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1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand;

2) the sum of P100,000 as attorney's fees;

3) the cost of suit.

SO ORDERED .11 crlwvirtualibrry

Ruling that the imposition of the P10 CRC was an exercise of the State's inherent power of taxation, the RTC invalidatedthe levy for violating the basic principle that taxes can only be levied for public purpose, viz.:

It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is purportedly in the exercise ofthe power of taxation. It is a settled principle that the power of taxation by the state is plenary. Comprehensive andsupreme, the principal check upon its abuse resting in the responsibility of the members of the legislature to theirconstituents. However, there are two kinds of limitations on the power of taxation: the inherent limitations and theconstitutional limitations.

One of the inherent limitations is that a tax may be levied only for public purposes:

The power to tax can be resorted to only for a constitutionally valid public purpose. By the same token, taxes may not belevied for purely private purposes, for building up of private fortunes, or for the redress of private wrongs. They cannot be

levied for the improvement of private property, or for the benefit, and promotion of private enterprises, except where theaid is incident to the public benefit. It is well-settled principle of constitutional law that no general tax can be levied exceptfor the purpose of raising money which is to be expended for public use. Funds cannot be exacted under the guise oftaxation to promote a purpose that is not of public interest. Without such limitation, the power to tax could be exercised oremployed as an authority to destroy the economy of the people. A tax, however, is not held void on the ground of want ofpublic interest unless the want of such interest is clear. (71 Am. Jur. pp. 371-372)

In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and Pesticide Authority pursuant to theP10 per bag of fertilizer sold imposition under LOI 1465 which, in turn, remitted the amount to the defendant PlantersProducts, Inc. thru the latter's depository bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff,Fertiphil Corporation, which is a private domestic corporation, became poorer by the amount of P6,698,144.00 and thedefendant, Planters Product, Inc., another private domestic corporation, became richer by the amount of P6,698,144.00.

Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is quite evident that LOI 1465insofar as it imposes the amount of P10 per fertilizer bag sold in the country and orders that the said amount should go tothe defendant Planters Product, Inc. is unlawful because it violates the mandate that a tax can be levied only for a publicpurpose and not to benefit, aid and promote a private enterprise such as Planters Product, Inc .12 crlwvirtualibrry

PPI moved for reconsideration but its motion was denied .13 PPI then filed a notice of appeal with the RTC but it failed topay the requisite appeal docket fee. In a separate but related proceeding, this Cour t14 allowed the appeal of PPI andremanded the case to the CA for proper disposition.

CA Decision

On November 28, 2003, the CA handed down its decision affirming with modification that of the RTC, with the followingfallo:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby AFFIRMED, subject to the MODIFICATIONthat the award of attorney's fees is hereby DELETED .15 crlwvirtualibrry

In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection was the constitutionality of LOINo. 1465, thus:

The question then is whether it was proper for the trial court to exercise its power to judicially determine theconstitutionality of the subject statute in the instant case.
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As a rule, where the controversy can be settled on other grounds, the courts wi ll not resolve the constitutionality of a law(Lim v. Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to avoid ruling on constitutional questions and topresume that the acts of political departments are valid, absent a clear and unmistakable showing to the contrary.

However, the courts are not precluded from exercising such power when the following requisites are obtaining in acontroversy before it: First, there must be before the court an actual case calling for the exercise of judicial review.Second, the question must be ripe for adjudication. Third, the person challenging the validity of the act must havestanding to challenge. Fourth, the question of constitutionality must have been raised at the earliest opportunity; andlastly, the issue of constitutionality must be the very lis mota of the case (Integrated Bar of the Philippines v. Zamora, 338

SCRA 81 [2000]).

Indisputably, the present case was primarily instituted for collection and damages. However, a perusal of the complaintalso reveals that the instant action is founded on the claim that the levy imposed was an unlawful and unconstitutionalspecial assessment. Consequently, the requisite that the constitutionality of the law in question be the very lis mota of thecase is present, making it proper for the trial court to rule on the constitutionality of LOI 1465 .16 crlwvirtualibrry

The CA held that even on the assumption that LOI No. 1465 was issued under the police power of the state, it is stillunconstitutional because it did not promote public welfare. The CA explained:

In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said law was an invalid exerciseof the State's power of taxation inasmuch as it violated the inherent and constitutional prescription that taxes be leviedonly for public purposes. It reasoned out that the amount collected under the levy was remitted to the depository bank of

PPI, which the latter used to advance its private interest.

On the other hand, appellant submits that the subject statute's passage was a valid exercise of police power. In addition, itdisputes the court a quo's findings arguing that the collections under LOI 1465 was for the benefit of Planters Foundation,Incorporated (PFI), a foundation created by law to hold in trust for millions of farmers, the stock ownership of PPI.

Of the three fundamental powers of the State, the exercise of police power has been characterized as the most essential,insistent and the least limitable of powers, extending as it does to all the great public needs. It may be exercised as longas the activity or the property sought to be regulated has some relevance to public welfare (Constitutional Law, by Isagani

A. Cruz, p. 38, 1995 Edition).

Vast as the power is, however, it must be exercised within the limits set by the Constitution, which requires theconcurrence of a lawful subject and a lawful method. Thus, our courts have laid down the test to determine the validity ofa police measure as follows: (1) the interests of the public generally, as distinguished from those of a particular class,requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose andnot unduly oppressive upon individuals (National Development Company v. Philippine Veterans Bank, 192 SCRA 257[1990]).

It is upon applying this established tests that We sustain the trial court's holding LOI 1465 unconstitutional. To be sure,ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest.However, the method by which LOI 1465 sought to achieve this is by no means a measure that will promote the publicwelfare. The government's commitment to support the successful rehabilitation and continued viability of PPI, a privatecorporation, is an unmistakable attempt to mask the subject statute's impartiality. There is no way to treat the self-interestof a favored entity, like PPI, as identical with the general interest of the country's farmers or even the Filipino people ingeneral. Well to stress, substantive due process exacts fairness and equal protection disallows distinction where none isneeded. When a statute's public purpose is spoiled by private interest, the use of police power becomes a travesty whichmust be struck down for being an arbitrary exercise of government power. To rule in favor of appellant would contravenethe general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusivebenefit of private individuals .17 crlwvirtualibrry

The CA did not accept PPI's claim that the levy imposed under LOI No. 1465 was for the benefit of Planters Foundation,Inc., a foundation created to hold in trust the stock ownership of PPI. The CA stated:

Appellant next claims that the collections under LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), afoundation created by law to hold in trust for millions of farmers, the stock ownership of PFI on the strength of Letter of
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Undertaking (LOU) issued by then Prime Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justicein an Opinion dated October 12, 1987, to wit:

"2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricingformula a capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaidportion of the outstanding capital stock of Planters presently held in trust by Planters Foundation, Inc. (PlantersFoundation), which unpaid capital is estimated at approximately P206 million (subject to validation by Planters andPlanters Foundation) (such unpaid portion of the outstanding capital stock of Planters being hereafter referred to as the'Unpaid Capital' ), and subsequently for such capital increases as may be required for the continuing viability of Planters.

