WHO MAY QUESTION THE VALIDITY OF A TAX MEASURE OR EXPENDITURE OF TAXES

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-59068 January 27, 1983

JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT, petitioners,

vs.
THE COMMISSION ON ELECTIONS, respondent.

DE CASTRO, J.:

This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a representative
suit for and in behalf of those who wish to participate in the election irrespective of party affiliation, to compel
the respondent COMELEC to call a special election to fill up existing vacancies numbering twelve (12) in the
Interim Batasan Pambansa. The petition is based on Section 5(2), Article VIII of the 1973 Constitution which
reads:

(2) In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the
Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs
to elect the Member to serve the unexpired term.

Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of
Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner
Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special
election as mandated by the 1973 Constitution. As reason for their petition, petitioners allege that they are "...
deeply concerned about their duties as citizens and desirous to uphold the constitutional mandate and rule of
law ...; that they have filed the instant petition on their own and in behalf of all other Filipinos since the subject
matters are of profound and general interest. "

The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially, that 1)
petitioners lack standing to file the instant petition for they are not the proper parties to institute the action; 2)
this Court has no jurisdiction to entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution
does not apply to the Interim Batasan Pambansa.

The petition must be dismiss.

As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is
being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is
allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no
expenditure of public funds. It is only when an act complained of, which may include a legislative enactment or
statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. 1 What
the case at bar seeks is one that entails expenditure of public funds which may be illegal because it would be
spent for a purpose that of calling a special election which, as will be shown, has no authority either in the
Constitution or a statute.

As voters, neither have petitioners the requisite interest or personality to qualify them to maintain and prosecute
the present petition. 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. 2 In the case before Us, the alleged inaction of the COMELEC to call a special election to fill-
up the existing vacancies in the Batasan Pambansa, standing alone, would adversely affect only the generalized
interest of all citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged
here, which is held in common by all members of the public because of the necessarily abstract nature of the
injury supposedly shared by all citizens. Concrete injury, whether actual or threatened, is that indispensable
element of a dispute which serves in part to cast it in a form traditionally capable of judicial resolution. 3 When
the asserted harm is a "generalized grievance" shared in substantially equal measure by all or a large class of
citizens, that harm alone normally does not warrant exercise of jurisdiction. 4 As adverted to earlier, petitioners
have not demonstrated any permissible personal stake, for petitioner Lozada's interest as an alleged candidate
and as a voter is not sufficient to confer standing. Petitioner Lozada does not only fail to inform the Court of the
region he wants to be a candidate but makes indiscriminate demand that special election be called throughout
the country. Even his plea as a voter is predicated on an interest held in common by all members of the public
and does not demonstrate any injury specially directed to him in particular.

II

The Supreme Court's jurisdiction over the COMELEC is only to review by certiorari the latter's decision, orders
or rulings. This is as clearly provided in Article XI IC Section 11 of the New Constitution which reads:

Any decision, order, or ruling of the Commission may be brought to the Supreme Court on certiorari by the
aggrieved party within thirty days from his receipt of a copy thereof.

There is in this case no decision, order or ruling of the COMELEC which is sought to be reviewed by this Court
under its certiorari jurisdiction as provided for in the aforequoted provision which is the only known provision
conferring jurisdiction or authority on the Supreme Court over the COMELEC. It is not alleged that the
COMELEC was asked by petitioners to perform its alleged duty under the Constitution to call a special
election, and that COMELEC has issued an order or resolution denying such petition.

Even from the standpoint of an action for mandamus, with the total absence of a showing that COMELEC has
unlawfully neglected the performance of a ministerial duty, or has refused on being demanded, to discharge
such a duty; and as demonstrated above, it is not shown, nor can it ever be shown, that petitioners have a clear
right to the holding of a special election. which is equally the clear and ministerial duty of COMELEC to
respect, mandamus will not lie. 5 The writ will not issue in doubtful cases. 6

It is obvious that the holding of special elections in several regional districts where vacancies exist, would
entail huge expenditure of money. Only the Batasan Pambansa can make the necessary appropriation for the
purpose, and this power of the Batasan Pambansa may neither be subject to mandamus by the courts much less
may COMELEC compel the Batasan to exercise its power of appropriation. From the role Batasan Pambansa
has to play in the holding of special elections, which is to appropriate the funds for the expenses thereof, it
would seem that the initiative on the matter must come from said body, not the COMELEC, even when the
vacancies would occur in the regular not interim Batasan Pambansa. The power to appropriate is the sole and
exclusive prerogative of the legislative body, the exercise of which may not be compelled through a petition for
mandamus. What is more, the provision of Section 5(2), Article VIII of the Constitution was intended to apply
to vacancies in the regular National Assembly, now Batasan Pambansa, not to the Interim Batasan Pambansa, as
will presently be shown.
III

Perhaps the strongest reason why the aforecited provision of the Constitution is not intended to apply to the
Interim National Assembly as originally envisioned by the 1973 Constitution is the fact that as passed by the
Constitutional Convention, the Interim National Assembly was to be composed by the delegates to the
Constitutional Convention, as well as the then incumbent President and Vice-President, and the members of the
Senate and House of Representatives of Congress under the 1935 Constitution. With such number of
representatives representing each congressional district, or a province, not to mention the Senators, there was
felt absolutely no need for filing vacancies occurring in the Interim National Assembly, considering the
uncertainty of the duration of its existence. What was in the mind of the Constitutional Convention in providing
for special elections to fill up vacancies is the regular National Assembly, because a province or representative
district would have only one representative in the said National Assembly.

Even as presently constituted where the representation in the Interim Batasan Pambansa is regional and
sectoral, the need to fill up vacancies in the Body is neither imperative nor urgent. No district or province
would ever be left without representation at all, as to necessitate the filling up of vacancies in the Interim
Batasan Pambansa. There would always be adequate representation for every province which only forms part of
a certain region, specially considering that the Body is only transitory in character.

The unmistakable intent of the Constitutional Convention as adverted to is even more positively revealed by the
fact that the provision of Section 5(2) of Article VIII of the New Constitution is in the main body of the said
Constitution, not in the transitory provisions in which all matters relating to the Interim Batasan Pambansa are
found. No provision outside of Article VIII on the "Transitory Provisions" has reference or relevance to the
Interim Batasan Pambansa.

Also under the original provision of the Constitution (Section 1, Article XVII-Transitory Provisions), the
Interim National Assembly had only one single occasion on which to call for an election, and that is for the
election of members of the regular National Assembly.1wph1.t The Constitution could not have at that time
contemplated to fill up vacancies in the Interim National Assembly the composition of which, as already
demonstrated, would not raise any imperious necessity of having to call special elections for that purpose,
because the duration of its existence was neither known or pre-determined. It could be for a period so brief that
the time prescriptions mentioned in Section 5(2), Article VIII of the Constitution cannot be applicable.

The foregoing observations make it indubitably clear that the aforementioned provision for calling special
elections to fill up vacancies apply only to the regular Batasan Pambansa. This is evident from the language
thereof which speaks of a vacancy in the Batasan Pambansa, " which means the regular Batasan Pambansa as
the same words "Batasan Pambansa" found in all the many other sections of Article VIII, undoubtedly refer to
theregular Batasan, not the interim one. A word or phrase used in one part of a Constitution is to receive the
same interpretation when used in every other part, unless it clearly appears, from the context or otherwise, that
a different meaning should be applied. 7

WHEREFORE, the petition is hereby dismissed.

SO ORDERED.

Aquino, Concepcion Jr., Guerrero, Plana, Escolin Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Fernando, CJ., Makasiar, and Melencio-Herrera, JJ., concurs in the result.

Teehankee, J., took no part.

Abad Santos, J., I reserve my vote.

WHO MAY QUESTION THE VALIDITY OF A TAX MEASURE OR EXPENDITURE OF TAXES

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-31685 July 31, 1975

RAMON A. GONZALES, petitioner,

vs.
IMELDA R. MARCOS, as Chairman of the Cultural Center of the Philippines, Father HORACIO DE
LA COSTA, I. P. SOLIONGCO, ERNESTO RUFINO, ANTONIO MADRIGAL, and ANDRES
SORIANO, as Members thereof,respondents.

Ramon A. Gonzales in his own behalf.

Acting Solicitor General Hugo E. Gutierrez; Jr. and Assistant Solicitor General Reynato S. Puno for
respondent Imelda R. Marcos.

Siguion Reyna, Montecillo, Beto and Ongsiako for respondents.

FERNANDO, J.:
It was the novelty of the constitutional question raised, there being an imputation by petitioner Ramon A.
Gonzales of an impermissible encroachment by the President of the Philippines on the legislative prerogative,
that led this Tribunal to give due course to an appeal by certiorari from an order of dismissal by the Court of
First Instance of Manila. 1 More specifically, the issue centered on the validity of the creation in Executive
Order No. 30 of a trust for the benefit of the Filipino people under the name and style of the Cultural Center of
the Philippines entrusted with the task to construct a national theatre, a national music hall, an arts building and
facilities, to awaken our people's consciousness in the nation's cultural heritage and to encourage its assistance
in the preservation, promotion, enhancement and development thereof, with the Board of Trustees to be
appointed by the President, the Center having as its estate the real and personal property vested in it as well as
donations received, financial commitments that could thereafter be collected, and gifts that may be forthcoming
in the future. 2 It was likewise alleged that the Board of Trustees did accept donations from the private sector
and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the National
Investment & Development Corporation as well as $3.5 million received from President Johnson of the United
States in the concept of war damage funds, all intended for the construction of the Cultural Center building
estimated to cost P48 million. The Board of Trustees has as its Chairman the First Lady, Imelda Romualdez
Marcos, who is named as the principal respondent. 3 In an order of dismissal by the then Judge, now Justice of
the Court of Appeals, Jose G. Bautista of a suit for prohibition filed in the Court of First Instance of Manila,
stress was laid on the funds administered by the Center as coming from donations and contributions, with not a
single centavo raised by taxation, and the absence of any pecuniary or monetary interest of petitioner that could
in any wise be prejudiced distinct from those of the general public. Moreover, reference was made to the
admission by petitioner of the desirability of the objective of Executive Order No. 30, his objection arising
from the alleged illegality of its issuance. 4

There was a motion of respondents to file a motion to dismiss this appeal by certiorari, and it was granted in a
resolution of March 5, 1970. Such a pleading was submitted to this Court twelve days later, where it was
contended that Executive Order No. 30 represented the legitimate exercise of executive power, there being no
invasion of the legislative domain and that it was supplementary to rather than a disregard of Republic Act No.
4165 creating the National Commission on Culture. In this exhaustive motion to dismiss, the point was likewise
raised that petitioner did not have the requisite personality to contest as a taxpayer the validity of the executive
order in question, as the funds held by the Cultural Center came from donations and contributions, not one
centavo being raised by taxation.5 Thereafter, a manifestation was filed by the then Solicitor General, now
Associate Justice, Felix Q. Antonio, adopting "the Motion to Dismiss the Petition dated February 25, 1970,
filed by respondents with this Honorable Court." 6 There was an opposition to such motion to dismiss on the
part of petitioner. 7 That was the status of the case, there being no further pleadings filed except two motions for
extension of time to file answer submitted by the Solicitor General and granted by this Court, when on July 22,
1975, there was a second motion to dismiss on the part of respondents through the Acting Solicitor General
Hugo E. Gutierrez Jr. and Assistant Solicitor General Reynato S. Puno. It is therein set forth: "(1) As stated in
the petition itself its undeniable quintessence is [the allegation of] "an executive usurpation of legislative
powers, hence, respondents in enforcing the same, are acting without jurisdiction, hence, are restrainable by
prohibition." ... (2) On October 5, 1972, Presidential Decree No. 15 ... was promulgated creating the Cultural
Center of the Philippines, defining its objectives, powers and functions and other purposes. Section 4, thereof
was amended by Presidential Decree No. 179 ... enacted on April 26, 1973. It is submitted that it is now moot
and academic to discuss the constitutionality of Executive Order No. 30 considering the promulgation of PD
Nos. 15 and 179, done by the President in the exercise of legislative powers under martial law. Executive Order
No. 30 has ceased to exist while PD Nos. 15 and 179 meet all the constitutional arguments raised in the petition
at bar." 8

It would thus appear that the petition cannot succeed. There is no justification for setting aside the order of
dismissal. Notwithstanding the exhaustive and scholarly pleadings submitted by petitioner on his own behalf,
the burden of persuasion to warrant a reversal of the action of the lower court was not met. Both on procedural
and substantive grounds, a case for prohibition was not made out, notwithstanding the valiant efforts of
petitioner. With this latest manifestation, that Executive Order No. 30 had been superseded by Presidential
Decree Nos. 15 and 179, the moot and academic character of this appeal by certiorari became rather obvious.
To repeat, the petition must fail.

1. It may not be amiss though to consider briefly both the procedural and substantive grounds that led to the
lower court's order of dismissal. It was therein pointed out as "one more valid reason" why such an outcome
was unavoidable that "the funds administered by the President of the Philippines came from donations [and]
contributions [not] by taxation." Accordingly, there was that absence of the "requisite pecuniary or monetary
interest." 9 The stand of the lower court finds support in judicial precedents. 10 This is not to retreat from the
liberal approach followed inPascual v. Secretary of Public Works, 11 foreshadowed by People v. Vera, 12 where
the doctrine of standing was first fully discussed. It is only to make clear that petitioner, judged by orthodox
legal learning, has not satisfied the elemental requisite for a taxpayer's suit. Moreover, even on the assumption
that public funds raised by taxation were involved, it does not necessarily follow that such kind of an action to
assail the validity of a legislative or executive act has to be passed upon. This Court, as held in the recent case
of Tan v. Macapagal, 13 "is not devoid of discretion as to whether or not it should be entertained." 14 The lower
court thus did not err in so viewing the situation.

2. Nor was the lower court any more impressed by the contention that there was an encroachment on the
legislative prerogative discernible in the issuance of Executive Order No. 30. It first took note of the exchange
of diplomatic notes between the Republic of the Philippines and the United States as to the use of a special fund
coming from the latter for a Philippine cultural development project. Then, as set forth in the order of dismissal,
it explained why no constitutional objection could be validly interposed. Thus: "When the President, therefore,
acted by disposing of a matter of general concern (Section 63, Rev. Adm. Code) in accord with the
constitutional injunction to promote arts and letters (Section 4, Article XIV, Constitution of the Philippines) and
issued Executive Order No. 30, he simply carried out the purpose of the trust in establishing the Cultural Center
of the Philippines as the instrumentality through which this agreement between the two governments would be
realized. Needless to state, the President alone cannot and need not personally handle the duties of a trustee for
and in behalf of the Filipino people in relation with this trust. He can do this by means of an executive order by
creating as he did, a group of persons, who would receive and administer the trust estate, responsible to the
President. As head of the State, as chief executive, as spokesman in domestic and foreign affairs, in behalf of
the estate as parens patriae, it cannot be successfully questioned that the President has authority to implement
for the benefit of the Filipino people by creating the Cultural Center consisting of private citizens to administer
the private contributions and donations given not only by the United States government but also by private
persons." 15

There is impressive juridical support for the stand taken by the lower court. Justice Malcolm in Government of
the Philippine Islands v. Springer 16 took pains to emphasize: "Just as surely as the duty of caring for
governmental property is neither judicial nor legislative in character is it as surely executive." 17 It Would be an
unduly narrow or restrictive view of such a principle if the public funds that accrued by way of donation from
the United States and financial contributions for the Cultural Center project could not be legally considered as
"governmental property." They may be acquired under the concept of dominium, the state as a persona in law
not being deprived of such an attribute, thereafter to be administered by virtue of its prerogative
of imperium. 18 What is a more appropriate agency for assuring that they be not wasted or frittered away than
the Executive, the department precisely entrusted with management functions? It would thus appear that for the
President to refrain from taking positive steps and await the action of the then Congress could be tantamount to
dereliction of duty. He had to act; time was of the essence. Delay was far from conducive to public interest. It
was as simple as that. Certainly then, it could be only under the most strained construction of executive power
to conclude that in taking the step he took, he transgressed on terrain constitutionally reserved for Congress.

This is not to preclude legislative action in the premises. While to the Presidency under the 1935 Constitution
was entrusted the responsibility for administering public property, the then Congress could provide guidelines
for such a task. Relevant in this connection is the excerpt from an opinion of Justice Jackson in Youngstown
Sheet & Tube Co. v. Sawyer: 19 "When the President acts in absence of either a congressional grant or denial of
authority, he can only rely upon his own independent powers, but there is a zone of twilight in which he and
Congress may have concurrent authority, or in which its distribution is uncertain. Therefore, congressional
inertia, indifference or quiescence may sometimes, at least as a practical matter, enable, if not invite, measures
on independent presidential responsibility. In this area, any actual test of power is likely to depend on the
imperative of events and contemporary imponderables rather than on abstract theories of law." 20 To vary the
phraseology, to recall Thomas Reed Powell, if Congress would continue to keep its peace notwithstanding the
action taken by the executive department, it may be considered as silently vocal. In plainer language, it could
be an instance of silence meaning consent. The Executive Order assailed was issued on June 25, 1966.
Congress until the time of the filing of the petition on August 26, 1969 remained quiescent. Parenthetically, it
may be observed that petitioner waited until almost the day of inaugurating the Cultural Center on September
11, 1969 before filing his petition in the lower court. However worthy of commendation was his resolute
determination to keep the Presidency within the bounds of its competence, it cannot be denied that the remedy,
if any, could be supplied by Congress asserting itself in the premises. Instead, there was apparent conformity on
its part to the way the President saw fit to administer such governmental property.

3. The futility of this appeal by certiorari becomes even more apparent with the issuance of Presidential Decree
No. 15 on October 5, 1972. As contended by the Solicitor General, the matter, as of that date, became moot and
academic. Executive Order No. 30 was thus superseded. The institution known as the Cultural Center is other
than that assailed in this suit. In that sense a coup de grace was administered to this proceeding. The labored
attempt of petitioner could thus be set at rest. This particular litigation is at an end. There is, too, relevance in
the observation that the aforesaid decree is part of the law of the land. So the Constitution provides. 21

4. It only remains to be added that respondents as trustees lived up fully to the weighty responsibility entrusted
to them. The task imposed on them was performed with competence, fidelity, and dedication. That was to be
expected. From the inception of the Marcos Administration, the First Lady has given unsparingly of herself in
the encouragement and support of literary, musical, and artistic endeavors and in the appreciation of our rich
and diverse cultural heritage. The rest of the then Board of Trustees, named as the other respondents, were
equally deserving of their being chosen for this worthy project. One of them, the late I.P Soliongco, was in his
lifetime one of the most gifted men of letters. Father Horacio de la Costa is a historian and scholar of
international repute. Respondents Ernesto Rufino, Antonio Madrigal and Andres Soriano, all men of substance,
have contributed in time and money to civic efforts. It is not surprising then that the Cultural Center became a
reality, the massive and imposing structure constructed at a shorter period and at a lower cost than at first
thought possible. What is of even greater significance, with a portion thereof being accessible at modest
admission prices, musical and artistic performances of all kinds are within reach of the lower-income groups.
Only thus may meaning be imparted to the Constitutional provision that arts and letters shall be under State
patronage. 22 For equally important as the encouragement and support for talented Filipinos with a creative
spark is the diffusion of the opportunity for the rest of their countrymen to savour the finer things in life. Who
knows, if state efforts along these lines are diligently pursued, that what was said by Justice Holmes about
France could apply to the Philippines. Thus: "We have not that respect for art that is one of the glories of
France." 23 In justice to petitioner Gonzales, it may be noted that he did not question the wisdom or soundness
of the goal of having a Cultural Center or the disbursement of the funds by respondents. It is the absence of
statutory authority that bothered him. The lower court did not see things in the same light. It is easily
understandable why, as the preceding discussion has made clear, it cannot be said that such a conclusion
suffered from legal infirmity. What is more, with the issuance of Presidential Decree No. 15, the suit, to repeat,
has assumed a moot and academic character.

WHEREFORE, this appeal by certiorari to review the lower court's order of dismissal dated December 4, 1969
is dismissed.

No costs.

Makalintal, C.J., Barredo, Esguerra, Muoz Palma, Aquino, Concepcion Jr. and Martin JJ., concur.
Castro and Makasiar, JJ., took no part.

