COMMISSIONER OF INTERNAL G.R. No.

140230 REVENUE,
Petitioner, - versus - PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondent.
Promulgated: December 15, 2005
x-----------------------------------------x

DECISION

GARCIA, J.:

In this petition for review on certiorari, the Commissioner of Internal Revenue (Commissioner) seeks the review and

reversal of the September 17, 1999 Decision[1] of the Court of Appeals (CA) in CA-G.R. No. SP 47895, affirming, in effect, the

February 18, 1998 decision[2] of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5178, a claim for tax refund/credit instituted

by respondent Philippine Long Distance Company (PLDT) against petitioner for taxes it paid to the Bureau of Internal Revenue

(BIR) in connection with its importation in 1992 to 1994 of equipment, machineries and spare parts.

The facts:

PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to install, operate and maintain a

telecommunications system throughout the Philippines.

For equipment, machineries and spare parts it imported for its business on different dates from October 1, 1992 to May

31, 1994, PLDT paid the BIR the amount of P164,510,953.00, broken down as follows: (a) compensating tax

of P126,713,037.00; advance sales tax of P12,460,219.00 and other internal revenue taxes of P25,337,697.00. For similar

importations made between March 1994 to May 31, 1994, PLDT paid P116,041,333.00 value-added tax (VAT).

On March 15, 1994, PLDT addressed a letter to the BIR seeking a confirmatory ruling on its tax exemption privilege

under Section 12 of R.A. 7082, which reads:

Sec. 12. The grantee shall be liable to pay the same taxes on their real estate, buildings, and personal property,
exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In
addition thereto, the grantee, shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone
or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns, and the
said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee shall
continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Sec. 2 of
Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall
be applicable thereto. (Emphasis supplied).

Responding, the BIR issued on April 19, 1994 Ruling No. UN-140-94,[3] pertinently reading, as follows:

PLDT shall be subject only to the following taxes, to wit:

xxx xxx xxx

7. The 3% franchise tax on gross receipts which shall be in lieu of all taxes on its franchise or earnings thereof.

xxx xxx xxx

The in lieu of all taxes provision under Section 12 of RA 7082 clearly exempts PLDT from all taxes including
the 10% value-added tax (VAT) prescribed by Section 101 (a) of the same Code on its importations of equipment,
machineries and spare parts necessary in the conduct of its business covered by the franchise, except the aforementioned
enumerated taxes for which PLDT is expressly made liable.

xxx xxx xxx

In view thereof, this Office hereby holds that PLDT, is exempt from VAT on its importation of equipment, machineries
and spare parts needed in its franchise operations.

Armed with the foregoing BIR ruling, PLDT filed on December 2, 1994 a claim[4] for tax credit/refund of the VAT, compensating

taxes, advance sales taxes and other taxes it had been paying in connection with its importation of various equipment,

machineries and spare parts needed for its operations. With its claim not having been acted upon by the BIR, and obviously to

forestall the running of the prescriptive period therefor, PLDT filed with the CTA a petition for review, [5]therein seeking a refund

of, or the issuance of a tax credit certificate in, the amount of P280,552,286.00, representing compensating taxes, advance
sales taxes, VAT and other internal revenue taxes alleged to have been erroneously paid on its importations from October 1992

to May 1994. The petition was docketed in said court as CTA Case No. 5178.

On February 18, 1998, the CTA rendered a decision[6] granting PLDTs petition, pertinently saying:

This Court has noted that petitioner has included in its claim receipts covering the period prior to December 16,
1992, thus, prescribed and barred from recovery. In conclusion, We find that the petitioner is entitled to the reduced
amount of P223,265,276.00 after excluding from the final computation those taxes that were paid prior to December 16,
1992 as they fall outside the two-year prescriptive period for claiming for a refund as provided by law. The computation of
the refundable amount is summarized as follows:

COMPENSATING TAX

Total amount claimed P126,713.037.00

Less:

a) Amount already prescribed: xxx

Total P 38,015,132.00

b) Waived by petitioner
(Exh. B-216) P 1,440,874.00 P39,456,006.00

Amount refundable P87,257,031.00

ADVANCE SALES TAX

Total amount claimed P12,460.219.00

Less amount already prescribed: P5,043,828.00

Amount refundable P7,416,391.00

OTHER BIR TAXES

Total amount claimed P25,337,697.00

Less amount already prescribed: 11,187,740.00

Amount refundable P14,149,957.00

VALUE ADDED TAX

Total amount claimed P116.041,333.00

Less amount waived by petitioner
(unaccounted receipts) 1,599,436.00

Amount refundable P114,441,897.00

TOTAL AMOUNT REFUNDABLE P223,265,276.00,

============
(Breakdown omitted)

and accordingly disposed, as follows:

WHEREFORE, in view of all the foregoing, this Court finds the instant petition meritorious and in accordance
with law. Accordingly, respondent is hereby ordered to REFUND or to ISSUE in favor of petitioner a Tax Credit
Certificate in the reduced amount of P223,265,276.00 representing erroneously paid value-added taxes, compensating
taxes, advance sales taxes and other BIR taxes on its importation of equipments (sic), machineries and spare parts for the
period covering the taxable years 1992 to 1994.

Noticeably, the CTA decision, penned by then Associate Justice Ramon O. de Veyra, with then CTA Presiding Judge Ernesto D.

Acosta, concurring, is punctuated by a dissenting opinion[7] of Associate Judge Amancio Q. Saga who maintained that the

phrase in lieu of all taxes found in Section 12 of R.A. No. 7082, supra, refers to exemption from direct taxes only and does not

cover indirect taxes, such as VAT, compensating tax and advance sales tax.
In time, the BIR Commissioner moved for a reconsideration but the CTA, in its Resolution[8] of May 7, 1998, denied the motion,

with Judge Amancio Q. Saga reiterating his dissent.[9]

Unable to accept the CTA decision, the BIR Commissioner elevated the matter to the Court of Appeals (CA) by way of

petition for review, thereat docketed as CA-G.R. No. 47895.

As stated at the outset hereof, the appellate court, in the herein challenged Decision[10] dated September 17, 1999,

dismissed the BIRs petition, thereby effectively affirming the CTAs judgment.

Relying on its ruling in an earlier case between the same parties and involving the same issue CA-G.R. SP No. 40811, decided

16 February 1998 the appellate court partly wrote in its assailed decision:

This Court has already spoken on the issue of what taxes are referred to in the phrase in lieu of all taxes found in Section
12 of R.A. 7082. There are no reasons to deviate from the ruling and the same must be followed pursuant to the doctrine
of stare decisis. xxx. Stare decisis et non quieta movere. Stand by the decision and disturb not what is settled.

Hence, this recourse by the BIR Commissioner on the lone assigned error that:
THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT IS EXEMPT FROM THE PAYMENT OF
VALUE-ADDED TAXES, COMPENSATING TAXES, ADVANCE SALES TAXES AND OTHER BIR TAXES ON
ITS IMPORTATIONS, BY VIRTUE OF THE PROVISION IN ITS FRANCHISE THAT THE 3% FRANCHISE TAX
ON ITS GROSS RECEIPTS SHALL BE IN LIEU OF ALL TAXES ON ITS FRANCHISE OR EARNINGS THEREOF.

There is no doubt that, insofar as the Court of Appeals is concerned, the issue petitioner presently raises had been

resolved by that court in CA-G.R. SP No. 40811, entitled Commissioner of Internal Revenue vs. Philippine Long Distance

Company. There, the Sixteenth Division of the appellate court declared that under the express provision of Section 12 of R.A.

7082, supra, the payment [by PLDT] of the 3% franchise tax of [its] gross receipts shall be in lieu of all taxes exempts PLDT

from payment of compensating tax, advance sales tax, VAT and other internal revenue taxes on its importation of various

equipment, machinery and spare parts for the use of its telecommunications system.

Dissatisfied with the CA decision in that case, the BIR Commissioner initially filed with this Court a motion for time to

file a petition for review, docketed in this Court as G.R. No. 134386. However, on the last day for the filing of the intended

petition, the then BIR Commissioner had a change of heart and instead manifested [11] that he will no longer pursue G.R. No.

134386, there being no compelling grounds to disagree with the Court of Appeals decision in CA-G.R. 40811. Consequently, on

September 28, 1998, the Court issued a Resolution[12] in G.R. No. 134386 notifying the parties that no petition was filed in said

case and that the CA judgment sought to be reviewed therein has now become final and executory. Pursuant to said Resolution,

an Entry of Judgment[13] was issued by the Court of Appeals in CA-G.R. SP No. 40811. Hence, the CAs dismissal of CA-G.R. No.

47895 on the additional ground of stare decisis.

Under the doctrine of stare decisis et non quieta movere, a point of law already established will, generally, be followed

by the same determining court and by all courts of lower rank in subsequent cases where the same legal issue is raised.[14] For

reasons needing no belaboring, however, the Court is not at all concluded by the ruling of the Court of Appeals in its earlier CA-

G.R. SP No. 47895.

The Court has time and again stated that the rule on stare decisis promotes stability in the law and should, therefore,

be accorded respect. However, blind adherence to precedents, simply as precedent, no longer rules. More important than

anything else is that the court is right, [15] thus its duty to abandon any doctrine found to be in violation of the law in force. [16]

As it were, the former BIR Commissioners decision not to pursue his petition in G.R. No. 134386 denied the BIR, at

least as early as in that case, the opportunity to obtain from the Court an authoritative interpretation of Section 12 of R.A. 7082.

All is, however, not lost. For, the government is not estopped by acts or errors of its agents, particularly on matters involving
taxes. Corollarily, the erroneous application of tax laws by public officers does not preclude the subsequent correct application

thereof.[17] Withal, the errors of certain administrative officers, if that be the case, should never be allowed to jeopardize the

governments financial position.[18]

Hence, the need to address the main issue tendered herein.

According to the Court of Appeals, the in lieu of all taxes clause found in Section 12 of PLDTs franchise (R.A. 7082)

covers all taxes, whether direct or indirect; and that said section states, in no uncertain terms, that PLDTs payment of the 3%

franchise tax on all its gross receipts from businesses transacted by it under its franchise is in lieu of all taxes on the franchise

or earnings thereof. In fine, the appellate court, agreeing with PLDT, posits the view that the word allencompasses any and all

taxes collectible under the National Internal Revenue Code (NIRC), save those specifically mentioned in PLDTs franchise, such

as income and real property taxes.

The BIR Commissioner excepts. He submits that the exempting in lieu of all taxes clause covers direct taxes only,

adding that for indirect taxes to be included in the exemption, the intention to include must be specific and unmistakable. He

thus faults the Court of Appeals for erroneously declaring PLDT exempt from payment of VAT and other indirect taxes on its

importations. To the Commissioner, PLDTs claimed entitlement to tax refund/credit is without basis inasmuch as the 3%

franchise tax being imposed on PLDT is not a substitute for or in lieu of indirect taxes.

The sole issue at hand is whether or not PLDT, given the tax component of its franchise, is exempt from paying

VAT, compensating taxes, advance sales taxes and internal revenue taxes on its importations.

Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of taxation, taxes may be

classified into either direct tax or indirect tax.

In context, direct taxes are those that are exacted from the very person who, it is intended or desired, should pay

them;[19] they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in. [20]

On the other hand, indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in

the expectation and intention that he can shift the burden to someone else. [21] Stated elsewise, indirect taxes are taxes wherein

the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another

person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller

passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price

of goods sold or services rendered.

To put the situation in graphic terms, by tacking the VAT due to the selling price, the seller remains the person

primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the final

purchaser is the burden of the tax.[22] Stated differently, a seller who is directly and legally liable for payment of an indirect tax,

such as the VAT on goods or services, is not necessarily the person who ultimately bears the burden of the same tax. It is the

final purchaser or end-user of such goods or services who, although not directly and legally liable for the payment thereof,

ultimately bears the burden of the tax.[23]

There can be no serious argument that PLDT, vis--vis its payment of internal revenue taxes on its importations in question, is

effectively claiming exemption from taxes not falling under the category of direct taxes. The claim covers VAT, advance sales

tax and compensating tax.

The NIRC classifies VAT as an indirect tax the amount of [which] may be shifted or passed on to the buyer, transferee

or lessee of the goods.[24] As aptly pointed out by Judge Amancio Q. Saga in his dissent in C.T.A. Case No. 5178, the 10% VAT

on importation of goods partakes of an excise tax levied on the privilege of importing articles. It is not a tax on the franchise of

a business enterprise or on its earnings. It is imposed on all taxpayers who import goods (unless such importation falls under

the category of an exempt transaction under Sec. 109 of the Revenue Code) whether or not the goods will eventually be sold,

bartered, exchanged or utilized for personal consumption. The VAT on importation replaces the advance sales tax payable by

regular importers who import articles for sale or as raw materials in the manufacture of finished articles for sale. [25]

Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods for sale or of raw

materials to be processed into merchandise can shift the tax or, to borrow from Philippine Acetylene Co, Inc. vs. Commissioner

of Internal Revenue,[26] lay the economic burden of the tax, on the purchaser, by subsequently adding the tax to the selling

price of the imported article or finished product.

Compensating tax also partakes of the nature of an excise tax payable by all persons who import articles, whether in

the course of business or not.[27] The rationale for compensating tax is to place, for tax purposes, persons purchasing from

merchants in the Philippines on a more or less equal basis with those who buy directly from foreign countries. [28]

It bears to stress that the liability for the payment of the indirect taxes lies only with the seller of the goods or services,

not in the buyer thereof. Thus, one cannot invoke ones exemption privilege to avoid the passing on or the shifting of the VAT to

him by the manufacturers/suppliers of the goods he purchased.[29]Hence, it is important to determine if the tax exemption

granted to a taxpayer specifically includes the indirect tax which is shifted to him as part of the purchase price, otherwise it is

presumed that the tax exemption embraces only those taxes for which the buyer is directly liable. [30]

Time and again, the Court has stated that taxation is the rule, exemption is the exception. Accordingly, statutes

granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing

authority.[31] To him, therefore, who claims a refund or exemption from tax payments rests the burden of justifying the

exemption by words too plain to be mistaken and too categorical to be misinterpreted. [32]

As may be noted, the clause in lieu of all taxes in Section 12 of RA 7082 is immediately followed by the limiting or

qualifying clause on this franchise or earnings thereof, suggesting that the exemption is limited to taxes imposed directly on

PLDT since taxes pertaining to PLDTs franchise or earnings are its direct liability. Accordingly, indirect taxes, not being taxes on

PLDTs franchise or earnings, are outside the purview of the in lieu provision.

If we were to adhere to the appellate courts interpretation of the law that the in lieu of all taxes clause encompasses

the totality of all taxes collectible under the Revenue Code, then, the immediately following limiting clause on this franchise and

its earnings would be nothing more than a pure jargon bereft of effect and meaning whatsoever. Needless to stress, this kind of

interpretation cannot be accorded a governing sway following the familiar legal maxim redendo singula singulis meaning, take

the words distributively and apply the reference. Under this principle, each word or phrase must be given its proper connection

in order to give it proper force and effect, rendering none of them useless or superfluous. [33]

Significantly, in Manila Electric Company [Meralco] vs. Vera,[34] the Court declared the relatively broader exempting clause shall

be in lieu of all taxes and assessments of whatsoever nature upon the privileges earnings, income franchise ... of the
grantee written in par. # 9 of Meralcos franchise as not so all encompassing as to embrace indirect tax, like compensating tax.

There, the Court said:

It is a well-settled rule or principle in taxation that a compensating tax is an excise tax one that is imposed on the
performance of an act, the engaging in an occupation, or the enjoyment of a privilege. A tax levied upon property because
of its ownership is a direct tax, whereas one levied upon property because of its use is an excise duty. .

The compensating tax being imposed upon MERALCO, is an impost on its use of imported articles and is not in the nature
of a direct tax on the articles themselves, the latter tax falling within the exemption. Thus, in International Business
Machine Corporation vs. Collector of Internal Revenue, which involved the collection of a compensating tax from the
plaintiff-petitioner on business machines imported by it, this Court stated in unequivocal terms that it is not the act of
importation that is taxed under section 190 but the uses of imported goods not subjected to a sales tax because the
compensating tax was expressly designated as a substitute to make up or compensate for the revenue lost to the
government through the avoidance of sales taxes by means of direct purchases abroad.

xxx xxx xxx

xxx If it had been the legislative intent to exempt MERALCO from paying a tax on the use of imported equipments, the
legislative body could have easily done so by expanding the provision of paragraph 9 and adding to the exemption such
words as compensating tax or purchases from abroad for use in its business, and the like.

It may be so that in Maceda vs. Macaraig, Jr.[35] the Court held that an exemption from all taxes granted to the National Power

Corporation (NPC) under its charter[36] includes both direct and indirect taxes. But far from providing PLDT comfort, Maceda in

fact supports the case of herein petitioner, the correct lesson of Maceda being that an exemption from all taxes excludes

indirect taxes, unless the exempting statute, like NPCs charter, is so couched as to include indirect tax from the exemption.

Wrote the Court:

xxx However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption.
Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct
and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 [NPCs amended charter)
amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from all forms of
taxes, duties fees .

The use of the phrase all forms of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has been
enjoying before. .

xxx xxx xxx

It is evident from the provisions of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of
taxes including indirect taxes as provided under R.A. No. 6395 and P.D. 380 if it is to attain its goals. (Italics in the
original; words in bracket added)

Of similar import is what we said in Borja vs. Collector of Internal Revenue.[37] There, the Court upheld the decision of the CTA

denying a claim for refund of the compensating taxes paid on the importation of materials and equipment by a grantee of a

heat and power legislative franchise containing an in lieuprovision, rationalizing as follows:

xxx Moreover, the petitioners alleged exemption from the payment of compensating tax in the present case is not clear or
expressed; unlike the exemption from the payment of income tax which was clear and expressed in the Carcar case. Unless
it appears clearly and manifestly that an exemption is intended, the provision is to be construed strictly against the party
claiming exemption. xxx.

Jurisprudence thus teaches that imparting the in lieu of all taxes clause a literal meaning, as did the Court of Appeals and the

CTA before it, is fallacious. It is basic that in construing a statute, it is the duty of courts to seek the real intent of the

legislature, even if, by so doing, they may limit the literal meaning of the broad language. [38]

It cannot be over-emphasized that tax exemption represents a loss of revenue to the government and must, therefore,

not rest on vague inference. When claimed, it must be strictly construed against the taxpayer who must prove that he falls

under the exception. And, if an exemption is found to exist, it must not be enlarged by construction, since the reasonable

presumption is that the state has granted in express terms all it intended to grant at all, and that, unless the privilege is limited

to the very terms of the statute the favor would be extended beyond dispute in ordinary cases. [39]
All told, we fail to see how Section 12 of RA 7082 operates as granting PLDT blanket exemption from payment of indirect taxes,

which, in the ultimate analysis, are not taxes on its franchise or earnings. PLDT has not shown its eligibility for the desired

exemption. None should be granted.

As a final consideration, the Court takes particular stock, as the CTA earlier did, of PLDTs allegation that the Bureau of Customs

assessed the company for advance sales tax and compensating tax for importations entered between October 1, 1992 and May

31, 1994 when the value-added tax system already replaced, if not totally eliminated, advance sales and compensating

taxes.[40] Indeed, pursuant to Executive Order No. 273[41] which took effect on January 1, 1988, a multi-stage value-added tax

was put into place to replace the tax on original and subsequent sales tax. [42] It stands to reason then, as urged by PLDT, that

compensating tax and advance sales tax were no longer collectible internal revenue taxes under the NILRC when the Bureau of

Customs made the assessments in question and collected the corresponding tax. Stated a bit differently, PLDT was no longer

under legal obligation to pay compensating tax and advance sales tax on its importation from 1992 to 1994.

Parenthetically, petitioner has not made an issue about PLDTs allegations concerning the abolition of the provisions of the Tax

Code imposing the payment of compensating and advance sales tax on importations and the non-existence of these taxes

during the period under review. On the contrary, petitioner admits that the VAT on importation of goods has replace[d] the

compensating tax and advance sales tax under the old Tax Code .[43]

Given the above perspective, the amount PLDT paid in the concept of advance sales tax and compensating tax on the 1992 to

1994 importations were, in context, erroneous tax payments and would theoretically be refundable. It should be emphasized,

however, that, such importations were, when made, already subject to VAT.

Factoring in the fact that a portion of the claim was barred by prescription, the CTA had determined that PLDT is entitled to a

total refundable amount of P94,673,422.00 (P87,257,031.00 of compensating tax + P7,416,391.00 = P94,673,422.00).

Accordingly, it behooves the BIR to grant a refund of the advance sales tax and compensating tax in the total amount

of P94,673,422.00, subject to the condition that PLDT present proof of payment of the corresponding VAT on said transactions.

WHEREFORE, the petition is partially GRANTED. The Decision of the Court of Appeals in CA-G.R. No. 47895 dated

September 17, 1999 is MODIFIED. The Commissioner of Internal Revenue is ORDERED to issue a Tax Credit Certificate or to

refund to PLDT only the of P94,673,422.00 advance sales tax and compensating tax erroneously collected by the Bureau of

Customs from October 1, 1992 to May 31, 1994, less the VAT which may have been due on the importations in question, but

have otherwise remained uncollected.

G.R. No. 141658 March 18, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. THE PHILIPPINE AMERICAN ACCIDENT INSURANCE
COMPANY, INC., THE PHILIPPINE AMERICAN ASSURANCE COMPANY, INC., and THE PHILIPPINE AMERICAN
GENERAL INSURANCE CO., INC.,Respondents.
DECISION
CARPIO, J.:
The Case

Before the Court is a petition for review1 assailing the Decision2 of 7 January 2000 of the Court of Appeals in CA-G.R. SP No.
36816. The Court of Appeals affirmed the Decision3 of 5 January 1995 of the Court of Tax Appeals ("CTA") in CTA Cases Nos.
2514, 2515 and 2516. The CTA ordered the Commissioner of Internal Revenue ("petitioner") to refund a total of P29,575.02 to
respondent companies ("respondents").
Antecedent Facts

Respondents are domestic corporations licensed to transact insurance business in the country. From August 1971 to September
1972, respondents paid the Bureau of Internal Revenue under protest the 3% tax imposed on lending investors by Section 195-
A4 of Commonwealth Act No. 466 ("CA 466"), as amended by Republic Act No. 6110 ("RA 6110") and other laws. CA 466 was
the National Internal Revenue Code ("NIRC") applicable at the time.

Respondents paid the following amounts: P7,985.25 from Philippine American ("PHILAM") Accident Insurance
Company; P7,047.80 from PHILAM Assurance Company; and P14,541.97 from PHILAM General Insurance Company. These
amounts represented 3% of each company’s interest income from mortgage and other loans. Respondents also paid the taxes
required of insurance companies under CA 466.

On 31 January 1973, respondents sent a letter-claim to petitioner seeking a refund of the taxes paid under protest. When
respondents did not receive a response, each respondent filed on 26 April 1973 a petition for review with the CTA. These three
petitions, which were later consolidated, argued that respondents were not lending investors and as such were not subject to the
3% lending investors’ tax under Section 195-A.

The CTA archived respondents’ case for several years while another case with a similar issue was pending before the higher
courts. When respondents’ case was reinstated, the CTA ruled that respondents were entitled to their refund.

The Ruling of the Court of Tax Appeals

The CTA held that respondents are not taxable as lending investors because the term "lending investors" does not embrace
insurance companies. The CTA traced the history of the tax on lending investors, as follows:

Originally, a person who was engaged in lending money at interest was taxed as a money lender. [Sec. 1464(x), Rev.
Adm. Code] The term money lenders was defined as including "all persons who make a practice of lending money for
themselves or others at interest." [Sec. 1465(v), id.] Under this law, an insurance company was not considered a money
lender and was not taxable as such. To quote from an old BIR Ruling:

"The lending of money at interest by insurance companies constitutes a necessary incident of their regular
business. For this reason, insurance companies are not liable to tax as money lenders or real estate brokers for
making or negotiating loans secured by real property. (Ruling, February 28, 1920; BIR 135.2)" (The Internal
Revenue Law, Annotated, 2nd ed., 1929, by B.L. Meer, page 143)

The same rule has been applied to banks.

"For making investments on salary loans, banks will not be required to pay the money lender’s tax imposed by
this subsection, for the reason that money lending is considered a mere incident of the banking business. [See
Ruling No. 43, (October 8, 1926) 25 Off. Gaz. 1326)" (The Internal Revenue Law, Annotated, id.)

The term "money lenders" was later changed to "lending investors" but the definition of the term remains the same.
[Sec. 1464(x), Rev. Adm. Code, as finally amended by Com. Act No. 215, and Sec. 1465(v) of the same Code, as finally
amended by Act No. 3963] The same law is embodied in the present National Internal Revenue Code (Com. Act No.
466) without change, except in the amount of the tax. [See Secs. 182(A) (3) (dd) and 194(u), National Internal Revenue
Code.]

It is a well-settled rule that an administrative interpretation of a law which has been followed and applied for a long time,
and thereafter the law is re-enacted without substantial change, such administrative interpretation is deemed to have
received legislative approval. In short, the administrative interpretation becomes part of the law as it is presumed to
carry out the legislative purpose.5

The CTA held that the practice of lending money at interest is part of the insurance business. CA 466 already taxes the
insurance business. The CTA pointed out that the law recognizes and even regulates this practice of lending money by
insurance companies.

The CTA observed that CA 466 also treated differently insurance companies from lending investors in regard to fixed taxes.
Under Section 182(A)(3)(gg), insurance companies were subject to the same fixed tax as banks and finance companies. The
CTA reasoned that insurance companies were grouped with banks and finance companies because the latter’s lending activities
were also integral to their business. In contrast, lending investors were taxed at a different fixed tax under Section 182(A)(3)(dd)
of CA 466. The CTA stated that "insurance companies xxx had never been required by respondent [CIR] to pay the fixed tax
imposed on lending investors xxx."6

The dispositive portion of the Decision of 5 January 1995 of the Court of Tax Appeals ("CTA Decision") reads:

WHEREFORE, premises considered, petitioners Philippine American Accident Insurance Co., Philippine American
Assurance Co., and Philippine American General Insurance Co., Inc. are not taxable on their lending transactions
independently of their insurance business. Accordingly, respondent is hereby ordered to refund to petitioner[s] the sum
of P7,985.25, P7,047.80 and P14,541.97 in CTA Cases No. 2514, 2515 and 2516, respectively representing the fixed
and percentage taxes when (sic) paid by petitioners as lending investor from August 1971 to September 1972.

No pronouncement as to cost.

SO ORDERED.7

Dissatisfied, petitioner elevated the matter to the Court of Appeals.8

The Ruling of the Court of Appeals

The Court of Appeals ruled that respondents are not taxable as lending investors. In its Decision of 7 January 2000 ("CA
Decision"), the Court of Appeals affirmed the ruling of the CTA, thus:

WHEREFORE, premises considered, the petition is DISMISSED, hereby AFFIRMING the decision, dated January 5,
1995, of the Court of Tax Appeals in CTA Cases Nos. 2514, 2515 and 2516.

SO ORDERED.9
Petitioner appealed the CA Decision to this Court.

The Issues

Petitioner raises the sole issue:

WHETHER RESPONDENT INSURANCE COMPANIES ARE SUBJECT TO THE 3% PERCENTAGE TAX AS

LENDING INVESTORS UNDER SECTIONS 182(A)(3)(DD) AND 195-A, RESPECTIVELY IN RELATION TO SECTION
194(U), ALL OF THE NIRC.10

The Ruling of the Court

The petition lacks merit.

On the Additional Issue Raised by Petitioner

Section 182(A)(3)(dd) of CA 466 imposes an annual fixed tax on lending investors, depending on their location.11The sole
question before the CTA was whether respondents were subject to the percentage tax on lending investors under Section 195-
A. Petitioner raised for the first time the issue of the fixed tax in the Petition for Review 12 petitioner filed before the Court of
Appeals.

Ordinarily, a party cannot raise for the first time on appeal an issue not raised in the trial court.13 The Court of Appeals should
not have taken cognizance of the issue on respondents’ supposed liability under Section 182(A)(3)(dd). However, we cannot
entirely fault the Court of Appeals or petitioner. Even if the percentage tax on lending investors was the sole issue before it, the
CTA ordered petitioner to refund to the PHILAM companies "the fixed and percentage taxes [t]hen paid by petitioners as lending
investor."14 Although the amounts for refund consisted only of what respondents paid as percentage taxes, the CTA Decision
also ordered the refund to respondents of the fixed tax on lending investors. Respondents in their pleadings deny any liability
under Section 182(A)(3)(dd), on the same ground that they are not lending investors.

The question of whether respondents should pay the fixed tax under Section 182(A)(3)(dd) revolves around the same issue of
whether respondents are taxable as lending investors. In similar circumstances, the Court has held that an appellate court may
consider an unassigned error if it is closely related to an error that was properly assigned. 15 This rule properly applies to the
present case. Thus, we shall consider and rule on the issue of whether respondents are subject to the fixed tax under Section
182(A)(3)(dd).

Whether Insurance Companies are

Taxable as Lending Investors

Invoking Sections 195-A and 182(A)(3)(dd) in relation to Section 194(u) of CA 466, petitioner argues that insurance companies
are subject to two fixed taxes and two percentage taxes. Petitioner alleges that:

As a lending investor, an insurance company is subject to an annual fixed tax of P500.00 and another P500.00 under
Section 182 (A)(3)(dd) and (gg) of the Tax Code. As an underwriter, an insurance company is subject to the 3% tax of
the total premiums collected and another 3% on the gross receipts as a lending investor under Sections 255 and 195-A,
respectively of the same Code. xxx16

Petitioner also contends that the refund granted to respondents is in the nature of a tax exemption, and cannot be allowed
unless granted explicitly and categorically.

The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the taxpayer is clearly subject to
the tax being levied against him. Unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the
equally well-settled rule that the imposition of a tax cannot be presumed.17Where there is doubt, tax laws must be construed
strictly against the government and in favor of the taxpayer.18This is because taxes are burdens on the taxpayer, and should not
be unduly imposed or presumed beyond what the statutes expressly and clearly import.19

Section 182(A)(3)(dd) of CA 466 also provides:

Sec. 182. Fixed taxes. – (A) On business xxx

xxx

(3) Other fixed taxes. – The following fixed taxes shall be collected as follows, the amount stated being for the whole
year, when not otherwise specified;

xxx

(dd) Lending investors –

1. In chartered cities and first class municipalities, five hundred pesos;

2. In second and third class municipalities, two hundred and fifty pesos;

3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos; Provided,
That lending investors who do business as such in more than one province shall pay a tax of five hundred
pesos.
Section 195-A of CA 466 provides:

Sec. 195-A. Percentage tax on dealers in securities; lending investors. – Dealers in securities and lending investors
shall pay a tax equivalent to three per centum on their gross income.

Neither Section 182(A)(3)(dd) nor Section 195-A mentions insurance companies. Section 182(A)(3)(dd) provides for the taxation
of lending investors in different localities. Section 195-A refers to dealers in securities and lending investors. The burden is thus
on petitioner to show that insurance companies are lending investors for purposes of taxation.

In this case, petitioner does not dispute that respondents are in the insurance business. Petitioner merely alleges that the
definition of lending investors under CA 466 is broad enough to encompass insurance companies. Petitioner insists that
because of Section 194(u), the two principal activities of the insurance business, namely, underwriting and investment, are
separately taxable.20

Section 194(u) of CA 466 states:

(u) "Lending investor" includes all persons who make a practice of lending money for themselves or others at interest.

xxx

As can be seen, Section 194(u) does not tax the practice of lending per se. It merely defines what lending investors are. The
question is whether the lending activities of insurance companies make them lending investors for purposes of taxation.

We agree with the CTA and Court of Appeals that it does not. Insurance companies cannot be considered lending investors
under CA 466, as amended.

Definition of Lending Investors under CA 466 Does Not Include Insurance Companies.

The definition in Section 194(u) of CA 466 is not broad enough to include the business of insurance companies. The Insurance
Code of 197821 is very clear on what constitutes an insurance company. It provides that an insurer or insurance company "shall
include all individuals, partnerships, associations or corporations xxx engaged as principals in the insurance business, excepting
mutual benefit associations."22 More specifically, respondents fall under the category of insurance corporations as defined in
Section 185 of the Insurance Code, thus:

SECTION 185. Corporations formed or organized to save any person or persons or other corporations harmless from
loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any
person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or
compliance with contractual obligations or the payment of debts of others shall be known as "insurance corporations."

Plainly, insurance companies and lending investors are different enterprises in the eyes of the law. Lending investors cannot, for
a consideration, hold anyone harmless from loss, damage or liability, nor provide compensation or indemnity for loss. The
underwriting of risks is the prerogative of insurers, the great majority of which are incorporated insurance companies 23 like
respondents.

Granting of Mortgage and other Loans are Investment Practices that are Part of the Insurance Business.

True, respondents granted mortgage and other kinds of loans. However, this was not done independently of respondents’
insurance business. The granting of certain loans is one of several means of investment allowed to insurance companies. No
less than the Insurance Code mandates and regulates this practice.24

Unlike the practice of lending investors, the lending activities of insurance companies are circumscribed and strictly regulated by
the State. Insurance companies cannot freely lend to "themselves or others" as lending investors can,25 nor can insurance
companies grant simply any kind of loan. Even prior to 1978, the Insurance Code prescribed strict rules for the granting of loans
by insurance companies.26 These provisions on mortgage, collateral and policy loans were reiterated in the Insurance Code of
1978 and are still in force today.

Petitioner concedes that respondents’ investment practices are as much a part of the insurance business as the task of
underwriting. Nevertheless, petitioner argues that such investment practices are separately taxable under CA 466.

The CTA and the Court of Appeals found that the investment of premiums and other funds received by respondents – through
the granting of mortgage and other loans – was necessary to respondents’ business and hence, should not be taxed separately.

Insurance companies are required by law to possess and maintain substantial legal reserves to meet their obligations to
policyholders.27 This obviously cannot be accomplished through the collection of premiums alone, as the legal reserves and
capital and surplus insurance companies are obligated to maintain run into millions of pesos. As such, the creation of
"investment income" has long been held to be generally, if not necessarily, essential to the business of insurance.28

The creation of investment income in the manner sanctioned by the laws on insurance is thus part of the business of insurance,
and the fruits of these investments are essentially income from the insurance business. This is particularly true if the invested
assets are held either as reserved funds to provide for policy obligations or as capital and surplus to provide an extra margin of
safety which will be attractive to insurance buyers.29

The Court has also held that when a company is taxed on its main business, it is no longer taxable further for engaging in an
activity or work which is merely a part of, incidental to and is necessary to its main business. 30Respondents already paid
percentage and fixed taxes on their insurance business. To require them to pay percentage and fixed taxes again for an activity
which is necessarily a part of the same business, the law must expressly require such additional payment of tax. There is,
however, no provision of law requiring such additional payment of tax.

Sections 195-A and 182(A)(3)(dd) of CA 466 do not require insurance companies to pay double percentage and fixed taxes.
They merely tax lending investors, not lending activities. Respondents were not transformed into lending investors by the mere
fact that they granted loans, as these investments were part of, incidental and necessary to their insurance business.

Different Tax Treatment of Insurance Companies and Lending Investors.

Section 182(A)(3) of CA 466 accorded different tax treatments to lending investors and insurance companies. The relevant
portions of Section 182 state:

Sec. 182. Fixed taxes. – (A) On business xxx

(3) Other fixed taxes. – The following fixed taxes shall be collected as follows, the amount stated being for the whole
year, when not otherwise specified;

xxx

(dd) Lending investors –

1. In chartered cities and first class municipalities, five hundred pesos;

2. In second and third class municipalities, two hundred and fifty pesos;

3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos; Provided,
That lending investors who do business as such in more than one province shall pay a tax of five hundred
pesos.

xxx

(gg) Banks, insurance companies, finance and investment companies doing business in the Philippines and franchise
grantees, five hundred pesos.

xxx (Emphasis supplied.)

The separate provisions on lending investors and insurance companies demonstrate an intention to treat these businesses
differently. If Congress intended insurance companies to be taxed as lending investors, there would be no need for Section
182(A)(3)(gg). Section 182(A)(3)(dd) would have been sufficient. That insurance companies were included with banks, finance
and investment companies also supports the CTA’s conclusion that insurance companies had more in common with the latter
enterprises than with lending investors. As the CTA pointed out, banks also regularly lend money at interest, but are not taxable
as lending investors.

We find no merit in petitioner’s contention that Congress intended to subject respondents to two percentage taxes and two fixed
taxes. Petitioner’s argument goes against the doctrine of strict interpretation of tax impositions.

Petitioner’s argument is likewise not in accord with existing jurisprudence. In Commissioner of Internal Revenue v. Michel J.
Lhuillier Pawnshop, Inc.,31 the Court ruled that the different tax treatment accorded to pawnshops and lending investors in the
NIRC of 1977 and the NIRC of 1986 showed "the intent of Congress to deal with both subjects differently." The same reasoning
applies squarely to the present case.

Even the current tax law does not treat insurance companies as lending investors. Under Section 108(A) 32 of the NIRC of 1997,
lending investors and non-life insurance companies, except for their crop insurances, are subject to value-added tax ("VAT").
Life insurance companies are exempt from VAT, but are subject to percentage tax under Section 123 of the NIRC of 1997.

Indeed, the fact that Sections 195-A and 182(A)(3)(dd) of CA 466 failed to mention insurance companies already implies the
latter’s exclusion from the coverage of these provisions. When a statute enumerates the things upon which it is to operate,
everything else by implication must be excluded from its operation and effect. 33

Definition of Lending Investors in CA 466 is Not New.

