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Araullo v. Aquino
July 1, 2014
Main issue: 9 petitions assail the constitutionality of the Disbursement
Acceleration Program (DAP), National Budget Circular No. 5411 and the related
issuances of DBM to implement DAP.
According to petitioners, DAP is a violation of Sec. 29 (1), Article VI of the 1987
Constitution: no money shall be paid out of the Treasury except in pursuance of
an appropriation made by law.
Antecedents
In a privilege speech, Jinggoy Estrada revealed that some Senators had
been allotted additional 50 Million each as an incentive in voting for the
impeachment of CJ Corona.
DBM Sec, Florencio Abad issued a public statement. He said the
following:
o The release of the said funds were based on Senators letter of
request
o DAP was used to ramp up spending
o He also said the common sources of DAP
In its website, DBM claimed that DAP releases had been derived from
savings and from unprogrammed funds and also from:
1.
pooling of unreleased appropriations that would lapse at
the end of the year and unreleased appropriations of slowmoving projects and discontinued projects
2.
withdrawal of unobligated allotments
DBM also gave the legal bases for DAP
1. Sec. 25(5), Article VI of the Constitution
2. Administrative Code of 1987
3. GAAs of 2011, 2012 and 2013
OVERVIEW OF THE BUDGET SYSTEM
A. Origin of the Budget System
Budgetfrom the latin word bulga which means bag or purse
- Financial plan of the government or the master plan of the
government
Concept of Budgeting
- an idea that existed from the creation of the State
- to protect the people, government must perform vital functions that
required public expenditures
Philippine Budget System is presently guided by two principal objectives:
(1) to carry on all government activities under a comprehensive fiscal
plan developed, authorized, and executed in accordance with the
Constitution, prevailing statutes and the principles of sound
public management

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(2) periodic review and disclosure of the budgetary status of the
Government in such detail so that persons entrusted by law with the
responsibility as well as the enlightened citizenry can determine the
adequacy of the budget actions taken, authorized, authorized,
proposed, as well as the true financial position of the Government
B. Evolution of the Philippine Budget System
1. Jones Law
2. 1935 Constitution
3. EO. No. 25
4. CA No. 246- first budget law; line-item budget as framework; balanced
budget
5. RA 992- introduction of performance budgeting
6. 1973 Constitution
7. PD 1177
8. EO 291 Office of the Budget Management became the Department of
Budget and Management (DBM)

C. The Philippine Budget Cycle

1. Budget Preparation
a. Issuance of a Budget Call by the DBM. Has two kinds
i. National budget call
ii. Corporate budget call
b. Agency Budget Proposals
c. Consolidated agency budget proposals into the National
Expenditure Program (NEP) and a Budget Expenditures and
Sources of Financing (BESF). NEP provides the details of
spending and submitted in the form of a proposed GAA
d. NEP and BESF are presented to the President and the Cabinet
Public or government expenditures are classified into two:
(a) Capital expenditures or outlays- usefulness lasts for more than a
year, adds to the assets of the government including investments in
GOCCs
(b) Current operating expenditures- does not extend beyond the fiscal
year. Has two components:
a. Personal services (PS)
b. Maintenance and other operating expenses (MOOE)
Public expenditures grouped according to their functions:
e. economic development
f. social services or social development
g. general government or general public services
h. national defense
i. public debt

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Public revenue complement public expenditures
According to Adam Smith, there are two principal sources of public revenue:
(1) funds which peculiarly belongs to the sovereign or commonwealth and
independent of the revenue of the people
(2) from the revenue of the people
Smith relied on two aspects of the nature of the State:
(1) State as a juristic person with an artificial personality could hold property
and engage in trade
(2) State as a sovereign has the power to impose charges on the revenues
of its subjects in the form of taxes
In the Philippines, the following are sources of public revenues:
(1) tax revenues
(2) capital revenues
(3) grants
(4) extraordinary income
(5) public borrowings
2. Budget Legislation
- period from the time Congress receives the Presidents Budget up to
the Presidents approval of the GAA
a. assigned to the House of Representatives Appropriations
Committee who will schedule and conduct budget hearings
draft of the GAB
b. sponsored, presented and defended by the HoRs
Appropriations Committee in plenary
c. approved on third reading
d. transmitted to the Senate
e. Senate conducts its own committee hearings (may conduct
hearings simultaneously with the House BUT it can only submit
proposed amendments to the GAB to the plenary of the Senate
ONLY after the House of Representatives has formally
transmitted its version to the Senate) approved upon third
readins
f. Bicameral Conference Committee
g. Presented to the President for approval
h. Congress failed to pass GAA for the preceding fiscal year
shall be deemed re-enacted and shall remain in force and effect
until GAB is passed by the Congress

