tax1 first set

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G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966

REPUBLIC O !"E P"ILIPPINE#, plaintif-appellee,vs.B$COLO%-&URCI$ &ILLING CO., INC., &$-$O #UG$R CEN!R$L CO., INC., and!$LI#$'-#IL$' &ILLING CO&P$N', de endants-appellants.

Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando fordefendants-appellants.O ce of the Solicitor General ntonio !. "arredo, ssistant Solicitor General ntonio#orres and Solicitor $eferino !adua, for plainti%-appellee.

REG$L$, J.:

This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-aoSugar Central Co., Inc., and Talisay-Silay Milling Co., sister co panies under onecontrolling o!nership and anage ent, ro a decision o the Court o "irst Instance o Manila #nding the liable or special assess ents under Section $% o &epublic 'ct (o.)*+.

&epublic 'ct (o. )*+ is the charter o the hilippine Sugar Institute, hilsugin or short,a se i-public corporation created or the ollo!ing purposes and objectives

a/ To conduct research !or0 or the sugar industry in all its phases, eitheragricultural or industrial, or the purpose o introducing into the sugar industrysuch practices or processes that !ill reduce the cost o production, increase andi prove the industriali1ation o the by-products o sugar cane, and achievegreater e2ciency in the industry3

b/ To i prove e4isting ethods o raising sugar cane and o sugaranu acturing3

c/ To insure a per anent, su2cient and balanced production o sugar and itsby-products or local consu ption and e4portation3

d/ To establish and aintain such balanced relation bet!een production andconsu ption o sugar and its by-products, and such ar0eting conditionsthere or, as !ell insure stabili1ed prices at a level su2cient to cover the cost oproduction plus a reasonable pro#t3

e/ To pro ote the efective erchandising o sugar and its by-products in thedo estic and oreign ar0ets so that those engaged in the sugar industry !illbe placed on a basis o econo ic security3 and

/ To i prove the living and econo ic conditions o laborers engaged in thesugar industry by the gradual and efective correction o the ine5ualitiese4isting in the industry. Section +, &ep. 'ct )*+/

To reali1e and achieve these ends, Sections $% and $) o the a ore entioned la!provide

Sec. $%. $apitali&ation . 6 To raise the necessary unds to carry out theprovisions o this 'ct and the purposes o the corporation, there shall be leviedon the annual sugar production a ta4 o T7( C7(T'89S : ;.$;< per picul osugar to be collected or a period o #ve %/ years beginning the crop year $=%$-$=%+. The a ount shall be borne by the sugar cane planters and the sugarcentrals in the proportion o their corresponding illing share, and said levyshall constitute a lien on their sugar 5uedans and>or !arehouse receipts.

Sec. $). Special Fund . 6 The proceeds o the oregoing levy shall be set aside toconstitute a special und to be 0no!n as the ?Sugar &esearch and Stabili1ation"und,? !hich shall be available e4clusively or the use o the corporation. 'll theinco e and receipts derived ro the special und herein created shall accrueto, and or part o the said und to be available solely or the use o thecorporation.

The speci#c and general po!ers o the hilsugin are set orth in Section @ o the sa ela!, to !it

Sec. *. Speci'c and General !o(ers. ) "or carrying out the purposes entionedin the preceding section, the AI S DI( shall have the ollo!ing po!ers

a/ To establish, 0eep, aintain and operate, or help establish, 0eep, aintain,and operate one central e4peri ent station and such nu ber o regionale4peri ent stations in any part o the hilippines as ay be necessary tounderta0e e4tensive research in sugar cane culture and anu acture, includingstudies as to the easibility o erchandising sugar cane ar s, the control anderadication o pests, the selected and propagation o high-yielding varieties osugar cane suited to hilippine cli atic conditions, and such other pertinentstudies as !ill be use ul in adjusting the sugar industry to a positionindependent o e4isting trade pre erence in the ' erican ar0et3

b/ To purchase such achinery, aterials, e5uip ent and supplies as ay be

necessary to prosecute success ully such researches and e4peri ental !or03

c/ To e4plore and e4pand the do estic and oreign ar0ets or sugar and itsby-products to assure utual bene#ts to consu ers and producers, and topro ote and aintain a su2cient general production o sugar and its by-

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products by an e2cient coordination o the co ponent ele ents o the sugarindustry o the country3

d/ To buy, sell, assign, o!n, operate, rent or lease, subject to e4isting la!s,achineries, e5uip ent, aterials, erchant vessels, rails, railroad lines, andany other eans o transportation, !arehouses, buildings, and any othere5uip ent and aterial to the production, anu acture, handling,transportation and !arehousing o sugar and its by-products3

e/ To grant loans, on reasonable ter s, to planters !hen it dee s such loansadvisable3

/ To enter, a0e and e4ecute contracts o any 0ind as ay be necessary orincidental to the attain ent o its purposes !ith any person, #r , or public orprivate corporation, !ith the Dovern ent o the hilippines or o the nitedStates, or any state, territory, or persons there or, or !ith any oreigngovern ent and, in general, to do everything directly or indirectly necessary orincidental to, or in urtherance o , the purposes o the corporation3

g/ To do all such other things, transact all such business and per or suchunctions directly or indirectly necessary, incidental or conducive to theattain ent o the purposes o the corporation3 and

h/ Denerally, to e4ercise all the po!ers o a Corporation under the Corporationa! inso ar as they are not inconsistent !ith the provisions o this 'ct.

The acts o this case bearing relevance to the issue under consideration, as recited bythe lo!er court and accepted by the appellants, are the ollo!ing

4 4 4 during the % crop years entioned in the la!, na ely $=%$-$=%+, $=%+-$=%*, $=%*-$=%E, $=%E-$=%% and $=%%-$=%), de endant Bacolod-Murcia MillingCo., Inc., has paid +)F,E)@.;; but le t an unpaid balance o +$),;F;.%;3de endant Ma-ao Sugar Central Co., Inc., has paid $$F,)$*.EE but le t unpaidbalance o +*%,@;;.+;3 de endant Talisay-Silay Milling Co pany has paid+%$,@$+.E* but le t unpaid balance o +;@,$=*.FE3 and de endant Central'1ucarera del Ganao ade a pay ent o E=,@=F.F@ but le t unpaid balance oE@,;%=.FF. There is no 5uestion regarding the correctness o the a ounts paidand the a ounts that re ain unpaid.

"ro the evidence presented, on !hich there is no controversy, it !as disclosedthat on Septe ber *, $=%$, the hilippine Sugar Institute, 0no!n as theAI S DI( or short, ac5uired the Insular Sugar &e#nery or a totalconsideration o *,;F;,=;=.); payable, in accordance !ith the deed o sale74hibit ', in * install ents ro the process o the sugar ta4 to be collected,

under &epublic 'ct )*+. The evidence urther discloses that the operation o theInsular Sugar &e#nery or the years, $=%E, $=%%, $=%) and $=%F !as disastrousin the sense that AI S DI( incurred tre endous losses as sho!n by ane4a ination o the state ents o inco e and e4penses ar0ed 74hibits %, ), Fand @. Through the testi ony o Mr. Cenon "lor Cru1, or er acting generalanager o AI S DI( and at present technical consultant o said entity,presented by the de endants as !itnesses, it has been sho!n that the operationo the Insular Sugar &e#nery has consu ed F;H o the thin0ing ti e and eforto the AI S DI( anage ent. 4 4 4 .

Contending that the purchase o the Insular Sugar &e#nery !ith oney ro the

hilsugin "und !as not authori1ed by &epublic 'ct )*+ and that the continuedoperation o the said re#nery !as ini ical to their interests, the appellants re used tocontinue !ith their contributions to the said und. They aintained that their obligationto contribute or pay to the said "und subsists only to the li it and e4tent that they arebene#ted by such contributions since &epublic 'ct )*+ is not a revenue easure but an'ct !hich establishes a ?Special assess ents.? 'dverting to the #nding o the lo!ercourt that proceeds o the said "und had been used or applied to absorb the?tre endous losses? incurred by hilsugin in its ?disastrous operation? o the saidre#nery, the appellants herein argue that they should not only be released ro theirobligation to pay the said assess ent but be re unded, besides, o all that they ighthave previously paid thereunder.

The appellants thesis is si ply to the efect that the ?$; centavos per picul o sugar?authori1ed to be collected under Sec. $% o &epublic )*+ is a special assess ent. 'ssuch, the proceeds thereo ay be devoted only to the speci#c purpose or !hich theassess ent !as authori1ed, a special assess ent being a levy upon propertypredicated on the doctrine that the property against !hich it is levied derives so especial bene#t ro the i prove ent. It is not a ta4 easure intended to raiserevenues or the Dovern ent. Conse5uently, once it has been deter ined that nobene#t accrues or inures to the property o!ners paying the assess ent, or that theproceeds ro the said assess ent are being isapplied to the prejudice o thoseagainst !ho it has been levied, then the authority to insist on the pay ent o the saidassess ent ceases.

9n the other hand, the lo!er court adjudged the appellants herein liable under thea ore entioned la!, &epublic 'ct )*+, upon the ollo!ing considerations

"irst, Subsection d/ o Section * o &epublic 'ct )*+ authori1es hilsugin to buy andoperate achineries, e5uip ent, erchant vessels, etc., and any other e5uip ent and

aterial or the production, anu acture, handling, transportation and !arehousing osugar and its by-products. It !as, there ore, authori1ed to purchase and operate asugar re#nery.

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Secondly, the corporate po!ers o the hilsugin are vested in and e4ercised by a boardo directors co posed o % e bers, * o !ho shall be appointed uponreco endation o the (ational "ederation o Sugar Cane lanters and + uponreco endation o the hilippine Sugar 'ssociation. Sec. E, &ep. 'ct )*+/. It has notbeen sho!n that this particular provision !as not observed in this case. There ore, theappellants herein ay not rightly clai that there had been a isapplication o thehilsugin unds !hen the sa e !as used to procure the Insular Sugar &e#nery becausethe decision to purchase the said re#nery !as ade by a board in !hich the applicants!ere ully and duly represented, the appellants being e bers o the hilippine Sugar'ssociation.

Thirdly, all #nancial transactions o the hilsugin are audited by the Deneral 'uditing92ce, !hich ust be presu ed to have passed upon the legality and prudence o thedisburse ents o the "und. 'dditionally, other o2ces o the Dovern ent revie! suchtransactions as reJected in the annual report obliged o the hilsugin to prepare.' ong those o2ces are the 92ce o the resident o the hilippines, the 'd inistratoro 7cono ic Coordination and the residing 92cers o the t!o cha bers o Congress.Kith all these sa eguards against any i prudent or unauthori1ed e4penditure ohilsugin "unds, the ac5uisition o the Insular Sugar &e#nery ust be upheld in itslegality and propriety.

