PKSMMN v. Exec. Sec. (G.R. Nos. 147036-37; April 10, 2012)


FACTS: These are consolidated petitions to declare unconstitutional certain presidential decrees and executive orders of the martial law era and under the incumbency of Pres. Estrada relating to the raising and use of coco-levy funds, particularly: Section 2 of P.D. 755, (b)Article III, Section 5 of P.D.s 961 and 1468, (c) E.O. 312, and (d) E.O. 313.

On June 19, 1971 Congress enacted R.A. 6260 that established a Coconut Investment Fund (CI Fund) for the development of the coconut industry through capital financing. Coconut farmers were to capitalize and administer the Fund through the Coconut Investment Company (CIC) whose objective was, among others, to advance the coconut farmers interests.For this purpose, the law imposed a levy ofP0.55on the coconut farmers first domestic sale of every 100 kilograms of copra, or its equivalent, for which levy he was to get a receipt convertible into CIC shares of stock.

In 1975 President Marcos enacted P.D. 755 which approved the acquisition of a commercial bank for the benefit of the coconut farmersto enable such bank to promptly and efficiently realize the industry's credit policy.Thus, the PCA bought 72.2% of the shares of stock of First United Bank, headed by Pedro Cojuangco.Dueto changes in its corporate identity and purpose, the banks articles of incorporation were amended in July 1975, resulting in a change in the banks name from First United Bank United Coconut Planters Bank (UCPB).

In November 2000 then President Joseph Estrada issued Executive Order (E.O.) 312, establishing a Sagip Niyugan Program which sought to provide immediate income supplement to coconut farmers and encourage the creation of a sustainable local market demand for coconut oil and other coconut products.The Executive Order sought to establish aP1-billion fund by disposing of assets acquired using coco-levy funds or assets of entities supported by those funds.A committee was created to manage the fund under this program.A majority vote of its members could engage the services of a reputable auditing firm to conduct periodic audits.

At about the same time, President Estrada issued E.O. 313, which created an irrevocable trust fund known as the Coconut Trust Fund (the Trust Fund).This aimed to provide financial assistance to coconut farmers, to the coconut industry, and to other agri-related programs.The shares of stock of SMC were to serve as the Trust Funds initial capital.These shares were acquired with CII Funds and constituted approximately 27% of the outstanding capital stock of SMC.E.O. 313 designated UCPB, through its Trust Department, as the Trust Funds trustee bank.The Trust Fund Committee would administer, manage, and supervise the operations of the Trust Fund. The Committee would designate an external auditor to do an annual audit or as often as needed but it may also request the Commission on Audit (COA) to intervene.

To implement its mandate, E.O. 313 directed the Presidential Commission on Good Government, the Office of the Solicitor General, and other government agencies to exclude the 27% CIIF SMC shares from Civil Case 0033, entitled Republic of the Philippines v. Eduardo Cojuangco, Jr., et al.,which was then pending before the Sandiganbayan and to lift the sequestration over those shares.

On January 26, 2001, however, former President Gloria Macapagal-Arroyo ordered the suspension of E.O.s 312 and 313. This notwithstanding, on March 1, 2001 petitioner organizations and individuals brought the present action in G.R. 147036-37 to declare E.O.s 312 and 313 as well as Article III, Section 5 of P.D. 1468 unconstitutional.On April 24, 2001 the other sets of petitioner organizations and individuals instituted G.R. 147811 to nullify Section 2 of P.D. 755 and Article III, Section 5 of P.D.s 961 and 1468 also for being unconstitutional.

ISSUE: Are the coco-levy funds public funds?
Are (a) Section 2 of P.D. 755, (b)Article III, Section 5 of P.D.s 961 and 1468, (c) E.O. 312, and (d) E.O. 313 unconstitutional?
Have petitioners legal standing to bring the same to court?

HELD: Coco-levy funds are public funds. The Court was satisfied that the coco-levy funds were raised pursuant to law to support a proper governmental purpose.They were raised with the use of the police and taxing powers of the State for the benefit of the coconut industry and its farmers in general. The COA reviewed the use of the funds.The BIR treated them as public funds and the very laws governing coconut levies recognize their public character.

The Court has also recently declared that the coco-levy funds are in the nature of taxes and can only be used for public purpose.Taxes are enforced proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the support of the government and for all itspublic needs. Here, the coco-levy funds were imposed pursuant to law, namely, R.A. 6260 and P.D. 276.The funds were collected and managed by the PCA,an independent government corporation directly under the President.And, as the respondent public officials pointed out, thepertinent laws used the termlevy, which meansto tax, in describing the exaction.

R.A. 6260 and P.D. 276 did not raise money to boost the governments general funds butto provide means for the rehabilitation and stabilization of a threatened industry, the coconut industry, which is so affected with public interest as to be within the police power of the State. The funds sought to support the coconut industry,one of the main economic backbones of the country, and to secure economic benefits for the coconut farmers and farm workers.

Lastly, the coco-levy funds are evidently special funds. Its character as such fund was made clear by the fact that they were deposited in the PNB (then a wholly owned government bank) and not in the Philippine Treasury.


