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Raymundo, Kenneth Q.
Local Government Taxation (continuation)
11. Asiatic Integrated Corporation v. Alikpala, 72 SCRA 285

G.R. No. L-37187 September 15, 1975

ASIATIC INTEGRATED CORPORATION, petitioner,


vs.
HON. FEDERICO ALIKPALA, in his capacity as Presiding Judge
of the Court of First Instance of Manila, Branch XXII,
DOLORSINDO PANER and ARMANDO CAPISTRANO, respondents.

G.R. No. L-37248 September 15, 1975

THE CITY OF MANILA, RAMON D. BAGATSING and SERAFIN LUZ


CUI, as MAYOR and Market Administrator, respectively of the
City of Manila, petitioners,
vs.
HON. FEDERICO ALIKPALA, as Judge of the Court of First
Instance of Manila, ARMANDO CAPISTRANO, DOLORSINDO
PANER, PETRA ATIENZA, REMEGIA GREGORIO, and SAMAHAN
NG MGA MANININDA SA PAMILIHANG QUINTA,
INK., respondents.

G.R. No. L-37249 September 15, 1975

ASIATIC INTEGRATED CORPORATION, petitioner,


vs.
HON. FEDERICO ALIKPALA, in his capacity as Presiding Judge
of the Court of First Instance of Manila, Branch XXII,
DOLORSINDO PANER, ARMANDO CAPISTRANO and SAMAHAN
NG MANININDA NG QUINTA, INK., respondents.

BARREDO, J.:

Three cases related to the decision of the Court of First


Instance of Manila dated July 13, 1973 in Civil Case No.
89442, Armando Capistrano et al. vs. The City of Manila et al.,
declaring null and void the Management and Operating
Contract between defendant City (for short) and its co-
defendant Asiatic Integrated Corporation (Asiatic, for short)
involving all the public markets in Manila and ordering in
consequence the turning over of said markets to the City, an
accounting of all income earned by Asiatic under the contract
and the payment of attorney's fees and costs by the same
respondent.

The first case, G.R. No. L-37187, is for certiorari with


preliminary injunction to restrain respondent judge from
enforcing his aforementioned decision during the pendency of
the appeals therefrom of the defendants City and Asiatic. The
other two cases, G.R. Nos. L-37248 and L-37249 are precisely
the separate appeals or petitions for review of the City and
Asiatic, respectively, which, however, were deemed by the
Court as special civic actions in its resolution of December 10,
1973.

On December 13, 1972, the Market Committee created by


Republic Act 6039, approved a resolution recommending that
the City Mayor of Manila urgently consider the immediate lease
and/or assignment of the administration of the city public
markets and talipapas to "a multi-million peso corporation
under such terms and conditions as (would be) most
advantageous to the City of Manila." Evidently in pursuance of
such recommendation, on December 28, 1972, an agreement
captioned "Management and Operating Contract" was executed
by and between the City, represented by its Mayor, and Asiatic
covering all the thirty-five public markets and talipapas in
Manila. Said contract is as follows:
MANAGEMENT AND OPERATING CONTRACT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement, made and entered into at Manila,


Philippines, this 28 day of December, 1972, by and
between - The City of Manila, a municipal
corporation organized existing under and by virtue
of the laws of the Philippines (R.A. No. 409) with
principal office at City Hall, Manila, represented in
this act by RAMON D. BAGATSING, Mayor of said
City, hereinafter known as the FIRST PARTY;

and

Asiatic Integrated Corporation, a 100% Filipino-


owned corporation, organized and existing pursuant
to Philippine Laws and with principal office at the
2nd Floor, Rojas Center Building, C.M. Recto Avenue,
Manila, represented in this act by its President, JOSE
A. ROJAS, duly authorized therefor, hereinafter
known as the SECOND PARTY;

WITNESSETH: That

WHEREAS, the concept and main objectives of a


public market are to provide an accessible, clean,
safe, convenient and economical shopping services
to the public; to provide livelihood to stallholders,
peddlers, distributors, brokers, middlemen and other
low income groups: provide income for the
maintenance, repair and establishment of new public
markets and to provide income for other areas of
city improvement;

WHEREAS, physically, the state of our public markets


had been turning from bad to worse, there being no
major repair and maintenance done in the public
markets for the last ten (10) years as can be seen
from the following building and sanitary deficiencies
now prevalent in all public markets:
a. Out of the sixteen (16) major markets,
fourteen (14) are of pre-war vintage. No
major reconstruction has been made.

b. Building and sanitary deficiencies are


prevalent in all public markets such as
defective electrical system, broken down
and inadequate drainage and sewerage
facilities, wornout and unsafe market
floorings, defective plumbing and water
pipe fixtures, structural defects, rusted,
dilapidated roofs, gutters and
downspouts, building hazards, lack of
ventilation facilities, etc.

WHEREAS, economically because of the proliferation


of supermarkets, groceries, wholesalers and
retailers, profit-wise, the public markets have no
chance at all to outlive, let alone survive, the
unbalanced competition coming from those well
entrenched sectors due to commodity economics and
lack of adequate service facilities as well as credit
and financial sources at legal interests;

WHEREAS, based on an indepth analysis and study of


the conditions prevailing in the public markets, it
will take the City ten (10) to fifteen (15) years of
massive capital infusion to put to service Class B
shape the public markets and that without
immediate total physical and economic
rehabilitation, the public markets will be driven into
obsolescence:

WHEREAS, the City of Manila presently does not have


the necessary funds to improve and develop the
public markets the way they should be improved and
developed to conform to modern marketing concepts
and standard;

WHEREAS, cognizant of the foregoing, the Market


Committee in its regular meeting held on December
13, 1972, adopted a Resolution requesting the Mayor
to urgently consider "the immediate lease and/or
assignment of administration of the City public
markets and talipapas and this be awarded to a
reputable multi-million peso corporation with such
terms and conditions that are most advantageous to
the City of Manila";

WHEREAS, the ASIATIC INTEGRATED CORPORATION


has offered to improve, repair, develop, reconstruct
and rehabilitate the City Public Markets and
talipapas presently existing, which are listed and
indicated in Annex "A" hereof.

NOW, THEREFORE, for and in consideration of the


mutual promises, covenants and stipulations
contained in the following clauses, the respective
parties hereto do contract and agree as follows:

That the SECOND PARTY shall conduct, manage,


operate, develop and maintain the City public
markets and talipapas enumerated in Annex "A"
hereof for a period of ten (10) years commencing
from the date of execution of this Contract,
Provided, However, that the FIRST PARTY may at
any time during the lifetime of this Contract revoke
the same (if the services are unsatisfactory) or for
violation of its terms and conditions.

II

That immediately after the execution of this


Contract, the SECOND PARTY shall start the painting,
cleaning, sanitizing and repair of the public markets
and talipapas and within ninety (90) days thereof,
the SECOND PARTY shall submit a program of
improvement, development, rehabilitation and
reconstruction of the City public markets and
talipapas subject to prior approval of the FIRST
PARTY.

III

The SECOND PARTY shall, during the terms of this


Contract, pay and defray all costs for utilities,
repairs, maintenance, new equipment, improvement,
rehabilitation and reconstruction, and any and all
other expenses incurred incident to the management
and operation of the City public markets and
talipapas.

IV

That all constructions and improvements introduced


by the SECOND PARTY, inclusive of equipment shall,
upon expiration of this Contract, remain the property
of the FIRST PARTY without payment of any amount
to the SECOND PARTY.

That all government licenses and permits required


for the management and operation of the City public
markets and talipapas and for the improvement,
development, rehabilitation and reconstruction made
by the SECOND PARTY pursuant to the provisions of
this Contract shall be taken out and paid for by the
SECOND PARTY in the name of the FIRST PARTY.

VI

That all present personnel of the City public markets


and talipapas shall be retained by the SECOND
PARTY as long as their services remain satisfactory
and they shall be extended the same rights and
privileges as heretofore enjoyed by them. Provided,
however, that the SECOND PARTY shall have the
right, subject to prior approval of the FIRST PARTY
to discharge any of the present employees for cause.

VII

That the SECOND PARTY may from time to time be


required by the FIRST PARTY, or his duly authorized
representative or representatives, to report on the
activities and operation of the City public markets
and talipapas and the facilities and conveniences
installed therein, particularly as to their cost of
construction, operation and maintenance in
connection with the stipulations in this Contract.

VIII

That considering the investments which shall be


made by the SECOND PARTY for improvement,
maintenance, operation and rehabilitation of the City
public markets and talipapas, the SECOND PARTY
may not be removed from the management
operation of the City public markets and talipapas
during the period of this Contract except for any
violation of the terms and conditions hereof.

IX

That the SECOND PARTY hereby warrants that it has


sufficient credit and banking facilities to effectuate
the improvement, repair, development,
reconstruction and rehabilitation of the public
markets as the necessary maintenance and upkeep
thereof and for this purpose, binds itself to submit
within ten (10) days from the execution this
Constract such document or documents from any
local responsible bank attesting to this fact.

That the SECOND PARTY further agrees to execute


and file a performance bond in the amount of FIVE
HUNDRED THOUSAND (P500,000.00) PESOS in cash
or equivalent amounts in surety bond acceptable of
the FIRST PARTY, in lieu of such bond, to deposit
with the City Treasurer of Manila a certified check in
the amount of FIVE HUNDRED THOUSAND
(P500,000.00) PESOS drawn in favor of the City
against any local responsible bank in the Philippines,
which shall answer for the following:

a. Faithful compliance by the SECOND


party with any and all of the terms with
condition of this Contract;
b. All losses, damages and destruction of
properties in the public markets arising
from the negligence or misdemeanor on
the part of the employees, laborers and
other personnel of the SECOND PARTY;

c. Any claims for unpaid wages that the


market laborers and employees may have
against it including obligations of the
SECOND PARTY under the Workmen's
Compensation Act and other pertinent
laws.

IX

That it is understood and agreed that the SECOND


PARTY binds itself to pay the salaries and wages,
insurance and all other benefits of the retained
market employees and shall at all times hold the
FIRST PARTY from any liability for salaries, wages,
insurance and any benefits due its laborers and
employees under existing labor and other laws and
for damages suffered by third persons for any cause
attributable to the SECOND PARTY, its laborers or
employees..

XII

That it is further expressly stipulated and agreed


that the SECOND PARTY shall hold the FIRST PART
free and harmless from any action or liability
whatsoever, arising from any claim by any or all the
personnel assigned by the SECOND PARTY to
perform the services herein agreed upon under the
Workmen's Compensation Act, the Minimum Wage
Law, the Eight-Hour Labor Laws, it being understood
and agreed upon that the faithful compliance with
the said laws shall devolve entirely upon the
SECOND PARTY.

XIII

That the SECOND PARTY will appropriate a yearly


amount of not less than thirty (30%) per cent of the
gross income of the public markets and talipapas for
the fiscal year 1971-1972 to answer for the
maintenance and repair, reconstruction,
development and rehabilitation of the public markets
and talipapas and proof of such appropriation and
minimum expenditure must be submitted to the
FIRST PARTY or his duly authorize representative or
representatives. The SECOND PARTY further agrees
to insure the public market against fire.

XIV

That the SECOND PARTY further warrants that it will


honor and respect the rights of the present
stallholders and will make available to the
stallholders, loans and financing (product purchase
and/or inventory) at legal rates to eliminate loan
sharks and will establish buying cooperatives to
assist the stallholders on the purchase of products at
the maximum volume discount and such other
services like free seminars on practical small
business management marketing as a means of
assisting the stallholders in increasing their profits.

XV

That during the term of this Contract, the SECOND


PARTY shall to be entitled to the annual gross
income from the City public markets and talipapas in
excess of P500,000.00 for the first year thereof and
for the succeeding years in such terms as hereinafter
enumerated:

2nd year P550.000.00


3rd year 600,000.00
4th year 650,000.00
5th year 700,000.00
6th year 750,000.00
7th year 800,000.00
8th year 850,000.00
9th year 900,000.00
10th year 950,000.00
said sums being payable to the FIRST PARTY within
sixty (6) days after the anniversary date of the
execution of this contract, Provided, However, that
the SECOND PARTY shall immediately advance to the
FIRST PARTY the amount of ONE HUNDRED
THOUSAND (100,000.00) PESOS within seven (7)
day and the further, amount of FOUR HUNDRED
THOUSAND (P400,000.00) PESOS within ninety (90)
days from the extension for this Contract.

IN WITNESS WHEREOF, the parties have hereunto


affixed their signatures in the City of Manila,
Philippines, on the day and year first above stated.

CITY OF MANILA ASIATIC INTEGRATED


By: CORPORATION
By:
(Sgd.)
RAMON BAGATSING
Mayor (Sgd.)
JOSE A. ROJAS
President

WITNESSES:

(Sgd.) SERAFIN LUZ CUI


(Sgd.) Illegible

xxx xxx xxx

In connection with this contract, We find annexed as Annex G


of the petition in G.R. No. L-37248, the following:

RESOLUTION EXPRESSING CONCURRENCE WITH


AND SUPPORT FOR THE CONTRACT ENTERED INTO
BY THE CITY OF MANILA TURNING OVER THE
MANAGEMENT AND OPERATION OF PUBLIC MARKETS
AND TALIPAPAS IN THE CITY TO A PRIVATE
CONCERN.

WHEREAS, a contract has been entered into by the


City of Manila with the Asiatic Integrated
Corporation for the latter to handle the management
and operation of Manila's outmoded and
deteriorating public markets and talipapas;

WHEREAS, the deplorable state of these markets,


most of which are of pre-war vintage, has always
been the constant source of headaches of past
administration, considering the mismanagement and
corruption that have attended their operation for
years;

WHEREAS, the state of finances of the City


Government does not permit it to undertake the
massive and expensive task of rehabilitating and
modernizing these public markets as to enable them
to survive the stiff competition offered by
mushrooming and sophisticated supermarkets
without sacrificing other more vital and essential
public services;

WHEREAS, the members of the Municipal Board


cannot close their eyes to the perrenial problem
affecting the interests of their constituents,
particularly the poor and underprivileged, but must
take positive steps to bring about a change for the
better;

WHEREAS, the Municipal Board finds the contract


entered into by the City to be a step in the right
direction in that it may well be the only lasting
solution to the ills that have continuously beset the
administration and operation of public markets in
the City and thus bring about the change long
envisioned by this Body: Now therefore, be it.

Resolved by the Municipal Board of the City of


Manila, to express, as it hereby expresses its
concurrence with and support for the contract
entered into by the City of Manila turning over the
management and operation of public markets in the
City to the Asiatic Integrated Corporation.

Resolved, further, That a copy of this Resolution be


transmitted to His Honor, Mayor Ramon D.
Bagatsing.
Adopted, January 12, 1973.

(SGD) DANILO LACUNA


(SGD) MANUEL UY, JR.
(SGD) QUIRINO MARQUINEZ
(SGD) ROSALINA ROBLES
GONZALES
(SGD) JOSE M. SEMBRANO
(SGD) MARIANO M. MAGSALIN
(SGD) AVELINO VILLACORTA
(SGD) ROBERTO OCA, JR.
(SGD) CARLOS FERNANDEZ
(SGD) ALFONSO MENDOZA, JR.
(SGD) AMBROSIO LORENZO,
JR.
(SGD) HERMOGENES PABLO

(Pp. 82-83, Rollo of L-37248.)

All the signatories are councilors of the City of Manila.

The contract must have been brought to the attention of


President Ferdinand E. Marcos, for on January 12, 1973, the
President sent a memorandum to City Mayor Ramon D.
Bagatsing, reading thus:

In connection with the contract between the City of


Manila and Asiatic Integrated Corporation for the
management and operation by the latter of 35
markets in Manila, it is my desire, in the interest of
the public welfare, that the following conditions be
incorporated therein:

1. All market vendors should form cooperatives and


should be sold shares in the market thus becoming
co-owners.

2. The market cooperatives should be authorized to


directly procure from producers' cooperatives and
other sources, domestically or internationally, and
be given allocations for imports, provided they bring
down prices in accordance with the policy and the
regulations set forth by the Price Control Council,
through its chairman.
3. The public should be part owner of such markets
by the public sale of shares.

(
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M
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(P. 119-Rollo of L-37249, Annex "O".)

In an effort evidently to comply with the foregoing presidential


memorandum, a "Supplementary Contract" was executed by
the parties on March 30, 1973, which provides:

SUPPLEMENTARY CONTRACT

KNOW ALL MEN BY THESE PRESENTS:

This SUPPLEMENTARY CONTRACT, made and entered


into the City of Manila, Philippines, this 30th day of
March, 1973, by and between
The CITY OF MANILA, a municipal
corporation duly organized and existing
under and by virtue of the laws of the
Republic of the Philippines, (R.A. No. 409-
Revised Charter of the City of Manila),
with principal office at the City Hall
Building, Manila, represented in this Act
by the Hon. RAMON BAGATSING, Mayor of
the City of Manila, hereunto duly
authorized and hereinafter referred to as
the CITY;

and

ASIATIC INTEGRATED CORPORATION, a


100% Filipino owned Corporation duly
organized and existing under and by
virtue of the laws of the Republic of the
Philippines, with principal office at the
2nd Floor, Rojas Center Building, Claro M.
Recto Avenue, Manila, represented in this
Act by JOSE A. ROJAS, President thereof,
hereunto duly authorized and hereinafter
referred to as the CORPORATION;

WITNESSETH THAT:

WHEREAS, on December 28, 1972, a contract was


entered into by and between City of Manila and the
Asiatic Integrated Corporation, described as Doc. No.
5, Page No. 2, Book I, Series of 1972, of Notary
Public Gabriel L. Gonzales of Manila, for the
operation and management of the thirty-five (35)
public markets and talipapas of Manila, subject to
the terms and conditions therein set forth;

WHEREAS, on January 12, 1973, His Excellency,


President Ferdinand E. Marcossent a Memorandum
to Mayor Ramon D. Bagatsing of Manila directing the
incorporation of certain conditions in the
Management and Operating Contract of December
28, 1972, copy of which is hereto attached as Annex
"A";
WHEREAS, the parties hereby agree that the
conditions set forth in the Presidential
Memorandum, if incorporated in the said Contract
dated December 28, 1972 and implemented, will
undoubtedly redound to the benefit not only of the
market vendors concerned but also the public in
general; NOW THEREFORE, for and in consideration
of the foregoing principles and of the conditions
hereinafter set forth, the parties have agreed as they
hereby agree as follows;

That all legitimate vendors in the public markets and


talipapas of the City of Manila who have or may
hereafter form and/or organize cooperatives shall be
extended and fullest help and assistance by the
parties.

II

That the market cooperatives so formed or may


hereafter be formed shall be extended the necessary
aid and assistance by the CORPORATION so that
they may directly procure from producers'
cooperatives and other legitimate sources,
domestically or internationally, such goods or
products needed by said cooperatives: PROVIDED
that they bring down prices of commodities in
accordance with the policy and the regulations set
forth by the Price Control Council, through its
Chairman.

III

That the CORPORATION hereby binds itself to take


the necessary steps to put up shares to be sold to
the public to the extent of allowing them to
participate in the management and operation of the
markets, PROVIDED that the market vendors shall
be given preference in the sale of such shares.
IN WITNESS WHEREOF, the parties hereunto set
their hands at the place and on the date first above
written.

