NON-IMPAIRMENT CLAUSE1. Philippine Rural Electric Cooperatives Association, Inc v. Secretary of DILGG.R. No. 143076 June 10, 2003PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC. (PHILRECA); AGUSAN DEL NORTE ELECTRIC COOPERATIVE, INC. (ANECO); ILOILO I ELECTRIC COOPERATIVE, INC. (ILECO I); and ISABELA I ELECTRIC COOPERATIVE, INC. (ISELCO I),Petitioners,vs.THE SECRETARY, DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT, and THE SECRETARY, DEPARTMENT OF FINANCE,Respondents.D E C I S I O NPUNO,J.:This is a petition for Prohibition under Rule 65 of the Rules of Court with prayer for the issuance of a temporary restraining order seeking to annul as unconstitutional sections 193 and 234 of R.A. No. 7160 otherwise known as the Local Government Code.On May 23, 2000, a class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under P.D. No. 269 who are members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). Petitioner PHILRECA is an association of 119 electric cooperatives throughout the country. Petitioners Agusan del Norte Electric Cooperative, Inc. (ANECO), Iloilo I Electric Cooperative, Inc. (ILECO I) and Isabela I Electric Cooperative, Inc. (ISELCO I) are non-stock, non-profit electric cooperatives organized and existing under P.D. No. 269, as amended, and registered with the National Electrification Administration (NEA).Under P.D. No. 269, as amended, or the National Electrification Administration Decree, it is the declared policy of the State to provide "the total electrification of the Philippines on an area coverage basis" the same "being vital to the people and the sound development of the nation."1Pursuant to this policy, P.D. No. 269 aims to "promote, encourage and assist all public service entities engaged in supplying electric service, particularly electric cooperatives" by "giving every tenable support and assistance" to the electric cooperatives coming within the purview of the law.2Accordingly, Section 39 of P.D. No. 269 provides for the following tax incentives to electric cooperatives:SECTION 39.Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties, Fees; Assistance from the National Power Corporation. Pursuant to the national policy declared in Section 2, the Congress hereby finds and declares that the following assistance to cooperative is necessary and appropriate:(a) Provided that it operates in conformity with the purposes and provisions of this Decree,cooperatives (1) shall be permanently exempt from paying income taxes, and (2) for a period ending on December 31 of the thirtieth full calendar year after the date of a cooperative's organization or conversion hereunder, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs,shall be exempt from the payment (a) of all National Government, local government and municipal taxes and fees, including franchise, filing, recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceeding in which it may be a party,and (b) of all duties or imposts on foreign goods acquired for its operations, the period of such exemption for a new cooperative formed by consolidation, as provided for in Section 29, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under this Decree: Provided, That the Board of Administrators shall, after consultation with the Bureau of Internal Revenue, promulgate rules and regulations for the proper implementation of the tax exemptions provided for in this Decree..3From 1971 to 1978, in order to finance the electrification projects envisioned by P.D. No. 269, as amended, the Philippine Government, acting through the National Economic Council (now National Economic Development Authority) and the NEA, entered into six (6) loan agreements with the government of the United States of America through the United States Agency for International Development (USAID) with electric cooperatives, including petitioners ANECO, ILECO I and ISELCO I, as beneficiaries. The six (6) loan agreements involved a total amount of approximately US$86,000,000.00. These loan agreements are existing until today.The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan. Thus, Section 6.5 of A.I.D. Loan No. 492-H-027 dated November 15, 1971 provides:Section 6.5.Taxes and Duties. The Borrower covenants and agrees that this Loan Agreement and the Loan provided for herein shall be free from, and the Principal and interest shall be paid to A.I.D. without deduction for and free from, any taxation or fees imposed under any laws or decrees in effect within the Republic of the Philippines or any such taxes or fees so imposed or payable shall be reimbursed by the Borrower with funds other than those provided under the Loan. To the extent that (a) any contractor, including any consulting firm, any personnel of such contractor financed hereunder, and any property or transactions relating to such contracts and (b) any commodity procurement transactions financed hereunder, are not exempt from identifiable taxes, tariffs, duties and other levies imposed under laws in effect in the country of the Borrower, the Borrower and/or Beneficiary shall pay or reimburse the same with funds other than those provided under the Loan.4Petitioners contend that pursuant to the provisions of P.D. No. 269, as amended, and the above-mentioned provision in the loan agreements, they are exempt from payment of local taxes, including payment of real property tax. With the passage of the Local Government Code, however, they allege that their tax exemptions have been invalidly withdrawn. In particular, petitioners assail Sections 193 and 234 of the Local Government Code on the ground that the said provisions discriminate against them, in violation of the equal protection clause. Further, they submit that the said provisions are unconstitutional because they impair the obligation of contracts between the Philippine Government and the United States Government.On July 25, 2000 we issued a Temporary Restraining Order.5We note that the instant action was filed directly to this Court, in disregard of the rule on hierarchy of courts. However, we opt to take primary jurisdiction over the present petition and decide the same on its merits in view of the significant constitutional issues raised by the parties dealing with the tax treatment of cooperatives under existing laws and in the interest of speedy justice and prompt disposition of the matter.IThere is No Violation of the Equal Protection ClauseThe pertinent parts of Sections 193 and 234 of the Local Government Code provide:Section 193.Withdrawal of Tax Exemption Privileges.Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local water districts,cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code..Section 234.Exemptions from real property tax.The following are exempted from payment of the real property tax:.(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and.Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons whether natural or juridical, including all government-owned and controlled corporations are hereby withdrawn upon effectivity of this Code.6Petitioners argue that the above provisions of the Local Government Code are unconstitutional for violating the equal protection clause. Allegedly, said provisions unduly discriminate against petitioners who are duly registered cooperatives under P.D. No. 269, as amended, and not under R.A. No. 6938 or the Cooperative Code of the Philippines. They stress that cooperatives registered under R.A. No. 6938 are singled out for tax exemption privileges under the Local Government Code. They maintain that electric cooperatives registered with the NEA under P.D. No. 269, as amended, and electric cooperatives registered with the Cooperative Development Authority (CDA) under R.A. No. 6938 are similarly situated for the following reasons: a) petitioners are registered with the NEA which is a government agency like the CDA; b) petitioners, like CDA-registered cooperatives, operate for service to their member-consumers; and c) prior to the enactment of the Local Government Code, petitioners, like CDA-registered cooperatives, were already tax-exempt.7Thus, petitioners contend that to grant tax exemptions from local government taxes, including real property tax under Sections 193 and 234 of the Local Government Code only to registered cooperatives under R.A. No. 6938 is a violation of the equal protection clause.We are not persuaded. The equal protection clause under the Constitution means that "no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances."8Thus, the guaranty of the equal protection of the laws is not violated by a law based on reasonable classification. Classification, to be reasonable, must (1) rest on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only; and (4) apply equally to all members of the same class.9We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by P.D. No. 269, as amended, and electric cooperatives under R.A. No. 6938.First, substantial distinctions exist between cooperatives under P.D. No. 269, as amended, and cooperatives under R.A. No. 6938. These distinctions are manifest in at least two material respects which go into the nature of cooperatives envisioned by R.A. No. 6938 and which characteristics are not present in the type of cooperative associations created under P.D. No. 269, as amended.a. Capital Contributions by MembersA cooperative under R.A. No. 6938 is defined as:[A] duly registered association of persons with a common bond of interest, who have voluntarily joined together to achieve a lawful common or social economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.10The above definition provides for the following elements of a cooperative: a) association of persons; b) common bond of interest; c) voluntary association; d) lawful common social or economic end; e) capital contributions; f) fair share of risks and benefits; g) adherence to cooperative values; and g) registration with the appropriate government authority.11The importance of capital contributions by members of a cooperative under R.A. No. 6938 was emphasized during the Senate deliberations as one of the key factors which distinguished electric cooperatives under P.D. No. 269, as amended, from electric cooperatives under the Cooperative Code. Thus:Senator Osmea. Will this Code, Mr. President, cover electric cooperatives as they exist in the country today and are administered by the National Electrification Administration?Senator Aquino. That cannot be answered with a simple yes or no, Mr. President. The answer will depend on what provisions we will eventually come up with. Electric cooperatives as they exist today would not fall under the term "cooperative" as used in this bill because the concept of a cooperative is that which adheres and practices certain cooperative principles. ..Senator Aquino. To begin with, one of the most important requirements, Mr. President, is the principle where members bind themselves to help themselves. It is because of their collectivity that they can have some economic benefits. In this particular case [cooperatives under P.D. No. 269], the government is the one that funds these so-called electric cooperatives. .Senator Aquino. That is