"ourthly, it !ould be dangerous to sanction the unilateral re usal o the appellantsherein to continue !ith their contribution to the "und or that conduct is no diferent? ro the case o an ordinary ta4payer !ho re uses to pay his ta4es on the ground thatthe oney is being isappropriated by Dovern ent o2cials.? This is ta0ing the la!into their o!n hands.

'gainst the above ruling o the trial court, the appellants contend

"irst. It is allacious to argue that no is anage ent or abuse o corporate po!ercould have been co itted by hilsugin solely because its charter incorporates soany devices or sa eguards to preclude such abuse. This reasoning o the lo!er courtdoes not reconcile !ith that actually happened in this case.

Besides, the appellants contend that the issue on hand is not !hether hilsugin abusedor not its po!ers !hen it purchased the Insular Sugar &e#nery. The issue, rather, is!hether hilsugin had any po!er or authority at all to ac5uire the said re#nery. Theappellants deny that hilsugin is possessed o any such authority because !hat it ise po!ered to purchase is not a ?sugar re#nery but a central e4peri ent station orperhaps at the ost a sugar central to be used or that purpose.? Sec. *:a


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Ke #nd or the appellee.

The nature o a ?special assess ent? si ilar to the case at bar has already beendiscussed and e4plained by this Court in the case o +ut& *s. raneta , =@ hil. $E@. "orin this ut1 case, Co on!ealth 'ct %)F, other!ise 0no!n as the Sugar 'djust ent'ct, levies on o!ners or persons in control o lands devoted to the cultivation o sugarcane and ceded to others or a consideration, on lease or other!ise 6

a ta4 e5uivalent to the diference bet!een the oney value o the rental orconsideration collected and the a ount representing $+ per centu o theassessed value o such land. Sec. */. (ph/ .01t

nder Section ) o the said la!, Co on!ealth 'ct %)F, all collections adethereunder ?shall accrue to a special und in the hilippine Treasury, to be 0no!n as theSugar 'djust ent and Stabili1ation "und, and shall be paid out only or any or all othe ollo!ing purposes or to attain any or all o the ollo!ing objectives, as ay beprovided by la!.? It then proceeds to enu erate the said purposes, a ong !hich are?to place the sugar industry in a position to aintain itsel 3 ... to readjust the bene#tsderived ro the sugar industry ... so that all ight continue pro#tably to engagetherein3 to li it the production o sugar to areas ore econo ically suited to theproduction thereo 3 and to aford laborers e ployed in the industry a living !age and toi prove their living and !or0ing conditions.

The plaintif in the above case, Kalter ut1, contended that the a ore entioned ta4 orspecial assess ent !as unconstitutional because it !as being ?levied or the aid and

support o the sugar industry e4clusively,? and there ore, not or a public purpose. Inrejecting the theory advanced by the said plaintif, this Court said

The basic de ect in the plaintif s position in his assu ption that the ta4provided or in Co on!ealth 'ct (o. %)F is a pure e4ercise o the ta4ingpo!er. 'nalysis o the 'ct, and particularly Section ), !ill sho! that the ta4 islevied !ith a regulatory purpose, to provide eans or the rehabilitation andstabili1ation o the threatened sugar industry. 2n other (ords, the act is

primaril3 an e4ercise of the police po(er .

This Court can ta0e judicial notice o the act that sugar production is one o thegreat industries o our nation, sugar occupying a leading position a ong itse4port products3 that it gives e ploy ent to thousands o laborers in #elds andactories3 that it is a great source o the state s !ealth, is one, o the i portantsources to oreign e4change needed by our govern ent, and is thus pivotal inthe plans o a regi e co itted to a policy o currency stability. Its pro otion,protection and advance ent, there ore redounds greatly to the general !el are.Aence, it !as co petent or the egislature to #nd that the general !el arede anded that the sugar industry should be stabili1ed in turn3 and in the !ide#eld o its police po!er, the la!- a0ing body could provide that the distribution

o bene#ts there ro be readjusted a ong its co ponents, to enable it to resistthe added strain o the increase in ta4es that it had to sustain Sligh vs.Lir0!ood, +*F .S. %+, %= . 7d. @*%3 ohnson vs. State e4 rel. Marey, == "la.$*$$, $+@ So. @%*3 Marcy Inc. vs. Mayo, $;* "la. %%+, $*= So. $+$/

's stated in 5ohnson *s. State e4 rel. Marcy, !ith re erence to the citrus industryin "lorida 6

?The protection o a large industry constituting one o the great sourceo the state s !ealth and there ore directly or indirectly afecting the!el are o so great a portion o the population o the State is afected to

such an e4tent by public interests as to be !ithin the police po!er o thesovereign.? $+@ So. @%F/.

9nce it is conceded, as it ust that the protection and pro otion o the sugarindustry is a atter o public concern, it ollo!s that the egislature aydeter ine !ithin reasonable bounds !hat is necessary or its protection ande4pedient or its pro otion. Aere, the legislative discretion ust be allo!ed ullplay, subject only to the test o reasonableness3 and it is not contended that theeans provided in Section ) o the la! above 5uoted/ bear no relation to theobjective pursued or are oppressive in character. I objective and ethods areali0e constitutionally valid, no reason is seen !hy the state ay not levy ta4esto raise unds or their prosecution and attain ent. Ta4ation ay be ade thei ple ent o the state s police po!er. Dreat 'tl. N ac. Tea Co. vs. Drosjean,*;$ .S. E$+, @$ . 7d. $$=*3 .S. vs. Butler, +=F .S. $, @; . 7d. EFF3 M culloc0vs. Maryland, E Kheat. *$), E . 7d. %F=/.

9n the authority o the above case, then, Ke hold that the special assess ent at baray be considered as si ilarly as the above, that is, that the levy or the hilsugin"und is not so uch an e4ercise o the po!er o ta4ation, nor the i position o a specialassess ent, but, the e4ercise o the police po!er or the general !el are o the entirecountry. It is, there ore, an e4ercise o a sovereign po!er !hich no private citi1en ayla! ully resist.

Besides, under Section + a/ o the charter, the hilsugin is authori1ed ?to conductresearch !or0 or the sugar industry in all its phases , either agricultural or industrial,or the purpose o introducing into the sugar industry such practices or processes that!ill reduce the cost o production, ..., and achieve greater e2ciency in the industry.?

This provision, #rst o all, ore than justi#es the ac5uisition o the re#nery in 5uestion. The case dispute that the operation o a sugar re#nery is a phase o sugar production

and that ro such operation ay be learned ethods o reducing the cost o sugaranu actured no less than it ay aford the opportunity to discover the ore efectiveeans o achieving progress in the industry. hilsugin s e4perience alone o running are#nery is a gain to the entire industry. That the operation resulted in a #nancial loss isby no eans an inde4 that the industry did not pro#t there ro , as other ar s o a

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diferent nature ay have been reali1ed. Thus, ro its #nancially unsuccess ulventure, the hilsugin could very !ell have advanced in its appreciation o theproble s o anage ent aced by sugar centrals. It could have understood oreclearly the di2culties o ar0eting sugar products. It could have 0no!n !ith betterinti acy the precise area o the industry in need o the ore help ro thegovern ent. The vie! o the appellants herein, there ore, that they !ere not bene#tedby the unsuccess ul operation o the re#nery in 5uestion is not entirely accurate.

"urther ore, Section + a/ speci#es a #eld o research !hich, indeed, !ould be di2cultto carry out save through the actual operation o a re#nery. Ouite obviously, the ostpractical or realistic approach to the proble o !hat ?practices or processes? ight

ost efectively cut the cost o production is to e4peri ent on production itsel . 'ndyet, ho! can such an e4peri ent be carried out !ithout the tools, !hich is all that are#nery isP

In vie! o all the oregoing, the decision appealed ro is hereby a2r ed, !ith costs.

$oncepcion, $.5., 6e3es, 5.".+., "arrera, 7i&on, "eng&on, 5.!., 8aldi*ar and Sanche&, 55.,concur.Ma9alintal, 5., too9 no part.

&epublic o the hilippines#UPRE&E COUR!

Manila

7( B'(C

G.R. No. L-1((25 )*+ua+y 28, 1962

REPUBLIC O !"E P"ILIPPINE#, plaintif-appellee,vs.&$&BUL$O LU&BER CO&P$N', E! $L., de endants-appellants.

O ce of the Solicitor General for plainti%-appellee. rthur #ordesillas for defendants-appellants.

B$RRER$, J.:

"ro the decision o the Court o "irst Instance o Manila in Civil Case (o. *E$;;/ordering it to pay to plaintif &epublic o the hilippines the su o E,@;+.*F !ith )Hinterest thereon ro the date o the #ling o the co plaint until ully paid, plus costs,de endant Ma bulao u ber Co pany interposed the present appeal. $

The acts o the case are brieJy stated in the decision o the trial court, to !it .

The acts o this case are not contested and ay be brieJy su ari1ed asollo!s a/ under the #rst cause o action, or orest charges covering theperiod ro Septe ber $;, $=%+ to May +E, $=%*, de endants ad itted thatthey have a liability o %@F.*F, !hich liability is covered by a bond e4ecuted byde endant Deneral Insurance N Surety Corporation or Ma bulao u berCo pany, jointly and severally in character, on uly +=, $=%*, in avor o hereinplaintif3 b/ under the second cause o action, both de endants ad itted a jointand several liability in avor o plaintif in the su o +=).F;, also covered by abond dated (ove ber +F, $=%*3 and c/ under the third cause o action, bothde endants ad itted a joint and several liability in avor o plaintif or*,=+@.*;, also covered by a bond dated uly +;, $=%E. These three liabilitiesaggregate to E,@;+.*F. I the liability o de endants in avor o plaintif in thea ount already entioned is ad itted, then !hat is the de ense interposed bythe de endantsP The de ense presented by the de endants is 5uite unusual inore !ays than one. It appears ro 74h. * that ro uly *$, $=E@ toGece ber +=, $=%), de endant Ma bulao u ber Co pany paid to the&epublic o the hilippines @,+;;.%+ or re orestation charges and or theperiod co encing ro 'pril *;, $=EF to une +E, $=E@, said de endant paid=+F.;@ to the &epublic o the hilippines or re orestation charges . Thesere orestation !ere paid to the plaintif in pursuance o Section $ o &epublic 'ct$$% !hich provides that there shall be collected, in addition to the regular orestcharges provided under Section +)E o Co on!ealth 'ct E)) 0no!n as the(ational Internal &evenue Code, the a ount o ;.%; on each cubic eter oti ber... cut out and re oved ro any public orest or co ercial purposes.

The a ount collected shall be e4pended by the director o orestry, !ith theapproval o the secretary o agriculture and co erce, or re orestation andaforestation o !atersheds, denuded areas ... and other public orest lands,!hich upon investigation, are ound needing re orestation or aforestation ....