CITY OF MANILA ASIATIC INTEGRATED


CORPORATION
By: T.A.N. 0201-022-1
By:
RAMON D. BAGATSING
City Mayor JOSE A. ROJAS
President
T.A.N. 1701-719-4

ATTESTED:

ROMAN G. GARGANTIEL
Secretary to the Mayor

SIGNED IN THE PRESENCE OF:

_______________ ________________
SERAFIN LUZ CUI RAMON S. MENDOZA

In further connection with the contract at issue, on November


26, 1973, President Marcos issued the following decree:

PRESIDENTIAL DECREE NO. 345

AUTHORIZING THE REVERSION OF THE


ACCUMULATED THIRTY (30%) PERCENT SINKING
FUND TO THE GENERAL FUND OF THE CITY OF
MANILA, FOR THE UNDERTAKING OF ITS PUBLIC
WORKS PROJECTS, AND FOR OTHER PURPOSES.

WHEREAS, paragraph V, Sec. 1 of Republic Act No.


6039, amending Sec. 18(cc) of Republic Act No. 409,
otherwise known as the Revised Charter of the City
of Manila, expressly provides that `the sinking fund
shall be created from thirty per centum of the annual
gross receipts from market fees which shall be used
to amortize or to finance the construction of new
markets, to remodel or replace old market buildings,
the purchase of privately-owned building utilized as
public markets, and purchase of new market sites
and the construction of market building and facilities
thereof: Provided, that for as long as self-liquidating
old markets have not been replaced, reconstructed,
or remodeled in accordance with the specifications
adopted and recommended by the Market
Committee, the gross revenue from all market fee
collections shall, be apportioned and appropriated as
follows:

"a. To the special fund of the City - 70%

"b. To the sinking fund ------------- 30%

WHEREAS, on December 28, 1972, the City of Manila


entered into a Management and Operating Contract
with the Asiatic Integrated Corporation over its
thirty-five (35) public markets and talipapas,
wherein it is expressly stipulated that the latter shall
appropriate a yearly amount of not less than thirty
(30%) per centum of the gross receipts from market
fees for the fiscal year 1971-1972 to answer for the
maintenance, repair, reconstruction, development
and rehabilitation of the said markets and talipapas;

WHEREAS, prior to the conclusion for the


aforementioned contract, there accumulated the sum
for Three Million Six Hundred Ninety Six Thousand
Nine Hundred Twenty-One & 99/100
(P3,696,921.99) Pesos, equivalent to thirty
(30%)per centum of the gross receipts from market
fees, which amount, however, was not appropriated
for the purpose stated in Republic Act No. 6039;

WHEREAS, there is no more need to appropriate the


accumulated sinking fund of P3,696,921.99, since it
is already the Asiatic Integrated Corporation, under
the contract referred to above, which shall
undertake the improvements stated in Republic Act
No. 6039;

WHEREAS, there are in the City of Manila pending


urgent public works projects, such as the
construction and repair for streets and dredging and
clearing of esteros, which cannot be successfully
undertake for lack of funds;

WHEREAS, in order to generate funds with which to


undertake and thereby carry out successfully the
foregoing objectives, it is imperative to tap the other
resources of the City of Manila;

NOW, THEREFORE, I, FERDINAND E. MARCOS,


President of the Philippines, by virtue of the powers
in me vested by the Constitution as Commander-in-
Chief of the Philippines, and pursuant to
Proclamation No. 1081 dated September 21, 1972,
and General Order No. 1 dated September 22, 1972,
as amended, do hereby authorize the reversion for
the accumulated thirty (30%) per cent sinking fund
amounting to P3,696,921.99 to the General Fund of
the City of Manila and the appropriation of the same
by the City for the undertaking of its public works
projects.

This Decree shall take effect immediately.

DONE in the City of Manila, this 26th day of


November, in the year of Our Lord, nineteen hundred
and seventy-three.

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P
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By the President:

(SGD.) ROBERTO V. REYES


Assistant Executive Secretary

(P. 104, Rollo of L-37248.)

Relatedly also, on January 3, 1974, the Municipal Board passed


Ordinance No. 7451 providing as follows:

AN ORDINANCE AUTHORIZING HIS HONOR, THE


MAYOR TO LEASE VACANT, UNUSED AND
UNENCUMBERED PATRIMONIAL PROPERTIES OR
OTHER LEASABLE PATRIMONIAL PROPERTIES TO
REPUTABLE AND HIGHLY QUALIFIED PERSONS,
FIRMS OR CORPORATIONS, UNDER CERTAIN
CONDITIONS.

Be it ordained by the Municipal Board of Manila, that:

SECTION 1. His Honor, the Mayor is hereby


authorized to lease vacant, unused and
unencumbered patrimonial properties, or other
leasable patrimonial properties to reputable and
highly qualified persons, firms or corporations,
subject to the following conditions:

1. That the contract shall not exceed twenty-five


(25) years;

2. That the price or consideration of the transaction


shall be determined by the City Appraisal Committee
or by the City Rental Committee; 3. That the
municipal Board shall be furnished, for its
information and guidance, copies of the contracts
covering the transaction;

3. That the Mayor shall consider other terms and


conditions most beneficial to the city government;
4. That this ordinance shall not be utilized to create
a monopoly favor of any corporation or enterprise;

5. That the amount of P25,000,000.00 which will be


derived from the lease of the patrimonial and other
leasable patrimonial properties shall be set aside for
the construction of a new city hall building or a
temple of justice; and 7. That the Municipal Board
shall retain the power to enact ordinances to make
use of vacant and unused properties of the City for
public purposes.

SEC. 2. This ordinance shall take effect upon its


approval.

Enacted by the Municipal Board of Manila at its


regular session, today, January 3, 1974.

Approved by His Honor, the Mayor on January 11,


1974.

APPROVED:

(SGD) RAMON D. BAGATSING (SGD) MARTIN B.


ISIDRO
Mayor Vice Mayor and
Presiding Officer, Municipal Board

ATTESTED:

(SGD) ROMAN G. GARGANTIEL (SGD) HERMINIO R.


NORIEGA
Acting Secretary
Municipal Board

A Note:

SEC. 7, is unnecessary it being one of the inherent


powers of the Board in the same way that it is the
inherent power of the Mayor to approve or
disapprove resolution and/or ordinance.

(SGD) RAMON D. BAGATSING


(P. 209-Rollo of L-37187, Annex "2".)

Then, on February 13, 1974, an amended contract was


executed between the same parties, which reads:

amended contract

KNOW ALL MEN BY THESE PRESENTS:

This AMENDED CONTRACT, executed in the City of


Manila, Philippines, this 13th day of February 1974,
by and between:

The CITY OF MANILA, a municipal


corporation duly organized and existing
under and by virtue of the laws of the
Republic of the Philippines, (R.A. No. 409-
Revised Charter of the City of Manila),
with principal office at the City Hall
Building, Manila represented in this Act by
the Hon. RAMON D. BAGATSING, Mayor of
the City of Manila, hereunto duly
authorized and hereinafter referred to as
the city;

and

ASIATIC INTEGRATED CORPORATION, a


100% Filipino-owned Corporation duly
organized and existing under and by
virtue of the laws of the Republic of the
Philippines, with principal office at the
2nd Floor, Rojas Center Building, Claro M.
Recto Avenue, Manila represented in this
Act by JOSE A. ROJAS, President thereof,
hereunto duly authorized and hereinafter
referred to as the CORPORATION;

WITNESSETH THAT:

WHEREAS, on the 28th day of December 1972, under


authority of existing laws, the parties hereto entered
into a Management and Operating Contract, the
same providing among others, in numbered
paragraphs I and XV thereof, the following:

Paragraph I

"That the SECOND PARTY shall conduct,


manage, operate, develop and maintain
the city public markets and talipapas
enumerated in Annex "A" hereof for a
period of ten (10) years commencing from
the date of execution of this Contract.
Provided, however that the FIRST PARTY
may at any time during the lifetime of this
Contract revoke the same (if the services
are unsatisfactory) or for violation of the
terms and conditions.

Paragraph XV

"That during the term of this Contract, the


SECOND PARTY shall be entitled to the
annual gross income from the city public
markets and talipapas in excess of
P500,000.00 for the first year thereof and
for the succeeding years in such terms as
hereinafter enumerated:

2nd year P550,000.00


3rd year 600,000.00
4th year 650,000.00
5th year 700,000.00
6th year 750,000.00
7th year 800,000.00
8th year 850,000.00
9th year 900,000.00
10th year 950,000.00

said sum being payable to the FIRST


PARTY within sixty (60) days after the
anniversary date of the execution of the
Contract, Provided, however, that the
SECOND PARTY shall immediately advance
to the FIRST PARTY the amount of ONE
HUNDRED THOUSAND (P100,000.00
PESOS within seven (7) days and the
further amount of FOUR HUNDRED
THOUSAND (P400,000.00) PESOS within
ninety (90) days from the execution of
this Contract.

WHEREAS, under Ordinance No. 7451, enacted by


the Municipal Board on January 3, 1974, and
approved by the City Mayor on January 11, 1974, the
City Mayor is expressly authorized to lease
patrimonial properties of the City for a period not
exceeding 25 years;

WHEREAS, the improvement, rehabilitation and


reconstruction of the City's public markets and
talipapas is a long, tedious and continuing process
and, in the light of the worldwide rise of the cost of
all commodities, including building and construction
materials, will necessarily entail huge and
substantial expenditures on the part of the SECOND
PARTY:

WHEREAS, the SECOND PARTY has made known to


the FIRST PARTY its problem of rising costs of
materials as well as labor and related matters, which
has affected and will continue to affect its program
and projection of improvement, rehabilitation and
reconstruction of the City's public markets and
talipapas;

WHEREAS, the SECOND PARTY has requested the


FIRST PARTY to extend the term of the Management
and Operating Contract to Twenty-five (25) years in
lieu of ten (10) years as provided for in the aforesaid
numbered paragraph I of the Management and
Operating Contract to cope with the said problem,
not foreseen and anticipated, and to enable the
SECOND PARTY to ensure the fulfillment of its
program and projection;

WHEREAS, the FIRST PARTY, cognizant of the


problem which is of public knowledge, is disposed to
grant the request of the SECOND PARTY and the
extension requested ultimately will redound to the
benefit of the City and its constitutes;

NOW THEREFORE, for and in consideration of the


foregoing premises and the covenants herein set
forth, the parties have agreed as they hereby agree
to AMEND as they hereby amend the aforesaid
numbered paragraph I and XV of the Management
and Operating Contract to read as follows:

PARAGRAPH I

"That the SECOND PARTY shall conduct,


manage, operate, develop and maintain
the City public markets and talipapas
enumerated in Annex "A" hereof for the
period TWENTY-FIVE (25) years
commencing from December 28, 1972;
PROVIDED, However, that the FIRST
PARTY may at anytime during the lifetime
of this Contract revoke the same (if the
services are unsatisfactory or for violation
of its terms and conditions."

PARAGRAPH II

"That during the term of this Contract, the


SECOND PARTY shall, from the annual
gross income from the City public markets
and talipapas, pay to the FIRST PARTY the
sum of FIVE HUNDRED THOUSAND
(P500,000.00) PESOS, for the first year,
and additional sum of FIFTY THOUSAND
(P50,000.00) PESOS such that in the
progression of this yearly increase, the
FIRST PARTY shall be receiving the sum of
ONE MILLION SEVEN HUNDRED
THOUSAND (P1,700,000.00) PESOS on the
25th year, said sums being payable to the
FIRST PARTY within sixty (60) days after
the anniversary date of execution of this
Contract, Provided, However, that the
SECOND PARTY shall immediately advance
to the FIRST PARTY the amount of ONE
HUNDRED THOUSAND (P100,000.00)
PESOS within ninety (90) days from the
execution of this Contract; Provided,
FURTHER, That in the event of any
increase in the prescribed rentals for fixed
stalls, booths and tiendas or other market
fees at any time during the life of this
Contract, within the limits set forth under
the Local Tax Code, the amounts payable
by the SECOND PARTY to the FIRST PARTY
UNDER THIS Paragraph shall
automatically be increased in the same
proportion as the increase of such rentals
or fees and shall thereafter be the basis
for fixing the share of the FIRST PARTY
for the succeeding years."

Subject to the amendments above set forth, all other


terms and conditions of the original contract dated
December 28, 1972 and the supplementary contract
dated March 30, 1973, copy each of which are herein
attached as Annexes "A" and "B", respectively, and
made integral parts thereof, are hereby
reproduced en toto herein and shall remain in full
force and effect.

IN WITNESS WHEREOF, the parties have hereunto


affixed their signature in the CITY OF MANILA,
Philippines, on the day and year first above stated.

CITY OF MANILA ASIATIC INTEGRATED


CORPORATION
By: By:

(SGD) RAMON D. BAGATSING (SGD) JOSE


A. ROJAS
Mayor President

ATTESTED:

(SGD) ROMAN G. GARGANTIEL


Secretary to the Mayor

xxx xxx xxx


(Pp. 122-126, Rollo of L-37248.)

And in obedience to the provisions of Section 1, paragraph 3, of


the ordinance, two days later or on February 15, 1974, Mayor
Bagatsing wrote the Municipal Board as follows:

The Honorable
The Municipal Board
Manila

Lady and Gentlemen:

In pursuance of the provisions of Ordinance No.


7451 authorizing the Mayor of Manila to lease
vacant, unused and unencumbered patrimonial
properties or other leasable patrimonial properties
of the City for a period not exceeding twenty-five
(25) years, please find enclosed, for the information
and guidance of that Honorable Body, a copy of the
Amended Contract entered into by and between the
City of Manila and The Asiatic Integrated Corporation
relative to the operation and management of the
City's public markets and talipapas.

V
e
r
y

t
r
u
l
y

y
o
u
r
s
,

(
S
G
D
)

R
A
M
O
N

D
,

B
A
G
A
T
S
I
N
G

C
i
t
y

M
a
y
o
r

(P. 193-Rollo of L-37187.)

Now, in case G.R. No. L-37187, the petitioners filed on July 25,
1973. The decision impugned in these cases was rendered on
July 13, 1973. The petition in G.R. No. L-37248 was actually
filed on August 27, 1973, while that in G.R. No. L-37249 on
August 21,
1973. 1 Upon being required to comment on the petitions,
private respondents filed theirs on July 31, 1973 and
respondent Judge filed his own on August 3, 1973. 2 So it is
that some of the facts aforestated which gave rise to new
issues took place and were brought to the attention of the
Court after the original issues were already joined. Indeed,
they were never considered by the trial court. In view,
however, of the fact that they are material and relevant, if not
decisive, as they are indisputable, the Court will overlook the
resulting technicalities regarding the need for corresponding
supplemental pleadings. The matters of public interest herein
involved need to be promptly settled, and considering that
after all the new issues have no factual facets which would call
for a new trial and that they are purely legal, We do not see
any practical purpose that can be served by requiring the
return of these cases to the trial court. For these same reasons,
We can also pass over two other technical points: (1) the
apparent incompleteness of the judgement of the trial court,
the accounting ordered by it not having been rendered yet by
Asiatic and (2) the fact that some of the matters. We are to
resolve have not been passed upon by the lower court. Anyway,
for one thing, under the view We take of these cases, there
would not be need anymore for the ordered accounting. Withal,
as a matter of fact, the parties have fully presented there
respective positions in regard to all the issues without
suggesting the need for further proceedings in the court below.

II

The first question for Our determination is whether or not the


petitioners in the trial court, private respondents here, possess
the requisite interest to prosecute these cases. In this
connection, it is to be noted that in initially resolving the
petition for preliminary injunction filed by said respondents
together with their main petition, His Honor ruled these wise:

The contract sought to be annulled was entered into


by and between defendants City of Manila and
Asiatic Integrated Corporation, and the present
action was brought by persons who are not even
parties thereto. Besides, the basis of the action is on
the alleged illegality of the contract, and this
question may only be result after the trial of the case
on the merits. The allegations of the complaint and
the evidence presented at the hearing, do not show
that plaintiffs have a clear legal right to the relief
prayed for.
Moreover, it was not alleged much less proven that
the defendants have committed or attempted to
commit any act which endangered or tends to
endanger the rights of the employees of the Market
Administration of the City of Manila to their
respective position, or of the market vendors to the
stalls that they are presently occupying and leased
to them by the City of Manila.

The apprehensions and fears entertained by the


plaintiffs of removal from their respective jobs or
deprivation of their stalls are at best speculative and
may never arise. It has been held that injunction,
whether preliminary or final, is not designed to
protect contingent or future rights. The possibility of
irreparable damage without proof of violation of an
actually existing right being mere damnum absque
injuria is no ground for the issuance of a writ
preliminary injunction (Bacolod Murcia Milling Co.
vs. Capitol Sub-division Inc., et al., 17 SCRA 731,
737). (Pp. 32-33, Rollo of L-37187.)

But seemingly, the point as to the personality of the plaintiffs


was deemed no longer important in the final decision, since His
Honor made no final ruling thereon. It may be said then that
the adequacy of their personality and interest was assumed.

We view the matter differently. Herein private respondents are


employees and vendors in the public markets referred to in the
contract in dispute. But under the said contract, Asiatic has not
been given any power of supervision or control over the
employees of the markets. Their civil service status is not
affected, nay, it is expressly respected and protected. Thus,
Paragraph VI of the contract reads as follows:

That all present personnel of the City public markets


and talipapas shall be retained by the SECOND
PARTY as long as their services remain satisfactory
and they shall be extended the same rights and
privileges as heretofore enjoyed by them. Provided,
that the SECOND PARTY shall have the right, subject
to prior approval of the FIRST PARTY to discharge
any of the present employees for cause. (Page
60, Rollo of L-37249.)
This provision must be understood to mean that for all intents
and purposes, the employees in the markets remain to be in
the employment of the City. In other words, they continue as
employees of the city government, subject to the pertinent civil
service laws, rules and regulations, albeit the application of the
these insofar as supervision of their work is concerned would
have to be reconciled with the degree of control over operation
and management given to Asiatic under the contract. Of course,
when it comes to appointment, transfer, discipline and
dismissal, the civil service laws prevail, but in the matter of
collection of the stall fees and the proper upkeep of the
markets, it is but natural and logical that Asiatic should have a
say in their supervision, and its recommendations regarding
the selection, transfer, discipline and dismissal of the
corresponding employees should have due weight. Indeed, if
its is considered that the markets can be wholly leased to effect
economy, it should not be difficult to see that the consequent
lay-off of the employees therein is legally tenable, provided the
rules applicable to such a situation are observed. 3

Moreover, We note that is stipulated in the contract that:

XI

That it is understood and agreed that the SECOND


PARTY binds itself to pay the salaries and wages,
insurance and wages, insurance and all other
benefits of the retained market employees and shall
at all times hold the FIRST PARTY free from any
liability for salaries, wages, insurance and any laws
and for damages suffered by third persons for any
cause attributable to the SECOND PARTY, its
laborers or employees.