why in Article III we have the following definition:A cooperative is an association of persons with a common bond of interest who have voluntarily joined together to achieve a common social or economic end, making equitable contributions to the capital required.In this particular case [cooperatives under P.D. No. 269], Mr. President, the members do not make substantial contribution to the capital required. It is the government that puts in the capital, in most cases..Senator Osmea. Under line 6, Mr. President, making equitable contributions to the capital required would exclude electric cooperatives [under P.D. No. 269]. Because the membership does not make equitable contributions.Senator Aquino. Yes, Mr. President. This is precisely what I mean, that electric cooperatives [under P.D. No. 269] do not qualify in the spirit of cooperatives. That is the reason why they should be eventually assessed whether they intend to comply with the cooperatives or not. Because, if after giving them a second time, they do not comply, then, they should not be classified as cooperatives.Senator Osmea. Mr. President,the measure of their qualifying as a cooperative would be the requirement that a member of the electric cooperative must contribute a pro rata share of the capital of the cooperative in cash to be a cooperative.12Nowhere in P.D. No. 269, as amended, does it require cooperatives to make equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under P.D. No. 269, only the payment of aP5.00 membership fee is required which is even refundable the moment the member is no longer interested in getting electric service from the cooperative or will transfer to another place outside the area covered by the cooperative.13However, under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least twenty-five per cent (25%) of the authorized share capital has been subscribed and at least twenty-five per cent (25%) of the total subscription has been paid and in no case shall the paid-up share capital be less than Two thousand pesos (P2,000.00).14b. Extent of Government Control over CooperativesAnother principle adhered to by the Cooperative Code is the principle of subsidiarity. Pursuant to this principle, the government may only engage in development activities where cooperatives do not posses the capability nor the resources to do so and only upon the request of such cooperatives.15Thus, Article 2 of the Cooperative Code provides:Art. 2. Declaration of Policy. It is the declared policy of the State to foster the creation and growth of cooperatives as a practical vehicle for prompting self-reliance and harnessing people power towards the attainment of economic development and social justice. The State shall encourage the private sector to undertake the actual formation and organization to cooperatives and shall create an atmosphere that is conducive to the growth and development of these cooperatives.Towards this end, the Government and all its branches, subdivisions, instrumentalities and agencies shall ensure the provision of technical guidance, financial assistance and other services to enable said cooperatives to develop into viable and responsive economic enterprises and thereby bring about a strong cooperative movement that is free from any conditions that might infringe upon the autonomy or organizational integrity of cooperatives.Further, the State recognizes the principle of subsidiarity under which the cooperative sector will initiate and regulate within its own ranks the promotion and organization, training and research, audit and support services relating to cooperatives with government assistance where necessary.16Accordingly, under the charter of the CDA, or the primary government agency tasked to promote and regulate the institutional development of cooperatives, it is the declared policy of the State that:[g]overnment assistance to cooperatives shall be free from any restriction and conditionalitythat may in any manner infringe upon the objectives and character of cooperatives as provided in this Act. The State shall, except as provided in this Act, maintain the policy of noninterference in the management and operation of cooperatives.17In contrast, P.D. No. 269, as amended by P.D. No. 1645, is replete with provisions which grant the NEA, upon the happening of certain events, the power to control and take over the management and operations of cooperatives registered under it. Thus:a) the NEA Administrator has the power to designate, subject to the confirmation of the Board of Administrators, an Acting General Manager and/or Project Supervisor for a cooperative where vacancies in the said positions occur and/or when the interest of the cooperative or the program so requires, and to prescribe the functions of the said Acting General Manager and/or Project Supervisor, which powers shall not be nullified, altered or diminished by any policy or resolution of the Board of Directors of the cooperative concerned;18b) the NEA is given the power of supervision and control over electric cooperatives and pursuant to such powers, NEA may issue orders, rules and regulationsmotu propioor upon petition of third parties to conduct referenda and other similar actions in all matters affecting electric cooperatives;19c) No cooperative shall borrow money from any source without the approval of the Board of Administrators of the NEA;20andd) The management of a cooperative shall be vested in its Board, subject to the supervision and control of NEA which shall have the right to be represented and to participate in all Board meetings and deliberations and to approve all policies and resolutions.21The extent of government control over electric cooperatives covered by P.D. No. 269, as amended, is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of the electric cooperatives. Consequently, amendments to P.D. No. 269 were primarily geared to expand the powers of the NEA over the electric cooperatives to ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under R.A. No. 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation.To be sure, the transitory provisions of R.A. No. 6938 are indicative of the recognition by Congress of the fundamental distinctions between electric cooperatives organized under P.D No. 269, as amended, and cooperatives under the new Cooperative Code. Article 128 of the Cooperative Code provides that all cooperatives registered under previous laws shall be deemed registered with the CDA upon submission of certain requirements within one year. However, cooperatives created under P.D. No. 269, as amended, are given three years within which to qualify and register with the CDA, after which, provisions of P.D. No. 1645 which expand the powers of the NEA over electric cooperatives, would no longer apply.22Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of power by local governments is beyond regulation by Congress. Thus, while each government unit is granted the power to create its own sources of revenue, Congress, in light of its broad power to tax, has the discretion to determine the extent of the taxing powers of local government units consistent with the policy of local autonomy.23Section 193 of the Local Government Code is indicative of the legislative intent to vest broad taxing powers upon local government units and to limit exemptions from local taxation to entities specifically provided therein. Section 193 provides:Section 193.Withdrawal of Tax Exemption Privileges.Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local water districts,cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.24The above provision effectively withdraws exemptions from local taxation enjoyed by various entities and organizations upon effectivity of the Local Government Codeexcept for a) local water districts; b) cooperatives duly registered under R.A. No. 6938; and c) non-stock and non-profit hospitals and educational institutions.Further, with respect to real property taxes, the Local Government Code again specifically enumerates entities which are exempt therefrom and withdraws exemptions enjoyed by all other entities upon the effectivity of the code. Thus, Section 234 provides:SEC. 234.Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof had been granted for consideration or otherwise, to a taxable person;(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for religious, charitable or educational purposes;(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power;(d)All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and(e) Machinery and equipment used for pollution control and environmental protection.Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.25InMactan Cebu International Airport Authority v. Marcos,26this Court held that the limited and restrictive nature of the tax exemption privileges under the Local Government Code is consistent with the State policy to ensure autonomy of local governments and the objective of the Local Government Code to grant genuine and meaningful autonomy to enable local government units to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The obvious intention of the law is to broaden the tax base of local government units to assure them of substantial sources of revenue.While we understand petitioners predicament brought about by the withdrawal of their local tax exemption privileges under the Local Government Code, it is not the province of this Court to go into the wisdom of legislative enactments. Courts can only interpret laws. The principle of separation of powers prevents them from re-inventing the laws.Finally, Sections 193 and 234 of the Local Government Code permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class. Exemptions from local taxation, including real property tax, are granted to all cooperatives covered by R.A. No. 6938 and such exemptions exist for as long as the Local Government Code and the provisions therein on local taxation remain good law.IIThere is No Violation of the Non-Impairment ClauseIt is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligation of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial.27What constitutes substantial impairment was explained by this Court inClemons v. Nolting:28A law which changes the terms of a legal contract between parties, either in the time or mode of performance, or imposes new conditions, or dispenses with those expressed, or authorizes for its satisfaction something different from that provided in its terms, is law which impairs the obligation of a contract and is therefore null and void.Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties.29Petitioners insist that Sections 193 and 234 of the Local Government Code impair the obligations imposed under the six (6) loan agreements executed by the NEA as borrower and USAID as lender.1wphi1All six agreements contain similarly worded provisions on the tax treatment of the proceeds of the loan and properties and commodities acquired through the loan. Thus:Section 6.5.Taxes and Duties. The Borrower covenants and agrees that this Loan Agreement and theLoan provided for herein shall be free from, and the Principal and interest shall be paid to A.I.D. without deduction for and free from, any taxation or fees imposedunder any laws or decrees in effect within the Republic of the Philippines or any such taxes or fees so imposed or payable shall be reimbursed by the Borrower with funds other than those provided under the Loan.To the extent that (a) any contractor, including any consulting firm, any personnel of such contractor financed hereunder, and any property or transactions relating to such contracts and (b) any commodity procurement transactions financed hereunder, are not exempt from identifiable taxes, tariffs, duties and other levies imposed under laws in effect in the country of the Borrower, the Borrower and/or Beneficiary shall pay or reimburse the same with funds other than those provided under the Loan.30Petitioners contend that the withdrawal by the Local Government Code of the tax exemptions of cooperatives under P.D. No. 269, as amended, is an impairment of the tax exemptions provided under the loan agreements. Petitioners argue that as beneficiaries of the loan proceeds, pursuant to the above provision, "[a]ll the assets of petitioners, such as lands, buildings, distribution lines acquired through the proceeds of the Loan Agreements are tax exempt."31We hold otherwise.A plain reading of the provision quoted above readily shows that it does not grant any tax exemption in favor of the borrower or the beneficiary either on the proceeds of the loan itself or the properties acquired through the said loan. It simply states that the loan proceeds and the principal and interest of the loan, upon repayment by the borrower, shall be without deduction of any tax or fee that may be payable under Philippine law as such tax or fee will be absorbed by the borrower with funds other than the loan proceeds. Further, the provision states that with respect to any payment made by the borrower to (1) any contractor or any personnel of such contractor or any property transaction and (2) any commodity transaction using the proceeds of the loan, the tax to be paid, if any, on such transactions shall be absorbed by the borrower and/or beneficiary through funds other than the loan proceeds.Beyond doubt, the import of the tax provision in the loan agreements cited by petitioners is twofold: (1) the borrower is entitled to receive from and is obliged to pay the lender the principal amount of the loan and the interest thereon in full, without any deduction of the tax component thereof imposed under applicable Philippine law and any tax imposed shall be paid by the borrower with funds other than the loan proceeds and (2) with respect to payments made to any contractor, its personnel or any property or commodity transaction entered into pursuant to the loan agreement and with the use of the proceeds thereof, taxes payable under the said transactions shall be paid by the borrower and/or beneficiary with the use of funds other than the loan proceeds. The quoted provision does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sections 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as in fact, no tax exemption is granted therein.IIIConclusionPetitioners lament the difficulties they face in complying with the implementing rules and regulations issued by the CDA for the conversion of electric cooperatives under P.D. No. 269, as amended, to cooperatives under R.A. No. 6938. They allege that because of the cumbersome legal and technical requirements imposed by the Omnibus Rules and Regulations on the Registration of Electric Cooperatives under R.A. No. 6938, petitioners cannot register and convert as stock cooperatives under the Cooperative Code.32The Court understands the plight of the petitioners. Their remedy, however, is not judicial. Striking down Sections 193 and 234 of the Local Government Code as unconstitutional or declaring them inapplicable to petitioners is not the proper course of action for them to obtain their previous tax exemptions. The language of the law and the intention of its framers are clear and unequivocal and courts have no other duty except to uphold the law. The task to re-examine the rules and guidelines on the conversion of electric cooperatives to cooperatives under R.A. No. 6938 and provide every assistance available to them should be addressed by the proper authorities of government. This is necessary to encourage the growth and viability of cooperatives as instruments of social justice and economic development.WHEREFORE, the instant petition is DENIED and the temporary restraining order heretofore issued is LIFTED.SO ORDERED.2. Clemons v. Nolting (42 Phil 702)G.R. No. L-17959 January 24, 1922ROBERT S. CLEMONS,petitioner,vs.WILLIAM T. NOLTING, as Auditor of the Government of the Philippine Islands,respondent.Fisher & DeWitt for Petitioner.Acting Attorney-General Tuason for respondent.JOHNSON,J.:This is an original action commenced in the Supreme Court for the writ of mandamus. Its purposes to compel the respondent "to countersign or cause to be countersigned the original warrant, a copy of which is set forth in paragraph 10 of the complaint, and to deliver the same to the plaintiff so that he may present it to the Treasurer of the Philippine Islands and receive payment thereon in the sum of P73.33, an amount which is alleged to be due him by the Government of the Philippine Islands."The cause was submitted to the court upon the following stipulated as facts:1. That plaintiff is a citizen of the United States, temporarily residing in the city of Manila, Philippine Islands.2. That defendant, William T. Nolting, is the duly appointed, qualified and acting Auditor of the Government of the Philippine Islands.3. That on June 18, 1920, the Honorable Charles E. Yeater, then Acting Governor-General of the Philippine Islands, cabled the Secretary of War of the United States, of Washington, D. C., as follows:Appointed as early as possible after June 30th, 1920, John Deering and Robert S. Clemons each to position mechanical and electrical engineer, effective the date of departure from residence, under special contracts to expire December 31st, 1921. Straight salary $4,000 per annum, with transportation from residence to the Philippine Islands and return, without civil service privileges. Advance transportation and request them to sail first available vessel.4. That in accordance with the authority contained in the said cablegram, above cited, the Secretary of War, through the Bureau of Insular Affairs, employed plaintiff on behalf of the Government of the Philippine Islands, and under date of August 6, 1920, wrote plaintiff, confirming the agreement entered into, as follows:WAR DEPARTMENTBUREAU OF INSULAR AFFAIRSWASHINGTON,August 6, 1920.Major, R. S. CLEMONS, Air Photo Detachment, Tucson, Arizona.Sir: In accordance with specific authority contained in a cablegram from the Governor-General of the Philippine Islands, dated June 18, 1920, you are hereby provisionally appointed to the position of electrical and mechanical engineer in the Philippine Bureau of Public Works, under special contract to expire December 31, 1921, at a straight salary of $4,000 per annum. This appointment is effective as of date of departure from your residence. You will be furnished transportation from your place of residence in the United States to the Philippine Islands and return upon the completion of the contract period, but you will not be entitled to civil service privileges of leaves, etc. Upon your arrival in Manila you should report at the office of the Director of Public Works.Kindly acknowledge your acceptance of this appointment by signing the inclosed copy hereof and returning it to this bureau at once.We are unable at this time to give you definite information concerning the date of the vessel on which we will be able to secure accommodations for you, but you will be advised by wire as soon as a reservation is obtainable.Very respectfully,CHAS. C. WALCUTT, JR.,Assistant to Chief of Bureau.Incl.: Copy of this letter.5. That plaintiff received the letter set forth in the paragraph next preceding, at Tucson, Arizona, and immediately replied in writing, accepting employment by the Philippine Government under the terms of the said letter, and promptly sailed for Manila and entered upon and is still engaged in the discharge of his duties in Bureau of Public Works of the Insular Government of the Philippine Islands under the terms of the said contract.6. That on the 1st day of February, 1921, at the rates of exchange then prevailing as fixed by the Insular Government of the Philippine Islands, the equivalent of $333.33, United States currency, in Philippine currency was P739.99, and no sum of money in Philippine currency less than P739.99 would at that time purchase $333.33 in United States currency.7. That on or about the 1st day of February, 1921, the chief accountant of the Bureau of Public Works of the Government of the Philippine Islands tendered plaintiff a warrant on the Treasurer of the Philippine Islands in the sum of P666.66, Philippine currency, in full payment of his salary for the month of January, 1921.8. That plaintiff declined to accept the said sum in full discharge of his January, 1921, salary, but insisted that under his contract with the Philippine Government he was and is entitled to receive each month as compensation for his services the sum of $333.33 in United States currency, or a sum in Philippine currency sufficient to enable him to purchase the sum of $333.33 in United States currency at the rates of exchange prevailing on the date of each payment, and demanded that he be paid an additional sum of P73.33, which, with the sum of P666.66, would be the equivalent at the then prevailing official rates of exchange of the sum of $333.33, United States currency.9. That the said chief accountant of the Bureau of Public Works, notwithstanding plaintiff's demand, declined and refused to issue plaintiff a warrant for the payment of his January, 1921, salary in any sum in excess of the sum of P666.66, whereupon plaintiff accepted the said sum of P666.66, under protest, and as constituting only a partial payment of his salary for the said month of January, 1921. That plaintiff insistently continued his demands upon the chief accountant of the Bureau of Public Works for a warrant on the Treasurer of the Philippine Islands for the payment of the sum of P73.33 to complete the payment of plaintiff's salary for January, 1921, whereupon the said chief accountant, on August 8, 1921, upon such demand, issued in favor of plaintiff a warrant on the Treasurer of the Philippine Islands in words and figures as follows, to wit:No. 833906.

THE GOVERNMENT OF THE PHILIPPINE ISLANDS.TO ROBERT S. CLEMONS, C/o Design. Division, B. P. W.

"Date, Aug. 8, 1921.Dr.

"Appropriation, Bureau of Public Works.P73.33.

Aug. 8, 1921.For premium on P666.66 Jan.salary of Maj. Robert S. Clemons at the rate of 11% to cover the difference between dollars and Philippine currency.Dr. Cr.

5-E-g14594JobC-4

73.33

73.33

I certify that the foregoing account is correct, just and payable in accordance with law and regulations.R. REINOSO,Chief Accountant,Bureau of Public Works/dp.

