McCulloch v. Maryland – Case Brief Summary
If a certain
Facts
Maryland (P) enacted a statute imposing a tax on all banks
operating in Maryland not chartered by the state. The
statute provided that all such banks were prohibited from
issuing bank notes except upon stamped paper issued by
the state. The statute set forth the fees to be paid for the
paper and established penalties for violations.
The Second Bank of the United States was established
pursuant to an 1816 act of Congress. McCulloch (D), the
cashier of the Baltimore branch of the Bank of the United
States, issued bank notes without complying with the
Maryland law. Maryland sued McCulloch for failing to pay
the taxes due under the Maryland statute and McCulloch
contested the constitutionality of that act. The state court
found for Maryland and McCulloch appealed.
Issues
1. Does Congress have the power under the
Constitution to incorporate a bank, even though that
power is not specifically enumerated within the
Constitution?
2. Does the State of Maryland have the power to tax
an institution created by Congress pursuant to its
powers under the Constitution?
Holding and Rule (Marshall)
1. Yes. Congress has power under the Constitution to
incorporate a bank pursuant to the Necessary and
Proper clause (Article I, section 8).
2. No. The State of Maryland does not have the power
to tax an institution created by Congress pursuant
to its powers under the Constitution.
The Government of the Union, though limited in its powers,
is supreme within its sphere of action, and its laws, when
made in pursuance of the Constitution, form the supreme
law of the land. There is nothing in the Constitution which
excludes incidental or implied powers. If the end be
legitimate, and within the scope of the Constitution, all the
means which are appropriate and plainly adapted to that
end, and which are not prohibited, may be employed to
carry it into effect pursuant to the Necessary and Proper
clause.
The power of establishing a corporation is not a distinct
sovereign power or end of Government, but only the means
of carrying into effect other powers which are sovereign. It
may be exercised whenever it becomes an appropriate
means of exercising any of the powers granted to the
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
federal government under the U.S. Constitution.
means to carry into effect of any of the powers expressly
given by the Constitution to the Government of the Union
be an appropriate measure, not prohibited by the
Constitution, the degree of its necessity is a question of
legislative discretion, not of judicial cognizance.
The Bank of the United States has a right to establish its
branches within any state. The States have no power, by
taxation or otherwise, to impede or in any manner control
any of the constitutional means employed by the U.S.
government to execute its powers under the Constitution.
This principle does not extend to property taxes on the
property of the Bank of the United States, nor to taxes on
the proprietary interest which the citizens of that State may
hold in this institution, in common with other property of the
same description throughout the State.
McCulloch v. Maryland
17 U.S. (4 Wheat.) 316
ERROR TO THE COURT OF APPEALS OF THE STATE
OF MARYLAND
Syllabus
Congress has power to incorporate a bank
The Act of the 10th of April, 1816, ch. 44, to "incorporate
the subscribers to the Bank of the United States" is a law
made in pursuance of the Constitution.
The Government of the Union, though limited in its powers,
is supreme within its sphere of action, and its laws, when
made in pursuance of the Constitution, form the supreme
law of the land.
There is nothing in the Constitution of the United States
similar to the Articles of Confederation, which exclude
incidental or implied powers.
If the end be legitimate, and within the scope of the
Constitution, all the means which are appropriate, which are
plainly adapted to that end, and which are not prohibited,
may constitutionally be employed to carry it into effect.
The power of establishing a corporation is not a distinct
sovereign power or end of Government, but only the means
of carrying into effect other powers which are sovereign.
Whenever it becomes an appropriate means of exercising
any of the powers given by the Constitution to the
Government of the Union, it may be exercised by that
Government.
If a certain means to carry into effect of any of the powers
expressly given by the Constitution to the Government of
135
the Union be an appropriate measure, not prohibited by the
Constitution, the degree of its necessity is a question of
legislative discretion, not of judicial cognizance.
The Bank of the United States has, constitutionally, a right
to establish its branches or offices of discount and deposit
within any state.
The State within which such branch may be established
cannot, without violating the Constitution, tax that branch.
The State governments have no right to tax any of the
constitutional means employed by the Government of the
Union to execute its constitutional powers.
The States have no power, by taxation or otherwise, to
retard, impede, burthen, or in any manner control the
operations of the constitutional laws enacted by Congress
to carry into effect the powers vested in the national
Government.
This principle does not extend to a tax paid by the real
property of the Bank of the United States in common with
the other real property in a particular state, nor to a tax
imposed on the proprietary interest which the citizens of
that State may hold in this institution, in common with other
property of the same description throughout the State.
This was an action of debt, brought by the defendant in
error, John James, who sued as well for himself as for the
State of Maryland, in the County Court of Baltimore County,
in the said State, against the plaintiff in error, McCulloch, to
recover certain penalties, under the act of the Legislature of
Maryland hereafter mentioned. Judgment being rendered
against the plaintiff in error, upon the following statement of
facts agreed and submitted to the court by the parties, was
affirmed by the Court of Appeals of the State of Maryland,
the highest court of law of said State, and the cause was
brought by writ of error to this Court.
It is admitted by the parties in this cause, by their counsel,
that there was passed, on the 10th day of April, 1816, by
the Congress of the United States, an act entitled, "an act to
incorporate the subscribers to the Bank of the United
States;" and that there was passed on the 11th day of
February, 1818, by the General Assembly of Maryland, an
act, entitled, "an act to impose a tax on all banks, or
branches thereof, in the State of Maryland, not chartered by
the legislature,"
Page 17 U. S. 318
which said acts are made part of this Statement, and it is
agreed, may be read from the statute books in which they
are respectively printed. It is further admitted that the
President, directors and company of the Bank of the United
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
States, incorporated by the act of Congress aforesaid, did
organize themselves, and go into full operation, in the City
of Philadelphia, in the State of Pennsylvania, in pursuance
of the said act, and that they did on the ___ day of _____
1817, establish a branch of the said bank, or an office of
discount and deposit, in the City of Baltimore, in the State of
Maryland, which has, from that time until the first day of
May 1818, ever since transacted and carried on business
as a bank, or office of discount and deposit, and as a
branch of the said Bank of the United States, by issuing
bank notes and discounting promissory notes, and
performing other operations usual and customary for banks
to do and perform, under the authority and by the direction
of the said President, directors and company of the Bank of
the United States, established at Philadelphia as aforesaid.
It is further admitted that the said President, directors and
company of the said bank had no authority to establish the
said branch, or office of discount and deposit, at the City of
Baltimore, from the State of Maryland, otherwise than the
said State having adopted the Constitution of the United
States and composing one of the States of the Union. It is
further admitted that James William McCulloch, the
defendant below, being the cashier of the said branch, or
office of discount and
Page 17 U. S. 319
deposit did, on the several days set forth in the declaration
in this cause, issue the said respective bank notes therein
described, from the said branch or office, to a certain
George Williams, in the City of Baltimore, in part payment of
a promissory note of the said Williams, discounted by the
said branch or office, which said respective bank notes
were not, nor was either of them, so issued on stamped
paper in the manner prescribed by the act of assembly
aforesaid. It is further admitted that the said President,
directors and company of the Bank of the United States,
and the said branch, or office of discount and deposit have
not, nor has either of them, paid in advance, or otherwise,
the sum of $15,000, to the Treasurer of the Western Shore,
for the use of the State of Maryland, before the issuing of
the said notes, or any of them, nor since those periods. And
it is further admitted that the Treasurer of the Western
Shore of Maryland, under the direction of the Governor and
Council of the said State, was ready, and offered to deliver
to the said President, directors and company of the said
bank, and to the said branch, or office of discount and
deposit, stamped paper of the kind and denomination
required and described in the said act of assembly.
The question submitted to the Court for their decision in this
case is as to the validity of the said act of the General
Assembly of Maryland on the ground of its being repugnant
to the Constitution of the United States and the act of
Congress aforesaid, or to one of them. Upon the foregoing
136
statement of facts and the pleadings in this cause (all errors
in
Page 17 U. S. 320
which are hereby agreed to be mutually released), if the
Court should be of opinion that the plaintiffs are entitled to
recover, then judgment, it is agreed, shall be entered for the
plaintiffs for $2,500 and costs of suit. B ut if the Court
should be of opinion that the plaintiffs are not entitled to
recover upon the statement and pleadings aforesaid, then
judgment of non pros shall be entered, with costs to the
defendant.
It is agreed that either party may appeal from the decision
of the County Court to the Court of Appeals, and from the
decision of the Court of Appeals to the Supreme Court of
the United States, according to the modes and usages of
law, and have the same benefit of this statement of facts in
the same manner as could be had if a jury had been sworn
and impanneled in this cause and a special verdict had
been found, or these facts had appeared and been stated in
an exception taken to the opinion of the Court, and the
Court's direction to the jury thereon.
Copy of the act of the Legislature of the State of Maryland,
referred to in the preceding Statement.
"An act to impose a tax on all banks or branches thereof, in
the"
"State of Maryland not chartered by the legislature"
"Be it enacted by the General Assembly of Maryland that if
any bank has established or shall, without authority from
the State first had and obtained establish any branch, office
of discount and
Page 17 U. S. 321
deposit, or office of pay and receipt in any part of this State,
it shall not be lawful for the said branch, office of discount
and deposit, or office of pay and receipt to issue notes, in
any manner, of any other denomination than five, ten,
twenty, fifty, one hundred, five hundred and one thousand
dollars, and no note shall be issued except upon stamped
paper of the following denominations; that is to say, every
five dollar note shall be upon a stamp of ten cents; every
ten dollar note, upon a stamp of twenty cents; every twenty
dollar note, upon a stamp of thirty cents; every fifty dollar
note, upon a stamp of fifty cents; every one hundred dollar
note, upon a stamp of one dollar; every five hundred dollar
note, upon a stamp of ten dollars; and every thousand
dollar note, upon a stamp of twenty dollars; which paper
shall be furnished by the Treasurer of the Western Shore,
under the direction of the Governor and Council, to be paid
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
for upon delivery; provided always that any institution of the
above description may relieve itself from the operation of
the provisions aforesaid by paying annually, in advance, to
the Treasurer of the Western Shore, for the use of State,
the sum of $15,000."
"And be it enacted that the President, cashier, each of the
directors and officers of every institution established or to
be established as aforesaid, offending against the
provisions aforesaid shall forfeit a sum of $500 for each and
every offence, and every person having any agency in
circulating any note aforesaid, not stamped as aforesaid
directed, shall forfeit a sum not exceeding $100,
Page 17 U. S. 322
every penalty aforesaid to be recovered by indictment or
action of debt in the county court of the county where the
offence shall be committed, one-half to the informer and the
other half to the use of the State."
"And be it enacted that this act shall be in full force and
effect from and after the first day of May next. "
Page 17 U. S. 400
MARSHALL, Chief Justice, delivered the opinion of the
Court.
In the case now to be determined, the defendant, a
sovereign State, denies the obligation of a law enacted by
the legislature of the Union, and the plaintiff, on his part,
contests the validity of an act which has been passed by
the legislature of that State. The Constitution of our country,
in its most interesting and vital parts, is to be considered,
the conflicting powers of the Government of the Union and
of its members, as marked in that Constitution, are to be
discussed, and an opinion given which may essentially
influence the great operations of the Government. No
tribunal can approach such a question without a deep
sense of its importance, and of the awful responsibility
involved in its decision. But it must be decided peacefully,
or remain a source of
Page 17 U. S. 401
hostile legislation, perhaps, of hostility of a still more serious
nature; and if it is to be so decided, by this tribunal alone
can the decision be made. On the Supreme Court of the
United States has the Constitution of our country devolved
this important duty.
The first question made in the cause is -- has Congress
power to incorporate a bank?
It has been truly said that this can scarcely be considered
as an open question entirely unprejudiced by the former
137
proceedings of the Nation respecting it. The principle now
contested was introduced at a very early period of our
history, has been recognised by many successive
legislatures, and has been acted upon by the Judicial
Department, in cases of peculiar delicacy, as a law of
undoubted obligation.
It will not be denied that a bold and daring usurpation might
be resisted after an acquiescence still longer and more
complete than this. But it is conceived that a doubtful
question, one on which human reason may pause and the
human judgment be suspended, in the decision of which
the great principles of liberty are not concerned, but the
respective powers of those who are equally the
representatives of the people, are to be adjusted, if not put
at rest by the practice of the Government, ought to receive
a considerable impression from that practice. An exposition
of the Constitution, deliberately established by legislative
acts, on the faith of which an immense property has been
advanced, ought not to be lightly disregarded.
The power now contested was exercised by the first
Congress elected under the present Constitution.
Page 17 U. S. 402
The bill for incorporating the Bank of the United States did
not steal upon an unsuspecting legislature and pass
unobserved. Its principle was completely understood, and
was opposed with equal zeal and ability. After being
resisted first in the fair and open field of debate, and
afterwards in the executive cabinet, with as much
persevering talent as any measure has ever experienced,
and being supported by arguments which convinced minds
as pure and as intelligent as this country can boast, it
became a law. The original act was permitted to expire, but
a short experience of the embarrassments to which the
refusal to revive it exposed the Government convinced
those who were most prejudiced against the measure of its
necessity, and induced the passage of the present law. It
would require no ordinary share of intrepidity to assert that
a measure adopted under these circumstances was a bold
and plain usurpation to which the Constitution gave no
countenance. These observations belong to the cause; but
they are not made under the impression that, were the
question entirely new, the law would be found irreconcilable
with the Constitution.
In discussing this question, the counsel for the State of
Maryland have deemed it of some importance, in the
construction of the Constitution, to consider that instrument
not as emanating from the people, but as the act of
sovereign and independent States. The powers of the
General Government, it has been said, are delegated by
the States, who alone are truly sovereign, and must be
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
exercised in subordination to the States, who alone
possess supreme dominion.
Page 17 U. S. 403
It would be difficult to sustain this proposition. The
convention which framed the Constitution was indeed
elected by the State legislatures. But the instrument, when
it came from their hands, was a mere proposal, without
obligation or pretensions to it. It was reported to the then
existing Congress of the United States with a request that it
might
"be submitted to a convention of delegates, chosen in each
State by the people thereof, under the recommendation of
its legislature, for their assent and ratification."
This mode of proceeding was adopted, and by the
convention, by Congress, and by the State legislatures, the
instrument was submitted to the people. They acted upon it
in the only manner in which they can act safely, effectively
and wisely, on such a subject -- by assembling in
convention. It is true, they assembled in their several States
-- and where else should they have assembled? No political
dreamer was ever wild enough to think of breaking down
the lines which separate the States, and of compounding
the American people into one common mass. Of
consequence, when they act, they act in their States. But
the measures they adopt do not, on that account, cease to
be the measures of the people themselves, or become the
measures of the State governments.
From these conventions the Constitution derives its whole
authority. The government proceeds directly from the
people; is "ordained and established" in the name of the
people, and is declared to be ordained,
"in order to form a more perfect union, establish justice,
insure domestic tranquillity, and secure
Page 17 U. S. 404
the blessings of liberty to themselves and to their posterity."
The assent of the States in their sovereign capacity is
implied in calling a convention, and thus submitting that
instrument to the people. But the people were at perfect
liberty to accept or reject it, and their act was final. It
required not the affirmance, and could not be negatived, by
the State Governments. The Constitution, when thus
adopted, was of complete obligation, and bound the State
sovereignties.
It has been said that the people had already surrendered all
their powers to the State sovereignties, and had nothing
more to give. But surely the question whether they may
resume and modify the powers granted to Government
138
does not remain to be settled in this country. Much more
might the legitimacy of the General Government be doubted
had it been created by the States. The powers delegated to
the State sovereignties were to be exercised by
themselves, not by a distinct and independent sovereignty
created by themselves. To the formation of a league such
as was the Confederation, the State sovereignties were
certainly competent. But when, "in order to form a more
perfect union," it was deemed necessary to change this
alliance into an effective Government, possessing great and
sovereign powers and acting directly on the people, the
necessity of referring it to the people, and of deriving its
powers directly from them, was felt and acknowledged by
all. The Government of the Union then (whatever may be
the influence of this fact on the case) is,
Page 17 U. S. 405
emphatically and truly, a Government of the people. In form
and in substance, it emanates from them. Its powers are
granted by them, and are to be exercised directly on them,
and for their benefit.
This Government is acknowledged by all to be one of
enumerated powers. The principle that it can exercise only
the powers granted to it would seem too apparent to have
required to be enforced by all those arguments which its
enlightened friends, while it was depending before the
people, found it necessary to urge; that principle is now
universally admitted. But the question respecting the extent
of the powers actually granted is perpetually arising, and
will probably continue to arise so long as our system shall
exist. In discussing these questions, the conflicting powers
of the General and State Governments must be brought
into view, and the supremacy of their respective laws, when
they are in opposition, must be settled.
If any one proposition could command the universal assent
of mankind, we might expect it would be this -- that the
Government of the Union, though limited in its powers, is
supreme within its sphere of action. This would seem to
result necessarily from its nature. It is the Government of
all; its powers are delegated by all; it represents all, and
acts for all. Though any one State may be willing to control
its operations, no State is willing to allow others to control
them. The nation, on those subjects on which it can act,
must necessarily bind its component parts. But this
question is not left to mere reason; the people have, in
express terms, decided it by saying,
Page 17 U. S. 406
"this Constitution, and the laws of the United States, which
shall be made in pursuance thereof," "shall be the supreme
law of the land," and by requiring that the members of the
State legislatures and the officers of the executive and
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
judicial departments of the States shall take the oath of
fidelity to it. The Government of the United States, then,
though limited in its powers, is supreme, and its laws, when
made in pursuance of the Constitution, form the supreme
law of the land, "anything in the Constitution or laws of any
State to the contrary notwithstanding."
Among the enumerated powers, we do not find that of
establishing a bank or creating a corporation. But there is
no phrase in the instrument which, like the Articles of
Confederation, excludes incidental or implied powers and
which requires that everything granted shall be expressly
and minutely described. Even the 10th Amendment, which
was framed for the purpose of quieting the excessive
jealousies which had been excited, omits the word
"expressly," and declares only that the powers "not
delegated to the United States, nor prohibited to the States,
are reserved to the States or to the people," thus leaving
the question whether the particular power which may
become the subject of contest has been delegated to the
one Government, or prohibited to the other, to depend on a
fair construction of the whole instrument. The men who
drew and adopted this amendment had experienced the
embarrassments resulting from the insertion of this word in
the Articles
Page 17 U. S. 407
of Confederation, and probably omitted it to avoid those
embarrassments. A Constitution, to contain an accurate
detail of all the subdivisions of which its great powers will
admit, and of all the means by which they may be carried
into execution, would partake of the prolixity of a legal code,
and could scarcely be embraced by the human mind. It
would probably never be understood by the public. Its
nature, therefore, requires that only its great outlines should
be marked, its important objects designated, and the minor
ingredients which compose those objects be deduced from
the nature of the objects themselves. That this idea was
entertained by the framers of the American Constitution is
not only to be inferred from the nature of the instrument, but
from the language. Why else were some of the limitations
found in the 9th section of the 1st article introduced? It is
also in some degree warranted by their having omitted to
use any restrictive term which might prevent its receiving a
fair and just interpretation. In considering this question,
then, we must never forget that it is a Constitution we are
expounding.
Although, among the enumerated powers of Government,
we do not find the word "bank" or "incorporation," we find
the great powers, to lay and collect taxes; to borrow money;
to regulate commerce; to declare and conduct a war; and to
raise and support armies and navies. The sword and the
purse, all the external relations, and no inconsiderable
139
portion of the industry of the nation are intrusted to its
Government. It can never be pretended
Page 17 U. S. 408
that these vast powers draw after them others of inferior
importance merely because they are inferior. Such an idea
can never be advanced. But it may with great reason be
contended that a Government intrusted with such ample
powers, on the due execution of which the happiness and
prosperity of the Nation so vitally depends, must also be
intrusted with ample means for their execution. The power
being given, it is the interest of the Nation to facilitate its
execution. It can never be their interest, and cannot be
presumed to have been their intention, to clog and
embarrass its execution by withholding the most
appropriate means. Throughout this vast republic, from the
St. Croix to the Gulf of Mexico, from the Atlantic to the
Pacific, revenue is to be collected and expended, armies
are to be marched and supported. The exigencies of the
Nation may require that the treasure raised in the north
should be transported to the south that raised in the east,
conveyed to the west, or that this order should be reversed.
Is that construction of the Constitution to be preferred which
would render these operations difficult, hazardous and
expensive? Can we adopt that construction (unless the
words imperiously require it) which would impute to the
framers of that instrument, when granting these powers for
the public good, the intention of impeding their exercise, by
withholding a choice of means? If, indeed, such be the
mandate of the Constitution, we have only to obey; but that
instrument does not profess to enumerate the means by
which the powers it confers may be executed; nor does it
prohibit the creation of a corporation,
Page 17 U. S. 409
if the existence of such a being be essential, to the
beneficial exercise of those powers. It is, then, the subject
of fair inquiry how far such means may be employed.
It is not denied that the powers given to the Government
imply the ordinary means of execution. That, for example,
of raising revenue and applying it to national purposes is
admitted to imply the power of conveying money from place
to place as the exigencies of the Nation may require, and of
employing the usual means of conveyance. But it is denied
that the Government has its choice of means, or that it may
employ the most convenient means if, to employ them, it be
necessary to erect a corporation. On what foundation does
this argument rest? O n this alone: the power of creating a
corporation is one appertaining to sovereignty, and is not
expressly conferred on Congress. This is true. But all
legislative powers appertain to sovereignty. The original
power of giving the law on any subject whatever is a
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
sovereign power, and if the Government of the Union is
restrained from creating a corporation as a means for
performing its functions, on the single reason that the
creation of a corporation is an act of sovereignty, if the
sufficiency of this reason be acknowledged, there would be
some difficulty in sustaining the authority of Congress to
pass other laws for the accomplishment of the same
objects. The Government which has a right to do an act and
has imposed on it the duty of performing that act must,
according to the dictates of reason, be allowed
Page 17 U. S. 410
to select the means, and those who contend that it may not
select any appropriate means that one particular mode of
effecting the object is excepted take upon themselves the
burden of establishing that exception.
The creation of a corporation, it is said, appertains to
sovereignty. This is admitted. But to what portion of
sovereignty does it appertain? Does it belong to one more
than to another? In America, the powers of sovereignty are
divided between the Government of the Union and those of
the States. They are each sovereign with respect to the
objects committed to it, and neither sovereign with respect
to the objects committed to the other. We cannot
comprehend that train of reasoning, which would maintain
that the extent of power granted by the people is to be
ascertained not by the nature and terms of the grant, but by
its date. Some State Constitutions were formed before,
some since, that of the United States. We cannot believe
that their relation to each other is in any degree dependent
upon this circumstance. Their respective powers must, we
think, be precisely the same as if they had been formed at
the same time. Had they been formed at the same time,
and had the people conferred on the General Government
the power contained in the Constitution, and on the States
the whole residuum of power, would it have been asserted
that the Government of the Union was not sovereign, with
respect to those objects which were intrusted to it, in
relation to which its laws were declared to be supreme? If
this could not have been asserted, we cannot well
comprehend the process of reasoning
Page 17 U. S. 411
which maintains that a power appertaining to sovereignty
cannot be connected with that vast portion of it which is
granted to the General Government, so far as it is
calculated to subserve the legitimate objects of that
Government. The power of creating a corporation, though
appertaining to sovereignty, is not, like the power of making
war or levying taxes or of regulating commerce, a great
substantive and independent power which cannot be
implied as incidental to other powers or used as a means of
140
executing them. It is never the end for which other powers
are exercised, but a means by which other objects are
accomplished. No contributions are made to charity for the
sake of an incorporation, but a corporation is created to
administer the charity; no seminary of learning is instituted
in order to be incorporated, but the corporate character is
conferred to subserve the purposes of education. No city
was ever built with the sole object of being incorporated, but
is incorporated as affording the best means of being well
governed. The power of creating a corporation is never
used for its own sake, but for the purpose of effecting
something else. No sufficient reason is therefore perceived
why it may not pass as incidental to those powers which are
expressly given if it be a direct mode of executing them.