XII

That it is further expressly stipulated and agreed


that the SECOND PARTY shall hold the FIRST PARTY
free and harmless from any action or liability
whatsoever, arising from any claim by any services
herein agreed upon under the Workmen's'
Compensation Act, the Minimum Wage Law, the
Eight-Hour Labor Laws, it being understood and
agreed upon that the faithful compliance with the
said laws shall devote entirely upon the SECOND
PARTY. (Page 61, Rollo of L-37249.)

To Our mind; these provisions constitute further proof that the


rights of the employees in the markets to their public or
government employment under existing terms and conditions
are not impaired. In fact, it is clear that the responsibility and
liability of the city to pay the salaries and benefits referred to is
still primary, and the obligation of Asiatic in respect thereto is
to reimburse fully what the city has to pay. In the cases at bar,
therefore, that the said employees are being retained in their
governmental status, as above-explained, deprives herein
employees-respondents of the requisite interest to judicially
impugn the contract.

And with respect to the vendors, neither the award of the stalls
nor the fixing of the fees to be paid by them are removed from
the city authorities. The contract does not empower the
corporation to interfere with any of these matters. Thus,
Paragraph XIV thereof provides:

XIV

That the SECOND PARTY further warrants that it will


honor and respect the rights of the present
stallholders and will make available to the
stallholders, loans and financing (product purchase
and/or inventory) at legal rates to eliminate loan
sharks and will establish buying cooperatives to
assist the stallholder on the purchase of products at
the maximum volume discount and such other
services like free seminars on practical small
business management and marketing as a means of
assisting the stallholders in increasing their profits.
(Page 62, Rollo of L-37249.)

The only proper construction of this provision is that all


matters relative to the awarding and holding of the stalls to
and by the vendors have still to be done by the city authorities
themselves and in accordance with the laws and ordinances
governing the same.

Now, having in view the foregoing stipulation in favor of the


vendors as well as those embodied in the supplementary
contract of March 30, 1973, pursuant to the directive of the
President in his memorandum of January 12, 1973, which
would enable them to be eventually co-operators of the
markets, We cannot see how the vendors can be prejudices by
the contract.

Accordingly, We hold that herein private respondents do not


possess the requisite interest or personality to file the
complaint herein. If for this reason alone, the same should be
dismissed.

III

Even if We laid aside the lack of requisite interest of private


respondents, We would still have to find in favor of petitioners
insofar as the legality of the contract in controversy is
concerned.

Respondents assail the legality of said contract on the


following grounds: (1) the Management and Operating
Contract, involving as it does public markets, is ultra vires or
beyond the authority of the City to enter into; (2) the Mayor of
Manila had no power to execute the same and bind the City
without the corresponding authority given in an ordinance duly
approved by the Municipal Board; (3) it is violative of Republic
Act No. 37 nationalizing public markets and of the existing civil
service laws, rules and regulations; and (4) it is grossly
disadvantageous to the City. We are of the considered opinion,
however, that none of these contentions can be upheld.

The trial court sustained respondent's contention that the City


has no power to enter into a contract of management and
operation of its public markets under the operational
arrangement and conditions stipulated in the contract in
dispute. We do not agree. We hold that the said contract is
not ultra vires.

His honor predicated his ruling on an analogy from the lease of


public wharves. We hold the analogy does not hold. In the law
on municipal corporations, public wharves belong to a different
category from public markets.
Indeed, there can be hardly any doubt that public markets
owned by a municipality or city may be leased. (Salgado vs. de
la Fuente, 87 Phil. 343.) Municipal corporations have both
governmental and corporate or business functions, and to the
latter belongs the construction and maintenance of markets.
(Mendoza vs. de Leon, 33 Phil. 508). Section 2318 of the
Revised Administrative Code expressly authorizes that markets
be "let for a stipulated return to private parties." In Chamber of
Filipino Retailers, Inc. vs. Villegas, 44 SCRA 405. We held that
"it is idle ... to contend that public markets (in Manila) are for
public use, hence not patrimonial property susceptible of
lease." Earlier, citing Esteban vs. City of Cabanatuan, G.R. No.
L-13662, May 30, 1960, 108 Phil. 1245, We made it clear
in Guillergan vs. Ganzon, 17 SCRA 257, that the operation of a
market is not strictly a governmental function, albeit
in Aprueba vs. Ganzon, 18 SCRA 8, it was held that the leasing
of a market stall is subject to police power and in Co Chiong vs.
Mayor of Manila, 83 Phil. 257, Co Chiong vs. Cuaderno, 83 Phil.
251 and Salgado vs. de la Fuente, supra, the Court ruled that
for purposes of excluding aliens from the public markets, the
establishment, maintenance and operation thereof are part of
the functions of government in which aliens may not take part.
It is obvious then that since markets can be leased, the
management and operation thereof may by contract be given to
private parties. In fact, one of the powers expressly granted to
the Municipal Board by Section 17 of the Charter of Manila is to
"prohibit or permit the establishment or operation within the
city limits of public markets ... by any person, entity,
association or corporation other than the city." (Par. cc). 3*

In this connection, We reiterate it would indeed seem


immaterial, from the legal point of view, that as a consequence
of leasing a market, the government employees and workers
therein are retained or laid-off. And so, that the contract at
issue provides specifically for their continuation, including their
respective civil service status and their existing conditions of
work subject to no control at all by Asiatic, including as to their
salaries and benefits, which are reserved for determination by
the city authorities, is certainly not prejudicial to said
employees, much less a valid ground for annulling the same.

B
The second issue raised by respondents relative to the alleged
invalidity of the contract in dispute, allegedly due to the fact
that it was not previously approved or authorized in an
ordinance passed by the municipal board, makes it imperative
for Us to consider certain facts which as earlier noted were not
only not before the trial court but were not even existing yet
during the first joining of the issues in this Court. We reiterate
that for the reasons stated in the first part of this opinion,
there is no legal impediment to Our taking said facts into
account, if only because they are indubitable and the issues
arising from them are purely of law which under the peculiar
circumstances of these cases it would be impractical and
dilatory, nay, prejudicial to the interests of justice to require
that they be first passed upon by the lower court.

As stated earlier, when the subject contract came to the


attention of the Municipal Board, twelve councilors, out of the
twenty composing the Board, or three-fifths (3/5) of its whole
membership signed the aforequoted resolution expressing the
Board's "concurrence with and support for (said) contract"
because it "finds the contract ... to be a step in the right
direction in that it may well be the only lasting solution to the
ills that have continuously beset the administration and
operation of public markets in the City and thus bring about the
change long envisioned by this Body." Of course, respondents
maintain that no such resolution exists or, that, in any event, it
does not appear to have been passed in regular session. But
that it exists is plain for anyone to see, the certified true copy
of the copy thereof received by the Mayor being now part of the
record, as submitted by petitioners, and the signatures therein
appearing not being impugned by anyone of those concerned,
not even the councilors themselves to whom they are
attributed. And with respect to the certification of the Assistant
Secretary of the Municipal Board to the effect that "the records
of this office (Municipal Board) do not show that the Municipal
Board of Manila has adopted" such a resolution, it may be
stated that there is no showing that the one who made such
certification is the legal custodian of the records of the Board.

In this connection, it is important to note that under Republic


Act 6039, the Market Committee that recommend to the Mayor
the immediate lease and/or assignment of the administration
of the city public markets and talipapas to "a multi-million peso
corporation under such terms and conditions as (would be)
most advantageous to the City of Manila", has the following
powers:

1) The market committee shall formulate,


recommend and adopt, subject to the ratification of
the municipal board, and approval of the mayor,
policies and rules or regulation repealing or
amending existing provisions of the market code as
amended and embodied in the compilation of City
Ordinances No. 1600 provided they are not
inconsistent with the provisions of this Act. After all
such promulgated rules and regulations and
provisions of the market code may have been
modified, amended, or repealed, within one year
from date of the approval of this Act, all the new,
modifying and amendatory provisions, rules and
regulations, shall be codified into a new market
code. The internal rules and regulations of the
market committee shall not require ratification by
the municipal board or the mayor;

xxx xxx xxx

Under this provision, it would seem that when it comes to


public markets in the City of Manila, the action of the Market
Committee is considered more basic, if not more controlling,
than that of the municipal board.

Withal, considering that the said Market Committee is


composed, per Republic Act 6039, of the market administrator,
as chairman, a representative each of the city treasurer, the
municipal board, the Chamber of Filipino Retailers, Inc. and the
Manila Market Vendors Association, Inc. as members, it can be
readily appreciated that it is more representative of all the
different public and private officials and persons directly
concerned or having interest in the proper operation and
maintenance of the public markets, and as such should be in a
better position than the municipal board itself to study and
deliberate on the problems connected therewith from their
respective and/or collective points of view. Importantly, the
representative of the municipal board therein, who is actually
one of the councilors, is supposed to speak for the board in all
the committee's actuations, hence it may be said that the
municipal board was not entirely a stranger to the contract
under discussion, even from its conception. With these facts
borne in mind, no one should be surprised with the resolution
above-quoted and signed by twelve members of the municipal
board indicative of their ratification, required by Republic Act
6039, of the contract which had been precisely recommended
by the Market Committee.

Be that as it may, We deem it unnecessary to pass on the issue


relative to the initial form in which the contract at bar was
authorized or sanctioned by the city authorities. 4 There are two
later developments which by their legal force make it of little
consequence juridically how the contract was originally into. It
will be recalled that when the execution of the contract came to
the attention of President Marcos, as early as 12, 1973, a
memorandum was addressed by the President to the City
Mayor directing that certain conditions be included therein.
Those conditions, contrary to the observation of the trial judge,
were accordingly embodied substantially in a supplementary
contract executed by the parties on March 30, 1973. And then,
on November 26, 1973, the President issued Presidential
Decree 345 under which he declared that there is no more need
for the city authorities to create the sinking fund required by
Section 1 of Republic Act 6039 consisting of thirty per centum
(30%) of the annual gross receipts from market fees in the
City, precisely because, according to the decree, "the
maintenance, repair, reconstruction, development and
rehabilitation of the ... markets and talipapas" in the City are to
be undertaken already by Asiatic at its own expense pursuant
to the contract in dispute.

Having been virtually sanctioned thus by a presidential decree,


which in the present constitutional situation in the Philippines
amounts to a legislative enactment. 5 We cannot see how the
contract in dispute can be declared invalid. A municipal
corporation, such as the City of Manila, is a creature of the
national legislative authority and, therefore, it is within the
power of such authority to validate and legalize any legally
deficient act of the municipal officials, including those that
could otherwise be ultra vires.

Petitioners contend, however, that Presidential Decree 345


refers solely to the sinking fund and does not, therefore,
amount to a conferment of legality upon the contract. The point
is stressed that the decree merely takes cognizance of the
existence of the contract "and it does not assert, much less in
any way establish, the validity" thereof. Moreover, it is claimed
that inasmuch as the contract was executed before the
effectivity of the present Constitution, under Section 8 of
Article XVII of the Charter, the issue of validity of the contract
should be decided in the light of the laws then prevailing and
not of P.D. 345 which was issued subsequent to January 17,
1973 when the Constitution went into effect.

None of these arguments is sufficiently convincing. The


developments subsequent to the execution of the contract were
such that it would be tantamount to imputing utter
carelessness to the President to hold that he issued the decree
without being aware of said developments. To recall again, it
was upon his directive that the Supplementary Contract of
March 30, 1973 embodied the conditions enumerated in his
letter of January 12, 1973. Indeed, the knowledge of the
President of the terms and conditions of the contract deducible
from his directive that it be amended conformably to his
desires, suggests that he must have subsequently checked
whether or not his directive had been obeyed before issuing
any decree based on the provisions of the contract. We are
loath to hold the President would predicate a decree on a
contract which he does not sanction or without being assured
of its propriety. As a matter of fact, We are inclined to believe
that even the resolution signed by twelve members of the
Municipal Board on January 12, 1973 and Presidential Decree
231 known as the Local Tax Code must have been taken into
account when P.D. 345 was conceived. In other words, it must
have been seen to it whether or not the contract was legally
tenable before the decree was issued, for it is but consistent
with the dignity of the presidential office for the Court to
assume that the President would not have issued the decree
unless he were certain his act would not be meaningless and
academic.

In effect, the decree directs the enforcement of the contract,


for it authorizes "the reversion of the accumulated thirty
(30%) per centum sinking fund amounting to P3,696,921.99 to
the General Fund of the City of Manila and the appropriation of
the same by the City for the undertaking of its public works
projects" precisely because, according to it, "there is no more
need (for said appropriation), since it is already the Asiatic
Integrated Corporation, under the contract ... , which shall
undertake the improvements stated in Republic Act 6039." The
purpose of the reversion, according also to the decree, is "to
generate funds with which to undertake and thereby carry out
successfully the objectives" of "construction and repair of
streets and dredging and clearing of esteros, which cannot be
successfully undertaken for lack of funds."

In the light of these circumstances, to hold that the decree did


not amount to an approval of the contract in question by the
President, which, as already explained, is the present
equivalent of ratification by legislative enactment, is to refuse
to see something that is logically ineluctable from facts that are
indubitable.

Anent the contention relative to the applicability of P.D. 345 to


the subject contract, said decree having been issued after the
Constitution went into effect, suffice it to say that the
constitutional provision cited 6 does not and could not have the
effect of preventing the President, under the present set-up
and, later on, the legislature from exercising the prerogative of
validating acts of local governments and officials done prior to
the effectivity of the Constitution. And in this connection, it
may be added that the circumstances that, as in the cases at
bar, there were already litigations when the decree was issued
could not in any manner affect the jurisdiction already acquired
by the Court over the issue of legality of the contract. There is
here no derogation of the court's authority. Rather, it is the
cause of action itself that is removed. Instead of being
offensive, the decree has produced the salutary effect of
keeping the city away from litigations, there being no vested
rights prejudiced anyway.

Incidentally, with respect to respondent's contention that


under Presidential Decree No. 231 or the Local Tax Code, the
city treasurer has been vested with the powers of
administration, supervision and control of the city markets and
its personnel, it may be observed that Presidential Decree 345
is a later one. Indeed, the Code took effect on June 28, 1973
and cannot apply retroactively as to affect a contract executed
in December, 1972, since it would then impair the obligation of
contracts in violation of the Constitution. (Section II, Article IV,
Bill of Rights.) Moreover, it is not clear to Us that the Local Tax
Code completely derogates the inherent power of supervision
and control of the Mayor of Manila over the affairs of the city
government and its departments and the legislative power of
the municipal board over its markets. (Secs. 9, 13 and 18 (cc)
of the Charter of Manila, Republic Act 409, as amended by
Republic Act 6039.)

To top it all, the issuance of P.D. 345 has been known by the
Municipal Board of Manila since the beginning of its
enforcement in November, 1973. If the Board were not
agreeable to the continued enforcement of the contract,
immediate steps would have been taken to make the decree
inoperative, which could have been easily done by the Board by
expressly disapproving the contract and continuing the reserve
for the sinking fund. But as it is, it is a matter of public
knowledge that the Board has not only failed to take such a
step; on the contrary, nowhere in their pleadings is there any
claim that the reversion directed by the decree has not been
done and that the corresponding appropriations therefrom
have not been made. Besides, respondents do not pretend that
in the approval of the budget ordinances for the fiscal years
1973-74 and 1974-75 the income of P500,000 and P550,000,
for the years 1973 and 1975, coming from Asiatic under the
contract were not used as basis for the estimate of incomes of
the City. There is absolutely no showing here that any of the
salaries, wages, insurance and other benefits due the market
employees under existing labor and other laws as well as
damages suffered by third parties, as contemplated in
Paragraph XI of the contract, has not been paid by Asiatic.
Neither is it alleged that Asiatic has not faithfully complied with
its liability, pursuant to Paragraph XII, for claims under the
Workmen's Compensation Act, the Minimum Wage Law, the
Eight-Hour Labor Law of the personnel assigned to the
markets. Considering that all these payment made by Asiatic
pursuant to the terms of the contract have accrued to the
benefit of the City without any protest on the part of the
Municipal Board, We cannot but conclude that in fact the said
Board has already acquiesced to the validation of the contract
by
P.D. 345.

What is more, by approving Ordinance No. 7451, the Municipal


Board may be deemed to have done a more positive act of
ratification, practically explicit, of the contract in issue.
Contrary to the view of petitioners, the scope of said ordinance
specifically embraces not only "vacant, unused and
unencumbered patrimonial properties" but also any "other
leasable properties" of the City. And as discussed earlier, public
markets form part of said "leasable patrimonial properties". We
need not determine whether the nature of the contract here is
that of a lease wholly of the markets themselves or of only the
management or operation thereof, for if the markets can be
wholly leased, it follows that something less, like their
operation and management, can also be allowed by the City to
be undertaken by private parties for a consideration, under
terms that would be beneficial to the public interest. Stated
differently, the authority to lease public markets necessarily
includes that of awarding the operation and management there
of to private parties.

Now, after Ordinance 7451 was enacted, the original and


supplementary contracts were correspondingly amended
mainly for the purpose of enlarging the period from ten to
twenty-five years. In accordance with the provisions of the
ordinance, the Municipal Board was notified of this amendment
for "its information and guidance." In his letter to the Board
dated February 15, 1974, the Mayor made it a point to state
that the amended contract was executed "in pursuance of the
provisions of Ordinance No. 7451 authorizing the Mayor Manila
to lease ... leasable patrimonial properties of the City." There is
absolutely no showing, and it is quite apparent that none such
can be made, to the effect that after the Board received the
Mayor's letter, it has in any form repudiated the contract as not
being within its contemplation when it approved the ordinance.
Indeed, in the light of the resolution of January 12, 1973,
signed by twelve of its members, it can hardly be expected that
the Municipal Board could have taken a different attitude. And
it would be too late, if not absurd, for it to do otherwise now.

As We see it, even if there could be some doubt that any of the
circumstances just discussed could be individually adequate in
law as a ratification or validation of the contract, assuming it
suffers from any congenital infirmity, verily, the combined
effect of all of them together cannot but lead to the inevitable
conclusion that there is more than enough legal basis for
upholding its validity. Incidentally, it is interesting to note that
while petitioners who, as already discussed earlier herein, have
no actionable interest in the contract in dispute annulled, the
Municipal Board, in whom rested the power to repudiate the
contract from the outset, were it really opposed to it, has been
significantly silent in the face of the material developments
above pointed out, thereby indicating that as far as it is
concerned, things may well be left as they are.

IV

The third contention of respondents to the effect that the


contract in question is violative of Republic Act 37 which
nationalizes public markets by providing that citizens of the
Philippines shall have preference in the award of stalls therein
and also of the civil service laws, rules and regulations
governing the terms and conditions of employment and
security of tenure of the city employees assigned to the public
markets is even less persuasive.

As regards the awarding of the market stalls, there is nothing


in the contract which in any manner confers upon Asiatic any
authority to have any part in it. The basic nature of the
management and operation contemplated to be undertaken by
Asiatic covers only the collection of stall fees and the
maintenance, repair and rehabilitation of the buildings,
premises and facilities of the markets. The awarding of stalls is
left in the hands of the City authorities, and even if this had
been given to Asiatic, it would have to do it in accordance with
the provisions of Republic Act 37. And with respect to the
status and security of the employees, as We have already
discussed earlier in this opinion, there is no basis for the claim
that the contract violates the provisions of the civil service
laws, rules and regulations.