"D.

Treasury Warrant.

No. 833906.

THE GOVERNMENT OF THE PHILIPPINE ISLANDS.Issued under sec. 616,Adm. Code.To the TREASURER OF THE PHILIPPINE ISLANDS:MANILA, P. I.,August 8, 1921.Pay to Robert S. Clemons --- or order the sum ofseventy-three and 33/100----pesos(P73.33).Payable from the appropriation for Bureau of Public Works.Countersigned:Not valid unless countersigned,R. REINOSO,Chief Accountant,Bureau of Public Works.......................................... For the Insular Auditor.

For premium on P666.66Jan. salary at the rate of 11%to cover the diff. between dollarsand Phil. currency.10. That plaintiff caused the said warrant, a copy of which is set forth in the paragraph next preceding, to be presented to the defendant herein, William T. Nolting, for audit by him in his official capacity as Auditor of the Philippine Government, in accordance with the laws and regulations governing the auditing department of the Philippine Government; but the said defendant refused and still refuses to audit the said warrant or to countersign the same, upon the ground that notwithstanding the terms of plaintiff's contract with the Philippine Government, his salary is payable in Philippine currency at the rate of two pesos for each dollar in United States currency due plaintiff regardless of the real value of such pesos or the rate at which they may be exchangeable into United States currency.11. That unless the defendant countersigns or causes to be countersigned the said warrant, hereinabove mentioned, the same will not be paid by the Treasurer of the Philippine Islands, and plaintiff will be unable to collect and receive the said sum of P73.33 from the Philippine Government, although the necessary funds for the payment thereof are available in the hands of the Insular Treasurer and may be disbursed upon the presentation of the warrant above set forth, when countersigned by the defendant.The only question presented under said stipulated facts is, may the Government of the Philippine Islands, when it enters into a contract with an officer or employee under a promise to pay his salary in "dollars," pay such salary in Philippine currency at the rate of two one if the officer or employee insists that his salary should be paid in the terms (specie) of his contract? From the stipulated facts it is seen that the Government promised to pay to the petitioner his salary in "dollars;" that the contract was made in the United States; that the Government offered to pay the petitioner in "Philippine currency" at the rate of two to one; that at the time the payment in question was offered, Philippine currency was at a discount; that two pesos in Philippine currency was not equivalent to one "dollar" and the petitioner insisted that his salary should be paid in "dollars" or their equivalent value.The petitioner in his first proposition contends that "the use of the dollar sign '$' in a written contract executed in the United States, signifies dollars in the United States money." That proposition is admitted by the respondent. The respondent admits that the dollar sign, as found in the contract, stands for dollars in money of the United States. Both the petitioner and the respondent admit that the mark used to denote dollar has obtained general currency and conveys the idea of dollars as definitely as the word "dollars" itself; hence it is not a valid objection to a judgment when the amount thereof is expressed only in figures, preceded by the dollar mark before the word "dollars" written in the judgment. (Kelleyvs.Sullivan, 201 Mass., 34; Devenneyvs.Devenney, 70 Ohio St., 96; United Statesvs.Van Auken, 96 U.S., 366, 368.)The petitioner further contends that a contract for the payment of money, expressed in terms of the United States dollars, made in the United States, to be performed in the Philippine Islands, can be discharged only by the payment of the required amount in United States money or in Philippine pesos of an equivalent commercial value.The respondent contends that under the laws in force in the Philippine Islands a debt of the Government, payable in "dollars," may be paid in Philippine currency at the rate of two to one even though the debt grew out of a special contract which provided that the same should be paid in "dollars."It is true that the Legislature of the Philippine Islands has provided, by section 1613 of Act No. 2711, as amended by Act No. 2776, that "the Philippine silver pesos and the gold coins of the United States, at the rate of one dollar for two pesos, shall be legal tender in the Philippine Islands for all debts, public and private" . . . . To arrive at a better understanding of the purposes of the section just quoted, it might be well to trace the history of the legislation on the question of the legal tender character of Philippine currency. As early as March 2, 1903, the Congress of the United States adopted an act establishing a unit of value for the money currency of the Philippine Islands. Said Act provided, among other things, "that the unit of value in the Philippine Islands shall be the gold peso, consisting of twelve and nine-tenths grains of gold, nine-tenths fine, etc.; and the gold coins of the United States at the rate of one dollar for two pesos . . . shall be legal tender for all debts, public and private, in the Philippine Islands; that the silver Philippine peso, authorized by this Act, shall be legal tender in the Philippine Islands for all debts, public and private,unless otherwise specifically provided by contract." Later, by an Act of the Philippine Legislature (section 1771 of Act No. 2657) it was provided that "the Philippine silver peso shall be a legal tender for all debts, public and private,unless otherwise specially provided by contract." That provision of Act No. 2657 was carried forward and made section 1613 of Act No. 2711 as above quoted, without change. The unit of value fixed by the said Act of Congress for the Philippine Islands was again fixed by section 1770 of Act No. 2657, which was carried forward and made section 1612 of Act No. 2711. The unit of monetary value in the Philippine Islands, as defined by the Act of Congress of March 2, 1903, was carried forward and adopted by the Philippine Legislature in the said Acts Nos. 2657, 2711, and 2776. Act No. 2776, however, omitted the phrase which was found in the former legislation "unless otherwise specially provided by contract." The purpose of the omission of that phrase does not clearly appear.All of the legislation both by Congress and by the Philippine Legislature, prior to Act No. 2776. limited the legal tender character of the "silver peso" to the payment of debts, public and private, when the contract did not otherwise provide. Did the omission of that provision in Act No. 2776 make the tender of the Philippine silver peso, at the rate provided for in defining the unit of value, a legal tender for the payment of debts, public and private, when the contract expressly provided for payment of other specie? Could the Legislature of the Philippine Islands or even Congress alter or change the obligation of the contract as the Jones Act of August 29, 1916, prohibit absolutely the Legislature of the Philippine Islands from adopting any legislation which would impair the "obligations of contracts." The right of the legislative department of the state to adopt legislation changing or altering the obligation of contract has been answered in the negative so many times that it scarcely merits the citation of authorities now in its support. (Casanovasvs.Hord, 8 Phil., 125; Trustees of Dartmouth Collegevs.Woodward, 4 Wheaton [U.S.], 518; McGeevs.Mathis, 4 Wallace, 143.)It is the utmost importance to note that neither in the cited Act of Congress nor in section 1613 of the Administrative Code, as amended, is any attempt made to determine the ratio at which debts, expressed in terms of United States money and payable in the Philippine Islands, may be discharged by the tender and payment of Philippine silver pesos. Both the Act of Congress and section 1613 of the Administrative Code provide that debts due inPhilippine silver pesosmay be discharged by the payment of "gold coins of the United States at the rate of one dollar for two pesos," but theconverseproposition is nowhere to be found in the law. The reason for this is very plain. Congress by its own act had so limited themaximumvalue of the gold peso that in no event could it be worthmorethan half a United States gold dollar; but Congress had not itself undertaken to maintain the parity of the Philippine peso at the theoretical ratio of two for one. Congress did not provide for the establishment of a gold standard fund, or prescribe any other method by which the artificial parity between the Philippine silver peso and United States money should be maintained. It merelyauthorizedthe Government of the Philippine Islands to ". . . adopt such measures as it may deem proper, not inconsistent with said Act of July 1st, 1902, to maintain the value of the silver Philippine peso at the rate of one gold peso . . . ."The "measures" which were adopted by the Philippine Government for the purpose of maintaining the parity of the silver peso with the theoretical gold peso and United States currency, were embodied in Act No. 938 of the Philippine Commission, adopted October 10th, 1903, the purpose of which was stated by the late Governor Ide, then Secretary of Finance and Justice of the Philippine Government, in his official report for the year 1903, as follows:The theory of the Act of Congress referred to and of the gold-standard act passed by the Commission is substantially that a gold-standard circulating medium may be maintained at a parity with gold without any large use of a gold