create a fund by appropriating two dollars each month for that purpose" (Pension fund),

and the Court then holds that the two dollars a month was not a contribution by the police, but that the State created "a fund by appropriating two dollars each month for that purpose, * *

་་

This Pennie case would be in point in construing the Teachers' Annuity Act if the only money paid into the fund was the 3% contributed by the Philippine Government, but when you add the 3% taken from teachers under prior contract for a specific salary and the 3% is deducted from this contract salary, the contribution is clearly made by the teacher from his salary.

The deduction of the 3% was made from the salaries contracted to be paid the teachers in contracts similar in import to the contract attached hereto and marked Schedule X, page 88.

Even though, in the case of Pennie v. Reis, the entire contribution was made by the City, the Court said that "being a fund raised in that way, it was entirely at the disposal of the Government, until, by the happening of one of the events stated the resignation, dismissal, or death of the officer-the right to the specific sum promised became vested in the officer or his representative." Pennie v. Reis, 132 U. S. 455, 470-1, 33 L. ed. 426, 429.

Therefore, this case is a clear authority, for the claim of the retired teachers at least, that in any event, once the event has happened upon which their retirement annuity is based and they have actually been retired, the annuity contracted for has become vested and cannot thereafter be denied to them.

In a subsequent California case, decided in 1901, citing Pennie v. Reis, and following the rule laid down therein, the Supreme Court of California held: "Respondent's right, therefore, became vested while the statute under which she claims was in full force, and it was not competent for the legislature, or any other authority, to deprive her of that vested right (Pennie v. Reis, 132 U. S. 471)."

Kavanagh v. Board of Police P. F. Comm's, 134 Cal. 50, 52–3.

Pennie v. Reis was a construction of a California law, and the Courts of California, following that case, have not given it the construction claimed by the Philippine Government, and it is clear that no such construction can be read into it.

In the case of Lynch v. U. S., 292 U. S. 571; 78 L. ed. 1434, decided June 4, 1934, in an unanimous opinion written by Mr. Justice Brandeis, the matter of pensions and insurance contracts was very carefully discussed by the United States Supreme Court, and the distinction clearly analyzed. In this case, which involved certain War Risk Insurance, the premiums upon which were in part paid by deductions from the salary of the insured, Congress had passed an Act repealing all laws granting or pertaining to renewable term insurance in a section dealing with gratuities. The repeal, if valid, abrogated outstanding contracts and relieved the United States from all liability on the contracts without making compensation. The Supreme Court stated: "War Risk Insurance policies are contracts of the United States. As consideration for the Government's obligation, the insured paid prescribed monthly premiums. White v. United States, 270 U. S. 175, 180, 70 L. ed. 530, 538. 46 S. Ct. 274. True, these contracts, unlike others, were not entered into by the United States for a business purpose. The policies granted insurance against death or total disability without medical examination, at net premium rates based on the American Experience Table of Mortality and three and one-half per cent interest, the United States bearing both the whole expense of administration and the excess mortality and disability cost resulting from the hazards of war. In order to effect a benevolent purpose heavy burdens were assumed by the Government. But the policies, although not entered into for gain, are legal obligations of the same dignity as other contracts of the United States and possess the same legal incidents.

"War Risk Insurance, while resembling in benevolent purpose pension, compensation allowances, hospital, and other privileges accorded to former members of the army and navy or their dependents, differs from them fundamentally in legal incidents. Pensions, compensation allowances and privileges are gratuities. They involve no agreement of parties; and the grant of them creates no vested right. The benefits conferred by gratuities may be redistributed or withdrawn at any time in the discretion of Congress. (Citing cases.) On the other hand, War Risk policies, being contracts, are property and create vested rights. The terms of these contracts are to be found in part in the policy, in part in the statutes under which they are issued, and the regulations promulgated thereunder."

135630-39-11

Lynch v. United States, 292 U. S. 571, 576-577; 78 L. ed. 1434, 1438-1439. Even the United States, which is not restricted as is the Philippine Commonwealth or the several States, has been held prohibited from modifying its contracts after they have become vested.

"Punctilious fulfilment of contractual obligations is essential to the maintenance of the credit of public as well as private debtors. No doubt there was in March, 1933, great need of economy. In the administration of all government business economy had become urgent because of lessened revenues and the heavy obligations to be issued in the hope of relieving widespread distress. Congress was free to reduce gratuities deemed excessive. But Congress was without power to reduce expenditures by abrogating contractual obligations of the United States. To abrogate contracts, in the attempt to lessen government expenditure, would be not the practice of economy, but an act of repudiation. "The United States are as much bound by their contracts as are individuals. If they repudiate their obligations, it is much repudiation, with all the wrong and reproach that term implies, as it would be if the repudiator had been a State or a municipality or a citizen.' Sinking Fund Cases, 99 U. S. 700, 719, 25 L. ed. 469, 501."