But the Constitution of the United States has not left the
right of Congress to employ the necessary means for the
execution of the powers conferred on the Government to
general reasoning. To its enumeration of powers is added
that of making
"all
Page 17 U. S. 412
laws which shall be necessary and proper for carrying into
execution the foregoing powers, and all other powers
vested by this Constitution in the Government of the United
States or in any department thereof."
The counsel for the State of Maryland have urged various
arguments to prove that this clause, though in terms a grant
of power, is not so in effect, but is really restrictive of the
general right which might otherwise be implied of selecting
means for executing the enumerated powers. In support of
this proposition, they have found it necessary to contend
that this clause was inserted for the purpose of conferring
on Congress the power of making laws. That, without it,
doubts might be entertained whether Congress could
exercise its powers in the form of legislation.
But could this be the object for which it was inserted? A
Government is created by the people having legislative,
executive and judicial powers. Its legislative powers are
vested in a Congress, which is to consist of a senate and
house of representatives. Each house may determine the
rule of its proceedings, and it is declared that every bill
which shall have passed both houses shall, before it
becomes a law, be presented to the President of the United
States. The 7th section describes the course of
proceedings by which a bill shall become a law, and then
the 8th section enumerates the powers of Congress. Could
it be necessary to say that a legislature should exercise
legislative powers, in the shape of legislation? After
allowing each house to prescribe
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
Page 17 U. S. 413
its own course of proceeding, after describing the manner in
which a bill should become a law, would it have entered into
the mind of a single member of the convention that an
express power to make laws was necessary to enable the
legislature to make them? That a legislature, endowed with
legislative powers, can legislate is a proposition too self-
evident to have been questioned.
But the argument on which most reliance is placed is drawn
from that peculiar language of this clause. Congress is not
empowered by it to make all laws which may have relation
to the powers conferred on the Government, but such only
as may be "necessary and proper" for carrying them into
execution. The word "necessary" is considered as
controlling the whole sentence, and as limiting the right to
pass laws for the execution of the granted powers to such
as are indispensable, and without which the power would
be nugatory. That it excludes the choice of means, and
leaves to Congress in each case that only which is most
direct and simple.
Is it true that this is the sense in which the word "necessary"
is always used? Does it always import an absolute physical
necessity so strong that one thing to which another may be
termed necessary cannot exist without that other? We think
it does not. If reference be had to its use in the common
affairs of the world or in approved authors, we find that it
frequently imports no more than that one thing is
convenient, or useful, or essential to another. To employ
the means necessary to an end is generally understood as
employing any means calculated to
Page 17 U. S. 414
produce the end, and not as being confined to those single
means without which the end would be entirely
unattainable. Such is the character of human language that
no word conveys to the mind in all situations one single
definite idea, and nothing is more common than to use
words in a figurative sense. Almost all compositions contain
words which, taken in a their rigorous sense, would convey
a meaning different from that which is obviously intended. It
is essential to just construction that many words which
import something excessive should be understood in a
more mitigated sense -- in that sense which common usage
justifies. The word "necessary" is of this description. It has
not a fixed character peculiar to itself. It admits of all
degrees of comparison, and is often connected with other
words which increase or diminish the impression the mind
receives of the urgency it imports. A thing may be
necessary, very necessary, absolutely or indispensably
necessary. To no mind would the same idea be conveyed
by these several phrases. The comment on the word is well
141
illustrated by the passage cited at the bar from the 10th
section of the 1st article of the Constitution. It is, we think,
impossible to compare the sentence which prohibits a State
from laying "imposts, or duties on imports or exports, except
what may be absolutely necessary for executing its
inspection laws," with that which authorizes Congress "to
make all laws which shall be necessary and proper for
carrying into execution" the powers of the General
Government without feeling a conviction that the convention
understood itself to change materially
Page 17 U. S. 415
the meaning of the word "necessary," by prefixing the word
"absolutely." This word, then, like others, is used in various
senses, and, in its construction, the subject, the context, the
intention of the person using them are all to be taken into
view.
Let this be done in the case under consideration. The
subject is the execution of those great powers on which the
welfare of a Nation essentially depends. It must have been
the intention of those who gave these powers to insure, so
far as human prudence could insure, their beneficial
execution. This could not be done by confiding the choice of
means to such narrow limits as not to leave it in the power
of Congress to adopt any which might be appropriate, and
which were conducive to the end. This provision is made in
a Constitution intended to endure for ages to come, and
consequently to be adapted to the various crises of human
affairs. To have prescribed the means by which
Government should, in all future time, execute its powers
would have been to change entirely the character of the
instrument and give it the properties of a legal code. It
would have been an unwise attempt to provide by
immutable rules for exigencies which, if foreseen at all,
must have been seen dimly, and which can be best
provided for as they occur. To have declared that the best
means shall not be used, but those alone without which the
power given would be nugatory, would have been to
deprive the legislature of the capacity to avail itself of
experience, to exercise its reason, and to accommodate its
legislation to circumstances.
Page 17 U. S. 416
If we apply this principle of construction to any of the
powers of the Government, we shall find it so pernicious in
its operation that we shall be compelled to discard it. The
powers vested in Congress may certainly be carried into
execution, without prescribing an oath of office. The power
to exact this security for the faithful performance of duty is
not given, nor is it indispensably necessary. The different
departments may be established; taxes may be imposed
and collected; armies and navies may be raised and
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
maintained; and money may be borrowed, without requiring
an oath of office. It might be argued with as much
plausibility as other incidental powers have been assailed
that the convention was not unmindful of this subject. The
oath which might be exacted -- that of fidelity to the
Constitution -- is prescribed, and no other can be required.
Yet he would be charged with insanity who should contend
that the legislature might not superadd to the oath directed
by the Constitution such other oath of office as its wisdom
might suggest.
So, with respect to the whole penal code of the United
States, whence arises the power to punish in cases not
prescribed by the Constitution? All admit that the
Government may legitimately punish any violation of its
laws, and yet this is not among the enumerated powers of
Congress. The right to enforce the observance of law by
punishing its infraction might be denied with the more
plausibility because it is expressly given in some cases.
Congress is empowered "to provide for the punishment
Page 17 U. S. 417
of counterfeiting the securities and current coin of the
United States," and "to define and punish piracies and
felonies committed on the high seas, and offences against
the law of nations." The several powers of Congress may
exist in a very imperfect State, to be sure, but they may
exist and be carried into execution, although no punishment
should be inflicted, in cases where the right to punish is not
expressly given.
Take, for example, the power "to establish post-offices and
post-roads." This power is executed by the single act of
making the establishment. But from this has been inferred
the power and duty of carrying the mail along the post road
from one post office to another. And from this implied power
has again been inferred the right to punish those who steal
letters from the post office, or rob the mail. It may be said
with some plausibility that the right to carry the mail, and to
punish those who rob it, is not indispensably necessary to
the establishment of a post office and post road. This right
is indeed essential to the beneficial exercise of the power,
but not indispensably necessary to its existence. So, of the
punishment of the crimes of stealing or falsifying a record or
process of a Court of the United States, or of perjury in
such Court. To punish these offences is certainly conducive
to the due administration of justice. But Courts may exist,
and may decide the causes brought before them, though
such crimes escape punishment.
The baneful influence of this narrow construction on all the
operations of the Government, and the absolute
Page 17 U. S. 418
142
impracticability of maintaining it without rendering the
Government incompetent to its great objects, might be
illustrated by numerous examples drawn from the
Constitution and from our laws. The good sense of the
public has pronounced without hesitation that the power of
punishment appertains to sovereignty, and may be
exercised, whenever the sovereign has a right to act, as
incidental to his Constitutional powers. It is a means for
carrying into execution all sovereign powers, and may be
used although not indispensably necessary. It is a right
incidental to the power, and conducive to its beneficial
exercise.
If this limited construction of the word "necessary" must be
abandoned in order to punish, whence is derived the rule
which would reinstate it when the Government would carry
its powers into execution by means not vindictive in their
nature? If the word "necessary" means "needful,"
"requisite," "essential," "conducive to," in order to let in the
power of punishment for the infraction of law, why is it not
equally comprehensive when required to authorize the use
of means which facilitate the execution of the powers of
Government, without the infliction of punishment?
In ascertaining the sense in which the word "necessary" is
used in this clause of the Constitution, we may derive some
aid from that with which it it is associated. Congress shall
have power "to make all laws which shall be necessary and
proper to carry into execution" the powers of the
Government. If the word "necessary" was used in that strict
and rigorous sense for which the counsel for the State of
Page 17 U. S. 419
Maryland contend, it would be an extraordinary departure
from the usual course of the human mind, as exhibited in
composition, to add a word the only possible effect of which
is to qualify that strict and rigorous meaning, to present to
the mind the idea of some choice of means of legislation
not strained and compressed within the narrow limits for
which gentlemen contend.
But the argument which most conclusively demonstrates
the error of the construction contended for by the counsel
for the State of Maryland is founded on the intention of the
convention as manifested in the whole clause. To waste
time and argument in proving that, without it, Congress
might carry its powers into execution would be not much
less idle than to hold a lighted taper to the sun. As little can
it be required to prove that, in the absence of this clause,
Congress would have some choice of means. That it might
employ those which, in its judgment, would most
advantageously effect the object to be accomplished. That
any means adapted to the end, any means which tended
directly to the execution of the Constitutional powers of the
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
Government, were in themselves Constitutional. This
clause, as construed by the State of Maryland, would
abridge, and almost annihilate, this useful and necessary
right of the legislature to select its means. That this could
not be intended is, we should think, had it not been already
controverted, too apparent for controversy.
We think so for the following reasons:
1st. The clause is placed among the powers of Congress,
not among the limitations on those powers.
Page 17 U. S. 420
2d. Its terms purport to enlarge, not to diminish, the powers
vested in the Government. It purports to be an additional
power, not a restriction on those already granted. No
reason has been or can be assigned for thus concealing an
intention to narrow the discretion of the National Legislature
under words which purport to enlarge it. The framers of the
Constitution wished its adoption, and well knew that it would
be endangered by its strength, not by its weakness. Had
they been capable of using language which would convey
to the eye one idea and, after deep reflection, impress on
the mind another, they would rather have disguised the
grant of power than its limitation. If, then, their intention had
been, by this clause, to restrain the free use of means
which might otherwise have been implied, that intention
would have been inserted in another place, and would have
been expressed in terms resembling these. "In carrying into
execution the foregoing powers, and all others," &c., "no
laws shall be passed but such as are necessary and
proper." Had the intention been to make this clause
restrictive, it would unquestionably have been so in form, as
well as in effect.
The result of the most careful and attentive consideration
bestowed upon this clause is that, if it does not enlarge, it
cannot be construed to restrain, the powers of Congress, or
to impair the right of the legislature to exercise its best
judgment in the selection of measures to carry into
execution the Constitutional powers of the Government. If
no other motive for its insertion can be suggested, a
sufficient one is found in the desire to remove all doubts
respecting
Page 17 U. S. 421
the right to legislate on that vast mass of incidental powers
which must be involved in the Constitution if that instrument
be not a splendid bauble.
We admit, as all must admit, that the powers of the
Government are limited, and that its limits are not to be
transcended. But we think the sound construction of the
Constitution must allow to the national legislature that
143
discretion with respect to the means by which the powers it
confers are to be carried into execution which will enable
that body to perform the high duties assigned to it in the
manner most beneficial to the people. Let the end be
legitimate, let it be within the scope of the Constitution, and
all means which are appropriate, which are plainly adapted
to that end, which are not prohibited, but consist with the
letter and spirit of the Constitution, are Constitutional. *
That a corporation must be considered as a means not less
usual, not of higher dignity, not more requiring a particular
specification than other means has been sufficiently proved.
If we look to the origin of corporations, to the manner in
which they have been framed in that Government from
which we have derived most of our legal principles and
ideas, or to the uses to which they have been applied, we
find no reason to suppose that a Constitution, omitting, and
wisely omitting, to enumerate all the means for carrying into
execution the great powers vested in Government, ought to
have specified this. Had it been intended to grant this power
as one which should be distinct and independent, to be
exercised in any case whatever, it
Page 17 U. S. 422
would have found a place among the enumerated powers
of the Government. But being considered merely as a
means, to be employed only for the purpose of carrying into
execution the given powers, there could be no motive for
particularly mentioning it.
The propriety of this remark would seem to be generally
acknowledged by the universal acquiescence in the
construction which has been uniformly put on the 3d section
of the 4th article of the Constitution. The power to "make all
needful rules and regulations respecting the territory or
other property belonging to the United States" is not more
comprehensive than the power "to make all laws which
shall be necessary and proper for carrying into execution"
the powers of the Government. Yet all admit the
constitutionality of a Territorial Government, which is a
corporate body.
If a corporation may be employed, indiscriminately with
other means, to carry into execution the powers of the
Government, no particular reason can be assigned for
excluding the use of a bank, if required for its fiscal
operations. To use one must be within the discretion of
Congress if it be an appropriate mode of executing the
powers of Government. That it is a convenient, a useful,
and essential instrument in the prosecution of its fiscal
operations is not now a subject of controversy. All those
who have been concerned in the administration of our
finances have concurred in representing its importance and
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
necessity, and so strongly have they been felt that
Statesmen of the first class, whose previous opinions
Page 17 U. S. 423
against it had been confirmed by every circumstance which
can fix the human judgment, have yielded those opinions to
the exigencies of the nation. Under the Confederation,
Congress, justifying the measure by its necessity,
transcended, perhaps, its powers to obtain the advantage
of a bank; and our own legislation attests the universal
conviction of the utility of this measure. The time has
passed away when it can be necessary to enter into any
discussion in order to prove the importance of this
instrument as a means to effect the legitimate objects of the
Government.
But were its necessity less apparent, none can deny its
being an appropriate measure; and if it is, the decree of its
necessity, as has been very justly observed, is to be
discussed in another place. Should Congress, in the
execution of its powers, adopt measures which are
prohibited by the Constitution, or should Congress, under
the pretext of executing its powers, pass laws for the
accomplishment of objects not intrusted to the Government,
it would become the painful duty of this tribunal, should a
case requiring such a decision come before it, to say that
such an act was not the law of the land. But where the law
is not prohibited, and is really calculated to effect any of the
objects intrusted to the Government, to undertake here to
inquire into the decree of its necessity would be to pass the
line which circumscribes the judicial department and to
tread on legislative ground. This Court disclaims all
pretensions to such a power.
Page 17 U. S. 424
After this declaration, it can scarcely be necessary to say
that the existence of State banks can have no possible
influence on the question. No trace is to be found in the
Constitution of an intention to create a dependence of the
Government of the Union on those of the States, for the
execution of the great powers assigned to it. Its means are
adequate to its ends, and on those means alone was it
expected to rely for the accomplishment of its ends. To
impose on it the necessity of resorting to means which it
cannot control, which another Government may furnish or
withhold, would render its course precarious, the result of
its measures uncertain, and create a dependence on other
Governments which might disappoint its most important
designs, and is incompatible with the language of the
Constitution. But were it otherwise, the choice of means
implies a right to choose a national bank in preference to
State banks, and Congress alone can make the election.
144
After the most deliberate consideration, it is the unanimous
and decided opinion of this Court that the act to incorporate
the Bank of the United States is a law made in pursuance of
the Constitution, and is a part of the supreme law of the
land.
The branches, proceeding from the same stock and being
conducive to the complete accomplishment of the object,
are equally constitutional. It would have been unwise to
locate them in the charter, and it would be unnecessarily
inconvenient to employ the legislative power in making
those subordinate arrangements. The great duties of the
bank are prescribed; those duties require branches; and the
bank itself
Page 17 U. S. 425
may, we think, be safely trusted with the selection of places
where those branches shall be fixed, reserving always to
the Government the right to require that a branch shall be
located where it may be deemed necessary.
It being the opinion of the Court that the act incorporating
the bank is constitutional, and that the power of establishing
a branch in the State of Maryland might be properly
exercised by the bank itself, we proceed to inquire:
2. Whether the State of Maryland may, without violating the
Constitution, tax that branch?
That the power of taxation is one of vital importance; that it
is retained by the States; that it is not abridged by the grant
of a similar power to the Government of the Union; that it is
to be concurrently exercised by the two Governments -- are
truths which have never been denied. But such is the
paramount character of the Constitution that its capacity to
withdraw any subject from the action of even this power is
admitted. The States are expressly forbidden to lay any
duties on imports or exports except what may be absolutely
necessary for executing their inspection laws. If the
obligation of this prohibition must be conceded -- if it may
restrain a State from the exercise of its taxing power on
imports and exports -- the same paramount character would
seem to restrain, as it certainly may restrain, a State from
such other exercise of this power as is in its nature
incompatible with, and repugnant to, the constitutional laws
of the Union. A law absolutely repugnant to another as
entirely
Page 17 U. S. 426
repeals that other as if express terms of repeal were used.
On this ground, the counsel for the bank place its claim to
be exempted from the power of a State to tax its operations.
There is no express provision for the case, but the claim
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
has been sustained on a principle which so entirely
pervades the Constitution, is so intermixed with the
materials which compose it, so interwoven with its web, so
blended with its texture, as to be incapable of being
separated from it without rending it into shreds.
This great principle is that the Constitution and the laws
made in pursuance thereof are supreme; that they control
the Constitution and laws of the respective States, and
cannot be controlled by them. From this, which may be
almost termed an axiom, other propositions are deduced as
corollaries, on the truth or error of which, and on their
application to this case, the cause has been supposed to
depend. These are, 1st. That a power to create implies a
power to preserve; 2d. That a power to destroy, if wielded
by a different hand, is hostile to, and incompatible with
these powers to create and to preserve; 3d. That, where
this repugnancy exists, that authority which is supreme
must control, not yield to that over which it is supreme.
These propositions, as abstract truths, would perhaps never
be controverted. Their application to this case, however,
has been denied, and both in maintaining the affirmative
and the negative, a splendor of eloquence, and strength of
argument seldom if ever surpassed have been displayed.
Page 17 U. S. 427
The power of Congress to create and, of course, to
continue the bank was the subject of the preceding part of
this opinion, and is no longer to be considered as
questionable.
That the power of taxing it by the States may be exercised
so as to destroy it is too obvious to be denied. But taxation
is said to be an absolute power which acknowledges no
other limits than those expressly prescribed in the
Constitution, and, like sovereign power of every other
description, is intrusted to the discretion of those who use it.
But the very terms of this argument admit that the
sovereignty of the State, in the article of taxation itself, is
subordinate to, and may be controlled by, the Constitution
of the United States. How far it has been controlled by that
instrument must be a question of construction. In making
this construction, no principle, not declared, can be
admissible which would defeat the legitimate operations of
a supreme Government. It is of the very essence of
supremacy to remove all obstacles to its action within its
own sphere, and so to modify every power vested in
subordinate governments as to exempt its own operations
from their own influence. This effect need not be stated in
terms. It is so involved in the declaration of supremacy, so
necessarily implied in it, that the expression of it could not
make it more certain. We must, therefore, keep it in view
while construing the Constitution.
145
The argument on the part of the State of Maryland is not
that the States may directly resist a law of Congress, but
that they may exercise their
Page 17 U. S. 428
acknowledged powers upon it, and that the Constitution
leaves them this right, in the confidence that they will not
abuse it. Before we proceed to examine this argument and
to subject it to test of the Constitution, we must be permitted
to bestow a few considerations on the nature and extent of
this original right of taxation, which is acknowledged to
remain with the States. It is admitted that the power of
taxing the people and their property is essential to the very
existence of Government, and may be legitimately
exercised on the objects to which it is applicable, to the
utmost extent to which the Government may choose to
carry it. The only security against the abuse of this power is
found in the structure of the Government itself. In imposing
a tax, the legislature acts upon its constituents. This is, in
general, a sufficient security against erroneous and
oppressive taxation.
The people of a State, therefore, give to their Government a
right of taxing themselves and their property, and as the
exigencies of Government cannot be limited, they prescribe
no limits to the exercise of this right, resting confidently on
the interest of the legislator and on the influence of the
constituent over their representative to guard them against
its abuse. But the means employed by the Government of
the Union have no such security, nor is the right of a State
to tax them sustained by the same theory. Those means
are not given by the people of a particular State, not given
by the constituents of the legislature which claim the right to
tax them, but by the people of all the States They are given
by all,
Page 17 U. S. 429
for the benefit of all -- and, upon theory, should be
subjected to that Government only which belongs to all.
It may be objected to this definition that the power of
taxation is not confined to the people and property of a
State. It may be exercised upon every object brought within
its jurisdiction.
This is true. But to what source do we trace this right? It is
obvious that it is an incident of sovereignty, and is
coextensive with that to which it is an incident. All subjects
over which the sovereign power of a State extends are
objects of taxation, but those over which it does not extend
are, upon the soundest principles, exempt from taxation.
This proposition may almost be pronounced self-evident.
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
The sovereignty of a State extends to everything which
exists by its own authority or is introduced by its permission,
but does it extend to those means which are employed by
Congress to carry into execution powers conferred on that
body by the people of the United States? We think it
demonstrable that it does not. Those powers are not given
by the people of a single State. They are given by the
people of the United States, to a Government whose laws,
made in pursuance of the Constitution, are declared to be
supreme. Consequently, the people of a single State cannot
confer a sovereignty which will extend over them.
If we measure the power of taxation residing in a State by
the extent of sovereignty which the people of a single State
possess and can confer on its Government, we have an
intelligible standard, applicable
Page 17 U. S. 430
to every case to which the power may be applied. We have
a principle which leaves the power of taxing the people and
property of a State unimpaired; which leaves to a State the
command of all its resources, and which places beyond its
reach all those powers which are conferred by the people of
the United States on the Government of the Union, and all
those means which are given for the purpose of carrying
those powers into execution. We have a principle which is
safe for the States and safe for the Union. We are relieved,
as we ought to be, from clashing sovereignty; from
interfering powers; from a repugnancy between a right in
one Government to pull down what there is an
acknowledged right in another to build up; from the
incompatibility of a right in one Government to destroy what
there is a right in another to preserve. We are not driven to
the perplexing inquiry, so unfit for the judicial department,
what degree of taxation is the legitimate use and what
degree may amount to the abuse of the power. The attempt
to use it on the means employed by the Government of the
Union, in pursuance of the Constitution, is itself an abuse
because it is the usurpation of a power which the people of
a single State cannot give.