Petitioner does not dispute that it issued a ruling in 1920 to the effect that the lending of money at interest was a necessary
incident of the insurance business, and that insurance companies were thus not subject to the tax on money lenders. Petitioner
argues only that the 1920 ruling does not apply to the instant case because RA 6110 introduced the definition of lending
investors to CA 466 only in 1969.

The subject definition was actually introduced much earlier, at a time when lending investors were still referred to as money
lenders. Sections 45 and 46 of the Internal Revenue Law of 191434 ("1914 Tax Code") state:

SECTION 45. Amount of Tax on Business. — Fixed taxes on business shall be collected as follows, the amount stated
being for the whole year, when not otherwise specified:

xxx

(x) Money lenders, eighty pesos;

 xxx

SECTION 46. Words and Phrases Defined. — In applying the provisions of the preceding section words and phrases
shall be taken in the sense and extension indicated below:

xxx

"Money lender" includes all persons who make a practice of lending money for themselves or others at interest.
(Emphasis supplied)

As can be seen, the definitions of "money lender" under the 1914 Tax Code and "lending investor" under CA 466 are identical.
The term "money lender" was merely changed to "lending investor" when Act No. 3963 amended the Revised Administrative
Code in 1932.35 This same definition of lending investor has since appeared in Section 194(u) of CA 466 and later tax laws.

Note that insurance companies were not included among the businesses subject to an annual fixed tax under the 1914 Tax
Code.36 That Congress later saw the need to introduce Section 182(A)(3)(gg) in CA 466 bolsters our view that there was no
legislative intent to tax insurance companies as lending investors. If insurance companies were already taxed as lending
investors, there would have been no need for a separate provision specifically requiring insurance companies to pay fixed taxes.

The Court Accords Great Weight to the Factual Findings of the CTA.

Dedicated exclusively to the study and consideration of tax problems, the CTA has necessarily developed an expertise in the
subject of taxation that this Court has recognized time and again. For this reason, the findings of fact of the CTA, particularly
when affirmed by the Court of Appeals, are generally conclusive on this Court absent grave abuse of discretion or palpable
error,37 which are not present in this case.

WHEREFORE, we DENY the instant petition and AFFIRM the Decision of 7 January 2000 of the Court of Appeals in CA-G.R.
SP No. 36816.

G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and
THE COURT OF TAX APPEALS, respondents.

ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP No.
36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 2 ordering it to pay the amount
of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.

The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th
quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52 computed as follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE

TAX DUE

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

————— ————— —————— ——————

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

————— ————— —————— ——————

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

————— ————— —————— ——————

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

————— ————— —————— ——————

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 3

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

In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities stating that it has pending
claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest.
Therefore these claims for tax credit/refund should be applied against the tax liabilities, citing our ruling in Commissioner of
Internal Revenue v. Itogon-Suyoc Mines, Inc. 5

In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these pending claims have not
yet been established or determined with certainty, it follows that no legal compensation can take place. Hence, the BIR
reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter.

In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax obligation, Philex
raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In the course of the proceedings, the BIR issued Tax Credit
Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52;
effectively lowered the latter's tax obligation to P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus
interest, elucidating its reason, to wit:

Thus, for legal compensation to take place, both obligations must be liquidated and demandable. "Liquidated"
debts are those where the exact amount has already been determined (PARAS, Civil Code of the Philippines,
Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT refund is still
pending litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori, the liquidated
debt of the Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which
Petitioner conceived to exist in its favor (see Compañia General de Tabacos vs. French and Unson, No. 14027,
November 8, 1918, 39 Phil. 34). 8

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for taxes is not a
debt or contract." 9 The dispositive portion of the CTA decision 10 provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby
ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994
until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.

Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. CV No.
36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation. The pertinent
portion of which reads: 12

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March
16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996. 13

However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund not
only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows: 14

Period Covered Tax Credit Date

By Claims For Certificate of

VAT refund/credit Number Issue Amount

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46

1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax
liabilities 15 since both had already become "due and demandable, as well as fully liquidated;" 16 hence, legal compensation can
properly take place.

We see no merit in this contention.

In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to
compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. 17 There
is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due
to the Government in its sovereign capacity. 18 We find no cogent reason to deviate from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held that taxes cannot be subject to
set-off or compensation, thus:
 We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground that the government owes
him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit, 20which
reiterated that:

. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes
cannot be the subject of compensation because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off.

Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that
a pending refund may be set off against an existing tax liability even though the refund has not yet been approved by the
Commissioner, 21 is no longer without any support in statutory law.

It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the National
Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon
which the Itogon-Suyoc pronouncement was based was omitted. 22 Accordingly, the doctrine enunciated in Itogon-Suyoc cannot
be invoked by Philex.

Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and interest for the
non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the theory that it had no obligation to
pay the excise tax liabilities within the prescribed period since, after all, it still has pending claims for VAT input credit/refund with
BIR. 23

We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes are the
lifeblood of the government and so should be collected without unnecessary hindrance. 24 Evidently, to countenance Philex's
whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for
refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is
that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any
taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would
adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because
he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the
government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can
easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and
offset their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the
imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the
surcharge is mandatory and the BIR is not vested with any authority to waive the collection thereof. 28 The same cannot be
condoned for flimsy reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of 1977, which requires the
refund of input taxes within 60 days, 31 when it took five years for the latter to grant its tax claim for VAT input credit/refund. 32

In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish the factual
basis of his or her claim for tax credit or refund, 33 however, once the claimant has submitted all the required documents it is the
function of the BIR to assess these documents with purposeful dispatch. After all, since taxpayers owe honestly to government it
is but just that government render fair service to the taxpayers. 34

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was
only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund
earlier. We need not remind the BIR that simple justice requires the speedy refund of wrongly-held taxes. 35 Fair dealing and
nothing less, is expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of
Tax Appeals: 36

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg" And, in order to maintain the general
public's trust and confidence in the Government this power must be used justly and not treacherously.

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in the
performance of governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this more true
than in the field of taxation. 37 Again, while we understand Philex's predicament, it must be stressed that the same is not a valid
reason for the non-payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees, especially BIR
examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in acting upon the
taxpayer's claim for refund, the latter can seek judicial remedy before the Court of Tax Appeals in the manner prescribed by
law. 38 Second, if the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and the Tax
Code can also be availed of.

Art. 27 of the Civil Code provides:

 Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects,
without just cause, to perform his official duty may file an action for damages and other relief against the latter,
without prejudice to any disciplinary action that may be taken.

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

xxx xxx xxx

(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty
or wilfully neglecting to perform, any other duties enjoyed by law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of official
duties. 39 In no uncertain terms must we stress that every public employee or servant must strive to render service to the people
with utmost diligence and efficiency. Insolence and delay have no place in government service. The BIR, being the government
collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer if it
wishes to remain true to its mission of hastening the country's development. We take judicial notice of the taxpayer's generally
negative perception towards the BIR; hence, it is up to the latter to prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot justify
Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should have guided
Philex's action.

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of Appeals
dated April 8, 1996 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 167919 February 14, 2007

PLARIDEL M. ABAYA, COMMODORE PLARIDEL C. GARCIA (retired) and PMA ’59 FOUNDATION, INC., rep. by its
President, COMMODORE CARLOS L. AGUSTIN (retired), Petitioners, vs. HON. SECRETARY HERMOGENES E. EBDANE,
JR., in his capacity as Secretary of the DEPARTMENT OF PUBLIC WORKS and HIGHWAYS, HON. SECRETARY EMILIA
T. BONCODIN, in her capacity as Secretary of the DEPARTMENT OF BUDGET and MANAGEMENT, HON. SECRETARY
CESAR V. PURISIMA, in his capacity as Secretary of the DEPARTMENT OF FINANCE, HON. TREASURER NORMA L.
LASALA, in her capacity as Treasurer of the Bureau of Treasury, and CHINA ROAD and BRIDGE
CORPORATION, Respondents.

DECISION

CALLEJO, SR., J.:

Before the Court is the petition for certiorari and prohibition under Rule 65 of the Rules of Court seeking to set aside and nullify
Resolution No. PJHL-A-04-012 dated May 7, 2004 issued by the Bids and Awards Committee (BAC) of the Department of Public
Works and Highways (DPWH) and approved by then DPWH Acting Secretary Florante Soriquez. The assailed resolution
recommended the award to private respondent China Road & Bridge Corporation of the contract for the implementation of civil
works for Contract Package No. I (CP I), which consists of the improvement/rehabilitation of the San Andres (Codon)-Virac-Jct.
Bago-Viga road, with the length of 79.818 kilometers, in the island province of Catanduanes.

The CP I project is one of the four packages comprising the project for the improvement/rehabilitation of the Catanduanes
Circumferential Road, covering a total length of about 204.515 kilometers, which is the main highway in Catanduanes Province.
The road section (Catanduanes Circumferential Road) is part of the Arterial Road Links Development Project (Phase IV) funded
under Loan Agreement No. PH-P204 dated December 28, 1999 between the Japan Bank for International Cooperation (JBIC)
and the Government of the Republic of the Philippines.

Background

Based on the Exchange of Notes dated December 27, 1999,1 the Government of Japan and the Government of the Philippines,
through their respective representatives, namely, Mr. Yoshihisa Ara, Ambassador Extraordinary and Plenipotentiary of Japan to
the Republic of the Philippines, and then Secretary of Foreign Affairs Domingo L. Siazon, have reached an understanding
concerning Japanese loans to be extended to the Philippines. These loans were aimed at promoting our country’s economic
stabilization and development efforts.

The Exchange of Notes consisted of two documents: (1) a Letter from the Government of Japan, signed by Ambassador Ara,
addressed to then Secretary of Foreign Affairs Siazon, confirming the understanding reached between the two governments
concerning the loans to be extended by the Government of Japan to the Philippines; and (2) a document denominated as
Records of Discussion where the salient terms of the loans as set forth by the Government of Japan, through the Japanese
delegation, were reiterated and the said terms were accepted by the Philippine delegation. Both Ambassador Ara and then
Secretary Siazon signed the Records of Discussion as representatives of the Government of Japan and Philippine Government,
respectively.

The Exchange of Notes provided that the loans to be extended by the Government of Japan to the Philippines consisted of two
loans: Loan I and Loan II. The Exchange of Notes stated in part:

1. A loan in Japanese yen up to the amount of seventy-nine billion eight hundred and sixty-one million yen
(Y79,861,000,000) (hereinafter referred to as "the Loan I") will be extended, in accordance with the relevant laws and
 regulations of Japan, to the Government of the Republic of the Philippines (hereinafter referred to as "the Borrower I")
by the Japan Bank for International Cooperation (hereinafter referred to as "the Bank") to implement the projects
enumerated in the List A attached hereto (hereinafter referred to as "the List A") according to the allocation for each
project as specified in the List A.

2. (1) The Loan I will be made available by loan agreements to be concluded between the Borrower I and the Bank. The
terms and conditions of the Loan I as well as the procedure for its utilization will be governed by said loan agreements
which will contain, inter alia, the following principles:

...

(2) Each of the loan agreements mentioned in sub-paragraph (1) above will be concluded after the Bank is
satisfied of the feasibility, including environmental consideration, of the project to which such loan agreement
relates.

3. (1) The Loan I will be made available to cover payments to be made by the Philippine executing agencies to
suppliers, contractors and/or consultants of eligible source countries under such contracts as may be entered into
between them for purchases of products and/or services required for the implementation of the projects enumerated in
the List A, provided that such purchases are made in such eligible source countries for products produced in and/or
services supplied from those countries.

(2) The scope of eligible source countries mentioned in sub-paragraph (1) above will be agreed upon between
the authorities concerned of the two Governments.

(3) A part of the Loan I may be used to cover eligible local currency requirements for the implementation of the
projects enumerated in the List A.

4. With regard to the shipping and marine insurance of the products purchased under the Loan I, the Government of the
Republic of the Philippines will refrain from imposing any restrictions that may hinder fair and free competition among
the shipping and marine insurance companies.

x x x x2 1awphi1.net

Pertinently, List A, which specified the projects to be financed under the Loan I, includes the Arterial Road Links Development
Project (Phase IV), to wit:

LIST A

Maximum amount in million yen)

1. Secondary Education Development and Improvement Project 7,210

2. Rural Water Supply Project (Phase V) 951

3. Bohol Irrigation Project (Phase II) 6,078

4. Agrarian Reform Infrastructure Support Project (Phase II) 16,990

5. Arterial Road Links Development Project (Phase IV) 15,384

6. Cordillera Road Improvement Project 5,852

7. Philippines-Japan Friendship Highway Mindanao Section Rehabilitation Project (Phase II) 7,434

8. Rehabilitation and Maintenance of Bridges Along Arterial Roads Project (Phase IV) 5,068

9. Maritime Safety Improvement Project (Phase C) 4,714

10. Pinatubo Hazard Urgent Mitigation Project (Phase II) 9,013

11. Pasig-Marikina River Channel Improvement Project (Phase I) 1,167

Total 79,8613

The Exchange of Notes further provided that:

III

xxxx

3. The Government of the Republic of the Philippines will ensure that the products and/or services mentioned in sub-paragraph
(1) of paragraph 3 of Part I and sub-paragraph (1) of paragraph 4 of Part II are procured in accordance with the guidelines for
procurement of the Bank, which set forth, inter alia, the procedures of international tendering to be followed except where such
procedures are inapplicable or inappropriate.

x x x x4
 The Records of Discussion, which formed part of the Exchange of Notes, also stated in part, thus:

xxxx

1. With reference to sub-paragraph (3) of paragraph 3 of Part I of the Exchange of Notes concerning the financing of eligible
local currency requirements for the implementation of the projects mentioned in the said sub-paragraph, the representative of
the Japanese delegation stated that:

(1) such requirement of local currency as general administrative expenses, interest during construction, taxes and
duties, expenses concerning office, remuneration to employees of the executing agencies and housing, not directly
related to the implementation of the said projects, as well as purchase of land properties, compensation and the like,
however, will not be considered as eligible for financing under the Loan I; and

(2) the procurement of products and/or services will be made in accordance with the procedures of international
competitive tendering except where such procedures are inapplicable and inappropriate.

x x x x5

Thus, in accordance with the agreement reached by the Government of Japan and the Philippine Government, as expressed in
the Exchange of Notes between the representatives of the two governments, the Philippines obtained from and was granted a
loan by the JBIC. Loan Agreement No. PH-P204 dated December 28, 1999, in particular, stated as follows:

Loan Agreement No. PH-P204, dated December 28, 1999, between JAPAN BANK FOR INTERNATIONAL COOPERATION and
the GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES.

In the light of the contents of the Exchange of Notes between the Government of Japan and the Government of the Republic of
the Philippines dated December 27, 1999, concerning Japanese loans to be extended with a view to promoting the economic
stabilization and development efforts of the Republic of the Philippines.

JAPAN BANK FOR INTERNATIONAL COOPERATION (hereinafter referred to as "the BANK") and THE GOVERNMENT OF
THE REPUBLIC OF THE PHILIPPINES (hereinafter referred to as "the Borrower") herewith conclude the following Loan
Agreement (hereinafter referred to as "the Loan Agreement", which includes all agreements supplemental hereto).

x x x x6

Under the terms and conditions of Loan Agreement No. PH-P204, JBIC agreed to lend the Philippine Government an amount
not exceeding FIFTEEN BILLION THREE HUNDRED EIGHTY-FOUR MILLION Japanese Yen (Y15,384,000,000) as principal
for the implementation of the Arterial Road Links Development Project (Phase IV) on the terms and conditions set forth in the
Loan Agreement and in accordance with the relevant laws and regulations of Japan.7 The said amount shall be used for the
purchase of eligible goods and services necessary for the implementation of the above-mentioned project from suppliers,
contractors or consultants.8

Further, it was provided under the said loan agreement that other terms and conditions generally applicable thereto shall be set
forth in the General Terms and Conditions, dated November 1987, issued by the Overseas Economic Cooperation Fund (OECF)
and for the purpose, reference to "the OECF" and "Fund" therein (General Terms and Conditions) shall be substituted by "the
JBIC" and "Bank," respectively.9 Specifically, the guidelines for procurement of all goods and services to be financed out of the
proceeds of the said loan shall be as stipulated in the Guidelines for Procurement under OECF Loans dated December 1997
(herein referred to as JBIC Procurement Guidelines).10

As mentioned earlier, the proceeds of Loan Agreement No. PH-P204 was to be used to finance the Arterial Road Links
Development Project (Phase IV), of which the Catanduanes Circumferential Road was a part. This road section, in turn, was
divided into four contract packages (CP):

CP I: San Andres (Codon)-Virac-Jct. Bato- Viga Road - 79.818 kms

CP II: Viga-Bagamanoc Road - 10.40 kms.

CP III: Bagamanoc-Pandan Road - 47.50 kms.

CP IV: Pandan-Caramoran-Codon Road - 66.40 kms.11

Subsequently, the DPWH, as the government agency tasked to implement the project, caused the publication of the "Invitation
to Prequalify and to Bid" for the implementation of the CP I project in two leading national newspapers, namely, the Manila
Times and Manila Standard on November 22 and 29, and December 5, 2002.

A total of twenty-three (23) foreign and local contractors responded to the invitation by submitting their accomplished
prequalification documents on January 23, 2003. In accordance with the established prequalification criteria, eight contractors
were evaluated or considered eligible to bid as concurred by the JBIC. One of them, however, withdrew; thus, only seven
contractors submitted their bid proposals.

The bid documents submitted by the prequalified contractors/bidders were examined to determine their compliance with the
requirements as
stipulated in Article 6 of the Instruction to Bidders.12 After the lapse of the deadline for the submission of bid proposals, the
opening of the bids commenced immediately. Prior to the opening of the respective bid proposals, it was announced that the
Approved Budget for the Contract (ABC) was in the amount of ₱738,710,563.67.

The result of the bidding revealed the following three lowest bidders and their respective bids vis-à-vis the ABC:13
 Original Bid As Read As-Corrected Bid Amount
Name of Bidder Variance
(Pesos) (Pesos)

1) China Road And Bridge

₱ 993,183,904.98 ₱952,564,821.71 28.95%
Corporation

2) Cavite Ideal Int’l Const. Devt.

₱1,099,926,598.11 ₱1,099,926,598.11 48.90%
Corp.

3) Italian Thai Dev’t. Public

₱1,125,022,075.34 ₱1,125,392,475.36 52.35%
Company, Ltd.

The bid of private respondent China Road & Bridge Corporation was corrected from the original ₱993,183,904.98 (with variance
of 34.45% from the ABC) to ₱952,564,821.71 (with variance of 28.95% from the ABC) based on their letter clarification dated
April 21, 2004.14

After further evaluation of the bids, particularly those of the lowest three bidders, Mr. Hedifume Ezawa, Project Manager of the
Catanduanes Circumferential Road Improvement Project (CCRIP), in his Contractor’s Bid Evaluation Report dated April 2004,
recommended the award of the contract to private respondent China Road & Bridge Corporation:

In accordance with the Guidelines for the Procurements under ODA [Official Development Assistance] Loans, the Consultant
hereby recommends the award of the contract for the construction of CP I, San Andres (Codon) – Virac – Jct. Bato – Viga
Section under the Arterial Road Links Development Projects, Phase IV, JBIC Loan No. PH-P204 to the Lowest Complying
Bidder, China Road and Bridge Corporation, at its total corrected bid amount of Nine Hundred Fifty-Two Million Five Hundred
Sixty-Four Thousand Eight Hundred Twenty-One & 71/100 Pesos.15

The BAC of the DPWH, with the approval of then Acting Secretary Soriquez, issued the assailed Resolution No. PJHL-A-04-012
dated May 7, 2004 recommending the award in favor of private respondent China Road & Bridge Corporation of the contract for
the implementation of civil works for CP I, San Andres (Codon) – Virac – Jct. Bato – Viga Road (Catanduanes Circumferential
Road Improvement Project) of the Arterial Roads Links Development Project, Phase IV, located in Catanduanes Province, under
JBIC Loan Agreement No. PH-P204.16 On September 29, 2004, a Contract of Agreement was entered into by and between the
DPWH and private respondent China Road & Bridge Corporation for the implementation of the CP I project.

The Parties

Petitioner Plaridel M. Abaya claims that he filed the instant petition as a taxpayer, former lawmaker, and a Filipino citizen.
Petitioner Plaridel C. Garcia likewise claims that he filed the suit as a taxpayer, former military officer, and a Filipino citizen.
Petitioner PMA ’59 Foundation, Inc., on the other hand, is a non-stock, non-profit corporation organized under the existing
Philippine laws. It claims that its members are all taxpayers and alumni of the Philippine Military Academy. It is represented by
its President, Carlos L. Agustin.

Named as public respondents are the DPWH, as the government agency tasked with the implementation of government
infrastructure projects; the Department of Budget and Management (DBM) as the government agency that authorizes the
release and disbursement of public funds for the implementation of government infrastructure projects; and the Department of
Finance (DOF) as the government agency that acts as the custodian and manager of all financial resources of the government.
Also named as individual public respondents are Hermogenes E. Ebdane, Jr., Emilia T. Boncodin and Cesar V. Purisima in their
capacities as former Secretaries of the DPWH, DBM and DOF, respectively. On the other hand, public respondent Norma L.
Lasala was impleaded in her capacity as Treasurer of the Bureau of Treasury.

Private respondent China Road & Bridge Corporation is a duly organized corporation engaged in the business of construction.

The Petitioners’ Case

The petitioners mainly seek to nullify DPWH Resolution No. PJHL-A-04-012 dated May 7, 2004, which recommended the award
to private respondent China Road & Bridge Corporation of the contract for the implementation of the civil works of CP I. They
also seek to annul the contract of agreement subsequently entered into by and between the DPWH and private respondent
China Road & Bridge Corporation pursuant to the said resolution.

They pose the following issues for the Court’s resolution:

I. Whether or not Petitioners have standing to file the instant Petition.

II. Whether or not Petitioners are entitled to the issuance of a Writ of Certiorari reversing and setting aside DPWH
Resolution No. PJHL-A-04-012, recommending the award of the Contract Agreement for the implementation of civil
works for CPI, San Andres (CODON)-VIRAC-JCT BATO-VIGA ROAD (CATANDUANES CIRCUMFERENTIAL ROAD
IMPROVEMENT PROJECT) of the Arterial Road Links Development Project, Phase IV, located in Catanduanes
Province, under JBIC L/A No. PH-P204, to China Road & Bridge Corporation.

III. Whether or not the Contract Agreement executed by and between the Republic of the Philippines, through the
Department of Public Works and Highways, and the China Road & Bridge Corporation, for the implementation of civil
works for CPI, San Andres (CODON)-VIRAC-JCT BATO-VIGA ROAD (CATANDUANES CIRCUMFERENTIAL ROAD
IMPROVEMENT PROJECT) of the Arterial Road Links Development Project, Phase IV, located in Catanduanes
Province, under JBIC L/A No. PH-P204, is void ab initio.
 IV. Whether or not Petitioners are entitled to the issuance of a Writ of Prohibition permanently prohibiting the
implementation of DPWH Resolution No. PJHL-A-04-012 and the Contract Agreement executed by and between the
Republic of the Philippines (through the Department of Public Works and Highways) and the China Road & Bridge
Corporation, and the disbursement of public funds by the [D]epartment of [B]udget and [M]anagement for such purpose.

V. Whether or not Petitioners are entitled to a Preliminary Injunction and/or a Temporary Restraining Order immediately
enjoining the implementation of DPWH Resolution No. PJHL-A-04-012 and the Contract Agreement executed by and
between the Republic of the Philippines (through the Department of Public Works and Highways) and the China Road &
Bridge Corporation, and the disbursement of public funds by the Department of Budget and Management for such
purpose, during the pendency of this case.17

Preliminarily, the petitioners assert that they have standing or locus standi to file the instant petition. They claim that as
taxpayers and concerned citizens, they have the right and duty to question the expenditure of public funds on illegal acts. They
point out that the Philippine Government allocates a peso-counterpart for CP I, which amount is appropriated by Congress in the
General Appropriations Act; hence, funds that are being utilized in the implementation of the questioned project also partake of
taxpayers’ money. The present action, as a taxpayers’ suit, is thus allegedly proper.

They likewise characterize the instant petition as one of transcendental importance that warrants the Court’s adoption of a liberal
stance on the issue of standing. It cited several cases where the Court brushed aside procedural technicalities in order to
resolve issues involving paramount public interest and transcendental importance. 18 Further, petitioner Abaya asserts that he
possesses the requisite standing as a former member of the House of Representatives and one of the principal authors of
Republic Act No. 9184 (RA 9184)19 known as the Government Procurement Reform Act, the law allegedly violated by the public
respondents.

On the substantive issues, the petitioners anchor the instant petition on the contention that the award of the contract to private
respondent China Road & Bridge Corporation violates RA 9184, particularly Section 31 thereof which reads:

SEC. 31. Ceiling for Bid Prices. – The ABC shall be the upper limit or ceiling for the Bid prices. Bid prices that exceed this ceiling
shall be disqualified outright from further participating in the bidding. There shall be no lower limit to the amount of the award.

In relation thereto, the petitioners cite the definition of the ABC, thus:

SEC. 5. Definition of Terms. –

xxx

(a) Approved Budget for the Contract (ABC). – refers to the budget for the contract duly approved by the Head of the Procuring
Entity, as provided for in the General Appropriations Act and/or continuing appropriations, in the case of National Government
Agencies; the Corporate Budget for the contract approved by the governing Boards, pursuant to E.O. No. 518, series of 1979, in
the case of Government-Owned and/or Controlled Corporations, Government Financial Institutions and State Universities and
Colleges; and the Budget for the contract approved by the respective Sanggunian, in the case of Local Government Units.

xxx

The petitioners theorize that the foregoing provisions show the mandatory character of ceilings or upper limits of every bid.
Under the above-quoted provisions of RA 9184, all bids or awards should not exceed the ceilings or upper limits; otherwise, the
contract is deemed void and inexistent.

Resolution No. PJHL-A-04-012 was allegedly issued with grave abuse of discretion because it recommended the award of the
contract to private respondent China Road & Bridge Corporation whose bid was more than ₱200 million overpriced based on the
ABC. As such, the award is allegedly illegal and unconscionable.

In this connection, the petitioners opine that the contract subsequently entered into by and between the DPWH and private
respondent China Road & Bridge Corporation is void ab initio for being prohibited by RA 9184. They stress that Section 31
thereof expressly provides that "bid prices that exceed this ceiling shall be disqualified outright from participating in the bidding."
The upper limit or ceiling is called the ABC and since the bid of private respondent China Road & Bridge Corporation exceeded
the ABC for the CP I project, it should have been allegedly disqualified from the bidding process and should not, by law, have
been awarded the said contract. They invoke Article 1409 of the Civil Code:

ART. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

For violating the above provision, the contract between the DPWH and private respondent China Road & Bridge Corporation is
allegedly inexistent and void ab initio and can produce no effects whatsoever.

It is the contention of the petitioners that RA 9184 is applicable to both local- and foreign-funded procurement contracts. They
cite the following excerpt of the deliberations of the Bicameral Conference Committee on the Disagreeing Provisions of Senate
Bill No. 2248 and House Bill No. 4809:20

REP. ABAYA. Mr. Chairman, can we just propose additional amendments? Can we go back to Section 4, Mr. Chairman?

THE CHAIRMAN (SEN. ANGARA). Section? Section ano, Del, 4? Definition – definition of terms.

REP. ABAYA. Sa House bill, it is sa scope and application.

THE CHAIRMAN (SEN. ANGARA). Okay.

REP. ABAYA. It should read as follows: "This Act shall apply to the procurement of goods, supplies and materials, infrastructure
projects and consulting services regardless of funding source whether local or foreign by the government."

THE CHAIRMAN (SEN. ANGARA). Okay, accepted. We accept. The Senate accepts it. 21

xxx xxx xxx

THE CHAIRMAN (SEN ANGARA). Just take note of that ano. Medyo nga problematic ‘yan eh. Now, just for the record Del, can
you repeat again the justification for including foreign funded contracts within the scope para malinaw because the World Bank
daw might raise some objection to it.

REP. ABAYA. Well, Mr. Chairman, we should include foreign funded projects kasi these are the big projects. To give an
example, if you allow bids above government estimate, let’s say take the case of 500 million project, included in that 500 million
is the 20 percent profit. If you allow them to bid above government estimate, they will add another say 28 percent of (sic) 30
percent, 30 percent of 500 million is another 150 million. Ito, this is a rich source of graft money, aregluhan na lang, 150 million,
five contractors will gather, "O eto 20 million, 20 million, 20 million." So, it is rigged. ‘Yun ang practice na nangyayari. If we
eliminate that, if we have a ceiling then, it will not be very tempting kasi walang extra money na pwedeng ibigay sa ibang
contractor. So this promote (sic) collusion among bidders, of course, with the cooperation of irresponsible officials of some
agencies. So we should have a ceiling to include foreign funded projects.22

The petitioners insist that Loan Agreement No. PH-P204 between the JBIC and the Philippine Government is neither a treaty, an
international nor an executive agreement that would bar the application of RA 9184. They point out that to be considered a
treaty, an international or an executive agreement, the parties must be two sovereigns or States whereas in the case of Loan
Agreement No. PH-P204, the parties are the Philippine Government and the JBIC, a banking agency of Japan, which has a
separate juridical personality from the Japanese Government.

They further insist on the applicability of RA 9184 contending that while it took effect on January 26, 2003 23 and Loan Agreement
No. PH-P204 was executed prior thereto or on December 28, 1999, the actual procurement or award of the contract to private
respondent China Road & Bridge Corporation was done after the effectivity of RA 9184. The said law is allegedly specific as to
its application, which is on the actual procurement of infrastructure and other projects only, and not on the loan agreements
attached to such projects. Thus, the petition only prays for the annulment of Resolution No. PJHL-A-04-012 as well as the
contract between the DPWH and private respondent China Road & Bridge Corporation. The petitioners clarify that they do not
pray for the annulment of Loan Agreement No. PH-P204. Since the subject procurement and award of the contract were done
after the effectivity of RA 9184, necessarily, the procurement rules established by that law allegedly apply, and not Presidential
Decree No. 1594 (PD 1594)24 and Executive Order No. 40 (EO 40), series of 2001, 25 as contended by the respondents. The
latter laws, including their implementing rules, have allegedly been repealed by RA 9184. Even RA 4860, as amended, known
as the Foreign Borrowings Act, the petitioners posit, may have also been repealed or modified by RA 9184 insofar as its
provisions are inconsistent with the latter.

The petitioners also argue that the "Implementing Rules and Regulations (IRR) of RA 9184, Otherwise Known as the
Government Procurement Reform Act, Part A" (IRR-A) cited by the respondents is not applicable as these rules only govern
domestically-funded procurement contracts. They aver that the implementing rules to govern foreign-funded procurement, as in
the present case, have yet to be drafted and in fact, there are concurrent resolutions drafted by both houses of Congress for the
Reconvening of the Joint Congressional Oversight Committee for the formulation of the IRR for foreign-funded procurements
under RA 9184.

The petitioners maintain that disbursement of public funds to implement a patently void and illegal contract is itself illegal and
must be enjoined. They bring to the Court’s attention the fact that the works on the CP I project have already commenced as
early as October 2004. They thus urge the Court to issue a writ of certiorari to set aside Resolution No. PJHL-A-04-012 as well
as to declare null and void the contract entered into between the DPWH and private respondent China Road & Bridge
Corporation. They also pray for the issuance of a temporary restraining order and, eventually, a writ of prohibition to permanently
enjoin the DPWH from implementing Resolution No. PJHL-A-04-012 and its contract with private respondent China Road &
Bridge Corporation as well as the DBM from disbursing funds for the said purpose.

The Respondents’ Counter-Arguments

The public respondents, namely the DPWH, DBM and DOF, and their respective named officials, through the Office of the
Solicitor General, urge the Court to dismiss the petition on grounds that the petitioners have no locus standi and, in any case,
Resolution No. PJHL-A-04-012 and the contract between the DPWH and private respondent China Road & Bridge Corporation
are valid.
According to the public respondents, a taxpayer’s locus standi was recognized in the following cases: (a) where a tax measure is
assailed as unconstitutional;26 (b) where there is a question of validity of election laws;27 (c) where legislators questioned the
validity of any official action upon the claim that it infringes on their prerogatives as legislators;28 (d) where there is a claim of
illegal disbursement or wastage of public funds through the enforcement of an invalid or unconstitutional law;29 (e) where it
involves the right of members of the Senate or House of Representatives to question the validity of a presidential veto or
condition imposed on an item in an appropriation bill;30 or (f) where it involves an invalid law, which when enforced will put the
petitioner in imminent danger of sustaining some direct injury as a result thereof, or that he has been or is about to be denied
some right or privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by reason
of the statute complained of.31 None of the above considerations allegedly obtains in the present case.

It is also the view of the public respondents that the fact that petitioner Abaya was a former lawmaker would not suffice to confer
locus standi on himself. Members of Congress may properly challenge the validity of an official act of any department of the
government only upon showing that the assailed official act affects or impairs their rights and prerogatives as legislators.

The public respondents further assail the standing of the petitioners to file the instant suit claiming that they failed to allege any
specific injury suffered nor an interest that is direct and personal to them. If at all, the interest or injuries claimed by the
petitioners are allegedly merely of a general interest common to all members of the public. Their interest is allegedly too vague,
highly speculative and uncertain to satisfy the requirements of locus standi.

The public respondents find it noteworthy that the petitioners do not raise issues of constitutionality but only of contract law,
which the petitioners not being privies to the agreement cannot raise. This is following the principle that a stranger to a contract
cannot sue either or both the contracting parties to annul and set aside the same except when he is prejudiced on his rights and
can show detriment which would positively result to him from the implementation of the contract in which he has no intervention.
There being no particularized interest or elemental substantial injury necessary to confer locus standi, the public respondents
implore the Court to dismiss the petition.

On the merits, the public respondents maintain that the imposition of ceilings or upper limits on bid prices in RA 9184 does not
apply because the CP I project and the entire Catanduanes Circumferential Road Improvement Project, financed by Loan
Agreement No. PH-P204 executed between the Philippine Government and the JBIC, is governed by the latter’s Procurement
Guidelines which precludes the imposition of ceilings on bid prices. Section 5.06 of the JBIC Procurement Guidelines reads:

Section 5.06. Evaluation and Comparison of Bids.

xxx

(e) Any procedure under which bids above or below a predetermined bid value assessment are automatically disqualified is not
permitted.

It was explained that other foreign banks such as the Asian Development Bank (ADB) and the World Bank (WB) similarly
prohibit the bracketing or imposition of a ceiling on bid prices.

The public respondents stress that it was pursuant to Loan Agreement No. PH-P204 that the assailed Resolution No. PJHL-A-
04-012 and the subsequent contract between the DPWH and private respondent China Road & Bridge Corporation materialized.
They likewise aver that Loan Agreement No. PH-P204 is governed by RA 4860, as amended, or the Foreign Borrowings Act.
Section 4 thereof states:

SEC. 4. In the contracting of any loan, credit or indebtedness under this Act, the President of the Philippines may, when
necessary, agree to waive or modify, the application of any law granting preferences or imposing restrictions on international
competitive bidding, including among others [Act No. 4239, Commonwealth Act No. 138], the provisions of [CA 541], insofar as
such provisions do not pertain to constructions primarily for national defense or security purposes, [RA 5183]; Provided,
however, That as far as practicable, utilization of the services of qualified domestic firms in the prosecution of projects financed
under this Act shall be encouraged: Provided, further, That in case where international competitive bidding shall be conducted
preference of at least fifteen per centum shall be granted in favor of articles, materials or supplies of the growth, production or
manufacture of the Philippines: Provided, finally, That the method and procedure in comparison of bids shall be the subject of
agreement between the Philippine Government and the lending institution.

DOJ Opinion No. 46, Series of 1987, is relied upon by the public respondents as it opined that an agreement for the exclusion of
foreign assisted projects from the coverage of local bidding regulations does not contravene existing legislations because the
statutory basis for foreign loan agreements is RA 4860, as amended, and under Section 4 thereof, the President is empowered
to waive the application of any law imposing restrictions on the procurement of goods and services pursuant to such loans.

Memorandum Circular Nos. 104 and 108, issued by the President, to clarify RA 4860, as amended, and PD 1594, relative to the
award of foreign-assisted projects, are also invoked by the public respondents, to wit:

Memorandum Circular No. 104:

In view of the provisions of Section 4 of Republic Act No. 4860, as amended, otherwise known as the "Foreign Borrowings Act"

xxx

It is hereby clarified that foreign-assisted infrastructure projects may be exempted from the application for the pertinent
provisions of the Implementing Rules and Regulations (IRR) of Presidential Decree (P.D.) No. 1594 relative to the method and
procedure in the comparison of bids, which matter may be the subject of agreement between the infrastructure agency
concerned and the lending institution. It should be made clear however that public bidding is still required and can only be
waived pursuant to existing laws.

Memorandum Circular No. 108:

In view of the provisions of Section 4 of Republic Act No. 4860, as amended, otherwise known as the "Foreign Borrowings Act",
it is hereby clarified that, for projects supported in whole or in part by foreign assistance awarded through international or local
competitive bidding, the government agency concerned may award the contract to the lowest evaluated bidder at his bid price
consistent with the provisions of the applicable loan/grant agreement.