The total a ount o the reorestation charges paid by Ma bulao u berCo pany is =,$+F.%;, and it is the contention o the de endant Ma bulaou ber Co pany that since the &epublic o the hilippines has not ade use o those re orestation charges collected ro it or re oresting the denuded area o the land covered by its license, the &epublic o the hilippines should re undsaid a ount, or, i it cannot be re unded, at least it should be co pensated !ith!hat Ma bulao u ber Co pany o!ed the &epublic o the hilippines orre orestation charges. In line !ith this thought, de endant Ma bulao u berCo pany !rote the director o orestry, on "ebruary +$, $=%F letter 74h. $, inparagraph E o !hich said de endant re5uested ?that our account !ith yourbureau be credited !ith all the re orestation charges that you have i posed onus ro uly $, $=EF to une $E, $=%), a ounting to around +,=@@.)+ ...?. Thisletter o de endant Ma bulao u ber Co pany !as ans!ered by the director

o orestry on March $+, $=%F, ar0ed 74h. +, in !hich the director o orestry5uoted an opinion o the secretary o justice, to the efect that he has nodiscretion to e4tend the ti e or paying the re orestation charges and alsoe4plained !hy not all denuded areas are being re orested.

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The only issue to be resolved in this appeal is !hether the su o =,$+F.%; paid byde endant-appellant co pany to plaintif-appellee as re orestation charges ro $=EFto $=%) ay be set of or applied to the pay ent o the su o E,@;+.*F as orestcharges due and o!ing ro appellant to appellee. It is appellant s contention that saidsu o =,$+F.%;, not having been used in the re orestation o the area covered by itslicense, the sa e is re undable to it or ay be applied in co pensation o said su oE,@;+.*F due ro it as orest charges. (ph/ .01t

Ke #nd appellant s clai devoid o any erit. Section $ o &epublic 'ct (o. $$%,provides

S7CTI9( $. There shall be collected, in addition to the regular orest chargesprovided or under Section t!o hundred and si4ty- our o Co on!ealth 'ct(u bered "our Aundred Si4ty-si4, 0no!n as the (ational Internal &evenueCode, the a ount o # ty centavos on each cubic eter o ti ber or the #rstand second groups and orty centavos or the third and ourth groups cut outand re oved ro any public orest or co ercial purposes. The a ountcollected shall be e4pended by the Girector o "orestry, !ith the approval o theSecretary o 'griculture and (atural &esources co erce/, or re orestationand aforestation o !atersheds, denuded areas and cogon and open lands!ithin orest reserves, co unal orest, national par0s, ti ber lands, sanddunes, and other public orest lands, !hich upon investigation, are oundneeding re orestation or aforestation, or needing to be under orest cover orthe gro!ing o econo ic trees or ti ber, tanning, oils, gu s, and other inororest products or edicinal plants, or or !atersheds protection, or orprevention o erosion and Joods and preparation o necessary plans and

esti ate o costs and or reconnaisance survey o public orest lands and orsuch other e4penses as ay be dee ed necessary or the proper carrying outo the purposes o this 'ct.

'll revenues collected by virtue o , and pursuant to, the provisions o thepreceding paragraph and ro the sale o bar0s, edical plants and otherproducts derived ro plantations as herein provided shall constitute a und tobe 0no!n as &e orestation "und, to be e4pended e4clusively in carrying out thepurposes provided or under this 'ct. 'll provincial or city treasurers and theirdeputies shall act as agents o the Girector o "orestry or the collection o therevenues or inco es derived ro the provisions o this 'ct. 7 phasissupplied./

nder this provision, it see s 5uite clear that the a ount collected as re orestation

charges ro a ti ber licenses or concessionaire shall constitute a und to be 0no!n asthe &e orestation "und, and that the sa e shall be e4pended by the Girector o"orestry, !ith the approval o the Secretary o 'griculture and (atural &esources or there orestation or aforestation, a ong others, o denuded areas !hich, uponinvestigation, are ound to be needing re orestation or aforestation. (ote that there is

nothing in the la! !hich re5uires that the a ount collected as re orestation chargesshould be used e4clusively or the re orestation o the area covered by the license o alicensee or concessionaire, and that i not so used, the sa e should be re unded tohi . 9bserve too, that the licensee s area ay or ay not be re orested at all,depending on !hether the investigation thereo by the Girector o "orestry sho!s thatsaid area needs re orestation. The conclusion see s to be that the a ount paid by alicensee as re orestation charges is in the nature o a ta4 !hich or s a part o the&e orestation "und, payable by hi irrespective o !hether the area covered by hislicense is re orested or not. Said und, as the la! e4pressly provides, shall be e4pendedin carrying out the purposes provided or thereunder, na ely, the re orestation oraforestation, a ong others, o denuded areas needing re orestation or aforestation.

'ppellant aintains that the principle o a co pensation in 'rticle $+F@ o the ne! CivilCode + is applicable, such that the su o =,$+F.%; paid by it as re orestation chargesay co pensate its indebtedness to appellee in the su o E,@;+.*F as orestcharges. But in the vie! !e ta0e o this case, appellant and appellee are not utuallycreditors and debtors o each other. Conse5uently, the la! on co pensation isinapplicable. 9n this point, the trial court correctly observed .

nder 'rticle $+F@, (CC, co pensation should ta0e place !hen t!o persons intheir o!n right are creditors and debtors o each other. Kith respect to theorest charges !hich the de endant Ma bulao u ber Co pany has paid to thegovern ent, they are in the cofers o the govern ent as ta4es collected, andthe govern ent does not o!e anything, crystal clear that the &epublic o thehilippines and the Ma bulao u ber Co pany are not creditors and debtorso each other, because co pensation re ers to utual debts. ..

'nd the !eight o authority is to the efect that internal revenue ta4es, such as theorest charges in 5uestion, can be the subject o set-of or co pensation.

' clai or ta4es is not such a debt, de and, contract or judg ent as is allo!edto be set-of under the statutes o set-of, !hich are construed uni or ly, in thelight o public policy, to e4clude the re edy in an action or any indebtedness othe state or unicipality to one !ho is liable to the state or unicipality orta4es. (either are they a proper subject o recoup ent since they do not ariseout o the contract or transaction sued on. ... @; C. .S. F*-FE. / .

The general rule, based on grounds o public policy is !ell-settled that no set-of is ad issible against de ands or ta4es levied or general or localgovern ental purposes. The reason on !hich the general rule is based, is that

ta4es are not in the nature o contracts bet!een the party and party but gro!out o a duty to, and are the positive acts o the govern ent, to the a0ing anden orcing o !hich, the personal consent o individual ta4payers is notre5uired. ... I the ta4payer can properly re use to pay his ta4 !hen called uponby the Collector, because he has a clai against the govern ental body !hich

)


7/100

is not included in the ta4 levy, it is plain that so e legiti ate and necessarye4penditure ust be curtailed. I the ta4payer s clai is disputed, the collectiono the ta4 ust a!ait and abide the result o a la!suit, and ean!hile the#nancial afairs o the govern ent !ill be thro!n into great con usion. EF ' .

ur. F))-F)F./

KA7&7"9&7, the judg ent o the trial court appealed ro is hereby a2r ed in allrespects, !ith costs against the de endant-appellant. So ordered.

"eng&on, $.5., !adilla, "autista ngelo, +abrador, $oncepcion, 6e3es, 5.".+., !aredes,7i&on and 7e +eon, 55., concur.

oo no )s

$9riginally appealed to the Court o 'ppeals, but later certi#ed to us by saidcourt, on the ground that it involves 5uestions o la! only.

+?'&T. $+F@. Co pensation shall ta0e place !hen t!o persons, in their o!nright, are creditors and debtors o each other.?


Manila

7( B'(C

G.R. No. L-18994 Jun) 29, 196

&ELECIO R. %O&INGO, as Co /ss/on)+ o0 In )+nal R) )nu), petitioner,vs."ON. LORENO C. G$RLI!O#, /n 3/s a a / y as Jud ) o0 3) Cou+ o0 /+sIns an ) o0 L)y ),and #I&EON$ 7. PRICE, as $d /n/s +a +/ o0 3) In )s a ) Es a ) o0 3) la )al )+ # o P+/ ), respondents.

O ce of the Solicitor General and tt3. G. :. Mantolino for petitioner.

"enedicto and Martine& for respondents.

L$BR$%OR, J.:

This is a petition or certiorari and mandamus against the udge o the Court o "irstInstance o eyte, &on. oren1o C. Darlitos, presiding, see0ing to annul certain orders o the court and or an order in this Court directing the respondent court belo! to e4ecutethe judg ent in avor o the Dovern ent against the estate o Kalter Scott rice orinternal revenue ta4es.

It appears that in Melecio &. Go ingo vs. Aon. udge S. C. Moscoso, D.&. (o. -$E)FE, anuary *;, $=);, this Court declared as #nal and e4ecutory the order or the payentby the estate o the estate and inheritance ta4es, charges and penalties, a ounting toE;,;%@.%%, issued by the Court o "irst Instance o eyte in, special proceedings (o. $Eentitled ?In the atter o the Intestate 7state o the ate Kalter Scott rice.? In order to

en orce the clai s against the estate the #scal presented a petition dated une +$,$=)$, to the court belo! or the e4ecution o the judg ent. The petition !as, ho!ever,denied by the court !hich held that the e4ecution is not justi#able as the Dovern entis indebted to the estate under ad inistration in the a ount o +)+,+;;. The orders o the court belo! dated 'ugust +;, $=); and Septe ber +@, $=);, respectively, are asollo!s

'tty. Benedicto sub itted a copy o the contract bet!een Mrs. Si eona L. rice,'d inistratri4 o the estate o her late husband Kalter Scott rice and GirectorQoilo Castrillo o the Bureau o ands dated Septe ber $=, $=%) andac0no!ledged be ore (otary ublic Salvador 8. 7sguerra, legal adviser inMalacaRang to 74ecutive Secretary Ge eon dated Gece ber $E, $=%), the noteo Ais 74cellency, res. Carlos . Darcia, to Girector Castrillo dated 'ugust +,$=%@, directing the latter to pay to Mrs. rice the su o *)@,$E;.;;, and ane4tract o page F)% o &epublic 'ct (o. +F;; appropriating the su o

+)+.+;;.;; or the pay ent to the eyte Cadastral Survey, Inc., representedby the ad inistratri4 Si eona L. rice, as directed in the above note o theresident. Considering these acts, the Court orders that the pay ent oinheritance ta4es in the su o E;,;%@.%% due the Collector o Internal&evenue as ordered paid by this Court on uly %, $=); in accordance !ith theorder o the Supre e Court pro ulgated uly *;, $=); in D.&. (o. -$E)FE, bededucted ro the a ount o +)+,+;;.;; due and payable to the'd inistratri4 Si eona L. rice, in this estate, the balance to be paid by theDovern ent to her !ithout urther delay. 9rder o 'ugust +;, $=);/