WHO MAY QUESTION THE VALIDITY OF A TAX MEASURE OR EXPENDITURE OF TAXES

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 130716 December 9, 1998

FRANCISCO I. CHAVEZ, petitioner,

vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL
GUNIGUNDO (in his capacity as chairman of the PCGG), respondents, GLORIA A. JOPSON,
CELNAN A. JOPSON, SCARLET A. JOPSON, and TERESA A. JOPSON, petitioners-in-intervention.

PANGANIBAN, J.:

Petitioner asks this Court to define the nature and the extent of the people's constitutional right to information
on matters of public concern. Does this right include access to the terms of government negotiations prior to
their consummation or conclusion? May the government, through the Presidential Commission on Good
Government (PCGG), be required to reveal the proposed terms of a compromise agreement with the Marcos
heirs as regards their alleged ill-gotten wealth? More specifically, are the "General Agreement" and
"Supplemental Agreement," both dated December 28, 1993 and executed between the PCGG and the Marcos
heirs, valid and binding?

The Case

These are the main questions raised in this original action seeking (1) to prohibit and "[e]njoin respondents
[PCGG and its chairman] from privately entering into, perfecting and/or executing any greement with the heirs
of the late President Ferdinand E. Marcos . . . relating to and concerning the properties and assets of Ferdinand
Marcos located in the Philippines and/or abroad including the so-called Marcos gold hoard"; and (2) to
"[c]ompel respondent[s] to make public all negotiations and agreement, be they ongoing or perfected, and all
documents related to or relating to such negotiations and agreement between the PCGG and the Marcos heirs." 1

The Facts

Petitioner Francisco I. Chavez, as "taxpayer, citizen and former government official who initiated the
prosecution of the Marcoses and their cronies who committed unmitigated plunder of the public treasury and
the systematic subjugation of the country's economy," alleges that what impelled him to bring this action were
several news reports2 bannered in a number of broadsheets sometime in September 1997. These news items
referred to (1) the alleged discovery of billions of dollars of Marcos assets deposited in various coded accounts
in Swiss banks; and (2) the reported execution of a compromise, between the government (through PCGG) and
the Marcos heirs, on how to split or share these assets.
Petitioner, invoking his constitutional right to information 3 and the correlative duty of the state to disclose
publicly all its transactions involving the national interest, 4 demands that respondents make public any and all
negotiations and agreements pertaining to PCGG's task of recovering the Marcoses' ill-gotten wealth. He claims
that any compromise on the alleged billions of ill-gotten wealth involves an issue of "paramount public
interest," since it has a "debilitating effect on the country's economy" that would be greatly prejudicial to the
national interest of the Filipino people. Hence, the people in general have a right to know the transactions or
deals being contrived and effected by the government.

Respondents, on the other hand, do not deny forging a compromise agreement with the Marcos heirs. They
claim, though, that petitioner's action is premature, because there is no showing that he has asked the PCGG to
disclose the negotiations and the Agreements. And even if he has, PCGG may not yet be compelled to make
any disclosure, since the proposed terms and conditions of the Agreements have not become effective and
binding.

Respondents further aver that the Marcos heirs have submitted the subject Agreements to the Sandiganbayan
for its approval in Civil Case No. 141, entitled Republic v. Heirs of Ferdinand E. Marcos, and that the Republic
opposed such move on the principal grounds that (1) said Agreements have not been ratified by or even
submitted to the President for approval, pursuant to Item No. 8 of the General Agreement; and (2) the Marcos
heirs have failed to comply with their undertakings therein, particularly the collation and submission of an
inventory of their assets. The Republic also cited an April 11, 1995 Resolution in Civil Case No. 0165, in which
the Sandiganbayan dismissed a similar petition filed by the Marcoses' attorney-in-fact.

Furthermore, then President Fidel V. Ramos, in his May 4, 1998 Memorandum 5 to then PCGG Chairman
Magtanggol Gunigundo, categorically stated:

This is to reiterate my previous position embodied in the Palace Press Release of 6 April 1995 that I have not
authorized you to approve the Compromise Agreements of December 28, 1993 or any agreement at all with the
Marcoses, and would have disapproved them had they been submitted to me.

The Full Powers of Attorney of March 1994 and July 4, 1994, did not authorize you to approve said
Agreements, which I reserve for myself as President of the Republic of the Philippines.

The assailed principal Agreement 6 reads:

GENERAL AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement entered into this 28th day of December, 1993, by and between

The Republic of the Philippines, through the Presidential Commission on Good Government (PCGG), a
governmental agency vested with authority defined under Executive Orders Nos. 1, 2 and 14, with offices at the
philcomcen Building, Pasig, Metro Manila, represented by its Chairman referred to as FIRST PARTY,

and

Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and Ferdinand R. Marcos, Jr., all of
legal age, and with address at c/o No. 154 Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda
Romualdez Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos Araneta, hereinafter
collectively referred to as the PRIVATE PARTY.
 W I T N E S S E T H:

WHEREAS, the PRIVATE PARTY has been impelled by their sense of nationalism and love of country and of
the entire Filipino people, and their desire to set up a foundation and finance impact projects like installation of
power plants in selected rural areas and initiation of other community projects for the empowerment of the
people;

WHEREAS, the FIRST PARTY has obtained a judgment from the Swiss Federal Tribunal of December 21,
1990, that the $356 million belongs in principle to the Republic of the Philippines provided certain
conditionalities are met, but even after 7 years, the FIRST PARTY has not been able to procure a final judgment
of conviction against the PRIVATE PARTY;

WHEREAS, the FIRST PARTY is desirous of avoiding a long-drawn out litigation which, as proven by the past
7 years, is consuming money, time and effort, and is counter-productive and ties up assets which the FIRST
PARTY could otherwise utilize for its Comprehensive Agrarian Reform Program, and other urgent needs;

WHEREAS, His Excellency, President Fidel V. Ramos, has adopted a policy of unity and reconciliation in
order to bind the nation's wounds and start the process of rebuilding this nation as it goes on to the twenty-first
century;

WHEREAS, this Agreement settles all claims and counterclaims which the parties may have against one
another, whether past, present, or future, matured or inchoate.

NOW, THEREFORE, for and in consideration of the mutual covenants set forth herein, the parties agree as
follows:

1. The parties will collate all assets presumed to be owned by, or held by other parties for the benefit of, the
PRIVATE PARTY for purposes of determining the totality of the assets covered by the settlement. The subject
assets shall be classified by the nature thereof, namely: (a) real estate; (b) jewelry; (c) paintings and other works
of art; (d) securities; (e) funds on deposit; (f) precious metals, if any, and (g) miscellaneous assets or assets
which could not appropriately fall under any of the preceding classification. The list shall be based on the full
disclosure of the PRIVATE PARTY to insure its accuracy.

2. Based on the inventory, the FIRST PARTY shall determine which shall be ceded to the FIRST PARTY, and
which shall be assigned to/retained by the PRIVATE PARTY. The assets of the PRIVATE PARTY shall be net of
and exempt from, any form of taxes due the Republic of the Philippines. However, considering the
unavailability of all pertinent and relevant documents and information as to balances and ownership, the actual
specification of assets to be retained by the PRIVATE PARTY shall be covered by supplemental agreements
which shall form part of this Agreement.

3. Foreign assets which the PRIVATE PARTY shall fully disclose but which are held by trustees, nominees,
agents or foundations are hereby waived over by the PRIVATE PARTY in favor of the FIRST PARTY. For this
purpose, the parties shall cooperate in taking the appropriate action, judicial and/or extrajudicial, to recover the
same for the FIRST PARTY.

4. All disclosures of assets made by the PRIVATE PARTY shall not be used as evidence by the FIRST PARTY
in any criminal, civil, tax or administrative case, but shall be valid and binding against said PARTY for use by
the FIRST PARTY in withdrawing any account and/or recovering any asset. The PRIVATE PARTY withdraws
any objection to the withdrawal by and/or release to the FIRST PARTY by the Swiss banks and/or Swiss
authorities of the $356 million, its accrued interests, and/or any other account; over which the PRIVATE
PARTY waives any right, interest or participation in favor of the FIRST PARTY. However, any withdrawal or
release of any account aforementioned by the FIRST PARTY shall be made in the presence of any authorized
representative of the PRIVATE PARTY.

5. The trustees, custodians, safekeepers, depositaries, agents, nominees, administrators, lawyers, or any other
party acting in similar capacity in behalf of the PRIVATE PARTY are hereby informed through this General
Agreement to insure that it is fully implemented and this shall serve as absolute authority from both parties for
full disclosure to the FIRST PARTY of said assets and for the FIRST PARTY to withdraw said account and/or
assets and any other assets which the FIRST PARTY on its own or through the help of the PRIVATE
PARTY/their trustees, etc., may discover.

6. Any asset which may be discovered in the future as belonging to the PRIVATE PARTY or is being held by
another for the benefit of the PRIVATE PARTY and which is not included in the list per No. 1 for whatever
reason shall automatically belong to the FIRST PARTY, and the PRIVATE PARTY in accordance with No. 4
above, waives any right thereto.

7. This Agreement shall be binding on and inure to the benefit of, the parties and their respective legal
representatives, successors and assigns and shall supersede any other prior agreement.

8. The PARTIES shall submit this and any other implementing Agreements to the President of the Philippines
for approval. In the same manner, the PRIVATE PARTY shall provide the FIRST PARTY assistance by way of
testimony or deposition on any information it may have that could shed light on the cases being pursued by the
FIRST PARTY against other parties. The FIRST PARTY shall desist from instituting new suits already subject
of this Agreement against the PRIVATE PARTY and cause the dismissal of all other cases pending in the
Sandiganbayan and in other courts.

9. In case of violation by the PRIVATE PARTY of any of the conditions herein contained, the PARTIES shall be
restored automatically to the status quoante the signing of this Agreement.

For purposes of this Agreement, the PRIVATE PARTY shall be represented by Atty. Simeon M. Mesina, Jr., as
their only Attorney-in-Fact.

IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of December, 1993, in Makati,
Metro Manila.

PRESIDENTIAL COMMISSION ON

GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL C. GUNIGUNDO

Chairman

ESTATE OF FERDINAND E. MARCOS,

IMELDA R. MARCOS, MA. IMELDA

MARCOS-MANOTOC, FERDINAND R.

MARCOS, JR., & IRENE MARCOS-

ARANETA

By:

[Sgd.] IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR. 7

[Sgd.] IRENE MARCOS-ARANETA

Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR.

Counsel & Attorney-in-Fact

Petitioner also denounces this supplement to the above Agreement: 8

SUPPLEMENTAL AGREEMENT

This Agreement entered into this 28th day of December, 1993, by and between

The Republic of the Philippines, through the Presidential Commission on Good Government (PCGG), a
governmental agency vested with authority defined under Executive Orders Nos. 1, 2 and 14, with offices at the
Philcomcen Building, Pasig, Metro Manila, represented by its Chairman Magtanggol C. Gunigundo, hereinafter
referred to as the FIRST PARTY,

and

Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and Ferdinand R. Marcos, Jr., all of
legal age, and with address at c/o No. 154 Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda
Romualdez Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos Araneta, hereinafter
collectively referred to as the PRIVATE PARTY.

W I T N E S S E T H:

The parties in this case entered into a General Agreement dated Dec. 28, 1993;

The PRIVATE PARTY expressly reserve their right to pursue their interest and/or sue over local assets located
in the Philippines against parties other than the FIRST PARTY.

The parties hereby agree that all expenses related to the recovery and/or withdrawal of all assets including
lawyers' fees, agents' fees, nominees' service fees, bank charges, traveling expenses and all other expenses
related thereto shall be for the account of the PRIVATE PARTY.

In consideration of the foregoing, the parties hereby agree that the PRIVATE PARTY shall be entitled to the
equivalent of 25% of the amount that may be eventually withdrawn from said $356 million Swiss deposits.
IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of December, 1993, in Makati,
Metro Manila.

PRESIDENTIAL COMMISSION ON

GOOD GOVERNMENT

By:

[Sgd.] MAGTANGGOL C. GUNIGUNDO

Chairman

ESTATE OF FERDINAND E. MARCOS,

IMELDA R. MARCOS, MA. IMELDA

MARCOS-MANOTOC, FERDINAND R.

MARCOS, JR., & IRENE MARCOS-

ARANETA

By:

[Sgd.] IMELDA ROMUALDEZ-MARCOS

[Sgd.] MA. IMELDA MARCOS-MANOTOC

FERDINAND R. MARCOS, JR. 9

[Sgd.] IRENE MARCOS-ARANETA

Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR.

Counsel & Attorney-in-Fact

Acting on a motion of petitioner, the Court issued a Temporary Restraining Order 10 dated March 23, enjoining
respondents, their agents and/or representatives from "entering into, or perfecting and/or executing any
agreement with the heirs of the late President Ferdinand E. Marcos relating to and concerning their ill-gotten
wealth."

Issues

The Oral Argument, held on March 16, 1998, focused on the following issues:

(a) Procedural:

(1) Whether or not the petitioner has the personality or legal standing to file the instant petition; and
(2) Whether or not this Court is the proper court before which this action may be filed.

(b) Substantive:

(1) Whether or not this Court could require the PCGG to disclose to the public the details of any agreement,
perfected or not, with the Marcoses; and

(2) Whether or not there exist any legal restraints against a compromise agreement between the Marcoses and
the PCGG relative to the Marcoses' ill-gotten wealth. 11

After their oral presentations, the parties filed their respective memoranda.

On August 19, 1998, Gloria, Celnan, Scarlet and Teresa, all surnamed Jopson, filed before the Court a Motion
for Intervention, attaching thereto their Petition in Intervention. They aver that they are "among the 10,000
claimants whose right to claim from the Marcos Family and/or the Marcos Estate is recognized by the decision
in In re Estate of Ferdinand Marcos, Human Rights Litigation, Maximo Hilao, et al., Class Plaintiffs No. 92-
15526, U.S. Court of Appeals for the 9th Circuit US App. Lexis 14796, June 16, 1994 and the Decision of the
Swiss Supreme Court of December 10, 1997." As such, they claim to have personal and direct interest in the
subject matter of the instant case, since a distribution or disposition of the Marcos properties may adversely
affect their legitimate claims. In a minute Resolution issued on August 24, 1998, the Court granted their motion
to intervene and required the respondents to comment thereon. The September 25, 1998 Comment 12 of the
solicitor general on said motion merely reiterated his aforecited arguments against the main petition. 13

The Court's Ruling

The petition id imbued with merit.

First Procedural Issue:

Petitioner's Standing

Petitioner, on the one hand, explains that as a taxpayer and citizen, he has the legal personality to file the instant
petition. He submits that since ill-gotten wealth "belongs to the Filipino people and [is], in truth hand in fact,
part of the public treasury," any compromise in relation to it would constitute a diminution of the public funds,
which can be enjoined by a taxpayer whose interest is for a full, if not substantial, recovery of such assets.

Besides, petitioner emphasize, the matter of recovering the ill-gotten wealth of the Marcoses is an issue "of
transcendental importance the public." He asserts that ordinary taxpayers have a right to initiate and prosecute
actions questioning the validity of acts or orders of government agencies or instrumentalities, if the issues
raised are "of paramount public interest;" and if they "immeasurably affect the social, economic, and moral
well-being of the people."

Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest, when the proceeding
involves the assertion of a public right, 14 such as in this case. He invokes several decisions 15 of this Court
which have set aside the procedural matter of locus standi, when the subject of the case involved public
interest.

On the other hand, the solicitor general, on behalf of respondents, contends that petitioner has no standing to
institute the present action, because no expenditure of public funds is involved and said petitioner has no actual
interest in the alleged agreement. Respondents further insist that the instant petition is premature, since there is
no showing that petitioner has requested PCGG to disclose any such negotiations and agreements; or that, if he
has, the Commission has refused to do so.

Indeed, the arguments cited by petitioner constitute the controlling decisional rule as regards his legal standing
to institute the instant petition. Access to public documents and records is a public right, and the real parties in
interest are the people themselves. 16

In Taada v. Tuvera, 17 the Court asserted that when the issue concerns a public a right and the object
of mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in
interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the
laws, he need not show that he has any legal or special interest in the result of the action. 18 In the aforesaid
case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then
recognized in Section 6, Article IV of the 1973 Constitution, 19 in connection with the rule that laws in order to
be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In
ruling for the petitioners' legal standing, the Court declared that the right they sought to be enforced "is a public
right recognized by no less than the fundamental law of the land."

Legaspi v. Civil Service Commission, 20 while reiterating Taada, further declared that "when
a mandamus proceeding involves the assertion of a public right, the requirement of personal interest is satisfied
by the mere fact that petitioner is a citizen and, therefore, part of the general 'public' which possesses the
right." 21

Further, in Albano v. Reyes, 22 we said that while expenditure of public funds may not have been involved under
the questioned contract for the development, the management and the operation of the Manila International
Container Terminal, "public interest [was] definitely involved considering the important role [of the subject
contract] . . . in the economic development of the country and the magnitude of the financial consideration
involved." We concluded that, as a consequence, the disclosure provision in the Constitution would constitute
sufficient authority for upholding the petitioner's standing.

Similarly, the instant petition is anchored on the right of the people to information and access to official
records, documents and papers a right guaranteed under Section 7, Article III of the 1987 Constitution.
Petitioner, a former solicitor general, is a Filipino citizen. Because of the satisfaction of the two basic requisites
laid down by decisional law to sustain petitioner's legal standing, i.e. (1) the enforcement of a public right (2)
espoused by a Filipino citizen, we rule that the petition at bar should be allowed.

In any event, the question on the standing of Petitioner Chavez is rendered moot by the intervention of the
Jopsons, who are among the legitimate claimants to the Marcos wealth. The standing of the Jopsons is not
seriously contested by the solicitor general. Indeed, said petitioners-intervenors have a legal interest in the
subject matter of the instant case, since a distribution or disposition of the Marcoses' ill-gotten properties may
adversely affect the satisfaction of their claims.

Second Procedural Issue:

The Court's Jurisdiction

Petitioner asserts that because this petition is an original action for mandamus and one that is not intended to
delay any proceeding in the Sandiganbayan, its having been filed before this Court was proper. He invokes
Section 5, Article VIII of the Constitution, which confers upon the Supreme Court original jurisdiction over
petitions for prohibition and mandamus.
The solicitor general, on the other hand, argues that the petition has been erroneously brought before this Court,
since there is neither a justiciable controversy nor a violation of petitioner's rights by the PCGG. He alleges that
the assailed agreements are already the very lis mota in Sandiganbayan Civil Case No. 0141, which has yet to
dispose of the issue; thus, this petition is premature. Furthermore, respondents themselves have opposed the
Marcos heirs' motion, filed in the graft court, for the approval of the subject Agreements. Such opposition
belies petitioner's claim that the government, through respondents, has concluded a settlement with the
Marcoses as regards their alleged ill-gotten assets.

In Taada and Legaspi, we upheld therein petitioners' resort to a mandamus proceeding, seeking to enforce a
public right as well as to compel performance of a public duty mandated by no less than the fundamental
law. 23 Further, Section 5, Article VIII of the Constitution, expressly confers upon the Supreme
Court original jurisdiction over petitions forcertiorari, prohibition, mandamus, quo warranto and habeas
corpus.

Respondents argue that petitioner should have properly sought relief before the Sandiganbayan, particularly in
Civil Case No. 0141, in which the enforcement of the compromise Agreements is pending resolution. There
may seem to be some merit in such argument, if petitioner is merely seeking to enjoin the enforcement of the
compromise and/or to compel the PCGG to disclose to the public the terms contained in said Agreements.
However, petitioner is here seeking the public disclose of "all negotiations and agreement, be they ongoing or
perfected, and documents related to or relating to such negotiations and agreement between the PCGG and the
Marcos heirs."

In other words, this petition is not confined to the Agreements that have already been drawn, but likewise to
any other ongoing or future undertaking towards any settlement on the alleged Marcos loot. Ineluctably, the
core issue boils down to the precise interpretation, in terms of scope, of the twin constitutional provisions on
"public transactions." This broad and prospective relief sought by the instant petition brings it out of the realm
of Civil Case No. 0141.

First Substantive Issue:

Public Disclosure of Terms of

Any Agreement, Perfected or Not

In seeking the public disclosure of negotiations and agreements pertaining to a compromise settlement with the
Marcoses as regards their alleged ill-gotten wealth, petitioner invokes the following provisions of the
Constitution:

Sec. 7 [Article III]. The right of the people to information on matters of public concern shall be recognized.
Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as
well as to government research data used as basis for policy development, shall be afforded the citizen, subject
to such limitations as may be provided by law.