3. Budget Execution
- Primarily the function of the DBM to perform the following
(1) issue programs and guideline for the release of funds
(2) prepare an Allotment and Cash Release Program
(3) release allotments
(4) issue disbursement authorities

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implementation of the GAA is directed by the guidelines issued by the

DBM
- Departments/agencies are required to submit Budget Execution
Documents (BED)
- DBM prepated a an Allotment Release Program and a Cash Release
Program
- Allotments authorize an agency to enter into obligations; issued by
the DBM. Different from an appropriation. Comes in two forms:
(1) Agency Budget Matrix (ABM)- comprehensive
(2) SARO- individually
- with either ABM or SARO, agencies become authorized to incur
obligations on behalf of the government to implement their PAPs
- Actual disbursement or spending of government funds terminates the
the Budget Executive phase
4. Accountability
- Ensures that the government funds have been effectively and
efficiently utilized to achieve the States socio-economic goals
- Allows the DBM to assess the performance of agencies
D. Nature of the DAP as a fiscal plan
a. Was a program designed to promote economic growth
b. WB observed that the PH economy was being hampered by the
underspending of the government
c. DAP was a stimulus package to intended to fast-track public
spending and to push economic growth by investing on high-impact
PAPs to be funded from the savings generated during the year as
well as from unprogrammed funds
d. Did it work? YES. It was partially susccessful
ISSUES:
Procedural Issue
1. WON certiorari, prohibition and mandamus are proper remedies to assail
the constitutionality of DAP
2. WON there a controversy ripe for judicial determination
3. WON petitioners have the legal standing
Substantive Issues
1. WON DAP violated Sec. 29, Article VI of the Constitution (no money shall
be paid out of the Treasury except in pursuance of an appropriation made
by law)
2. WON it violated Sec. 25 (5), Article VI of the Constitution
3. WON DAP violates
a. Equal protection clause
b. System of Checks and Balances
c. Principle of Public Accountability
4. WON factual and legal justification exists to issue TRO to restrain
implementation of DAP

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5. WON the release of the unprogrammed funds under the DAP was in
accord with the GAAs
HELD/ RATIO
Procedural Issues
Arguments of RESPONDENTS:
- No actual controversy ripe for adjudication
- Petitioners lack legal standing
- Standing as taxpayers cannot be considered because DAP does not
involve the taxing or spending power of the Congress
WON certiorari, prohibition and mandamus are proper remedies to assail the
constitutionality of DAP
YES
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the petitions fall under Rule 65 of the Rules of Court

Respondents arguments are bereft of merit

Why?
Sec. 1, Article VIII of the Constitution
The judicial power shall be vested in one Supreme Court and in such lower courts as may be
provided by law
Judicial power includes:
(1) settle actual controversies involving rights that are legally demandable and enforceable
(2) determine whether there was a grave abuse of discretion amounting to lack or excess
jurisdiction
Expansion of Judicial Power under the 1987 Constitution:
Presidential system of government involves the principle of separation of power
Courts determine the limits of power of the agencies and offices of the government as well
as those of its officers
In time of social disquietude or political excitement, the great landmarks of the Constitution are
apt to be forgotten or marred if not entirely obliterated. In cases of conflict, the judicial
department is the only constitutional organ which can be called upon to determine the proper
allocation of powers between the several department and among the integral or constituent
units thereof.
Concept of JUDICIAL SUPREMACY
- the Constitution itself has provided for the instrumentality of the judiciary as the rational
way to determine the nature and extent of the powers of government in the Constitution
Two civil actions for determining and correcting grave abuse of discretion amounting to lack or
excess of jurisdiction (Rule 65 of the Rules of Court