Lynch v. United States, 292 U. S. 571, 580, 78 L. ed. 1434, 1441.

In the case of Cincinnati Soap Co. v. U. S., 81 L. ed. Adv. Op. 707, in defining the meaning of the word "debt" as used in a constitution, the Supreme Court said:

"The term 'debts' includes those debts or claims which rest upon a merely equitable or honorary obligation, and which would not be recoverable in a court of law if existing against an individual. The nation, speaking broadly, owes a debt' to an individual when his claim grows out of general principals of right and justice; when, in other words, it is based upon consideration of a moral or merely honorary nature, such as are binding on the conscience or the honor of an individual, although the debt could obtain no recognition in a court of law." (Citing U. S. v. Realty Co., 163 U. S. 427, 41 L. ed. 215.)

Cincinnati Soap Co. v. U. S., 81 L. ed. Adv. Op. 707, 711.

In the above case the Supreme Court "granted writs of certiorari before a hearing or submission in those courts (Circuit Court of Appeal) because of the importance to the Philippine Islands of an early and final decision of the question."

Cincinnati Soap Co. v. U. S., 81 L. ed. Adv. Op. 707, 709.

The above case was decided by the U. S. Supreme Court in favor of the Philippine Commonwealth, and it was held that American manufacturers might be taxed for manufacturing done in the United States, the taxes collected at the expense of the people of the United States and "the payment in bulk of the entire proceeds of the tax to the Philippines, with no direction as to the expenditure thereof." It involved a sum of approximately $50,000,000.00 impounded pending the decision and an estimated annual sum thereafter of about $24,000,000.00.

In the face of this recognition by the United States Supreme Court, with the U. S. Attorney General appearing in support of the case on behalf of the interests of the Philippine Commonwealth, it is astounding and almost unbelievable that the Philippine Government should thereafter refuse to abide by its con tracts with American teachers which are not only "in discharge of a high moral obligation amounting to a 'debt' within the meaning of the Constitution, as it always has been practically construed" (81 L. ed. Adv. Op. 711), "but the policies, although not entered into for gain, are legal obligations of the same dignity as other contracts of the (government) and possess the same legal incidents." (Lynch v. U. S., 78 L. ed., 1434, 1439.)

The liquidation of the "Teachers Retirement and Disability Fund," the conversion of all the funds (in excess of $10,500,000.00) by the Philippine Commonwealth, the immediate reduction of payments due the retired teachers, together with the threat contained in Act 187 to cease all payments, at least in some cases, which the officials immediately set in motion by sending to all retired teachers, on or about June 2, 1937, a letter asking for information as to their financial resources and income in pursuance of the option contained in Sec. 3 of Act 187 to "at any time, suspend or cancel the payment of any pension," leaves no question of doubt as to the intention of the Philippine Commonwealth to progressively refuse, in an increasing ratio, to comply with the insurance annuity contract with the retired teachers. (See Schedule VIII, page 85.)

It should be observed that this letter was sent out one month after the decision in the Cincinnati Soap Co. case, supra.

Prior to sending this letter the Acting Judge Advocate General, United States Army, had held in a recent opinion:

"Without considering the question of whether the Philippine National Assembly can alter the annuity system as it affects persons now in the service, it appears that persons already retired have, under Insular law, a vested right to receive their annuities in accordance with the law as it stood at the time they retired. * * *

"The Act under consideration probably also impairs the obligation of contracts within the meaning of section 1, clause (10), Article 3 of the Constitution of the Philippines.

"I am of the opinion also that all persons who contributed to the fund prior to the passage of the Act have vested rights which would be affected by Act No. 187."

This action has also been taken in the face of at least three decisions of the Supreme Court of the Philippines, to-wit: Derkum v. Pension & Investment Board, G. R. No. 43479; Alimon v. Chief of Constabulary, C. R. No. 40913; Alano v. Florido, G. R. No. 42767.

In the Derkum case the Supreme Court of the Philippine Islands said: "The contention of petitioner that his annuity is not a mere gratuity is correct (People ex rel. Kroner v. Abbott, 274 Ill. 380, 113 N. E. 696, and cases there cited). When the conditions of the law are fulfilled, the employee becomes entitled to the annuity as a matter of right. But the rights of a person retired. are determined by the law as it stood at the date of retirement (O'Neil v. Hard-ing, supra), and therefore he has no vested right to the benefits of subsequent laws. * * * Had the legislature, instead of increasing the annuity, reduced it, petitioner would have had a right to resist its application to his case, having been retired prior to the change."