Specifically, when the loan/grant agreement so stipulates, the government agency concerned may award the contract to the
lowest bidder even if his/its bid exceeds the approved agency estimate.

It is understood that the concerned government agency shall, as far as practicable, adhere closely to the implementing rules and
regulations of Presidential Decree No. 1594 during loan/grant negotiation and the implementation of the projects.32

The public respondents characterize foreign loan agreements, including Loan Agreement No. PH-P204, as executive
agreements and, as such, should be observed pursuant to the fundamental principle in international law of pacta sunt
servanda.33 They cite Section 20 of Article VII of the Constitution as giving the President the authority to contract foreign loans:

SEC. 20. The President may contract or guarantee foreign loans on behalf of the Republic of the Philippines with the prior
concurrence of the Monetary Board, and subject to such limitations as may be provided by law. The Monetary Board shall, within
thirty days from the end of every quarter of the calendar year, submit to the Congress a complete report of its decisions on
applications for loans to be contracted or guaranteed by the Government or Government-owned and Controlled Corporations
which would have the effect of increasing the foreign debt, and containing other matters as may be provided by law.

The Constitution, the public respondents emphasize, recognizes the enforceability of executive agreements in the same way
that it recognizes generally accepted principles of international law as forming part of the law of the land. 34 This recognition
allegedly buttresses the binding effect of executive agreements to which the Philippine Government is a signatory. It is pointed
out by the public respondents that executive agreements are essentially contracts governing the rights and obligations of the
parties. A contract, being the law between the parties, must be faithfully adhered to by them. Guided by the fundamental rule of
pacta sunt servanda, the Philippine Government bound itself to perform in good faith its duties and obligations under Loan
Agreement No. PH-P204.

The public respondents further argue against the applicability of RA 9184 stating that it was signed into law on January 10,
2003.35 On the other hand, Loan Agreement No. PH-P204 was executed on December 28, 1999, where the laws then in force
on government procurements were PD 1594 and EO 40. The latter law (EO 40), in particular, excluded from its application "any
existing and future government commitments with respect to the bidding and award of contracts financed partly or wholly with
funds from international financing institutions as well as from bilateral and other similar foreign sources."

The applicability of EO 40, not RA 9184, is allegedly bolstered by the fact that the "Invitation to Prequalify and to Bid" for the
implementation of the CP I project was published in two leading national newspapers, namely, the Manila Times and Manila
Standard on November 22, 29 and December 5, 2002, or before the signing into law of RA 9184 on January 10, 2003. In this
connection, the public respondents point to Section 77 of IRR-A, which reads:

SEC. 77. Transitory Clause. –

In all procurement activities, if the advertisement or invitation for bids was issued prior to the effectivity of the Act, the provisions
of EO 40 and its IRR, PD 1594 and its IRR, RA 7160 and its IRR, or other applicable laws as the case may be, shall govern.

In cases where the advertisements or invitations for bids were issued after the effectivity of the Act but before the effectivity of
this IRR-A, procuring entities may continue adopting the procurement procedures, rules and regulations provided in EO 40 and
its IRR, or other applicable laws, as the case may be.

Section 4 of RA 9184 is also invoked by the public respondents as it provides:

SEC. 4. Scope and Applications. – This Act shall apply to the Procurement of Infrastructure Projects, Goods and Consulting
Services, regardless of source of funds, whether local or foreign, by all branches and instrumentalities of government, its
departments, offices and agencies, including government-owned and/or –controlled corporations and local government units,
subject to the provisions of Commonwealth Act No. 138. Any treaty or international or executive agreement affecting the subject
matter of this Act to which the Philippine government is a signatory shall be observed.

It is also the position of the public respondents that even granting arguendo that Loan Agreement No. PH-P204 were an ordinary
loan contract, still, RA 9184 is inapplicable under the non-impairment clause36 of the Constitution. The said loan agreement
expressly provided that the procurement of goods and services for the project financed by the same shall be governed by the
Guidelines for Procurement under OECF Loans dated December 1997. Further, Section 5.06 of the JBIC Procurement
Guidelines categorically provides that "[a]ny procedure under which bids above or below a predetermined bid value assessment
are automatically disqualified is not permitted."

The public respondents explain that since the contract is the law between the parties and Loan Agreement No. PH-P204 states
that the JBIC Procurement Guidelines shall govern the parties’ relationship and further dictates that there be no ceiling price for
the bidding, it naturally follows that any subsequent law passed contrary to the letters of the said contract would have no effect
with respect to the parties’ rights and obligations arising therefrom.

To insist on the application of RA 9184 on the bidding for the CP I project would, notwithstanding the terms and conditions of
Loan Agreement No. PH-P204, allegedly violate the constitutional provision on non-impairment of obligations and contracts, and
destroy vested rights duly acquired under the said loan agreement.

Lastly, the public respondents deny that there was illegal disbursement of public funds by the DBM. They asseverate that all the
releases made by the DBM for the implementation of the entire Arterial Road Links Project – Phase IV, which includes the
Catanduanes Circumferential Road Improvement Project, were covered by the necessary appropriations made by law,
specifically the General Appropriations Act (GAA). Further, the requirements and procedures prescribed for the release of the
said funds were duly complied with.

For its part, private respondent China Road & Bridge Corporation similarly assails the standing of the petitioners, either as
taxpayers or, in the case of petitioner Abaya, as a former lawmaker, to file the present suit. In addition, it is also alleged that, by
filing the petition directly to this Court, the petitioners failed to observe the hierarchy of courts.

On the merits, private respondent China Road & Bridge Corporation asserts that the applicable law to govern the bidding of the
CP I project was EO 40, not RA 9184, because the former was the law governing the procurement of government projects at the
time that it was bidded out. EO 40 was issued by the Office of the President on October 8, 2001 and Section 1 thereof states
that:

SEC. 1. Scope and Application. This Executive Order shall apply to the procurement of: (a) goods, supplies, materials and
related services; (b) civil works; and (c) consulting services, by all National Government agencies, including State Universities
and Colleges (SUCs), Government-Owned or Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs),
hereby referred to as the ‘Agencies.’ This Executive Order shall cover the procurement process from the pre-procurement
conference up to the award of contract.

xxx

The Invitation to Prequalify and to Bid was first published on November 22, 2002. On the other hand, RA 9184 was signed into
law only on January 10, 2003. Since the law in effect at the time the procurement process was initiated was EO 40, private
respondent China Road & Bridge Corporation submits that it should be the said law which should govern the entire procurement
process relative to the CP I project.

EO 40 expressly recognizes as an exception from the application of the provisions thereof on approved budget ceilings, those
projects financed by international financing institutions (IFIs) and foreign bilateral sources. Section 1 thereof, quoted in part
earlier, further states:

SEC. 1. Scope and Application. x x x

Nothing in this Order shall negate any existing and future government commitments with respect to the bidding and award of
contracts financed partly or wholly with funds from international financing institutions as well as from bilateral and other similar
foreign sources.

Section 1.2 of the Implementing Rules and Regulations of EO 40 is likewise invoked as it provides:

For procurement financed wholly or partly from Official Development Assistance (ODA) funds from International Financing
Institutions (IFIs), as well as from bilateral and other similar foreign sources, the corresponding loan/grant agreement governing
said funds as negotiated and agreed upon by and between the Government and the concerned IFI shall be observed.

Private respondent China Road & Bridge Corporation thus postulates that following EO 40, the procurement of goods and
services for the CP I project should be governed by the terms and conditions of Loan Agreement No. PH-P204 entered into
between the JBIC and the Philippine Government. Pertinently, Section 5.06 of the JBIC Procurement Guidelines prohibits the
setting of ceilings on bid prices.

Private respondent China Road & Bridge Corporation claims that when it submitted its bid for the CP I project, it relied in good
faith on the provisions of EO 40. It was allegedly on the basis of the said law that the DPWH awarded the project to private
respondent China Road & Bridge Coporation even if its bid was higher than the ABC. Under the circumstances, RA 9184 could
not be applied retroactively for to do so would allegedly impair the vested rights of private respondent China Road & Bridge
Corporation arising from its contract with the DPWH.

It is also contended by private respondent China Road & Bridge Corporation that even assuming arguendo that RA 9184 could
be applied retroactively, it is still the terms of Loan Agreement No. PH-P204 which should govern the procurement of goods and
services for the CP I project. It supports its theory by characterizing the said loan agreement, executed pursuant to the
Exchange of Notes between the Government of Japan and the Philippine Government, as an executive agreement.

Private respondent China Road & Bridge Corporation, like the public respondents, cites RA 4860 as the basis for the Exchange
of Notes and Loan Agreement No. PH-P204. As an international or executive agreement, the Exchange of Notes and Loan
Agreement No. PH-P204 allegedly created a legally binding obligation on the parties.

The following excerpt of the deliberations of the Bicameral Conference Committee on the Disagreeing Provision of Senate Bill
No. 2248 and House Bill No. 4809 is cited by private respondent China Road & Bridge Corporation to support its contention that
it is the intent of the lawmakers to exclude from the application of RA 9184 those foreign-funded projects:

xxx

REP. MARCOS. Yes, Mr. Chairman, to respond and to put into the record, a justification for the inclusion of foreign contracts,
may we just state that foreign contracts have, of course, been brought into the ambit of the law because of the Filipino
counterpart for this foreign projects, they are no longer strictly foreign in nature but fall under the laws of the Philippine
government.

THE CHAIRMAN (SEN. ANGARA). Okay. I think that’s pretty clear. I think the possible concern is that some ODA are with
strings attached especially the Japanese. The Japanese are quite strict about that, that they are (sic) even provide the architect
and the design, etcetera, plus, of course, the goods that will be supplied.
Now, I think we’ve already provided that this is open to all and we will recognize our international agreements so that this bill will
not also restrict the flow of foreign funding, because some countries now make it a condition that they supply both services and
goods especially the Japanese.

So I think we can put a sentence that we continue to honor our international obligations, di ba Laura?

MR. ENCARNACION. Actually, subject to any treaty.

THE CHAIRMAN (SEN. ANGARA). ‘Yun pala eh. That should allay their anxiety and concern. Okay, buti na lang for the record
para malaman nila na we are conscious sa ODA.37

Private respondent China Road & Bridge Corporation submits that based on the provisions of the Exchange of Notes and Loan
Agreement No. PH-P204, it was rightfully and legally awarded the CP I project. It urges the Court to dismiss the petition for lack
of merit.

The Court’s Rulings

Petitioners, as taxpayers, possess locus standi to file the present suit

Briefly stated, locus standi is "a right of appearance in a court of justice on a given question."38 More particularly, it is a party’s
personal and substantial interest in a case such that he has sustained or will sustain direct injury as a result of the governmental
act being challenged. It calls for more than just a generalized grievance. The term "interest" means a material interest, an
interest in issue affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental
interest.39 Standing or locus standi is a peculiar concept in constitutional law 40 and the rationale for requiring a party who
challenges the constitutionality of a statute to allege such a personal stake in the outcome of the controversy is "to assure that
concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of
difficult constitutional questions."41

Locus standi, however, is merely a matter of procedure42 and it has been recognized that in some cases, suits are not brought
by parties who have been personally injured by the operation of a law or any other government act but by concerned citizens,
taxpayers or voters who actually sue in the public interest.43 Consequently, the Court, in a catena of cases,44 has invariably
adopted a liberal stance on locus standi, including those cases involving taxpayers.

The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the national government or
government- owned or controlled corporations allegedly in contravention of law.45 A taxpayer is allowed to sue where there is a
claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a
wastage of public funds through the enforcement of an invalid or unconstitutional law.46 Significantly, a taxpayer need not be a
party to the contract to challenge its validity.47

In the present case, the petitioners are suing as taxpayers. They have sufficiently demonstrated that, notwithstanding the fact
that the CP I project is primarily financed from loans obtained by the government from the JBIC, nonetheless, taxpayers’ money
would be or is being spent on the project considering that the Philippine Government is required to allocate a peso-counterpart
therefor. The public respondents themselves admit that appropriations for these foreign-assisted projects in the GAA are
composed of the loan proceeds and the peso-counterpart. The counterpart funds, the Solicitor General explains, refer to the
component of the project cost to be financed from government-appropriated funds, as part of the government’s commitment in
the implementation of the project.48 Hence, the petitioners correctly asserted their standing since a part of the funds being
utilized in the implementation of the CP I project partakes of taxpayers’ money.

Further, the serious legal questions raised by the petitioners, e.g., whether RA 9184 applies to the CP I project, in particular, and
to foreign-funded government projects, in general, and the fact that public interest is indubitably involved considering the public
expenditure of millions of pesos, warrant the Court to adopt in the present case its liberal policy on locus standi.

In any case, for reasons which will be discussed shortly, the substantive arguments raised by the petitioners fail to persuade the
Court as it holds that Resolution No. PJHL-A-04-012 is valid. As a corollary, the subsequent contract entered into by and
between the DPWH and private respondent China Road & Bridge Corporation is likewise valid.

History of Philippine Procurement Laws

It is necessary, at this point, to give a brief history of Philippine laws pertaining to procurement through public bidding. The
United States Philippine Commission introduced the American practice of public bidding through Act No. 22, enacted on October
15, 1900, by requiring the Chief Engineer, United States Army for the Division of the Philippine Islands, acting as purchasing
agent under the control of the then Military Governor, to advertise and call for a competitive bidding for the purchase of the
necessary materials and lands to be used for the construction of highways and bridges in the Philippine Islands. 49 Act No. 74,
enacted on January 21, 1901 by the Philippine Commission, required the General Superintendent of Public Instruction to
purchase office supplies through competitive public bidding.50 Act No. 82, approved on January 31, 1901, and Act No. 83,
approved on February 6, 1901, required the municipal and provincial governments, respectively, to hold competitive public
biddings in the making of contracts for public works and the purchase of office supplies. 51

On June 21, 1901, the Philippine Commission, through Act No. 146, created the Bureau of Supply and with its creation, public
bidding became a popular policy in the purchase of supplies, materials and equipment for the use of the national government, its
subdivisions and instrumentalities.52 On February 3, 1936, then President Manuel L. Quezon issued Executive Order No. 16
declaring as a matter of general policy that government contracts for public service or for furnishing supplies, materials and
equipment to the government should be subjected to public bidding.53 The requirement of public bidding was likewise imposed
for public works of construction or repair pursuant to the Revised Administrative Code of 1917.

Then President Diosdado Macapagal, in Executive Order No. 40 dated June 1, 1963, reiterated the directive that no government
contract for public service or for furnishing supplies, materials and equipment to the government or any of its branches, agencies
or instrumentalities, should be entered into without public bidding except for very extraordinary reasons to be determined by a
Committee constituted thereunder. Then President Ferdinand Marcos issued PD 1594 prescribing guidelines for government
infrastructure projects and Section 454 thereof stated that they should generally be undertaken by contract after competitive
public bidding.

Then President Corazon Aquino issued Executive Order No. 301 (1987) prescribing guidelines for government negotiated
contracts. Pertinently, Section 62 of the Administrative Code of 1987 reiterated the requirement of competitive public bidding in
government projects. In 1990, Congress passed RA 6957,55 which authorized the financing, construction, operation and
maintenance of infrastructure by the private sector. RA 7160 was likewise enacted by Congress in 1991 and it contains
provisions governing the procurement of goods and locally-funded civil works by the local government units.

Then President Fidel Ramos issued Executive Order No. 302 (1996), providing guidelines for the procurement of goods and
supplies by the national government. Then President Joseph Ejercito Estrada issued Executive Order No. 201 (2000), providing
additional guidelines in the procurement of goods and supplies by the national government. Thereafter, he issued Executive
Order No. 262 (2000) amending EO 302 (1996) and EO 201 (2000).

On October 8, 2001, President Gloria Macapagal-Arroyo issued EO 40, the law mainly relied upon by the respondents, entitled
Consolidating Procurement Rules and Procedures for All National Government Agencies, Government-Owned or Controlled
Corporations and Government Financial Institutions, and Requiring the Use of the Government Procurement System. It
accordingly repealed, amended or modified all executive issuances, orders, rules and regulations or parts thereof inconsistent
therewith.56

On January 10, 2003, President Arroyo signed into law RA 9184. It took effect on January 26, 2004, or fifteen days after its
publication in two newspapers of general circulation.57 It expressly repealed, among others, EO 40, EO 262 (2000), EO
302(1996) and PD 1594, as amended:

SEC. 76. Repealing Clause. —This law repeals Executive Order No. 40, series of 2001, entitled "Consolidating Procurement
Rules and Procedures for All National Government Agencies, Government Owned or Controlled Corporations and/or
Government Financial Institutions, and Requiring the Use of the Government Electronic Procurement System"; Executive Order
No. 262, series of 1996, entitled "Amending Executive Order No. 302, series of 1996, entitled Providing Policies, Guidelines,
Rules and Regulations for the Procurement of Goods/Supplies by the National Government" and Section 3 of Executive Order
No. 201, series of 2000, entitled "Providing Additional Policies and Guidelines in the Procurement of Goods/Supplies by the
National Government"; Executive Order No. 302, series of 1996, entitled "Providing Policies, Guidelines, Rules and Regulations
for the Procurement of Goods/Supplies by the National Government" and Presidential Decree No. 1594 dated June 11, 1978,
entitled "Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts." This law amends
Title Six, Book Two of Republic Act No. 7160, otherwise known as the "Local Government Code of 1991"; the relevant
provisions of Executive Order No. 164, series of 1987, entitled "Providing Additional Guidelines in the Processing and Approval
of Contracts of the National Government"; and the relevant provisions of Republic Act No. 7898 dated February 23, 1995,
entitled "An Act Providing for the Modernization of the Armed Forces of the Philippines and for Other Purposes." Any other law,
presidential decree or issuance, executive order, letter of instruction, administrative order, proclamation, charter, rule or
regulation and/or parts thereof contrary to or inconsistent with the provisions of this Act is hereby repealed, modified or amended
accordingly.

In addition to these laws, RA 4860, as amended, must be mentioned as Section 4 thereof provides that "[i]n the contracting of
any loan, credit or indebtedness under this Act, the President of the Philippines may, when necessary, agree to waive or modify
the application of any law granting preferences or imposing restrictions on international competitive bidding x x x Provided,
finally, That the method and procedure in the comparison of bids shall be the subject of agreement between the Philippine
Government and the lending institution."

EO 40, not RA 9184, is applicable to the procurement

process undertaken for the CP I project. RA 9184

cannot be given retroactive application.

It is not disputed that with respect to the CP I project, the Invitation to Prequalify and to Bid for its implementation was published
in two leading national newspapers, namely, the Manila Times and Manila Standard on November 22, 29 and December 5,
2002. At the time, the law in effect was EO 40. On the other hand, RA 9184 took effect two months later or on January 26, 2003.
Further, its full implementation was even delayed as IRR-A was only approved by President Arroyo on September 18, 2003 and
subsequently published on September 23, 2003 in the Manila Times and Malaya newspapers.58

The provisions of EO 40 apply to the procurement process pertaining to the CP I project as it is explicitly provided in Section 1
thereof that:

SEC. 1. Scope and Application. – This Executive Order shall apply to see procurement of (a) goods, supplies, materials and
related service; (b) civil works; and (c) consulting services, by all National Government agencies, including State Universities
and Colleges (SUCs), Government-Owned or –Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs),
hereby referred to as "Agencies." This Executive Order shall cover the procurement process from the pre-procurement
conference up to the award of the contract.

Nothing in this Order shall negate any existing and future government commitments with respect to the bidding and award of
contracts financed partly or wholly with funds from international financing institutions as well as from bilateral and similar foreign
sources.

The procurement process basically involves the following steps: (1) pre-procurement conference; (2) advertisement of the
invitation to bid; (3) pre-bid conference; (4) eligibility check of prospective bidders; (5) submission and receipt of bids; (6)
modification and withdrawal of bids; (7) bid opening and examination; (8) bid evaluation; (9) post qualification; (10) award of
contract and notice to proceed.59 Clearly then, when the Invitation to Prequalify and to Bid for the implementation of the CP I
project was published on November 22, 29 and December 5, 2002, the procurement process thereof had already commenced
and the application of EO 40 to the procurement process for the CP I project had already attached.

RA 9184 cannot be applied retroactively to govern the procurement process relative to the CP I project because it is well settled
that a law or regulation has no retroactive application unless it expressly provides for retroactivity. 60Indeed, Article 4 of the Civil
Code is clear on the matter: "[l]aws shall have no retroactive effect, unless the contrary is provided." In the absence of such
categorical provision, RA 9184 will not be applied retroactively to the CP I project whose procurement process commenced even
before the said law took effect.

That the legislators did not intend RA 9184 to have retroactive effect could be gleaned from the IRR-A formulated by the Joint
Congressional Oversight Committee (composed of the Chairman of the Senate Committee on Constitutional Amendments and
Revision of Laws, and two members thereof appointed by the Senate President and the Chairman of the House Committee on
Appropriations, and two members thereof appointed by the Speaker of the House of Representatives) and the Government
Procurement Policy Board (GPPB). Section 77 of the IRR-A states, thus:

SEC. 77. Transitory Clause

In all procurement activities, if the advertisement or invitation for bids was issued prior to the effectivity of the Act, the provisions
of E.O. 40 and its IRR, P.D. 1594 and its IRR, R.A. 7160 and its IRR, or other applicable laws, as the case may be, shall govern.

In cases where the advertisements or invitations for bids were issued after the effectivity of the Act but before the effectivity of
this IRR-A, procuring entities may continue adopting the procurement procedures, rules and regulations provided in E.O. 40 and
its IRR, P.D. 1594 and its IRR, R.A. 7160 and its IRR, or other applicable laws, as the case may be.

In other words, under IRR-A, if the advertisement of the invitation for bids was issued prior to the effectivity of RA 9184, such as
in the case of the CP I project, the provisions of EO 40 and its IRR, and PD 1594 and its IRR in the case of national government
agencies, and RA 7160 and its IRR in the case of local government units, shall govern.

Admittedly, IRR-A covers only fully domestically-funded procurement activities from procurement planning up to contract
implementation and that it is expressly stated that IRR-B for foreign-funded procurement activities shall be subject of a
subsequent issuance.61 Nonetheless, there is no reason why the policy behind Section 77 of IRR-A cannot be applied to foreign-
funded procurement projects like the CP I project. Stated differently, the policy on the prospective or non-retroactive application
of RA 9184 with respect to domestically-funded procurement projects cannot be any different with respect to foreign-funded
procurement projects like the CP I project. It would be incongruous, even absurd, to provide for the prospective application of RA
9184 with respect to domestically-funded procurement projects and, on the other hand, as urged by the petitioners, apply RA
9184 retroactively with respect to foreign- funded procurement projects. To be sure, the lawmakers could not have intended
such an absurdity.

Thus, in the light of Section 1 of EO 40, Section 77 of IRR-A, as well as the fundamental rule embodied in Article 4 of the Civil
Code on prospectivity of laws, the Court holds that the procurement process for the implementation of the CP I project is
governed by EO 40 and its IRR, not RA 9184.

Under EO 40, the award of the contract to private

respondent China Road & Bridge Corporation is valid

Section 25 of EO 40 provides that "[t]he approved budget of the contract shall be the upper limit or ceiling of the bid price. Bid
prices which exceed this ceiling shall be disqualified outright from further participating in the bidding. There shall be no lower
limit to the amount of the award. x x x" It should be observed that this text is almost similar to the wording of Section 31 of RA
9184, relied upon by the petitioners in contending that since the bid price of private respondent China Road & Bridge
Corporation exceeded the ABC, then it should not have been awarded the contract for the CP I project.

Nonetheless, EO 40 expressly recognizes as an exception to its scope and application those government commitments with
respect to bidding and award of contracts financed partly or wholly with funds from international financing institutions as well as
from bilateral and other similar foreign sources. The pertinent portion of Section 1 of EO 40 is quoted anew:

SEC. 1. Scope and Application. – x x x

Nothing in this Order shall negate any existing and future government commitments with respect to the bidding and award of
contracts financed partly or wholly with funds from international financing institutions as well as from bilateral and similar foreign
sources.

In relation thereto, Section 4 of RA 4860, as amended, was correctly cited by the respondents as likewise authorizing the
President, in the contracting of any loan, credit or indebtedness thereunder, "when necessary, agree to waive or modify the
application of any law granting preferences or imposing restrictions on international competitive bidding x x x." The said
provision of law further provides that "the method and procedure in the comparison of bids shall be the subject of agreement
between the Philippine Government and the lending institution."

Consequently, in accordance with these applicable laws, the procurement of goods and services for the CP I project is governed
by the corresponding loan agreement entered into by the government and the JBIC, i.e., Loan Agreement No. PH-P204. The
said loan agreement stipulated that the procurement of goods and services for the Arterial Road Links Development Project
(Phase IV), of which CP I is a component, is to be governed by the JBIC Procurement Guidelines. Section 5.06, Part II
(International Competitive Bidding) thereof quoted earlier reads:

Section 5.06. Evaluation and Comparison of Bids

 xxx

(e) Any procedure under which bids above or below a predetermined bid value assessment are automatically disqualified is not
permitted.62

It is clear that the JBIC Procurement Guidelines proscribe the imposition of ceilings on bid prices. On the other hand, it enjoins
the award of the contract to the bidder whose bid has been determined to be the lowest evaluated bid. The pertinent provision,
quoted earlier, is reiterated, thus:

Section 5.09. Award of Contract

The contract is to be awarded to the bidder whose bid has been determined to be the lowest evaluated bid and who meets the
appropriate standards of capability and financial resources. A bidder shall not be required as a condition of award to undertake
responsibilities or work not stipulated in the specifications or to modify the bid.63

Since these terms and conditions are made part of Loan Agreement No. PH-P204, the government is obliged to observe and
enforce the same in the procurement of goods and services for the CP I project. As shown earlier, private respondent China
Road & Bridge Corporation’s bid was the lowest evaluated bid, albeit 28.95% higher than the ABC. In accordance with the JBIC
Procurement Guidelines, therefore, it was correctly awarded the contract for the CP I project.

Even if RA 9184 were to be applied retroactively, the terms of the Exchange of Notes dated December 27, 1999 and Loan
Agreement No. PH-P204 would still govern the procurement for the CP I project

For clarity, Section 4 of RA 9184 is quoted anew, thus:

SEC. 4. Scope and Applications. – This Act shall apply to the Procurement of Infrastructure Projects, Goods and Consulting
Services, regardless of source of funds, whether local or foreign, by all branches and instrumentalities of government, its
departments, offices and agencies, including government-owned and/or –controlled corporations and local government units,
subject to the provisions of Commonwealth Act No. 138. Any treaty or international or executive agreement affecting the subject
matter of this Act to which the Philippine government is a signatory shall be observed.

The petitioners, in order to place the procurement process undertaken for the CP I project within the ambit of RA 9184,
vigorously assert that Loan Agreement No. PH-P204 is neither a treaty, an international agreement nor an executive agreement.
They cite Executive Order No. 459 dated November 25, 1997 where the three agreements are defined in this wise:

a) International agreement – shall refer to a contract or understanding, regardless of nomenclature, entered into
between the Philippines and another government in written form and governed by international law, whether embodied
in a single instrument or in two or more related instruments.

b) Treaties – international agreements entered into by the Philippines which require legislative concurrence after
executive ratification. This term may include compacts like conventions, declarations, covenants and acts.

c) Executive agreements – similar to treaties except that they do not require legislative concurrence.64

The petitioners mainly argue that Loan Agreement No. PH-P204 does not fall under any of the three categories because to be
any of the three, an agreement had to be one where the parties are the Philippines as a State and another State. The JBIC, the
petitioners maintain, is a Japanese banking agency, which presumably has a separate juridical personality from the Japanese
Government.

The petitioners’ arguments fail to persuade. The Court holds that Loan Agreement No. PH-P204 taken in conjunction with the
Exchange of Notes dated December 27, 1999 between the Japanese Government and the Philippine Government is an
executive agreement.

To recall, Loan Agreement No. PH-P204 was executed by and between the JBIC and the Philippine Government pursuant to the
Exchange of Notes executed by and between Mr. Yoshihisa Ara, Ambassador Extraordinary and Plenipotentiary of Japan to the
Philippines, and then Foreign Affairs Secretary Siazon, in behalf of their respective governments. The Exchange of Notes
expressed that the two governments have reached an understanding concerning Japanese loans to be extended to the
Philippines and that these loans were aimed at promoting our country’s economic stabilization and development efforts.

Loan Agreement No. PH-P204 was subsequently executed and it declared that it was so entered by the parties "[i]n the light of
the contents of the Exchange of Notes between the Government of Japan and the Government of the Republic of the Philippines
dated December 27, 1999, concerning Japanese loans to be extended with a view to promoting the economic stabilization and
development efforts of the Republic of the Philippines."65 Under the circumstances, the JBIC may well be considered an adjunct
of the Japanese Government. Further, Loan Agreement No. PH-P204 is indubitably an integral part of the Exchange of Notes. It
forms part of the Exchange of Notes such that it cannot be properly taken independent thereof.

In this connection, it is well to understand the definition of an "exchange of notes" under international law. The term is defined in
the United Nations Treaty Collection in this wise:

An "exchange of notes" is a record of a routine agreement that has many similarities with the private law contract. The
agreement consists of the exchange of two documents, each of the parties being in the possession of the one signed by the
representative of the other. Under the usual procedure, the accepting State repeats the text of the offering State to record its
assent. The signatories of the letters may be government Ministers, diplomats or departmental heads. The technique of
exchange of notes is frequently resorted to, either because of its speedy procedure, or, sometimes, to avoid the process of
legislative approval.66
It is stated that "treaties, agreements, conventions, charters, protocols, declarations, memoranda of understanding, modus
vivendi and exchange of notes" all refer to "international instruments binding at international law."67 It is further explained that-

Although these instruments differ from each other by title, they all have common features and international law has applied
basically the same rules to all these instruments. These rules are the result of long practice among the States, which have
accepted them as binding norms in their mutual relations. Therefore, they are regarded as international customary law. Since
there was a general desire to codify these customary rules, two international conventions were negotiated. The 1969 Vienna
Convention on the Law of Treaties ("1969 Vienna Convention"), which entered into force on 27 January 1980, contains rules for
treaties concluded between States. The 1986 Vienna Convention on the Law of Treaties between States and International
Organizations ("1986 Vienna Convention"), which has still not entered into force, added rules for treaties with international
organizations as parties. Both the 1969 Vienna Convention and the 1986 Vienna Convention do not distinguish between the
different designations of these instruments. Instead, their rules apply to all of those instruments as long as they meet the
common requirements.68

Significantly, an exchange of notes is considered a form of an executive agreement, which becomes binding through executive
action without the need of a vote by the Senate or Congress. The following disquisition by Francis B. Sayre, former United
States High Commissioner to the Philippines, entitled "The Constitutionality of Trade Agreement Acts," quoted in Commissioner
of Customs v. Eastern Sea Trading,69 is apropos:

Agreements concluded by the President which fall short of treaties are commonly referred to as executive agreements and are
no less common in our scheme of government than are the more formal instruments – treaties and conventions. They
sometimes take the form of exchange of notes and at other times that of more formal documents denominated "agreements" or
"protocols". The point where ordinary correspondence between this and other governments ends and agreements – whether
denominated executive agreements or exchange of notes or otherwise – begin, may sometimes be difficult of ready
ascertainment. It would be useless to undertake to discuss here the large variety of executive agreements as such, concluded
from time to time. Hundreds of executive agreements, other than those entered into under the trade-agreements act, have been
negotiated with foreign governments. x x x70

The Exchange of Notes dated December 27, 1999, stated, inter alia, that the Government of Japan would extend loans to the
Philippines with a view to promoting its economic stabilization and development efforts; Loan I in the amount
of Y79,8651,000,000 would be extended by the JBIC to the Philippine Government to implement the projects in the List A
(including the Arterial Road Links Development Project - Phase IV); and that such loan (Loan I) would be used to cover
payments to be made by the Philippine executing agencies to suppliers, contractors and/or consultants of eligible source
countries under such contracts as may be entered into between them for purchases of products and/or services required for the
implementation of the projects enumerated in the List A.71 With respect to the procurement of the goods and services for the
projects, it bears reiterating that as stipulated:

3. The Government of the Republic of the Philippines will ensure that the products and/or services mentioned in sub-paragraph
(1) of paragraph 3 of Part I and sub-paragraph (1) of paragraph 4 of Part II are procured in accordance with the guidelines for
procurement of the Bank, which set forth, inter alia, the procedures of international tendering to be followed except where such
procedures are inapplicable or inappropriate.72

The JBIC Procurements Guidelines, as quoted earlier, forbids any procedure under which bids above or below a predetermined
bid value assessment are automatically disqualified. Succinctly put, it absolutely prohibits the imposition of ceilings on bids.

Under the fundamental principle of international law of pacta sunt servanda,73 which is, in fact, embodied in Section 4 of RA
9184 as it provides that "[a]ny treaty or international or executive agreement affecting the subject matter of this Act to which the
Philippine government is a signatory shall be observed," the DPWH, as the executing agency of the projects financed by Loan
Agreement No. PH-P204, rightfully awarded the contract for the implementation of civil works for the CP I project to private
respondent China Road & Bridge Corporation.

WHEREFORE, premises considered, the petition is DISMISSED.

SO ORDERED.

G.R. No. 88291 May 31, 1991

ERNESTO M. MACEDA, petitioner, vs. HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of
the President; HON. VICENTE R. JAYME, in his capacity as Secretary of the Department of Finance; HON. SALVADOR
MISON, in his capacity as Commissioner, Bureau of Customs; HON. JOSE U. ONG, in his capacity as Commissioner of
Internal Revenue; NATIONAL POWER CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.) Inc.;
Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and Petrophil Corporation, respondents.

GANCAYCO, J.:

This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary, Secretary of
Finance, Commissioner of Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for
exempting the National Power Corporation (NPC) from indirect tax and duties.

The relevant facts are not in dispute.

On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of
hydraulic power and the production of power from other sources.1

On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under—
 Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties,
fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities and municipalities.

On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress declared as a national policy
the total electrification of the Philippines through the development of power from all sources to meet the needs of industrial
development and rural electrification which should be pursued coordinately and supported by all instrumentalities and agencies
of the government, including its financial institutions.2 The corporate existence of NPC was extended to carry out this policy,
specifically to undertake the development of hydro electric generation of power and the production of electricity from nuclear,
geothermal and other sources, as well as the transmission of electric power on a nationwide basis. 3 Being a non-profit
corporation, Section 13 of the law provided in detail the exemption of the NPC from all taxes, duties, fees, imposts and other
charges by the government and its instrumentalities.

On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of Republic Act No. 6395 by
specifying, among others, the exemption of NPC from such taxes, duties, fees, imposts and other charges imposed "directly or
indirectly," on all petroleum products used by NPC in its operation. Presidential Decree No. 938 dated May 27, 1976 further
amended the aforesaid provision by integrating the tax exemption in general terms under one paragraph.

On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in favor of government-owned or
controlled corporations including their subsidiaries.4 However, said law empowered the President and/or the then Minister of
Finance, upon recommendation of the FIRB to restore, partially or totally, the exemption withdrawn, or otherwise revise the
scope and coverage of any applicable tax and duty.

Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax and duty exemption
privileges of NPC from June 11, 1984 to June 30, 1985. On January 7, 1986, the FIRB issued resolution No. 1-86 indefinitely
restoring the NPC tax and duty exemption privileges effective July 1, 1985.

However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty incentives granted to
government and private entities which had been restored under Presidential Decree Nos. 1931 and 1955 but it gave the
authority to FIRB to restore, revise the scope and prescribe the date of effectivity of such tax and/or duty exemptions.

On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption privileges effective March 10,
1987. On October 5, 1987, the President, through respondent Executive Secretary Macaraig, Jr., confirmed and approved FIRB
Resolution No. 17-87.

As alleged in the petition, the following are the background facts:

The following are the facts relevant to NPC's questioned claim for refunds of taxes and duties originally paid by
respondents Caltex, Petrophil and Shell for specific and ad valorem taxes to the BIR; and for Customs duties and ad
valorem taxes paid by PNOC, Shell and Caltex to the Bureau of Customs on its crude oil importation.

Many of the factual statements are reproduced from the Senate Committee on Accountability of Public Officers and
Investigations (Blue Ribbon) Report No. 474 dated January 12, 1989 and approved by the Senate on April 21, 1989
(copy attached hereto as Annex "A") and are identified in quotation marks:

1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No. 1931 was promulgated
abolishing the tax exemptions of all government-owned or-controlled corporations, the oil firms never paid excise or
specific and ad valorem taxes for petroleum products sold and delivered to the NPC. This non-payment of taxes
therefore spanned a period of eight (8) years. (par. 23, p. 7, Annex "A")

During this period, the Bureau of Internal Revenue was not collecting specific taxes on the purchases of NPC of
petroleum products from the oil companies on the erroneous belief that the National Power Corporation (NPC) was
exempt from indirect taxes as reflected in the letter of Deputy Commissioner of Internal Revenue (DCIR) Romulo Villa to
the NPC dated October 29, 1980 granting blanket authority to the NPC to purchase petroleum products from the oil
companies without payment of specific tax (copy of this letter is attached hereto as petitioner's Annex "B").

