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CHAPTER 4 FUNDAMENTAL POWERS OF THE STATE

DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, which seeks to reverse and set aside the Decision [1] dated July 28, 2009
and Resolution[2] dated October 12, 2009 of the Court of Appeals (CA) in CA-G.R. CV No.
90591. The CA reversed the Decision[3] dated September 21, 2007 of the Regional Trial Court of
Angeles City, Branch 57 in Civil Case No. 12995 declaring petitioner exempt from the payment of
building permit and other fees and ordering respondents to refund the same with interest at the
legal rate.
The factual antecedents:
Petitioner Angeles University Foundation (AUF) is an educational institution established on
May 25, 1962 and was converted into a non-stock, non-profit education foundation under the
provisions of Republic Act (R.A.) No. 6055[4] on December 4, 1975.
Sometime in August 2005, petitioner filed with the Office of the City Building Official an
application for a building permit for the construction of an 11-storey building of the Angeles
University Foundation Medical Center in its main campus located at MacArthur Highway, Angeles
City,

Pampanga. Said

office

issued

a Building Permit Fee

Assessment in the

amount

of P126,839.20. An Order of Payment was also issued by the City Planning and Development
Office, Zoning Administration Unit requiring petitioner to pay the sum of P238,741.64 as
Locational Clearance Fee.[5]
In separate letters dated November 15, 2005 addressed to respondents City Treasurer
Juliet G. Quinsaat and Acting City Building Official Donato N. Dizon, petitioner claimed that it is
exempt from the payment of the building permit and locational clearance fees, citing legal
opinions rendered by the Department of Justice (DOJ). Petitioner also reminded the respondents
that they have previously issued building permits acknowledging such exemption from payment of
building permit fees on the construction of petitioners 4-storey AUF Information Technology
Center building and the AUF Professional Schools building on July 27, 2000 and March 15, 2004,
respectively.[6]
Respondent City Treasurer referred the matter to the Bureau of Local Government Finance
(BLGF) of the Department of Finance, which in turn endorsed the query to the DOJ. Then Justice
Secretary Raul M. Gonzalez, in his letter-reply dated December 6, 2005, cited previous issuances of
his office (Opinion No. 157, s. 1981 and Opinion No. 147, s. 1982) declaring petitioner to be exempt
from the payment of building permit fees. Under the 1st Indorsement dated January 6, 2006, BLGF

reiterated the aforesaid opinion of the DOJ stating further that xxx the Department of Finance, thru
this Bureau, has no authority to review the resolution or the decision of the DOJ.[7]
Petitioner wrote the respondents reiterating its request to reverse the disputed assessments
and invoking the DOJ legal opinions which have been affirmed by Secretary Gonzalez. Despite
petitioners plea, however, respondents refused to issue the building permits for the construction of
the AUF Medical Center in the main campus and renovation of a school building located at Marisol
Village. Petitioner then appealed the matter to City Mayor Carmelo F. Lazatin but no written
response was received by petitioner.[8]
Consequently, petitioner paid under protest[9] the following:
Medical Center (new construction)
Building Permit and Electrical Fee
Locational Clearance Fee
Fire Code Fee
Total -

P 217,475.20
283,741.64
144,690.00
P 645,906.84

School Building (renovation)


Building Permit and Electrical Fee
Locational Clearance Fee
Fire Code Fee

Total -

P 37,857.20
6,000.57
5,967.74
P 49,825.51

Petitioner likewise paid the following sums as required by the City Assessors Office:
Real Property Tax Basic Fee
SEF
Locational Clearance Fee

P 86,531.10
43,274.54
1,125.00
Total P130,930.64[10]
[GRAND TOTAL - P 826,662.99]

By reason of the above payments, petitioner was issued the corresponding Building Permit,
Wiring Permit, Electrical Permit and Sanitary Building Permit. On June 9, 2006, petitioner formally
requested the respondents to refund the fees it paid under protest. Under letters dated June 15,
2006 and August 7, 2006, respondent City Treasurer denied the claim for refund. [11]
On August 31, 2006, petitioner filed a Complaint [12] before the trial court seeking the refund
of P826,662.99 plus interest at the rate of 12% per annum, and also praying for the award of
attorneys fees in the amount of P300,000.00 and litigation expenses.

In its Answer,[13] respondents asserted that the claim of petitioner cannot be granted
because its structures are not among those mentioned in Sec. 209 of the National Building
Code as exempted from the building permit fee. Respondents argued that R.A. No. 6055 should
be considered repealed on the basis of Sec. 2104 of the National Building Code. Since the
disputed assessments are regulatory in nature, they are not taxes from which petitioner is
exempt. As to the real property taxes imposed on petitioners property located in Marisol Village,
respondents pointed out that said premises will be used as a school dormitory which cannot be
considered as a use exclusively for educational activities.
Petitioner countered that the subject building permit are being collected on the basis of Art.
244 of the Implementing Rules and Regulations of the Local Government Code, which impositions
are really taxes considering that they are provided under the chapter on Local Government
Taxation in reference to the revenue raising power of local government units (LGUs). Moreover,
petitioner contended that, as held in Philippine Airlines, Inc. v. Edu,[14] fees may be regarded as
taxes depending on the purpose of its exaction. In any case, petitioner pointed out that the Local
Government Code of 1991 provides in Sec. 193 that non-stock and non-profit educational
institutions like petitioner retained the tax exemptions or incentives which have been granted to
them. Under Sec. 8 of R.A. No. 6055 and applicable jurisprudence and DOJ rulings, petitioner is
clearly exempt from the payment of building permit fees.[15]
On September 21, 2007, the trial court rendered judgment in favor of the petitioner and
against the respondents. The dispositive portion of the trial courts decision[16] reads:
WHEREFORE, premises considered, judgment is rendered as follows:
a. Plaintiff is exempt from the payment of building permit and other
fees Ordering the Defendants to refund the total amount of Eight Hundred
Twenty Six Thousand Six Hundred Sixty Two Pesos and 99/100 Centavos
(P826,662.99) plus legal interest thereon at the rate of twelve percent (12%)
per annum commencing on the date of extra-judicial demand or June 14,
2006, until the aforesaid amount is fully paid.
b. Finding the Defendants liable for attorneys fees in the amount of
Seventy Thousand Pesos (Php70,000.00), plus litigation expenses.
c. Ordering the Defendants to pay the costs of the suit.
SO ORDERED.[17]

Respondents appealed to the CA which reversed the trial court, holding that while petitioner
is a tax-free entity, it is not exempt from the payment of regulatory fees. The CA noted that under
R.A. No. 6055, petitioner was granted exemption only from income tax derived from its educational
activities and real property used exclusively for educational purposes. Regardless of the repealing
clause in the National Building Code, the CA held that petitioner is still not exempt because a
building permit cannot be considered as the other charges mentioned in Sec. 8 of R.A. No. 6055

which refers to impositions in the nature of tax, import duties, assessments and other collections for
revenue purposes, following theejusdem generisrule. The CA further stated that petitioner has not
shown that the fees collected were excessive and more than the cost of surveillance, inspection and
regulation. And while petitioner may be exempt from the payment of real property tax, petitioner
in this case merely alleged that the subject property is to be used actually, directly and exclusively
for educational purposes, declaring merely that such premises is intended to house the sports and
other facilities of the university but by reason of the occupancy of informal settlers on the area, it
cannot yet utilize the same for its intended use. Thus, the CA concluded that petitioner is not
entitled to the refund of building permit and related fees, as well as real property tax it paid under
protest.
Petitioner filed a motion for reconsideration which was denied by the CA.
Hence, this petition raising the following grounds:
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED A
QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND THE
APPLICABLE DECISIONS OF THE HONORABLE COURT AND HAS DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS NECESSITATING THE
HONORABLE COURTS EXERCISE OF ITS POWER OF SUPERVISION CONSIDERING
THAT:
I.

II.

IN REVERSING THE TRIAL COURTS DECISION DATED 21 SEPTEMBER 2007, THE


COURT OF APPEALS EFFECTIVELY WITHDREW THE PRIVILEGE OF EXEMPTION
GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS BY
VIRTUE OF RA 6055 WHICH WITHDRAWAL IS BEYOND THE AUTHORITY OF THE
COURT OF APPEALS TO DO.
A.

INDEED, RA 6055 REMAINS VALID AND IS IN FULL FORCE AND


EFFECT. HENCE, THE COURT OF APPEALS ERRED WHEN IT RULED IN THE
QUESTIONED DECISION THAT NON-STOCK, NON-PROFIT EDUCATIONAL
FOUNDATIONS ARE NOT EXEMPT.

B.

THE COURT OF APPEALS APPLICATION OF THE PRINCIPLE OF EJUSDEM


GENERIS IN RULING IN THE QUESTIONED DECISION THAT THE TERM
OTHER CHARGES IMPOSED BY THE GOVERNMENT UNDER SECTION 8
OF RA 6055 DOES NOT INCLUDE BUILDING PERMIT AND OTHER RELATED
FEES AND/OR CHARGES IS BASED ON ITS ERRONEOUS AND
UNWARRANTED ASSUMPTION THAT THE TAXES, IMPORT DUTIES AND
ASSESSMENTS AS PART OF THE PRIVILEGE OF EXEMPTION GRANTED TO
NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS ARE LIMITED TO
COLLECTIONS FOR REVENUE PURPOSES.

C.

EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER RELATED FEES
AND/OR CHARGES ARE NOT INCLUDED IN THE TERM OTHER CHARGES
IMPOSED BY THE GOVERNMENT UNDER SECTION 8 OF RA 6055, ITS
IMPOSITION IS GENERALLY A TAX MEASURE AND THEREFORE, STILL
COVERED UNDER THE PRIVILEGE OF EXEMPTION.

THE COURT OF APPEALS DENIAL OF PETITIONER AUFS EXEMPTION FROM REAL


PROPERTY TAXES CONTAINED IN ITS QUESTIONED DECISION AND QUESTIONED
RESOLUTION IS CONTRARY TO APPLICABLE LAW AND JURISPRUDENCE. [18]

Petitioner stresses that the tax exemption granted to educational stock corporations which
have converted into non-profit foundations was broadened to include any other charges imposed
by the Government as one of the incentives for such conversion. These incentives necessarily
included exemption from payment of building permit and related fees as otherwise there would
have been no incentives for educational foundations if the privilege were only limited to
exemption from taxation, which is already provided under the Constitution.
Petitioner further contends that this Court has consistently held in several cases that the
primary purpose of the exaction determines its nature. Thus, a charge of a fixed sum which bears
no relation to the cost of inspection and which is payable into the general revenue of the state is a
tax rather than an exercise of the police power.

The standard set by law in the determination of

the amount that may be imposed as license fees is such that is commensurate with the cost of
regulation, inspection and licensing. But in this case, the amount representing the building
permit and related fees and/or charges is such an exorbitant amount as to warrant a valid
imposition; such amount exceeds the probable cost of regulation. Even with the alleged criteria
submitted by the respondents (e.g., character of occupancy or use of building/structure, cost of
construction, floor area and height), and the construction by petitioner of an 11-storey building,
the costs of inspection will not amount to P645,906.84, presumably for the salary of inspectors or
employees, the expenses of transportation for inspection and the preparation and reproduction of
documents. Petitioner thus concludes that the disputed fees are substantially and mainly for
purposes of revenue rather than regulation, so that even these fees cannot be deemed charges
mentioned in Sec. 8 of R.A. No. 6055, they should properly be treated as tax from which petitioner
is exempt.
In their Comment, respondents maintain that petitioner is not exempt from the payment of
building permit and related fees since the only exemptions provided in the National Building
Code are public buildings and traditional indigenous family dwellings. Inclusio unius est exclusio
alterius. Because the law did not include petitioners buildings from those structures exempt from
the payment of building permit fee, it is therefore subject to the regulatory fees imposed under
the National Building Code.
Respondents assert that the CA correctly distinguished a building permit fee from those
other charges mentioned in Sec. 8 of R.A. No. 6055. As stated by petitioner itself, charges refer
to pecuniary liability, as rents, and fees against persons or property.

Respondents point out that

a building permit is classified under the term fee. A fee is generally imposed to cover the cost
of regulation as activity or privilege and is essentially derived from the exercise of police power;
on the other hand, impositions for services rendered by the local government units or for
conveniences furnished, are referred to as service charges.
Respondents also disagreed with petitioners contention that the fees imposed and
collected are exorbitant and exceeded the probable expenses of regulation. These fees are based

on computations and assessments made by the responsible officials of the City Engineers Office
in accordance with the Schedule of Fees and criteria provided in theNational Building Code. The
bases of assessment cited by petitioner (e.g. salary of employees, expenses of transportation and
preparation and reproduction of documents) refer to charges and fees on business and occupation
under Sec. 147 of the Local Government Code, which do not apply to building permit fees. The
parameters set by the National Building Code can be considered as complying with the reasonable
cost of regulation in the assessment and collection of building permit fees. Respondents likewise
contend that the presumption of regularity in the performance of official duty applies in this
case. Petitioner should have presented evidence to prove its allegations that the amounts
collected are exorbitant or unreasonable.
For resolution are the following issues: (1) whether petitioner is exempt from the payment
of building permit and related fees imposed under the National Building Code; and (2) whether the
parcel of land owned by petitioner which has been assessed for real property tax is likewise
exempt.
R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which
converted to non-stock, non-profit educational foundations. Section 8 of said law provides:
SECTION 8. The Foundation shall be exempt from the payment of all taxes,
import duties, assessments, and other charges imposed by the Government
onall income derived from orproperty, real or personal, used exclusively for
the educational activities of the Foundation.(Emphasis supplied.)

On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting the National
Building Code of the Philippines. The said Code requires every person, firm or corporation, including
any agency or instrumentality of the government to obtain a building permit for any construction,
alteration or repair of any building or structure. [19]Building permit refers to a document issued by the
Building Official x x x to an owner/applicant to proceed with the construction, installation, addition,
alteration,

renovation,

conversion,

repair,

moving,

demolition

or

other work

activity of

specific project/building/structure or portions thereof after the accompanying principal plans,


specifications and other pertinent documents with the duly notarized application are found
satisfactory and substantially conforming with the National Building Code of the Philippines x x x
and its Implementing Rules and Regulations (IRR). [20] Building permit fees refers to the basic
permit fee and other charges imposed under the National Building Code.
Exempted from the payment of building permit fees are: (1) public buildings and (2)
traditional indigenous family dwellings.[21] Not being expressly included in the enumeration of
structures to which the building permit fees do not apply, petitioners claim for exemption rests
solely on its interpretation of the term other charges imposed by the National Government in the
tax exemption clause of R.A. No. 6055.

A charge is broadly defined as the price of, or rate for, something, while the word fee
pertains to a charge fixed by law for services of public officers or for use of a privilege under
control of government.[22] As used in the Local Government Code of 1991 (R.A. No.
7160), charges refers to pecuniary liability, as rents or fees against persons or property,
while fee means a charge fixed by law or ordinance for the regulation or inspection of a business
or activity.[23]
That charges in its ordinary meaning appears to be a general term which could cover a
specific fee does not support petitioners position that building permit fees are among those
other charges from which it was expressly exempted.

Note that the other charges mentioned

in Sec. 8 of R.A. No. 6055 is qualified by the words imposed by theGovernment on all x x x
property used exclusively for the educational activities of the foundation. Building permit fees are
not impositions on property but on the activity subject of government regulation. While it may be
argued that the fees relate to particular properties, i.e., buildings and structures, they are actually
imposed on certain activities the owner may conduct either to build such structures or to repair,
alter, renovate or demolish the same. This is evident from the following provisions of the National
Building Code:
Section 102. Declaration of Policy
It is hereby declared to be the policy of the State to safeguard life, health,
property, and public welfare, consistent with theprinciples of sound environmental
management and control; and tothis end, make it the purpose of this Code to
provide for allbuildings and structures, a framework of minimum standards and
requirements to regulate and control their location, site, design quality of materials,
construction, use, occupancy, and maintenance.
Section 103. Scope and Application
(a) The provisions of this Code shall apply to the design,location, sitting,
construction, alteration, repair,conversion, use, occupancy, maintenance, moving,
demolitionof, and addition to public and private buildings andstructures, except
traditional indigenous family dwellingsas defined herein.
xxxx
Section 301. Building Permits
No person, firm or corporation, including any agency orinstrumentality of the
government shall erect, construct, alter, repair, move, convert or demolish any
building or structure or causethe same to be done without first obtaining a building
permittherefor from the Building Official assigned in the place where thesubject
building is located or the building work is to be done. (Italics supplied.)

That a building permit fee is a regulatory imposition is highlighted by the fact that in
processing an application for a building permit, the Building Official shall see to it that the applicant
satisfies and conforms with approved standard requirements on zoning and land use, lines and
grades, structural design, sanitary and sewerage, environmental health, electrical and mechanical

safety as well as with other rules and regulations implementing the National Building Code. [24] Thus,
ancillary permits such as electrical permit, sanitary permit and zoning clearance must also be secured
and the corresponding fees paid before a building permit may be issued. And as can be gleaned from
the implementing rules and regulations of the National Building Code, clearances from various
government authorities exercising and enforcing regulatory functions affecting buildings/structures,
like local government units, may be further required before a building permit may be issued.[25]
Since building permit fees are not charges on property, they are not impositions from which
petitioner is exempt.
As to petitioners argument that the building permit fees collected by respondents are in
reality taxes because the primary purpose is to raise revenues for the local government unit, the
same does not hold water.
A charge of a fixed sum which bears no relation at all to the cost of inspection and
regulation may be held to be a tax rather than an exercise of the police power. [26] In this case, the
Secretary of Public Works and Highways who is mandated to prescribe and fix the amount of fees
and other charges that the Building Official shall collect in connection with the performance of
regulatory
Regulations

functions,[27] has
[28]

promulgated

and

issued

the

Implementing

Rules

and

which provide for the bases of assessment of such fees, as follows:


1.
Character of occupancy or use of building
2.
Cost of construction 10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J)
3.
Floor area
4.
Height

Petitioner failed to demonstrate that the above bases of assessment were arbitrarily
determined or unrelated to the activity being regulated. Neither has petitioner adduced evidence
to show that the rates of building permit fees imposed and collected by the respondents were
unreasonable or in excess of the cost of regulation and inspection.
In Chevron Philippines, Inc. v. Bases Conversion Development Authority,[29] this Court
explained:
In distinguishing tax and regulation as a form of police power, the
determining factor is the purpose of the implemented measure. If the purpose is
primarily to raise revenue, then it will be deemed a tax even though the measure
results in some form of regulation. On the other hand, if the purpose is primarily
to regulate, then it is deemed a regulation and an exercise of the police
power of the state, even though incidentally, revenue is generated. Thus,
in Gerochi v. Department of Energy, the Court stated:
The conservative and pivotal distinction between these two
(2) powers rests in the purpose for which the charge is made. If
generation of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the

primary purpose, the fact that revenue is incidentally raised


does not make the imposition a tax.[30] (Emphasis supplied.)

Concededly, in the case of building permit fees imposed by the National Government under
the National Building Code, revenue is incidentally generated for the benefit of local government
units. Thus:
Section 208. Fees
Every Building Official shall keep a permanent record and accurate account
of all fees and other charges fixed and authorized by the Secretary to be collected
and received under this Code.
Subject to existing budgetary, accounting and auditing rules and regulations,
the Building Official is hereby authorized to retain not more than twenty percent of
his collection for the operating expenses of his office.
The remaining eighty percent shall be deposited with the provincial, city or
municipal treasurer and shall accrue to the General Fund of the province, city or
municipality concerned.

Petitioners reliance on Sec. 193 of the Local Government Code of 1991 is likewise
misplaced. Said provision states:
SECTION 193. Withdrawal of Tax Exemption Privileges. -- Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently enjoyed
by all persons, whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis
supplied.)

Considering that exemption from payment of regulatory fees was not among those
incentives granted to petitioner under R.A. No. 6055, there is no such incentive that is retained
under the Local Government Code of 1991. Consequently, no reversible error was committed by
the CA in ruling that petitioner is liable to pay the subject building permit and related fees.
Now, on petitioners claim that it is exempted from the payment of real property tax
assessed against its real property presently occupied by informal settlers.
Section 28(3), Article VI of the 1987 Constitution provides:
xxxx
(3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable
or educational purposes shall be exempt from taxation.

x x x x (Emphasis supplied.)
Section 234(b) of the Local Government Code of 1991 implements the foregoing
constitutional provision by declaring that -SECTION 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
xxxx
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable
or educational purposes;
x x x x (Emphasis supplied.)
In Lung Center of the Philippines v. Quezon City,[31] this Court held that only portions of the
hospital actually, directly and exclusively used for charitable purposes are exempt from real
property taxes, while those portions leased to private entities and individuals are not exempt from
such taxes. We explained the condition for the tax exemption privilege of charitable and
educational institutions, as follows:
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be
entitled to the exemption, the petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used
for
charitable
purposes. Exclusive is defined as possessed and enjoyed to the exclusion
of others; debarred from participation or enjoyment; and exclusively is defined,
in a manner to exclude; as enjoying a privilege exclusively. If real property is used
for one or more commercial purposes, it is not exclusively used for the exempted
purposes but is subject to taxation. The words dominant use or principal use
cannot be substituted for the words used exclusively without doing violence to the
Constitutions and the law. Solely is synonymous with exclusively.
What is meant by actual, direct and exclusive use of the property
for charitable purposes is the direct and immediate and actual application
of the property itself to the purposes for which the charitable institution
is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.
[32]
(Emphasis and underscoring supplied.)
Petitioner failed to discharge its burden to prove that its real property is actually, directly
and exclusively used for educational purposes. While there is no allegation or proof that petitioner
leases the land to its present occupants, still there is no compliance with the constitutional and
statutory requirement that said real property is actually, directly and exclusively used for
educational purposes. The respondents correctly assessed the land for real property taxes for the
taxable period during which the land is not being devoted solely to petitioners educational
activities. Accordingly, the CA did not err in ruling that petitioner is likewise not entitled to a
refund of the real property tax it paid under protest.

WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and Resolution
dated October 12, 2009 of the Court of Appeals in CA-G.R. CV No. 90591 areAFFIRMED.
No pronouncement as to costs.
PAL vs. EDU

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
This question has been brought before this Court in the past. The parties are, in effect, asking for
a re-examination of the latest decision on this issue.
This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a
case where the then Court of First Instance of Rizal dismissed the portion-about complaint for
refund of registration fees paid under protest.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from
the payment of taxes. The pertinent provision of the franchise provides as follows:
Section 13. In consideration of the franchise and rights hereby granted, the grantee
shall pay to the National Government during the life of this franchise a tax of two
per cent of the gross revenue or gross earning derived by the grantee from its
operations under this franchise. Such tax shall be due and payable quarterly and
shall be in lieu of all taxes of any kind, nature or description, levied, established or
collected by any municipal, provincial or national automobiles, Provided, that if,
after the audit of the accounts of the grantee by the Commissioner of Internal
Revenue, a deficiency tax is shown to be due, the deficiency tax shall be payable
within the ten days from the receipt of the assessment. The grantee shall pay the
tax on its real property in conformity with existing law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation
requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless
the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest,
the amount of P19,529.75 as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not
come within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint
against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell
with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case No. Q15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity
as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of
action. In support of the motion to dismiss, defendants repatriation the ruling in Republic v.
Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but
regulatory fees imposed as an incident of the exercise of the police power of the state. They
contended that while Act 4271 exempts PAL from the payment of any tax except two per cent on
its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as
motor vehicle registration fees. The resolution of the motion to dismiss was deferred by the Court
until after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved
by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus
Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the
case to us.
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL
and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at
bar.
Resolving the issue in the Philippine Rabbit case, this Court held:
"The registration fee which defendant-appellee had to pay was imposed by Section
8 of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading
speaks of "registration fees." The term is repeated four times in the body thereof.
Equally so, mention is made of the "fee for registration." (Ibid., Subsection G) A
subsection starts with a categorical statement "No fees shall be charged."
(lbid.,Subsection H) The conclusion is difficult to resist therefore that the Motor
Vehicle Act requires the payment not of a tax but of a registration fee under the
police power. Hence the incipient, of the section relied upon by defendant-appellee
under the Back Pay Law, It is not held liable for a tax but for a registration fee. It
therefore cannot make use of a backpay certificate to meet such an obligation.
Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition
of additional tax on privately-owned passenger automobiles, motorcycles and
scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30,
1969.) A special science fund was thereby created and its title expressly sets forth
that a tax on privately-owned passenger automobiles, motorcycles and scooters
was imposed. The rates thereof were provided for in its Section 3 which clearly
specifies the" Philippine tax."(Cooley to be paid as distinguished from the
registration fee under the Motor Vehicle Act. There cannot be any clearer expression
therefore of the legislative will, even on the assumption that the earlier legislation
could by subdivision the point be susceptible of the interpretation that a tax rather
than a fee was levied. What is thus most apparent is that where the legislative body
relies on its authority to tax it expressly so states, and where it is enacting a
regulatory measure, it is equally exploded (at p. 22,1969
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand,
held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the
name but the object of the charge determines whether it is a tax or a fee. Geveia
speaking, taxes are for revenue, whereas fees are exceptional. for purposes of
regulation and inspection and are for that reason limited in amount to what is
necessary to cover the cost of the services rendered in that connection. Hence, a
charge fixed by statute for the service to be person,-When by an officer, where the
charge has no relation to the value of the services performed and where the
amount collected eventually finds its way into the treasury of the branch of the
government whose officer or officers collected the chauffeur, is not a fee but a
tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)
From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portionabout 5 per centumof the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides
that all such money shall accrue to the funds for the construction and maintenance
of public roads, streets and bridges. It is thus obvious that the fees are not collected
for regulatory purposes, that is to say, as an incident to the enforcement of
regulations governing the operation of motor vehicles on public highways, for their
express object is to provide revenue with which the Government is to discharge one
of its principal functionsthe construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.
As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than those prescribed in this Act
shall be imposed," thus implying that the charges therein imposedthough called
feesare of the category of taxes. The provision is contained in section 70, of
subsection (b), of the law, as amended by section 17 of Republic Act 587, which
reads:
Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of
chauffeur, by any municipal corporation, the provisions of any city
charter to the contrary notwithstanding: Provided, however, That any
provincial board, city or municipal council or board, or other
competent authority may exact and collect such reasonable and
equitable toll fees for the use of such bridges and ferries, within their
respective jurisdiction, as may be authorized and approved by the
Secretary of Public Works and Communications, and also for the use
of such public roads, as may be authorized by the President of the
Philippines upon the recommendation of the Secretary of Public
Works and Communications, but in none of these cases, shall any toll
fee." be charged or collected until and unless the approved schedule
of tolls shall have been posted levied, in a conspicuous place at such
toll station. (at pp. 213-214)
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law
(Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:
Section 73. Disposal of moneys collected.Twenty per centum of the money
collected under the provisions of this Act shall accrue to the road and bridge funds
of the different provinces and chartered cities in proportion to the centum shall
during the next previous year and the remaining eighty per centum shall be
deposited in the Philippine Treasury to create a special fund for the construction and
maintenance of national and provincial roads and bridges. as well as the streets and
bridges in the chartered cities to be alloted by the Secretary of Public Works and
Communications for projects recommended by the Director of Public Works in the
different provinces and chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:
Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions of
this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended in
accordance with the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the Land Transportation
Commission but not to exceed twenty per cent of the total collection during one
year, shall be set aside for the purpose. (As amended by RA 64-67, approved August
6, 1971).
It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency. On the other hand, thePhilippine Rabbit case mentions a
presumption arising from the use of the term "fees," which appears to have been favored by the
legislature to distinguish fees from other taxes such as those mentioned in Section 13 of Rep. Act
4136 which reads:
Sec. 13. Payment of taxes upon registration.No original registration of motor
vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to
the Commission.
referring to taxes other than those imposed on the registration, operation or ownership of a motor
vehicle (Sec. 59, b, Rep. Act 4136, as amended).
Fees may be properly regarded as taxes even though they also serve as an instrument of
regulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on various
aspects of taxpayers
It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license fees.
Isabela such case, the fees may properly be regarded as taxes even though they
also serve as an instrument of regulation. If the purpose is primarily revenue, or if
revenue is at least one of the real and substantial purposes, then the exaction is
properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of
1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali,
Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as the
law refers to the imposition on the registration, operation or ownership of a motor vehicle as a
"tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is
a tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the
intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak
of an "additional" tax," where the law could have referred to an original tax and not one in
addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle
under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory
fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of
other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and
additional fees for change of registration (Sec. 11). These are not to be understood as taxes
because such fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec.
591-593). of the Code as taxes like the motor vehicle registration fee and chauffers' license fee.
Such fees are to go into the expenditures of the Land Transportation Commission as provided for
in the last proviso of see. 61, aforequoted.
It is quite apparent that vehicle registration fees were originally simple exceptional. intended only
for rigidly purposes in the exercise of the State's police powers. Over the years, however, as
vehicular traffic exploded in number and motor vehicles became absolute necessities without
which modem life as we know it would stand still, Congress found the registration of vehicles a
very convenient way of raising much needed revenues. Without changing the earlier deputy. of
registration payments as "fees," their nature has become that of "taxes."
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted
pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional
revenues. of government even if one fifth or less of the amount collected is set aside for the
operating expenses of the agency administering the program.
May the respondent administrative agency be required to refund the amounts stated in the
complaint of PAL?
The answer is NO.
The claim for refund is made for payments given in 1971. It is not clear from the records as to
what payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No.
5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in
legislative franchises similar to that invoked by PAL in this case.
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July
11, 1985), this Court ruled:
Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and
income tax. In 1964, however, petitioner's franchise was amended by Republic Act
No. 41-42). to the effect that its franchise tax of one and one-half percentum (11/2%) of all gross receipts was provided as "in lieu of any and all taxes of any kind,
nature, or description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national from which taxes the grantee is hereby expressly
exempted." The issue raised to this Court now is the validity of the respondent

court's decision which ruled that the exemption under Republic Act No. 41-42). was
repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:
"(d) The provisions of existing special or general laws to the contrary
notwithstanding, all corporate taxpayers not specifically exempt
under Sections 24 (c) (1) of this Code shall pay the rates provided in
this section. All corporations, agencies, or instrumentalities owned or
controlled by the government, including the Government Service
Insurance System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their taxable
net income as are imposed by this section upon associations or
corporations engaged in a similar business or industry. "
An examination of Section 24 of the Tax Code as amended shows clearly that the
law intended all corporate taxpayers to pay income tax as provided by the statute.
There can be no doubt as to the power of Congress to repeal the earlier exemption
it granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5
of the Constitution as amended in 1973 expressly provide that no franchise shall be
granted to any individual, firm, or corporation except under the condition that it
shall be subject to amendment, alteration, or repeal by the legislature when the
public interest so requires. There is no question as to the public interest involved.
The country needs increased revenues. The repealing clause is clear and
unambiguous. There is a listing of entities entitled to tax exemption. The petitioner
is not covered by the provision. Considering the foregoing, the Court Resolved to
DENY the petition for lack of merit. The decision of the respondent court is affirmed.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:
In consideration of the franchise and rights hereby granted, the grantee shall pay to
the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)
(a) The basic corporate income tax based on the grantee's annual net
taxable income computed in accordance with the provisions of the
Internal Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with respect to
international airtransport service, only the gross passengers, mail,
and freight revenues. from its outgoing flights shall be subject to this
law.
The tax paid by the grantee under either of the above alternatives shall be in lieu of
all other taxes, duties, royalties, registration, license and other fees and charges of
any kind, nature or description imposed, levied, established, assessed, or collected
by any municipal, city, provincial, or national authority or government, agency, now
or in the future, including but not limited to the following:
xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).
PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law.
PAL is now exempt from the payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees
paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is
enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of
the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.
SO ORDERED.

CHAPTER 5: POLICE POWER


EXERCISE OF THE POLICE POWER
White Light Corporation vs. City of Manila
DECISION
TINGA, J.:

With another city ordinance of Manila also principally involving the tourist district as subject,
the Court is confronted anew with the incessant clash between government power and individual
liberty in tandem with the archetypal tension between law and morality.
In City of Manila v. Laguio, Jr., [1] the Court affirmed the nullification of a city ordinance
barring the operation of motels and inns, among other establishments, within the Ermita-Malate
area. The petition at bar assails a similarly-motivated city ordinance that prohibits those same
establishments from offering short-time admission, as well as pro-rated or wash up rates for
such abbreviated stays. Our earlier decision tested the city ordinance against our sacred
constitutional rights to liberty, due process and equal protection of law. The same parameters
apply to the present petition.
This Petition[2] under Rule 45 of the Revised Rules on Civil Procedure, which seeks the
reversal of the Decision[3] in C.A.-G.R. S.P. No. 33316 of the Court of Appeals, challenges the
validity of Manila City Ordinance No. 7774 entitled, An Ordinance Prohibiting Short-Time
Admission, Short-Time Admission Rates, and Wash-Up Rate Schemes in Hotels, Motels, Inns,
Lodging Houses, Pension Houses, and Similar Establishments in the City of Manila (the
Ordinance).

I.
The facts are as follows:
On December 3, 1992, City Mayor Alfredo S. Lim (Mayor Lim) signed into law the Ordinance.
[4]

The Ordinance is reproduced in full, hereunder:


SECTION 1. Declaration of Policy. It is hereby the declared policy of the
City Government to protect the best interest, health and welfare, and the
morality of its constituents in general and the youth in particular.
SEC. 2. Title. This ordinance shall be known as An Ordinance
prohibiting short time admission in hotels, motels, lodging houses, pension
houses and similar establishments in the City of Manila.
SEC. 3. Pursuant to the above policy, short-time admission and rate
[sic], wash-up rate or other similarly concocted terms, are hereby prohibited in
hotels, motels, inns, lodging houses, pension houses and similar establishments
in the City of Manila.
SEC. 4. Definition of Term[s]. Short-time admission shall mean
admittance and charging of room rate for less than twelve (12) hours at any
given time or the renting out of rooms more than twice a day or any other term
that may be concocted by owners or managers of said establishments but would
mean the same or would bear the same meaning.
SEC. 5. Penalty Clause. Any person or corporation who shall violate any
provision of this ordinance shall upon conviction thereof be punished by a fine of
Five Thousand (P5,000.00) Pesos or imprisonment for a period of not exceeding
one (1) year or both such fine and imprisonment at the discretion of the
court; Provided, That in case of [a] juridical person, the president, the manager,
or the persons in charge of the operation thereof shall be liable: Provided,
further, That in case of subsequent conviction for the same offense, the
business license of the guilty party shall automatically be cancelled.
SEC. 6. Repealing Clause. Any or all provisions of City ordinances not
consistent with or contrary to this measure or any portion hereof are hereby
deemed repealed.
SEC. 7. Effectivity. This ordinance shall take effect immediately upon
approval.
Enacted by the city
today, November 10, 1992.

Council

of Manila at

its

regular

Approved by His Honor, the Mayor on December 3, 1992.

session

On December 15, 1992, the Malate Tourist and Development Corporation (MTDC) filed a
complaint for declaratory relief with prayer for a writ of preliminary injunction and/or temporary
restraining order ( TRO)[5] with the Regional Trial Court (RTC) of Manila, Branch 9 impleading as
defendant, herein respondent City of Manila (the City) represented by Mayor Lim. [6] MTDC prayed
that the Ordinance, insofar as it includes motels and inns as among its prohibited establishments,
be declared invalid and unconstitutional. MTDC claimed that as owner and operator of the Victoria
Court in Malate, Manila it was authorized by Presidential Decree (P.D.) No. 259 to admit customers
on a short time basis as well as to charge customers wash up rates for stays of only three hours.

On December 21, 1992, petitioners White Light Corporation (WLC), Titanium Corporation
(TC) and Sta. Mesa Tourist and Development Corporation (STDC) filed a motion to intervene and to
admit attached complaint-in-intervention[7] on the ground that the Ordinance directly affects their
business interests as operators of drive-in-hotels and motels inManila. [8] The three companies are
components of the Anito Group of Companies which owns and operates several hotels and motels
in Metro Manila.[9]
On December 23, 1992, the RTC granted the motion to intervene. [10] The RTC also notified
the Solicitor General of the proceedings pursuant to then Rule 64, Section 4 of the Rules of
Court. On the same date, MTDC moved to withdraw as plaintiff.[11]
On December 28, 1992, the RTC granted MTDC's motion to withdraw. [12] The RTC issued a
TRO on January 14, 1993, directing the City to cease and desist from enforcing the Ordinance.
[13]

The City filed an Answer dated January 22, 1993 alleging that the Ordinance is a legitimate

exercise of police power.[14]


On February 8, 1993, the RTC issued a writ of preliminary injunction ordering the city to
desist from the enforcement of the Ordinance. [15] A month later, on March 8, 1993, the Solicitor
General filed his Comment arguing that the Ordinance is constitutional.
During the pre-trial conference, the WLC, TC and STDC agreed to submit the case for
decision without trial as the case involved a purely legal question. [16] On October 20, 1993, the RTC
rendered a decision declaring the Ordinance null and void. The dispositive portion of the decision
reads:

WHEREFORE, in view of all the foregoing, [O]rdinance No. 7774 of the City
of Manila is hereby declared null and void.
Accordingly, the preliminary injunction heretofor issued is hereby made
permanent.
SO ORDERED.[17]

The RTC noted that the ordinance strikes at the personal liberty of the individual
guaranteed and jealously guarded by the Constitution. [18] Reference was made to the provisions
of the Constitution encouraging private enterprises and the incentive to needed investment, as
well as the right to operate economic enterprises. Finally, from the observation that the illicit
relationships the Ordinance sought to dissuade could nonetheless be consummated by simply
paying for a 12-hour stay, the RTC likened the law to the ordinance annulled in Ynot v.
Intermediate Appellate Court,[19] where the legitimate purpose of preventing indiscriminate
slaughter of carabaos was sought to be effected through an inter-province ban on the transport of
carabaos and carabeef.
The City later filed a petition for review on certiorari with the Supreme Court.[20] The
petition was docketed as G.R. No. 112471. However in a resolution dated January 26, 1994, the
Court treated the petition as a petition for certiorari and referred the petition to the Court of
Appeals.[21]
Before the Court of Appeals, the City asserted that the Ordinance is a valid exercise of
police power pursuant to Section 458 (4)(iv) of the Local Government Code which confers on
cities, among other local government units, the power:
[To] regulate the establishment, operation and maintenance of cafes,
restaurants, beerhouses, hotels, motels, inns, pension houses, lodging houses
and other similar establishments, including tourist guides and transports. [22]

The Ordinance, it is argued, is also a valid exercise of the power of the City under Article
III, Section 18(kk) of the Revised Manila Charter, thus:
to enact all ordinances it may deem necessary and proper for the
sanitation and safety, the furtherance of the prosperity and the promotion of the
morality, peace, good order, comfort, convenience and general welfare of the
city and its inhabitants, and such others as be necessary to carry into effect and
discharge the powers and duties conferred by this Chapter; and to fix penalties
for the violation of ordinances which shall not exceed two hundred pesos fine or
six months imprisonment, or both such fine and imprisonment for a single
offense.[23]

Petitioners argued that the Ordinance is unconstitutional and void since it violates the right
to privacy and the freedom of movement; it is an invalid exercise of police power; and it is an
unreasonable and oppressive interference in their business.
The Court of Appeals reversed the decision of the RTC and affirmed the constitutionality of
the Ordinance.[24] First, it held that the Ordinance did not violate the right to privacy or the
freedom of movement, as it only penalizes the owners or operators of establishments that admit
individuals for short time stays.

Second, the virtually limitless reach of police power is only

constrained by having a lawful object obtained through a lawful method. The lawful objective of
the Ordinance is satisfied since it aims to curb immoral activities. There is a lawful method since
the establishments are still allowed to operate. Third, the adverse effect on the establishments is
justified by the well-being of its constituents in general. Finally, as held in Ermita-Malate Motel
Operators Association v. City Mayor of Manila, liberty is regulated by law.
TC, WLC and STDC come to this Court via petition for review on certiorari.[25] In their
petition and Memorandum, petitioners in essence repeat the assertions they made before the
Court of Appeals. They contend that the assailed Ordinance is an invalid exercise of police power.
II.
We must address the threshold issue of petitioners standing. Petitioners allege that as
owners of establishments offering wash-up rates, their business is being unlawfully interfered
with by the Ordinance. However, petitioners also allege that the equal protection rights of their
clients are also being interfered with. Thus, the crux of the matter is whether or not these
establishments have the requisite standing to plead for protection of their patrons' equal
protection rights.
Standing or locus standi is the ability of a party to demonstrate to the court sufficient
connection to and harm from the law or action challenged to support that party's participation in
the case. More importantly, the doctrine of standing is built on the principle of separation of
powers,[26] sparing as it does unnecessary interference or invalidation by the judicial branch of the
actions rendered by its co-equal branches of government.
The requirement of standing is a core component of the judicial system derived directly
from the Constitution.[27] The constitutional component of standing doctrine incorporates concepts
which concededly are not susceptible of precise definition. [28] In this jurisdiction, the extancy of a
direct and personal interest presents the most obvious cause, as well as the standard test for a
petitioner's standing.[29] In a similar vein, the United States Supreme Court reviewed and

elaborated on the meaning of the three constitutional standing requirements of injury, causation,
and redressability in Allen v. Wright.[30]
Nonetheless, the general rules on standing admit of several exceptions such as the
overbreadth doctrine, taxpayer suits, third party standing and, especially in the Philippines, the
doctrine of transcendental importance.[31]

For this particular set of facts, the concept of third party standing as an exception and the
overbreadth doctrine are appropriate. In Powers v. Ohio,[32] the United States Supreme Court
wrote that: We have recognized the right of litigants to bring actions on behalf of third parties,
provided three important criteria are satisfied: the litigant must have suffered an injury-in-fact,
thus giving him or her a "sufficiently concrete interest" in the outcome of the issue in dispute; the
litigant must have a close relation to the third party; and there must exist some hindrance to the
third party's ability to protect his or her own interests." [33] Herein, it is clear that the business
interests of the petitioners are likewise injured by the Ordinance. They rely on the patronage of
their customers for their continued viability which appears to be threatened by the enforcement of
the Ordinance. The relative silence in constitutional litigation of such special interest groups in our
nation such as the American Civil Liberties Union in the United States may also be construed as a
hindrance for customers to bring suit.[34]
American jurisprudence is replete with examples where parties-in-interest were allowed
standing to advocate or invoke the fundamental due process or equal protection claims of other
persons or classes of persons injured by state action. In Griswold v. Connecticut,[35] the United
States Supreme Court held that physicians had standing to challenge a reproductive health
statute that would penalize them as accessories as well as to plead the constitutional protections
available to their patients. The Court held that:
The rights of husband and wife, pressed here, are likely to be diluted or
adversely affected unless those rights are considered in a suit involving those
who have this kind of confidential relation to them." [36]

An even more analogous example may be found in Craig v. Boren,[37] wherein the United
States Supreme Court held that a licensed beverage vendor has standing to raise the equal
protection claim of a male customer challenging a statutory scheme prohibiting the sale of beer to

males under the age of 21 and to females under the age of 18. The United States High Court
explained that the vendors had standing "by acting as advocates of the rights of third parties who
seek access to their market or function."[38]
Assuming arguendo that petitioners do not have a relationship with their patrons for the
former to assert the rights of the latter, the overbreadth doctrine comes into play. In overbreadth
analysis, challengers to government action are in effect permitted to raise the rights of third
parties. Generally applied to statutes infringing on the freedom of speech, the overbreadth
doctrine applies when a statute needlessly restrains even constitutionally guaranteed rights. [39] In
this case, the petitioners claim that the Ordinance makes a sweeping intrusion into the right to
liberty of their clients. We can see that based on the allegations in the petition, the Ordinance
suffers from overbreadth.
We thus recognize that the petitioners have a right to assert the constitutional rights of
their clients to patronize their establishments for a wash-rate time frame.
III.
To students of jurisprudence, the facts of this case will recall to mind not only the
recent City of Manila ruling, but our 1967 decision in Ermita-Malate Hotel and Motel Operations
Association, Inc., v. Hon. City Mayor of Manila.[40] Ermita-Malate concerned the City ordinance
requiring patrons to fill up a prescribed form stating personal information such as name, gender,
nationality, age, address and occupation before they could be admitted to a motel, hotel or
lodging house. This earlier ordinance was precisely enacted to minimize certain practices deemed
harmful to public morals. A purpose similar to the annulled ordinance in City of Manila which
sought a blanket ban on motels, inns and similar establishments in the Ermita-Malate area.
However, the constitutionality of the ordinance in Ermita-Malate was sustained by the Court.

The common thread that runs through those decisions and the case at bar goes beyond the
singularity of the localities covered under the respective ordinances. All three ordinances were
enacted with a view of regulating public morals including particular illicit activity in transient
lodging establishments. This could be described as the middle case, wherein there is no wholesale
ban on motels and hotels but the services offered by these establishments have been severely
restricted. At its core, this is another case about the extent to which the State can intrude into and
regulate the lives of its citizens.

The test of a valid ordinance is well established. A long line of decisions including City of
Manila has held that for an ordinance to be valid, it must not only be within the corporate powers
of the local government unit to enact and pass according to the procedure prescribed by law, it
must also conform to the following substantive requirements: (1) must not contravene the
Constitution or any statute; (2) must not be unfair or oppressive; (3) must not be partial or
discriminatory; (4) must not prohibit but may regulate trade; (5) must be general and consistent
with public policy; and (6) must not be unreasonable.[41]
The Ordinance prohibits two specific and distinct business practices, namely wash rate
admissions and renting out a room more than twice a day. The ban is evidently sought to be
rooted in the police power as conferred on local government units by the Local Government Code
through such implements as the general welfare clause.
A.
Police power, while incapable of an exact definition, has been purposely veiled in general
terms to underscore its comprehensiveness to meet all exigencies and provide enough room for
an efficient and flexible response as the conditions warrant. [42] Police power is based upon the
concept of necessity of the State and its corresponding right to protect itself and its people.
[43]

Police power has been used as justification for numerous and varied actions by the State.