Sec. 28 [Article II]. Subject to reasonable conditions prescribed by law, the State adopts and implements a
policy of full public disclosure of all its transactions involving public interest.

Respondents' opposite view is that the above constitutional provisions refer to completed and operative official
acts, not to those still being considered. As regards the assailed Agreements entered into by the PCGG with the
Marcoses, there is yet no right of action that has accrued, because said Agreements have not been approved by
the President, and the Marcos heirs have failed to fulfill their express undertaking therein. Thus, the
Agreements have not become effective. Respondents add that they are not aware of any ongoing negotiation for
another compromise with the Marcoses regarding their alleged ill-gotten assets.

The "information" and the "transactions" referred to in the subject provisions of the Constitution have as yet no
defined scope and extent. There are no specific laws prescribing the exact limitations within which the right
may be exercised or the correlative state duty may be obliged. However, the following are some of the
recognized restrictions: (1) national security matters and intelligence information, (2) trade secrets and banking
transactions, (3) criminal matters, and (4) other confidential information.

Limitations to the Right:

(1) National Security Matters

At the very least, this jurisdiction recognizes the common law holding that there is a governmental privilege
against public disclosure with respect to state secrets regarding military, diplomatic and other national security
matters. 24But where there is no need to protect such state secrets, the privilege may not be invoked to withhold
documents and other information, 25 provided that they are examined "in strict confidence" and given
"scrupulous protection."

Likewise, information on inter-government exchanges prior to the conclusion of treaties and executive
agreements may be subject to reasonable safeguards for the sake of national interest. 26

(2) Trade Secrets and

Banking Transactions

The drafters of the Constitution also unequivocally affirmed that, aside from national security matters and
intelligence information, trade or industrial secrets (pursuant to the Intellectual Property Code 27 and other
related laws) as well as banking transactions (pursuant to the Secrecy of Bank Deposits Act 28) are also
exempted from compulsory disclosure. 29

(3) Criminal Matters

Also excluded are classified law enforcement matters, such as those relating to the apprehension, the
prosecution and the detention of criminals, 30 which courts may nor inquire into prior to such arrest, detention
and prosecution. Efforts at effective law enforcement would be seriously jeopardized by free public access to,
for example, police information regarding rescue operations, the whereabouts of fugitives, or leads on covert
criminal activities.

(4) Other Confidential

Information

The Ethical Standards Act 31 further prohibits public officials and employees from using or divulging
"confidential or classified information officially known to them by reason of their office and not made available
to the public." 32

Other acknowledged limitations to information access include diplomatic correspondence, closed door Cabinet
meetings and executive sessions of either house of Congress, as well as the internal deliberations of the
Supreme Court. 33
Scope: Matters of Public Concern and

Transactions Involving Public Interest

In Valmonte v. Belmonte Jr., 34 the Court emphasized that the information sought must be "matters of public
concern," access to which may be limited by law. Similarly, the state policy of full public disclosure extends
only to "transactions involving public interest" and may also be "subject to reasonable conditions prescribed by
law." As to the meanings of the terms "public interest" and "public concern," the Court, in Legaspi v. Civil
Service Commission, 35 elucidated:

In determining whether or not a particular information is of public concern there is no rigid test which can be
applied. "Public concern" like "public interest" is a term that eludes exact definition. Both terms embrace a
broad spectrum of subjects which the public may want to know, either because these directly affect their lives,
or simply because such matters naturally arouse the interest of an ordinary citizen. In the final analysis, it is for
the courts to determine on a case by case basis whether the matter at issue is of interest or importance, as it
relates to or affects the public.

Considered a public concern in the above-mentioned case was the "legitimate concern of citizens to ensure that
government positions requiring civil service eligibility are occupied only by persons who are eligibles." So was
the need to give the general public adequate notification of various laws that regulate and affect the actions and
conduct of citizens, as held in Taada. Likewise did the "public nature of the loanable funds of the GSIS and
the public office held by the alleged borrowers (members of the defunct Batasang Pambansa)" qualify the
information sought inValmonte as matters of public interest and concern. In Aquino-Sarmiento v. Morato, 36 the
Court also held that official acts of public officers done in pursuit if their official functions are public in
character; hence, the records pertaining to such official acts and decisions are within the ambit of the
constitutional right of access to public records.

Under Republic Act No. 6713, public officials and employees are mandated to "provide information on their
policies and procedures in clear and understandable language, [and] ensure openness of information, public
consultations and hearings whenever appropriate . . .," except when "otherwise provided by law or when
required by the public interest." In particular, the law mandates free public access, at reasonable hours, to the
annual performance reports of offices and agencies of government and government-owned or controlled
corporations; and the statements of assets, liabilities and financial disclosures of all public officials and
employees. 37

In general, writings coming into the hands of public officers in connection with their official functions must be
accessible to the public, consistent with the policy of transparency of governmental affairs. This principle is
aimed at affording the people an opportunity to determine whether those to whom they have entrusted the
affairs of the government are honesty, faithfully and competently performing their functions as public
servants. 38 Undeniably, the essence of democracy lies in the free flow of thought; 39 but thoughts and ideas
must be well-informed so that the public would gain a better perspective of vital issues confronting them and,
thus, be able to criticize as well as participate in the affairs of the government in a responsible, reasonable and
effective manner. Certainly, it is by ensuring an unfettered and uninhibited exchange of ideas among a well-
informed public that a government remains responsive to the changes desired by the people. 40

The Nature of the Marcoses'

Alleged Ill-Gotten Wealth

We now come to the immediate matter under consideration.

Upon the departure from the country of the Marcos family and their cronies in February 1986, the new
government headed by President Corazon C. Aquino was specifically mandated to "[r]ecover ill-gotten
properties amassed by the leaders and supporters of the previous regime and [to] protect the interest of the
people through orders of sequestration or freezing of assets or
accounts." 41 Thus, President Aquino's very first executive orders (which partook of the nature of legislative
enactments) dealt with the recovery of these alleged ill-gotten properties.

Executive Order No. 1, promulgated on February 28, 1986, only two (2) days after the Marcoses fled the
country, created the PCGG which was primarily tasked to assist the President in the recovery of vast
government resources allegedly amassed by former President Marcos, his immediate family, relatives and close
associates both here and abroad.

Under Executive Order No. 2, issued twelve (12) days later, all persons and entities who had knowledge or
possession of ill-gotten assets and properties were warned and, under pain of penalties prescribed by law,
prohibited from concealing, transferring or dissipating them or from otherwise frustrating or obstructing the
recovery efforts of the government.

On May 7, 1986, another directive (EO No. 14) was issued giving additional powers to the PCGG which,
taking into account the overriding considerations of national interest and national survival, required it to
achieve expeditiously and effectively its vital task of recovering ill-gotten wealth.

With such pronouncements of our government, whose authority emanates from the people, there is no doubt
that the recovery of the Marcoses' alleged ill-gotten wealth is a matter of public concern and imbued with
public interest.42 We may also add that "ill-gotten wealth," by its very nature, assumes a public character. Based
on the aforementioned Executive Orders, "ill-gotten wealth" refers to assets and properties purportedly
acquired, directly or indirectly, by former President Marcos, his immediate family, relatives and close
associates through or as a result of their improper or illegal use of government funds or properties; or their
having taken undue advantage of their public office; or their use of powers, influences or relationships,
"resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the
Republic of the Philippines." Clearly, the assets and properties referred to supposedly originated from the
government itself. To all intents and purposes, therefore, they belong to the people. As such, upon reconveyance
they will be returned to the public treasury, subject only to the satisfaction of positive claims of certain persons
as may be adjudged by competent courts. Another declared overriding consideration for the expeditious
recovery of ill-gotten wealth is that it may be used for national economic recovery.

We believe the foregoing disquisition settles the question of whether petitioner has a right to respondents'
disclosure of any agreement that may be arrived at concerning the Marcoses' purported ill-gotten wealth.

Access to Information

on Negotiating Terms

But does the constitutional provision likewise guarantee access to information regarding ongoing negotiations
or proposals prior to the final agreement? This same clarification was sought and clearly addressed by the
constitutional commissioners during their deliberations, which we quote hereunder: 43

MR. SUAREZ. And when we say "transactions" which should be distinguished from contracts, agreements, or
treaties or whatever, does the Gentleman refer to the steps leading to the consummation of the contract, or does
he refer to the contract itself?
MR. OPLE. The "transactions" used here, I suppose, is generic and, therefore, it can cover both steps leading to
a contract, and already a consummated contract, Mr. Presiding Officer.

MR. SUAREZ. This contemplates inclusion of negotiations leading to the consummation of the transaction?

MR. OPLE. Yes, subject to reasonable safeguards on the national interest.

Considering the intent of the Constitution, we believe that it is incumbent upon the PCGG and its officers, as
well as other government representatives, to disclose sufficient public information on any proposed settlement
they have decided to take up with the ostensible owners and holders of ill-gotten wealth. Such information,
though, must pertain to definite propositions of the government, not necessarily to intra-agency or inter-agency
recommendations or communications 44 during the stage when common assertions are still in the process of
being formulated or are in the "exploratory" stage. There is a need, of course, to observe the same restrictions
on disclosure of information in general, as discussed earlier such as on matters involving national security,
diplomatic or foreign relations, intelligence and other classified information.

Second Substantive Issue:

Legal Restraints on a Marcos-PCGG Compromise

Petitioner lastly contends that any compromise agreement between the government and the Marcoses will be a
virtual condonation of all the alleged wrongs done by them, as well as an unwarranted permission to commit
graft and corruption.

Respondents, for their part, assert that there is no legal restraint on entering into a compromise with the Marcos
heirs, provided the agreement does not violate any law.

Prohibited Compromises

In general, the law encourages compromises in civil cases, except with regard to the following matters: (1) the
civil status of persons, (2) the validity of a marriage or a legal separation, (3) any ground for legal separation,
(4) future support, (5) the jurisdiction of courts, and (6) future legitimate. 45 And like any other contract, the
terms and conditions of a compromise must not be contrary to law, morals, good customs, public policy or
public order. 46 A compromise is binding and has the force of law between the parties, 47 unless the consent of a
party is vitiated such as by mistake, fraud, violence, intimidation or undue influence or when there is
forgery, or if the terms of the settlment are so palpably unconscionable. In the latter instances, the agreement
may be invalidated by the courts. 48

Effect of Compromise

on Civil Actions

One of the consequences of a compromise, and usually its primary object, is to avoid or to end a litigation. 49 In
fact, the law urges courts to persuade the parties in a civil case to agree to a fair settlement. 50 As an incentive, a
court may mitigate damages to be paid by a losing party who shows a sincere desire to compromise. 51

In Republic & Campos Jr. v. Sandiganbayan, 52 which affirmed the grant by the PCGG of civil and criminal
immunity to Jose Y. Campos and the family, the Court held that in the absence an express prohibition, the rule
on compromises in civil actions under the Civil Code is applicable to PCGG cases. Such principle is pursuant
to the objectives of EO No. 14 particularly the just and expeditious recovery of ill-gotten wealth, so that it may
be used to hasten economic recovery. The same principle was upheld in Benedicto v. Board of Administrators
of Television Stations RPN, BBC and IBC 53 and Republic v. Benedicto,54 which ruled in favor of the validity of
the PCGG compromise agreement with Roberto S. Benedicto.

Immunity from

Criminal Prosecution

However, any compromise relating to the civil liability arising from an offense does not automatically terminate
the criminal proceeding against or extinguish the criminal liability of the malefactor. 55 While a compromise in
civil suits is expressly authorized by law, there is no similar general sanction as regards criminal liability. The
authority must be specifically conferred. In the present case, the power to grant criminal immunity was
confered on PCGG by Section 5 of EO No. 14, as amended by EO No. 14-A, whci provides:

Sec. 5. The President Commission on Good Government is authorized to grant immunity from criminal
prosecution to any person who provides information or testifies in any investigation conducted by such
Commission to establish the unlawful manner in which any respondent, defendant or accused has acquired or
accumulated the property or properties in question in any case where such information or testimony is
necessary to ascertain or prove the latter's guilt or his civil liability. The immunity thereby granted shall be
continued to protect the witness who repeats such testimony before the Sandiganbayan when required to do so
by the latter or by the Commission.

The above provision specifies that the PCGG may exercise such authority under these conditions: (1) the
person to whom criminal immunity is granted provides information or testifies in an investigation conducted by
the Commission; (2) the information or testimony pertains to the unlawful manner in which the respondent,
defendant or accused acquired or accumulated ill-gotten property; and (3) such information or testimony is
necessary to ascertain or prove guilt or civil liability of such individual. From the wording of the law, it can be
easily deducted that theperson referred to is a witness in the proceeding, not the principal respondent, defendant
or accused.

Thus, in the case of Jose Y. Campos, the grant of both civil and criminal immunity to him and his family was
"[i]n consideration of the full cooperation of Mr. Jose Y. Campos [with] this Commission, his voluntary
surrender of the properties and assets [] disclosed and declared by him to belong to deposed President
Ferdinand E. Marcos [] to the Government of the Republic of the Philippines[;] his full, complete and
truthful disclosures[;] and his commitment to pay a sum of money as determined by the Philippine
Government." 56 Moreover, the grant of criminal immunity to the Camposes and the Benedictos was limited to
acts and omissions prior to February 25, 1996. At the time such immunity was granted, no criminal cases have
yet been filed against them before the competent court.

Validity of the PCGG-Marcos

Compromise Agreements

Going now to the subject General and Supplemental Agreements between the PCGG and the Marcos heirs, a
cursory perusal thereof reveals serious legal flaws. First, the Agreements do not conform to the above
requirements of EO Nos. 14 and 14-A. We believe that criminal immunity under Section 5 cannot be granted to
the Marcoses, who are the principal defendants in the spate of ill-gotten wealth cases now pending before the
Sandiganbayan. As stated earlier, the provision is applicable mainly to witnesses who provide information or
testify against a respondent, defendant or accused in an ill-gotten wealth case.

While the General Agreement states that the Marcoses "shall provide the [government] assistance by way of
testimony or deposition on any information [they] may have that could shed light on the cases being pursued by
the [government] against other parties," 57 the clause does not fully comply with the law. Its inclusion in the
Agreement may have been only an afterthought, conceived in pro forma compliance with Section 5 of EO No.
14, as amended. There is no indication whatsoever that any of the Marcos heirs has indeed provided vital
information against any respondent or defendant as to the manner in which the latter may have unlawfully
acquired public property.

Second, under Item No. 2 of the General Agreement, the PCGG commits to exempt from all forms of taxes the
properties to be retained by the Marcos heirs. This is a clear violation of the Construction. The power to tax and
to grant tax exemptions is vested in the Congress and, to a certain extent, in the local legislative
bodies. 58 Section 28 (4), Article VI of the Constitution, specifically provides: "No law granting any tax
exemption shall be passed without the concurrence of a majority of all the Member of the Congress." The
PCGG has absolutely no power to grant tax exemptions, even under the cover of its authority to compromise
ill-gotten wealth cases.

Even granting that Congress enacts a law exempting the Marcoses form paying taxes on their properties, such
law will definitely not pass the test of the equal protection clause under the Bill of Rights. Any special grant of
tax exemption in favor only of the Marcos heirs will constitute class legislation. It will also violate the
constitutional rule that "taxation shall be uniform and equitable." 59

Neither can the stipulation be construed to fall within the power of the commissioner of internal revenue to
compromise taxes. Such authority may be exercised only when (1) there is reasonable doubt as to the validity
of the claim against the taxpayer, and (2) the taxpayer's financial position demonstrates a clear inability to
pay. 60 Definitely, neither requisite is present in the case of the Marcoses, because under the Agreement they are
effectively conceding the validity of the claims against their properties, part of which they will be allowed to
retain. Nor can the PCGG grant of tax exemption fall within the power of the commissioner to abate or cancel a
tax liability. This power can be exercised only when (1) the tax appears to be unjustly or excessively assessed,
or (2) the administration and collection costs involved do not justify the collection of the tax due. 61 In this
instance, the cancellation of tax liability is done even before the determination of the amount due. In any event,
criminal violations of the Tax Code, for which legal actions have been filed in court or in which fraud is
involved, cannot be compromised. 62

Third, the government binds itself to cause the dismissal of all cases against the Marcos heirs, pending before
the Sandiganbayan and other court. 63 This is a direct encroachment on judicial powers, particularly in regard to
criminal jurisdiction. Well-settled is the doctrine that once a case has been filed before a court of competent
jurisdiction, the matter of its dismissal or pursuance lies within the full discretion and control of the judge. In a
criminal case, the manner in which the prosecution is handled, including the matter of whom to present as
witnesses, may lie within the sound discretion of the government prosecution; 64 but the court decides, based on
the evidence proffered, in what manner it will dispose of the case. Jurisdiction, once acquired by the trial court,
is not lost despite a resolution, even by the justice secretary, to withdraw the information or to dismiss the
complaint. 65 The prosecution's motion to withdraw or to dismiss is not the least binding upon the court. On the
contrary, decisional rules require the trial court to make its own evaluation of the merit of the case, because
granting such motion is equivalent to effecting a disposition of the case itself. 66

Thus, the PCGG, as the government prosecutor of ill-gotten wealth cases, cannot guarantee the dismissal of all
such criminal cases against the Marcoses pending in the courts, for said dismissal is not within its sole power
and discretion.

Fourth, the government also waives all claims and counterclaims, "whether past, present, or future, matured or
inchoate," against the Marcoses. 67 Again, this ill-encompassing stipulation is contrary to law. Under the Civil
Code, an action for future fraud may not be waived. 68 The stipulation in the Agreement does not specify the
exact scope of future claims against the Marcoses that the government thereby relinquishes. Such vague and
broad statement may well be interpreted to include all future illegal acts of any of the Marcos heirs, practically
giving them a license to perpetrate fraud against the government without any liability at all. This is a palpable
violation of the due process and equal protection guarantees of the Constitution. It effectively ensconces the
Marcoses beyond the reach of the law. It also sets a dangerous precedent for public accountability. It is a virtual
warrant for public officials to amass public funds illegally, since there is an open option to compromise their
liability in exchange for only a portion of their ill-gotten wealth.

Fifth, the Agreements do not provide for a definite or determinable period within which the parties shall fulfill
their respective prestations. It may take a lifetime before the Marcoses submit an inventory of their total assets.

Sixth, the Agreements do not state with specificity the standards for determining which assets shall be forfeited
by the government and which shall be retained by the Marcoses. While the Supplemental Agreement provides
that the Marcoses shall be entitled to 25 per cent of the $356 million Swiss deposits (less government recovery
expenses), such sharing arrangement pertains only to the said deposits. No similar splitting scheme is defined
with respect to the other properties. Neither is there, anywhere in the Agreements, a statement of the basis for
the 25-75 percent sharing ratio. Public officers entering into an arrangement appearing to be manifestly and
grossly disadvantageous to the government, in violation of the Ati-Graft and Corruption Practice Act, 69 invite
their indictment for corruption under the said law.

Finally, the absence of then President Ramos' approval of the principal Agreement, an express condition
therein, renders the compromise incomplete and unenforceable. Nevertheless, as detailed above, even if such
approval were obtained, the Agreements would still not be valid.

From the foregoing disquisition, it is crystal clear to the Court that the General and Supplemental Agreements,
both dated December 28, 1993, which the PCGG entered into with the Marcos heirs, are violative of the
Constitution and the laws aforementioned.

WHEREFORE, the petition is GRANTED. The General and Supplemental Agreement dated December 28,
1993, which PCGG and the Marcos heirs entered into are hereby declared NULL AND VOID for being
contrary to law and the Constitution. Respondent PCGG, its officers and all government functionaries and
officials who are or may be directly ot indirectly involved in the recovery of the alleged ill-gotten wealth of the
Marcoses and their associates are DIRECTED to disclose to the public the terms of any proposed compromise
settlment, as well as the final agreement, relating to such alleged ill-gotten wealth, in accordance with the
discussions embodied in this Decision. No pronouncement as to cost.

SO ORDERED.

Davide, Jr., C.J., Melo and Quisumbing, JJ., concur.

Vitug, J., Please see separate opinion.

Separate Opinions

VITUG, J., separate opinion;

In concur in the results, pro hac vice, for it is paramount that matters of national interest deserve a proper place
in any forum. The procedural rules in the courts of law, like the locus standi of petitioner Francisco I. Chavez,
the propriety of the special legal action of mandamus used as a vehicle to reach this Court on the issues
involved and considered by the Court, as well as kindred legal technicalities and nicety raised by respondents to
thwart the petition are no trickle matters, to be sure, but I do not see them to be cogent reasons to deny to the
Court its taking cognizance of the case.