2. The oil companies started to pay specific and ad valorem taxes on their sales of oil products to NPC only after the
promulgation of P.D. No. 1931 on June 11, 1984, withdrawing all exemptions granted in favor of government-owned or-
controlled corporations and empowering the FIRB to recommend to the President or to the Minister of Finance the
restoration of the exemptions which were withdrawn. "Specifically, Caltex paid the total amount of P58,020,110.79 in
specific and ad valorem taxes for deliveries of petroleum products to NPC covering the period from October 31, 1984 to
April 27, 1985." (par. 23, p. 7, Annex "A")

3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax portion. Beginning June 11,
1984, when P.D. 1931 was promulgated abolishing NPC's tax exemptions, Caltex's billings to NPC always included
both duties and taxes. (Caturla, tsn, Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex "A")

4. For the sales of petroleum products delivered to NPC during the period from October, 1984 to April, 1985, NPC was
billed a total of P522,016,77.34 (sic) including both duties and taxes, the specific tax component being valued at
P58,020,110.79. (par. 25, p. 8, Annex "A").

5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified true copy of which is
hereto attached as Annex "C", restored the tax exemption privileges of NPC effective retroactively to June 11, 1984 up
to June 30, 1985. The first paragraph of said resolution reads as follows:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power Corporation
under C.A. No. 120, as amended, are restored up to June 30, 1985.
Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the BIR for a "refund of Specific
Taxes paid on petroleum products . . . in the total amount of P58,020,110.79. (par. 26, pp. 8-9, Annex "A")

6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's Annex "D"), Acting BIR
Commissioner Ruben Ancheta declared:

FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase petroleum products from the oil
companies free of specific and ad valorem taxes, during the period in question.

The "period in question" is June 1 1, 1 984 to June 30, 1 985.

7. On June 6, 1985—The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata, Chairman of the FIRB
(Annex "E"), requesting "the FIRB to resolve conflicting rulings on the tax exemption privileges of the National Power
Corporation (NPC)." These rulings involve FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. 12, Annex "A")

8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata confirmed the ruling of
May 8, 1985 of Acting BIR Commissioner Ruben Ancheta, (par. 41, p. 12, Annex "A")

9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil Development Co., Ltd., a Korean
contractor of NPC for its infrastructure projects, certified true copy of which is attached hereto as petitioner's Annex "E",
BIR Acting Commissioner Ruben Ancheta ruled:

In Reply please be informed that after a re-study of Section 13, R.A. 6395, as amended by P.D. 938, this Office
is of the opinion, and so holds, that the scope of the tax exemption privilege enjoyed by NPC under said section
covers only taxes for which it is directly liable and not on taxes which are only shifted to it. (Phil. Acetylene vs.
C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's tax is directly payable by the contractor, not by
NPC, your request for exemption, based on the stipulation in the aforesaid contract that NPC shall assume
payment of your contractor's tax liability, cannot be granted for lack of legal basis." (Annex "H") (emphasis
added)

Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for which it is directly liable and
does not cover taxes which are only shifted to it or for indirect taxes. The BIR, through Ancheta, reversed its previous
position of May 8, 1985 adopted by Ancheta himself favoring NPC's indirect tax exemption privilege.

10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex (Annex "F"), the BIR
Commissioner declared that PAL's tax exemption is limited to taxes for which PAL is directly liable, and that the
payment of specific and ad valorem taxes on petroleum products is a direct liability of the manufacturer or producer
thereof". (par. 51, p. 15, Annex "A")

11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax exemptions retroactively from July 1,
1985 to a indefinite period, certified true copy of which is hereto attached as petitioner's Annex "H".

12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the P58,020,110.79 (corresponding to
Caltex) was approved and released by way of a Tax Credit Memo (Annex "Q") dated July 7, 1986, certified true copy of
which [is) attached hereto as petitioner's Annex "F," which was assigned by NPC to Caltex. BIR Commissioner Tan
approved the Deed of Assignment on July 30, 1987, certified true copy of which is hereto attached as petitioner's Annex
"G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")

The Deed of Assignment stipulated among others that NPC is assigning the tax credit to Caltex in partial settlement of
its outstanding obligations to the latter while Caltex, in turn, would apply the assigned tax credit against its specific tax
payments for two (2) months. (per memorandum dated July 28, 1986 of DCIR Villa, copy attached as petitioner Annex
"G")

13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax credit assigned to Caltex,
the NPC reiterated its request for the release of the balance of its pending refunds of taxes paid by respondents
Petrophil, Shell and Caltex covering the period from June 11, 1984 to early part of 1986 amounting to P410.58 million.
(The claim of the first two (2) oil companies covers the period from June 11, 1984 to early part of 1986; while that of
Caltex starts from July 1, 1985 to early 1986). This request was denied on August 18, 1986, under BIR Ruling 152-86
(certified true copy of which is attached hereto as petitioner's Annex "I"). The BIR ruled that NPC's tax free privilege to
buy petroleum products covered only the period from June 11, 1984 up to June 30, 1985. It further declared that,
despite FIRB No. 1-86, NPC had already lost its tax and duty exemptions because it only enjoys special privilege for
taxes for which it is directly liable. This ruling, in effect, denied the P410 Million tax refund application of NPC (par. 28,
p. 9, Annex "A")

14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not resolved the motion.
(Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the Complainant, Oct. 26, 1988, p. 15)." (par. 29, p. 9, Annex "A")

15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR Commissioner Tan, Jr.
(certified true copy of which is hereto attached and made a part hereof as petitioner's Annex "J"), reversed his previous
position and states this time that all deliveries of petroleum products to NPC are tax exempt, regardless of the period of
delivery.

16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93, entitled "Withdrawing All
Tax and Duty Incentives, Subject to Certain Exceptions, Expanding the Powers of the Fiscal Incentives Review Board
and Other Purposes."
17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax exemption privilege and
included in the exemption "those pertaining to its domestic purchases of petroleum and petroleum products, and the
restorations were made to retroact effective March 10, 1987, a certified true copy of which is hereto attached and made
a part hereof as Annex "K".

18. On August 6, 1987, the Hon. Sedfrey A. Ordoñez, Secretary of Justice, issued Opinion No. 77, series of 1987,
opining that "the power conferred upon Fiscal Incentives Review Board by Section 2a (b), (c) and (d) of Executive order
No. 93 constitute undue delegation of legislative power and, therefore, [are] unconstitutional," a copy of which is hereto
attached and made a part hereof as Petitioner's Annex "L."

19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to the Chairman of the FIRB
a certified true copy of which is hereto attached and made a part hereof as petitioner's Annex "M," confirmed and
approved FIRB Res. No. 17-87 dated June 24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of Executive Order
No. 93.

20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig, who by letter dated May 2,
1988 asked him to rule "on whether or not, as the law now stands, the National Power Corporation is still exempt from
taxes, duties . . . on its local purchases of . . . petroleum products . . ." declared that "NPC under the provisions of its
Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and
used for the generation of electricity," a certified true copy of which is attached hereto as petitioner's Annex "N." (par.
30, pp. 9-10, Annex "A")

21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June 1 5, 1988 but without the
usual official form of "By the Authority of the President," a certified true copy of which is hereto attached and made a
part hereof as Petitioner's Annex "O".

22. The actions of respondents Finance Secretary and the Executive Secretary are based on the RESOLUTION No. 17-
87 of FIRB restoring the tax and duty exemption of the respondent NPC pertaining to its domestic purchases of
petroleum products (petitioner's Annex K supra).

23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988 reported that the Office of
the President and the Department of Finance had ordered the BIR to refund the tax payments of the NPC amounting to
Pl.58 Billion which includes the P410 Million Tax refund already rejected by BIR Commissioner Tan, Jr., in his BIR
Ruling No. 152-86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B. Fernando to BIR Commissioner
Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31, p. 1 0, Annex "A")

24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner Tan requesting them to hold
in abeyance the release of the Pl.58 billion and await the outcome of the investigation in regard to Senate Resolution
No. 227," copies attached as Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10, Annex "A").

Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan of the BIR dated August,
1988 requesting him to hold in abeyance the release of the tax refunds to NPC until after the termination of the Blue
Ribbon investigation.

25. In the Bureau of Customs, oil companies import crude oil and before removal thereof from customs custody, the
corresponding customs duties and ad valorem taxes are paid. Bunker fuel oil is one of the petroleum products
processed from the crude oil; and same is sold to NPC. After the sale, NPC applies for tax credit covering the duties
and ad valorem exemption under its Charter. Such applications are processed by the Bureau of Customs and the
corresponding tax credit certificates are issued in favor of NPC which, in turn assigns it to the oil firm that imported the
crude oil. These certificates are eventually used by the assignee-oil firms in payment of their other duty and tax liabilities
with the Bureau of Customs. (par. 70, p. 19, Annex "A")

A lesser amount totalling P740 million, covering the period from 1985 to the present, is being sought by respondent
NPC for refund from the Bureau of Customs for duties paid by the oil companies on the importation of crude oil from
which the processed products sold locally by them to NPC was derived. However, based on figures submitted to the
Blue Ribbon Committee of the Philippine Senate which conducted an investigation on this matter as mandated by
Senate Resolution No. 227 of which the herein petitioner was the sponsor, a much bigger figure was actually refunded
to NPC representing duties and ad valorem taxes paid to the Bureau of Customs by the oil companies on the
importation of crude oil from 1979 to 1985.

26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227, entitled:

Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To conduct a Formal and
Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil Companies, particularly
Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the Non-
Existing Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting Recently in Their
Obtaining A Tax Refund Totalling P1.55 Billion From the Department of Finance, Their Refusal to Pay Since
1976 Customs Duties Amounting to Billions of Pesos on Imported Crude Oil Purportedly for the Use of the
National Power Corporation, the Non-Payment of Surtax on Windfall Profits from Increases in the Price of Oil
Products in August 1987 amounting Maybe to as Much as Pl.2 Billion Surtax Paid by Them in 1984 and For
Other Purposes.

27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a lengthy formal inquiry on
the matter, calling all parties interested to the witness stand including representatives from the different oil companies,
and in due time submitted its Committee Report No. 474 . . . — The Blue Ribbon Committee recommended the
following courses of action.
 1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power Corporation (NPC) and its
approval of Tax Credit memo covering said amount (Annex "P" hereto), dated July 7, 1986, and cancel its
approval of the Deed of Assignment (Annex "Q" hereto) by NPC to Caltex, dated July 28, 1986, and collect
from Caltex its tax liabilities which were erroneously treated as paid or settled with the use of the tax credit
certificate that NPC assigned to said firm.:

1.1. NPC did not have any indirect tax exemption since May 27, 1976 when PD 938 was issued.
Therefore, the grant of a tax refund to NPC in the amount of P58 million was illegal, and therefore, null
and void. Such refund was a nullity right from the beginning. Hence, it never transferred any right in
favor of NPC.

2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil companies on the same
ground that the NPC, since May 27, 1976 up to June 17, 1987 was never granted any indirect tax exemption.
So, the P1.58 billion represent taxes legally and properly paid by the oil firms.

3. Start collection actions of specific or excise and ad valorem taxes due on petroleum products sold to NPC
from May 27, 1976 (promulgation of PD 938) to June 17, 1987 (issuance of EO 195).

B. For the Bureau of Customs (BOC) to do the following:

1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of petroleum products by
NPC and allegedly granted under the NPC charter covering the years 1978-1988 . . .

28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance to direct the Bureau of
Internal Revenue and of Customs to proceed with the processing of claims for tax credits/refunds of the NPC,
respondent Executive Secretary rendered his ruling, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless restrained by proper authorities,
that department and/or its line-tax bureaus may now proceed with the processing of the claims of the National Power
Corporation for duty and tax free exemption and/or tax credits/ refunds, if there be any, in accordance with the ruling of that
Department dated May 20,1988, as confirmed by this Office on June 15, 1988 . . .5

Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction and/or restraining
order, praying among others that:

1. Upon filing of this petition, a temporary restraining order forthwith be issued against respondent FIRB Executive
Secretary Macaraig, and Secretary of Finance Jayme restraining them and other persons acting for, under, and in their
behalf from enforcing their resolution, orders and ruling, to wit:

A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

B. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioner's Annex "M");

C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q"); and

E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").

2. Said temporary restraining order should also include respondent Commissioners of Customs Mison and Internal
Revenue Ong restraining them from processing and releasing any pending claim or application by respondent NPC for
tax and duty refunds.

3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary injunction against above-named
respondents and all persons acting for and in their behalf.

4. A decision be rendered in favor of the petitioner and against the respondents:

A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May 27, 1976 up to the present;

B. Nullifying the setting aside the following:

1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

2. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioner's Annex "M");

3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");

5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"

6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax refund for P58,020,110.79
(petitioner's Annex "F");
 7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30, 1987 (petitioner's Annex
"G");

8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with the Bureau of Internal
Revenue and

9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC by way of tax credit
certificates from 1979 up to the present.

C. Declaring as illegal and null and void the pending claims for tax and duty refunds by respondent NPC with the
Bureau of Customs and the Bureau of Internal Revenue;

D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal Revenue from enforcing the
abovequestioned resolution, orders and ruling of respondents Executive Secretary, Secretary of Finance, and FIRB by
processing and releasing respondent NPC's tax and duty refunds;

E. Ordering the respondent Commissioner of Customs to deny as being null and void the pending claims for refund of
respondent NPC with the Bureau of Customs covering the period from 1985 to the present; to cancel and invalidate the
illegal payment made by respondents Caltex, Shell and PNOC by using the tax credit certificates assigned to them by
NPC and to recover from respondents Caltex, Shell and PNOC all the amounts appearing in said tax credit certificates
which were used to settle their duty and tax liabilities with the Bureau of Customs.

F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void the pending claims for refund
of respondent NPC with the Bureau of Internal Revenue covering the period from June 11, 1984 to June 17, 1987.

PETITIONER prays for such other relief and remedy as may be just and equitable in the premises. 6

The issues raised in the petition are the following:

To determine whether respondent NPC is legally entitled to the questioned tax and duty refunds, this Honorable Court
must resolve the following issues:

Main issue—

Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption with the enactment of P.D.
No. 938 on May 27, 1976 which amended P.D. No. 380, issued on January 11, 1974.

Corollary issues—

1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's tax exemption privilege
effective June 11, 1984 to June 30, 1985 and FIRB Resolution No. 1-86 dated January 7, 1986 restoring NPC's tax
exemption privilege effective July 1, 1985 included the restoration of indirect tax exemption to NPC and

2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24, 1987 which restored NPC's
tax exemption privilege effective March 10, 1987; and if said Resolution was validly issued, the nature and extent of the
tax exemption privilege restored to NPC.7

In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required respondents to comment
thereon, within ten (10) days from notice. The respondents having submitted their comment, on October 10, 1989 the Court
required petitioner to file a consolidated reply to the same. After said reply was filed by petitioner on November 15, 1989 the
Court gave due course to the petition, considering the comments of respondents as their answer to the petition, and requiring
the parties to file simultaneously their respective memoranda within twenty (20) days from notice. The parties having submitted
their respective memoranda, the petition was deemed submitted for resolution.

First the preliminary issues.

Public respondents allege that petitioner does not have the standing to challenge the questioned orders and resolution.

In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the
Philippines." Public respondent argues that petitioner must show he has sustained direct injury as a result of the action and that
it is not sufficient for him to have a mere general interest common to all members of the public. 8

The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling
in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NPC by
way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for their tax and duty
liabilities to the BIR and Bureau of Customs.

Assuming petitioner has the personality to file the petition, public respondents also allege that the proper remedy for petitioner is
an appeal to the Court of Tax Appeals under Section 7 of R.A. No. 125 instead of this petition. However Section 11 of said law
provides—

Sec. 11. Who may appeal; effect of appeal—Any person, association or corporation adversely affected by a decision or
ruling of the Commissioner of Internal Revenue, the Collector of Customs (Commissioner of Customs) or any provincial
or City Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after receipt of
such decision or ruling.
From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the Commissioner of Internal Revenue,
the Commissioner of Customs or any provincial or city Board of Assessment Appeal who may appeal to the Court of Tax
Appeals. Petitioner does not fall under this category.

Public respondents also contend that mandamus does not lie to compel the Commissioner of Internal Revenue to impose a tax
assessment not found by him to be proper. It would be tantamount to a usurpation of executive functions. 9

Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of the Commissioners of Internal
Revenue and Customs when the exercise of discretion is tainted with arbitrariness and grave abuse as to go beyond statutory
authority.10

Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an unlawful exercise of
jurisdiction11 or to prevent the oppressive exercise of legal authority.12 Precisely, petitioner questions the lawfulness of the acts
of public respondents in this case.

Now to the main issue.

It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an indirect tax. A direct tax is
a tax for which a taxpayer is directly liable on the transaction or business it engages in. Examples are the custom duties and ad
valorem taxes paid by the oil companies to the Bureau of Customs for their importation of crude oil, and the specific and ad
valorem taxes they pay to the Bureau of Internal Revenue after converting the crude oil into petroleum products.

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else ." 13 For
example, the excise and ad valorem taxes that oil companies pay to the Bureau of Internal Revenue upon removal of petroleum
products from its refinery can be shifted to its buyer, like the NPC, by adding them to the "cash" and/or "selling price."

The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential Decree No. 938, the
exemption of NPC from indirect taxation was revoked and repealed. While petitioner concedes that NPC enjoyed broad
exemption privileges from both direct and indirect taxes on the petroleum products it used, under Section 13 of Republic Act No,
6395 and more so under Presidential Decree No. 380, however, by the deletion of the phrases "directly or indirectly" and "on all
petroleum products used by the Corporation in the generation, transmission, utilization and sale of electric power" he contends
that the exemption from indirect taxes was withdrawn by P.D. No. 938.

Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No. 938 regarding the
payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax exemption. He cites Philippine Aceytelene Co.
Inc. vs. Commissioner of Internal Revenue.14 Petitioner emphasizes the principle in taxation that the exception contained in the
tax statutes must be strictly construed against the one claiming the exemption, and that the rule that a tax statute granting
exemption must be strictly construed against the one claiming the exemption is similar to the rule that a statute granting taxing
power is to be construed strictly, with doubts resolved against its existence.15 Petitioner cites rulings of the BIR that the phrase
exemption from "all taxes, etc." from "all forms of taxes" and "in lieu of all taxes" covers only taxes for which the taxpayer is
directly liable.16

On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential Decree No. 1931, the relevant
provision of which are to wit:

P.D. No. 1931 provides as follows:

Sec. 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of
duties, taxes . . . heretofore granted in favor of government-owned or controlled corporations are hereby withdrawn.
(Emphasis supplied.)

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the Fiscal
Incentives Review Board . . . is hereby empowered to restore, partially or totally, the exemptions withdrawn by Section 1
above . . . (Emphasis supplied.)

The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:

Resolution. No. 10-85

BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power Corporation under C.A. No. 120
as amended are restored up to June 30, 1985.

2. Provided, That to restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing agreements, the NPC is hereby required to
furnish the FIRB on a periodic basis the particulars of items received or to be received through such arrangements, for purposes
of tax and duty exemptions privileges.17
 Resolution No. 1-86

BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power Corporation (NPC) under
Commonwealth Act No. 120, as amended, are restored: Provided, That importations of fuel oil (crude oil equivalent), and coal of
the herein grantee shall be subject to the basic and additional import duties; Provided, further, that the following shall remain
fully taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other monetary benefits from
deposit substitutes, trust funds and other similar arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and improvements owned by
it provided that the beneficial use of the property is not transferred to another pursuant to the provisions of Sec. 10(a) of the Real
Property Tax Code, as amended.18

Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86. Indeed, they were issued in
compliance with the requirement of Section 2, P.D. No. 1931, whereby the FIRB should make the recommendation subject to
the approval of "the President of the Philippines and/or the Minister of Finance." While said Resolutions do not appear to have
been approved by the President, they were nevertheless approved by the Minister of Finance who is also duly authorized to
approve the same. In fact it was the Minister of Finance who signed and promulgated said resolutions. 19

The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85 and 1-86 which were
promulgated by then Acting Minister of Finance Alfredo de Roda, Jr. and Minister of Finance Cesar E.A Virata, as Chairman of
FIRB respectively, should be separately approved by said Minister of Finance as required by P.D. 1931 is, a superfluity. An
examination of the said resolutions which are reproduced in full in the dissenting opinion show that the said officials signed said
resolutions in the dual capacity of Chairman of FIRB and Minister of Finance.

Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of Albay,20wherein the Court
observed that under P.D. No. 776 the power of the FIRB was only recommendatory and requires the approval of the President
to be valid. Thus, in said case the Court held that FIRB Resolutions Nos. 10-85 and 1-86 not having been approved by the
President were not valid and effective while the validity of FIRB 17-87 was upheld as it was duly approved by the Office of the
President on October 5, 1987.

However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which amended P.D. No. 776, it is
clearly provided for that such FIRB resolution, may be approved by the "President of the Philippines and/or the Minister of
Finance." To repeat, as FIRB Resolutions Nos. 10-85 and 1-86 were duly approved by the Minister of Finance, hence they are
valid and effective. To this extent, this decision modifies or supersedes the Court's earlier decision in Albay afore-referred to.

Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption privileges enjoyed by the NPC
under its charter, C.A. No. 120, as amended, are restored, that is, only its direct tax exemption privilege; and that it cannot be
interpreted to cover indirect taxes under the principle that tax exemptions are construed stricissimi juris against the taxpayer and
liberally in favor of the taxing authority.

Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way of a tax credit
certificate21 which was assigned to respondent Caltex through a deed of assignment approved by the BIR22 is patently illegal. He
also contends that the pending claim of respondent NPC in the amount of P410.58 million with respondent BIR for the sale and
delivery to it of bunker fuel by respondents Petrophil, Shell and Caltex from July 1, 1985 up to 1986, being illegal, should not be
released.

Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June 24, 1987. It was issued
under authority of Executive Order No. 93 dated December 17, 1986 which grants to the FIRB among others, the power to
recommend the restoration of the tax and duty exemptions/incentives withdrawn thereunder.

Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the effect that the powers
conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive Order No. 93 "constitute undue delegation of
legislative power and is, therefore, unconstitutional." Petitioner observes that the FIRB did not merely recommend but
categorically restored the tax and duty exemption of the NPC so that the memorandum of the respondent Executive Secretary
dated October 5, 1987 approving the same is a surplusage.

Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine in Philippine Aceytelene,
petitioner avers that the restoration cannot cover indirect taxes and it cannot create new indirect tax exemption not otherwise
granted in the NPC charter as amended by Presidential Decree No. 938.

The petition is devoid of merit.

The NPC is a non-profit public corporation created for the general good and welfare23 wholly owned by the government of the
Republic of the Philippines.24 From the very beginning of its corporate existence, the NPC enjoyed preferential tax treatment 25 to
enable the Corporation to pay the indebtedness and obligation and in furtherance and effective implementation of the policy
enunciated in Section one of "Republic Act No. 6395"26 which provides:

Sec. 1. Declaration of Policy—Congress hereby declares that (1) the comprehensive development, utilization and
conservation of Philippine water resources for all beneficial uses, including power generation, and (2) the total
electrification of the Philippines through the development of power from all sources to meet the need of rural
 electrification are primary objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government including its financial institutions.

From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment is obvious.

Under Republic Act No. 358, its exemption is provided as follows:

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties,
fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities and municipalities."

Under Republic Act No. 6395:

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and other Charges
by Government and Governmental Instrumentalities.— The Corporation shall be non-profit and shall devote all its
returns from its capital investment, as well as excess revenues from its operation, for expansion. To enable the
Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative
proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities,
municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods
required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 380:

Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees, Imposts and other Charges
by the Government and Government Instrumentalities.— The Corporation shall be non-profit and shall devote all its
returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the
Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared, exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in any court or administrative
proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities,
municipalities and other governmental agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods
required for its operation and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum
produced used by the Corporation in the generation, transmission, utilization, and sale of electric power. (Emphasis
supplied.)

Under Presidential Decree No. 938:

Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees, Imposts and Other Charges
by the Government and Government Instrumentalities.—The Corporation shall be non-profit and shall devote all its
returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the
Corporation to pay the indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section One of this Act, the Corporation, including its subsidiaries hereby declared exempt from the
payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds,
supersedeas bonds, in any court or administrative proceedings. (Emphasis supplied.)

It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to cover "all taxes, duties, fees,
imposts, charges, etc. . . ." However, the amendment under Republic Act No. 6395 enumerated the details covered by the
exemption. Subsequently, P.D. No. 380, made even more specific the details of the exemption of NPC to cover, among
others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 amended the
tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties, fees,
imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings."

The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has been
enjoying before. The rationale for this exemption is that being non-profit the NPC "shall devote all its returns from its capital
investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay the indebtedness
and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, . . ." 27
The preamble of P.D. No. 938 states—

WHEREAS, in the application of the tax exemption provision of the Revised Charter, the non-profit character of the NPC
has not been fully utilized because of restrictive interpretations of the taxing agencies of the government on said
provisions. . . . (Emphasis supplied.)

It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No. 938 shall be construed
strictly against NPC. On the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt
status of NPC.

Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of statutes granting tax exemptions
to NPC.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a
government political subdivision or instrumentality.28

The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even
more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential
treatment and foster impartiality, fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its
agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax liability of such agencies.29

In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed
with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property
"exemption is the rule and taxation the exception."30

The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A. No. 6395 and P.D. No. 380,
is deemed repealed by P.D. No. 938 when the reference to it was deleted is not well-taken.

Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are presumed to be passed
with deliberation and with knowledge of all existing ones on the subject, it is logical to conclude that in passing a statute it is not
intended to interfere with or abrogate a former law relating to the same subject matter, unless the repugnancy between the two
is not only irreconcilable but also clear and convincing as a result of the language used, or unless the latter Act fully embraces
the subject matter of the earlier.31 The first effort of a court must always be to reconcile or adjust the provisions of one statute
with those of another so as to give sensible effect to both provisions.32

The legislative intent must be ascertained from a consideration of the statute as a whole, and not of an isolated part or a
particular provision alone.33 When construing a statute, the reason for its enactment should be kept in mind and the statute
should be construed with reference to its intended scope and purpose34 and the evil sought to be remedied.35

The NPC is a government instrumentality with the enormous task of undertaking development of hydroelectric generation of
power and production of electricity from other sources, as well as the transmission of electric power on a nationwide basis, to
improve the quality of life of the people pursuant to the State policy embodied in Section E, Article II of the 1987 Constitution.

It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of taxes
including indirect taxes as provided for under R.A. No. 6895 and P.D. No. 380 if it is to attain its goals.

Further, the construction of P.D. No. 938 by the Office charged with its implementation should be given controlling weight. 36

Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of June 26, 1985 confirming
said ruling, the letters of the BIR of August 18, 1986, and December 22, 1986, the letter of the Secretary of Finance of February
19, 1987, the Memorandum of the Executive Secretary of October 9, 1987, by authority of the President, confirming and
approving FIRB Resolution No. 17-87, the letter of the Secretary of Finance of May 20, 1988 to the Executive Secretary
rendering his opinion as requested by the latter, and the latter's reply of June 15, 1988, it was uniformly held that the grant of tax
exemption to NPC under C.A. No. 120, as amended, included exemption from payment of all taxes relative to NPC's petroleum
purchases including indirect taxes.37 Thus, then Secretary of Finance Vicente Jayme in his letter of May 20, 1988 to the
Executive Secretary Macaraig aptly stated the justification for this tax exemption of NPC —

The issue turns on the effect to the exemption of NPC from taxes of the deletion of the phrase 'taxes imposed indirectly
on oil products and its exemption from 'all forms of taxes.' It is suggested that the change in language evidenced an
intention to exempt NPC only from taxes directly imposed on or payable by it; since taxes on fuel-oil purchased by it;
since taxes on fuel-oil purchased by NPC locally are levied on and paid by its oil suppliers, NPC thereby lost its
exemption from those taxes. The principal authority relied on is the 1967 case of Philippine Acetylene Co., Inc. vs.
Commissioner of Internal Revenue, 20 SCRA 1056.

First of all, tracing the changes made through the years in the Revised Charter, the strengthening of NPC's preferential
tax treatment was clearly the intention. To the extent that the explanatory "whereas clauses" may disclose the intent of
the law-maker, the changes effected by P.D. 938 can only be read as being expansive rather than restrictive, including
its version of Section 13.

Our Tax Code does not recognize that there are taxes directly imposed and those imposed indirectly. The textbook
distinction between a direct and an indirect tax may be based on the possibility of shifting the incidence of the tax. A
direct tax is one which is demanded from the very person intended to be the payor, although it may ultimately be shifted
to another. An example of a direct tax is the personal income tax. On the other hand, indirect taxes are those which are
demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another.
An example of this type of tax is the sales tax levied on sales of a commodity.

The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of no moment. What is more
relevant is that when an "indirect tax" is paid by those upon whom the tax ultimately falls, it is paid not as a tax but as an
additional part of the cost or of the market price of the commodity.

This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case, when he analyzed the nature
of the percentage (sales) tax to determine whether it is a tax on the producer or on the purchaser of the commodity.
Under out Tax Code, the sales tax falls upon the manufacturer or producer. The phrase "pass on" the tax was criticized
as being inaccurate. Justice Castro says that the tax remains on the manufacturer alone. The purchaser does not pay
the tax; he pays an amount added to the price because of the tax. Therefore, the tax is not "passed on" and does not for
that reason become an "indirect tax" on the purchaser. It is eminently possible that the law maker in enacting P.D. 938
in 1976 may have used lessons from the analysis of Chief Justice Castro in 1967 Philippine Acetylene case.

When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the so-called oil crunch had
already drastically pushed up crude oil Prices from about $1.00 per bbl in 1971 to about $10 and a peak (as it turned
out) of about $34 per bbl in 1981. In 1974-78, NPC was operating the Meralco thermal plants under a lease agreement.
The power generated by the leased plants was sold to Meralco for distribution to its customers. This lease and sale
arrangement was entered into for the benefit of the consuming public, by reducing the burden on the swiftly rising world
crude oil prices. This objective was achieved by the use of NPC's "tax umbrella under its Revised Charter—the
exemption from specific taxes on locally purchased fuel oil. In this context, I can not interpret P.D. 938 to have
withdrawn the exemption from tax on fuel oil to which NPC was already entitled and which exemption Government in
fact was utilizing to soften the burden of high crude prices.

There is one other consideration which I consider pivotal. The taxes paid by oil companies on oil products sold to NPC,
whether paid to them by NPC or no never entered into the rates charged by NPC to its customers not even during those
periods of uncertainty engendered by the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax status. No tax component
on the fuel have been charged or recovered by NPC through its rates.

There is an import duty on the crude oil imported by the local refineries. After the refining process, specific and ad
valorem taxes are levied on the finished products including fuel oil or residue upon their withdrawal from the refinery.
These taxes are paid by the oil companies as the manufacturer thereof.

In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax component. NPC pays the oil
companies' invoices including the duty component but net of the tax component. NPC then applies for drawback of
customs duties paid and for a credit in amount equivalent to the tax paid (by the oil companies) on the products
purchased. The tax credit is assigned to the oil companies—as payment, in effect, of the tax component shown in the
sales invoices. (NOTE: These procedures varied over time—There were instances when NPC paid the tax component
that was shifted to it and then applied for tax credit. There were also side issues raised because of P.D. 1931 and E.O.
93 which withdrew all exemptions of government corporations. In these latter instances, the resolutions of the Fiscal
Incentives Review Board (FIRB) come into play. These incidents will not be touched upon for purposes of this
discussion).

NPC rates of electricity are structured such that changes in its cost of fuel are automatically (without need of fresh
approvals) reflected in the subsequent months billing rates.

This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept liability to the tax and duty
component on the oil products, such amount will go into its fuel cost and be passed on to its customers through
corresponding increases in rates. Since 1974, when NPC operated the oil-fired generating stations leased from Meralco
(which plants it bought in 1979), until the present time, no tax on fuel oil ever went into NPC's electric rates.

That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed upon me by yet another
circumstance. It is conceded that NPC at the very least, is exempt from taxes to which it is directly liable. NPC therefore
could very well have imported its fuel oil or crude residue for burning at its thermal plants. There would have been no
question in such a case as to its exemption from all duties and taxes, even under the strictest interpretation that can be
put forward. However, at the time P.D. 938 was issued in 1976, there were already operating in the Philippines three oil
refineries. The establishment of these refineries in the Philippines involved heavy investments, were economically
desirable and enabled the country to import crude oil and process / refine the same into the various petroleum products
at a savings to the industry and the public. The refining process produced as its largest output, in volume, fuel oil or
residue, whose conventional economic use was for burning in electric or steam generating plants. Had there been no
use locally for the residue, the oil refineries would have become largely unviable.

Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC to by-pass the local oil
refineries and import its fossil fuel requirements directly in order to avail itself of its exemption from "direct taxes." The
oil refineries had to keep operating both for economic development and national security reasons. In fact, the
restoration by the FIRB of NPC's exemption after P.D. 1931 and E.O. 93 expressly excluded direct fuel oil importations,
so as not to prejudice the continued operations of the local oil refineries.

To answer your query therefore, it is the opinion of this Department that NPC under the provisions of its Revised
Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for
the generation of electricity.

The Department in issuing this ruling does so pursuant to its power and function to supervise and control the collection
of government revenues by the application and implementation of revenue laws. It is prepared to take the measures
supplemental to this ruling necessary to carry the same into full effect.
 As presented rather extensively above, the NPC electric power rates did not carry the taxes and duties paid on the fuel
oil it used. The point is that while these levies were in fact paid to the government, no part thereof was recovered from
the sale of electricity produced. As a consequence, as of our most recent information, some P1.55 B in claims represent
amounts for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order to the Bureaus
concerned for the resumption of the processing of these claims."38

In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance, the said opinion ruling of
the latter was confirmed and its implementation was directed.39

The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the Secretary of Finance as
confirmed by the then Executive Secretary are well-taken. When the NPC was exempted from all forms of taxes, duties, fees,
imposts and other charges, under P.D. No. 938, it means exactly what it says, i.e., all forms of taxes including those that were
imposed directly or indirectly on petroleum products used in its operation.

Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the NPC extends only to taxes
for which it is directly liable and not to taxes merely shifted to it. However, these rulings are predicated on Philippine Acytelene.

The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case. It involved the sales tax of
products the plaintiff sold to NPC from June 2, 1953 to June 30,1958 when NPC was enjoying tax exemption from all taxes
under Commonwealth Act No. 120, as amended by Republic Act No. 358 issued on June 4, 1949 hereinabove reproduced.

In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so plaintiff cannot claim
exemptions simply because the NPC, the buyer, was exempt.

However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC whereby Section 13
thereof was amended by emphasizing its non-profit character and expanding the extent of its tax exemption.

As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345 spells out clearly the
exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D. No. 380, the exemption of NPC from indirect taxes
was emphasized when it was specified to include those imposed "directly and indirectly."

Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining the same in general terms to
cover "all forms of taxes, duties, fees, imposts, etc." which, as hereinabove discussed, logically includes exemption from indirect
taxes on petroleum products used in its operation.

This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on the authority of which FIRB
Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order No. 93 was promulgated, by which FIRB Resolution
17-87 was issued.

Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental circumstances. As a matter
of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No, 380 and P.D. No. 838 appear to have been brought about
by the earlier inconsistent rulings of the tax agencies due to the doctrine in Philippine Acetylene, so as to leave no doubt as to
the exemption of the NPC from indirect taxes on petroleum products it uses in its operation. Effectively, said amendments
superseded if not abrogated the ruling in Philippine Acetylene that the tax exemption of NPC should be limited to direct taxes
only.

In the light of the foregoing discussion the first corollary issue must consequently be resolved in the affirmative, that is, FIRB
Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-86 dated January 7, 1986 which restored NPC's tax
exemption privileges included the restoration of the indirect tax exemption of the NPC on petroleum products it used.

On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987 which restored NPC's tax
exemption privilege effective March 10, 1987, the Court finds that the same is valid and effective.

It provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products, granted under
the terms and conditions of Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March 10, 1987, subject to the
following conditions:

1. The restoration of the tax and duty exemption privileges does not apply to the following:

1.1. Importation of fuel oil (crude equivalent) and coal;

1.2. Commercially-funded importations (i.e., importations which include but are not limited to those financed by
the NPC's own internal funds, domestic borrowings from any source whatsoever, borrowing from foreign-based
private financial institutions, etc.); and

1.3. Interest income derived from any source.

2. The NPC shall submit to the FIRB a report of its expansion program, including details of disposition of relieved tax
and duty payments for such expansion on an annual basis or as often as the FIRB may require it to do so. This report
shall be in addition to the usual FIRB reporting requirements on incentive availment.40

Executive Order No. 93 provides as follows—

 Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted "
to government and private entities are hereby withdrawn, except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective international agreements to which the Government of the Republic of the
Philippines is a signatory;

c) those enjoyed-by enterprises registered with:

(i) the Board of Investments pursuant to Presidential Decree No. 1789, as amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66, as amended;

(iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to
Presidential Decree No. 538, as amended;

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instruction No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the Fiscal Incentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is hereby
authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/of duty exemption that may be restored.

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or period of effectivity of the restoration of tax and/or duty exemption;

e) formulate and submit to the President for approval, a complete system for the grant of subsidies to deserving
beneficiaries, in lieu of or in combination with the restoration of tax and duty exemptions or preferential
treatment in taxation, indicating the source of funding therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into consideration the international commitments of the Philippines and
the necessary precautions such that the grant of subsidies does not become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall take into account any or all
of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged;

d) in general, the greater national interest to be served.

True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view that the powers conferred
upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No. 93 constitute undue delegation of legislative power and
is therefore unconstitutional. However, he was overruled by the respondent Executive Secretary in a letter to the Secretary of
Finance dated March 30, 1989. The Executive Secretary, by authority of the President, has the power to modify, alter or reverse
the construction of a statute given by a department secretary.41

A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The standards of the delegated
power are also clearly provided for.

