FACTS: 

In 1976 President Marcos enacted P.D. 961, the Coconut Industry Code, which consolidated and codified existing laws relating to the coconut industry. The Code provided that surpluses from the CCS Fund and the CID Fund collections, not used for replanting and other authorized purposes, were to be invested by acquiring shares of stock of corporations, including the San Miguel Corporation (SMC), engaged in undertakings related to the coconut and palm oil industries. UCPB was to make such investments and equitably distribute these for free to coconut farmers. These investments constituted the Coconut Industry Investment Fund (CIIF). P.D. 961 also provided that the coconut levy funds (coco-levy funds) shall be owned by the coconut farmers in their private capacities.

ISSUE:

Does appropriating public funds violate substantive due process?

RULING: 

Yes.

The coco-levy funds were raised pursuant to law to support a proper governmental purpose. They were raised with the use of the police and taxing powers of the State for the benefit of the coconut industry and its farmers in general. The Court has also recently declared that the coco-levy funds are in the nature of taxes and can only be used for public purpose.

In COCOFED v. Republic, the Court held as unconstitutional Section 2 of P.D. 755 for “effectively authorizing the PCA to utilize portions of the CCS Fund to pay the financial commitment of the farmers to acquire UCPB and to deposit portions of the CCS Fund levies with UCPB interest free. And as there also provided, the CCS Fund, CID Fund and like levies that PCA is authorized to collect shall be considered as non-special or fiduciary funds to be transferred to the general fund of the Government, meaning they shall be deemed private funds.”

Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and Article III, Section 5 of P.D. 1468 completely ignore the fact that coco-levy funds are public funds raised through taxation. And since taxes could be exacted only for a public purpose, they cannot be declared private properties of individuals although such individuals fall within a distinct group of persons.

But the assailed provisions, which removed the coco-levy funds from the general funds of the government and declared them private properties of coconut farmers, do not appear to have a color of social justice for their purpose. The declarations do not distinguish between wealthy coconut farmers and the impoverished ones. Consequently, such declarations are void since they appropriate public funds for private purpose and, therefore, violate the citizens’ right to substantive due process.