It is a cardinal principle in constitutional adjudication that anyone who invokes it has a personal and substantial
interest on the dispute. 1 Jurisprudentially there is either the lenient or the strict approach in the appreciation of
legal standing of legal standing. The liberal approach recognizes legal standing to raise constitutional issues of
nontraditional plaintiffs, such as taxpayers and citizens, directly affecting them. 2 A developing trend appears to
be towards a narrow and exacting approach, requiring that a logical nexus must be shown between the status
asserted and the claim sought to be adjudicated in order to ensure that one is the proper and appropriate party to
invoke judicial power. 3

With respect to the right to information, it being a public right where the real parties in interest are the people
themselves in general 4 and where the only recognized limitations is "public concern," it would seem that the
framers of the Constitution have favored the liberal approach. Rev. Fr. Joaquin Bernas, S.J., a member of the
Constitutional Commission, observe:

The real problem, however, lies in determining what matters are of public concern and what are not. Unwitingly
perhaps, by this provision the Constitution might have opened a Pandora's box. For certainly every act of a
public officer in the conduct of the governmental process is a matter of public concern. Jurisprudence in fact
has said that "public concern," like "public interest," eludes exact definition and embraces a broad spectrum of
subjects which the public may want to kno, either because these directly affect their lives or simply because
such matters arouse the interest of an ordinary sitizen. 5

Corrolarily, there is need of preserving a certain degree of confidentiality in matters involving national security
and public relations, to cite a few, 6 and until a balance is struck, the Court may be constrained on occasions to
accept an electric notion that frees itself from the shackles of the trenchant requisites of locus standi.

The Presidential Commission on Good Government (PCGG) has a limited life in carying out its tasks and time
is running short. It is thus imperative that the Court must hold even now, and remind PCGG, that it has indeed
exceeded its bounds in entering into the General and Supplemental Agreements. The agreements clearly suffer
from Constitutional and statutory infirmities, 7 to wit: (1) The agreements contravene the statute in granting
criminal immunity to the Marcos heirs; 8 (2) PCGG's commitment to exempt from all form of taxes the property
to be retained the Marcos' heirs controverts the Constitution; 9 and (3) the government's underatking to cause
the dismissal of all cases filed against the Marcoses pending before the Sandiganbayan and other courts
encroaches upon judicial powers. I also see, like my other colleagues, too much vagueness on such items as the
period within which the parties shall fulfill their respective prestations and the lack of appropriate standards for
determining the assets to be forfeited by the government and those to be retained by the Marcoses.

In this respect, while there is legal posibility when the terms of a contract are not totally invalidated and only
those opposed to law, morals, good customs, public order and public policy are rendered inefficacious, when
however, the assailed provisions can be seen to be of essence, like here, the agreement in its entirety can be
adversely affected. True, the validity or invalidity of a contract is a matter that generally may not be passed
upon in a mandamuspetitonn, for it is as if petitioner were seeking declaratory relief or an advisory opinion
from this Court over which it has no original jurisdiction, 10 the immediacy and significance of the issues,
neverthless, has impelled the Court to rightly assume jurisdiction and to resolve the incidental, albeit major,
issues that evidently and continually vex the parties.
WHEREFORE, I vote to grant the petition.

Separate Opinions

VITUG, J., separate opinion;

In concur in the results, pro hac vice, for it is paramount that matters of national interest deserve a proper place
in any forum. The procedural rules in the courts of law, like the locus standi of petitioner Francisco I. Chavez,
the propriety of the special legal action of mandamus used as a vehicle to reach this Court on the issues
involved and considered by the Court, as well as kindred legal technicalities and nicety raised by respondents to
thwart the petition are no trickle matters, to be sure, but I do not see them to be cogent reasons to deny to the
Court its taking cognizance of the case.

It is a cardinal principle in constitutional adjudication that anyone who invokes it has a personal and substantial
interest on the dispute. 1 Jurisprudentially there is either the lenient or the strict approach in the appreciation of
legal standing of legal standing. The liberal approach recognizes legal standing to raise constitutional issues of
nontraditional plaintiffs, such as taxpayers and citizens, directly affecting them. 2 A developing trend appears to
be towards a narrow and exacting approach, requiring that a logical nexus must be shown between the status
asserted and the claim sought to be adjudicated in order to ensure that one is the proper and appropriate party to
invoke judicial power. 3

With respect to the right to information, it being a public right where the real parties in interest are the people
themselves in general 4 and where the only recognized limitations is "public concern," it would seem that the
framers of the Constitution have favored the liberal approach. Rev. Fr. Joaquin Bernas, S.J., a member of the
Constitutional Commission, observe:

The real problem, however, lies in determining what matters are of public concern and what are not. Unwitingly
perhaps, by this provision the Constitution might have opened a Pandora's box. For certainly every act of a
public officer in the conduct of the governmental process is a matter of public concern. Jurisprudence in fact
has said that "public concern," like "public interest," eludes exact definition and embraces a broad spectrum of
subjects which the public may want to kno, either because these directly affect their lives or simply because
such matters arouse the interest of an ordinary sitizen. 5

Corrolarily, there is need of preserving a certain degree of confidentiality in matters involving national security
and public relations, to cite a few, 6 and until a balance is struck, the Court may be constrained on occasions to
accept an electric notion that frees itself from the shackles of the trenchant requisites of locus standi.

The Presidential Commission on Good Government (PCGG) has a limited life in carying out its tasks and time
is running short. It is thus imperative that the Court must hold even now, and remind PCGG, that it has indeed
exceeded its bounds in entering into the General and Supplemental Agreements. The agreements clearly suffer
from Constitutional and statutory infirmities, 7 to wit: (1) The agreements contravene the statute in granting
criminal immunity to the Marcos heirs; 8 (2) PCGG's commitment to exempt from all form of taxes the property
to be retained the Marcos' heirs controverts the Constitution; 9 and (3) the government's underatking to cause
the dismissal of all cases filed against the Marcoses pending before the Sandiganbayan and other courts
encroaches upon judicial powers. I also see, like my other colleagues, too much vagueness on such items as the
period within which the parties shall fulfill their respective prestations and the lack of appropriate standards for
determining the assets to be forfeited by the government and those to be retained by the Marcoses.

In this respect, while there is legal posibility when the terms of a contract are not totally invalidated and only
those opposed to law, morals, good customs, public order and public policy are rendered inefficacious, when
however, the assailed provisions can be seen to be of essence, like here, the agreement in its entirety can be
adversely affected. True, the validity or invalidity of a contract is a matter that generally may not be passed
upon in a mandamuspetitonn, for it is as if petitioner were seeking declaratory relief or an advisory opinion
from this Court over which it has no original jurisdiction, 10 the immediacy and significance of the issues,
neverthless, has impelled the Court to rightly assume jurisdiction and to resolve the incidental, albeit major,
issues that evidently and continually vex the parties.

WHEREFORE, I vote to grant the petition.

INHERENT LIMITATIONS

PURPOSE MUST BE PUBLIC IN NATURE

Republic of the Philippines

SUPREME COURT
Manila
 EN BANC

G.R. No. L-10405 December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant,

vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.

Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the
above entitled case and dissolving the writ of preliminary injunction therein issued, without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating
Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of
P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road
terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado
Gen. Malvar Gen. Lim)"; that, at the time of the passage and approval of said Act, the aforementioned
feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the
Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as
Annexes A and B, near Shaw Boulevard, not far away from the intersection between the latter and Highway
54), which projected feeder roads "do not connect any government property or any important premises to the
main highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder roads
were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time of the passage and
approval of said Act, was a member of the Senate of the Philippines; that on May, 1953, respondent Zulueta,
addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the
municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the
condition "that the donor would submit a plan of the said roads and agree to change the names of two of them";
that no deed of donation in favor of the municipality of Pasig was, however, executed; that on July 10, 1953,
respondent Zulueta wrote another letter to said council, calling attention to the approval of Republic Act. No.
920, and the sum of P85,000.00 appropriated therein for the construction of the projected feeder roads in
question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer
of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the projected feeder
roads in question were private property at the time of the passage and approval of Republic Act No. 920, the
appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension and
improvement of said projected feeder roads, was illegal and, therefore, void ab initio"; that said appropriation
of P85,000.00 was made by Congress because its members were made to believe that the projected feeder roads
in question were "public roads and not private streets of a private subdivision"'; that, "in order to give a
semblance of legality, when there is absolutely none, to the aforementioned appropriation", respondents Zulueta
executed on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of
donation copy of which is annexed to the petition of the four (4) parcels of land constituting said
projected feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged deed of
donation was, on the same date, accepted by the then Executive Secretary; that being subject to an onerous
condition, said donation partook of the nature of a contract; that, such, said donation violated the provision of
our fundamental law prohibiting members of Congress from being directly or indirectly financially interested in
any contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the
construction of the projected feeder roads in question with public funds would greatly enhance or increase the
value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of
constructing his subdivision streets or roads at his own expense"; that the construction of said projected feeder
roads was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the
respondents would continue to execute, comply with, follow and implement the aforementioned illegal
provision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the
Filipino nation."

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the
alleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal";
that a writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of
the Bureau of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of
the above-mentioned feeder roads project, and from making and securing any new and further releases on the
aforementioned item of Republic Act No. 920, and the disbursing officers of the Department of Public Works
and Highways from making any further payments out of said funds provided for in Republic Act No. 920; and
that pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the
aforementioned parties respondent from making and securing any new and further releases on the aforesaid
item of Republic Act No. 920 and from making any further payments out of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and
that the petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the
Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to
section 1683 of the Revised Administrative Code; that said respondent is " not aware of any law which makes
illegal the appropriation of public funds for the improvements of . . . private property"; and that, the
constitutional provision invoked by petitioner is inapplicable to the donation in question, the same being a pure
act of liberality, not a contract. The other respondents, in turn, maintained that petitioner could not assail the
appropriation in question because "there is no actual bona fide case . . . in which the validity of Republic Act
No. 920 is necessarily involved" and petitioner "has not shown that he has a personal and substantial interest"
in said Act "and that its enforcement has caused or will cause him a direct injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29,
1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the
provincial fiscal thereof who represents him therein, "have the requisite personalities" to question the
constitutionality of the disputed item of Republic Act No. 920; that "the legislature is without power
appropriate public revenues for anything but a public purpose", that the instructions and improvement of the
feeder roads in question, if such roads where private property, would not be a public purpose; that, being
subject to the following condition:

The within donation is hereby made upon the condition that the Government of the Republic of the Philippines
will use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it
being expressly understood that should the Government of the Republic of the Philippines violate the condition
hereby imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the
DONOR, JOSE C. ZULUETA. (Emphasis supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden
by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares
in existence and void from the very beginning contracts "whose cause, objector purpose is contrary to law,
morals . . . or public policy"; that the legality of said donation may not be contested, however, by petitioner
herein, because his "interest are not directly affected" thereby; and that, accordingly, the appropriation in
question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to
dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact made in the petition
of appellant herein. According to said petition, respondent Zulueta is the owner of several parcels of residential
land situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been
reserved for the projected feeder roads aforementioned, which, admittedly, were private property of said
respondent when Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair,
extension and improvement" of said roads, was passed by Congress, as well as when it was approved by the
President on June 20, 1953. The petition further alleges that the construction of said roads, to be undertaken
with the aforementioned appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of
the burden of constructing his subdivision streets or roads at his own expenses, 1and would "greatly enhance or
increase the value of the subdivision" of said respondent. The lower court held that under these circumstances,
the appropriation in question was "clearly for a private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta
contended, in his motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal because Congress is the source of
all laws . . . Aside from the fact that movant is not aware of any law which makes illegal the appropriation of
public funds for the improvement of what we, in the meantime, may assume as private property . . . (Record on
Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Republic of the Philippines and the system of checks and
balances underlying our political structure. Moreover, it is refuted by the decisions of this Court invalidating
legislative enactments deemed violative of the Constitution or organic laws. 3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to
Ruling Case Law, is this:

It is a general rule that the legislature is without power to appropriate public revenue for anything but a public
purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity
as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general
advantage of the community, and thus the public welfare, may be ultimately benefited by their
promotion. Incidental to the public or to the state, which results from the promotion of private interest and the
prosperity of private enterprises or business, does not justify their aid by the use public money. (25 R.L.C. pp.
398-400; Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposes only,
discussed suprasec. 14, money raised by taxation can be expended only for public purposes and not for the
advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution, public funds may be used only for public
purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for
one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other
than for a public purpose.
 xxx xxx xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed
to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound,
are a necessary corollary to our democratic system of government, which, as such, exists primarily for the
promotion of the general welfare. Besides, reflecting as they do, the established jurisprudence in the United
States, after whose constitutional system ours has been patterned, said views and jurisprudence are, likewise,
part and parcel of our own constitutional law.lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground
that petitioner may not contest the legality of the donation above referred to because the same does not affect
him directly. This conclusion is, presumably, based upon the following premises, namely: (1) that, if valid, said
donation cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be
annulled without a previous declaration of unconstitutionality of the said donation; and (3) that the rule set forth
in Article 1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon
events occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of the
organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute.
Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof
depended upon whether said roads were public or private property when the bill, which, latter on, became
Republic Act 920, was passed by Congress, or, when said bill was approved by the President and the
disbursement of said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the
land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result
is that said appropriation sought a private purpose, and hence, was null and void. 4 The donation to the
Government, over five (5) months after the approval and effectivity of said Act, made, according to the petition,
for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its
aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the
declaration of unconstitutionality of said appropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For
instance, the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said
Code, exercise the rights and actions of the latter, except only those which are inherent in his person, including
therefore, his right to the annulment of said contract, even though such creditors are not affected by the same,
except indirectly, in the manner indicated in said legal provision.

Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct
injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers,
laws providing for the disbursement of public funds, 5upon the theory that "the expenditure of public funds by
an officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of
such funds," which may be enjoined at the request of a taxpayer. 6Although there are some decisions to the
contrary, 7the prevailing view in the United States is stated in the American Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute, the general rule is that not only persons individually affected, but also taxpayers,
have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore
question the constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis
supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S.
447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its
Federal Government is different from that of a taxpayer of a municipal corporation to its government. Indeed,
under thecomposite system of government existing in the U.S., the states of the Union are integral part of the
Federation from an international viewpoint, but, each state enjoys internally a substantial measure of
sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same was made by
representatives of each state of the Union, not of the people of the U.S., except insofar as the former
represented the people of the respective States, and the people of each State has, independently of that of the
others, ratified said Constitution. In other words, the Federal Constitution and the Federal statutes have become
binding upon the people of the U.S. in consequence of an act of, and, in this sense, through the respective states
of the Union of which they are citizens. The peculiar nature of the relation between said people and the Federal
Government of the U.S. is reflected in the election of its President, who is chosen directly, not by the people of
the U.S., but by electors chosen by each State, in such manner as the legislature thereof may direct (Article II,
section 2, of the Federal Constitution).lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its
Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers
of each state and the government thereof, except that the authority of the Republic of the Philippines over the
people of the Philippines is more fully direct than that of the states of the Union, insofar as
the simple and unitary type of our national government is not subject to limitations analogous to those imposed
by the Federal Constitution upon the states of the Union, and those imposed upon the Federal Government in
the interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the
constitutionality of a legislation appropriating local or state public funds which has been upheld by the
Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the Philippines
than that adopted with respect to acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the
Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price
being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the Senate (42
Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to question the
constitutionality of an appropriation for backpay of members of Congress. However, in Rodriguez vs. Treasurer
of the Philippines and Barredo vs.Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained
the action of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the
same. Moreover, the reason that impelled this Court to take such position in said two (2) cases the
importance of the issues therein raised is present in the case at bar. Again, like the petitioners in the
Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal, which he
represents officially as its Provincial Governor, is our most populated political subdivision, 8and, the taxpayers
therein bear a substantial portion of the burden of taxation, in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners
action in contesting the appropriation and donation in question; that this action should not have been dismissed
by the lower court; and that the writ of preliminary injunction should have been maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for
further proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose C.
Zulueta. It is so ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David, Paredes,
and Dizon, JJ., concur.
INHERENT LIMITATIONS

PURPOSE MUST BE PUBLIC IN NATURE

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-77194 March 15, 1988

VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE

ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER
LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO LLAMAS, RODOLFO SIASON,
PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET AL., petitioners,
vs.
REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY
ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA P.
DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE
PLANTERS, intervenors.

MELENCIO-HERRERA, J.:
Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in their individual
capacities and in representation of other sugar producers, planters and millers, said to be so numerous that it is
impracticable to bring them all before the Court although the subject matter of the present controversy is of
common interest to all sugar producers, whether parties in this action or not.

Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government office
tasked with the function of regulating and supervising the sugar industry until it was superseded by its co-
respondent Sugar Regulatory Administration (SRA, for brevity) under Executive Order No. 18 on May 28,
1986. Although said Executive Order abolished the PHILSUCOM, its existence as a juridical entity was
mandated to continue for three (3) more years "for the purpose of prosecuting and defending suits by or against
it and enables it to settle and close its affairs, to dispose of and convey its property and to distribute its assets."

Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation.

Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in different mill
districts of Negros Occidental, were allowed to intervene by the Court, since they have common cause with
petitioners and respondents having interposed no objection to their intervention. Subsequently, on January
14,1988, the National Federation of Sugar Planters (NFSP) also moved to intervene, which the Court allowed
on February 16,1988.

Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding respondents:

TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC PLANTERS BANK BY

THE TRANSFER AND DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID BANK; NOW HELD
BY AND STILL CARRIED IN THE NAME OF THE PHILIPPINE SUGAR COMMISSION, TO THE
SUGAR PRODUCERS, PLANTERS AND MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF
THE 761,416 COMMON SHARES VALUED AT P36,548.000.00, AND 53,005,045 PREFERRED SHARES
(A, B & C) WITH A TOTAL PAR VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF
P290,972,224.72, THE SAID INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF Pl.00
PER PICUL FROM SUGAR PROCEEDS OF THE SUGAR PRODUCERS COMMENCING THE YEAR
1978-79 UNTIL THE PRESENT AS STABILIZATION FUND PURSUANT TO P.D. # 388.

Respondent Bank does not take issue with either petitioners or its correspondents as it has no beneficial or
equitable interest that may be affected by the ruling in this Petition, but welcomes the filing of the Petition since
it will settle finally the issue of legal ownership of the questioned shares of stock.

Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no trust results
from Section 7 of P.D. No. 388; that the stabilization fees collected are considered government funds under the
Government Auditing Code; that the transfer of shares of stock from PHILSUCOM to the sugar producers
would be irregular, if not illegal; and that this suit is barred by laches.

The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees collected from
sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds; and
(2) whether shares of stock in respondent Bank paid for with said stabilization fees belong to the PHILSUCOM
or to the different sugar planters and millers from whom the fees were collected or levied.

P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the collection
of a Stabilization Fund as follows:

SEC. 7. Capitalization, Special Fund of the Commission, Development and Stabilization Fund. There is
hereby established a fund for the commission for the purpose of financing the growth and development of the
sugar industry and all its components, stabilization of the domestic market including the foreign market to
be administered in trust by the Commission and deposited in the Philippine National Bank derived in the
manner herein below cited from the following sources:

a. Stabilization fund shall be collected as provided for in the various provisions of this Decree.

b. Stabilization fees shall be collected from planters and millers in the amount of Two (P2.00) Pesos for every
picul produced and milled for a period of five years from the approval of this Decree and One (Pl.00) Peso for
every picul produced and milled every year thereafter.

Provided: That fifty (P0.50) centavos per picul of the amount levied on planters, millers and traders under
Section 4(c) of this Decree will be used for the payment of salaries and wages of personnel, fringe benefits and
allowances of officers and employees for the purpose of accomplishing and employees for the purpose of
accomplishing the efficient performance of the duties of the Commission.

Provided, further: That said amount shall constitute a lien on the sugar quedan and/or warehouse receipts and
shall be paid immediately by the planters and mill companies, sugar centrals and refineries to the Commission.
(paragraphing and bold supplied).

Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in trust by the
Commission." However, while the element of an intent to create a trust is present, a resulting trust in favor of
the sugar producers, millers and planters cannot be said to have ensued because the presumptive intention of the
parties is not reasonably ascertainable from the language of the statute itself.