The required "standard" need not be expressed. In Edu vs. Ericta42 and in De la Llana vs. Alba43 this Court held: "The standard
may be either express or implied. If the former, the non-delegated objection is easily met. The standard though does not have to
be spelled out specifically. It could be implied from the policy and purpose of the act considered as a whole."

In People vs. Rosenthal44 the broad standard of "public interest" was deemed sufficient. In Calalang vs. Williams,45, it was
"public welfare" and in Cervantes vs. Auditor General,46 it was the purpose of promotion of "simplicity, economy and efficiency."
And, implied from the purpose of the law as a whole, "national security" was considered sufficient standard47 and so was
"protection of fish fry or fish eggs.48
The observation of petitioner that the approval of the President was not even required in said Executive Order of the tax
exemption privilege approved by the FIRB unlike in previous similar issuances, is not well-taken. On the contrary, under Section
l(f) of Executive Order No. 93, aforestated, such tax and duty exemptions extended by the FIRB must be approved by the
President. In this case, FIRB Resolution No. 17-87 was approved by the respondent Executive Secretary, by authority of the
President, on October 15, 1987.49

Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated —

The latest in our jurisprudence indicates that delegation of legislative power has become the rule and its non-delegation
the exception. The reason is the increasing complexity of modern life and many technical fields of governmental
functions as in matters pertaining to tax exemptions. This is coupled by the growing inability of the legislature to cope
directly with the many problems demanding its attention. The growth of society has ramified its activities and created
peculiar and sophisticated problems that the legislature cannot be expected reasonably to comprehend. Specialization
even in legislation has become necessary. To many of the problems attendant upon present day undertakings, the
legislature may not have the competence, let alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions.50

Thus, in the case of Tablarin vs. Gutierrez,51 this Court enunciated the rationale in favor of delegation of legislative functions—

One thing however, is apparent in the development of the principle of separation of powers and that is that the maxim
of delegatus non potest delegare or delegati potestas non potest delegare, adopted this practice (Delegibus et
Consuetudiniis Anglia edited by G.E. Woodline, Yale University Press, 1922, Vol. 2, p. 167) but which is also
recognized in principle in the Roman Law d. 17.18.3) has been made to adapt itself to the complexities of modern
government, giving rise to the adoption, within certain limits, of the principle of subordinate legislation, not only in the
United States and England but in practically all modern governments. (People vs. Rosenthal and Osmeña, 68 Phil. 318,
1939). Accordingly, with the growing complexities of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency toward the
delegation of greater power by the legislative, and toward the approval of the practice by the Courts. (Emphasis
supplied.)

The legislative authority could not or is not expected to state all the detailed situations wherein the tax exemption privileges of
persons or entities would be restored. The task may be assigned to an administrative body like the FIRB.

Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute. Such presumption can be
overturned if its invalidity is proved beyond reasonable doubt. Otherwise, a liberal interpretation in favor of constitutionality of
legislation should be adopted.52

E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB And as above discussed, the
tax exemption privilege that was restored to NPC by FIRB Resolution No. 17-87 of June 1987 includes exemption from indirect
taxes and duties on petroleum products used in its operation.

Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been upheld in Albay.53

In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by President Marcos in 1984 are
invalid as they were presumably promulgated under the infamous Amendment No. 6 and that as they cover tax exemption,
under Section 17(4), Article VIII of the 1973 Constitution, the same cannot be passed "without the concurrence of the majority of
all the members of the Batasan Pambansa." And, even conceding that the reservation of legislative power in the President was
valid, it is opined that it was not validly exercised as there is no showing that such presidential encroachment was justified under
the conditions then existing. Consequently, it is concluded that Executive Order No. 93, which was intended to implement said
decrees, is also illegal. The authority of the President to sub-delegate to the FIRB powers delegated to him is also questioned.

In Albay,54 as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter decree withdrew tax exemptions
of government-owned or controlled corporations including their subsidiaries but authorized the FIRB to restore the same.
Nevertheless, in Albay, as above-discussed, this Court ruled that the tax exemptions under FIRB Resolution Nos. 10-85 and 1-
86 cannot be enforced as said resolutions were only recommendatory and were not duly approved by the President of the
Philippines as required by P.D. No. 776.55 The Court also sustained in Albaythe validity of Executive Order No. 93, and of the tax
exemptions restored under FIRB Resolution No. 17-87 which was issued pursuant thereto, as it was duly approved by the
President as required by said executive order.

Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is provided that:

All existing laws, decrees, executive orders, proclamation, letters of instructions, and other executive issuances not
inconsistent with this constitution shall remain operative until amended, repealed or revoked.

Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent with the Constitution.1âwphi1

Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and are unconstitutional, the result
would be the same, as then the latest applicable law would be P.D. No. 938 which amended the NPC charter by granting
exemption to NPC from all forms of taxes. As above discussed, this exemption of NPC covers direct and indirect taxes on
petroleum products used in its operation. This is as it should be, if We are to hold as invalid and inoperative the withdrawal of
such tax exemptions under P.D. No. 1931 as well as under Executive Order No. 93 and the delegation of the power to restore
these exemptions to the FIRB.

The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this Court ruled that the NPC is
liable for real estate taxes as of June 11, 1984 (the date of promulgation of P.D. No. 1931) when NPC had ceased to enjoy tax
exemption privileges since FIRB Resolution Nos. 1085 and 1-86 were not validly issued. The real estate tax liability of NPC from
June 11, 1984 to December 1, 1990 is estimated to amount to P7.49 billion plus another P4.76 billion in fuel import duties the
firm had earlier paid to the government which the NPC now proposed to pass on to the consumers by another 33-centavo
increase per kilowatt hour in power rates on top of the 17-centavo increase per kilowatt hour that took effect just over a week
ago.,56 Hence, another case has been filed in this Court to stop this proposed increase without a hearing.

As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776 dated August 24, 1975 was
already amended by P.D. No. 1931 ,57 wherein it is provided that such FIRB resolutions may be approved not only by the
President of the Philippines but also by the Minister of Finance. Such resolutions were promulgated by the Minister of Finance in
his own right and also in his capacity as FIRB Chairman. Thus, a separate approval thereof by the Minister of Finance or by the
President is unnecessary.

As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and consequently, Albaymust be
considered superseded to this extent by this decision. This is because P.D. No. 938 which is the latest amendment to the NPC
charter granting the NPC exemption from all forms of taxes certainly covers real estate taxes which are direct taxes.

This tax exemption is intended not only to insure that the NPC shall continue to generate electricity for the country but more
importantly, to assure cheaper rates to be paid by the consumers.

The allegation that this is in effect allowing tax evasion by oil companies is not quite correct.1a\^/phi1 There are various
arrangements in the payment of crude oil purchased by NPC from oil companies. Generally, the custom duties paid by the oil
companies are added to the selling price paid by NPC. As to the specific and ad valorem taxes, they are added a part of the
seller's price, but NPC pays the price net of tax, on condition that NPC would seek a tax refund to the oil companies. No tax
component on fuel had been charged or recovered by NPC from the consumers through its power rates.58 Thus, this is not a
case of tax evasion of the oil companies but of tax relief for the NPC. The billions of pesos involved in these exemptions will
certainly inure to the ultimate good and benefit of the consumers who are thereby spared the additional burden of increased
power rates to cover these taxes paid or to be paid by the NPC if it is held liable for the same.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors may claim the same
privilege should be dispelled by the fact that (a) this decision particularly treats of only the exemption of the NPC from all taxes,
duties, fees, imposts and all other charges imposed by the government on the petroleum products it used or uses for its
operation; and (b) Section 13(d) of R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all
taxes, duties, fees, imposts and all other charges imposed by the government on all petroleum products used in its operation
only, which is the very exemption which this Court deems to be carried over by the passage of P.D. No. 938. As a matter of fact
in Section 13(d) of P.D. No. 380 it is specified that the aforesaid exemption from taxes, etc. covers those "directly or indirectly"
imposed by the "Republic of the Philippines, its provincies, cities, municipalities and other government agencies and
instrumentalities" on said petroleum products. The exemption therefore from direct and indirect tax on petroleum products used
by NPC cannot benefit the suppliers, importers and contractors of NPC of other products or services.

The Court realizes the laudable objective of petitioner to improve the revenue of the government. The amount of revenue
received or expected to be received by this tax exemption is, however, not going to any of the oil companies. There would be no
loss to the government. The said amount shall accrue to the benefit of the NPC, a government corporation, so as to enable it to
sustain its tremendous task of providing electricity for the country and at the least cost to the consumers. Denying this tax
exemption would mean hampering if not paralyzing the operations of the NPC. The resulting increased revenue in the
government will also mean increased power rates to be shouldered by the consumers if the NPC is to survive and continue to
provide our power requirements.59 The greater interest of the people must be paramount.

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.

G.R. No. 164527 August 15, 2007

FRANCISCO I. CHAVEZ, Petitioner, vs. NATIONAL HOUSING AUTHORITY, R-II BUILDERS, INC., R-II HOLDINGS, INC.,
HARBOUR CENTRE PORT TERMINAL, INC., and MR. REGHIS ROMERO II, Respondents.

DECISION

VELASCO, JR., J.:

In this Petition for Prohibition and Mandamus with Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction
under Rule 65, petitioner, in his capacity as taxpayer, seeks:

to declare NULL AND VOID the Joint Venture Agreement (JVA) dated March 9, 1993 between the National Housing Authority
and R-II Builders, Inc. and the Smokey Mountain Development and Reclamation Project embodied therein; the subsequent
amendments to the said JVA; and all other agreements signed and executed in relation thereto – including, but not limited to the
Smokey Mountain Asset Pool Agreement dated 26 September 1994 and the separate agreements for Phase I and Phase II of
the Project––as well as all other transactions which emanated therefrom, for being UNCONSTITUTIONAL and INVALID;

to enjoin respondents—particularly respondent NHA—from further implementing and/or enforcing the said project and other
agreements related thereto, and from further deriving and/or enjoying any rights, privileges and interest therefrom x x x; and

to compel respondents to disclose all documents and information relating to the project––including, but not limited to, any
subsequent agreements with respect to the different phases of the project, the revisions over the original plan, the additional
works incurred thereon, the current financial condition of respondent R-II Builders, Inc., and the transactions made respecting
the project.1
 The Facts

On March 1, 1988, then President Corazon C. Aquino issued Memorandum Order No. (MO) 1612 approving and directing the
implementation of the Comprehensive and Integrated Metropolitan Manila Waste Management Plan (the Plan). The Metro
Manila Commission, in coordination with various government agencies, was tasked as the lead agency to implement the Plan as
formulated by the Presidential Task Force on Waste Management created by Memorandum Circular No. 39. A day after, on
March 2, 1988, MO 161-A3 was issued, containing the guidelines which prescribed the functions and responsibilities of fifteen
(15) various government departments and offices tasked to implement the Plan, namely: Department of Public Works and
Highway (DPWH), Department of Health (DOH), Department of Environment and Natural Resources (DENR), Department of
Transportation and Communication, Department of Budget and Management, National Economic and Development Authority
(NEDA), Philippine Constabulary Integrated National Police, Philippine Information Agency and the Local Government Unit
(referring to the City of Manila), Department of Social Welfare and Development, Presidential Commission for Urban Poor,
National Housing Authority (NHA), Department of Labor and Employment, Department of Education, Culture and Sports (now
Department of Education), and Presidential Management Staff.

Specifically, respondent NHA was ordered to "conduct feasibility studies and develop low-cost housing projects at the dumpsite
and absorb scavengers in NHA resettlement/low-cost housing projects."4 On the other hand, the DENR was tasked to "review
and evaluate proposed projects under the Plan with regard to their environmental impact, conduct regular monitoring of activities
of the Plan to ensure compliance with environmental standards and assist DOH in the conduct of the study on hospital waste
management."5

At the time MO 161-A was issued by President Aquino, Smokey Mountain was a wasteland in Balut, Tondo, Manila, where
numerous Filipinos resided in subhuman conditions, collecting items that may have some monetary value from the garbage. The
Smokey Mountain dumpsite is bounded on the north by the Estero Marala, on the south by the property of the National
Government, on the east by the property of B and I Realty Co., and on the west by Radial Road 10 (R-10).

Pursuant to MO 161-A, NHA prepared the feasibility studies of the Smokey Mountain low-cost housing project which resulted in
the formulation of the "Smokey Mountain Development Plan and Reclamation of the Area Across R-10" or the Smokey Mountain
Development and Reclamation Project (SMDRP; the Project). The Project aimed to convert the Smokey Mountain dumpsite into
a habitable housing project, inclusive of the reclamation of the area across R-10, adjacent to the Smokey Mountain as the
enabling component of the project.6 Once finalized, the Plan was submitted to President Aquino for her approval.

On July 9, 1990, the Build-Operate-and-Transfer (BOT) Law (Republic Act No. [RA] 6957) was enacted.7 Its declared policy
under Section 1 is "[t]o recognize the indispensable role of the private sector as the main engine for national growth and
development and provide the most appropriate favorable incentives to mobilize private resources for the purpose." Sec. 3
authorized and empowered "[a]ll government infrastructure agencies, including government-owned and controlled corporations
and local government units x x x to enter into contract with any duly pre-qualified private contractor for the financing,
construction, operation and maintenance of any financially viable infrastructure facilities through the build-operate-transfer or
build and transfer scheme."

RA 6957 defined "build-and-transfer" scheme as "[a] contractual arrangement whereby the contractor undertakes the
construction, including financing, of a given infrastructure facility, and its turnover after the completion to the government agency
or local government unit concerned which shall pay the contractor its total investment expended on the project, plus reasonable
rate of return thereon." The last paragraph of Sec. 6 of the BOT Law provides that the repayment scheme in the case of "land
reclamation or the building of industrial estates" may consist of "[t]he grant of a portion or percentage of the reclaimed land or
industrial estate built, subject to the constitutional requirements with respect to the ownership of lands."

On February 10, 1992, Joint Resolution No. 038 was passed by both houses of Congress. Sec. 1 of this resolution provided,
among other things, that:

Section 1. There is hereby approved the following national infrastructure projects for implementation under the provisions of
Republic Act No. 6957 and its implementing rules and regulations:

xxxx

(d) Port infrastructure like piers, wharves, quays, storage handling, ferry service and related facilities;

xxxx

(k) Land reclamation, dredging and other related development facilities;

(l) Industrial estates, regional industrial centers and export processing zones including steel mills, iron-making and
petrochemical complexes and related infrastructure and utilities;

xxxx

(p) Environmental and solid waste management-related facilities such as collection equipment, composting plants, incinerators,
landfill and tidal barriers, among others; and

(q) Development of new townsites and communities and related facilities.

This resolution complied with and conformed to Sec. 4 of the BOT Law requiring the approval of all national infrastructure
projects by the Congress.

On January 17, 1992, President Aquino proclaimed MO 4159 approving and directing the implementation of the SMDRP. Secs. 3
and 4 of the Memorandum Order stated:
Section 3. The National Housing Authority is hereby directed to implement the Smokey Mountain Development Plan and
Reclamation of the Area Across R-10 through a private sector joint venture scheme at the least cost to the government.

Section 4. The land area covered by the Smokey Mountain dumpsite is hereby conveyed to the National Housing Authority as
well as the area to be reclaimed across R-10. (Emphasis supplied.)

In addition, the Public Estates Authority (PEA) was directed to assist in the evaluation of proposals regarding the technical
feasibility of reclamation, while the DENR was directed to (1) facilitate titling of Smokey Mountain and of the area to be
reclaimed and (2) assist in the technical evaluation of proposals regarding environmental impact statements. 10

In the same MO 415, President Aquino created an Executive Committee (EXECOM) to oversee the implementation of the Plan,
chaired by the National Capital Region-Cabinet Officer for Regional Development (NCR-CORD) with the heads of the NHA, City
of Manila, DPWH, PEA, Philippine Ports Authority (PPA), DENR, and Development Bank of the Philippines (DBP) as
members.11 The NEDA subsequently became a member of the EXECOM. Notably, in a September 2, 1994 Letter,12 PEA
General Manager Amado Lagdameo approved the plans for the reclamation project prepared by the NHA.

In conformity with Sec. 5 of MO 415, an inter-agency technical committee (TECHCOM) was created composed of the technical
representatives of the EXECOM "[t]o assist the NHA in the evaluation of the project proposals, assist in the resolution of all
issues and problems in the project to ensure that all aspects of the development from squatter relocation, waste management,
reclamation, environmental protection, land and house construction meet governing regulation of the region and to facilitate the
completion of the project."13

Subsequently, the TECHCOM put out the Public Notice and Notice to Pre-Qualify and Bid for the right to become NHA’s joint
venture partner in the implementation of the SMDRP. The notices were published in newspapers of general circulation on
January 23 and 26 and February 1, 14, 16, and 23, 1992, respectively. Out of the thirteen (13) contractors who responded, only
five (5) contractors fully complied with the required pre-qualification documents. Based on the evaluation of the pre-qualification
documents, the EXECOM declared the New San Jose Builders, Inc. and R-II Builders, Inc. (RBI) as the top two contractors.14

Thereafter, the TECHCOM evaluated the bids (which include the Pre-feasibility Study and Financing Plan) of the top two (2)
contractors in this manner:

(1) The DBP, as financial advisor to the Project, evaluated their Financial Proposals;

(2) The DPWH, PPA, PEA and NHA evaluated the Technical Proposals for the Housing Construction and Reclamation;

(3) The DENR evaluated Technical Proposals on Waste Management and Disposal by conducting the Environmental
Impact Analysis; and

(4) The NHA and the City of Manila evaluated the socio-economic benefits presented by the proposals.

On June 30, 1992, Fidel V. Ramos assumed the Office of the President (OP) of the Philippines.

On August 31, 1992, the TECHCOM submitted its recommendation to the EXECOM to approve the R-II Builders, Inc. (RBI)
proposal which garnered the highest score of 88.475%.

Subsequently, the EXECOM made a Project briefing to President Ramos. As a result, President Ramos issued Proclamation
No. 3915 on September 9, 1992, which reads:

WHEREAS, the National Housing Authority has presented a viable conceptual plan to convert the Smokey Mountain dumpsite
into a habitable housing project, inclusive of the reclamation of the area across Road Radial 10 (R-10) adjacent to the Smokey
Mountain as the enabling component of the project;

xxxx

These parcels of land of public domain are hereby placed under the administration and disposition of the National Housing
Authority to develop, subdivide and dispose to qualified beneficiaries, as well as its development for mix land use
(commercial/industrial) to provide employment opportunities to on-site families and additional areas for port-related activities.

In order to facilitate the early development of the area for disposition, the Department of Environment and Natural Resources,
through the Lands and Management Bureau, is hereby directed to approve the boundary and subdivision survey and to issue a
special patent and title in the name of the National Housing Authority, subject to final survey and private rights, if any there be.
(Emphasis supplied.)

On October 7, 1992, President Ramos authorized NHA to enter into a Joint Venture Agreement with RBI "[s]ubject to final review
and approval of the Joint Venture Agreement by the Office of the President."16

On March 19, 1993, the NHA and RBI entered into a Joint Venture Agreement17 (JVA) for the development of the Smokey
Mountain dumpsite and the reclamation of the area across R-10 based on Presidential Decree No. (PD) 75718 which mandated
NHA "[t]o undertake the physical and socio-economic upgrading and development of lands of the public domain identified for
housing," MO 161-A which required NHA to conduct the feasibility studies and develop a low-cost housing project at the Smokey
Mountain, and MO 415 as amended by MO 415-A which approved the Conceptual Plan for Smokey Mountain and creation of
the EXECOM and TECHCOM. Under the JVA, the Project "involves the clearing of Smokey Mountain for eventual development
into a low cost medium rise housing complex and industrial/commercial site with the reclamation of the area directly across [R-
10] to act as the enabling component of the Project."19 The JVA covered a lot in Tondo, Manila with an area of two hundred
twelve thousand two hundred thirty-four (212,234) square meters and another lot to be reclaimed also in Tondo with an area of
four hundred thousand (400,000) square meters.
The Scope of Work of RBI under Article II of the JVA is as follows:

a) To fully finance all aspects of development of Smokey Mountain and reclamation of no more than 40 hectares of
Manila Bay area across Radial Road 10.

b) To immediately commence on the preparation of feasibility report and detailed engineering with emphasis to the
expedient acquisition of the Environmental Clearance Certificate (ECC) from the DENR.

c) The construction activities will only commence after the acquisition of the ECC, and

d) Final details of the contract, including construction, duration and delivery timetables, shall be based on the approved
feasibility report and detailed engineering.

Other obligations of RBI are as follows:

2.02 The [RBI] shall develop the PROJECT based on the Final Report and Detailed Engineering as approved by the
Office of the President. All costs and expenses for hiring technical personnel, date gathering, permits, licenses,
appraisals, clearances, testing and similar undertaking shall be for the account of the [RBI].

2.03 The [RBI] shall undertake the construction of 3,500 temporary housing units complete with basic amenities such as
plumbing, electrical and sewerage facilities within the temporary housing project as staging area to temporarily house
the squatter families from the Smokey Mountain while development is being undertaken. These temporary housing units
shall be turned over to the [NHA] for disposition.

2.04 The [RBI] shall construct 3,500 medium rise low cost permanent housing units on the leveled Smokey Mountain
complete with basic utilities and amenities, in accordance with the plans and specifications set forth in the Final Report
approved by the [NHA]. Completed units ready for mortgage take out shall be turned over by the [RBI] to NHA on
agreed schedule.

2.05 The [RBI] shall reclaim forty (40) hectares of Manila Bay area directly across [R-10] as contained in Proclamation
No. 39 as the enabling component of the project and payment to the [RBI] as its asset share.

2.06 The [RBI] shall likewise furnish all labor materials and equipment necessary to complete all herein development
works to be undertaken on a phase to phase basis in accordance with the work program stipulated therein.

The profit sharing shall be based on the approved pre-feasibility report submitted to the EXECOM, viz:

For the developer (RBI):

1. To own the forty (40) hectares of reclaimed land.

2. To own the commercial area at the Smokey Mountain area composed of 1.3 hectares, and

3. To own all the constructed units of medium rise low cost permanent housing units beyond the 3,500 units share of
the [NHA].

For the NHA:

1. To own the temporary housing consisting of 3,500 units.

2. To own the cleared and fenced incinerator site consisting of 5 hectares situated at the Smokey Mountain area.

3. To own the 3,500 units of permanent housing to be constructed by [RBI] at the Smokey Mountain area to be awarded
to qualified on site residents.

4. To own the Industrial Area site consisting of 3.2 hectares, and

5. To own the open spaces, roads and facilities within the Smokey Mountain area.

In the event of "extraordinary increase in labor, materials, fuel and non-recoverability of total project expenses,"20the OP, upon
recommendation of the NHA, may approve a corresponding adjustment in the enabling component.

The functions and responsibilities of RBI and NHA are as follows:

For RBI:

4.01 Immediately commence on the preparation of the FINAL REPORT with emphasis to the expedient acquisition, with the
assistance of the [NHA] of Environmental Compliance Certificate (ECC) from the Environmental Management Bureau (EMB) of
the [DENR]. Construction shall only commence after the acquisition of the ECC. The Environment Compliance Certificate (ECC)
shall form part of the FINAL REPORT.

The FINAL REPORT shall provide the necessary subdivision and housing plans, detailed engineering and architectural
drawings, technical specifications and other related and required documents relative to the Smokey Mountain area.

With respect to the 40-hectare reclamation area, the [RBI] shall have the discretion to develop the same in a manner that it
deems necessary to recover the [RBI’s] investment, subject to environmental and zoning rules.
4.02 Finance the total project cost for land development, housing construction and reclamation of the PROJECT.

4.03 Warrant that all developments shall be in compliance with the requirements of the FINAL REPORT.

4.04 Provide all administrative resources for the submission of project accomplishment reports to the [NHA] for proper
evaluation and supervision on the actual implementation.

4.05 Negotiate and secure, with the assistance of the [NHA] the grant of rights of way to the PROJECT, from the owners of the
adjacent lots for access road, water, electrical power connections and drainage facilities.

4.06 Provide temporary field office and transportation vehicles (2 units), one (1) complete set of computer and one (1) unit
electric typewriter for the [NHA’s] field personnel to be charged to the PROJECT.

For the NHA:

4.07 The [NHA] shall be responsible for the removal and relocation of all squatters within Smokey Mountain to the Temporary
Housing Complex or to other areas prepared as relocation areas with the assistance of the [RBI]. The [RBI] shall be responsible
in releasing the funds allocated and committed for relocation as detailed in the FINAL REPORT.

4.08 Assist the [RBI] and shall endorse granting of exemption fees in the acquisition of all necessary permits, licenses,
appraisals, clearances and accreditations for the PROJECT subject to existing laws, rules and regulations.

4.09 The [NHA] shall inspect, evaluate and monitor all works at the Smokey Mountain and Reclamation Area while the land
development and construction of housing units are in progress to determine whether the development and construction works
are undertaken in accordance with the FINAL REPORT. If in its judgment, the PROJECT is not pursued in accordance with the
FINAL REPORT, the [NHA] shall require the [RBI] to undertake necessary remedial works. All expenses, charges and penalties
incurred for such remedial, if any, shall be for the account of the [RBI].

4.10 The [NHA] shall assist the [RBI] in the complete electrification of the PROJECT. x x x

4.11 Handle the processing and documentation of all sales transactions related to its assets shares from the venture such as the
3,500 units of permanent housing and the allotted industrial area of 3.2 hectares.

4.12 All advances outside of project costs made by the [RBI] to the [NHA] shall be deducted from the proceeds due to the [NHA].

4.13 The [NHA] shall be responsible for the acquisition of the Mother Title for the Smokey Mountain and Reclamation Area
within 90 days upon submission of Survey returns to the Land Management Sector. The land titles to the 40-hectare reclaimed
land, the 1.3 hectare commercial area at the Smokey Mountain area and the constructed units of medium-rise permanent
housing units beyond the 3,500 units share of the [NHA] shall be issued in the name of the [RBI] upon completion of the project.
However, the [RBI] shall have the authority to pre-sell its share as indicated in this agreement.

The final details of the JVA, which will include the construction duration, costs, extent of reclamation, and delivery timetables,
shall be based on the FINAL REPORT which will be contained in a Supplemental Agreement to be executed later by the parties.

The JVA may be modified or revised by written agreement between the NHA and RBI specifying the clauses to be revised or
modified and the corresponding amendments.

If the Project is revoked or terminated by the Government through no fault of RBI or by mutual agreement, the Government shall
compensate RBI for its actual expenses incurred in the Project plus a reasonable rate of return not exceeding that stated in the
feasibility study and in the contract as of the date of such revocation, cancellation, or termination on a schedule to be agreed
upon by both parties.

As a preliminary step in the project implementation, consultations and dialogues were conducted with the settlers of the Smokey
Mountain Dumpsite Area. At the same time, DENR started processing the application for the Environmental Clearance
Certificate (ECC) of the SMDRP. As a result however of the consultative dialogues, public hearings, the report on the on-site
field conditions, the Environmental Impact Statement (EIS) published on April 29 and May 12, 1993 as required by the
Environmental Management Bureau of DENR, the evaluation of the DENR, and the recommendations from other government
agencies, it was discovered that design changes and additional work have to be undertaken to successfully implement the
Project.21

Thus, on February 21, 1994, the parties entered into another agreement denominated as the Amended and Restated Joint
Venture Agreement22 (ARJVA) which delineated the different phases of the Project. Phase I of the Project involves the
construction of temporary housing units for the current residents of the Smokey Mountain dumpsite, the clearing and leveling-off
of the dumpsite, and the construction of medium-rise low-cost housing units at the cleared and leveled dumpsite.23 Phase II of
the Project involves the construction of an incineration area for the on-site disposal of the garbage at the dumpsite.24 The
enabling component or consideration for Phase I of the Project was increased from 40 hectares of reclaimed lands across R-10
to 79 hectares.25 The revision also provided for the enabling component for Phase II of 119 hectares of reclaimed lands
contiguous to the 79 hectares of reclaimed lands for Phase I.26 Furthermore, the amended contract delineated the scope of
works and the terms and conditions of Phases I and II, thus:

The PROJECT shall consist of Phase I and Phase II.

Phase I shall involve the following:

a. the construction of 2,992 units of temporary housing for the affected residents while clearing and development of
Smokey Mountain [are] being undertaken
 b. the clearing of Smokey Mountain and the subsequent construction of 3,520 units of medium rise housing and the
development of the industrial/commercial site within the Smokey Mountain area

c. the reclamation and development of a 79 hectare area directly across Radial Road 10 to serve as the enabling
component of Phase I

Phase II shall involve the following:

a. the construction and operation of an incinerator plant that will conform to the emission standards of the DENR

b. the reclamation and development of 119-hectare area contiguous to that to be reclaimed under Phase I to serve as
the enabling component of Phase II.

Under the ARJVA, RBI shall construct 2,992 temporary housing units, a reduction from 3,500 units under the JVA. 27However, it
was required to construct 3,520 medium-rise low-cost permanent housing units instead of 3,500 units under the JVA. There was
a substantial change in the design of the permanent housing units such that a "loft shall be incorporated in each unit so as to
increase the living space from 20 to 32 square meters. The additions and changes in the Original Project Component are as
follows:

ORIGINAL CHANGES/REVISIONS

1. TEMPORARY HOUSING

Wood/Plywood, ga. 31 G.I. Concrete/Steel Frame Structure Sheet usable life of 3 years, gauge 26 G.I. roofing
sheets future 12 SM floor area. use as permanent structures for factory and warehouses mixed 17 sm & 12 sm
floor area.

2. MEDIUM RISE MASS

HOUSING

Box type precast Shelter Conventional and precast component 20 square meter concrete structures, 32 square
floor area with 2.4 meter meter floor area with loft floor height; bare type, 160 units/ (sleeping quarter) 3.6 m.
floor building. height, painted and improved

architectural façade, 80 units/building.

3. MITIGATING MEASURES

3.1 For reclamation work Use of clean dredgefill material below the MLLW and SM material mixed with
dredgefill above MLLW.

a. 100% use of Smokey Mountain material as dredgefill Use of Steel Sheet Piles needed for longer
depth of embedment.

b. Concrete Sheet Piles short depth of embedment

c. Silt removal approximately Need to remove more than 3.0

1.0 meter only meters of silt after sub-soil investigation.28

These material and substantial modifications served as justifications for the increase in the share of RBI from 40
hectares to 79 hectares of reclaimed land.

Under the JVA, the specific costs of the Project were not stipulated but under the ARJVA, the stipulated cost for Phase I
was pegged at six billion six hundred ninety-three million three hundred eighty-seven thousand three hundred sixty-four
pesos (PhP 6,693,387,364).

In his February 10, 1994 Memorandum, the Chairperson of the SMDRP EXECOM submitted the ARJVA for approval by
the OP. After review of said agreement, the OP directed that certain terms and conditions of the ARJVA be further
clarified or amended preparatory to its approval. Pursuant to the President’s directive, the parties reached an
agreement on the clarifications and amendments required to be made on the ARJVA.

On August 11, 1994, the NHA and RBI executed an Amendment To the Amended and Restated Joint Venture
Agreement (AARJVA)29 clarifying certain terms and condition of the ARJVA, which was submitted to President Ramos
for approval, to wit:

Phase II shall involve the following:

a. the construction and operation of an incinerator plant that will conform to the emission standards of the
DENR

b. the reclamation and development of 119-hectare area contiguous to that to be reclaimed under Phase I to
serve as the enabling component of Phase II, the exact size and configuration of which shall be approved by
the SMDRP Committee30
 Other substantial amendments are the following:

4. Paragraph 2.05 of Article II of the ARJVA is hereby amended to read as follows:

2.05. The DEVELOPER shall reclaim seventy nine (79) hectares of the Manila Bay area directly across Radial Road 10
(R-10) to serve as payment to the DEVELOPER as its asset share for Phase I and to develop such land into
commercial area with port facilities; provided, that the port plan shall be integrated with the Philippine Port Authority’s
North Harbor plan for the Manila Bay area and provided further, that the final reclamation and port plan for said
reclaimed area shall be submitted for approval by the Public Estates Authority and the Philippine Ports Authority,
respectively: provided finally, that subject to par. 2.02 above, actual reclamation work may commence upon approval of
the final reclamation plan by the Public Estates Authority.

xxxx

9. A new paragraph to be numbered 5.05 shall be added to Article V of the ARJVA, and shall read as follows:

5.05. In the event this Agreement is revoked, cancelled or terminated by the AUTHORITY through no fault of the DEVELOPER,
the AUTHORITY shall compensate the DEVELOPER for the value of the completed portions of, and actual expenditures on the
PROJECT plus a reasonable rate of return thereon, not exceeding that stated in the Cost Estimates of Items of Work previously
approved by the SMDRP Executive Committee and the AUTHORITY and stated in this Agreement, as of the date of such
revocation, cancellation, or termination, on a schedule to be agreed upon by the parties, provided that said completed portions
of Phase I are in accordance with the approved FINAL REPORT.

Afterwards, President Ramos issued Proclamation No. 465 dated August 31, 1994 31 increasing the proposed area for
reclamation across R-10 from 40 hectares to 79 hectares,32 to wit:

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of the powers vested in me by
the law, and as recommended by the SMDRP Executive Committee, do hereby authorize the increase of the area of foreshore
or submerged lands of Manila Bay to be reclaimed, as previously authorized under Proclamation No. 39 (s. 1992) and
Memorandum Order No. 415 (s. 1992), from Four Hundred Thousand (400,000) square meters, more or less, to Seven Hundred
Ninety Thousand (790,000) square meters, more or less.

On September 1, 1994, pursuant to Proclamation No. 39, the DENR issued Special Patent No. 3591 conveying in favor of NHA
an area of 211,975 square meters covering the Smokey Mountain Dumpsite.

In its September 7, 1994 letter to the EXECOM, the OP through then Executive Secretary Teofisto T. Guingona, Jr., approved
the ARJVA as amended by the AARJVA.

On September 8, 1994, the DENR issued Special Patent 3592 pursuant to Proclamation No. 39, conveying in favor of NHA a
401,485-square meter area.

On September 26, 1994, the NHA, RBI, Home Insurance and Guaranty Corporation (HIGC), now known as the Home Guaranty
Corporation, and the Philippine National Bank (PNB)33 executed the Smokey Mountain Asset Pool Formation Trust Agreement
(Asset Pool Agreement).34 Thereafter, a Guaranty Contract was entered into by NHA, RBI, and HIGC.

On June 23, 1994, the Legislature passed the Clean Air Act.35 The Act made the establishment of an incinerator illegal and
effectively barred the implementation of the planned incinerator project under Phase II. Thus, the off-site disposal of the garbage
at the Smokey Mountain became necessary.36

The land reclamation was completed in August 1996.37

Sometime later in 1996, pursuant likewise to Proclamation No. 39, the DENR issued Special Patent No. 3598 conveying in favor
of NHA an additional 390,000 square meter area.

During the actual construction and implementation of Phase I of the SMDRP, the Inter-Agency Technical Committee found and
recommended to the EXECOM on December 17, 1997 that additional works were necessary for the completion and viability of
the Project. The EXECOM approved the recommendation and so, NHA instructed RBI to implement the change orders or
necessary works.38

Such necessary works comprised more than 25% of the original contract price and as a result, the Asset Pool incurred direct
and indirect costs. Based on C1 12 A of the Implementing Rules and Regulations of PD 1594, a supplemental agreement is
required for "all change orders and extra work orders, the total aggregate cost of which being more than twenty-five (25%) of the
escalated original contract price."

The EXECOM requested an opinion from the Department of Justice (DOJ) to determine whether a bidding was required for the
change orders and/or necessary works. The DOJ, through DOJ Opinion Nos. 119 and 155 dated August 26, 1993 and
November 12, 1993, opined that "a rebidding, pursuant to the aforequoted provisions of the implementing rules (referring to PD
1594) would not be necessary where the change orders inseparable from the original scope of the project, in which case, a
negotiation with the incumbent contractor may be allowed."

Thus, on February 19, 1998, the EXECOM issued a resolution directing NHA to enter into a supplemental agreement covering
said necessary works.

On March 20, 1998, the NHA and RBI entered into a Supplemental Agreement covering the aforementioned necessary works
and submitted it to the President on March 24, 1998 for approval.
Outgoing President Ramos decided to endorse the consideration of the Supplemental Agreement to incoming President Joseph
E. Estrada. On June 30, 1998, Estrada became the 13th Philippine President.

However, the approval of the Supplemental Agreement was unacted upon for five months. As a result, the utilities and the road
networks were constructed to cover only the 79-hectare original enabling component granted under the ARJVA. The 220-
hectare extension of the 79-hectare area was no longer technically feasible. Moreover, the financial crises and unreliable real
estate situation made it difficult to sell the remaining reclaimed lots. The devaluation of the peso and the increase in interest cost
led to the substantial increase in the cost of reclamation.

On August 1, 1998, the NHA granted RBI’s request to suspend work on the SMDRP due to "the delay in the approval of the
Supplemental Agreement, the consequent absence of an enabling component to cover the cost of the necessary works for the
project, and the resulting inability to replenish the Asset Pool funds partially used for the completion of the necessary works." 39

As of August 1, 1998 when the project was suspended, RBI had "already accomplished a portion of the necessary works and
change orders which resulted in [RBI] and the Asset Pool incurring advances for direct and indirect cost which amount can no
longer be covered by the 79-hectare enabling component under the ARJVA."40

Repeated demands were made by RBI in its own capacity and on behalf of the asset pool on NHA for payment for the advances
for direct and indirect costs subject to NHA validation.