We find, then, on just theory, a total failure of this original
right to tax the means employed by the Government of the
Union, for the execution of its powers. The right never
existed, and the question whether it has been surrendered
cannot arise.
But, waiving this theory for the present, let us resume the
inquiry, whether this power can be exercised
Page 17 U. S. 431
by the respective States, consistently with a fair
construction of the Constitution?
146
That the power to tax involves the power to destroy; that the
power to destroy may defeat and render useless the power
to create; that there is a plain repugnance in conferring on
one Government a power to control the constitutional
measures of another, which other, with respect to those
very measures, is declared to be supreme over that which
exerts the control, are propositions not to be denied. But all
inconsistencies are to be reconciled by the magic of the
word CONFIDENCE. Taxation, it is said, does not
necessarily and unavoidably destroy. To carry it to the
excess of destruction would be an abuse, to presume which
would banish that confidence which is essential to all
Government.
But is this a case of confidence? Would the people of any
one State trust those of another with a power to control the
most insignificant operations of their State Government?
We know they would not. Why, then, should we suppose
that the people of any one State should be willing to trust
those of another with a power to control the operations of a
Government to which they have confided their most
important and most valuable interests? In the Legislature of
the Union alone are all represented. The Legislature of the
Union alone, therefore, can be trusted by the people with
the power of controlling measures which concern all, in the
confidence that it will not be abused. This, then, is not a
case of confidence, and we must consider it is as it really is.
Page 17 U. S. 432
If we apply the principle for which the State of Maryland
contends, to the Constitution generally, we shall find it
capable of changing totally the character of that instrument.
We shall find it capable of arresting all the measures of the
Government, and of prostrating it at the foot of the States.
The American people have declared their Constitution and
the laws made in pursuance thereof to be supreme, but this
principle would transfer the supremacy, in fact, to the
States.
If the States may tax one instrument, employed by the
Government in the execution of its powers, they may tax
any and every other instrument. They may tax the mail;
they may tax the mint; they may tax patent rights; they may
tax the papers of the custom house; they may tax judicial
process; they may tax all the means employed by the
Government to an excess which would defeat all the ends
of Government. This was not intended by the American
people. They did not design to make their Government
dependent on the States.
Gentlemen say they do not claim the right to extend State
taxation to these objects. They limit their pretensions to
property. But on what principle is this distinction made?
Those who make it have furnished no reason for it, and the
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
principle for which they contend denies it. They contend
that the power of taxation has no other limit than is found in
the 10th section of the 1st article of the Constitution; that,
with respect to everything else, the power of the States is
supreme, and admits of no control. If this be true, the
distinction between property and
Page 17 U. S. 433
other subjects to which the power of taxation is applicable is
merely arbitrary, and can never be sustained. This is not all.
If the controlling power of the States be established, if their
supremacy as to taxation be acknowledged, what is to
restrain their exercising control in any shape they may
please to give it? Their sovereignty is not confined to
taxation; that is not the only mode in which it might be
displayed. The question is, in truth, a question of
supremacy, and if the right of the States to tax the means
employed by the General Government be conceded, the
declaration that the Constitution and the laws made in
pursuance thereof shall be the supreme law of the land is
empty and unmeaning declamation.
In the course of the argument, the Federalist has been
quoted, and the opinions expressed by the authors of that
work have been justly supposed to be entitled to great
respect in expounding the Constitution. No tribute can be
paid to them which exceeds their merit; but in applying their
opinions to the cases which may arise in the progress of
our Government, a right to judge of their correctness must
be retained; and to understand the argument, we must
examine the proposition it maintains and the objections
against which it is directed. The subject of those numbers
from which passages have been cited is the unlimited
power of taxation which is vested in the General
Government. The objection to this unlimited power, which
the argument seeks to remove, is stated with fulness and
clearness. It is
"that an indefinite power of taxation in the latter (the
Government
Page 17 U. S. 434
of the Union) might, and probably would, in time, deprive
the former (the Government of the States) of the means of
providing for their own necessities, and would subject them
entirely to the mercy of the National Legislature. As the
laws of the Union are to become the supreme law of the
land; as it is to have power to pass all laws that may be
necessary for carrying into execution the authorities with
which it is proposed to vest it; the National Government
might, at any time, abolish the taxes imposed for State
objects upon the pretence of an interference with its own. It
might allege a necessity for doing this, in order to give
efficacy to the national revenues; and thus, all the
147
resources of taxation might, by degrees, become the
subjects of federal monopoly, to the entire exclusion and
destruction of the State Governments."
The objections to the Constitution which are noticed in
these numbers were to the undefined power of the
Government to tax, not to the incidental privilege of
exempting its own measures from State taxation. The
consequences apprehended from this undefined power
were that it would absorb all the objects of taxation, "to the
exclusion and destruction of the State Governments." The
arguments of the Federalist are intended to prove the
fallacy of these apprehensions, not to prove that the
Government was incapable of executing any of its powers
without exposing the means it employed to the
embarrassments of State taxation. Arguments urged
against these objections and these apprehensions are to be
understood as relating to the points they
Page 17 U. S. 435
mean to prove. Had the authors of those excellent essays
been asked whether they contended for that construction of
the Constitution which would place within the reach of the
States those measures which the Government might adopt
for the execution of its powers, no man who has read their
instructive pages will hesitate to admit that their answer
must have been in the negative.
It has also been insisted that, as the power of taxation in
the General and State Governments is acknowledged to be
concurrent, every argument which would sustain the right of
the General Government to tax banks chartered by the
States, will equally sustain the right of the States to tax
banks chartered by the General Government.
But the two cases are not on the same reason. The people
of all the States have created the General Government, and
have conferred upon it the general power of taxation. The
people of all the States, and the States themselves, are
represented in Congress, and, by their representatives,
exercise this power. When they tax the chartered
institutions of the States, they tax their constituents, and
these taxes must be uniform. But when a State taxes the
operations of the Government of the United States, it acts
upon institutions created not by their own constituents, but
by people over whom they claim no control. It acts upon the
measures of a Government created by others as well as
themselves, for the benefit of others in common with
themselves. The difference is that which always exists, and
always must exist, between the action of the whole on a
Page 17 U. S. 436
part, and the action of a part on the whole -- between the
laws of a Government declared to be supreme, and those
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
of a Government which, when in opposition to those laws, is
not supreme.
But if the full application of this argument could be admitted,
it might bring into question the right of Congress to tax the
State banks, and could not prove the rights of the States to
tax the Bank of the United States.
The Court has bestowed on this subject its most deliberate
consideration. The result is a conviction that the States
have no power, by taxation or otherwise, to retard, impede,
burden, or in any manner control the operations of the
constitutional laws enacted by Congress to carry into
execution the powers vested in the General Government.
This is, we think, the unavoidable consequence of that
supremacy which the Constitution has declared.
We are unanimously of opinion that the law passed by the
Legislature of Maryland, imposing a tax on the Bank of the
United States is unconstitutional and void.
This opinion does not deprive the States of any resources
which they originally possessed. It does not extend to a tax
paid by the real property of the bank, in common with the
other real property within the State, nor to a tax imposed on
the interest which the citizens of Maryland may hold in this
institution, in common with other property of the same
description throughout the State. But this is a tax on the
operations of the bank, and is, consequently, a tax on the
operation of an instrument employed by the Government
Page 17 U. S. 437
of the Union to carry its powers into execution. Such a tax
must be unconstitutional.
JUDGMENT. This cause came on to be heard, on the
transcript of the record of the Court of Appeals of the State
of Maryland, and was argued by counsel; on consideration
whereof, it is the opinion of this Court that the act of the
Legislature of Maryland is contrary to the Constitution of the
United States, and void, and therefore that the said Court of
Appeals of the State of Maryland erred, in affirming the
judgment of the Baltimore County Court, in which judgment
was rendered against James W. McCulloch; but that the
said Court of Appeals of Maryland ought to have reversed
the said judgment of the said Baltimore County Court, and
ought to have given judgment for the said appellant,
McCulloch. It is, therefore, adjudged and ordered that the
said judgment of the said Court of Appeals of the State of
Maryland in this case be, and the same hereby is, reversed
and annulled. And this Court, proceeding to render such
judgment as the said Court of Appeals should have
rendered, it is further adjudged and ordered that the
judgment of the said Baltimore County Court be reversed
148
and annulled, and that judgment be entered in the said
Baltimore County Court for the said James W. McCulloch.
Sison vs Ancheta (1984)
Facts: Batas Pambansa 135 was enacted. Sison, as
taxpayer, alleged that its provision (Section 1) unduly
discriminated against him by the imposition of higher rates
upon his income as a professional, that it amounts to class
legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as
well as the rule requiring uniformity in taxation.
Issue: Whether BP 135 violates the due process and equal
protection clauses, and the rule on uniformity in taxation.
Held: There is a need for proof of such persuasive
character as would lead to a conclusion that there was a
violation of the due process and equal protection clauses.
Absent such showing, the presumption of validity must
prevail. Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall
be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for
purposes of taxation. Where the differentitation conforms to
the practical dictates of justice and equity, similar to the
standards of equal protection, it is not discriminatory within
the meaning of the clause and is therefore uniform.
Taxpayers may be classified  into different categories, such
as recipients of compensation income as against
professionals. Recipients of compensation income are not
entitled to make deductions for income tax purposes as
there is no practically no overhead expense, while
professionals and businessmen have no uniform costs or
expenses necessaryh to produce their income. There is
ample justification to adopt the gross system of income
taxation to compensation income, while continuing the
system of net income taxation as regards professional and
business income.
FERNANDO, C.J.:
The success of the challenge posed in this suit for
declaratory relief or prohibition proceeding 1 on the validity
of Section I of Batas Pambansa Blg. 135 depends upon a
showing of its constitutional infirmity. The assailed provision
further amends Section 21 of the National Internal Revenue
Code of 1977, which provides for rates of tax on citizens or
residents on (a) taxable compensation income, (b) taxable
net income, (c) royalties, prizes, and other winnings, (d)
interest from bank deposits and yield or any other monetary
benefit from deposit substitutes and from trust fund and
similar arrangements, (e) dividends and share of individual
partner in the net profits of taxable partnership, (f) adjusted
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
gross income. 2 Petitioner 3as taxpayer alleges that by
virtue thereof, "he would be unduly discriminated against by
the imposition of higher rates of tax upon his income arising
from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual
taxpayers. 4 He characterizes the above sction as arbitrary
amounting to class legislation, oppressive and capricious in
character 5 For petitioner, therefore, there is a transgression
of both the equal protection and due process clauses 6 of
the Constitution as well as of the rule requiring uniformity in
taxation. 7
The Court, in a resolution of January 26, 1982, required
respondents to file an answer within 10 days from notice.
Such an answer, after two extensions were granted the
Office of the Solicitor General, was filed on May 28,
1982.8 The facts as alleged were admitted but not the
allegations which to their mind are "mere arguments,
opinions or conclusions on the part of the petitioner, the
truth [for them] being those stated [in their] Special and
Affirmative Defenses."9 The answer then affirmed: "Batas
Pambansa Big. 135 is a valid exercise of the State's power
to tax. The authorities and cases cited while correctly
quoted or paraghraph do not support petitioner's
stand." 10 The prayer is for the dismissal of the petition for
lack of merit.
This Court finds such a plea more than justified. The
petition must be dismissed.
1. It is manifest that the field of state activity has assumed a
much wider scope, The reason was so clearly set forth by
retired Chief Justice Makalintal thus: "The areas which used
to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only
'because it was better equipped to administer for the public
welfare than is any private individual or group of
individuals,' continue to lose their well-defined boundaries
and to be absorbed within activities that the government
must undertake in its sovereign capacity if it is to meet the
increasing social challenges of the times." 11 Hence the
need for more revenues. The power to tax, an inherent
prerogative, has to be availed of to assure the performance
of vital state functions. It is the source of the bulk of public
funds. To praphrase a recent decision, taxes being the
lifeblood of the government, their prompt and certain
availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice
Malcolm, "is an attribute of sovereignty. It is the strongest of
all the powers of of government." 13 It is, of course, to be
admitted that for all its plenitude 'the power to tax is not
unconfined. There are restrictions. The Constitution sets
forth such limits . Adversely affecting as it does properly
rights, both the due process and equal protection clauses
149
inay properly be invoked, all petitioner does, to invalidate in
appropriate cases a revenue measure. if it were otherwise,
there would -be truth to the 1803 dictum of Chief Justice
Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New
York, 15 Justice Frankfurter, after referring to it as an 1,
unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times
following] a free use of absolutes." 16 This is merely to
emphasize that it is riot and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr.
Justice Holmess pen: 'The power to tax is not the power to
destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as
the fundamental law overrides any legislative or executive,
act that runs counter to it. In any case therefore where it
can be demonstrated that the challenged statutory provision
— as petitioner here alleges — fails to abide by its
command, then this Court must so declare and adjudge it
null. The injury thus is centered on the question of whether
the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation
is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here. does not
suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would
condemn such a provision as void or its face, he has not
made out a case. This is merely to adhere to the
authoritative doctrine that were the due process and equal
protection clauses are invoked, considering that they arc
not fixed rules but rather broad standards, there is a need
for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of
validity must prevail. 18
5. It is undoubted that the due process clause may be
invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it
can be shown to amount to the confiscation of property.
That would be a clear abuse of power. It then becomes the
duty of this Court to say that such an arbitrary act amounted
to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has also
been held that where the assailed tax measure is beyond
the jurisdiction of the state, or is not for a public purpose, or,
in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process
grounds. 19
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
6. Now for equal protection. The applicable standard to
avoid the charge that there is a denial of this constitutional
mandate whether the assailed act is in the exercise of the
lice power or the power of eminent domain is to
demonstrated that the governmental act assailed, far from
being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices
then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the
liabilities imposed. Favoritism and undue preference cannot
be allowed. For the principle is that equal protection and
security shall be given to every person under circumtances
which if not Identical are analogous. If law be looked upon
in terms of burden or charges, those that fall within a class
should be treated in the same fashion, whatever restrictions
cast on some in the group equally binding on the
rest." 20 That same formulation applies as well to taxation
measures. The equal protection clause is, of course,
inspired by the noble concept of approximating the Ideal of
the laws benefits being available to all and the affairs of
men being governed by that serene and impartial
uniformity, which is of the very essence of the Idea of law.
There is, however, wisdom, as well as realism in these
words of Justice Frankfurter: "The equality at which the
'equal protection' clause aims is not a disembodied equality.
The Fourteenth Amendment enjoins 'the equal protection of
the laws,' and laws are not abstract propositions. They do
not relate to abstract units A, B and C, but are expressions
of policy arising out of specific difficulties, address to the
attainment of specific ends by the use of specific remedies.
The Constitution does not require things which are different
in fact or opinion to be treated in law as though they were
the same." 21 Hence the constant reiteration of the view that
classification if rational in character is allowable. As a
matter of fact, in a leading case of Lutz V. Araneta, 22 this
Court, through Justice J.B.L. Reyes, went so far as to hold
"at any rate, it is inherent in the power to tax that a state be
free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of
uniformity. According to the Constitution: "The rule of
taxation shag be uniform and equitable." 24 This
requirement is met according to Justice Laurel in Philippine
Trust Company v. Yatco, 25 decided in 1940, when the tax
"operates with the same force and effect in every place
where the subject may be found. " 26 He likewise added:
"The rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable." 27 The
150
problem of classification did not present itself in that case. It
did not arise until nine years later, when the Supreme Court
held: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall
be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for
purposes of taxation, ... . 28 As clarified by Justice Tuason,
where "the differentiation" complained of "conforms to the
practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is
therefore uniform." 29 There is quite a similarity then to the
standard of equal protection for all that is required is that
the tax "applies equally to all persons, firms and
corporations placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner
is his failure to take into consideration the distinction
between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by
eliminating all deductible items and at the same time
reducing the applicable tax rate. Taxpayers may be
classified into different categories. To repeat, it. is enough
that the classification must rest upon substantial distinctions
that make real differences. In the case of the gross income
taxation embodied in Batas Pambansa Blg. 135, the,
discernible basis of classification is the susceptibility of the
income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing
a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are
set apart as a class. As there is practically no overhead
expense, these taxpayers are e not entitled to make
deductions for income tax purposes because they are in the
same situation more or less. On the other hand, in the case
of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or
expenses necessary to produce their income. It would not
be just then to disregard the disparities by giving all of them
zero deduction and indiscriminately impose on all alike the
same tax rates on the basis of gross income. There is
ample justification then for the Batasang Pambansa to
adopt the gross system of income taxation to compensation
income, while continuing the system of net income taxation
as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is
without merit, considering the (1) lack of factual foundation
to show the arbitrary character of the assailed
provision; 31 (2) the force of controlling doctrines on due
process, equal protection, and uniformity in taxation and (3)
the reasonableness of the distinction between
compensation and taxable net income of professionals and
businessman certainly not a suspect classification,
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
WHEREFORE, the petition is dismissed. Costs against
petitioner.
Lladoc vs Commisioner of Internal Revenue (1965)
Facts: In 1957, the MB Estate Inc. of Bacolod City donated
P10,000 in cash to the parish priest of Victorias, Negros
Occidental; the amount spent for the construction of a new
Catholic Church in the locality,m as intended. In1958, MB
Estate filed the donor’s gift tax return. In 1960, the
Commissioner issued an assessment for donee’s gift tax
against the parish. The priest lodged a protest to the
assessment and requested the withdrawal thereof.
Issue: Whether the Catholic Parish is tax exempt.
Held: The phrase “exempt from taxation” should not be
interpreted to mean exemption from all kinds of taxes. The
exemption is only from the payment of taxes assessed on
such properties as property taxes as contradistinguished
from excise taxes. A donee’s gift tax is not a property tax
but an excise tax imposed on the transfer of property by
way of gift inter vivos. It does not rest upon general
ownership, but an excise upon the use made of the
properties, upon the exercise of the privilege of receiving
the properties. The imposition of such excise tax on
property used for religious purpose do not constitute an
impairment of the Constitution.
The tax exemption of the parish, thus, does not extend to
excise taxes.
REV. FR. CASIMIRO LLADOC, petitioner, 
vs.
The COMMISSIONER OF INTERNAL REVENUE and The
COURT of TAX APPEALS, respondents.
Hilado and Hilado for petitioner.
Office of the Solicitor General for respondents.
PAREDES, J.:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City,
donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then
parish priest of Victorias, Negros Occidental, and
predecessor of herein petitioner, for the construction of a
new Catholic Church in the locality. The total amount was
actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the
donor's gift tax return. Under date of April 29, 1960, the
respondent Commissioner of Internal Revenue issued an
assessment for donee's gift tax against the Catholic Parish
of Victorias, Negros Occidental, of which petitioner was the
priest. The tax amounted to P1,370.00 including
151
surcharges, interests of 1% monthly from May 15, 1958 to
June 15, 1960, and the compromise for the late filing of the
return.
Petitioner lodged a protest to the assessment and
requested the withdrawal thereof. The protest and the
motion for reconsideration presented to the Commissioner
of Internal Revenue were denied. The petitioner appealed
to the Court of Tax Appeals on November 2, 1960. In the
petition for review, the Rev. Fr. Casimiro Lladoc claimed,
among others, that at the time of the donation, he was not
the parish priest in Victorias; that there is no legal entity or
juridical person known as the "Catholic Parish Priest of
Victorias," and, therefore, he should not be liable for the
donee's gift tax. It was also asserted that the assessment of
the gift tax, even against the Roman Catholic Church,
would not be valid, for such would be a clear violation of the
provisions of the Constitution.
After hearing, the CTA rendered judgment, the pertinent
portions of which are quoted below:
... . Parish priests of the Roman Catholic Church under
canon laws are similarly situated as its Archbishops and
Bishops with respect to the properties of the church within
their parish. They are the guardians, superintendents or
administrators of these properties, with the right of
succession and may sue and be sued.
xxx     xxx     xxx
The petitioner impugns the, fairness of the assessment with
the argument that he should not be held liable for gift taxes
on donation which he did not receive personally since he
was not yet the parish priest of Victorias in the year 1957
when said donation was given. It is intimated that if
someone has to pay at all, it should be petitioner's
predecessor, the Rev. Fr. Crispin Ruiz, who received the
donation in behalf of the Catholic parish of Victorias or the
Roman Catholic Church. Following petitioner's line of
thinking, we should be equally unfair to hold that the
assessment now in question should have been addressed
to, and collected from, the Rev. Fr. Crispin Ruiz to be paid
from income derived from his present parish where ever it
may be. It does not seem right to indirectly burden the
present parishioners of Rev. Fr. Ruiz for donee's gift tax on
a donation to which they were not benefited.
xxx     xxx     xxx
We saw no legal basis then as we see none now, to include
within the Constitutional exemption, taxes which partake of
the nature of an excise upon the use made of the properties
or upon the exercise of the privilege of receiving the
properties. (Phipps vs. Commissioner of Internal Revenue,
91 F [2d] 627; 1938, 302 U.S. 742.)
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
It is a cardinal rule in taxation that exemptions from
payment thereof are highly disfavored by law, and the party
claiming exemption must justify his claim by a clear,
positive, or express grant of such privilege by law.
(Collector vs. Manila Jockey Club, G.R. No. L-8755, March
23, 1956; 53 O.G. 3762.)
The phrase "exempt from taxation" as employed in Section
22(3), Article VI of the Constitution of the Philippines,
should not be interpreted to mean exemption from all kinds
of taxes. Statutes exempting charitable and religious
property from taxation should be construed fairly though
strictly and in such manner as to give effect to the main
intent of the lawmakers. (Roman Catholic Church vs.
Hastrings 5 Phil. 701.)
xxx     xxx     xxx
WHEREFORE, in view of the foregoing considerations, the
decision of the respondent Commissioner of Internal
Revenue appealed from, is hereby affirmed except with
regard to the imposition of the compromise penalty in the
amount of P20.00 (Collector of Internal Revenue v. U.S.T.,
G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner,
the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to the
respondent the amount of P900.00 as donee's gift tax, plus
the surcharge of five  per centum (5%) as ad
valorem penalty under Section 119 (c) of the Tax Code, and
one  per centum (1%) monthly interest from May 15, 1958 to
the date of actual payment. The surcharge of 25% provided
in Section 120 for failure to file a return may not be imposed
as the failure to file a return was not due to willful neglect.
( ... ) No costs.
The above judgment is now before us on appeal, petitioner
assigning two (2) errors allegedly committed by the Tax
Court, all of which converge on the singular issue of
whether or not petitioner should be liable for the assessed
donee's gift tax on the P10,000.00 donated for the
construction of the Victorias Parish Church.
Section 22 (3), Art. VI of the Constitution of the Philippines,
exempts from taxation cemeteries, churches and
parsonages or convents, appurtenant thereto, and
all lands, buildings, and improvements used exclusively for
religious purposes. The exemption is only from the payment
of taxes assessed on such properties enumerated, as
property taxes, as contra distinguished from excise taxes.