The capital recovery component shall be in the minimum amount of P10 per bag, which will be added to the price of alldomestic sales of fertilizer in the Philippines by any importer and/or fertilizer mother company. In this connection, theRepublic hereby acknowledges that the advances by Planters to Planters Foundation which were applied to the paymentof the Planters shares now held in trust by Planters Foundation, have been assigned to, among others, the Creditors.

Accordingly, the Republic, through FPA, hereby agrees to deposit the proceeds of the capital recovery component in thespecial trust account designated in the notice dated April 2, 1985, addressed by counsel for the Creditors to PlantersFoundation. Such proceeds shall be deposited by FPA on or before the 15th day of each month.

The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capitaland/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof onthe amounts which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables and (d)the capital increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the 'carrying cost'

shall be at such rate as will represent the full and reasonable cost to Planters of servicing its debts, taking into accountboth its peso and foreign currency-denominated obligations." (Records, pp. 42-43)

Appellant's proposition is open to question, to say the least. The LOU issued by then Prime Minister Virata taken togetherwith the Justice Secretary's Opinion does not preponderantly demonstrate that the collections made were held in trust infavor of millions of farmers. Unfortunately for appellant, in the absence of sufficient evidence to establish its claims, thisCourt is constrained to rely on what is explicitly provided in LOI 1465 - that one of the primary aims in imposing the levy isto support the successful rehabilitation and continued viability of PPI .18 crlwvirtualibrry

PPI moved for reconsideration but its motion was denied .19 It then filed the present petition with this Court.

Issues

Petitioner PPI raises four issues for Our consideration, viz.:

I

THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED AND BE DECREED VIA ADEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION AND DAMAGES WHERE THE ISSUE OFCONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY

ANY PERSON OR ENTITY WHICH HAS NO STANDING TO DO SO.

II

LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER SUPPLY AND

DISTRIBUTION IN THE COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW TO HOLD IN TRUSTFOR MILLIONS OF FARMERS THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATIONPURSUANT TO THE EXERCISE OF TAXATION AND POLICE POWER FOR PUBLIC PURPOSES.

III

THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS REMITTED TO THEGOVERNMENT, AND BECAME GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND VALIDLY ENACTEDLAW WHICH IMPOSED DUTIES AND CONFERRED RIGHTS BY VIRTUE OF THE PRINCIPLE OF "OPERATIVEFACT" PRIOR TO ANY DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.
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IV

THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO APPLICATION IN THE INSTANTCASE .20 (Underscoring supplied )cralawlibrary

Our Ruling

We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to resolve constitutional issues.

Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere procedural technicality whichmay be waived.

PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465 because it does not have a"personal and substantial interest in the case or will sustain direct injury as a result of its enforcement. "21 It asserts thatFertiphil did not suffer any damage from the CRC imposition because "incidence of the levy fell on the ultimate consumeror the farmers themselves, not on the seller fertilizer company. "22 crlwvirtualibrry

We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has been adequatelydiscussed by this Court in a catena of cases. Succinctly put, the doctrine requires a litigant to have a material interest inthe outcome of a case. In private suits, locus standi requires a litigant to be a "real party in interest," which is defined as"the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of thesuit. "23 crlwvirtualibrry

In public suits, this Court recognizes the difficulty of applying the doctrine especially when plaintiff asserts a public right onbehalf of the general public because of conflicting public policy issues .24 On one end, there is the right of the ordinarycitizen to petition the courts to be freed from unlawful government intrusion and illegal official action. At the other end,there is the public policy precluding excessive judicial interference in official acts, which may unnecessarily hinder thedelivery of basic public services.

In this jurisdiction, We have adopted the "direct injury test" to determine locus standi in public suits. In People v. Vera ,25 iwas held that a person who impugns the validity of a statute must have "a personal and substantial interest in the casesuch that he has sustained, or will sustain direct injury as a result." The "direct injury test" in public suits is similar to the"real party in interest" rule for private suits under Section 2, Rule 3 of the 1997 Rules of CivilProcedure .26 crlwvirtualibrry

Recognizing that a strict application of the "direct injury" test may hamper public interest, this Court relaxed therequirement in cases of "transcendental importance" or with "far reaching implications." Being a mere proceduraltechnicality, it has also been held that locus standi may be waived in the public interest .27 crlwvirtualibrry

Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil has locus standi to file it.Fertiphil suffered a direct injury from the enforcement of LOI No. 1465. It was required, and it did pay, the P10 levyimposed for every bag of fertilizer sold on the domestic market. It may be true that Fertiphil has passed some or all of thelevy to the ultimate consumer, but that does not disqualify it from attacking the constitutionality of the LOI or from seekinga refund. As seller, it bore the ultimate burden of paying the levy. It faced the possibility of severe sanctions for failure topay the levy. The fact of payment is sufficient injury to Fertiphil.

Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled to factor in its product the

levy. The levy certainly rendered the fertilizer products of Fertiphil and other domestic sellers much more expensive. Theharm to their business consists not only in fewer clients because of the increased price, but also in adopting alternativecorporate strategies to meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers may have shouldered all orpart of the levy just to be competitive in the market. The harm occasioned on the business of Fertiphil is sufficient injuryfor purposes of locus standi.

Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently adopted by this Court onlocus standi must apply. The issues raised by Fertiphil are of paramount public importance. It involves not only theconstitutionality of a tax law but, more importantly, the use of taxes for public purpose. Former President Marcos issuedLOI No. 1465 with the intention of rehabilitating an ailing private company. This is clear from the text of the LOI. PPI is
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expressly named in the LOI as the direct beneficiary of the levy. Worse, the levy was made dependent and conditionalupon PPI becoming financially viable. The LOI provided that "the capital contribution shall be collected until adequatecapital is raised to make PPI viable."

The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our constitutional duty to squarelyresolve the issue as the final arbiter of all justiciable controversies. The doctrine of standing, being a mere proceduraltechnicality, should be waived, if at all, to adequately thresh out an important constitutional issue.

RTC may resolve constitutional issues; the constitutional issue was adequately raised in the complaint; it is the lis mota of

the case.

PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It asserts that the constitutionality ofthe LOI cannot be collaterally attacked in a complaint for collection .28 Alternatively, the resolution of the constitutionalissue is not necessary for a determination of the complaint for collection .29 crlwvirtualibrry

Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint. It claims that theconstitutionality of LOI No. 1465 is the very lis mota of the case because the trial court cannot determine its claim withoutresolving the issue .30 crlwvirtualibrry

It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential decree or an executiveorder. This is clear from Section 5, Article VIII of the 1987 Constitution, which provides:

SECTION 5. The Supreme Court shall have the following powers:

x x x

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari , as the law or the Rules of Court may provide, final judgments and orders of lower courts in:

(a) All cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidentialdecree, proclamation, order, instruction, ordinance, or regulation is in question. ( Underscoring supplied )cralawlibrary

In Mirasol v. Court of Appeals ,31 this Court recognized the power of the RTC to resolve constitutional issues, thus:

On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to consider the constitutionalityof a statute, presidential decree, or executive order. The Constitution vests the power of judicial review or the power todeclare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulationnot only in this Court, but in all Regional Trial Courts .32 crlwvirtualibrry

In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs ,33 this Court reiterated:

There is no denying that regular courts have jurisdiction over cases involving the validity or constitutionality of a rule orregulation issued by administrative agencies. Such jurisdiction, however, is not limited to the Court of Appeals or to thisCourt alone for even the regional trial courts can take cognizance of actions assailing a specific rule or set of rulespromulgated by administrative bodies. Indeed, the Constitution vests the power of judicial review or the power to declare alaw, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in thecourts, including the regional trial courts .34 crlwvirtualibrry

Judicial review of official acts on the ground of unconstitutionality may be sought or availed of through any of the actionscognizable by courts of justice, not necessarily in a suit for declaratory relief. Such review may be had in criminal actions,as in People v. Ferre r 35 involving the constitutionality of the now defunct Anti-Subversion law, or in ordinary actions, as inKrivenko v. Register of Deed s 36 involving the constitutionality of laws prohibiting aliens from acquiring public lands. Theconstitutional issue, however, (a) must be properly raised and presented in the case, and (b) its resolution is necessary toa determination of the case, i.e., the issue of constitutionality must be the very lis motapresented .37 chanroblesvirtuallawlibrary
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Contrary to PPI's claim, the constitutionality of LOI No. 1465 was properly and adequately raised in the complaint forcollection filed with the RTC. The pertinent portions of the complaint allege:

6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of all grades of fertilizer in the Philippines, isunlawful, unjust, uncalled for, unreasonable, inequitable and oppressive because:

x x x

(c) It favors only one private domestic corporation, i.e., defendant PPPI, and imposed at the expense and disadvantage of

the other fertilizer importers/distributors who were themselves in tight business situation and were then exerting all effortsand maximizing management and marketing skills to remain viable;

x x x

(e) It was a glaring example of crony capitalism, a forced program through which the PPI, having been presumptuouslymasqueraded as "the" fertilizer industry itself, was the sole and anointed beneficiary;

7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is tantamount to illegal exactionamounting to a denial of due process since the persons of entities which had to bear the burden of paying the CRCderived no benefit therefrom; that on the contrary it was used by PPI in trying to regain its former despicable monopoly ofthe fertilizer industry to the detriment of other distributors and importers .38 (Underscoring supplied )cralawlibrary

The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection. Fertiphil filed the complaint tocompel PPI to refund the levies paid under the statute on the ground that the law imposing the levy is unconstitutional.The thesis is that an unconstitutional law is void. It has no legal effect. Being void, Fertiphil had no legal obligation to paythe levy. Necessarily, all levies duly paid pursuant to an unconstitutional law should be refunded under the civil codeprinciple against unjust enrichment. The refund is a mere consequence of the law being declared unconstitutional. TheRTC surely cannot order PPI to refund Fertiphil if it does not declare the LOI unconstitutional. It is the unconstitutionality ofthe LOI which triggers the refund. The issue of constitutionality is the very lis mota of the complaint with the RTC.

The P10 levy under LOI No. 1465 is an exercise of the power of taxation.

At any rate, the Court holds that the RTC and the CA did not err in ruling against the constitutionality of the LOI.

PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of taxation. It claims that the LOIwas implemented for the purpose of assuring the fertilizer supply and distribution in the country and for benefiting afoundation created by law to hold in trust for millions of farmers their stock ownership in PPI.

Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a private company. The levywas imposed to pay the corporate debt of PPI. Fertiphil also argues that, even if the LOI is enacted under the policepower, it is still unconstitutional because it did not promote the general welfare of the people or public interest.

Police power and the power of taxation are inherent powers of the State. These powers are distinct and have differenttests for validity. Police power is the power of the State to enact legislation that may interfere with personal liberty orproperty in order to promote the general welfare ,39 while the power of taxation is the power to levy taxes to be used forpublic purpose. The main purpose of police power is the regulation of a behavior or conduct, while taxation is revenuegeneration. The "lawful subjects" and "lawful means" tests are used to determine the validity of a law enacted under thepolice power .40 The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is truethat the power of taxation can be used as an implement of police power ,41 the primary purpose of the levy is revenuegeneration. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then theexaction is properly called a tax .42 crlwvirtualibrry

In Philippine Airlines, Inc. v. Edu ,43 it was held that the imposition of a vehicle registration fee is not an exercise by theState of its police power, but of its taxation power, thus:
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insidious purpose of the law. They were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied underthe LOI. We find it utterly repulsive that a tax law would expressly name a private company as the ultimate beneficiary ofthe taxes to be levied from the public. This is a clear case of crony capitalism.

Second, the LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI becomingfinancially "viable." This suggests that the levy was actually imposed to benefit PPI. The LOI notably does not fix amaximum amount when PPI is deemed financially "viable." Worse, the liability of Fertiphil and other domestic sellers offertilizer to pay the levy is made indefinite. They are required to continuously pay the levy until adequate capital is raisedfor PPI.

Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited by FPA to FarEast Bank and Trust Company, the depositary bank of PPI .49 This proves that PPI benefited from the LOI. It is also provesthat the main purpose of the law was to give undue benefit and advantage to PPI.

Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of Understanding 50 dated May 18,1985 signed by then Prime Minister Cesar Virata reveals that PPI was in deep financial problem because of its hugecorporate debts. There were pending petitions for rehabilitation against PPI before the Securities and ExchangeCommission. The government guaranteed payment of PPI's debts to its foreign creditors. To fund the payment, PresidentMarcos issued LOI No. 1465. The pertinent portions of the letter of understanding read:

Republic of the PhilippinesOffice of the Prime Minister

Manila

LETTER OF UNDERTAKING

May 18, 1985

TO: THE BANKING AND FINANCIAL INSTITUTIONSLISTED IN ANNEX A HERETO WHICH ARECREDITORS (COLLECTIVELY, THE "CREDITORS")OF PLANTERS PRODUCTS, INC. ("PLANTERS")

Gentlemen:

This has reference to Planters which is the principal importer and distributor of fertilizer, pesticides and agriculturalchemicals in the Philippines. As regards Planters, the Philippine Government confirms its awareness of the following: (1)that Planters has outstanding obligations in foreign currency and/or pesos, to the Creditors, (2) that Planters is currentlyexperiencing financial difficulties, and (3) that there are presently pending with the Securities and Exchange Commissionof the Philippines a petition filed at Planters' own behest for the suspension of payment of all its obligations, and aseparate petition filed by Manufacturers Hanover Trust Company, Manila Offshore Branch for the appointment of arehabilitation receiver for Planters.

In connection with the foregoing, the Republic of the Philippines (the "Republic") confirms that it considers and continuesto consider Planters as a major fertilizer distributor. Accordingly, for and in consideration of your expressed willingness toconsider and participate in the effort to rehabilitate Planters, the Republic hereby manifests its full and unqualified supportof the successful rehabilitation and continuing viability of Planters, and to that end, hereby binds and obligates itself to the

creditors and Planters, as follows:

x x x

2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricingformula a capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaidportion of the outstanding capital stock of Planters presently held in trust by Planters Foundation, Inc. ("PlantersFoundation"), which unpaid capital is estimated at approximately P206 million (subject to validation by Planters andPlanters Foundation) such unpaid portion of the outstanding capital stock of Planters being hereafter referred to as the"Unpaid Capital"), and subsequently for such capital increases as may be required for the continuing viability of Planters.
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x x x

The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capitaland/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof onthe amounts which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables, and (d)the capital increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the "carrying cost"shall be at such rate as will represent the full and reasonable cost to Planters of servicing its debts, taking into accountboth its peso and foreign currency-denominated obligations.

REPUBLIC OF THE PHILIPPINES

By:

(signed)CESAR E. A. VIRATAPrime Minister and Minister of Finance 51

It is clear from the Letter of Understanding that the levy was imposed precisely to pay the corporate debts of PPI. Wecannot agree with PPI that the levy was imposed to ensure the stability of the fertilizer industry in the country. The letter ofunderstanding and the plain text of the LOI clearly indicate that the levy was exacted for the benefit of a privatecorporation.

All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465 was not for a public purpose.LOI No. 1465 failed to comply with the public purpose requirement for tax laws.

The LOI is still unconstitutional even if enacted under the police power; it did not promote public interest.

Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid for failing to complywith the test of "lawful subjects" and "lawful means." Jurisprudence states the test as follows: (1) the interest of the publicgenerally, as distinguished from those of particular class, requires its exercise; and (2) the means employed arereasonably necessary for the accomplishment of the purpose and not unduly oppressive uponindividuals .52 crlwvirtualibrry

For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public interest. The law was

enacted to give undue advantage to a private corporation. We quote with approval the CA ratiocination on this point, thus:

It is upon applying this established tests that We sustain the trial court's holding LOI 1465unconstitutional. rbl rl l lbrr

To be sure, ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with publicinterest. However, the method by which LOI 1465 sought to achieve this is by no means a measure that will promote thepublic welfare. The government's commitment to support the successful rehabilitation and continued viability of PPI, aprivate corporation, is an unmistakable attempt to mask the subject statute's impartiality. There is no way to treat the self-interest of a favored entity, like PPI, as identical with the general interest of the country's farmers or even the Filipinopeople in general. Well to stress, substantive due process exacts fairness and equal protection disallows distinction wherenone is needed. When a statute's public purpose is spoiled by private interest, the use of police power becomes a travestywhich must be struck down for being an arbitrary exercise of government power. To rule in favor of appellant would

contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for theexclusive benefit of private individuals. ( Underscoring supplied )cralawlibrary

The general rule is that an unconstitutional law is void; the doctrine of operative fact is inapplicable.

PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared unconstitutional. It banks on thedoctrine of operative fact, which provides that an unconstitutional law has an effect before being declared unconstitutional.PPI wants to retain the levies paid under LOI No. 1465 even if it is subsequently declared to be unconstitutional.
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We cannot agree. It is settled that no question, issue or argument will be entertained on appeal, unless it has been raisedin the court a quo .53 PPI did not raise the applicability of the doctrine of operative fact with the RTC and the CA. It cannotbelatedly raise the issue with Us in order to extricate itself from the dire effects of an unconstitutional law.

At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is void. It produces norights, imposes no duties and affords no protection. It has no legal effect. It is, in legal contemplation, inoperative as if ithas not been passed .54 Being void, Fertiphil is not required to pay the levy. All levies paid should be refunded inaccordance with the general civil code principle against unjust enrichment. The general rule is supported by Article 7 ofthe Civil Code, which provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused bydisuse or custom or practice to the contrary.

When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern.

The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play . 55 Inullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a determination ofunconstitutionality is an operative fact and may have consequences which cannot always be ignored. The past cannotalways be erased by a new judicial declaration .56 crlwvirtualibrry

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those who have reliedon the invalid law. Thus, it was applied to a criminal case when a declaration of unconstitutionality would put the accusedin double jeopard y57 or would put in limbo the acts done by a municipality in reliance upon a law creatingit.58 crlwvirtualibrry

Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil under LOI No. 1465. Itunduly benefited from the levy. It was proven during the trial that the levies paid were remitted and deposited to its bankaccount. Quite the reverse, it would be inequitable and unjust not to order a refund. To do so would unjustly enrich PPI atthe expense of Fertiphil. Article 22 of the Civil Code explicitly provides that "every person who, through an act ofperformance by another comes into possession of something at the expense of the latter without just or legal ground shallreturn the same to him." We cannot allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPImust refund the amounts paid by Fertiphil.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28, 2003 is AFFIRMED.

SO ORDERED.

G.R. No. 180705 November 27, 2012

EDUARDO M. COJUANGCO, JR., Petitioner,vs.REPUBLIC OF THE PHILIPPINES, Respondent.

D E C I S I O N

VELASCO, JR., J.:

The Case

Of the several coconut levy appealed cases that stemmed from certain issuances of the Sandiganbayan in itsCivil Case No. 0033, the present recourse proves to be one of the most difficult.

