CASE BrieF NO. 2009-1455


“A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed.


CASE: Manuel N. Mamba, Raymund P. Guzman and Leonides N. Fausto vs. Edgar R. Lara et. al. [G.R. No. 165109 December 14, 2009]

PONENTE: Associate Justice Mariano Del Castillo

SUBJECT:

  1. POLITICAL LAW:
    i. Taxpayer’s suit
    Requisites
    Legal Standing
    ii. Political Question
    iii. Expanded jurisdiction of the Supreme Court
  2. REMEDIAL LAW:
    i. Section 5, Rule 15 of the Rules of Court – Substantial compliance

FACTS:        Several Resolutions were passed by theSangguniang Panlalawigan of Cagayan, among which are the following:

  1. Resolution authorizing Governor Edgar R. Lara (Gov. Lara) to engage the services of Preferred Ventures Corporation as financial advisor for the issuance and flotation of bonds to fund the priority projects of the governor.
  2. Resolution authorizing Gov. Lara to negotiate, sign and execute contracts or agreements pertinent to the flotation of the bonds of the provincial government in an amount not to exceed ₱500 million for the construction and improvement of priority projects.
  3. Resolution ratifying the Cagayan Provincial Bond Agreements entered into by the provincial government, represented by Gov. Lara, to wit:
    i.        Trust Indenture with the Rizal Commercial Banking Corporation (RCBC)
    ii.       Deed of Assignment by way of security with the RCBC and the Land Bank of the Philippines (LBP).
    iii.      Transfer and Paying Agency Agreement with the RCBC – Trust and Investment Division.
    iv.      Guarantee Agreement with the RCBC – Trust and Investment Division and MICO.
    v.       Underwriting Agreement with RCBC Capital Corporation.
  4. Resolution ratifying the Agreement for the Planning, Design, Construction, and Site Development of the New Cagayan Town Center entered into by the provincial government, represented by Gov. Lara, and Asset Builders Corporation.

On May 20, 2003, Gov. Lara issued the Notice of Award to Asset Builders Corporation, giving to the latter the planning, design, construction and site development of the town center project for a fee of ₱213,795,732.39. 

Manuel N. Mamba, Raymund P. Guzman and Leonides N. Fausto (Mamba et. al) filed a Petition for Annulment of Contracts and Injunction with prayer for a TRO against Edgar R. Lara et. al (respondents).

In response to the petition, respondents filed an Answer with Motion to Dismiss, raising, among others, the following defenses: a) Lara et. al. are not the proper parties or they lack locus standi in court; b) the issues raised are not justiciable questions but purely political.

Not long after, Lara et. al. filed a Motion to Admit Amended Petition.  In its Amended Petition, it added the Provincial Government of Cagayan as Petitioner.

The RTC issued the assailed Order denying the Motion to Admit Amended Petition and dismissing the petition for lack of cause of action. In addition, it ruled that “on the assumption that the controversy presents justiciable issues xxx, petitioners in the present case who presumably presented legitimate interests in the controversy are not parties to the questioned contract. Contracts produce effect as between the parties who execute them. Only a party to the contract can maintain an action to enforce the obligations arising under said contract.”

Lara et. al. filed a Motion for Reconsideration to which respondents filed their respective Oppositions.  Lara et. al. then filed a Motion to Inhibit, which the court granted. Accordingly, the case was re-raffled to Branch 1 of the RTC of Tuguegarao City. 

The RTC of Tuguegarao City issued a Resolution denying Lara et. al.’s MR. The court found the motion to be a mere scrap of paper as the notice of hearing was addressed only to the Clerk of Court in violation of Section 5, Rule 15 of the Rules of Court. As to the merits, the court sustained the findings of Branch 5 that Lara et. al. lack legal standing to sue and that the issue involved is political.

ISSUES:

A. Whether Lara et. al. have legal standing to sue as taxpayers.     
a. Whether the suing taxpayer must be a party to a contract before he can challenge its validity.
b. What are the requisites for a taxpayer’s suit to prosper?