The doctrine of resulting trusts is founded on the presumed intention of the parties; and as a general rule, it
arises where, and only where such may be reasonably presumed to be the intention of the parties, as determined
from the facts and circumstances existing at the time of the transaction out of which it is sought to be
established (89 C.J.S. 947).

No implied trust in favor of the sugar producers either can be deduced from the imposition of the levy. "The
essential Idea of an implied trust involves a certain antagonism between the cestui que trust and the trustee even
when the trust has not arisen out of fraud nor out of any transaction of a fraudulent or immoral character (65 CJ
222). It is not clearly shown from the statute itself that the PHILSUCOM imposed on itself the obligation of
holding the stabilization fund for the benefit of the sugar producers. It must be categorically demonstrated that
the very administrative agency which is the source of such regulation would place a burden on itself
(Batchelder v. Central Bank of the Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po
Lay, 94 Phil. 640 [1954]).

Neither can petitioners place reliance on the history of respondents Bank. They recite that at the beginning, the
Bank was owned by the Roman-Rojas Group. Because it underwent difficulties early in the year 1978, Mr.
Roberto S. Benedicto, then Chairman of the PHILSUCOM, submitted a proposal to the Central Bank for the
rehabilitation of the Bank. The Central Bank acted favorably on the proposal at the meeting of the Monetary
Board on March 31, 1978 subject to the infusion of fresh capital by the Benedicto Group. Petitioners maintain
that this infusion of fresh capital was accomplished, not by any capital investment by Mr. Benedicto, but by
PHILSUCOM, which set aside the proceeds of the P1.00 per picul stabilization fund to pay for its subscription
in shares of stock of respondent Bank. It is petitioners' submission that all shares were placed in
PHILSUCOM's name only out of convenience and necessity and that they are the true and beneficial owners
thereof.

In point of fact, we cannot see our way clear to upholding petitioners' position that the investment of the
proceeds from the stabilization fund in subscriptions to the capital stock of the Bank were being made for and
on their behalf. That could have been clarified by the Trust Agreement, dated May 28, 1986, entered into
between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officer-in-Charge, and respondent
RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM holds said shares for and in behalf of
the sugar producers," the latter "being the true and beneficial owners thereof." The Agreement, however, did not
get off the ground because it failed to receive the approval of the PHILSUCOM Board of Commissioners as
required in the Agreement itself.

The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse opinion of
the SRA, Resident Auditor, dated June 25,1986, which was aimed by the Chairman of the Commission on
Audit, on January 26,1987.

On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of the
Commission on Audit that the aforementioned Agreement is of doubtful validity."

From the legal standpoint, we find basis for the opinion of the Commission on Audit reading:

That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory Administration, in particular,
owns and stocks. While it is true that the collected stabilization fees were set aside by PHILSUCOM to pay its
subscription to RPB, it did not collect said fees for the account of the sugar producers. That stabilization fees
are charges/levies on sugar produced and milled which accrued to PHILSUCOM under PD 338, as amended. ...

The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for
the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D.
No. 388). The collections made accrue to a "Special Fund," a "Development and Stabilization Fund," almost
Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act
567. 1 The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to
provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police
power of the State (Lutz vs. Araneta, supra.).

The protection of a large industry constituting one of the great sources of the state's wealth and therefore
directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such
an extent by public interests as to be within the police power of the sovereign. (Johnson vs. State ex rel. Marey,
128 So. 857, cited in Lutz vs. Araneta, supra).

The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special
purpose that of "financing the growth and development of the sugar industry and all its components,
stabilization of the domestic market including the foreign market the fact that the State has taken possession of
moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special
purpose (Lawrence vs. American Surety Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. Jur. Sec. 2, p. 718).
Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the
language of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or
abandoned, the balance, if any, is to be transferred to the general funds of the Government. That is the essence
of the trust intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article
VI, Sec. 23(l]). 2

The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited
in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in
pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec. 29[1],1973 Constitution,
Article VIII, Sec. 18[l]).
That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to
the purchase of shares of stock in respondent Bank do not convert the funds into a trust fired for their benefit
nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be collected from
them since it is also they who are to be benefited from the expenditure of the funds derived from it. The
investment in shares of respondent Bank is not alien to the purpose intended because of the Bank's character as
a commodity bank for sugar conceived for the industry's growth and development. Furthermore, of note is the
fact that one-half, (1/2) or PO.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the
"payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees of
PHILSUCOM" thereby immediately negating the claim that the entire amount levied is in trust for sugar,
producers, planters and millers.

To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be
used for purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be
utilized for the benefit of the entire sugar industry, "and all its components, stabilization of the domestic
market," including the foreign market the industry being of vital importance to the country's economy and to
national interest.

WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs.

This Decision is immediately executory.

SO ORDERED.

Teehankee, C.J., Yap, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento,
Cortes and Grio-Aquino, JJ., concur.

Fernan, J., took no part.

TERRITORIAL VS PERSONAL JURISDICTION

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-65773-74 April 30, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents.

Quasha, Asperilla, Ancheta, Pea, Valmonte & Marcos for respondent British Airways.

MELENCIO-HERRERA, J.:

Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of the
Court of Tax Appeals (CTA) in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, which set aside
petitioner's assessment of deficiency income taxes against respondent British Overseas Airways Corporation
(BOAC) for the fiscal years 1959 to 1967, 1968-69 to 1970-71, respectively, as well as its Resolution of 18
November, 1983 denying reconsideration.

BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United
Kingdom It is engaged in the international airline business and is a member-signatory of the Interline Air
Transport Association (IATA). As such it operates air transportation service and sells transportation tickets over
the routes of the other airline members. During the periods covered by the disputed assessments, it is admitted
that BOAC had no landing rights for traffic purposes in the Philippines, and was not granted a Certificate of
public convenience and necessity to operate in the Philippines by the Civil Aeronautics Board (CAB), except
for a nine-month period, partly in 1961 and partly in 1962, when it was granted a temporary landing permit by
the CAB. Consequently, it did not carry passengers and/or cargo to or from the Philippines, although during the
period covered by the assessments, it maintained a general sales agent in the Philippines Wamer Barnes and
Company, Ltd., and later Qantas Airways which was responsible for selling BOAC tickets covering
passengers and cargoes. 1

G.R. No. 65773 (CTA Case No. 2373, the First Case)

On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for brevity) assessed BOAC the aggregate
amount of P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963. This was protested by
BOAC. Subsequent investigation resulted in the issuance of a new assessment, dated 16 January 1970 for the
years 1959 to 1967 in the amount of P858,307.79. BOAC paid this new assessment under protest.
On 7 October 1970, BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by
the CIR on 16 February 1972. But before said denial, BOAC had already filed a petition for review with the
Tax Court on 27 January 1972, assailing the assessment and praying for the refund of the amount paid.

G.R. No. 65774 (CTA Case No. 2561, the Second Case)

On 17 November 1971, BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years
1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of P1,000.00 and
P1,800.00 as compromise penalties for violation of Section 46 (requiring the filing of corporation returns)
penalized under Section 74 of the National Internal Revenue Code (NIRC).

On 25 November 1971, BOAC requested that the assessment be countermanded and set aside. In a letter, dated
16 February 1972, however, the CIR not only denied the BOAC request for refund in the First Case but also re-
issued in the Second Case the deficiency income tax assessment for P534,132.08 for the years 1969 to 1970-71
plus P1,000.00 as compromise penalty under Section 74 of the Tax Code. BOAC's request for reconsideration
was denied by the CIR on 24 August 1973. This prompted BOAC to file the Second Case before the Tax Court
praying that it be absolved of liability for deficiency income tax for the years 1969 to 1971.

This case was subsequently tried jointly with the First Case.

On 26 January 1983, the Tax Court rendered the assailed joint Decision reversing the CIR. The Tax Court held
that the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd.,
and later by Qantas Airways, during the period in question, do not constitute BOAC income from Philippine
sources "since no service of carriage of passengers or freight was performed by BOAC within the Philippines"
and, therefore, said income is not subject to Philippine income tax. The CTA position was that income from
transportation is income from services so that the place where services are rendered determines the source.
Thus, in the dispositive portion of its Decision, the Tax Court ordered petitioner to credit BOAC with the sum
of P858,307.79, and to cancel the deficiency income tax assessments against BOAC in the amount of
P534,132.08 for the fiscal years 1968-69 to 1970-71.

Hence, this Petition for Review on certiorari of the Decision of the Tax Court.

The Solicitor General, in representation of the CIR, has aptly defined the issues, thus:

1. Whether or not the revenue derived by private respondent British Overseas Airways Corporation (BOAC)
from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute
income of BOAC from Philippine sources, and, accordingly, taxable.

2. Whether or not during the fiscal years in question BOAC s a resident foreign corporation doing business in
the Philippines or has an office or place of business in the Philippines.

3. In the alternative that private respondent may not be considered a resident foreign corporation but a non-
resident foreign corporation, then it is liable to Philippine income tax at the rate of thirty-five per cent (35%) of
its gross income received from all sources within the Philippines.

Under Section 20 of the 1977 Tax Code:

(h) the term resident foreign corporation engaged in trade or business within the Philippines or having an office
or place of business therein.
(i) The term "non-resident foreign corporation" applies to a foreign corporation not engaged in trade or business
within the Philippines and not having any office or place of business therein

It is our considered opinion that BOAC is a resident foreign corporation. There is no specific criterion as to
what constitutes "doing" or "engaging in" or "transacting" business. Each case must be judged in the light of its
peculiar environmental circumstances. The term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the
business organization. 2 "In order that a foreign corporation may be regarded as doing business within a State,
there must be continuity of conduct and intention to establish a continuous business, such as the appointment of
a local agent, and not one of a temporary character. 3

BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in the
Philippines, That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing tickets; (2)
breaking down the whole trip into series of trips each trip in the series corresponding to a different airline
company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various airline
companies on the basis of their participation in the services rendered through the mode of interline settlement
as prescribed by Article VI of the Resolution No. 850 of the IATA Agreement." 4 Those activities were in
exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and
object of its organization as an international air carrier. In fact, the regular sale of tickets, its main activity, is the
very lifeblood of the airline business, the generation of sales being the paramount objective. There should be no
doubt then that BOAC was "engaged in" business in the Philippines through a local agent during the period
covered by the assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net
income received in the preceding taxable year from all sources within the Philippines. 5

Sec. 24. Rates of tax on corporations. ...

(b) Tax on foreign corporations. ...

(2) Resident corporations. A corporation organized, authorized, or existing under the laws of any foreign
country, except a foreign fife insurance company, engaged in trade or business within the Philippines, shall be
taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable
year from all sources within the Philippines. (Emphasis supplied)

Next, we address ourselves to the issue of whether or not the revenue from sales of tickets by BOAC in the
Philippines constitutes income from Philippine sources and, accordingly, taxable under our income tax laws.

The Tax Code defines "gross income" thus:

"Gross income" includes gains, profits, and income derived from salaries, wages or compensation for personal
service of whatever kind and in whatever form paid, or from profession, vocations, trades,business,
commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or
interest in such property; also from interests, rents, dividends, securities, or thetransactions of any business
carried on for gain or profile, or gains, profits, and income derived from any source whatever (Sec. 29[3];
Emphasis supplied)

The definition is broad and comprehensive to include proceeds from sales of transport documents. "The words
'income from any source whatever' disclose a legislative policy to include all income not expressly exempted
within the class of taxable income under our laws." Income means "cash received or its equivalent"; it is the
amount of money coming to a person within a specific time ...; it means something distinct from principal or
capital. For, while capital is a fund, income is a flow. As used in our income tax law, "income" refers to the flow
of wealth. 6

The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71 amounted
to P10,428,368 .00. 7

Did such "flow of wealth" come from "sources within the Philippines",

The source of an income is the property, activity or service that produced the income. 8 For the source of
income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity
within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the
income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency.
The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within,
Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of supporting the government.

A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the
contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of the ticket to
pay the fare and the corresponding obligation of the carrier to transport the passenger upon the terms and
conditions set forth thereon. The ordinary ticket issued to members of the traveling public in general embraces
within its terms all the elements to constitute it a valid contract, binding upon the parties entering into the
relationship. 9

True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the
Philippines, namely: (1) interest, (21) dividends, (3) service, (4) rentals and royalties, (5) sale of real property,
and (6) sale of personal property, does not mention income from the sale of tickets for international
transportation. However, that does not render it less an income from sources within the Philippines. Section 37,
by its language, does not intend the enumeration to be exclusive. It merely directs that the types of income
listed therein be treated as income from sources within the Philippines. A cursory reading of the section will
show that it does not state that it is an all-inclusive enumeration, and that no other kind of income may be so
considered. " 10

BOAC, however, would impress upon this Court that income derived from transportation is income for
services, with the result that the place where the services are rendered determines the source; and since BOAC's
service of transportation is performed outside the Philippines, the income derived is from sources without the
Philippines and, therefore, not taxable under our income tax laws. The Tax Court upholds that stand in the joint
Decision under review.

The absence of flight operations to and from the Philippines is not determinative of the source of income or the
site of income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to this
case. The test of taxability is the "source"; and the source of an income is that activity ... which produced the
income. 11 Unquestionably, the passage documentations in these cases were sold in the Philippines and the
revenue therefrom was derived from a activity regularly pursued within the Philippines. business a And even if
the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", 12 it cannot
alter the fact that income from the sale of tickets was derived from the Philippines. The word "source" conveys
one essential idea, that of origin, and the origin of the income herein is the Philippines.13

It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by
the questioned deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71.
For, pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972, international carriers are now
taxed as follows:
... Provided, however, That international carriers shall pay a tax of 2- per cent on their cross Philippine
billings. (Sec. 24[b] [21, Tax Code).

Presidential Decree No. 1355, promulgated on 21 April, 1978, provided a statutory definition of the term "gross
Philippine billings," thus:

... "Gross Philippine billings" includes gross revenue realized from uplifts anywhere in the world by any
international carrier doing business in the Philippines of passage documents sold therein, whether for
passenger, excess baggage or mail provided the cargo or mail originates from the Philippines. ...

The foregoing provision ensures that international airlines are taxed on their income from Philippine sources.
The 2- % tax on gross Philippine billings is an income tax. If it had been intended as an excise or percentage
tax it would have been place under Title V of the Tax Code covering Taxes on Business.

Lastly, we find as untenable the BOAC argument that the dismissal for lack of merit by this Court of the appeal
inJAL vs. Commissioner of Internal Revenue (G.R. No. L-30041) on February 3, 1969, is res judicata to the
present case. The ruling by the Tax Court in that case was to the effect that the mere sale of tickets,
unaccompanied by the physical act of carriage of transportation, does not render the taxpayer therein subject to
the common carrier's tax. As elucidated by the Tax Court, however, the common carrier's tax is an excise tax,
being a tax on the activity of transporting, conveying or removing passengers and cargo from one place to
another. It purports to tax the business of transportation. 14 Being an excise tax, the same can be levied by the
State only when the acts, privileges or businesses are done or performed within the jurisdiction of the
Philippines. The subject matter of the case under consideration is income tax, a direct tax on the income of
persons and other entities "of whatever kind and in whatever form derived from any source." Since the two
cases treat of a different subject matter, the decision in one cannot be res judicata to the other.

WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is hereby SET ASIDE. Private
respondent, the British Overseas Airways Corporation (BOAC), is hereby ordered to pay the amount of
P534,132.08 as deficiency income tax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge, and 1%
monthly interest from April 16, 1972 for a period not to exceed three (3) years in accordance with the Tax
Code. The BOAC claim for refund in the amount of P858,307.79 is hereby denied. Without costs.

SO ORDERED.

Paras, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.

Fernan, J., took no part.

Separate Opinions

TEEHANKEE, C.J., concurring:

I concur with the Court's majority judgment upholding the assessments of deficiency income taxes against
respondent BOAC for the fiscal years 1959-1969 to 1970-1971 and therefore setting aside the appealed joint
decision of respondent Court of Tax Appeals. I just wish to point out that the conflict between the majority
opinion penned by Mr. Justice Feliciano as to the proper characterization of the taxable income derived by
respondent BOAC from the sales in the Philippines of tickets foe BOAC form the issued by its general sales
agent in the Philippines gas become moot after November 24, 1972. Booth opinions state that by amendment
through P.D. No.69, promulgated on November 24, 1972, of section 24(b) (2) of the Tax Code providing dor
the rate of income tax on foreign corporations, international carriers such as respondent BOAC, have since then
been taxed at a reduced rate of 2-% on their gross Philippine billings. There is, therefore, no longer ant source
of substantial conflict between the two opinions as to the present 2-% tax on their gross Philippine billings
charged against such international carriers as herein respondent foreign corporation.

FELICIANO, J., dissenting:

With great respect and reluctance, i record my dissent from the opinion of Mme. Justice A.A. Melencio-Herrera
speaking for the majority . In my opinion, the joint decision of the Court of Tax Appeals in CTA Cases Nos.
2373 and 2561, dated 26 January 1983, is correct and should be affirmed.

The fundamental issue raised in this petition for review is whether the British Overseas Airways Corporation
(BOAC), a foreign airline company which does not maintain any flight operations to and from the Philippines,
is liable for Philippine income taxation in respect of "sales of air tickets" in the Philippines through a general
sales agent, relating to the carriage of passengers and cargo between two points both outside the Philippines.

1. The Solicitor General has defined as one of the issue in this case the question of:

2. Whether or not during the fiscal years in question 1 BOAC [was] a resident foreign corporation doing
business in the Philippines or [had] an office or place of business in the Philippines.

It is important to note at the outset that the answer to the above-quoted issue is not determinative of the lialibity
of the BOAC to Philippine income taxation in respect of the income here involved. The liability of BOAC to
Philippine income taxation in respect of such income depends, not on BOAC's status as a "resident foreign
corporation" or alternatively, as a "non-resident foreign corporation," but rather on whether or not such income
is derived from "source within the Philippines."

A "resident foreign corporation" or foreign corporation engaged in trade or business in the Philippines or
having an office or place of business in the Philippines is subject to Philippine income taxation only in respect
of income derived from sources within the Philippines. Section 24 (b) (2) of the National Internal Revenue
CODE ("Tax Code"), as amended by Republic Act No. 2343, approved 20 June 1959, as it existed up to 3
August 1969, read as follows:

(2) Resident corporations. A foreign corporation engaged in trade or business with in the Philippines (expect
foreign life insurance companies) shall be taxable as provided in subsection (a) of this section.

Section 24 (a) of the Tax Code in turn provides:

Rate of tax on corporations. (a) Tax on domestic corporations. ... and a like tax shall be livied, collected,
and paid annually upon the total net income received in the preceeding taxable year from all sources within the
Philippines by every corporation organized, authorized, or existing under the laws of any foreign country: ... .
(Emphasis supplied)

Republic Act No. 6110, which took effect on 4 August 1969, made this even clearer when it amended once
more Section 24 (b) (2) of the Tax Code so as to read as follows:
(2) Resident Corporations. A corporation, organized, authorized or existing under the laws of any foreign
counrty, except foreign life insurance company, engaged in trade or business within the Philippines, shall be
taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable
year from all sources within the Philippines. (Emphasis supplied)

Exactly the same rule is provided by Section 24 (b) (1) of the Tax Code upon non-resident foreign corporations.
Section 24 (b) (1) as amended by Republic Act No. 3825 approved 22 June 1963, read as follows:

(b) Tax on foreign corporations. (1) Non-resident corporations. There shall be levied, collected and paid
for each taxable year, in lieu of the tax imposed by the preceding paragraph upon the amount received by every
foreign corporation not engaged in trade or business within the Philippines, from all sources within the
Philippines, as interest, dividends, rents, salaries, wages, premium, annuities, compensations, remunerations,
emoluments, or other fixed or determinative annual or periodical gains, profits and income a tax equal to thirty
per centum of such amount: provided, however, that premiums shall not include reinsurance premiums. 2

Clearly, whether the foreign corporate taxpayer is doing business in the Philippines and therefore a resident
foreign corporation, or not doing business in the Philippines and therefore a non-resident foreign corporation, it
is liable to income tax only to the extent that it derives income from sources within the Philippines. The
circumtances that a foreign corporation is resident in the Philippines yields no inference that all or any part of
its income is Philippine source income. Similarly, the non-resident status of a foreign corporation does not
imply that it has no Philippine source income. Conversely, the receipt of Philippine source income creates no
presumption that the recipient foreign corporation is a resident of the Philippines. The critical issue, for present
purposes, is therefore whether of not BOAC is deriving income from sources within the Philippines.

