicare Premiums 2,281

Bonus and Cash Gift 35,669Terminal Leave Benefits 29Personnel Economic ReliefAllowance 21,150Additional Compensation of P500 under A.O. 53Others 106,140————Total Other Compensation 202,863————01 Total Personal Services 608,063=======

Maintenance and Other Operating Expenses

02 Traveling Expenses 139,61103 Communication Services 22,51404 Repair and Maintenance of Government Facilities 5,11605 Repair and Maintenance of Government Vehicles 1,86306 Transportation Services 17807 Supplies and Materials 55,24810 Grants/Subsidies/Contributions 94014 Water/Illumination and Power 14,45815 Social Security Benefits and Other Claims 32517 Training and Seminars Expenses 7,23618 Extraordinary and Miscellaneous Expenses 14,47420 Anti-Insurgency/Contingency Emergency Expenses 9,40023 Advertising and Publication 24224 Fidelity Bonds and Insurance Premiums 1,42029 Other Services 284,209————Total Maintenance and Other Operating Expenditures 557,234————Total Current Operating Expenditures 1,165,297=======

(GAA of 1994, pp. 11-12)

The Special Provision Applicable to the Congress of the Philippines provides:

4. Realignment of Allocation for Operational Expenses. A member of Congress may realign his allocation for operational expenses to any other expenses category provide the total of said allocation is not exceeded. (GAA of 1994, p. 14).

The appropriation for operating expenditures for each House is further divided into expenditures for salaries, personal services, other compensation benefits, maintenance expenses and other operating expenses. In turn, each member of Congress is allotted for his own operating expenditure a proportionate share of the appropriation for the House to which he belongs. If he does not spend for one items

of expense, the provision in question allows him to transfer his allocation in said item to another item of expense.

Petitioners assail the special provision allowing a member of Congress to realign his allocation for operational expenses to any other expense category (Rollo, pp. 82-92), claiming that this practice is prohibited by Section 25(5), Article VI of the Constitution. Said section provides:

No law shall be passed authorizing any transfer of appropriations: however, the President, the President of the Senate, the Speaker of the House of Representatives, the Chief Justice of the Supreme Court, and the heads of Constitutional Commissions may, by law, be authorized to augment any item in the general appropriations law for their respective offices from savings in other items of their respective appropriations.

The proviso of said Article of the Constitution grants the President of the Senate and the Speaker of the House of Representatives the power to augment items in an appropriation act for their respective offices from savings in other items of their appropriations, whenever there is a law authorizing such augmentation.

The special provision on realignment of the operating expenses of members of Congress is authorized by Section 16 of the General Provisions of the GAA of 1994, which provides:

Expenditure Components. Except by act of the Congress of the Philippines, no change or modification shall be made in the expenditure items authorized in this Act and other appropriation laws unless in casesof augmentations from savings in appropriations as authorized under Section 25(5) of Article VI of the Constitution (GAA of 1994, p. 1273).

Petitioners argue that the Senate President and the Speaker of the House of Representatives, but not the individual members of Congress are the ones authorized to realign the savings as appropriated.

Under the Special Provisions applicable to the Congress of the Philippines, the members of Congress only determine the necessity of the realignment of the savings in the allotments for their operating expenses. They are in the best position to do so because they are the ones who know whether there are savings available in some items and whether there are deficiencies in other items of their operating expenses that need augmentation. However, it is the Senate President and the Speaker of the House of Representatives, as the case may be, who shall approve the realignment. Before giving their stamp of approval, these two officials will have to see to it that:

(1) The funds to be realigned or transferred are actually savings in the items of expenditures from which the same are to be taken; and

(2) The transfer or realignment is for the purposes of augmenting the items of expenditure to which said transfer or realignment is to be made.

3. Highest Priority for Debt Service

While Congress appropriated P86,323,438,000.00 for debt service (Article XLVII of the GAA of 1994), it appropriated only P37,780,450,000.00 for the Department of Education Culture and Sports. Petitioners urged that Congress cannot give debt service the highest priority in the GAA of 1994 (Rollo, pp. 93-94) because under the Constitution it should be education that is entitled to the highest funding. They invoke Section 5(5), Article XIV thereof, which provides:

(5) The State shall assign the highest budgetary priority to education and ensure that teaching will attract and retain its rightful share of the best available talents through adequate remuneration and other means of job satisfaction and fulfillment.

This issue was raised in Guingona, Jr. v. Carague, 196 SCRA 221 (1991), where this Court held that Section 5(5), Article XIV of the Constitution, is merely directory, thus:

While it is true that under Section 5(5), Article XIV of the Constitution, Congress is mandated to “assign the highest budgetary priority to education” in order to “insure that teaching will attract and retain its rightful share of the best available talents through adequate remuneration and other means of job satisfaction and fulfillment,” it does not thereby follow that the hands of Congress are so hamstrung as to deprive it the power to respond to the imperatives of the national interest and for the attainment of other state policies or objectives.

As aptly observed by respondents, since 1985, the budget for education has tripled to upgrade and improve the facility of the public school system. The compensation of teachers has been doubled. The amount of P29,740,611,000.00 set aside for the Department of Education, Culture and Sports under the General Appropriations Act (R.A. No. 6381), is the highest budgetary allocation among all department budgets. This is a clear compliance with the aforesaid constitutional mandate according highest priority to education.

Having faithfully complied therewith, Congress is certainly not without any power, guided only by its good judgment, to provide an appropriation, that can reasonably service our enormous debt, the greater portion of which was inherited from the previous administration. It is not only a matter of honor and to protect the credit standing of the country. More especially, the very survival of our economy is at stake. Thus, if in the process Congress appropriated an amount for debt service bigger than the share allocated to education, the Court finds and so holds that said appropriation cannot be thereby assailed as unconstitutional.

G.R. No. 113105G.R. No. 113174

Veto of Provision on Debt Ceiling

The Congress added a Special Provision to Article XLVIII (Appropriations for Debt Service) of the GAA of 1994 which provides:

Special Provisions

1. Use of the Fund. The appropriation authorized herein shall be used for payment of principal and interest of foreign and domestic indebtedness; PROVIDED, That any payment in excess of the amount herein appropriated shall be subject to the approval of the President of the Philippines with the concurrence of the Congress of the Philippines; PROVIDED, FURTHER, That in no case shall this fund be used to pay for the liabilities of the Central Bank Board of Liquidators.

2. Reporting Requirement. The Bangko Sentral ng Pilipinas and the Department of Finance shall submit a quarterly report of actual foreign and domestic debt service payments to the House Committee on Appropriations and Senate Finance Committee within one (1) month after each quarter (GAA of 1944, pp. 1266).

The President vetoed the first Special Provision, without vetoing the P86,323,438,000.00 appropriation for debt service in said Article. According to the President’s Veto Message:

IV. APPROPRIATIONS FOR DEBT SERVICE

I would like to emphasize that I concur fully with the desire of Congress to reduce the debt burden by decreasing the appropriation for debt service as well as the inclusion of the Special Provision quoted below. Nevertheless, I believe that this debt reduction scheme cannot be validly done through the 1994 GAA. This must be addressed by revising our debt policy by way of innovative and comprehensive debt reduction programs conceptualized within the ambit of the Medium-Term Philippine Development Plan.

Appropriations for payment of public debt, whether foreign or domestic, are automatically appropriated pursuant to the Foreign Borrowing Act and Section 31 of P.D. No. 1177 as reiterated under Section 26, Chapter 4, Book VI of E.O. No. 292, the Administrative Code of 1987. I wish to emphasize that the constitutionality of such automatic provisions on debt servicing has been upheld by the Supreme Court in the case of “Teofisto T. Guingona, Jr., and Aquilino Q. Pimentel, Jr. v. Hon. Guillermo N. Carague, in his capacity as Secretary of Budget and Management, et al.,” G.R. No. 94571, dated April 22, 1991.

I am, therefore vetoing the following special provision for the reason that the GAA is not the appropriate legislative measure to amend the provisions of the Foreign Borrowing Act, P.D. No. 1177 and E.O. No. 292:

Use of the Fund. The appropriation authorized herein shall be used for payment of principal and interest of foreign and domestic indebtedness: PROVIDED, That any payment in excess of the amount herein appropriated shall be subject to the approval of the President of the Philippines with the concurrence of the Congress of the Philippines: PROVIDED, FURTHER, That in no case shall this fund be used to pay for the liabilities of the Central Bank Board of Liquidators (GAA of 1994, p. 1290).

Petitioners claim that the President cannot veto the Special Provision on the appropriation for debt service without vetoing the entire amount of P86,323,438.00 for said purpose (Rollo, G.R. No. 113105, pp. 93-98; Rollo, G.R. No. 113174, pp. 16-18). The Solicitor General counterposed that the Special Provision did not relate to the item of appropriation for debt service and could therefore be the subject of an item veto (Rollo, G.R. No. 113105, pp. 54-60; Rollo, G.R. No. 113174, pp. 72-82).

This issue is a mere rehash of the one put to rest in Gonzales v. Macaraig, Jr., 191 SCRA 452 (1990). In that case, the issue was stated by the Court, thus:

The fundamental issue raised is whether or not the veto by the President of Section 55 of the 1989 Appropriations Bill (Section 55FY ’89), and subsequently of its counterpart Section 16 of the 1990 Appropriations Bill (Section 16 FY ’90), is unconstitutional and without effect.

The Court re-stated the issue, just so there would not be any misunderstanding about it, thus:

The focal issue for resolution is whether or not the President exceeded the item-veto power accorded by the Constitution. Or differently put, has the President the power to veto “provisions” of an Appropriations Bill?

The bases of the petition in Gonzales, which are similar to those invoked in the present case, are stated as follows:

In essence, petitioners’ cause is anchored on the following grounds: (1) the President’s line-veto power as regards appropriation bills is limited to item/s and does not cover provision/s; therefore, she exceeded her authority when she vetoed Section 55 (FY ’89) and Section 16 (FY ’90) which are provisions; (2) when the President objects to a provision of an appropriation bill, she cannot exercise the item-veto power but should veto the entire bill; (3) the item-veto power does not carry with it the power to strike out conditions or restrictions for that would be legislation, in violation of the doctrine of separation of powers; and (4) the power of augmentation in Article VI, Section 25 [5] of the 1987 Constitution, has to be provided for by law and, therefore, Congress is also vested with the prerogative to impose restrictions on the exercise of that power.

The restrictive interpretation urged by petitioners that the President may not veto a provision without vetoing the entire bill not only disregards the basic principle that a distinct and severable part of a bill may be the subject of a separate veto but also overlooks the Constitutional mandate that any provision in the general appropriations bill shall relate specifically to some particular appropriation therein and that any such provision shall be limited in its operation to the appropriation to which it relates (1987 Constitution, Article VI, Section 25 [2]). In other words, in the true sense of the term, a provision in an Appropriations Bill is limited in its operation to some particular appropriation to which it relates, and does not relate to the entire bill.

The Court went one step further and ruled that even assuming arguendo that “provisions” are beyond the executive power to veto, and Section 55

(FY ’89) and Section 16 (FY ’90) were not “provisions” in the budgetary sense of the term, they are “inappropriate provisions” that should be treated as “items” for the purpose of the President’s veto power.

The Court, citing Henry v. Edwards, La., 346 So. 2d 153 (1977), said that Congress cannot include in a general appropriations bill matters that should be more properly enacted in separate legislation, and if it does that, the inappropriate provisions inserted by it must be treated as “item”, which can be vetoed by the President in the exercise of his item-veto power.

It is readily apparent that the Special Provision applicable to the appropriation for debt service insofar as it refers to funds in excess of the amount appropriated in the bill, is an “inappropriate” provision referring to funds other than the P86,323,438,000.00 appropriated in the General Appropriations Act of 1991.

Likewise the vetoed provision is clearly an attempt to repeal Section 31 of P.D. No. 1177 (Foreign Borrowing Act) and E.O. No. 292, and to reverse the debt payment policy. As held by the Court in Gonzales, the repeal of these laws should be done in a separate law, not in the appropriations law.

The Court will indulge every intendment in favor of the constitutionality of a veto, the same as it will presume the constitutionality of an act of Congress (Texas Co. v. State, 254 P. 1060; 31 Ariz, 485, 53 A.L.R. 258 [1927]).

The veto power, while exercisable by the President, is actually a part of the legislative process (Memorandum of Justice Irene Cortes as Amicus Curiae, pp. 3-7). That is why it is found in Article VI on the Legislative Department rather than in Article VII on the Executive Department in the Constitution. There is, therefore, sound basis to indulge in the presumption of validity of a veto. The burden shifts on those questioning the validity thereof to show that its use is a violation of the Constitution.

Under his general veto power, the President has to veto the entire bill, not merely parts thereof (1987 Constitution, Art. VI, Sec. 27[1]). The exception to the general veto power is the power given to the President to veto any particular item or items in a general appropriations bill (1987 Constitution, Art. VI,Sec. 27[2]). In so doing, the President must veto the entire item.

A general appropriations bill is a special type of legislation, whose content is limited to specified sums of money dedicated to a specific purpose or a separate fiscal unit (Beckman, The Item Veto Power of the Executive,31 Temple Law Quarterly 27 [1957]).

The item veto was first introduced by the Organic Act of the Philippines passed by the U.S. Congress on August 29, 1916. The concept was adopted from some State Constitutions.

Cognizant of the legislative practice of inserting provisions, including conditions, restrictions and limitations, to items in appropriations bills, the Constitutional

Convention added the following sentence to Section 20(2), Article VI of the 1935 Constitution:

. . . When a provision of an appropriation bill affect one or more items of the same, the President cannot veto the provision without at the same time vetoing the particular item or items to which it relates . . . .

In short, under the 1935 Constitution, the President was empowered to veto separately not only items in an appropriations bill but also “provisions”.

While the 1987 Constitution did not retain the aforementioned sentence added to Section 11(2) of Article VI of the 1935 Constitution, it included the following provision:

No provision or enactment shall be embraced in the general appropriations bill unless it relates specifically to some particular appropriation therein. Any such provision or enactment shall be limited in its operation to the appropriation to which it relates (Art. VI, Sec. 25[2]).

In Gonzales, we made it clear that the omission of that sentence of Section 16(2) of the 1935 Constitution in the 1987 Constitution should not be interpreted to mean the disallowance of the power of the President to veto a “provision”.

As the Constitution is explicit that the provision which Congress can include in an appropriations bill must “relate specifically to some particular appropriation therein” and “be limited in its operation to the appropriation to which it relates,” it follows that any provision which does not relate to any particular item, or which extends in its operation beyond an item of appropriation, is considered “an inappropriate provision” which can be vetoed separately from an item. Also to be included in the category of “inappropriate provisions” are unconstitutional provisions and provisions which are intended to amend other laws, because clearly these kind of laws have no place in an appropriations bill. These are matters of general legislation more appropriately dealt with in separate enactments. Former Justice Irene Cortes, as Amicus Curiae, commented that Congress cannot by law establish conditions for and regulate the exercise of powers of the President given by the Constitution for that would be an unconstitutional intrusion into executive prerogative.

The doctrine of “inappropriate provision” was well elucidated in Henry v. Edwards, supra., thus:

Just as the President may not use his item-veto to usurp constitutional powers conferred on the legislature, neither can the legislature deprive the Governor of the constitutional powers conferred on him as chief executive officer of the state by including in a general appropriation bill matters more properly enacted in separate legislation. The Governor’s constitutional power to veto bills of general legislation . . . cannot be abridged by the careful placement of such measures in a general appropriation bill, thereby forcing the Governor to choose between approving unacceptable substantive legislation or vetoing “items” of expenditures essential to the operation of government.The legislature cannot by location of a bill give it

immunity from executive veto. Nor can it circumvent the Governor’s veto power over substantive legislation by artfully drafting general law measures so that they appear to be true conditions or limitations on an item of appropriation. Otherwise, the legislature would be permitted to impair the constitutional responsibilities and functions of a co-equal branch of government in contravention of the separation of powers doctrine . . . We are no more willing to allow the legislature to use its appropriation power to infringe on the Governor’s constitutional right to veto matters of substantive legislation than we are to allow the Governor to encroach on the Constitutional powers of the legislature. In order to avoid this result, we hold that, when the legislature inserts inappropriate provisions in a general appropriation bill, such provisions must be treated as “items“ for purposes of the Governor’s item veto power over general appropriation bills.

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. . . Legislative control cannot be exercised in such a manner as to encumber the general appropriation bill with veto-proof “logrolling measures”, special interest provisions which could not succeed if separately enacted, or “riders”, substantive pieces of legislation incorporated in a bill to insure passage without veto . . . (Emphasis supplied).

Petitioners contend that granting arguendo that the veto of the Special Provision on the ceiling for debt payment is valid, the President cannot automatically appropriate funds for debt payment without complying with the conditions for automatic appropriation under the provisions of R.A. No. 4860 as amended by P.D. No. 81 and the provisions of P.D. No. 1177 as amended by the Administrative Code of 1987 and P.D. No. 1967 (Rollo, G.R. No. 113766, pp. 9-15).

Petitioners cannot anticipate that the President will not faithfully execute the laws. The writ of prohibition will not issue on the fear that official actions will be done in contravention of the laws.

The President vetoed the entire paragraph one of the Special Provision of the item on debt service, including the provisions that the appropriation authorized in said item “shall be used for payment of the principal and interest of foreign and domestic indebtedness” and that “in no case shall this fund be used to pay for the liabilities of the Central Bank Board of Liquidators.” These provisions are germane to and have a direct connection with the item on debt service. Inherent in the power of appropriation is the power to specify how the money shall be spent (Henry v. Edwards, LA, 346 So., 2d., 153). The said provisos, being appropriate provisions, cannot be vetoed separately. Hence the item veto of said provisions is void.

We reiterate, in order to obviate any misunderstanding, that we are sustaining the veto of the Special Provision of the item on debt service only with respect to the proviso therein requiring that “any payment in excess of the amount herein, appropriated shall be subject to the approval of the President of the Philippines with the concurrence of the Congress of the Philippines . . .”

G.R. NO. 113174G.R. NO. 113766G.R. NO. 11388

1. Veto of provisions for revolving funds of SUC’s.

In the appropriation for State Universities and Colleges (SUC’s), the President vetoed special provisions which authorize the use of income and the creation, operation and maintenance of revolving funds. The Special Provisions vetoed are the following:

(H. 7) West Visayas State University

Equal Sharing of Income. Income earned by the University subject to Section 13 of the special provisions applicable to all State Universities and Colleges shall be equally shared by the University and the University Hospital (GAA of 1994, p. 395).

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(J. 3) Leyte State College

Revolving Fund for the Operation of LSC House and Human Resources Development Center (HRDC). The income of Leyte State College derived from the operation of its LSC House and HRDC shall be constituted into a Revolving Fund to be deposited in an authorized government depository bank for the operational expenses of these projects/services. The net income of the Revolving Fund at the end of the year shall be remitted to the National Treasury and shall accrue to the General Fund. The implementing guidelines shall be issued by the Department of Budget and Management (GAA of 1994, p. 415).

The vetoed Special Provisions applicable to all SUC’s are the following:

12. Use of Income from Extension Services. State Universities and Colleges are authorized to use their income from their extension services. Subject to the approval of the Board of Regents and the approval of a special budget pursuant to Sec. 35, Chapter 5, Book VI of E.O.No. 292, such income shall be utilized solely for faculty development, instructional materials and work study program (GAA of 1994, p. 490).

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13. Income of State Universities and Colleges. The income of State Universities and Colleges derived from tuition fees and other sources as may be imposed by governing boards other than those accruing to revolving funds created under LOI Nos. 872 and 1026 and those authorized to be recorded as trust receipts pursuant to Section 40, Chapter 5, Book VI of E.O. No. 292 shall be deposited with the National Treasury and recorded as a Special Account in the General Fund pursuant to P.D. No. 1234 and P.D. No. 1437 for the use of the institution, subject to Section 35, Chapter 5, Book VI of E.O. No. 292L PROVIDED, That disbursements from the Special Account

shall not exceed the amount actually earned and deposited: PROVIDED, FURTHER, That a cash advance on such income may be allowed State half of income actually realized during the preceding year and this cash advance shall be charged against income actually earned during the budget year: AND PROVIDED, FINALLY, That in no case shall such funds be used to create positions, nor for payment of salaries, wages or allowances, except as may be specifically approved by the Department of Budge and Management for income-producing activities, or to purchase equipment or books, without the prior approval of the President of the Philippines pursuant to Letter of Implementation No. 29.