In particular, the instant petition for review under Rule 45 of the Rules of Court assails and seeks to annul a portion of the Partial Summary Judgment dated July 11, 2003, as affirmed in a Resolution of December 28,
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2004, both rendered by the Sandiganbayan in its Civil Case ("CC") No. 0033-A (the judgment shall hereinafter be referred to as "PSJ-A"), entitled "Republic of the Philippines, Plaintiff, v. Eduardo M. Cojuangco, Jr., et al.,Defendants, COCOFED, et al., BALLARES, et al., Class Action Movants." CC No. 0033-A is the result of thesplitting into eight (8) amended complaints of CC No. 0033 entitled, "Republic of the Philippines v. EduardoCojuangco, Jr., et al.," a suit for recovery of ill-gotten wealth commenced by the Presidential Commission onGood Government ("PCGG"), for the Republic of the Philippines ("Republic"), against Eduardo M. Cojuangco,Jr. ("Cojuangco") and several individuals, among them, Ferdinand E. Marcos, Maria Clara Lobregat("Lobregat"), and Danilo S. Ursua ("Ursua"). Each of the eight (8) subdivided complaints, CC No. 0033-A to

CC No. 0033-H, correspondingly impleaded as defendants only the alleged participants in the transaction/ssubject of the suit, or who are averred as owner/s of the assets involved.

Apart from this recourse, We clarify right off that PSJ-A was challenged in two other separate but consolidated petitions for review, one commenced by COCOFED et al., docketed as G.R. Nos. 177857-58, and the other,interposed by Danilo S. Ursua, and docketed as G.R. No. 178193.

By Decision dated January 24, 2012, in the aforesaid G.R. Nos. 177857-58 (COCOFED et al. v. Republic) andG.R. No. 178193 (Ursua v. Republic) consolidated cases 1 (hereinafter collectively referred to as "COCOFED v.Republic"), the Court addressed and resolved all key matters elevated to it in relation to PSJ-A, except for theissues raised in the instant petition which have not yet been resolved therein. In the same decision, We made

clear that: (1) PSJ-A is subject of another petition for review interposed by Eduardo Cojuangco, Jr., in G.R. No.180705, entitled Eduardo M. Cojuangco, Jr. v. Republic of the Philippines, which shall be decided separately bythe Court ,2 and (2) the issues raised in the instant petition should not be affected by the earlier decision "save fordeterminatively legal issues directly addressed therein." 3

For a better perspective, the instant recourse seeks to reverse the Partial Summary Judgmen t4 of the anti-graftcourt dated July 11, 2003, as reiterated in a Resolution 5 of December 28, 2004, denying COCOFEDs motionfor reconsideration, and the May 11, 2007 Resolution 6 denying

COCOFEDs motion to set case for trial and declaring the partial summary judgment final and appealable, allissued in PSJ-A. In our adverted January 24, 2012 Decision in COCOFED v. Republic, we affirmed with

modification PSJ-A of the Sandiganbayan, and its Partial Summary Judgment in Civil Case No. 0033-F, datedMay 7, 2004 (hereinafter referred to as "PSJ- F) .7

More specifically, We upheld the Sandiganbayans ruling that the coconut levy funds are special public funds ofthe Government. Consequently, We affirmed the Sandig anbayans declaration that Sections 1 and 2 ofPresidential Decree ("P.D.") 755, Section 3, Article III of P.D. 961 and Section 3, Article III of P.D. 1468, aswell as the pertinent implementing regulations of the Philippine Coconut Authority ("PCA"), areunconstitutional for allowing the use and/or the distribution of properties acquired through the coconut levyfunds to private individuals for their own direct benefit and absolute ownership. The Decision also affirmed theGovernments ownership of the six CIIF companies, the fourteen holding companies, and the CIIF block of SanMiguel Corporation shares of stock, for having likewise been acquired using the coconut levy funds.

Accordingly, the properties subject of the January 24, 2012 Decision were declared owned by and orderedreconveyed to the Government, to be used only for the benefit of all coconut farmers and for the development ofthe coconut industry.

By Resolution of September 4, 2012 ,8 the Court affirmed the above-stated Decision promulgated on January 24,2012.

It bears to stress at this juncture that the only portion of the appealed Partial Summary Judgment dated July 11,2003 ("PSJ-A") which remains at issue revolves around the following decretal holdings of that court relating to
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the "compensation" paid to petitioner for exercising his personal and exclusive option to acquire theFUB/UCPB shares .9 It will be recalled that the Sandiganbayan declared the Agreement between the PCA andCojuangco containing the assailed "compensation" null and void for not having the required valuableconsideration. Consequently, the UCPB shares of stocks that are subject of the Agreement were declaredconclusively owned by the Government. It also held that the Agreement did not have the effect of law as it wasnot published as part of P.D. 755, even if Section 1 thereof made reference to the same.

Facts

We reproduce, below, portions of the statement of facts in COCOFED v. Republic relevant to the presentcase :10

In 1971, Republic Act No. ("R.A.") 6260 was enacted creating the Coconut Investment Company ("CIC") toadminister the Coconut Investment Fund ("CIF"), which, under Section 8 thereof, was to be sourced from a PhP0.55 levy on the sale of every 100 kg. of copra. Of the PhP 0.55 levy of which the copra seller was or ought to

be issued COCOFUND receipts, PhP 0.02 was placed at the disposition of COCOFED, the nationalassociation of coconut producers declared by the

Philippine Coconut Administration ("PHILCOA" now "PCA") as having the largest membership.

The declaration of martial law in September 1972 saw the issuance of several presidential decrees ("P.D.") purportedly designed to improve the coconut industry through the collection and use of the coconut levy fund.While coming generally from impositions on the first sale of copra, the coconut levy fund came under variousnames x x x. Charged with the duty of collecting and administering the Fund was PCA. Like COCOFED withwhich it had a legal linkage, the PCA, by statutory provisions scattered in different coco levy decrees, had itsshare of the coco levy.

The following were some of the issuances on the coco levy, its collection and utilization, how the proceeds ofthe levy will be managed and by whom and the purpose it was supposed to serve:

1. P.D. No. 276 established the Coconut Consumers Stabilization Fund ("CCSF") and declared the proceeds ofthe CCSF levy as trust fund, to be utilized to subsidize the sale of coconut-based products, thus stabilizing the

price of edible oil.

2. P.D. No. 582 created the Coconut Industry Development Fund ("CIDF") to finance the operation of a hybridcoconut seed farm.

3. Then came P.D. No. 755 providing under its Section 1 the following:

It is hereby declared that the policy of the State is to provide readily available credit facilities to the coconutfarmers at preferential rates; that this policy can be expeditiously and efficiently realized by the implementation

of the "Agreement for the Acquisition of a Commercial Bank for the benefit of Coconut Farmers" executed bythe PCA; and that the PCA is hereby authorized to distribute, for free, the shares of stock of the bank itacquired to the coconut farmers.