2. For purposes of income taxation, it is well to bear in mind that the "source of income" relates not to the
physical sourcing of a flow of money or the physical situs of payment but rather to the "property, activity or
service which produced the income." In Howden and Co., Ltd. vs. Collector of Internal Revenue, 3 the court
dealt with the issue of the applicable source rule relating to reinsurance premiums paid by a local insurance
company to a foreign reinsurance company in respect of risks located in the Philippines. The Court said:

The source of an income is the property, activity or services that produced the income. The reinsurance
premiums remitted to appellants by virtue of the reinsurance contract, accordingly, had for their source the
undertaking to indemnify Commonwealth Insurance Co. against liability. Said undertaking is the activity that
produced the reinsurance premiums, and the same took place in the Philippines. [T]he reinsurance, the
liabilities insured and the risk originally underwritten by Commonwealth Insurance Co., upon which the
reinsurance premiums and indemnity were based, were all situated in the Philippines. 4

The Court may be seen to be saying that it is the underlying prestation which is properly regarded as the
activity giving rise to the income that is sought to be taxed. In the Howden case, that underlying prestation was
theindemnification of the local insurance company. Such indemnification could take place only in the
Philippines where the risks were located and where payment from the foreign reinsurance (in case the casualty
insured against occurs) would be received in Philippine pesos under the reinsurance premiums paid by the local
insurance companies constituted Philippine source income of the foreign reinsurances.

The concept of "source of income" for purposes of income taxation originated in the United States income tax
system. The phrase "sources within the United States" was first introduced into the U.S. tax system in 1916,
and was subsequently embodied in the 1939 U.S. Tax Code. As is commonly known, our Tax Code
(Commonwealth Act 466, as amended) was patterned after the 1939 U.S. Tax Code. It therefore seems useful to
refer to a standard U.S. text on federal income taxation:
The Supreme Court has said, in a definition much quoted but often debated, that income may be derived from
three possible sources only: (1) capital and/or (2) labor and/or (3) the sale of capital assets. While the three
elements of this attempt at definition need not be accepted as all-inclusive, they serve as useful guides in any
inquiry into whether a particular item is from "source within the United States" and suggest an investigation
into the nature and location of the activities or property which produce the income. If the income is from labor
(services) the place where the labor is done should be decisive; if it is done in this counrty, the income should
be from "source within the United States." If the income is from capital, the place where the capital is
employed should be decisive; if it is employed in this country, the income should be from "source within the
United States". If the income is from the sale of capital assets, the place where the sale is made should be
likewise decisive. Much confusion will be avoided by regarding the term "source" in this fundamental light. It
is not a place; it is an activity or property. As such, it has a situs or location; and if that situs or location is
within the United States the resulting income is taxable to nonresident aliens and foreign corporations. The
intention of Congress in the 1916 and subsequent statutes was to discard the 1909 and 1913 basis of taxing
nonresident aliens and foreign corporations and to make the test of taxability the "source", or situs of the
activities or property which produce the income . . . . Thus, if income is to taxed, the recipient thereof must be
resident within the jurisdiction, or the property or activities out of which the income issue or is derived must be
situated within the jurisdiction so that the source of the income may be said to have a situs in this country. The
underlying theory is that the consideration for taxation is protection of life and propertyand that the income
rightly to be levied upon to defray the burdens of the United States Government is that income which is created
by activities and property protected by this Government or obtained by persons enjoying that protection. 5

3. We turn now to the question what is the source of income rule applicable in the instant case. There are two
possibly relevant source of income rules that must be confronted; (a) the source rule applicable in respect
ofcontracts of service; and (b) the source rule applicable in respect of sales of personal property.

Where a contract for the rendition of service is involved, the applicable source rule may be simply stated as
follows: the income is sourced in the place where the service contracted for is rendered. Section 37 (a) (3) of
our Tax Code reads as follows:

Section 37. Income for sources within the Philippines.

(a) Gross income from sources within the Philippines. The following items of gross income shall be treated
as gross income from sources within the Philippines:

xxx xxx xxx

(3) Services. Compensation for labor or personal services performed in the Philippines;... (Emphasis
supplied)

Section 37 (c) (3) of the Tax Code, on the other hand, deals with income from sources without the Philippines
in the following manner:

(c) Gross income from sources without the Philippines. The following items of gross income shall be treated
as income from sources without the Philippines:

(3) Compensation for labor or personal services performed without the Philippines; ... (Emphasis supplied)

It should not be supposed that Section 37 (a) (3) and (c) (3) of the Tax Code apply only in respect of services
rendered by individual natural persons; they also apply to services rendered by or through the medium of a
juridical person. 6 Further, a contract of carriage or of transportation is assimilated in our Tax Code and
Revenue Regulations to a contract for services. Thus, Section 37 (e) of the Tax Code provides as follows:
(e) Income form sources partly within and partly without the Philippines. Items of gross income, expenses,
losses and deductions, other than those specified in subsections (a) and (c) of this section shall be allocated or
apportioned to sources within or without the Philippines, under the rules and regulations prescribed by the
Secretary of Finance. ... Gains, profits, and income from (1)transportation or other services rendered partly
within and partly without the Philippines, or (2) from the sale of personnel property produced (in whole or in
part) by the taxpayer within and sold without the Philippines, or produced (in whole or in part) by the taxpayer
without and sold within the Philippines, shall be treated as derived partly from sources within and partly from
sources without the Philippines. ... (Emphasis supplied)

It should be noted that the above underscored portion of Section 37 (e) was derived from the 1939 U.S. Tax
Code which "was based upon a recognition that transportation was a service and that the source of the income
derived therefrom was to be treated as being the place where the service of transportation was rendered. 7

Section 37 (e) of the Tax Code quoted above carries a strong well-nigh irresistible, implication that income
derived from transportation or other services rendered entirely outside the Philippines must be treated as
derived entirely from sources without the Philippines. This implication is reinforced by a consideration of
certain provisions of Revenue Regulations No. 2 entitled "Income Tax Regulations" as amended, first
promulgated by the Department of Finance on 10 February 1940. Section 155 of Revenue Regulations No. 2
(implementing Section 37 of the Tax Code) provides in part as follows:

Section 155. Compensation for labor or personnel services. Gross income from sources within the
Philippines includes compensation for labor or personal services within the Philippines regardless of the
residence of the payer, of the place in which the contract for services was made, or of the place of payment
(Emphasis supplied)

Section 163 of Revenue Regulations No. 2 (still relating to Section 37 of the Tax Code) deals with a particular
species of foreign transportation companies i.e., foreign steamship companies deriving income from sources
partly within and partly without the Philippines:

Section 163 Foreign steamship companies. The return of foreign steamship companies whose vessels touch
parts of the Philippines should include as gross income, the total receipts of all out-going business whether
freight or passengers. With the gross income thus ascertained, the ratio existing between it and the gross income
from all ports, both within and without the Philippines of all vessels, whether touching of the Philippines or not,
should be determined as the basis upon which allowable deductions may be computed, . (Emphasis
supplied)

Another type of utility or service enterprise is dealt with in Section 164 of Revenue Regulations No. 2 (again
implementing Section 37 of the Tax Code) with provides as follows:

Section 164. Telegraph and cable services. A foreign corporation carrying on the business of transmission of
telegraph or cable messages between points in the Philippines and points outside the Philippines derives income
partly form source within and partly from sources without the Philippines.

... (Emphasis supplied)

Once more, a very strong inference arises under Sections 163 and 164 of Revenue Regulations No. 2 that
steamship and telegraph and cable services rendered between points both outside the Philippines give rise to
income wholly from sources outside the Philippines, and therefore not subject to Philippine income taxation.

We turn to the "source of income" rules relating to the sale of personal property, upon the one hand, and to the
purchase and sale of personal property, upon the other hand.
We consider first sales of personal property. Income from the sale of personal property by the producer or
manufacturer of such personal property will be regarded as sourced entirely within or entirely without the
Philippines or as sourced partly within and partly without the Philippines, depending upon two factors: (a) the
place where the sale of such personal property occurs; and (b) the place where such personal property was
produced or manufactured. If the personal property involved was both produced or manufactured and sold
outside the Philippines, the income derived therefrom will be regarded as sourced entirely outside the
Philippines, although the personal property had been produced outside the Philippines, or if the sale of the
property takes place outside the Philippines and the personal was produced in the Philippines, then, the income
derived from the sale will be deemed partly as income sourced without the Philippines. In other words, the
income (and the related expenses, losses and deductions) will be allocated between sources within and sources
without the Philippines. Thus, Section 37 (e) of the Tax Code, although already quoted above, may be usefully
quoted again:

(e) Income from sources partly within and partly without the Philippines. ... Gains, profits and income from (1)
transportation or other services rendered partly within and partly without the Philippines; or (2)from the sale of
personal property produced (in whole or in part) by the taxpayer within and sold without the Philippines, or
produced (in whole or in part) by the taxpayer without and sold within the Philippines, shall be treated as
derived partly from sources within and partly from sources without the Philippines. ... (Emphasis supplied)

In contrast, income derived from the purchase and sale of personal property i. e., trading is, under the Tax
Code, regarded as sourced wholly in the place where the personal property is sold. Section 37 (e) of the Tax
Code provides in part as follows:

(e) Income from sources partly within and partly without the Philippines ... Gains, profits and income derived
from the purchase of personal property within and its sale without the Philippines or from the purchase of
personal property without and its sale within the Philippines, shall be treated as derived entirely from sources
within the country in which sold. (Emphasis supplied)

Section 159 of Revenue Regulations No. 2 puts the applicable rule succinctly:

Section 159. Sale of personal property. Income derived from the purchase and sale of personal property shall
be treated as derived entirely from the country in which sold. The word "sold" includes "exchange." The
"country" in which "sold" ordinarily means the place where the property is marketed. This Section does not
apply to income from the sale personal property produced (in whole or in part) by the taxpayer within and sold
without the Philippines or produced (in whole or in part) by the taxpayer without and sold within the
Philippines. (See Section 162 of these regulations). (Emphasis supplied)

4. It will be seen that the basic problem is one of characterization of the transactions entered into by BOAC in
the Philippines. Those transactions may be characterized either as sales of personal property (i. e., "sales of
airline tickets") or as entering into a lease of services or a contract of service or carriage. The applicable
"source of income" rules differ depending upon which characterization is given to the BOAC transactions.

The appropriate characterization, in my opinion, of the BOAC transactions is that of entering into contracts of
service, i.e., carriage of passengers or cargo between points located outside the Philippines.

The phrase "sale of airline tickets," while widely used in popular parlance, does not appear to be correct as a
matter of tax law. The airline ticket in and of itself has no monetary value, even as scrap paper. The value of the
ticket lies wholly in the right acquired by the "purchaser" the passenger to demand a prestation from
BOAC, which prestation consists of the carriage of the "purchaser" or passenger from the one point to another
outside the Philippines. The ticket is really the evidence of the contract of carriage entered into between BOAC
and the passenger. The money paid by the passenger changes hands in the Philippines. But the passenger does
not receive undertaken to be delivered by BOAC. The "purchase price of the airline ticket" is quite different
from the purchase price of a physical good or commodity such as a pair of shoes of a refrigerator or an
automobile; it is really the compensation paid for the undertaking of BOAC to transport the passenger or cargo
outside the Philippines.

The characterization of the BOAC transactions either as sales of personal property or as purchases and sales of
personal property, appear entirely inappropriate from other viewpoint. Consider first purchases and sales: is
BOAC properly regarded as engaged in trading in the purchase and sale of personal property? Certainly,
BOAC was not purchasing tickets outside the Philippines and selling them in the Philippines. Consider next
sales: can BOAC be regarded as "selling" personal property produced or manufactured by it? In a popular or
journalistic sense, BOAC might be described as "selling" "a product" its service. However, for the technical
purposes of the law on income taxation, BOAC is in fact entering into contracts of service or carriage. The very
existance of "source rules" specifically and precisely applicable to the rendition of services must preclude the
application here of "source rules" applying generally to sales, and purchases and sales, of personal property
which can be invoked only by the grace of popular language. On a slighty more abstract level, BOAC's income
is more appropriately characterized as derived from a "service", rather than from an "activity" (a broader term
than service and including the activity of selling) or from the here involved is income taxation, and not a
sales tax or an excise or privilege tax.

5. The taxation of international carriers is today effected under Section 24 (b) (2) of the Tax Code, as amended
by Presidential Decree No. 69, promulgated on 24 November 1972 and by Presidential Decree No. 1355,
promulgated on 21 April 1978, in the following manner:

(2) Resident corporations. A corporation organized, authorized, or existing under the laws of any foreign
country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of
this section upon the total net income received in the preceeding taxable year from all sources within the
Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per cent on
their gross Philippine billings. "Gross Philippines of passage documents sold therein, whether for passenger,
excess baggege or mail, provide the cargo or mail originates from the Philippines. The gross revenue realized
from the said cargo or mail shall include the gross freight charge up to final destination. Gross revenues from
chartered flights originating from the Philippines shall likewise form part of "gross Philippine billings"
regardless of the place of sale or payment of the passage documents. For purposes of determining the taxability
to revenues from chartered flights, the term "originating from the Philippines" shall include flight of
passsengers who stay in the Philippines for more than forty-eight (48) hours prior to embarkation. (Emphasis
supplied)

Under the above-quoted proviso international carriers issuing for compensation passage documentation in the
Philippines for uplifts from any point in the world to any other point in the world, are not charged any
Philippineincome tax on their Philippine billings (i.e., billings in respect of passenger or cargo originating from
the Philippines). Under this new approach, international carriers who service port or points in the Philippines
are treated in exactly the same way as international carriers not serving any port or point in the Philippines.
Thus, the source of income rule applicable, as above discussed, to transportation or other services rendered
partly within and partly without the Philippines, or wholly without the Philippines, has been set aside. in place
of Philippine income taxation, the Tax Code now imposes this 2 per cent tax computed on the basis of billings
in respect of passengers and cargo originating from the Philippines regardless of where embarkation and
debarkation would be taking place. This 2- per cent tax is effectively a tax on gross receipts or an excise or
privilege tax and not a tax on income. Thereby, the Government has done away with the difficulties attending
the allocation of income and related expenses, losses and deductions. Because taxes are the very lifeblood of
government, the resulting potential "loss" or "gain" in the amount of taxes collectible by the state is sometimes,
with varying degrees of consciousness, considered in choosing from among competing possible
characterizations under or interpretation of tax statutes. It is hence perhaps useful to point out that the
determination of the appropriate characterization here that of contracts of air carriage rather than sales of
airline tickets entails no down-the-road loss of income tax revenues to the Government. In lieu thereof, the
Government takes in revenues generated by the 2- per cent tax on the gross Philippine billings or receipts of
international carriers.

I would vote to affirm the decision of the Court of Tax Appeals.

Separate Opinions

TEEHANKEE, C.J., concurring:

I concur with the Court's majority judgment upholding the assessments of deficiency income taxes against
respondent BOAC for the fiscal years 1959-1969 to 1970-1971 and therefore setting aside the appealed joint
decision of respondent Court of Tax Appeals. I just wish to point out that the conflict between the majority
opinion penned by Mr. Justice Feliciano as to the proper characterization of the taxable income derived by
respondent BOAC from the sales in the Philippines of tickets foe BOAC form the issued by its general sales
agent in the Philippines gas become moot after November 24, 1972. Booth opinions state that by amendment
through P.D. No.69, promulgated on November 24, 1972, of section 24(b) (2) of the Tax Code providing dor
the rate of income tax on foreign corporations, international carriers such as respondent BOAC, have since then
been taxed at a reduced rate of 2-% on their gross Philippine billings. There is, therefore, no longer ant source
of substantial conflict between the two opinions as to the present 2-% tax on their gross Philippine billings
charged against such international carriers as herein respondent foreign corporation.

FELICIANO, J., dissenting:

With great respect and reluctance, i record my dissent from the opinion of Mme. Justice A.A. Melencio-Herrera
speaking for the majority . In my opinion, the joint decision of the Court of Tax Appeals in CTA Cases Nos.
2373 and 2561, dated 26 January 1983, is correct and should be affirmed.

The fundamental issue raised in this petition for review is whether the British Overseas Airways Corporation
(BOAC), a foreign airline company which does not maintain any flight operations to and from the Philippines,
is liable for Philippine income taxation in respect of "sales of air tickets" in the Philippines through a general
sales agent, relating to the carriage of passengers and cargo between two points both outside the Philippines.

1. The Solicitor General has defined as one of the issue in this case the question of:

2. Whether or not during the fiscal years in question 1 BOAC [was] a resident foreign corporation doing
business in the Philippines or [had] an office or place of business in the Philippines.

It is important to note at the outset that the answer to the above-quoted issue is not determinative of the lialibity
of the BOAC to Philippine income taxation in respect of the income here involved. The liability of BOAC to
Philippine income taxation in respect of such income depends, not on BOAC's status as a "resident foreign
corporation" or alternatively, as a "non-resident foreign corporation," but rather on whether or not such income
is derived from "source within the Philippines."
A "resident foreign corporation" or foreign corporation engaged in trade or business in the Philippines or
having an office or place of business in the Philippines is subject to Philippine income taxation only in respect
of income derived from sources within the Philippines. Section 24 (b) (2) of the National Internal Revenue
CODE ("Tax Code"), as amended by Republic Act No. 2343, approved 20 June 1959, as it existed up to 3
August 1969, read as follows:

(2) Resident corporations. A foreign corporation engaged in trade or business with in the Philippines (expect
foreign life insurance companies) shall be taxable as provided in subsection (a) of this section.

Section 24 (a) of the Tax Code in turn provides:

Rate of tax on corporations. (a) Tax on domestic corporations. ... and a like tax shall be livied, collected,
and paid annually upon the total net income received in the preceeding taxable year from all sources within the
Philippines by every corporation organized, authorized, or existing under the laws of any foreign country: ... .
(Emphasis supplied)

Republic Act No. 6110, which took effect on 4 August 1969, made this even clearer when it amended once
more Section 24 (b) (2) of the Tax Code so as to read as follows:

(2) Resident Corporations. A corporation, organized, authorized or existing under the laws of any foreign
counrty, except foreign life insurance company, engaged in trade or business within the Philippines, shall be
taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable
year from all sources within the Philippines. (Emphasis supplied)

Exactly the same rule is provided by Section 24 (b) (1) of the Tax Code upon non-resident foreign corporations.
Section 24 (b) (1) as amended by Republic Act No. 3825 approved 22 June 1963, read as follows:

(b) Tax on foreign corporations. (1) Non-resident corporations. There shall be levied, collected and paid
for each taxable year, in lieu of the tax imposed by the preceding paragraph upon the amount received by every
foreign corporation not engaged in trade or business within the Philippines, from all sources within the
Philippines, as interest, dividends, rents, salaries, wages, premium, annuities, compensations, remunerations,
emoluments, or other fixed or determinative annual or periodical gains, profits and income a tax equal to thirty
per centum of such amount: provided, however, that premiums shall not include reinsurance premiums. 2

Clearly, whether the foreign corporate taxpayer is doing business in the Philippines and therefore a resident
foreign corporation, or not doing business in the Philippines and therefore a non-resident foreign corporation, it
is liable to income tax only to the extent that it derives income from sources within the Philippines. The
circumtances that a foreign corporation is resident in the Philippines yields no inference that all or any part of
its income is Philippine source income. Similarly, the non-resident status of a foreign corporation does not
imply that it has no Philippine source income. Conversely, the receipt of Philippine source income creates no
presumption that the recipient foreign corporation is a resident of the Philippines. The critical issue, for present
purposes, is therefore whether of not BOAC is deriving income from sources within the Philippines.