All collections of the State Universities and Colleges for fees, charges and receipts intended for private recipient units, including private foundations affiliated with these institutions shall be duly acknowledged with official receipts and deposited as a trust receipt before said income shall be subject to Section 35, Chapter 5, Book VI of E.O. No. 292(GAA of 1994, p. 490).

The President gave his reason for the veto thus:

Pursuant to Section 65 of the Government Auditing Code of the Philippines, Section 44, Chapter 5, Book VI of E.O. No. 292, s. 1987 and Section 22, Article VII of the Constitution, all income earned by all Government offices and agencies shall accrue to the General Fund of the Government in line with the One Fund Policy enunciated by Section 29 (1), Article VI and Section 22, Article VII of the Constitution. Likewise, the creation and establishment of revolving funds shall be authorized by substantive law pursuant to Section 66 of the Government Auditing Code of the Philippines and Section 45, Chapter 5, Book VI of E.O. No. 292.

Notwithstanding the aforementioned provisions of the Constitution and existing law, I have noted the proliferation of special provisions authorizing the use of agency income as well as the creation, operation and maintenance of revolving funds.

I would like to underscore the facts that such income were already considered as integral part of the revenue and financing sources of the National Expenditure Program which I previously submitted to Congress. Hence, the grant of new special provisions authorizing the use of agency income and the establishment of revolving funds over and above the agency appropriations authorized in this Act shall effectively reduce the financing sources of the 1994 GAA and, at the same time, increase the level of expenditures of some agencies beyond the well-coordinated, rationalized levels for such agencies. This corresponding increases the overall deficit of the National Government (Veto Message, p. 3).

Petitioners claim that the President acted with grave abuse of discretion when he disallowed by his veto the “use of income” and the creation of “revolving fund” by the Western Visayas State University and Leyte State Colleges when he allowed other government offices, like the National Stud Farm, to use their income for their operating expenses (Rollo, G.R. No. 113174, pp. 15-16).

There was no undue discrimination when the President vetoed said special provisions while allowing similar provisions in other government agencies. If some government agencies were allowed to use their income and maintain a revolving fund for that purpose, it is because these agencies have been enjoying such privilege before by virtue of the special laws authorizing such practices as exceptions to the “one-fund policy” (e.g., R.A. No. 4618 for the National Stud Farm, P.D. No. 902-A for the Securities and Exchange Commission; E.O. No. 359 for the Department of Budget and Management’s Procurement Service).

2. Veto of provision on 70% (administrative)/30% (contract) ratio for road maintenance.

In the appropriation for the Department of Public Works and Highways, the President vetoed the second paragraph of Special Provision No. 2, specifying the 30% maximum ration of works to be contracted for the maintenance of national roads and bridges. The said paragraph reads as follows:

2. Release and Use of Road Maintenance Funds. Funds allotted for the maintenance and repair of roads which are provided in this Act for the Department of Public Works and Highways shall be released to the respective Engineering District, subject to such rules and regulations as may be prescribed by the Department of Budget and Management. Maintenance funds for roads and bridges shall be exempt from budgetary reserve.

Of the amount herein appropriated for the maintenance of national roads and bridges, a maximum of thirty percent (30%) shall be contracted out in accordance with guidelines to be issued by the Department of Public Works and Highways. The balance shall be used for maintenance by force account.

Five percent (5%) of the total road maintenance fund appropriated herein to be applied across the board to the allocation of each region shall be set aside for the maintenance of roads which may be converted to or taken over as national roads during the current year and the same shall be released to the central office of the said department for eventualsub-allotment to the concerned region and district: PROVIDED, That any balance of the said five percent (5%) shall be restored to the regions on a pro-rata basis for the maintenance of existing national roads.

No retention or deduction as reserves or overhead expenses shall be made, except as authorized by law or upon direction of the President(GAA of 1994, pp. 785-786; Emphasis supplied).

The President gave the following reason for the veto:

While I am cognizant of the well-intended desire of Congress to impose certain restrictions contained in some special provisions, I am equally aware that many programs, projects and activities of agencies would require some degree of flexibility to ensure their successful implementation and therefore risk their completion. Furthermore, not only could these restrictions and limitations derail and impede

program implementation but they may also result in a breach of contractual obligations.

D.1.a. A study conducted by the Infrastructure Agencies show that for practical intent and purposes, maintenance by contract could be undertaken to an optimum of seventy percent (70%) and the remaining thirty percent (30%) by force account. Moreover, the policy of maximizing implementation through contract maintenance is a covenant of the Road and Road Transport Program Loan from the Asian Development Bank (ADB Loan No. 1047-PHI-1990) and Overseas Economic Cooperation Fund (OECF Loan No. PH-C17-199). The same is a covenant under the World Bank (IBRD) Loan for the Highway Management Project (IBRD LoanNo. PH-3430) obtained in 1992.

In the light of the foregoing and considering the policy of the government to encourage and maximize private sector participation in the regular repair and maintenance of infrastructure facilities, I am directly vetoing the underlined second paragraph of Special Provision No. 2 of the Department of Public Works and Highways (Veto Message, p. 11).

The second paragraph of Special Provision No. 2 brings to fore the divergence in policy of Congress and the President. While Congress expressly laid down the condition that only 30% of the total appropriation for road maintenance should be contracted out, the President, on the basis of a comprehensive study, believed that contracting out road maintenance projects at an option of 70% would be more efficient, economical and practical.

The Special Provision in question is not an inappropriate provision which can be the subject of a veto. It is not alien to the appropriation for road maintenance, and on the other hand, it specified how the said item shall be expended — 70% by administrative and 30% by contract.

The 1987 Constitution allows the addition by Congress of special provisions, conditions to items in an expenditure bill, which cannot be vetoed separately from the items to which they relate so long as they are “appropriate” in the budgetary sense (Art. VII, Sec. 25[2]).

The Solicitor General was hard put in justifying the veto of this special provision. He merely argued that the provision is a complete turnabout from an entrenched practice of the government to maximize contract maintenance (Rollo, G.R. No. 113888, pp. 85-86). That is not a ground to veto a provision separate from the item to which it refers.

The veto of the second paragraph of Special Provision No. 2 of the item for the DPWH is therefore unconstitutional.

3. Veto of provision on purchase of medicines by AFP.

In the appropriation for the Armed Forces of the Philippines (AFP), the President vetoed the special provision on the purchase by the AFP of medicines in compliance with the Generics Drugs Law (R.A. No. 6675). The vetoed provision reads:

12. Purchase of Medicines. The purchase of medicines by all Armed Forces of the Philippines units, hospitals and clinics shall strictly comply with the formulary embodied in the National Drug Policy of the Department of Health (GAA of 1994, p. 748).

According to the President, while it is desirable to subject the purchase of medicines to a standard formulary, “it is believed more prudent to provide for a transition period for its adoption and smooth implementation in the Armed Forces of the Philippines” (Veto Message, p. 12).

The Special Provision which requires that all purchases of medicines by the AFP should strictly comply with the formulary embodied in the National Drug Policy of the Department of Health is an “appropriate” provision. it is a mere advertence by Congress to the fact that there is an existing law, the Generics Act of 1988, that requires “the extensive use of drugs with generic names through a rational system of procurement and distribution.” The President believes that it is more prudent to provide for a transition period for the smooth implementation of the law in the case of purchases by the Armed Forces of the Philippines, as implied by Section 11 (Education Drive) of the law itself. This belief, however, cannot justify his veto of the provision on the purchase of medicines by the AFP.

Being directly related to and inseparable from the appropriation item on purchases of medicines by the AFP, the special provision cannot be vetoed by the President without also vetoing the said item (Bolinao Electronics Corporation v. Valencia, 11 SCRA 486 [1964]).

4. Veto of provision on prior approval of Congress for purchase of military equipment.

In the appropriation for the modernization of the AFP, the President vetoed the underlined proviso of Special Provision No. 2 on the “Use of Fund,” which requires the prior approval of Congress for the release of the corresponding modernization funds, as well as the entire Special ProvisionsNo. 3 on the “Specific Prohibition”:

2. Use of the Fund. Of the amount herein appropriated, priority shall be given for the acquisition of AFP assets necessary for protecting marine, mineral, forest and other resources within Philippine territorial borders and its economic zone, detection, prevention or deterrence of air or surface intrusions and to support diplomatic moves aimed at preserving national dignity, sovereignty and patrimony: PROVIDED, That the said modernization fund shall not be released until a Table of Organization and Equipment for FY 1994-2000 is submitted to and approved by Congress.

3. Specific Prohibition. The said Modernization Fund shall not be used for payment of six (6) additional S-211 Trainer planes, 18 SF-260 Trainer planes and 150 armored personnel carriers (GAA of 1994, p. 747).

As reason for the veto, the President stated that the said condition and prohibition violate the Constitutional mandate of non-impairment of contractual obligations, and if allowed, “shall effectively alter the original intent of the AFP Modernization Fund to cover all military equipment deemed necessary to modernize the Armed Forces of the Philippines” (Veto Message, p. 12).

Petitioners claim that Special Provision No. 2 on the “Use of Fund” and Special Provision No. 3 are conditions or limitations related to the item on the AFP modernization plan.

The requirement in Special Provision No. 2 on the “Use of Fund” for the AFP modernization program that the President must submit all purchases of military equipment to Congress for its approval, is an exercise of the “congressional or legislative veto.” By way of definition, a congressional veto is a means whereby the legislature can block or modify administrative action taken under a statute. It is a form of legislative control in the implementation of particular executive actions. The form may be either negative, that is requiring disapproval of the executive action, or affirmative, requiring approval of the executive action. This device represents a significant attempt by Congress to move from oversight of the executive to shared administration (Dixon, The Congressional Veto and Separation of Powers: The Executive on a Leash,56 North Carolina Law Review, 423 [1978]).

A congressional veto is subject to serious questions involving the principle of separation of powers.

However the case at bench is not the proper occasion to resolve the issues of the validity of the legislative veto as provided in Special Provisions Nos. 2 and 3 because the issues at hand can be disposed of on other grounds. Any provision blocking an administrative action in implementing a law or requiring legislative approval of executive acts must be incorporated in a separate and substantive bill. Therefore, being “inappropriate” provisions, Special Provisions Nos. 2 and 3 were properly vetoed.

As commented by Justice Irene Cortes in her memorandum as Amicus Curiae: “What Congress cannot do directly by law it cannot do indirectly by attaching conditions to the exercise of that power (of the President as Commander-in-Chief) through provisions in the appropriation law.”

Furthermore, Special Provision No. 3, prohibiting the use of the Modernization Funds for payment of the trainer planes and armored personnel carriers, which have been contracted for by the AFP, is violative of the Constitutional prohibition on the passage of laws that impair the obligation of contracts (Art. III, Sec. 10), more so, contracts entered into by the Government itself.

The veto of said special provision is therefore valid.

5. Veto of provision on use of savings to augment AFP pension funds.

In the appropriation for the AFP Pension and Gratuity Fund, the President vetoed the new provision authorizing the Chief of Staff to use savings in the AFP to augment pension and gratuity funds. The vetoed provision reads:

2. Use of Savings. The Chief of Staff, AFP, is authorized, subject to the approval of the Secretary of National Defense, to use savings in the appropriations provided herein to augment the pension fund being managed by the AFP Retirement and Separation Benefits System as provided under Sections 2(a) and 3 of P.D. No. 361 (GAA of 1994,p. 746).

According to the President, the grant of retirement and separation benefits should be covered by direct appropriations specifically approved for the purpose pursuant to Section 29(1) of Article VI of the Constitution. Moreover, he stated that the authority to use savings is lodged in the officials enumerated in Section 25(5) of Article VI of the Constitution (Veto Message, pp. 7-8).

Petitioners claim that the Special Provision on AFP Pension and Gratuity Fund is a condition or limitation which is so intertwined with the item of appropriation that it could not be separated therefrom.

The Special Provision, which allows the Chief of Staff to use savings to augment the pension fund for the AFP being managed by the AFP Retirement and Separation Benefits System is violative of Sections 25(5) and 29(1) of the Article VI of the Constitution.

Under Section 25(5), no law shall be passed authorizing any transfer of appropriations, and under Section 29(1), no money shall be paid out ofthe Treasury except in pursuance of an appropriation made by law. While Section 25(5) allows as an exception the realignment of savings to augment items in the general appropriations law for the executive branch, such right must and can be exercised only by the President pursuant to a specific law.

6. Condition on the deactivation of the CAFGU’s.

Congress appropriated compensation for the CAFGU’s, including the payment of separation benefits but it added the following Special Provision:

1. CAFGU Compensation and Separation Benefit. The appropriation authorized herein shall be used for the compensation of CAFGU’s including the payment of their separation benefit not exceeding one (1) year subsistence allowance for the 11,000 members who will be deactivated in 1994. The Chief of Staff, AFP, shall, subject to the approval of the Secretary of National Defense, promulgate policies and procedures for the payment of separation benefit (GAA of 1994, p. 740).

The President declared in his Veto Message that the implementation of this Special Provision to the item on the CAFGU’s shall be subject to prior Presidential approval pursuant to P.D. No. 1597 and R.A.. No. 6758. He gave the following reasons for imposing the condition:

I am well cognizant of the laudable intention of Congress in proposing the amendment of Special Provision No. 1 of the CAFGU. However, it is premature at this point in time of our peace process to earmark and declare through special provision the actual number of CAFGU members to be deactivated in CY 1994. I understand that the number to be deactivated would largely depend on the result or degree of success of the on-going peace initiatives which are not yet precisely determinable today. I have desisted, therefore, to directly veto said provisions because this would mean the loss of the entire special provision to the prejudice of its beneficient provisions. I therefore declare that the actual implementation of this special provision shall be subject to prior Presidential approval pursuant to the provisions of P.D. No. 1597 andR.A. No. 6758 (Veto Message, p. 13).

Petitioners claim that the Congress has required the deactivation of the CAFGU’s when it appropriated the money for payment of the separation pay of the members of thereof. The President, however, directed that the deactivation should be done in accordance to his timetable, taking into consideration the peace and order situation in the affected localities.

Petitioners complain that the directive of the President was tantamount to an administrative embargo of the congressional will to implement the Constitution’s command to dissolve the CAFGU’s (Rollo, G.R. No. 113174,p. 14; G.R. No. 113888, pp. 9, 14-16). They argue that the President cannot impair or withhold expenditures authorized and appropriated by Congress when neither the Appropriations Act nor other legislation authorize such impounding (Rollo, G.R. No. 113888, pp. 15-16).

The Solicitor General contends that it is the President, as Commander-in-Chief of the Armed Forces of the Philippines, who should determine when the services of the CAFGU’s are no longer needed (Rollo, G.R. No. 113888,pp. 92-95.).

This is the first case before this Court where the power of the President to impound is put in issue. Impoundment refers to a refusal by the President, for whatever reason, to spend funds made available by Congress. It is the failure to spend or obligate budget authority of any type (Notes: Impoundment of Funds, 86 Harvard Law Review 1505 [1973]).

Those who deny to the President the power to impound argue that once Congress has set aside the fund for a specific purpose in an appropriations act, it becomes mandatory on the part of the President to implement the project and to spend the money appropriated therefor. The President has no discretion on the matter, for the Constitution imposes on him the duty to faithfully execute the laws.

In refusing or deferring the implementation of an appropriation item, the President in effect exercises a veto power that is not expressly granted by the Constitution. As a matter of fact, the Constitution does not say anything about impounding. The source of the Executive authority must be found elsewhere.

Proponents of impoundment have invoked at least three principal sources of the authority of the President. Foremost is the authority to impound given to him either expressly or impliedly by Congress. Second is the executive power drawn from the President’s role as Commander-in-Chief. Third is the Faithful Execution Clause which ironically is the same provision invoked by petitioners herein.

The proponents insist that a faithful execution of the laws requires that the President desist from implementing the law if doing so would prejudice public interest. An example given is when through efficient and prudent management of a project, substantial savings are made. In such a case, it is sheer folly to expect the President to spend the entire amount budgeted in the law (Notes: Presidential Impoundment: Constitutional Theories and Political Realities, 61 Georgetown Law Journal 1295 [1973]; Notes; Protecting the Fisc: Executive Impoundment and Congressional Power, 82 Yale Law Journal 1686 [1973).

We do not find anything in the language used in the challenged Special Provision that would imply that Congress intended to deny to the President the right to defer or reduce the spending, much less to deactivate 11,000 CAFGU members all at once in 1994. But even if such is the intention, the appropriation law is not the proper vehicle for such purpose. Such intention must be embodied and manifested in another law considering that it abrades the powers of the Commander-in-Chief and there are existing laws on the creation of the CAFGU's to be amended. Again we state: a provision in an appropriations act cannotbe used to repeal or amend other laws, in this case, P.D. No. 1597 and R.A. No. 6758.

7. Condition on the appropriation for the Supreme Court, etc.

(a) In the appropriations for the Supreme Court, Ombudsman, COA, and CHR, the Congress added the following provisions:

The Judiciary

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Special Provisions

1. Augmentation of any Item in the Court's Appropriations. Any savings in the appropriations for the Supreme Court and the Lower Courts may be utilized by the Chief Justice of the Supreme Court to augment any item of the Court's appropriations for (a) printing of decisions and publication of "Philippine Reports"; (b) Commutable terminal leaves of Justices and other personnel of the Supreme Court and payment of adjusted pension rates to retired Justices entitled thereto pursuant to Administrative Matter No. 91-8-225-C.A.; (c) repair, maintenance, improvement and other operating expenses of the courts' libraries, including purchase of books and periodicals; (d) purchase, maintenance and improvement of printing equipment; (e) necessary expenses for the employment of temporary employees, contractual and casual employees, for judicial administration; (f) maintenance and improvement of the Court's Electronic DataProcessing System; (g) extraordinary expenses of the Chief Justice, attendance in

international conferences and conduct of training programs; (h) commutable transportation and representation allowances and fringe benefits for Justices, Clerks of Court, Court Administrator, Chiefs of Offices and other Court personnel in accordance with the rates prescribed by law; and (i) compensation of attorney-de-officio: PROVIDED, That as mandated by LOI No. 489 any increase in salary and allowances shall be subject to the usual procedures and policies as provided for underP.D. No. 985 and other pertinent laws (GAA of 1994, p. 1128; Emphasis supplied).

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Commission on Audit

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5. Use of Savings. The Chairman of the Commission on Audit is hereby authorized, subject to appropriate accounting and auditing rules and regulations, to use savings for the payment of fringe benefits as may be authorized by law for officials and personnel of the Commission (GAA of 1994, p. 1161; Emphasis supplied).

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Office of the Ombudsman

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6. Augmentation of Items in the appropriation of the Office of the Ombudsman. The Ombudsman is hereby authorized, subject to appropriate accounting and auditing rules and regulations to augment items of appropriation in the Office of the Ombudsman from savings in other items of appropriation actually released, for: (a) printing and/or publication of decisions, resolutions, training and information materials; (b) repair, maintenance and improvement of OMB Central and Area/Sectoral facilities; (c) purchase of books, journals, periodicals and equipment;(d) payment of commutable representation and transportation allowances of officials and employees who by reason of their positions are entitled thereto and fringe benefits as may be authorized specifically by law for officials and personnel of OMB pursuant to Section 8 of Article IX-B of the Constitution; and (e) for other official purposes subject to accounting and auditing rules and regulations (GAA of 1994, p. 1174; Emphasis supplied).

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Commission on Human Rights

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1. Use of Savings. The Chairman of the Commission on Human Rights (CHR) is hereby authorized, subject to appropriate accounting and auditing rules and regulations, to

augment any item of appropriation in the office of the CHR from savings in other items of appropriations actually released, for: (a) printing and/or publication of decisions, resolutions, training materials and educational publications; (b) repair, maintenance and improvement of Commission's central and regional facilities; (c) purchase of books, journals, periodicals and equipment, (d) payment of commutable representation and transportation allowances of officials and employees who by reason of their positions are entitled thereto and fringe benefits, as may be authorized by law for officials and personnel of CHR, subject to accounting and auditing rules and regulations (GAA of 1994, p. 1178; Emphasis supplied).

In his Veto Message, the President expressed his approval of the conditions included in the GAA of 1994. He noted that:

The said condition is consistent with the Constitutional injunction prescribed under Section 8, Article IX-B of the Constitution which states that "no elective or appointive public officer or employee shall receive additional, double, or indirect compensation unless specifically authorized by law." I am, therefore, confident that the heads of the said offices shall maintain fidelity to the law and faithfully adhere to the well-established principle on compensation standardization (Veto Message, p. 10).