Towards achieving the policy thus declared, P.D. No. 755, under its Section 2, authorized PCA to utilize theCCSF and the CIDF collections to acquire a commercial bank and deposit the CCSF levy collections in said

bank interest free, the deposit withdrawable only when the bank has attained a certain level of sufficiency in itsequity capital. The same section also decreed that all levies PCA is authorized to collect shall not be considered
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as special and/or fiduciary funds or form part of the general funds of the government within the contemplationof P.D. No. 711.

4. P.D. No. 961 codified the various laws relating to the development of coconut/palm oil industries.

5. The relevant provisions of P.D. No. 961, as later amended by P.D. No. 1468 (Revised Coconut IndustryCode), read:

ARTICLE IIILevies

Section 1. Coconut Consumers Stabilization Fund Levy. The PCA is hereby empowered to impose andcollect the Coconut Consumers Stabilization Fund Levy, .

.

Section 5. Exemption. The CCSF and theCIDF as well as all disbursements as herein authorized, shall not beconstrued as special and/or fiduc iary funds, or as part of the general funds of the national government withinthe contemplation of PD 711; the intention being that said Fund and the disbursements thereof as hereinauthorized for the benefit of the coconut farmers shall be owned by them in their private capacities: .(Emphasis supplied)

6. Letter of Instructions No. ("LOI") 926, s. of 1979, made reference to the creation, out of other coco levyfunds, of the Coconut Industry Investment Fund ("CIIF") in P.D. No. 1468 and entrusted a portion of the CIIFlevy to UCPB for investment, on behalf of coconut farmers, in oil mills and other private corporations, with thefollowing equity ownership structure:

Section 2. Organization of the Cooperative Endeavor. The UCPB, in its capacity as the investment arm of thecoconut farmers thru the CIIF is hereby directed to invest, on behalf of the coconut farmers, such portion ofthe CIIF in private corporations under the following guidelines:

a) The coconut farmers shall own or control at least (50%) of the outstanding voting capital stock of the private corporation acquired thru the CIIF and/or corporation owned or controlled by the farmers thru the CIIF. (Words in bracket added.)

Through the years, a part of the coconut levy funds went directly or indirectly to finance various projects and/orwas converted into various assets or investments .11 Relevant to the present petition is the acquisition of the FirstUnited Bank ("FUB"), which was subsequently renamed as United Coconut Planters Bank ("UCPB") .12

Apropos the intended acquisition of a commercial bank for the purpose stated earlier, it would appear that FUBwas the bank of choice which Pedro Cojuangcos group (collectively, "Pedro Cojuangco") had control of. The

plan, then, was for PCA to buy all o f Pedro Cojuangcos shares in FUB. However, as later events unfolded, asimple direct sale from the seller (Pedro) to PCA did not ensue as it was made to appear that Cojuangco had theexclusive option to acquire the formers FUB controlling interests. Emer ging from this elaborate, circuitousarrangement were two deeds. The first one was simply denominated as Agreement, dated May 1975, enteredinto by and between Cojuangco for and in his behalf and in behalf of "certain other buyers", and PedroCojuangco in which the former was purportedly accorded the option to buy 72.2% of FUBs outstanding capitalstock, or 137,866 shares (the "option shares," for brevity), at PhP 200 per share. On its face, this agreement doesnot mention the word "option."


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The second but related contract, dated May 25, 1975, was denominated as Agreement for the Acquisition of aCommercial Bank for the Benefit of the Coconut Farmers of the Philippines. It had PCA, for itself and for the

benefit of the coconut farmers, purchase from Cojuangco the shares of stock subject of the First Agreement forPhP200.00 per share. As additional consideration for PCAs buy -out of what Cojuangco would later claim to behis exclusive and personal option, it was stipulated that, from PCA, Cojuangco shall receive equity in FUBamounting to 10%, or 7.22%, of the 72.2%, or fully paid shares. And so as not to dilute Cojuangcos equity

position in FUB, later UCPB, the PCA agreed under paragraph 6 (b) of the second agreement to cede over to theformer a number of fully paid FUB shares out of the shares it (PCA) undertakes to eventually subscribe. It was

further stipulated that Cojuangco would act as bank president for an extendible period of 5 years.

Apart from the aforementioned 72.2%, PCA purchased from other FUB shareholders 6,534 shares of whichCojuangco, as may be gathered from the records, got 10%..

While the 64.98% portion of the option shares (72.2% 7.22% = 64.98%) ostensibly pertained to the farmers,the corresponding stock certificates supposedly represen ting the farmers equity were in the name of anddelivered to PCA. There were, however, shares forming part of the aforesaid 64.98% portion, which ended up inthe hands of non-farmers. The remaining 27.8% of the FUB capital stock were not covered by any of theagreements.

Under paragraph # 8 of the second agreement, PCA agreed to expeditiously distribute the FUB shares purchased to such "coconut farmers holding registered COCOFUND receipts" on equitable basis.

As found by the Sandiganbayan, the PCA appropriated, out of its own fund, an amount for the purchase of thesaid 72.2% equity, albeit it would later reimburse itself from the coconut levy fund.

And per Cojuangcos own admission, PCA paid, out of the CCSF, the entire acquisition price for the 72.2%option shares .13

As of June 30, 1975, the list of FUB stockholders included Cojuangco with 14,440 shares and PCA with129,955 shares .14 It would appear later that, pursuant to the stipulation on maintaining Cojuangcos equity

position in the bank, PCA would cede to him 10% of its subscriptions to (a) the authorized but unissued sharesof FUB and (b) the increase in FUBs capital stock (the equivalent of 158,840 and 649,800 shares,respectively). In all, from the "mother" PCA shares, Cojuangco would receive a total of 95,304 FUB (UCPB)shares broken down as follows: 14,440 shares + 10% (158,840 shares) + 10% (649,800 shares) = 95,304 .15

We further quote, from COCOFED v. Republic, facts relevant to the instant case :16

Shortly after the execution of the PCA Cojuangco Agreement, President Marcos issued, on July 29, 1975,P.D. No. 755 directing x x x as narrated, PCA to use the CCSF and CIDF to acquire a commercial bank to

provide coco farmers with "readily available credit facilities at preferential rate" x x x.