Finally, respondents maintain that the contract in dispute is


grossly disadvantageous to the City.

In respect to such contention, the first point to bear in mind is


that the determination of the reasonableness and propriety of
the terms and conditions embodied in the contract rests
primarily with the city authorities and not with the courts. It is
only in instances wherein the contract is ultra vires or clearly
unreasonable that the courts can interfere. (Umali vs. City of
Naga, 96 Phil. 379.) In the cases at bar, We have failed to find,
after a careful consideration of the circumstances extant in the
records, sufficient basis for holding that the terms and
conditions of the subject contract are grossly disadvantageous
to the city, as claimed by respondents.

In their Comment on the petition in G.R. No. L-37187,


respondents support their contention thus:

Contract is grossly
disadvantageous to the City.

Assuming that the contract is valid, the same should


be rescinded because the questioned contract is
grossly disadvantageous to the City of Manila. A
perusal of the statement of Income and
Expenditures of the city markets of Manila will
readily show that the City of Manila realized the
following net incomes in the following fiscal years:

FY-1969-70 P1,609,899.96
FY-1970-71 1,657,668.85
FY-1971-72 1,455,932.95

A copy of the aforesaid statement of income and


expenditures of the city public markets as prepared
by the Office of the City Auditor of Manila is attached
to and made part hereof as Annex "C".

For the first year of the term of the contract alone,


the City of Manila stands to lose close to one million
(P1,000,000.00) pesos. Multiply this amount by the
lifetime of the contract which is ten (10) years, the
total prejudice to the City would indeed come to a
huge and staggering sum of millions upon millions of
pesos. The tragedy of it all is that these millions
which should properly go to city residents by way of
public services will instead find their way into the
already bulging pocketbooks of private individuals."
(Pp. 101-102, Rollo of L-31787.)

Examining the figures referred to closely, We find however that


counsel's argument is less than candid. It is true that according
to the Annex C, relied upon by respondents the net incomes
from the markets of Manila for the fiscal years 1969-70, 1970-
1971 and 1971-1972, comparable to what would be received
from Asiatic of P500,000 yearly, with additional P50,000 each
year after 1973 were P1,609,899.96, P1,657,668.85 and
P1,455,932.95. But to jump from these figures to the
conclusion that the city stands to lose P1 M annually under the
contract is entirely misleading.

As can be clearly seen from said certification, Annex C, the


30% annual sinking fund reserve for the year 1969-1970, as
required by Republic Act 6039, was P999,263.33. Assuming
hypothetically that the contract in question had started that
year, this amount would have been 30% of the hypothetical
total collections or income of Asiatic that year. Under the
contract, Asiatic would have had to reserve at least the same
amount exclusively for the improvement of the markets. In
other words, said amount would have been in effect income for
the City to be used for the stated statutory purpose. Now,
adding to this the P500.000 lump sum which, as stipulated in
the contract, Asiatic is supposed to have paid the City on the
first year, the total effective income of the City for the year
1969-1970 would have been P1,499,263.30. Using the same
method of computation on the basis of the figures certified in
Annex C, We can see that the hypothetical income of the City
from Asiatic would have been P1,578,042.48 for the year 1970-
1971 (i.e. 30% amounting to P1,028,042.48 plus P550,000, the
second annual payment of Asiatic) and P1,095,548.70 for the
year 1971-1972 (i.e. 30% amounting to P1,095,548.70 plus
P600,000, the third annual payment of Asiatic). Thus, the total
effective income of the City from Asiatic for the three years
indicated would have been P4,772,854.51, which compared
with the total of P4,723.501.76 appearing in Annex C as net
income of the City from its market collections for the same
period, would have been P49,352.75 more. In other words,
instead of losing P3 M as claimed by petitioners, the City would
have been benefited by the said amount of P49,952.75. 7

Not only that. While there is no reliable assurance that the


income of the markets would increase, considering there has
been no notable substantial differences in the past annual
incomes on record, the other expenditures for which Asiatic
would have to answer, such as "the salaries and wages,
insurance and all other benefits of the retained market
employees" (Par. XI) including the payment of "claims by any
or all the (such) personnel under the Workmen's Compensation
Act, the Minimum Wage Law and the Eight-Hour Labor Law"
(Pat XII) have not only increased in the meanwhile but are
surely bound to increase more or be higher, what with the new
policies of the government providing for higher salaries and
more fringe or emergency benefits for the employees.

In connection with the point under discussion, it will be


recalled that in their resolution of January 12, 1973, the twelve
councilors who signed the contract described its advantages to
the city in these words:

"WHEREAS, a contract has been entered into by the


City of Manila with the Asiatic Integrated
Corporation for the latter to handle the management
and operation of Manila's outmoded and
deteriorating public markets and talipapas;

WHEREAS, the deplorable state of these markets,


most of which are of pre-war vintage, has always
been the constant source of headaches of past
administration, considering the mismanagement and
corruption that have attended their operation for
years;

WHEREAS, the state of finances of the City


Government does not permit it to undertake the
massive and expensive task of rehabilitating and
modernizing these public markets as to enable them
to survive the stiff competition offered by
mushrooming and sophisticated supermarkets
without unduly sacrificing other more vital and
essential public services;

WHEREAS, the members of the Municipal Board


cannot close their eyes to the perennial problem
affecting the interests of their constituents,
particularly the poor and underprivileged, but must
take positive steps to bring about a change for the
better;

WHEREAS, the Municipal Board finds the contract


entered into by the City to be a step in the right
direction in that it may well be the only lasting
solution to the ills that have continuously beset the
administration and operation of public markets in
the City and thus bring about the change long
envisioned by this Body: ... ."

And on the whereases of the contract which, as already


discussed, the councilors ratified in the above resolution as
well as by approving Ordinance 7451, it is stated:

WHEREAS, the concept and main objectives of a


public market are to provide an accessible clean,
safe, convenient and economical shopping services
to the public; to provide livelihood to stallholders,
peddlers, distributors, brokers, middlemen and other
low income groups; provide income for the
maintenance, repair and establishment of new public
markets and to provide income for other areas of
city improvement;

WHEREAS, physically, the state of our public markets


had been turning from bad to worse, there being no
major repair and maintenance done in the public
markets for the last ten (10) years as can be seen
from the following building and sanitary deficiencies
now prevalent in all public markets;

a. Out of the sixteen (16) major markets,


fourteen (14) are of pre-war vintage. No
major reconstruction has been made.

b. Building and sanitary deficiencies are


prevalent in all public markets such as
defective electrical system, broken down
and inadequate drainage and sewerage
facilities, wornout and unsafe market
floorings, defective plumbing and water
pipe fixtures, structural defects, rusted,
dilapidated roofs, gutters and
downspouts, building hazards, lack of
ventilation facilities, etc.

WHEREAS, economically because of the proliferation


of supermarkets, groceries, wholesalers and
retailers, profit-wise, the public markets have no
chance at all to outlive, let alone survive, the
unbalanced competition coming from those
wellentrenched sectors due to commodity economics
and lack of adequate service and financial sources at
legal interests;

WHEREAS, based on the indepth analysis and study


of the conditions prevailing in the public markets, it
will take the City ten (10) to fifteen (15) years of
massive capital infusion to put to service Class B
shape the public markets and that without
immediate total physical and economic
rehabilitation, the public markets will be driven into
obsolescence;

WHEREAS, the City of Manila presently does not have


the necessary funds to improve and develop the
public markets the way they should be improved and
developed to conform to modern marketing concepts
and standard;

WHEREAS, the cognizant of the foregoing, the


Market Committee in its regular meeting held on
December 13, 1972, adopted a Resolution requesting
the Mayor to urgently consider "the immediate lease
and/or assignment of administration of the City
public markets and talipapas and this be awarded to
a reputable multi-million peso corporation with such
terms and conditions that are most advantageous to
the City of Manila;"

WHEREAS, the ASIATIC INTERGRATED


CORPORATION has offered to improve, repair,
develop, reconstruct and rehabilitate the City public
markets and talipapas presently existing, which are
listed and indicated in Annex "A" hereof. (Page 58-
59, Rollo of L-37249.)

Relatedly, in Presidential Decree 345, the President appears to


have taken note of a particular benefit that has accrued to the
City from the operation of the contract:

WHEREAS, on December 28, 1972, the City of Manila


entered into a Management and Operating Contract
with the Asiatic Intergrated Corporation over its
thirty-five (35) public markets and talipapas,
wherein it is expressly stipulated that the latter shall
appropriate a yearly amount of not less than thirty
(30%) per centum of the gross receipts from market
fees for the fiscal year 1971-1972 to answer for the
maintenance, repair, reconstruction, development
and rehabilitation of the said markets and talipapas;

WHEREAS, prior to the conclusion of the


aforementioned contract, there accumulated the sum
of Three Million Six Hundred Ninety Six Thousand
Nine Hundred Twenty-One & 99/100
(P3,696,921.99) Pesos, equivalent to thirty (30%)
per centum of the gross receipts from market fees,
which amount, however, was not appropriated for
the purpose stated in Republic Act No. 6039;

WHEREAS, there is no more need to appropriate the


accumulated sinking fund P3,696,921.99, since it is
already the Asiatic Intergrated Corporation, under
the contract referred to above, which shall
undertake the improvements stated in Republic Act
No. 6039;

WHEREAS, there are in the City of Manila pending


urgent public works projects, such as the
construction and repair of streets and dredging and
clearing of esteros, which cannot be successfully
undertaken for lack of funds.

In the light of all these more authoritative pronouncements,


We are not prepared to go along with respondents' contention
that the contract that they are impugning is grossly
disadvantageous to the City of Manila.

The foregoing conclusions render moot and academic private


respondents' motion to declare Mayor Bagatsing, petitioner
Asiatic and others in contempt of this Court.

Premises considered, We hold that the trial court committed


grave abuse of discretion in annulling the contract here in
dispute.

JUDGMENT
IN VIEW OF ALL THE FOREGOING, the decision of the trial court
of July 13, 1973, subject of the petitions in G.R. Nos. L-37248
and L-37249, is set aside and the Management and Operating
Contract of December 28, 1972 between the City and Asiatic, as
supplemented on March 30, 1973 and amended on February 13,
1974 is hereby declared legal and valid. In consequence, the
prayer in G.R. No. L-37187 that the trial court be enjoined from
executing its decision annulling the said contract need not be
acted upon, the basis of the said execution being no longer
existent. No costs.

Makalintal, C.J., Castro, Fernando, Muoz Palma, Martin,


Antonio and Esguerra, JJ., concur.

Makasiar and Aquino, JJ., concur in the result.

Concepcion, J., is on leave.

12. Matalin Coconut Co. v. Mun. Council of Malabang, 143 SCRA 404

G.R. No. L-28138 August 13, 1986

MATALIN COCONUT CO., INC., petitioner-appellee,


vs.
THE MUNICIPAL COUNCIL OF MALABANG, LANAO DEL SUR,
AMIR M. BALINDONG and HADJI PANGILAMUN MANALOCON,
MUNICIPAL MAYOR and MUNICIPAL TREASURER OF
MALABANG, LANAO DEL SUR, respondents-appellants. PURAKAN
PLANTATION COMPANY, intervenor-appellee.

YAP, J.:

On August 24, 1966, the Municipal Council of Malabang, Lanao del Sur,
invoking the authority of Section 2 of Republic Act No. 2264, otherwise
known as the Local Autonomy Act, enacted Municipal Ordinance No.
45-46, entitled "AN ORDINANCE IMPOSING A POLICE INSPECTION FEE
OF P.30 PER SACK OF CASSAVA STARCH PRODUCED AND SHIPPED
OUT OF THE MUNICIPALITY OF MALABANG AND IMPOSING PENALTIES
FOR VIOLATIONS THEREOF." The ordinance made it unlawful for any
person, company or group of persons "to ship out of the Municipality of
Malabang, cassava starch or flour without paying to the Municipal
Treasurer or his authorized representatives the corresponding fee fixed
by (the) ordinance." It imposed a "police inspection fee" of P.30 per
sack of cassava starch or flour, which shall be paid by the shipper
before the same is transported or shipped outside the municipality.
Any person or company or group of individuals violating the ordinance
"is liable to a fine of not less than P100.00, but not more than
P1,000.00, and to pay Pl.00 for every sack of flour being illegally
shipped outside the municipality, or to suffer imprisonment of 20 days,
or both, in the discretion of the court.

The validity of the ordinance was challenged by the Matalin Coconut,


Inc. in a petition for declaratory relief filed with the then Court of First
Instance of Lanao del Sur against the Municipal Council, the Municipal
Mayor and the Municipal Treasurer of Malabang, Lanao del Sur.
Alleging among others that the ordinance is not only ultra vires,being
violative of Republic Act No. 2264, but also unreasonable, oppressive
and confiscatory, the petitioner prayed that the ordinance be declared
null and void ab initio, and that the respondent Municipal Treasurer be
ordered to refund the amounts paid by petitioner under the ordinance.
The petitioner also prayed that during the pendency of the action, a
preliminary injunction be issued enjoining the respondents from
enforcing the ordinance. The application for preliminary injunction,
however, was denied by the trial court; instead respondent Municipal
Treasurer was ordered to allow payment of the taxes imposed by the
ordinance under protest.

Claiming that it was also adversely affected by the ordinance, Purakan


Plantation Company was granted leave to intervene in the action. The
intervenor alleged that while its cassava flour factory was situated in
another municipality, i.e., Balabagan, Lanao del Sur, it had to
transport the cassava starch and flour it produced to the seashore
through the Municipality of Malabang for loading in coastwise vessels;
that the effect of the enactment of Ordinance No. 45-46, is that
intervenor had to refrain from transporting its products through the
Municipality of Malabang in order to ship them by sea to other places.

After trial, the Court a quo rendered a decision declaring the municipal
ordinance in question null and void; ordering the respondent Municipal
Treasurer to refund to the petitioner the payments it made under the
said ordinance from September 27, 1966 to May 2, 1967, amounting
to P 25,500.00, as well as all payments made subsequently thereafter;
and enjoining and prohibiting the respondents, their agents or
deputies, from collecting the tax of P.30 per bag on the cassava flour
or starch belonging to intervenor, Purakan Plantation Company,
manufactured or milled in the Municipality of Balabagan, but shipped
out through the Municipality of Malabang.

After the promulgation of the decision, the Trial Court issued a writ of
preliminary mandatory injunction, upon motion of petitioner, requiring
the respondent Municipal Treasurer to deposit with the Philippine
National Bank, Iligan Branch, in the name of the Municipality of
Malabang, whatever amounts the petitioner had already paid or shall
pay pursuant to the ordinance in question up to and until final
termination of the case; the deposit was not to be withdrawn from the
said bank without any order from the court. On motion for
reconsideration by respondents, the writ was subsequently modified on
July 20, 1967, to require the deposit only of amounts paid from the
effectivity of the writ up to and until the final termination of the suit.

From the decision of the trial court, the respondents appealed to this
Court.

A motion to dismiss appeal filed by petitioner-appellee, was denied by


this court in its resolution of October 31, 1967. Subsequently,
respondents-appellants filed a motion to dissolve the writ of
preliminary mandatory injunction issued by the trial court on July 20,
1967. This motion was also denied by this Court on January 10, 1968.

Of the assignments of error raised by the appellants in their Brief, only


the following need be discussed: (1) that the trial court erred in
adjudicating the money claim of the petitioner in an action for
declaratory relief; and (2) that the trial court erred in declaring the
municipal ordinance in question null and void.

The respondents-appellants maintain that it was error for the trial


court, in an action for declaratory relief, to order the refund to
petitioner-appellee of the amounts paid by the latter under the
municipal ordinance in question. It is the contention of respondents-
appellants that in an action for declaratory relief, all the court can do is
to construe the validity of the ordinance in question and declare the
rights of those affected thereby. The court cannot declare the
ordinance illegal and at the same time order the refund to petitioner of
the amounts paid under the ordinance, without requiring petitioner to
file an ordinary action to claim the refund after the declaratory relief
judgment has become final. Respondents maintain that under Rule 64
of the Rules of Court, the court may advise the parties to file the
proper pleadings and convert the hearing into an ordinary action,
which was not done in this case.

We find no merit in such contention. Under Sec. 6 of Rule 64, the


action for declaratory relief may be converted into an ordinary action
and the parties allowed to file such pleadings as may be necessary or
proper, if before the final termination of the case "a breach or violation
of an...ordinance, should take place." In the present case, no breach
or violation of the ordinance occurred. The petitioner decided to pay
"under protest" the fees imposed by the ordinance. Such payment did
not affect the case; the declaratory relief action was still proper
because the applicability of the ordinance to future transactions still
remained to be resolved, although the matter could also be threshed
out in an ordinary suit for the recovery of taxes paid (Shell Co. of the
Philippines, Ltd. vs. Municipality of Sipocot, L-12680, March 20, 1959).
In its petition for declaratory relief, petitioner-appellee alleged that by
reason of the enforcement of the municipal ordinance by respondents
it was forced to pay under protest the fees imposed pursuant to the
said ordinance, and accordingly, one of the reliefs prayed for by the
petitioner was that the respondents be ordered to refund all the
amounts it paid to respondent Municipal Treasurer during the
pendency of the case. The inclusion of said allegation and prayer in the
petition was not objected to by the respondents in their answer.
During the trial, evidence of the payments made by the petitioner was
introduced. Respondents were thus fully aware of the petitioner's claim
for refund and of what would happen if the ordinance were to be
declared invalid by the court.

Respondents' contention, if sustained, would in effect require a


separate suit for the recovery of the fees paid by petitioner under
protest. Multiplicity of suits should not be allowed or encouraged and,
in the context of the present case, is clearly uncalled for and
unnecessary.

The main issue to be resolve in this case whether not Ordinance No.
45-66 enacted by respondent Municipal Council of Malabang, Lanao del
Sur, is valid. The respondents-appellants contend that the municipality
has the power and authority to approve the ordinance in question
pursuant to Section 2 of the Local Autonomy Act (Republic Act No.
2264).

Since the enactment of the Local Autonomy Act, a liberal rule has been
followed by this Court in construing municipal ordinances enacted
pursuant to the taxing power granted under Section 2 of said law. This
Court has construed the grant of power to tax under the above-
mentioned provision as sufficiently plenary to cover "everything,
excepting those which are mentioned" therein, subject only to the
limitation that the tax so levied isfor public purposes,
just and uniform (Nin Bay Mining Company vs. Municipality of Roxas,
Province of Palawan, 14 SCRA 661; C.N. Hodges vs. Municipal Board,
Iloilo City, et al., 19 SCRA 28).

We agree with the finding of the trial court that the amount collected
under the ordinance in question partakes of the nature of a tax,
although denominated as "police inspection fee" since its undeniable
purpose is to raise revenue. However, we cannot agree with the trial
court's finding that the tax imposed by the ordinance is a percentage
tax on sales which is beyond the scope of the municipality's authority
to levy under Section 2 of the Local Autonomy Act. Under the said
provision, municipalities and municipal districts are prohibited from
imposing" any percentage tax on sales or other taxes in any
form based thereon. " The tax imposed under the ordinance in
question is not a percentage tax on sales or any other form of tax
based on sales. It is a fixed tax of P.30 per bag of cassava starch or
flour "shipped out" of the municipality. It is not based on sales.