These range from the regulation of dance halls,[44] movie theaters,[45] gas stations[46] and cockpits.
[47]

The awesome scope of police power is best demonstrated by the fact that in its hundred or so

years of presence in our nations legal system, its use has rarely been denied.
The apparent goal of the Ordinance is to minimize if not eliminate the use of the covered
establishments for illicit sex, prostitution, drug use and alike. These goals, by themselves, are
unimpeachable and certainly fall within the ambit of the police power of the State. Yet the
desirability of these ends do not sanctify any and all means for their achievement. Those means
must align with the Constitution, and our emerging sophisticated analysis of its guarantees to the
people. The Bill of Rights stands as a rebuke to the seductive theory of Macchiavelli, and,
sometimes even, the political majorities animated by his cynicism.
Even as we design the precedents that establish the framework for analysis of due process
or equal protection questions, the courts are naturally inhibited by a due deference to the coequal branches of government as they exercise their political functions. But when we are
compelled to nullify executive or legislative actions, yet another form of caution emerges. If the
Court were animated by the same passing fancies or turbulent emotions that motivate many
political decisions, judicial integrity is compromised by any perception that the judiciary is merely
the third political branch of government. We derive our respect and good standing in the annals of

history by acting as judicious and neutral arbiters of the rule of law, and there is no surer way to
that end than through the development of rigorous and sophisticated legal standards through
which the courts analyze the most fundamental and far-reaching constitutional questions of the
day.
B.
The primary constitutional question that confronts us is one of due process, as guaranteed
under Section 1, Article III of the Constitution. Due process evades a precise definition. [48] The
purpose of the guaranty is to prevent arbitrary governmental encroachment against the life,
liberty and property of individuals. The due process guaranty serves as a protection against
arbitrary regulation or seizure. Even corporations and partnerships are protected by the guaranty
insofar as their property is concerned.
The due process guaranty has traditionally been interpreted as imposing two related but
distinct

restrictions

on

government, "procedural

due

process"

and

"substantive

due

process." Procedural due process refers to the procedures that the government must follow
before it deprives a person of life, liberty, or property. [49] Procedural due process concerns itself
with government action adhering to the established process when it makes an intrusion into the
private sphere. Examples range from the form of notice given to the level of formality of a
hearing.
If due process were confined solely to its procedural aspects, there would arise absurd
situation of arbitrary government action, provided the proper formalities are followed. Substantive
due process completes the protection envisioned by the due process clause. It inquires whether
the government has sufficient justification for depriving a person of life, liberty, or property. [50]

The question of substantive due process, moreso than most other fields of law, has
reflected dynamism in progressive legal thought tied with the expanded acceptance of
fundamental freedoms. Police power, traditionally awesome as it may be, is now confronted with a
more rigorous level of analysis before it can be upheld. The vitality though of constitutional due
process has not been predicated on the frequency with which it has been utilized to achieve a
liberal result for, after all, the libertarian ends should sometimes yield to the prerogatives of the
State. Instead, the due process clause has acquired potency because of the sophisticated
methodology that has emerged to determine the proper metes and bounds for its application.
C.
The general test of the validity of an ordinance on substantive due process grounds is best
tested when assessed with the evolved footnote 4 test laid down by the U.S. Supreme Court
in U.S. v. Carolene Products.[51] Footnote 4 of the Carolene Products case acknowledged that the
judiciary would defer to the legislature unless there is a discrimination against a discrete and
insular minority or infringement of a fundamental right. [52] Consequently, two standards of
judicial review were established: strict scrutiny for laws dealing with freedom of the mind or
restricting the political process, and the rational basis standard of review for economic legislation.
A third standard, denominated as heightened or immediate scrutiny, was later adopted by
the U.S. Supreme Court for evaluating classifications based on gender [53] and legitimacy.
[54]

Immediate scrutiny was adopted by the U.S. Supreme Court in Craig,[55] after the Court

declined to do so in Reed v. Reed.[56] While the test may have first been articulated in equal
protection analysis, it has in the United States since been applied in all substantive due process
cases as well.
We ourselves have often applied the rational basis test mainly in analysis of equal
protection challenges.[57] Using the rational basis examination, laws or ordinances are upheld if
they rationally further a legitimate governmental interest. [58] Under intermediate review,
governmental interest is extensively examined and the availability of less restrictive measures is
considered.[59] Applying strict scrutiny, the focus is on the presence of compelling, rather than
substantial, governmental interest and on the absence of less restrictive means for achieving that
interest.
In terms of judicial review of statutes or ordinances, strict scrutiny refers to the standard
for determining the quality and the amount of governmental interest brought to justify the

regulation of fundamental freedoms.[60] Strict scrutiny is used today to test the validity of laws
dealing with the regulation of speech, gender, or race as well as other fundamental rights as
expansion from its earlier applications to equal protection. [61] The United States Supreme Court
has expanded the scope of strict scrutiny to protect fundamental rights such as suffrage,
[62]

judicial access[63] and interstate travel.[64]


If we were to take the myopic view that an Ordinance should be analyzed strictly as to its

effect only on the petitioners at bar, then it would seem that the only restraint imposed by the law
which we are capacitated to act upon is the injury to property sustained by the petitioners, an
injury that would warrant the application of the most deferential standard the rational basis test.
Yet as earlier stated, we recognize the capacity of the petitioners to invoke as well the
constitutional rights of their patrons those persons who would be deprived of availing short time
access or wash-up rates to the lodging establishments in question.

Viewed cynically, one might say that the infringed rights of these customers were are
trivial since they seem shorn of political consequence. Concededly, these are not the sort of
cherished rights that, when proscribed, would impel the people to tear up their cedulas. Still, the
Bill of Rights does not shelter gravitas alone. Indeed, it is those trivial yet fundamental freedoms
which the people reflexively exercise any day without the impairing awareness of their
constitutional consequence that accurately reflect the degree of liberty enjoyed by the people.
Liberty, as integrally incorporated as a fundamental right in the Constitution, is not a Ten
Commandments-style enumeration of what may or what may not be done; but rather an
atmosphere of freedom where the people do not feel labored under a Big Brother presence as they
interact with each other, their society and nature, in a manner innately understood by them as
inherent, without doing harm or injury to others.
D.
The rights at stake herein fall within the same fundamental rights to liberty which we
upheld in City of Manila v. Hon. Laguio, Jr. We expounded on that most primordial of rights, thus:
Liberty as guaranteed by the Constitution was defined by Justice Malcolm to
include "the right to exist and the right to be free from arbitrary restraint or
servitude. The term cannot be dwarfed into mere freedom from physical restraint of
the person of the citizen, but is deemed to embrace the right of man to enjoy the
facilities with which he has been endowed by his Creator, subject only to such
restraint as are necessary for the common welfare."[ [65]] In accordance with this
case, the rights of the citizen to be free to use his faculties in all lawful ways; to live
and work where he will; to earn his livelihood by any lawful calling; and to pursue
any avocation are all deemed embraced in the concept of liberty.[ [66]]

The U.S. Supreme Court in the case of Roth v. Board of Regents, sought to
clarify the meaning of "liberty." It said:
While the Court has not attempted to define with exactness
the liberty . . . guaranteed [by the Fifth and Fourteenth Amendments],
the term denotes not merely freedom from bodily restraint but also
the right of the individual to contract, to engage in any of the
common occupations of life, to acquire useful knowledge, to marry,
establish a home and bring up children, to worship God according to
the dictates of his own conscience, and generally to enjoy those
privileges long recognized . . . as essential to the orderly pursuit of
happiness by free men. In a Constitution for a free people, there can
be no doubt that the meaning of "liberty" must be broad indeed.
[67]
[Citations omitted]

It cannot be denied that the primary animus behind the ordinance is the curtailment of
sexual behavior. The City asserts before this Court that the subject establishments have gained
notoriety as venue of prostitution, adultery and fornications in Manila since they provide the
necessary atmosphere for clandestine entry, presence and exit and thus became the ideal haven
for prostitutes and thrill-seekers.[68] Whether or not this depiction of a mise-en-scene of vice is
accurate, it cannot be denied that legitimate sexual behavior among willing married or consenting
single adults which is constitutionally protected [69] will be curtailed as well, as it was in the City of
Manila case. Our holding therein retains significance for our purposes:
The concept of liberty compels respect for the individual whose claim to
privacy and interference demands respect. As the case of Morfe v. Mutuc, borrowing
the words of Laski, so very aptly stated:
Man is one among many, obstinately refusing reduction to
unity. His separateness, his isolation, are indefeasible; indeed, they are
so fundamental that they are the basis on which his civic obligations
are built. He cannot abandon the consequences of his isolation, which
are, broadly speaking, that his experience is private, and the will built
out of that experience personal to himself. If he surrenders his will to
others, he surrenders himself. If his will is set by the will of others, he
ceases to be a master of himself. I cannot believe that a man no
longer a master of himself is in any real sense free.
Indeed, the right to privacy as a constitutional right was recognized in Morfe,
the invasion of which should be justified by a compelling state
interest. Morfe accorded recognition to the right to privacy independently of its
identification with liberty; in itself it is fully deserving of constitutional protection.
Governmental powers should stop short of certain intrusions into the personal life of
the citizen.[70]

We cannot discount other legitimate activities which the Ordinance would proscribe or
impair. There are very legitimate uses for a wash rate or renting the room out for more than twice
a day. Entire families are known to choose pass the time in a motel or hotel whilst the power is
momentarily out in their homes. In transit passengers who wish to wash up and rest between trips
have a legitimate purpose for abbreviated stays in motels or hotels. Indeed any person or groups
of persons in need of comfortable private spaces for a span of a few hours with purposes other
than having sex or using illegal drugs can legitimately look to staying in a motel or hotel as a
convenient alternative.
E.
That the Ordinance prevents the lawful uses of a wash rate depriving patrons of a product
and the petitioners of lucrative business ties in with another constitutional requisite for the
legitimacy of the Ordinance as a police power measure. It must appear that the interests of the
public generally, as distinguished from those of a particular class, require an interference with
private rights and the means must be reasonably necessary for the accomplishment of the
purpose and not unduly oppressive of private rights. [71] It must also be evident that no other
alternative for the accomplishment of the purpose less intrusive of private rights can work. More
importantly, a reasonable relation must exist between the purposes of the measure and the
means employed for its accomplishment, for even under the guise of protecting the public
interest, personal rights and those pertaining to private property will not be permitted to be
arbitrarily invaded.[72]
Lacking a concurrence of these requisites, the police measure shall be struck down as an
arbitrary intrusion into private rights. As held in Morfe v. Mutuc, the exercise of police power is
subject to judicial review when life, liberty or property is affected. [73] However, this is not in any
way meant to take it away from the vastness of State police power whose exercise enjoys the
presumption of validity.[74]
Similar to the Comelec resolution requiring newspapers to donate advertising space to
candidates, this Ordinance is a blunt and heavy instrument. [75] The Ordinance makes no distinction
between places frequented by patrons engaged in illicit activities and patrons engaged in
legitimate actions. Thus it prevents legitimate use of places where illicit activities are rare or even
unheard of. A plain reading of section 3 of the Ordinance shows it makes no classification
of places of lodging, thus deems them all susceptible to illicit patronage and subject them
without exception to the unjustified prohibition.

The Court has professed its deep sentiment and tenderness of the Ermita-Malate area, its
longtime home,[76] and it is skeptical of those who wish to depict our capital city the Pearl of the
Orient as a modern-day Sodom or Gomorrah for the Third World set. Those still steeped in Nick
Joaquin-dreams of the grandeur of Old Manila will have to accept that Manila like all evolving big
cities, will have its problems. Urban decay is a fact of mega cities such as Manila, and vice is a
common problem confronted by the modern metropolis wherever in the world. The solution to
such perceived decay is not to prevent legitimate businesses from offering a legitimate product.
Rather, cities revive themselves by offering incentives for new businesses to sprout up thus
attracting the dynamism of individuals that would bring a new grandeur to Manila.
The behavior which the Ordinance seeks to curtail is in fact already prohibited and could in
fact be diminished simply by applying existing laws. Less intrusive measures such as curbing the
proliferation of prostitutes and drug dealers through active police work would be more effective in
easing the situation. So would the strict enforcement of existing laws and regulations penalizing
prostitution and drug use. These measures would have minimal intrusion on the businesses of the
petitioners and other legitimate merchants. Further, it is apparent that the Ordinance can easily
be circumvented by merely paying the whole day rate without any hindrance to those engaged in
illicit activities. Moreover, drug dealers and prostitutes can in fact collect wash rates from their
clientele by charging their customers a portion of the rent for motel rooms and even apartments.
IV.
We reiterate that individual rights may be adversely affected only to the extent that may
fairly be required by the legitimate demands of public interest or public welfare. The State is a
leviathan that must be restrained from needlessly intruding into the lives of its citizens. However
well-intentioned the Ordinance may be, it is in effect an arbitrary and whimsical intrusion into the
rights of the establishments as well as their patrons. The Ordinance needlessly restrains the
operation of the businesses of the petitioners as well as restricting the rights of their patrons
without sufficient justification. The Ordinance rashly equates wash rates and renting out a room
more than twice a day with immorality without accommodating innocuous intentions.
The promotion of public welfare and a sense of morality among citizens deserves the full
endorsement of the judiciary provided that such measures do not trample rights this Court is
sworn to protect.[77] The notion that the promotion of public morality is a function of the State is
as old as Aristotle.[78] The advancement of moral relativism as a school of philosophy does not delegitimize the role of morality in law, even if it may foster wider debate on which particular
behavior to penalize. It is conceivable that a society with relatively little shared morality among its

citizens could be functional so long as the pursuit of sharply variant moral perspectives yields an
adequate accommodation of different interests. [79]
To be candid about it, the oft-quoted American maxim that you cannot legislate morality
is ultimately illegitimate as a matter of law, since as explained by Calabresi, that phrase is more
accurately interpreted as meaning that efforts to legislate morality will fail if they are widely at
variance with public attitudes about right and wrong. [80] Our penal laws, for one, are founded on
age-old moral traditions, and as long as there are widely accepted distinctions between right and
wrong, they will remain so oriented.
Yet the continuing progression of the human story has seen not only the acceptance of the
right-wrong distinction, but also the advent of fundamental liberties as the key to the enjoyment
of life to the fullest. Our democracy is distinguished from non-free societies not with any more
extensive elaboration on our part of what is moral and immoral, but from our recognition that the
individual liberty to make the choices in our lives is innate, and protected by the State.
Independent and fair-minded judges themselves are under a moral duty to uphold the Constitution
as the embodiment of the rule of law, by reason of their expression of consent to do so when they
take the oath of office, and because they are entrusted by the people to uphold the law. [81]
Even as the implementation of moral norms remains an indispensable complement to
governance, that prerogative is hardly absolute, especially in the face of the norms of due process
of liberty. And while the tension may often be left to the courts to relieve, it is possible for the
government to avoid the constitutional conflict by employing more judicious, less drastic means to
promote morality.
WHEREFORE,

the

Petition is GRANTED.

The

Decision of

the

Court of

Appeals

is REVERSED, and the Decision of the Regional Trial Court of Manila, Branch 9, isREINSTATED.
Ordinance No. 7774 is hereby declared UNCONSTITUTIONAL. No pronouncement as to costs.
SO ORDERED.

OSG vs. AYALA LAND


DECISION
CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the Revised Rules
of Court, filed by petitioner Office of the Solicitor General (OSG), seeking the reversal and setting
aside of the Decision[2] dated 25 January 2007 of the Court of Appeals in CA-G.R. CV No. 76298,
which affirmed in toto the Joint Decision[3] dated 29 May 2002 of the Regional Trial Court (RTC) of
Makati City, Branch 138, in Civil Cases No. 00-1208 and No. 00-1210; and (2) the
Resolution[4] dated 14 March 2007 of the appellate court in the same case which denied the
Motion for Reconsideration of the OSG. The RTC adjudged that respondents Ayala Land
Incorporated (Ayala Land), Robinsons Land Corporation (Robinsons), Shangri-la Plaza Corporation
(Shangri-la), and SM Prime Holdings, Inc. (SM Prime) could not be obliged to provide free parking
spaces in their malls to their patrons and the general public.
Respondents Ayala Land, Robinsons, and Shangri-la maintain and operate shopping malls
in various locations in Metro Manila. Respondent SM Prime constructs, operates, and leases out
commercial buildings and other structures, among which, are SM City, Manila; SM Centerpoint,
Sta. Mesa, Manila; SM City, North Avenue, Quezon City; and SM Southmall, Las Pias.
The shopping malls operated or leased out by respondents have parking facilities for all
kinds of motor vehicles, either by way of parking spaces inside the mall buildings or in separate
buildings
and/or
adjacent
lots
that
are
solely
devoted
for
use
as
parking
spaces. Respondents Ayala Land, Robinsons, and SM Prime spent for the construction of their own
parking facilities. Respondent Shangri-la is renting its parking facilities, consisting of land and
building specifically used as parking spaces, which were constructed for the lessors account.
Respondents expend for the maintenance and administration of their respective parking
facilities. They provide security personnel to protect the vehicles parked in their parking facilities
and maintain order within the area. In turn, they collect the following parking fees from the
persons making use of their parking facilities, regardless of whether said persons are mall patrons
or not:
Respondent

Parking Fees

Ayala Land

On weekdays, P25.00 for the first four hours


andP10.00 for every succeeding hour; on
weekends, flat rate of P25.00 per day

Robinsons

P20.00 for the first three hours and P10.00 for


every succeeding hour

Shangri-la

Flat rate of P30.00 per day

SM Prime

P10.00 to P20.00 (depending on whether the


parking space is outdoors or indoors) for the
first three hours and 59 minutes, and P10.00
for every succeeding hour or fraction thereof

The parking tickets or cards issued by respondents to vehicle owners contain the stipulation that
respondents shall not be responsible for any loss or damage to the vehicles parked in
respondents parking facilities.

In 1999, the Senate Committees on Trade and Commerce and on Justice and Human Rights
conducted a joint investigation for the following purposes: (1) to inquire into the legality of the
prevalent practice of shopping malls of charging parking fees; (2) assuming arguendo that the
collection of parking fees was legally authorized, to find out the basis and reasonableness of the
parking rates charged by shopping malls; and (3) to determine the legality of the policy of
shopping malls of denying liability in cases of theft, robbery, or carnapping, by invoking the waiver
clause at the back of the parking tickets. Said Senate Committees invited the top executives of
respondents, who operate the major malls in the country; the officials from the Department of
Trade and Industry (DTI), Department of Public Works and Highways (DPWH), Metro Manila
Development Authority (MMDA), and other local government officials; and the Philippine Motorists
Association (PMA) as representative of the consumers group.
After three public hearings held on 30 September, 3 November, and 1 December 1999, the
afore-mentioned Senate Committees jointly issued Senate Committee Report No. 225 [5] on 2 May
2000, in which they concluded:
In view of the foregoing, the Committees find that the collection of parking
fees by shopping malls is contrary to the National Building Code and is therefor [sic]
illegal. While it is true that the Code merely requires malls to provide parking
spaces, without specifying whether it is free or not, both Committees believe that
the reasonable and logical interpretation of the Code is that the parking spaces are
for free. This interpretation is not only reasonable and logical but finds support in
the actual practice in other countries like the United States of America where
parking spaces owned and operated by mall owners are free of charge.
Figuratively speaking, the Code has expropriated the land for parking
something similar to the subdivision law which require developers to devote so
much of the land area for parks.
Moreover, Article II of R.A. No. 9734 (Consumer Act of the Philippines)
provides that it is the policy of the State to protect the interest of the consumers,
promote the general welfare and establish standards of conduct for business and
industry. Obviously, a contrary interpretation (i.e., justifying the collection of
parking fees) would be going against the declared policy of R.A. 7394.
Section 201 of the National Building Code gives the responsibility for the
administration and enforcement of the provisions of the Code, including the
imposition of penalties for administrative violations thereof to the Secretary of
Public Works. This set up, however, is not being carried out in reality.
In the position paper submitted by the Metropolitan Manila Development
Authority (MMDA), its chairman, Jejomar C. Binay, accurately pointed out that the
Secretary of the DPWH is responsible for the implementation/enforcement of the
National Building Code. After the enactment of the Local Government Code of
1991, the local government units (LGUs) were tasked to discharge the regulatory
powers of the DPWH. Hence, in the local level, the Building Officials enforce all
rules/ regulations formulated by the DPWH relative to all building plans,
specifications and designs including parking space requirements. There is,
however, no single national department or agency directly tasked to supervise the
enforcement of the provisions of the Code on parking, notwithstanding the national
character of the law.[6]

Senate Committee Report No. 225, thus, contained the following recommendations:
In light of the foregoing, the Committees on Trade and Commerce and Justice
and Human Rights hereby recommend the following:
1.

The Office of the Solicitor General should institute the necessary action to
enjoin the collection of parking fees as well as to enforce the penal sanction
provisions of the National Building Code. The Office of the Solicitor General
should likewise study how refund can be exacted from mall owners who
continue to collect parking fees.

2.

The Department of Trade and Industry pursuant to the provisions of R.A. No.
7394, otherwise known as the Consumer Act of the Philippines should
enforce the provisions of the Code relative to parking. Towards this end, the
DTI should formulate the necessary implementing rules and regulations on
parking in shopping malls, with prior consultations with the local government
units where these are located. Furthermore, the DTI, in coordination with the
DPWH, should be empowered to regulate and supervise the construction and
maintenance of parking establishments.

3.

Finally, Congress should amend and update the National Building Code to
expressly prohibit shopping malls from collecting parking fees by at the
same time, prohibit them from invoking the waiver of liability. [7]

Respondent SM Prime thereafter received information that, pursuant to Senate Committee


Report No. 225, the DPWH Secretary and the local building officials of Manila, Quezon City, and
Las Pias intended to institute, through the OSG, an action to enjoin respondent SM Prime and
similar establishments from collecting parking fees, and to impose upon said establishments penal
sanctions under Presidential Decree No. 1096, otherwise known as the National Building Code of
the Philippines (National Building Code), and its Implementing Rules and Regulations (IRR). With
the threatened action against it, respondent SM Prime filed, on 3 October 2000, a Petition for
Declaratory Relief[8] under Rule 63 of the Revised Rules of Court, against the DPWH Secretary and
local building officials of Manila, Quezon City, and Las Pias. Said Petition was docketed as Civil
Case No. 00-1208 and assigned to the RTC of Makati City, Branch 138, presided over by Judge
Sixto Marella, Jr. (Judge Marella). In its Petition, respondent SM Prime prayed for judgment:
a)
Declaring Rule XIX of the Implementing Rules and Regulations of the
National Building Code as ultra vires, hence, unconstitutional and void;
b)
Declaring [herein respondent SM Prime]s clear legal right to lease
parking spaces appurtenant to its department stores, malls, shopping centers and
other commercial establishments; and
c)
Declaring the National Building Code of the Philippines Implementing
Rules and Regulations as ineffective, not having been published once a week for
three (3) consecutive weeks in a newspaper of general circulation, as prescribed by
Section 211 of Presidential Decree No. 1096.
[Respondent SM Prime] further prays for such other reliefs as may be
deemed just and equitable under the premises.[9]

The very next day, 4 October 2000, the OSG filed a Petition for Declaratory Relief and
Injunction (with Prayer for Temporary Restraining Order and Writ of Preliminary Injunction)
[10]
against respondents. This Petition was docketed as Civil Case No. 00-1210 and raffled to the
RTC of Makati, Branch 135, presided over by Judge Francisco B. Ibay (Judge Ibay). Petitioner
prayed that the RTC:
1.
After summary hearing, a temporary restraining order and a writ of
preliminary injunction be issued restraining respondents from collecting parking fees
from their customers; and
2.
After hearing, judgment be rendered declaring that the practice of
respondents in charging parking fees is violative of the National Building Code and
its Implementing Rules and Regulations and is therefore invalid, and making
permanent any injunctive writ issued in this case.
Other reliefs just and equitable under the premises are likewise prayed for. [11]

On 23 October 2000, Judge Ibay of the RTC of Makati City, Branch 135, issued an Order
consolidating Civil Case No. 00-1210 with Civil Case No. 00-1208 pending before Judge Marella of
RTC of Makati, Branch 138.
As a result of the pre-trial conference held on the morning of 8 August 2001, the RTC issued
a Pre-Trial Order[12] of even date which limited the issues to be resolved in Civil Cases No. 00-1208
and No. 00-1210 to the following:
1.
Capacity of the plaintiff [OSG] in Civil Case No. 00-1210 to institute
the present proceedings and relative thereto whether the controversy in the
collection of parking fees by mall owners is a matter of public welfare.
2.

Whether declaratory relief is proper.

3.
Whether respondent Ayala Land, Robinsons, Shangri-La and SM
Prime are obligated to provide parking spaces in their malls for the use of their
patrons or the public in general, free of charge.
4.

Entitlement of the parties of [sic] award of damages.[13]

On 29 May 2002, the RTC rendered its Joint Decision in Civil Cases No. 00-1208 and No. 001210.
The RTC resolved the first two issues affirmatively. It ruled that the OSG can initiate Civil
Case No. 00-1210 under Presidential Decree No. 478 and the Administrative Code of 1987. [14] It
also found that all the requisites for an action for declaratory relief were present, to wit:

The requisites for an action for declaratory relief are: (a) there is a justiciable
controversy; (b) the controversy is between persons whose interests are adverse;
(c) the party seeking the relief has a legal interest in the controversy; and (d) the
issue involved is ripe for judicial determination.