The Court has nothing urther to add to its order dated 'ugust +;, $=); and itorders that the pay ent o the clai o the Collector o Internal &evenue bede erred until the Dovern ent shall have paid its accounts to the ad inistratri4herein a ounting to +)+,+;;.;;. It ay not be a iss to repeat that it is onlyair or the Dovern ent, as a debtor, to its accounts to its citi1ens-creditorsbe ore it can insist in the pro pt pay ent o the latter s account to it, speciallyta0ing into consideration that the a ount due to the Dovern ent dra!sinterests !hile the credit due to the present state does not accrue any interest.9rder o Septe ber +@, $=);/

F


8/100

The petition to set aside the above orders o the court belo! and or the e4ecution othe clai o the Dovern ent against the estate ust be denied or lac0 o erit. Theordinary procedure by !hich to settle clai s o indebtedness against the estate o adeceased person, as an inheritance ta4, is or the clai ant to present a clai be orethe probate court so that said court ay order the ad inistrator to pay the a ountthereo . To such efect is the decision o this $ourt in ldami& *s. 5udge of the $ourt ofFirst 2nstance of Mindoro , D.&. (o. -+*);, Gec. +=, $=E=, thus

. . . a !rit o e4ecution is not the proper procedure allo!ed by the &ules o Courtor the pay ent o debts and e4penses o ad inistration. The proper procedureis or the court to order the sale o personal estate or the sale or ortgage oreal property o the deceased and all debts or e4penses o ad inistrator and!ith the !ritten notice to all the heirs legatees and devisees residing in thehilippines, according to &ule @=, section *, and &ule =;, section +. 'nd !hensale or ortgage o real estate is to be ade, the regulations contained in &ule=;, section F, should be co plied !ith. (ph/ .01t

74ecution ay issue only !here the devisees, legatees or heirs have enteredinto possession o their respective portions in the estate prior to settle ent andpay ent o the debts and e4penses o ad inistration and it is later ascertainedthat there are such debts and e4penses to be paid, in !hich case ?the courthaving jurisdiction o the estate ay, by order or that purpose, a ter hearing,settle the a ount o their several liabilities, and order ho! uch and in !hatanner each person shall contribute, and ay issue e4ecution i circu stancesre5uire? &ule @=, section )3 see also &ule FE, Section E3 7 phasis supplied./'nd this is not the instant case.

The legal basis or such a procedure is the act that in the testate or intestateproceedings to settle the estate o a deceased person, the properties belonging to theestate are under the jurisdiction o the court and such jurisdiction continues until saidproperties have been distributed a ong the heirs entitled thereto. Guring the pendencyo the proceedings all the estate is in custodia legis and the proper procedure is not toallo! the sherif, in case o the court judg ent, to sei1e the properties but to as0 thecourt or an order to re5uire the ad inistrator to pay the a ount due ro the estateand re5uired to be paid.

'nother ground or denying the petition o the provincial #scal is the act that the courthaving jurisdiction o the estate had ound that the clai o the estate against theDovern ent has been recogni1ed and an a ount o +)+,+;; has already beenappropriated or the purpose by a corresponding la! &ep. 'ct (o. +F;;/. nder the

above circu stances, both the clai o the Dovern ent or inheritance ta4es and theclai o the intestate or services rendered have already beco e overdue andde andable is !ell as ully li5uidated. Co pensation, there ore, ta0es place byoperation o la!, in accordance !ith the provisions o 'rticles $+F= and $+=; o theCivil Code, and both debts are e4tinguished to the concurrent a ount, thus

'&T. $+;;. Khen all the re5uisites entioned in article $+F= are present,co pensation ta0es efect by operation o la!, and e4tinguished both debts tothe concurrent a ount, eventhough the creditors and debtors are not a!are othe co pensation.

It is clear, there ore, that the petitioner has no clear right to e4ecute the judg ent orta4es against the estate o the deceased Kalter Scott rice. "urther ore, the petitionor certiorari and mandamus is not the proper re edy or the petitioner. 'ppeal is thereedy.

The petition is, there ore, dis issed, !ithout costs.

!adilla, "autista ngelo, $oncepcion, "arrera, !aredes, 7i&on, 6egala and Ma9alintal, 55., concur."eng&on, $.5., too9 no part.


Manila

7( B'(C

G.R. No. L-25:4 $ +/l 26, 1968

$N!ONIO RO;$#, E%U$R%O RO;$# and RO;$# ' CI$., /n 3)/+ oENUE, respondents.

+eido, ndrada, !ere& and ssociates for petitioners.O ce of the Solicitor General for respondents.

BENG ON, J.P., J.:

Gon edro &o4as and Gona Car en 'yala, Spanish subjects, trans itted to theirgrandchildren by hereditary succession the ollo!ing properties

$/ 'gricultural lands !ith a total area o $=,;;; hectares, situated in theunicipality o (asugbu, Batangas province3

+/ ' residential house and lot located at Kright St., Malate, Manila3 and

@


9/100

*/ Shares o stoc0s in diferent corporations.

To anage the above- entioned properties, said children, na ely, 'ntonio &o4as,7duardo &o4as and ose &o4as, or ed a partnership called &o4as y Co pania.

$GRICUL!UR$L L$N%#

't the conclusion o the Second Korld Kar, the tenants !ho have all been tilling thelands in (asugbu or generations e4pressed their desire to purchase ro &o4as y Cia.the parcels !hich they actually occupied. "or its part, the Dovern ent, in consonance!ith the constitutional andate to ac5uire big landed estates and apportion thea ong landless tenants- ar ers, persuaded the &o4as brothers to part !ith theirlandholdings. Con erences !ere held !ith the ar ers in the early part o $=E@ and#nally the &o4as brothers agreed to sell $*,%;; hectares to the Dovern ent ordistribution to actual occupants or a price o +,;F=,;[email protected] plus *;;,;;;.;; orsurvey and subdivision e4penses.

It turned out ho!ever that the Dovern ent did not have unds to cover the purchaseprice, and so a special arrange ent !as ade or the &ehabilitation "inanceCorporation to advance to &o4as y Cia. the a ount o $,%;;,;;;.;; as loan. Collateralor such loan !ere the lands proposed to be sold to the ar ers. nder thearrange ent, &o4as y Cia. allo!ed the ar ers to buy the lands or the sa e price butby install ent, and contracted !ith the &ehabilitation "inance Corporation to pay itsloan ro the proceeds o the yearly a orti1ations paid by the ar ers.

In $=%* and $=%% &o4as y Cia. derived ro said install ent pay ents a net gain oE+,E@;.@* and +=,%;;.F$. "i ty percent o said net gain !as reported or inco e ta4purposes as gain on the sale o capital asset held or ore than one year pursuant toSection *E o the Ta4 Code.

RESIDENTIAL HOUSE

Guring their bachelor days the &o4as brothers lived in the residential house at KrightSt., Malate, Manila, !hich they inherited ro their grandparents. ' ter 'ntonio and7duardo got arried, they resided so e!here else leaving only ose in the old house.In airness to his brothers, ose paid to &o4as y Cia. rentals or the house in the su o@,;;;.;; a year.

ASSESSMENTS

9n une $F, $=%@, the Co issioner o Internal &evenue de anded ro &o4as y Ciathe pay ent o real estate dealer s ta4 or $=%+ in the a ount o $%;.;; plus $;.;;co pro ise penalty or late pay ent, and $%;.;; ta4 or dealers o securities or$=%+ plus $;.;; co pro ise penalty or late pay ent. The assess ent or real estate

dealer s ta4 !as based on the act that &o4as y Cia. received house rentals ro ose&o4as in the a ount o @,;;;.;;. ursuant to Sec. $=E o the Ta4 Code, an o!ner o areal estate !ho derives a yearly rental inco e there ro in the a ount o *,;;;.;; orore is considered a real estate dealer and is liable to pay the corresponding #4ed ta4.

The Co issioner o Internal &evenue justi#ed his de and or the #4ed ta4 on dealerso securities against &o4as y Cia., on the act that said partnership ade pro#ts rothe purchase and sale o securities.

In the sa e assess ent, the Co issioner assessed de#ciency inco eta4es against the &o4as Brothers or the years $=%* and $=%%, as ollo!s

;


10/100

hilippines Aerald s und or Manila sneediest a ilies $;;.; ;

; S

(et inco e per return *$%,EF).%=

'dd $>* share, pro#ts in &o4as y Cia. $%*,+E=.$%

ess a ount declared $E),$*%.E )

' ount understated F,$$*.)=

Contributions disallo!ed $$%.;;

F,++@.)=

ess $>* share o contributions a ounting

to +$,$+).;) disallo!ed ropartnership but allo!ed to partners F,;E+.;+ $@).)F

(et inco e per revie!*$%,))*.

+)

ess 74e ptions E,+;;.;;

(et ta4able inco e*$$,E)*.

+)

Ta4 due $%E,$)=.; ;

Ta4 paid$%E,;);.;

;

Ge#ciency $;=.;;

UUUUUUUUUU

E7A 67O 6O> S

(et inco e per return *;E,$)).=+

'dd $>* share, pro#ts in &o4as y Cia $%*,+E=.$%

ess pro#ts declared $E),;%+.% @

' ount understated F,$=).%F

ess $>* share in contributions a ountingto +$,$+).;) disallo!ed ropartnership but allo!ed to partners F,;E+.;+ $%%.%%

(et inco e per revie!*;E,*++.

EF

ess 74e ptions E,@;;.;;

(et ta4able inco e+==,%=+.

EF

Ta4 Gue $EF,+%;.;;

Ta4 paid $EF,$%=.; ;

Ge#ciency =$.;;UUUUUUUUUUU

5OSE 6O>S

(et inco e per return +++,)@$.F)

'dd $>* share, pro#ts in &o4as y Cia. $%*,E+=.$%

$+


13/100

ess a ount reported $E),$*%.E )

' ount understated F,$$*.)=

ess $>* share o contributions disallo!edro partnership but allo!ed asdeductions to partners F,;E+.;+ F$.)F

(et inco e per revie!+++,F%*.

E*

ess 74e ption $,@;;.;;

(et inco e subject to ta4++;,=%*.

E*

Ta4 due $;+,F)*. ;;

Ta4 paid $;+,F$E.; ;

Ge#ciency E=.;;UUUUUU

UUUUU

KA7&7"9&7, the decision appealed ro is odi#ed. &o4as y Cia. is hereby ordered topay the su o $%;.;; as real estate dealer s #4ed ta4 or $=%+, and 'ntonio &o4as,7duardo &o4as and ose &o4as are ordered to pay the respective su s o $;=.;;,=$.;; and E=.;; as their individual de#ciency inco e ta4 all corresponding or theyear $=%%. (o costs. So ordered.