However, the tax imposed under the ordinance can be stricken down
on another ground. According to Section 2 of the abovementioned Act,
the tax levied must be "for public purposes, just and uniform"
(Emphasis supplied.) As correctly held by the trial court, the so-called
"police inspection fee" levied by the ordinance is "unjust and
unreasonable." Said the court a quo:

... It has been proven that the only service rendered by


the Municipality of Malabang, by way of inspection, is for
the policeman to verify from the driver of the trucks of the
petitioner passing by at the police checkpoint the number
of bags loaded per trip which are to be shipped out of the
municipality based on the trip tickets for the purpose of
computing the total amount of tax to be collect (sic) and
for no other purpose. The pretention of respondents that
the police, aside from counting the number of bags
shipped out, is also inspecting the cassava flour starch
contained in the bags to find out if the said cassava flour
starch is fit for human consumption could not be given
credence by the Court because, aside from the fact that
said purpose is not so stated in the ordinance in question,
the policemen of said municipality are not competent to
determine if the cassava flour starch are fit for human
consumption. The further pretention of respondents that
the trucks of the petitioner hauling the bags of cassava
flour starch from the mill to the bodega at the beach of
Malabang are escorted by a policeman from the police
checkpoint to the beach for the purpose of protecting the
truck and its cargoes from molestation by undesirable
elements could not also be given credence by the Court
because it has been shown, beyond doubt, that the
petitioner has not asked for the said police protection
because there has been no occasion where its trucks have
been molested, even for once, by bad elements from the
police checkpoint to the bodega at the beach, it is solely
for the purpose of verifying the correct number of bags of
cassava flour starch loaded on the trucks of the petitioner
as stated in the trip tickets, when unloaded at its bodega
at the beach. The imposition, therefore, of a police
inspection fee of P.30 per bag, imposed by said ordinance
is unjust and unreasonable.

The Court finally finds the inspection fee of P0.30 per bag,
imposed by the ordinance in question to be excessive and
confiscatory. It has been shown by the petitioner, Matalin
Coconut Company, Inc., that it is merely realizing a
marginal average profit of P0.40, per bag, of cassava flour
starch shipped out from the Municipality of Malabang
because the average production is P15.60 per bag,
including transportation costs, while the prevailing market
price is P16.00 per bag. The further imposition, therefore,
of the tax of P0.30 per bag, by the ordinance in question
would force the petitioner to close or stop its cassava flour
starch milling business considering that it is maintaining a
big labor force in its operation, including a force of security
guards to guard its properties. The ordinance, therefore,
has an adverse effect on the economic growth of the
Municipality of Malabang, in particular, and of the nation,
in general, and is contrary to the economic policy of the
government.

Having found the ordinance in question to be invalid, we find it


unnecessary to rule on the other errors assigned by the appellants.

WHEREFORE, petition is dismissed. The decision of the court a quo is


hereby affirmed. No costs.
SO ORDERED.

Narvasa, Melencio-Herrera, Cruz and Paras, JJ., concur.

13. Prov. of Bulacan v. CA, G.R. No. 126232, Nov. 27, 1998

[G.R. No. 126232. November 27, 1998]

THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN,


FLORENCE CHAVEZ, and MANUEL DJ SIAYNGCO in their
capacity as PROVINCIAL GOVERNOR, PROVINCIAL
TREASURER, PROVINCIAL LEGAL ADVISE,
respectively, petitioners, vs. THE HONORABLE COURT OF
APPEALS (FORMER SPECIAL 12TH DIVISION), PUBLIC
CEMENT CORPORATION, respondents.

DECISION
ROMERO, J.:

Before us is a petition for certiorari seeking the reversal of the


decision of the Court of Appeals dated September 27, 1995 declaring
petitioner without authority to levy taxes on stones, sand, gravel,
earth and other quarry resources extracted from private lands, as well
as the August 26, 1996 resolution of the appellate court denying its
motion for reconsideration.
The facts are as follows:
On June 26, 1992, the Sangguniang Panlalawigan of Bulacan
passed Provincial Ordinance No. 3, known as "An ordinance Enacting
the Revenue Code of the Bulacan Province," which was to take effect
on July 1, 1992, section 21 of the ordinance provides as follows:

Section 21. Imposition of Tax. There is hereby levied and collected a


tax of 10% of the fair market value in the locality per cubic meter of
ordinary stones, sand, gravel, earth and other quarry resources, such,
but not limited to marble, granite, volcanic cinders, basalt, tuff and
rock phosphate, extracted from public lands or from beds of seas,
lakes, rivers, streams, creeks and other public waters within its
territorial jurisdiction. (Italics ours)
Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter
dated November 11, 1993, assessed private respondent Republic
Cement Corporation (hereafter Republic Cement)P2,524,692.13 for
extracting limestone, shale and silica from several parcels of private
land in the province during the third quarter of 1992 until the second
quarter of 1993. Believing that the province, on the basis of above-
said ordinance, had no authority to impose taxes on quarry resources
extracted from private lands, Republic Cement formally contested the
same on December 23, 1993. The same was, however, denied by the
Provincial Treasurer on January 17, 1994. Republic Cement,
consequently filed a petition for declaratory relief with the Regional
Trial Court of Bulacan on February 14, 1994. The province filed a
motion to dismiss Republic Cement's petition, which was granted by
the trial court on May 13, 1993, which ruled that declaratory relief was
improper, allegedly because a breach of the ordinance had been
committed by Republic Cement.
On July 11, 1994, Republic Cement filed a petition
for certiorari with the Supreme Court seeking to reverse the trial
court's dismissal of their petition. The Court, in a resolution dated July
27, 1994, referred the same to the Court of Appeals, where it was
docketed as CA G.R. SP No. 34915. The appellate court required
petitioners to file a comment, which they did on September 7, 1994.
In the interim, the Province of Bulacan issued a warrant of levy
against Republic Cement, allegedly because of its unpaid tax
liabilities. Negotiations between Republic Cement and petitioners
resulted in an agreement and modus vivendi on December 12, 1994,
whereby Republic Cement agreed to pay under protest P1,262,346.00,
50% of the tax assessed by petitioner, in exchange for the lifting of
the warrant of levy. Furthermore, Republic Cement and petitioners
agreed to limit the issue for resolution by the Court of Appeals to the
question as to whether or not the provincial government could impose
and/or assess taxes on quarry resources extracted by Republic Cement
from private lands pursuant to Section 21 of the Provincial Ordinance
No. 3. This agreement andmodus vivendi were embodied in a joint
manifestation and motion signed by Governor Roberto Pagdanganan,
on behalf of the Province of Bulacan, by Provincial Treasurer Florence
Chavez, and by Provincial Legal Officer Manuel Siayngco, as
petitioner's counsel and filed with the Court of Appeals on December
13, 1994. In a resolution dated December 29, 1994, the appellate
court approved the same and limited the issue to be resolved to the
question whether or not the provincial government could impose taxes
on stones, sand, gravel, earth and other quarry resources extracted
from private lands.
After due trial, the Court of Appeals, on September 27, 1995,
rendered the following judgment:
WHEREFORE, judgment is hereby rendered declaring the
Province of Bulacan under its Provincial Ordinance No. 3
entitled "An Ordinance Enacting the Revenue Code of Bulacan
Province" to be without legal authority to impose and assess
taxes on quarry resources extracted by RCC from private lands,
hence the interpretation of Respondent Treasurer of Chapter II,
Article D, Section 21 of the Ordinance, and the assessment
made by the Province of Bulacan against RCC is null and void.
Petitioner's motion for reconsideration, as well as their
supplemental motion for reconsideration, was denied by the appellate
court on august 26, 1996, hence this appeal.
Petitioner's claim that the Court of Appeals erred in:
1. NOT HAVING OUTRIGHTLY DISMISSED THE SUBJECT
PETITION ON THE GROUND THAT THE SAME IS NOT
THE APPROPRIATE REMEDY FROM THE TRIAL COURT'S
GRANT OF THE PRIVATE RESPONDENTS' (HEREIN
PETITIONER) MOTION TO DISMISS;
2. NOT DISMISSING THE SUBJECT PETITION FOR BEING
VIOLATIVE OF CIRCULAR 2-90 ISSUED BY THE
SUPREME COURT;
3. NOT DISMISSING THE PETITION FOR REVIEW ON THE
GROUND THAT THE TRIAL COURT'S ORDER OF MAY
13, 1994 HAD LONG BECOME FINAL AND EXECUTORY;
4. GOING BEYOND THE PARAMETERS OF ITS APPELLATE
JURISDICTION IN RENDERING THE SEPTEMBER 27,
1995 DECISION;
5. HOLDING THAT PRIVATE RESPONDENT (HEREIN
PETITIONER) ARE ESTOPPED FROM RAISING THE
PROCEDURAL ISSUE IN THE MOTION FOR
RECONSIDERATION;
6. THE INTERPRETATION OF SECTION 134 OF THE LOCAL
GOVERNMENT CODE AS STATED IN THE SECOND TO
THE LAST PARAGRAPH OF PAGE 5 OF ITS SEPTEMBER
27, 1995 DECISION;
7. SUSTAINING THE ALLEGATIONS OF HEREIN
RESPONDENT WHICH UNJUSTLY DEPRIVED
PETITIONER THE POWER TO CREATE ITS OWN
SOURCES OF REVENUE;
8. DECLARING THAT THE ASSESSMENT MADE BY THE
PROVINCE OF BULACAN AGAINST RCC AS NULL AND
VOID WHICH IN EFFECT IS A COLLATERAL ATTACK ON
PROVINCIAL ORDINANCE NO. 3; AND
9. FAILING TO CONSIDER THE REGALIAN DOCTRINE IN
FAVOR OF THE LOCAL GOVERNMENT.
The issues raised by petitioners are devoid of merit. The number
and diversity of errors raised by appellants impel us, however, to
discuss the points raised seriatim.
In their first assignment of error, petitioners contend that instead
of filing a petition for certiorari with the Supreme Court, Republic
Cement should have appealed from the order of the trial court
dismissing their petition. Citing Martinez vs. CA,[1] they allege that a
motion to dismiss is a final order, the remedy against which is not a
petition for certiorari, but an appeal, regardless of the questions
sought to be raised on appeal, whether of fact or of law, whether
involving jurisdiction or grave abuse of discretion of the trial court.
Petitioners' argument is misleading. While it is true that the
remedy against a final order is an appeal, and not a petition
for certiorari, the petition referred to is a petition for certiorari under
Rule 65. As stated in Martinez, the party aggrieved does not have the
option to substitute the special civil action for certiorari under Rule 65
for the remedy of appeal. The existence and availability of the right of
appeal are antithetical to the availment of the special civil action
for certiorari.
Republic Cement did not, however, file a petition
for certiorari under Rule 65, but an appeal by certiorari under Rule
45. Even law students know that certiorari under Rule 45 is a mode of
appeal, an appeal from the Regional Trial Court being taken in either
of two ways (a) by writ of error (involving questions of fact and law)
and (b) by certiorari (limited only to issues of law), with an appeal
by certiorari being brought to the Supreme Court, there being no
provision of law for taking appeals by certiorari to the Court of
Appeals.[2] It is thus clearly apparent that Republic Cement correctly
contested the trial court's order of dismissal by filing an appeal
by certiorari under Rule 45. In fact, petitioners, in their second
assignment of error, admit that a petition for review
on certiorari under Rule 45 is available to a party aggrieved by an
order granting a motion to dismiss.[3] They claim, however, that
Republic Cement could not avail of the same allegedly because the
latter raised issues of fact, which is prohibited, Rule 45 providing that
"(t)he petition shall raise only questions of law which must be
distinctly set forth."[4] In this respect, petitioners claim that Republic
Cement's petition should have been dismissed by the appellate court,
Circular 2-90 providing:
4. Erroneous Appeals. - An appeal taken to either the Supreme
Court or the Court of Appeals by the wrong or inappropriate
mode shall be dismissed.
xxxxxxxxx
d) No transfer of appeals erroneously taken. -- No transfers of
appeals erroneously taken to the Supreme Court or to the
Court of Appeals to whichever of these Tribunals has
appropriate appellate jurisdiction will be allowed; continued
ignorance or wilful disregard of the law on appeals will not be
tolerated.
Petitioners even fault the Court for referring Republic Cement's
petition to the Court of Appeals, claiming that the same should have
been dismissed pursuant to Circular 2-90. Petitioners conveniently
overlook the other provisions of Circular 2-90, specifically 4b) thereof,
which provides:
b) Raising factual issues in appeal by certiorari. - Although
submission of issues of fact in an appeal by certiorari taken to
the Supreme Court from the regional trial court is ordinarily
proscribed, the Supreme Court nonetheless retains the option,
in the exercise of its sound discretion and considering the
attendant circumstances, either itself to take cognizance of and
decide such issues or to refer them to the Court of Appeals for
determination.
As can be clearly adduced from the foregoing, when an appeal
by certiorari under Rule 45 erroneously raises factual issues, the Court
has the option to refer the petition to the Court of Appeals. The
exercise by the Court of this option may not now be questioned by
petitioners.
As the trial court's order was properly appealed by Republic
Cement, the trial court's May 13, 1994 order never became final and
executory, rendering petitioner's third assignment of error moot and
academic.
Petitioners' fourth and fifth assignment of errors are likewise
without merit. Petitioners assert that the Court of Appeals could only
rule on the propriety of the trial court's dismissal of Republic Cement's
petition for declaratory relief, allegedly because that was the sole relief
sought by the latter in its petition for certiorari. Petitioners claim that
the appellate court overstepped its jurisdiction when it declared null
and void the assessment made by the Province of Bulacan against
Republic Cement.
Petitioners gloss over the fact that, during the proceedings before
the Court of Appeals, they entered into an agreement and modus
vivendi whereby they limited the issue for resolution to the question as
to whether or not the provincial government could impose and/or
assess taxes on stones, sand, gravel, earth and other quarry resources
extracted by Republic Cement from private lands. This agreement
and modus vivendi were approved by the appellate court on December
29, 1994. All throughout the proceedings, petitioners never questioned
the authority of the Court of Appeals to decide this issue, an issue
which it brought itself within the purview of the appellate court. Only
when an adverse decision was rendered by the Court of Appeals did
petitioners question the jurisdiction of the former.
Petitioners are barred by the doctrine of estoppel from contesting
the authority of the Court of Appeals to decide the instant case, as this
Court has consistently held that "(a) party cannot invoke the
jurisdiction of a court to secure affirmative relief against his opponent
and after obtaining or failing to obtain such relief, repudiate or
question that same jurisdiction."[5] The Supreme Court frowns upon
the undesirable practice of a party submitting his case for decision and
then accepting the judgment, only if favorable, and attacking it for
lack of jurisdiction when adverse.[6]
In a desperate attempt to ward off defeat, petitioners now
repudiate the above-mentioned agreement and modus vivendi,
claiming that the same was not binding in the Province of Bulacan, not
having been authorized by the Sangguniang Panlalawigan of
Bulacan. While it is true that the Provincial Governor can enter into
contract and obligate the province only upon authority of
thesangguniang panlalawigan,[7] the same is inapplicable to the case
at bar. The agreement and modus vivendi may have been signed by
petitioner Roberto Pagdanganan, as Governor of the Province of
Bulacan, without authorization from the sangguniang panlalawigan,
but it was also signed by Manuel Siayngco, the Provincial Legal Officer,
in his capacity as such, and as counsel of petitioners.
It is a well-settled rule that all proceedings in court to enforce a
remedy, to bring a claim, demand, cause of action or subject matter of
a suit to hearing, trial, determination, judgment and execution are
within the exclusive control of the attorney.[8] With respect to such
matters of ordinary judicial procedure, the attorney needs no special
authority to bind his client.[9] Such questions as what action or
pleading to file, where and when to file it, what are its formal
requirements, what should be the theory of the case, what defenses to
raise, how may the claim or defense be proved, when to rest the case,
as well as those affecting the competency of a witness, the sufficiency,
relevancy, materiality or immateriality of certain evidence and the
burden of proof are within the authority of the attorney to
decide.[10] Whatever decision an attorney makes on any of these
procedural questions, even if it adversely affects a client's case, will
generally bind a client. The agreement and modus vivendi signed by
petitioner's counsel is binding upon petitioners, even if
the Sanggunian had not authorized the same, limitation of issues
being a procedural question falling within the exclusive authority of the
attorney to decide.
In any case, the remaining issues raised by petitioner are likewise
devoid of merit, a province having no authority to impose taxes on
stones, sand, gravel, earth and other quarry resources extracted from
private lands. The pertinent provisions of the Local Government Code
are as follows:
Sec. 134. Scope of Taxing Powers. - Except as otherwise
provided in this Code, the province may levy only the taxes,
fees, and charges as provided in this Article.
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. -
The province may levy and collect not more than ten percent
(10%) of fair market value in the locality per cubic meter of
ordinary stones, sand, gravel, earth, and other quarry
resources, as defined under the National Internal Revenue
Code, as amended, extracted from public lands or from the
beds of seas, lakes, rivers, streams, creeks, and other public
waters within its territorial jurisdiction.
x x x x x x x x x (Italics supplied)
The appellate court, on the basis of Section 134, ruled that a
province was empowered to impose taxes only on sand, gravel, and
other quarry resources extracted from public lands, its authority to tax
being limited by said provision only to those taxes, fees and charges
provided in Article One, Chapter 2, Title One of Book II of the Local
Government Code.[11] On the other hand, petitioners claim that
Sections 129[12] and 186[13] of the Local Government Code authorizes
the province to impose taxes other than those specifically enumerated
under the Local Government Code.
The Court of Appeals erred in ruling that a province can impose
only the taxes specifically mentioned under the Local Government
Code. As correctly pointed out by petitioners, Section 186 allows a
province to levy taxes other than those specifically enumerated under
the Code, subject to the conditions specified therein.
This finding, nevertheless, affords cold comfort to petitioners as
they are still prohibited from imposing taxes on stones, sand, gravel,
earth and other quarry resources extracted from private lands. The tax
imposed by the Province of Bulacan is an excise tax, being a tax upon
the performance, carrying on, or exercise of an activity.[14] The Local
Government Code provides:
Section 133. - Common Limitations on the Taxing Powers of
Local Government Units. - Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:
xxxxxxxxx
(h) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;
xxxxxxxxx
A province may not, therefore, levy excise taxes on articles already
taxed by the National Internal Revenue Code. Unfortunately for
petitioners, the National Internal Revenue Code provides:

Section 151. - Mineral Products. -

(A) Rates of Tax. - There shall be levied, assessed and


collected on minerals, mineral products and quarry resources,
excise tax as follows:
xxxxxxxxx
(2) On all nonmetallic minerals and quarry resources, a
tax of two percent (2%) based on the actual market
value of the gross output thereof at the time of removal,
in case of those locally extracted or produced; or the
values used by the Bureau of Customs in determining
tariff and customs duties, net of excise tax and value-
added tax, in the case of importation.
xxxxxxxxx