currency by the aid of the means provided for maintaining the parity between the two currencies. The essential elements of the system are based upon the maintenance of a reasonable gold-standard fund, the rigid restriction of the amount of new coinage so as to meet only the demand of commerce, the retirement of a sufficient amount of such coinage whenever it shall become apparent that there is more in circulation than the demands of commerce require, the issuance of more of the new currency whenever it becomes apparent that there is a shortage of such currency in circulation, and the furnishing of reasonable facilities for the conversion of gold coin or other money of the United States into Philippine currency, or the reverse, as the demands of commerce may require. . . .The procedure relied upon to accomplish the purpose of maintaining the party as stated in Act No. 938 was the creation in the Insular Treasury of a "gold standard fund," which, as provided by section 7 of the Act, was to be used as follows:First. To exchange on demand at the Insular Treasury in Manila for Philippine currency offered in sums of not less than ten thousand pesos, or United States currency offered in sums of not less than five thousand dollars, drafts on the gold-standard fund deposited in the United States or elsewhere to the credit of the Insular Treasury, charging for the same a premium of three-quarters of one per centum for demand drafts and of one and one-eighth per centum for telegraphic transfers, and it is further made the duty of the Insular Treasure to direct the depositories of the funds of the Philippine Government in the United States to sell on demand, in sums of not less than ten thousand pesos, exchange against the gold-standard fund in the Philippine Islands, charging for the same a premium of three-quarters of one per centum for demand drafts and of one and one-eight per centum for telegraphic transfers, rendering accounts therefor to the Insular Treasurer and Insular Auditor. But the premium charge for drafts and telegraphic transfers in this paragraph mentioned may be temporarily increased or decreased by order issued by the Secretary of Finance and Justice should the conditions at any time existing, in his judgment, require such action. . . .It will be noted that the possibility that the peso might not be kept at all times at par was contemplated from the beginning. The last paragraph of the quoted section of Act No. 938 of the Philippine Commission required the Insular Treasurer to sell gold drafts on the United States in exchange for Philippine currency at a nominal charge of three-fourths of one per cent; but provided that this premium charge might be "temporarily increased or decreased by order issued by the Secretary of Finance and Justice should the conditions at any time existing, in his judgment, require such action."This provision has been carried through successive enactments into section 1621 of the Administrative Code, which, as amended first by Act No. 2776 and again by Act No. 2939, now provides as follows:For the purpose of maintaining the parity of the Philippine silver peso with the Philippine gold peso, and of keeping the currency equal in volume only to the demands of trade, the Insular Treasurer is hereby authorized and directed (a) To exchange on demand at the Insular Treasury in Manila for Philippine currency offered in sums of not less than ten thousand pesos or United States currency offered in sums of not less than five thousand dollars, drafts on the currency reserve fund deposited in the United States or elsewhere to the credit of the Insular Treasury, charging for the same a premium of three-quarters of one per centum for demand drafts and of one and one-eighth per centum for telegraphic transfers, and it is further made the duty of the Insular Treasurer to direct the depositories of the funds of the Philippine Government in the United States to sell on demand, in sums of not less than ten thousand pesos, exchange against the currency reserve fund in the Philippine Islands, charging or paying for the same a premium of three-quarters of one per centum for demand drafts and of one and one-eighth per centum for telegraphic transfers, rendering accounts therefor to the Insular Treasurer and Insular Auditor. But the premium rate for drafts and telegraphic transfers in this paragraph mentioned may be temporarily increased or decreased by order issued by the Secretary of Finance should the conditions at any time existing, in his judgment, require such action, and the Governor-General, upon recommendation of the Secretary of Finance, may suspend for such time as he sees fit, the sale of exchange to any individual, firm, company, or corporation, or he may require before selling any exchange, such proofs and affidavits as he deems sufficient that such exchange is needed in legitimate Philippine business and could not have been legitimately supplied by proceeds of Philippine exports. . . .As the maintenance of the parity of the Philippine silver peso depends wholly upon the ability and willingness of the Philippine Government to accept its own money in payment for drafts payable in gold dollars in the United States, and as thenormalnominal rate of exchange intended to maintain and establish that parity has not beenfixedby Congress or the Philippine Legislature, but may be increased at any time by order of the Secretary of Finance of the Philippine Government, whenever existing conditions, in his judgment, require such action, it is obvious that it must have been evident from the very inception of our present system of currency that while the Philippine peso could never be worthmorethan the United States gold dollar, it might be worth very muchless. That no doubt is the reason why Congress, while providing that debts due here in pesos might be discharged by the payment of gold coin of the United States, at the rate ofone dollarfortwo pesos,didnot provide that a debt, due here in United States gold dollars, might be paid in Philippine pesos at the rate oftwo pesosforone dollar. The breakdown of the gold reserve fund, and the consequent depreciation of the Philippine peso, are now matters of history. Under existing conditions, to compel a creditor to whom a debt in United States currency is owing, to accept two Philippine paper pesos in satisfaction of every gold dollar of that debt is nothing short of a discount, andpro tantoa partial repudiation of a legal obligation.In the opinion of the Acting Attorney-General, of which mentioned has been made, it is said, in referring to the cited section of the Administrative Code, as amended:This Act established two kinds of lawful money with which debts may be paid:pesosanddollars. An ordinary debtor is at liberty to pay his debt with either.This statement is undoubtedly correct; but the fact that a debtor may at his option discharge his debt either in dollars or in pesos is by no means equivalent to the statement that he may at his option pay one dollar or two pesos. The contention is that he may at his option pay one dollar in the United States gold coin or as many Philippine pesos as at the prevailing rate of exchange are the equivalent in value of one dollar.While the respondent contends, under the laws in force in the Philippine Islands, that a debt of the Government payable in dollars may be paid in Philippine currency at the rate of two to one, he overlooks the fact that section 1613 makes the Philippine silver peso and the gold coins of the United States at the rate of one dollar for two pesos, a legal tender in the Philippine Islands for all debts, public and private, and not the Philippine paper peso. If the Government can discharge a contract, payable in dollars, by tendering Philippine paper pesos, then merchants and others who contract debts payable expressly in dollars may also discharge their debts in a like manner. If such doctrine should be announced, then no manufacturer or person would take the risk of contracting obligations here for future payments. They would insist in every instance upon cash transactions. They would not run the risk of future fluctuations in the value of the paper peso. That would immediately produce an impossible condition in commercial and business circles in the Philippine Islands.It is a well-known fact that the Government has not been willing to accept the Philippine paper peso at the rate of two to one for gold or dollars. Does it not seem at least strange that it should insist that its creditors must be satisfied with such a settlement of its debt?The issue is precisely the same as it would be had the Philippine Government executed a bond in the United States, in terms of the United States "dollars," payable in Manila, but without an express stipulation that it should be paid in gold dollars or in any particular kind of the United States money. If the Government may pay plaintiff in depreciated pesos at thenominalinstead of the real par of exchange, then it might pay its dollar bond in the same way. If the Government can do this, then Manila merchants can pay their dollar drafts in depreciated pesos at the nominal par, regardless of their real value; American seamen may have their dollar pay in this port in forty-cent pesos; the United States may pay its soldiers stationed here in the cheap money, and effect a considerable saving at their expense. This, of course, would be repudiation, in part, of a just debt; but if repudiation is permissible as to the debt of the Insular Government to this plaintiff, then it is permissible, legally at least, to all other debtors, and must be endured, at least as to existing debts by all other creditors.We submit that the mere statement of the results which must flow from the