2. For purposes of income taxation, it is well to bear in mind that the "source of income" relates not to the
physical sourcing of a flow of money or the physical situs of payment but rather to the "property, activity or
service which produced the income." In Howden and Co., Ltd. vs. Collector of Internal Revenue, 3 the court
dealt with the issue of the applicable source rule relating to reinsurance premiums paid by a local insurance
company to a foreign reinsurance company in respect of risks located in the Philippines. The Court said:

The source of an income is the property, activity or services that produced the income. The reinsurance
premiums remitted to appellants by virtue of the reinsurance contract, accordingly, had for their source the
undertaking to indemnify Commonwealth Insurance Co. against liability. Said undertaking is the activity that
produced the reinsurance premiums, and the same took place in the Philippines. [T]he reinsurance, the
liabilities insured and the risk originally underwritten by Commonwealth Insurance Co., upon which the
reinsurance premiums and indemnity were based, were all situated in the Philippines. 4

The Court may be seen to be saying that it is the underlying prestation which is properly regarded as the
activity giving rise to the income that is sought to be taxed. In the Howden case, that underlying prestation was
theindemnification of the local insurance company. Such indemnification could take place only in the
Philippines where the risks were located and where payment from the foreign reinsurance (in case the casualty
insured against occurs) would be received in Philippine pesos under the reinsurance premiums paid by the local
insurance companies constituted Philippine source income of the foreign reinsurances.

The concept of "source of income" for purposes of income taxation originated in the United States income tax
system. The phrase "sources within the United States" was first introduced into the U.S. tax system in 1916,
and was subsequently embodied in the 1939 U.S. Tax Code. As is commonly known, our Tax Code
(Commonwealth Act 466, as amended) was patterned after the 1939 U.S. Tax Code. It therefore seems useful to
refer to a standard U.S. text on federal income taxation:

The Supreme Court has said, in a definition much quoted but often debated, that income may be derived from
three possible sources only: (1) capital and/or (2) labor and/or (3) the sale of capital assets. While the three
elements of this attempt at definition need not be accepted as all-inclusive, they serve as useful guides in any
inquiry into whether a particular item is from "source within the United States" and suggest an investigation
into the nature and location of the activities or property which produce the income. If the income is from labor
(services) the place where the labor is done should be decisive; if it is done in this counrty, the income should
be from "source within the United States." If the income is from capital, the place where the capital is
employed should be decisive; if it is employed in this country, the income should be from "source within the
United States". If the income is from the sale of capital assets, the place where the sale is made should be
likewise decisive. Much confusion will be avoided by regarding the term "source" in this fundamental light. It
is not a place; it is an activity or property. As such, it has a situs or location; and if that situs or location is
within the United States the resulting income is taxable to nonresident aliens and foreign corporations. The
intention of Congress in the 1916 and subsequent statutes was to discard the 1909 and 1913 basis of taxing
nonresident aliens and foreign corporations and to make the test of taxability the "source", or situs of the
activities or property which produce the income . . . . Thus, if income is to taxed, the recipient thereof must be
resident within the jurisdiction, or the property or activities out of which the income issue or is derived must be
situated within the jurisdiction so that the source of the income may be said to have a situs in this country. The
underlying theory is that the consideration for taxation is protection of life and propertyand that the income
rightly to be levied upon to defray the burdens of the United States Government is that income which is created
by activities and property protected by this Government or obtained by persons enjoying that protection. 5

3. We turn now to the question what is the source of income rule applicable in the instant case. There are two
possibly relevant source of income rules that must be confronted; (a) the source rule applicable in respect
ofcontracts of service; and (b) the source rule applicable in respect of sales of personal property.

Where a contract for the rendition of service is involved, the applicable source rule may be simply stated as
follows: the income is sourced in the place where the service contracted for is rendered. Section 37 (a) (3) of
our Tax Code reads as follows:

Section 37. Income for sources within the Philippines.

(a) Gross income from sources within the Philippines. The following items of gross income shall be treated
as gross income from sources within the Philippines:
 xxx xxx xxx

(3) Services. Compensation for labor or personal services performed in the Philippines;... (Emphasis
supplied)

Section 37 (c) (3) of the Tax Code, on the other hand, deals with income from sources without the Philippines
in the following manner:

(c) Gross income from sources without the Philippines. The following items of gross income shall be treated
as income from sources without the Philippines:

(3) Compensation for labor or personal services performed without the Philippines; ... (Emphasis supplied)

It should not be supposed that Section 37 (a) (3) and (c) (3) of the Tax Code apply only in respect of services
rendered by individual natural persons; they also apply to services rendered by or through the medium of a
juridical person. 6 Further, a contract of carriage or of transportation is assimilated in our Tax Code and
Revenue Regulations to a contract for services. Thus, Section 37 (e) of the Tax Code provides as follows:

(e) Income form sources partly within and partly without the Philippines. Items of gross income, expenses,
losses and deductions, other than those specified in subsections (a) and (c) of this section shall be allocated or
apportioned to sources within or without the Philippines, under the rules and regulations prescribed by the
Secretary of Finance. ... Gains, profits, and income from (1)transportation or other services rendered partly
within and partly without the Philippines, or (2) from the sale of personnel property produced (in whole or in
part) by the taxpayer within and sold without the Philippines, or produced (in whole or in part) by the taxpayer
without and sold within the Philippines, shall be treated as derived partly from sources within and partly from
sources without the Philippines. ... (Emphasis supplied)

It should be noted that the above underscored portion of Section 37 (e) was derived from the 1939 U.S. Tax
Code which "was based upon a recognition that transportation was a service and that the source of the income
derived therefrom was to be treated as being the place where the service of transportation was rendered. 7

Section 37 (e) of the Tax Code quoted above carries a strong well-nigh irresistible, implication that income
derived from transportation or other services rendered entirely outside the Philippines must be treated as
derived entirely from sources without the Philippines. This implication is reinforced by a consideration of
certain provisions of Revenue Regulations No. 2 entitled "Income Tax Regulations" as amended, first
promulgated by the Department of Finance on 10 February 1940. Section 155 of Revenue Regulations No. 2
(implementing Section 37 of the Tax Code) provides in part as follows:

Section 155. Compensation for labor or personnel services. Gross income from sources within the
Philippines includes compensation for labor or personal services within the Philippines regardless of the
residence of the payer, of the place in which the contract for services was made, or of the place of payment
(Emphasis supplied)

Section 163 of Revenue Regulations No. 2 (still relating to Section 37 of the Tax Code) deals with a particular
species of foreign transportation companies i.e., foreign steamship companies deriving income from sources
partly within and partly without the Philippines:

Section 163 Foreign steamship companies. The return of foreign steamship companies whose vessels touch
parts of the Philippines should include as gross income, the total receipts of all out-going business whether
freight or passengers. With the gross income thus ascertained, the ratio existing between it and the gross income
from all ports, both within and without the Philippines of all vessels, whether touching of the Philippines or not,
should be determined as the basis upon which allowable deductions may be computed, . (Emphasis
supplied)

Another type of utility or service enterprise is dealt with in Section 164 of Revenue Regulations No. 2 (again
implementing Section 37 of the Tax Code) with provides as follows:

Section 164. Telegraph and cable services. A foreign corporation carrying on the business of transmission of
telegraph or cable messages between points in the Philippines and points outside the Philippines derives
income partly form source within and partly from sources without the Philippines.

... (Emphasis supplied)

Once more, a very strong inference arises under Sections 163 and 164 of Revenue Regulations No. 2 that
steamship and telegraph and cable services rendered between points both outside the Philippines give rise to
income wholly from sources outside the Philippines, and therefore not subject to Philippine income taxation.

We turn to the "source of income" rules relating to the sale of personal property, upon the one hand, and to the
purchase and sale of personal property, upon the other hand.

We consider first sales of personal property. Income from the sale of personal property by the producer or
manufacturer of such personal property will be regarded as sourced entirely within or entirely without the
Philippines or as sourced partly within and partly without the Philippines, depending upon two factors: (a) the
place where the sale of such personal property occurs; and (b) the place where such personal property was
produced or manufactured. If the personal property involved was both produced or manufactured and sold
outside the Philippines, the income derived therefrom will be regarded as sourced entirely outside the
Philippines, although the personal property had been produced outside the Philippines, or if the sale of the
property takes place outside the Philippines and the personal was produced in the Philippines, then, the income
derived from the sale will be deemed partly as income sourced without the Philippines. In other words, the
income (and the related expenses, losses and deductions) will be allocated between sources within and sources
without the Philippines. Thus, Section 37 (e) of the Tax Code, although already quoted above, may be usefully
quoted again:

(e) Income from sources partly within and partly without the Philippines. ... Gains, profits and income from (1)
transportation or other services rendered partly within and partly without the Philippines; or (2)from the sale of
personal property produced (in whole or in part) by the taxpayer within and sold without the Philippines, or
produced (in whole or in part) by the taxpayer without and sold within the Philippines, shall be treated as
derived partly from sources within and partly from sources without the Philippines. ... (Emphasis supplied)

In contrast, income derived from the purchase and sale of personal property i. e., trading is, under the Tax
Code, regarded as sourced wholly in the place where the personal property is sold. Section 37 (e) of the Tax
Code provides in part as follows:

(e) Income from sources partly within and partly without the Philippines ... Gains, profits and income derived
from the purchase of personal property within and its sale without the Philippines or from the purchase of
personal property without and its sale within the Philippines, shall be treated as derived entirely from sources
within the country in which sold. (Emphasis supplied)

Section 159 of Revenue Regulations No. 2 puts the applicable rule succinctly:

Section 159. Sale of personal property. Income derived from the purchase and sale of personal property shall
be treated as derived entirely from the country in which sold. The word "sold" includes "exchange." The
"country" in which "sold" ordinarily means the place where the property is marketed. This Section does not
apply to income from the sale personal property produced (in whole or in part) by the taxpayer within and sold
without the Philippines or produced (in whole or in part) by the taxpayer without and sold within the
Philippines. (See Section 162 of these regulations). (Emphasis supplied)

4. It will be seen that the basic problem is one of characterization of the transactions entered into by BOAC in
the Philippines. Those transactions may be characterized either as sales of personal property (i. e., "sales of
airline tickets") or as entering into a lease of services or a contract of service or carriage. The applicable
"source of income" rules differ depending upon which characterization is given to the BOAC transactions.

The appropriate characterization, in my opinion, of the BOAC transactions is that of entering into contracts of
service, i.e., carriage of passengers or cargo between points located outside the Philippines.

The phrase "sale of airline tickets," while widely used in popular parlance, does not appear to be correct as a
matter of tax law. The airline ticket in and of itself has no monetary value, even as scrap paper. The value of the
ticket lies wholly in the right acquired by the "purchaser" the passenger to demand a prestation from
BOAC, which prestation consists of the carriage of the "purchaser" or passenger from the one point to another
outside the Philippines. The ticket is really the evidence of the contract of carriage entered into between BOAC
and the passenger. The money paid by the passenger changes hands in the Philippines. But the passenger does
not receive undertaken to be delivered by BOAC. The "purchase price of the airline ticket" is quite different
from the purchase price of a physical good or commodity such as a pair of shoes of a refrigerator or an
automobile; it is really the compensation paid for the undertaking of BOAC to transport the passenger or cargo
outside the Philippines.

The characterization of the BOAC transactions either as sales of personal property or as purchases and sales of
personal property, appear entirely inappropriate from other viewpoint. Consider first purchases and sales: is
BOAC properly regarded as engaged in trading in the purchase and sale of personal property? Certainly,
BOAC was not purchasing tickets outside the Philippines and selling them in the Philippines. Consider next
sales: can BOAC be regarded as "selling" personal property produced or manufactured by it? In a popular or
journalistic sense, BOAC might be described as "selling" "a product" its service. However, for the technical
purposes of the law on income taxation, BOAC is in fact entering into contracts of service or carriage. The very
existance of "source rules" specifically and precisely applicable to the rendition of services must preclude the
application here of "source rules" applying generally to sales, and purchases and sales, of personal property
which can be invoked only by the grace of popular language. On a slighty more abstract level, BOAC's income
is more appropriately characterized as derived from a "service", rather than from an "activity" (a broader term
than service and including the activity of selling) or from the here involved is income taxation, and not a
sales tax or an excise or privilege tax.

5. The taxation of international carriers is today effected under Section 24 (b) (2) of the Tax Code, as amended
by Presidential Decree No. 69, promulgated on 24 November 1972 and by Presidential Decree No. 1355,
promulgated on 21 April 1978, in the following manner:

(2) Resident corporations. A corporation organized, authorized, or existing under the laws of any foreign
country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of
this section upon the total net income received in the preceeding taxable year from all sources within the
Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per cent on
their gross Philippine billings. "Gross Philippines of passage documents sold therein, whether for passenger,
excess baggege or mail, provide the cargo or mail originates from the Philippines. The gross revenue realized
from the said cargo or mail shall include the gross freight charge up to final destination. Gross revenues from
chartered flights originating from the Philippines shall likewise form part of "gross Philippine billings"
regardless of the place of sale or payment of the passage documents. For purposes of determining the taxability
to revenues from chartered flights, the term "originating from the Philippines" shall include flight of
passsengers who stay in the Philippines for more than forty-eight (48) hours prior to embarkation. (Emphasis
supplied)

Under the above-quoted proviso international carriers issuing for compensation passage documentation in the
Philippines for uplifts from any point in the world to any other point in the world, are not charged any
Philippineincome tax on their Philippine billings (i.e., billings in respect of passenger or cargo originating from
the Philippines). Under this new approach, international carriers who service port or points in the Philippines
are treated in exactly the same way as international carriers not serving any port or point in the Philippines.
Thus, the source of income rule applicable, as above discussed, to transportation or other services rendered
partly within and partly without the Philippines, or wholly without the Philippines, has been set aside. in place
of Philippine income taxation, the Tax Code now imposes this 2 per cent tax computed on the basis of billings
in respect of passengers and cargo originating from the Philippines regardless of where embarkation and
debarkation would be taking place. This 2- per cent tax is effectively a tax on gross receipts or an excise or
privilege tax and not a tax on income. Thereby, the Government has done away with the difficulties attending
the allocation of income and related expenses, losses and deductions. Because taxes are the very lifeblood of
government, the resulting potential "loss" or "gain" in the amount of taxes collectible by the state is sometimes,
with varying degrees of consciousness, considered in choosing from among competing possible
characterizations under or interpretation of tax statutes. It is hence perhaps useful to point out that the
determination of the appropriate characterization here that of contracts of air carriage rather than sales of
airline tickets entails no down-the-road loss of income tax revenues to the Government. In lieu thereof, the
Government takes in revenues generated by the 2- per cent tax on the gross Philippine billings or receipts of
international carriers.

I would vote to affirm the decision of the Court of Tax Appeals.

Narvasa, Gutierrez, Jr., and Cruz, JJ., dissent.

TERRITORIAL VS PERSONAL JURISDICTION

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 60714 March 6, 1991

COMMISSIONER OF INTERNAL REVENUE, petitioner

vs.
JAPAN AIR LINES, INC., and THE COURT OF TAX APPEALS, Respondents.

The Solicitor General and Attys. F. R. Quiogue & F. T. Dumpit, for respondents

PARAS, J.:

This petition for review seeks the reversal of the decision* of the Court of Tax Appeals in CTA Case No. 2480
promulgated on January 15, 1982 which set aside petitioner's assessment of deficiency income tax inclusive of
interest and surcharge as well as compromise penalty for violation of bookkeeping regulations charged against
respondent.
The antecedental facts of the case are as follows:

Respondent Japan Air Lines, Inc. (hereinafter referred to as JAL for brevity), is a foreign corporation engaged
in the business of international air carriage. From 1959 to 1963, JAL did not have planes that lifted or landed
passengers and cargo in the Philippines as it had not been granted then by the Civil Aeronautics Board (CAB) a
certificate of public convenience and necessity to operate here. However, since mid-July, 1957, JAL had
maintained an officeat the Filipinas Hotel, Roxas Boulevard, Manila. Said office did not sell tickets but was
maintained merely for the promotion of the company's public relations and to hand out brochures, literature and
other information playing up the attractions of Japan as a tourist spot and the services enjoyed in JAL planes.

On July 17, 1957, JAL constituted the Philippine Air Lines (PAL), as its general sales agent in the Philippines.
As an agent, PAL, among other things, sold for and in behalf of JAL, plane tickets and reservations for cargo
spaces which were used by the passengers or customers on the facilities of JAL.

On June 2, 1972, JAL received deficiency income tax assessment notices and a demand letter from petitioner
Commissioner of Internal Revenue (hereinafter referred to as Commissioner for brevity), all dated February 28,
1972, for a total amount of P2,099,687.52 inclusive of 50% surcharge and interest, for years 1959 through
1963, computed as follows:

1959 1960 1961

Net income per P472,025.16 P476,671.48 P734,812.77

investigation

Tax due thereon 133,608.00 135,001.00 212,444.00

Add: 50% surch. 66,804.00 67,500.50 106,222.00

1/2% mo. int.

(3 yrs.) 24,049.44 24,300.18 38,239.92

Total due P224,461.44 P226,801.68 P356,905.92

=========== =========== ===========

1962 1963 S U M M AR Y

Net income per P1,065,641.63 P1,550,230.48 P224,461.44

investigation

Tax due thereon 311,692.00 457,069.00 226,801.68

Add:50% surch. 155,846.00 228,534.50 356,905.92

1/2% mo. int. 523,642.56

(3 yrs.)
56,104.56 82,272.42 767,875.92

Total due P 523,642.56 P 767,875.92 P2,099,687.52

============= ============ =============

Compromise Penalty P 1,500.00

On June 19, 1972, JAL protested said assessments alleging that as a non-resident foreign corporation, it was
taxable only on income from Philippine sources as determined under Section 37 of the Tax Code, and there
being no such income during the period in question, it was not liable for the deficiency income tax liabilities
assessed (Rollo, pp. 53-55). The Commissioner resolved otherwise and in a letter-decision dated December 21,
1972, denied JAL's request for cancellaton of the assessment (Ibid., p. 29).

JAL therefore, elevated the case to the Court of Tax Appeals which, in turn, reversed the decision (Ibid., pp. 51-
76) and thereafter denied the motion for reconsideration filed by the Commissioner (Ibid., p. 77). Hence, this
petition.

Petitioner raises two issues in this wise:

1. WHETHER OR NOT PROCEEDS FROM SALES OF JAPAN AIR LINES TICKETS SOLD IN THE
PHILIPPINES ARE TAXABLE AS INCOME FROM SOURCES WITHIN THE PHILIPPINES.

2. WHETHER OR NOT JAPAN AIR LINES IS A FOREIGN CORPORATION ENGAGED IN TRADE OR

BUSINESS IN THE PHILIPPINES.

The petition is impressed with merit.

The issues in the case at bar have already been laid to rest in no less than three cases resolved by this Court.
Anent the first issue, the landmark case of Commissioner of Internal Revenue vs. British Overseas Airways
Corporation (G.R. No.L-65773-74, April 30, 1987, 149 SCRA 395) has categorically ruled:

"The Tax Code defines `gross income' thus:

`Gross income' includes gains, profits, and income derived from salaries, wages or compensation for personal
service of whatever kind and in whatever form paid, or from profession, vocations, trades, business, commerce,
sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in
such property; also from interests, rents, dividends, securities, or the transaction of any business carried on for
gain or profit, or gains, profits and income derived from any source whatever" (Sec. 29(3);Emphasis supplied)

"The definition is broad and comprehensive to include proceeds from sales of transport documents. The words
`income from any source whatever' disclose a legislative policy to include all income not expressly exempted
within the class of taxable income under our laws. Income means `cash received or its equivalent'; it is the
amount of money coming to a person within a specific time x x x; it means something distinct from principal or
capital. For, while capital is a fund, income is a flow. As used in our income tax law, `income' refers to the flow
of wealth (Madrigal and Paternol vs. Rafferty and Concepcion, 38 Phil. 414 [1918]).

"x x x x x x

"x x x x x x
"The source of an income is the property, activity or service that produced the income. For the source of income
to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within
the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income.
The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs
of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within,
Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of supporting the government.

"x x x x x x

"True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the
Philippines, namely: (1) interest, (2) dividends, (3) service, (4) rentals and royalties, (5) sale of real property,
and (6) sale of personal property, does not mention income from the sale of tickets for international
transportation. However, that does not render it less an income from sources within the Philippines.

Section 37, by its language does not intend the enumeration to be exclusive. It merely directs that the types of
income listed therein be treated as income from sources within the Philippines. A cursory reading of the section
will show that it does not state that it is an all-inclusive enumeration, and that no other kind of income may be
so considered (British Traders Insurance Co., Ltd. vs. Commissioner of Internal Revenue, 13 SCRA 719
[1965]).