Derkum v. Pension & Investment Board, G. R. 43479.

In the Alimon case the Supreme Court said:

"But though it is true that ordinarily a pension is a mere gratuity, it is to be noted that in this case the Pension and Retirement Fund is made up in considerable part of the three per centum of the pay of every enlisted man of the constabulary which is deducted from said pay monthly."

Alimon v. Chief of Constabulary, G. R. 40913.

In the Alano case the appellant was a retired teacher who had been elected a municipal president.

It was contended that he was ineligible because he was receiving an annuity under Act 3050 from the Government.

The Supreme Court of the Philippines held that his annuity was not a salary, as the fund was made up in part by his own funds ("parte ahorro suyo") and further that the annuity is more than an act of liberality, it is a compliance by the state with its duty, which social justice imposes upon it, to assist, in their old age and incapacity, those who in the fullness of their mental and physical vigor have served the community with loyalty, constancy, and selfsacrifice.

Alano v. Florido, G. R. 42767.

The action of the Commonwealth Government is also contrary to the principle laid down directly in at least three U. S. Supreme Court decisions, to-wit : Lynch v. U. S., 292 U. S. 571, 78 L. ed. 1434; Cincinnati Soap Co. v. U. S., 81 L. ed. Adv. Op. 707; U. S. v. Realty Co., 163 U. S. 427, 41 L. ed. 215.

*

XI. RESPONSIBILITY OF THE UNITED STATES

For thirty-eight years the Government of the United States has been responsible, morally and legally, for the conduct of the Government of the Philippine Islands. Direct responsibility for the proper administration of the Philippines and for the protection of the political, moral, social, and economic welfare and security of the residents of the Philippine Islands has been vested in the President of the United States. This responsibility cannot be shifted, and whether pleasant or not the duty remains with the President, and the power to perform that duty has not been lost even with the organization of the Commonwealth.

It is not enough that the United States has established a stable, or even representative, form of government. The welfare of the people goes beyond a mere question of establishing a political government. The moral integrity of a government is what makes it stable and the respect of the citizen and the world at large depends on this.

When the Government of the United States undertook this responsibility they did so with a definite policy never before undertaken by any responsible government in the control of a dependency. They undertook the development of the Philippines, emphasizing that this development was primarily for the benefit of the Filipinos. Roads, bridges, harbors, and transportation facilities were developed, and the record of the service rendered in that regard stands as a monument to efficiency and disinterested service. They undertook the development of military defenses of the Philippines, and the fortification of the Islands against hostile attack. This work is an outstanding example of military and naval preparedness; the expense of which was carried by the United States Government. They undertook the development of the commercial resources of the Islands, and although this development has not advanced as fast as it might have, this is due to the fact that extreme emphasis was always placed upon the duty of America to develop the Philippines for the Filipinos, and, therefore, developments which might have been made but which might have redounded in part to the financial benefit of Americans were not encouraged. If we leave the matter thus, our record may be good, but these items do not include the real benefit which we undertook to bestow upon the people of the Philippine Islands.

The one great unprecedented and humanitarian effort undertaken by the Government of the United States in behalf of the Filipino people was the immediate establishment of an educational system by which the backward and unlettered people were to be educated in a common language, and the moral and spiritual welfare of the people was to be developed so that on leaving the Islands we would leave a monument which would continue throughout history to evidence the fact that, regardless of the race involved, when their mental and moral standards were raised then their political and economic future would be definitely assured and the rights of the whole people would be safely protected. This obligation was undertaken through the Bureau of Education. Its results appeared to be definitely assured and were vouched for by Filipino leaders when the Tydings-McDuffie Act was passed granting the probationary period for them to prove whether or not these efforts had actually resulted in the mental and moral uplift essential to protect all of the people in the future.

It is a sorry fact to contemplate that in adopting the Constitution of the Philippines, in Art. XIII, Sec. 3, the first backward step was taken by providing for the adoption and development of a common national language based upon one of the existing local dialects; thus showing a complete misunderstanding of the broad intentions of the United States in establishing a uniform national language of commercial value and of almost universal adaptability.

The second backward step was when at a Special Session of the First National Assembly under the New Commonwealth of the Philippines, a series of Acts were passed, among them Act 187, abrogating the solemn contracts entered into by the Government with American and Filipino citizens who, in reliance upon solemn contracts of the Government, had dedicated their lives to the development of the educational and moral welfare of the people.

The boast of the American people that they would create in the people of the Philippines, by virtue of educational efforts, a structure which would live forever and would demonstrate the ability of any people, when the American principles had been properly inculcated within them, to go forward uprightly and honestly for the benefit of the whole people, and of all residents within the Country has been thrown to the winds.