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(1) Certiorari
(2) Prohibition
CERTIORARI
- The writ enables the superior court to determine from an inspection of the record
whether the inferior courts judgment was rendered without authority.
- Abuse of discretion must be grave (arbitrary of despotic manner by reason of passion, a
capricious or whimsical manner)
- CORRECTIVE REMEDY
PROHIBITION
- PREVENTIVE
- NOT a proper remedy to assail an IRR
- Extraordinary writ: ordering persons or entities to desist from further proceedings when
said proceedings are without or in excess of said entitys or persons jurisdiction
- Lies against judicial or ministerial functions, but not against legislative or quasilegislative functions.
To invalidate an IRR, petitioners remedy is an ordinary action for its nullification.
With respect to the Court, remedies of certiorari and prohibition are necessarily broader in
scope and reach
The petitions for certiorari and prohibition are appropriate remedies to raise constitutional
issues and to review and/or prohibit or nullify acts of legislative and executive officials
Consistent with the republican system of checks and balances
In the case at bar, the Court does not refrain from excersing judicial power to review and
determine, with authority, the limitations on the Chief Executives spending power
Requisites for the exercise of the power of judicial review
(1) actual case or controversy
(2) ripe for adjudication
(3) legal standing (proper party)
(4) issue of constitutionality must be raised at the earliest opportunity and must be the very
lis mota of the case
The case met all the requirements listed above.
(1) assertion of opposite legal claims
(2) Ripechallenged executive acts were already being implemented by DBM (involves
allocation and expenditure of huge sums of public funds)
Also, termination of DAP did not moot the case.
Moot and academic caseone that ceases to present a justiciable controversy by virtue
of supervening events, so that a declaration thereon would be of no practical use or
value
(3) Legal standing as mere procedural technicality may be waived in the exercise of
discretion of the Courti.e., transcendental importance, far reaching implications
Standing is a peculiar concept in constitutional lawin some cases, suits are not

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brought by parties who are directly injured
(a) citizens suit- mere instrument of the public concern
(b) taxpayers suit- affected by the expenditure of public funds
The case at bar involves the issue of the extent of the power of the Chief Executive to
disburse, and allocate public funds. This is an issue of transcendental importance to the entire
Nation.

SUBSTANTIVE ISSUES
1. WON DAP violated Sec. 29, Article VI of the Constitution (no money shall be paid
out of the Treasury except in pursuance of an appropriation made by law)
Petitioner: DAP was not included in GAAs 2011, 2012, 2013
OSG: No law was necessary because it is neither a fund not an appropriation, but an
administrative system of prioritizing spending; DAP was within the authority of the President to
ensure that laws are faithfully executed
HELD:
DAP was not an appropriation measure; hence no appropriation law was required to adopt it.
It is a government policy.
Included in the function of the Executive as the main actor in the budget execution stage
President has the duty to faithfully execute the laws. Thus, he has the discretion during the
execution of the budget to adapt the budget to changes in the countrys economic situation.
He could pool the savings and identify the PAP to be funded under DAP.
The pooling of savings did not involve appropriation in the strict sense since the money had
been already set apart from the public treasury by Congress. No usurpation of the power of
the Congress.
2. WON it violated Sec. 25 (5), Article VI of the Constitution
No law shall be passed authorizing any transfer of appropriations; however, the
President, the President of the Senate, the Speaker of the House of Representatives,
the Chief Justice of the Supreme Court and the heads of Constitutional Commissions
may, by law, be authorized to augment any item in the general appropriations law for
their respective offices from savings in other items of their respective appropriations
YES
Although executive discretion and flexibility are necessary in the execution of the budget, any
transfer of appropriated funds should conform to Section 25(5), Article VI (power to augment

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funds)
Reason of the law
Congress cannot anticipate changes that may happen in a fiscal year. Not
practicable for the Congress to adjust to each new development by passing separate
supplemental appropriation bill
President requires flexibility in their operations under performance budgeting to
make whatever adjustments are needed to changing needs. This is given by the power
to augment funds. Also necessary for sound fiscal administration
Keeps a tight rein on the exercise of power to transfer funds appropriated by
Congress by the President
Sec. 25(5), Article VI is the only exception to the general rule that the budgetary
amount contained in the appropriations bill is the extent Congress will determine the as
sufficient for the budgetary allocation for the proponent agency
Strict construction of the exception(an express exception excludes all others)
Requisites of a valid transfer of appropriated funds:
(1) there is a law authorizing the President, et cetera to transfer funds in their respective
offices (the provision is NOT self-executing)
(2) funds to be transferred are savings generated from the appropriations for their
respective offices
(3) the purpose of the transfer is to augment an item in the general appropriations law for
their respective offices
Application of the requisites to the DAP:
First Requisite: GAAs of 2011 and 2012 lacked valid provisions to authorize transfers of funds
under DAP hence the transfer under DAP were unconstitutional
Second Requisite: Not derived from savings
What are savings?
Petitioners: DAP was not derived from savings. There could only be savings if the
PAPs for which funds had been appropriated were actually implemented. That the
funds for slow-moving PAPs could not be considered as savings because they had not
been actually abandoned or discontinued yer
OSG: It is the President who ultimately determines which savings actually existed
because savings are determined during budget execution
Court: Principles needed to understand the meaning of savings
(1) Congress has the power of the purse
(2) Executive is tasked to enforce laws (faithful execution)
(3) Presidents power to augment is operative under the GAA. Congress only delegates
a fraction of its power to the Executive
(4) Savings should be ACTUAL. something real or substantial
Definition of savings in GAA for 2011, 2012, 2013
Savings refer to portions or balances of any programmed appropriation in this Act free from