Petitioners claim that the conditions imposed by the President violated the independence and fiscal autonomy of the Supreme Court, the Ombudsman, the COA and the CHR.

In the first place, the conditions questioned by petitioners were placed in the GAB by Congress itself, not by the President. The Veto Message merely highlighted the Constitutional mandate that additional or indirect compensation can only be given pursuant to law.

In the second place, such statements are mere reminders that the disbursements of appropriations must be made in accordance with law. Such statements may, at worse, be treated as superfluities.

(b) In the appropriation for the COA, the President imposed the condition that the implementation of the budget of the COA be subject to "the guidelines to be issued by the President."

The provisions subject to said condition reads:

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3. Revolving Fund. The income of the Commission on Audit derived from sources authorized by the Government Auditing Code of the Philippines (P.D. No. 1445) not exceeding Ten Million Pesos (P10,000,000) shall be constituted into a revolving fund which shall be used for maintenance, operating and other incidental expenses to enhance audit services and audit-related activities. The fund shall be deposited in an authorized government depository ban, and withdrawals therefrom shall be made in accordance with the procedure prescribed by law and implementing rules and regulations: PROVIDED, That any interests earned on such deposit shall be remitted

at the end of each quarter to the national Treasury and shall accrue to the General Fund: PROVIDED FURTHER, That the Commission on Audit shall submit to the Department of Budget and Management a quarterly report of income and expenditures of said revolving fund (GAA of 1994, pp. 1160-1161).

The President cited the "imperative need to rationalize" the implementation, applicability and operation of use of income and revolving funds. The Veto Message stated:

. . . I have observed that there are old and long existing special provisions authorizing the use of income and the creation of revolving funds. As a rule, such authorizations should be discouraged. However, I take it that these authorizations have legal/statutory basis aside from being already a vested right to the agencies concerned which should not be jeopardized through the Veto Message. There is, however, imperative need to rationalize their implementation, applicability and operation. Thus, in order to substantiate the purpose and intention of said provisions, I hereby declare that the operationalization of the following provisions during budget implementation shall be subject to the guidelines to be issued by the President pursuant to Section 35, Chapter 5, Book VI of E.O. No. 292 and Sections 65 and 66 of P.D. No. 1445 in relation to Sections 2 and 3 of the General Provisions of this Act (Veto Message, p. 6; Emphasis Supplied.)

(c) In the appropriation for the DPWH, the President imposed the condition that in the implementation of DPWH projects, the administrative and engineering overhead of 5% and 3% "shall be subject to the necessary administrative guidelines to be formulated by the Executive pursuant to existing laws." The condition was imposed because the provision "needs further study" according to the President.

The following provision was made subject to said condition:

9. Engineering and Administrative Overhead. Not more than five percent (5%) of the amount for infrastructure project released by the Department of Budget and Management shall be deducted by DPWH for administrative overhead, detailed engineering and construction supervision, testing and quality control, and the like, thus insuring that at least ninety-five percent (95%) of the released fund is available for direct implementation of the project. PROVIDED, HOWEVER, That for school buildings, health centers, day-care centers and barangay halls, the deductible amount shall not exceed three percent (3%).

Violation of, or non-compliance with, this provision shall subject the government official or employee concerned to administrative, civil and/or criminal sanction under Sections 43 and 80, Book VI of E.O.No. 292 (GAA of 1994, p. 786).

(d) In the appropriation for the National Housing Authority (NHA), the President imposed the condition that allocations for specific projects shall be released and disbursed "in accordance with the housing program of the government, subject to prior Executive approval."

The provision subject to the said condition reads:

3. Allocations for Specified Projects. The following allocations for the specified projects shall be set aside for corollary works and used exclusively for the repair, rehabilitation and construction of buildings, roads, pathwalks, drainage, waterworks systems, facilities and amenities in the area: PROVIDED, That any road to be constructed or rehabilitated shall conform with the specifications and standards set by the Department of Public Works and Highways for such kind of road: PROVIDED,FURTHER, That savings that may be available in the future shall be used for road repair, rehabilitation and construction:

(1) Maharlika Village Road — Not less than P5,000,000

(2) Tenement Housing Project (Taguig) — Not less than P3,000,000

(3) Bagong Lipunan Condominium Project (Taguig) — Not less than P2,000,000

4. Allocation of Funds. Out of the amount appropriated for the implementation of various projects in resettlement areas, Seven Million Five Hundred Thousand Pesos (P7,500,000) shall be allocated to the Dasmariñas Bagong Bayan resettlement area, Eighteen Million Pesos (P18,000,000) to the Carmona Relocation Center Area (Gen. Mariano Alvarez) and Three Million Pesos (P3,000,000) to the Bulihan Sites and Services, all of which will be for the cementing of roads in accordance with DPWH standards.

5. Allocation for Sapang Palay. An allocation of Eight Million Pesos (P8,000,000) shall be set aside for the asphalting of seven (7) kilometer main road of Sapang Palay, San Jose Del Monte, Bulacan(GAA of 1994, p. 1216).

The President imposed the conditions: (a) that the "operationalization" of the special provision on revolving funds of the COA "shall be subject to guidelines to be issued by the President pursuant to Section 35, Chapter 5,Book VI of E.O. 292 and Sections 65 and 66 of P.D. No. 1445 in relation to Sections 2 and 3 of the General Provisions of this Act" (Rollo, G.R.No. 113174, pp. 5,7-8); (b) that the implementation of Special Provision No. 9 of the DPWH on the mandatory retention of 5% and 3% of the amounts released by said Department "be subject to the necessary administrative guidelines to be formulated by the Executive pursuant to existing law" (Rollo, G.R. No. 113888; pp. 10, 14-16); and (c) that the appropriations authorized for the NHA can be released only "in accordance with the housing program of the government subject to prior Executive approval" (Rollo, G.R. No. 113888, pp. 10-11;14-16).

The conditions objected to by petitioners are mere reminders that the implementation of the items on which the said conditions were imposed, should be done in accordance with existing laws, regulations or policies. They did not add anything to what was already in place at the time of the approval of the GAA of 1994.

There is less basis to complain when the President said that the expenditures shall be subject to guidelines he will issue. Until the guidelines are issued, it cannot be determined whether they are proper or inappropriate. The issuance of administrative guidelines on the use of public funds authorized by Congress is simply an exercise by the President of his constitutional duty to see that the laws are faithfully executed (1987 Constitution, Art. VII, Sec. 17; Planas v. Gil 67 Phil. 62 [1939]). Under the Faithful Execution Clause, the President has the power to take “necessary and proper steps” to carry into execution the law (Schwartz, On Constitutional Law, p. 147 [1977]). These steps are the ones to be embodied in the guidelines.

IV

Petitioners chose to avail of the special civil actions but those remedies can be used only when respondents have acted “without or in excess” of jurisdiction, or “with grave abuse of discretion,” (Revised Rules of Court,Rule 65, Section 2). How can we begrudge the President for vetoing the Special Provision on the appropriation for debt payment when he merely followed our decision in Gonzales? How can we say that Congress has abused its discretion when it appropriated a bigger sum for debt payment than the amount appropriated for education, when it merely followed our dictum in Guingona?

Article 8 of the Civil Code of Philippines, provides:

Judicial decisions applying or interpreting the laws or the constitution shall from a part of the legal system of the Philippines.

The Court’s interpretation of the law is part of that law as of the date of its enactment since the court’s interpretation merely establishes the contemporary legislative intent that the construed law purports to carry into effect (People v. Licera, 65 SCRA 270 [1975]). Decisions of the Supreme Court assume the same authority as statutes (Floresca v. Philex Mining Corporation, 136 SCRA 141 [1985]).

Even if Guingona and Gonzales are considered hard cases that make bad laws and should be reversed, such reversal cannot nullify prior acts done in reliance thereof.

WHEREFORE, the petitions are DISMISSED, except with respect to(1) G.R. Nos. 113105 and 113766 only insofar as they pray for the annulment of the veto of the special provision on debt service specifying that the fund therein appropriated “shall be used for payment of the principal and interest of foreign and domestic indebtedness” prohibiting the use of the said funds “to pay for the liabilities of the Central Bank Board of Liquidators”, and (2) G.R. No. 113888 only insofar as it prays for the annulment of the veto of: (a) the second paragraph of Special Provision No. 2 of the item of appropriation for the Department of Public Works and Highways (GAA of 1994, pp. 785-786); and (b) Special Provision No. 12 on the purchase of medicines by the Armed Forces of the Philippines (GAA of 1994, p. 748), which is GRANTED.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 112497 August 4, 1994

HON. FRANKLIN M. DRILON, in his capacity as SECRETARY OF JUSTICE, petitioner, vs.MAYOR ALFREDO S. LIM, VICE-MAYOR JOSE L. ATIENZA, CITY TREASURER ANTHONY ACEVEDO, SANGGUNIANG PANGLUNSOD AND THE CITY OF MANILA, respondents.

The City Legal Officer for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for Caltex (Phils.).

Joseph Lopez for Sangguniang Panglunsod of Manila.

L.A. Maglaya for Petron Corporation.

CRUZ, J.:

The principal issue in this case is the constitutionality of Section 187 of the Local Government Code reading as follows:

Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory Public Hearings. — The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof; Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.

Pursuant thereto, the Secretary of Justice had, on appeal to him of four oil companies and a taxpayer, declared Ordinance No. 7794, otherwise known as the Manila Revenue Code, null and void for non-compliance with the prescribed procedure in the enactment of tax ordinances and for containing certain provisions contrary to law and public policy. 1

In a petition for certiorari filed by the City of Manila, the Regional Trial Court of Manila revoked the Secretary's resolution and sustained the ordinance, holding inter alia that the procedural requirements had been observed. More importantly, it declared Section 187 of the Local Government Code as unconstitutional because of its vesture in the Secretary of Justice of the power of control over local governments in violation of the policy of local autonomy mandated in the Constitution and of the specific provision therein conferring on the President of the Philippines only the power of supervision over local governments. 2

The present petition would have us reverse that decision. The Secretary argues that the annulled Section 187 is constitutional and that the procedural requirements for the enactment of tax ordinances as specified in the Local Government Code had indeed not been observed.

Parenthetically, this petition was originally dismissed by the Court for non-compliance with Circular 1-88, the Solicitor General having failed to submit a certified true copy of the challenged decision. 3 However, on motion for reconsideration with the required certified true copy of the decision attached, the petition was reinstated in view of the importance of the issues raised therein.

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this authority being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the criterion of their conformity to the fundamental law. Specifically, BP 129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the

litigation is incapable of pecuniary estimation, 4even as the accused in a criminal action has the right to question in his defense the constitutionality of a law he is charged with violating and of the proceedings taken against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.

In the exercise of this jurisdiction, lower courts are advised to act with the utmost circumspection, bearing in mind the consequences of a declaration of unconstitutionality upon the stability of laws, no less than on the doctrine of separation of powers. As the questioned act is usually the handiwork of the legislative or the executive departments, or both, it will be prudent for such courts, if only out of a becoming modesty, to defer to the higher judgment of this Court in the consideration of its validity, which is better determined after a thorough deliberation by a collegiate body and with the concurrence of the majority of those who participated in its discussion. 5

It is also emphasized that every court, including this Court, is charged with the duty of a purposeful hesitation before declaring a law unconstitutional, on the theory that the measure was first carefully studied by the executive and the legislative departments and determined by them to be in accordance with the fundamental law before it was finally approved. To doubt is to sustain. The presumption of constitutionality can be overcome only by the clearest showing that there was indeed an infraction of the Constitution, and only when such a conclusion is reached by the required majority may the Court pronounce, in the discharge of the duty it cannot escape, that the challenged act must be struck down.

In the case before us, Judge Rodolfo C. Palattao declared Section 187 of the Local Government Code unconstitutional insofar as it empowered the Secretary of Justice to review tax ordinances and, inferentially, to annul them. He cited the familiar distinction between control and supervision, the first being "the power of an officer to alter or modify or set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the former for the latter," while the second is "the power of a superior officer to see to it that lower officers perform their functions in accordance with law." 6 His conclusion was that the challenged section gave to the Secretary the power of control and not of supervision only as vested by the Constitution in the President of the Philippines. This was, in his view, a violation not only of Article X, specifically Section 4 thereof, 7and of Section 5 on the taxing powers of local governments, 8 and the policy of local autonomy in general.

We do not share that view. The lower court was rather hasty in invalidating the provision.

Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government

that enacted the measure. Secretary Drilon did set aside the Manila Revenue Code, but he did not replace it with his own version of what the Code should be. He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment. He did not say that in his judgment it was a bad law. What he found only was that it was illegal. All he did in reviewing the said measure was determine if the petitioners were performing their functions in accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code. As we see it, that was an act not of control but of mere supervision.

An officer in control lays down the rules in the doing of an act. If they are not followed, he may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to modify or replace them. If the rules are not observed, he may order the work done or re-done but only to conform to the prescribed rules. He may not prescribe his own manner for the doing of the act. He has no judgment on this matter except to see to it that the rules are followed. In the opinion of the Court, Secretary Drilon did precisely this, and no more nor less than this, and so performed an act not of control but of mere supervision.

The case of Taule v. Santos 9 cited in the decision has no application here because the jurisdiction claimed by the Secretary of Local Governments over election contests in the Katipunan ng Mga Barangay was held to belong to the Commission on Elections by constitutional provision. The conflict was over jurisdiction, not supervision or control.

Significantly, a rule similar to Section 187 appeared in the Local Autonomy Act, which provided in its Section 2 as follows:

A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any ordinance within one hundred and twenty days after receipt by him of a copy thereof, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessive, oppressive, or confiscatory, or when it is contrary to declared national economy policy, and when the said Secretary exercises this authority the effectivity of such ordinance shall be suspended, either in part or as a whole, for a period of thirty days within which period the local legislative body may either modify the tax ordinance to meet the objections thereto, or file an appeal with a court of competent jurisdiction; otherwise, the tax ordinance or the part or parts thereof declared suspended, shall be considered as revoked. Thereafter, the local legislative body may not reimpose the same tax or fee until such time as the grounds for the suspension thereof shall have ceased to exist.

That section allowed the Secretary of Finance to suspend the effectivity of a tax ordinance if, in his opinion, the tax or fee levied was unjust, excessive, oppressive or confiscatory. Determination of these flaws would involve the exercise of judgment or discretion and not merely an examination of whether or not the requirements or limitations of the law had been observed; hence, it would smack of control rather than mere supervision. That power was never questioned before this Court but, at any rate, the Secretary of Justice is not given the same latitude under Section 187. All he is permitted to do is ascertain the constitutionality or legality of the tax measure, without the right to declare that, in his opinion, it is unjust, excessive, oppressive or confiscatory. He has no discretion on this matter. In fact, Secretary Drilon set aside the Manila Revenue Code only on two grounds, to with, the inclusion therein of certain ultra vires provisions and non-compliance with the prescribed procedure in its enactment. These grounds affected the legality, not the wisdom or reasonableness, of the tax measure.

The issue of non-compliance with the prescribed procedure in the enactment of the Manila Revenue Code is another matter.

In his resolution, Secretary Drilon declared that there were no written notices of public hearings on the proposed Manila Revenue Code that were sent to interested parties as required by Art. 276(b) of the Implementing Rules of the Local Government Code nor were copies of the proposed ordinance published in three successive issues of a newspaper of general circulation pursuant to Art. 276(a). No minutes were submitted to show that the obligatory public hearings had been held. Neither were copies of the measure as approved posted in prominent places in the city in accordance with Sec. 511(a) of the Local Government Code. Finally, the Manila Revenue Code was not translated into Pilipino or Tagalog and disseminated among the people for their information and guidance, conformably to Sec. 59(b) of the Code.

Judge Palattao found otherwise. He declared that all the procedural requirements had been observed in the enactment of the Manila Revenue Code and that the City of Manila had not been able to prove such compliance before the Secretary only because he had given it only five days within which to gather and present to him all the evidence (consisting of 25 exhibits) later submitted to the trial court.

To get to the bottom of this question, the Court acceded to the motion of the respondents and called for the elevation to it of the said exhibits. We have carefully examined every one of these exhibits and agree with the trial court that the procedural requirements have indeed been observed. Notices of the public hearings were sent to interested parties as evidenced by Exhibits G-1 to 17. The minutes of the hearings are found in Exhibits M, M-1, M-2, and M-3. Exhibits B and C show that the proposed ordinances were published in the Balita and the Manila Standard on April 21 and 25, 1993, respectively, and the approved ordinance was published in the July 3, 4, 5, 1993 issues of the Manila Standard and in the July 6, 1993 issue of Balita, as shown by Exhibits Q, Q-1, Q-2, and Q-3.

The only exceptions are the posting of the ordinance as approved but this omission does not affect its validity, considering that its publication in three successive issues of a newspaper of general circulation will satisfy due process. It has also not been

shown that the text of the ordinance has been translated and disseminated, but this requirement applies to the approval of local development plans and public investment programs of the local government unit and not to tax ordinances.

We make no ruling on the substantive provisions of the Manila Revenue Code as their validity has not been raised in issue in the present petition.

WHEREFORE, the judgment is hereby rendered REVERSING the challenged decision of the Regional Trial Court insofar as it declared Section 187 of the Local Government Code unconstitutional but AFFIRMING its finding that the procedural requirements in the enactment of the Manila Revenue Code have been observed. No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Vitug, Kapunan and Mendoza, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-9959 December 13, 1916

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, represented by the Treasurer of the Philippine Islands, plaintiff-appellee, vs.EL MONTE DE PIEDAD Y CAJA DE AHORRAS DE MANILA, defendant-appellant.

William A. Kincaid and Thomas L. Hartigan for appellant. Attorney-General Avanceña for appellee.

TRENT, J.:

About $400,000, were subscribed and paid into the treasury of the Philippine Islands by the inhabitants of the Spanish Dominions of the relief of those damaged by the earthquake which took place in the Philippine Islands on June 3, 1863. Subsequent thereto and on October 6 of that year, a central relief board was appointed, by authority of the King of Spain, to distribute the moneys thus voluntarily contributed. After a thorough investigation and consideration, the relief board allotted $365,703.50 to the various sufferers named in its resolution, dated September 22, 1866, and, by order of the Governor-General of the Philippine Islands, a list of these allotments, together with the names of those entitled thereto, was published in the Official Gazette of Manila dated April 7, 1870. There was later distributed, inaccordance with the above-mentioned allotments, the sum of $30,299.65, leaving a balance of S365,403.85 for distribution. Upon the petition of the governing body of the Monte de Piedad, dated February 1, 1833, the Philippine Government, by order dated the 1st of that month, directed its treasurer to turn over to the Monte de Piedad the sum of $80,000 of the relief fund in installments of $20,000 each. These amounts were received on the following dates: February 15, March 12, April 14, and June 2, 1883, and are still in the possession of the Monte de Piedad. On account of various petitions of the persons, and heirs of others to whom the above-mentioned allotments were made by the central relief board for the payment of those amounts, the Philippine Islands to bring suit against the Monte de Piedad a recover, "through the Attorney-General and in representation of the Government of the Philippine Islands," the $80.000, together with interest, for the benefit of those persons or their heirs appearing in the list of names published in the Official Gazette instituted on May 3, 1912, by the Government of the Philippine Islands, represented by the Insular Treasurer, and after due trial, judgment was entered in favor of the plaintiff for the sum of $80,000 gold or its equivalent in Philippine currency, together with legal interest from February 28, 1912, and the costs of the cause. The defendant appealed and makes the following assignment of errors:

1. The court erred in not finding that the eighty thousand dollars ($80,000), give to the Monte de Piedad y Caja de Ahorros, were so given as a donation subject to one condition, to wit: the return of such sum of money to the Spanish Government of these Islands, within eight days following the day when claimed, in case the Supreme Government of Spain should not approve the action taken by the former government.

2. The court erred in not having decreed that this donation had been cleared; said eighty thousand dollars ($80,000) being at present the exclusive property of the appellant the Monte de Piedad y Caja de Ahorros.

3. That the court erred in stating that the Government of the Philippine Islands has subrogated the Spanish Government in its rights, as regards an important sum of money resulting from a national subscription opened by reason of the earthquake of June 3, 1863, in these Island.