(B) [Definition of Terms]. - For purposes of this Section, the term-

xxxxxxxxx
(4) Quarry resources shall mean any common stone or
other common mineral substances as the Director of the
Bureau of Mines and Geo-Sciences may declare to be
quarry resources such as, but not restricted to, marl,
marble, granite, volcanic cinders, basalt, tuff and rock
phosphate; Provided, That they contain no metal or
metals or other valuable minerals in economically
workable quantities.
It is clearly apparent from the above provision that the National
Internal Revenue Code levies a tax on all quarry resources, regardless
of origin, whether extracted from public or private land.Thus, a
province may not ordinarily impose taxes on stones, sand, gravel,
earth and other quarry resources, as the same are already taxed
under the National Internal Revenue Code. The province can, however,
impose a tax on stones, sand, gravel, earth and other quarry
resources extracted from public land because it is expressly
empowered to do so under the Local Government Code. As to stones,
sand, gravel, earth and other quarry resources extracted from private
land, however, it may not do so, because of the limitation provided by
Section 133 of the Code in relation to Section 151 of the National
Internal Revenue Code.
Given the above disquisition, petitioners cannot claim that the
appellate court unjustly deprived them of the power to create their
sources of revenue, their assessment of taxes against Republic
Cement being ultra vires, traversing as it does the limitations set by
the Local Government Code.
Petitioners likewise aver that the appellate court's declaration of
nullity of its assessment against Republic Cement is a collateral attack
on Provincial Ordinance No. 3, which is prohibited by public
policy.[15] Contrary to petitioners' claim, the legality of the ordinance
was never questioned by the Court of Appeals. Rather, what the
appellate court questioned was petitioners' assessment of taxes on
Republic Cement on the basis of Provincial Ordinance No. 3, not the
ordinance itself.
Furthermore, Section 21 of Provincial Ordinance No. 3 is practically
only a reproduction of Section 138 of the Local Government Code. A
cursory reading of both would show that both refer to ordinary sand,
stone, gravel, earth and other quarry resources extracted from public
lands. Even if we disregard the limitation set by Section 133 of the
Local Government Code, petitioners may not impose taxes on stones,
sand, gravel, earth and other quarry resources extracted from private
lands on the basis of Section 21 of Provincial Ordinance No. 3 as the
latter clearly applies only to quarry resources extracted from public
lands. Petitioners may not invoke the Regalian doctrine to extend the
coverage of their ordinance to quarry resources extracted from private
lands, for taxes, being burdens, are not to be presumed beyond what
the applicable statute expressly and clearly declares, tax statutes
being construed strictissimi juris against the government.[16]
WHEREFORE, premises considered, the instant petition is
DISMISSED for lack of merit and the decision of the Court of Appeals
is hereby AFFIRMED in toto. Costs against petitioner.
SO ORDERED.
Narvasa, C.J. (Chairman), Kapunan, Purisima, and Pardo,
JJ., concur.

14. Phil. Petroleum Corp. v. Mun. of Pililla, G.R. No. 90776 June 3,
1991

G.R. No. 90776 June 3, 1991

PHILIPPINE PETROLEUM CORPORATION, petitioner,


vs.
MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR
NICOMEDES F. PATENIA, respondent.

Quiason, Makalintal, Barot, Torres & Ibarra for petitioner.

PARAS, J.:

This is a petition for certiorari seeking to annul and set aside: (a) the
March 17, 1989 decision * of the Regional Trial Court, Branch 80,
Tanay, Rizal in Civil Case No. 057-T entitled, "Municipality of Pililla,
Rizal, represented by Mayor Nicomedes F. Patenia vs. Philippine
Petroleum Corporation", (PPC for short) upholding the legality of the
taxes, fees and charges being imposed in Pililla under Municipal Tax
Ordinance No. 1 and directing the herein petitioner to pay the amount
of said taxes, fees and charges due the respondent: and (b) the
November 2, 1989 resolution of the same court denying petitioner's
motion for reconsideration of the said decision.

The undisputed facts of the case are:

Petitioner, Philippine Petroleum Corporation (PPC for short) is a


business enterprise engaged in the manufacture of lubricated oil
basestock which is a petroleum product, with its refinery plant situated
at Malaya, Pililla, Rizal, conducting its business activities within the
territorial jurisdiction of the Municipality of Pililla, Rizal and is in
continuous operation up to the present (Rollo p. 60). PPC owns and
maintains an oil refinery including forty-nine storage tanks for its
petroleum products in Malaya, Pililla, Rizal (Rollo, p. 12).

Under Section 142 of the National Internal Revenue Code of 1939,


manufactured oils and other fuels are subject to specific tax.

On June 28, 1973, Presidential Decree No. 231, otherwise known as


the Local Tax Code was issued by former President Ferdinand E.
Marcos governing the exercise by provinces, cities, municipalities and
barrios of their taxing and other revenue-raising powers. Sections 19
and 19 (a) thereof, provide among others, that the municipality may
impose taxes on business, except on those for which fixed taxes are
provided on manufacturers, importers or producers of any article of
commerce of whatever kind or nature, including brewers, distillers,
rectifiers, repackers, and compounders of liquors, distilled spirits
and/or wines in accordance with the schedule listed therein.

The Secretary of Finance issued Provincial Circular No. 26-73 dated


December 27, 1973, directed to all provincial, city and municipal
treasurers to refrain from collecting any local tax imposed in old or
new tax ordinances in the business of manufacturing, wholesaling,
retailing, or dealing in petroleum products subject to the specific tax
under the National Internal Revenue Code (Rollo, p. 76).

Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was


issued by the Secretary of Finance instructing all City Treasurers to
refrain from collecting any local tax imposed in tax ordinances enacted
before or after the effectivity of the Local Tax Code on July 1, 1973, on
the businesses of manufacturing, wholesaling, retailing, or dealing in,
petroleum products subject to the specific tax under the National
Internal Revenue Code (Rollo, p. 79).
Respondent Municipality of Pililla, Rizal, through Municipal Council
Resolution No. 25, S-1974 enacted Municipal Tax Ordinance No. 1, S-
1974 otherwise known as "The Pililla Tax Code of 1974" on June 14,
1974, which took effect on July 1, 1974 (Rollo, pp. 181-182). Sections
9 and 10 of the said ordinance imposed a tax on business, except for
those for which fixed taxes are provided in the Local Tax Code on
manufacturers, importers, or producers of any article of commerce of
whatever kind or nature, including brewers, distillers, rectifiers,
repackers, and compounders of liquors, distilled spirits and/or wines in
accordance with the schedule found in the Local Tax Code, as well as
mayor's permit, sanitary inspection fee and storage permit fee for
flammable, combustible or explosive substances (Rollo, pp. 183-187),
while Section 139 of the disputed ordinance imposed surcharges and
interests on unpaid taxes, fees or charges (Ibid., p. 193).

On March 30, 1974, Presidential Decree No. 426 was issued amending
certain provisions of P.D. 231 but retaining Sections 19 and 19 (a)
with adjusted rates and 22(b).

On April 13, 1974, P.D. 436 was promulgated increasing the specific
tax on lubricating oils, gasoline, bunker fuel oil, diesel fuel oil and
other similar petroleum products levied under Sections 142, 144 and
145 of the National Internal Revenue Code, as amended, and granting
provinces, cities and municipalities certain shares in the specific tax on
such products in lieu of local taxes imposed on petroleum products.

The questioned Municipal Tax Ordinance No. 1 was reviewed and


approved by the Provincial Treasurer of Rizal on January 13, 1975
(Rollo, p. 143), but was not implemented and/or enforced by the
Municipality of Pililla because of its having been suspended up to now
in view of Provincial Circular Nos. 26-73 and 26 A-73.

Provincial Circular No. 6-77 dated March 13, 1977 was also issued
directing all city and municipal treasurers to refrain from collecting the
so-called storage fee on flammable or combustible materials imposed
under the local tax ordinance of their respective locality, said fee
partaking of the nature of a strictly revenue measure or service
charge.

On June 3, 1977, P.D. 1158 otherwise known as the National Internal


Revenue Code of 1977 was enacted, Section 153 of which specifically
imposes specific tax on refined and manufactured mineral oils and
motor fuels.
Enforcing the provisions of the above-mentioned ordinance, the
respondent filed a complaint on April 4, 1986 docketed as Civil Case
No. 057-T against PPC for the collection of the business tax from 1979
to 1986; storage permit fees from 1975 to 1986; mayor's permit and
sanitary inspection fees from 1975 to 1984. PPC, however, have
already paid the last-named fees starting 1985 (Rollo, p. 74).

After PPC filed its answer, a pre-trial conference was held on August
24, 1988 where the parties thru their respective counsel, after coming
up with certain admissions and stipulations agreed to the submission
of the case for decision based on documentary evidence offered with
their respective comments (Rollo, p. 41).

On March 17, 1987, the trial court rendered a decision against the
petitioner, the dispositive part of which reads as follows:

WHEREFORE, premises considered, this Court hereby renders


judgment in favor of the plaintiffs as against the defendants
thereby directing the defendants to 1) pay the plaintiffs the
amount of P5,301,385.00 representing the Tax on Business due
from the defendants under Sec. 9 (A) of the Municipal Tax
Ordinance of the plaintiffs for the period from 1979 to 1983
inclusive plus such amount of tax that may accrue until final
determination of case; 2) to pay storage permit fee in the
amount of P3,321,730.00 due from the defendants under Sec.
10, par. z (13) (b) (1 C) of the Municipal Tax Ordinance of the
plaintiffs for the period from 1975 to 1986 inclusive plus such
amount of fee that may accrue until final determination of case;
3) to pay Mayor's Permit Fee due from the defendants under
Sec. 10, par. (P) (2) of the Municipal Tax Ordinance of the
plaintiffs from 1975 to 1984 inclusive in the amount of
P12,120.00 plus such amount of fee that may accrue until final
determination of the case; and 4) to pay sanitary inspection fee
in the amount of P1,010.00 for the period from 1975 to 1984
plus such amount that may accrue until final determination of
case and 5) to pay the costs of suit.

SO ORDERED. (Rollo, pp. 49-50)

PPC moved for reconsideration of the decision, but this was denied by
the lower court in a resolution of November 2, 1989, hence, the
instant petition.
The Court resolved to give due course to the petition and required
both parties to submit simultaneous memoranda (June 21, 1990
Resolution; Rollo, p. 305).

PPC assigns the following alleged errors:

1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE


BUSINESS TAX UNDER SECTION 9 (A) OF THE TAX ORDINANCE
IN THE LIGHT OF PROVINCIAL CIRCULARS NOS. 26-73 AND 26
A-73;.

2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS LIABLE


FOR THE PAYMENT OF STORAGE PERMIT FEE UNDER SECTION
10 Z (13) (b) (1-c) OF THE TAX ORDINANCE CONSIDERING THE
ISSUANCE OF PROVINCIAL CIRCULAR NO. 6-77;

3. THE RTC ERRED IN FAILING TO HOLD THAT RESPONDENTS


COMPUTATION OF TAX LIABILITY HAS ABSOLUTELY NO BASIS;

4. THE RTC ERRED IN ORDERING THE PAYMENT OF MAYOR'S


PERMIT AND SANITARY INSPECTION FEES CONSIDERING THAT
THE SAME HAS BEEN VALIDLY AND LEGALLY WAIVED BY THE
MAYOR;

5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES AND


DUTIES NOT COLLECTED FROM PETITIONER PRIOR TO THE FIVE
(5) YEAR PERIOD FROM THE FILING OF THIS CASE ON APRIL 4,
1986 HAS ALREADY PRESCRIBED.

The crucial issue in this case is whether or not petitioner PPC whose oil
products are subject to specific tax under the NIRC, is still liable to pay
(a) tax on business and (b) storage fees, considering Provincial
Circular No. 6-77; and mayor's permit and sanitary inspection fee unto
the respondent Municipality of Pililla, Rizal, based on Municipal
Ordinance No. 1.

Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared
as contrary to national economic policy the imposition of local taxes on
the manufacture of petroleum products as they are already subject to
specific tax under the National Internal Revenue Code; (b) the above
declaration covers not only old tax ordinances but new ones, as well as
those which may be enacted in the future; (c) both Provincial Circulars
(PC) 26-73 and 26 A-73 are still effective, hence, unless and until
revoked, any effort on the part of the respondent to collect the
suspended tax on business from the petitioner would be illegal and
unauthorized; and (d) Section 2 of P.D. 436 prohibits the imposition of
local taxes on petroleum products.

PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax
ordinances imposing a tax on business under Section 19 (a) of the
Local Tax Code (P.D. No. 231), with regard to manufacturers, retailers,
wholesalers or dealers in petroleum products subject to the specific tax
under the National Internal Revenue Code NIRC, in view of Section 22
(b) of the Code regarding non-imposition by municipalities of taxes on
articles, subject to specific tax under the provisions of the NIRC.

There is no question that Pililla's Municipal Tax Ordinance No. 1


imposing the assailed taxes, fees and charges is valid especially
Section 9 (A) which according to the trial court "was lifted in
toto and/or is a literal reproduction of Section 19 (a) of the Local Tax
Code as amended by P.D. No. 426." It conforms with the mandate of
said law.

But P.D. No. 426 amending the Local Tax Code is deemed to have
repealed Provincial Circular Nos. 26-73 and 26 A-73 issued by the
Secretary of Finance when Sections 19 and 19 (a), were carried over
into P.D. No. 426 and no exemptions were given to manufacturers,
wholesalers, retailers, or dealers in petroleum products.

Well-settled is the rule that administrative regulations must be in


harmony with the provisions of the law. In case of discrepancy
between the basic law and an implementing rule or regulation, the
former prevails (Shell Philippines, Inc. v. Central Bank of the
Philippines, 162 SCRA 628 [1988]). As aptly held by the court a quo:

Necessarily, there could not be any other logical conclusion than


that the framers of P.D. No. 426 really and actually intended to
terminate the effectivity and/or enforceability of Provincial
Circulars Nos. 26-73 and 26 A-73 inasmuch as clearly these
circulars are in contravention with Sec. 19 (a) of P.D. 426-the
amendatory law to P.D. No. 231. That intention to terminate is
very apparent and in fact it is expressed in clear and unequivocal
terms in the effectivity and repealing clause of P.D. 426 . . .

Furthermore, while Section 2 of P.D. 436 prohibits the imposition of


local taxes on petroleum products, said decree did not amend Sections
19 and 19 (a) of P.D. 231 as amended by P.D. 426, wherein the
municipality is granted the right to levy taxes on business of
manufacturers, importers, producers of any article of commerce of
whatever kind or nature. A tax on business is distinct from a tax on
the article itself. Thus, if the imposition of tax on business of
manufacturers, etc. in petroleum products contravenes a declared
national policy, it should have been expressly stated in P.D. No. 436.

The exercise by local governments of the power to tax is ordained by


the present Constitution.1wphi1 To allow the continuous effectivity of
the prohibition set forth in PC No. 26-73 (1) would be tantamount to
restricting their power to tax by mere administrative issuances. Under
Section 5, Article X of the 1987 Constitution, only guidelines and
limitations that may be established by Congress can define and limit
such power of local governments. Thus:

Each local government unit shall have the power to create its
own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy . . .

Provincial Circular No. 6-77 enjoining all city and municipal treasurers
to refrain from collecting the so-called storage fee on flammable or
combustible materials imposed in the local tax ordinance of their
respective locality frees petitioner PPC from the payment of storage
permit fee.

The storage permit fee being imposed by Pililla's tax ordinance is a fee
for the installation and keeping in storage of any flammable,
combustible or explosive substances. Inasmuch as said storage makes
use of tanks owned not by the municipality of Pililla, but by petitioner
PPC, same is obviously not a charge for any service rendered by the
municipality as what is envisioned in Section 37 of the same Code.

Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1


prescribing a permit fee is a permit fee allowed under Section 36 of
the amended Code.

As to the authority of the mayor to waive payment of the mayor's


permit and sanitary inspection fees, the trial court did not err in
holding that "since the power to tax includes the power to exempt
thereof which is essentially a legislative prerogative, it follows that a
municipal mayor who is an executive officer may not unilaterally
withdraw such an expression of a policy thru the enactment of a tax."
The waiver partakes of the nature of an exemption. It is an ancient
rule that exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority
(Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, 18
SCRA 488 [1966]). Tax exemptions are looked upon with disfavor
(Western Minolco Corp. v. Commissioner of Internal Revenue, 124
SCRA 121 [1983]). Thus, in the absence of a clear and express
exemption from the payment of said fees, the waiver cannot be
recognized. As already stated, it is the law-making body, and not an
executive like the mayor, who can make an exemption. Under Section
36 of the Code, a permit fee like the mayor's permit, shall be required
before any individual or juridical entity shall engage in any business or
occupation under the provisions of the Code.

However, since the Local Tax Code does not provide the prescriptive
period for collection of local taxes, Article 1143 of the Civil Code
applies. Said law provides that an action upon an obligation created by
law prescribes within ten (10) years from the time the right of action
accrues. The Municipality of Pililla can therefore enforce the collection
of the tax on business of petitioner PPC due from 1976 to 1986, and
NOT the tax that had accrued prior to 1976.

PREMISES CONSIDERED, with the MODIFICATION that business taxes


accruing PRIOR to 1976 are not to be paid by PPC (because the same
have prescribed) and that storage fees are not also to be paid by PPC
(for the storage tanks are owned by PPC and not by the municipality,
and therefore cannot be a charge for service by the municipality), the
assailed DECISION is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, Padilla and Regalado, JJ., concur.


Sarmiento, J., is on leave.

15. San Miguel Corp. v. Mun. Council of Mandaue, L-30761, July 11,
1973

G.R. No. L-30761 July 11, 1973

THE SAN MIGUEL CORPORATION, petitioner,


vs.
THE MUNICIPAL COUNCIL, THE MAYOR, and THE MUNICIPAL
TREASURER OF THE MUNICIPALITY OF MANDAUE, PROVINCE
OF CEBU, respondents.

Gadioma and Josue for petitioner.

Acting City Fiscal Lawrence A. Parawan for respondents.

ANTONIO, J.:

Petition for writ of certiorari to review the judgment of the Court of


First Instance of Cebu, in Civil Case No. R-10631, upholding the
validity of Ordinance No. 23, series of 1966, as amended by Ordinance
No. 25, series of 1967, of the Municipality of Mandaue, Cebu, imposing
"a graduated quarterly fixed tax based on the gross value of money or
actual market value at the time of removal of the manufactured
articles from their factories or other manufacture or processing
establishments."

In enacting the said ordinances, the municipal council of Mandaue


invoked as basis of its authority Republic Act No. 2264 (Local
Autonomy Act).