The Court has already passed upon this question in Philippine Coconut Producers Federation, Inc. (COCOFED) v. Republic of the Philippines. It held as unconstitutional Section 2 of P.D. 755 for effectively authorizing the PCA to utilize portions of theCCS Fundto pay the financial commitment of the farmers to acquire UCPB and to deposit portions of the CCS Fund levies with UCPB interest free. And as there also provided, the CCS Fund, CID Fund and like levies that PCA is authorized to collect shall be considered as non-special or fiduciary funds to be transferred to the general fund of the Government, meaning they shall be deemed private funds.

In any event, such declaration is void.There is ownership when a thing pertaining to a person is completely subjected to his will in everything that is not prohibited by law or the concurrence with the rights of another. An owner is free to exercise all attributes ofownership: the right, among others, to possess, use and enjoy, abuse or consume, and dispose or alienate the thing owned. The owner is free to waive all or some of these rights in favor of others.But in the case of the coconut farmers, they could not, individually or collectively, waive what have not been and could not be legally imparted to them.Section 2 of P.D. 755, Article III,Section 5of P.D. 961, and Article III, Section 5 of P.D. 1468 completely ignore the fact that coco-levy funds are public funds raised through taxation.And since taxes could be exacted only for a public purpose, they cannot be declared private properties of individuals although such individuals fall within a distinct group of persons.

These assailed provisions,which removed the coco-levy funds from the general funds of the government and declared them private properties of coconut farmers,do not appear to have a color of social justice for their purpose.The levy on copra that farmers produce appears, in the first place, to be a business tax judging by its tax base.The concept of farmers-businessmen is incompatible with the idea that coconut farmers are victims of social injustice and so should be beneficiaries of the taxes raised from their earnings.

On another point, in stating that the coco-levy fund shall not be construed or interpreted, under any law or regulation, as special and/or fiduciary funds, or as part of the general funds of the national government,P.D.s 961 and 1468 seek to remove such fund from COA scrutiny.

This is also the fault of President Estradas E.O. 312 which deals with P1 billion to be generated out of the sale of coco-fund acquired assets.E.O. 313 has a substantially identical provision governing the management and disposition of the Coconut Trust Fund capitalized with the substantial SMC shares of stock that the coco-fund acquired.

But, since coco-levy funds are taxes, the provisions of P.D.s755,961 and 1468 as well as those of E.O.s 312 and 313 that remove such funds and the assets acquired through them from the jurisdiction of the COA violate Article IX-D, Section 2(1) of the 1987 Constitution.Section 2(1) vests in the COA the power and authority to examine uses of government money and property.The cited P.D.s and E.O.s also contravene Section 2 of P.D. 898 (Providing for the Restructuring of the Commission on Audit), which has the force of a statute.And there is no legitimate reason why such funds should be shielded from COA review and audit.The PCA, which implements the coco-levy laws and collects the coco-levy funds, is a government-owned and controlled corporation subject to COA review and audit.

E.O. 313 suffers from an additional infirmity.Apparently, it intends to create a trust fund out of the coco-levy funds to provide economic assistance to the coconut farmers and, ultimately, benefit the coconut industry.But on closer look, E.O. 313 strays from the special purpose for which the law raises coco-levy funds in that it permits the use of coco-levy funds for improving productivity in other food areas.

Clearly, E.O.313 above runs counter to the constitutional provision which directs thatall money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only.Assisting other agriculturally-related programs is way off the coco-funds objective of promoting the general interests of the coconut industry and its farmers.

A final point,the E.O.s also transgress P.D. 1445,Section 84(2),the first part by the previously mentioned sections of E.O. 313 and the second part by Section 4 of E.O. 312 and Sections 6 and 7 of E.O. 313.E.O. 313 vests the power to administer, manage, and supervise the operations and disbursements of the Trust Fund it established (capitalized with SMC shares bought out of coco-levy funds) in a Coconut Trust Fund Committee.

Section 4 ofE.O. 312 does essentially the same thing.It vests the management and disposition of the assistance fund generated from the sale of coco-levy fund-acquired assets into a Committee of five members.

In effect, the provision transfers the power to allocate, use, and disburse coco-levy funds that P.D. 232 vested in the PCA and transferred the same, without legislative authorization and in violation of P.D. 232, to the Committees mentioned above.An executive order cannot repeal a presidential decree which has the same standing as a statute enacted by Congress.


The Court has to uphold petitioners right to institute these petitions.The petitioner organizations in these cases represent coconut farmers on whom the burden of the coco-levies attaches.It is also primarily for their benefit that the levies were imposed.

The individual petitioners, on the other hand, join the petitions as taxpayers.The Court recognizes their right to restrain officials from wasting public funds through the enforcement of an unconstitutional statute.This so-called taxpayers suit is based on the theory that expenditure of public funds for the purpose of executing an unconstitutional act is a misapplication of such funds.

The petition in G.R.147036-37 is granted; The petition in G.R. 147811 is partially granted; the following are declared void: a) E.O. 312; and b)E.O. 313.

Section 2 of P.D. 755 and Article III, Section 5 of P.D.s 961 and 1468 have been previously unconstitutional.