4. That the court erred in not declaring that Act Numbered 2109, passed by the Philippine Legislature on January 30, 1912, is unconstitutional.

5. That the court erred in holding in its decision that there is no title for the prescription of this suit brought by the Insular Government against the Monte de Piedad y Caja de Ahorros for the reimbursement of the eighty thousand dollars ($80,000) given to it by the late Spanish Government of these Islands.

6. That the court erred in sentencing the Monte de Piedad y Caja de Ahorros to reimburse the Philippine Government in the sum of eighty thousand dollars ($80,000) gold coin, or the equivalent thereof in the present legal tender currency in circulation, with legal interest thereon from February 28th, 1912, and the costs of this suit.

In the royal order of June 29, 1879, the Governor-General of the Philippine Islands was directed to inform the home Government in what manner the indemnity might be paid to which, by virtue of the resolutions of the relief board, the persons who suffered damage by the earthquake might be entitled, in order to perform the sacred obligation which the Government of Spain had assumed toward the donors.

The next pertinent document in order is the defendant's petition, dated February 1, 1883, addressed to the Governor-General of the Philippine Islands, which reads:

Board of Directors of the Monte de Piedad of Manila Presidencia.

Excellency: The Board of Directors of the Monte de Piedad y Caja de Ahorros of Manila informs your Excellency, First: That the funds which it has up to the present been able to dispose of have been exhausted in loans on jewelry, and there only remains the sum of one thousand and odd pesos, which will be expended between to-day and day after tomorrow. Second: That, to maintain the credit of the establishment, which would be greatly injured were its operations suspended, it is necessary to procure money. Third: That your Excellency has proposed to His Majesty's Government to apply to the funds of theMonte de Piedad a part of the funds held in the treasury derived form the national subscription for the relief of the distress caused by the earthquake of 1863. Fourth: That in the public treasury there is held at the disposal of the central earthquake relief board over $1090,000 which was deposited in the said treasury by order of your general Government, it having been transferred thereto from the Spanish-Filipino Bank where it had been held. fifth: That in the straightened circumstances of the moment, your Excellency can, to avert impending disaster to the Monte de Piedad, order that, out of that sum of one hundred thousand pesos held in the Treasury at the disposal of the central relief board, there be transferred to the Monte de Piedad the sum of $80,000, there to be held under the same conditions as at present in the Treasury, to wit, at the disposal of the Relief Board. Sixth: That should this transfer not be approved for any reason, either because of the failure of His Majesty's Government to

approve the proposal made by your Excellency relative to the application to the needs of the Monte de Piedad of a pat of the subscription intended to believe the distress caused by the earthquake of 1863, or for any other reason, the board of directors of the Monte de Piedadobligates itself to return any sums which it may have received on account of the eighty thousand pesos, or the whole thereof, should it have received the same, by securing a loan from whichever bank or banks may lend it the money at the cheapest rate upon the security of pawned jewelry. — This is an urgent measure to save the Monte de Piedad in the present crisis and the board of directors trusts to secure your Excellency's entire cooperation and that of the other officials who have take part in the transaction.

The Governor-General's resolution on the foregoing petition is as follows:

GENERAL GOVERNMENT OF THE PHILIPPINES. MANILA, February 1, 1883.

In view of the foregoing petition addressed to me by the board of directors of the Monte de Piedad of this city, in which it is stated that the funds which the said institution counted upon are nearly all invested in loans on jewelry and that the small account remaining will scarcely suffice to cover the transactions of the next two days, for which reason it entreats the general Government that, in pursuance of its telegraphic advice to H. M. Government, the latter direct that there be turned over to said Monte de Piedad $80,000 out of the funds in the public treasury obtained from the national subscription for the relief of the distress caused by the earthquake of 1863, said board obligating itself to return this sum should H. M. Government, for any reason, not approve the said proposal, and for this purpose it will procure funds by means of loans raised on pawned jewelry; it stated further that if the aid so solicited is not furnished, it will be compelled to suspend operations, which would seriously injure the credit of so beneficient an institution; and in view of the report upon the matter made by the Intendencia General de Hacienda; and considering the fact that the public treasury has on hand a much greater sum from the source mentioned than that solicited; and considering that this general Government has submitted for the determination of H. M. Government that the balance which, after strictly applying the proceeds obtained from the subscription referred to, may remain as a surplus should be delivered to the Monte de Piedad, either as a donation, or as a loan upon the security of the credit of the institution, believing that in so doing the wishes of the donors would be faithfully interpreted inasmuch as those wishes were no other than to relieve distress, an act of charity which is exercised in the highest degree by the Monte de Piedad, for it liberates needy person from the pernicious effects of usury; and

Considering that the lofty purposes that brought about the creation of the pious institution referred to would be frustrated, and that the great and laudable work of its establishment, and that the great and laudable and valuable if the aid it urgently seeks is not granted, since the suspension of

its operations would seriously and regrettably damage the ever-growing credit of the Monte de Piedad; and

Considering that if such a thing would at any time cause deep distress in the public mind, it might be said that at the present juncture it would assume the nature of a disturbance of public order because of the extreme poverty of the poorer classes resulting from the late calamities, and because it is the only institution which can mitigate the effects of such poverty; and

Considering that no reasonable objection can be made to granting the request herein contained, for the funds in question are sufficiently secured in the unlikely event that H> M. Government does not approve the recommendation mentioned, this general Government, in the exercise of the extraordinary powers conferred upon it and in conformity with the report of the Intendencia de Hacienda, resolves as follows:

First. Authority is hereby given to deliver to the Monte de Piedad, out of the sum held in the public treasury of these Islands obtained from the national subscription opened by reason of the earthquakes of 1863, amounts up to the sum $80,000, as its needs may require, in installments of $20,000.

Second. The board of directors of the Monte de Piedad is solemnly bound to return, within eight days after demand, the sums it may have so received, if H. M. Government does not approve this resolution.

Third. The Intendencia General de Hacienda shall forthwith, and in preference to all other work, proceed to prepare the necessary papers so that with the least possible delay the payment referred to may be made and the danger that menaces the Monte de Piedad of having to suspend its operations may be averted.

H. M. Government shall be advised hereof.lawphi1.net(Signed) P. DE RIVERA.

By the royal order of December 3, 1892, the Governor-General of the Philippine Islands was ordered to "inform this ministerio what is the total sum available at the present time, taking into consideration the sums delivered to the Monte de Piedad pursuant to the decree issued by your general Government on February 1, 1883," and after the rights of the claimants, whose names were published in the Official Gazette of Manila on April 7, 1870, and their heirs had been established, as therein provided, as such persons "have an unquestionable right to be paid the donations assigned to them therein, your general Government shall convoke them all within a reasonable period and shall pay their shares to such as shall identify themselves, without regard to their financial status," and finally "that when all the proceedings and operations herein mentioned have been concluded and the Government can consider itself free from all kinds of claims on the part of those interested in the distribution of the funds deposited in the vaults of the Treasury, such action may be taken as the circumstances shall require, after first consulting

the relief board and your general Government and taking account of what sums have been delivered to the Monte de Piedad and those that were expended in 1888 to relieve public calamities," and "in order that all the points in connection with the proceedings had as a result of the earthquake be clearly understood, it is indispensable that the offices hereinbefore mentioned comply with the provisions contained in paragraphs 2 and 3 of the royal order of June 25, 1879." On receipt of this Finance order by the Governor-General, the Department of Finance was called upon for a report in reference to the $80,000 turned over to the defendant, and that Department's report to the Governor-General dated June 28, 1893, reads:

Intendencia General de Hacienda de Filipinas (General Treasury of the Philippines) — Excellency. — By Royal Order No. 1044 of December 3, last, it is provided that the persons who sustained losses by the earthquakes that occurred in your capital in the year 1863 shall be paid the amounts allotted to them out of the sums sent from Spain for this purpose, with observance of the rules specified in the said royal order, one of them being that before making the payment to the interested parties the assets shall be reduced to money. These assets, during the long period of time that has elapsed since they were turned over to the Treasury of the Philippine Islands, were used to cover the general needs of the appropriation, a part besides being invested in the relief of charitable institutions and another part to meet pressing needs occasioned by public calamities. On January 30, last, your Excellency was please to order the fulfillment of that sovereign mandate and referred the same to this Intendencia for its information and the purposes desired (that is, for compliance with its directions and, as aforesaid, one of these being the liquidation, recovery, and deposit with the Treasury of the sums paid out of that fund and which were expended in a different way from that intended by the donors) and this Intendencia believed the moment had arrived to claim from the board of directors of the Monte de Piedad y Caja de Ahorros the sum of 80,000 pesos which, by decree of your general Government of the date of February 1, 1883, was loaned to it out of the said funds, the (Monte de Piedad) obligating itself to return the same within the period of eight days if H. M. Government did not approve the delivery. On this Intendencia's demanding from the Monte de Piedad the eighty thousand pesos, thus complying with the provisions of the Royal Order, it was to be supposed that no objection to its return would be made by the Monte de Piedad for, when it received the loan, it formally engaged itself to return it; and, besides, it was indisputable that the moment to do so had arrived, inasmuch as H. M. Government, in ordering that the assets of the earthquake relief fund should he collected, makes express mention of the 80,000 pesos loaned to the Monte de Piedad, without doubt considering as sufficient the period of ten years during which it has been using this large sum which lawfully belongs to their persons. This Intendencia also supposed that the Monte de Piedad no longer needed the amount of that loan, inasmuch as, far from investing it in beneficient transactions, it had turned the whole amount into the voluntary deposit funds bearing 5 per cent interests, the result of this operation being that the debtor loaned to the creditor on interest what the former had gratuitously received. But the Monte de Piedad, instead of fulfilling the promise it made on receiving the sum, after repeated demands refused to return the money on the ground that only your Excellency, and not the Intendencia (Treasury), is

entitled to order the reimbursement, taking no account of the fact that this Intendencia was acting in the discharge of a sovereign command, the fulfillment of which your Excellency was pleased to order; and on the further ground that the sum of 80,000 pesos which it received from the fund intended for the earthquake victims was not received as a loan, but as a donation, this in the opinion of this Intendencia, erroneously interpreting both the last royal order which directed the apportionment of the amount of the subscription raised in the year 1863 and the superior decree which granted the loan, inasmuch as in this letter no donation is made to the Monte de Piedad of the 80,000 pesos, but simply a loan; besides, no donation whatever could be made of funds derived from a private subscription raised for a specific purpose, which funds are already distributed and the names of the beneficiaries have been published in the Gaceta, there being lacking only the mere material act of the delivery, which has been unduly delayed. In view of the unexpected reply made by the Monte de Piedad, and believing it useless to insist further in the matter of the claim for the aforementioned loan, or to argue in support thereof, this Intendencia believes the intervention of your Excellency necessary in this matter, if the royal Order No. 1044 of December 3, last, is to be complied with, and for this purpose I beg your Excellency kindly to order the Monte de Piedad to reimburse within the period of eight days the 80,000 which it owes, and that you give this Intendencia power to carry out the provisions of the said royal order. I must call to the attention of your Excellency that the said pious establishment, during the last few days and after demand was made upon it, has endorsed to the Spanish-Filipino Bank nearly the whole of the sum which it had on deposit in the general deposit funds.

The record in the case under consideration fails to disclose any further definite action taken by either the Philippine Government or the Spanish Government in regard to the $80,000 turned over to the Monte de Piedad.

In the defendant's general ledger the following entries appear: "Public Treasury: February 15, 1883, $20,000; March 12, 1883, $20,000; April 14, 1883, $20,000; June 2, 1883, $20,000, total $80,000." The book entry for this total is as follows: "To the public Treasury derived from the subscription for the earthquake of 1863, $80,000 received from general Treasury as a returnable loan, and without interest." The account was carried in this manner until January 1, 1899, when it was closed by transferring the amount to an account called "Sagrada Mitra," which latter account was a loan of $15,000 made to the defendant by the Archbishop of Manila, without interest, thereby placing the "Sagrada Mitra" account at $95,000 instead of $15,000. The above-mentioned journal entry for January 1, 1899, reads: "Sagrada Mitra and subscription, balance of these two account which on this date are united in accordance with an order of the Exmo. Sr. Presidente of the Council transmitted verbally to thePresidente Gerente of these institutions, $95,000."

On March 16, 1902, the Philippine government called upon the defendant for information concerning the status of the $80,000 and received the following reply:

MANILA, March 31, 1902.

To the Attorney-General of the Department of Justice of the Philippine Islands.

SIR: In reply to your courteous letter of the 16th inst., in which you request information from this office as to when and for what purpose the Spanish Government delivered to the Monte de Piedad eighty thousand pesos obtained from the subscription opened in connection with the earthquake of 1863, as well as any other information that might be useful for the report which your office is called upon to furnish, I must state to your department that the books kept in these Pious Institutions, and which have been consulted for the purpose, show that on the 15th of February, 1883, they received as a reimbursable loan and without interest, twenty thousand pesos, which they deposited with their own funds. On the same account and on each of the dates of March 12, April 14 and June 2 of the said year, 1883, they also received and turned into their funds a like sum of twenty thousand pesos, making a total of eighty thousand pesos. — (Signed) Emilio Moreta.

I hereby certify that the foregoing is a literal copy of that found in the letter book No. 2 of those Pious Institutions.

Manila, November 19, 1913 (Sgd.) EMILIO LAZCANOTEGUI, Secretary

(Sgd.) O. K. EMILIO MORETA,Managing Director.

The foregoing documentary evidence shows the nature of the transactions which took place between the Government of Spain and the Philippine Government on the one side and the Monte de Piedad on the other, concerning the $80,000. The Monte de Piedad, after setting forth in its petition to the Governor-General its financial condition and its absolute necessity for more working capital, asked that out of the sum of $100,000 held in the Treasury of the Philippine Islands, at the disposal of the central relief board, there be transferred to it the sum of $80,000 to be held under the same conditions, to wit, "at the disposal of the relief board." The Monte de Piedad agreed that if the transfer of these funds should not be approved by the Government of Spain, the same would be returned forthwith. It did not ask that the $80,000 be given to it as a donation. The Governor-General, after reciting the substance of the petition, stated that "this general Government has submitted for the determination of H. M. Government that the balance which, after strictly applying the proceeds obtained from the subscription referred to, may remain as a surplus, should be delivered to the Monte de Piedad, either as a donation, or as a loan upon the security of the credit of the institution," and "considering that no reasonable objection can be made to granting the request herein contained," directed the transfer of the $80,000 to be made with the understanding that "the Board of Directors of the Monte de Piedad is solemnly bound to return, within eight days after demand, the sums it may

have so received, if H. M. Government does not approve this resolution." It will be noted that the first and only time the word "donation" was used in connection with the $80,000 appears in this resolution of the Governor-General. It may be inferred from the royal orders that the Madrid Government did tacitly approve of the transfer of the $80,000 to the Monte de Piedad as a loan without interest, but that Government certainly did not approve such transfer as a donation for the reason that the Governor-General was directed by the royal order of December 3, 1892, to inform the Madrid Government of the total available sum of the earthquake fund, "taking into consideration the sums delivered to the Monte de Piedad pursuant to the decree issued by your general Government on February 1, 1883." This language, nothing else appearing, might admit of the interpretation that the Madrid Government did not intend that the Governor-General of the Philippine Islands should include the $80,000 in the total available sum, but when considered in connection with the report of the Department of Finance there can be no doubt that it was so intended. That report refers expressly to the royal order of December 3d, and sets forth in detail the action taken in order to secure the return of the $80,000. The Department of Finance, acting under the orders of the Governor-General, understood that the $80,000 was transferred to the Monte de Piedad well knew that it received this sum as a loan interest." The amount was thus carried in its books until January, 1899, when it was transferred to the account of the "Sagrada Mitra" and was thereafter known as the "Sagrada Mitra and subscription account." Furthermore, the Monte de Piedad recognized and considered as late as March 31, 1902, that it received the $80,000 "as a returnable loan, and without interest." Therefore, there cannot be the slightest doubt the fact that the Monte de Piedad received the $80,000 as a mere loan or deposit and not as a donation. Consequently, the first alleged error is entirely without foundation.

Counsel for the defendant, in support of their third assignment of error, say in their principal brief that:

The Spanish nation was professedly Roman Catholic and its King enjoyed the distinction of being deputy ex officio of the Holy See and Apostolic Vicar-General of the Indies, and as such it was his duty to protect all pious works and charitable institutions in his kingdoms, especially those of the Indies; among the latter was the Monte de Piedad of the Philippines, of which said King and his deputy the Governor-General of the Philippines, as royal vice-patron, were, in a special and peculiar manner, the protectors; the latter, as a result of the cession of the Philippine Islands, Implicitly renounced this high office and tacitly returned it to the Holy See, now represented by the Archbishop of Manila; the national subscription in question was a kind of foundation or pious work, for a charitable purpose in these Islands; and the entire subscription not being needed for its original purpose, the royal vice-patron, with the consent of the King, gave the surplus thereof to an analogous purpose; the fulfillment of all these things involved, in the majority, if not in all cases, faithful compliance with the duty imposed upon him by the Holy See, when it conferred upon him the royal patronage of the Indies, a thing that touched him very closely in his conscience and religion; the cessionary Government though Christian, was not Roman Catholic and prided itself on its policy of non-interference in religious matters, and

inveterately maintained a complete separation between the ecclesiastical and civil powers.

In view of these circumstances it must be quite clear that, even without the express provisions of the Treaty of Paris, which apparently expressly exclude such an idea, it did not befit the honor of either of the contracting parties to subrogate to the American Government in lieu of the Spanish Government anything respecting the disposition of the funds delivered by the latter to the Monte de Piedad. The same reasons that induced the Spanish Government to take over such things would result in great inconvenience to the American Government in attempting to do so. The question was such a delicate one, for the reason that it affected the conscience, deeply religious, of the King of Spain, that it cannot be believed that it was ever his intention to confide the exercise thereof to a Government like the American. (U. S. vs. Arredondo, 6 Pet. [U. S.], 711.)

It is thus seen that the American Government did not subrogate the Spanish Government or rather, the King of Spain, in this regard; and as the condition annexed to the donation was lawful and possible of fulfillment at the time the contract was made, but became impossible of fulfillment by the cession made by the Spanish Government in these Islands, compliance therewith is excused and the contract has been cleared thereof.

The contention of counsel, as thus stated, in untenable for two reason, (1) because such contention is based upon the erroneous theory that the sum in question was a donation to the Monte de Piedad and not a loan, and (2) because the charity founded by the donations for the earthquake sufferers is not and never was intended to be an ecclesiastical pious work. The first proposition has already been decided adversely to the defendant's contention. As to the second, the record shows clearly that the fund was given by the donors for a specific and definite purpose — the relief of the earthquake sufferers — and for no other purpose. The money was turned over to the Spanish Government to be devoted to that purpose. The Spanish Government remitted the money to the Philippine Government to be distributed among the suffers. All officials, including the King of Spain and the Governor-General of the Philippine Islands, who took part in the disposal of the fund, acted in their purely civil, official capacity, and the fact that they might have belonged to a certain church had nothing to do with their acts in this matter. The church, as such, had nothing to do with the fund in any way whatever until the $80,000 reached the coffers of the Monte de Piedad (an institution under the control of the church) as a loan or deposit. If the charity in question had been founded as an ecclesiastical pious work, the King of Spain and the Governor-General, in their capacities as vicar-general of the Indies and as royal vice-patron, respectively, would have disposed of the fund as such and not in their civil capacities, and such functions could not have been transferred to the present Philippine Government, because the right to so act would have arisen out of the special agreement between the Government of Spain and the Holy See, based on the union of the church and state which was completely separated with the change of sovereignty.

And in their supplemental brief counsel say:

By the conceded facts the money in question is part of a charitable subscription. The donors were persons in Spain, the trustee was the Spanish Government, the donees, the cestuis que trustent, were certain persons in the Philippine Islands. The whole matter is one of trusteeship. This is undisputed and indisputable. It follows that the Spanish Government at no time was the owner of the fund. Not being the owner of the fund it could not transfer the ownership. Whether or not it could transfer its trusteeship it certainly never has expressly done so and the general terms of property transfer in the Treaty of Paris are wholly insufficient for such a purpose even could Spain have transferred its trusteeship without the consent of the donors and even could the United States, as a Government, have accepted such a trust under any power granted to it by the thirteen original States in the Constitution, which is more than doubtful. It follows further that this Government is not a proper party to the action. The only persons who could claim to be damaged by this payment to the Monte, if it was unlawful, are the donors or the cestuis que trustent, and this Government is neither.