In the present case, what the Collector assessed was a
donee's gift tax; the assessment was not on the properties
themselves. It did not rest upon general ownership; it was
an excise upon the use made of the properties, upon the
exercise of the privilege of receiving the properties (Phipps
vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not
within the exempting provisions of the section just
152
mentioned. A gift tax is not a property tax, but an excise tax
imposed on the transfer of property by way of gift inter
vivos, the imposition of which on property used exclusively
for religious purposes, does not constitute an impairment of
the Constitution. As well observed by the learned
respondent Court, the phrase "exempt from taxation," as
employed in the Constitution (supra) should not be
interpreted to mean exemption from all kinds of taxes. And
there being no clear, positive or express grant of such
privilege by law, in favor of petitioner, the exemption herein
must be denied.
The next issue which readily presents itself, in view of
petitioner's thesis, and Our finding that a tax liability exists,
is, who should be called upon to pay the gift tax? Petitioner
postulates that he should not be liable, because at the time
of the donation he was not the priest of Victorias. We note
the merit of the above claim, and in order to put things in
their proper light, this Court, in its Resolution of March 15,
1965, ordered the parties to show cause why the Head of
the Diocese to which the parish of Victorias pertains, should
not be substituted in lieu of petitioner Rev. Fr. Casimiro
Lladoc it appearing that the Head of such Diocese is the
real party in interest. The Solicitor General, in
representation of the Commissioner of Internal Revenue,
interposed no objection to such a substitution. Counsel for
the petitioner did not also offer objection thereto.
On April 30, 1965, in a resolution, We ordered the Head of
the Diocese to present whatever legal issues and/or
defenses he might wish to raise, to which resolution
counsel for petitioner, who also appeared as counsel for the
Head of the Diocese, the Roman Catholic Bishop of
Bacolod, manifested that it was submitting itself to the
jurisdiction and orders of this Court and that it was
presenting, by reference, the brief of petitioner Rev. Fr.
Casimiro Lladoc as its own and for all purposes.
In view here of and considering that as heretofore stated,
the assessment at bar had been properly made and the
imposition of the tax is not a violation of the constitutional
provision exempting churches, parsonages or convents,
etc. (Art VI, sec. 22 [3], Constitution), the Head of the
Diocese, to which the parish Victorias Pertains, is liable for
the payment thereof.
The decision appealed from should be, as it is hereby
affirmed insofar as tax liability is concerned; it is modified, in
the sense that petitioner herein is not personally liable for
the said gift tax, and that the Head of the Diocese, herein
substitute petitioner, should pay, as he is presently ordered
to pay, the said gift tax, without special, pronouncement as
to costs.
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
PHILEX MINING CORP. v. CIR
GR No. 125704, August 28, 1998
294 SCRA 687
FACTS: Petitioner Philex Mining Corp. assails the decision
of the Court of Appeals affirming the Court of Tax Appeals
decision ordering it to pay the amount of P110.7 M as
excise tax liability for the period from the 2nd quarter of
1991 to the 2nd quarter of 1992 plus 20% annual interest
from 1994 until fully paid pursuant to Sections 248 and 249
of the Tax Code of 1977. 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 P120 M plus
interest. Therefore these claims for tax credit/refund should
be applied against the tax liabilities.
ISSUE: Can there be an off-setting between the tax
liabilities vis-a-vis claims of tax refund of the petitioner?
HELD: No. Philex's claim 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. 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, Philex cannot be allowed 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.Taxes cannot
be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors
of each other. 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. xxx 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.
Philex v CIR
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 ofP110,677,668.52 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
153
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, he
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 exercise 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
a 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 of 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

RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original) 154
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-G.R. CV No. 36975.
[11]
Nonetheless, on April 8, 1996, the Court of Appeals 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 By                     Tax Credit Certificate             Date Of Issue             Amount

 Claims For Vat              Number

 refund/credit

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 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,[20] which
reiterated that:

“x x x  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.”

RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original) 155
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-Suyocpronouncement 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 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 payer 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 honesty 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
collectot kill the 'hen that lays the golden egg.' And, in the
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 valid reason for the non- payment of its tax
liabilities.

RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original) 156
To be sure, this is not 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 claims 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.
Article 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 enjoined 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.
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
COMMISIONER ON IONTERNAL REVENUE V CA
CIR v. YMCA
GR No. 124043, October 14, 1998
298 SCRA 83
FACTS: Private Respondent YMCA--a non-stock, non-profit
institution, which conducts various programs beneficial to
the public pursuant to its religious, educational and
charitable objectives--leases out a portion of its premises to
small shop owners, like restaurants and canteen operators,
deriving substantial income for such. Seeing this, the
commissioner of internal revenue (CIR) issued an
assessment to private respondent for deficiency income
tax, deficiency expanded withholding taxes on rentals and
professional fees and deficiency withholding tax on wages.
YMCA opposed arguing that its rental income is not subject
to tax, mainly because of the provisions of Section 27 of
NIRC which provides that civic league or organizations not
organized for profit but operate exclusively for promotion of
social welfare and those organized exclusively for pleasure,
recreation and other non-profitble businesses shall not be
taxed.
ISSUE: Is the contention of YMCA tenable?
HELD: No. Because taxes are the lifeblood of the nation,
the Court has always applied the doctrine of strict in
interpretation in construing tax exemptions. Furthermore, a
claim of statutory exemption from taxation should be
manifest and unmistakable from the language of the law on
which it is based. Thus, the claimed exemption "must
expressly be granted in a statute stated in a language too
clear to be mistaken.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. COURT OF APPEALS, COURT OF TAX APPEALS
and YOUNG MEN’S CHRISTIAN ASSOCIATION OF THE
PHILIPPINES, INC., respondents.
DECISION
PANGANIBAN, J.:
Is the income derived from rentals of real property owned
by the Young Men’s Christian Association of the
Philippines, Inc. (YMCA) – established as “a welfare,
educational and charitable non-profit corporation” -- subject
to income tax under the National Internal Revenue Code
(NIRC) and the Constitution?
The Case
This is the main question raised before us in this petition for
review on certiorari challenging two Resolutions issued by
157
the Court of Appeals[1] on September 28, 1995[2] and
February 29, 1996[3] in CA-GR SP No. 32007.  Both
Resolutions affirmed the Decision of the Court of Tax
Appeals (CTA) allowing the YMCA to claim tax exemption
on the latter’s income from the lease of its real property.
The Facts
The Facts are undisputed.[4] Private Respondent YMCA is a
non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious,
educational and charitable objectives.
In 1980, private respondent earned, among others, an
income of P676,829.80 from leasing out a portion of its
premises to small shop owners, like restaurants and
canteen operators, and P44,259.00 from parking fees
collected from non-members.  On July 2, 1984, the
commissioner of internal revenue (CIR) issued an
assessment to private respondent, in the total amount
of P415,615.01 including surcharge and interest, for
deficiency income tax, deficiency expanded withholding
taxes on rentals and professional fees and deficiency
withholding tax on wages.  Private respondent formally
protested the assessment and, as a supplement to its basic
protest, filed a letter dated October 8, 1985.  In reply, the
CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a
petition for review at the Court if Tax Appeals (CTA) on
March 14, 1989.  In due course, the CTA issued this ruling
in favor of the YMCA:
“xxx [T]he leasing of private respondent’s facilities to small
shop owners, to restaurant and canteen operators and the
operation of the parking lot are reasonably incidental to and
reasonably necessary for the accomplishment of the
objectives of the [private respondents].  It appears from the
testimonies of the witnesses for the [private respondent]
particularly Mr. James C. Delote, former accountant of
YMCA, that these facilities were leased to members and
that they have to service the needs of its members and their
guests.  The Rentals were minimal as for example, the
barbershop was only charged P300 per month.  He also
testified that there was actually no lot devoted for parking
space but the parking was done at the sides of the
building.  The parking was primarily for members with
stickers on the windshields of their cars and they
charged P.50 for non-members.  The rentals and parking
fees were just enough to cover the costs of operation and
maintenance only.  The earning[s] from these rentals and
parking charges including those from lodging and other
charges for the use of the recreational facilities constitute
[the] bulk of its income which [is] channeled to support its
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
many activities and attainment of its objectives.  As pointed
out earlier, the membership dues are very insufficient to
support its program.  We find it reasonably necessary
therefore for [private respondent] to make [the] most out [of]
its existing facilities to earn some income.  It would have
been different if under the circumstances, [private
respondent] will purchase a lot and convert it to a parking
lot to cater to the needs of the general public for a fee, or
construct a building and lease it out to the highest bidder or
at the market rate for commercial purposes, or should it
invest its funds in the buy and sell of properties, real or
personal. Under these circumstances, we could conclude
that the activities are already profit oriented, not incidental
and reasonably necessary to the pursuit of the objectives of
the association and therefore, will fall under the last
paragraph of section 27 of the Tax Code and any income
derived therefrom shall be taxable.
“Considering our findings that [private respondent] was not
engaged in the business of operating or contracting [a]
parking lot, we find no legal basis also for the imposition of
[a] deficiency fixed tax and [a] contractor’s tax in the
amount[s] of P353.15 and P3,129.73, respectively.
x x x                                                x x
x                                        x x x
“WHEREFORE, in view of all the foregoing, the following
assessments are hereby dismissed for lack of merit:
1980 Deficiency Fixed Tax – P353,15;
1980 Deficiency Contractor’s Tax – P3,129.23;
1980 Deficiency Income Tax – P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding Tax – P1,798.93;
1980 Deficiency Withholding Tax on Wages – P33,058.82
plus 10% surcharge and 20% interest per annum from July
2, 1984 until fully paid but not to exceed three (3) years
pursuant to Section 51 (e)(2) & (3) of the National Internal
Revenue Code effective as of 1984.”[5]
Dissatisfied with the CTA ruling, the CIR elevated the case
to the Court of Appeals (CA).  In its Decision of February
16, 1994, the CA[6] initially decided in favor of the CIR and
disposed of the appeal in the following manner:
“Following the ruling in the afore-cited cases of Province of
Abra vs. Hernando and Abra Valley College Inc. vs. Aquino,
the ruling of the respondent Court of Tax Appeals that ‘the
leasing of petitioner’s (herein respondent) facilities to small
shop owners, to restaurant and canteen operators and the
158
operation of the parking lot are reasonably incidental to and
reasonably necessary for the accomplishment of the
objectives of the petitioners,' and the income derived
therefrom are tax exempt, must be reversed.
“WHEREFORE, the appealed decision is hereby
REVERSED in so far as it dismissed the assessment for:
1980 Deficiency Income Tax             P       353.15
1980 Deficiency Contractor’s Tax                  P    3,129.23,
&
1980 Deficiency Income Tax                           P372,578.20,
but the same is AFFIRMED in all other respect.” [7]
Aggrieved, the YMCA asked for reconsideration based on
the following grounds:
I
“The findings of facts of the Public Respondent Court of Tax
Appeals being supported by substantial evidence [are] final
and conclusive.
II
“The conclusions of law of [p]ublic [r]espondent exempting
[p]rivate [r]espondent from the income on rentals of small
shops and parking fees [are] in accord with the applicable
law and jurisprudence.”[8]
Finding merit in the Motion for Reconsideration filed by the
YMCA, the CA reversed itself and promulgated on
September 28, 1995 its first assailed Resolution which, in
part, reads:
“The Court cannot depart from the CTA’s findings of fact, as
they are supported by evidence beyond what is considered
as substantial.
x x x                                                x
x                                        x x x
“The second ground raised is that the respondent CTA did
not err in saying that the rental from small shops and
parking fees do not result in the loss of the exemption.  Not
even the petitioner would hazard the suggestion that YMCA
is designed for profit.  Consequently, the little income from
small shops and parking fees help[s] to keep its head above
the water, so to speak, and allow it to continue with its
laudable work.
“The Court, therefore, finds the second ground of the
motion to be meritorious and in accord with law and
jurisprudence.
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
“WHEREFORE, the motion for reconsideration is
GRANTED; the respondent CTA’s decision is
AFFIRMED in toto.”[9]
The internal revenue commissioner’s own Motion for
Reconsideration was denied by Respondent Court in its
second assailed Resolution of February 29, 1996.  Hence,
this petition for review under Rule 45 of the Rules of Court.
[10]
The Issues
Before us, petitioner imputes to the Court of Appeals the
following errors:
I
“In holding that it had departed from the findings of fact of
Respondent Court of Tax Appeals when it rendered its
Decision dated February 16, 1994; and
II
“In affirming the conclusion of Respondent Court of Tax
Appeals that the income of private respondent from rentals
of small shops and parking fees [is] exempt from
taxation.”[11]
This Court’s Ruling
The Petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA
Decision reversed the factual findings of the CTA.  On the
other hand, petitioner argues that the CA merely reversed
the “ruling of the CTA that the leasing of private
respondent’s facilities to small shop owners, to restaurant
and canteen operators and the operation of parking lots are
x reasonably incidental to and reasonably necessary for the
accomplishment of the objectives of the private respondent
and that the income derived therefrom are tax
exempt.”[12] Petitioner insists that what the appellate court
reversed was the legal conclusion,not the factual finding, of
the CTA.[13] The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings
of the CTA, when supported by substantial evidence, will
not be disturbed on appeal unless it is shown that the said
court committed gross error in the appreciation of facts. [14] In
the present case, this Court finds that the February 16,
1994 Decision of the CA did not deviate from this rule.  The
latter merely applied the law to the facts as found by the
CTA and ruled on the issue raised by the CIR:  “Whether or
159
not the collection or earnings of rental income from the
lease of certain premises and income earned from parking
fees shall fall under the last paragraph of Section 27 of the
National Internal Revenue Code of 1977, as amended.”[15]
Clearly, the CA did not alter any fact or evidence.  It merely
resolved the aforementioned issue, as indeed it was
expected to.  That it did so in a manner different from that of
the CTA did not necessarily imply a reversal of factual
findings.
The distinction between a question of law and a question of
fact is clear-cut.  It has been held that “[t]here is a question
of law in a given case when the doubt or difference arises
as to what the law is on a certain state of facts; there is a
question of fact when the doubt or difference arises as to
the truth or falsehood of alleged facts.” [16] In the present
case, the CA did not doubt, much less change, the facts
narrated by the CTA.  It merely applied the law to the
facts.  That its interpretation or conclusion is different from
that of the CTA is not irregular or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue:  Is the rental income of
the YMCA from its real estate subject to tax?  At the outset,
we set forth the relevant provision of the NIRC:
“SEC. 27.  Exemptions from tax on corporations. -- The
following organizations shall not be taxed under this Title in
respect to income received by them as such --
x x x                                                x
x                                        x x x
(g)  Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare;
(h)  Club organized and operated exclusively for pleasure,
recreation, and other non-profitable purposes, no part of the
net income of which inures to the benefit of any private
stockholder or member;
x x x                                                x
x                                        x x x
Notwithstanding the  provision in the preceding paragraphs,
the income of whatever kind and character of the foregoing
organization from any of their properties, real or personal,
or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be
subject to the tax imposed under this Code. (as amended
by Pres. Decree No. 1457)”
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
Petitioners argues that while the income received by the
organizations enumerated in Section 27 (now Section 26) of
the NIRC is, as a rule, exempted from the payment of tax
“in respect to income received by them as such,” the
exemption does not apply to income derived “xxx from any
if their properties, real or personal, or from any of their
activities conducted for profit, regardless, of the disposition
made of such income xxx.”
Petitioner adds that “rented income derived by a tax-exempt
organization from the lease of its properties, real or
personal, [is] not, therefore, exempt from income taxation,
even if such income [is] exclusively used for the
accomplishment of its objectives.”[17] We agree with the
commissioner.
Because taxes are the lifeblood of the nation, the Court has
always applied the doctrine of strict interpretation in
construing tax exemptions.[18]Furthermore, a claim of
statutory exemption from taxation should be manifest and
unmistakable from the language of the law on which it is
based.  Thus, the claimed exemption “must expressly be
granted in a statute stated in a language too clear to be
mistaken.”[19]
In the instant case, the exemption claimed by the YMCA is
expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which mandates
that the income of exempt organizations (such as the
YMCA) from any of their properties, real or personal, be
subject to the imposed by the same Code.  Because the
last paragraph of said section unequivocally subjects to tax
the rent income f the YMCA from its rental property, [20] the
x Court is duty-bound to abide strictly by its literal meaning
and to refrain from resorting to any convoluted attempt at
construction.
It is axiomatic that where the language of the law is clear
and unambiguous, its express terms must be applied.
[21]
 Parenthetically, a consideration of the question of
construction must not even begin, particularly when such
question is on whether to apply a strict construction or a
literal one on statutes that grant tax exemptions to
“religious, charitable and educational propert[ies] or
x
institutions.”[22]
The last paragraph of Section 27, the YMCA argues, should
be “subject to the qualification that the income from the
properties must arise from activities ‘conducted for profit’
before it may be considered taxable.”[23] This argument is
erroneous.  As previously stated, a reading of said
paragraph ineludibly shows that the income from any
property of exempt organizations, as well as that arising
from any activity it conducts for profit, is taxable. The
phrase “any of their activities conducted for profit” does not
160
qualify the word “properties.”  This makes income from the
property of the organization taxable, regardless of how that
income is used -- whether  for profit or for lofty non-profit
purposes.
Verba legis non est recedendum.  Hence, Respondent
Court of Appeals committed reversible error when it
allowed, on reconsideration, the tax exemption claimed by
YMCA on income it derived from renting out its real
property, on the solitary but unconvincing ground that the
said income is not collected for profit but is merely
incidental to its operation.  The law does not make a
distinction.  The rental income is taxable regardless of
whence such income is derived and how it used or
disposed of.  Where the law does not distinguish, neither
should we.
Constitutional Provisions
on Taxation
Invoking not only the NIRC but also the fundamental law,
private respondent submits that Article VI, Section 28 of
par. 3 of the 1987 Constitution,[24] exempts “charitable
institutions” from the payment not only of property taxes but
also of income tax from any source. [25] In support of its novel
theory, it compares the use of the words “charitable
institutions,” “actually” and “directly” in the 1973 and the
1987 Constitutions, on the hand; and in Article VI Section
22, par. 3 of the 1935 Constitution, on the other hand. [26]
Private respondent enunciates three points.  First, the
present provision is divisible into two categories: (1)
“[c]haritable institutions, churches and parsonages or
convents appurtenant thereto, mosques and non-profit
cemeteries,” the incomes of which are, from whatever
source, all tax-exempt;[27] and (2) “[a]ll lands, buildings and
improvements actually and directly used for religious,
charitable or educational purposes,” which are exempt only
from property taxes.[28] Second, Lladoc v. Commissioner of
Internal Revenue,[29] which limited the exemption only to the
payment of property taxes, referred to the provision of the
1935 Constitution and not to its counterparts in the 1973
and the 1987 Constitutions.[30] Third, the phrase “actually,
directly and exclusively used for religious, charitable or
educational purposes” refers not only to “all lands, buildings
and improvements,” but also to the above-quoted first
category which includes charitable institutions like the
private respondent.[31]
The Court is not persuaded.  The debates, interpellations
and expressions of opinion of the framers of the
Constitution reveal their intent which, in turn, may have
guided the people in ratifying the Charter. [32] Such intent
must be effectuated.
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
Accordingly, Justice Hilario G. Davide, Jr., a former
constitutional commissioner, who is now a member of this
Court, stressed during the Concom debates that “xxx what
is exempted is not the institution itself xxx; those exempted
from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for
religious, charitable or educational purposes.” [33] Father
Joaquin G. Bernas, an eminent authority on the Constitution
and also a member of the Concom, adhered to the same
view that the exemption created by said provision pertained
only to property taxes.[34]
In his treatise on taxation, Mr. Justice Jose C. Vitug
concurs, stating that “[t]he tax exemption
covers property taxes only."[35] Indeed, the income tax
exemption claimed by private respondent finds no basis in
Article VI, Section 28, par. 3 of the Constitution.
Private respondent also invokes Article XIV, Section 4, par.
3 of the Charter,[36] claiming that the YMCA “is a non-stock,
non-profit educational institution whose revenues and
assets are used actually, directly and exclusively for
educational purposes so it is exempt from taxes on its
properties and income.”[37] We reiterate that private
respondent is exempt from the payment of property tax, but
not income tax on the rentals from its property.  The bare
allegation alone that it is a non-stock, non-profit educational
institution is insufficient to justify its exemption from the
payment of income tax.
As previously discussed, laws allowing tax exemption are
construed strictissimi juris.   Hence, for the YMCA to be
granted the exemption it claims under the aforecited
provision, it must prove with substantial evidence that (1) it
falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and
exclusively for educational purposes.  However, the Court
notes that not a scintilla of evidence was submitted by
private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of
Article XIV, Section 4, par.3 of the Constitution?  We rule
that it is not.  The term “educational institution” or “institution
of learning” has acquired a well-known technical meaning,
of  which the members of the Constitutional Commission
are deemed cognizant.[38] Under the Education Act of 1982,
such term refers to schools.[39] The school system is
synonymous with formal education, [40] which “refers to the
hierarchically structured and chronological graded learnings
organized and provided by the formal school system and for
which certification is required in order for the learner to
progress through the grades or move to the higher
levels.”[41] The Court has examined the “Amended Articles
of Incorporation”[42] and “By-Laws”[43] of the YMCA, but
161
found nothing in them that even hints that it is a school or
an educational institution.[44]
Furthermore, under the Education Act of 1982, even non-
formal education is understood to be school-based and
“private auspices such as foundations and civic-spirited
organizations” are ruled out. [45] It is settled that the term
“educational institution,” when used in laws granting tax
exemptions, refers to a “ xxx school seminary, college or
educational establishment xxx.”[46] Therefore, the private
respondent cannot be deemed one of the educational
institutions covered by the constitutional provision under
consideration.
“xxx Words used in the Constitution are to be taken in their
ordinary acceptation.  While in its broadest and best sense
education embraces all forms and phrases of instruction,
improvement and development of mind and body, and as
well of religious and moral sentiments, yet in the common
understanding and application it means a place where
systematic instruction in any or all of the useful branches of
learning is given by methods common to schools and
institutions of learning.  That we conceive to be the true
intent and scope of the term [educational institutions,] as
used in the Constitution.”[47]
Moreover, without conceding that Private Respondent
YMCA is an educational institution, the Court also notes
that the former did not submit proof of the proportionate
amount of the subject income that was actually, directly and
exclusively used for educational purposes.  Article XIII,
Section 5 of the YMCA by-laws, which formed part of the
evidence submitted, is patently insufficient, since the same
merely signified that “[t]he net income derived from the
rentals of the commercial buildings shall be apportioned to
the Federation and Member Associations as the National
Board may decide.”[48] In sum, we find no basis for granting
the YMCA exemption from income tax under the
constitutional provision invoked
Cases Cited by Private
Respondent Inapplicable
The cases[49] relied on by private respondent do not support
its cause.  YMCA of Manila v. Collector of Internal
Revenue[50] and Abra Valley College, Inc. v. Aquino [51] are
not applicable, because the controversy in both cases
involved exemption from the payment of property tax, not
income tax. Hospital de San Juan de Dios, Inc. v. Pasay
City[52] is not in point either, because it involves a claim for
exemption from the payment of regulatory fees, specifically
electrical inspection fees, imposed by an ordinance of
Pasay City -- an issue not at all related to that involved in a
claimed exemption from the payment if income taxes
imposed on property leases.  In Jesus Sacred Heart
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
College v. Com. Of Internal Revenue,[53] the party therein,
which claimed an exemption from the payment of income
tax, was an educational institution which submitted
substantial evidence that the income subject of the
controversy had been devoted or used solely for
educational purposes.  On the other hand, the private
respondent in the present case had not given any proof that
it is an educational institution, or that of its rent income is
actually, directly and exclusively used for educational
purposes.