6e3es, 5.".+., 7i&on, Ma9alintal, Sanche&, $astro, ngeles and Fernando, 55., concur. 8aldi*ar, 5., too9 no part.$oncepcion, $.5., is on lea*e.

oo no )s

See BI& &ecords, p. *@F.


Manila

7( B'(C

G.R. No. 91649 &ay 14, 1991

$!!ORNE'# "U&BER!O B$#CO, E%ILBER!O B$LCE, #OCR$!E# &$R$N$N $N%LOREN O #$NC"E , petitioners,vs.P"ILIPPINE $&U#E&EN!# $N% G$&ING CORPOR$!ION ?P$GCOR@, responden

:.". "asco B ssociates for petitioners.

Calmonte +a( O ces collaborating counsel for petitioners.

guirre, +aborte and $apule for respondent !G$O6.

P$R$#, J.:p

' T8 ad proudly announces

?The ne! 'DC9& 6 responding through responsible ga ing.?

But the petitioners thin0 other!ise, that is !hy, they #led the instant petition see0ingto annul the hilippine ' use ent and Da ing Corporation 'DC9&/ Charter 6 G$@)=, because it is allegedly contrary to orals, public policy and order, and because6

'. It constitutes a !aiver o a right prejudicial to a third person !ith aright recogni1ed by la!. It !aived the Manila City govern ent s right toi pose ta4es and license ees, !hich is recogni1ed by la!3

B. "or the sa e reason stated in the i ediately preceding paragraph,the la! has intruded into the local govern ent s right to i pose localta4es and license ees. This, in contravention o the constitutionallyenshrined principle o local autono y3

$*


14/100

C. It violates the e5ual protection clause o the constitution in that itlegali1es 'DC9& 6 conducted ga bling, !hile ost other or s oga bling are outla!ed, together !ith prostitution, drug tra2c0ing andother vices3

G. It violates the avo!ed trend o the Cory govern ent a!ay roonopolistic and crony econo y, and to!ard ree enterprise andprivati1ation. p. +, ' ended etition3 p. F, 6ollo /

In their Second ' ended etition, petitioners also clai that G $@)= is contrary to thedeclared national policy o the ?ne! restored de ocracy? and the people s !ill as

e4pressed in the $=@F Constitution. The decree is said to have a ?ga bling objective?and there ore is contrary to Sections $$, $+ and $* o 'rticle II, Sec. $ o 'rticle 8III andSection * +/ o 'rticle I8, o the present Constitution p. *, Second ' ended etition3p. +$, 6ollo /.

The procedural issue is !hether petitioners, as ta4payers and practicing la!yerspetitioner Basco being also the Chair an o the Co ittee on a!s o the City Councilo Manila/, can 5uestion and see0 the annul ent o G $@)= on the alleged groundsentioned above.

The hilippine ' use ents and Da ing Corporation 'DC9&/ !as created by virtueo .G. $;)F-' dated anuary $, $=FF and !as granted a ranchise under .G. $;)F-Balso dated anuary $, $=FF ?to establish, operate and aintain ga bling casinos onland or !ater !ithin the territorial jurisdiction o the hilippines.? Its operation !asoriginally conducted in the !ell 0no!n Joating casino ? hilippine Tourist.? The operation!as considered a success or it proved to be a potential source o revenue to undin rastructure and socio-econo ic projects, thus, .G. $*== !as passed on une +, $=F@or 'DC9& to ully attain this objective.

Subse5uently, on uly $$, $=@*, 'DC9& !as created under .G. $@)= to enable theDovern ent to regulate and centrali1e all ga es o chance authori1ed by e4istingranchise or per itted by la!, under the ollo!ing declared policy 6

Sec. $. 7eclaration of !olic3 . 6 It is hereby declared to be the policy othe State to centrali1e and integrate all ga es o chance not hereto oreauthori1ed by e4isting ranchises or per itted by la! in order to attainthe ollo!ing objectives

a/ To centrali1e and integrate the right and authority to operate andconduct ga es o chance into one corporate entity to be controlled,ad inistered and supervised by the Dovern ent.

b/ To establish and operate clubs and casinos, or a use ent andrecreation, including sports ga ing pools, bas0etball, ootball, lotteries,etc./ and such other or s o a use ent and recreation includingga es o chance, !hich ay be allo!ed by la! !ithin the territorial

jurisdiction o the hilippines and !hich !ill $/ generate sources oadditional revenue to und in rastructure and socio-civic projects, suchas Jood control progra s, beauti#cation, se!erage and se!ageprojects, Tulungan ng Bayan Centers, (utritional rogra s, opulationControl and such other essential public services3 +/ create recreationand integrated acilities !hich !ill e4pand and i prove the country se4isting tourist attractions3 and */ ini i1e, i not totally eradicate, allthe evils, alpractices and corruptions that are nor ally prevalent onthe conduct and operation o ga bling clubs and casinos !ithout directgovern ent involve ent. Section $, .G. $@)=/

To attain these objectives 'DC9& is given territorial jurisdiction all over the hilippines.nder its Charter s repealing clause, all la!s, decrees, e4ecutive orders, rules andregulations, inconsistent there!ith, are accordingly repealed, a ended or odi#ed.

It is reported that 'DC9& is the third largest source o govern ent revenue, ne4t tothe Bureau o Internal &evenue and the Bureau o Custo s. In $=@= alone, 'DC9&earned *.E* Billion, and directly re itted to the (ational Dovern ent a total o +.%Billion in or o ranchise ta4, govern ent s inco e share, the resident s Social "undand Aost Cities share. In addition, 'DC9& sponsored other socio-cultural andcharitable projects on its o!n or in cooperation !ith various govern ental agencies,and other private associations and organi1ations. In its * $>+ years o operation under

the present ad inistration, 'DC9& re itted to the govern ent a total o ).+ Billion.'s o Gece ber *$, $=@=, 'DC9& !as e ploying E,E=E e ployees in its nine =/casinos nation!ide, directly supporting the livelihood o "our Thousand "our Aundred(inety-"our E,E=E/ a ilies.

But the petitioners, are 5uestioning the validity o .G. (o. $@)=. They allege that thesa e is ?null and void? or being ?contrary to orals, public policy and public order,?onopolistic and tends to!ard ?crony econo y?, and is violative o the e5ualprotection clause and local autono y as !ell as or running counter to the statepolicies enunciated in Sections $$ ersonal Gignity and Au an &ights/, $+ "a ily/and $* &ole o Vouth/ o 'rticle II, Section $ Social ustice/ o 'rticle III and Section +7ducational 8alues/ o 'rticle I8 o the $=@F Constitution.

This challenge to .G. (o. $@)= deserves a searching and thorough scrutiny and theost deliberate consideration by the Court, involving as it does the e4ercise o !hathas been described as ?the highest and ost delicate unction !hich belongs to the

judicial depart ent o the govern ent.? State v. Manuel, +; (.C. $EE3 o1ano v.Martine1, $E) SC&' *+*/.

$E


15/100

's Ke enter upon the tas0 o passing on the validity o an act o a co-e5ual andcoordinate branch o the govern ent Ke need not be re inded o the ti e-honoredprinciple, deeply ingrained in our jurisprudence, that a statute is presu ed to be valid.7very presu ption ust be indulged in avor o its constitutionality. This is not to saythat Ke approach 9ur tas0 !ith di2dence or ti idity. Khere it is clear that thelegislature or the e4ecutive or that atter, has over-stepped the li its o its authorityunder the constitution, Ke should not hesitate to !ield the a4e and let it all heavily, asall it ust, on the ofending statute o1ano v. Martine1, supra /.

In Cictoriano * . Eli&alde 6ope Dor9ers Anion , et al , %= SC&' %E, the Court thru Mr. ustice Qaldivar underscored the 6

. . . thoroughly established principle !hich ust be ollo!ed in all cases!here 5uestions o constitutionality as obtain in the instant cases areinvolved. 'll presu ptions are indulged in avor o constitutionality3 one!ho attac0s a statute alleging unconstitutionality ust prove itsinvalidity beyond a reasonable doubt3 that a la! ay !or0 hardshipdoes not render it unconstitutional3 that i any reasonable basis ay beconceived !hich supports the statute, it !ill be upheld and thechallenger ust negate all possible basis3 that the courts are notconcerned !ith the !isdo , justice, policy or e4pediency o a statuteand that a liberal interpretation o the constitution in avor o theconstitutionality o legislation should be adopted. Ganner v. Aass, $=E(.K. nd %*E, %*=3 Spurbec0 v. Statton, $;) (.K. nd ));, ))*3 %=SC&' ))3 see also e.g. Salas v. arencio, E) SC&' F*E, F*= :$=F;


16/100

N Co. v. (ational, E; hil. $*)/ It is a dyna ic orce that enables the state to eet theagencies o the !inds o change.

Khat !as the reason behind the enact ent o .G. $@)=P

.G. $@)= !as enacted pursuant to the policy o the govern ent to ?regulate andcentrali1e thru an appropriate institution all ga es o chance authori1ed by e4istingranchise or per itted by la!? $st !hereas clause, G $@)=/. 's !as subse5uentlyproved, regulating and centrali1ing ga bling operations in one corporate entity 6 the'DC9&, !as bene#cial not just to the Dovern ent but to society in general. It is areliable source o uch needed revenue or the cash strapped Dovern ent. It providedunds or social i pact projects and subjected ga bling to ?close scrutiny, regulation,supervision and control o the Dovern ent? Eth Khereas Clause, G $@)=/. Kith thecreation o 'DC9& and the direct intervention o the Dovern ent, the evil practicesand corruptions that go !ith ga bling !ill be ini i1ed i not totally eradicated. ublic!el are, then, lies at the botto o the enact ent o G $@=).

etitioners contend that .G. $@)= constitutes a !aiver o the right o the City o Manilato i pose ta4es and legal ees3 that the e4e ption clause in .G. $@)= is violative othe principle o local autono y. They ust be re erring to Section $* par. +/ o .G.$@)= !hich e4e pts 'DC9&, as the ranchise holder ro paying any ?ta4 o any 0indor or , inco e or other!ise, as !ell as ees, charges or levies o !hatever nature,!hether (ational or ocal.?