SM, the petitioner in Civil Case No. 001-1208 [sic] is a mall operator who
stands to be affected directly by the position taken by the government officials sued
namely the Secretary of Public Highways and the Building Officials of the local
government units where it operates shopping malls. The OSG on the other hand
acts on a matter of public interest and has taken a position adverse to that of the
mall owners whom it sued. The construction of new and bigger malls has been
announced, a matter which the Court can take judicial notice and the unsettled
issue of whether mall operators should provide parking facilities, free of charge
needs to be resolved.[15]

As to the third and most contentious issue, the RTC pronounced that:
The Building Code, which is the enabling law and the Implementing Rules
and Regulations do not impose that parking spaces shall be provided by the mall
owners free of charge. Absent such directive[,] Ayala Land, Robinsons, Shangri-la
and SM [Prime] are under no obligation to provide them for free. Article 1158 of the
Civil Code is clear:
Obligations derived from law are not presumed. Only those
expressly determined in this Code or in special laws are demandable
and shall be regulated by the precepts of the law which establishes
them; and as to what has not been foreseen, by the provisions of this
Book (1090).[]
xxxx
The provision on ratios of parking slots to several variables, like shopping
floor area or customer area found in Rule XIX of the Implementing Rules and
Regulations cannot be construed as a directive to provide free parking spaces,
because the enabling law, the Building Code does not so provide. x x x.
To compel Ayala Land, Robinsons, Shangri-La and SM [Prime] to provide
parking spaces for free can be considered as an unlawful taking of property right
without just compensation.
Parking spaces in shopping malls are privately owned and for their use, the
mall operators collect fees. The legal relationship could be either lease or
deposit. In either case[,] the mall owners have the right to collect money which
translates into income. Should parking spaces be made free, this right of mall
owners shall be gone. This, without just compensation. Further, loss of effective
control over their property will ensue which is frowned upon by law.
The presence of parking spaces can be viewed in another light. They can be
looked at as necessary facilities to entice the public to increase patronage of their
malls because without parking spaces, going to their malls will be
inconvenient. These are[,] however[,] business considerations which mall operators
will have to decide for themselves. They are not sufficient to justify a legal
conclusion, as the OSG would like the Court to adopt that it is the obligation of the
mall owners to provide parking spaces for free.[16]

The RTC then held that there was no sufficient evidence to justify any award for damages.

The RTC finally decreed in its 29 May 2002 Joint Decision in Civil Cases No. 00-1208 and No.
00-1210 that:
FOR THE REASONS GIVEN, the Court declares that Ayala Land[,] Inc.,
Robinsons Land Corporation, Shangri-la Plaza Corporation and SM Prime Holdings[,]
Inc. are not obligated to provide parking spaces in their malls for the use of their
patrons or public in general, free of charge.
All counterclaims in Civil Case No. 00-1210 are dismissed.
No pronouncement as to costs.[17]

CA-G.R. CV No. 76298 involved the separate appeals of the OSG [18] and respondent SM
Prime
filed with the Court of Appeals. The sole assignment of error of the OSG in its Appellants
Brief was:
[19]

THE TRIAL COURT ERRED IN HOLDING THAT THE NATIONAL BUILDING CODE DID
NOT INTEND MALL PARKING SPACES TO BE FREE OF CHARGE[;][20]

while the four errors assigned by respondent SM Prime in its Appellants Brief were:
I
THE TRIAL COURT ERRED IN FAILING TO DECLARE RULE XIX OF THE IMPLEMENTING
RULES AS HAVING BEEN ENACTED ULTRA VIRES, HENCE, UNCONSTITUTIONAL AND
VOID.
II
THE TRIAL COURT ERRED IN FAILING TO DECLARE THE IMPLEMENTING RULES
INEFFECTIVE FOR NOT HAVING BEEN PUBLISHED AS REQUIRED BY LAW.
III
THE TRIAL COURT ERRED IN FAILING TO DISMISS THE OSGS PETITION FOR
DECLARATORY RELIEF AND INJUNCTION FOR FAILURE TO EXHAUST ADMINISTRATIVE
REMEDIES.
IV
THE TRIAL COURT ERRED IN FAILING TO DECLARE THAT THE OSG HAS NO LEGAL
CAPACITY TO SUE AND/OR THAT IT IS NOT A REAL PARTY-IN-INTEREST IN THE
INSTANT CASE.[21]

Respondent Robinsons filed a Motion to Dismiss Appeal of the OSG on the ground that the
lone issue raised therein involved a pure question of law, not reviewable by the Court of Appeals.
The Court of Appeals promulgated its Decision in CA-G.R. CV No. 76298 on 25 January
2007. The appellate court agreed with respondent Robinsons that the appeal of the OSG should
suffer the fate of dismissal, since the issue on whether or not the National Building Code and its
implementing rules require shopping mall operators to provide parking facilities to the public for

free was evidently a question of law. Even so, since CA-G.R. CV No. 76298 also included the
appeal of respondent SM Prime, which raised issues worthy of consideration, and in order to
satisfy the demands of substantial justice, the Court of Appeals proceeded to rule on the merits of
the case.
In its Decision, the Court of Appeals affirmed the capacity of the OSG to initiate Civil Case
No. 00-1210 before the RTC as the legal representative of the government, [22]and as the one
deputized by the Senate of the Republic of the Philippines through Senate Committee Report No.
225.
The Court of Appeals rejected the contention of respondent SM Prime that the OSG failed to
exhaust administrative remedies. The appellate court explained that an administrative review is
not a condition precedent to judicial relief where the question in dispute is purely a legal one, and
nothing of an administrative nature is to be or can be done.
The Court of Appeals likewise refused to rule on the validity of the IRR of the National
Building Code, as such issue was not among those the parties had agreed to be resolved by the
RTC during the pre-trial conference for Civil Cases No. 00-1208 and No. 00-1210. Issues cannot be
raised for the first time on appeal. Furthermore, the appellate court found that the controversy
could be settled on other grounds, without touching on the issue of the validity of the IRR. It
referred to the settled rule that courts should refrain from passing upon the constitutionality of a
law or implementing rules, because of the principle that bars judicial inquiry into a constitutional
question, unless the resolution thereof is indispensable to the determination of the case.
Lastly, the Court of Appeals declared that Section 803 of the National Building Code and
Rule XIX of the IRR were clear and needed no further construction. Said provisions were only
intended to control the occupancy or congestion of areas and structures. In the absence of any
express and clear provision of law, respondents could not be obliged and expected to provide
parking slots free of charge.
The fallo of the 25 January 2007 Decision of the Court of Appeals reads:
WHEREFORE,
premises
considered,
the
instant
appeals
are DENIED. Accordingly, appealed Decision is hereby AFFIRMED in toto.[23]

In its Resolution issued on 14 March 2007, the Court of Appeals denied the Motion for
Reconsideration of the OSG, finding that the grounds relied upon by the latter had already been
carefully considered, evaluated, and passed upon by the appellate court, and there was no strong
and cogent reason to modify much less reverse the assailed judgment.
The OSG now comes before this Court, via the instant Petition for Review, with a single
assignment of error:
THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE RULING OF
THE LOWER COURT THAT RESPONDENTS ARE NOT OBLIGED TO PROVIDE FREE
PARKING SPACES TO THEIR CUSTOMERS OR THE PUBLIC.[24]

The OSG argues that respondents are mandated to provide free parking by Section 803 of
the National Building Code and Rule XIX of the IRR.
According to Section 803 of the National Building Code:
SECTION 803. Percentage of Site Occupancy
(a) Maximum site occupancy shall be governed by the use, type of
construction, and height of the building and the use, area, nature, and location of
the site; and subject to the provisions of the local zoning requirements and in
accordance with the rules and regulations promulgated by the Secretary.

In connection therewith, Rule XIX of the old IRR,[25] provides:


RULE XIX PARKING AND LOADING SPACE REQUIREMENTS
Pursuant to Section 803 of the National Building Code (PD 1096) providing for
maximum site occupancy, the following provisions on parking and loading space
requirements shall be observed:
1.

The parking space ratings listed below are minimum off-street


requirements for specific uses/occupancies for buildings/structures:
1.1

The size of an average automobile parking slot shall be


computed as 2.4 meters by 5.00 meters for perpendicular or
diagonal parking, 2.00 meters by 6.00 meters for parallel
parking. A truck or bus parking/loading slot shall be computed
at a minimum of 3.60 meters by 12.00 meters. The parking
slot shall be drawn to scale and the total number of which shall
be indicated on the plans and specified whether or not parking
accommodations, are attendant-managed. (See Section 2 for
computation of parking requirements).

1.7

Neighborhood shopping center 1 slot/100 sq. m. of shopping


floor area

xxxx

The OSG avers that the aforequoted provisions should be read together with Section 102 of
the National Building Code, which declares:
SECTION 102. Declaration of Policy
It is hereby declared to be the policy of the State to safeguard life, health,
property, and public welfare, consistent with the principles of sound environmental
management and control; and to this end, make it the purpose of this Code to
provide for all buildings and structures, a framework of minimum standards and
requirements to regulate and control their location, site, design, quality of materials,
construction, use, occupancy, and maintenance.

The requirement of free-of-charge parking, the OSG argues, greatly contributes to the aim of
safeguarding life, health, property, and public welfare, consistent with the principles of sound
environmental management and control. Adequate parking spaces would contribute greatly to
alleviating traffic congestion when complemented by quick and easy access thereto because of
free-charge parking. Moreover, the power to regulate and control the use, occupancy, and
maintenance of buildings and structures carries with it the power to impose fees and, conversely,
to control -- partially or, as in this case, absolutely -- the imposition of such fees.
The Court finds no merit in the present Petition.
The explicit directive of the afore-quoted statutory and regulatory provisions, garnered
from a plain reading thereof, is that respondents, as operators/lessors of neighborhood shopping
centers, should provide parking and loading spaces, in accordance with the minimum ratio of one
slot per 100 square meters of shopping floor area. There is nothing therein pertaining to the
collection (or non-collection) of parking fees by respondents. In fact, the term parking fees
cannot even be found at all in the entire National Building Code and its IRR.
Statutory construction has it that if a statute is clear and unequivocal, it must be given its
literal meaning and applied without any attempt at interpretation. [26] Since Section 803 of the
National Building Code and Rule XIX of its IRR do not mention parking fees, then simply, said
provisions do not regulate the collection of the same. The RTC and the Court of Appeals correctly
applied Article 1158 of the New Civil Code, which states:
Art. 1158. Obligations derived from law are not presumed. Only
those expressly determined in this Code or in special laws are demandable, and
shall be regulated by the precepts of the law which establishes them; and as to
what has not been foreseen, by the provisions of this Book. (Emphasis ours.)

Hence, in order to bring the matter of parking fees within the ambit of the National
Building Code and its IRR, the OSG had to resort to specious and feeble argumentation, in which
the Court cannot concur.
The OSG cannot rely on Section 102 of the National Building Code to expand the coverage
of Section 803 of the same Code and Rule XIX of the IRR, so as to include the regulation of parking
fees. The OSG limits its citation to the first part of Section 102 of the National Building Code
declaring the policy of the State to safeguard life, health, property, and public welfare, consistent
with the principles of sound environmental management and control; but totally ignores the
second part of said provision, which reads, and to this end, make it the purpose of this Code to
provide for all buildings and structures, a framework of minimum standards and
requirements to regulate and control their location, site, design, quality of materials,
construction, use, occupancy, and maintenance. While the first part of Section 102 of the
National Building Code lays down the State policy, it is the second part thereof that explains how
said policy shall be carried out in the Code. Section 102 of the National Building Code is not an
all-encompassing grant of regulatory power to the DPWH Secretary and local building officials in
the name of life, health, property, and public welfare. On the contrary, it limits the regulatory

power of said officials to ensuring that the minimum standards and requirements for all buildings
and structures, as set forth in the National Building Code, are complied with.
Consequently, the OSG cannot claim that in addition to fixing the minimum requirements
for parking spaces for buildings, Rule XIX of the IRR also mandates that such parking spaces be
provided by building owners free of charge. If Rule XIX is not covered by the enabling law, then it
cannot be added to or included in the implementing rules. The rule-making power of
administrative agencies must be confined to details for regulating the mode or proceedings to
carry into effect the law as it has been enacted, and it cannot be extended to amend or expand
the statutory requirements or to embrace matters not covered by the statute. Administrative
regulations must always be in harmony with the provisions of the law because any resulting
discrepancy between the two will always be resolved in favor of the basic law. [27]
From the RTC all the way to this Court, the OSG repeatedly referred to Republic v.
Gonzales[28] and City of Ozamis v. Lumapas [29] to support its position that the State has the power
to regulate parking spaces to promote the health, safety, and welfare of the public; and it is by
virtue of said power that respondents may be required to provide free parking facilities. The OSG,
though, failed to consider the substantial differences in the factual and legal backgrounds of these
two cases from those of the Petition at bar.
In Republic, the Municipality of Malabon sought to eject the occupants of two parcels of
land of the public domain to give way to a road-widening project. It was in this context that the
Court pronounced:
Indiscriminate parking along F. Sevilla Boulevard and other main thoroughfares was
prevalent; this, of course, caused the build up of traffic in the surrounding area to
the great discomfort and inconvenience of the public who use the streets. Traffic
congestion constitutes a threat to the health, welfare, safety and convenience of
the people and it can only be substantially relieved by widening streets and
providing adequate parking areas.

The Court, in City of Ozamis, declared that the City had been clothed with full power to
control and regulate its streets for the purpose of promoting public health, safety and
welfare. The City can regulate the time, place, and manner of parking in the streets and public
places; and charge minimal fees for the street parking to cover the expenses for supervision,
inspection and control, to ensure the smooth flow of traffic in the environs of the public market,
and for the safety and convenience of the public.
Republic and City of Ozamis involved parking in the local streets; in contrast, the present
case deals with privately owned parking facilities available for use by the general
public. In Republic and City of Ozamis, the concerned local governments regulated parking
pursuant to their power to control and regulate their streets; in the instant case, the DPWH
Secretary and local building officials regulate parking pursuant to their authority to ensure
compliance with the minimum standards and requirements under the National Building Code and
its IRR. With the difference in subject matters and the bases for the regulatory powers being
invoked, Republic and City of Ozamis do not constitute precedents for this case.

Indeed, Republic and City of Ozamis both contain pronouncements that weaken the
position of the OSG in the case at bar. In Republic, the Court, instead of placing the burden on
private persons to provide parking facilities to the general public, mentioned the trend in other
jurisdictions wherein the municipal governments themselves took the initiative to make more
parking spaces available so as to alleviate the traffic problems, thus:
Under the Land Transportation and Traffic Code, parking in designated areas
along public streets or highways is allowed which clearly indicates that provision for
parking spaces serves a useful purpose. In other jurisdictions where traffic is at
least as voluminous as here, the provision by municipal governments of parking
space is not limited to parking along public streets or highways. There has been a
marked trend to build off-street parking facilities with the view to removing parked
cars from the streets. While the provision of off-street parking facilities or carparks
has been commonly undertaken by private enterprise, municipal governments have
been constrained to put up carparks in response to public necessity where private
enterprise had failed to keep up with the growing public demand. American courts
have upheld the right of municipal governments to construct off-street parking
facilities as clearly redounding to the public benefit.[30]

In City of Ozamis, the Court authorized the collection by the City of minimal fees for the
parking of vehicles along the streets: so why then should the Court now preclude respondents
from collecting from the public a fee for the use of the mall parking facilities? Undoubtedly,
respondents also incur expenses in the maintenance and operation of the mall parking facilities,
such as electric consumption, compensation for parking attendants and security, and upkeep of
the physical structures.

It is not sufficient for the OSG to claim that the power to regulate and control the use,
occupancy, and maintenance of buildings and structures carries with it the power to impose fees
and, conversely, to control, partially or, as in this case, absolutely, the imposition of such
fees. Firstly, the fees within the power of regulatory agencies to impose areregulatory fees. It
has been settled law in this jurisdiction that this broad and all-compassing governmental
competence to restrict rights of liberty and property carries with it the undeniable power to collect
a regulatory fee. It looks to the enactment of specific measures that govern the relations not only
as between individuals but also as between private parties and the political society. [31] True, if the
regulatory agencies have the power to impose regulatory fees, then conversely, they also have
the power to remove the same. Even so, it is worthy to note that the present case does not
involve the imposition by the DPWH Secretary and local building officials of regulatory fees upon
respondents; but the collection by respondents of parking fees from persons who use the mall
parking facilities. Secondly, assuming arguendo that the DPWH Secretary and local building
officials do have regulatory powers over the collection of parking fees for the use of privately
owned parking facilities, they cannot allow or prohibit such collection arbitrarily or
whimsically. Whether allowing or prohibiting the collection of such parking fees, the action of the
DPWH Secretary and local building officials must pass the test of classic reasonableness and
propriety of the measures or means in the promotion of the ends sought to be accomplished. [32]

Keeping in mind the aforementioned test of reasonableness and propriety of measures or


means, the Court notes that Section 803 of the National Building Code falls under Chapter 8
on Light and Ventilation. Evidently, the Code deems it necessary to regulate site occupancy to
ensure that there is proper lighting and ventilation in every building. Pursuant thereto, Rule XIX of
the IRR requires that a building, depending on its specific use and/or floor area, should provide a
minimum number of parking spaces. The Court, however, fails to see the connection between
regulating site occupancy to ensure proper light and ventilation in every building vis-vis regulating the collection by building owners of fees for the use of their parking
spaces. Contrary to the averment of the OSG, the former does not necessarily include or imply
the latter. It totally escapes this Court how lighting and ventilation conditions at the malls could
be affected by the fact that parking facilities thereat are free or paid for.
The OSG attempts to provide the missing link by arguing that:
Under Section 803 of the National Building Code, complimentary parking
spaces are required to enhance light and ventilation, that is, to avoid traffic
congestion in areas surrounding the building, which certainly affects the ventilation
within the building itself, which otherwise, the annexed parking spaces would have
served. Free-of-charge parking avoids traffic congestion by ensuring quick and easy
access of legitimate shoppers to off-street parking spaces annexed to the malls, and
thereby removing the vehicles of these legitimate shoppers off the busy streets
near the commercial establishments.[33]

The Court is unconvinced. The National Building Code regulates buildings, by setting the
minimum specifications and requirements for the same. It does not concern itself with traffic
congestion in areas surrounding the building. It is already a stretch to say that the National
Building Code and its IRR also intend to solve the problem of traffic congestion around the
buildings so as to ensure that the said buildings shall have adequate lighting and
ventilation. Moreover, the Court cannot simply assume, as the OSG has apparently done, that the
traffic congestion in areas around the malls is due to the fact that respondents charge for their
parking facilities, thus, forcing vehicle owners to just park in the streets. The Court notes that
despite the fees charged by respondents, vehicle owners still use the mall parking facilities, which
are even fully occupied on some days. Vehicle owners may be parking in the streets only because
there are not enough parking spaces in the malls, and not because they are deterred by the
parking fees charged by respondents. Free parking spaces at the malls may even have the
opposite effect from what the OSG envisioned: more people may be encouraged by the free
parking to bring their own vehicles, instead of taking public transport, to the malls; as a result, the
parking facilities would become full sooner, leaving more vehicles without parking spaces in the
malls and parked in the streets instead, causing even more traffic congestion.

Without using the term outright, the OSG is actually invoking police power to justify the
regulation by the State, through the DPWH Secretary and local building officials, of privately
owned parking facilities, including the collection by the owners/operators of such facilities of

parking fees from the public for the use thereof. The Court finds, however, that in totally
prohibiting respondents from collecting parking fees from the public for the use of the mall
parking facilities, the State would be acting beyond the bounds of police power.

Police power is the power of promoting the public welfare by restraining and regulating the
use of liberty and property. It is usually exerted in order to merely regulate the use and
enjoyment of the property of the owner. The power to regulate, however, does not include the
power to prohibit. A fortiori, the power to regulate does not include the power to
confiscate. Police power does not involve the taking or confiscation of property, with the
exception of a few cases where there is a necessity to confiscate private property in order to
destroy it for the purpose of protecting peace and order and of promoting the general welfare; for
instance, the confiscation of an illegally possessed article, such as opium and firearms. [34]

When there is a taking or confiscation of private property for public use, the State is no
longer exercising police power, but another of its inherent powers, namely, eminent
domain. Eminent domain enables the State to forcibly acquire private lands intended for public
use upon payment of just compensation to the owner.[35]
Normally, of course, the power of eminent domain results in the taking or appropriation of
title to, and possession of, the expropriated property; but no cogent reason appears why the said
power may not be availed of only to impose a burden upon the owner of condemned property,
without loss of title and possession. [36] It is a settled rule that neither acquisition of title nor total
destruction of value is essential to taking. It is usually in cases where title remains with the
private owner that inquiry should be made to determine whether the impairment of a property is
merely regulated or amounts to a compensable taking. A regulation that deprives any person of
the profitable use of his property constitutes a taking and entitles him to compensation, unless the
invasion of rights is so slight as to permit the regulation to be justified under the police power.
Similarly, a police regulation that unreasonably restricts the right to use business property for
business purposes amounts to a taking of private property, and the owner may recover therefor. [37]

Although in the present case, title to and/or possession of the parking facilities remain/s
with respondents, the prohibition against their collection of parking fees from the public, for the
use of said facilities, is already tantamount to a taking or confiscation of their properties. The
State is not only requiring that respondents devote a portion of the latters properties for use as
parking spaces, but is also mandating that they give the public access to said parking spaces for
free. Such is already an excessive intrusion into the property rights of respondents. Not only are
they being deprived of the right to use a portion of their properties as they wish, they are further
prohibited from profiting from its use or even just recovering therefrom the expenses for the
maintenance and operation of the required parking facilities.

The ruling of this Court in City Government of Quezon City v. Judge Ericta [38] is
edifying. Therein, the City Government of Quezon City passed an ordinance obliging private
cemeteries within its jurisdiction to set aside at least six percent of their total area for charity, that
is, for burial grounds of deceased paupers. According to the Court, the ordinance in question was
null and void, for it authorized the taking of private property without just compensation:

There is no reasonable relation between the setting aside of at least six (6)
percent of the total area of all private cemeteries for charity burial grounds of
deceased paupers and the promotion of' health, morals, good order, safety, or the
general welfare of the people. The ordinance is actually a taking without
compensation of a certain area from a private cemetery to benefit paupers who are
charges of the municipal corporation. Instead of' building or maintaining a public
cemetery for this purpose, the city passes the burden to private cemeteries.
'The expropriation without compensation of a portion of private cemeteries is
not covered by Section 12(t) of Republic Act 537, the Revised Charter of Quezon
City which empowers the city council to prohibit the burial of the dead within the
center of population of the city and to provide for their burial in a proper place
subject to the provisions of general law regulating burial grounds and cemeteries.
When the Local Government Code, Batas Pambansa Blg. 337 provides in Section
177(q) that a sangguniang panlungsod may "provide for the burial of the dead in
such place and in such manner as prescribed by law or ordinance" it simply
authorizes the city to provide its own city owned land or to buy or expropriate
private properties to construct public cemeteries. This has been the law, and
practise in the past. It continues to the present. Expropriation, however, requires
payment of just compensation. The questioned ordinance is different from laws and
regulations requiring owners of subdivisions to set aside certain areas for streets,
parks, playgrounds, and other public facilities from the land they sell to buyers of
subdivision lots. The necessities of public safety, health, and convenience are very
clear from said requirements which are intended to insure the development of
communities with salubrious and wholesome environments. The beneficiaries of the
regulation, in turn, are made to pay by the subdivision developer when individual
lots are sold to homeowners.

In conclusion, the total prohibition against the collection by respondents of parking fees
from persons who use the mall parking facilities has no basis in the National Building Code or its
IRR. The State also cannot impose the same prohibition by generally invoking police power, since
said prohibition amounts to a taking of respondents property without payment of just
compensation.
Given the foregoing, the Court finds no more need to address the issue persistently raised
by respondent SM Prime concerning the unconstitutionality of Rule XIX of the IRR. In addition, the
said issue was not among those that the parties, during the pre-trial conference for Civil Cases No.
12-08 and No. 00-1210, agreed to submit for resolution of the RTC. It is likewise axiomatic that
the constitutionality of a law, a regulation, an ordinance or an act will not be resolved by courts if
the controversy can be, as in this case it has been, settled on other grounds. [39]
WHEREFORE, the instant Petition for Review on Certiorari is hereby DENIED. The
Decision dated 25 January 2007 and Resolution dated 14 March 2007 of the Court of Appeals in
CA-G.R. CV No. 76298, affirming in toto the Joint Decision dated 29 May 2002 of the Regional Trial

Court of Makati City, Branch 138, in Civil Cases No. 00-1208 and No. 00-1210 are
hereby AFFIRMED. No costs.
SO ORDERED.
GANCAYCO vs. CITY GOVT OF QUEZON CITY
DECISION
SERENO, J.:
Before us are consolidated Petitions for Review under Rule 45 of the Rules of Court
assailing the Decision[1] promulgated on 18 July 2006 and the Resolution[2] dated 10 May 2007 of
the Court of Appeals in CA-G.R. SP No. 84648.
The Facts
In the early 1950s, retired Justice Emilio A. Gancayco bought a parcel of land located at 746
Epifanio delos Santos Avenue (EDSA),[3] Quezon City with an area of 375 square meters and
covered by Transfer Certificate of Title (TCT) No. RT114558.
On 27 March 1956, the Quezon City Council issued Ordinance No. 2904, entitled An
Ordinance Requiring the Construction of Arcades, for Commercial Buildings to be Constructed in
Zones Designated as Business Zones in the Zoning Plan of Quezon City, and Providing Penalties in
Violation Thereof.[4]
An arcade is defined as any portion of a building above the first floor projecting over the
sidewalk beyond the first storey wall used as protection for pedestrians against rain or sun. [5]
Ordinance No. 2904 required the relevant property owner to construct an arcade with a
width of 4.50 meters and height of 5.00 meters along EDSA, from the north side ofSantolan
Road to one lot after Liberty Avenue, and from one lot before Central Boulevard to the Botocan
transmission line.
At the outset, it bears emphasis that at the time Ordinance No. 2904 was passed by the
city council, there was yet no building code passed by the national legislature. Thus, the
regulation of the construction of buildings was left to the discretion of local government
units. Under this particular ordinance, the city council required that the arcade is to be created by
constructing the wall of the ground floor facing the sidewalk a few meters away from the property
line. Thus, the building owner is not allowed to construct his wall up to the edge of the property
line, thereby creating a space or shelter under the first floor. In effect, property owners relinquish
the use of the space for use as an arcade for pedestrians, instead of using it for their own
purposes.