Epilogue
In deliberating on this petition, the Court expresses its
sympathy with private respondent.  It appreciates the
nobility its cause.  However, the Court’s power and function
are limited merely to applying the law fairly and
objectively.  It cannot change the law or bend it to suit its
sympathies and appreciations.  Otherwise, it would be
overspilling its role and invading the realm of legislation.
We concede that private respondent deserves the help and
the encouragement of the government.  It needs laws that
can facilitate, and not frustrate, its humanitarian tasks.  But
the Court regrets that, given its limited constitutional
authority, it cannot rule on the wisdom or propriety of
legislation.  That prerogative belongs to the political
departments of government.  Indeed, some of the member
of the Court may even believe in the wisdom and prudence
of granting more tax exemptions to private respondent.  But
such belief, however well-meaning and sincere, cannot
bestow upon the Court the power to change or amend the
law.
WHEREFORE, the petition is GRANTED.  The Resolutions
of the Court of Appeals dated September 28, 1995 and
February 29, 1996 are hereby dated February 16, 1995
is REVERSED and SET ASIDE.  The Decision of the Court
of Appeals dated February 16, 1995
is REINSTATED, insofar as it ruled that the income tax.  No
pronouncement as to costs.
SO ORDERED.
Chavez v. PCGG, 299 SCRA 744
FACTS: Petitioner asks this Court to define the nature and
the extent of the people’s constitutional right to information
on matters of public concern. Petitioner, invoking his
constitutional right to information and the correlative duty of
the state to disclose publicly all its transactions involving the
national interest, demands that respondents make public
any and all negotiations and agreements pertaining to
PCGG’s task of recovering the Marcoses’ ill-gotten wealth. 
162

ISSUE: Are the negotiations leading to a settlement on ill-
gotten wealth of the Marcoses within the scope of the
constitutional guarantee of access to information?
HELD: Yes. Considering the intent of the framers of the
Constitution, it is incumbent upon the PCGG and its
officers, as well as other government representatives, to
disclose sufficient public information on any proposed
settlement they have decided to take up with the ostensible
owners and holders of ill-gotten wealth. Such information,
though, must pertain to definite propositions of the
government, not necessarily to intra-agency or inter-agency
recommendations or communications during the stage
when common assertions are still in the process of being
formulated or are in the “exploratory” stage. There is a
need, of course, to observe the same restrictions on
disclosure of information in general -- such as on matters
involving national security, diplomatic or foreign relations,
intelligence and other classified information.
FRANCISCO I. CHAVEZ, petitioner, vs. PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT (PCGG) and
MAGTANGGOL GUNIGUNDO, (in his capacity as
chairman of the PCGG), respondents. GLORIA A.
JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON,
and TERESA A. JOPSON, petitioners-in-intervention.
DECISION
PANGANIBAN, J:
Petitioner asks this Court to define the nature and the
extent of the people’s constitutional right to information on
matters of public concern.  Does this right include access to
the terms of government negotiations prior to their
consummation or conclusion?  May the government,
through the Presidential Commission on Good Government
(PCGG), be required to reveal the proposed terms of a
compromise agreement with the Marcos heirs as regards
their alleged ill-gotten wealth?  More specifically, are the
“General Agreement” and “Supplemental Agreement,” both
dated December 28, 1993 and executed between the
PCGG and the Marcos heirs, valid and binding?
The Case
These are the main questions raised in this original action
seeking (1) to prohibit and “[e]njoin respondents [PCGG
and its chairman] from privately entering into, perfecting
and/or executing any agreement with the heirs of the late
President Ferdinand E. Marcos  x x x  relating to and
concerning the properties and assets of  Ferdinand Marcos
located in the Philippines and/or abroad -- including the so-
called Marcos gold hoard”; and (2) to “[c]ompel
respondent[s] to make public all negotiations and
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
agreement, be they ongoing or perfected, and all
documents related to or relating to such negotiations and
agreement between the PCGG and the Marcos heirs.”[1]
The Facts
Petitioner Francisco I. Chavez, as “taxpayer, citizen and
former government official who initiated the prosecution of
the Marcoses and their cronies who committed unmitigated
plunder of the public treasury and the systematic
subjugation of the country’s economy,” alleges that what
impelled him to bring this action were several news
reports[2] bannered in a number of broadsheets sometime in
September 1997.  These news items referred to (1) the
alleged discovery of billions of dollars of Marcos assets
deposited in various coded accounts in Swiss banks; and
(2) the reported execution of a compromise, between the
government (through PCGG) and the Marcos heirs, on how
to split or share these assets.
Petitioner, invoking his constitutional right to
[3]
information  and the correlative duty of the state to disclose
publicly all its transactions involving the national interest,
[4]
 demands that respondents make public any and all
negotiations and agreements pertaining to PCGG’s task of
recovering the Marcoses’ ill-gotten wealth.  He claims that
any compromise on the alleged billions of ill-gotten wealth
involves an issue of “paramount public interest,” since it has
a “debilitating effect on the country’s economy” that would
be greatly prejudicial to the national interest of the Filipino
people.  Hence, the people in general have a right to know
the transactions or deals being contrived and effected by
the government.
Respondents, on the other hand, do not deny forging a
compromise agreement with the Marcos heirs.  They claim,
though, that petitioner’s action is premature, because there
is no showing that he has asked the PCGG to disclose the
negotiations and the Agreements.  And even if he has,
PCGG may not yet be compelled to make any disclosure,
since the proposed terms and conditions of the Agreements
have not become effective and binding.
Respondents further aver that the Marcos heirs have
submitted the subject Agreements to the Sandiganbayan
for its approval in Civil Case No. 141, entitled Republic v.
Heirs of Ferdinand E. Marcos, and that the Republic
opposed such move on the principal grounds that (1) said
Agreements have not been ratified by or even submitted to
the President for approval, pursuant to Item No. 8 of the
General Agreement; and (2) the Marcos heirs have failed to
comply with their undertakings therein, particularly the
collation and submission of an inventory of their
assets.  The Republic also cited an April 11, 1995
Resolution in Civil Case No. 0165, in which the
163
Sandiganbayan dismissed a similar petition filed by the
Marcoses’ attorney-in-fact.
Furthermore, then President Fidel V. Ramos, in his May 4,
1998 Memorandum[5] to then PCGG Chairman Magtanggol
Gunigundo, categorically stated:
“This is to reiterate my previous position embodied in the
Palace Press Release of 6 April 1995 that I have not
authorized you to approve the Compromise Agreements of
December 28, 1993 or any agreement at all with the
Marcoses, and would have disapproved them had they
been submitted to me.
“The Full Powers of Attorney of March 1994 and July 4,
1994, did not authorize you to approve said Agreements,
which I reserve for myself as President of the Republic of
the Philippines.”
The assailed principal Agreement[6] reads:
“GENERAL AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement entered into this 28th day of December,
1993, by and between -
The Republic of the Philippines, through the Presidential
Commission on Good Government (PCGG), a assets covered by the settlement.  The subject assets shall
governmental agency vested with authority defined under
Executive Orders Nos. 1, 2 and 14, with offices at the
Philcomcen Building, Pasig, Metro Manila, represented by
its Chairman referred to as the FIRST PARTY,
--  and  --
Estate of Ferdinand E. Marcos, represented by Imelda
Romualdez Marcos and Ferdinand R. Marcos, Jr., all of
legal age, and with address at c/o No. 154 Lopez Rizal St.,
Mandaluyong, Metro Manila, and Imelda Romualdez
Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr.,
and Irene Marcos Araneta, hereinafter collectively referred
to as the PRIVATE PARTY.
W I T N E S S E T H:
WHEREAS, the PRIVATE PARTY has been impelled by
their sense of nationalism and love of country and of the
entire Filipino people, and their desire to set up a
foundation and finance impact projects like installation of
power plants in selected rural areas and initiation of other
community projects for the empowerment of the people;
WHEREAS, the FIRST PARTY has obtained a judgment
from the Swiss Federal Tribunal of December 21, 1990, that
the $356 million belongs in principle to the Republic of the
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
Philippines provided certain conditionalities are met, but
even after 7 years, the FIRST PARTY has not been able to
procure a final judgment of conviction against the PRIVATE
PARTY;
WHEREAS, the FIRST PARTY is desirous of avoiding a
long-drawn out litigation which, as proven by the past 7
years, is consuming money, time and effort, and is counter-
productive and ties up assets which the FIRST PARTY
could otherwise utilize for its Comprehensive Agrarian
Reform Program, and other urgent needs;
WHEREAS, His Excellency, President Fidel V. Ramos, has
adopted a policy of unity and reconciliation in order to bind
the nation’s wounds and start the process of rebuilding this
nation as it goes on to the twenty-first century;
WHEREAS, this Agreement settles all claims and
counterclaims which the parties may have against one
another, whether past, present, or future, matured or
inchoate.
NOW, THEREFORE, for and in consideration of the mutual
covenants set forth herein, the parties agree as follows:
1.  The parties will collate all assets presumed to be owned
by, or held by other parties for the benefit of, the PRIVATE
PARTY for purposes of determining the totality of the
be classified by the nature thereof, namely:  (a) real estate;
(b) jewelry; (c) paintings and other works of art; (d)
securities; (e) funds on deposit; (f) precious metals, if any,
and (g) miscellaneous assets or assets which could not
appropriately fall under any of the preceding
classification.  The list shall be based on the full disclosure
of the PRIVATE PARTY to insure its accuracy.
2.  Based on the inventory, the FIRST PARTY shall
determine which shall be ceded to the FIRST PARTY, and
which shall be assigned to/retained by the PRIVATE
PARTY.  The assets of the PRIVATE PARTY shall be net
of, and exempt from, any form of taxes due the Republic of
the Philippines. However, considering the unavailability of
all pertinent and relevant documents and information as to
balances and ownership, the actual specification of assets
to be retained by the PRIVATE PARTY shall be covered by
supplemental agreements which shall form part of this
Agreement.
3.  Foreign assets which the PRIVATE PARTY shall fully
disclose but which are held by trustees, nominees, agents
or foundations are hereby waived over by the PRIVATE
PARTY in favor of the FIRST PARTY.  For this purpose, the
parties shall cooperate in taking the appropriate action,
judicial and/or extrajudicial, to recover the same for the
FIRST PARTY.
164
4.  All disclosures of assets made by the PRIVATE PARTY restored automatically to the status quo ante the signing of
shall not be used as evidence by the FIRST PARTY in any this Agreement.
criminal, civil, tax or administrative case, but shall be valid
and binding against said PARTY for use by the FIRST For purposes of this Agreement, the PRIVATE PARTY shall
PARTY in withdrawing any account and/or recovering any be represented by Atty. Simeon M. Mesina, Jr., as their only
asset.  The PRIVATE PARTY withdraws any objection to Attorney-in-Fact.
the withdrawal by and/or release to the FIRST PARTY by
IN WITNESS WHEREOF, the parties have signed this
the Swiss banks and/or Swiss authorities of the $356
instrument this 28th day of December, 1993, in Makati,
million, its accrued interests, and/or any other account; over
Metro Manila.
which the PRIVATE PARTY waives any right, interest or
participation in favor of the FIRST PARTY.  However, any PRESIDENTIAL COMMISSION ON
withdrawal or release of any account aforementioned by the
FIRST PARTY shall be made in the presence of any GOOD GOVERNMENT
authorized representative of the PRIVATE PARTY.
By:
5.  The trustees, custodians, safekeepers, depositaries,
agents, nominees, administrators, lawyers, or any other [Sgd.] MAGTANGGOL C. GUNIGUNDO
party acting in similar capacity in behalf of the PRIVATE
Chairman
PARTY are hereby informed through this General
Agreement to insure that it is fully implemented and this ESTATE OF FERDINAND E. MARCOS, IMELDA R.
shall serve as absolute authority from both parties for full MARCOS, MA. IMELDA MARCOS-MANOTOC,
disclosure to the FIRST PARTY of said assets and for the FERDINAND R. MARCOS, JR., & IRENE MARCOS-
FIRST PARTY to withdraw said account and/or assets and ARANETA
any other assets which the FIRST PARTY on its own or
through the help of the PRIVATE PARTY/their trustees, By:
etc., may discover.
[Sgd.]IMELDA ROMUALDEZ-MARCOS
6.  Any asset which may be discovered in the future as
belonging to the PRIVATE PARTY or is being held by [Sgd.] MA. IMELDA MARCOS-MANOTOC
another for the benefit of the PRIVATE PARTY and which is
FERDINAND R. MARCOS, JR.[7]
not included in the list per No. 1 for whatever reason shall
automatically belong to the FIRST PARTY, and the [Sgd.] IRENE MARCOS-ARANETA
PRIVATE PARTY in accordance with No. 4 above, waives
any right thereto. Assisted by:

7.  This Agreement shall be binding on, and inure to the [Sgd.] ATTY. SIMEON M. MESINA, JR.
benefit of, the parties and their respective legal
representatives, successors and assigns and shall Counsel & Attorney-in-Fact”
supersede any other prior agreement.
Petitioner also denounces this supplement to the above
8.  The PARTIES shall submit this and any other Agreement: [8]
implementing Agreements to the President of the
“SUPPLEMENTAL AGREEMENT
Philippines for approval.  In the same manner, the
PRIVATE PARTY shall provide the FIRST PARTY This Agreement entered into this 28th day of December,
assistance by way of testimony or deposition on any 1993, by and between --
information it may have that could shed light on the cases
being pursued by the FIRST PARTY against other The Republic of the Philippines, through the Presidential
parties.  The FIRST PARTY shall desist from instituting new Commission on Good Government (PCGG), a
suits already subject of this Agreement against the governmental agency vested with authority defined under
PRIVATE PARTY and cause the dismissal of all other Executive Orders Nos. 1, 2 and 14, with offices at the
cases pending in the Sandiganbayan and in other courts. Philcomcen Building, Pasig, Metro Manila, represented by
its Chairman Magtanggol C. Gunigundo, hereinafter
9.  In case of violation by the PRIVATE PARTY of any of referred to as the FIRST PARTY,
the conditions herein contained, the PARTIES shall be
-- and --

RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original) 165
Estate of Ferdinand E. Marcos, represented by Imelda
Romualdez Marcos and Ferdinand R. Marcos, Jr., all of
legal age, and with address at c/o No. 154 Lopez Rizal St.,
Mandaluyong, Metro Manila, and Imelda Romualdez
Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr.,
and Irene Marcos Araneta, hereinafter collectively referred
to as the PRIVATE PARTY.
W I T N E S S E T H:
The parties in this case entered into a General Agreement
dated Dec. 28, 1993;
The PRIVATE PARTY expressly reserve their right to
pursue their interest and/or sue over local assets located in
the Philippines against parties other than the FIRST
PARTY.
The parties hereby agree that all expenses related to the
recovery and/or withdrawal of all assets including lawyers’
fees, agents’ fees, nominees’ service fees, bank charges,
traveling expenses and all other expenses related thereto
shall be for the account of the PRIVATE PARTY.
In consideration of the foregoing, the parties hereby agree
that the PRIVATE PARTY shall be entitled to the equivalent
of 25% of the amount that may be eventually withdrawn
from said $356 million Swiss deposits.
IN WITNESS WHEREOF, the parties have signed this
instrument this 28th day of December, 1993, in Makati,
Metro Manila.
PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT
By:
[Sgd.] MAGTANGGOL C. GUNIGUNDO
Chairman
ESTATE OF FERDINAND E. MARCOS, IMELDA R.
MARCOS, MA. IMELDA MARCOS-MANOTOC,
FERDINAND R. MARCOS, JR., & IRENE MARCOS-
ARANETA
By:
[Sgd.] IMELDA ROMUALDEZ-MARCOS
[Sgd.] MA. IMELDA MARCOS-MANOTOC
FERDINAND R. MARCOS, JR.[9]
[Sgd.] IRENE MARCOS-ARANETA
Assisted by:
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
[Sgd.] ATTY. SIMEON M. MESINA, JR.
  Counsel & Attorney-in-Fact”
Acting on a motion of petitioner, the Court issued a
Temporary Restraining Order[10] dated March 23, 1998,
enjoining respondents, their agents and/or representatives
from “entering into, or perfecting and/or executing any
agreement with the heirs of the late President Ferdinand E.
Marcos relating to and concerning their ill-gotten wealth.”
Issues
The Oral Argument, held on March 16, 1998, focused on
the following issues:
“(a)  Procedural:
(1)  Whether or not the petitioner has the personality or
legal standing to file the instant petition; and
(2)  Whether or not this Court is the proper court before
which this action may be filed.
(b)  Substantive:
(1)  Whether or not this Court could require the PCGG to
disclose to the public the details of any agreement,
perfected or not, with the Marcoses; and
(2)  Whether or not there exist any legal restraints against a
compromise agreement between the Marcoses and the
PCGG relative to the Marcoses’ ill-gotten wealth.”[11]
After their oral presentations, the parties filed their
respective memoranda.
On August 19, 1998, Gloria, Celnan, Scarlet and Teresa, all
surnamed Jopson, filed before the Court a Motion for
Intervention, attaching thereto their Petition in
Intervention.  They aver that they are “among the 10,000
claimants whose right to claim from the Marcos Family
and/or the Marcos Estate is recognized by the decision in In
re Estate of Ferdinand Marcos, Human Rights Litigation,
Maximo Hilao, et al., Class Plaintiffs No. 92-15526, U.S.
Court of Appeals   for the 9th Circuit   US App. Lexis 14796,
June 16, 1994  and the Decision of the Swiss Supreme
Court of December 10, 1997.”  As such, they claim to have
personal and direct interest in the subject matter of the
instant case, since a distribution or disposition of the
Marcos properties may adversely affect their legitimate
claims.  In a minute Resolution issued on August 24, 1998,
the Court granted their motion to intervene and required the
respondents to comment thereon.  The September 25,
1998 Comment[12] of the solicitor general on said motion
merely reiterated his aforecited arguments against the main
petition.[13]
166
The Court’s Ruling
The petition is imbued with merit.
First Procedural Issue:  Petitioner’s Standing
Petitioner, on the one hand, explains that as a taxpayer and
citizen, he has the legal personality to file the instant
petition.  He submits that since ill-gotten wealth “belongs to
the Filipino people and [is], in truth and in fact, part of the
public treasury,” any compromise in relation to it would
constitute a diminution of the public funds, which can be
enjoined by a taxpayer whose interest is for a full, if not
substantial, recovery of such assets. 
Besides, petitioner emphasizes, the matter of recovering
the ill-gotten wealth of the Marcoses is an issue “of
transcendental importance to the public.”  He asserts that
ordinary taxpayers have a right to initiate and prosecute
actions questioning the validity of acts or orders of
government agencies or instrumentalities, if the issues
raised are “of paramount public interest;” and if they
“immeasurably affect the social, economic, and moral well-
being of the people.” 
Moreover, the mere fact that he is a citizen satisfies the
requirement of personal interest, when the proceeding
involves the assertion of a public right,[14] such as in this
case.  He invokes several decisions[15] of this Court which
have set aside the procedural matter of locus standi, when
the subject of the case involved public interest.
On the other hand, the solicitor general, on behalf of
respondents, contends that petitioner has no standing to
institute the present action, because no expenditure of
public funds is involved and said petitioner has no actual
interest in the alleged agreement.  Respondents further
insist that the instant petition is premature, since there is no
showing that petitioner has requested PCGG to disclose
any such negotiations and agreements; or that, if he has,
the Commission has refused to do so.
Indeed, the arguments cited by petitioner constitute the
controlling decisional rule as regards his legal standing to
institute the instant petition.  Access to public documents
and records is a public right, and the real parties in interest
are the people themselves.[16]
In Tañada v. Tuvera,[17] the Court asserted that when the
issue concerns a public right and the object of mandamus is
to obtain the enforcement of a public duty, the people are
regarded as the real parties in interest; and because it is
sufficient that petitioner is a citizen and as such is
interested in the execution of the laws, he need not show
that he has any legal or special interest in the result of the
action.[18] In the aforesaid case, the petitioners sought to
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
enforce their right to be informed on matters of public
concern, a right then recognized in Section 6, Article IV of
the 1973 Constitution,[19] in connection with the rule that
laws in order to be valid and enforceable must be published
in the Official Gazette or otherwise effectively
promulgated.  In ruling for the petitioners’ legal standing,
the Court declared that the right they sought to be enforced
“is a public right recognized by no less than the
fundamental law of the land.”
Legaspi v. Civil Service Commission, [20] while
reiterating Tañada, further declared that “when
a mandamus proceeding involves the assertion of a public
right, the requirement of personal interest is satisfied by the
mere fact that petitioner is a citizen and, therefore, part of
the general ‘public’ which possesses the right.”[21]
Further, in Albano v. Reyes,[22]  we said that while
expenditure of public funds may not have been involved
under the questioned contract for the development, the
management and the operation of the Manila International
Container Terminal, “public interest [was] definitely involved
considering the important role [of the subject contract]  x x
x  in the economic development of the country and the
magnitude of the financial consideration involved.” We
concluded that, as a consequence, the disclosure provision
in the Constitution would constitute sufficient authority for
upholding the petitioner’s standing.
Similarly, the instant petition is anchored on the right of the
people to information and access to official records,
documents and papers -- a right guaranteed under Section
7, Article III of the 1987 Constitution.  Petitioner, a former
solicitor general, is a Filipino citizen.  Because of the
satisfaction of the two basic requisites laid down by
decisional law to sustain petitioner’s legal standing, i.e. (1)
the enforcement of a public right (2) espoused by a Filipino
citizen,  we rule that the petition at bar should be allowed.
In any event, the question on the standing of Petitioner
Chavez is rendered moot by the intervention of the
Jopsons, who are among the legitimate claimants to the
Marcos wealth.  The standing of the Jopsons is not
seriously contested by the solicitor general.  Indeed, said
petitioners-intervenors have a legal interest in the subject
matter of the instant case, since a distribution or disposition
of the Marcoses’ ill-gotten properties may adversely affect
the satisfaction of their claims.
Second Procedural Issue:The Court’s Jurisdiction
Petitioner asserts that because this petition is an original
action for mandamus and one that is not intended to delay
any proceeding in the Sandiganbayan, its having been filed
before this Court was proper.  He invokes Section 5, Article
VIII of the Constitution, which confers upon the Supreme
167
Court original jurisdiction over petitions for prohibition
and mandamus.
The solicitor general, on the other hand, argues that the
petition has been erroneously brought before this Court,
since there is neither a justiciable controversy nor a
violation of petitioner’s rights by the PCGG.  He alleges that
the assailed agreements are already the very lis mota in
Sandiganbayan Civil Case No. 0141, which has yet to
dispose of the issue; thus, this petition is
premature.  Furthermore, respondents themselves have
opposed the Marcos heirs’ motion, filed in the graft court,
for the approval of the subject Agreements.  Such
opposition belies petitioner’s claim that the government,
through respondents, has concluded a settlement with the
Marcoses as regards their alleged ill-gotten assets.