The relevant portion of Section 1, Ordinance No. 23 (1966), as


amended by Ordinance No. 25 (1967), provides as follows:

SECTION 1. Municipal License Tax On Proprietors Or


Operators Of ... Breweries, ... Proprietors or operators of
... breweries, ... within the territorial limits of this
municipality shall pay a graduated quarterly fixed tax
based on the gross value in money or actual market value
at the time of removal, of the manufactured articles from
their factories ... during the preceding quarter in
accordance with the following schedules: ...:

CLASS QUARTERLY LICENSE TAX


P160.00 and P0.30 for
QUARTERLY GROSS VALUE each P1,000.00 or
fraction thereof in excess

1 P37,500.00 or over of P37,500.00 gross value.


2 P31.250.00 to P37,499.99 P158.00 per quarter
3 25,000.00 to 31,249.99 132.00 " "
4 20,000.00 to 24,999.99 105.00 " "
5 15.000.00 to 19,999.99 83.00 " "
6 12.500.00 to 14,999.99 63.00 " "
7 10,000.00 to 12,499.99 50.00 " "
8 8,750.00 to 9,999.99 42.00 " "
9 7,500.00 to 8,749.99 37.00 " "
10 6,500.00 to 7,499.99 31.00 " "
11 5,500.00 to 6,499.99 27.00 " "
12 4,500.00 to 5,499.99 23.00 " "
13 3,750.00 to 4,499.99 19.00 " "
14 3,000.00 to 3,749.99 16.00 " "
15 2,500.00 to 2,999.99 13.00 " "
16 2,000.00 to 2,499.99 11.00 " "
17 1,750.00 to 1,999.99 9.00 " "
18 1,500.00 to 1,749.99 8.00 " "
19 1,250.00 to 1,499.99 7.00 " "
20 Less than P1,250.00 5.00 " "

The pertinent portion of Section 2 of Ordinance No. 23 which was not


amended by Ordinance No. 25 states:

Payment of Municipal License Tax. A fixed tax imposed


on this ordinance must first be paid before any person can
engage in business and is payable for each taxable
business; ...

The graduated fixed tax provided in this ordinance shall be


paid at the Office of the Municipal Treasurer quarterly, on
or before the twentieth of January, April, July and October;
... . Provided further, That as regards businesses already
operating at the time this ordinance takes effect, the tax
for the initial quarter shall be paid pursuant to the
provisions of this ordinance and shall be based on the
gross value in money during the quarter immediately
preceding, ... .

Within the time fixed for the payment of the license taxes
herein imposed, the taxpayers shall prepare and file with
the Municipal Treasurer, a sworn statement of the gross
value in money during the preceding quarter on the basis
of which the tax shall be assessed and collected. ... .
The basic Ordinance was No. 88, 1 which took effect on September 25,
1962, but this was amended by Ordinance No. 23 (January 1, 1967),
and by Ordinance No. 25 (January 1, 1968).

Petitioner, a domestic corporation engaged in the business of


manufacturing beer and other products with a subsidiary
manufacturing plant in Mandaue, Cebu, since December, 1967, paid
the taxes prescribed in the aforesaid ordinance, protest thus: P309.40
on January 22, 1968 and P5,171.80 as of July 18, 1968, computed
respectively "on the basis of 70,412 and 2,203.070 cases of beer
manufactured and removed from said Mandaue plant, multiplied by
P7.60 which is the prevailing market price (wholesaler's price) per case
of beer at the time of the removal".

Claiming that it is adversely affected by the ordinance, which in its


view was beyond the power and authority of the municipality to enact,
petitioner brought and action in the Court of First Instance of Cebu,
Branch VI, for the annulment of said ordinance.

Petitioner contends that (1) the phrase "gross value in money or actual
market value" employed in the questioned ordinance clearly referred
to "sales or market price" of the articles or commodities manufactured
thereby indicating a manifest intent to impose a tax based on sales,
and (2) that to impose a tax upon the privilege of manufacturing beer,
when the amount of the tax is measured by the gross receipts from its
sales of beer, is the same as imposing a tax upon the product itself.

Respondents upon the other hand insist that the tax imposed in the
questioned ordinance (1) is not a percentage tax or a tax on the sales
of beer but is a tax on the privilege to engage in the business of
manufacturing beer, and the phrase "actual market value" was merely
employed as a basis for the classification and graduation of the tax
sought to be imposed; (2) that it is not a specific tax because it is not
a tax on the beer itself, but on the privilege of manufacturing beer;
and (3) that with conversion of Mandaue into a city on June 21, 1969,
the appeal has become moot, because the prohibition against the
imposition of any privilege tax on sales or other taxes in any form
based thereon, is applicable only to municipalities.

While We have heretofore announced the doctrine that the grant of


power to tax to charterred cities and municipalities under Section 2 of
the Local Autonomy Act is sufficiently plenary, 2 it is, however, subject
to the exceptions and limitations contained in the two (2) provisos of
the same statute. In other words, the municipal corporation should not
transcend the limitations imposed by the statute on the basis of which
the power to tax is sought to be exercised. Thus, We held in the
Marinduque case, 3 that an ordinance providing for a graduated tax
based on either "gross output or sales" violates the prohibition on
municipalities against imposing any percentage tax on sales, or other
taxes in any form based thereon, as the only standard provided for
measuring the gross output is its peso value, as determined from true
copies of receipts and/or invoices that the taxpayer is required to
submit to the municipal treasurer.

We are thus confined to the narrow issue of whether or not the


challenged ordinance has transcended the exceptions and limitations
imposed by section 2 of Republic Act 2264.

Section 2 of the aforecited statute provides:

Provided, That municipalities and municipal districts shall,


in no case, impose any percentage tax on sales or other
taxes in any form based thereon nor impose taxes on
articles subject to specific tax ... .

Section 1 of Ordinance No. 88 of the Municipality of Mandaue, as


amended by Ordinances Nos. 23 (1967) and 25 (1968), specifically
provides that the graduated quarterly tax shall be "based on the gross
value in money or actual market value at the time of removal, of the
manufactured products ... from their factories ... during the preceding
calendar year ... .

Well settled is the rule that in the absence of legislative intent to the
contrary, technical or commercial terms and phrases, when used in tax
statutes, are presumed to have been used in their technical sense or in
their trade or commercial meaning. Thus, the phrase "gross value in
money" has a well-defined meaning in our tax statutes. For instance,
the term "gross value in money" of articles sold, bartered, exchanged
or transferred, as used in Sections 184, 185 and 186 of the National
Internal Revenue Code, has been invariably used as equivalent to
"gross selling price" and has been construed as the total amount of
money or its equivalent which the purchaser pays to the vendor to
receive or get the goods. 4 It must be noted that the ordinance
specifically provides that the basis of the tax is the "gross value in
money or actual market value" of the manufactured article.

The phrase "actual market value" has been construed as the price
which an article "would command in the ordinary course of business,
that is to say, when offered for sale by one willing to sell, but not
under compulsion to sell, and purchased by another who is willing to
buy, but under no obligation purchase it, 5 or the price which the
property will bring in a fair market after fair and reasonable efforts
have been made to find a purchaser who will give the highest price for
it. 6 The "actual market value" of property, for purposes of taxation,
therefore means the selling price of the article in the course of
ordinary business.

Considering that the phrase "gross value in money" is followed by the


words "or actual market value", it is evident that the latter was
intended to explain and clarify the preceding phrase. For the word "or"
may be used as the equivalent of "that is to say" and gives that which
precedes it the same significance as that which follows it. It is not
always disjunctive and is sometimes interpretative or expository of the
preceding word. 7 Certainly We cannot assume that the phrase "or
actual market value" was a mere surplusage, for it serves to clarify
and explain the meaning and import of the preceding phrase. In any
event, it is the duty of the courts, so far reasonably practicable, to
read and interpret a statute as to give life and effect to its provisions,
so as to render it a harmonious whole.

It is also significant to note, that there is a set ratio between the


amount of the tax and the volume of sales. Thus if the "gross value in
money or actual market value" of the beer removed from the factory
exceeds P37,500.00 per quarter, the taxpayer is required to pay a
quarterly license tax of P160.00 plus P0.30 for every P1,000.00 or
fraction of the excess. In other words in excess of P37,500.00, the
taxpayer will pay to the municipality a certain amount of tax measured
by a percentage of the sales. It is therefore evident that the
challenged ordinance was a transparent attempt on the part of the
municipality to impose a tax based on sales.

Although section 2 of the ordinance in question provides in a vague


manner that the tax shall be assessed and collected on the basis of the
sworn statement of the manager of a firm or corporation "of the gross
value in money during the preceding quarter," in actual practice the
quarterly tax levied upon the petitioner, was computed on the basis of
the total market of the beer, per quarter, as shown by the shipping
memorandum certified to by the storekeeper of the Bureau Internal
Revenue assigned to the brewery. Thus the amounting to P309.40 and
P5,171.80, paid by petition January 22, 1968 and July 18, 1968, were
actually determined respectively on the basis of 70,412 and 2,203.070
cases manufactured and removed from the Mandaue plant, multiplied
by P7.60 which is the prevailing market price (wholesaler's price) per
case of beer.

In Laoag Producers' Cooperative Marketing Association, Inc. vs.


Municipality of Laoag, 8 We held that the challenged ordinance imposed
a tax based on sales, although the ordinance merely imposed a
"municipal tax or inspection fee of on one-half (1/2) centavo on every
kilo of Virginia leaf tobacco, garlic and onion on all wholesale dealers
and vendors" because, in its application, it does impose a tax based on
sales, as it is based the number of kilos sold and purchased by him
and when the wholesaler or vendor accumulates his stock, he does so
for only one purpose, to sell the same at the appropriate time, and "he
cannot by its very nature, carry on his business unless he sells what
he has bought." Similarly, in the case at bar, the circumstance that the
tax is imposed upon petitioner at time of removal from the factory of
the manufactured beer, and not on the date of actual sale, is not of
important consequence since petitioner will, in the end, sell the beer
removed from the factory, because by the nature of its business, it has
no alternative but to sell what it has manufactured.

We therefore hold that the questioned ordinance imposed tax based on


sales and therefore beyond the authority of the municipality to enact.

Having reached this conclusion, it becomes unnecessary to pass upon


the additional question posed, i.e., whether or not the challenged
ordinance imposes a tax on a product subject to specific tax.

Respondents however claim that with the conversion Mandaue into a


city pursuant to Republic Act No. 5519, which was approved on June
21, 1969, the issue has already become moot, since the prohibition
contained in section 2 of Republic Act 2264 applies only to
municipalities and not to chartered cities. The same contention has
been rejected in City of Naga v. Court of Appeals, 9 and Laoag
Producers' Cooperative Marketing Association, Inc. v. Municipality of
Laoag, supra, where We ruled that the legality of an ordinance
depends upon the power of the municipality at the time of the
enactment the challenged ordinance. Since the municipality of
Mandaue had no authority to enact the said ordinance, the subsequent
approval of Republic Act No. 5519 which became effective June 21,
1969, did not remove the original infirmity of the ordinance. Indeed
there is no provision in the aforecited statute which invests a curative
effect upon the ordinances of the municipality which when enacted
were beyond its statutory authority.
IN VIEW WHEREOF, the appealed judgment is hereby reversed and
Ordinance No. 23, series of 1966, as amended by Ordinance No. 23,
series of 1966, which became effective January 1, 1968, of the
Municipality of Mandaue, Cebu, is hereby declared null and void.
Respondents are also ordered to refund the taxes paid by Petitioners
under the said ordinance, with legal interest thereon. No costs.

Makalintal, Actg. C.J., Zaldivar, Castro, Teehankee Makasiar and


Esguerra, JJ., concur.

Fernando and Barredo, JJ., took no part.

16. Standard Vacuum Oil Co. v. Antigua, 96 Phil. 909

G.R. No. L-6931 April 30, 1955

STANDARD-VACUUM OIL COMPANY, plaintiff-appellant,


vs.
M.D. ANTIGUA, as Municipal Treasurer of Opon and the
MUNICIPALITY OF OPON, defendants-appellees.

Ross, Selph, Carrascoso and Janda for appellant.


Provincial Fiscal Jose C. Borromeo and Assistant Provincial Fiscal
Ananias V. Maribao for appellees.

MONTEMAYOR, J.:

This is an action to recover from the Municipal Treasurer of Opon,


Cebu, the sum of P26,639.50 collected by said town official from the
plaintiff-appellant Standard Vaccum Oil Company and paid by the
latter under protest. The facts in this case are simple and not disputed.
Section 1 of Commonwealth Act 472 known as the Municipality
Autonomy Act reads thus:

SECTION 1. A municipal council or municipal district council shall


have authority to impose municipal license taxes upon person
engaged in any occupation or business, or exercising privileges
in the municipality or municipal district, by requiring them to
secure licenses at rates fixed by the municipal council, or
municipal district council; and to collect fee and charges, for
service rendered by the municipality or municipal district and
shall otherwise have power to levy for public local purposes, and
for school purposes, including teacher's salaries, just and
uniform taxes other than percentages taxes and taxes on
specified articles.

Under the above reproduced legal provision, the municipal council of


Opon passed Ordinance No. 9 series of 1949, imposing a graduate
license tax on the business of manufacturing in cans based on the
maximum output capacity of the factory. Said ordinance was duly
approved by the Department of Finance.

The plaintiff-appellant Standard Vaccum Oil Company, a foreign


corporation duly licensed to transact business in the Philippines,
having its principal office in he City of Manila and with branch office in
the City of Cebu, is engaged in the importation, distribution and sale of
gasoline, kerosene and other fuel oils. Some of its products. especially
kerosene are placed in 5-gallon tin cans and then distributed and sold
throughout the Philippines. The company's branch in Cebu operates
and maintains an establishment in the Municipality of Opon known as
Opon Terminal where it stores the gasoline, kerosene and other fuel
oils it imports from abroad and where it manufactures 5-gallon tin
cans. To give an idea of the output of its tin can factory, the evidence
shows that for the years 1950 and 1951 appellant company
manufactured 2,796,911 and 2,523,975 tin cans, respectively, or a
total of 5,320,886. This will explain the relatively large amount of tax
collected by the defendant Municipal Treasurer for two years.

Appellant contends that the municipal ordinance is null and void


because the graduated license tax imposed is said to partake of the
nature of a percentage or specific tax, being an indirect percentage tax
on specified articles, namely, the tin cans, and such percentage tax is
outside the powers of a municipal corporation to impose under the
above-cited legal provision; and that assuming that it is not a
percentage but an occupation tax, still it does not apply to the tin can
factory of plaintiff-appellant because it is not a business operated for
profit but is merely incidental to its main business of importing
gasoline, kerosene and other fuel oils and later placing them in tin
cans for distribution and sale.

The trial court held that the manufacture of tin cans by plaintiff
company to be used as containers of its gasoline, kerosene and other
fuel oils is an occupation by itself from which the plaintiff derives
benefit by not buying said tin cans from other persons who would
otherwise manufacture them; and that were the plaintiff exempted
from paying the tax on the cans manufactured and used for the
distribution of its commodity while others engaged in the manufacture
of tin cans are required to pay the tax, then the said tax ceases to be
just and uniform. Plaintiff is now appealing from the decision of the
trial court holding that the municipal ordinance was not only valid but
was also applicable to the plaintiff and that consequently, the amount
of the tax should not be refunded to it.

We are satisfied that the graduated license tax imposed by the


ordinance in question is an occupation tax, imposed not under the
police or regulatory power of the municipality but by virtue of its
taxing power for purposes of revenue, and is in accordance with the
last part of section 1 of Commonwealth Act 472. It is, therefore, valid.
The question now to be determined is whether it is applicable to the
plaintiff corporation. To us, it is a that if a company manufactures tin
cans to be sold to the public or to companies engaged in the sale and
distribution of the liquids, then said manufacture would be imposed by
the ordinance. However, where the manufacture of tin cans as in the
present case is conducted not as independent business, and for profit
but merely as an incident to or part of its main business, then it may
not be considered as an occupation or business which may be taxed
separately. The plaintiff company as already stated, is engaged in the
importation, distribution and sale of gasoline, kerosene and other fuel
oils and it is already paying the specific tax of two centavos and seven
centavos per liter of kerosene and gasoline, respectively, being sold by
it. While gasoline may be sold and distributed to its dealers and to the
public at gasoline stations and without the use of tin cans this may not
be done with kerosene or petroleum which is being sold not only in
small towns which have no kerosene stations but in distant barrios;
hence the necessity of providing suitable containers such as 5-gallon
tin cans. According to the findings of the trial court which we must
accept here, because the appeal was made directly to this Tribunal on
purely questions of law, the tin cans in question were not
manufactured by the appellant company "for sale to the public, but for
the purpose of distributing its products which are in liquid form."

The case of Smith, Bell & Co. vs. Municipality of Zamboanga reported
in 554 Phil., 466, involved a company engaged in the purchase and
sale of hemp which operated a motor engine used for baling hemp for
shipment. The Municipality of Zamboanga enacted an ordinance
requiring of a license fee of P100 a year for every motor engine used
for baling hemp. The company objected to the payment of the fee
saying that the use of its motor engine was an incident to its business
of purchase and sale hemp. After paying the fee under protest. The
company brought an action to recover the same from the municipality.
This Tribunal affirming the judgment of the lower court which decided
in favor of the company said that a company that has already paid
taxes or impost for the operation of its main business of purchase and
sale of hemp may not be further taxed for it possession and operation
of a motor engine to bale hemp for the reason that the baling of hemp
is connected with, incidental to and part of plaintiff's business,
particularly its sale and shipment of said commodity.

In the case of Craig vs. Ballard & Ballard Co., 196 Sc. 238, it was held
that:

Where a person or corporation is engaged in a distinct business


and, as a feature thereof, in an activity merely incidental which
serves no other person or business, the incidental and restricted
activity is not to be considered as intended to be separately or
additionally taxed.

In conclusion, we hold that when a person or company is already


taxed on its main business, it may not be further taxed for doing
something or engaging in an activity or work which is merely a part of,
incidental to and is necessary to its main business.

In view of the foregoing, the decision appealed from is hereby


reversed, and the Municipal Treasurer of Opon Cebu, is hereby ordered
to return to the plaintiff-appellant the sum of P26,639.50, without
interest, but with costs.

Pablo, Acting C.J., Bengzon, Reyes, A., Bautista Angelo and Labrador,
JJ., concur.

17. Ali Nam v. City of Manila, 109 Phil. 808


[G.R. No. L-15502. October 25, 1960.]

AH NAM, plaintiff-appellee, CITY OF MANILA, third-party


plaintiff-appellant, v. CITY OF MANILA, ET AL., defendants-
appellants, MUTUAL SECURITY INSURANCE CORPORATION,
third-party Defendant-Appellee.

City Fiscal H. Concepcin, Jr. and Asst. Fiscal M. T. Reyes


for Appellants.
Mendoza & San Luis for third-party appellee.

Celestino I. de Dios for Appellee.

SYLLABUS

1. MUNICIPAL CORPORATIONS; LICENSE AND PERMIT FEES UNDER


ORDINANCES NOS. 2699 AND 3000 OF CITY OF MANILA; DEALER
DEFINED. A dealer in the popular and statutory sense of the word is
not one who buys to keep or makes to sell, but one who buys to sell
again. (Norries v. Com., 27 Pa. 494; Com. v. Campbell, 33 Pa. 385;
Bouviers Law Dictionary, p. 775.) Hence, a person who sells empty
flour bags in his bakery, which contained the flour used by him in
connection with his bakery business, cannot be considered as a dealer.
Therefore, he cannot be required to pay a license fee under Ordinance
No. 2699 and permit and licensee fee under Ordinance No. 3000 of the
City of Manila.