Then came the 1986 EDSA event. One of the priorities of then President Corazon C. Aquinos revolutionarygovernment was the recovery of ill-gotten wealth reportedly amassed by the Marcos family and close relatives,their nominees and associates. Apropos thereto, she issued Executive Order Nos. (EO) 1, 2 and 14, as amended

by E.O. 14-A, all series of 1986. E.O. 1 created the PCGG and provided it with the tools and processes it mayavail of in the recovery efforts ;17 E.O. No. 2 asserted that the ill-gotten assets and properties come in the form ofshares of stocks, etc., while E.O. No. 14 conferred on the Sandiganbayan exclusive and original jurisdictionover ill-gotten wealth cases, with the proviso that "technical rules of procedure and evidence shall not beapplied strictly" to the civil cases filed under the EO. Pursuant to these issuances, the PCGG issued numerousorders of sequestration, among which were those handed out x x x against shares of stock in UCPB purportedly
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owned by or registered in the names of (a) the more than a million coconut farmers, (b) the CIIF companies and(c) Cojuangco, Jr., including the SMC shares held by the CIIF companies. On July 31, 1987, the PCGGinstituted before the Sandiganbayan a recovery suit docketed thereat as CC No. 0033.

x x x x

3. Civil Case 0033 x x x would be subdivided into eight complaints, docketed as CC 0033-A to CC 0033-H.

x x x x

5. By Decision of December 14, 2001, in G.R. Nos. 147062-64 (Republic v. COCOFED) ,18 the Court declaredthe coco levy funds as prima facie public funds. And purchased as the sequestered UCPB shares were by suchfunds, beneficial ownership thereon and the corollary voting rights prima facie pertain, according to the Court,to the government.

x x x x

Correlatively, the Republic, on the strength of the December 14, 2001 ruling in Republic v. COCOFED and onthe argument, among others, that the claim of COCOFED and Ballares et al., over the subject UCPB shares is

based solely on the supposed COCOFUND receipts issued for payment of the RA 6260 CIF levy, filed aMotion for Partial Summary Judgment RE: COCOFED, et al. and Ballares, et al. dated April 22, 2002, prayingthat a summary judgment be rendered declaring:

a. That Section 2 of [PD] 755, Section 5, Article III of P.D. 961 and Section 5, Article III of P.D. No. 1468 areunconstitutional;

b. That x x x (CIF) payments under x x x (R.A.) No. 6260 are not valid and legal bases for ownership claimsover UCPB shares; and

c. That COCOFED, et al., and Ballares, et al. have not legally and validly obtained title over the subject UCPB

shares.

Right after it filed the Motion for Partial Summary Judgment RE: COCOFED, et al. and Ballares, et al., theRepublic interposed a Motion for Partial Summary Judgment Re: Eduardo M. Cojuangco, Jr., praying that asummary judgment be rendered:

a. Declaring that Section 1 of P.D. No. 755 is unconstitutional insofar as it validates the provisions in the "PCA-Cojuangco Agreement x x x" dated May 25, 1975 providing payment of ten percent (10%) commission todefendant Cojuangco with respect to the FUB, now UCPB shares subject matter thereof;

b. Declaring that x x x Cojuangco, Jr. and his fronts, nominees and dummies, including x x x and Danilo S.

Ursua, have not legally and validly obtained title over the subject UCPB shares; and

c. Declaring that the government is the lawful and true owner of the subject UCPB shares registered in thenames of Cojuangco, Jr. and the entities and persons above -enumerated, for the benefit of all coconutfarmers. x x x

Following an exchange of pleadings, the Republic filed its sur-rejoinder praying that it be conclusively declaredthe true and absolute owner of the coconut levy funds and the UCPB shares acquired therefrom .19


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We quote from COCOFED v. Republic :20

A joint hearing on the separate motions for summary judgment to determine what material facts exist with orwithout controversy then ensued. By Order of March 11, 2003, the Sandiganbayan detailed, based on thisCourts ruling in related ill -gotten cases, the parties manifestations m ade in open court and the pleadings andevidence on record, the facts it found to be without substantial controversy, together with the admissions and/orextent of the admission made by the parties respecting relevant facts, as follows:

As culled from the exhaustive discussions and manifestations of the parties in open court of their respective pleadings and evidence on record, the facts which exist without any substantial controversy are set forthhereunder, together with the admissions and/or the extent or scope of the admissions made by the partiesrelating to the relevant facts:

1. The late President Ferdinand E. Marcos was President x x x for two terms under the 1935 Constitution and,during the second term, he declared Martial Law through Proclamation No. 1081 dated September 21, 1972.

2. On January 17, 1973, he issued Proclamation No. 1102 announcing the ratification of the 1973 Constitution.

3. From January 17, 1973 to April 7, 1981, he x x x exercised the powers and prerogative of President under the

1935 Constitution and the powers and prerogative of President x x x the 1973 Constitution.

He x x x promulgated various P.D.s, among which were P.D. No. 232, P.D. No. 276, P.D. No. 414, P.D. No.755, P.D. No. 961 and P.D. No. 1468.

4. On April 17, 1981, amendments to the 1973 Constitution were effected and, on June 30, 1981, he, after beingelected President, "reassumed the title and exercised the powers of the President until 25 February 1986."

5. Defendants Maria Clara Lobregat and Jose R. Eleazar, Jr. were PCA Directors x x x during the period 1970to 1986 x x x.

6. Plaintiff admits the existence of the following agreements which are attached as Annexes "A" and "B" to theOpposition dated October 10, 2002 of defendant Eduardo M. Cojuangco, Jr. to the above-cited Motion forPartial Summary Judgment:

a) "This Agreement made and entered into this ______ day of May, 1975 at Makati, Rizal, Philippines, by and between:

PEDRO COJUANGCO, Filipino, of legal age and with residence at 1575 Princeton St., Mandaluyong, Rizal,for and in his own behalf and in behalf of certain other stockholders of First United Bank listed in Annex "A"attached hereto (hereinafter collectively called the SELLERS);

and

EDUARDO COJUANGCO, JR., Filipino, of legal age and with residence at 136 9th Street corner Balete Drive,Quezon City, represented in this act by his duly authorized attorney-in-fact, EDGARDO J. ANGARA, for andin his own behalf and in behalf of certain other buyers, (hereinafter collectively called the BUYERS)";

WITNESSETH: That
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WHEREAS, the SELLERS own of record and beneficially a total of 137,866 shares of stock, with a par valueof P100.00 each, of the common stock of the First United Bank (the "Bank"), a commercial banking corporationexisting under the laws of the Philippines;

WHEREAS, the BUYERS desire to purchase, and the SELLERS are willing to sell, the aforementioned sharesof stock totaling 137,866 shares (hereinafter called the "Contract Shares") owned by the SELLERS due to theirspecial relationship to EDUARDO COJUANGCO, JR.;

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

1. Sale and Purchase of Contract Shares

Subject to the terms and conditions of this Agreement, the SELLERS hereby sell, assign, transfer and conveyunto the BUYERS, and the BUYERS hereby purchase and acquire, the Contract Shares free and clear of allliens and encumbrances thereon.