In Tañada and Legaspi, we upheld therein petitioners’
resort to a mandamus proceeding, seeking to enforce a
public right as well as to compel performance of a public
duty mandated by no less than the fundamental law.
[23]
 Further, Section 5, Article VIII of the Constitution,
expressly confers upon the Supreme
Court original jurisdiction over petitions
for certiorari, prohibition, mandamus, quo
warranto and habeas corpus.
Respondents argue that petitioner should have properly
sought relief before the Sandiganbayan, particularly in Civil
Case No. 0141, in which the enforcement of the
compromise Agreements is pending resolution.  There may
seem to be some merit in such argument, if petitioner is
merely seeking to enjoin the enforcement of the
compromise and/or to compel the PCGG to disclose to the
public the terms contained in said Agreements.  However,
petitioner is here seeking the public disclosure of “all
negotiations and agreement, be they ongoing or perfected,
and documents related to or relating to such negotiations
and agreement between the PCGG and the Marcos heirs.”  information, (2) trade secrets and banking transactions, (3)
In other words, this petition is not confined to the
Agreements that have already been drawn, but likewise to
any other ongoing or future undertaking towards any
settlement on the alleged Marcos loot.  Ineluctably, the core
issue boils down to the precise interpretation, in terms of
scope, of the twin constitutional provisions on “public
transactions.”  This broad and prospective relief sought by
the instant petition brings it out of the realm of Civil Case
No. 0141.
First Substantive Issue:
Public Disclosure of Terms of Any Agreement,
Perfected or Not
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
In seeking the public disclosure of negotiations and
agreements pertaining to a compromise settlement with the
Marcoses as regards their alleged ill-gotten wealth,
petitioner invokes the following provisions of the
Constitution:
“Sec. 7 [Article III].  The right of the people to information on
matters of public concern shall be recognized.  Access to
official records, and to documents, and papers pertaining to
official acts, transactions, or decisions, as well as to
government research data used as basis for policy
development, shall be afforded the citizen, subject to such
limitations as may be provided by law.”
“Sec. 28 [Article II].  Subject to reasonable conditions
prescribed by law, the State adopts and implements a
policy of full public disclosure of all its transactions involving
public interest.”
Respondents’ opposite view is that the above constitutional
provisions refer to completed and operative official acts, not
to those still being considered.  As regards the assailed
Agreements entered into by the PCGG with the Marcoses,
there is yet no right of action that has accrued, because
said Agreements have not been approved by the President,
and the Marcos heirs have failed to fulfill their express
undertaking therein.  Thus, the Agreements have not
become effective.  Respondents add that they are not
aware of any ongoing negotiation for another compromise
with the Marcoses regarding their alleged ill-gotten assets.
The “information” and the “transactions” referred to in the
subject provisions of the Constitution have as yet no
defined scope and extent.  There are no specific laws
prescribing the exact limitations within which the right may
be exercised or the correlative state duty may be
obliged.  However, the following are some of the recognized
restrictions:  (1) national security matters and intelligence
criminal matters, and (4) other confidential information.
Limitations to the Right: (1) National Security Matters
At the very least, this jurisdiction recognizes the common
law holding that there is a governmental privilege against
public disclosure with respect to state secrets regarding
military, diplomatic and other national security matters.
[24]
 But where there is no need to protect such state secrets,
the privilege may not be invoked to withhold documents and
other information,[25] provided that they are examined “in
strict confidence” and given “scrupulous protection.”
Likewise, information on inter-government exchanges prior
to the conclusion of treaties and executive agreements may
be subject to reasonable safeguards for the sake of national
interest.[26]
168
(2)   Trade Secrets and Banking Transactions
The drafters of the Constitution also unequivocally affirmed
that, aside from national security matters and intelligence
information, trade or industrial secrets (pursuant to the
Intellectual Property Code[27] and other related laws) as well
as banking transactions (pursuant to the Secrecy of Bank
Deposits Act[28]) are also exempted from compulsory
disclosure.[29]
(3) Criminal Matters
Also excluded are classified law enforcement matters, such
as those relating to the apprehension, the prosecution and
the detention of criminals,[30]which courts may not inquire
into prior  to such arrest, detention and prosecution.  Efforts
at effective law enforcement would be seriously jeopardized
by free public access to, for example, police information
regarding rescue operations, the whereabouts of fugitives,
or leads on covert criminal activities.
(4) Other Confidential Information
[31]
The Ethical Standards Act  further prohibits public officials
and employees from using or divulging “confidential or
classified information officially known to them by reason of
their office and not made available to the public.” [32]
Other acknowledged limitations to information access
include diplomatic correspondence, closed door Cabinet
meetings and executive sessions of either house of
Congress, as well as the internal deliberations of the
Supreme Court.[33]
Scope:   Matters of Public Concern and Transactions
Involving Public Interest
In Valmonte v. Belmonte Jr.,[34] the Court emphasized that
the information sought must be “matters of public concern,”
access to which may be limited by law.  Similarly, the state
policy of full public disclosure
extends  only  to  “transactions  involving public interest”
and may also be “subject to reasonable conditions
prescribed by law.”  As to the meanings of the terms “public
interest” and “public concern,” the Court, in Legaspi v. Civil
Service Commission,[35] elucidated:
“In determining whether or not a particular information is of
public concern there is no rigid test which can be
applied.  ‘Public concern’ like ‘public interest’ is a term that
eludes exact definition.  Both terms embrace a broad
spectrum of subjects which the public may want to know,
either because these directly affect their lives, or simply
because such matters naturally arouse the interest of an
ordinary citizen.  In the final analysis, it is for the courts to
determine on a case by case basis whether the matter at
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
issue is of interest or importance, as it relates to or affects
the public.”
Considered a public concern in the above-mentioned case
was the “legitimate concern of citizens to ensure that
government positions requiring civil service eligibility are
occupied only by persons who are eligibles.”  So was the
need to give the general public adequate notification of
various laws that regulate and affect the actions and
conduct of citizens, as held in Tañada.  Likewise did the
“public nature of the loanable funds of the GSIS and the
public office held by the alleged borrowers (members of the
defunct Batasang Pambansa)” qualify the information
sought in Valmonte as matters of public interest and
concern.  In  Aquino-Sarmiento v. Morato,[36] the Court also
held that official acts of public officers done in pursuit of
their official functions are public in character; hence, the
records pertaining to such official acts and decisions are
within the ambit of the constitutional right of access to
public records.
Under Republic Act No. 6713, public officials and
employees are mandated to “provide information on their
policies and procedures in clear and understandable
language, [and] ensure openness of information, public
consultations and hearings whenever appropriate  x x x,”
except when “otherwise provided by law or
when  required  by  the public interest.”  In particular, the
law mandates free public access, at reasonable hours, to
the annual performance reports of offices and agencies of
government and government-owned or controlled
corporations; and the statements of assets, liabilities and
financial disclosures of all public officials and employees. [37]
In general, writings coming into the hands of public officers
in connection with their official functions must be accessible
to the public, consistent with the policy of transparency of
governmental affairs.  This principle is aimed at affording
the people an opportunity to determine whether those to
whom they have entrusted the affairs of the government are
honestly, faithfully and competently performing their
functions as public servants.[38]Undeniably, the essence of
democracy lies in the free flow of thought; [39] but thoughts
and ideas must be well-informed so that the public would
gain a better perspective of vital issues confronting them
and, thus, be able to criticize as well as participate in the
affairs of the government in a responsible, reasonable and
effective manner.  Certainly, it is by ensuring an unfettered
and uninhibited exchange of ideas among a well-informed
public that a government remains responsive to the
changes desired by the people.[40]
The Nature of the Marcoses’ Alleged Ill-Gotten Wealth
We now come to the immediate matter under consideration.
169
Upon the departure from the country of the Marcos family
and their cronies in February 1986, the new government
headed by President Corazon C. Aquino was specifically
mandated to “[r]ecover ill-gotten properties amassed by the
leaders and supporters of the previous regime and [to]
protect the interest of the people through orders of
sequestration or freezing of assets or accounts.”[41] Thus,
President Aquino’s very first executive orders (which
partook of the nature of legislative enactments) dealt with
the recovery of these alleged ill-gotten properties. 
Executive Order No. 1, promulgated on February 28, 1986,
only two (2) days after the Marcoses fled the country,
created the PCGG which was primarily tasked to assist the
President in the recovery of vast government resources
allegedly amassed by former President Marcos, his
immediate family, relatives and close associates both here
and abroad.  “MR. SUAREZ.  And when we say ‘transactions’ which
Under Executive Order No. 2, issued twelve (12) days later,
all persons and entities who had knowledge or possession
of ill-gotten assets and properties were warned and, under
pain of penalties prescribed by law, prohibited from
concealing, transferring or dissipating them or from
otherwise frustrating or obstructing the recovery efforts of
the government.  contract, and already a consummated contract, Mr.
On May 7, 1986, another directive (EO No. 14) was issued
giving additional powers to the PCGG which, taking into
account the overriding considerations of national interest
and national survival, required it to achieve expeditiously
and effectively its vital task of recovering ill-gotten wealth.
With such pronouncements of our government, whose
authority emanates from the people, there is no doubt that
the recovery of the Marcoses’ alleged ill-gotten wealth is a
matter of public concern and imbued with public interest.
[42]
 We may also add that “ill-gotten wealth,” by its very
nature, assumes a public character.  Based on the
aforementioned Executive Orders, “ill-gotten wealth” refers
to assets and properties purportedly acquired, directly or
indirectly, by former President Marcos, his immediate
family, relatives and close associates through or as a result
of their improper or illegal use of government funds or
properties; or their having taken undue advantage of their
public office; or their use of powers, influences or
relationships, “resulting in their unjust enrichment and
causing grave damage and prejudice to the Filipino people
and the Republic of the Philippines.”  Clearly, the assets
and properties referred to supposedly originated from the
government itself.  To all intents and purposes, therefore,
they belong to the people.  As such, upon reconveyance
they will be returned to the public treasury, subject only to
the satisfaction of positive claims of certain persons as may
be adjudged by competent courts.  Another
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
declared  overriding  consideration for the expeditious
recovery of ill-gotten wealth is that it may be used for
national economic recovery.
We believe the foregoing disquisition settles the question of
whether petitioner has a right to respondents’ disclosure of
any agreement that may be arrived at concerning the
Marcoses’ purported ill-gotten wealth.
Access to Information on Negotiating Terms
But does the constitutional provision likewise guarantee
access to information regarding ongoing  negotiations or
proposals prior to the final agreement?  This same
clarification was sought and clearly addressed by the
constitutional commissioners during their deliberations,
which we quote hereunder:[43]
should be distinguished from contracts, agreements, or
treaties or whatever, does the Gentleman refer to the steps
leading to the consummation of the contract, or does he
refer to the contract itself?
“MR. OPLE.  The ‘transactions’ used here, I suppose, is
generic and, therefore, it can cover both steps leading to a
Presiding Officer.
“MR. SUAREZ.  This contemplates inclusion of negotiations
leading to the consummation of the transaction?
 “MR. OPLE.  Yes, subject to reasonable safeguards on the
national interest.”
Considering the intent of the framers of the
Constitution, we believe that it is incumbent upon the
PCGG and its officers, as well as other government
representatives, to disclose sufficient public
information on any proposed settlement they have
decided to take up with the ostensible owners and
holders of ill-gotten wealth.  Such information, though,
must pertain to definite propositions of the government, not
necessarily to intra-agency or inter-agency
[44]
recommendations or communications  during the stage
when common assertions are still in the process of being
formulated or are in the “exploratory” stage.  There is a
need, of course, to observe the same restrictions on
disclosure of information in general, as discussed earlier --
such as on matters involving national security, diplomatic or
foreign relations, intelligence and other classified
information.
Second Substantive Issue: Legal Restraints on a
Marcos-PCGG Compromise
170
Petitioner lastly contends that any compromise agreement
between the government and the Marcoses will be a virtual
condonation of all the alleged wrongs done by them, as well
as an unwarranted permission to commit graft and
corruption.
Respondents, for their part, assert that there is no legal
restraint on entering into a compromise with the Marcos
heirs, provided the agreement does not violate any law.
Prohibited Compromises
In general, the law encourages compromises in civil  cases,
except with regard to the following matters:  (1) the civil
status of persons, (2) the validity of a marriage or a legal
separation, (3) any ground for legal separation, (4) future
support, (5) the jurisdiction of courts, and (6) future legitime.
[45]
 And like any other contract, the terms and conditions of a
compromise must not be contrary to law, morals, good
customs, public policy or public order. [46] A compromise is
binding and has the force of law between the parties,
[47]
 unless the consent of a party is vitiated -- such as by
mistake, fraud, violence, intimidation or undue influence --
or when there is forgery, or if the terms of the settlement
are so palpably unconscionable.  In the latter instances, the
agreement may be invalidated by the courts.[48]
Effect of Compromise on Civil Actions
One of the consequences of a compromise, and usually its
primary object, is to avoid or to end a litigation. [49] In fact, the
law urges courts to persuade the parties in a civil case to
agree to a fair settlement. [50] As an incentive, a court may
mitigate damages to be paid by a losing party who shows a
sincere desire to compromise.[51]
In Republic & Campos Jr. v. Sandiganbayan,  which [52]
affirmed the grant by the PCGG of civil and
criminal immunity to Jose Y. Campos and family, the Court
held that in the absence of an express prohibition, the rule
on compromises in civil actions under the Civil Code is
applicable to PCGG cases.  Such principle is pursuant to
the objectives of EO No. 14, particularly the just and
expeditious recovery of ill-gotten wealth, so that it may be
used to hasten economic recovery.  The same principle
was upheld in Benedicto v. Board of Administrators of
Television Stations RPN, BBC and IBC[53] andRepublic v.
Benedicto,[54] which ruled in favor of the validity of the
PCGG compromise agreement with Roberto S. Benedicto.
Immunity from Criminal Prosecution
However,  any compromise relating to the civil liability
arising from an offense does   not   automatically
terminate the criminal proceeding against or extinguish
the criminal liability of the malefactor.[55] While a
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
compromise in civil suits is expressly authorized by law,
there is no similar general sanction as regards criminal
liability.  The authority must be specifically conferred.  In the
present case, the power to grant criminal immunity was
conferred on PCGG by Section 5 of EO No. 14, as
amended by EO No. 14-A, which provides:
“SECTION 5.  The Presidential Commission on Good
Government is authorized to grant immunity from criminal
prosecution to any person who provides information or
testifies in any investigation conducted by such
Commission to establish the unlawful manner in which any
respondent, defendant or accused has acquired or
accumulated the property or properties in question in any
case where such information or testimony is necessary to
ascertain or prove the latter’s guilt or his civil liability.  The
immunity thereby granted shall be continued to protect the
witness who repeats such testimony before the
Sandiganbayan when required to do so by the latter or by
the Commission.”
The above provision specifies that the PCGG may exercise
such authority under these conditions:  (1) the person to
whom criminal immunity  is granted  provides  information
or testifies in an investigation conducted by the
Commission; (2) the information or testimony pertains to the
unlawful manner in which the respondent, defendant or
accused acquired or accumulated ill-gotten property; and
(3) such information or testimony is necessary to ascertain
or prove guilt or civil liability of such individual.  From the
wording of the law, it can be easily deduced that
the  person referred to is a witness in the proceeding, not
the principal respondent, defendant or accused.
Thus, in the case of Jose Y. Campos, the grant of both civil
and criminal immunity to him and his family was “[i]n
consideration of the full cooperation of Mr. Jose Y. Campos
[with] this Commission, his voluntary surrender of the
properties and assets [--] disclosed and declared by him to
belong to deposed President Ferdinand E. Marcos [--] to
the Government of the Republic of the Philippines[;] his full,
complete and truthful disclosures[;] and his commitment to
pay a sum of money as determined by the Philippine
Government.”[56] Moreover, the grant of criminal immunity to
the Camposes and the Benedictos was limited to acts and
omissions prior to February 25, 1996.  At the time such
immunity was granted, no criminal cases have yet been
filed against them before the competent courts.
Validity of the PCGG-Marcos Compromise Agreements
Going now to the subject General and Supplemental
Agreements between the PCGG and the Marcos heirs, a
cursory perusal thereof reveals serious legal
flaws.  First, the Agreements do not conform to the above
171
requirements of EO Nos. 14 and 14-A.  We believe that
criminal immunity under Section 5 cannot be granted to
the Marcoses, who are the principal defendants in the
spate of ill-gotten wealth cases now pending before the
Sandiganbayan.  As stated earlier, the provision is
applicable mainly to witnesses who provide information or
testify against a respondent, defendant or accused in an ill-
gotten wealth case.  which legal actions have been filed in court or in which
While the General Agreement states that the Marcoses
“shall provide the [government] assistance by way of
testimony or deposition on any information [they] may have
that could shed light on the cases being pursued by the
[government] against other parties,”[57] the clause does not
fully comply with the law.  Its inclusion in the Agreement
may have been only an afterthought, conceived in pro
forma compliance with Section 5 of
EO  No. 14,  as  amended.  There is no indication
whatsoever that any of the Marcos heirs has indeed
provided vital information against any respondent or
defendant as to the manner in which the latter may have
unlawfully acquired public property.
Second,  under Item No. 2 of the General Agreement, the
PCGG commits to exempt from all forms of taxes the
properties to be retained by the Marcos heirs.  This is a
clear violation of the Constitution.  The power to tax and to
grant tax exemptions is vested in the Congress and, to a
certain extent, in the local legislative bodies. [58] Section 28
(4), Article VI of the Constitution, specifically provides:  “No
law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the
Congress.”  The PCGG has absolutely no power to grant
tax exemptions, even under the cover of its authority to
compromise ill-gotten wealth cases.
Even granting that Congress enacts a law exempting the
Marcoses from paying taxes on their properties, such law
will definitely not pass the test of the equal protection
clause under the Bill of Rights.  Any special grant of tax
exemption in favor only of the Marcos heirs will constitute
class legislation. It will also violate the constitutional rule
that “taxation shall be uniform and equitable.” [59]
Neither can the stipulation be construed to fall within the
power of the commissioner of internal revenue to
compromise taxes.  Such authority may be exercised only
when (1) there is reasonable   doubt   as   to   the   validity
of   the claim  against the taxpayer, and (2) the taxpayer’s
financial position demonstrates a clear inability to pay.
[60]
 Definitely, neither requisite is present in the case of the
Marcoses, because under the Agreement they are
effectively conceding the validity of the claims against their
properties, part of which they will be allowed to retain.  Nor
can the PCGG grant of tax exemption fall within the power
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
of the commissioner to abate or cancel a tax liability.  This
power can be exercised only when (1) the tax appears to be
unjustly or excessively assessed, or (2) the administration
and collection costs involved do not justify the collection of
the tax due.[61] In this instance, the cancellation of tax
liability is done even before the determination of the amount
due.  In any event, criminal violations of the Tax Code, for
fraud is involved, cannot be compromised.[62]
Third, the government binds itself to cause the dismissal of
all cases against the Marcos heirs, pending before the
Sandiganbayan and other courts.[63]This is a direct
encroachment on judicial powers, particularly in regard to
criminal jurisdiction.  Well-settled is the doctrine that once a
case has been filed before a court of competent jurisdiction,
the matter of its dismissal or pursuance lies within the full
discretion and control of the judge.  In a criminal case, the
manner in which the prosecution is handled, including the
matter of whom to present as witnesses, may lie within the
sound discretion of the government prosecutor; [64] but the
court decides, based on the evidence proffered, in what
manner it will dispose of the case.  Jurisdiction, once
acquired by the trial court, is not lost despite a resolution,
even by the justice secretary, to withdraw the information or
to dismiss the complaint.[65] The prosecution’s motion to
withdraw or to dismiss is not the least binding upon the
court.  On the contrary, decisional rules require the trial
court to make its own evaluation of the merits of the case,
because granting such motion is equivalent to effecting a
disposition of the case itself.[66]
Thus, the PCGG, as the government prosecutor of ill-
gotten wealth cases, cannot guarantee the dismissal of
all such criminal cases against the Marcoses pending
in the courts, for said dismissal is not within its sole
power and discretion.
Fourth, the government also waives all claims and
counterclaims, “whether past, present, or future, matured or
inchoate,” against the Marcoses.[67]Again, this all-
encompassing stipulation is contrary to law.  Under the Civil
Code, an action for future fraud may not be waived. [68] The
stipulation in the Agreement does not specify the exact
scope of future claims against the Marcoses that the
government thereby relinquishes.  Such vague and broad
statement  may  well be interpreted to include all future
illegal acts of any of the Marcos heirs, practically giving
them a license to perpetrate fraud against the government
without any liability at all.  This is a palpable violation of the
due process and equal protection guarantees of the
Constitution.  It effectively ensconces the Marcoses beyond
the reach of the law.  It also sets a dangerous precedent for
public accountability.  It is a virtual warrant for public
officials to amass public funds illegally, since there is
172
an open option to compromise their liability in
exchange for only a portion of their ill-gotten wealth.
Fifth,  the Agreements do not provide for a definite or
determinable period within which the parties shall fulfill their
respective prestations.  It may take a lifetime before the
Marcoses submit an inventory of their total assets.
Sixth, the Agreements do not state with specificity the
standards for determining which assets shall be forfeited by
the government and which shall be retained by the
Marcoses.  While the Supplemental Agreement provides
that the Marcoses shall be entitled to 25 per cent of the
$356 million Swiss deposits (less government recovery
expenses), such sharing arrangement pertains only to the
said deposits.  No similar splitting scheme is defined with
respect to the other properties.  Neither is there, anywhere
in the Agreements, a statement of the basis for the 25-75
percent sharing ratio.  Public officers entering into an
arrangement appearing to be manifestly and grossly
disadvantageous to the government, in violation of the Anti-
Graft and Corrupt Practices Act, [69] invite their indictment for
corruption under the said law.
Finally,  the absence of then President Ramos’ approval of
the principal Agreement, an express condition therein,
renders the compromise incomplete and
unenforceable.  Nevertheless, as detailed above, even if
such approval were obtained, the Agreements would still
not be valid.
From the foregoing disquisition, it is crystal clear to the
Court that the General and Supplemental Agreements,
both dated December 28, 1993, which the PCGG
entered into with the Marcos heirs, are violative of the
Constitution and the laws aforementioned.
WHEREFORE, the petition is GRANTED.   The General
and Supplemental Agreements dated December 28, 1993,
which PCGG and the Marcos heirs entered into are hereby
declared NULL   AND VOID for being contrary to law and
the Constitution.  Respondent PCGG, its officers and all
government functionaries and officials who are or may be
directly  or  indirectly  involved  in  the  recovery  of  the  alle
ged ill-gotten wealth of the Marcoses and their associates
are DIRECTED to disclose to the public the terms of any
proposed compromise settlement, as well as the final
agreement, relating to such alleged ill-gotten wealth, in
accordance with the discussions embodied in this
Decision.  No pronouncement as to costs.  Issue: Whether or not tax refunds are considered as tax
SO ORDERED.