B. Whether the controversy involved is justiciable.
a. What is political question?

C. Whether the Motion to Admit Amended Petition was properly denied.

D. Whether Section 5, Rule 15 of the Rules of Court was substantially complied with.

RULING:

A.       A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that the public money is being deflected to any improper purpose, or that there is wastage of public funds through the enforcement of an invalid or unconstitutional law (Constantino, Jr. v. Cuisia, G.R. No. 106064, October 13, 2005). A person suing as a taxpayer, however, must show that the act complained of directly involves the illegal disbursement of public funds derived from taxation [Bagong Alyansang Makabayan v. Zamora, 396 Phil. 623, 647 (2000)].  He must also prove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will sustain a direct injury because of the enforcement of the questioned statute or contract.  In other words, for a taxpayer’s suit to prosper, two requisites must be met: (1) public funds derived from taxation are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed and (2) the petitioner is directly affected by the alleged act.

In light of the foregoing, it is apparent that a taxpayer need not be a party to the contract to challenge its validity (Abaya v. Ebdane, Jr., G.R. No. 167919, February 14, 2007).  As long as taxes are involved, people have a right to question contracts entered into by the government.

In this case, although the construction of the town center would be primarily sourced from the proceeds of the bonds, which respondents insist are not taxpayer’s money, a government support in the amount of ₱187 million would still be spent for paying the interest of the bonds.  In fact, a Deed of Assignment was executed by the governor in favor of respondent RCBC over the Internal Revenue Allotment (IRA) and other revenues of the provincial government as payment and/or security for the obligations of the provincial government under the Trust Indenture Agreement dated September 17, 2003. Records also show that on March 4, 2004, the governor requested the Sangguniang Panlalawigan to appropriate an amount of ₱25 million for the interest of the bond. Clearly, the first requisite has been met.

As to the second requisite, the Court has relaxed the stringent “direct injury test” bearing in mind that locus standi is a procedural technicality.  By invoking “transcendental importance”, “paramount public interest”, or “far-reaching implications”, ordinary citizens and taxpayers were allowed to sue even if they failed to show direct injury (David v. Macapagal-Arroyo, G.R. Nos. 171396 May 3, 2006). In cases where serious legal issues were raised or where public expenditures of millions of pesos were involved, the court did not hesitate to give standing to taxpayers. 

To begin with, the amount involved in this case is substantial. Under the various agreements entered into by the governor, which were ratified by the Sangguniang Panlalawigan, the provincial government of Cagayan would incur a total cost of ₱231,908,232.39.

Without a doubt, the resolution of the present petition is of paramount importance to the people of Cagayan who at the end of the day would bear the brunt of these agreements.

Another point to consider is that local government units now possess more powers, authority and resources at their disposal, which in the hands of unscrupulous officials may be abused and misused to the detriment of the public. To protect the interest of the people and to prevent taxes from being squandered or wasted under the guise of government projects, a liberal approach must therefore be adopted in determining locus standi in public suits.

In view of the foregoing, Lara et.al. have sufficient standing to file the present suit.

B.       A political question is a question of policy, which is to be decided by the people in their sovereign capacity or by the legislative or the executive branch of the government to which full discretionary authority has been delegated. 

In filing the instant case before the RTC, Lara et. al. seek to restrain respondents from implementing the bond flotation and to declare null and void all contracts related to the bond flotation and construction of the town center. In the petition before the RTC, they alleged grave abuse of discretion and clear violations of law by public respondents. They put in issue the overpriced construction of the town center; the grossly disadvantageous bond flotation; the irrevocable assignment of the provincial government’s annual regular income, including the IRA, to respondent RCBC to cover and secure the payment of the bonds floated; and the lack of consultation and discussion with the community regarding the proposed project, as well as a proper and legitimate bidding for the construction of the town center.

Obviously, the issues raised in the petition do not refer to the wisdom but to the legality of the acts complained of. Thus, we find the instant controversy within the ambit of judicial review. Besides, even if the issues were political in nature, it would still come within our powers of review under the expanded jurisdiction conferred upon us by Section 1, Article VIII of the Constitution, which includes the authority to determine whether grave abuse of discretion amounting to excess or lack of jurisdiction has been committed by any branch or instrumentality of the government. 