+/ 2ncome and other ta4es . 6 a/ "ranchise Aolder (o ta4 o any 0ind oror , inco e or other!ise as !ell as ees, charges or levies o !hatevernature, !hether (ational or ocal, shall be assessed and collected underthis ranchise ro the Corporation3 nor shall any or or ta4 or chargeattach in any !ay to the earnings o the Corporation, e4cept a ranchiseta4 o #ve %H/ percent o the gross revenues or earnings derived by theCorporation ro its operations under this ranchise. Such ta4 shall bedue and payable 5uarterly to the (ational Dovern ent and shall be inlieu o all 0inds o ta4es, levies, ees or assess ents o any 0ind, natureor description, levied, established or collected by any unicipal,provincial or national govern ent authority Section $* :+


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atters concerning the operation o the a2liated entities, the provisionso the Corporation Code o the hilippines to the contrarynot!ithstanding, e4cept only !ith respect to original incorporation.

'DC9& has a dual role, to operate and to regulate ga bling casinos. The latter role isgovern ental, !hich places it in the category o an agency or instru entality o theDovern ent. Being an instru entality o the Dovern ent, 'DC9& should be andactually is e4e pt ro local ta4es. 9ther!ise, its operation ight be burdened,i peded or subjected to control by a ere ocal govern ent.

The states have no po!er by ta4ation or other!ise, to retard, i pede,burden or in any anner control the operation o constitutional la!senacted by Congress to carry into e4ecution the po!ers vested in theederal govern ent. MC Culloch v. Marland, E Kheat *$), E 7d. %F=/

This doctrine e anates ro the ?supreacy? o the (ational Dovernent over localgovern ents.

ustice Aol es, spea0ing or the Supree Court, ade re erence to theentire absence o po!er on the part o the States to touch, in that !ayta4ation/ at least, the instru entalities o the nited States ohnson v.Maryland, +%E S %$/ and it can be agreed that no state or politicalsubdi*ision can regulate a federal instrumentalit3 in such a (a3 as to

pre*ent it from consummating its federal responsibilities , or e*en toseriousl3 burden it in the accomplishment of them . 'ntieau, ModernConstitutional a!, 8ol. +, p. $E;, e phasis supplied/

9ther!ise, ere creatures o the State can de eat (ational policies thru e4ter inationo !hat local authorities ay perceive to be undesirable activities or enterprise usingthe po!er to ta4 as ?a tool or regulation? .S. v. Sanche1, *E; S E+/.

The po!er to ta4 !hich !as called by ustice Marshall as the ?po!er to destroy? McCulloch v. Maryland, supra / cannot be allo!ed to de eat an instru entality or creationo the very entity !hich has the inherent po!er to !ield it.

e/ etitioners also argue that the ocal 'utono y Clause o the Constitution !ill beviolated by .G. $@)=. This is a pointless argu ent. 'rticle o the $=@F Constitutionon ocal 'utono y/ provides

Sec. %. 7ach local govern ent unit shall have the po!er to create itso!n source o revenue and to levy ta4es, ees, and othercharges sub ect to such guidelines and limitation as the congress ma3

pro*ide , consistent !ith the basic policy on local autono y. Such ta4es,

ees and charges shall accrue e4clusively to the local govern ent.e phasis supplied/

The po!er o local governent to ?i pose ta4es and ees? is al!ays subject to?li itations? !hich Congress ay provide by la!. Since G $@)= re ains an ?operative?la! until ?a ended, repealed or revo0ed? Sec. *, 'rt. 8III, $=@F Constitution/, its?e4e ption clause? re ains as an e4ception to the e4ercise o the po!er o localgovern ents to i pose ta4es and ees. It cannot there ore be violative but rather isconsistent !ith the principle o local autono y.

Besides, the principle o local autono y under the $=@F Constitution si ply eans?decentrali1ation? III &ecords o the $=@F Constitutional Co ission, pp. E*%-E*), ascited in Bernas, The Constitution o the &epublic o the hilippines, 8ol. II, "irst 7d.,$=@@, p. *FE/. It does not a0e local govern ents sovereign !ithin the state or an?imperium in imperio .?

ocal Dovern ent has been described as a political subdivision o anation or state !hich is constituted by la! and has substantial control o local afairs. In a unitary syste o govern ent, such as the govern entunder the hilippine Constitution, local govern ents can only bean intra so*ereign subdi*ision of one so*ereign nation , it cannot bean imperium in imperio . ocal govern ent in such a syste can onlyean a easure o decentrali1ation o the unction o govern ent.e phasis supplied/

's to !hat state po!ers should be ?decentrali1ed? and !hat ay be delegated to localgovern ent units re ains a atter o policy, !hich concerns !isdo . It is there ore apolitical 5uestion. Citi1ens 'lliance or Consu er rotection v. 7nergy &egulatoryBoard, $)+ SC&' %*=/.

Khat is settled is that the atter o regulating, ta4ing or other!ise dealing !ithga bling is a State concern and hence, it is the sole prerogative o the State to retain itor delegate it to local govern ents.

's gambling is usually an o%ense against the State , legislati*e grant oe4press charter po(er is generall3 necessar3 to empo(er the localcorporation to deal (ith the sub ect . . . . In the absence o e4press granto po!er to enact, ordinance pro*isions on this sub ect (hich areinconsistent (ith the state la(s are *oid . igan v. Dadsden, 'la 'pp.$;F So. F** 74- arte Solo on, =, Cals. EE;, +F 'C F%F ollo!ing in re

'h Vou, @@ Cal. ==, +% 'C =FE, ++ ' St. &ep. +@;, $$ &' E@;, as citedin Mc Ouinllan 8ol. * 2bid , p. %E@, e phasis supplied/

etitioners ne4t contend that .G. $@)= violates the e5ual protection clause o theConstitution, because ?it legali1ed 'DC9& 6 conducted ga bling, !hile ost

$F


18/100

ga bling are outla!ed together !ith prostitution, drug tra2c0ing and other vices? p.@+, 6ollo /.

Ke, li0e!ise, #nd no valid ground to sustain this contention. The petitioners postureignores the !ell-accepted eaning o the clause ?e5ual protection o the la!s.? Theclause does not preclude classi#cation o individuals !ho ay be accorded diferenttreat ent under the la! as long as the classi#cation is not unreasonable or arbitraryItchong v. Aernande1, $;$ hil. $$%%/. ' la! does not have to operate in e5ual orce onall persons or things to be con or able to 'rticle III, Section $ o the Constitution G7CSv. San Giego, D.&. (o. @=%F+, Gece ber +$, $=@=/.

The ?e5ual protection clause? does not prohibit the egislature ro establishingclasses o individuals or objects upon !hich diferent rules shall operate aurel v. Misa,E* 9.D. +@EF/. The Constitution does not re5uire situations !hich are diferent in act oropinion to be treated in la! as though they !ere the sa e Do e1 v. alo ar, +% SC&'@+F/.

ust ho! .G. $@)= in legali1ing ga bling conducted by 'DC9& is violative o the e5ualprotection is not clearly e4plained in the petition. The ere act that so e ga blingactivities li0e coc0#ghting .G EE=/ horse racing &.'. *;) as a ended by &' =@*/,s!eepsta0es, lotteries and races &' $$)= as a ended by B. . E+/ are legali1ed undercertain conditions, !hile others are prohibited, does not render the applicable la!s, .G.$@)= or one, unconstitutional.

I the la! presu ably hits the evil !here it is ost elt, it is not to beoverthro!n because there are other instances to !hich it ight havebeen applied. Do e1 v. alo ar, +% SC&' @+F/

The e5ual protection clause o the $E th ' end ent does not ean thatall occupations called by the sa e na e ust be treated the sa e !ay3the state ay do !hat it can to prevent !hich is dee ed as evil andstop short o those cases in !hich har to the e! concerned is not lessthan the har to the public that !ould insure i the rule laid do!n !ereade athe atically e4act. Go inican Aotel v. 'ri1ona, +E= S +)%$/.

'nent petitioners clai that G $@)= is contrary to the ?avo!ed trend o the CoryDovern ent a!ay ro onopolies and crony econo y and to!ard ree enterprise andprivati1ation? su2ce it to state that this is not a ground or this Court to nulli y .G.$@)=. I , indeed, G $@)= runs counter to the govern ent s policies then it is or the74ecutive Gepart ent to reco end to Congress its repeal or a end ent.

The judiciary does not settle policy issues. The Court can only declare!hat the la! is and not !hat the la! should be. nder our syste ogovern ent, policy issues are !ithin the do ain o the political

branches o govern ent and o the people the selves as the repositoryo all state po!er. 8al onte v. Bel onte, r., $F; SC&' +%)/.

9n the issue o ? onopoly,? ho!ever, the Constitution provides that

Sec. $=. The State shall regulate or prohibit onopolies !hen publicinterest so re5uires. (o co binations in restraint o trade or un airco petition shall be allo!ed. 'rt. II, (ational 7cono y and atri ony/

It should be noted that, as the provision is !orded, onopolies are not necessarilyprohibited by the Constitution. The state ust still decide !hether public interest

de ands that onopolies be regulated or prohibited. 'gain, this is a atter o policyor the egislature to decide.

9n petitioners allegation that .G. $@)= violates Sections $$ ersonality Gignity/ $+"a ily/ and $* &ole o Vouth/ o 'rticle II3 Section $* Social ustice/ o 'rticle III andSection + 7ducational 8alues/ o 'rticle I8 o the $=@F Constitution, su2ce it to statealso that these are erely state ents o principles and, policies. 's such, they arebasically not sel -e4ecuting, eaning a la! should be passed by Congress to clearlyde#ne and efectuate such principles.

In general, there ore, the $=*% provisions !ere not intended to be sel -e4ecuting principles ready or en orce ent through the courts. They!ere rather directives addressed to the e4ecutive and the legislature. Ithe e4ecutive and the legislature ailed to heed the directives o thearticles the available re edy !as not judicial or political. The electoratecould e4press their displeasure !ith the ailure o the e4ecutive and thelegislature through the language o the ballot. Bernas, 8ol. II, p. +/

7very la! has in its avor the presu ption o constitutionality Vu Cong 7ng v. Trinidad,EF hil. *@F3 Salas v. arencio, E@ SC&' F*E3 eralta v. Co elec, @+ SC&' *;3 'bbas v.Co elec, $F= SC&' +@F/. There ore, or G $@)= to be nulli#ed, it ust be sho!n thatthere is a clear and une5uivocal breach o the Constitution, not erely a doubt ul ande5uivocal one. In other !ords, the grounds or nullity ust be clear and beyondreasonable doubt. eralta v. Co elec, supra / Those !ho petition this Court to declare ala!, or parts thereo , unconstitutional ust clearly establish the basis or such adeclaration. 9ther!ise, their petition ust ail. Based on the grounds raised bypetitioners to challenge the constitutionality o .G. $@)=, the Court #nds thatpetitioners have ailed to overco e the presu ption. The dis issal o this petition isthere ore, inevitable. But as to !hether .G. $@)= re ains a !ise legislation considering

the issues o ? orality, onopoly, trend to ree enterprise, privati1ation as !ell as thestate principles on social justice, role o youth and educational values? being raised, isup or Congress to deter ine.