In November 1998, President Estrada issued Memorandum Order No. 33 reconstituting the SMDRP EXECOM and further
directed it to review the Supplemental Agreement and submit its recommendation on the completion of the SMDRP.

The reconstituted EXECOM conducted a review of the project and recommended the amendment of the March 20, 1998
Supplemental Agreement "to make it more feasible and to identify and provide new sources of funds for the project and provide
for a new enabling component to cover the payment for the necessary works that cannot be covered by the 79-hectare enabling
component under the ARJVA."41

The EXECOM passed Resolution Nos. 99-16-01 and 99-16-0242 which approved the modification of the Supplemental
Agreement, to wit:

a) Approval of 150 hectares additional reclamation in order to make the reclamation feasible as part of the enabling
component.

b) The conveyance of the 15-hectare NHA Vitas property (actually 17 hectares based on surveys) to the SMDRP Asset
Pool.

c) The inclusion in the total development cost of other additional, necessary and indispensable infrastructure works and
the revision of the original cost stated in the Supplemental Agreement dated March 20, 1998 from PhP
2,953,984,941.40 to PhP 2,969,134,053.13.

d) Revision in the sharing agreement between the parties.

In the March 23, 2000 OP Memorandum, the EXECOM was authorized to proceed and complete the SMDRP subject to certain
guidelines and directives.

After the parties in the case at bar had complied with the March 23, 2000 Memorandum, the NHA November 9, 2000 Resolution
No. 4323 approved "the conveyance of the 17-hectare Vitas property in favor of the existing or a newly created Asset Pool of the
project to be developed into a mixed commercial-industrial area, subject to certain conditions."

On January 20, 2001, then President Estrada was considered resigned. On the same day, President Gloria M. Arroyo took her
oath as the 14th President of the Philippines.

As of February 28, 2001, "the estimated total project cost of the SMDRP has reached P8.65 billion comprising of P4.78 billion in
direct cost and P3.87 billion in indirect cost,"43 subject to validation by the NHA.

On August 28, 2001, NHA issued Resolution No. 4436 to pay for "the various necessary works/change orders to SMDRP, to
effect the corresponding enabling component consisting of the conveyance of the NHA’s Vitas Property and an additional 150-
hectare reclamation area" and to authorize the release by NHA of PhP 480 million "as advance to the project to make the
Permanent Housing habitable, subject to reimbursement from the proceeds of the expanded enabling component."44

On November 19, 2001, the Amended Supplemental Agreement (ASA) was signed by the parties, and on February 28, 2002,
the Housing and Urban Development Coordinating Council (HUDCC) submitted the agreement to the OP for approval.

In the July 20, 2002 Cabinet Meeting, HUDCC was directed "to submit the works covered by the PhP 480 million [advance to the
Project] and the ASA to public bidding."45 On August 28, 2002, the HUDCC informed RBI of the decision of the Cabinet.

In its September 2, 2002 letter to the HUDCC Chairman, RBI lamented the decision of the government "to bid out the remaining
works under the ASA thereby unilaterally terminating the Project with RBI and all the agreements related thereto." RBI
demanded the payment of just compensation "for all accomplishments and costs incurred in developing the SMDRP plus a
reasonable rate of return thereon pursuant to Section 5.05 of the ARJVA and Section 6.2 of the ASA."46

Consequently, the parties negotiated the terms of the termination of the JVA and other subsequent agreements.

On August 27, 2003, the NHA and RBI executed a Memorandum of Agreement (MOA) whereby both parties agreed to terminate
the JVA and other subsequent agreements, thus:
 1. TERMINATION

1.1 In compliance with the Cabinet directive dated 30 July 2002 to submit the works covered by the P480
Million and the ASA to public bidding, the following agreements executed by and between the NHA and the
DEVELOPER are hereby terminated, to wit:

a. Joint Venture Agreement (JVA) dated 19 March 1993

b. Amended and Restated Joint Venture Agreement (ARJVA) dated 21 February 1994

c. Amendment and Restated Joint Venture Agreement dated 11 August 1994

d. Supplemental Agreement dated 24 March 1998

e. Amended Supplemental Agreement (ASA) dated 19 November 2001.

xxxx

5. SETTLEMENT OF CLAIMS

5.1 Subject to the validation of the DEVELOPER’s claims, the NHA hereby agrees to initially compensate the Developer
for the abovementioned costs as follows:

a. Direct payment to DEVELOPER of the amounts herein listed in the following manner:

a.1 P250 Million in cash from the escrow account in accordance with Section 2 herewith;

a.2 Conveyance of a 3 hectare portion of the Vitas Industrial area immediately after joint determination
of the appraised value of the said property in accordance with the procedure herein set forth in the last
paragraph of Section 5.3. For purposes of all payments to be made through conveyance of real
properties, the parties shall secure from the NHA Board of Directors all documents necessary and
sufficient to effect the transfer of title over the properties to be conveyed to RBI, which documents shall
be issued within a reasonable period.

5.2 Any unpaid balance of the DEVELOPERS claims determined after the validation process referred to in Section 4
hereof, may be paid in cash, bonds or through the conveyance of properties or any combination thereof. The manner,
terms and conditions of payment of the balance shall be specified and agreed upon later within a period of three months
from the time a substantial amount representing the unpaid balance has been validated pursuant hereto including, but
not limited to the programming of quarterly cash payments to be sourced by the NHA from its budget for debt servicing,
from its income or from any other sources.

5.3 In any case the unpaid balance is agreed to be paid, either partially or totally through conveyance of properties, the
parties shall agree on which properties shall be subject to conveyance. The NHA and DEVELOPER hereby agree to
determine the valuation of the properties to be conveyed by getting the average of the appraisals to be made by two (2)
mutually acceptable independent appraisers.

Meanwhile, respondent Harbour Centre Port Terminal, Inc. (HCPTI) entered into an agreement with the asset pool for the
development and operations of a port in the Smokey Mountain Area which is a major component of SMDRP to provide a source
of livelihood and employment for Smokey Mountain residents and spur economic growth. A Subscription Agreement was
executed between the Asset Pool and HCPTI whereby the asset pool subscribed to 607 million common shares and 1,143
million preferred shares of HCPTI. The HCPTI preferred shares had a premium and penalty interest of 7.5% per annum and a
mandatory redemption feature. The asset pool paid the subscription by conveying to HCPTI a 10-hectare land which it acquired
from the NHA being a portion of the reclaimed land of the SMDRP. Corresponding certificates of titles were issued to HCPTI,
namely: TCT Nos. 251355, 251356, 251357, and 251358.

Due to HCPTI’s failure to obtain a license to handle foreign containerized cargo from PPA, it suffered a net income loss of PhP
132,621,548 in 2002 and a net loss of PhP 15,540,063 in 2003. The Project Governing Board of the Asset Pool later conveyed
by way of dacion en pago a number of HCPTI shares to RBI in lieu of cash payment for the latter’s work in SMDRP.

On August 5, 2004, former Solicitor General Francisco I. Chavez, filed the instant petition which impleaded as respondents the
NHA, RBI, R-II Holdings, Inc. (RHI), HCPTI, and Mr. Reghis Romero II, raising constitutional issues.

The NHA reported that thirty-four (34) temporary housing structures and twenty-one (21) permanent housing structures had
been turned over by respondent RBI. It claimed that 2,510 beneficiary-families belonging to the poorest of the poor had been
transferred to their permanent homes and benefited from the Project.

The Issues

The grounds presented in the instant petition are:

Neither respondent NHA nor respondent R-II builders may validly reclaim foreshore and submerged land because:

1. Respondent NHA and R-II builders were never granted any power and authority to reclaim lands of the public domain
as this power is vested exclusively with the PEA.
 2. Even assuming that respondents NHA and R-II builders were given the power and authority to reclaim foreshore and
submerged land, they were never given the authority by the denr to do so.

II

Respondent R-II builders cannot acquire the reclaimed foreshore and submerged land areas because:

1. The reclaimed foreshore and submerged parcels of land are inalienable public lands which are beyond the commerce
of man.

2. Assuming arguendo that the subject reclaimed foreshore and submerged parcels of land were already declared
alienable lands of the public domain, respondent R-II builders still could not acquire the same because there was never
any declaration that the said lands were no longer needed for public use.

3. Even assuming that the subject reclaimed lands are alienable and no longer needed for public use, respondent R-II
builders still cannot acquire the same because there was never any law authorizing the sale thereof.

4. There was never any public bidding awarding ownership of the subject land to respondent R-II builders.

5. Assuming that all the requirements for a valid transfer of alienable public had been performed, respondent R-II
Builders, being private corporation is nonetheless expresslyprohibited by the Philippine Constitution to acquire lands of
the public domain.

III

Respondent harbour, being a private corporation whose majority stocks are owned and controlled by respondent Romero’s
Corporations – R-II builders and R-II Holdings – is disqualified from being a transferee of public land.

IV

Respondents must be compelled to disclose all information related to the smokey mountain development and reclamation
project.

The Court’s Ruling

Before we delve into the substantive issues raised in this petition, we will first deal with several procedural matters raised by
respondents.

Whether petitioner has the requisite locus standi to file this case

Respondents argue that petitioner Chavez has no legal standing to file the petition.

Only a person who stands to be benefited or injured by the judgment in the suit or entitled to the avails of the suit can file a
complaint or petition.47 Respondents claim that petitioner is not a proper party-in-interest as he was unable to show that "he has
sustained or is in immediate or imminent danger of sustaining some direct and personal injury as a result of the execution and
enforcement of the assailed contracts or agreements."48 Moreover, they assert that not all government contracts can justify a
taxpayer’s suit especially when no public funds were utilized in contravention of the Constitution or a law.

We explicated in Chavez v. PCGG49 that in cases where issues of transcendental public importance are presented, there is no
necessity to show that petitioner has experienced or is in actual danger of suffering direct and personal injury as the requisite
injury is assumed. We find our ruling in Chavez v. PEA50 as conclusive authority on locus standi in the case at bar since the
issues raised in this petition are averred to be in breach of the fair diffusion of the country’s natural resources and the
constitutional right of a citizen to information which have been declared to be matters of transcendental public importance.
Moreover, the pleadings especially those of respondents readily reveal that public funds have been indirectly utilized in the
Project by means of Smokey Mountain Project Participation Certificates (SMPPCs) bought by some government agencies.

Hence, petitioner, as a taxpayer, is a proper party to the instant petition before the court.

Whether petitioner’s direct recourse to this Court was proper

Respondents are one in asserting that petitioner circumvents the principle of hierarchy of courts in his petition. Judicial hierarchy
was made clear in the case of People v. Cuaresma, thus:

There is after all a hierarchy of courts. That hierarchy is determinative of the venue of appeals, and should also serve as a
general determinant of the appropriate forum for petitions for the extraordinary writs. A becoming regard for that judicial
hierarchy most certainly indicates that petitions for the issuance of extraordinary writs against first level ("inferior") courts should
be filed with the Regional Trial Court, and those against the latter, with the Court of Appeals. A direct invocation of the Supreme
Court’s original jurisdiction to issue these writs should be allowed only when there are special and important reasons therefor,
clearly and specifically set out in the petition. This is established policy. It is a policy that is necessary to prevent inordinate
demands upon the Court’s time and attention which are better devoted to those matters within its exclusive jurisdiction, and to
prevent further over-crowding of the Court’s docket.51 x x x

The OSG claims that the jurisdiction over petitions for prohibition and mandamus is concurrent with other lower courts like the
Regional Trial Courts and the Court of Appeals. Respondent NHA argues that the instant petition is misfiled because it does not
introduce special and important reasons or exceptional and compelling circumstances to warrant direct recourse to this Court
and that the lower courts are more equipped for factual issues since this Court is not a trier of facts. Respondents RBI and RHI
question the filing of the petition as this Court should not be unduly burdened with "repetitions, invocation of jurisdiction over
constitutional questions it had previously resolved and settled."

In the light of existing jurisprudence, we find paucity of merit in respondents’ postulation.

While direct recourse to this Court is generally frowned upon and discouraged, we have however ruled in Santiago v. Vasquez
that such resort to us may be allowed in certain situations, wherein this Court ruled that petitions for certiorari, prohibition, or
mandamus, though cognizable by other courts, may directly be filed with us if "the redress desired cannot be obtained in the
appropriate courts or where exceptional compelling circumstances justify availment of a remedy within and calling for the
exercise of [this Court’s] primary jurisdiction."521avvphi1

The instant petition challenges the constitutionality and legality of the SMDRP involving several hectares of government land
and hundreds of millions of funds of several government agencies. Moreover, serious constitutional challenges are made on the
different aspects of the Project which allegedly affect the right of Filipinos to the distribution of natural resources in the country
and the right to information of a citizen—matters which have been considered to be of extraordinary significance and grave
consequence to the public in general. These concerns in the instant action compel us to turn a blind eye to the judicial structure
meant to provide an orderly dispensation of justice and consider the instant petition as a justified deviation from an established
precept.

Core factual matters undisputed

Respondents next challenge the projected review by this Court of the alleged factual issues intertwined in the issues
propounded by petitioner. They listed a copious number of questions seemingly factual in nature which would make this Court a
trier of facts.53

We find the position of respondents bereft of merit.

For one, we already gave due course to the instant petition in our January 18, 2005 Resolution. 54 In said issuance, the parties
were required to make clear and concise statements of established facts upon which our decision will be based.

Secondly, we agree with petitioner that there is no necessity for us to make any factual findings since the facts needed to decide
the instant petition are well established from the admissions of the parties in their pleadings 55 and those derived from the
documents appended to said submissions. Indeed, the core facts which are the subject matter of the numerous issues raised in
this petition are undisputed.

Now we will tackle the issues that prop up the instant petition.

Since petitioner has cited our decision in PEA as basis for his postulations in a number of issues, we first resolve the query—is
PEA applicable to the case at bar?

A juxtaposition of the facts in the two cases constrains the Court to rule in the negative.

The Court finds that PEA is not a binding precedent to the instant petition because the facts in said case are substantially
different from the facts and circumstances in the case at bar, thus:

(1) The reclamation project in PEA was undertaken through a JVA entered into between PEA and AMARI. The
reclamation project in the instant NHA case was undertaken by the NHA, a national government agency in consultation
with PEA and with the approval of two Philippine Presidents;

(2) In PEA, AMARI and PEA executed a JVA to develop the Freedom Islands and reclaim submerged areas without
public bidding on April 25, 1995. In the instant NHA case, the NHA and RBI executed a JVA after RBI was declared the
winning bidder on August 31, 1992 as the JVA partner of the NHA in the SMDRP after compliance with the requisite
public bidding.

(3) In PEA, there was no law or presidential proclamation classifying the lands to be reclaimed as alienable and
disposal lands of public domain. In this RBI case, MO 415 of former President Aquino and Proclamation No. 39 of then
President Ramos, coupled with Special Patents Nos. 3591, 3592, and 3598, classified the reclaimed lands as alienable
and disposable;

(4) In PEA, the Chavez petition was filed before the amended JVA was executed by PEA and AMARI.1avvphi1 In this
NHA case, the JVA and subsequent amendments were already substantially implemented. Subsequently, the Project
was terminated through a MOA signed on August 27, 2003. Almost one year later on August 5, 2004, the Chavez
petition was filed;

(5) In PEA, AMARI was considered to be in bad faith as it signed the amended JVA after the Chavez petition was filed
with the Court and after Senate Committee Report No. 560 was issued finding that the subject lands are inalienable
lands of public domain. In the instant petition, RBI and other respondents are considered to have signed the
agreements in good faith as the Project was terminated even before the Chavez petition was filed;

(6) The PEA-AMARI JVA was executed as a result of direct negotiation between the parties and not in accordance with
the BOT Law. The NHA-RBI JVA and subsequent amendments constitute a BOT contract governed by the BOT Law;
and

(7) In PEA, the lands to be reclaimed or already reclaimed were transferred to PEA, a government entity tasked to
dispose of public lands under Executive Order No. (EO) 525.56 In the NHA case, the reclaimed lands were transferred to
NHA, a government entity NOT tasked to dispose of public land and therefore said alienable lands were converted to
patrimonial lands upon their transfer to NHA.57
Thus the PEA Decision58 cannot be considered an authority or precedent to the instant case. The principle of stare decisis 59 has
no application to the different factual setting of the instant case.

We will now dwell on the substantive issues raised by petitioner. After a perusal of the grounds raised in this petition, we find
that most of these issues are moored on our PEA Decision which, as earlier discussed, has no application to the instant petition.
For this reason alone, the petition can already be rejected. Nevertheless, on the premise of the applicability of said decision to
the case at bar, we will proceed to resolve said issues.

First Issue: Whether respondents NHA and RBI have been granted
the power and authority to reclaim lands of the public domain as
this power is vested exclusively in PEA as claimed by petitioner

Petitioner contends that neither respondent NHA nor respondent RBI may validly reclaim foreshore and submerged land
because they were not given any power and authority to reclaim lands of the public domain as this power was delegated by law
to PEA.

Asserting that existing laws did not empower the NHA and RBI to reclaim lands of public domain, the Public Estates Authority
(PEA), petitioner claims, is "the primary authority for the reclamation of all foreshore and submerged lands of public domain,"
and relies on PEA where this Court held:

Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall be primarily responsible for integrating, directing, and
coordinating all reclamation projects for and on behalf of the National Government." The same section also states that "[A]ll
reclamation projects shall be approved by the President upon recommendation of the PEA, and shall be undertaken by the PEA
or through a proper contract executed by it with any person or entity; x x x." Thus, under EO No. 525, in relation to PD No. 3-A
and PD No. 1084, PEA became the primary implementing agency of the National Government to reclaim foreshore and
submerged lands of the public domain. EO No. 525 recognized PEA as the government entity "to undertake the reclamation of
lands and ensure their maximum utilization in promoting public welfare and interests." Since large portions of these reclaimed
lands would obviously be needed for public service, there must be a formal declaration segregating reclaimed lands no longer
needed for public service from those still needed for public service.60

In the Smokey Mountain Project, petitioner clarifies that the reclamation was not done by PEA or through a contract executed by
PEA with another person or entity but by the NHA through an agreement with respondent RBI. Therefore, he concludes that the
reclamation is null and void.

Petitioner’s contention has no merit.

EO 525 reads:

Section 1. The Public Estates Authority (PEA) shall be primarily responsible for integrating, directing, and coordinating all
reclamation projects for and on behalf of the National Government. All reclamation projects shall be approved by the President
upon recommendation of the PEA, and shall be undertaken by the PEA or through a proper contract executed by it with any
person or entity; Provided, that, reclamation projects of any national government agency or entity authorized under its charter
shall be undertaken in consultation with the PEA upon approval of the President. (Emphasis supplied.)

The aforequoted provision points to three (3) requisites for a legal and valid reclamation project, viz:

(1) approval by the President;

(2) favorable recommendation of PEA; and

(3) undertaken by any of the following:

a. by PEA

b. by any person or entity pursuant to a contract it executed with PEA

c. by the National Government agency or entity authorized under its charter to reclaim lands subject to
consultation with PEA

Without doubt, PEA under EO 525 was designated as the agency primarily responsible for integrating, directing, and
coordinating all reclamation projects. Primarily means "mainly, principally, mostly, generally." Thus, not all reclamation projects
fall under PEA’s authority of supervision, integration, and coordination. The very charter of PEA, PD 1084, 61 does not mention
that PEA has the exclusive and sole power and authority to reclaim lands of public domain. EO 525 even reveals the
exception—reclamation projects by a national government agency or entity authorized by its charter to reclaim land. One
example is EO 405 which authorized the Philippine Ports Authority (PPA) to reclaim and develop submerged areas for port
related purposes. Under its charter, PD 857, PPA has the power "to reclaim, excavate, enclose or raise any of the lands" vested
in it.

Thus, while PEA under PD 1084 has the power to reclaim land and under EO 525 is primarily responsible for integrating,
directing and coordinating reclamation projects, such authority is NOT exclusive and such power to reclaim may be granted or
delegated to another government agency or entity or may even be undertaken by the National Government itself, PEA being
only an agency and a part of the National Government.

Let us apply the legal parameters of Sec. 1, EO 525 to the reclamation phase of SMDRP. After a scrutiny of the facts culled from
the records, we find that the project met all the three (3) requirements, thus:
1. There was ample approval by the President of the Philippines; as a matter of fact, two Philippine Presidents approved the
same, namely: Presidents Aquino and Ramos. President Aquino sanctioned the reclamation of both the SMDRP housing and
commercial-industrial sites through MO 415 (s. 1992) which approved the SMDRP under Sec. 1 and directed NHA "x x x to
implement the Smokey Mountain Development Plan and Reclamation of the Area across R-10 through a private sector joint
venture scheme at the least cost to government" under Section 3.

For his part, then President Ramos issued Proclamation No. 39 (s. 1992) which expressly reserved the Smokey Mountain Area
and the Reclamation Area for a housing project and related commercial/industrial development.

Moreover, President Ramos issued Proclamation No. 465 (s. 1994) which authorized the increase of the Reclamation Area from
40 hectares of foreshore and submerged land of the Manila Bay to 79 hectares. It speaks of the reclamation of 400,000 square
meters, more or less, of the foreshore and submerged lands of Manila Bay adjoining R-10 as an enabling component of the
SMDRP.

As a result of Proclamations Nos. 39 and 465, Special Patent No. 3591 covering 211,975 square meters of Smokey Mountain,
Special Patent No. 3592 covering 401,485 square meters of reclaimed land, and Special Patent No. 3598 covering another
390,000 square meters of reclaimed land were issued by the DENR.

Thus, the first requirement of presidential imprimatur on the SMDRP has been satisfied.

2. The requisite favorable endorsement of the reclamation phase was impliedly granted by PEA. President Aquino saw to it that
there was coordination of the project with PEA by designating its general manager as member of the EXECOM tasked to
supervise the project implementation. The assignment was made in Sec. 2 of MO 415 which provides:

Section 2. An Executive Committee is hereby created to oversee the implementation of the Plan, chaired by the NCR-CORD,
with the heads of the following agencies as members: The National Housing Authority, the City of Manila, the Department of
Public Works and Highways, the Public Estates Authority, the Philippine Ports Authority, the Department of Environment and
Natural Resources and the Development Bank of the Philippines. (Emphasis supplied.)

The favorable recommendation by PEA of the JVA and subsequent amendments were incorporated as part of the
recommendations of the EXECOM created under MO 415. While there was no specific recommendation on the SMDRP
emanating solely from PEA, we find that the approbation of the Project and the land reclamation as an essential component by
the EXECOM of which PEA is a member, and its submission of the SMDRP and the agreements on the Project to the President
for approval amply met the second requirement of EO 525.

3. The third element was also present—the reclamation was undertaken either by PEA or any person or entity under contract
with PEA or by the National Government agency or entity authorized under its charter to reclaim lands subject to consultation
with PEA. It cannot be disputed that the reclamation phase was not done by PEA or any person or entity under contract with
PEA. However, the reclamation was implemented by the NHA, a national government agency whose authority to reclaim lands
under consultation with PEA is derived from its charter—PD 727 and other pertinent laws—RA 727962 and RA 6957 as amended
by RA 7718.

While the authority of NHA to reclaim lands is challenged by petitioner, we find that the NHA had more than enough authority to
do so under existing laws. While PD 757, the charter of NHA, does not explicitly mention "reclamation" in any of the listed
powers of the agency, we rule that the NHA has an implied power to reclaim land as this is vital or incidental to effectively,
logically, and successfully implement an urban land reform and housing program enunciated in Sec. 9 of Article XIII of the 1987
Constitution.

Basic in administrative law is the doctrine that a government agency or office has express and implied powers based on its
charter and other pertinent statutes. Express powers are those powers granted, allocated, and delegated to a government
agency or office by express provisions of law. On the other hand, implied powers are those that can be inferred or are implicit in
the wordings of the law63 or conferred by necessary or fair implication in the enabling act.64 In Angara v. Electoral Commission,
the Court clarified and stressed that when a general grant of power is conferred or duty enjoined, every particular power
necessary for the exercise of the one or the performance of the other is also conferred by necessary implication. 65 It was also
explicated that when the statute does not specify the particular method to be followed or used by a government agency in the
exercise of the power vested in it by law, said agency has the authority to adopt any reasonable method to carry out its
functions.66

The power to reclaim on the part of the NHA is implicit from PD 757, RA 7279, MO 415, RA 6957, and PD 3-A,67viz:

1. NHA’s power to reclaim derived from PD 757 provisions:

a. Sec. 3 of PD 757 implies that reclamation may be resorted to in order to attain the goals of NHA:

Section 3. Progress and Objectives. The Authority shall have the following purposes and objectives:

xxxx

b) To undertake housing, development, resettlement or other activities as would enhance the provision of housing to
every Filipino;

c) To harness and promote private participation in housing ventures in terms of capital expenditures, land, expertise,
financing and other facilities for the sustained growth of the housing industry. (Emphasis supplied.)

Land reclamation is an integral part of the development of resources for some of the housing requirements of the NHA. Private
participation in housing projects may also take the form of land reclamation.
b. Sec. 5 of PD 757 serves as proof that the NHA, as successor of the Tondo Foreshore Development Authority (TFDA), has the
power to reclaim, thus:

Section 5. Dissolution of Existing Housing Agencies. The People's Homesite and Housing Corporation (PHHC), the Presidential
Assistant on Housing Resettlement Agency (PAHRA), the Tondo Foreshore Development Authority (TFDA), the Central Institute
for the Training and Relocation of Urban Squatters (CITRUS), the Presidential Committee for Housing and Urban Resettlement
(PRECHUR), Sapang Palay Development Committee, Inter-Agency Task Force to Undertake the Relocation of Families in
Barrio Nabacaan, Villanueva, Misamis Oriental and all other existing government housing and resettlement agencies, task
forces and ad-hoc committees, are hereby dissolved. Their powers and functions, balance of appropriations, records, assets,
rights, and choses in action, are transferred to, vested in, and assumed by the Authority. x x x (Emphasis supplied.)

PD 570 dated October 30, 1974 created the TFDA, which defined its objectives, powers, and functions. Sec. 2 provides:

Section 2. Objectives and Purposes. The Authority shall have the following purposes and objectives:

a) To undertake all manner of activity, business or development projects for the establishment of harmonious,
comprehensive, integrated and healthy living community in the Tondo Foreshoreland and its resettlement site;

b) To undertake and promote the physical and socio-economic amelioration of the Tondo Foreshore residents in
particular and the nation in general (Emphasis supplied.)

The powers and functions are contained in Sec. 3, to wit:

a) To develop and implement comprehensive and integrated urban renewal programs for the Tondo Foreshore and
Dagat-dagatan lagoon and/or any other additional/alternative resettlement site and to formulate and enforce general
and specific policies for its development which shall ensure reasonable degree of compliance with environmental
standards.

b) To prescribe guidelines and standards for the reservation, conservation and utilization of public lands covering the
Tondo Foreshore land and its resettlement sites;

c) To construct, acquire, own, lease, operate and maintain infrastructure facilities, housing complex, sites and services;

d) To determine, regulate and supervise the establishment and operation of housing, sites, services and commercial
and industrial complexes and any other enterprises to be constructed or established within the Tondo Foreshore and its
resettlement sites;

e) To undertake and develop, by itself or through joint ventures with other public or private entities, all or any of the
different phases of development of the Tondo Foreshore land and its resettlement sites;

f) To acquire and own property, property-rights and interests, and encumber or otherwise dispose of the same as it may
deem appropriate (Emphasis supplied.)

From the foregoing provisions, it is readily apparent that the TFDA has the explicit power to develop public lands covering the
Tondo foreshore land and any other additional and alternative resettlement sites under letter b, Sec. 3 of PD 570. Since the
additional and/or alternative sites adjacent to Tondo foreshore land cover foreshore and submerged areas, the reclamation of
said areas is necessary in order to convert them into a comprehensive and integrated resettlement housing project for the slum
dwellers and squatters of Tondo. Since the powers of TFDA were assumed by the NHA, then the NHA has the power to reclaim
lands in the Tondo foreshore area which covers the 79-hectare land subject of Proclamations Nos. 39 and 465 and Special
Patents Nos. 3592 and 3598.

c. Sec. 6 of PD 757 delineates the functions and powers of the NHA which embrace the authority to reclaim land, thus:

Sec. 6. Powers and functions of the Authority.—The Authority shall have the following powers and functions to be exercised by
the Board in accordance with its established national human settlements plan prepared by the Human Settlements Commission:

(a) Develop and implement the comprehensive and integrated housing program provided for in Section hereof;

xxxx

(c) Prescribe guidelines and standards for the reservation, conservation and utilization of public lands identified for housing and
resettlement;

xxxx

(e) Develop and undertake housing development and/or resettlement projects through joint ventures or other arrangements with
public and private entities;

xxxx

(k) Enter into contracts whenever necessary under such terms and conditions as it may deem proper and reasonable;

(l) Acquire property rights and interests and encumber or otherwise dispose the same as it may deem appropriate;

xxxx
(s) Perform such other acts not inconsistent with this Decree, as may be necessary to effect the policies and objectives herein
declared. (Emphasis supplied.)

The NHA’s authority to reclaim land can be inferred from the aforequoted provisions. It can make use of public lands under letter
(c) of Sec. 6 which includes reclaimed land as site for its comprehensive and integrated housing projects under letter (a) which
can be undertaken through joint ventures with private entities under letter (e). Taken together with letter (s) which authorizes
NHA to perform such other activities "necessary to effect the policies and objectives" of PD 757, it is safe to conclude that the
NHA’s power to reclaim lands is a power that is implied from the exercise of its explicit powers under Sec. 6 in order to
effectively accomplish its policies and objectives under Sec. 3 of its charter. Thus, the reclamation of land is an indispensable
component for the development and construction of the SMDRP housing facilities.

2. NHA’s implied power to reclaim land is enhanced by RA 7279.

PD 757 identifies NHA’s mandate to "[d]evelop and undertake housing development and/or resettlement projects through joint
ventures or other arrangements with public and private entities."

The power of the NHA to undertake reclamation of land can be inferred from Secs. 12 and 29 of RA 7279, which provide:

Section 12. Disposition of Lands for Socialized Housing.—The National Housing Authority, with respect to lands belonging to the
National Government, and the local government units with respect to other lands within their respective localities, shall
coordinate with each other to formulate and make available various alternative schemes for the disposition of lands to the
beneficiaries of the Program. These schemes shall not be limited to those involving transfer of ownership in fee simple but shall
include lease, with option to purchase, usufruct or such other variations as the local government units or the National Housing
Authority may deem most expedient in carrying out the purposes of this Act.

xxxx

Section 29. Resettlement.—With two (2) years from the effectivity of this Act, the local government units, in coordination with the
National Housing Authority, shall implement the relocation and resettlement of persons living in danger areas such as esteros,
railroad tracks, garbage dumps, riverbanks, shorelines, waterways, and in other public places as sidewalks, roads, parks, and
playgrounds. The local government unit, in coordination with the National Housing Authority, shall provide relocation or
resettlement sites with basic services and facilities and access to employment and livelihood opportunities sufficient to meet the
basic needs of the affected families. (Emphasis supplied.)

Lands belonging to the National Government include foreshore and submerged lands which can be reclaimed to undertake
housing development and resettlement projects.

3. MO 415 explains the undertaking of the NHA in SMDRP:

WHEREAS, Memorandum Order No. 161-A mandated the National Housing Authority to conduct feasibility studies and develop
low-cost housing projects at the dumpsites of Metro Manila;

WHEREAS, the National Housing Authority has presented a viable Conceptual Plan to convert the Smokey Mountain dumpsite
into a habitable housing project inclusive of the reclamation area across R-10 as enabling component of the Project;

WHEREAS, the said Plan requires the coordinated and synchronized efforts of the City of Manila and other government
agencies and instrumentalities to ensure effective and efficient implementation;

WHEREAS, the government encourages private sector initiative in the implementation of its projects. (Emphasis supplied.)

Proceeding from these "whereas" clauses, it is unequivocal that reclamation of land in the Smokey Mountain area is an essential
and vital power of the NHA to effectively implement its avowed goal of developing low-cost housing units at the Smokey
Mountain dumpsites. The interpretation made by no less than the President of the Philippines as Chief of the Executive Branch,
of which the NHA is a part, must necessarily command respect and much weight and credit.

4. RA 6957 as amended by RA 7718—the BOT Law—serves as an exception to PD 1084 and EO 525.

Based on the provisions of the BOT Law and Implementing Rules and Regulations, it is unequivocal that all government
infrastructure agencies like the NHA can undertake infrastructure or development projects using the contractual arrangements
prescribed by the law, and land reclamation is one of the projects that can be resorted to in the BOT project implementation
under the February 10, 1992 Joint Resolution No. 3 of the 8th Congress.

From the foregoing considerations, we find that the NHA has ample implied authority to undertake reclamation projects.

Even without an implied power to reclaim lands under NHA’s charter, we rule that the authority granted to NHA, a national
government agency, by the President under PD 3-A reinforced by EO 525 is more than sufficient statutory basis for the
reclamation of lands under the SMDRP.

PD 3-A is a law issued by then President Ferdinand E. Marcos under his martial law powers on September 23, 1972. It provided
that "[t]he provisions of any law to the contrary notwithstanding, the reclamation of areas, underwater, whether foreshore or
inland, shall be limited to the National Government or any person authorized by it under the proper contract." It repealed, in
effect, RA 1899 which previously delegated the right to reclaim lands to municipalities and chartered cities and revested it to the
National Government.68 Under PD 3-A, "national government" can only mean the Executive Branch headed by the President. It
cannot refer to Congress as it was dissolved and abolished at the time of the issuance of PD 3-A on September 23, 1972.
Moreover, the Executive Branch is the only implementing arm in the government with the equipment, manpower, expertise, and
capability by the very nature of its assigned powers and functions to undertake reclamation projects. Thus, under PD 3-A, the
Executive Branch through the President can implement reclamation of lands through any of its departments, agencies, or
offices.

Subsequently, on February 4, 1977, President Marcos issued PD 1084 creating the PEA, which was granted, among others, the
power "to reclaim land, including foreshore and submerged areas by dredging, filling or other means or to acquire reclaimed
lands." The PEA’s power to reclaim is not however exclusive as can be gleaned from its charter, as the President retained his
power under PD 3-A to designate another agency to reclaim lands.

On February 14, 1979, EO 525 was issued. It granted PEA primary responsibility for integrating, directing, and coordinating
reclamation projects for and on behalf of the National Government although other national government agencies can be
designated by the President to reclaim lands in coordination with the PEA. Despite the issuance of EO 525, PD 3-A remained
valid and subsisting. Thus, the National Government through the President still retained the power and control over all
reclamation projects in the country.

The power of the National Government through the President over reclamation of areas, that is, underwater whether foreshore
or inland, was made clear in EO 54369 which took effect on June 24, 2006. Under EO 543, PEA was renamed the Philippine
Reclamation Authority (PRA) and was granted the authority to approve reclamation projects, a power previously reposed in the
President under EO 525. EO 543 reads:

Section 1. The power of the President to approve reclamation projects is hereby delegated to the Philippine Reclamation
Authority [formerly PEA], through its governing board, subject to compliance with existing laws and rules and subject to the
condition that reclamation contracts to be executed with any person or entity go through public bidding.

Section 2. Nothing in the Order shall be construed as diminishing the President’s authority to modify, amend or nullify PRA’s
action.

Section 3. All executive issuances inconsistent with this Executive Order are hereby repealed or amended accordingly.
(Emphasis supplied.)

Sec. 2 of EO 543 strengthened the power of control and supervision of the President over reclamation of lands as s/he can
modify, amend, or nullify the action of PEA (now PRA).

From the foregoing issuances, we conclude that the President’s delegation to NHA, a national government agency, to reclaim
lands under the SMDRP, is legal and valid, firmly anchored on PD 3-A buttressed by EO 525 notwithstanding the absence of
any specific grant of power under its charter, PD 757.

Second Issue: Whether respondents NHA and RBI were given the

power and authority by DENR to reclaim foreshore and submerged

lands

Petitioner Chavez puts forth the view that even if the NHA and RBI were granted the authority to reclaim, they were not
authorized to do so by the DENR.

Again, reliance is made on our ruling in PEA where it was held that the DENR’s authority is necessary in order for the
government to validly reclaim foreshore and submerged lands. In PEA, we expounded in this manner:

As manager, conservator and overseer of the natural resources of the State, DENR exercises "supervision and control over
alienable and disposable public lands." DENR also exercises "exclusive jurisdiction on the management and disposition of all
lands of the public domain." Thus, DENR decides whether areas under water, like foreshore or submerged areas of Manila Bay,
should be reclaimed or not. This means that PEA needs authorization from DENR before PEA can undertake reclamation
projects in Manila Bay, or in any part of the country.

DENR also exercises exclusive jurisdiction over the disposition of all lands of the public domain. Hence, DENR decides whether
reclaimed lands of PEA should be classified as alienable under Sections 6 and 7 of CA No. 141. Once DENR decides that the
reclaimed lands should be so classified, it then recommends to the President the issuance of a proclamation classifying the
lands as alienable or disposable lands of the public domain open to disposition. We note that then DENR Secretary Fulgencio S.
Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the Revised Administrative Code and Sections 6 and 7
of CA No. 141.