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any obligation of encumbrance which are:
(i)
still available after the completion or final discontinuance or abandonment of the
work, activity or purpose for which the appropriation was authorized
(ii)
from appropriation balances arising from unpaid compensation and related costs
pertaining to vacant positions and leaves of absence without pay
(iii)
from appropriations balances realized from the implementation measures resulting
in improved systems and inefficiencies and thus enables agencies to meet and
deliver the required or planned targets
According to DBM, DAP came from unrealeased appropriations such as PS appropriations
that will lapse by the year ends, unrealesed appropriations of slow moving projects and
discontinued projects
Unrealeased or unalloted not ripened into category of item from which a saving may be
generated.
HELD: Thus, to consider unreleased appropriations as savings undercut the congressional
power of the powers because the appropriation had not even reached nor been used by the
agency concerned
UNOBLIGATED ALLOTMENT- any portion or balance of any programmed appropriation in
this Act free from any obligation or encumberance
DBM: withdrawal of unobligated allotments would be based on whether the allotment
pertained to slow-moving projects or not. NBC. No. 541 did not indicate a criteria for the
withdrawal
In the 2012 GAA, the appropriations for MOOE and capital outlays shall be available for a
period extending to one fiscal year BUT DBM Secretary Abad even asked for an omnibus
authority from the President to consolidate savings and unutilized balances to fund the DAP
on a quarterly basis. Thus, the validity of the appropriations involved in DAP were shortened.

Issue of Impoundment
Petitioners: withdrawal of unobligated allotments is akin to impoundment.
OSG: the policy did not involve impoundment because impoundment referred to decision of
the Executive to refuse to spend funds for political or ideological reasons
Court: IMPOUNDMENT- refusal by the President, for whatever reason, to spend funds made
available by Congress. Under the GAA, it means the retention or deduction of appropriations.
DAP does not involve impoundment. It only entailed transfer of funds NOT retention or
deduction of appropriations.
Also DBM did not suspend or stop expenditures.
Third Requisite: No funds from savings could be transferred under the DAP to augment
deficient items NOT provided in the GAA
The savings pooled under the DAP were allocated to PAPs that were not covered by any

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appropriations in the pertinent GAAs.
Example:DREAM project under the DOST exceeded by almost 300% the appropriation by
Congress for the program
OSG: President has the sound discretion in implementing the budget given the generality in
the language and broad policy objective identified under the GAAs
Court: It is true that President has the discretion under the faithful execution clause BUT he
cannot substitute his own will for that of the Congress. He still needs to remain faithful to the
GAAs since the power to spend of the President was merely delegated to him by congress
Congresss POWER OF THE PURSE
(1) acts as the guardian of the public treasury
(2) capacity to generate money for the government through tax
(3) appropriate public funds
(4) spend the money (identify PAPs where the funds will go)
Two governing principles of appropriation:
(1) Principle of Public Fisc- asserting that all monies received from whatever source by
any part of the government are public funds
(2) Principle of Appropriations Control- prohibition of expenditure without legislative
authorization
CROSS-BORDER AUGMENTATIONS
for their respective offices (Sec. 25 (5), Article VI)
--delineated borders between their offices
--President only limited to the transfer/augmentation of funds in the entire Executive
department, Senate President to the Senate and so on
In the case at bar, Abad admitted cross-border augmentations
Instances of cross-border augmentations:
(1) House of Representatives for building their e-library (143 Million)
(2) Commission on Audits good governance programs. They needed funds for IT
equipment as well as to hire consultants and litigants (250 Million)
Respondents tried to justify these transfers by saying that the President merely gives them
access to public funds and do not dictate how the funds shall apply thus it still provides fiscal
autonomy.
Also Justice Mendoza, during the oral arguments argued that the transfers were not
augmentations but merely aids to other departments.
According to the Court, regardless of the characterization of the cross-border transfer of
funds, the plain text of Sec. 25(5), disallowing cross border transfers was disobeyed.
4. WON the release of the unprogrammed funds under the DAP was in accord with
the GAAs
NO. it violated the provision of the GAAs by failing to meet the requirements for the release of