The great cornerstone of the Colonial Administration of the Philippine Islands was thus destroyed. In its place there has been erected a foundation of moral turpitude.

Unless it is definitely brought home to the people of the Philippine Islands that the lesson we attempted to convey to them, over our 38 years of administration, was principally that of integrity, dedicated to the benefit of all, then we must admit that our efforts in the Philippine Islands have been a complete failure.

The acts of the Government of the Commonwealth of the Philippines, unquestionably dictated for purely local political purposes, done in a great part by men who were not trained under the American System, set out in definite relief the duty of the President of the United States at this time, to impose upon the Government of the Philippine Islands a clear sense of its legal and moral obligation, and to require a compliance with the principles of the American Policy in the Philippines, to prohibit the violation of those inalienable rights enun

ciated in the Constitutions of the United States and of the Philippines, and to sharply bring to account this new Commonwealth and impress upon it in unmistakable terms that the fulfillment of moral and contractual obligations is the first duty of a Government.

The Attorney General of the United States has repeatedly held that contracts entered into by the Philippine Government were valid obligations if made in pursuance of authority granted by the President or by Congress, and that the United States was responsible for their performance.

"The issue and sale of bonds is authorized explicitly by the national power, and while in the strict and legal sense the faith of the United States of America is not pledged as a guarantee for the payment of the loan, or for the due use of the proceeds, or the observance of the sinking fund requirements, the entire transaction is to be negotiated under the auspices of the United States of America, and by its recognition and aid. There can be no doubt, therefore, that the national power will take the necessary steps in all contingencies to protect the purchasers in good faith of these securities."-Opinion, Attorney General, Aug. 11, 1921, 33 Op. Atty. Gen., 7, 9.

See also opinion, Attorney General, Dec. 26, 1903, 25 Op. Atty. Gen., 89, 93. In a later opinion of April 21, 1922, holding that bonds of the Manila Railroad Company were not obligations of the Philippine Government, the Attorney General distinguished the Federal responsibility as follows:

"Furthermore, it is my opinion that when said bonds are issued by the Manila Railroad Co., under authority of an Act of the Philippine Legislature, they will not have been issued under the auspices or authority of the Government of the United States, and there will be no implied responsibility on the part of the United States to protect the purchasers of the proposed bonds from loss."-Opinion of Attorney General, April 21, 1922, 33 Op. Atty. Gen. 147, 151. Whether the contract is one incurred by the issuance and sale of Philippine bonds or by virtue of a contract of insurance made with the teachers sent to the Philippines by the Bureau of Insular Affairs of the United States under whose auspices and direction they were employed, the responsibility of the United States is the same and it has been so understood since 1900. This obligation of the United States has been recognized generally by the officials and the public from the beginning. In a letter to Manuel Quezon by Governor General W. Cameron Forbes, dated November 28, 1910, he stated:

"The fact that the United States Government is now responsible for the Government of the Philippine Islands has resulted in the excellent credit of this government in the markets of the world in regard to the sale of their own bonds."-W. Cameron Forbes, The Philippine Islands, Vol. 1, p. 269.

The contracts with the teachers were even more formal and direct on the part of the United States, than was the sale of Philippine Bonds. The entire negotiations were carried on by the War Department and the several bureaus of the United States. They all distinctly understood that they were employed by our Government. They did not negotiate directly with the Philippine Government at any time. The contracts under which these teachers were sent to the Philippines were entered into with the Bureau of Insular Affairs, and the Civil Service examinations required of them were conducted by the United States Civil Service Commission. These facts are clearly shown by the copies of one set of these papers attached hereto and marked Schedule X, page 88. The many circulars sent out by the Bureau of Insular Affairs in connection with the sale of bonds of the Philippine Government have uniformly acknowledged and circulated this understanding of the responsibility of the United States for Philippine contracts.

The Act of Congress of March 2, 1901, clearly set forth that the powers of government in the Philippine Islands were vested in such manner as the President might direct and all subsequent Acts of Congress have recognized that the Government of the Philippine Islands was merely one of delegated power. Even the latest "Tydings-McDuffie Act" still retains the power to withdraw or withhold full power from the Philippines. All things done or left. undone are in fact "By authority of the United States."

Manuel Quezon, while Resident Commissioner to the United States, stated the matter thus:

"Objections to independence are not precisely because of their lack of confidence in the ability of the Filipino people to govern themselves and to protect the rights and properties established in the islands, but because their investments will be safer under the joint guaranty and protection of both the Philippine Government and the Government of the United States. **

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