recognition of the principle contended for by the respondent, and involved in a denial of the plaintiff's claim, is sufficient to refute every argument which may be advanced to support it. Plaintiff, and the hundreds of teachers and other employees of the Insular Government affected by the depreciation of the Philippinepaperpeso, are merely asking for fair treatment, for an honest compliance on the part of the Government with its part of the agreement. We do not doubt that, as a matter of fact, the defendant herein and every responsible official of the Philippine Government recognizes the justice of the plaintiff's contention, and that the necessity for this rule has arisen from an apprehension lest their natural tendency to do what they know to be right and fair may constitute a technical violation of the law.The contention on the part of the respondent that the Philippine paper peso is a legal tender for the payment of a contract debt, when some other specie has not been provided, is not tenable for the reason that it violates the terms of the express contractsA contract to pay a certain sum in money, without any stipulation as to the kind of money in which it shall be paid, may always be satisfied by payment of that sum in any currency which is lawful money at the place and time at which payment is to be made. That is the general rule, under both the common and the civil law. But when the contract stipulates the specie or kind or character of money for the performance of the contract, it must be satisfied in the medium of payment mentioned in the contract.That doctrine is established and affirmed by the law in force in the Philippine Islands. The Civil Code, still in force in the Philippine Islands, by article 1170, provides expressly that "payments of debts ofmoneyshall be made in the specie stipulated and, should it not be possible to deliver such specie, in silver or gold coin legally current in Spain." Article 1754 of the Civil Code provides that the obligations of persons who borrow money shall be governed by the provisions of said article 1170 of the same Code. (Serralesvs.Esbri, 200 U. S., 103; City of San Juanvs.St. John's Gas Co., 195 U. S., 510.)Contracts are made for things, not names or sounds, and the obligation of the contract arises from its terms and the means which the law affords for its enforcement. Under the Civil Code the contract constitutes the law of the parties unless it violates some provision of law or public policy. The parties themselves make the law by which they shall be governed, and it is the business of the courts to see that the parties to a legal contract comply with its terms. A law which changes the terms of a legal contract between parties, either in the time or mode of performance, or imposes new conditions, or dispenses with those expressed, or authorizes for its satisfaction something different from that provided in its terms, is law which impairs the obligation of a contract and is therefore null and void. An interference with the terms of a legal contract by legislation is unwarranted and illegal. A contract is not fulfilled by the delivery of one thing which is different from the thing the contract provides for. Words in contracts are to be given the meaning which they were understood to have by the parties at the time of the making of the contract. There cannot exist in this jurisdiction one law for debtors and another law for creditors. The genius, the nature, and the spirit of our Government amount to a prohibition of such acts of legislation, and the general principles of law and reason forbid them.The Legislature may enjoin, permit, forbid, and punish; it may declare new crimes and establish rules of conduct for all its citizens in future cases; it may command what is right and forbid what is wrong, but it cannot change innocence into guilt and punish innocence as a crime, or violate the rights of an antecedent lawful private contract or the right of private property. (Caldervs.Bul, 3 Dallas, 388.)The fundamental maxims of a free government seem to require that the rights of personal liberty and private property should be held sacred, and that includes contractual rights. (Wilkinsonvs.Leland, 2 Peters, 657.)It would be ruinous to the commercial interests of the Philippine Islands to declare that the payment of debts of money could be made in other specie than that stipulated in the contract.For all of the foregoing facts and the law, we are fully persuaded that the remedy prayed for should be, and is hereby, granted. And it is hereby ordered and decreed that the writ of mandamus be issued to the defendant herein, commanding him to countersign, or cause to the countersigned the original of the warrant set forth in paragraph 9 of the complaint, and to deliver the same to the plaintiff so that he may present it to the Treasurer of the Philippine Islands and receive payment of said sum of P73.33 due him as averred in the complaint; and without any finding as to costs. So ordered.3. Philippine National Bank v. RemigioG.R. No. 78508 March 21, 1994PHILIPPINE NATIONAL BANK,petitioner,vs.FILEMON REMIGIO and the HON. COURT OF APPEALS,respondents.The Chief Legal Counsel, PNB for petitioner.Alfredo S. Remigio for private respondent.VITUG,J.:Questioned in this appeal instituted by petitioner Philippine National Bank is the decision, dated 05 May 1987, of the appellate court, which has reversed the decision of the then Court of First Instance ("CFI" and now Regional Trial Court) of Isabela, Branch 5, Echague, by ruling in favor of private respondent Filemon Remigio.The facts, by and large, are undisputed. In chronology, the events leading to this appeal may be recited, thus:(1) On 25 August 1967, private respondent obtained from petitioner a P65,000.00 loan secured by a real estate mortgage covering five (5) parcels of land in Isabela described in and embraced by Transfer Certificates of Title ("TCT") No. T-11326, T-681, T-100, and T-27 and Original Certificate of Title No. I-1673.(2) Private respondent defaulted; hence on 17 November 1970, petitioner bank extrajudicially foreclosed on the mortgage, and it acquired the encumbered assets for the sum of P87,082.00. The sheriff's sale was registered with the Office of the Register of Deeds of Isabela only on 11 October 1972.(3) In its letter-offer of 15 February 1971, petitioner bank invited private respondent to repurchase the foreclosed property for P87,082.00 plus interest and other charges. Before that, or on 18 November 1970 (or one day after the foreclosure sale), private respondent already had paid an initial P10,000.00 to redeem the property. Subsequently, additional payments were made by private respondent, i.e., P10,000.00 on 26 April 1971 and another P20,000.00 on 17 May 1971.(4) On 21 October 1972, Presidential Decree ("P.D.") No. 27 was enacted into law that mandated an agrarian reform. Pursuant thereto, an "Operation Land Transfer Program" was launched; among the areas it covered were the parcels of land under TCT No. T-100, T-11326 and T-681.(5) On 17 April 1974, private respondent offered to buy the foreclosed property for P284,000.00 which was the market and appraised value thereof fixed by petitioner bank. On 24 December 1974, the Deed ofPromise to Sellwas executed between petitioner bank and private respondent.(6) In a letter, dated 25 August 1978, sent to and received by petitioner bank on even date, private respondent, through counsel, inquired why he was still being made to buy the property for P284,000.00 when, in truth, he had already paid P40,000.00 of the P87,082.00 previously offered by petitioner for the redemption of the property. There was no reply or response from petitioner. As of 02 November 1977, private respondent had paid petitioner the total sum of P207,243.85, itemized, as follows:1. 18 November 1970 P10,000.00 609324-E2. 26 April 1971 10,000.00 614980-E3. 14 May 1971 20,000.00 615701-E4. 17 April 1974 5,000.00 898926-F5. 23 May 1974 16,000.00 902110-F6. 27 May 1974 15,000.00 902305-F7. 14 June 1974 10,000.00 903771-F8. 20 December 1974 14,000.00 40135-H9. 17 December 1976 40,030.75 165395-I10. 7 January 1977 22,213.10 166579-I11. 2 November 1977 45,000.00 32641(7) Private respondent, on 20 September 1978, instituted an action for "Annulment of Foreclosure Deed, Breach of Contract, Sum of Money and Damages" at the CFI, Echague, Isabela, against petitioner bank and its Branch Manager Leuterio Genato.