In short, DENR is vested with the power to authorize the reclamation of areas under water, while PEA is vested with the power
to undertake the physical reclamation of areas under water, whether directly or through private contractors. DENR is also
empowered to classify lands of the public domain into alienable or disposable lands subject to the approval of the President. On
the other hand, PEA is tasked to develop, sell or lease the reclaimed alienable lands of the public domain.70

Despite our finding that PEA is not a precedent to the case at bar, we find after all that under existing laws, the NHA is still
required to procure DENR’s authorization before a reclamation project in Manila Bay or in any part of the Philippines can be
undertaken. The requirement applies to PEA, NHA, or any other government agency or office granted with such power under the
law.

Notwithstanding the need for DENR permission, we nevertheless find petitioner’s position bereft of merit.

The DENR is deemed to have granted the authority to reclaim in the Smokey Mountain Project for the following reasons:

1. Sec. 17, Art. VII of the Constitution provides that "the President shall have control of all executive departments, bureaus and
offices." The President is assigned the task of seeing to it that all laws are faithfully executed. "Control," in administrative law,
means "the power of an officer to alter, modify, nullify or set aside what a subordinate officer has done in the performance of his
duties and to substitute the judgment of the former for that of the latter."71

As such, the President can exercise executive power motu proprio and can supplant the act or decision of a subordinate with the
President’s own. The DENR is a department in the executive branch under the President, and it is only an alter ego of the latter.
Ordinarily the proposed action and the staff work are initially done by a department like the DENR and then submitted to the
President for approval. However, there is nothing infirm or unconstitutional if the President decides on the implementation of a
certain project or activity and requires said department to implement it. Such is a presidential prerogative as long as it involves
the department or office authorized by law to supervise or execute the Project. Thus, as in this case, when the President
approved and ordered the development of a housing project with the corresponding reclamation work, making DENR a member
of the committee tasked to implement the project, the required authorization from the DENR to reclaim land can be deemed
satisfied. It cannot be disputed that the ultimate power over alienable and disposable public lands is reposed in the President of
the Philippines and not the DENR Secretary. To still require a DENR authorization on the Smokey Mountain when the President
has already authorized and ordered the implementation of the Project would be a derogation of the powers of the President as
the head of the executive branch. Otherwise, any department head can defy or oppose the implementation of a project approved
by the head of the executive branch, which is patently illegal and unconstitutional.

In Chavez v. Romulo, we stated that when a statute imposes a specific duty on the executive department, the President may act
directly or order the said department to undertake an activity, thus:

[A]t the apex of the entire executive officialdom is the President. Section 17, Article VII of the Constitution specifies [her] power
as Chief executive departments, bureaus and offices. [She] shall ensure that the laws be faithfully executed. As Chief Executive,
President Arroyo holds the steering wheel that controls the course of her government. She lays down policies in the execution of
her plans and programs. Whatever policy she chooses, she has her subordinates to implement them. In short, she has the
power of control. Whenever a specific function is entrusted by law or regulation to her subordinate, she may act directly or
merely direct the performance of a duty x x x. Such act is well within the prerogative of her office (emphasis supplied).72

Moreover, the power to order the reclamation of lands of public domain is reposed first in the Philippine President. The Revised
Administrative Code of 1987 grants authority to the President to reserve lands of public domain for settlement for any specific
purpose, thus:

Section 14. Power to Reserve Lands of the Public and Private Domain of the Government.—(1) The President shall have the
power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of
which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation. (Emphasis supplied.)

President Aquino reserved the area of the Smokey Mountain dumpsite for settlement and issued MO 415 authorizing the
implementation of the Smokey Mountain Development Project plus the reclamation of the area across R-10. Then President
Ramos issued Proclamation No. 39 covering the 21-hectare dumpsite and the 40-hectare commercial/industrial area, and
Proclamation No. 465 and MO 415 increasing the area of foreshore and submerged lands of Manila Bay to be reclaimed from 40
to 79 hectares. Having supervision and control over the DENR, both Presidents directly assumed and exercised the power
granted by the Revised Administrative Code to the DENR Secretary to authorize the NHA to reclaim said lands. What can be
done indirectly by the DENR can be done directly by the President. It would be absurd if the power of the President cannot be
exercised simply because the head of a department in the executive branch has not acted favorably on a project already
approved by the President. If such arrangement is allowed then the department head will become more powerful than the
President.

2. Under Sec. 2 of MO 415, the DENR is one of the members of the EXECOM chaired by the NCR-CORD to oversee the
implementation of the Project. The EXECOM was the one which recommended approval of the project plan and the joint venture
agreements. Clearly, the DENR retained its power of supervision and control over the laws affected by the Project since it was
tasked to "facilitate the titling of the Smokey Mountain and of the area to be reclaimed," which shows that it had tacitly given its
authority to the NHA to undertake the reclamation.

3. Former DENR Secretary Angel C. Alcala issued Special Patents Nos. 3591 and 3592 while then Secretary Victor O. Ramos
issued Special Patent No. 3598 that embraced the areas covered by the reclamation. These patents conveyed the lands to be
reclaimed to the NHA and granted to said agency the administration and disposition of said lands for subdivision and disposition
to qualified beneficiaries and for development for mix land use (commercial/industrial) "to provide employment opportunities to
on-site families and additional areas for port related activities." Such grant of authority to administer and dispose of lands of
public domain under the SMDRP is of course subject to the powers of the EXECOM of SMDRP, of which the DENR is a
member.

4. The issuance of ECCs by the DENR for SMDRP is but an exercise of its power of supervision and control over the lands of
public domain covered by the Project.

Based on these reasons, it is clear that the DENR, through its acts and issuances, has ratified and confirmed the reclamation of
the subject lands for the purposes laid down in Proclamations Nos. 39 and 465.

Third Issue: Whether respondent RBI can acquire reclaimed

foreshore and submerged lands considered as inalienable and

outside the commerce of man

Petitioner postulates that respondent RBI cannot acquire the reclaimed foreshore and submerged areas as these are inalienable
public lands beyond the commerce of man based on Art. 1409 of the Civil Code which provides:

Article 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

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(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Secs. 2 and 3, Art. XII of the Constitution declare that all natural resources are owned by the State and they cannot be alienated
except for alienable agricultural lands of the public domain. One of the State’s natural resources are lands of public domain
which include reclaimed lands.

Petitioner contends that for these reclaimed lands to be alienable, there must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable and disposable and open to disposition or concession. Absent such law or
proclamation, the reclaimed lands cannot be the enabling component or consideration to be paid to RBI as these are beyond the
commerce of man.

We are not convinced of petitioner’s postulation.

The reclaimed lands across R-10 were classified alienable and disposable lands of public domain of the State for the following
reasons, viz:

First, there were three (3) presidential proclamations classifying the reclaimed lands across R-10 as alienable or disposable
hence open to disposition or concession, to wit:

(1) MO 415 issued by President Aquino, of which Sec. 4 states that "[t]he land covered by the Smokey Mountain
Dumpsite is hereby conveyed to the National Housing Authority as well as the area to be reclaimed across R-10."

The directive to transfer the lands once reclaimed to the NHA implicitly carries with it the declaration that said lands are
alienable and disposable. Otherwise, the NHA cannot effectively use them in its housing and resettlement project.

(2) Proclamation No. 39 issued by then President Ramos by which the reclaimed lands were conveyed to NHA for
subdivision and disposition to qualified beneficiaries and for development into a mixed land use (commercial/industrial)
to provide employment opportunities to on-site families and additional areas for port-related activities. Said directive
carries with it the pronouncement that said lands have been transformed to alienable and disposable lands. Otherwise,
there is no legal way to convey it to the beneficiaries.

(3) Proclamation No. 465 likewise issued by President Ramos enlarged the reclaimed area to 79 hectares to be
developed and disposed of in the implementation of the SMDRP. The authority put into the hands of the NHA to dispose
of the reclaimed lands tacitly sustains the conversion to alienable and disposable lands.

Secondly, Special Patents Nos. 3591, 3592, and 3598 issued by the DENR anchored on Proclamations Nos. 39 and 465 issued
by President Ramos, without doubt, classified the reclaimed areas as alienable and disposable.

Admittedly, it cannot be said that MO 415, Proclamations Nos. 39 and 465 are explicit declarations that the lands to be
reclaimed are classified as alienable and disposable. We find however that such conclusion is derived and implicit from the
authority given to the NHA to transfer the reclaimed lands to qualified beneficiaries.

The query is, when did the declaration take effect? It did so only after the special patents covering the reclaimed areas were
issued. It is only on such date that the reclaimed lands became alienable and disposable lands of the public domain. This is in
line with the ruling in PEA where said issue was clarified and stressed:

PD No. 1085, coupled with President Aquino’s actual issuance of a special patent covering the Freedom Islands, is equivalent to
an official proclamation classifying the Freedom Islands as alienable or disposable lands of the public domain. PD No. 1085 and
President Aquino’s issuance of a land patent also constitute a declaration that the Freedom Islands are no longer needed for
public service. The Freedom Islands are thus alienable or disposable lands of the public domain, open to disposition or
concession to qualified parties.73 (Emphasis supplied.)

Thus, MO 415 and Proclamations Nos. 39 and 465 cumulatively and jointly taken together with Special Patent Nos. 3591, 3592,
and 3598 more than satisfy the requirement in PEA that "[t]here must be a law or presidential proclamation officially classifying
these reclaimed lands as alienable or disposable and open to disposition or concession (emphasis supplied)."74

Apropos the requisite law categorizing reclaimed land as alienable or disposable, we find that RA 6957 as amended by RA 7718
provides ample authority for the classification of reclaimed land in the SMDRP for the repayment scheme of the BOT project as
alienable and disposable lands of public domain. Sec. 6 of RA 6957 as amended by RA 7718 provides:

For the financing, construction, operation and maintenance of any infrastructure projects undertaken through the build-operate-
and transfer arrangement or any of its variations pursuant to the provisions of this Act, the project proponent x x x may likewise
be repaid in the form of a share in the revenue of the project or other non-monetary payments, such as, but not limited to, the
grant of a portion or percentage of the reclaimed land, subject to the constitutional requirements with respect to the ownership of
the land. (Emphasis supplied.)

While RA 6957 as modified by RA 7718 does not expressly declare that the reclaimed lands that shall serve as payment to the
project proponent have become alienable and disposable lands and opened for disposition; nonetheless, this conclusion is
necessarily implied, for how else can the land be used as the enabling component for the Project if such classification is not
deemed made?
It may be argued that the grant of authority to sell public lands, pursuant to PEA, does not convert alienable lands of public
domain into private or patrimonial lands. We ruled in PEA that "alienable lands of public domain must be transferred to qualified
private parties, or to government entities not tasked to dispose of public lands, before these lands can become private or
patrimonial lands (emphasis supplied)."75 To lands reclaimed by PEA or through a contract with a private person or entity, such
reclaimed lands still remain alienable lands of public domain which can be transferred only to Filipino citizens but not to a private
corporation. This is because PEA under PD 1084 and EO 525 is tasked to hold and dispose of alienable lands of public domain
and it is only when it is transferred to Filipino citizens that it becomes patrimonial property. On the other hand, the NHA is a
government agency not tasked to dispose of public lands under its charter—The Revised Administrative Code of 1987. The NHA
is an "end-user agency" authorized by law to administer and dispose of reclaimed lands. The moment titles over reclaimed lands
based on the special patents are transferred to the NHA by the Register of Deeds, they are automatically converted to
patrimonial properties of the State which can be sold to Filipino citizens and private corporations, 60% of which are owned by
Filipinos. The reason is obvious: if the reclaimed land is not converted to patrimonial land once transferred to NHA, then it would
be useless to transfer it to the NHA since it cannot legally transfer or alienate lands of public domain. More importantly, it cannot
attain its avowed purposes and goals since it can only transfer patrimonial lands to qualified beneficiaries and prospective
buyers to raise funds for the SMDRP.

From the foregoing considerations, we find that the 79-hectare reclaimed land has been declared alienable and disposable land
of the public domain; and in the hands of NHA, it has been reclassified as patrimonial property.

Petitioner, however, contends that the reclaimed lands were inexistent prior to the three (3) Presidential Acts (MO 415 and
Proclamations Nos. 39 and 465) and hence, the declaration that such areas are alienable and disposable land of the public
domain, citing PEA, has no legal basis.

Petitioner’s contention is not well-taken.

Petitioner’s sole reliance on Proclamations Nos. 39 and 465 without taking into consideration the special patents issued by the
DENR demonstrates the inherent weakness of his proposition. As was ruled in PEA cited by petitioner himself, "PD No. 1085,
coupled with President Aquino’s actual issuance of a special patent covering the Freedom Islands is equivalent to an official
proclamation classifying the Freedom islands as alienable or disposable lands of public domain." In a similar vein, the combined
and collective effect of Proclamations Nos. 39 and 465 with Special Patents Nos. 3592 and 3598 is tantamount to and can be
considered to be an official declaration that the reclaimed lots are alienable or disposable lands of the public domain.

The reclaimed lands covered by Special Patents Nos. 3591, 3592, and 3598, which evidence transfer of ownership of reclaimed
lands to the NHA, are official acts of the DENR Secretary in the exercise of his power of supervision and control over alienable
and disposable public lands and his exclusive jurisdiction over the management and disposition of all lands of public domain
under the Revised Administrative Code of 1987. Special Patent No. 3592 speaks of the transfer of Lots 1 and 2, and RI-003901-
000012-D with an area of 401,485 square meters based on the survey and technical description approved by the Bureau of
Lands. Lastly, Special Patent No. 3598 was issued in favor of the NHA transferring to said agency a tract of land described in
Plan RL-00-000013 with an area of 390,000 square meters based on the survey and technical descriptions approved by the
Bureau of Lands.

The conduct of the survey, the preparation of the survey plan, the computation of the technical description, and the processing
and preparation of the special patent are matters within the technical area of expertise of administrative agencies like the DENR
and the Land Management Bureau and are generally accorded not only respect but at times even finality.76 Preparation of
special patents calls for technical examination and a specialized review of calculations and specific details which the courts are
ill-equipped to undertake; hence, the latter defer to the administrative agency which is trained and knowledgeable on such
matters.77

Subsequently, the special patents in the name of the NHA were submitted to the Register of Deeds of the City of Manila for
registration, and corresponding certificates of titles over the reclaimed lots were issued based on said special patents. The
issuance of certificates of titles in NHA’s name automatically converts the reclaimed lands to patrimonial properties of the NHA.
Otherwise, the lots would not be of use to the NHA’s housing projects or as payment to the BOT contractor as the enabling
component of the BOT contract. The laws of the land have to be applied and interpreted depending on the changing conditions
and times. Tempora mutantur et legis mutantur in illis (time changes and laws change with it). One such law that should be
treated differently is the BOT Law (RA 6957) which brought about a novel way of implementing government contracts by
allowing reclaimed land as part or full payment to the contractor of a government project to satisfy the huge financial
requirements of the undertaking. The NHA holds the lands covered by Special Patents Nos. 3592 and 3598 solely for the
purpose of the SMDRP undertaken by authority of the BOT Law and for disposition in accordance with said special law. The
lands become alienable and disposable lands of public domain upon issuance of the special patents and become patrimonial
properties of the Government from the time the titles are issued to the NHA.

As early as 1999, this Court in Baguio v. Republic laid down the jurisprudence that:

It is true that, once a patent is registered and the corresponding certificate of title is issued, the land covered by them ceases to
be part of the public domain and becomes private property, and the Torrens Title issued pursuant to the patent becomes
indefeasible upon the expiration of one year from the date of issuance of such patent.78

The doctrine was reiterated in Republic v. Heirs of Felipe Alijaga, Sr.,79 Heirs of Carlos Alcaraz v. Republic,80 and the more
recent case of Doris Chiongbian-Oliva v. Republic of the Philippines.81 Thus, the 79-hectare reclaimed land became patrimonial
property after the issuance of certificates of titles to the NHA based on Special Patents Nos. 3592 and 3598.

One last point. The ruling in PEA cannot even be applied retroactively to the lots covered by Special Patents Nos. 3592 (40
hectare reclaimed land) and 3598 (39-hectare reclaimed land). The reclamation of the land under SMDRP was completed in
August 1996 while the PEA decision was rendered on July 9, 2002. In the meantime, subdivided lots forming parts of the
reclaimed land were already sold to private corporations for value and separate titles issued to the buyers. The Project was
terminated through a Memorandum of Agreement signed on August 27, 2003. The PEA decision became final through the
November 11, 2003 Resolution. It is a settled precept that decisions of the Supreme Court can only be applied prospectively as
they may prejudice vested rights if applied retroactively.
In Benzonan v. Court of Appeals, the Court trenchantly elucidated the prospective application of its decisions based on
considerations of equity and fair play, thus:

At that time, the prevailing jurisprudence interpreting section 119 of R.A. 141 as amended was that enunciated in Monge and
Tupas cited above. The petitioners Benzonan and respondent Pe and the DBP are bound by these decisions for pursuant to
Article 8 of the Civil Code "judicial decisions applying or interpreting the laws of the Constitution shall form a part of the legal
system of the Philippines." But while our decisions form part of the law of the land, they are also subject to Article 4 of the Civil
Code which provides that "laws shall have no retroactive effect unless the contrary is provided." This is expressed in the familiar
legal maxim lex prospicit, non respicit, the law looks forward not backward. The rationale against retroactivity is easy to
perceive. The retroactive application of a law usually divests rights that have already become vested or impairs the obligations of
contract and hence, is unconstitutional.

The same consideration underlies our rulings giving only prospective effect to decisions enunciating new doctrines. Thus, we
emphasized in People v. Jabinal, 55 SCRA 607 [1974] "x x x when a doctrine of this Court is overruled and a different view is
adopted, the new doctrine should be applied prospectively and should not apply to parties who had relied on the old doctrine
and acted on the faith thereof.82

Fourth Issue: Whether respondent RBI can acquire reclaimed

lands when there was no declaration that said lands are no

longer needed for public use

Petitioner Chavez avers that despite the declaration that the reclaimed areas are alienable lands of the public domain, still, the
reclamation is flawed for there was never any declaration that said lands are no longer needed for public use.

We are not moved by petitioner’s submission.

Even if it is conceded that there was no explicit declaration that the lands are no longer needed for public use or public service,
there was however an implicit executive declaration that the reclaimed areas R-10 are not necessary anymore for public use or
public service when President Aquino through MO 415 conveyed the same to the NHA partly for housing project and related
commercial/industrial development intended for disposition to and enjoyment of certain beneficiaries and not the public in
general and partly as enabling component to finance the project.

President Ramos, in issuing Proclamation No. 39, declared, though indirectly, that the reclaimed lands of the Smokey Mountain
project are no longer required for public use or service, thus:

These parcels of land of public domain are hereby placed under the administration and disposition of the National Housing
Authority to develop, subdivide and dispose to qualified beneficiaries, as well as its development for mix land use
(commercial/industrial) to provide employment opportunities to on-site families and additional areas for port related activities.
(Emphasis supplied.)

While numerical count of the persons to be benefited is not the determinant whether the property is to be devoted to public use,
the declaration in Proclamation No. 39 undeniably identifies only particular individuals as beneficiaries to whom the reclaimed
lands can be sold, namely—the Smokey Mountain dwellers. The rest of the Filipinos are not qualified; hence, said lands are no
longer essential for the use of the public in general.

In addition, President Ramos issued on August 31, 1994 Proclamation No. 465 increasing the area to be reclaimed from forty
(40) hectares to seventy-nine (79) hectares, elucidating that said lands are undoubtedly set aside for the beneficiaries of
SMDRP and not the public—declaring the power of NHA to dispose of land to be reclaimed, thus: "The authority to administer,
develop, or dispose lands identified and reserved by this Proclamation and Proclamation No. 39 (s.1992), in accordance with the
SMDRP, as enhance, is vested with the NHA, subject to the provisions of existing laws." (Emphasis supplied.)

MO 415 and Proclamations Nos. 39 and 465 are declarations that proclaimed the non-use of the reclaimed areas for public use
or service as the Project cannot be successfully implemented without the withdrawal of said lands from public use or service.
Certainly, the devotion of the reclaimed land to public use or service conflicts with the intended use of the Smokey Mountain
areas for housing and employment of the Smokey Mountain scavengers and for financing the Project because the latter cannot
be accomplished without abandoning the public use of the subject land. Without doubt, the presidential proclamations on
SMDRP together with the issuance of the special patents had effectively removed the reclaimed lands from public use.

More decisive and not in so many words is the ruling in PEA which we earlier cited, that "PD No. 1085 and President Aquino’s
issuance of a land patent also constitute a declaration that the Freedom Islands are no longer needed for public service."
Consequently, we ruled in that case that the reclaimed lands are "open to disposition or concession to qualified parties."83

In a similar vein, presidential Proclamations Nos. 39 and 465 jointly with the special patents have classified the reclaimed lands
as alienable and disposable and open to disposition or concession as they would be devoted to units for Smokey Mountain
beneficiaries. Hence, said lands are no longer intended for public use or service and shall form part of the patrimonial properties
of the State under Art. 422 of the Civil Code.84 As discussed a priori, the lands were classified as patrimonial properties of the
NHA ready for disposition when the titles were registered in its name by the Register of Deeds.

Moreover, reclaimed lands that are made the enabling components of a BOT infrastructure project are necessarily reclassified
as alienable and disposable lands under the BOT Law; otherwise, absurd and illogical consequences would naturally result.
Undoubtedly, the BOT contract will not be accepted by the BOT contractor since there will be no consideration for its contractual
obligations. Since reclaimed land will be conveyed to the contractor pursuant to the BOT Law, then there is an implied
declaration that such land is no longer intended for public use or public service and, hence, considered patrimonial property of
the State.
Fifth Issue: Whether there is a law authorizing sale of

reclaimed lands

Petitioner next claims that RBI cannot acquire the reclaimed lands because there was no law authorizing their sale. He argues
that unlike PEA, no legislative authority was granted to the NHA to sell reclaimed land.

This position is misplaced.

Petitioner relies on Sec. 60 of Commonwealth Act (CA) 141 to support his view that the NHA is not empowered by any law to
sell reclaimed land, thus:

Section 60. Any tract of land comprised under this title may be leased or sold, as the case may be, to any person, corporation or
association authorized to purchase or lease public lands for agricultural purposes. The area of the land so leased or sold shall
be such as shall, in the judgment of the Secretary of Agriculture and Natural Resources, be reasonably necessary for the
purposes for which such sale or lease if requested and shall in no case exceed one hundred and forty-four hectares: Provided,
however, That this limitation shall not apply to grants, donations, transfers, made to a province, municipality or branch or
subdivision of the Government for the purposes deemed by said entities conducive to the public interest; but the land so granted
donated or transferred to a province, municipality, or branch or subdivision of the Government shall not be alienated,
encumbered, or otherwise disposed of in a manner affecting its title, except when authorized by Congress; Provided, further,
That any person, corporation, association or partnership disqualified from purchasing public land for agricultural purposes under
the provisions of this Act, may lease land included under this title suitable for industrial or residential purposes, but the lease
granted shall only be valid while such land is used for the purposes referred to. (Emphasis supplied.)

Reliance on said provision is incorrect as the same applies only to "a province, municipality or branch or subdivision of the
Government." The NHA is not a government unit but a government corporation performing governmental and proprietary
functions.

In addition, PD 757 is clear that the NHA is empowered by law to transfer properties acquired by it under the law to other parties,
thus:

Section 6. Powers and functions of the Authority. The Authority shall have the following powers and functions to be exercised by
the Boards in accordance with the established national human settlements plan prepared by the Human Settlements
Commission:

xxxx

(k) Enter into contracts whenever necessary under such terms and conditions as it may deem proper and reasonable;

(l) Acquire property rights and interests, and encumber or otherwise dispose the same as it may deem appropriate (Emphasis
supplied.)

Letter (l) is emphatic that the NHA can acquire property rights and interests and encumber or otherwise dispose of them as it
may deem appropriate. The transfer of the reclaimed lands by the National Government to the NHA for housing, commercial,
and industrial purposes transformed them into patrimonial lands which are of course owned by the State in its private or
proprietary capacity. Perforce, the NHA can sell the reclaimed lands to any Filipino citizen or qualified corporation.

Sixth Issue: Whether the transfer of reclaimed lands to RBI

was done by public bidding

Petitioner also contends that there was no public bidding but an awarding of ownership of said reclaimed lands to RBI. Public
bidding, he says, is required under Secs. 63 and 67 of CA 141 which read:

Section 63. Whenever it is decided that lands covered by this chapter are not needed for public purposes, the Director of Lands
shall ask the Secretary of Agriculture and Commerce for authority to dispose of the same. Upon receipt of such authority, the
Director of Lands shall give notice by public advertisement in the same manner as in the case of leases or sales of agricultural
public land, that the Government will lease or sell, as the case may be, the lots or blocks specified in the advertisement, for the
purpose stated in the notice and subject to the conditions specified in this chapter.

xxxx

Section 67. The lease or sale shall be made through oral bidding; and adjudication shall be made to the highest bidder.
However, where an applicant has made improvements on the land by virtue of a permit issued to him by competent authority,
the sale or lease shall be made by sealed bidding as prescribed in section twenty-six of this Act, the provisions of which shall be
applied whenever applicable. If all or part of the lots remain unleased or unsold, the Director of Lands shall from time to time
announce in the Official Gazette or in any other newspapers of general circulation, the lease of sale of those lots, if necessary.

He finds that the NHA and RBI violated Secs. 63 and 67 of CA 141, as the reclaimed lands were conveyed to RBI by negotiated
contract and not by public bidding as required by law.

This stand is devoid of merit.

There is no doubt that respondent NHA conducted a public bidding of the right to become its joint venture partner in the Smokey
Mountain Project. Notices or Invitations to Bid were published in the national dailies on January 23 and 26, 1992 and February
1, 14, 16, and 23, 1992. The bidding proper was done by the Bids and Awards Committee (BAC) on May 18, 1992. On August
31, 1992, the Inter-Agency Techcom made up of the NHA, PEA, DPWH, PPA, DBP, and DENR opened the bids and evaluated
them, resulting in the award of the contract to respondent RBI on October 7, 1992.

On March 19, 1993, respondents NHA and RBI signed the JVA. On February 23, 1994, said JVA was amended and restated
into the ARJVA. On August 11, 1994, the ARJVA was again amended. On September 7, 1994, the OP approved the ARJVA and
the amendments to the ARJVA. From these factual settings, it cannot be gainsaid that there was full compliance with the laws
and regulations governing public biddings involving a right, concession, or property of the government.

Petitioner concedes that he does not question the public bidding on the right to be a joint venture partner of the NHA, but the
absence of bidding in the sale of alienable and disposable lands of public domain pursuant to CA 141 as amended.

Petitioner’s theory is incorrect.

Secs. 63 and 67 of CA 141, as amended, are in point as they refer to government sale by the Director of Lands of alienable and
disposable lands of public domain. This is not present in the case at bar. The lands reclaimed by and conveyed to the NHA are
no longer lands of public domain. These lands became proprietary lands or patrimonial properties of the State upon transfer of
the titles over the reclaimed lands to the NHA and hence outside the ambit of CA 141. The NHA can therefore legally transfer
patrimonial land to RBI or to any other interested qualified buyer without any bidding conducted by the Director of Lands
because the NHA, unlike PEA, is a government agency not tasked to sell lands of public domain. Hence, it can only hold
patrimonial lands and can dispose of such lands by sale without need of public bidding.

Petitioner likewise relies on Sec. 79 of PD 1445 which requires public bidding "when government property has become
unserviceable for any cause or is no longer needed." It appears from the Handbook on Property and Supply Management
System, Chapter 6, that reclaimed lands which have become patrimonial properties of the State, whose titles are conveyed to
government agencies like the NHA, which it will use for its projects or programs, are not within the ambit of Sec. 79. We quote
the determining factors in the Disposal of Unserviceable Property, thus:

Determining Factors in the Disposal of Unserviceable Property

 Property, which can no longer be repaired or reconditioned;

 Property whose maintenance costs of repair more than outweigh the benefits and services that will be derived from its
continued use;

 Property that has become obsolete or outmoded because of changes in technology;

 Serviceable property that has been rendered unnecessary due to change in the agency’s function or mandate;

 Unused supplies, materials and spare parts that were procured in excess of requirements; and

 Unused supplies and materials that [have] become dangerous to use because of long storage or use of which is
determined to be hazardous.85

Reclaimed lands cannot be considered unserviceable properties. The reclaimed lands in question are very much needed by the
NHA for the Smokey Mountain Project because without it, then the projects will not be successfully implemented. Since the
reclaimed lands are not unserviceable properties and are very much needed by NHA, then Sec. 79 of PD 1445 does not apply.

More importantly, Sec. 79 of PD 1445 cannot be applied to patrimonial properties like reclaimed lands transferred to a
government agency like the NHA which has entered into a BOT contract with a private firm. The reason is obvious. If the
patrimonial property will be subject to public bidding as the only way of disposing of said property, then Sec. 6 of RA 6957 on the
repayment scheme is almost impossible or extremely difficult to implement considering the uncertainty of a winning bid during
public auction. Moreover, the repayment scheme of a BOT contract may be in the form of non-monetary payment like the grant
of a portion or percentage of reclaimed land. Even if the BOT partner participates in the public bidding, there is no assurance
that he will win the bid and therefore the payment in kind as agreed to by the parties cannot be performed or the winning bid
prize might be below the estimated valuation of the land. The only way to harmonize Sec. 79 of PD 1445 with Sec. 6 of RA 6957
is to consider Sec. 79 of PD 1445 as inapplicable to BOT contracts involving patrimonial lands. The law does not intend anything
impossible (lex non intendit aliquid impossibile).

Seventh Issue: Whether RBI, being a private corporation,

is barred by the Constitution to acquire lands of public domain

Petitioner maintains that RBI, being a private corporation, is expressly prohibited by the 1987 Constitution from acquiring lands
of public domain.

Petitioner’s proposition has no legal mooring for the following reasons:

1. RA 6957 as amended by RA 7718 explicitly states that a contractor can be paid "a portion as percentage of the
reclaimed land" subject to the constitutional requirement that only Filipino citizens or corporations with at least 60%
Filipino equity can acquire the same. It cannot be denied that RBI is a private corporation, where Filipino citizens own at
least 60% of the stocks. Thus, the transfer to RBI is valid and constitutional.

2. When Proclamations Nos. 39 and 465 were issued, inalienable lands covered by said proclamations were converted
to alienable and disposable lands of public domain. When the titles to the reclaimed lands were transferred to the NHA,
said alienable and disposable lands of public domain were automatically classified as lands of the private domain or
patrimonial properties of the State because the NHA is an agency NOT tasked to dispose of alienable or disposable
lands of public domain. The only way it can transfer the reclaimed land in conjunction with its projects and to attain its
 goals is when it is automatically converted to patrimonial properties of the State. Being patrimonial or private properties
of the State, then it has the power to sell the same to any qualified person—under the Constitution, Filipino citizens as
private corporations, 60% of which is owned by Filipino citizens like RBI.

3. The NHA is an end-user entity such that when alienable lands of public domain are transferred to said agency, they
are automatically classified as patrimonial properties. The NHA is similarly situated as BCDA which was granted the
authority to dispose of patrimonial lands of the government under RA 7227. The nature of the property holdings
conveyed to BCDA is elucidated and stressed in the May 6, 2003 Resolution in Chavez v. PEA, thus:

BCDA is an entirely different government entity. BCDA is authorized by law to sell specific government lands that have long
been declared by presidential proclamations as military reservations for use by the different services of the armed forces under
the Department of National Defense. BCDA’s mandate is specific and limited in area, while PEA’s mandate is general and
national. BCDA holds government lands that have been granted to end-user government entities––the military services of the
armed forces. In contrast, under Executive Order No. 525, PEA holds the reclaimed public lands, not as an end-user entity, but
as the government agency "primarily responsible for integrating, directing, and coordinating all reclamation projects for and on
behalf of the National Government."

x x x Well-settled is the doctrine that public land granted to an end-user government agency for a specific public use may
subsequently be withdrawn by Congress from public use and declared patrimonial property to be sold to private parties. R.A. No.
7227 creating the BCDA is a law that declares specific military reservations no longer needed for defense or military purposes
and reclassifies such lands as patrimonial property for sale to private parties.

Government owned lands, as long as they are patrimonial property, can be sold to private parties, whether Filipino citizens or
qualified private corporations. Thus, the so-called Friar Lands acquired by the government under Act No. 1120 are patrimonial
property which even private corporations can acquire by purchase. Likewise, reclaimed alienable lands of the public domain if
sold or transferred to a public or municipal corporation for a monetary consideration become patrimonial property in the hands of
the public or municipal corporation. Once converted to patrimonial property, the land may be sold by the public or municipal
corporation to private parties, whether Filipino citizens or qualified private corporations. 86 (Emphasis supplied.)

The foregoing Resolution makes it clear that the SMDRP was a program adopted by the Government under Republic Act No.
6957 (An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private
Sector, and For Other Purposes), as amended by RA 7718, which is a special law similar to RA 7227. Moreover, since the
implementation was assigned to the NHA, an end-user agency under PD 757 and RA 7279, the reclaimed lands registered
under the NHA are automatically classified as patrimonial lands ready for disposition to qualified beneficiaries.

The foregoing reasons likewise apply to the contention of petitioner that HCPTI, being a private corporation, is disqualified from
being a transferee of public land. What was transferred to HCPTI is a 10-hectare lot which is already classified as patrimonial
property in the hands of the NHA. HCPTI, being a qualified corporation under the 1987 Constitution, the transfer of the subject
lot to it is valid and constitutional.

Eighth Issue: Whether respondents can be compelled to disclose

all information related to the SMDRP

Petitioner asserts his right to information on all documents such as contracts, reports, memoranda, and the like relative to
SMDRP.

Petitioner asserts that matters relative to the SMDRP have not been disclosed to the public like the current stage of the Project,
the present financial capacity of RBI, the complete list of investors in the asset pool, the exact amount of investments in the
asset pool and other similar important information regarding the Project.

He prays that respondents be compelled to disclose all information regarding the SMDRP and furnish him with originals or at
least certified true copies of all relevant documents relating to the said project including, but not limited to, the original JVA,
ARJVA, AARJVA, and the Asset Pool Agreement.

This relief must be granted.

The right of the Filipino people to information on matters of public concern is enshrined in the 1987 Constitution, thus:

ARTICLE II

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SEC. 28. 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.

ARTICLE III

SEC. 7. 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.

In Valmonte v. Belmonte, Jr., this Court explicated this way:

[A]n essential element of these freedoms is to keep open a continuing dialogue or process of communication between the
government and the people. It is in the interest of the State that the channels for free political discussion be maintained to the
end that the government may perceive and be responsive to the people’s will. Yet, this open dialogue can be effective only to
the extent that the citizenry is informed and thus able to formulate its will intelligently. Only when the participants in the
discussion are aware of the issues and have access to information relating thereto can such bear fruit.87

In PEA, this Court elucidated the rationale behind the right to information:

These twin provisions of the Constitution seek to promote transparency in policy-making and in the operations of the
government, as well as provide the people sufficient information to exercise effectively other constitutional rights. These twin
provisions are essential to the exercise of freedom of expression. If the government does not disclose its official acts,
transactions and decisions to citizens, whatever citizens say, even if expressed without any restraint, will be speculative and
amount to nothing. These twin provisions are also essential to hold public officials "at all times x x x accountable to the people,"
for unless citizens have the proper information, they cannot hold public officials accountable for anything. Armed with the right
information, citizens can participate in public discussions leading to the formulation of government policies and their effective
implementation. An informed citizenry is essential to the existence and proper functioning of any democracy. 88

Sec. 28, Art. II compels the State and its agencies to fully disclose "all of its transactions involving public interest." Thus, the
government agencies, without need of demand from anyone, must bring into public view all the steps and negotiations leading to
the consummation of the transaction and the contents of the perfected contract. 89 Such information must pertain to "definite
propositions of the government," meaning official recommendations or final positions reached on the different matters subject of
negotiation. The government agency, however, need not disclose "intra-agency or inter-agency recommendations or
communications during the stage when common assertions are still in the process of being formulated or are in the exploratory
stage." The limitation also covers privileged communication like information on military and diplomatic secrets; information
affecting national security; information on investigations of crimes by law enforcement agencies before the prosecution of the
accused; information on foreign relations, intelligence, and other classified information.

It is unfortunate, however, that after almost twenty (20) years from birth of the 1987 Constitution, there is still no enabling law
that provides the mechanics for the compulsory duty of government agencies to disclose information on government
transactions. Hopefully, the desired enabling law will finally see the light of day if and when Congress decides to approve the
proposed "Freedom of Access to Information Act." In the meantime, it would suffice that government agencies post on their
bulletin boards the documents incorporating the information on the steps and negotiations that produced the agreements and
the agreements themselves, and if finances permit, to upload said information on their respective websites for easy access by
interested parties. Without any law or regulation governing the right to disclose information, the NHA or any of the respondents
cannot be faulted if they were not able to disclose information relative to the SMDRP to the public in general.

The other aspect of the people’s right to know apart from the duty to disclose is the duty to allow access to information on
matters of public concern under Sec. 7, Art. III of the Constitution. The gateway to information opens to the public the following:
(1) official records; (2) documents and papers pertaining to official acts, transactions, or decisions; and (3) government research
data used as a basis for policy development.

Thus, the duty to disclose information should be differentiated from the duty to permit access to information. There is no need to
demand from the government agency disclosure of information as this is mandatory under the Constitution; failing that, legal
remedies are available. On the other hand, the interested party must first request or even demand that he be allowed access to
documents and papers in the particular agency. A request or demand is required; otherwise, the government office or agency
will not know of the desire of the interested party to gain access to such papers and what papers are needed. The duty to
disclose covers only transactions involving public interest, while the duty to allow access has a broader scope of information
which embraces not only transactions involving public interest, but any matter contained in official communications and public
documents of the government agency.