2. Contract Price

The purchase price per share of the Contract Shares payable by the BUYERS is P200.00 or an aggregate priceof P27,573,200.00 (the "Contract Price").

3. Delivery of, and payment for, stock certificates

Upon the execution of this Agreement, (i) the SELLERS shall deliver to the BUYERS the stock certificatesrepresenting the Contract Shares, free and clear of all liens, encumbrances, obligations, liabilities and other

burdens in favor of the Bank or third parties, duly endorsed in blank or with stock powers sufficient to transferthe shares to bearer; and (ii) BUYERS shall deliver to the SELLERS P27,511,295.50 representing the ContractPrice less the amount of stock transfer taxes payable by the SELLERS, which the BUYERS undertake to remitto the appropriate authorities. (Emphasis added.)

4. Representation and Warranties of Sellers

The SELLERS respectively and independently of each other represent and warrant that:

(a) The SELLERS are the lawful owners of, with good marketable title to, the Contract Shares and that (i) thecertificates to be delivered pursuant thereto have been validly issued and are fully paid and non-assessable; (ii)the Contract Shares are free and clear of all liens, encumbrances, obligations, liabilities and other burdens infavor of the Bank or third parties x x x.

This representation shall survive the execution and delivery of this Agreement and the consummation or

transfer hereby contemplated.

(b) The execution, delivery and performance of this Agreement by the SELLERS does not conflict with orconstitute any breach of any provision in any agreement to which they are a party or by which they may be

bound.

(c) They have complied with the condition set forth in Article X of the Amended Articles of Incorporation ofthe Bank.


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5. Representation of BUYERS

x x x x

6. Implementation

The parties hereto hereby agree to execute or cause to be executed such documents and instruments as may berequired in order to carry out the intent and purpose of this Agreement.

7. Notices

x x x x

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands at the place and on the date firstabove written.

PEDRO COJUANGCO(on his own behalf and in

behalf of the otherlisted in Annex "A" hereof)

(SELLERS)

EDUARDO COJUANGCO, JR.(on his own behalf and in behalf

Sellers of the other Buyers)(BUYERS)

By:

EDGARDO J. ANGARAAttorney-in-Fact

x x x x

b) "Agreement for the Acquisition of a Commercial Bank for the Benefit of the Coconut Farmers of thePhilippines, made and entered into this 25th day of May 1975 at Makati, Rizal, Philippines, by and between:

EDUARDO M. COJUANGCO, JR., Filipino, of legal age, with business address at 10th Floor, SikatunaBuilding, Ayala Avenue, Makati, Rizal, hereinafter referred to as the SELLER;

and

PHILIPPINE COCONUT AUTHORITY, a public corporation created by Presidential Decree No. 232, asamended, for itself and for the benefit of the coconut farmers of the Philippines, (hereinafter called theBUYER)"

WITNESSETH: That

WHEREAS, on May 17, 1975, the Philippine Coconut Producers Federation ("PCPF"), through its Board ofDirectors, expressed the desire of the coconut farmers to own a commercial bank which will be an effectiveinstrument to solve the perennial credit problems and, for that purpose, passed a resolution requesting the PCAto negotiate with the SELLER for the transfer to the coconut farmers of the SELLERs option to buy the FirstUnited Bank (the "Bank") under such terms and conditions as BUYER may deem to be in the best interest ofthe coconut farmers and instructed Mrs. Maria Clara Lobregat to convey such request to the BUYER;


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(a) The management contract shall be for a period of five (5) years, renewable for another five (5) years bymutual agreement of the SELLER and the Bank;

(b) The SELLER shall be elected President and shall hold office at the pleasure of the Board of Directors. Whileserving in such capacity, he shall be entitled to such salaries and emoluments as the Board of Directors maydetermine;

(c) The SELLER shall recruit and develop a professional management team to manage and operate the Bankunder the control and supervision of the Board of Directors of the Bank;

(d) The BUYER undertakes to cause three (3) persons designated by the SELLER to be elected to the Board ofDirectors of the Bank;

(e) The SELLER shall receive no compensation for managing the Bank, other than such salaries or emolumentsto which he may be entitled by virtue of the discharge of his function and duties as President, provided x x xand

(f) The management contract may be assigned to a management company owned and controlled by theSELLER.

4. As compensation for exercising his personal and exclusive option to acquire the Option Shares and fortransferring such shares to the coconut farmers, as well as for performing the management services required ofhim, SELLER shall receive equity in the Bank amounting, in the aggregate, to 95,304 fully paid shares inaccordance with the procedure set forth in paragraph 6 below;

5. In order to comply with the Central Bank program for increased capitalization of banks and to ensure that theBank will be in a more favorable financial position to attain its objective to extend to the coconut farmers loansand credit facilities, the BUYER undertakes to subscribe to shares with an aggregate par value of P80,864,000(the "Subscribed Shares"). The obligation of the BUYER with respect to the Subscribed Shares shall be asfollows:

(a) The BUYER undertakes to subscribe, for the benefit of the coconut farmers, to shares with an aggregate parvalue of P15,884,000 from the present authorized but unissued shares of the Bank; and

(b) The BUYER undertakes to subscribe, for the benefit of the coconut farmers, to shares with an aggregate parvalue of P64,980,000 from the increased capital stock of the Bank, which subscriptions shall be deemed madeupon the approval by the stockholders of the increase of the authorized capital stock of the Bank from P50Million to P140 Million.

The parties undertake to declare stock dividends of P8 Million out of the present authorized but unissued capitalstock of P30 Million.

6. To carry into effect the agreement of the parties that the SELLER shall receive as his compensation 95,304shares:

(a) The Escrow Agent shall, upon receipt from the SELLER of the stock certificates representing the OptionShares, duly endorsed in blank or with stock powers sufficient to transfer the same to bearer, present such stockcertificates to the Transfer Agent of the Bank and shall cause such Transfer Agent to issue stock certificates ofthe Bank in the following ratio: one share in the name of the SELLER for every nine shares in the name of theBUYER.


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(b) With respect to the Subscribed Shares, the BUYER undertakes, in order to prevent the dilution ofSELLERs equity position, that it shall cede over to the SELLER 64,980 fully -paid shares out of the SubscribedShares. Such undertaking shall be complied with in the following manner: upon receipt of advice that theBUYER has subscribed to the Subscribed Shares upon approval by the stockholders of the increase of theauthorized capital stock of the Bank, the Escrow Agent shall thereupon issue a check in favor of the Bankcovering the total payment for the Subscribed Shares. The Escrow Agent shall thereafter cause the TransferAgent to issue a stock

tax cases iii

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