C.       The denial of the Motion to Admit Amended Petition was proper. The inclusion of the province of Cagayan as a petitioner would not only change the theory of the case but would also result in an absurd situation. The provincial government, if included as a petitioner, would in effect be suing itself considering that public respondents are being sued in their official capacity.

In any case, there is no need to amend the petition because petitioners (Lara et. al.), as we have said, have legal standing to sue as taxpayers.

D.      The Motion for Reconsideration filed by Lara et. al. show that the notice of hearing was addressed only to the Clerk of Court in violation of Section 5, Rule 15 of the Rules of Court, which requires the notice of hearing to be addressed to all parties concerned. This defect, however, did not make the motion a mere scrap of paper. In this case, respondents were furnished copies of the motion, and consequently, notified of the scheduled hearing. Counsel for public respondents in fact moved for the postponement of the hearing, which the court granted.  Moreover, respondents were afforded procedural due process as they were given sufficient time to file their respective comments or oppositions to the motion. From the foregoing, it is clear that the rule requiring notice to all parties was substantially complied with. In effect, the defect in the Motion for Reconsideration was cured.

It cannot be overemphasized that procedural rules are mere tools to aid the courts in the speedy, just and inexpensive resolution of cases (Incon Industrial Corporation v. Court of Appeals, G.R. No. 161871, July 24, 2007).  Procedural defects or lapses, if negligible, should be excused in the higher interest of justice as technicalities should not override the merits of the case. Dismissal of cases due to technicalities should also be avoided to afford the parties the opportunity to present their case. Courts must be reminded that the swift unclogging of the dockets although a laudable objective must not be done at the expense of substantial justice (Tacloban II Neighborhood Association, Inc. v. Office of the President, G.R. No. 168561, September 26, 2008).

Related CASE BrieFs:

  1. Constantino, Jr. v. Cuisia, G.R. No. 106064, October 13, 2005
  2. Bagong Alyansang Makabayan v. Zamora, 396 Phil. 623, 647 (2000)
  3. Abaya v. Ebdane, Jr., G.R. No. 167919, February 14, 2007
  4. David v. Macapagal-Arroyo, G.R. Nos. 171396 May 3, 2006
  5. Incon Industrial Corporation v. Court of Appeals, G.R. No. 161871, July 24, 2007
  6. Tacloban II Neighborhood Association, Inc. v. Office of the President, G.R. No. 168561, September 26, 2008

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THINGS DECIDED:

  1. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that the public money is being deflected to any improper purpose, or that there is wastage of public funds through the enforcement of an invalid or unconstitutional law.
  2. For a taxpayer’s suit to prosper, two requisites must be met: (1) public funds derived from taxation are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed and (2) the petitioner is directly affected by the alleged act.
  3. A taxpayer need not be a party to the contract to challenge its validity.  As long as taxes are involved, people have a right to question contracts entered into by the government.
  4. By invoking “transcendental importance”, “paramount public interest”, or “far-reaching implications”, ordinary citizens and taxpayers were allowed to sue even if they failed to show direct injury. In cases where serious legal issues were raised or where public expenditures of millions of pesos were involved, the court did not hesitate to give standing to taxpayers. 
  5. A political question is a question of policy, which is to be decided by the people in their sovereign capacity or by the legislative or the executive branch of the government to which full discretionary authority has been delegated. 
  6. Even if the issues were political in nature, it would still come within our powers of review under the expanded jurisdiction conferred upon us by Section 1, Article VIII of the Constitution, which includes the authority to determine whether grave abuse of discretion amounting to excess or lack of jurisdiction has been committed by any branch or instrumentality of the government. 
  7. Procedural rules are mere tools to aid the courts in the speedy, just and inexpensive resolution of cases. Procedural defects or lapses, if negligible, should be excused in the higher interest of justice as technicalities should not override the merits of the case.

‘Stand by things decided’ ~ Stare Decisis


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