The ordinance was amended several times. On 8 August 1960, properties located at the
Quezon City-San Juan boundary were exempted by Ordinance No. 60-4477 from the construction
of arcades. This ordinance was further amended by Ordinance No. 60-4513, extending the
exemption to commercial buildings from Balete Street to Seattle Street. Ordinance No. 6603
dated 1 March 1966 meanwhile reduced the width of the arcades to three meters for buildings
along V. Luna Road, Central District, Quezon City.
The ordinance covered the property of Justice Gancayco. Subsequently, sometime in 1965,
Justice Gancayco sought the exemption of a two-storey building being constructed on his property
from the application of Ordinance No. 2904 that he be exempted from constructing an arcade on
his property.
On 2 February 1966, the City Council acted favorably on Justice Gancaycos request and
issued Resolution No. 7161, S-66, subject to the condition that upon notice by the City Engineer,
the owner shall, within reasonable time, demolish the enclosure of said arcade at his own expense
when public interest so demands.[6]
Decades after, in March 2003, the Metropolitan Manila Development Authority (MMDA)
conducted operations to clear obstructions along the sidewalk of EDSA in Quezon City pursuant to
Metro Manila Councils (MMC) Resolution No. 02-28, Series of 2002. [7] The resolution authorized the
MMDA and local government units to clear the sidewalks, streets, avenues, alleys, bridges, parks
and other public places in Metro Manila of all illegal structures and obstructions. [8]
On 28 April 2003, the MMDA sent a notice of demolition to Justice Gancayco alleging that a
portion of his building violated the National Building Code of the Philippines(Building Code)[9] in
relation to Ordinance No. 2904. The MMDA gave Justice Gancayco fifteen (15) days to clear the
portion of the building that was supposed to be an arcade along EDSA. [10]
Justice Gancayco did not comply with the notice. Soon after the lapse of the fifteen (15)
days, the MMDA proceeded to demolish the party wall, or what was referred to as the wing
walls, of the ground floor structure. The records of the present case are not entirely clear on the
extent of the demolition; nevertheless, the fact of demolition was not disputed. At the time of the
demolition, the affected portion of the building was being used as a restaurant.
On 29 May 2003, Justice Gancayco filed a Petition [11] with prayer for a temporary restraining
order and/or writ of preliminary injunction before the Regional Trial Court (RTC) of Quezon City,
docketed as Civil Case No. Q03-49693, seeking to prohibit the MMDA and the City Government of
Quezon City from demolishing his property. In his Petition, [12] he alleged that the ordinance
authorized the taking of private property without due process of law and just compensation,
because the construction of an arcade will require 67.5 square meters from the 375 square meter
property. In addition, he claimed that the ordinance was selective and discriminatory in its scope
and application when it allowed the owners of the buildings located in the Quezon City-San Juan
boundary to Cubao Rotonda, and Balete to Seattle Streets to construct arcades at their option. He

thus sought the declaration of nullity of Ordinance No. 2904 and the payment of damages.
Alternately, he prayed for the payment of just compensation should the court hold the ordinance
valid.
The City Government of Quezon City claimed that the ordinance was a valid exercise of
police power, regulating the use of property in a business zone. In addition, it pointed out that
Justice Gancayco was already barred by estoppel, laches and prescription.
Similarly, the MMDA alleged that Justice Gancayco could not seek the nullification of an
ordinance that he had already violated, and that the ordinance enjoyed the presumption of
constitutionality. It further stated that the questioned property was a public nuisance impeding the
safe passage of pedestrians. Finally, the MMDA claimed that it was merely implementing the legal
easement established by Ordinance No. 2904.[13]
The RTC rendered its Decision on 30 September 2003 in favor of Justice Gancayco.[14] It
held that the questioned ordinance was unconstitutional, ruling that it allowed the taking of
private property for public use without just compensation. The RTC said that because 67.5 square
meters out of Justice Gancaycos 375 square meters of property were being taken without
compensation for the publics benefit, the ordinance was confiscatory and oppressive. It likewise
held that the ordinance violated owners right to equal protection of laws. The dispositive portion
thus states:
WHEREFORE, the petition is hereby granted and the Court hereby declares
Quezon City Ordinance No. 2094, [15] Series of 1956 to be unconstitutional, invalid
and void ab initio. The respondents are hereby permanently enjoined from enforcing
and implementing the said ordinance, and the respondent MMDA is hereby directed
to immediately restore the portion of the party wall or wing wall of the building of
the petitioner it destroyed to its original condition.
IT IS SO ORDERED.
The MMDA thereafter appealed from the Decision of the trial court. On 18 July 2006, the
Court of Appeals (CA) partly granted the appeal. [16] The CA upheld the validity of Ordinance No.
2904 and lifted the injunction against the enforcement and implementation of the ordinance. In so
doing, it held that the ordinance was a valid exercise of the right of the local government unit to
promote the general welfare of its constituents pursuant to its police powers. The CA also ruled
that the ordinance established a valid classification of property owners with regard to the
construction of arcades in their respective properties depending on the location. The CA further
stated that there was no taking of private property, since the owner still enjoyed the beneficial
ownership of the property, to wit:
Even with the requirement of the construction of arcaded sidewalks within
his commercial lot, appellee still retains the beneficial ownership of the said
property. Thus, there is no taking for public use which must be subject to just
compensation. While the arcaded sidewalks contribute to the public good, for
providing safety and comfort to passersby, the ultimate benefit from the same still
redounds to appellee, his commercial establishment being at the forefront of a busy

thoroughfare like EDSA. The arcaded sidewalks, by their nature, assure clients of the
commercial establishments thereat some kind of protection from accidents and
other hazards. Without doubt, this sense of protection can be a boon to the business
activity therein engaged. [17]

Nevertheless, the CA held that the MMDA went beyond its powers when it demolished the
subject property. It further found that Resolution No. 02-28 only refers to sidewalks, streets,
avenues, alleys, bridges, parks and other public places in Metro Manila, thus excluding Justice
Gancaycos private property. Lastly, the CA stated that the MMDA is not clothed with the authority
to declare, prevent or abate nuisances. Thus, the dispositive portion stated:
WHEREFORE,
the
appeals
are PARTLY
GRANTED.
The Decision dated September 30, 2003 of the Regional Trial Court, Branch
224, Quezon City, is MODIFIED, as follows:
1)
The validity and constitutionality of Ordinance No. 2094, [18] Series of 1956, issued
by the City Council of Quezon City, is UPHELD; and
2)
The injunction against the enforcement and implementation of the said Ordinance
is LIFTED.
SO ORDERED.

This ruling prompted the MMDA and Justice Gancayco to file their respective Motions for
Partial Reconsideration.[19]
On 10 May 2007, the CA denied the motions stating that the parties did not present new
issues nor offer grounds that would merit the reconsideration of the Court. [20]
Dissatisfied with the ruling of the CA, Justice Gancayco and the MMDA filed their respective
Petitions for Review before this Court. The issues raised by the parties are summarized as follows:
I.
II.
III.
IV.

Estoppel

WHETHER OR NOT JUSTICE GANCAYCO WAS ESTOPPED FROM ASSAILING THE


VALIDITY OF ORDINANCE NO. 2904.
WHETHER OR NOT ORDINANCE NO. 2904 IS CONSTITUTIONAL.
WHETHER OR NOT THE WING WALL OF JUSTICE GANCAYCOS BUILDING IS A
PUBLIC NUISANCE.
WHETHER OR NOT THE MMDA LEGALLY DEMOLISHED THE PROPERTY OF JUSTICE
GANCAYCO.
The Courts Ruling

The MMDA and the City Government of Quezon City both claim that Justice Gancayco was
estopped from challenging the ordinance, because, in 1965, he asked for an exemption from the
application of the ordinance. According to them, Justice Gancayco thereby recognized the power
of the city government to regulate the construction of buildings.

To recall, Justice Gancayco questioned the constitutionality of the ordinance on two


grounds: (1) whether the ordinance takes private property without due process of law and just
compensation; and (2) whether the ordinance violates the equal protection of rights because it
allowed exemptions from its application.
On the first ground, we find that Justice Gancayco may still question the constitutionality of
the ordinance to determine whether or not the ordinance constitutes a taking of private
property without due process of law and just compensation. It was only in 2003 when he was
allegedly deprived of his property when the MMDA demolished a portion of the building. Because
he was granted an exemption in 1966, there was no taking yet to speak of.
Moreover, in Acebedo Optical Company, Inc. v. Court of Appeals,[21] we held:
It is therefore decisively clear that estoppel cannot apply in this case. The
fact that petitioner acquiesced in the special conditions imposed by the City Mayor
in subject business permit does not preclude it from challenging the said imposition,
which is ultra vires or beyond the ambit of authority of respondent City
Mayor. Ultra vires acts or acts which are clearly beyond the scope of one's
authority are null and void and cannot be given any effect. The doctrine of
estoppel cannot operate to give effect to an act which is otherwise null
and void or ultra vires. (Emphasis supplied.)
Recently, in British American Tobacco v. Camacho,[22] we likewise held:
We find that petitioner was not guilty of estoppel. When it made the
undertaking to comply with all issuances of the BIR, which at that time it considered
as valid, petitioner did not commit any false misrepresentation or misleading act.
Indeed, petitioner cannot be faulted for initially undertaking to comply with, and
subjecting itself to the operation of Section 145(C), and only later on filing the
subject case praying for the declaration of its unconstitutionality when the
circumstances change and the law results in what it perceives to be unlawful
discrimination. The mere fact that a law has been relied upon in the past
and all that time has not been attacked as unconstitutional is not a
ground for considering petitioner estopped from assailing its validity. For
courts will pass upon a constitutional question only when presented
before it in bona fide cases for determination, and the fact that the
question has not been raised before is not a valid reason for refusing to
allow it to be raised later. (Emphasis supplied.)

Anent the second ground, we find that Justice Gancayco may not question the ordinance
on the ground of equal protection when he also benefited from the exemption. It bears emphasis
that Justice Gancayco himself requested for an exemption from the application of the ordinance in
1965 and was eventually granted one. Moreover, he was still enjoying the exemption at the time
of the demolition as there was yet no valid notice from the city engineer. Thus, while the
ordinance may be attacked with regard to its different treatment of properties that appears to be
similarly situated, Justice Gancayco is not the proper person to do so.
Zoning and the regulation of the
construction of buildings are valid
exercises of police power
.

In MMDA v. Bel-Air Village Association, [23] we discussed the nature of police powers
exercised by local government units, to wit:
Police power is an inherent attribute of sovereignty. It has been defined as
the power vested by the Constitution in the legislature to make, ordain, and
establish all manner of wholesome and reasonable laws, statutes and ordinances,
either with penalties or without, not repugnant to the Constitution, as they shall
judge to be for the good and welfare of the commonwealth, and for the subjects of
the same. The power is plenary and its scope is vast and pervasive, reaching and
justifying measures for public health, public safety, public morals, and the general
welfare.
It bears stressing that police power is lodged primarily in the National
Legislature. It cannot be exercised by any group or body of individuals not
possessing legislative power. The National Legislature, however, may delegate this
power to the President and administrative boards as well as the lawmaking bodies
of municipal corporations or local government units. Once delegated, the agents
can exercise only such legislative powers as are conferred on them by the national
lawmaking body.
To resolve the issue on the constitutionality of the ordinance, we must first determine
whether there was a valid delegation of police power. Then we can determine whether the City
Government of Quezon City acted within the limits of the delegation.
It is clear that Congress expressly granted the city government, through the city council,
police power by virtue of Section 12(oo) of Republic Act No. 537, or the Revised Charter of Quezon
City,[24] which states:
To make such further ordinances and regulations not repugnant to law as
may be necessary to carry into effect and discharge the powers and duties
conferred by this Act and such as it shall deem necessary and proper to provide for
the health and safety, promote the prosperity, improve the morals, peace, good
order, comfort, and convenience of the city and the inhabitants thereof, and for the
protection of property therein; and enforce obedience thereto with such lawful fines
or penalties as the City Council may prescribe under the provisions of subsection (jj)
of this section.

Specifically, on the powers of the city government to regulate the construction of buildings,
the Charter also expressly provided that the city government had the power to regulate the kinds
of buildings and structures that may be erected within fire limits and the manner of constructing
and repairing them.[25]
With regard meanwhile to the power of the local government units to issue zoning
ordinances, we apply Social Justice Society v. Atienza.[26] In that case, the Sangguniang
Panlungsod of Manila City enacted an ordinance on 28 November 2001 reclassifying certain areas
of the city from industrial to commercial. As a result of the zoning ordinance, the oil terminals
located in those areas were no longer allowed. Though the oil companies contended that they
stood to lose billions of pesos, this Court upheld the power of the city government to pass the
assailed ordinance, stating:

In the exercise of police power, property rights of individuals may be


subjected to restraints and burdens in order to fulfil the objectives of the
government. Otherwise stated, the government may enact legislation that
may interfere with personal liberty, property, lawful businesses and
occupations to promote the general welfare. However, the interference
must be reasonable and not arbitrary. And to forestall arbitrariness, the
methods or means used to protect public health, morals, safety or welfare
must have a reasonable relation to the end in view.
The means adopted by the Sanggunian was the enactment of a zoning
ordinance which reclassified the area where the depot is situated from industrial to
commercial. A zoning ordinance is defined as a local city or municipal
legislation which logically arranges, prescribes, defines and apportions a
given political subdivision into specific land uses as present and future
projection of needs. As a result of the zoning, the continued operation of the
businesses of the oil companies in their present location will no longer be
permitted. The power to establish zones for industrial, commercial and
residential uses is derived from the police power itself and is exercised for
the protection and benefit of the residents of a locality. Consequently, the
enactment of Ordinance No. 8027 is within the power of the Sangguniang
Panlungsod of the City of Manila and any resulting burden on those affected cannot
be said to be unjust... (Emphasis supplied)

In Carlos Superdrug v. Department of Social Welfare and Development, [27] we also held:
For this reason, when the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power
because property rights, though sheltered by due process, must yield to
general welfare.
Police power as an attribute to promote the common good would be
diluted considerably if on the mere plea of petitioners that they will suffer
loss of earnings and capital, the questioned provision is invalidated.
Moreover, in the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no basis for its
nullification in view of the presumption of validity which every law has in
its favor. (Emphasis supplied.)

In the case at bar, it is clear that the primary objectives of the city council of Quezon City
when it issued the questioned ordinance ordering the construction of arcades were the health and
safety of the city and its inhabitants; the promotion of their prosperity; and the improvement of
their morals, peace, good order, comfort, and the convenience. These arcades provide safe and
convenient passage along the sidewalk for commuters and pedestrians, not just the residents
of Quezon City. More especially so because the contested portion of the building is located on a
busy segment of the city, in a business zone along EDSA.
Corollarily, the policy of the Building Code, [28] which was passed after the Quezon City
Ordinance, supports the purpose for the enactment of Ordinance No. 2904. The Building Code
states:
Section 102. Declaration of Policy. It is hereby declared to be the policy of the
State to safeguard life, health, property, and public welfare, consistent with the
principles of sound environmental management and control; and to this end, make
it the purpose of this Code to provide for all buildings and structures, a framework

of minimum standards and requirements to regulate and control their location, site,
design quality of materials, construction, occupancy, and maintenance.

Section 1004 likewise requires the construction of arcades whenever existing or zoning
ordinances require it. Apparently, the law allows the local government units to determine whether
arcades are necessary within their respective jurisdictions.
Justice Gancayco argues that there is a three-meter sidewalk in front of his property line,
and the arcade should be constructed above that sidewalk rather than within his property line. We
do not need to address this argument inasmuch as it raises the issue of the wisdom of the city
ordinance, a matter we will not and need not delve into.
To reiterate, at the time that the ordinance was passed, there was no national building
code enforced to guide the city council; thus, there was no law of national application that
prohibited the city council from regulating the construction of buildings, arcades and sidewalks in
their jurisdiction.
The wing walls of the building are not
nuisances per se.
The MMDA claims that the portion of the building in question is a nuisance per se.
We disagree.
The fact that in 1966 the City Council gave Justice Gancayco an exemption from
constructing an arcade is an indication that the wing walls of the building are not nuisancesper
se. The wing walls do not per se immediately and adversely affect the safety of persons and
property. The fact that an ordinance may declare a structure illegal does not necessarily make that
structure a nuisance.
Article 694 of the Civil Code defines nuisance as any act, omission, establishment,
business, condition or property, or anything else that (1) injures or endangers the health or safety
of others; (2) annoys or offends the senses; (3) shocks, defies or disregards decency or morality;
(4) obstructs or interferes with the free passage of any public highway or street, or any body of
water; or, (5) hinders or impairs the use of property. A nuisance may be per se or per accidens. A
nuisance per se is that which affects the immediate safety of persons and property and may
summarily be abated under the undefined law of necessity. [29]
Clearly, when Justice Gancayco was given a permit to construct the building, the city
council or the city engineer did not consider the building, or its demolished portion, to be a threat
to the safety of persons and property. This fact alone should have warned the MMDA against
summarily demolishing the structure.

Neither does the MMDA have the power to declare a thing a nuisance. Only courts of law
have the power to determine whether a thing is a nuisance. In AC Enterprises v. Frabelle
Properties Corp.,[30] we held:
We agree with petitioner's contention that, under Section 447(a)(3)(i) of R.A.
No. 7160, otherwise known as the Local Government Code, the Sangguniang
Panglungsod is empowered to enact ordinances declaring, preventing or abating
noise and other forms of nuisance. It bears stressing, however, that
the Sangguniang Bayan cannot declare a particular thing as a nuisance per seand
order its condemnation. It does not have the power to find, as a fact, that a
particular thing is a nuisance when such thing is not a nuisance per se;
nor can it authorize the extrajudicial condemnation and destruction of
that as a nuisance which in its nature, situation or use is not such. Those
things must be determined and resolved in the ordinary courts of law. If a
thing be in fact, a nuisance due to the manner of its operation, that question cannot
be determined by a mere resolution of the Sangguniang Bayan. (Emphasis
supplied.)

MMDA illegally demolished


the property of Justice Gancayco.
MMDA alleges that by virtue of MMDA Resolution No. 02-28, Series of 2002, it is
empowered to demolish Justice Gancaycos property. It insists that the Metro Manila Council
authorized the MMDA and the local government units to clear the sidewalks, streets, avenues,
alleys, bridges, parks and other public places in Metro Manila of all illegal structures and
obstructions. It further alleges that it demolished the property pursuant to the Building Code in
relation to Ordinance No. 2904 as amended.
However, the Building Code clearly provides the process by which a building may be
demolished. The authority to order the demolition of any structure lies with the Building Official.
The pertinent provisions of the Building Code provide:
SECTION 205.
Building Officials. Except as otherwise provided herein, the
Building Official shall be responsible for carrying out the provisions of this Code in
the field as well as the enforcement of orders and decisions made pursuant thereto.
Due to the exigencies of the service, the Secretary may designate incumbent Public
Works District Engineers, City Engineers and Municipal Engineers act as Building
Officials in their respective areas of jurisdiction.
The designation made by the Secretary under this Section shall continue until
regular positions of Building Official are provided or unless sooner terminated for
causes provided by law or decree.
xxx

xxx

xxx

SECTION 207.
Duties of a Building Official. In his respective territorial
jurisdiction, the Building Official shall be primarily responsible for the enforcement

of the provisions of this Code as well as of the implementing rules and regulations
issued therefor. He is the official charged with the duties of issuing building permits.
In the performance of his duties, a Building Official may enter any building or its
premises at all reasonable times to inspect and determine compliance with the
requirements of this Code, and the terms and conditions provided for in the building
permit as issued.
When any building work is found to be contrary to the provisions of this
Code, the Building Official may order the work stopped and prescribe the
terms and/or conditions when the work will be allowed to resume.
Likewise, the Building Official is authorized to order the discontinuance of
the occupancy or use of any building or structure or portion thereof found
to be occupied or used contrary to the provisions of this Code.
xxx

xxx

xxx

SECTION 215.
Abatement of Dangerous Buildings. When any
building or structure is found or declared to be dangerous or ruinous, the
Building Official shall order its repair, vacation or demolition depending
upon the degree of danger to life, health, or safety. This is without
prejudice to further action that may be taken under the provisions of
Articles 482 and 694 to 707 of the Civil Code of the Philippines. (Emphasis
supplied.)

MMDA v. Trackworks Rail Transit Advertising, Vending and Promotions, Inc. [31] is applicable
to the case at bar. In that case, MMDA, invoking its charter and the Building Code, summarily
dismantled the advertising media installed on the Metro Rail Transit (MRT) 3. This Court held:
It is futile for MMDA to simply invoke its legal mandate to justify the
dismantling of Trackworks' billboards, signages and other advertising media. MMDA
simply had no power on its own to dismantle, remove, or destroy the billboards,
signages and other advertising media installed on the MRT3 structure by
Trackworks. In Metropolitan Manila Development Authority v. Bel-Air Village
Association, Inc., Metropolitan Manila Development Authority v. Viron Transportation
Co., Inc., and Metropolitan Manila Development Authority v. Garin, the Court had
the occasion to rule that MMDA's powers were limited to the formulation,
coordination, regulation, implementation, preparation, management,
monitoring, setting of policies, installing a system, and administration.
Nothing in Republic Act No. 7924 granted MMDA police power, let alone
legislative power.
Clarifying the real nature of MMDA, the Court held:
...The MMDA is, as termed in the charter itself, a "development
authority". It is an agency created for the purpose of laying down policies
and coordinating with the various national government agencies, people's
organizations, non-governmental organizations and the private sector for
the efficient and expeditious delivery of basic services in the vast
metropolitan area. All its functions are administrative in nature and these
are actually summed up in the charter itself, viz:
Sec.2. Creation of the Metropolitan Manila Development Authority.- xxx.
The MMDA shall perform planning, monitoring and coordinative functions,
and in the process exercise regulatory and supervisory authority over the

delivery of metro-wide services within Metro Manila, without diminution of


the autonomy of local government units concerning purely local matters.
The Court also agrees with the CA's ruling that MMDA Regulation No. 96-009
and MMC Memorandum Circular No. 88-09 did not apply to Trackworks' billboards,
signages and other advertising media. The prohibition against posting, installation
and display of billboards, signages and other advertising media applied only to
public areas, but MRT3, being private property pursuant to the BLT
agreement between the Government and MRTC, was not one of the areas
as to which the prohibition applied. Moreover, MMC Memorandum Circular No.
88-09 did not apply to Trackworks' billboards, signages and other advertising media
in MRT3, because it did not specifically cover MRT3, and because it was issued a
year prior to the construction of MRT3 on the center island of EDSA. Clearly, MMC
Memorandum Circular No. 88-09 could not have included MRT3 in its prohibition.
MMDA's insistence that it was only implementing Presidential Decree No.
1096 (Building Code) and its implementing rules and regulations is not
persuasive. The power to enforce the provisions of the Building Code was
lodged in the Department of Public Works and Highways (DPWH), not in
MMDA, considering the law's following provision, thus:
Sec.
201.
Responsibility for
Administration
and
Enforcement.
The administration and enforcement of the provisions of this Code including
the imposition of penalties for administrative violations thereof is hereby
vested in the Secretary of Public Works, Transportation and Communications,
hereinafter referred to as the "Secretary."
There is also no evidence showing that MMDA had been delegated
by DPWH to implement the Building Code. (Emphasis supplied.)