$@


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's this Court held in $iti&ens lliance for $onsumer !rotection * . Energ3 6egulator3"oard , $)+ SC&' %+$ 6

residential Gecree (o. $=%), as a ended by 74ecutive 9rder (o. $*Fhas, in any case, in its avor the presu ption o validity andconstitutionality !hich petitioners 8al onte and the LM have notoverturned. etitioners have not underta0en to identi y the provisions inthe Constitution !hich they clai to have been violated by that statute.

This Court, ho!ever, is not co pelled to speculate and to i agine ho!the assailed legislation ay possibly ofend so e provision o theConstitution. The Court notes, urther, in this respect that petitionershave in the ain put in 5uestion the !isdo , justice and e4pediency othe establish ent o the 9 S", issues !hich are not properly addressedto this Court and !hich this Court ay not constitutionally pass upon.

Those issues should be addressed rather to the political depart ents ogovern ent the resident and the Congress.

arenthetically, Ke !ish to state that ga bling is generally i oral, and this isprecisely so !hen the ga bling resorted to is e4cessive. This e4cessiveness necessarilydepends not only on the #nancial resources o the ga bler and his a ily but also onhis ental, social, and spiritual outloo0 on li e. Ao!ever, the ere act that so epersons ay have lost their aterial ortunes, ental control, physical health, or eventheir lives does not necessarily ean that the sa e are directly attributable toga bling. Gambling ma3 ha*e been the antecedent ,but certainl3 not necessaril3 thecause . "or the sa e conse5uences could have been preceded by an overdose o ood,drin0, e4ercise, !or0, and even se4.

KA7&7"9&7, the petition is GISMISS7G or lac0 o erit.

S9 9&G7&7G.

Fernan, $.5., ar*asa, Gutierre&, 5r., $ru&, Feliciano, Ganca3co, "idin, Sarmiento, Gri0o- quino, Medialdea, 6egalado and 7a*ide, 5r., 55., concur.

#) a+a ) O /n/ons

P$%ILL$, J., concurring

I concur in the result o the learned decision penned by y brother Mr. ustice aras. This eans that I agree !ith the decision inso ar as it holds that the prohibition,control, and regulation o the entire activity 0no!n as ga bling properly pertain to?state polic3 .? It is, there ore, the political depart ents o govern ent, na ely, thelegislative and the e4ecutive that should decide on !hat govern ent should do in theentire area o ga bling, and assu e ull responsibility to the people or such policy.

The courts, as the decision states, cannot in5uire into the !isdo , orality ore4pediency o policies adopted by the political depart ents o govern ent in areas!hich all !ithin their authority, e4cept only !hen such policies pose a clear andpresent danger to the li e, liberty or property o the individual. This case does notinvolve such a actual situation.

Ao!ever, I hasten to a0e o record that I do not subscribe to ga bling in any or . Itde eans the hu an personality, destroys sel -con#dence and eviscerates one s sel -respect, !hich in the long run !ill corrode !hatever is le t o the "ilipino oralcharacter. Da bling has !rec0ed and !ill continue to !rec0 a ilies and ho es3 it is anantithesis to individual reliance and reliability as !ell as personal industry !hich are thetouchstones o real econo ic progress and national develop ent.

Da bling is reprehensible !hether aintained by govern ent or privati1ed. Therevenues reali1ed by the govern ent out o ?legali1ed? ga bling !ill, in the long run,be ore than ofset and negated by the irreparable da age to the people s oralvalues.

'lso, the oral standing o the govern ent in its repeated avo!als against ?illegalga bling? is atally Ja!ed and beco es untenable !hen it itsel engages in the veryactivity it see0s to eradicate.

9ne can go through the Court s decision today and entally replace the activityre erred to therein as gambling , !hich is legal only because it is authori1ed by la! andrun by the govern ent, !ith the activity 0no!n as prostitution . Kould prostitution beany less reprehensible !ere it to be authori1ed by la!, ranchised, and ?regulated? bythe govern ent, in return or the substantial revenues it !ould yield the govern ent tocarry out its laudable projects, such as in rastructure and social a eliorationP The5uestion, I believe, ans!ers itsel . I sub it that the sooner the legislative depart entoutla!s all or s o ga bling, as a fundamental state polic3 , and the sooner thee4ecutive i ple ents such policy, the better it !ill be or the nation.

Melencio-:errera, 5., concur.

$=


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#) a+a ) O /n/ons

P$%ILL$, J., concurring

I concur in the result o the learned decision penned by y brother Mr. ustice aras. This eans that I agree !ith the decision inso ar as it holds that the prohibition,control, and regulation o the entire activity 0no!n as ga bling properly pertain to?state polic3 .? It is, there ore, the political depart ents o govern ent, na ely, thelegislative and the e4ecutive that should decide on !hat govern ent should do in theentire area o ga bling, and assu e ull responsibility to the people or such policy.

The courts, as the decision states, cannot in5uire into the !isdo , orality ore4pediency o policies adopted by the political depart ents o govern ent in areas!hich all !ithin their authority, e4cept only !hen such policies pose a clear andpresent danger to the li e, liberty or property o the individual. This case does notinvolve such a actual situation.

Ao!ever, I hasten to a0e o record that I do not subscribe to ga bling in any or . Itde eans the hu an personality, destroys sel -con#dence and eviscerates one s sel -respect, !hich in the long run !ill corrode !hatever is le t o the "ilipino oralcharacter. Da bling has !rec0ed and !ill continue to !rec0 a ilies and ho es3 it is anantithesis to individual reliance and reliability as !ell as personal industry !hich are thetouchstones o real econo ic progress and national develop ent.

Da bling is reprehensible !hether aintained by govern ent or privati1ed. Therevenues reali1ed by the govern ent out o ?legali1ed? ga bling !ill, in the long run,be ore than ofset and negated by the irreparable da age to the people s oralvalues.

'lso, the oral standing o the govern ent in its repeated avo!als against ?illegalga bling? is atally Ja!ed and beco es untenable !hen it itsel engages in the veryactivity it see0s to eradicate.

9ne can go through the Court s decision today and entally replace the activityre erred to therein as gambling , !hich is legal only because it is authori1ed by la! andrun by the govern ent, !ith the activity 0no!n as prostitution . Kould prostitution beany less reprehensible !ere it to be authori1ed by la!, ranchised, and ?regulated? bythe govern ent, in return or the substantial revenues it !ould yield the govern ent tocarry out its laudable projects, such as in rastructure and social a eliorationP The5uestion, I believe, ans!ers itsel . I sub it that the sooner the legislative depart ent

outla!s all or s o ga bling, as a fundamental state polic3 , and the sooner thee4ecutive i ple ents such policy, the better it !ill be or the nation.

Melencio-:errera, 5., concurs.

"I&ST GI8ISI9(

AG.R. No. 14(188. #) ) *)+ 14, 2::4

CO&&I##IONER O IN!ERN$L RE>ENUE, petitioner, vs. !"E E#!$!E BENIGNO P. !O%$, JR., R) +)s)n )d *y # ) /al Co-ad /n/s +a o+s Lo+na7a unan and &a+/o Lu a Bau /s a, respondents .

% E C I # I O N

%$>I%E, JR., C.J .D

This Court is called upon to deter ine in this case !hether the ta4 planningschee adopted by a corporation constitutes ta4 evasion that !ould justi y anassess ent o de#ciency inco e ta4.

The petitioner see0s the reversal o the Gecision :$< o the Court o 'ppeals o *$ anuary +;;$ in C'-D.&. S (o. %FF== a2r ing the * anuary +;;; Gecision :+E$A#2CE SAMM 6?

444 444 444

$.+. CS9 is see0ing a suitable contractor !hich shall build, at its o!ne4pense, all the acilities "acilities / needed to operate and aintain a

nation!ide on-line lottery syste . CS9 shall lease the "acilities or a#4ed percentage o 5uarterly gross receipts. 'll receipts ro tic0et salesshall be turned over directly to CS9. 'll capital, operating e4penses ande4pansion e4penses and ris0s shall be or the e4clusive account o theessor.

444 444 444

$.E. The lease shall be or a period not e4ceeding # teen $%/ years.

$.%. The essor is e4pected to sub it a co prehensive nation!idelottery develop ent plan ?Gevelop ent lan?/ !hich !ill include thega e, the ar0eting o the ga es, and the logistics to introduce thega es to all the cities and unicipalities o the country !ithin #ve %/

years.

444 444 444

+%

$ F The essor shall be selected based on its technical e4pertise The roponent is e4pected to orulate and design consu er oriented


26/100

$.F. The essor shall be selected based on its technical e4pertise,hard!are and so t!are capability, aintenance support, and #nancialresources. The Gevelop ent lan shall have a substantial bearing on thechoice o the essor. The essor shall be a do estic corporation, !ith atleast si4ty percent );H/ o its shares o!ned by "ilipino shareholders.

444 444 444

The 92ce o the resident, the (ational Gisaster Control CoordinatingCouncil, the hilippine (ational olice, and the (ational Bureau oInvestigation shall be authori1ed to use the nation!ideteleco unications syste o the "acilities "ree o Charge.

$.@. pon e4piration o the lease, the "acilities shall be o!ned by CS9!ithout any additional consideration.

444 444 444

+.+. 9B 7CTI87S

The objectives o CS9 in leasing the "acilities ro a private entity areas ollo!s

444 444 444

+.+.+. 7nable CS9 to operate a nation!ide on-line ottery syste at noe4pense or ris0 to the govern ent.

444 444 444

+.E. G TI7S '(G &7S 9(SIBI ITI7S 9" TA7 7SS9&

444 444 444

+.E.+. TA7 7SS9&

The roponent is e4pected to urnish and aintain the "acilities,including the personnel needed to operate the co puters, theco unications net!or0 and sales o2ces under a build-lease basis. Theprinting o tic0ets shall be underta0en under the supervision and controlo CS9. The "acilities shall enable CS9 to co puteri1e the entirega ing syste .

The roponent is e4pected to orulate and design consu er-orientedMaster Da es lan suited to the ar0etplace, especially geared to"ilipino ga ing habits and pre erences. In addition, the Master Da eslan is e4pected to include a roduct lan or each ga e and e4plainho! each !ill be introduced into the ar0et. This !ill be an integral parto the Gevelop ent lan !hich CS9 !ill re5uire ro the roponent.

444 444 444

The roponent is e4pected to provide upgrades to oderni1e the entirega ing syste over the li e o the lease contract.