CIR V SC JOHNSON INC. June 25, 1999
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
Facts: Respondent is a domestic corporation organized
and operating under the Philippine Laws, entered into a
licensed agreement with the SC Johnson and Son, USA, a
non-resident foreign corporation based in the USA pursuant
to which the respondent was granted the right to use the
trademark, patents and technology owned by the later
including the right to manufacture, package and distribute
the products covered by the Agreement and secure
assistance in management, marketing and production from
SC Johnson and Son USA.
For the use of trademark or technology, respondent was
obliged to pay SC Johnson and Son, USA royalties based
on a percentage of net sales and subjected the same to
25% withholding tax on royalty payments which respondent
paid for the period covering July 1992 to May 1993 in the
total amount of P1,603,443.00.
On October 29, 1993, respondent filed with the International
Tax Affairs Division (ITAD) of the BIR a claim for refund of
overpaid withholding tax on royalties arguing that, the
antecedent facts attending respondents case fall squarely
within the same circumstances under which said
MacGeorge and Gillette rulings were issued. Since the
agreement was approved by the Technology Transfer
Board, the preferential tax rate of 10% should apply to the
respondent. So, royalties paid by the respondent to SC
Johnson and Son, USA is only subject to 10% withholding
tax.
The Commissioner did not act on said claim for refund.
Private respondent SC Johnson & Son, Inc. then filed a
petition for review before the CTA, to claim a refund of the
overpaid withholding tax on royalty payments from July
1992 to May 1993.
On May 7, 1996, the CTA rendered its decision in favor of
SC Johnson and ordered the CIR to issue a tax credit
certificate in the amount of P163,266.00 representing
overpaid withholding tax on royalty payments beginning
July 1992 to May 1993.
The CIR thus filed a petition for review with the CA which
rendered the decision subject of this appeal on November
7, 1996 finding no merit in the petition and affirming in toto
the CTA ruling.
exemptions.
Held: It bears stress that tax refunds are in the nature of tax
exemptions. As such they are registered as in derogation of
173
sovereign authority and to be construed strictissimi juris
against the person or entity claiming the exemption. The
burden of proof is upon him who claims the exemption in
his favor and he must be able to justify his claim by the
clearest grant of organic or statute law. Private respondent
is claiming for a refund of the alleged overpayment of tax on
royalties; however there is nothing on record to support a
claim that the tax on royalties under the RP-US Treaty is
paid under similar circumstances as the tax on royalties
under the RP-West Germany Tax Treaty.
COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. S.C. JOHNSON AND SON,
INC., and COURT OF APPEALS, respondents.
DECISION
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of
the Rules of Court seeking to set aside the decision of the
Court of Appeals dated November 7, 1996 in CA-GR SP
No. 40802 affirming the decision of the Court of Tax
Appeals in CTA Case No. 5136.
The antecedent facts as found by the Court of Tax Appeals
are not disputed, to wit:
“[Respondent], a domestic corporation organized and
operating under the Philippine laws, entered into a license
agreement with SC Johnson and Son, United States of
America (USA), a non-resident foreign corporation based in
the U.S.A. pursuant to which the [respondent] was granted
the right to use the trademark, patents and technology
owned by the latter including the right to manufacture,
package and distribute the products covered by the
Agreement and secure assistance in management,
marketing and production from SC Johnson and Son, U. S.
A.
The said License Agreement was duly registered with the
Technology Transfer Board of the Bureau of Patents, Trade
Marks and Technology Transfer under Certificate of
Registration No. 8064 (Exh. “A”).
For the use of the trademark or technology, [respondent]
was obliged to pay SC Johnson and Son, USA royalties
based on a percentage of net sales and subjected the same
to 25% withholding tax on royalty payments which
[respondent] paid for the period covering July 1992 to May
1993 in the total amount of P1,603,443.00 (Exhs. “B” to “L”
and submarkings).
On October 29, 1993, [respondent] filed with the
International Tax Affairs Division (ITAD) of the BIR a claim
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
for refund of overpaid withholding tax on royalties arguing
that, ‘the antecedent facts attending [respondent’s] case fall
squarely within the same circumstances under which
said MacGeorge and Gillete rulings were issued.  Since the
agreement was approved by the Technology Transfer
Board, the preferential tax rate of 10% should apply to the
[respondent].  We therefore submit that royalties paid by the
[respondent] to SC Johnson and Son, USA is only subject
to 10% withholding tax pursuant to the most-favored nation
clause of the RP-US Tax Treaty [Article 13 Paragraph 2 (b)
(iii)] in relation to the RP-West Germany Tax Treaty [Article
12 (2) (b)]’ (Petition for Review [filed with the Court of
Appeals], par. 12).  [Respondent’s] claim for the refund
of P963,266.00 was computed as follows:
                Gross                      25%                10%
Month/           Royalty             Withholding       Withholding
Year              Fee                      Tax
Paid              Tax                        Balance
______          _______          __________    __________    
______
July
1992        559,878                 139,970             55,988           
83,982
August           567,935                 141,984             56,794      
     85,190
September      595,956                 148,989             59,596     
      89,393
October          634,405                 158,601             63,441      
     95,161
November      620,885                 155,221             62,089      
     93,133
December      383,276                   95,819             36,328      
     57,491
Jan
1993         602,451                 170,630             68,245       10
2,368
February        565,845                 141,461             56,585      
     84,877
March            547,253                 136,813             54,725       
    82,088
April              660,810                 165,203             66,081       
    99,122
174
May               603,076                 150,769             60,308        that matter, these must necessarily refer to circumstances
    90,461
                   P6,421,770         P1,605,443          P642,177      clause is in the nature of a claim for exemption from the
P963,266”[1]
             ========           ========         =======     ====
===
The Commissioner did not act on said claim for
refund.  Private respondent S.C. Johnson & Son, Inc. (S.C.
Johnson) then filed a petition for review before the Court of
Tax Appeals (CTA) where the case was docketed as CTA
Case No. 5136, to claim a refund of the overpaid
withholding tax on royalty payments from July 1992 to May
1993.
On May 7, 1996, the Court of Tax Appeals rendered its
decision in favor of S.C. Johnson and ordered the
Commissioner of Internal Revenue to issue a tax credit
certificate in the amount of P963,266.00 representing
overpaid withholding tax on royalty payments beginning
July, 1992 to May, 1993.[2]
The Commissioner of Internal Revenue thus filed a petition
for review with the Court of Appeals which rendered the
decision subject of this appeal on November 7, 1996 finding
no merit in the petition and affirming in toto the CTA ruling.[3]
This petition for review was filed by the Commissioner of
Internal Revenue raising the following issue:
THE COURT OF APPEALS ERRED IN RULING THAT SC
JOHNSON AND SON, USA IS ENTITLED TO THE “MOST
FAVORED NATION” TAX RATE OF 10% ON ROYALTIES
AS PROVIDED IN THE RP-US TAX TREATY IN
RELATION TO THE RP-WEST GERMANY TAX TREATY.
Petitioner contends that under Article 13(2) (b) (iii) of the
RP-US Tax Treaty, which is known as the “most favored
nation” clause, the lowest rate of the Philippine tax at 10%
may be imposed on royalties derived by a resident of the
United States from sources within the Philippines only if the
circumstances of the resident of the United States are
similar to those of the resident of West Germany.  Since the
RP-US Tax Treaty contains no “matching credit” provision
as that provided under Article 24 of the RP-West Germany
Tax Treaty, the tax on royalties under the RP-US Tax
Treaty is not paid under similar circumstances as those
obtaining in the RP-West Germany Tax Treaty.  Even
assuming that the phrase “paid under similar
circumstances” refers to the payment of royalties, and not
taxes, as held by the Court of Appeals, still, the “most
favored nation” clause cannot be invoked for the reason
that when a tax treaty contemplates circumstances
attendant to the payment of a tax, or royalty remittances for
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
that are tax-related.  Finally, petitioner argues that since
S.C. Johnson’s invocation of the “most favored nation”
application of the regular tax rate of 25% for royalties, the
provisions of the treaty must be construed strictly against it.
In its Comment, private respondent S.C. Johnson avers that
the instant petition should be denied (1) because it contains
a defective certification against forum shopping as required
under SC Circular No. 28-91, that is, the certification was
not executed by the petitioner herself but by her counsel;
and (2) that the “most favored nation” clause under the RP-
US Tax Treaty refers to royalties paid under similar
circumstances as those royalties subject to tax in other
treaties; that the phrase “paid under similar circumstances”
does not refer to payment of the tax but to the subject
matter of the tax, that is, royalties, because the “most
favored nation” clause is intended to allow the taxpayer in
one state to avail of more liberal provisions contained in
another tax treaty wherein the country of residence of such
taxpayer is also a party thereto, subject to the basic
condition that the subject matter of taxation in that other tax
treaty is the same as that in the original tax treaty under
which the taxpayer is liable; thus, the RP-US Tax Treaty
speaks of “royalties of the same kind paid under similar
circumstances”.  S.C. Johnson also contends that the
Commissioner is estopped from insisting on her
interpretation that the phrase “paid under similar
circumstances” refers to the manner in which the tax is
paid, for the reason that said interpretation is embodied in
Revenue Memorandum Circular (“RMC”) 39-92 which was
already abandoned by the Commissioner’s predecessor in
1993; and was expressly revoked in BIR Ruling No. 052-95
which stated that royalties paid to an American licensor are
subject only to 10% withholding tax pursuant to Art 13(2)(b)
(iii) of the RP-US Tax Treaty in relation to the RP-West
Germany Tax Treaty.  Said ruling should be given
retroactive effect except if such is prejudicial to the taxpayer
pursuant to Section 246 of the National Internal Revenue
Code.
Petitioner filed Reply alleging that the fact that the
certification against forum shopping was signed by
petitioner’s counsel is not a fatal defect as to warrant the
dismissal of this petition since Circular No. 28-91 applies
only to original actions and not to appeals, as in the instant
case.  Moreover, the requirement that the certification
should be signed by petitioner and not by counsel does not
apply to petitioner who has only the Office of the Solicitor
General as statutory counsel.  Petitioner reiterates that
even if the phrase “paid under similar circumstances”
embodied in the most favored nation clause of the RP-US
Tax Treaty refers to the payment of royalties and not taxes,
still the presence or absence of a “matching credit”
175
provision in the said RP-US Tax Treaty would constitute a
material circumstance to such payment and would be
determinative of the said clause’s application.
We address first the objection raised by private respondent
that the certification against forum shopping was not
executed by the petitioner herself but by her counsel, the
Office of the Solicitor General (O.S.G.) through one of its
Solicitors, Atty. Tomas M. Navarro.
SC Circular No. 28-91 provides:
“SUBJECT:  ADDITIONAL REQUISITES FOR PETITIONS
FILED WITH THE SUPREME COURT AND THE COURT
OF APPEALS TO PREVENT FORUM SHOPPING OR
MULTIPLE FILING OF PETITIONS AND COMPLAINTS
TO :          xxx       xxx       xxx
The attention of the Court has been called to the filing of
multiple petitions and complaints involving the same issues
in the Supreme Court, the Court of Appeals or other
tribunals or agencies, with the result that said courts,
tribunals or agencies have to resolve the same issues.
(1) To avoid the foregoing, in every petition filed with the
Supreme Court or the Court of Appeals, the petitioner aside
from complying with pertinent provisions of the Rules of
Court and existing circulars, must certify under oath to all of
the following facts or undertakings:  (a) he has not
theretofore commenced any other action or proceeding
involving the same issues in the Supreme Court, the Court
of Appeals, or any tribunal or agency; xxx
(2)  Any violation of this revised Circular will entail the
following sanctions:  (a) it shall be a cause for the summary
dismissal of the multiple petitions or complaints; xxx”
The circular expressly requires that a certificate of non-
forum shopping should be attached to petitions filed before
this Court and the Court of Appeals.  Petitioner’s allegation
that Circular No. 28-91 applies only to original actions and
not to appeals as in the instant case is not supported by the
text nor by the obvious intent of the Circular which is to
prevent multiple petitions that will result in the same issue
being resolved by different courts.
Anent the requirement that the party, not counsel, must
certify under oath that he has not commenced any other
action involving the same issues in this Court or the Court
of Appeals or any other tribunal or agency, we are inclined
to accept petitioner’s submission that  since the OSG is the
only lawyer for the petitioner, which is a government agency
mandated under Section 35, Chapter 12, title III, Book IV of
the 1987 Administrative Code[4] to be represented only by
the Solicitor General, the certification executed by the OSG
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
in this case constitutes substantial compliance with Circular
No. 28-91.
With respect to the merits of this petition, the main point of
contention in this appeal is the interpretation of Article 13
(2) (b) (iii) of the RP-US Tax Treaty regarding the rate of tax
to be imposed by the Philippines upon royalties received by
a non-resident foreign corporation.  The provision states
insofar as pertinent that-
1)  Royalties derived by a resident of one of the Contracting
States from sources within the other Contracting State may
be taxed by both Contracting States.
2)  However, the tax imposed by that Contracting State
shall not exceed.
a) In the case of the United States, 15 percent of the gross
amount of the royalties, and
b) In the case of the Philippines, the least of:
(i) 25 percent of the gross amount of the royalties;
(ii) 15 percent of the gross amount of the royalties, where
the royalties are paid by a corporation registered with the
Philippine Board of Investments and engaged in preferred
areas of activities; and
(iii) the lowest rate of Philippine tax that may be imposed
on royalties of the same kind paid under similar
circumstances to a resident of a third State.
xxx  xxx                                    xxx
(italics supplied)
Respondent S. C. Johnson and Son, Inc. claims that on the
basis of the quoted provision, it is entitled to the
concessional tax rate of 10 percent on royalties based on
Article 12 (2) (b) of the RP-Germany Tax Treaty which
provides:
(2)  However, such royalties may also be taxed in the
Contracting State in which they arise, and according to the
law of that State, but the tax so charged shall not exceed:
xxx
b) 10 percent of the gross amount of royalties arising from
the use of, or the right to use, any patent, trademark, design
or model, plan, secret formula or process, or from the use
of or the right to use, industrial, commercial, or scientific
equipment, or for information concerning industrial,
commercial or scientific experience.
For as long as the transfer of technology, under Philippine
law, is subject to approval, the limitation of the tax rate
176
mentioned under b) shall, in the case of royalties arising in
the Republic of the Philippines, only apply if the contract
giving rise to such royalties has been approved by the
Philippine competent authorities.
Unlike the RP-US Tax Treaty, the RP-Germany Tax Treaty
allows a tax credit of 20 percent of the gross amount of
such royalties against German income and corporation tax
for the taxes payable in the Philippines on such royalties
where the tax rate is reduced to 10 or 15 percent under
such treaty. Article 24 of the RP-Germany Tax Treaty
states-
1)  Tax shall be determined in the case of a resident of the
Federal Republic of Germany as follows:
x x x                                         x x x                                  x x
x German taxpayer if he is similarly granted a credit against
b) Subject to the provisions of German tax law regarding
credit for foreign tax, there shall be allowed as a credit
against German income and corporation tax payable in
respect of the following items of income arising in the
Republic of the Philippines, the tax paid under the laws of
the Philippines in accordance with this Agreement on:
x x x                                         x x x                                  x x
x the ‘most favored nation’ clause in the RP-West Germany
dd) royalties, as defined in paragraph 3 of Article 12;
x x x                                         x x x                                  x x
x
c) For the purpose of the credit referred in subparagraph b)
the Philippine tax shall be deemed to be
x x x                                         x x x                                  x x
x
cc) in the case of royalties for which the tax is reduced to 10
or 15 per cent according to paragraph 2 of Article 12, 20
percent of the gross amount of such royalties.
x x x                                         x x x                                  x x
x question should refer to royalties of the same kind paid
According to petitioner, the taxes upon royalties under the
RP-US Tax Treaty are not paid under circumstances similar
to those in the RP-West Germany Tax Treaty since there is
no provision for a 20 percent matching credit in the former
convention and private respondent cannot invoke the
concessional tax rate on the strength of the most favored
nation clause in the RP-US Tax Treaty.  Petitioner’s
position is explained thus:
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
“Under the foregoing provision of the RP-West Germany
Tax Treaty, the Philippine tax paid on income from sources
within the Philippines is allowed as a credit against German
income and corporation tax on the same income.  In the
case of royalties for which the tax is reduced to 10 or 15
percent according to paragraph 2 of Article 12 of the RP-
West Germany Tax Treaty, the credit shall be 20% of the
gross amount of such royalty.  To illustrate, the royalty
income of a German resident from sources within the
Philippines arising from the use of, or the right to use, any
patent, trade mark, design or model, plan, secret formula or
process, is taxed at 10% of the gross amount of said royalty
under certain conditions.  The rate of 10% is imposed if
credit against the German income and corporation tax on
said royalty is allowed in favor of the German
resident.  That means the rate of 10% is granted to the
the income and corporation tax of West Germany.  The
clear intent of the ‘matching credit’ is to soften the impact of
double taxation by different jurisdictions.
The RP-US Tax Treaty contains no similar ‘matching credit’
as that provided under the RP-West Germany Tax
Treaty.  Hence, the tax on royalties under the RP-US Tax
Treaty is not paid under similar circumstances as those
obtaining in the RP-West Germany Tax Treaty.  Therefore,
Tax Treaty cannot be availed of in interpreting the
provisions of the RP-US Tax Treaty.”[5]
The petition is meritorious.
We are unable to sustain the position of the Court of Tax
Appeals, which was upheld by the Court of Appeals, that
the phrase “paid under similar circumstances in Article 13
(2) (b), (iii) of the RP-US Tax Treaty should be interpreted
to refer to payment of royalty, and not to the payment of the
tax, for the reason that the phrase “paid under similar
circumstances” is followed by the phrase “to a resident of a
third state”.  The respondent court held that “Words are to
be understood in the context in which they are used”, and
since what is paid to a resident of a third state is not a tax
but a royalty “logic instructs” that the treaty provision in
under similar circumstances.
The above construction is based principally on syntax or
sentence structure but fails to take into account the purpose
animating the treaty provisions in point.  To begin with, we
are not aware of any law or rule pertinent to the payment of
royalties, and none has been brought to our attention,
which provides for the payment of royalties under dissimilar
circumstances.  The tax rates on royalties and the
circumstances of payment thereof are the same for all the
recipients of such royalties and there is no disparity based
177
on nationality in the circumstances of such payment. [6] On
the other hand, a cursory reading of the various tax treaties
will show that there is no similarity in the provisions on relief
from or avoidance of double taxation [7] as this is a matter of
negotiation between the contracting parties. [8] As will be
shown later, this dissimilarity is true particularly in the
treaties between the Philippines and the United States and
between the Philippines and West Germany.
The RP-US Tax Treaty is just one of a number of bilateral
treaties which the Philippines has entered into for the
avoidance of double taxation.[9] The purpose of these
international agreements is to reconcile the national fiscal
legislations of the contracting parties in order to help the
taxpayer avoid simultaneous taxation in two different
jurisdictions.[10] More precisely, the tax conventions are
drafted with a view towards the elimination of international
juridical double taxation, which is defined as the
imposition of comparable taxes in two or more states on the
same taxpayer in respect of the same subject matter and
for identical periods.[11], citing the Committee on Fiscal
Affairs of the Organization for Economic Co-operation and
Development (OECD).11 The apparent rationale for doing
away with double taxation is to encourage the free flow of
goods and services and the movement of capital,
technology and persons between countries, conditions
deemed vital in creating robust and dynamic economies.
[12]
 Foreign investments will only thrive in a fairly predictable
and reasonable international investment climate and the
protection against double taxation is crucial in creating such
a climate.[13]
Double taxation usually takes place when a person is
resident of a contracting state and derives income from, or
owns capital in, the other contracting state and both states
impose tax on that income or capital.  In order to eliminate
double taxation, a tax treaty resorts to several
methods.  First, it sets out the respective rights to tax of the
state of source or situs and of the state of residence with
regard to certain classes of income or capital.  In some
cases, an exclusive right to tax is conferred on one of the
contracting states; however, for other items of income or
capital, both states are given the right to tax, although the
amount of tax that may be imposed by the state of source is
limited.[14]
The second method for the elimination of double taxation
applies whenever the state of source is given a full or
limited right to tax together with the state of residence.  In
this case, the treaties make it incumbent upon the state of
residence to allow relief in order to avoid double
taxation.  There are two methods of relief- the exemption
method and the credit method.  In the exemption method,
the income or capital which is taxable in the state of source
or situs is exempted in the state of residence, although in
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
some instances it may be taken into account in determining
the rate of tax applicable to the taxpayer’s remaining
income or capital.  On the other hand, in the credit method,
although the income or capital which is taxed in the state of
source is still taxable in the state of residence, the tax paid
in the former is credited against the tax levied in the
latter.  The basic difference between the two methods is
that in the exemption method, the focus is on the income or
capital itself, whereas the credit method focuses upon the
tax.[15]
In negotiating tax treaties, the underlying rationale for
reducing the tax rate is that the Philippines will give up a
part of the tax in the expectation that the tax given up for
this particular investment is not taxed by the other country.
[16]
 Thus the petitioner correctly opined that the phrase
“royalties paid under similar circumstances” in the most
favored nation clause of the US-RP Tax Treaty necessarily
contemplated “circumstances that are tax-related”.
In the case at bar, the state of source is the Philippines
because the royalties are paid for the right to use property
or rights, i.e. trademarks, patents and technology, located
within the Philippines.[17] The United States is the state of
residence since the taxpayer, S. C. Johnson and Son, U. S.
A., is based there.  Under the RP-US Tax Treaty, the state
of residence and the state of source are both permitted to
tax the royalties, with a restraint on the tax that may be
collected by the state of source. [18] Furthermore, the method
employed to give relief from double taxation is the
allowance of a tax credit to citizens or residents of the
United States (in an appropriate amount  based upon the
taxes paid or accrued to the Philippines) against the United
States tax, but such amount shall not exceed the limitations
provided by United States law for the taxable year. [19] Under
Article 13 thereof, the Philippines may impose one of three
rates- 25 percent of the gross amount of the royalties; 15
percent when the royalties are paid by a corporation
registered with the Philippine Board of Investments and
engaged in preferred areas of activities; or the lowest rate
of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of
a third state.
Given the purpose underlying tax treaties and the rationale
for the most favored nation clause, the concessional tax
rate of 10 percent provided for in the RP-Germany Tax
Treaty should apply only if the taxes imposed upon royalties
in the RP-US Tax Treaty and in the RP-Germany Tax
Treaty are paid under similar circumstances.  This would
mean that private respondent must prove that the RP-US
Tax Treaty grants similar tax reliefs to residents of the
United States in respect of the taxes imposable upon
royalties earned from sources within the Philippines as
178
those allowed to their German counterparts under the RP-
Germany Tax Treaty.