If "the whole matter is one of trusteeship," and it being true that the Spanish Government could not, as counsel say, transfer the ownership of the fund to the Monte de Piedad, the question arises, who may sue to recover this loan? It needs no argument to show that the Spanish or Philippine Government, as trustee, could maintain an action for this purpose had there been no change of sovereignty and if the right of action has not prescribed. But those governments were something more than mere common law trustees of the fund. In order to determine their exact status with reference to this fund, it is necessary to examine the law in force at the time there transactions took place, which are the law of June 20, 1894, the royal decree of April 27. 1875, and the instructions promulgated on the latter date. These legal provisions were applicable to the Philippine Islands (Benedicto vs. De la Rama, 3 Phil. Rep., 34)

The funds collected as a result of the national subscription opened in Spain by royal order of the Spanish Government and which were remitted to the Philippine Government to be distributed among the earthquake sufferers by the Central Relief Board constituted, under article 1 of the law of June 20, 1894, and article 2 of the instructions of April 27, 1875, a special charity of a temporary nature as distinguished from a permanent public charitable institution. As the Spanish Government initiated the creation of the fund and as the donors turned their contributions over to that Government, it became the duty of the latter, under article 7 of the instructions, to exercise supervision and control over the moneys thus collected to the end that the will of the donors should be carried out. The relief board had no power whatever to dispose of the funds confided to its charge for other purposes than to distribute them among the sufferers, because paragraph 3 of article 11 of the instructions conferred the power upon the secretary of the interior of Spain, and no other, to dispose of the surplus funds, should there be any, by assigning them to some other charitable purpose or institution. The secretary could not dispose of any of the funds in this manner so long as they were necessary for the specific purpose for which they were contributed. The secretary had the power, under the law above mentioned to appoint and totally or partially change the personnel of the relief board and to authorize the board to defend the rights of the charity in the courts. The authority of the board consisted only in carrying out the will of the donors as directed

by the Government whose duty it was to watch over the acts of the board and to see that the funds were applied to the purposes for which they were contributed .The secretary of the interior, as the representative of His Majesty's Government, exercised these powers and duties through the Governor-General of the Philippine Islands. The Governments of Spain and of the Philippine Islands in complying with their duties conferred upon them by law, acted in their governmental capacities in attempting to carry out the intention of the contributors. It will this be seen that those governments were something more, as we have said, than mere trustees of the fund.

It is further contended that the obligation on the part of the Monte de Piedad to return the $80,000 to the Government, even considering it a loan, was wiped out on the change of sovereignty, or inn other words, the present Philippine Government cannot maintain this action for that reason. This contention, if true, "must result from settled principles of rigid law," as it cannot rest upon any title to the fund in the Monte de Piedad acquired prior to such change. While the obligation to return the $80,000 to the Spanish Government was still pending, war between the United States and Spain ensued. Under the Treaty of Paris of December 10, 1898, the Archipelago, known as the Philippine Islands, was ceded to the United States, the latter agreeing to pay Spain the sum of $20,000,000. Under the first paragraph of the eighth article, Spain relinquished to the United States "all buildings, wharves, barracks, forts, structures, public highways, and other immovable property which, in conformity with law, belonged to the public domain, and as such belonged to the crown of Spain." As the $80,000 were not included therein, it is said that the right to recover this amount did not, therefore, pass to the present sovereign. This, in our opinion, does not follow as a necessary consequence, as the right to recover does not rest upon the proposition that the $80,000 must be "other immovable property" mentioned in article 8 of the treaty, but upon contractual obligations incurred before the Philippine Islands were ceded to the United States. We will not inquire what effect his cession had upon the law of June 20, 1849, the royal decree of April 27, 1875, and the instructions promulgated on the latter date. In Vilas vs. Manila (220 U. S., 345), the court said:

That there is a total abrogation of the former political relations of the inhabitants of the ceded region is obvious. That all laws theretofore in force which are in conflict with the political character, constitution, or institutions of the substituted sovereign, lose their force, is also plain. (Alvarez y Sanchez vs. United States, 216 U. S., 167.) But it is equally settled in the same public law that the great body of municipal law which regulates private and domestic rights continues in force until abrogated or changed by the new ruler.

If the above-mentioned legal provisions are in conflict with the political character, constitution or institutions of the new sovereign, they became inoperative or lost their force upon the cession of the Philippine Islands to the United States, but if they are among "that great body of municipal law which regulates private and domestic rights," they continued in force and are still in force unless they have been repealed by the present Government. That they fall within the latter class is clear from their very nature and character. They are laws which are not political in any sense of the word. They conferred upon the Spanish Government the right and duty to supervise,

regulate, and to some extent control charities and charitable institutions. The present sovereign, in exempting "provident institutions, savings banks, etc.," all of which are in the nature of charitable institutions, from taxation, placed such institutions, in so far as the investment in securities are concerned, under the general supervision of the Insular Treasurer (paragraph 4 of section 111 of Act No. 1189; see also Act No. 701).

Furthermore, upon the cession of the Philippine Islands the prerogatives of he crown of Spain devolved upon he United States. In Magill vs. Brown (16 Fed. Cas., 408), quoted with approval in Mormon Charch vs. United States (136 U. S.,1, 57), the court said:

The Revolution devolved on the State all the transcendent power of Parliament, and the prerogative of the crown, and gave their Acts the same force and effect.

In Fontain vs. Ravenel (17 Hw., 369, 384), Mr. Justice McLean, delivering the opinion of the court in a charity case, said:

When this country achieved its independence, the prerogatives of the crown devolved upon the people of the States. And this power still remains with them except so fact as they have delegated a portion of it to the Federal Government. The sovereign will is made known to us by legislative enactment. The State as a sovereign, is the parens patriae.

Chancelor Kent says:

In this country, the legislature or government of the State, as parens patriae, has the right to enforce all charities of public nature, by virtue of its general superintending authority over the public interests, where no other person is entrusted with it. (4 Kent Com., 508, note.)

The Supreme Court of the United States in Mormon Church vs. United States, supra, after approving also the last quotations, said:

This prerogative of parens patriae is inherent in the supreme power of every State, whether that power is lodged in a royal person or in the legislature, and has no affinity to those arbitrary powers which are sometimes exerted by irresponsible monarchs to the great detriment of the people and the destruction of their liberties. On the contrary, it is a most beneficient functions, and often necessary to be exercised in the interest of humanity, and for the prevention of injury to those who cannot protect themselves.

The court in the same case, after quoting from Sohier vs. Mass. General Hospital (3 Cush., 483, 497), wherein the latter court held that it is deemed indispensible that there should be a power in the legislature to authorize the same of the estates of in

facts, idiots, insane persons, and persons not known, or not in being, who cannot act for themselves, said:

These remarks in reference to in facts, insane persons and person not known, or not in being, apply to the beneficiaries of charities, who are often in capable of vindicating their rights, and justly look for protection to the sovereign authority, acting as parens patriae. They show that this beneficient functions has not ceased t exist under the change of government from a monarchy to a republic; but that it now resides in the legislative department, ready to be called into exercise whenever required for the purposes of justice and right, and is a clearly capable of being exercised in cases of charities as in any other cases whatever.

In People vs. Cogswell (113 Cal. 129, 130), it was urged that the plaintiff was not the real party in interest; that the Attorney-General had no power to institute the action; and that there must be an allegation and proof of a distinct right of the people as a whole, as distinguished from the rights of individuals, before an action could be brought by the Attorney-General in the name of the people. The court, in overruling these contentions, held that it was not only the right but the duty of the Attorney-General to prosecute the action, which related to charities, and approved the following quotation from Attorney-General vs. Compton (1 Younge & C. C., 417):

Where property affected by a trust for public purposes is in the hands of those who hold it devoted to that trust, it is the privilege of the public that the crown should be entitled to intervene by its officers for the purpose of asserting, on behalf on the public generally, the public interest and the public right, which, probably, no individual could be found effectually to assert, even if the interest were such as to allow it. (2 Knet's Commentaries, 10th ed., 359; Lewin on Trusts, sec. 732.)

It is further urged, as above indicated, that "the only persons who could claim to be damaged by this payment to the Monte, if it was unlawful, are the donors or the cestuis que trustent, and this Government is neither. Consequently, the plaintiff is not the proper party to bring the action." The earthquake fund was the result or the accumulation of a great number of small contributions. The names of the contributors do not appear in the record. Their whereabouts are unknown. They parted with the title to their respective contributions. The beneficiaries, consisting of the original sufferers and their heirs, could have been ascertained. They are quite numerous also. And no doubt a large number of the original sufferers have died, leaving various heirs. It would be impracticable for them to institute an action or actions either individually or collectively to recover the $80,000. The only course that can be satisfactorily pursued is for the Government to again assume control of the fund and devote it to the object for which it was originally destined.

The impracticability of pursuing a different course, however, is not the true ground upon which the right of the Government to maintain the action rests. The true ground is that the money being given to a charity became, in a measure, public property, only applicable, it is true, to the specific purposes to which it was intended to be devoted, but within those limits consecrated to the public use, and became part of

the public resources for promoting the happiness and welfare of the Philippine Government. (Mormon Church vs. U. S., supra.) To deny the Government's right to maintain this action would be contrary to sound public policy, as tending to discourage the prompt exercise of similar acts of humanity and Christian benevolence in like instances in the future.

As to the question raised in the fourth assignment of error relating to the constitutionality of Act No. 2109, little need be said for the reason that we have just held that the present Philippine Government is the proper party to the action. The Act is only a manifestation on the part of the Philippine Government to exercise the power or right which it undoubtedly had. The Act is not, as contended by counsel, in conflict with the fifth section of the Act of Congress of July 1, 1902, because it does not take property without due process of law. In fact, the defendant is not the owner of the $80,000, but holds it as a loan subject to the disposal of the central relief board. Therefor, there can be nothing in the Act which transcends the power of the Philippine Legislature.

In Vilas vs. Manila, supra, the plaintiff was a creditor of the city of Manila as it existed before the cession of the Philippine Islands to the United States by the Treaty of Paris of December 10, 1898. The action was brought upon the theory that the city, under its present charter from the Government of the Philippine Islands, was the same juristic person, and liable upon the obligations of the old city. This court held that the present municipality is a totally different corporate entity and in no way liable for the debts of the Spanish municipality. The Supreme Court of the United States, in reversing this judgment and in holding the city liable for the old debt, said:

The juristic identity of the corporation has been in no wise affected, and, in law, the present city is, in every legal sense, the successor of the old. As such it is entitled to the property and property rights of the predecessor corporation, and is, in law, subject to all of its liabilities.

In support of the fifth assignment of error counsel for the defendant argue that as the Monte de Piedad declined to return the $80,000 when ordered to do so by the Department of Finance in June, 1893, the plaintiff's right of action had prescribed at the time this suit was instituted on May 3, 1912, citing and relying upon article 1961, 1964 and 1969 of the Civil Code. While on the other hand, the Attorney-General contends that the right of action had not prescribed (a) because the defense of prescription cannot be set up against the Philippine Government, (b) because the right of action to recover a deposit or trust funds does not prescribe, and (c) even if the defense of prescription could be interposed against the Government and if the action had, in fact, prescribed, the same was revived by Act No. 2109.

The material facts relating to this question are these: The Monte de Piedad received the $80,000 in 1883 "to be held under the same conditions as at present in the treasury, to wit, at the disposal of the relief board." In compliance with the provisions of the royal order of December 3, 1892, the Department of Finance called upon theMonte de Piedad in June, 1893, to return the $80,000. The Monte declined to comply with this order upon the ground that only the Governor-General of the Philippine Islands and not the Department of Finance had the right to order the

reimbursement. The amount was carried on the books of the Monte as a returnable loan until January 1, 1899, when it was transferred to the account of the "Sagrada Mitra." On March 31, 1902, the Monte, through its legal representative, stated in writing that the amount in question was received as a reimbursable loan, without interest. Act No. 2109 became effective January 30, 1912, and the action was instituted on May 3rd of that year.

Counsel for the defendant treat the question of prescription as if the action was one between individuals or corporations wherein the plaintiff is seeking to recover an ordinary loan. Upon this theory June, 1893, cannot be taken as the date when the statute of limitations began to run, for the reason that the defendant acknowledged in writing on March 31, 1902, that the $80,000 were received as a loan, thereby in effect admitting that it still owed the amount. (Section 50, Code of Civil Procedure.) But if counsels' theory is the correct one the action may have prescribed on May 3, 1912, because more than ten full years had elapsed after March 31, 1902. (Sections 38 and 43, Code of Civil Procedure.)

Is the Philippine Government bound by the statute of limitations? The Supreme Court of the United States in U. S.vs. Nashville, Chattanooga & St. Louis Railway Co. (118 U. S., 120, 125), said:

It is settled beyond doubt or controversy — upon the foundation of the great principle of public policy, applicable to all governments alike, which forbids that the public interests should be prejudiced by the negligence of the officers or agents to whose care they are confided — that the United States, asserting rights vested in it as a sovereign government, is not bound by any statute of limitations, unless Congress has clearly manifested its intention that it should be so bound. (Lindsey vs. Miller, 6 Pet. 666; U. S. vs.Knight, 14 Pet., 301; Gibson vs. Chouteau, 13 Wall., 92; U. S. vs. Thompson, 98 U. S., 486; Fink vs. O'Neil, 106 U. S., 272, 281.)

In Gibson vs. Choteau, supra, the court said:

It is a matter of common knowledge that statutes of limitation do not run against the State. That no laches can be imputed to the King, and that no time can bar his rights, was the maxim of the common laws, and was founded on the principle of public policy, that as he was occupied with the cares of government he ought not to suffer from the negligence of his officer and servants. The principle is applicable to all governments, which must necessarily act through numerous agents, and is essential to a preservation of the interests and property of the public. It is upon this principle that in this country the statutes of a State prescribing periods within which rights must be prosecuted are not held to embrace the State itself, unless it is expressly designated or the mischiefs to be remedied are of such a nature that it must necessarily be included. As legislation of a State can only apply to persons and thing over which the State has jurisdiction, the United States are also necessarily excluded from the operation of such statutes.

In 25 Cyc., 1006, the rule, supported by numerous authorities, is stated as follows:

In the absence of express statutory provision to the contrary, statute of limitations do not as a general rule run against the sovereign or government, whether state or federal. But the rule is otherwise where the mischiefs to be remedied are of such a nature that the state must necessarily be included, where the state goes into business in concert or in competition with her citizens, or where a party seeks to enforces his private rights by suit in the name of the state or government, so that the latter is only a nominal party.

In the instant case the Philippine Government is not a mere nominal party because it, in bringing and prosecuting this action, is exercising its sovereign functions or powers and is seeking to carry out a trust developed upon it when the Philippine Islands were ceded to the United States. The United States having in 1852, purchased as trustee for the Chickasaw Indians under treaty with that tribe, certain bonds of the State of Tennessee, the right of action of the Government on the coupons of such bonds could not be barred by the statute of limitations of Tennessee, either while it held them in trust for the Indians, or since it became the owner of such coupons. (U. S.vs. Nashville, etc., R. Co., supra.) So where lands are held in trust by the state and the beneficiaries have no right to sue, a statute does not run against the State's right of action for trespass on the trust lands. (Greene Tp. vs.Campbell, 16 Ohio St., 11; see also Atty.-Gen. vs. Midland R. Co., 3 Ont., 511 [following Reg. vs. Williams, 39 U. C. Q. B., 397].)

These principles being based "upon the foundation of the great principle of public policy" are, in the very nature of things, applicable to the Philippine Government.

Counsel in their argument in support of the sixth and last assignments of error do not question the amount of the judgment nor do they question the correctness of the judgment in so far as it allows interest, and directs its payment in gold coin or in the equivalent in Philippine currency.

For the foregoing reasons the judgment appealed from is affirmed, with costs against the appellant. So ordered.

EN BANC

[G.R. No. 138570. October 10, 2000]

BAYAN (Bagong Alyansang Makabayan), a JUNK VFA MOVEMENT, BISHOP TOMAS MILLAMENA (Iglesia Filipina Independiente), BISHOP ELMER

BOLOCAN (United Church of Christ of the Phil.), DR. REYNALDO LEGASCA, MD, KILUSANG MAMBUBUKID NG PILIPINAS, KILUSANG MAYO UNO, GABRIELA, PROLABOR, and the PUBLIC INTEREST LAW CENTER, petitioners, vs. EXECUTIVE SECRETARY RONALDO ZAMORA, FOREIGN AFFAIRS SECRETARY DOMINGO SIAZON, DEFENSE SECRETARY ORLANDO MERCADO, BRIG. GEN. ALEXANDER AGUIRRE, SENATE PRESIDENT MARCELO FERNAN, SENATOR FRANKLIN DRILON, SENATOR BLAS OPLE, SENATOR RODOLFO BIAZON, and SENATOR FRANCISCO TATAD, respondents.

[G.R. No. 138572. October 10, 2000]

PHILIPPINE CONSTITUTION ASSOCIATION, INC.(PHILCONSA), EXEQUIEL B. GARCIA, AMADOGAT INCIONG, CAMILO L. SABIO, AND RAMON A. GONZALES, petitioners, vs. HON. RONALDO B. ZAMORA, as Executive Secretary, HON. ORLANDO MERCADO, as Secretary of National Defense, and HON. DOMINGO L. SIAZON, JR., as Secretary of Foreign Affairs, respondents.

[G.R. No. 138587. October 10, 2000]

TEOFISTO T. GUINGONA, JR., RAUL S. ROCO, and SERGIO R. OSMEÑA III, petitioners, vs. JOSEPH E. ESTRADA, RONALDO B. ZAMORA, DOMINGO L. SIAZON, JR., ORLANDO B. MERCADO, MARCELO B. FERNAN, FRANKLIN M. DRILON, BLAS F. OPLE and RODOLFO G. BIAZON, respondents.

[G.R. No. 138680. October 10, 2000]

INTEGRATED BAR OF THE PHILIPPINES, Represented by its National President, Jose Aguila Grapilon, petitioners, vs. JOSEPH EJERCITO ESTRADA, in his capacity as President, Republic of the Philippines, and HON. DOMINGO SIAZON, in his capacity as Secretary of Foreign Affairs, respondents.

[G.R. No. 138698. October 10, 2000]

JOVITO R. SALONGA, WIGBERTO TAÑADA, ZENAIDA QUEZON-AVENCEÑA, ROLANDO SIMBULAN, PABLITO V. SANIDAD, MA. SOCORRO I. DIOKNO, AGAPITO A. AQUINO, JOKER P. ARROYO, FRANCISCO C. RIVERA JR., RENE A.V. SAGUISAG, KILOSBAYAN, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. (MABINI), petitioners, vs. THE EXECUTIVE SECRETARY, THE SECRETARY OF FOREIGN AFFAIRS, THE SECRETARY OF NATIONAL DEFENSE, SENATE PRESIDENT MARCELO B. FERNAN, SENATOR BLAS F. OPLE, SENATOR RODOLFO G. BIAZON, AND ALL OTHER PERSONS ACTING THEIR CONTROL, SUPERVISION, DIRECTION, AND INSTRUCTION IN RELATION TO THE VISITING FORCES AGREEMENT (VFA),respondents.

D E C I S I O N

BUENA, J.:

Confronting the Court for resolution in the instant consolidated petitions for certiorari and prohibition are issues relating to, and borne by, an agreement forged in the turn of the last century between the Republic of the Philippines and the United States of America -the Visiting Forces Agreement.

The antecedents unfold.

On March 14, 1947, the Philippines and the United States of America forged a Military Bases Agreement which formalized, among others, the use of installations in the Philippine territory by United States military personnel. To further strengthen their defense and security relationship, the Philippines and the United States entered into a Mutual Defense Treaty on August 30, 1951. Under the treaty, the parties agreed to respond to any external armed attack on their territory, armed forces, public vessels, and aircraft.[1]

In view of the impending expiration of the RP-US Military Bases Agreement in 1991, the Philippines and the United States negotiated for a possible extension of the military bases agreement. On September 16, 1991, the Philippine Senate rejected the proposed RP-US Treaty of Friendship, Cooperation and Security which, in effect, would have extended the presence of US military bases in the Philippines. [2] With the expiration of the RP-US Military Bases Agreement, the periodic military exercises conducted between the two countries were held in abeyance. Notwithstanding, the defense and security relationship between the Philippines and the United States of America continued pursuant to the Mutual Defense Treaty.