Additionally, the penalty prescribed by Ordinance No. 2904 itself does not include the
demolition of illegally constructed buildings in case of violations. Instead, it merely prescribes a
punishment of a fine of not more than two hundred pesos (P200.00) or by imprisonment of not
more than thirty (30) days, or by both such fine and imprisonment at the discretion of the
Court, Provided, that if the violation is committed by a corporation, partnership, or any juridical
entity, the Manager, managing partner, or any person charged with the management thereof shall
be held responsible therefor. The ordinance itself also clearly states that it is the regular courts
that will determine whether there was a violation of the ordinance.
As pointed out in Trackworks, the MMDA does not have the power to enact ordinances.
Thus, it cannot supplement the provisions of Quezon City Ordinance No. 2904 merely through its
Resolution No. 02-28.
Lastly, the MMDA claims that the City Government of Quezon City may be considered to
have approved the demolition of the structure, simply because then Quezon City Mayor Feliciano
R. Belmonte signed MMDA Resolution No. 02-28. In effect, the city government delegated these
powers to the MMDA. The powers referred to are those that include the power to declare, prevent
and abate a nuisance[32] and to further impose the penalty of removal or demolition of the building
or structure by the owner or by the city at the expense of the owner. [33]

MMDAs argument does not hold water. There was no valid delegation of powers to the
MMDA. Contrary to the claim of the MMDA, the City Government of Quezon City washed its hands
off the acts of the former. In its Answer, [34] the city government stated that the demolition was
undertaken by the MMDA only, without the participation and/or consent of Quezon City.
Therefore, the MMDA acted on its own and should be held solely liable for the destruction of the
portion of Justice Gancaycos building.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA-G.R. SP
No. 84648 is AFFIRMED.
SO ORDERED.

DECISION
VELASCO, JR., J.:
The Case
This petition[1] for certiorari, mandamus and prohibition under Rule 65 assails and seeks to
nullify the Non-Surrender Agreement concluded by and between the Republic of the Philippines
(RP) and the United States of America (USA).
The Facts
Petitioner Bayan Muna is a duly registered party-list group established to represent the
marginalized sectors of society. Respondent Blas F. Ople, now deceased, was the Secretary of
Foreign Affairs during the period material to this case. Respondent Alberto Romulo was impleaded
in his capacity as then Executive Secretary. [2]
Rome Statute of the International Criminal Court
Having a key determinative bearing on this case is the Rome Statute [3] establishing the
International Criminal Court (ICC) with the power to exercise its jurisdiction over persons for the
most serious crimes of international concern x x x and shall be complementary to the national
criminal jurisdictions.[4] The serious crimes adverted to coverthose considered grave under
international law, such as genocide, crimes against humanity, war crimes, and crimes of
aggression.[5]
On December 28, 2000, the RP, through Charge dAffaires Enrique A. Manalo, signed the
Rome Statute which, by its terms, is subject to ratification, acceptance or approval by the
signatory states.[6] As of the filing of the instant petition, only 92 out of the 139 signatory

countries

appear

to

have

completed

the

ratification,

approval

and

concurrence

process. The Philippines is not among the 92.


RP-US Non-Surrender Agreement
On May 9, 2003, then Ambassador Francis J. Ricciardone sent US Embassy Note No. 0470
to the Department of Foreign Affairs (DFA) proposing the terms of the non-surrender bilateral
agreement (Agreement, hereinafter) between the USA and the RP.
Via Exchange of Notes No. BFO-028-03[7] dated May 13, 2003 (E/N BFO-028-03,
hereinafter), the RP, represented by then DFA Secretary Ople, agreed with and accepted the US
proposals embodied under the US Embassy Note adverted to and put in effect the Agreement with
the US government. In esse, the Agreement aims to protect what it refers to and defines
as persons of the RP and US from frivolous and harassment suits that might be brought against
them in international tribunals.[8] It is reflective of the increasing pace of the strategic security
and defense partnership between the two countries. As of May 2, 2003, similar bilateral
agreements have been effected by and between the US and 33 other countries.[9]
The Agreement pertinently provides as follows:
1. For purposes of this Agreement, persons are current or former
Government officials, employees (including contractors), or military personnel or
nationals of one Party.
2. Persons of one Party present in the territory of the other shall not, absent
the express consent of the first Party,
(a) be surrendered or transferred by any means to any international tribunal
for any purpose, unless such tribunal has been established by the UN
Security Council, or
(b) be surrendered or transferred by any means to any other entity or third
country, or expelled to a third country, for the purpose of surrender to or
transfer to any international tribunal, unless such tribunal has been
established by the UN Security Council.
3. When the [US] extradites, surrenders, or otherwise transfers a person of
the Philippines to a third country, the [US] will not agree to the surrender or transfer
of that person by the third country to any international tribunal, unless such tribunal
has been established by the UN Security Council, absent the express consent of the
Government of the Republic of the Philippines [GRP].
4. When the [GRP] extradites, surrenders, or otherwise transfers a person of
the [USA] to a third country, the [GRP] will not agree to the surrender or transfer of
that person by the third country to any international tribunal, unless such tribunal
has been established by the UN Security Council, absent the express consent of the
Government of the [US].

5. This Agreement shall remain in force until one year after the date on
which one party notifies the other of its intent to terminate the Agreement. The
provisions of this Agreement shall continue to apply with respect to any act
occurring, or any allegation arising, before the effective date of termination.

In response to a query of then Solicitor General Alfredo L. Benipayo on the status of the
non-surrender agreement, Ambassador Ricciardone replied in his letter of October 28, 2003 that
the exchange of diplomatic notes constituted a legally binding agreement under international law;
and that, under US law, the said agreement did not require the advice and consent of the US
Senate.[10]
In this proceeding, petitioner imputes grave abuse of discretion to respondents in
concluding and ratifying the Agreement and prays that it be struck down as unconstitutional, or at
least declared as without force and effect.
For their part, respondents question petitioners standing to maintain a suit and counter
that the Agreement, being in the nature of an executive agreement, does not require Senate
concurrence for its efficacy. And for reasons detailed in their comment, respondents assert the
constitutionality of the Agreement.
The Issues
I.

WHETHER THE [RP] PRESIDENT AND THE [DFA] SECRETARY x x x GRAVELY


ABUSED THEIR DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
FOR CONCLUDING THE RP-US NON SURRENDER AGREEMENT BY MEANS OF
[E/N] BFO-028-03 DATED 13 MAY 2003, WHEN THE PHILIPPINE GOVERNMENT
HAS ALREADY SIGNED THE ROME STATUTE OF THE [ICC] ALTHOUGH THIS IS
PENDING RATIFICATION BY THE PHILIPPINE SENATE.
A. Whether by entering into the x x x Agreement Respondents gravely
abused their discretion when they capriciously abandoned, waived and
relinquished our only legitimate recourse through the Rome Statute of the
[ICC] to prosecute and try persons as defined in the x x x Agreement, x x
x or literally any conduit of American interests, who have committed crimes
of genocide, crimes against humanity, war crimes and the crime of
aggression, thereby abdicating Philippine Sovereignty.
B.

Whether after the signing and pending ratification of the Rome Statute of
the [ICC] the [RP] President and the [DFA] Secretary x x x are obliged by the
principle of good faith to refrain from doing all acts which would substantially
impair the value of the undertaking as signed.

C.

Whether the x x x Agreement constitutes an act which defeats the object


and purpose of the Rome Statute of the International Criminal Court and
contravenes the obligation of good faith inherent in the signature of the
President affixed on the Rome Statute of the International Criminal Court,
and if so whether the x x x Agreement is void and unenforceable on this
ground.

D.

Whether
the RP-US
Non-Surrender
Agreement is
void
and
unenforceable for grave abuse of discretion amounting to lack or excess of
jurisdiction in connection with its execution.

II. WHETHER THE RP-US NON SURRENDER AGREEMENT IS VOID AB INITIO FOR
CONTRACTING OBLIGATIONS THAT ARE EITHER IMMORAL OR OTHERWISE AT
VARIANCE WITH UNIVERSALLY RECOGNIZED PRINCIPLES OF INTERNATIONAL
LAW.
III. WHETHER THE x x x AGREEMENT IS VALID, BINDING AND EFFECTIVE WITHOUT
THE CONCURRENCE BY AT LEAST TWO-THIRDS (2/3) OF ALL THE MEMBERS OF
THE SENATE x x x.[11]

The

foregoing

issues

may

be

summarized

into

two: first,

whether

or

not

the Agreement was contracted validly, which resolves itself into the question of whether or not
respondents gravely abused their discretion in concluding it; and second, whether or not
the Agreement, which has not been submitted to the Senate for concurrence, contravenes and
undermines the Rome Statute and other treaties. But because respondents expectedly raised it,
we shall first tackle the issue of petitioners legal standing.
The Courts Ruling
This petition is bereft of merit.
Procedural Issue: Locus Standi of Petitioner
Petitioner, through its three party-list representatives, contends that the issue of the
validity or invalidity of the Agreement carries with it constitutional significance and is of
paramount importance that justifies its standing. Cited in this regard is what is usually referred to
as the emergency powers cases,[12] in which ordinary citizens and taxpayers were accorded the
personality to question the constitutionality of executive issuances.
Locus
question.

[13]

standi is

right

of

appearance

in

court

of

justice

on

given

Specifically, it is a partys personal and substantial interest in a case where he has

sustained or will sustain direct injury as a result [14] of the act being challenged, and calls for
more than just a generalized grievance.[15] The term interest refers to material interest, as
distinguished from one that is merely incidental. [16] The rationale for requiring a party who
challenges the validity of a law or international agreement to allege such a personal stake in the
outcome of the controversy is to assure the concrete adverseness which sharpens the
presentation of issues upon which the court so largely depends for illumination of difficult
constitutional questions.[17]

Locus standi, however, is merely a matter of procedure and it has been recognized that, in
some cases, suits are not brought by parties who have been personally injured by the operation of
a law or any other government act, but by concerned citizens, taxpayers, or voters who actually
sue in the public interest.[18] Consequently, in a catena of cases,[19] this Court has invariably
adopted a liberal stance on locus standi.
Going by the petition, petitioners representatives pursue the instant suit primarily as
concerned citizens raising issues of transcendental importance, both for the Republic and the
citizenry as a whole.
When suing as a citizen to question the validity of a law or other government action, a
petitioner needs to meet certain specific requirements before he can be clothed with
standing. Francisco, Jr. v. Nagmamalasakit na mga Manananggol ng mga Manggagawang Pilipino,
Inc.[20] expounded on this requirement, thus:

In a long line of cases, however, concerned citizens, taxpayers and


legislators when specific requirements have been met have been given standing by
this Court.
When suing as a citizen, the interest of the petitioner assailing the
constitutionality of a statute must be direct and personal. He must be able to show,
not only that the law or any government act is invalid, but also that he sustained or
is in imminent danger of sustaining some direct injury as a result of its enforcement,
and not merely that he suffers thereby in some indefinite way. It must appear that
the person complaining has been or is about to be denied some right or privilege to
which he is lawfully entitled or that he is about to be subjected to some burdens or
penalties by reason of the statute or act complained of. In fine, when the
proceeding involves the assertion of a public right, the mere fact that he is a citizen
satisfies the requirement of personal interest. [21]

In the case at bar, petitioners representatives have complied with the qualifying conditions
or specific requirements exacted under the locus standi rule. As citizens, their interest in the
subject matter of the petition is direct and personal. At the very least, their assertions questioning
the Agreement are made of a public right, i.e., to ascertain that theAgreement did not go against
established national policies, practices, and obligations bearing on the States obligation to the
community of nations.
At any event, the primordial importance to Filipino citizens in general of the issue at hand
impels the Court to brush aside the procedural barrier posed by the traditional requirement
of locus standi, as we have done in a long line of earlier cases, notably in the old but oft-cited
emergency powers cases[22] and Kilosbayan v. Guingona, Jr.[23] In cases of transcendental
importance, we wrote again in Bayan v. Zamora,[24] The Court may relax the standing

requirements and allow a suit to prosper even where there is no direct injury to the party claiming
the right of judicial review.
Moreover, bearing in mind what the Court said in Taada v. Angara, that it will not shirk,
digress from or abandon its sacred duty and authority to uphold the Constitution in matters that
involve grave abuse of discretion brought before it in appropriate cases, committed by any officer,
agency, instrumentality or department of the government, [25] we cannot but resolve head on the
issues raised before us. Indeed, where an action of any branch of government is seriously alleged
to have infringed the Constitution or is done with grave abuse of discretion, it becomes not only
the right but in fact the duty of the judiciary to settle it. As in this petition, issues are precisely
raised putting to the fore the propriety of the Agreement pending the ratification of the Rome
Statute.
Validity of the RP-US Non-Surrender Agreement
Petitioners initial challenge against the Agreement relates to form, its threshold posture
being that E/N BFO-028-03 cannot be a valid medium for concluding the Agreement.
Petitioners contentionperhaps taken unaware of certain well-recognized international
doctrines, practices, and jargonsis untenable. One of these is the doctrine of incorporation, as
expressed in Section 2, Article II of the Constitution, wherein the Philippines adopts the generally
accepted principles of international law and international jurisprudence as part of the law of the
land and adheres to the policy of peace, cooperation, and amity with all nations. [26] An exchange of
notes falls into the category of inter-governmental agreements, [27] which is an internationally
accepted form of international agreement. The United Nations Treaty Collections (Treaty Reference
Guide) defines the term as follows:
An exchange of notes is a record of a routine agreement, that has many
similarities with the private law contract. The agreement consists of the exchange
of two documents, each of the parties being in the possession of the one signed by
the representative of the other. Under the usual procedure, the accepting State
repeats the text of the offering State to record its assent. The signatories of the
letters may be government Ministers, diplomats or departmental heads. The
technique of exchange of notes is frequently resorted to, either because of its
speedy procedure, or, sometimes, to avoid the process of legislative approval. [28]

In another perspective, the terms exchange of notes and executive agreements have
been used interchangeably, exchange of notes being considered a form of executive agreement
that becomes binding through executive action. [29] On the other hand, executive agreements
concluded by the President sometimes take the form of exchange of notes and at other times
that of more formal documents denominated agreements or protocols. [30] As former US High

Commissioner to the Philippines Francis B. Sayre observed in his work, The Constitutionality of
Trade Agreement Acts:
The point where ordinary correspondence between this and other
governments ends and agreements whether denominated executive agreements
or exchange of notes or otherwise begin, may sometimes be difficult of ready
ascertainment.[31] x x x
It is fairly clear from the foregoing disquisition that E/N BFO-028-03be it viewed as the
Non-Surrender Agreement itself, or as an integral instrument of acceptance thereof or as consent
to be boundis a recognized mode of concluding a legally binding international written contract
among nations.
Senate Concurrence Not Required
Article 2 of the Vienna Convention on the Law of Treaties defines a treaty as an
international agreement concluded between states in written form and governed by international
law, whether embodied in a single instrument or in two or more related instruments and whatever
its particular designation.[32] International agreements may be in the form of (1) treaties that
require legislative concurrence after executive ratification; or (2) executive agreements that are
similar to treaties, except that they do not require legislative concurrence and are usually less
formal and deal with a narrower range of subject matters than treaties. [33]
Under international law, there is no difference between treaties and executive agreements
in terms of their binding effects on the contracting states concerned, [34] as long as the negotiating
functionaries have remained within their powers. [35] Neither, on the domestic sphere, can one be
held valid if it violates the Constitution. [36] Authorities are, however, agreed that one is distinct
from another for accepted reasons apart from the concurrence-requirement aspect. [37] As has been
observed by US constitutional scholars, a treaty has greater dignity than an executive
agreement, because its constitutional efficacy is beyond doubt, a treaty having behind it the
authority of the President, the Senate, and the people; [38] a ratified treaty, unlike an executive
agreement, takes precedence over any prior statutory enactment.[39]
Petitioner parlays the notion that the Agreement is of dubious validity, partaking as it does
of the nature of a treaty; hence, it must be duly concurred in by the Senate. Petitioner takes a cue
from Commissioner of Customs v. Eastern Sea Trading, in which the Court reproduced the
following observations made by US legal scholars: [I]nternational agreements involving political
issues or changes of national policy and those involving international arrangements of a
permanent character usually take the form of treaties [while] those embodying adjustments of
detail carrying out well established national policies and traditions and those involving
arrangements of a more or less temporary nature take the form of executive agreements. [40]

Pressing its point, petitioner submits that the subject of the Agreement does not fall under
any of the subject-categories that are enumerated in the Eastern Sea Trading case, and that may
be covered by an executive agreement, such as commercial/consular relations, most-favored
nation rights, patent rights, trademark and copyright protection, postal and navigation
arrangements and settlement of claims.
In addition, petitioner foists the applicability to the instant case of Adolfo v. CFI of
Zambales and Merchant,[41] holding that an executive agreement through an exchange of notes
cannot be used to amend a treaty.
We are not persuaded.
The categorization of subject matters that may be covered by

international agreements

mentioned in Eastern Sea Trading is not cast in stone. There are no hard and fast rules on the
propriety of entering, on a given subject, into a treaty or an executive agreement as an instrument
of international relations. The primary consideration in the choice of the form of agreement is the
parties intent and desire to craft an international agreement in the form they so wish to further
their respective interests. Verily, the matter of form takes a back seat when it comes to
effectiveness and binding effect of the enforcement of a treaty or an executive agreement, as the
parties in either international agreement each labor under the pacta sunt servanda[42] principle.
As may be noted, almost half a century has elapsed since the Court rendered its decision
in Eastern Sea Trading. Since then, the conduct of foreign affairs has become more complex and
the domain of international law wider, as to include such subjects as human rights, the
environment, and the sea. In fact, in the US alone, the executive agreements executed by its
President from 1980 to 2000 covered subjects such as defense, trade, scientific cooperation,
aviation, atomic energy, environmental cooperation, peace corps, arms limitation, and nuclear
safety, among others.[43] Surely, the enumeration in Eastern Sea Trading cannot circumscribe the
option of each state on the matter of which the international agreement format would be
convenient to serve its best interest. As Francis Sayre said in his work referred to earlier:
x x x It would be useless to undertake to discuss here the large variety of
executive agreements as such concluded from time to time. Hundreds of executive
agreements, other than those entered into under the trade-agreement act, have
been negotiated with foreign governments. x x x They cover such subjects as the
inspection of vessels, navigation dues, income tax on shipping profits, the
admission of civil air craft, custom matters and commercial relations generally,
international claims, postal matters, the registration of trademarks and copyrights,
etc. x x x

And lest it be overlooked, one type of executive agreement is a treaty-authorized [44] or a


treaty-implementing executive agreement, [45] which necessarily would cover the same matters
subject of the underlying treaty.
But over and above the foregoing considerations is the fact thatsave for the situation
and matters contemplated in Sec. 25, Art. XVIII of the Constitution [46]when a treaty is required,
the Constitution does not classify any subject, like that involving political issues, to be in the form
of, and ratified as, a treaty. What the Constitution merely prescribes is that treaties need the
concurrence of the Senate by a vote defined therein to complete the ratification process.
Petitioners reliance on Adolfo[47] is misplaced, said case being inapplicable owing to
different factual milieus. There, the Court held that an executive agreement cannot be used to
amend a duly ratified and existing treaty, i.e., the Bases Treaty. Indeed, an executive agreement
that does not require the concurrence of the Senate for its ratification may not be used to amend
a treaty that, under the Constitution, is the product of the ratifying acts of the Executive and the
Senate. The presence of a treaty, purportedly being subject to amendment by an executive
agreement, does not obtain under the premises.
Considering the above discussion, the Court need not belabor at length the third main
issue raised, referring to the validity and effectivity of the Agreement without the concurrence by
at least two-thirds of all the members of the Senate.

The Court has, in Eastern Sea Trading,[48] as

reiterated in Bayan,[49] given recognition to the obligatory effect of executive agreements without
the concurrence of the Senate:
x x x [T]he right of the Executive to enter into binding agreements without
the necessity of subsequent Congressional approval has been confirmed by long
usage. From the earliest days of our history, we have entered executive agreements
covering such subjects as commercial and consular relations, most favored-nation
rights, patent rights, trademark and copyright protection, postal and navigation
arrangements and the settlement of claims. The validity of these has never been
seriously questioned by our courts.

The Agreement Not in Contravention of the Rome Statute


It is the petitioners next contention that the Agreement undermines the establishment of
the ICC and is null and void insofar as it unduly restricts the ICCs jurisdiction and infringes upon
the effectivity of the Rome Statute. Petitioner posits that the Agreement was constituted solely
for the purpose of providing individuals or groups of individuals with immunity from the jurisdiction
of the ICC; and such grant of immunity through non-surrender agreements allegedly does not
legitimately fall within the scope of Art. 98 of theRome Statute. It concludes that state parties

with non-surrender agreements are prevented from meeting their obligations under the Rome
Statute, thereby constituting a breach of Arts. 27,[50] 86,[51] 89[52] and 90[53] thereof.
Petitioner stresses that the overall object and purpose of the Rome Statute is to ensure
that those responsible for the worst possible crimes are brought to justice in all cases, primarily by
states, but as a last resort, by the ICC; thus, any agreementlike the non-surrender agreement
that precludes the ICC from exercising its complementary function of acting when a state is unable
to or unwilling to do so, defeats the object and purpose of the Rome Statute.
Petitioner would add that the President and the DFA Secretary, as representatives of a
signatory of the Rome Statute, are obliged by the imperatives of good faith to refrain from
performing acts that substantially devalue the purpose and object of the Statute, as
signed. Adding a nullifying ingredient to the Agreement, according to petitioner, is the fact that it
has an immoral purpose or is otherwise at variance with a priorly executed treaty.
Contrary to petitioners pretense, the Agreement does not contravene or undermine, nor
does it differ from, the Rome Statute. Far from going against each other, one complements the
other. As a matter of fact, the principle of complementarity underpins the creation of the ICC. As
aptly pointed out by respondents and admitted by petitioners, the jurisdiction of the ICC is to be
complementary to national criminal jurisdictions [of the signatory states]. [54] Art. 1 of the Rome
Statute pertinently provides:

Article 1
The Court
An International Crimininal Court (the Court) is hereby established. It x x
x shall have the power to exercise its jurisdiction over persons for the most
serious crimes of international concern, as referred to in this Statute, and shall be
complementary to national criminal jurisdictions. The jurisdiction and
functioning of the Court shall be governed by the provisions of this
Statute. (Emphasis ours.)

Significantly, the sixth preambular paragraph of the Rome Statute declares that it is the
duty of every State to exercise its criminal jurisdiction over those responsible for international
crimes. This provision indicates that primary jurisdiction over the so-called international crimes
rests, at the first instance, with the state where the crime was committed; secondarily, with the
ICC in appropriate situations contemplated under Art. 17, par. 1[55] of the Rome Statute.

Of particular note is the application of the principle of ne bis in idem[56] under par. 3 of Art.
20, Rome Statute, which again underscores the primacy of the jurisdiction of a state vis-a-vis that
of the ICC. As far as relevant, the provision states that no person who has been tried by another
court for conduct x x x [constituting crimes within its jurisdiction] shall be tried by the
[International Criminal] Court with respect to the same conduct x x x.
The foregoing provisions of the Rome Statute, taken collectively, argue against the idea of
jurisdictional conflict between the Philippines, as party to the non-surrender agreement, and the
ICC; or the idea of the Agreement substantially impairing the value of the RPs undertaking under
the Rome Statute. Ignoring for a while the fact that the RP signed the Rome Statute ahead of
the Agreement, it is abundantly clear to us that the Rome Statute expressly recognizes the
primary jurisdiction of states, like the RP, over serious crimes committed within their respective
borders, the complementary jurisdiction of the ICC coming into play only when the signatory
states are unwilling or unable to prosecute.
Given the above consideration, petitioners suggestionthat the RP, by entering into
the Agreement, violated its duty required by the imperatives of good faith and breached its
commitment under the Vienna Convention [57] to refrain from performing any act tending to impair
the value of a treaty, e.g., the Rome Statutehas to be rejected outright. For nothing in the
provisions of the Agreement, in relation to the Rome Statute, tends to diminish the efficacy of the
Statute, let alone defeats the purpose of the ICC. Lest it be overlooked, the Rome Statute
contains a proviso that enjoins the ICC from seeking the surrender of an erring person, should the
process require the requested state to perform an act that would violate some international
agreement it has entered into. We refer to Art. 98(2) of the Rome Statute, which reads:
Article 98
Cooperation with respect to waiver of immunity
and consent to surrender
xxxx
2.
The Court may not proceed with a request for surrender which
would require the requested State to act inconsistently with its obligations under
international agreements pursuant to which the consent of a sending State is
required to surrender a person of that State to the Court, unless the Court can
first obtain the cooperation of the sending State for the giving of consent for the
surrender.

