GONZALES v RAQUIZA
FACTS
In 1967, the Commissioner of Public Highways (Baltazar Aquino) entered into 2 separate contracts for the importation of construction equipment with Continental Ore (Phil.) Inc., which acted as the representative of Huber Corporation (contract #1), and as agent of Allis-Chalmers International and General Motors Corporation (contract #2).
Under Contract #1, the Philippines was obligated to pay Huber Corporation $13.39M in the form of irrevocable, confirmed and divisible letters of credit in favor of Continental Ore Corporation for the purchase of road construction equipment and spare parts.
Under Contract #2, the Philippines was obligated to pay Continental Ore Corp. $21.08M in the form of irrevocable, confirmed, and divisible letters of credit; Allis-Chalmers International and General Motors Corporation would sell, transfer and convey to the Philippines road construction equipment and spare parts under the same terms and conditions stated in the first contract.
Both of these contracts were duly approved by Secretary Raquiza (Public Works and Communications) and the Auditor- General.
Upon application of the Bureau of Public Highways for the establishment of letters of credit with PNB, the latter approved such letters of credit provided that these be secured by the guaranty of the national government to be given by the Secretary of Finance and upon approval by the Office of the President. Accordingly, the Office of the President directed the Secretary of Finance to extend the necessary guaranty for the letters of credit in favor of these American corporations.
Gonzales, as taxpayer and stockholder of PNB, questioned the validity of the contracts on the ground that there was no appropriation for the payments and no certificate of availability of funds, as required by the Revised Administrative Code (Sec. 606, 607, 608), and for being violative of the PNB Charter since the accommodation or loan to the Philippines was beyond the lending capacity of the bank.
ISSUE
Whether the contracts are valid?
HELD
YES. These contracts do NOT involve directly the expenditure of public funds but a financing scheme under different laws. Sections 606 and 607 of the Revised Administrative Code are without question an implementation of Art. VI, Sec 23, Clause 2 of the 1935 Constitution (then applicable), which provides that: “No money shall be paid out of the Treasury except in pursuance of an appropriation made by law.” Said provision was restated in toto in the 1975 Constitution and in the present Constitution. The contracts do not involve an immediate payment but a repayment over a period of several years.
In a strict sense, appropriation has been defined “as nothing more than the legislative authorization prescribed by the Constitution that money may be paid out of the Treasury,” while appropriation made by law refers to the act of the legislature setting apart or assigning to a particular use a certain sum to be used in the payment of debt or dues from the State to its creditors. Thus, no money can be taken out of the Treasury without an appropriation, which must be made only for the amounts demandable.
These contracts constitute negotiated sale on credit where the Bureau of Public Works is not required to make direct or immediate payment. Without abandoning the constitutional and legal safeguards against the indiscriminate disbursements of the public funds, the Court takes judicial notice of the imperatives of national development that demand immediate implementation of programs, the funding of which cannot be appropriated simply because there are no sufficient funds.
Moreover, under RA 4680, the President is authorized to contract indebtedness to finance economic development projects, upon such terms and conditions as may be agreed upon for the purpose of financing economic development purposes or projects authorized by law, including the construction and improvement of highways and bridges. Indeed, RA 4680 authorizes procurement on credit when there are no available funds or appropriation.