(8) On 19 March 1980, while the case was yet pending with the trial court, petitioner bank additionally received from the Land Bank of the Philippines P26,348.12 in cash and P160,000.00 worth of Land Bank Bonds in payment of the foreclosed parcels covered by TCT No. T-100, T-11326, and T-681.On 05 December 1981, after trial, the courta quorendered judgment in favor of petitioner bank, the dispositive portion of which read:WHEREFORE, in the light of the foregoing considerations, judgment is hereby rendered:1. DECLARING the foreclosure sale of the plaintiff's mortgaged properties, covered by and embraced in Original Certificate of Title No. I-1673 and Transfer Certificates of Title Nos. T-11326, T-681, T-100 and T-27, all of the Registry of Deeds of Isabela, as valid;2. DECLARING the right of the plaintiff to redeem his foreclosed properties as forever lost;3. DECLARING the deed of promise the sell executed between the plaintiff and the defendant bank as valid;4. DECLARING that the outstanding obligation of the plaintiff to the bank is P186,874.16 from which shall be deducted whatever payments are made and/or to be made by the Land Bank of the Philippines as a result of its Operation Land Transfer Program;5. ORDERING that whatever balance thereof shall be paid by the plaintiff to the defendant bank with twelve per cent (12%) interest until fully paid and conversely, whatever excess thereof shall be refunded by the defendant bank to the plaintiff;6. ORDERING the defendant bank to execute the corresponding deed of conveyance of the lands to and in favor of the plaintiff after payment is made in accordance with the above;7. ORDERING the defendant bank to deliver to the plaintiff the certificates of title covering the properties mentioned above;8. DISMISSING the complaint, with costs against the plaintiff;9. ORDERING the plaintiff to pay to the defendant, Leuterio Genato, the sum of TEN THOUSAND PESOS (P10,000.00) as attorney's fees and FIVE THOUSAND PESOS (P5,000.00) as expenses of litigation; and10. DENYING the defendant bank's counterclaim. (pp. 128-129,Rollo.)Private respondent went to the Court of Appeals, which, on 05 May 1987, rendered a decision, reversing the trial court and entering a new one in favor of private respondent. The appellate court adjudged, as follows:WHEREFORE, the decision appealed from is set aside and a new one entered declaring the foreclosure of the mortgaged properties to be without force and effect; ordering the defendant bank to release the properties and the plaintiff to transfer the rights to the tenants-beneficiaries in favor of the Land Bank of the Philippines; declaring the deed of promise to sell executed by the plaintiff and the defendant bank rescinded; ordering the defendant bank and the Land Bank of the Philippines to recalculate the amounts of payments due for the transfer of the subject properties in accordance with this Decision subject to the provisions of P.D. No. 27 and in accordance with the mechanics of the Operation Land Transfer; and annulling the order of the lower court for the plaintiff to pay the defendant the expenses of litigation and attorney's fees.Hence, this petition for review oncertiorari.The petition cannot be sustained.When Presidential Decree No. 27, "Decreeing the Emancipation of Tenants from the Bondage of the Soil, Transferring to them the Ownership of the Land They Till and Providing the Instruments and Mechanism therefor," was enacted on 21 October 1972, the parcels of land in dispute were clearly still subject to private respondent's right of redemption. In the foreclosure of real property by banking institutions, as well as in the extrajudicial foreclosure by any other mortgagee, the mortgagor could redeem the property within one year from date of registration of the deed of sale in the appropriate Registry of Deeds (Santos vs. Register of Deeds of Manila, 38 SCRA 42; Reyes vs. Noblejas, 21 SCRA 1027). InMedida vs. Court of Appeals(208 SCRA 887), we ruled that the "title to the land sold under a mortgage foreclosure remains with the mortgagor or his grantee until the expiration of the redemption period . . ." The Court of Appeals committed no error when it thereby held:. . . The foreclosure proceedings were instituted in 1970, and on this, there appears to be no question. The registration of the sheriff's sale was, however, effected only on October 11, 1972. From this date, therefore, the period of redemption begins to run since, according to judicial construction, the period of redemption begins to run not from the date of the sale but from the date of registration of the sale in the office of the Register of Deeds, applying this rule not only to an execution sale but also to an extrajudicial foreclosure sale of registered land (Salazar vs. Meneses, 118 Phil. 512; Reyes vs. Noblejas and Santos, 65 O.G. 21, May 26, 1969; Santos vs. RFC, 101 Phil. 980; Reyes vs. Tolentino, G.R. No. L-29142, Nov. 29, 1971) as required under Section 27 of Rule 39 of the Rules of Court in relation to Section 50 of Act No. 496. For this reason, the foreclosure proceedings were not completed since the period of redemption, counted from October 11, 1972, would expire on October 12, 1973. This would thereby bring the disputed properties under the operation and under the ambit of the said Opinion which interprets Operation Land Transfer under P.D. No. 27. . . (Rollo, pp. 87-88.)It was not thus all that consequential for the appellate court to still rule on the efficacy or inefficacy of the foreclosure.In passing, the Secretary of the Department of Justice has himself opined thus:I am aware that a ruling that lands covered by P.D. No. 27 may not be the object of the foreclosure proceedings after the promulgation of said decree on October 21, 1972, would concede that P.D. No. 27 had the effect of impairing the obligation of the duly executed mortgage contracts affecting said lands. There is no question, however, that the land reform program of the government as accelerated under P.D. No. 27 and mandated by the Constitution itself (Art. XIV, Sec. 12), was undertaken in the exercise of the police power of the state. It is settled in a long line of decisions of the Supreme Court that the Constitutional guaranty of non-impairment of obligations of contract is limited by the exercise of the police power of the state (citations omitted). One limitation on the contract clause arises from the police power, the reason being that public welfare is superior to private rights (citation omitted). The situation here, is like that in eminent domain proceedings, where the state expropriates private property for public use, and the only condition to be complied with is the payment of just compensation. Technically, the condemnation proceedings do not impair the contract to destroy its obligations, but merely appropriate or take for public use (citation omitted). As the Land Bank is obliged to settle the obligations secured by the mortgage, the mortgagee is not left without any compensation. (Opinion No. 92, Series of 1978;Rollo, pp. 88-89.)The opinion deserves respect (42 Am. Jur. p. 421; Cagayan Valley Enterprises, Inc. vs. Court of Appeals, 179 SCRA 218; Ramon Salaria vs. Hon. Carlos R. Buenviaje, et al., 81 SCRA 722). This Court, likewise, in a number of cases has expressed thedictumthat police power subordinates the non-impairment clause of the Constitution (Ortigas and Co. Ltd. Partnership vs. Feati Bank and Trust Co., 94 SCRA 533; Kabiling vs. National Housing Authority, 156 SCRA 623; Anglo-Fil Trading Corporation vs. Lazaro, 124 SCRA 494).Petitioner contends that the Court of Appeals has erred in holding that the bank is entitled only to P87,012.00, and not to P284,000.00, which it considers to be the fair market value of the property foreclosed. Here, the Court of Appeals has explained:We come to the respective liabilities and obligations of the parties. To date, the defendant bank has received P207,243.85 from the plaintiff (Stipulation of Facts, No. 15). In addition, the defendant bank has also been the recipient of bonds worth P160,000.00 and cash in the amount of P26,348.12 from the Land Bank in payment for the properties covered by TCTs Nos. T-100, T-11326 and T-681 or a total amount of P186,348.12. The defendant bank has accepted payment of the latter amount at P170,348.12. All in all, the bank has received payments in cash and bonds in the amount of P377,591.97 as compensation for the plaintiff's original obligation of P65,000.00. The total amounts paid by plaintiff represent the consideration in part of the market price of the properties as found by the Loans and Discount Section of the defendant bank irrespective of whether or not the lands are covered by Operation Land Transfer. The cash and bonds payments made by the Land Bank to the PNB on the other hand, represent payments for the lands covered by Operation Land Transfer, namely T-100, T-11326 and T-681. For its part, the lower court ruled that the plaintiff's obligation to the defendant bank amounts to P186,874.16 based on the market price as determined by the Loans and Discount Section of the defendant bank which market price amounts to P284,000.00. In view of Our conclusion that the subject mortgaged properties fall under the ambit and purview of Operation Land Transfer under P.D. No. 27, it appears that said adjudged amount is in excess of the rightful amount that is due the defendant bank by the plaintiff. We hold, therefore, that the defendant bank is entitled to a payment of P87,012.00 representing the offer of the defendant bank to the plaintiff in the same bank's letter to the plaintiff dated February 15, 1971. The plaintiff is, therefore, entitled to a refund of whatever over payments were made by him in favor of the defendant bank. The amount of P87,012.00 represents the redemption price of the foreclosed properties and as a release of the said properties for redistribution to qualified tenants. (pp. 89-90,Rollo.)InDevelopment Bank of the Philippines vs. Mirang, 66 SCRA 141, we have ruled that the right of redemption by the mortgagor could be exercised by paying to the creditor bank all the amounts owing to the latter "on the date of the sale, with interest on the total indebtedness at the rate agreed upon in the obligation from said date." In the case of foreclosures by the Philippine National Bank particularly, Section 20 of its own charter provides:Sec. 20. Right of Redemption of property foreclosed. The mortgagor shall have the right, within the year after the sale of real estate as a result of the foreclosure of a mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage, and all the costs and other judicial expenses incurred by the Bank by reason of the execution and sale and for the custody of said property. (Republic Act No. 1300)Accordingly, the appellate court did not commit any reversible error in ordering petitioner bank and the Land Bank of the Philippines to recalculate the amounts of payments due for the transfer of the foreclosed property.WHEREFORE, the appealed decision is AFFIRMED.SO ORDERED.