On July 18, 1997, the United States panel, headed by US Defense Deputy Assistant Secretary for Asia Pacific Kurt Campbell, met with the Philippine panel, headed by Foreign Affairs Undersecretary Rodolfo Severino Jr., to exchange notes on “the complementing strategic interests of the United States and the Philippines in the

Asia-Pacific region.” Both sides discussed, among other things, the possible elements of the Visiting Forces Agreement (VFA for brevity). Negotiations by both panels on the VFA led to a consolidated draft text, which in turn resulted to a final series of conferences and negotiations[3] that culminated in Manila on January 12 and 13, 1998. Thereafter, then President Fidel V. Ramos approved the VFA, which was respectively signed by public respondent Secretary Siazon and Unites States Ambassador Thomas Hubbard on February 10, 1998.

On October 5, 1998, President Joseph E. Estrada, through respondent Secretary of Foreign Affairs, ratified the VFA.[4]

On October 6, 1998, the President, acting through respondent Executive Secretary Ronaldo Zamora, officially transmitted to the Senate of the Philippines,[5] the Instrument of Ratification, the letter of the President[6] and the VFA, for concurrence pursuant to Section 21, Article VII of the 1987 Constitution. The Senate, in turn, referred the VFA to its Committee on Foreign Relations, chaired by Senator Blas F. Ople, and its Committee on National Defense and Security, chaired by Senator Rodolfo G. Biazon, for their joint consideration and recommendation. Thereafter, joint public hearings were held by the two Committees.[7]

On May 3, 1999, the Committees submitted Proposed Senate Resolution No. 443[8] recommending the concurrence of the Senate to the VFA and the creation of a Legislative Oversight Committee to oversee its implementation. Debates then ensued.

On May 27, 1999, Proposed Senate Resolution No. 443 was approved by the Senate, by a two-thirds (2/3) vote[9] of its members. Senate Resolution No. 443 was then re-numbered as Senate Resolution No. 18.[10]

On June 1, 1999, the VFA officially entered into force after an Exchange of Notes between respondent Secretary Siazon and United States Ambassador Hubbard.

The VFA, which consists of a Preamble and nine (9) Articles, provides for the mechanism for regulating the circumstances and conditions under which US Armed Forces and defense personnel may be present in the Philippines, and is quoted in its full text, hereunder:

“Article IDefinitions

“As used in this Agreement, ‘United States personnel’ means United States military and civilian personnel temporarily in the Philippines in connection with activities approved by the Philippine Government.

“Within this definition:

“1. The term ‘military personnel’ refers to military members of the United States Army, Navy, Marine Corps, Air Force, and Coast Guard.

“2. The term ‘civilian personnel’ refers to individuals who are neither nationals of, nor ordinary residents in the Philippines and who are

employed by the United States armed forces or who are accompanying the United States armed forces, such as employees of the American Red Cross and the United Services Organization.

“Article IIRespect for Law

“It is the duty of the United States personnel to respect the laws of the Republic of the Philippines and to abstain from any activity inconsistent with the spirit of this agreement, and, in particular, from any political activity in the Philippines. The Government of the United States shall take all measures within its authority to ensure that this is done.

“Article IIIEntry and Departure

“1. The Government of the Philippines shall facilitate the admission of United States personnel and their departure from the Philippines in connection with activities covered by this agreement.

“2. United States military personnel shall be exempt from passport and visa regulations upon entering and departing the Philippines.

“3. The following documents only, which shall be presented on demand, shall be required in respect of United States military personnel who enter the Philippines:

“(a) personal identity card issued by the appropriate United States authority showing full name, date of birth, rank or grade and service number (if any), branch of service and photograph;

“(b) individual or collective document issued by the appropriate United States authority, authorizing the travel or visit and identifying the individual or group as United States military personnel; and

“(c) the commanding officer of a military aircraft or vessel shall present a declaration of health, and when required by the cognizant representative of the Government of the Philippines, shall conduct a quarantine inspection and will certify that the aircraft or vessel is free from quarantinable diseases. Any quarantine inspection of United States aircraft or United States vessels or cargoes thereon shall be conducted by the United States commanding officer in accordance with the international health regulations as promulgated by the World Health Organization, and mutually agreed procedures.

“4. United States civilian personnel shall be exempt from visa requirements but shall present, upon demand, valid passports upon entry and departure of the Philippines.

“5. If the Government of the Philippines has requested the removal of any United States personnel from its territory, the United States authorities shall be responsible for receiving the person concerned within its own territory or otherwise disposing of said person outside of the Philippines.

“Article IVDriving and Vehicle Registration

“1. Philippine authorities shall accept as valid, without test or fee, a driving permit or license issued by the appropriate United States authority to United States personnel for the operation of military or official vehicles.

“2. Vehicles owned by the Government of the United States need not be registered, but shall have appropriate markings.

“Article VCriminal Jurisdiction

“1. Subject to the provisions of this article:

(a) Philippine authorities shall have jurisdiction over United States personnel with respect to offenses committed within the Philippines and punishable under the law of the Philippines.

(b) United States military authorities shall have the right to exercise within the Philippines all criminal and disciplinary jurisdiction conferred on them by the military law of the United States over United States personnel in the Philippines.

“2. (a) Philippine authorities exercise exclusive jurisdiction over United States personnel with respect to offenses, including offenses relating to the security of the Philippines, punishable under the laws of the Philippines, but not under the laws of the United States.

(b) United States authorities exercise exclusive jurisdiction over United States personnel with respect to offenses, including offenses relating to the security of the United States, punishable under the laws of the United States, but not under the laws of the Philippines.

(c) For the purposes of this paragraph and paragraph 3 of this article, an offense relating to security means:

(1) treason;

(2) sabotage, espionage or violation of any law relating to national defense.

“3. In cases where the right to exercise jurisdiction is concurrent, the following rules shall apply:

(a) Philippine authorities shall have the primary right to exercise jurisdiction over all offenses committed by United States personnel, except in cases provided for in paragraphs 1(b), 2 (b), and 3 (b) of this Article.

(b) United States military authorities shall have the primary right to exercise jurisdiction over United States personnel subject to the military law of the United States in relation to.

(1) offenses solely against the property or security of the United States or offenses solely against the property or person of United States personnel; and

(2) offenses arising out of any act or omission done in performance of official duty.

(c) The authorities of either government may request the authorities of the other government to waive their primary right to exercise jurisdiction in a particular case.

(d) Recognizing the responsibility of the United States military authorities to maintain good order and discipline among their forces, Philippine authorities will, upon request by the United States, waive their primary right to exercise jurisdiction except in cases of particular importance to the Philippines. If the Government of the Philippines determines that the case is of particular importance, it shall communicate such determination to the United States authorities within twenty (20) days after the Philippine authorities receive the United States request.

(e) When the United States military commander determines that an offense charged by authorities of the Philippines against United states personnel arises out of an act or omission done in the performance of official duty, the commander will issue a certificate setting forth such determination. This certificate will be transmitted to the appropriate authorities of the Philippines and will constitute sufficient proof of performance of official duty for the purposes of paragraph 3(b)(2) of this Article. In those cases where the Government of the Philippines believes the circumstances of the case require a review of the duty certificate, United States military authorities and Philippine authorities shall consult immediately. Philippine authorities at the highest levels may also present any information bearing on its validity. United States military authorities shall take full account of the Philippine position. Where appropriate,

United States military authorities will take disciplinary or other action against offenders in official duty cases, and notify the Government of the Philippines of the actions taken.

(f) If the government having the primary right does not exercise jurisdiction, it shall notify the authorities of the other government as soon as possible.

(g) The authorities of the Philippines and the United States shall notify each other of the disposition of all cases in which both the authorities of the Philippines and the United States have the right to exercise jurisdiction.

“4. Within the scope of their legal competence, the authorities of the Philippines and United States shall assist each other in the arrest of United States personnel in the Philippines and in handling them over to authorities who are to exercise jurisdiction in accordance with the provisions of this article.

“5. United States military authorities shall promptly notify Philippine authorities of the arrest or detention of United States personnel who are subject of Philippine primary or exclusive jurisdiction. Philippine authorities shall promptly notify United States military authorities of the arrest or detention of any United States personnel.

“6. The custody of any United States personnel over whom the Philippines is to exercise jurisdiction shall immediately reside with United States military authorities, if they so request, from the commission of the offense until completion of all judicial proceedings. United States military authorities shall, upon formal notification by the Philippine authorities and without delay, make such personnel available to those authorities in time for any investigative or judicial proceedings relating to the offense with which the person has been charged in extraordinary cases, the Philippine Government shall present its position to the United States Government regarding custody, which the United States Government shall take into full account. In the event Philippine judicial proceedings are not completed within one year, the United States shall be relieved of any obligations under this paragraph. The one-year period will not include the time necessary to appeal. Also, the one-year period will not include any time during which scheduled trial procedures are delayed because United States authorities, after timely notification by Philippine authorities to arrange for the presence of the accused, fail to do so.

“7. Within the scope of their legal authority, United States and Philippine authorities shall assist each other in the carrying out of all necessary investigation into offenses and shall cooperate in providing for the attendance of witnesses and in the collection and production of evidence, including seizure and, in proper cases, the delivery of objects connected with an offense.

“8. When United States personnel have been tried in accordance with the provisions of this Article and have been acquitted or have been

convicted and are serving, or have served their sentence, or have had their sentence remitted or suspended, or have been pardoned, they may not be tried again for the same offense in the Philippines. Nothing in this paragraph, however, shall prevent United States military authorities from trying United States personnel for any violation of rules of discipline arising from the act or omission which constituted an offense for which they were tried by Philippine authorities.

“9. When United States personnel are detained, taken into custody, or prosecuted by Philippine authorities, they shall be accorded all procedural safeguards established by the law of the Philippines. At the minimum, United States personnel shall be entitled:

(a) To a prompt and speedy trial;

(b) To be informed in advance of trial of the specific charge or charges made against them and to have reasonable time to prepare a defense;

(c) To be confronted with witnesses against them and to cross examine such witnesses;

(d) To present evidence in their defense and to have compulsory process for obtaining witnesses;

(e) To have free and assisted legal representation of their own choice on the same basis as nationals of the Philippines;

(f) To have the service of a competent interpreter; and

(g) To communicate promptly with and to be visited regularly by United States authorities, and to have such authorities present at all judicial proceedings. These proceedings shall be public unless the court, in accordance with Philippine laws, excludes persons who have no role in the proceedings.

“10. The confinement or detention by Philippine authorities of United States personnel shall be carried out in facilities agreed on by appropriate Philippine and United States authorities. United States Personnel serving sentences in the Philippines shall have the right to visits and material assistance.

“11. United States personnel shall be subject to trial only in Philippine courts of ordinary jurisdiction, and shall not be subject to the jurisdiction of Philippine military or religious courts.

“Article VIClaims

“1. Except for contractual arrangements, including United States foreign military sales letters of offer and acceptance and leases of military equipment, both governments waive any and all claims against each

other for damage, loss or destruction to property of each other’s armed forces or for death or injury to their military and civilian personnel arising from activities to which this agreement applies.

“2. For claims against the United States, other than contractual claims and those to which paragraph 1 applies, the United States Government, in accordance with United States law regarding foreign claims, will pay just and reasonable compensation in settlement of meritorious claims for damage, loss, personal injury or death, caused by acts or omissions of United States personnel, or otherwise incident to the non-combat activities of the United States forces.

“Article VIIImportation and Exportation

“1. United States Government equipment, materials, supplies, and other property imported into or acquired in the Philippines by or on behalf of the United States armed forces in connection with activities to which this agreement applies, shall be free of all Philippine duties, taxes and other similar charges. Title to such property shall remain with the United States, which may remove such property from the Philippines at any time, free from export duties, taxes, and other similar charges. The exemptions provided in this paragraph shall also extend to any duty, tax, or other similar charges which would otherwise be assessed upon such property after importation into, or acquisition within, the Philippines. Such property may be removed from the Philippines, or disposed of therein, provided that disposition of such property in the Philippines to persons or entities not entitled to exemption from applicable taxes and duties shall be subject to payment of such taxes, and duties and prior approval of the Philippine Government.

“2. Reasonable quantities of personal baggage, personal effects, and other property for the personal use of United States personnel may be imported into and used in the Philippines free of all duties, taxes and other similar charges during the period of their temporary stay in the Philippines. Transfers to persons or entities in the Philippines not entitled to import privileges may only be made upon prior approval of the appropriate Philippine authorities including payment by the recipient of applicable duties and taxes imposed in accordance with the laws of the Philippines. The exportation of such property and of property acquired in the Philippines by United States personnel shall be free of all Philippine duties, taxes, and other similar charges.

“Article VIIIMovement of Vessels and Aircraft

“1. Aircraft operated by or for the United States armed forces may enter the Philippines upon approval of the Government of the Philippines in accordance with procedures stipulated in implementing arrangements.

“2. Vessels operated by or for the United States armed forces may enter the Philippines upon approval of the Government of the Philippines. The movement of vessels shall be in accordance with international custom and practice governing such vessels, and such agreed implementing arrangements as necessary.

“3. Vehicles, vessels, and aircraft operated by or for the United States armed forces shall not be subject to the payment of landing or port fees, navigation or over flight charges, or tolls or other use charges, including light and harbor dues, while in the Philippines. Aircraft operated by or for the United States armed forces shall observe local air traffic control regulations while in the Philippines. Vessels owned or operated by the United States solely on United States Government non-commercial service shall not be subject to compulsory pilotage at Philippine ports.

“Article IXDuration and Termination

“This agreement shall enter into force on the date on which the parties have notified each other in writing through the diplomatic channel that they have completed their constitutional requirements for entry into force. This agreement shall remain in force until the expiration of 180 days from the date on which either party gives the other party notice in writing that it desires to terminate the agreement.”

Via these consolidated[11] petitions for certiorari and prohibition, petitioners - as legislators, non-governmental organizations, citizens and taxpayers - assail the constitutionality of the VFA and impute to herein respondents grave abuse of discretion in ratifying the agreement.

We have simplified the issues raised by the petitioners into the following:

I

Do petitioners have legal standing as concerned citizens, taxpayers, or legislators to question the constitutionality of the VFA?

II

Is the VFA governed by the provisions of Section 21, Article VII or of Section 25, Article XVIII of the Constitution?

III

Does the VFA constitute an abdication of Philippine sovereignty?

a. Are Philippine courts deprived of their jurisdiction to hear and try offenses committed by US military personnel?

b. Is the Supreme Court deprived of its jurisdiction over offenses punishable by reclusion perpetua or higher?

IV

Does the VFA violate:

a. the equal protection clause under Section 1, Article III of the Constitution?

b. the Prohibition against nuclear weapons under Article II, Section 8?

c. Section 28 (4), Article VI of the Constitution granting the exemption from taxes and duties for the equipment, materials supplies and other properties imported into or acquired in the Philippines by, or on behalf, of the US Armed Forces?

LOCUS STANDI

At the outset, respondents challenge petitioner’s standing to sue, on the ground that the latter have not shown any interest in the case, and that petitioners failed to substantiate that they have sustained, or will sustain direct injury as a result of the operation of the VFA.[12] Petitioners, on the other hand, counter that the validity or invalidity of the VFA is a matter of transcendental importance which justifies their standing.[13]

A party bringing a suit challenging the constitutionality of a law, act, or statute must show “not only that the law is invalid, but also that he has sustained or in is in immediate, or imminent danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way.” He must show that he has been, or is about to be, denied some right or privilege to which he is lawfully entitled, or that he is about to be subjected to some burdens or penalties by reason of the statute complained of.[14]

In the case before us, petitioners failed to show, to the satisfaction of this Court, that they have sustained, or are in danger of sustaining any direct injury as a result of the enforcement of the VFA. As taxpayers, petitioners have not established that the VFA involves the exercise by Congress of its taxing or spending powers. [15] On this point, it bears stressing that a taxpayer’s suit refers to a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation.[16] Thus, in Bugnay Const. & Development Corp. vs. Laron[17], we held:

“x x x it is exigent that the taxpayer-plaintiff sufficiently show that he would be benefited or injured by the judgment or entitled to the avails of the suit as a real party in interest. Before he can invoke the power of judicial review, he must

specifically prove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will sustain a direct injury as a result of the enforcement of the questioned statute or contract. It is not sufficient that he has merely a general interest common to all members of the public.”

Clearly, inasmuch as no public funds raised by taxation are involved in this case, and in the absence of any allegation by petitioners that public funds are being misspent or illegally expended, petitioners, as taxpayers, have no legal standing to assail the legality of the VFA.

Similarly, Representatives Wigberto Tañada, Agapito Aquino and Joker Arroyo, as petitioners-legislators, do not possess the requisite locus standi to maintain the present suit.While this Court, in Phil. Constitution Association vs. Hon. Salvador Enriquez,[18] sustained the legal standing of a member of the Senate and the House of Representatives to question the validity of a presidential veto or a condition imposed on an item in an appropriation bull, we cannot, at this instance, similarly uphold petitioners’ standing as members of Congress, in the absence of a clear showing of any direct injury to their person or to the institution to which they belong.

Beyond this, the allegations of impairment of legislative power, such as the delegation of the power of Congress to grant tax exemptions, are more apparent than real. While it may be true that petitioners pointed to provisions of the VFA which allegedly impair their legislative powers, petitioners failed however to sufficiently show that they have in fact suffered direct injury.

In the same vein, petitioner Integrated Bar of the Philippines (IBP) is stripped of standing in these cases. As aptly observed by the Solicitor General, the IBP lacks the legal capacity to bring this suit in the absence of a board resolution from its Board of Governors authorizing its National President to commence the present action.[19]

Notwithstanding, in view of the paramount importance and the constitutional significance of the issues raised in the petitions, this Court, in the exercise of its sound discretion, brushes aside the procedural barrier and takes cognizance of the petitions, as we have done in the early Emergency Powers Cases,[20] where we had occasion to rule:

“x x x ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were involving only an indirect and general interest shared in common with the public. The Court dismissed the objection that they were not proper parties and ruled that ‘transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure.’ We have since then applied the exception in many other cases.(Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).” (Underscoring Supplied)

This principle was reiterated in the subsequent cases of Gonzales vs. COMELEC,[21] Daza vs. Singson,[22] and Basco vs. Phil. Amusement and Gaming Corporation,[23]where we emphatically held:

“Considering however the importance to the public of the case at bar, and in keeping with the Court’s duty, under the 1987 Constitution, to determine whether or not the other branches of the government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition. x x x”

Again, in the more recent case of Kilosbayan vs. Guingona, Jr.,[24] thisCourt ruled that in cases of transcendental importance, the Court may relax the standing requirements and allow a suit to prosper even where there is no direct injury to the party claiming the right of judicial review.

Although courts generally avoid having to decide a constitutional question based on the doctrine of separation of powers, which enjoins upon the departments of the government a becoming respect for each others’ acts, [25] this Court nevertheless resolves to take cognizance of the instant petitions.

APPLICABLE CONSTITUTIONAL PROVISION

One focal point of inquiry in this controversy is the determination of which provision of the Constitution applies, with regard to the exercise by the senate of its constitutional power to concur with the VFA. Petitioners argue that Section 25, Article XVIII is applicable considering that the VFA has for its subject the presence of foreign military troops in the Philippines. Respondents, on the contrary, maintain that Section 21, Article VII should apply inasmuch as the VFA is not a basing arrangement but an agreement which involves merely the temporary visits of United States personnel engaged in joint military exercises.

The 1987 Philippine Constitution contains two provisions requiring the concurrence of the Senate on treaties or international agreements. Section 21, Article VII, which herein respondents invoke, reads:

“No treaty or international agreement shall be valid and effective unless concurred in by at least two-thirds of all the Members of the Senate.”

Section 25, Article XVIII, provides:

“After the expiration in 1991 of the Agreement between the Republic of the Philippines and the United States of America concerning Military Bases, foreign military bases, troops, or facilities shall not be allowed in the Philippines except under a treaty duly concurred in by the senate and, when the Congress so requires, ratified by a majority of the votes cast by the people in a national referendum held for that purpose, and recognized as a treaty by the other contracting State.”