We find that although petitioner did not make any demand on the NHA to allow access to information, we treat the petition as a
written request or demand. We order the NHA to allow petitioner access to its official records, documents, and papers relating to
official acts, transactions, and decisions that are relevant to the said JVA and subsequent agreements relative to the SMDRP.

Ninth Issue: Whether the operative fact doctrine applies to the instant petition

Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case because it is an equitable doctrine
which could not be used to countenance an inequitable result that is contrary to its proper office.

On the other hand, the petitioner Solicitor General argues that the existence of the various agreements implementing the
SMDRP is an operative fact that can no longer be disturbed or simply ignored, citing Rieta v. People of the Philippines. 90

The argument of the Solicitor General is meritorious.

The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative or executive
act, prior to its being declared as unconstitutional by the courts, is valid and must be complied with, thus:

As the new Civil Code puts it: "When the courts declare a law to be inconsistent with the Constitution, the former shall be void
and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not
contrary to the laws of the Constitution." It is understandable why it should be so, the Constitution being supreme and
paramount. Any legislative or executive act contrary to its terms cannot survive.

Such a view has support in logic and possesses the merit of simplicity. It may not however be sufficiently realistic. It does not
admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in force and had
to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience
and respect. Parties may have acted under it and may have changed their positions. What could be more fitting than that in a
subsequent litigation regard be had to what has been done while such legislative or executive act was in operation and
presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must
be reckoned with. This is merely to reflect awareness that precisely because the judiciary is the governmental organ which has
the final say on whether or not a legislative or executive measure is valid, a period of time may have elapsed before it can
exercise the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of
fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.

In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a determination [of
unconstitutionality], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be
erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various
aspects, with respect to particular relations, individual and corporate, and particular conduct, private and official." This language
has been quoted with approval in a resolution in Araneta v. Hill and the decision in Manila Motor Co., Inc. v. Flores. An even
more recent instance is the opinion of Justice Zaldivar speaking for the Court in Fernandez v. Cuerva and Co. 91 (Emphasis
supplied.)

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we ruled that:

Moreover, we certainly cannot nullify the City Government’s order of suspension, as we have no reason to do so, much less
retroactively apply such nullification to deprive private respondent of a compelling and valid reason for not filing the leave
application. For as we have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy upon past acts
or omissions done in reliance thereof. Consequently, the existence of a statute or executive order prior to its being adjudged
void is an operative fact to which legal consequences are attached. It would indeed be ghastly unfair to prevent private
respondent from relying upon the order of suspension in lieu of a formal leave application. 92 (Emphasis supplied.)

The principle was further explicated in the case of Rieta v. People of the Philippines, thus:

In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot County Drainage
District vs. Baxter Bank to wit:

The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a
law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the challenged decree.
x x x It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken
with qualifications. The actual existence of a statute, prior to [the determination of its invalidity], is an operative fact and may
have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect
of the subsequent ruling as to invalidity may have to be considered in various aspects –with respect to particular conduct, private
and official. Questions of rights claimed to have become vested, of status, of prior determinations deemed to have finality and
acted upon accordingly, of public policy in the light of the nature both of the statute and of its previous application, demand
examination. These questions are among the most difficult of those which have engaged the attention of courts, state and
federal, and it is manifest from numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity
cannot be justified.

In the May 6, 2003 Resolution in Chavez v. PEA,93 we ruled that De Agbayani94 is not applicable to the case considering that the
prevailing law did not authorize private corporations from owning land. The prevailing law at the time was the 1935 Constitution
as no statute dealt with the same issue.

In the instant case, RA 6957 was the prevailing law at the time that the joint venture agreement was signed. RA 6957, entitled
"An Act Authorizing The Financing, Construction, Operation And Maintenance Of Infrastructure Projects By The Private Sector
And For Other Purposes," which was passed by Congress on July 24, 1989, allows repayment to the private contractor of
reclaimed lands.95 Such law was relied upon by respondents, along with the above-mentioned executive issuances in pushing
through with the Project. The existence of such law and issuances is an "operative fact" to which legal consequences have
attached. This Court is constrained to give legal effect to the acts done in consonance with such executive and legislative acts;
to do otherwise would work patent injustice on respondents.

Further, in the May 6, 2003 Resolution in Chavez v. PEA, we ruled that in certain cases, the transfer of land, although illegal or
unconstitutional, will not be invalidated on considerations of equity and social justice. However, in that case, we did not apply the
same considering that PEA, respondent in said case, was not entitled to equity principles there being bad faith on its part, thus:

There are, moreover, special circumstances that disqualify Amari from invoking equity principles. Amari cannot claim good faith
because even before Amari signed the Amended JVA on March 30, 1999, petitioner had already filed the instant case on April
27, 1998 questioning precisely the qualification of Amari to acquire the Freedom Islands. Even before the filing of this petition,
two Senate Committees had already approved on September 16, 1997 Senate Committee Report No. 560. This Report
concluded, after a well-publicized investigation into PEA’s sale of the Freedom Islands to Amari, that the Freedom Islands are
inalienable lands of the public domain. Thus, Amari signed the Amended JVA knowing and assuming all the attendant risks,
including the annulment of the Amended JVA.96

Such indicia of bad faith are not present in the instant case. When the ruling in PEA was rendered by this Court on July 9, 2002,
the JVAs were all executed. Furthermore, when petitioner filed the instant case against respondents on August 5, 2004, the
JVAs were already terminated by virtue of the MOA between the NHA and RBI. The respondents had no reason to think that
their agreements were unconstitutional or even questionable, as in fact, the concurrent acts of the executive department lent
validity to the implementation of the Project. The SMDRP agreements have produced vested rights in favor of the slum dwellers,
the buyers of reclaimed land who were issued titles over said land, and the agencies and investors who made investments in the
project or who bought SMPPCs. These properties and rights cannot be disturbed or questioned after the passage of around ten
(10) years from the start of the SMDRP implementation. Evidently, the "operative fact" principle has set in. The titles to the lands
in the hands of the buyers can no longer be invalidated.

The Court’s Dispositions

Based on the issues raised in this petition, we find that the March 19, 1993 JVA between NHA and RBI and the SMDRP
embodied in the JVA, the subsequent amendments to the JVA and all other agreements signed and executed in relation to it,
including, but not limited to, the September 26, 1994 Smokey Mountain Asset Pool Agreement and the agreement on Phase I of
the Project as well as all other transactions which emanated from the Project, have been shown to be valid, legal, and
constitutional. Phase II has been struck down by the Clean Air Act.

With regard to the prayer for prohibition, enjoining respondents particularly respondent NHA from further implementing and/or
enforcing the said Project and other agreements related to it, and from further deriving and/or enjoying any rights, privileges and
interest from the Project, we find the same prayer meritless.

Sec. 2 of Rule 65 of the 1997 Rules of Civil Procedure provides:

Sec. 2. Petition for prohibition.—When the proceedings of any tribunal, corporation, board, officer or person, whether exercising
judicial, quasi-judicial or ministerial functions, are without or in excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty
and praying that judgment be rendered commanding the respondent to desist from further proceedings in the action or matter
specified therein, or otherwise granting such incidental reliefs as law and justice may require.

It has not been shown that the NHA exercised judicial or quasi-judicial functions in relation to the SMDRP and the agreements
relative to it. Likewise, it has not been shown what ministerial functions the NHA has with regard to the SMDRP.

A ministerial duty is one which is so clear and specific as to leave no room for the exercise of discretion in its performance. It is a
duty which an officer performs in a given state of facts in a prescribed manner in obedience to the mandate of legal authority,
without regard to the exercise of his/her own judgment upon the propriety of the act done.97

Whatever is left to be done in relation to the August 27, 2003 MOA, terminating the JVA and other related agreements, certainly
does not involve ministerial functions of the NHA but instead requires exercise of judgment. In fact, Item No. 4 of the MOA
terminating the JVAs provides for validation of the developer’s (RBI’s) claims arising from the termination of the SMDRP through
the various government agencies.98 Such validation requires the exercise of discretion.

In addition, prohibition does not lie against the NHA in view of petitioner’s failure to avail and exhaust all administrative
remedies. Clear is the rule that prohibition is only available when there is no adequate remedy in the ordinary course of law.

More importantly, prohibition does not lie to restrain an act which is already a fait accompli. The "operative fact" doctrine
protecting vested rights bars the grant of the writ of prohibition to the case at bar. It should be remembered that petitioner was
the Solicitor General at the time SMDRP was formulated and implemented. He had the opportunity to question the SMDRP and
the agreements on it, but he did not. The moment to challenge the Project had passed.

On the prayer for a writ of mandamus, petitioner asks the Court to compel respondents to disclose all documents and
information relating to the project, including, but not limited to, any subsequent agreements with respect to the different phases
of the Project, the revisions of the original plan, the additional works incurred on the Project, the current financial condition of
respondent RBI, and the transactions made with respect to the project. We earlier ruled that petitioner will be allowed access to
official records relative to the SMDRP. That would be adequate relief to satisfy petitioner’s right to the information gateway.

WHEREFORE, the petition is partially granted.

The prayer for a writ of prohibition is DENIED for lack of merit.

The prayer for a writ of mandamus is GRANTED. Respondent NHA is ordered to allow access to petitioner to all public
documents and official records relative to the SMDRP—including, but not limited to, the March 19, 1993 JVA between the NHA
and RBI and subsequent agreements related to the JVA, the revisions over the original plan, and the additional works incurred
on and the transactions made with respect to the Project.

No costs.

SO ORDERED.

G.R. No. 144570 September 21, 2005

VIVENCIO V. JUMAMIL, Petitioners,

vs.
JOSE J. CAFE, GLICERIO L. ALERIA, RUDY G. ADLAON, DAMASCENO AGUIRRE, RAMON PARING, MARIO
ARGUELLES, ROLANDO STA. ANA, NELLIE UGDANG, PEDRO ATUEL, RUBY BONSOBRE, RUTH FORNILLOS, DANIEL
GATCHALIAN, RUBEN GUTIERREZ, JULIET GATCHALIAN, ZENAIDA POBLETE, ARTHUR LOUDY, LILIAN LU, ISABEL
MEJIA, EDUARDO ARGUELLES, LAO SUI KIEN, SAMUEL CONSOLACION, DR. ARTURO MONTERO, DRA. LILIOSA
MONTERO, PEDRO LACIA, CIRILA LACIA, EVELYN SANGALANG, DAVID CASTILLO, ARSENIO SARMIENTO,
ELIZABETH SY, METODIO NAVASCA, HELEN VIRTUDAZO, IRENE LIMBAGA, SYLVIA BUSTAMANTE, JUANA
DACALUS, NELLIE RICAMORA, JUDITH ESPINOSA, PAZ KUDERA, EVELYN PANES, AGATON BULICATIN, PRESCILLA
GARCIA, ROSALIA OLITAO, LUZVIMINDA AVILA, GLORIA OLAIR, LORITA MENCIAS, RENATO ARIETA, EDITHA
ACUZAR, LEONARDA VILLACAMPA, ELIAS JARDINICO, BOBINO NAMUAG, FELIMON NAMUAG, EDGAR CABUNOC,
HELEN ARGUELLES, HELEN ANG, FELECIDAD PRIETO, LUISITO GRECIA, LILIBETH PARING, RUBEN CAMACHO,
ROSALINDA LALUNA, LUZ YAP, ROGELIO LAPUT, ROSEMARIE WEE, TACOTCHE RANAIN, AVELINO DELOS REYES
and ROGASIANO OROPEZA, Respondent.

DECISION

CORONA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Vivencio V. Jumamil seeks to reverse the
decision of the Court of Appeals dated July 24, 20001 in CA-G.R. CV No. 35082, the dispositive portion of which read:

With the foregoing, the assailed Decision of Branch 4, Regional Trial Court of Panabo Davao dated 26 November 1990 in Sp.
Civil Action No. 89-1 is hereby AFFIRMED.2

The Regional Trial Court dismissed petitioner’s petition for declaratory relief with prayer for preliminary injunction and writ of
restraining order, and ordered the petitioner to pay attorney’s fees in the amount of ₱1,000 to each of the 57 private
respondents.3

The factual antecedents follow.

In 1989, petitioner Jumamil4 filed before the Regional Trial Court (RTC) of Panabo, Davao del Norte a petition for declaratory
relief with prayer for preliminary injunction and writ of restraining order against public respondents Mayor Jose J. Cafe and the
members of the Sangguniang Bayan of Panabo, Davao del Norte. He questioned the constitutionality of Municipal Resolution
No. 7, Series of 1989 (Resolution No. 7).

Resolution No. 7, enacting Appropriation Ordinance No. 111, provided for an initial appropriation of ₱765,000 for the
construction of stalls around a proposed terminal fronting the Panabo Public Market 5 which was destroyed by fire.

Subsequently, the petition was amended due to the passage of Resolution No. 49, series of 1989 (Resolution No. 49),
denominated as Ordinance No. 10, appropriating a further amount of ₱1,515,000 for the construction of additional stalls in the
same public market.6

Prior to the passage of these resolutions, respondent Mayor Cafe had already entered into contracts with those who advanced
and deposited (with the municipal treasurer) from their personal funds the sum of ₱40,000 each. Some of the parties were close
friends and/or relatives of the public respondents.7 The construction of the stalls which petitioner sought to stop through the
preliminary injunction in the RTC was nevertheless finished, rendering the prayer therefor moot and academic. The leases of the
stalls were then awarded by public raffle which, however, was limited to those who had deposited ₱40,000 each. 8 Thus, the
petition was amended anew to include the 57 awardees of the stalls as private respondents.9

Petitioner alleges that Resolution Nos. 7 and 49 were unconstitutional because they were:

…passed for the business, occupation, enjoyment and benefit of private respondents who deposited the amount of ₱40,000.00
for each stall, and with whom also the mayor had a prior contract to award the would be constructed stalls to all private
respondents.… As admitted by public respondents some of the private respondents are close friends and/or relatives of some of
the public respondents which makes the questioned acts discriminatory. The questioned resolutions and ordinances did not
provide for any notice of publication that the special privilege and unwarranted benefits conferred on the private respondents
maybe (sic) availed of by anybody who can deposit the amount of ₱40,000.00.10

Neither was there any prior notice or publication pertaining to contracts entered into by public and private respondents for the
construction of stalls to be awarded to private respondents that the same can be availed of by anybody willing to deposit
₱40,000.00.11

In this petition, petitioner prays for the reversal of the decision of the Court of Appeals (CA) and a declaration of the
unconstitutionality, illegality and nullity of the questioned resolutions/ordinances and lease contracts entered into by the public
and private respondents; for the declaration of the illegality of the award of the stalls during the pendency of this action and for
the re-raffling and award of the stalls in a manner that is fair and just to all interested applicants; 12for the issuance of an order to
the local government to admit any and all interested persons who can deposit the amount of ₱40,000 for a stall and to order a
re-raffling for the award of the stalls to the winners of the re-raffle; for the nullification of the award of attorney’s fees to private
respondents on the ground that it was erroneous and unmeritorious; and for the award of damages in favor of petitioner in the
form of attorney’s fees.13

At the outset, we must point out that the issue of the constitutionality of the questioned resolutions was never ruled upon by both
the RTC and the CA.

It appears that on May 21, 1990, both parties agreed14 to await the decision in CA G.R. SP No. 20424,15 which involved similar
facts, issues and parties. The RTC, consequently, deferred the resolution of the pending petition. The appellate court eventually
rendered its decision in that case finding that the petitioners were not entitled to the declaratory relief prayed for as they had no
legal interest in the controversy. Upon elevation to the Supreme Court as UDK Case No. 9948, the petition for review on
certiorari was denied for being insufficient in form and substance. 16

The RTC, after receipt of the entry of the SC judgment,17 dismissed the pending petition on November 26, 1990. It adopted the
ruling in CA G.R. SP No. 20424:

xxxxxxxxx

We find petitioners’ aforesaid submission utterly devoid of merit. It is, to say the least, questionable whether or not a special civil
action for declaratory relief can be filed in relation to a contract by persons who are not parties thereto. Under Sec. 1 of Rule 64
of the Rules of Court, any person interested under a deed, will, contract, or other written instruments may bring an action to
determine any question of the contract, or validly arising under the instrument for a declaratory (sic) of his rights or duties
thereunder. Since contracts take effect only between the parties (Art. 1311) it is quite plain that one who is not a party to a
contract can not have the interest in it that the rule requires as a basis for declaratory reliefs (PLUM vs. Santos, 45 SCRA 147).

Following this ruling, the petitioners were not parties in the agreement for the award of the market stalls by the public
respondents, in the public market of Panabo, Davao, and since the petitioners were not parties to the award of the market stalls
and whose rights are never affected by merely stating that they are taxpayers, they have no legal interest in the controversy and
they are not, therefore, entitled to bring an action for declaratory relief.18

WHEREFORE, the petition of the petitioners as taxpayers being without merit and not in consonance with law, is hereby ordered
DISMISSED.

As to the counterclaim for damages, the same not having been actually and fully proven, the Court gives no award as to the
same. It is not amiss to state here that the petitioners agreed to be bound by the outcome of Special Civil Case No. 89-10.

However, for unnecessarily dragging into Court the fifty-seven (57) private respondents who are bonafide businessmen and stall
holders in the public market of Panabo, it is fitting and proper for the petitioners to be ordered payment of attorney’s fees.

Accordingly, the herein petitioners are ordered to pay ONE THOUSAND (₱1,000.00) PESOS EACH to the 57 private
respondents, as attorney’s fees, jointly and severally, and for them to pay the costs of this suit.

SO ORDERED.19

From this adverse decision, petitioner again appealed to the Court of Appeals in CA-G.R. CV No. 35082 which is now before us
for review.

The appellate court, yet again, affirmed the RTC decision and held that:

Res judicata does not set in a case dismissed for lack of capacity to sue, because there has been no determination on the
merits. Neither does the law of the case apply. However, the court a quo took judicial notice of the fact that petitioners agreed to
be bound by the outcome of Special Civil Case No. 89-10. Allegans contraria non est audiendus. (He is not to be heard who
alleges things contradictory to each other.) It must be here observed that petitioners-appellants were the ones who manifested
that it would be practical to await the decision of the Supreme Court in their petition for certiorari, for after all the facts,
circumstances and issues in that case, are exactly the same as in the case that is here appealed. Granting that they may evade
such assumption, a careful evaluation of the case would lead Us to the same conclusion: that the case for declaratory relief is
dismissible. As enumerated by Justice Regalado in his "Remedial Law Compendium", the requisites of an action for declaratory
relief are:

(a) The subject matter of the controversy must be a deed, will, contract or other written instrument, statute, executive order or
regulation, or ordinance;

(b) The terms of said documents and the validity thereof are doubtful and require judicial construction;

(c) There must have been no breach of the documents in question;

(d) There must be an actual justiciable controversy or the "ripening seeds" of one between persons whose interests are adverse;

(e) The issue must be ripe for judicial determination; and

(f) Adequate relief is not available through other means or other forms of action or proceeding.

In Tolentino vs. Board of Accountancy, et al, 90 Phil. 83, 88, the Supreme Court ratiocinated the requisites of justiciability of an
action for declaratory relief by saying that the court must be "satisfied that an actual controversy, or the ripening seeds of one,
exists between parties, all of whom are sui juris and before the court, and that the declaration sought will be a practical help in
ending the controversy."

The petition must show "an active antagonistic assertion of a legal right on one side and a denial thereof on the other concerning
a real, and not a mere theoretical question or issue. The question is whether the facts alleged a substantial controversy between
parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory relief.
In GSISEA and GSISSU vs. Hon. Alvendia etc. and GSIS, 108 Phil. 505, the Supreme Court ruled a declaratory relief improper
or unnecessary when it appears to be a moot case, since it seeks to get a judgment on a pretended controversy, when in reality
there is none. In Kawasaki Port Service Corporation vs. Amores, 199 SCRA 230, citing Dy Poco vs. Commissioner of
Immigration, et al., 16 SCRA 618, the rule was stated: "where a declaratory judgment as to a disputed fact would be
determinative of issues rather than a construction of definite stated rights, statuses and other relations, commonly expressed in
a written instrument, the case is not one for declaratory judgment."

Indeed, in its true light, the present petition for declaratory relief seems to be no more than a request for an advisory opinion to
which courts in this and other jurisdiction have cast a definite aversion. The ordinances being assailed are appropriation
ordinances. The passage of the ordinances were pursuant to the public purpose of constructing market stalls. For the exercise
of judicial review, the governmental act being challenged must have had an adverse effect on the person challenging it, and the
person challenging the act, must have "standing" to challenge, i.e., in the categorical and succinct language of Justice Laurel, he
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." Standing is a special concern in constitutional law because in some cases suits are brought not by parties who
have been personally injured by the operation of a law or by official action taken, but by concerned citizens, taxpayers or voters
who actually sue in the public interest. Hence the question in standing is whether such parties have "alleged such a personal
stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon
which the court largely depends for illumination of difficult constitutional questions.

A careful analysis of the records of the case at bar would disclose that petitioners-appellants have suffered no wrong under the
terms of the ordinances being assailed – and, naturally need no relief in the form they now seek to obtain. Judicial exercise
cannot be exercised in vacuo. The policy of the courts is to avoid ruling on a constitutional question and to presume that the acts
of the political departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to sustain.
The issue is not the ordinances themselves, but the award of the market stalls to the private respondents on the strength of the
contracts individually executed by them with Mayor Cafe. To reiterate, a person who is not a party to a contract cannot file a
petition for declaratory relief and seek judicial interpretation of such contract (Atlas Consolidated Mining Corp. vs. Court of
Appeals, 182 SCRA 166). Not having established their locus standi, we see no error committed by the court a quo warranting
reversal of the appealed decision.

With the foregoing, the assailed Decision of Branch 4, Regional Trial Court of Panabo Davao dated 26 November 1990 in Sp.
Civil Action No. 89-1 is hereby AFFIRMED.

SO ORDERED.20

Thus, both the RTC and the CA dismissed the case on the ground of petitioner’s lack of legal standing and the parties’
agreement to be bound by the decision in CA G.R. SP. No. 20424.

The issues to be resolved are the following:

(1) whether the parties were bound by the outcome in CA G.R. SP. No. 20424;

(2) whether petitioner had the legal standing to bring the petition for declaratory relief;

(3) whether Resolution Nos. 7 and 49 were unconstitutional; and

(4) whether petitioner should be held liable for damages.

Locus Standi and the Constitutionality Issue

We will first consider the second issue. The petition for declaratory relief challenged the constitutionality of the subject
resolutions. There is an unbending rule that courts will not assume jurisdiction over a constitutional question unless the following
requisites are satisfied: (1) there must be an actual case calling for the exercise of judicial review; (2) the question before the
Court must be ripe for adjudication; (3) the person challenging the validity of the act must have standing to do so; (4) the
question of constitutionality must have been raised at the earliest opportunity, and (5) the issue of constitutionality must be the
very lis mota of the case.21

Legal standing or locus standi is a party’s personal and substantial interest in a case such that he has sustained or will sustain
direct injury as a result of the governmental act being challenged. It calls for more than just a generalized grievance. The term
"interest" means a material interest, an interest in issue affected by the decree, as distinguished from mere interest in the
question involved, or a mere incidental interest.22 Unless a person’s constitutional rights are adversely affected by the statute or
ordinance, he has no legal standing.

The CA held that petitioner had no standing to challenge the two resolutions/ordinances because he suffered no wrong under
their terms. It also concluded that "the issue (was) not the ordinances themselves but the award of the market stalls to the
private respondents on the strength of the contracts individually executed by them with Mayor Cafe." Consequently, it ruled that
petitioner, who was not a party to the lease contracts, had no standing to file the petition for declaratory relief and seek judicial
interpretation of the agreements.

We do not agree. Petitioner brought the petition in his capacity as taxpayer of the Municipality of Panabo, Davao del Norte 23 and
not in his personal capacity. He was questioning the official acts of the public respondents in passing the ordinances and
entering into the lease contracts with private respondents. A taxpayer need not be a party to the contract to challenge its
validity.24 Atlas Consolidated Mining & Development Corporation v. Court of Appeals25 cited by the CA does not apply because it
involved contracts between two private parties.

Parties suing as taxpayers must specifically prove sufficient interest in preventing the illegal expenditure of

money raised by taxation.26 The expenditure of public funds by an officer of the State for the purpose of executing an
unconstitutional act constitutes a misapplication of such

funds.27 The resolutions being assailed were appropriations ordinances. Petitioner alleged that these ordinances were "passed
for the business, occupation, enjoyment and benefit of private respondents"28 (that is, allegedly for the private benefit of
respondents) because even before they were passed, respondent Mayor Cafe and private respondents had already entered into
lease contracts for the construction and award of the market stalls.29 Private respondents admitted they deposited ₱40,000 each
with the municipal treasurer, which amounts were made available to the municipality during the construction of the stalls. The
deposits, however, were needed to ensure the speedy completion of the stalls after the public market was gutted by a series of
fires.30 Thus, the award of the stalls was necessarily limited only to those who advanced their personal funds for their
construction.31

Petitioner did not seasonably allege his interest in preventing the illegal expenditure of public funds or the specific injury to him
as a result of the enforcement of the questioned resolutions and contracts. It was only in the "Remark to Comment" he filed in
this Court did he first assert that "he (was) willing to engage in business and (was) interested to occupy a market stall."32 Such
claim was obviously an afterthought.

Be that as it may, we have on several occasions relaxed the application of these rules on legal standing:

In not a few cases, the Court has liberalized the locus standi requirement when a petition raises an issue of transcendental
significance or paramount importance to the people. Recently, after holding that the IBP had no locus standi to bring the suit, the
Court in IBP v. Zamora nevertheless entertained the Petition therein. It noted that "the IBP has advanced constitutional issues
which deserve the attention of this Court in view of their seriousness, novelty and weight as precedents."33

―oOo―
Objections to a taxpayer's suit for lack of sufficient personality, standing or interest are procedural matters. Considering the
importance to the public of a suit assailing the constitutionality of a tax law, and in keeping with the Court's duty, specially
explicated in the 1987 Constitution, to determine whether or not the other branches of the Government have kept themselves
within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Supreme Court
may brush aside technicalities of procedure and take cognizance of the suit. 34

―oOo―

There being no doctrinal definition of transcendental importance, the following determinants formulated by former Supreme
Court Justice Florentino P. Feliciano are instructive: (1) the character of the funds or other assets involved in the case; (2) the
presence of a clear case of disregard of a constitutional or statutory prohibition by the public respondent agency or
instrumentality of the government; and (3) the lack of any other party with a more direct and specific interest in raising the
questions being raised.35

But, even if we disregard petitioner’s lack of legal standing, this petition must still fail. The subject resolutions/ordinances
appropriated a total of ₱2,280,000 for the construction of the public market stalls. Petitioner alleges that these ordinances were
discriminatory because, even prior to their enactment, a decision had already been made to award the market stalls to the
private respondents who deposited ₱40,000 each and who were either friends or relatives of the public respondents. Petitioner
asserts that "there (was) no publication or invitation to the public that this contract (was) available to all who (were) interested to
own a stall and (were) willing to deposit ₱40,000."36 Respondents, however, counter that the "public respondents’ act of entering
into this agreement was authorized by the Sangguniang Bayan of Panabo per Resolution No. 180 dated October 10,
1988"37 and that "all the people interested were invited to participate in investing their savings."38

We note that the foregoing was a disputed fact which the courts below did not resolve because the case was dismissed on the
basis of petitioner’s lack of legal standing. Nevertheless, petitioner failed to prove the subject ordinances and agreements to be
discriminatory. Considering that he was asking this Court to nullify the acts of the local political department of Panabo, Davao
del Norte, he should have clearly established that such ordinances operated unfairly against those who were not notified and
who were thus not given the opportunity to make their deposits. His unsubstantiated allegation that the public was not notified
did not suffice. Furthermore, there was the time-honored presumption of regularity of official duty, absent any showing to the
contrary.39 And this is not to mention that:

The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are
valid, absent a clear and unmistakable showing to the contrary. To doubt is to sustain. This presumption is based on the doctrine
of separation of powers. This means that the measure had first been carefully studied by the legislative and executive
departments and found to be in accord with the Constitution before it was finally enacted and approved. 40

Therefore, since petitioner had no locus standi to

question the ordinances, there is no need for us to discuss the constitutionality of said enactments.

Were the Parties Bound by the

Outcome in CA G.R. SP. No. 20424?

Adverting to the first issue, we observe that petitioner was the one who wanted the parties to await the decision of the Supreme
Court in UDK Case No. 9948 since the facts and issues in that case were similar to this. Petitioner, having expressly agreed to
be bound by our decision in the aforementioned case, should be reined in by the dismissal order we issued, now final and
executory. In addition to the fact that nothing prohibits parties from committing to be bound by the results of another case, courts
may take judicial notice of a judgment in another case as long as the parties give

their consent or do not object.41 As opined by Justice Edgardo L. Paras:

A court will take judicial notice of its own acts and records in the same case, of facts established in prior proceedings in the
same case, of the authenticity of its own records of another case between the same parties, of the files of related cases in the
same court, and of public records on file in the same court. In addition, judicial notice will be taken of the record, pleadings or
judgment of a case in another court between the same parties or involving one of the same parties, as well as of the record of
another case between different parties in the same court.42

Damages

Finally, on the issue of damages, petitioner asserts that he impleaded the 57 respondents in good faith since the award of the
stalls to them was made during the pendency of the action.43 Private respondents refute this assertion and argue that petitioner
filed this action in bad faith and with the intention of harassing them inasmuch as he had already filed CA G.R. SP. No. 20424
even before then.44 The RTC, affirmed by the CA, held that petitioner should pay attorney’s fees "for unnecessarily dragging into
Court the 57 private respondents who (were) bonafide businessmen and stall holders in the public market of Panabo." 45

We do not agree that petitioner should be held liable for damages. It is not sound public policy to put a premium on the right to
litigate where such right is exercised in good faith, albeit erroneously.46 The alleged bad faith of petitioner was never established.
The special circumstances in Article 2208 of the Civil Code justifying the award of attorney’s fees are not present in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 35082 is hereby AFFIRMED with
the MODIFICATION that the award of attorney's fees to private respondents is deleted.

Costs against petitioner.

SO ORDERED.
G.R. No. 113375 May 5, 1994

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

DAVIDE, JR., J.:

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

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

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

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

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

1. EXECUTIVE SUMMARY

xxx xxx xxx

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

xxx xxx xxx

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

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

xxx xxx xxx

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

xxx xxx xxx

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

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

xxx xxx xxx

2.2. OBJECTIVES

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

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

xxx xxx xxx

2.4. DUTIES AND RESPONSIBILITIES OF THE LESSOR

xxx xxx xxx

2.4.2. THE LESSOR

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

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

xxx xxx xxx

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

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

7. GENERAL GUIDELINES FOR PROPONENTS

xxx xxx xxx

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

xxx xxx xxx

16. DEFINITION OF TERMS

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

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

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

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

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

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

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

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

On 1 December 1993, KILOSBAYAN requested copies of all documents pertaining to the lottery award from Executive Secretary
Teofisto Guingona, Jr. In his answer of 17 December 1993, the Executive Secretary informed KILOSBAYAN that the requested
documents would be duly transmitted before the end of the month. 15. However, on that same date, an agreement denominated
as "Contract of Lease" was finally executed by respondent PCSO and respondent PGMC. 16 The President, per the press
statement issued by the Office of the President, approved it on 20 December 1993.17

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

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

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

xxx xxx xxx

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

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

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

xxx xxx xxx

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

2. SUBJECT MATTER OF THE LEASE

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

xxx xxx xxx

3. RENTAL FEE

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

4. LEASE PERIOD

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

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

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

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

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

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

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

5.5 PCSO shall designate the necessary personnel to monitor and audit the daily performance of the On-Line Lottery System.
For this purpose, PCSO designees shall be given, free of charge, suitable and adequate space, furniture and fixtures, in all
offices of the LESSOR, including but not limited to its headquarters, alternate site, regional and area offices.

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

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

5.9 PCSO shall assist the LESSOR in the following:

5.9.1 Work permits for the LESSOR's staff;

5.9.2 Approvals for importation of the Facilities;

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

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

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

6. DUTIES AND RESPONSIBILITIES OF THE LESSOR

The LESSOR is one of not more than three (3) lessors of similar facilities for the nationwide On-Line Lottery System of PCSO. It
is understood that the rights of the LESSOR are primarily those of a lessor of the Facilities, and consequently, all rights involving
the business aspects of the use of the Facilities are within the jurisdiction of PCSO. During the term of the lease, the LESSOR
shall.

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

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

xxx xxx xxx

6.12 Comply with procedural and coordinating rules issued by PCSO.

7. REPRESENTATIONS AND WARRANTIES

The LESSOR represents and warrants that:

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

7.2 The LESSOR and its Affiliates have the full corporate and legal power and authority to own and operate their properties and
to carry on their business in the place where such properties are now or may be conducted. . . .
7.3 The LESSOR has or has access to all the financing and funding requirements to promptly and effectively carry out the terms
of this Contract. . . .

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

xxx xxx xxx

10. TELECOMMUNICATIONS NETWORK

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

xxx xxx xxx

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

xxx xxx xxx

13. STOCK DISPERSAL PLAN

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

14. NON-COMPETITION

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

15. HOLD HARMLESS CLAUSE

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

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

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

16. SECURITY

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

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

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

17. PENALTIES

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

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

xxx xxx xxx

20. OWNERSHIP OF THE FACILITIES

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

21. TERMINATION OF THE LEASE

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

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

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

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

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

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

xxx xxx xxx

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

In support of the petition, the petitioners claim that:

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

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

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

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

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

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

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

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

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

We required the respondents to comment on the petition.

In its Comment filed on 1 March 1994, private respondent PGMC asserts that "(1) [it] is merely an independent contractor for a
piece of work, (i.e., the building and maintenance of a lottery system to be used by PCSO in the operation of its lottery
franchise); and (2) as such independent contractor, PGMC is not a co-operator of the lottery franchise with PCSO, nor is PCSO
sharing its franchise, 'in collaboration, association or joint venture' with PGMC — as such statutory limitation is viewed from the
context, intent, and spirit of Republic Act 1169, as amended by Batas Pambansa 42." It further claims that as an independent
contractor for a piece of work, it is neither engaged in "gambling" nor in "public service" relative to the telecommunications
network, which the petitioners even consider as an "indispensable requirement" of an on-line lottery system. Finally, it states that
the execution and implementation of the contract does not violate the Constitution and the laws; that the issue on the "morality"
of the lottery franchise granted to the PCSO is political and not judicial or legal, which should be ventilated in another forum; and
that the "petitioners do not appear to have the legal standing or real interest in the subject contract and in obtaining the reliefs
sought." 23

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And now on the substantive issue.

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

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

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

B. Subject to the approval of the Minister of Human Settlements, to engage in health and welfare-related investments,
programs, projects and activities which may be profit-oriented, by itself or in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or foreign, except for the activities mentioned in the preceding
paragraph (A), for the purpose of providing for permanent and continuing sources of funds for health programs, including the
expansion of existing ones, medical assistance and services, and/or charitable grants: Provided, That such investment will not
compete with the private sector in areas where investments are adequate as may be determined by the National Economic and
Development Authority. (emphasis supplied)

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

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

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

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

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

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

MR. DAVIDE.

Mr. Speaker.

THE SPEAKER.

The gentleman from Cebu is recognized.

MR. DAVIDE.

May I introduce an amendment to the committee amendment? The

amendment would be to insert after "foreign" in the amendment just read the
following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.

When it is joint venture or in collaboration with any entity such collaboration

or joint venture must not include activity activity letter (a) which is the holding
and conducting of sweepstakes races, lotteries and other similar acts.

MR. ZAMORA.

We accept the amendment, Mr. Speaker.

MR. DAVIDE.

Thank you, Mr. Speaker.

THE SPEAKER.

Is there any objection to the amendment? (Silence) The amendment, as

amended, is approved. 57

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

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

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

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

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

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

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

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

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

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

Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an on-line lottery system, the PCSO had
nothing but its franchise, which it solemnly guaranteed it had in the General Information of the RFP. 67Howsoever viewed then,
from the very inception, the PCSO and the PGMC mutually understood that any arrangement between them would necessarily
leave to the PGMC the technical, operations, and managementaspects of the on-line lottery system while the PCSO would,
primarily, provide the franchise. The words Gaming andManagement in the corporate name of respondent Philippine Gaming
Management Corporation could not have been conceived just for euphemistic purposes. Of course, the RFP cannot substitute
for the Contract of Lease which was subsequently executed by the PCSO and the PGMC. Nevertheless, the Contract of Lease
incorporates their intention and understanding.

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

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

For these reasons, too, the PGMC has the initial prerogative to prepare the detailed plan of all games and the marketing thereof,
and determine the number of players, value of winnings, and the logistics required to introduce the games, including the Master
Games Plan. Of course, the PCSO has the reserved authority to disapprove them. 68 And, while the PCSO has the sole
responsibility over the appointment of dealers and retailers throughout the country, the PGMC may, nevertheless, recommend
for appointment dealers and retailers which shall be acted upon by the PCSO within forty-eight hours and collect and retain, for
its own account, a security deposit from dealers and retailers in respect of equipment supplied by it.

This joint venture is further established by the following:

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

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

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

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

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

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

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

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

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

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

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

No pronouncement as to costs.

SO ORDERED.