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unprogrammed funds
According to respondents could be availed when any of the following occur:
(1) revenue collections exceeded the original reveue targets proposed by the President to
the Congress
(2) New revenues were collected or realized from sources not originally considered in
BSEFs
(3) Newly approved loans for foreign assisted projects
COURT: The BSEFS for 2011, 2012, 2013 uniformly defined unprogrammed appropriationsappropriations that provided standby authority to incur additional agency obligations for
priority PAPs when:
(1) revenue collections exceeded targets
(2) additional foreign funds are generated
contrary to the claim of the OSG there are only two instances when unprogrammed
funds may be released
Clarifications made by the court
- additional revenues from sources not considered in the revenue target would not be
enough. Total revenue collections must still exceed the original revenue target would
not be enough
- phrase revenue collections should exceed the original revenue targets means
TOTAL revenue collections must exceed TOTAL revenue generated
Why? Unprogrammed funds are standby funds. If we consider revenue targets
individually, as argued by the respondents, then we would be dealing with artificial
surpluses. We will be disregarding the budget plan and foster budget deficits.
5. WON DAP violated equal protection clause, checks and balances and principle
of public accountability
Petitioners Arguments:
1. Equal protection only released to selected legislators; no reasonable classification was
used as basis for release of funds
2. Checks and balances the President arrogated unto himself the power of appropriation
vested in Congress
3. Public Accountability- legislators relinquished the power of appropriation to the
Executive, and exhibited a reluctance to inquire into the legality of DAP
HELD:
Equal Protection clause- NO.
- claims of the petitioners lack legal and factual basis
- the allegation that it stayed the hands of the legislators in conducting legislative inquiry
is mere speculative
Checks and Balances YES
- refer to the expositions above
Principle of Public Accountability-NO
- DAP is a policy of the executive department which sought to ramp up or accelerate the
economy
6. WON the doctrine of operative fact is applicable to the case (Consequences of the

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Decision)
YES.
Article 7 of the Civil Code applies to this case:
Laws are repealed only by subsequent one and their violation or non-observance shall not be
excused by disuse, or custom or practice to the contrary
General Rule: an unconstitutional act, suffering from unconstitutional infirmity, cannot be
the source of any legal rights or duties
Doctrine of Operative Fact:
- the exception to the general rule
- that there was a valid statute prior to the declaration of unconstitutionality made by the
Court is an operative fact and may have consequences which cannot justly be ignored.
- Doctrine nullifies the void law or executive act but sustains its effects. It is based on
the principles of equity and fair play.
- Not confined to statutes but also to executive acts (decisions, orders, et cetera) but nor
to mere administrative practice.
- Only applies when the declaration of unconstitutionality would create unjustice
In the case at bar, DAP is a policy, transcended mere administrative practice.
Doctrine to operative fact would only apply to PAPs that can no longer be undone but cannot
apply to the authors, proponents, and implementors of the DAP, unless there are concrete
findings of good faith in their favor by the proper tribunals determining their criminal, civil,
administrative, and other liabilities.
DISPOSITIVE
- Partial grant of the petitions for certiorari and prohibition
- DAP, NBS 541 and other related executive issuances as unconstitutional
for violation of Sec.25(5), Article VI of the 1987 Constitution and doctrine
of separation of powers, due to the following:
o Withdrawal of unobligated allotments and declaration of the
withdrawal of unobligated allotments and unreleased appropriations
as savings prior to the end of the fiscal year without complying to
the statutory definition of savings in the GAAs
o Cross border transfers to offices outside the Executive department
o Funding projects not included in the GAA
- Void the use of unprogrammed funds for failure to comply with the
conditions provided in the relevant GAAs for release of such funds.