Section 21, Article VII deals with treatise or international agreements in general, in which case, the concurrence of at least two-thirds (2/3) of all the Members of the

Senate is required to make the subject treaty, or international agreement, valid and binding on the part of the Philippines. This provision lays down the general rule on treatise or international agreements and applies to any form of treaty with a wide variety of subject matter, such as, but not limited to, extradition or tax treatise or those economic in nature. All treaties or international agreements entered into by the Philippines, regardless of subject matter, coverage, or particular designation or appellation, requires the concurrence of the Senate to be valid and effective.

In contrast, Section 25, Article XVIII is a special provision that applies to treaties which involve the presence of foreign military bases, troops or facilities in the Philippines. Under this provision, the concurrence of the Senate is only one of the requisites to render compliance with the constitutional requirements and to consider the agreement binding on the Philippines. Section 25, Article XVIII further requires that “foreign military bases, troops, or facilities” may be allowed in the Philippines only by virtue of a treaty duly concurred in by the Senate, ratified by a majority of the votes cast in a national referendum held for that purpose if so required by Congress, and recognized as such by the other contracting state.

It is our considered view that both constitutional provisions, far from contradicting each other, actually share some common ground. These constitutional provisions both embody phrases in the negative and thus, are deemed prohibitory in mandate and character. In particular, Section 21 opens with the clause “No treaty x x x,” and Section 25 contains the phrase “shall not be allowed.” Additionally, in both instances, the concurrence of the Senate is indispensable to render the treaty or international agreement valid and effective.

To our mind, the fact that the President referred the VFA to the Senate under Section 21, Article VII, and that the Senate extended its concurrence under the same provision, is immaterial. For in either case, whether under Section 21, Article VII or Section 25, Article XVIII, the fundamental law is crystalline that the concurrence of the Senate is mandatory to comply with the strict constitutional requirements.

On the whole, the VFA is an agreement which defines the treatment of United States troops and personnel visiting the Philippines. It provides for the guidelines to govern such visits of military personnel, and further defines the rights of the United States and the Philippine government in the matter of criminal jurisdiction, movement of vessel and aircraft, importation and exportation of equipment, materials and supplies.

Undoubtedly, Section 25, Article XVIII, which specifically deals with treaties involving foreign military bases, troops, or facilities, should apply in the instant case. To a certain extent and in a limited sense, however, the provisions of section 21, Article VII will find applicability with regard to the issue and for the sole purpose of determining the number of votes required to obtain the valid concurrence of the Senate, as will be further discussed hereunder.

It is a finely-imbedded principle in statutory construction that a special provision or law prevails over a general one. Lex specialis derogat generali. Thus, where there is in the same statute a particular enactment and also a general one which, in its most comprehensive sense, would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken

to affect only such cases within its general language which are not within the provision of the particular enactment.[26]

In Leveriza vs. Intermediate Appellate Court,[27] we enunciated:

“x x x that another basic principle of statutory construction mandates that general legislation must give way to a special legislation on the same subject, and generally be so interpreted as to embrace only cases in which the special provisions are not applicable (Sto. Domingo vs. de los Angeles, 96 SCRA 139), that a specific statute prevails over a general statute (De Jesus vs. People, 120 SCRA 760) and that where two statutes are of equal theoretical application to a particular case, the one designed therefor specially should prevail (Wil Wilhensen Inc. vs. Baluyot, 83 SCRA 38).”

Moreover, it is specious to argue that Section 25, Article XVIII is inapplicable to mere transient agreements for the reason that there is no permanent placing of structure for the establishment of a military base. On this score, the Constitution makes no distinction between “transient’ and “permanent”. Certainly, we find nothing in Section 25, Article XVIII that requires foreign troops or facilities to be stationed or placed permanently in the Philippines.

It is a rudiment in legal hermenuetics that when no distinction is made by law, the Court should not distinguish- Ubi lex non distinguit nec nos distinguire debemos.

In like manner, we do not subscribe to the argument that Section 25, Article XVIII is not controlling since no foreign military bases, but merely foreign troops and facilities, are involved in the VFA. Notably, a perusal of said constitutional provision reveals that the proscription covers “foreign military bases, troops, or facilities.” Stated differently, this prohibition is not limited to the entry of troops and facilities without any foreign bases being established. The clause does not refer to “foreign military bases, troops, or facilities” collectively but treats them as separate and independent subjects. The use of comma and the disjunctive word “or” clearly signifies disassociation and independence of one thing from the others included in the enumeration,[28] such that, the provision contemplates three different situations - a military treaty the subject of which could be either (a) foreign bases, (b) foreign troops, or (c) foreign facilities - any of the three standing alone places it under the coverage of Section 25, Article XVIII.

To this end, the intention of the framers of the Charter, as manifested during the deliberations of the 1986 Constitutional Commission, is consistent with this interpretation:

“MR. MAAMBONG. I just want to address a question or two to Commissioner Bernas.

This formulation speaks of three things: foreign military bases, troops or facilities. My first question is: If the country does enter into such kind of a treaty, must it cover the three-bases, troops or facilities-or could the treaty entered into cover only one or two?

FR. BERNAS. Definitely, it can cover only one. Whether it covers only one or it covers three, the requirement will be the same.

MR. MAAMBONG. In other words, the Philippine government can enter into a treaty covering not bases but merely troops?

FR. BERNAS. Yes.

MR. MAAMBONG. I cannot find any reason why the government can enter into a treaty covering only troops.

FR. BERNAS. Why not? Probably if we stretch our imagination a little bit more, we will find some. We just want to cover everything.”[29] (Underscoring Supplied)

Moreover, military bases established within the territory of another state is no longer viable because of the alternatives offered by new means and weapons of warfare such as nuclear weapons, guided missiles as well as huge sea vessels that can stay afloat in the sea even for months and years without returning to their home country. These military warships are actually used as substitutes for a land-home base not only of military aircraft but also of military personnel and facilities. Besides, vessels are mobile as compared to a land-based military headquarters.

At this juncture, we shall then resolve the issue of whether or not the requirements of Section 25 were complied with when the Senate gave its concurrence to the VFA.

Section 25, Article XVIII disallows foreign military bases, troops, or facilities in the country, unless the following conditions are sufficiently met, viz: (a) it must be under a treaty; (b) the treaty must be duly concurred in by the Senate and, when so required by congress, ratified by a majority of the votes cast by the people in a national referendum; and (c)recognized as a treaty by the other contracting state.

There is no dispute as to the presence of the first two requisites in the case of the VFA. The concurrence handed by the Senate through Resolution No. 18 is in accordance with the provisions of the Constitution, whether under the general requirement in Section 21, Article VII, or the specific mandate mentioned in Section 25, Article XVIII, the provision in the latter article requiring ratification by a majority of the votes cast in a national referendum being unnecessary since Congress has not required it.

As to the matter of voting, Section 21, Article VII particularly requires that a treaty or international agreement, to be valid and effective, must be concurred in by at least two-thirds of all the members of the Senate. On the other hand, Section 25, Article XVIII simply provides that the treaty be “duly concurred in by the Senate.”

Applying the foregoing constitutional provisions, a two-thirds vote of all the members of the Senate is clearly required so that the concurrence contemplated by law may be validly obtained and deemed present. While it is true that Section 25, Article XVIII requires, among other things, that the treaty-the VFA, in the instant case-be “duly concurred in by the Senate,” it is very true however that said provision must be related and viewed in light of the clear mandate embodied in Section 21,

Article VII, which in more specific terms, requires that the concurrence of a treaty, or international agreement, be made by a two -thirds vote of all the members of the Senate. Indeed, Section 25, Article XVIII must not be treated in isolation to section 21, Article, VII.

As noted, the “concurrence requirement” under Section 25, Article XVIII must be construed in relation to the provisions of Section 21, Article VII. In a more particular language, the concurrence of the Senate contemplated under Section 25, Article XVIII means that at least two-thirds of all the members of the Senate favorably vote to concur with the treaty-the VFA in the instant case.

Under these circumstances, the charter provides that the Senate shall be composed of twenty-four (24) Senators.[30] Without a tinge of doubt, two-thirds (2/3) of this figure, or not less than sixteen (16) members, favorably acting on the proposal is an unquestionable compliance with the requisite number of votes mentioned in Section 21 of Article VII. The fact that there were actually twenty-three (23) incumbent Senators at the time the voting was made,[31] will not alter in any significant way the circumstance that more than two-thirds of the members of the Senate concurred with the proposed VFA, even if the two-thirds vote requirement is based on this figure of actual members (23). In this regard, the fundamental law is clear that two-thirds of the 24 Senators, or at least 16 favorable votes, suffice so as to render compliance with the strict constitutional mandate of giving concurrence to the subject treaty.

Having resolved that the first two requisites prescribed in Section 25, Article XVIII are present, we shall now pass upon and delve on the requirement that the VFA should be recognized as a treaty by the United States of America.

Petitioners content that the phrase “recognized as a treaty,” embodied in section 25, Article XVIII, means that the VFA should have the advice and consent of the United States Senate pursuant to its own constitutional process, and that it should not be considered merely an executive agreement by the United States.

In opposition, respondents argue that the letter of United States Ambassador Hubbard stating that the VFA is binding on the United States Government is conclusive, on the point that the VFA is recognized as a treaty by the United States of America. According to respondents, the VFA, to be binding, must only be accepted as a treaty by the United States.

This Court is of the firm view that the phrase “recognized as a treaty” means that the other contracting party accepts or acknowledges the agreement as a treaty.[32] To require the other contracting state, the United States of America in this case, to submit the VFA to the United States Senate for concurrence pursuant to its Constitution,[33] is to accord strict meaning to the phrase.

Well-entrenched is the principle that the words used in the Constitution are to be given their ordinary meaning except where technical terms are employed, in which case the significance thus attached to them prevails. Its language should be understood in the sense they have in common use.[34]

Moreover, it is inconsequential whether the United States treats the VFA only as an executive agreement because, under international law, an executive agreement is as binding as a treaty.[35] To be sure, as long as the VFA possesses the elements of an

agreement under international law, the said agreement is to be taken equally as a treaty.

A treaty, as defined by the Vienna Convention on the Law of Treaties, is “an international instrument concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments, and whatever its particular designation.”[36] There are many other terms used for a treaty or international agreement, some of which are: act, protocol, agreement, compromis d’ arbitrage, concordat, convention, declaration, exchange of notes, pact, statute, charter and modus vivendi. All writers, from Hugo Grotius onward, have pointed out that the names or titles of international agreements included under the general term treaty have little or no legal significance. Certain terms are useful, but they furnish little more than mere description.[37]

Article 2(2) of the Vienna Convention provides that “the provisions of paragraph 1 regarding the use of terms in the present Convention are without prejudice to the use of those terms, or to the meanings which may be given to them in the internal law of the State.”

Thus, in international law, there is no difference between treaties and executive agreements in their binding effect upon states concerned, as long as the negotiating functionaries have remained within their powers.[38] International law continues to make no distinction between treaties and executive agreements: they are equally binding obligations upon nations.[39]

In our jurisdiction, we have recognized the binding effect of executive agreements even without the concurrence of the Senate or Congress. In Commissioner of Customs vs. Eastern Sea Trading,[40] we had occasion to pronounce:

“x x x the right of the Executive to enter into binding agreements without the necessity of subsequent congressional approval has been confirmed by long usage. From the earliest days of our history we have entered into executive agreements covering such subjects as commercial and consular relations, most-favored-nation rights, patent rights, trademark and copyright protection, postal and navigation arrangements and the settlement of claims. The validity of these has never been seriously questioned by our courts.

“x x x x x x x x x

“Furthermore, the United States Supreme Court has expressly recognized the validity and constitutionality of executive agreements entered into without Senate approval. (39 Columbia Law Review, pp. 753-754) (See, also, U.S. vs. Curtis Wright Export Corporation, 299 U.S. 304, 81 L. ed. 255; U.S. vs. Belmont, 301 U.S. 324, 81 L. ed. 1134; U.S. vs. Pink, 315 U.S. 203, 86 L. ed. 796; Ozanic vs. U.S. 188 F. 2d. 288; Yale Law Journal, Vol. 15 pp. 1905-1906; California Law Review, Vol. 25, pp. 670-675; Hyde on International Law [revised Edition], Vol. 2, pp. 1405, 1416-1418; willoughby on the U.S. Constitution Law, Vol. I [2d ed.], pp. 537-540; Moore, International Law Digest, Vol. V, pp. 210-218; Hackworth, International Law Digest, Vol. V, pp. 390-407). (Italics Supplied)” (Emphasis Ours)

The deliberations of the Constitutional Commission which drafted the 1987 Constitution is enlightening and highly-instructive:

“MR. MAAMBONG. Of course it goes without saying that as far as ratification of the other state is concerned, that is entirely their concern under their own laws.

FR. BERNAS. Yes, but we will accept whatever they say. If they say that we have done everything to make it a treaty, then as far as we are concerned, we will accept it as a treaty.”[41]

The records reveal that the United States Government, through Ambassador Thomas C. Hubbard, has stated that the United States government has fully committed to living up to the terms of the VFA.[42] For as long as the united States of America accepts or acknowledges the VFA as a treaty, and binds itself further to comply with its obligations under the treaty, there is indeed marked compliance with the mandate of the Constitution.

Worth stressing too, is that the ratification, by the President, of the VFA and the concurrence of the Senate should be taken as a clear an unequivocal expression of our nation’s consent to be bound by said treaty, with the concomitant duty to uphold the obligations and responsibilities embodied thereunder.

Ratification is generally held to be an executive act, undertaken by the head of the state or of the government, as the case may be, through which the formal acceptance of the treaty is proclaimed.[43] A State may provide in its domestic legislation the process of ratification of a treaty. The consent of the State to be bound by a treaty is expressed by ratification when: (a) the treaty provides for such ratification, (b) it is otherwise established that the negotiating States agreed that ratification should be required, (c) the representative of the State has signed the treaty subject to ratification, or (d) the intention of the State to sign the treaty subject to ratification appears from the full powers of its representative, or was expressed during the negotiation.[44]

In our jurisdiction, the power to ratify is vested in the President and not, as commonly believed, in the legislature. The role of the Senate is limited only to giving or withholding its consent, or concurrence, to the ratification.[45]

With the ratification of the VFA, which is equivalent to final acceptance, and with the exchange of notes between the Philippines and the United States of America, it now becomes obligatory and incumbent on our part, under the principles of international law, to be bound by the terms of the agreement. Thus, no less than Section 2, Article II of the Constitution,[46] declares that the Philippines adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation and amity with all nations.

As a member of the family of nations, the Philippines agrees to be bound by generally accepted rules for the conduct of its international relations. While the international obligation devolves upon the state and not upon any particular branch, institution, or individual member of its government, the Philippines is nonetheless responsible for violations committed by any branch or subdivision of its government or any official thereof. As an integral part of the community of nations, we are

responsible to assure that our government, Constitution and laws will carry out our international obligation.[47] Hence, we cannot readily plead the Constitution as a convenient excuse for non-compliance with our obligations, duties and responsibilities under international law.

Beyond this, Article 13 of the Declaration of Rights and Duties of States adopted by the International Law Commission in 1949 provides: “Every State has the duty to carry out in good faith its obligations arising from treaties and other sources of international law, and it may not invoke provisions in its constitution or its laws as an excuse for failure to perform this duty.”[48]

Equally important is Article 26 of the convention which provides that “Every treaty in force is binding upon the parties to it and must be performed by them in good faith.” This is known as the principle of pacta sunt servanda which preserves the sanctity of treaties and have been one of the most fundamental principles of positive international law, supported by the jurisprudence of international tribunals.[49]

NO GRAVE ABUSE OF DISCRETION

In the instant controversy, the President, in effect, is heavily faulted for exercising a power and performing a task conferred upon him by the Constitution-the power to enter into and ratify treaties. Through the expediency of Rule 65 of the Rules of Court, petitioners in these consolidated cases impute grave abuse of discretion on the part of the chief Executive in ratifying the VFA, and referring the same to the Senate pursuant to the provisions of Section 21, Article VII of the Constitution.

On this particular matter, grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, when the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty enjoined or to act at all in contemplation of law.[50]

By constitutional fiat and by the intrinsic nature of his office, the President, as head of State, is the sole organ and authority in the external affairs of the country.  In many ways, the President is the chief architect of the nation’s foreign policy; his “dominance in the field of foreign relations is (then) conceded.”[51] Wielding vast powers an influence, his conduct in the external affairs of the nation, as Jefferson describes, is “executive altogether."[52]

As regards the power to enter into treaties or international agreements, the Constitution vests the same in the President, subject only to the concurrence of at least two-thirds vote of all the members of the Senate. In this light, the negotiation of the VFA and the subsequent ratification of the agreement are exclusive acts which pertain solely to the President, in the lawful exercise of his vast executive and diplomatic powers granted him no less than by the fundamental law itself. Into the field of negotiation the Senate cannot intrude, and Congress itself is powerless to invade it.[53] Consequently, the acts or judgment calls of the President involving the

VFA-specifically the acts of ratification and entering into a treaty and those necessary or incidental to the exercise of such principal acts - squarely fall within the sphere of his constitutional powers and thus, may not be validly struck down, much less calibrated by this Court, in the absence of clear showing of grave abuse of power or discretion.

It is the Court’s considered view that the President, in ratifying the VFA and in submitting the same to the Senate for concurrence, acted within the confines and limits of the powers vested in him by the Constitution. It is of no moment that the President, in the exercise of his wide latitude of discretion and in the honest belief that the VFA falls within the ambit of Section 21, Article VII of the Constitution, referred the VFA to the Senate for concurrence under the aforementioned provision. Certainly, no abuse of discretion, much less a grave, patent and whimsical abuse of judgment, may be imputed to the President in his act of ratifying the VFA and referring the same to the Senate for the purpose of complying with the concurrence requirement embodied in the fundamental law. In doing so, the President merely performed a constitutional task and exercised a prerogative that chiefly pertains to the functions of his office. Even if he erred in submitting the VFA to the Senate for concurrence under the provisions of Section 21 of Article VII, instead of Section 25 of Article XVIII of the Constitution, still, the President may not be faulted or scarred, much less be adjudged guilty of committing an abuse of discretion in some patent, gross, and capricious manner.

For while it is conceded that Article VIII, Section 1, of the Constitution has broadened the scope of judicial inquiry into areas normally left to the political departments to decide, such as those relating to national security, it has not altogether done away with political questions such as those which arise in the field of foreign relations.[54] The High Tribunal’s function, as sanctioned by Article VIII, Section 1, “is merely (to) check whether or not the governmental branch or agency has gone beyond the constitutional limits of its jurisdiction, not that it erred or has a different view. In the absence of a showing… (of) grave abuse of discretion amounting to lack of jurisdiction, there is no occasion for the Court to exercise its corrective power…It has no power to look into what it thinks is apparent error.”[55]

As to the power to concur with treaties, the constitution lodges the same with the Senate alone. Thus, once the Senate[56] performs that power, or exercises its prerogative within the boundaries prescribed by the Constitution, the concurrence cannot, in like manner, be viewed to constitute an abuse of power, much less grave abuse thereof. Corollarily, the Senate, in the exercise of its discretion and acting within the limits of such power, may not be similarly faulted for having simply performed a task conferred and sanctioned by no less than the fundamental law.

For the role of the Senate in relation to treaties is essentially legislative in character;[57] the Senate, as an independent body possessed of its own erudite mind, has the prerogative to either accept or reject the proposed agreement, and whatever action it takes in the exercise of its wide latitude of discretion, pertains to the wisdom rather than the legality of the act. In this sense, the Senate partakes a principal, yet delicate, role in keeping the principles of separation of powers and of checks and balances alive and vigilantly ensures that these cherished rudiments remain true to their form in a democratic government such as ours. The Constitution thus animates, through this treaty-concurring power of the Senate, a healthy system of checks and balances indispensable toward our nation’s pursuit of political maturity and

growth. True enough, rudimentary is the principle that matters pertaining to the wisdom of a legislative act are beyond the ambit and province of the courts to inquire.

In fine, absent any clear showing of grave abuse of discretion on the part of respondents, this Court- as the final arbiter of legal controversies and staunch sentinel of the rights of the people - is then without power to conduct an incursion and meddle with such affairs purely executive and legislative in character and nature. For the Constitution no less, maps out the distinct boundaries and limits the metes and bounds within which each of the three political branches of government may exercise the powers exclusively and essentially conferred to it by law.

WHEREFORE, in light of the foregoing disquisitions, the instant petitions are hereby DISMISSED.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 106483 May 22, 1995

ERNESTO L. CALLADO, petitioner, vs.INTERNATIONAL RICE RESEARCH INSTITUTE, respondent.