The roponent is e4pected to provide technology trans er to CS9technical personnel. 4

F. GE E6 + GA27E+2 ES FO6 !6O!O E #S

444 444 444

"inally, the roponent ust be able to stand the acid test o proving thatit is an entity able to ta0e on the role o responsible aintainer o theon-line lottery syste , and able to achieve SC9 s goal o or ali1ing anon-line lottery syste to achieve its andated objective. 5

444 444 444

$). 7EF2 2#2O OF #E6MS

"acilities 'll capital e5uip ent, co puters, ter inals, so t!are,nation!ide teleco unication net!or0, tic0et sales o2ces, urnishings,and #4tures3 printing costs3 cost o salaries and !ages3 advertising andpro otion e4penses3 aintenance costs3 e4pansion and replace entcosts3 security and insurance, and all other related e4penses needed tooperate nation!ide on-line lottery syste . 6

Considering the above citi1enship re5uire ent, the DMC clai s that the BerjayaDroup ?undertoo0 to reduce its e5uity sta0es in DMC to E;H,? by selling *%H out othe original F%H oreign stoc0holdings to local investors.

9n $% 'ugust $==*, DMC sub itted its bid to the CS9. (

The bids !ere evaluated by the Special re-Ouali#cation Bids and '!ards Co itteeS B'C/ or the on-line lottery and its Bid &eport !as therea ter sub itted to the 92ce

+)

o the resident 8 The subission !as preceded by coplaints by the Co ittee s $ * "acilities 6 'll capital e5uip ent co puters ter inals so t!are


27/100

o the resident. The subission !as preceded by coplaints by the Co ittee sChairperson, Gr. Mita ardo de Tavera. 9

9n +$ 9ctober $==*, the 92ce o the resident announced that it had given therespondent DMC the go-signal to operate the country s on-line lottery syste and thatthe corresponding i ple enting contract !ould be sub itted not later than @(ove ber $==* ? or #nal clearance and approval by the Chie 74ecutive.? 1: Thisannounce ent !as published in the Manila Standard, hilippine Gaily In5uirer, and theManila Ti es on += 9ctober $==*. 11

9n E (ove ber $==*, LI 9SB'V'( sent an open letter to residential "idel 8. &a osstrongly opposing the setting up to the on-line lottery syste on the basis o seriousoral and ethical considerations. 12

't the eeting o the Co ittee on Da es and ' use ents o the Senate on $+(ove ber $==*, LI 9SB'V'( reiterated its vigorous opposition to the on-line lottery onaccount o its i orality and illegality. 1

9n $= (ove ber $==*, the edia reported that despite the opposition, ?MalacaRang!ill push through !ith the operation o an on-line lottery syste nation!ide? and that itis actually the respondent CS9 !hich !ill operate the lottery !hile the !inningcorporate bidders are erely ?lessors.? 14

9n $ Gece ber $==*, LI 9SB'V'( re5uested copies o all docu ents pertaining to thelottery a!ard ro 74ecutive Secretary Teo#sto Duingona, r. In his ans!er o $FGece ber $==*, the 74ecutive Secretary in or ed LI 9SB'V'( that the re5uesteddocu ents !ould be duly trans itted be ore the end o the onth. 15 . Ao!ever, on thatsa e date, an agree ent deno inated as ?Contract o ease? !as #nally e4ecuted byrespondent CS9 and respondent DMC. 16 The resident, per the press state entissued by the 92ce o the resident, approved it on +; Gece ber $==*. 1(

In vie! o their ateriality and relevance, !e 5uote the ollo!ing salient provisions othe Contract o ease

$. G7"I(ITI9(S

The ollo!ing !ords and ter s shall have the ollo!ing respectiveeanings

$.$ &ental "ee 6 ' ount to be paid by CS9 to the 7SS9& asco pensation or the ul#ll ent o the obligations o the 7SS9& underthis Contract, including, but not li ited to the lease o the "acilities.

444 444 444

$. acilities 6 ll capital e5uip ent, co puters, ter inals, so t!areincluding source codes or the 9n- ine ottery application so t!are orthe ter inals, teleco unications and central syste s/, technology,intellectual property rights, teleco unications net!or0, andurnishings and #4tures.

$.E Maintenance and 9ther Costs 6 'll costs and e4penses relating toprinting, anpo!er, salaries and !ages, advertising and pro otion,aintenance, e4pansion and replace ent, security and insurance, andall other related e4penses needed to operate an 9n- ine ottery Syste ,!hich shall be or the account o the 7SS9&. 'll e4penses relating tothe setting-up, operation and aintenance o tic0et sales o2ces o

dealers and retailers shall be borne by CS9 s dealers and retailers.

$.% Gevelop ent lan 6 The detailed plan o all ga es, the ar0etingthereo , nu ber o players, value o !innings and the logistics re5uiredto introduce the ga es, including the Master Da es lan as approvedby CS9, attached hereto as 'nne4 ?'?, odi#ed as necessary by theprovisions o this Contract.

444 444 444

$.@ 7scro! Geposit 6 The proposal deposit in the su o Three AundredMillion esos *;;,;;;,;;;.;;/ sub itted by the 7SS9& to CS9pursuant to the re5uire ents o the &e5uest or roposals.

+. S B 7CT M'TT7& 9" TA7 7'S7

The 7SS9& shall build, urnish and aintain at its o!n e4pense and ris0the "acilities or the 9n- ine ottery Syste o CS9 in the Territory onan e4clusive basis. The 7SS9& shall bear all Maintenance and 9therCosts as de#ned herein.

444 444 444

*. &7(T' "77

"or and in consideration o the per or ance by the 7SS9& o itsobligations herein, CS9 shall pay 7SS9& a #4ed &ental "ee e5ual toour point nine percent E.=H/ o gross receipts ro tic0et sales,payable net o ta4es re5uired by la! to be !ithheld, on a se i- onthlybasis. Dood!ill, ranchise and si ilar ees shall belong to CS9.

E. 7'S7 7&I9G

+F

The period o the lease shall co ence ninety =;/ days ro the date %.F CS9 shall pro ulgate procedural and coordinating rules governing


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The period o the lease shall co ence ninety ;/ days ro the dateo efectivity o this Contract and shall run or a period o eight @/ yearstherea ter, unless sooner ter inated in accordance !ith this Contract.

%. &IDATS '(G 9B ID'TI9(S 9" CS9 'S 9 7&'T9& 9" TA7 9(- I(79TT7&V SVST7M

CS9 shall be the sole and individual operator o the 9n- ine otterySyste . Conse5uently

%.$ CS9 shall have sole responsibility to decide !hether to i ple ent,ully or partially, the Master Da es lan o the 7SS9&. CS9 shall havethe sole responsibility to deter ine the ti e or introducing ne! ga esto the ar0et. The Master Da es lan included in 'nne4 ?'? hereo ishereby approved by CS9.

%.+ CS9 shall have control over revenues and receipts o !hatevernature ro the 9n- ine ottery Syste . ' ter paying the &ental "ee tothe 7SS9&, CS9 shall have e4clusive responsibility to deter ine the&evenue 'llocation lan3 rovided, that the sa e shall be consistent!ith the re5uire ent o &.'. (o. $$)=, as a ended, !hich #4es a pri1eund o # ty #ve percent %%H/ on the average.

%.* CS9 shall have e4clusive control over the printing o tic0ets,including but not li ited to the design, te4t, and contents thereo .

%.E CS9 shall have sole responsibility over the appoint ent o dealersor retailers throughout the country. CS9 shall appoint the dealers andretailers in a ti ely anner !ith due regard to the i ple entationti etable o the 9n- ine ottery Syste . (othing herein shall precludethe 7SS9& ro reco ending dealers or retailers or appoint ent byCS9, !hich shall act on said reco endation !ithin orty-eight E@/hours.

%.% CS9 shall designate the necessary personnel to onitor and auditthe daily per or ance o the 9n- ine ottery Syste . "or this purpose,CS9 designees shall be given, ree o charge, suitable and ade5uatespace, urniture and #4tures, in all o2ces o the 7SS9&, including butnot li ited to its head5uarters, alternate site, regional and area o2ces.

%.) CS9 shall have the responsibility to resolve, and e4clusive jurisdiction over, all atters involving the operation o the 9n- ineottery Syste not other!ise provided in this Contract.

%.F CS9 shall pro ulgate procedural and coordinating rules governingall activities relating to the 9n- ine ottery Syste .

%.@ CS9 !ill be responsible or the pay ent o pri1e onies,co issions to agents and dealers, and ta4es and levies i any/chargeable to the operator o the 9n- ine ottery Syste . The 7SS9&!ill bear all other Maintenance and 9ther Costs, e4cept as provided inSection $.E.

%.= CS9 shall assist the 7SS9& in the ollo!ing

%.=.$ Kor0 per its or the 7SS9& s staf3

%.=.+ 'pprovals or i portation o the "acilities3

%.=.* 'pprovals and consents or the 9n- ine otterySyste 3 and

%.=.E Business and pre ises licenses or all o2ces o the7SS9& and licenses or the teleco unicationsnet!or0.

%.$; In the event that CS9 shall pre-ter inate this Contract or suspendthe operation o the 9n- ine ottery Syste , in breach o this Contractand through no ault o the 7SS9&, CS9 shall pro ptly, and in anyevent not later than si4ty );/ days, rei burse the 7SS9& the a ounto its total invest ent cost associated !ith the 9n- ine ottery Syste ,including but not li ited to the cost o the "acilities, and urtherco pensate the 7SS9& or loss o e4pected net pro#t a ter ta4,co puted over the une4pired ter o the lease.

). G TI7S '(G &7S 9(SIBI ITI7S 9" TA7 7SS9&

The 7SS9& is one o not ore than three */ lessors o si ilar acilitiesor the nation!ide 9n- ine ottery Syste o CS9. It is understood thatthe rights o the 7SS9& are pri arily those o a lessor o the "acilities,and conse5uently, all rights involving the business aspects o the use othe "acilities are !ithin the jurisdiction o CS9. Guring the ter o thelease, the 7SS9& shall.

).$ Maintain and preserve its corporate e4istence, rights and privileges,and conduct its business in an orderly, e2cient, and custo ary anner.

+@

).+ Maintain insurance coverage !ith insurers acceptable to CS9 on all ).$+ Co ply !ith procedural and coordinating rules issued by CS9.


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) g p"acilities.

).* Co ply !ith all la!s, statues, rules and regulations, orders anddirectives, obligations and duties by !hich it is legally bound.

).E Guly pay and discharge all ta4es, assess ents and govern entcharges no! and herea ter i posed o !hatever nature that ay belegally levied upon it.

).% Leep all the "acilities in ail sa e condition and, i necessary,upgrade, replace and i prove the "acilities ro ti e to ti e as ne!technology develops, in order to a0e the 9n- ine ottery Syste orecost-efective and>or co petitive, and as ay be re5uired by CS9 shallnot i pose such re5uire ents unreasonably nor arbitrarily.

).) rovide CS9 !ith anage ent ter inals !hi

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