4. Ortigas & Co. v. Feati Bank and Trust Co (94 SCRA 533)G.R. No. L-24670 December 14, 1979ORTIGAS & CO., LIMITED PARTNERSHIP,plaintiff-appellant,vs.FEATI BANK AND TRUST CO.,defendant-appellee.Ramirez & Ortigas for appellant.Taada, Teehankee & Carreon for appellee.SANTOS,J.:An appeal interposed on June 23, 1965 by plaintiff-appellant, Ortigas & Co., Limited Partnership, from the decision of the Court of First Instance of Rizal, Branch VI, at Pasig, Hon. Andres Reyes presiding, which dismissed its complaint in Civil Case No. 7706, entitled, "Ortigas & Company, Limited Partnership, plaintiff, v. Feati Bank and Trust Company, defendant," for lack of merit.The following facts a reproduction of the lower court's findings, which, in turn, are based on a stipulation of facts entered into by the parties are not disputed. Plaintiff (formerly known as "Ortigas, Madrigal y Cia") is a limited partnership and defendant Feati Bank and Trust Co., is a corporation duly organized and existing in accordance with the laws of the Philippines. Plaintiff is engaged in real estate business, developing and selling lots to the public, particularly the Highway Hills Subdivision along Epifanio de los Santos Avenue, Mandaluyong, Rizal.1On March 4, 1952, plaintiff, as vendor, and Augusto Padilla y Angeles and Natividad Angeles, as vendees, entered into separate agreements of sale on installments over two parcels of land, known as Lots Nos. 5 and 6, Block 31, of the Highway Hills Subdivision, situated at Mandaluyong, Rizal. On July 19, 1962, the said vendees transferred their rights and interests over the aforesaid lots in favor of one Emma Chavez. Upon completion of payment of the purchase price, the plaintiff executed the corresponding deeds of sale in favor of Emma Chavez. Both the agreements (of sale on installment) and the deeds of sale contained the stipulations or restrictions that:1. The parcel of land subject of this deed of sale shall be used the Buyer exclusively for residential purposes, and she shall not be entitled to take or remove soil, stones or gravel from it or any other lots belonging to the Seller.2. All buildings and other improvements (except the fence) which may be constructed at any time in said lot must be, (a) of strong materials and properly painted, (b) provided with modern sanitary installations connected either to the public sewer or to an approved septic tank, and (c) shall not be at a distance of less than two (2) meters from its boundary lines.2The above restrictions were later annotated in TCT Nos. 101509 and 101511 of the Register of Deeds of Rizal, covering the said lots and issued in the name of Emma Chavez.3Eventually, defendant-appellee acquired Lots Nos. 5 and 6, with TCT Nos. 101613 and 106092 issued in its name, respectively and the building restrictions were also annotated therein.4Defendant-appellee bought Lot No. 5 directly from Emma Chavez, "free from all liens and encumbrances as stated in Annex 'D',5while Lot No. 6 was acquired from Republic Flour Mills through a "Deed of Exchange," Annex "E".6TCT No. 101719 in the name of Republic Flour Mills likewise contained the same restrictions, although defendant-appellee claims that Republic Flour Mills purchased the said Lot No. 6 "in good faith. free from all liens and encumbrances," as stated in the Deed of Sale, Annex "F"7between it and Emma Chavez.Plaintiff-appellant claims that the restrictions annotated on TCT Nos. 101509, 101511, 101719, 101613, and 106092 were imposed as part of its general building scheme designed for the beautification and development of the Highway Hills Subdivision which forms part of the big landed estate of plaintiff-appellant where commercial and industrial sites are also designated or established.8Defendant-appellee, upon the other hand, maintains that the area along the western part of Epifanio de los Santos Avenue (EDSA) from Shaw Boulevard to Pasig River, has been declared a commercial and industrial zone, per Resolution No. 27, dated February 4, 1960 of the Municipal Council of Mandaluyong, Rizal.9It alleges that plaintiff-appellant 'completely sold and transferred to third persons all lots in said subdivision facing Epifanio de los Santos Avenue"10and the subject lots thereunder were acquired by it "only on July 23, 1962 or more than two (2) years after the area ... had been declared a commercial and industrial zone ...11On or about May 5, 1963, defendant-appellee began laying the foundation and commenced the construction of a building on Lots Nos. 5 and 6, to be devoted to banking purposes, but which defendant-appellee claims could also be devoted to, and used exclusively for, residential purposes. The following day, plaintiff-appellant demanded in writing that defendant-appellee stop the construction of the commerical building on the said lots. The latter refused to comply with the demand, contending that the building was being constructed in accordance with the zoning regulations, defendant-appellee having filed building and planning permit applications with the Municipality of Mandaluyong, and it had accordingly obtained building and planning permits to proceed with the construction.12On the basis of the foregoing facts, Civil Case No. 7706,supra, was submitted in the lower court for decision. The complaint sought, among other things, the issuance of "a writ of preliminary injunction ... restraining and enjoining defendant, its agents, assigns, and those acting on its or their behalf from continuing or completing the construction of a commercial bank building in the premises ... involved, with the view to commanding the defendant to observe and comply with the building restrictions annotated in the defendant's transfer certificate of title."In deciding the said case, the trial court considered, as the fundamental issue, whether or not the resolution of the Municipal Council of Mandaluyong declaring Lots Nos. 5 and 6, among others, as part of the commercial and industrial zone of the municipality, prevailed over the building restrictions imposed by plaintiff-appellant on the lots in question.13The records do not show that a writ of preliminary injunction was issued.The trial court upheld the defendant-appellee and dismissed the complaint, holding that the subject restrictions were subordinate to Municipal Resolution No. 27,supra. It predicated its conclusion on the exercise of police power of the said municipality, and stressed that private interest should "bow down to general interest and welfare. " In short, it upheld the classification by the Municipal Council of the area along Epifanio de los Santos Avenue as a commercial and industrial zone, and held that the same rendered "ineffective and unenforceable" the restrictions in question as against defendant-appellee.14The trial court decision further emphasized that it "assumes said resolution to be valid, considering that there is no issue raised by either of the parties as to whether the same is null and void.15On March 2, 1965, plaintiff-appellant filed a motion for reconsideration of the above decision,16which motion was opposed by defendant-appellee on March 17, 1965.17It averred, among others, in the motion for reconsideration that defendant- appellee "was duty bound to comply with the conditions of the contract of sale in its favor, which conditions were duly annotated in the Transfer Certificates of Title issued in her (Emma Chavez) favor." It also invited the trial court's attention to its claim that the Municipal Council had (no) power to nullify the contractual obligations assumed by the defendant corporation."18The trial court denied the motion for reconsideration in its order of March 26, 1965.19On April 2, 1965 plaintiff-appellant filed its notice of appeal from the decision dismissing the complaint and from the order of March 26, 1965 denying the motion for reconsideration, its record on appeal, and a cash appeal bond."20On April 14, the appeal was given due course21and the records of the case were elevated directly to this Court, since only questions of law are raised.22Plaintiff-appellant alleges in its brief that the trial court erred I. When it sustained the view that Resolution No. 27, series of 1960 of the Municipal Council of Mandaluyong, Rizal declaring Lots Nos. 5 and 6, among others, as part of the commercial and industrial zone, is valid because it did so in the exercise of its police power; andII. When it failed to consider whether or not the Municipal Council had the power to nullify the contractual obligations assumed by defendant-appellee and when it did not make a finding that the building was erected along the property line, when it should have been erected two meters away from said property line.23The defendant-appellee submitted its counter-assignment of errors. In this connection, We already had occasion to hold inRelativo v. Castro24that "(I)t is not incumbent on the appellee, who occupies a purely defensive position, and is seeking no affirmative relief, to make assignments of error, "The only issues to be resolved, therefore, are: (1) whether Resolution No. 27 s-1960 is a valid exercise of police power; and (2) whether the said Resolution can nullify or supersede the contractual obligations assumed by defendant-appellee.1. The contention that the trial court erred in sustaining the validity of Resolution No. 27 as an exercise of police power is without merit. In the first place, the validity of the said resolution was never questioned before it. The rule is that the question of law or of fact which may be included in the appellant's assignment of errors must be those which have been raised in the court below, and are within the issues framed by the parties.25The object of requiring the parties to present all questions and issues to the lower court before they can be presented to the appellate court is to enable the lower court to pass thereon, so that the appellate court upon appeal may determine whether or not such ruling was erroneous. The requirement is in furtherance of justice in that the other party may not be taken by surprise.26The rule against the practice of blowing "hot and cold" by assuming one position in the trial court and another on appeal will, in the words of Elliot, prevent deception.27For it is well-settled that issues or defenses not raised28or properly litigated29or pleaded30in the Court below cannot be raised or entertained on appeal.In this particular case, the validity of the resolution was admitted at least impliedly, in the stipulation of facts below. when plaintiff-appellant did not dispute the same. The only controversy then as stated by the trial court was whether or not the resolution of the Municipal Council of Mandaluyong ... which declared lots Nos. 4 and 5 among others, as a part of the commercial and industrial zone of the municipality, prevails over the restrictions constituting as encumbrances on the lots in question.31Having admitted the validity of the subject resolution below, even if impliedly, plaintiff-appellant cannot now change its position on appeal.But, assumingarguendothat it is not yet too late in the day for plaintiff-appellant to raise the issue of the invalidity of the municipal resolution in question, We are of the opinion that its posture is unsustainable. Section 3 of R.A. No. 2264, otherwise known as the Local Autonomy Act,"32empowers a Municipal Council "to adopt zoning and subdivision ordinances orregulations";33for the municipality. Clearly, the law does not restrict the exercise of the power through an ordinance. Therefore, granting that Resolution No. 27 is not an ordinance, it certainly is a regulatory measure within the intendment or ambit of the word "regulation" under the provision. As a matter of fact the same section declares that the power exists "(A)ny provision of law to the contrary notwithstanding ... "An examination of Section 12 of the same law34which prescribes the rules for its interpretation likewise reveals that the implied power of a municipality should be "liberally construed in its favor" and that "(A)ny fair and reasonable doubt as to the existence of the power should be interpreted in favor of the local government and it shall be presumed to exist." The same section further mandates that the general welfare clause be liberally interpreted in case of doubt, so as to give more power to local governments in promoting the economic conditions, social welfare and material progress of the people in the community. The only exceptions under Section 12 are existing vested rights arising out of a contract between "a province, city or municipality on one hand and a third party on the other," in which case the original terms and provisions of the contract should govern. The exceptions, clearly, do not apply in the case at bar.2. With regard to the contention that said resolution cannot nullify the contractual obligations assumed by the defendant-appellee referring to the restrictions incorporated in the deeds of sale and later in the corresponding Transfer C