Moreover, under international law, there is a considerable difference between a State-Party


and a signatory to a treaty. Under the Vienna Convention on the Law of Treaties, a signatory state
is only obliged to refrain from acts which would defeat the object and purpose of a treaty;

[58]

whereas a State-Party, on the other hand, is legally obliged to follow all the provisions of a

treaty in good faith.


In the instant case, it bears stressing that the Philippines is only a signatory to the Rome
Statute and not a State-Party for lack of ratification by the Senate. Thus, it is only obliged to
refrain from acts which would defeat the object and purpose of the Rome Statute. Any argument
obliging the Philippines to follow any provision in the treaty would be premature.
As a result, petitioners argument that State-Parties with non-surrender agreements are
prevented from meeting their obligations under the Rome Statute, specifically Arts. 27, 86, 89 and
90, must fail. These articles are only legally binding upon State-Parties, not signatories.
Furthermore, a careful reading of said Art. 90 would show that the Agreement is not
incompatible with the Rome Statute. Specifically, Art. 90(4) provides that [i]f the requesting State
is a State not Party to this Statute the requested State, if it is not under an international obligation
to extradite the person to the requesting State, shall give priority to the request for surrender from
the Court. x x x In applying the provision, certain undisputed facts should be pointed out: first,
the US is neither a State-Party nor a signatory to the Rome Statute; and second, there is an
international agreement between the US and the Philippines regarding extradition or surrender of
persons, i.e., the Agreement. Clearly, even assuming that the Philippines is a State-Party, the
Rome Statute still recognizes the primacy of international agreements entered into between
States, even when one of the States is not a State-Party to the Rome Statute.
Sovereignty Limited by International Agreements
Petitioner next argues that the RP has, through the Agreement, abdicated its sovereignty
by bargaining away the jurisdiction of the ICC to prosecute US nationals, government
officials/employees or military personnel who commit serious crimes of international concerns in
the Philippines. Formulating petitioners argument a bit differently, the RP, by entering into
the Agreement, does thereby abdicate its sovereignty, abdication being done by its waiving or
abandoning its right to seek recourse through the Rome Statute of the ICC for erring Americans
committing international crimes in the country.
We are not persuaded. As it were, the Agreement is but a form of affirmance and
confirmance of the Philippines national criminal jurisdiction. National criminal jurisdiction being
primary, as explained above, it is always the responsibility and within the prerogative of the RP
either to prosecute criminal offenses equally covered by the Rome Statute or to accede to the
jurisdiction of the ICC. Thus, the Philippines may decide to try persons of the US, as the term is

understood in the Agreement, under our national criminal justice system. Or it may opt not to
exercise its criminal jurisdiction over its erring citizens or over US persons committing high
crimes in the country and defer to the secondary criminal jurisdiction of the ICC over them. As to
persons of the US whom the Philippines refuses to prosecute, the country would, in effect,
accord discretion to the US to exercise either its national criminal jurisdiction over the person
concerned or to give its consent to the referral of the matter to the ICC for trial. In the same
breath, the USmust extend the same privilege to the Philippines with respect to persons of the
RP committing high crimes within US territorial jurisdiction.

In

the

context

of

the

Constitution,

there

can

be

no

serious

objection

to

the Philippines agreeing to undertake the things set forth in the Agreement. Surely, one State can
agree to waive jurisdictionto the extent agreed uponto subjects of another State due to the
recognition of the principle of extraterritorial immunity. What the Court wrote in Nicolas v.
Romulo[59]a case involving the implementation of the criminal jurisdiction provisions of the RP-US
Visiting Forces Agreementis apropos:
Nothing in the Constitution prohibits such agreements recognizing immunity
from jurisdiction or some aspects of jurisdiction (such as custody), in relation to
long-recognized subjects of such immunity like Heads of State, diplomats and
members of the armed forces contingents of a foreign State allowed to enter
another States territory. x x x

To be sure, the nullity of the subject non-surrender agreement cannot be predicated on the
postulate that some of its provisions constitute a virtual abdication of its sovereignty. Almost
every time a state enters into an international agreement, it voluntarily sheds off part of its
sovereignty. The Constitution, as drafted, did not envision a reclusive Philippines isolated from the
rest of the world. It even adheres, as earlier stated, to the policy of cooperation and amity with all
nations.[60]
By their nature, treaties and international agreements actually have a limiting effect on the
otherwise encompassing and absolute nature of sovereignty. By their voluntary act, nations may
decide to surrender or waive some aspects of their state power or agree to limit the exercise of
their otherwise exclusive and absolute jurisdiction. The usual underlying consideration in this
partial surrender may be the greater benefits derived from a pact or a reciprocal undertaking of
one contracting party to grant the same privileges or immunities to the other. On the rationale
that the Philippines has adopted the generally accepted principles of international law as part of
the law of the land, a portion of sovereignty may be waived without violating the Constitution.

[61]

Such waiver does not amount to an unconstitutional diminution or deprivation of jurisdiction of

Philippine courts.[62]
Agreement Not Immoral/Not at Variance
with Principles of International Law

Petitioner urges that the Agreement be struck down as void ab initio for imposing immoral
obligations and/or being at variance with allegedly universally recognized principles of
international law. The immoral aspect proceeds from the fact that the Agreement, as petitioner
would put it, leaves criminals immune from responsibility for unimaginable atrocities that deeply
shock the conscience of humanity; x x x it precludes our country from delivering an American
criminal to the [ICC] x x x.[63]
The above argument is a kind of recycling of petitioners earlier position, which, as already
discussed, contends that the RP, by entering into the Agreement, virtually abdicated its
sovereignty and in the process undermined its treaty obligations under the Rome Statute, contrary
to international law principles.[64]
The Court is not persuaded. Suffice it to state in this regard that the non-surrender
agreement, as aptly described by the Solicitor General, is an assertion by the Philippinesof its
desire to try and punish crimes under its national law. x x x The agreement is a recognition of the
primacy and competence of the countrys judiciary to try offenses under its national criminal laws
and dispense justice fairly and judiciously.
Petitioner, we believe, labors under the erroneous impression that the Agreement would
allow Filipinos and Americans committing high crimes of international concern to escape criminal
trial and punishment. This is manifestly incorrect. Persons who may have committed acts
penalized under the Rome Statute can be prosecuted and punished in thePhilippines or in the US;
or with the consent of the RP or the US, before the ICC, assuming, for the nonce, that all the
formalities necessary to bind both countries to the Rome Statute have been met. For perspective,
what the Agreement contextually prohibits is the surrender by either party of individuals to
international tribunals, like the ICC, without the consent of the other party, which may desire to
prosecute the crime under its existing laws. With the view we take of things, there is nothing
immoral or violative of international law concepts in the act of the Philippines of assuming criminal
jurisdiction pursuant to the non-surrender agreement over an offense considered criminal by both
Philippine laws and the Rome Statute.
No Grave Abuse of Discretion

Petitioners final point revolves around the necessity of the Senates concurrence in
the Agreement. And without specifically saying so, petitioner would argue that the non-surrender
agreement was executed by the President, thru the DFA Secretary, in grave abuse of discretion.
The Court need not delve on and belabor the first portion of the above posture of
petitioner, the same having been discussed at length earlier on. As to the second portion, We
wish to state that petitioner virtually faults the President for performing, through respondents, a
task conferred the President by the Constitutionthe power to enter into international
agreements.
By constitutional fiat and by the nature of his or her office, the President, as head of state
and government, is the sole organ and authority in the external affairs of the country. [65] The
Constitution vests in the President the power to enter into international agreements, subject, in
appropriate cases, to the required concurrence votes of the Senate. But as earlier indicated,
executive agreements may be validly entered into without such concurrence. As the President
wields vast powers and influence, her conduct in the external affairs of the nation is,
as Bayan would put it, executive altogether. The right of the President to enter into or ratify
binding executive agreements has been confirmed by long practice. [66]
In thus agreeing to conclude the Agreement thru E/N BFO-028-03, then President Gloria
Macapagal-Arroyo, represented by the Secretary of Foreign Affairs, acted within the scope of the
authority and discretion vested in her by the Constitution. At the end of the day, the President
by ratifying, thru her deputies, the non-surrender agreementdid nothing more than discharge a
constitutional duty and exercise a prerogative that pertains to her office.
While the issue of ratification of the Rome Statute is not determinative of the other issues
raised herein, it may perhaps be pertinent to remind all and sundry that about the time this
petition was interposed, such issue of ratification was laid to rest in Pimentel, Jr. v. Office of the
Executive Secretary.[67] As the Court emphasized in said case, the power to ratify a treaty, the
Statute in that instance, rests with the President, subject to the concurrence of the Senate, whose
role relative to the ratification of a treaty is limited merely to concurring in or withholding the
ratification. And concomitant with this treaty-making power of the President is his or her
prerogative to refuse to submit a treaty to the Senate; or having secured the latters consent to
the ratification of the treaty, refuse to ratify it. [68] This prerogative, the Court hastened to add, is
the Presidents alone and cannot be encroached upon via a writ of mandamus. Barring
intervening

events,

then,

the Philippines remains

to

be

just

signatory

to

the

Rome

Statute. Under Art. 125[69] thereof, the final acts required to complete the treaty process and,
thus, bring it into force, insofar as the Philippines is concerned, have yet to be done.
Agreement Need Not Be in the Form of a Treaty
On December 11, 2009, then President Arroyo signed into law Republic Act No. (RA) 9851,
otherwise known as the Philippine Act on Crimes Against International Humanitarian Law,
Genocide, and Other Crimes Against Humanity. Sec. 17 of RA 9851, particularly the second
paragraph thereof, provides:
Section 17. Jurisdiction. x x x x
In the interest of justice, the relevant Philippine authorities may dispense
with the investigation or prosecution of a crime punishable under this Act if another
court or international tribunal is already conducting the investigation or undertaking
the prosecution of such crime. Instead, the authorities may surrender or
extradite suspected or accused persons in the Philippines to the
appropriate international court, if any, or to another State pursuant to the
applicable extradition laws and treaties. (Emphasis supplied.)

A view is advanced that the Agreement amends existing municipal laws on the States
obligation in relation to grave crimes against the law of nations, i.e., genocide, crimes against
humanity and war crimes. Relying on the above-quoted statutory proviso, the view posits that the
Philippine is required to surrender to the proper international tribunal those persons accused of
the grave crimes defined under RA 9851, if it does not exercise its primary jurisdiction to
prosecute them.
The basic premise rests on the interpretation that if it does not decide to prosecute a
foreign national for violations of RA 9851, the Philippines has only two options, to wit: (1)
surrender the accused to the proper international tribunal; or (2) surrender the accused to another
State if such surrender is pursuant to the applicable extradition laws and treaties. But
the Philippines may exercise these options only in cases where another court or international
tribunal is already conducting the investigation or undertaking the prosecution of such crime;
otherwise, the Philippines must prosecute the crime before its own courts pursuant to RA 9851.
Posing the situation of a US national under prosecution by an international tribunal for any
crime under RA 9851, the Philippines has the option to surrender such US national to the
international tribunal if it decides not to prosecute such US national here. The view asserts that
this option of the Philippines under Sec. 17 of RA 9851 is not subject to the consent of the US, and
any derogation of Sec. 17 of RA 9851, such as requiring the consent of the US before
the Philippines can exercise such option, requires an amendatory law. In line with this scenario,
the view strongly argues that the Agreement prevents the Philippineswithout the consent of

the USfrom surrendering to any international tribunal US nationals accused of crimes covered by
RA 9851, and, thus, in effect amends Sec. 17 of RA 9851. Consequently, the view is strongly
impressed that the Agreement cannot be embodied in a simple executive agreement in the form
of an exchange of notes but must be implemented through an extradition law or a treaty with the
corresponding formalities.

Moreover, consonant with the foregoing view, citing Sec. 2, Art. II of the Constitution,
where the Philippines adopts, as a national policy, the generally accepted principles of
international law as part of the law of the land, the Court is further impressed to
perceive the Rome Statute as declaratory of customary international law. In other words, the
Statute embodies principles of law which constitute customary international law or custom and for
which reason it assumes the status of an enforceable domestic law in the context of the aforecited
constitutional provision. As a corollary, it is argued that any derogation from the Rome Statute
principles cannot be undertaken via a mere executive agreement, which, as an exclusive act of
the executive branch, can only implement, but cannot amend or repeal, an existing
law. The Agreement, so the argument goes, seeks to frustrate the objects of the principles of law
or alters customary rules embodied in the Rome Statute.

Prescinding

from

the

foregoing

premises,

the

view

thus

advanced

considers

the Agreement inefficacious, unless it is embodied in a treaty duly ratified with the concurrence of
the Senate, the theory being that a Senate- ratified treaty partakes of the nature of a municipal
law that can amend or supersede another law, in this instance Sec. 17 of RA 9851 and the status
of the Rome Statute as constitutive of enforceable domestic law under Sec. 2, Art. II of the
Constitution.
We are unable to lend cogency to the view thus taken. For one, we find that
the Agreement does not amend or is repugnant to RA 9851. For another, the view does not
clearly state what precise principles of law, if any, the Agreement alters. And for a third, it does
not demonstrate in the concrete how the Agreement seeks to frustrate the objectives of the
principles of law subsumed in the Rome Statute.
Far from it, as earlier explained, the Agreement does not undermine the Rome Statute as
the former merely reinforces the primacy of the national jurisdiction of the US and
the Philippines in prosecuting criminal offenses committed by their respective citizens and military
personnel, among others. The jurisdiction of the ICC pursuant to the Rome Statute over high

crimes indicated thereat is clearly and


criminal jurisdiction of the signatory states.

unmistakably

complementary

to

the

national

Moreover, RA 9851 clearly: (1) defines and establishes the crimes against international
humanitarian law, genocide and other crimes against humanity; [70] (2) provides penal sanctions
and criminal liability for their commission; [71] and (3) establishes special courts for the prosecution
of these crimes and for the State to exercise primary criminal jurisdiction. [72] Nowhere in RA 9851
is there a proviso that goes against the tenor of the Agreement.
The view makes much of the above quoted second par. of Sec. 17, RA 9851
as requiring the Philippine State to surrender to the proper international tribunal those persons
accused of crimes sanctioned under said law if it does not exercise its primary jurisdiction to
prosecute such persons. This view is not entirely correct, for the above quoted proviso clearly
provides discretion to the Philippine State on whether to surrender or not a person accused of
the crimes under RA 9851. The statutory proviso uses the word may. It is settled doctrine in
statutory construction that the word may denotes discretion, and cannot be construed as having
mandatory effect.[73] Thus, the pertinent second pararagraph of Sec. 17, RA 9851 is simply
permissive on the part of the Philippine State.
Besides, even granting that the surrender of a person is mandatorily required when the
Philippines does not exercise its primary jurisdiction in cases where another court or international
tribunal is already conducting the investigation or undertaking the prosecution of such crime,
still, the tenor of the Agreement is not repugnant to Sec. 17 of RA 9851. Said legal proviso aptly
provides that the surrender may be made to another State pursuant to the applicable extradition
laws and treaties. The Agreement can already be considered a treaty following this Courts
decision in Nicolas v. Romulo[74] which cited Weinberger v. Rossi.[75] In Nicolas, We held that an
executive agreement is a treaty within the meaning of that word in international law and
constitutes enforceable domestic law vis--vis the United States.[76]
Likewise, the Philippines and the US already have an existing extradition treaty, i.e., RP-US
Extradition Treaty, which was executed on November 13, 1994. The pertinent Philippine law, on
the other hand, is Presidential Decree No. 1069, issued on January 13, 1977. Thus,
the Agreement, in conjunction with the RP-US Extradition Treaty, would neither violate nor run
counter to Sec. 17 of RA 9851.
The views reliance on Suplico v. Neda[77] is similarly improper. In that case, several
petitions were filed questioning the power of the President to enter into foreign loan agreements.
However, before the petitions could be resolved by the Court, the Office of the Solicitor General
filed a Manifestation and Motion averring that the Philippine Government decided not to continue
with the ZTE National Broadband Network Project, thus rendering the petition moot. In resolving
the case, the Court took judicial notice of the act of the executive department of
the Philippines (the President) and found the petition to be indeed moot. Accordingly, it dismissed
the petitions.

In his dissent in the abovementioned case, Justice Carpio discussed the legal implications
of an executive agreement. He stated that an executive agreement has the force and effect of
law x x x [it] cannot amend or repeal prior laws.[78] Hence, this argument finds no application in
this case seeing as RA 9851 is a subsequent law, not a prior one. Notably, this argument cannot
be found in the ratio decidendi of the case, but only in the dissenting opinion.
The view further contends that the RP-US Extradition Treaty is inapplicable to RA 9851 for
the reason that under par. 1, Art. 2 of the RP-US Extradition Treaty, [a]n offense shall be an
extraditable offense if it is punishable under the laws in both Contracting Parties x x
x,[79] and thereby concluding that while the Philippines has criminalized under RA 9851 the acts
defined in the Rome Statute as war crimes, genocide and other crimes against humanity, there is
no similar legislation in the US. It is further argued that, citing U.S. v. Coolidge, in the US, a person
cannot be tried in the federal courts for an international crime unless Congress adopts a law
defining and punishing the offense.
This view must fail.
On the contrary, the US has already enacted legislation punishing the high crimes
mentioned earlier. In fact, as early as October 2006, the US enacted a law criminalizing war
crimes. Section 2441, Chapter 118, Part I, Title 18 of the United States Code Annotated (USCA)
provides for the criminal offense of war crimes which is similar to the war crimes found in both
the Rome Statute and RA 9851, thus:
(a)

Offense Whoever, whether inside or outside the United States, commits a


war crime, in any of the circumstances described in subsection (b), shall be
fined under this title or imprisoned for life or any term of years, or both, and if
death results to the victim, shall also be subject to the penalty of death.
(b) Circumstances The circumstances referred to in subsection (a) are that the
person committing such war crime or the victim of such war crime is a member
of the Armed Forces of the United States or a national of the United States (as
defined in Section 101 of the Immigration and Nationality Act).
(c) Definition As used in this Section the term war crime means any conduct
(1) Defined as a grave breach in any of the international conventions signed
at Geneva 12 August 1949, or any protocol to such convention to which
the United States is a party;
(2) Prohibited by Article 23, 25, 27 or 28 of the Annex to the Hague Convention
IV, Respecting the Laws and Customs of War on Land, signed 18 October
1907;
(3) Which constitutes a grave breach of common Article 3 (as defined in
subsection [d]) when committed in the context of and in association with an
armed conflict not of an international character; or
(4) Of a person who, in relation to an armed conflict and contrary to the
provisions of the Protocol on Prohibitions or Restrictions on the Use of Mines,
Booby-Traps and Other Devices as amended at Geneva on 3 May 1996
(Protocol II as amended on 3 May 1996), when the United States is a party to
such Protocol, willfully kills or causes serious injury to civilians. [80]
Similarly, in December 2009, the US adopted a law that criminalized genocide, to wit:
1091. Genocide

(a)
Basic Offense Whoever, whether in the time of peace or in
time of war and with specific intent to destroy, in whole or in substantial
part, a national, ethnic, racial or religious group as such
(1) kills members of that group;
(2) causes serious bodily injury to members of that group;
(3) causes the permanent impairment of the mental faculties of
members of the group through drugs, torture, or similar techniques;
(4) subjects the group to conditions of life that are intended to cause
the physical destruction of the group in whole or in part;
(5) imposes measures intended to prevent births within the group; or
(6) transfers by force children of the group to another group;
shall be punished as provided in subsection (b).[81]
Arguing further, another view has been advanced that the current US laws do not cover
every crime listed within the jurisdiction of the ICC and that there is a gap between the definitions
of the different crimes under the US laws versus the Rome Statute. The view used a report written
by Victoria K. Holt and Elisabeth W. Dallas, entitled On Trial: The US Military and the International
Criminal Court, as its basis.
At the outset, it should be pointed out that the report used may not have any weight or
value under international law. Article 38 of the Statute of the International Court of Justice (ICJ)
lists the sources of international law, as follows: (1) international conventions, whether general or
particular, establishing rules expressly recognized by the contesting states; (2) international
custom, as evidence of a general practice accepted as law; (3) the general principles of law
recognized by civilized nations; and (4) subject to the provisions of Article 59, judicial decisions
and the teachings of the most highly qualified publicists of the various nations, as
subsidiary means for the determination of rules of law. The report does not fall under any of the
foregoing enumerated sources. It cannot even be considered as the teachings of highly qualified
publicists. A highly qualified publicist is a scholar of public international law and the term usually
refers to legal scholars or academic writers. [82] It has not been shown that the authors [83] of this
report are highly qualified publicists.
Assuming arguendo that the report has weight, still, the perceived gaps in the definitions of
the crimes are nonexistent. To highlight, the table below shows the definitions of genocide and
war crimes under the Rome Statute vis--vis the definitions under US laws:

Rome Statute
Article 6
Genocide
For the purpose of this Statute,
genocide means any of the following
acts committed with intent to destroy, in
whole or in part, a national, ethnical,
racial or religious group, as such:
(a) Killing members of the group;
(b) Causing serious bodily or mental
harm to members of the group;
(c) Deliberately inflicting on the group
conditions of life calculated to bring
about its physical destruction in

US Law
1091. Genocide
(a)
Basic
Offense

Whoever,
whether in the time of peace or in time of
war and with specific intent to destroy, in
whole or in substantial part, a national,
ethnic, racial or religious group as such
(1) kills members of that group;
(2) causes serious bodily injury to
members of that group;
(3) causes the permanent impairment
of the mental faculties of members
of the group through drugs, torture,

whole or in part;
Imposing measures intended to
prevent births within the group;
(e) Forcibly transferring children of the
group to another group.
(d)

Article 8
War Crimes
2. For the purpose of this Statute, war
crimes means:
(a) Grave breaches of the Geneva
Conventions of 12 August 1949, namely,
any of the following acts against persons
or property protected under the
provisions of the relevant Geneva
Convention: x x x[84]
(b) Other serious violations of the laws
and customs applicable in international
armed conflict, within the established
framework of international law, namely,
any of the following acts:
xxxx
(c) In the case of an armed conflict not of
an international character, serious
violations of article 3 common to the four
Geneva Conventions of 12 August 1949,
namely, any of the following acts
committed against persons taking no
active part in the hostilities, including
members of armed forces who have laid
down their arms and those placed hors
de combat by sickness, wounds,
detention or any other cause:
xxxx
(d) Paragraph 2 (c) applies to armed
conflicts not of an international character
and thus does not apply to situations of
internal disturbances and tensions, such
as riots, isolated and sporadic acts of
violence or other acts of a similar nature.
(e) Other serious violations of the laws
and customs applicable in armed
conflicts not of an international
character, within the established
framework of international law, namely,
any of the following acts: x x x.

or similar techniques;
(4) subjects the group to conditions of
life that are intended to cause the
physical destruction of the group in
whole or in part;
(5) imposes measures intended to
prevent births within the group; or
(6) transfers by force children of the
group to another group;
shall be punished as provided in
subsection (b).
(a) Definition As used in this Section
the term war crime means any
conduct
(1) Defined as a grave breach in any
of the international conventions
signed at Geneva12 August 1949,
or any protocol to such convention
to which the United States is a
party;
(2) Prohibited by Article 23, 25, 27 or
28
of
the
Annex
to the
Hague Convention IV, Respecting
the Laws and Customs of War on
Land, signed 18 October 1907;
(3) Which constitutes a grave breach
of common Article 3 (as defined in
subsection [d][85]) when committed
in the context of and in association
with an armed conflict not of an
international character; or
(4) Of a person who, in relation to an
armed conflict and contrary to the
provisions of the Protocol on
Prohibitions or Restrictions on the
Use of Mines, Booby-Traps and
Other Devices as amended at
Geneva on 3 May 1996 (Protocol II
as amended on 3 May 1996), when
the United States is a party to such
Protocol, willfully kills or causes
serious injury to civilians.[86]

Evidently, the gaps pointed out as to the definition of the crimes are not present. In fact, the
report itself stated as much, to wit:
Few believed there were wide differences between the crimes under the
jurisdiction of the Court and crimes within the Uniform Code of Military Justice that

would expose US personnel to the Court. Since US military lawyers were


instrumental in drafting the elements of crimes outlined in the Rome Statute, they
ensured that most of the crimes were consistent with those outlined in the UCMJ
and gave strength to complementarity for the US. Small areas of potential gaps
between the UCMJ and the Rome Statute, military experts argued, could be
addressed through existing military laws.[87] x x x
The report went on further to say that [a]ccording to those involved, the elements of
crimes laid out in the Rome Statute have been part of US military doctrine for decades.[88] Thus,
the argument proffered cannot stand.
Nonetheless, despite the lack of actual domestic legislation, the US notably follows the
doctrine of incorporation. As early as 1900, the esteemed Justice Gray in The Paquete
Habana[89] case already held international law as part of the law of the US, to wit:
International law is part of our law, and must be ascertained and
administered by the courts of justice of appropriate jurisdiction as often as
questions of right depending upon it are duly presented for their determination. For
this purpose, where there is no treaty and no controlling executive or legislative act
or judicial decision, resort must be had to the customs and usages of civilized
nations, and, as evidence of these, to the works of jurists and commentators who by
years of labor, research, and experience have made themselves peculiarly well
acquainted with the subjects of which they treat. Such works are resorted to by
judicial tribunals, not for the speculations of their authors concerning what the law
ought to be, but for the trustworthy evidence of what the law really is. [90] (Emphasis
supplied.)