ROMERO, J.:

Did the International Rice Research Institute (IRRI) waive its immunity from suit in this dispute which arose from an employer-employee relationship?

We rule in the negative and vote to dismiss the petition.

Ernesto Callado, petitioner, was employed as a driver at the IRRI from April 11, 1983 to December 14, 1990. On February 11, 1990, while driving an IRRI vehicle on an official trip to the Ninoy Aquino International Airport and back to the IRRI, petitioner figured in an accident.

Petitioner was informed of the findings of a preliminary investigation conducted by the IRRI's Human Resource Development Department Manager in a Memorandum dated March 5, 1990. 1 In view of the aforesaid findings, he was charged with:

(1) Driving an institute vehicle while on official duty under the influence of liquor;

(2) Serious misconduct consisting of your failure to report to your supervisors the failure of your vehicle to start because of a problem with the car battery which, you alleged, required you to overstay in Manila for more than six (6) hours, whereas, had you reported the matter to IRRI, Los Baños by telephone, your problem could have been solved within one or two hours;

(3) Gross and habitual neglect of your duties. 2

In a Memorandum dated March 9, 1990, petitioner submitted his answer and defenses to the charges against him.3 After evaluating petitioner's answer, explanations and other evidence, IRRI issued a Notice of Termination to petitioner on December 7, 1990. 4

Thereafter, petitioner filed a complaint on December 19, 1990 before the Labor Arbiter for illegal dismissal, illegal suspension and indemnity pay with moral and exemplary damages and attorney's fees.

On January 2, 1991, private respondent IRRI, through counsel, wrote the Labor Arbiter to inform him that the Institute enjoys immunity from legal process by virtue of Article 3 of Presidential Decree No. 1620, 5 and that it invokes such diplomatic immunity and privileges as an international organization in the instant case filed by petitioner, not having waived the same. 6

IRRI likewise wrote in the same tenor to the Regional Director of the Department of Labor and Employment. 7

While admitting IRRI's defense of immunity, the Labor Arbiter, nonetheless, cited an Order issued by the Institute on August 13, 1991 to the effect that "in all cases of termination, respondent IRRI waives its immunity," 8 and, accordingly, considered the defense of immunity no longer a legal obstacle in resolving the case. The dispositive portion of the Labor arbiter's decision dated October 31, 1991, reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering respondent to reinstate complainant to his former position without loss or (sic) seniority rights and privileges within five (5) days from receipt hereof and to pay his full backwages from March 7, 1990 to October 31, 1991, in the total amount of P83,048.75 computed on the basis of his last monthly salary. 9

The NLRC found merit in private respondent' s appeal and, finding that IRRI did not waive its immunity, ordered the aforesaid decision of the Labor Arbiter set aside and the complaint dismissed. 10

Hence, this petition where it is contended that the immunity of the IRRI as an international organization granted by Article 3 of Presidential Decree No. 1620 may not be invoked in the case at bench inasmuch as it waived the same by virtue of its Memorandum on "Guidelines on the handling of dismissed employees in relation to P.D. 1620." 11

It is also petitioner's position that a dismissal of his complaint before the Labor Arbiter leaves him no other remedy through which he can seek redress. He further states that since the investigation of his case was not referred to the Council of IRRI Employees and Management (CIEM), he was denied his constitutional right to due process.

We find no merit in petitioner's arguments.

IRRI's immunity from suit is undisputed.

Presidential Decree No. 1620, Article 3 provides:

Art. 3. Immunity from Legal Process. The Institute shall enjoy immunity from any penal, civil and administrative proceedings, except insofar as that immunity has been expressly waived by the Director-General of the Institute or his authorized representatives.

In the case of International Catholic Migration Commission v. Hon. Calleja, et al. and Kapisanan ng Manggagawa at TAC sa IRRI v. Secretary of Labor and Employment and IRRI, 12 the Court upheld the constitutionality of the aforequoted law. After the Court noted the letter of the Acting Secretary of Foreign Affairs to the Secretary of Labor dated June 17, 1987, where the immunity of IRRI from the jurisdiction of the Department of Labor and Employment was sustained, the Court stated that this opinion constituted "a categorical recognition by the Executive Branch of the Government that . . . IRRI enjoy(s) immunities accorded to international organizations, which determination has been held to be a political question conclusive upon the Courts in order not to embarass a political department of Government. 13 We cited the Court's earlier pronouncement in WHO v. Hon. Benjamin Aquino, et al., 14 to wit:

It is a recognized principle of international law and under our system of separation of powers that diplomatic immunity is essentially a political question and courts should refuse to look beyond a determination by the executive branch of the government, and where the plea of diplomatic immunity is recognized and affirmed by the executive branch of the government as in the case at bar, it is then the duty of the courts

to accept the claim of immunity upon appropriate suggestion by the principal law officer of the government . . . or other officer acting under his direction. Hence, in adherence to the settled principle that courts may not so exercise their jurisdiction . . . as to embarass the executive arm of the government in conducting foreign relations, it is accepted doctrine that in such cases the judicial department of (this) government follows the action of the political branch and will not embarrass the latter by assuming an antagonistic jurisdiction. 15

Further, we held that "(t)he raison d'etre for these immunities is the assurance of unimpeded performance of their functions by the agencies concerned.

The grant of immunity from local jurisdiction to . . . and IRRI is clearly necessitated by their international character and respective purposes. The objective is to avoid the danger of partiality and interference by the host country in their internal workings. The exercise of jurisdiction by the Department of Labor in these instances would defeat the very purpose of immunity, which is to shield the affairs of international organizations, in accordance with international practice, from political pressure or control by the host country to the prejudice of member States of the organization, and to ensure the unhampered the performance of their functions. 16

The grant of immunity to IRRI is clear and unequivocal and an express waiver by its Director-General is the only way by which it may relinquish or abandon this immunity.

On the matter of waiving its immunity from suit, IRRI had, early on, made its position clear. Through counsel, the Institute wrote the Labor Arbiter categorically informing him that the Institute will not waive its diplomatic immunity. In the second place, petitioner's reliance on the Memorandum with "Guidelines in handling cases of dismissal of employees in relation to P.D. 1620" dated July 26, 1983, is misplaced. The Memorandum reads, in part:

Time and again the Institute has reiterated that it will not use its immunity under P.D. 1620 for the purpose of terminating the services of any of its employees. Despite continuing efforts on the part of IRRI to live up to this undertaking, there appears to be apprehension in the minds of some IRRI employees. To help allay these fears the following guidelines will be followed hereafter by the Personnel/Legal Office while handling cases of dismissed employees.

xxx xxx xxx

2. Notification/manifestation to MOLE or labor arbiter

If and when a dismissed employee files a complaint against the Institute contesting the legality of dismissal, IRRI's answer to the complaint will:

1. Indicate in the identification of IRRI that it is an international organization operating under the laws of the Philippines including P.D. 1620. and

2. Base the defense on the merits and facts of the case as well as the legality of the cause or causes for termination.

3) Waiving immunity under P.D. 1620

If the plaintiff's attorney or the arbiter, asks if IRRI will waive its immunity we may reply that the Institute will be happy to do so, as it has in the past in the formal manner required thereby reaffirming our commitment to abide by the laws of the Philippines and our full faith in the integrity and impartially of the legal system. 17 (Emphasis in this paragraphs ours)

From the last paragraph of the foregoing quotation, it is clear that in cases involving dismissed employees, the Institute may waive its immunity, signifying that such waiver is discretionary on its part.

We agree with private respondent IRRI that this memorandum cannot, by any stretch of the imagination, be considered the express waiver by the Director-General. Respondent Commission has quoted IRRI's reply thus:

The 1983 . . . is an internal memo addressed to Personnel and Legal Office and was issued for its guidance in handling those cases where IRRI opts to waive its immunity. It is not a declaration of waiver for all cases. This is apparent from the use of the permissive term "may" rather than the mandatory term "shall" in the last paragraph of the memo. Certainly the memo cannot be considered as the express waiver by the Director General as contemplated by P.D. 1620, especially since the memo was issued by a former Director-General. At the very least, the express declaration of the incumbent Director-general supersedes the 1983 memo and should be accorded greater respect. It would be equally important to point out that the Personnel and Legal Office has been non-existent since 1988 as a result of major reorganization of the IRRI. Cases of IRRI before DOLE are handled by an external Legal Counsel as in this particularcase. 18 (Emphasis supplied)

The memorandum, issued by the former Director-General to a now-defunct division of the IRRI, was meant for internal circulation and not as a pledge of waiver in all cases arising from dismissal of employees. Moreover, the IRRI's letter to the Labor Arbiter in the case at bench made in 1991 declaring that it has no intention of

waiving its immunity, at the very least, supplants any pronouncement of alleged waiver issued in previous cases.

Petitioner's allegation that he was denied due process is unfounded and has no basis.

It is not denied that he was informed of the findings and charges resulting from an investigation conducted of his case in accordance with IRRI policies and procedures. He had a chance to comment thereon in a Memorandum he submitted to the Manager of the Human Resource and Development Department. Therefore, he was given proper notice and adequate opportunity to refute the charges and findings, hereby fulfilling the basic requirements of due process.

Finally, on the issue of referral to the Council of IRRI Employees and Management (CIEM), petitioner similarly fails to persuade the Court.

The Court, in the Kapisanan ng mga Manggagawa at TAC sa IRRI case, 19 held:

Neither are the employees of IRRI without remedy in case of dispute with management as, in fact, there had been organized a forum for better management-employee relationship as evidenced by the formation of the Council of IRRI Employees and Management (CIEM) wherein "both management and employees were and still are represented for purposes of maintaining mutual and beneficial cooperation between IRRI and its employees." The existence of this Union factually and tellingly belies the argument that Pres. Decree No. Decree No. 1620, which grants to IRRI the status, privileges and immunities of an international organization, deprives its employees of the right to self-organization.

We have earlier concluded that petitioner was not denied due process, and this, notwithstanding the non-referral to the Council of IRRI Employees and Management. Private respondent correctly pointed out that petitioner, having opted not to seek the help of the CIEM Grievance Committee, prepared his answer by his own self. 20 He cannot now fault the Institute for not referring his case to the CIEM.

IN VIEW OF THE FOREGOING, the petition for certiorari is DISMISSED. No costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 70853 March 12, 1987

REPUBLIC OF THE PHILIPPINES, petitioner-appellee, vs.PABLO FELICIANO and INTERMEDIATE APPELLATE COURT, respondents-appellants.

YAP, J.:

Petitioner seeks the review of the decision of the Intermediate Appellate Court dated April 30, 1985 reversing the order of the Court of First Instance of Camarines Sur, Branch VI, dated August 21, 1980, which dismissed the complaint of respondent Pablo Feliciano for recovery of ownership and possession of a parcel of land on the ground of non-suability of the State.

The background of the present controversy may be briefly summarized as follows:

On January 22, 1970, respondent Feliciano filed a complaint with the then Court of First Instance of Camarines Sur against the Republic of the Philippines, represented by the Land Authority, for the recovery of ownership and possession of a parcel of land, consisting of four (4) lots with an aggregate area of 1,364.4177 hectares, situated in the Barrio of Salvacion, Municipality of Tinambac, Camarines Sur. Plaintiff alleged that he bought the property in question from Victor Gardiola by virtue of a Contract of Sale dated May 31, 1952, followed by a Deed of Absolute Sale on October 30, 1954; that Gardiola had acquired the property by purchase from the heirs of Francisco Abrazado whose title to the said property was evidenced by an informacion posesoria that upon plaintiff's purchase of the property, he took actual possession of the same, introduced various improvements therein and caused it to be surveyed in July 1952, which survey was approved by the Director of Lands on October 24, 1954; that on November 1, 1954, President Ramon Magsaysay issued Proclamation No. 90 reserving for settlement purposes, under the administration of the National Resettlement and Rehabilitation Administration (NARRA), a tract of land situated in the Municipalities of Tinambac and Siruma, Camarines Sur, after which the NARRA and its successor agency, the Land Authority, started sub-dividing and distributing the land to the settlers; that the property in question, while located within the reservation established under Proclamation No. 90, was the private property of plaintiff and should therefore be excluded therefrom. Plaintiff prayed that he be declared the rightful and true owner of the property in question consisting of 1,364.4177 hectares; that his title of ownership based oninformacion posesoria of his

predecessor-in-interest be declared legal valid and subsisting and that defendant be ordered to cancel and nullify all awards to the settlers.

The defendant, represented by the Land Authority, filed an answer, raising by way of affirmative defenses lack of sufficient cause of action and prescription.

On August 29, 1970, the trial court, through Judge Rafael S. Sison, rendered a decision declaring Lot No. 1, with an area of 701.9064 hectares, to be the private property of the plaintiff, "being covered by a possessory information title in the name of his predecessor-in-interest" and declaring said lot excluded from the NARRA settlement reservation. The court declared the rest of the property claimed by plaintiff, i.e. Lots 2, 3 and 4, reverted to the public domain.

A motion to intervene and to set aside the decision of August 29, 1970 was filed by eighty-six (86) settlers, together with the barrio council of Pag-asay, alleging among other things that intervenors had been in possession of the land in question for more than twenty (20) years under claim of ownership.

On January 25, 1971, the court a quo reconsidered its decision, reopened the case and directed the intervenors to file their corresponding pleadings and present their evidence; all evidence already presented were to remain but plaintiff, as well as the Republic of the Philippines, could present additional evidence if they so desire. The plaintiff presented additional evidence on July 30, 1971, and the case was set for hearing for the reception of intervenors' evidence on August 30 and August 31, 1971.

On August 30, 1971, the date set for the presentation of the evidence for intervenors, the latter did not appear but submitted a motion for postponement and resetting of the hearing on the next day, August 31, 1971. The trial court denied the motion for postponement and allowed plaintiff to offer his evidence "en ausencia," after which the case would be deemed submitted for decision. On the following day, August 31, 1971, Judge Sison rendered a decision reiterating his decision of August 29, 1970.

A motion for reconsideration was immediately filed by the intervenors. But before this motion was acted upon, plaintiff filed a motion for execution, dated November 18, 1971. On December 10, 1971, the lower court, this time through Judge Miguel Navarro, issued an order denying the motion for execution and setting aside the order denying intervenors' motion for postponement. The case was reopened to allow intervenors to present their evidence. Unable to secure a reconsideration of Judge Navarro's order, the plaintiff went to the Intermediate Appellate Court on a petition for certiorari. Said petition was, however, denied by the Intermediate Appellate Court, and petitioners brought the matter to this Court in G.R. No. 36163, which was denied on May 3, 1973 Consequently, the case was remanded to the court a quo for further proceedings.

On August 31, 1970, intervenors filed a motion to dismiss, principally on the ground that the Republic of the Philippines cannot be sued without its consent and hence the action cannot prosper. The motion was opposed by the plaintiff.

On August 21, 1980, the trial court, through Judge Esteban Lising, issued the questioned order dismissing the case for lack of jurisdiction. Respondent moved for reconsideration, while the Solicitor General, on behalf of the Republic of the Philippines filed its opposition thereto, maintaining that the dismissal was proper on the ground of non-suability of the State and also on the ground that the existence and/or authenticity of the purported possessory information title of the respondents' predecessor-in-interest had not been demonstrated and that at any rate, the same is not evidence of title, or if it is, its efficacy has been lost by prescription and laches.

Upon denial of the motion for reconsideration, plaintiff again went to the Intermediate Appellate Court on petition for certiorari. On April 30, 1985, the respondent appellate court rendered its decision reversing the order of Judge Lising and remanding the case to the court a quo for further proceedings. Hence this petition.

We find the petition meritorious. The doctrine of non-suability of the State has proper application in this case. The plaintiff has impleaded the Republic of the Philippines as defendant in an action for recovery of ownership and possession of a parcel of land, bringing the State to court just like any private person who is claimed to be usurping a piece of property. A suit for the recovery of property is not an action in rem, but an action in personam.1 It is an action directed against a specific party or parties, and any judgment therein binds only such party or parties. The complaint filed by plaintiff, the private respondent herein, is directed against the Republic of the Philippines, represented by the Land Authority, a governmental agency created by Republic Act No. 3844.

By its caption and its allegation and prayer, the complaint is clearly a suit against the State, which under settled jurisprudence is not permitted, except upon a showing that the State has consented to be sued, either expressly or by implication through the use of statutory language too plain to be misinterpreted. 2 There is no such showing in the instant case. Worse, the complaint itself fails to allege the existence of such consent. This is a fatal defect, 3and on this basis alone, the complaint should have been dismissed.

The failure of the petitioner to assert the defense of immunity from suit when the case was tried before the court a quo, as alleged by private respondent, is not fatal. It is now settled that such defense "may be invoked by the courts sua sponte at any stage of the proceedings." 4

Private respondent contends that the consent of petitioner may be read from the Proclamation itself, when it established the reservation " subject to private rights, if any there be. " We do not agree. No such consent can be drawn from the language of the Proclamation. The exclusion of existing private rights from the reservation established by Proclamation No. 90 can not be construed as a waiver of the immunity of the State from suit. Waiver of immunity, being a derogation of sovereignty, will not be inferred lightly. but must be construed instrictissimi juris. 5 Moreover, the Proclamation is not a legislative act. The consent of the State to be sued must emanate from statutory authority. Waiver of State immunity can only be made by an act of the legislative body.

Neither is there merit in respondent's submission, which the respondent appellate court sustained, on the basis of our decision in the Begosa case, 6 that the present action is not a suit against the State within the rule of State immunity from suit, because plaintiff does not seek to divest the Government of any of its lands or its funds. It is contended that the complaint involves land not owned by the State, but private land belonging to the plaintiff, hence the Government is not being divested of any of its properties. There is some sophistry involved in this argument, since the character of the land sought to be recovered still remains to be established, and the plaintiff's action is directed against the State precisely to compel the latter to litigate the ownership and possession of the property. In other words, the plaintiff is out to establish that he is the owner of the land in question based, incidentally, on an informacion posesoria of dubious value, and he seeks to establish his claim of ownership by suing the Republic of the Philippines in an action in personam.

The inscription in the property registry of an informacion posesoria under the Spanish Mortgage Law was a means provided by the law then in force in the Philippines prior to the transfer of sovereignty from Spain to the United States of America, to record a claimant's actual possession of a piece of land, established through an ex parteproceeding conducted in accordance with prescribed rules. 7 Such inscription merely furnishes, at best, prima facie evidence of the fact that at the time the proceeding was held, the claimant was in possession of the land under a claim of right as set forth in his application. 8 The possessory information could ripen into a record of ownership after the lapse of 20 years (later reduced to 10 years), upon the fulfillment of the requisites prescribed in Article 393 of the Spanish Mortgage Law.

There is no showing in the case at bar that the informacion posesoria held by the respondent had been converted into a record of ownership. Such possessory information, therefore, remained at best mere prima facie evidence of possession. Using this possessory information, the respondent could have applied for judicial confirmation of imperfect title under the Public Land Act, which is an action in rem. However, having failed to do so, it is rather late for him to pursue this avenue at this time. Respondent must also contend, as the records disclose, with the fact admitted by him and stated in the decision of the Court a quo that settlers have been occupying and cultivating the land in question since even before the outbreak of the war, which puts in grave doubt his own claim of possession.

Worthy of note is the fact, as pointed out by the Solicitor General, that the informacion posesoria registered in the Office of the Register of Deed of Camarines Sur on September 23, 1952 was a "reconstituted" possessory information; it was "reconstituted from the duplicate presented to this office (Register of Deeds) by Dr. Pablo Feliciano," without the submission of proof that the alleged duplicate was authentic or that the original thereof was lost. Reconstitution can be validly made only in case of loss of the original. 10 These circumstances raise grave doubts as to the authenticity and validity of the "informacion posesoria" relied upon by respondent Feliciano. Adding to the dubiousness of said document is the fact that "possessory information calls for an area of only 100 hectares," 11 whereas the land claimed by respondent Feliciano comprises 1,364.4177 hectares, later reduced to 701-9064 hectares. Courts should be wary in accepting "possessory information documents, as well as other purportedly old Spanish titles, as proof of alleged ownership of lands.

WHEREFORE, judgment is hereby rendered reversing and setting aside the appealed decision of the Intermediate Appellate Court, dated April 30, 1985, and affirming the order of the court a quo, dated August 21, 1980, dismissing the complaint filed by respondent Pablo Feliciano against the Republic of the Philippines. No costs.

SO ORDERED.