"x x x x x x

"The absence of flight operations to and from the Philippines is not determinative of the source of income or
the situs of income taxation. x x x The test of taxability is the `source'; and the source of an income is that
activity x x x which produced the income (Howden & Co., Ltd. vs. Collector of Internal Revenue, 13 SCRA
601 [1965]). Unquestionably, the passage documentations in these cases were sold in the Philippines and the
revenue therefrom was derived from a business activity regularly pursued within the Philippines. x x x The
word `source' conveys one essential Idea, that of origin, and the origin of the income herein is the Philippines
(Manila Gas Corporation vs. Collector of Internal Revenue, 62 Phil. 895 [1935])."

The above ruling was adopted en toto in the subsequent case of Commissioner of Internal Revenue vs. Air India
and the Court of Tax Appeals (G.R. No. L-72443, January 29, 1988, 157 SCRA 648) holding that the revenue
derived from the sales of airplane tickets through its agent Philippine Air Lines, Inc., here in the Philippines,
must be considered taxable income, and more recently, in the case of Commissioner of Internal Revenue vs.
American Airlines, Inc. and Court of Tax Appeals (G.R. No. 67938, December 19, 1989, 180 SCRA 274), it
was likewise declared that for the source of income to be considered as coming from the Philippines, it is
sufficient that the income is derived from activities within this country regardless of the absence of flight
operations within Philippine territory.

Verily, JAL is a residentforeigncorporation under Section 84 (g) of the NationalInternalRevenue Code of1939.
Definitionofwhata resident foreign corpora-tion is was likewise reproduced under Section 20 of the 1977 Tax
Code.

The BOAC Doctrine has expressed in unqualified terms:

"Under Section 20 of the 1977 Tax Code:

"(h) the term `resident foreign corporation' applies to a foreign corporation engaged in trade or business within
the Philippines or having an office or place of business therein.
"(i) the term `non-resident foreign corporation' applies to a foreign corporation not engaged in trade or business
within the Philippines and not having any office or place of business therein."

"x x x. There is no specific criterion as to what constitutes `doing' or `engaging in' or `transacting' business.
Each case must be judged in the light of its peculiar environmental circumstances. The term implies continuity
of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain
or for the purpose and object of the business organization (The Mentholatum Co., Inc., et al. vs. Anacleto
Mangaliman, et al., 72 Phil. 524 (1941); Section 1, R.A. No. 5455). In order that a foreign corporation may be
regarded as doing business within a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one of a temporary character (Pacific
Micronesian Line, Inc. vs. Del Rosario and Peligon, 96 Phil. 23, 30, citing Thompson on Corporations, Vol. 8,
3rd ed., pp. 844-847 and Fisher's Philippine Law of Stock Corporation, p. 415).

There being no dispute that JAL constituted PAL as local agent to sell its airline tickets, there can be no
conclusion other than that JAL is a resident foreign corporation, doing business in the Philippines. Indeed, the
sale of tickets is the very lifeblood of the airline business, the generation of sales being the paramount objective
(Commissioner of Internal Revenue vs. British Overseas Airways Corporation, supra). The case of CIR vs.
American Airlines, Inc. (supra) sums it up as follows:

"x x x, foreign airline companies which sold tickets in the Philippines through their local agents, whether called
liaison offices, agencies or branches, were considered resident foreign corporations engaged in trade or
business in the country. Such activities show continuity of commercial dealings or arrangements and
performance of acts or works or the exercise of some functions normally incident to and in progressive
prosecution of commercial gain or for the purpose and object of the business organization."

Under Section 24 of Commonwealth Act No. 466 otherwise known as the "National Internal Revenue Code of
1939", the applicable law in the case at bar, resident foreign corporations are taxed thirty percentum (30%)
upon the amount by which their total net income exceed one hundred thousand pesos. JAL is liable to pay 30%
of its total net income for the years 1959 through 1963 as contradistinguished from the computation arrived at
by the Commissioner as shown in the assessment. Apparently, the Commissioner failed to specify the tax base
on the total net income of JAL in figuring out the total income due, i.e., whether 25% or 30% level.

Having established the tax liability of respondent JAL, the only thing left to determine is the propriety of the
50% surcharge imposed by petitioner. It appears that this must be answered in the negative. As held in the case
of CIR vs. Air India (supra):

"The 50% surcharge or fraud penalty provided in Section 72 of the National Internal Revenue Code is imposed
on a delinquent taxpayer who willfully neglects to file the required tax return within the period prescribed by
the law, or who willfully files a false or fraudulent tax return, x x x.

"x x x x x x

"On the other hand, the same Section provides that if the failure to file the required tax return is not due to
willful neglect, a penalty of 25% is to be added to the amount of the tax due from the taxpayer."

Nowhere in the records of the case can be found that JAL deliberately failed to file its income tax returns for
the years covered by the assessment. There was not even an attempt by petitioner to prove the same or justify
the imposition of the 50% surcharge. All that petitioner did was to cite the provision of law upon which the
surcharge was based without explaining why it was applicable to respondent's case. Such cannot be
countenanced for mere allegations are definitely not acceptable. The willful neglect to file the required tax
return or the fraudulent intent to evade the payment of taxes, considering that the same is accompanied by legal
consequences, cannot be presumed (CIR vs. Air India, supra). The fraud contemplated by law is actual and
constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to
in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to
the fraud with intent to evade the tax contemplated by the law. It must amount to intentional wrongdoing with
the sole object of evading the tax (Aznar v. Court of Tax Appeals, G.R. No. L-20569, August 23, 1974, 58
SCRA 519). This was not proven to be so in the case of JAL as it believed in good faith that it need not file the
tax return for it had no taxable income then. The element of fraud is lacking. At most, only negligence may be
imputed to JAL for not ascertaining the dispensability of filing the tax returns. As such, JAL may be subjected
only to the 25% surcharge prescribed by the aforequoted law.

As to the 1/2% interest per month, the same finds basis in Section 51(d) of the Tax Code then in force which
states:

(d) Interest on deficiency. Interest upon the amount determined as a deficiency shall be assessed at the same
time as the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue;
and shall be collected as a part of the tax, at the rate of six per centum per annum from the date prescribed for
the payment of the tax x x x; PROVIDED, That the maximum amount that may be collected as interest on
deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions
regarding prescription to the contrary notwithstanding.

The 6% interest per annum is the same as 1/2% interest per month and petitioner correctly computed such
interest equivalent to three years which is the maximum set by the law.

On the other hand, the compromise penalty amounting to P1,500.00 for violation of bookkeeping regulations
appears to be without support. The particular provision in the said regulations allegedly violated was not even
specified. Furthermore, the term "compromise penalty" itself is not found among the penal provisions of the
Bookkeeping Regulations (Revenue Regulations No. V-1, as amended, March 17, 1947, pp. 836-837, Revenue
Regulations Updated by Prof. Eustaquio Ordono, 1984). The compromise penalty is therefore, improperly
imposed.

In sum, the following schedule as recomputed illustrates the total tax liability of the private respondent for the
years 1959 through 1963 -

Net Income 30% of Net Income as Add 25% surcharge Add 6% interest per Summary of Total Income Tax Due
under under Sec. 72 NIRC annum for a maximum Tax Due from the
Secs. 24(a) and (b) of 1939 of 3 years under Private Respondent
(2) NIRC of 1939 Sec. 51(d) NIRC of
1939

1959 P 472,025.16 P 141,607.54 P 35,401.88 P 25,489.35 P 202,498.77

1960 476,671.48 143,001.44 35,750.36 25,740.25 204,492.05

1961 734,812.77 220,443.83 55,110.95 39,679.88 315,234.66

1962 1,065,641.63 319,692.48 79,923.12 399,615.60

1963 1,550,230.48 465,069.14 116,267.28 581,336.42

P1,703,177.40

Accordingly, private respondent is liable for unpaid taxes and charges in the total amount of ONE MILLION
SEVEN HUNDRED THREE THOUSAND ONE HUNDRED SEVENTY SEVENAND FORTY CENTAVOS
(P1,703,177.40) The dismissal for lack of merit by this Court of the appeal in JAL v. Commissioner of Internal
Revenue (G.R. No. L-30041) on February 3, 1969 is not res judicata to the present case. The Tax Court ruled in
that case that the mere sale of tickets, unaccompanied by the physical act of carriage of transportation, does not
render the taxpayer therein subject to the common carrier's tax. The common carrier's tax is an excise tax,
being a tax on the activity of transporting, conveying or removing passengers and cargo from one place to
another. It purports to tax the business of transportation. Being an excise tax, the same can be levied by the
State only when the acts, privileges or businesses are done or performed within the jurisdiction of the
Philippines (Commissioner of Internal Revenue v. British Overseas Airways Corporation, supra).

The subject matter of the case underconsideration is income tax, a direct tax on the income of persons and other
entities "of whatever kind and in whatever form derived from any source." Since the two cases treat of a
different subject matter, the decision in G.R. No. L-30041 cannot be res judicata with respect to this case.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the decision of the Court of Tax Appeals in
CTA Case No. 2480 is SET ASIDE; and (c) private respondent JAL is ordered to pay the amount of
P1,703,177.40 as deficiency taxes for the fiscal years 1959 to 1963 inclusive of interest andsurcharges.

SO ORDERED.

Fernan,C.J., Narvasas, Melencio-Herrera, Gutierrez,Jr.,Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,

Sarmiento, Aquino, Medialdea, Regalado,and Davide,Jr.,JJ., concur.
TERRITORIAL VS PERSONAL JURISDICTION

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-52019 August 19, 1988

ILOILO BOTTLERS, INC., plaintiff-appellee,

vs.
CITY OF ILOILO, defendant-appellant.

Efrain B. Trenas for plaintiff-appellee.

Diosdado Garingalao for defendant-appellant.

CORTES, J.:

The fundamental issue in this appeal is whether the Iloilo Bottlers, Inc. which had its bottling plant in Pavia,
Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5, series of 1960, as
amended, which imposes a municipal license tax on distributors of soft-drinks.

On July 12,1972, Iloilo Bottlers, Inc. filed a complaint docketed as Civil Case No. 9046 with the Court of First
Instance of Iloilo praying for the recovery of the sum of P3,329.20, which amount allegedly constituted
payments of municipal license taxes under Ordinance No. 5 series of 1960, as amended, that the company paid
under protest.

On November 15,1972, the parties submitted a partial stipulation of facts, the material portions of which state

xxx xxx xxx

2. That plaintiff is engaged in the business of bottling softdrinks under the trade name of Pepsi Cola And 7-up
and selling the same to its customers, with a bottling plant situated at Barrio Ungca Municipality of Pavia,
Iloilo, Philippines and which is outside the jurisdiction of defendant;
3. That defendant enacted an ordinance on January 11, 1960 known as Ordinance No. 5, Series of 1960 which
ordinance was successively amended by Ordinance No. 28, Series of 1960; Ordinance No. 15, Series of 1964;
and Ordinance No. 45, Series of 1964; which provides as follows:

Section l. Any person, firm or corporation engaged in the distribution, manufacture or bottling of coca-cola,
pepsi cola, tru-orange, seven-up and other soft drinks within the jurisdiction of the City of Iloilo, shall pay a
municipal license tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED, HOWEVER,
that softdrinks sold to the public at not more than five (P0.05) centavos per bottle shall pay a tax of one and one
half (P0.015) (centavos) per case of twenty four bottles.

Section 1-AFor purposes of this Ordinance, all deliveries and/or dispatches emanating or made at the plant
and all goods or stocks taken out of the plant for distribution, sale or exchange irrespective (of) where it would
take place shall be covered by the operation of this Ordinance.

4. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a bottling plant at Muelle Loney
Street, Iloilo City, which was doing business under the name of Seven-up Bottling Company of the Philippines
and bottled the soft-drinks Pepsi-Cola and 7-up; however sometime on September 14,1966, Santiago Syjuco,
Inc., informed all its employees that it (was) closing its Iloilo Plant due to financial losses and in fact closed the
same and later sold the plant to the plaintiff Iloilo Bottlers, Inc.

5. That thereafter, plaintiff operated the said plant by bottling the soft drinks Pepsi-Cola and 7-up; however,
sometime in July 1968, plaintiff closed said bottling plant at Muelle Loney, Iloilo City, and transferred its
bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is
outside the jurisdiction of the City of Iloilo;

6. That from the time of (the) enactment (of the ordinance), the Seven Up Bottling Company of the Philippines
under Santiago Syjuco Inc., had been religiously paying the defendant City of Iloilo the above- mentioned
municipal license tax due therefrom for bottler because its bottling plant was then still situated at Muelle Loney
St., Iloilo City; but the plaintiff stopped paying the municipal license tax (after) October 21, 1968 (when) it
transferred its plant to Barrio Ungca Municipality of Pavia, Iloilo which is outside the jurisdiction of the City of
Iloilo;

7. That sometime on July 31, 1969, the defendant demanded from the plaintiff the payment of the municipal
license tax under the above-mentioned ordinance, a xerox copy of the said letter is attached to the complaint as
Annex "A" and made an integral part hereof by reference.

8. That plaintiff explained in a letter to the defendant that it could not anymore be liable to pay the municipal
license fee because its bottling plant (was) not anymore inside the City of Iloilo, and that moreover, since it
itself (sold) its own products to its (customers) directly, it could not be considered as a distributor in line with
the doctrines enunciated by the Supreme Court in the cases of City of Manila vs. Bugsuk Lumber Co., L- 8255,
July 11, 1957; Manila Trading & Supply Co., Inc. vs. City of Manila L-1 2156, April 29, 1959; Central
Azucarera de Don Pedro vs. City of Manila et al., G.R. No. L7679, September 29,1955; Cebu Portland Cement
vs. City of Manila and City Treasurer of Manila, L-1 4229,July 26,1960. A xerox copy of the said letter is
attached as Annex "B" to the complaint and made an integral part hereof by reference. As a result of the said
letter of the plaintiff, the defendant did not anymore press the plaintiff to pay the said municipal license tax;

9. That sometime on January 25, 1972, the defendant demanded from the plaintiff compliance with the said
ordinance for 1972 in view of the fact that it was engaged in distribution of the softdrinks in the City of Iloilo,
and it further demanded from the plaintiff payment of back taxes from the time it transferred its bottling plant to
the Municipality of Pavia, Iloilo;
10. That the plaintiff demurred to the said demand of the defendant raising as its jurisdiction the reason that its
bottling plant is situated outside the City of Iloilo and as bottler could not be considered as distributor under the
said ordinance although it sells its product directly to the consumer, in line with the jurisprudence enunciated
by the Supreme Court but due to insistence of the defendant, the plaintiff paid on April 20, 1972, the first
quarter payment of the municipal licence tax in the sum of P3,329.20, under protest, and thereafter has been
paying defendant every quarter under protest;

11. That on June l5, 1972,the defendant informed the plaintiff that it must pay all the taxes due since July, 1968
up to the last quarter of 1971, otherwise it shall be constrained to cancel the operation of the business of the
plaintiff, and because of this threat, and so as not to occasion disruption of its business operation, the plaintiff
under protest agreed to the payment of the back taxes, on staggered basis, which was acceded to by the
defendant;

12. That as computed by the plaintiff the following are its softdrinks sold in Iloilo City since it transferred its
bottling plant from the City of Iloilo to Barrio Ungca Pavia, Iloilo in July 1968, to wit:

No. of Cases sold

SEVEN-UP PEPSI- TOTAL TAX DUE

COLA

1968 Jul to Dec 39,340 49,060 88,400 P8,840

1969 Jan. to Dec. 81,240 87,660 168,900 16,890

1970 Jan. to Dec. 79,389 89,211 168,600 16,600

1971 Jan. to Dec. 80,670 88,480 169,150 16,915

TOTAL 280,639 314,411 595,050 P 59,505

13. That the plaintiff does not maintain any store or commercial establishment in the City of Iloilo from which
it distributes its products, but by means of a fleet of delivery trucks, plaintiff distributes its products from its
bottling plant at Barrio Ungca Municipality of Pavia, Iloilo, directly to its customers in the different towns of
the Province of Iloilo as well as the City of Iloilo;

14. That the plaintiff is already paying the National Government a percentage Tax of 71/t, as manufacturer's
sales tax on all the softdrinks it manufactures as follows:

O.R. No. 4683995 - January, 1972 Sales P17,222.90

O.R. No. 5614767 - February " " 17,024.81

O.R. No. .5614870 - March " " 17,589.19

O.R. No. 5614891 - April " " 18,726.77

O.R. No. 5614897 - May " " 16,710.99

O.R. No. 5614935 - June " " 14,791.20

O.R. No. 5614967 - July " " 13,952.00

O.R. No. 5614973 - August " " 15,726.16

O.R. No. 56'L4999 - September " " 19,159.54

and is also paying the municipal license tax to the municipality of Pavia, Iloilo in the amount of P l0,000.00
every year, plus a municipal license tax for engaging in its business to the municipality of Pavia in its amount
of P2,000.00 every year.

xxx xxx xxx

[Rollo, P. 10 (Record on Appeal, pp. 25-31)]

On the basis of the above stipulations, the court a quo rendered on January 26, 1973 a decision in favor of Iloilo
Bottlers, Inc. declaring the Corporation not liable under the ordinance and directing the City of Iloilo to pay the
sum of' P3,329.20. The decision was amended in an Order dated March 15, 1973, so as to include the amounts
paid by the company after the filing of the complaint. The City of Iloilo appealed to the Court of Appeals which
certified the case to this Court.

The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of:

1. distribution of soft-drinks

2. manufacture of soft-drinks, and

3. bottling of softdrinks within the territorial jurisdiction of the City of Iloilo.

There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no longer
manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling under the second
or the third type of business. The resolution of this case therefore hinges on whether the company may be
considered engaged in the distribution of softdrinks in Iloilo City, even after it had transferred its bottling plant
to Pavia, so as to be within the purview of the ordinance.

Iloilo Bottlers, Inc. disclaims liability on two grounds: First, it contends that since it is not engaged in the
independent business of distributing soft-drinks, but that its activity of selling is merely an incident to, or is a
necessary consequence of its main or principal business of bottling, then it is NOT liable under the city tax
ordinance. Second, it claims that only manufacturers or bottlers having their plants inside the territorial
jurisdiction of the city are covered by the ordinance.

The second ground is manifestly devoid of merit. It is clear from the ordinance that three types of activities are
covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person engaged in any or all of these
activities is subject to the tax.

The first ground, however, merits serious consideration.

This Court has always recognized that the right to manufacture implies the right to sell/distribute the
manufactured products [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, 97 Phil. 627
(1955); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, G.R. No. L-22764, July 28, 1969, 28 SCRA
840, 843.] Hence, for tax purposes, a manufacturer does not necessarily become engaged in the separate
business of selling simply because it sells the products it manufactures. In certain cases, however, a
manufacturer may also be considered as engaged in the separate business of selling its products.

To determine whether an entity engaged in the principal business of manufacturing, is likewise engaged in the
separate business of selling, its marketing system or sales operations must be looked into.

In several cases [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, supra; Cebu Portland
Cement Co. v. City of Manila and the City Treasurer, 108 Phil. 1063 (1960); Caltex (Philippines), Inc. v. City of
Manila and Cudiamat, supra], this Court had occasion to distinguish two marketing systems:

Under the first system, the manufacturer enters into sales transactions and invoices the sales at its main office
where purchase orders are received and approved before delivery orders are sent to the company's warehouses,
where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained
where products may be sold independently from the main office. The warehouses only serve as storage sites
and delivery points of the products earlier sold at the main office. Under the second system, sales transactions
are entered into and perfected at stores or warehouses maintained by the company. Any one who desires to
purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and
warehouses serve as selling centers.

Entities operating under the first system are NOT considered engaged in the separate business of selling or
dealing in their products, independent of their manufacturing business. Entities operating under the second
system are considered engaged in the separate business of selling.

In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went
directly to customers in the different places in lloilo province. Sales transactions with customers were entered
into and sales were perfected and consummated by route salesmen. Truck sales were made independently of
transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks
previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling
stores". The delivery trucks were therefore much the same as the stores and warehouses under the second
marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was
engaged in the separate business of selling or distributing soft-drinks, independently of its business of bottling
them.

The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing,
manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the
acts, privileges or businesses are done or performed within the jurisdiction of said authority [Commissioner of
Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987,
149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must
be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City.

As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to declare
the company liable under the tax ordinance.

With the foregoing discussion, it becomes unnecessary to discuss the other issues raised by the parties.

WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil Case No. 9046 is ordered
DISMISSED. No Costs.

SO ORDERED.

Fernan, C.J., Feliciano and Bidin, JJ., concur.

Gutierrez, Jr., J., took no part.