Thus, a person can be tried in the US for an international crime despite the lack of
domestic legislation. The cited ruling in U.S. v. Coolidge,[91] which in turn is based on the holding
in U.S. v. Hudson,[92] only applies to common law and not to the law of nations or international law.
[93]
Indeed, the Court in U.S. v. Hudson only considered the question, whether the Circuit Courts of
the United States can exercise a common law jurisdiction in criminal cases.[94] Stated otherwise,
there is no common law crime in the US but this is considerably different from international law.
The US doubtless recognizes international law as part of the law of the land, necessarily
including international crimes, even without any local statute. [95] In fact, years later, US courts
would apply international law as a source of criminal liability despite the lack of a local statute
criminalizing it as such. So it was that in Ex Parte Quirin[96] the US Supreme Court noted that
[f]rom the very beginning of its history this Court has recognized and applied the law of war as
including that part of the law of nations which prescribes, for the conduct of war, the status, rights
and duties of enemy nations as well as of enemy individuals. [97] It went on further to explain that
Congress had not undertaken the task of codifying the specific offenses covered in the law of war,
thus:
It is no objection that Congress in providing for the trial of such
offenses has not itself undertaken to codify that branch of international law
or to mark its precise boundaries, or to enumerate or define by statute all
the acts which that law condemns. An Act of Congress punishing the crime of
piracy as defined by the law of nations is an appropriate exercise of its
constitutional authority, Art. I, s 8, cl. 10, to define and punish the offense since it

has adopted by reference the sufficiently precise definition of international law. x x x


Similarly by the reference in the 15th Article of War to offenders or offenses that x
x x by the law of war may be triable by such military commissions. Congress has
incorporated by reference, as within the jurisdiction of military commissions, all
offenses which are defined as such by the law of war x x x, and which may
constitutionally be included within that jurisdiction.[98] x x x (Emphasis supplied.)
This rule finds an even stronger hold in the case of crimes against humanity. It has been
held that genocide, war crimes and crimes against humanity have attained the status of
customary international law. Some even go so far as to state that these crimes have attained the
status of jus cogens.[99]
Customary international law or international custom is a source of international law as
stated in the Statute of the ICJ.[100] It is defined as the general and consistent practice of states
recognized and followed by them from a sense of legal obligation. [101] In order to establish the
customary status of a particular norm, two elements must concur: State practice, the objective
element; and opinio juris sive necessitates, the subjective element.[102]
State practice refers to the continuous repetition of the same or similar kind of acts or
norms by States.[103] It is demonstrated upon the existence of the following elements: (1)
generality; (2) uniformity and consistency; and (3) duration. [104] While, opinio juris, the
psychological element, requires that the state practice or norm be carried out in such a way, as
to be evidence of a belief that this practice is rendered obligatory by the existence of a rule of law
requiring it.[105]
The term jus cogens means the compelling law. [106] Corollary, a jus cogens norm holds
the highest hierarchical position among all other customary norms and principles. [107] As a
result, jus cogens norms are deemed peremptory and non-derogable. [108] When applied to
international crimes, jus cogens crimes have been deemed so fundamental to the existence of a
just international legal order that states cannot derogate from them, even by agreement. [109]
These jus cogens crimes relate to the principle of universal jurisdiction, i.e., any state may
exercise jurisdiction over an individual who commits certain heinous and widely condemned
offenses, even when no other recognized basis for jurisdiction exists. [110] The rationale behind
this principle is that the crime committed is so egregious that it is considered to be committed
against all members of the international community [111] and thus granting every State jurisdiction
over the crime.[112]
Therefore, even with the current lack of domestic legislation on the part of the US, it still has
both the doctrine of incorporation and universal jurisdiction to try these crimes.
Consequently, no matter how hard one insists, the ICC, as an international tribunal, found
in the Rome Statute is not declaratory of customary international law.
The first element of customary international law, i.e., established, widespread, and
consistent practice on the part of States, [113] does not, under the premises, appear to be

obtaining as reflected in this simple reality: As of October 12, 2010, only 114 [114] States have
ratified the Rome Statute, subsequent to its coming into force eight (8) years earlier, or on July 1,
2002. The fact that 114 States out of a total of 194 [115] countries in the world, or roughly 58.76%,
have ratified the Rome Statute casts doubt on whether or not the perceived principles contained
in the Statute have attained the status of customary law and should be deemed as obligatory
international law. The numbers even tend to argue against the urgency of establishing
international criminal courts envisioned in the Rome Statute. Lest it be overlooked,
the Philippines, judging by the action or inaction of its top officials, does not even feel bound by
the Rome Statute. Res ipsa loquitur. More than eight (8) years have elapsed since the Philippine
representative signed the Statute, but the treaty has not been transmitted to the Senate for the
ratification process.
And this brings us to what Fr. Bernas, S.J. aptly said respecting the application of the
concurring elements, thus:
Custom or customary international law means a general and consistent
practice of states followed by them from a sense of legal obligation [opinio juris] x x
x. This statement contains the two basic elements of custom: the material factor,
that is how the states behave, and the psychological factor or subjective factor, that
is, why they behave the way they do.
xxxx
The initial factor for determining the existence of custom is the actual
behavior of states. This includes several elements: duration, consistency, and
generality of the practice of states.
The required duration can be either short or long. x x x
xxxx
Duration therefore is not the most important element. More important is the
consistency and the generality of the practice. x x x
xxxx
Once the existence of state practice has been established, it
becomes necessary to determine why states behave the way they do. Do
states behave the way they do because they consider it obligatory to behave thus
or do they do it only as a matter of courtesy? Opinio juris, or the belief that a
certain form of behavior is obligatory, is what makes practice an international
rule. Without it, practice is not law.[116] (Emphasis added.)

Evidently, there is, as yet, no overwhelming consensus, let alone prevalent practice,
among the different countries in the world that the prosecution of internationally recognized
crimes of genocide, etc. should be handled by a particular international criminal court.
Absent the widespread/consistent-practice-of-states factor, the second or the psychological
element must be deemed non-existent, for an inquiry on why states behave the way they do

presupposes, in the first place, that they are actually behaving, as a matter of settled and
consistent practice, in a certain manner. This implicitly requires belief that the practice in
question is rendered obligatory by the existence of a rule of law requiring it. [117] Like the first
element, the second element has likewise not been shown to be present.
Further, the Rome Statute itself rejects the concept of universal jurisdiction over the crimes
enumerated therein as evidenced by it requiring State consent. [118] Even further, the Rome Statute
specifically and unequivocally requires that: This Statute is subject to ratification,
acceptance or approval by signatory States. [119] These clearly negate the argument that such has
already attained customary status.
More importantly, an act of the executive branch with a foreign government must be
afforded great respect. The power to enter into executive agreements has long been recognized to
be lodged with the President. As We held in Neri v. Senate Committee on Accountability of Public
Officers and Investigations, [t]he power to enter into an executive agreement is in essence an
executive power. This authority of the President to enter into executive agreements without the
concurrence
of
the
Legislature
has
traditionally
been
recognized
in
Philippine
[120]
jurisprudence.
The rationale behind this principle is the inviolable doctrine of separation of
powers among the legislative, executive and judicial branches of the government. Thus, absent
any clear contravention of the law, courts should exercise utmost caution in declaring any
executive agreement invalid.

In light of the above consideration, the position or view that the challenged RP-US NonSurrender Agreement ought to be in the form of a treaty, to be effective, has to be rejected.
WHEREFORE,
the
petition
for certiorari,
hereby DISMISSED for lack of merit. No costs.

mandamus

and

prohibition is

SO ORDERED.

DEUTSCHE BANK vs. CITY OF MANILA


HE FACTS
In accordance with Section 28(A)(5)4 of the National Internal Revenue Code (NIRC) of 1997,
petitioner withheld and remitted to respondent on 21 October 2003 the amount of PHP
67,688,553.51, which represented the fifteen percent (15%) branch profit remittance tax (BPRT)
on its regular banking unit (RBU) net income remitted to Deutsche Bank Germany (DB Germany)
for 2002 and prior taxable years.5cralaw virtualaw library

Believing that it made an overpayment of the BPRT, petitioner filed with the BIR Large Taxpayers
Assessment and Investigation Division on 4 October 2005 an administrative claim for refund or
issuance of its tax credit certificate in the total amount of PHP 22,562,851.17. On the same date,
petitioner requested from the International Tax Affairs Division (ITAD) a confirmation of its
entitlement to the preferential tax rate of 10% under the RP-Germany Tax Treaty. 6cralaw virtualaw
library
Alleging the inaction of the BIR on its administrative claim, petitioner filed a Petition for
Review7 with the CTA on 18 October 2005. Petitioner reiterated its claim for the refund or issuance
of its tax credit certificate for the amount of PHP 22,562,851.17 representing the alleged excess
BPRT paid on branch profits remittance to DB Germany.

THE CTA SECOND DIVISION RULING8cralaw virtualaw library


After trial on the merits, the CTA Second Division found that petitioner indeed paid the total
amount of PHP 67,688,553.51 representing the 15% BPRT on its RBU profits amounting to PHP
451,257,023.29 for 2002 and prior taxable years. Records also disclose that for the year 2003,
petitioner remitted to DB Germany the amount of EURO 5,174,847.38 (or PHP 330,175,961.88 at
the exchange rate of PHP 63.804:1 EURO), which is net of the 15% BPRT.
However, the claim of petitioner for a refund was denied on the ground that the application for a
tax treaty relief was not filed with ITAD prior to the payment by the former of its BPRT and actual
remittance of its branch profits to DB Germany, or prior to its availment of the preferential rate of
ten percent (10%) under the RP-Germany Tax Treaty provision. The court a quo held that petitioner
violated the fifteen (15) day period mandated under Section III paragraph (2) of Revenue
Memorandum Order (RMO) No. 1-2000.
Further, the CTA Second Division relied on Mirant (Philippines) Operations Corporation (formerly
Southern Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of Internal
Revenue9(Mirant)where the CTA En Banc ruled that before the benefits of the tax treaty may be
extended to a foreign corporation wishing to avail itself thereof, the latter should first invoke the
provisions of the tax treaty and prove that they indeed apply to the corporation.

THE CTA EN BANC RULING10cralaw virtualaw library


The CTA En Banc affirmed the CTA Second Divisions Decision dated 29 August 2008 and
Resolution dated 14 January 2009. Citing Mirant, the CTA En Banc held that a ruling from the ITAD
of the BIR must be secured prior to the availment of a preferential tax rate under a tax treaty.
Applying the principle ofstare decisis et non quieta movere, the CTA En Banc took into
consideration that this Court had denied the Petition in G.R. No. 168531 filed by Mirant for failure
to sufficiently show any reversible error in the assailed judgment. 11 The CTA En Banc ruled that
once a case has been decided in one way, any other case involving exactly the same point at
issue should be decided in the same manner.
The court likewise ruled that the 15-day rule for tax treaty relief application under RMO No. 1-2000
cannot be relaxed for petitioner, unlike in CBK Power Company Limited v. Commissioner of
Internal Revenue.12 In that case, the rule was relaxed and the claim for refund of excess final
withholding taxes was partially granted. While it issued a ruling to CBK Power Company Limited
after the payment of withholding taxes, the ITAD did not issue any ruling to petitioner even if it
filed a request for confirmation on 4 October 2005 that the remittance of branch profits to DB
Germany is subject to a preferential tax rate of 10% pursuant to Article 10 of the RP-Germany Tax
Treaty.

ISSUE

This Court is now confronted with the issue of whether the failure to strictly comply with RMO No.
1-2000 will deprive persons or corporations of the benefit of a tax treaty.

THE COURTS RULING


The Petition is meritorious.
Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax
of 15% based on the total profits applied for or earmarked for remittance without any deduction of
the tax component. However, petitioner invokes paragraph 6, Article 10 of the RP-Germany Tax
Treaty, which provides that where a resident of the Federal Republic of Germany has a branch in
the Republic of the Philippines, this branch may be subjected to the branch profits remittance tax
withheld at source in accordance with Philippine law but shall not exceed 10% of the gross amount
of the profits remitted by that branch to the head office.
By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the Philippines,
remitting to its head office in Germany, the benefit of a preferential rate equivalent to 10% BPRT.
On the other hand, the BIR issued RMO No. 1-2000, which requires that any availment of the tax
treaty relief must be preceded by an application with ITAD at least 15 days before the transaction.
The Order was issued to streamline the processing of the application of tax treaty relief in order to
improve efficiency and service to the taxpayers. Further, it also aims to prevent the consequences
of an erroneous interpretation and/or application of the treaty provisions (i.e., filing a claim for a
tax refund/credit for the overpayment of taxes or for deficiency tax liabilities for
underpayment).13cralaw virtualaw library
The crux of the controversy lies in the implementation of RMO No. 1-2000.
Petitioner argues that, considering that it has met all the conditions under Article 10 of the RPGermany Tax Treaty, the CTA erred in denying its claim solely on the basis of RMO No. 1-2000. The
filing of a tax treaty relief application is not a condition precedent to the availment of a
preferential tax rate. Further, petitioner posits that, contrary to the ruling of the CTA, Mirant is not
a binding judicial precedent to deny a claim for refund solely on the basis of noncompliance with
RMO No. 1-2000.
Respondent counters that the requirement of prior application under RMO No. 1-2000 is
mandatory in character. RMO No. 1-2000 was issued pursuant to the unquestioned authority of the
Secretary of Finance to promulgate rules and regulations for the effective implementation of the
NIRC. Thus, courts cannot ignore administrative issuances which partakes the nature of a statute
and have in their favor a presumption of legality.
The CTA ruled that prior application for a tax treaty relief is mandatory, and noncompliance with
this prerequisite is fatal to the taxpayers availment of the preferential tax rate.
We disagree.
A minute resolution is not a binding precedent
At the outset, this Courts minute resolution on Mirant is not a binding precedent. The Court has
clarified this matter in Philippine Health Care Providers, Inc. v. Commissioner of Internal
Revenue14 as follows:
It is true that, although contained in a minute resolution, our dismissal of the petition was a
disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the
CA ruling being questioned. As a result, our ruling in that case has already become final. When a
minute resolution denies or dismisses a petition for failure to comply with formal and substantive

requirements, the challenged decision, together with its findings of fact and legal conclusions, are
deemed
sustained.
But
what
is
its
effect
on
other
cases?
With respect to the same subject matter and the same issues concerning the same
parties, it constitutes res judicata. However, if other parties or another subject matter
(even with the same parties and issues) is involved, the minute resolution is not
binding precedent. Thus, in CIR v. Baier-Nickel, the Court noted that a previous case, CIR v.
Baier-Nickel involving the same parties and the same issues, was previously disposed of by the
Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA.
Nonetheless, the Court ruled that the previous case ha(d) no bearing on the latter case because
the two cases involved different subject matters as they were concerned with the taxable income
of
different
taxable
years.
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a
decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of the
Constitution that the facts and the law on which the judgment is based must be expressed clearly
and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed
only by the clerk of court by authority of the justices, unlike a decision. It does not require the
certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published
in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision.
Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding
precedent in a decision duly signed by the members of the Court and certified by the Chief Justice.
(Emphasis supplied)
Even if we had affirmed the CTA in Mirant, the doctrine laid down in that Decision cannot bind this
Court in cases of a similar nature. There are differences in parties, taxes, taxable periods, and
treaties involved; more importantly, the disposition of that case was made only through a minute
resolution.
Tax Treaty vs. RMO No. 1-2000
Our Constitution provides for adherence to the general principles of international law
as part of the law of the land.15 The time-honored international principle of pacta sunt
servandademands the performance in good faith of treaty obligations on the part of
the states that enter into the agreement. Every treaty in force is binding upon the
parties, and obligations under the treaty must be performed by them in good
faith.16 More importantly, treaties have the force and effect of law in this
jurisdiction.17cralaw virtualaw library
Tax treaties are entered into to reconcile the national fiscal legislations of the
contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in two
different jurisdictions.18CIR v. S.C. Johnson and Son, Inc. further clarifies that tax
conventions are drafted with a view towards the elimination of international juridical
double taxation, which is defined as the imposition of comparable taxes in two or more
states on the same taxpayer in respect of the same subject matter and for identical
periods. The apparent rationale for doing away with double taxation is to encourage
the free flow of goods and services and the movement of capital, technology and
persons between countries, conditions deemed vital in creating robust and dynamic
economies. Foreign investments will only thrive in a fairly predictable and reasonable
international investment climate and the protection against double taxation is crucial
in creating such a climate.19cralaw virtualaw library
Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of
international juridical double taxation, which is why they are also known as double tax
treaty or double tax agreements.
A state that has contracted valid international obligations is bound to make in its
legislations those modifications that may be necessary to ensure the fulfillment of the
obligations undertaken.20 Thus, laws and issuances must ensure that the reliefs

granted under tax treaties are accorded to the parties entitled thereto. The BIR must
not impose additional requirements that would negate the availment of the reliefs
provided for under international agreements. More so, when the RP-Germany Tax
Treaty does not provide for any pre-requisite for the availment of the benefits under
said agreement.
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would
indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the
15-day period. We recognize the clear intention of the BIR in implementing RMO No. 12000, but the CTAs outright denial of a tax treaty relief for failure to strictly comply
with the prescribed period is not in harmony with the objectives of the contracting
state to ensure that the benefits granted under tax treaties are enjoyed by duly
entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the
availment of tax treaty relief as required by RMO No. 1-2000 should not operate to
divest entitlement to the relief as it would constitute a violation of the duty required
by good faith in complying with a tax treaty. The denial of the availment of tax relief
for the failure of a taxpayer to apply within the prescribed period under the
administrative issuance would impair the value of the tax treaty. At most, the
application for a tax treaty relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective of
RMO No. 1-2000. Logically, noncompliance with tax treaties has negative implications
on international relations, and unduly discourages foreign investors. While the
consequences sought to be prevented by RMO No. 1-2000 involve an administrative
procedure, these may be remedied through other system management processes, e.g.,
the imposition of a fine or penalty. But we cannot totally deprive those who are
entitled to the benefit of a treaty for failure to strictly comply with an administrative
issuance requiring prior application for tax treaty relief.
Prior Application vs. Claim for Refund
Again, RMO No. 1-2000 was implemented to obviate any erroneous interpretation
and/or application of the treaty provisions. The objective of the BIR is to forestall
assessments against corporations who erroneously availed themselves of the benefits
of the tax treaty but are not legally entitled thereto, as well as to save such investors
from the tedious process of claims for a refund due to an inaccurate application of the
tax treaty provisions. However, as earlier discussed, noncompliance with the 15-day
period for prior application should not operate to automatically divest entitlement to
the tax treaty relief especially in claims for refund.
The underlying principle of prior application with the BIR becomes moot in refund
cases, such as the present case, where the very basis of the claim is erroneous or
there is excessive payment arising from non-availment of a tax treaty relief at the first
instance. In this case, petitioner should not be faulted for not complying with RMO No.
1-2000 prior to the transaction. It could not have applied for a tax treaty relief within
the period prescribed, or 15 days prior to the payment of its BPRT, precisely because it
erroneously paid the BPRT not on the basis of the preferential tax rate under
the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence,
the prior application requirement becomes illogical. Therefore, the fact that petitioner
invoked the provisions of the RP-Germany Tax Treaty when it requested for a
confirmation from the ITAD before filing an administrative claim for a refund should be
deemed substantial compliance with RMO No. 1-2000.
Corollary thereto, Section 22921 of the NIRC provides the taxpayer a remedy for tax

recovery when there has been an erroneous payment of tax. The outright denial of
petitioners claim for a refund, on the sole ground of failure to apply for a tax treaty
relief prior to the payment of the BPRT, would defeat the purpose of Section 229.
Petitioner is entitled to a refund
It is significant to emphasize that petitioner applied though belatedly for a tax
treaty relief, in substantial compliance with RMO No. 1-2000. A ruling by the BIR would
have confirmed whether petitioner was entitled to the lower rate of 10% BPRT
pursuant to the RP-Germany Tax Treaty.
Nevertheless, even without the BIR ruling, the CTA Second Division found as follows:
Based on the evidence presented, both documentary and testimonial, petitioner was
able
to
establish
the
following
facts:cralawlibrary
a. That petitioner is a branch office in the Philippines of Deutsche Bank AG, a
corporation organized and existing under the laws of the Federal Republic of
Germany;chanr0blesvirtualawlibrary
b. That on October 21, 2003, it filed its Monthly Remittance Return of Final Income
Taxes Withheld under BIR Form No. 1601-F and remitted the amount of P67,688,553.51
as
branch
profits
remittance
tax
with
the
BIR;
and
c. That on October 29, 2003, the Bangko Sentral ng Pilipinas having issued a clearance,
petitioner remitted to Frankfurt Head Office the amount of EUR5,174,847.38 (or
P330,175,961.88
at
63.804
Peso/Euro)
representing
its
2002
profits
remittance.22cralaw virtualaw library
The amount of PHP 67,688,553.51 paid by petitioner represented the 15% BPRT on its
RBU net income, due for remittance to DB Germany amounting to PHP 451,257,023.29
for 2002 and prior taxable years.23cralaw virtualaw library
Likewise, both the administrative and the judicial actions were filed within the twoyear prescriptive period pursuant to Section 229 of the NIRC. 24cralaw virtualaw library
Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate
of 10% BPRT in accordance with the RP-Germany Tax Treaty.
Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income
amounting to PHP 451,257,023.29 for 2002 and prior taxable years, applying the 10%
BPRT. Thus, it is proper to grant petitioner a refund ofthe difference between the PHP
67,688,553.51 (15% BPRT) and PHP 45,125,702.34 (10% BPRT) or a total of PHP
22,562,851.17.
WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the
Court of Tax Appeals En Banc Decision dated 29 May 2009 and Resolution dated 1 July
2009 areREVERSED and SET ASIDE. A new one is hereby entered ordering respondent
Commissioner of Internal Revenue to refund or issue a tax credit certificate in favor of
petitioner Deutsche Bank AG Manila Branch the amount of TWENTY TWO MILLION FIVE
HUNDRED SIXTY TWO THOUSAND EIGHT HUNDRED FIFTY ONE PESOS AND SEVENTEEN
CENTAVOS (PHP 22,562,851.17), Philippine currency, representing the erroneously paid
BPRT for 2002 and prior taxable years.
SO ORDERED.
TEST OF THE POLICE POWER