The RP-US and the RP-West Germany Tax Treaties do not
contain similar provisions on tax crediting.  Article 24 of the
RP-Germany Tax Treaty,supra, expressly allows crediting
against German income and corporation tax of 20% of the
gross amount of royalties paid under the law of the
Philippines.  On the other hand, Article 23 of the RP-US
Tax Treaty, which is the counterpart provision with respect
to relief for double taxation, does not provide for similar
crediting of 20% of the gross amount of royalties paid.  Said
Article 23 reads:
“Article 23
Relief from double taxation
Double taxation of income shall be avoided in the following
manner:
1)  In accordance with the provisions and subject to the
limitations of the law of the United States (as it may be
amended from time to time without changing the general
principle thereof), the United States shall allow to a citizen
or resident of the United States as a credit against the
United States tax the appropriate amount of taxes paid or
accrued to the Philippines and, in the case of a United
States corporation owning at least 10 percent of the voting
stock of a Philippine corporation from which it receives
dividends in any taxable year, shall allow credit for the
appropriate amount of taxes paid or accrued to the
Philippines by the Philippine corporation paying such
dividends with respect to the profits out of which such
dividends are paid.  Such appropriate amount shall be
based upon the amount of tax paid or accrued to the
Philippines, but the credit shall not exceed the limitations
(for the purpose of limiting the credit to the United States
tax on income from sources within the Philippines or on
income from sources outside the United States) provided by
United States law for the taxable year.  xxx”.
The reason for construing the phrase “paid under similar
circumstances” as used in Article 13 (2) (b) (iii) of the RP-
US Tax Treaty as referring to taxes is anchored upon a
logical reading of the text in the light of the fundamental
purpose of such treaty which is to grant an incentive to the
foreign investor by lowering the tax and at the same time
crediting against the domestic tax abroad a figure higher
than what was collected in the Philippines.
In one case, the Supreme Court pointed out that laws are
not just mere compositions, but have ends to be achieved
and that the general purpose is a more important aid to the
meaning of a law than any rule which grammar may lay
down.[20] It is the duty of the courts to look to the object to be
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
accomplished, the evils to be remedied, or the purpose to
be subserved, and should give the law a reasonable or
liberal construction which will best effectuate its purpose.
[21]
 The Vienna Convention on the Law of Treaties states
that  a treaty shall be interpreted in good faith in
accordance with the ordinary meaning to be given to the
terms of the treaty in their context and in the light of its
object and purpose.[22]
As stated earlier, the ultimate reason for avoiding double
taxation is to encourage foreign investors to invest in the
Philippines - a crucial economic goal for developing
countries.[23] The goal of double taxation conventions would
be thwarted if such treaties did not provide for effective
measures to minimize, if not completely eliminate, the tax
burden laid upon the income or capital of the
investor.  Thus, if the rates of tax are lowered by the state
of source, in this case, by the Philippines, there should be a
concomitant commitment on the part of the state of
residence to grant some form of tax relief, whether this be
in the form of a tax credit or exemption. [24] Otherwise, the
tax which could have been collected by the Philippine
government will simply be collected by another state,
defeating the object of the tax treaty since the tax burden
imposed upon the investor would remain unrelieved.  If the
state of residence does not grant some form of tax relief to
the investor, no benefit would redound to the Philippines,
i.e., increased investment resulting from a favorable tax
regime, should it impose a lower tax rate on the royalty
earnings of the investor, and it would be better to impose
the regular rate rather than lose much-needed revenues to
another country.
At the same time, the intention behind the adoption of the
provision on “relief from double taxation” in the two tax
treaties in question should be considered in light of the
purpose behind the most favored nation clause.
The purpose of a most favored nation clause is to grant to
the contracting party treatment not less favorable than that
which has been or may be granted to the “most favored”
among other countries.[25] The most favored nation clause is
intended to establish the principle of equality of international
treatment by providing that the citizens or subjects of the
contracting nations may enjoy the privileges accorded by
either party to those of the most favored nation. [26] The
essence of the principle is to allow the taxpayer in one state
to avail of more liberal provisions granted in another tax
treaty to which the country of residence of such taxpayer is
also a party provided that the subject matter of taxation, in
this case royalty income, is the same as that in the tax
treaty under which the taxpayer is liable.  Both Article 13 of
the RP-US Tax Treaty and Article 12 (2) (b) of the RP-West
Germany Tax Treaty, above-quoted, speaks of tax on
royalties for the use of trademark, patent, and
179
technology.  The entitlement of the 10% rate by U.S. firms
despite the absence of a matching credit (20% for royalties)
would derogate from the design behind the most favored
nation clause to grant equality of international treatment
since the tax burden laid upon the income of the investor is
not the same in the two countries.  The similarity in the
circumstances of payment of taxes is a condition for the
enjoyment of most favored nation treatment precisely to
underscore the need for equality of treatment.
We accordingly agree with petitioner that since the RP-US
Tax Treaty does not give a matching tax credit of 20
percent for the taxes paid to the Philippines on royalties as
allowed under the RP-West Germany Tax Treaty, private
respondent cannot be deemed entitled to the 10 percent
rate granted under the latter treaty for the reason that there
is no payment of taxes on royalties under similar
circumstances.
It bears stress that tax refunds are in the nature of tax
exemptions.  As such they are regarded as in derogation of
sovereign authority and to be construed strictissimi
juris against the person or entity claiming the exemption.
[27]
 The burden of proof is upon him who claims the
exemption in his favor and he must be able to justify his
claim by the clearest grant of organic or statute law.
[28]
 Private respondent is claiming for a refund of the alleged
overpayment of tax on royalties; however, there is nothing
on record to support a claim that the tax on royalties under
the RP-US Tax Treaty is paid under similar circumstances
as the tax on royalties under the RP-West Germany Tax
Treaty.
WHEREFORE, for all the foregoing, the instant petition is
GRANTED.  The decision dated May 7, 1996 of the Court
of Tax Appeals and the decision dated November 7, 1996
of the Court of Appeals are hereby SET ASIDE.
SO ORDERED.
PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 PHIL 331
GR No. L-10405, December 29, 1960
"A law appropriating the public revenue is invalid if the
public advantage or benefit, derived from such expenditure,
is merely incidental in the promotion of a particular
enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted
this action for declaratory relief, with injunction, upon the
ground that RA No. 920, which apropriates funds for public
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
works particularly for the construction and improvement of
Pasig feeder road terminals. Some of the feeder roads,
however, as alleged and as contained in the tracings
attached to the petition, were nothing but projected and
planned subdivision roads, not yet constructed within the
Antonio Subdivision, belonging to private respondent
Zulueta, situated at Pasig, Rizal; and which projected
feeder roads do not connect any government property or
any important premises to the main highway. The
respondents' contention is that there is public purpose
because people living in the subdivision will directly be
benefitted from the construction of the roads, and the
government also gains from the donation of the land
supposed to be occupied by the streets, made by its owner
to the government.
ISSUE: Should incidental gains by the public be considered
"public purpose" for the purpose of justifying an expenditure
of the government?
HELD: No. It is a general rule that the legislature is without
power to appropriate public revenue for anything but a
public purpose. It is the essential character of the direct
object of the expenditure which must determine its validity
as justifying a tax, and not the magnitude of the interest to
be affected nor the degree to which the general advantage
of the community, and thus the public welfare, may be
ultimately benefited by their promotion. Incidental to the
public or to the state, which results from the promotion of
private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money.
   The test of the constitutionality of a statute requiring the
use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance
of the advantage of individuals, although each advantage to
individuals might incidentally serve the public.
WENCESLAO PASCUAL, in his official capacity as
Provincial Governor of Rizal, petitioner-appellant, 
vs.
THE SECRETARY OF PUBLIC WORKS AND
COMMUNICATIONS, ET AL., respondents-appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for
appellant.
Office of the Asst. Solicitor General Jose G. Bautista and
Solicitor A. A. Torres for appellee.
CONCEPCION, J.:
180
Appeal, by petitioner Wenceslao Pascual, from a decision
of the Court of First Instance of Rizal, dismissing the above
entitled case and dissolving the writ of preliminary injunction
therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as
Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that
Republic Act No. 920, entitled "An Act Appropriating Funds
for Public Works", approved on June 20, 1953, contained,
in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for
the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals (Gen. Roxas
— Gen. Araneta — Gen. Lucban — Gen. Capinpin — Gen.
Segundo — Gen. Delgado — Gen. Malvar — Gen. Lim)";
that, at the time of the passage and approval of said Act,
the aforementioned feeder roads were "nothing but
projected and planned subdivision roads, not yet
constructed, . . . within the Antonio Subdivision . . . situated
at . . . Pasig, Rizal" (according to the tracings attached to
the petition as Annexes A and B, near Shaw Boulevard, not
far away from the intersection between the latter and
Highway 54), which projected feeder roads "do not connect
any government property or any important premises to the
main highway"; that the aforementioned Antonio
Subdivision (as well as the lands on which said feeder
roads were to be construed) were private properties of
respondent Jose C. Zulueta, who, at the time of the
passage and approval of said Act, was a member of the
Senate of the Philippines; that on May, 1953, respondent
Zulueta, addressed a letter to the Municipal Council of
Pasig, Rizal, offering to donate said projected feeder roads
to the municipality of Pasig, Rizal; that, on June 13, 1953,
the offer was accepted by the council, subject to the
condition "that the donor would submit a plan of the said
roads and agree to change the names of two of them"; that
no deed of donation in favor of the municipality of Pasig
was, however, executed; that on July 10, 1953, respondent
Zulueta wrote another letter to said council, calling attention
to the approval of Republic Act. No. 920, and the sum of
P85,000.00 appropriated therein for the construction of the
projected feeder roads in question; that the municipal
council of Pasig endorsed said letter of respondent Zulueta
to the District Engineer of Rizal, who, up to the present "has
not made any endorsement thereon" that inasmuch as the
projected feeder roads in question were private property at
the time of the passage and approval of Republic Act No.
920, the appropriation of P85,000.00 therein made, for the
construction, reconstruction, repair, extension and
improvement of said projected feeder roads, was illegal
and, therefore, void ab initio"; that said appropriation of
P85,000.00 was made by Congress because its members
were made to believe that the projected feeder roads in
question were "public roads and not private streets of a
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
private subdivision"'; that, "in order to give a semblance of
legality, when there is absolutely none, to the
aforementioned appropriation", respondents Zulueta
executed on December 12, 1953, while he was a member
of the Senate of the Philippines, an alleged deed of
donation — copy of which is annexed to the petition — of
the four (4) parcels of land constituting said projected
feeder roads, in favor of the Government of the Republic of
the Philippines; that said alleged deed of donation was, on
the same date, accepted by the then Executive Secretary;
that being subject to an onerous condition, said donation
partook of the nature of a contract; that, such, said donation
violated the provision of our fundamental law prohibiting
members of Congress from being directly or indirectly
financially interested in any contract with the Government,
and, hence, is unconstitutional, as well as null and void ab
initio, for the construction of the projected feeder roads in
question with public funds would greatly enhance or
increase the value of the aforementioned subdivision of
respondent Zulueta, "aside from relieving him from the
burden of constructing his subdivision streets or roads at
his own expense"; that the construction of said projected
feeder roads was then being undertaken by the Bureau of
Public Highways; and that, unless restrained by the court,
the respondents would continue to execute, comply with,
follow and implement the aforementioned illegal provision of
law, "to the irreparable damage, detriment and prejudice not
only to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of
Republic Act No. 920 be declared null and void; that the
alleged deed of donation of the feeder roads in question be
"declared unconstitutional and, therefor, illegal"; that a writ
of injunction be issued enjoining the Secretary of Public
Works and Communications, the Director of the Bureau of
Public Works and Highways and Jose C. Zulueta from
ordering or allowing the continuance of the above-
mentioned feeder roads project, and from making and
securing any new and further releases on the
aforementioned item of Republic Act No. 920, and the
disbursing officers of the Department of Public Works and
Highways from making any further payments out of said
funds provided for in Republic Act No. 920; and that
pending final hearing on the merits, a writ of preliminary
injunction be issued enjoining the aforementioned parties
respondent from making and securing any new and further
releases on the aforesaid item of Republic Act No. 920 and
from making any further payments out of said illegally
appropriated funds.
Respondents moved to dismiss the petition upon the
ground that petitioner had "no legal capacity to sue", and
that the petition did "not state a cause of action". In support
to this motion, respondent Zulueta alleged that the
Provincial Fiscal of Rizal, not its provincial governor, should
181
represent the Province of Rizal, pursuant to section 1683 of
the Revised Administrative Code; that said respondent is "
not aware of any law which makes illegal the appropriation
of public funds for the improvements of . . . private
property"; and that, the constitutional provision invoked by
petitioner is inapplicable to the donation in question, the
same being a pure act of liberality, not a contract. The other
respondents, in turn, maintained that petitioner could not
assail the appropriation in question because "there is no
actual bona fide case . . . in which the validity of Republic
Act No. 920 is necessarily involved" and petitioner "has not
shown that he has a personal and substantial interest" in
said Act "and that its enforcement has caused or will cause
him a direct injury."
Acting upon said motions to dismiss, the lower court
rendered the aforementioned decision, dated October 29,
1953, holding that, since public interest is involved in this
case, the Provincial Governor of Rizal and the provincial
fiscal thereof who represents him therein, "have the
requisite personalities" to question the constitutionality of
the disputed item of Republic Act No. 920; that "the
legislature is without power appropriate public revenues for
anything but a public purpose", that the instructions and
improvement of the feeder roads in question, if such roads
where private property, would not be a public purpose; that,
being subject to the following condition:
The within donation is hereby made upon the condition that
the Government of the Republic of the Philippines will use
the parcels of land hereby donated for street purposes only
and for no other purposes whatsoever; it being expressly
understood that should the Government of the Republic of
the Philippines violate the condition hereby imposed upon
it, the title to the land hereby donated shall, upon such
violation, ipso facto revert to the DONOR, JOSE C.
ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that
said donation or contract is "absolutely forbidden by the
Constitution" and consequently "illegal", for Article 1409 of
the Civil Code of the Philippines, declares in existence and
void from the very beginning contracts "whose cause,
objector purpose is contrary to law, morals . . . or public
policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his
"interest are not directly affected" thereby; and that,
accordingly, the appropriation in question "should be
upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with
a decision granting the aforementioned motions to dismiss,
which as much, are deemed to have admitted hypothetically
the allegations of fact made in the petition of appellant
herein. According to said petition, respondent Zulueta is the
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
owner of several parcels of residential land situated in
Pasig, Rizal, and known as the Antonio Subdivision, certain
portions of which had been reserved for the projected
feeder roads aforementioned, which, admittedly, were
private property of said respondent when Republic Act No.
920, appropriating P85,000.00 for the "construction,
reconstruction, repair, extension and improvement" of said
roads, was passed by Congress, as well as when it was
approved by the President on June 20, 1953. The petition
further alleges that the construction of said roads, to be
undertaken with the aforementioned appropriation of
P85,000.00, would have the effect of relieving respondent
Zulueta of the burden of constructing his subdivision streets
or roads at his own expenses, 1and would "greatly enhance
or increase the value of the subdivision" of said respondent.
The lower court held that under these circumstances, the
appropriation in question was "clearly for a private, not a
public purpose."
Respondents do not deny the accuracy of this conclusion,
which is self-evident. 2However, respondent Zulueta
contended, in his motion to dismiss that:
A law passed by Congress and approved by the President
can never be illegal because Congress is the source of all
laws . . . Aside from the fact that movant is not aware of any
law which makes illegal the appropriation of public funds for
the improvement of what we, in the meantime, may assume
as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it
being inconsistent with the nature of the Government
established under the Constitution of the Republic of the
Philippines and the system of checks and balances
underlying our political structure. Moreover, it is refuted by
the decisions of this Court invalidating legislative
enactments deemed violative of the Constitution or organic
laws. 3
As regards the legal feasibility of appropriating public funds
for a public purpose, the principle according to Ruling Case
Law, is this:
It is a general rule that the legislature is without power to
appropriate public revenue for anything but a public
purpose. . . . It is the essential character of the direct object
of the expenditure which must determine its validity as
justifying a tax, and not the magnitude of the interest to be
affected nor the degree to which the general advantage of
the community, and thus the public welfare, may be
ultimately benefited by their promotion. Incidental  to the
public or to the state, which results from the promotion of
private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money.
(25 R.L.C. pp. 398-400; Emphasis supplied.)
182
The rule is set forth in Corpus Juris Secundum in the
following language:
In accordance with the rule that the taxing power must be
exercised for public purposes only, discussedsupra sec. 14,
money raised by taxation can be expended only for public
purposes and not for the advantage of private individuals.
(85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris
Secundum states:
Generally, under the express or implied provisions of the
constitution, public funds may be used only for public
purpose. The right of the legislature to appropriate funds is
correlative with its right to tax, and, under constitutional
provisions against taxation except for public purposes and
prohibiting the collection of a tax for one purpose and the
devotion thereof to another purpose, no appropriation of
state funds can be made for other than for a public purpose.
x x x           x x x          x x x
The test of the constitutionality of a statute requiring the use
of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance
of the advantage of individuals, although each advantage to
individuals might incidentally serve the public. (81 C.J.S.
pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the
foregoing views which, apart from being patently sound, are
a necessary corollary to our democratic system of
government, which, as such, exists primarily for the
promotion of the general welfare. Besides, reflecting as
they do, the established jurisprudence in the United States,
after whose constitutional system ours has been patterned,
said views and jurisprudence are, likewise, part and parcel
of our own constitutional law.lawphil.net
This notwithstanding, the lower court felt constrained to
uphold the appropriation in question, upon the ground that
petitioner may not contest the legality of the donation above
referred to because the same does not affect him directly.
This conclusion is, presumably, based upon the following
premises, namely: (1) that, if valid, said donation cured the
constitutional infirmity of the aforementioned appropriation;
(2) that the latter may not be annulled without a previous
declaration of unconstitutionality of the said donation; and
(3) that the rule set forth in Article 1421 of the Civil Code is
absolute, and admits of no exception. We do not agree with
these premises.
The validity of a statute depends upon the powers of
Congress at the time of its passage or approval, not upon
events occurring, or acts performed, subsequently thereto,
RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original)
unless the latter consists of an amendment of the organic
law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring
to the P85,000.00 appropriation for the projected feeder
roads in question, the legality thereof depended upon
whether said roads were public or private property when the
bill, which, latter on, became Republic Act 920, was passed
by Congress, or, when said bill was approved by the
President and the disbursement of said sum became
effective, or on June 20, 1953 (see section 13 of said Act).
Inasmuch as the land on which the projected feeder roads
were to be constructed belonged then to respondent
Zulueta, the result is that said appropriation sought a
private purpose, and hence, was null and void. 4 The
donation to the Government, over five (5) months after the
approval and effectivity of said Act, made, according to the
petition, for the purpose of giving a "semblance of legality",
or legalizing, the appropriation in question, did not cure its
aforementioned basic defect. Consequently, a judicial
nullification of said donation need not precede the
declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other
statutory enactments, is subject to exceptions. For instance,
the creditors of a party to an illegal contract may, under the
conditions set forth in Article 1177 of said Code, exercise
the rights and actions of the latter, except only those which
are inherent in his person, including therefore, his right to
the annulment of said contract, even though such creditors
are not affected by the same, except indirectly, in the
manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be
contested only by one who will sustain a direct injury in
consequence of its enforcement. Yet, there are many
decisions nullifying, at the instance of taxpayers, laws
providing for the disbursement of public funds, 5upon the
theory that "the expenditure of public funds by an officer of
the State for the purpose of administering
an unconstitutional act constitutes a  misapplication  of such
funds," which may be enjoined at the request of a
taxpayer. 6Although there are some decisions to the
contrary, 7the prevailing view in the United States is stated
in the American Jurisprudence as follows:
In the determination of the degree of interest essential to
give the requisite standing to attack the constitutionality of a
statute, the general rule is that not only persons individually
affected, but alsotaxpayers, have sufficient interest in
preventing the illegal expenditure of moneys raised by
taxation and may therefore question the constitutionality of
statutes requiring expenditure of public moneys. (11 Am.
Jur. 761; emphasis supplied.)
183
However, this view was not favored by the Supreme Court taxpayer and employee of the Government was not
of the U.S. in Frothingham vs. Mellon (262 U.S. 447), permitted to question the constitutionality of an
insofar as  federal  laws are concerned, upon the ground appropriation for backpay of members of Congress.
that the relationship of a taxpayer of the U.S. to its Federal However, in Rodriguez vs. Treasurer of the Philippines and
Government is different from that of a taxpayer of a Barredo vs. Commission on Elections (84 Phil., 368; 45 Off.
municipal corporation to its government. Indeed, under Gaz., 4411), we entertained the action of taxpayers
the composite system of government existing in the U.S., impugning the validity of certain appropriations of public
the states of the Union are integral part of the Federation funds, and invalidated the same. Moreover, the reason that
from an international viewpoint, but, each state enjoys impelled this Court to take such position in said two (2)
internally a substantial measure of sovereignty, subject to cases — the importance of the issues therein raised — is
the limitations imposed by the Federal Constitution. In fact, present in the case at bar. Again, like the petitioners in the
the same was made by representatives ofeach state of the Rodriguez and Barredo cases, petitioner herein is not
Union, not of the people of the U.S., except insofar as the merely a taxpayer. The Province of Rizal, which he
former represented the people of the respective States, and represents officially as its Provincial Governor, is our most
the people of each State has, independently of that of the populated political subdivision, 8and, the taxpayers therein
others, ratified said Constitution. In other words, the Federal bear a substantial portion of the burden of taxation, in the
Constitution and the Federal statutes have become binding Philippines.
upon the people of the U.S. in consequence of an act of,
and, in this sense, through  the respective states of the Hence, it is our considered opinion that the circumstances
Union of which they are citizens. The peculiar nature of the surrounding this case sufficiently justify petitioners action in
relation between said people and the Federal Government contesting the appropriation and donation in question; that
of the U.S. is reflected in the election of its President, who this action should not have been dismissed by the lower
is chosen directly, not  by the people of the U.S., but by court; and that the writ of preliminary injunction should have
electors chosen by each State, in such manner as the been maintained.
legislature thereof may direct (Article II, section 2, of the
Wherefore, the decision appealed from is hereby reversed,
Federal Constitution).lawphi1.net
and the records are remanded to the lower court for further
The relation between the people of the Philippines and its proceedings not inconsistent with this decision, with the
taxpayers, on the other hand, and the Republic of the costs of this instance against respondent Jose C. Zulueta. It
Philippines, on the other, is not identical to that obtaining is so ordered.
between the people and taxpayers of the U.S. and its
Federal Government. It is closer, from a domestic
viewpoint, to that existing between the people and
taxpayers of each state and the government thereof, except
that the authority of the Republic of the Philippines over the
people of the Philippines is more fully direct than that of the
states of the Union, insofar as the simple and unitarytype of
our national government is not subject to limitations
analogous to those imposed by the Federal Constitution
upon the states of the Union, and those imposed upon the
Federal Government in the interest of the Union. For this
reason, the rule recognizing the right of taxpayers to assail
the constitutionality of a legislation appropriating local or
state public funds — which has been upheld by the Federal
Supreme Court (Crampton vs.Zabriskie, 101 U.S. 601) —
has greater application in the Philippines than that adopted
with respect to acts of Congress of the United States
appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil.,

257), involving the expropriation of a land by the Province
of Tayabas, two (2) taxpayers thereof were allowed to
intervene for the purpose of contesting the price being paid
to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a

RHEYNE ROBLEDO – New Era University (Juris Doctor) |Constitutional Law 2 Cases (Digest&Original) 184