DECISION

BARRERA, J.:

In a complaint filed in the Court of First Instance of Manila (Civil Case


No. 36329), Ah Nam, owner of two bakery-establishments, prayed for
a judgment declaring illegal the imposition upon him, allegedly as a
second-hand dealer, of municipal license and permit fees amounting to
P2,066.25, and ordering defendants City Mayor and City Treasurer to
desist from collecting the same. After defendants had filed an answer
sustaining the legality of the imposition, and a third party complaint
against the Mutual Security & Insurance Corporation, which undertook
the two bonds securing payment of the said amount of P2,066.25, 1
the parties submitted a stipulation of facts, the pertinent parts of
which read:jgc:chanrobles.com.ph

"1. That the plaintiff is the owner and proprietor of two bakeries,
namely, the Liberty Bakery and the Panaderia Blumentritt situated at
1401 Sande St., Tondo, Manila, and 312 Pavia St., Tondo, Manila
respectively;
"2. That both bakeries are duly licensed and permitted to operate as
such and for this purpose, the plaintiff has paid the corresponding
municipal license and permit fees;

"3. That in the operation of said bakeries, the plaintiff makes periodic
importation and purchases of flour contained in cloth-bags for which
the plaintiff pays no additional amount apart from the price of the
flour;

"4. That the empty flour bags are not used by the plaintiff as an
ingredient or material in the making of bread and other bakery
products;

"5. That after the consumption of the flour, the empty flour bags left
with the plaintiff were sold by him inside said establishments under
invoices separate from those for the bread and other bakery products
sold thereat;

"6. That the plaintiff sold empty flour bags in his bakery at No. 1401
Sande St., Tondo, Manila during the period from the 2nd quarter of
1952 to the 3rd quarter of 1957, inclusive, and also in his bakery at
No. 312 Pavia St., Tondo, Manila, from the 3rd quarter of 1951 to the
3rd quarter of 1957, inclusive, for which the defendants are
demanding from him payment of the sums of P967.50 and P1,098.75,
respectively, or a total of P2,066.25, as municipal license and permit
fees, including penalties, for doing business as a dealer in second-
hand goods under Ordinances Nos. 2699 and 3000;

"7. That the plaintiff has refused to make payments of the amounts
demanded by defendants on the ground that his acts of disposing of
the empty flour bags do not make him a dealer in second- hand goods
within the purview of said city ordinances;

"8. That on April 28, 1958, the third-party defendant Mutual Security
Insurance Corporation and the plaintiff Ah Nam executed in favor of
the third-party plaintiff two (2) surety bonds, one for P1,098.75 and
the other for P967.50, whereby they bound themselves in each, jointly
and severally, to pay the third-party plaintiff the said amounts,
representing the license and permit fees, including penalties, assessed
and demanded by defendant City Treasurer from the plaintiff for the
latters business of second-hand dealer of empty flour bags, the same
being due upon judgment having been rendered herein holding
plaintiff Ah Nam liable for said municipal license and permit fees,
including penalties, . . .,

x x x

"11. That plaintiff paid the 7% percentage tax on manufacturers


imposed by the Internal Revenue Code and the municipal license fees
on each of plaintiffs two bakeries, based on the gross sales inclusive
of the sales of money flour bags;

"12. That defendant City Treasurer assessed and collected from


plaintiff the municipal license fees prescribed by Ordinance No. 3364
on plaintiffs two bakeries on the basis of the sworn statement of sales
submitted by him to defendant City Treasurer, wherein plaintiff
declared all his gross sales as sales of bakery products only without
mentioning his sales of empty flour bags, and, as shown on the face of
each of the following receipts, . . . the license fees were computed on
the basis of the said declared gross sales of bakery products; and

"13. That the amounts of license fees that the plaintiff had to pay in
accordance with Ordinance No. 3364 for operating his two bakeries are
the same, whether or not the sales of empty flour bags were added to
the sales of the bakery products. . . ."cralaw virtua1aw library

Based on the foregoing, the court below rendered judgment holding


that the sale by plaintiff of the flour bags, after they were emptied of
the contents, was merely incidental to his bakery business, and did not
make him a dealer of used bags. Plaintiff was, therefore, declared not
liable to pay any license and permit fees in connection with the sale of
such empty flour bags. From this decision, defendants interpose the
instant appeal, involving only a question of law.

Assailing the ruling of the lower court, appellants contend that as


appellee made profit from the sales of the bags different from and in
addition to the proceeds of his bakery products, the sale of the bags is
not merely incidental to but separate and distinct from his bakery
business. Furthermore as the price of the flour that appellee buys for
use in his bakeries naturally includes the cost of the bags, and as such
bags, once emptied, are in turn sold, appellants claim that appellee is
actually "dealing" in used flour bags.

Section 752 of Ordinance No. 2699 relied upon by appellants, subjects


to licensing "any person who shall engage in, exercise or carry on the
trade or business of a dealer in second-hand furniture, household
goods, used automobiles, spare parts and other parts thereof, or other
articles," while Section 1 of Ordinance No. 3000, also invoked by
appellants, requires that before a person may conduct or engage in
any business, trade or occupation, he must secure a permit from the
City Mayor and the necessary license from the City Treasurer.

The only question to be determined in this case is whether, under the


circumstances, appellee may be considered as engaged in the business
or trade of a dealer and, therefore, subject to the requirements of
Ordinances Nos. 2699 and 3000.

On this point, the trial judge correctly held

"Under said Sec. 752 of Ordinance No. 2699, in order that a person
can be legally required to pay the corresponding license, it should be
made to appear that he is a dealer.A dealer in the popular, and
therefore in the statutory sense of the word is not one who buys to
keep or makes to sell, but one who buys to sell again. (Norries v.
Com., 27 Pa. 494; Com. v. Campbell, 33 Pa. 385; Bouviers Law
Dictionary, p. 775.) This definition has been adopted by the Supreme
Court in the case of City of Manila v. Bugsuk Lumber Co., 53 Off.
Gazette, 6111. Inasmuch as from the stipulation of facts, it clearly
appears that the plaintiff was selling only empty flour bags in his
bakery at No. 1401 Sande, Tondo, Manila, which contained the flour
used by him in connection with his bakery business, plaintiff can not
be considered as a dealer and, therefore, he is not liable to pay a
license under Ordinance No. 2699 as a dealer in second-hand goods. It
has not been shown that the plaintiff has been engaged in the
business of buying and selling of empty flour bags for it is admitted
that the empty flour bags sold by him are limited to those which
contained the flour used by him in his bakery business. Consequently,
the sale of empty flour bags was merely incidental to the business of
bakery in which the plaintiff is principally engaged. . . ."cralaw
virtua1aw library

Neither may appellee be obliged to pay the permit and license fees
required under Ordinance No. 3000 because, as heretofore stated, the
sale of the empty bags is not being carried as a separate or distinct
trade or enterprise, but merely as incident to the bakery business. As
a matter of fact, the sale of the flour bags depends on the volume of
consumption or use by appellees bakery business. Appellee does not
buy empty flour bags, independently of the flour he uses, for the
purpose of re-selling them, nor does he buy flour in order to get the
empty bags for sale, the main reason for the purchase being the utility
of the flour to the bakery business. That after attaining his purpose,
appellee finds some use for the empty bags, is certainly incidental only
to his bakery business. As under the ordinance the fees are imposed
on persons engaged in the trade or business of dealer, and as appellee
is not, in the real sense of the term, engaged in the business of buying
and selling used flour bags, the lower court committed no error in
exempting appellee from payment of the license and permit fees in
connection with the sale of such empty flour bags.

Wherefore, the decision appealed from is hereby affirmed, without


pronouncement as to costs. So ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L.,


Gutierrez David, and Paredes,JJ., concur.

Endnotes:

18. Figueras v. CA, G.R. No. 119172, March 25, 1999

[G.R. No. 119172. March 25, 1999]

BELEN C. FIGUERRES, petitioner, vs. COURT OF APPEALS, CITY


OF ASSESSORS OF MANDALUYONG, CITY TREASURER OF
MANDALUYONG, and SANGGUNIANG BAYAN OF
MANDALUYONG, respondents.

DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision of the


Court of Appeals, dated February 8, 1995, dismissing a prohibition suit
brought by petitioner against respondent officials of the Municipality,
now City, of Mandaluyong to prevent them from enforcing certain
ordinances revising the schedule of fair market values of the various
classes of real property in that municipality and the assessment levels
applicable thereto.
Petitioner Belen C. Figuerres is the owner of a parcel of land,
covered by Transfer Certificate of Title No. 413305, and located at
Amarillo Street, Barangay Mauway, City of Mandaluyong. In 1993, she
received a notice of assessment, dated October 20, 1993, from the
municipal assessor of the then Municipality of Mandaluyong, containing
the following specifics:

TYPE AREA BASE VALUE MARKET ASSESSMENT ASSESSED


PER SQ. M. VALUE LEVEL VALUE

Residential 530 sq.m. P2,500.00 P1,325,000.00 20 P265,000.00[1]

The assessment, effective in the year 1994, was based on


Ordinance Nos. 119 and 125, series of 1993, and Ordinance No. 135,
series of 1994, of the Sangguniang Bayan of Mandaluyong.Ordinance
No. 119, series of 1993, which was promulgated on April 22, 1993,
contains a schedule of fair market values of the different classes of
real property in the municipality.[2] Ordinance No. 125, series of 1993,
which was promulgated on November 11, 1993, on the other hand,
fixes the assessment levels applicable to such classes of real
property.[3] Finally, Ordinance No. 135, series of 1994, which was
promulgated on February 24, 1994, amended Ordinance No. 119, 6 by
providing that only one third (1/3) of the increase in the market values
applicable to residential lands pursuant to the said ordinance shall be
implemented in the years 1994, 1995, and 1996.[4]
Petitioner brought a prohibition suit in the Court of Appeals against
the Assessor, the Treasurer, and the Sangguniang Bayan to stop them
from enforcing the ordinances in question on the ground that the
ordinances were invalid for having been adopted allegedly without
public hearings and prior publication or posting and without complying
with the implementing rules yet to be issued by the Department of
Finance.[5]
In its decision, dated February 8, 1995,[6] the Court of Appeals
threw out the petition. The appellate court said in part:

Petitioners claim that Ordinance Nos. 119, 125 and 135 are null and
void since they were prepared without the approval and determination
of the Department of Finance is without merit.

The approval and determination by the Department of Finance is not


needed under the Local Government Code of 1991, since it is now the
city council of Mandaluyong that is empowered to determine and
approve the aforecited ordinances. Furthermore, contrary to the claim
of petitioner that the Department of Finance has not promulgated the
necessary rules and regulations for the classification, appraisal and
assessment of real property as prescribed by the 1991 Local
Government Code, Department of Finance Local Assessment
Regulation No. 1-92 dated October 6, 1992, which is addressed to
provincial, city, and municipal assessors and others concerned with the
proper implementation of Section 219 of R.A. No. 7160, provides for
the rules relative to the conduct of general revisions of real property
assessments pursuant to Sections 201 and 219 of the Local
Government Code of 1991.

Regarding petitioners claim that there is need for municipal ordinances


to be published in the Official Gazette for their effectivity, the same is
also without merit.

Section 511 of R.A. No. 7160 provides that

....

The secretary to the Sanggunian concerned shall transmit official


copies of such ordinances to the chief executive officer of the Official
Gazette within seven (7) days following the approval of the said
ordinances for publication purposes. The Official Gazette may publish
ordinances with penal sanctions for archival and reference purposes.

Thus, the posting and publication in the Official Gazette of ordinances


with penal sanctions is not a prerequisite for their effectivity. This finds
support in the case of Taada v. Tuvera (146 SCRA 446), wherein the
Supreme Court declared that municipal ordinances are covered by the
Local Government Code.

Moreover, petitioner failed to exhaust the administrative remedies


available to him as provided for under Section 187 of R.A. No. 7160,
before filing the instant petition with this Court.

....

In fact, aside from filing an appeal to the Secretary of Justice as


provided under Section 187 of R.A. No. 7160, the petitioner . . . could
have appealed to the Local Board of Assessment Appeals, the decision
of which is in turn appealable to the Central Board of Assessment
Appeals as provided under Sections 226 and 230 of the said
law. According to current jurisprudence, administrative remedies must
be exhausted before seeking judicial intervention. (Gonzales v.
Secretary of Education, 5 SCRA 657). If a litigant goes to court without
first pursuing the available administrative remedies, his action is
considered premature and not yet ripe for judicial determination (Allied
Brokerage Corporation v. Commissioner of Customs, 40 SCRA 555).

As the petitioner has not pursued the administrative remedies


available to him, his petition for prohibition cannot prosper (Gonzales
v. Provincial Auditor of Iloilo, 12 SCRA 711).

WHEREFORE, the petition is hereby DENIED due course and is hereby


DISMISSED.[7]

Petitioner Figuerres assails the above decision. She contends that


1. THE HONORABLE COURT OF APPEALS PATENTLY ERRED IN
FINDING LACK OF EXHAUSTION OF ADMINISTRATIVE
REMEDIES ON THE PART OF HEREIN PETITIONER WHEN
UNDER THE CIRCUMSTANCES, EXHAUSTION OF
ADMINISTRATIVE REMEDIES IS NOT REQUIRED BY LAW AND
WOULD HAVE BEEN A USELESS FORMALITY.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
STATED THAT THE CITY COUNCIL OF MANDALUYONG IS
EMPOWERED TO DETERMINE AND APPROVE THE
AFORECITED ORDINANCES WITHOUT TAKING INTO
ACCOUNT THE MANDATORY PUBLIC HEARINGS REQUIRED
BY R.A. No. 7160.
3. WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS
PATENTLY ERRED IN STATING THAT THERE IS NO NEED FOR
PUBLICATION OF TAX ORDINANCES.
4. THERE IS NON COMPLIANCE BY PUBLIC RESPONDENTS OF
ASSESSMENT REGULATION No. 1-92 DATED OCTOBER 6,
1992, EVEN IF THE HONORABLE COURT OF APPEALS
MENTIONED THE EXISTENCE OF THE SAID ASSESSMENT
REGULATIONS.[8]
On the other hand, the Municipality of Mandaluyong contends:
(1) the present case does not fall within any of the exceptions
to the doctrine of exhaustion of administrative remedies;
(2) apart from her bare allegations, petitioner Figuerres has not
presented any evidence to show that no public hearings were
conducted prior to the enactment of the ordinances in
question;
(3) although an ordinance concerning the imposition of real
property taxes is not required to be published in the Official
Gazette in order to be valid, still the subject ordinances were
disseminated before their effectivity in accordance with the
relevant provisions of R.A. No. 7160; and
(4) the Municipality of Mandaluyong complied with the
regulations of the Department of Finance in enacting the
subject ordinances.

Exhaustion of administrative remedies

In Lopez v. City of Manila,[9] we recently held:

. . . Therefore, where a remedy is available within the administrative


machinery, this should be resorted to before resort can be made to the
courts, not only to give the administrative agency the opportunity to
decide the matter by itself correctly, but also to prevent unnecessary
and premature resort to courts. . . .

With regard to questions on the legality of a tax ordinance, the


remedies available to the taxpayer are provided under Sections 187,
226, and 252 of R.A. 7160.

Section 187 of R.A. 7160 provides, that the taxpayer may question the
constitutionality or legality of a tax ordinance on appeal within thirty
(30) days from effectivity thereof, to the Secretary of Justice. The
petitioner after finding that his assessment is unjust, confiscatory, or
excessive, may bring the case before the Secretary of Justice for
questions of legality or constitutionality of the city ordinance.

Under Section 226 of R.A. 7160, an owner of real property who is not
satisfied with the assessment of his property may, within sixty (60)
days from notice of assessment, appeal to the Board of Assessment
Appeals.

Should the taxpayer question the excessiveness of the amount of tax,


he must first pay the amount due, in accordance with Section 252 of
R.A. No. 7160. Then, he must request the annotation of the phrase
paid under protest and accordingly appeal to the Board of Assessment
Appeals by filing a petition under oath together with copies of the tax
declarations and affidavits or documents to support his appeal.
Although cases raising purely legal questions are excepted from
the rule requiring exhaustion of administrative remedies before a party
may resort to the courts, in the case at bar, the legal questions raised
by petitioner require, as will presently be shown, proof of facts for
their resolution. Therefore, the petitioners action in the Court of
Appeals was premature, and the appellate court correctly dismissed
her action on the ground that she failed to exhaust available
administrative remedies as above stated.
Petitioner argues that resort to the Secretary of Justice is not
mandatory but only directory because R.A. No. 7160, 187 provides
that any question on the constitutionality or legality of tax ordinances
or revenue measures may be appealed to the Secretary of
Justice. Precisely, the Secretary of Justice can take cognizance of a
case involving the constitutionality or legality of tax ordinances where,
as in this case, there are factual issues involved.
There need be no fear that compliance with the rule on exhaustion
of administrative remedies will unduly delay resort to the courts to the
detriment of taxpayers. Although R.A. No. 7160, 187 provides that an
appeal to the Secretary of Justice shall not have the effect of
suspending the effectivity of the ordinance and the accrual and
payment of the tax, fee, or charge levied therein, it likewise requires
the Secretary of Justice to render a decision within sixty (60) days
from the date of receipt of the appeal, after which the aggrieved party
may file appropriate proceedings with a court of competent
jurisdiction.

Public hearings on tax ordinance

Petitioner is right in contending that public hearings are required to


be conducted prior to the enactment of an ordinance imposing real
property taxes. R.A. No. 7160, 186 provides that an ordinance levying
taxes, fees, or charges shall not be enacted without any prior public
hearing conducted for the purpose.
However, it is noteworthy that apart from her bare assertions,
petitioner Figuerres has not presented any evidence to show that no
public hearings were conducted prior to the enactment of the
ordinances in question. On the other hand, the Municipality of
Mandaluyong claims that public hearings were indeed conducted
before the subject ordinances were adopted,[10] although it likewise
failed to submit any evidence to establish this allegation. However, in
accordance with the presumption of validity in favor of an ordinance,
their constitutionality or legality should be upheld in the absence
of evidence showing that the procedure prescribed by law was not
observed in their enactment. In an analogous case, United States v.
Cristobal,[11] it was alleged that the ordinance making it a crime for
anyone to obstruct waterways had not been submitted by the
provincial board as required by 2232-2233 of the Administrative
Code. In rejecting this contention, the Court held:

From the judgment of the Court of First Instance the defendant


appealed to this court upon the theory that the ordinance in question
was adopted without authority on the part of the municipality and was
therefore unconstitutional. The appellant argues that there was no
proof adduced during the trial of the cause showing that said
ordinance had been approved by the provincial board.Considering the
provisions of law that it is the duty of the provincial board to approve
or disapprove ordinances adopted by the municipal councils of the
different municipalities, we will assume, in the absence of proof to the
contrary, that the law has been complied with. We have a right to
assume that officials have done that which the law requires them to
do, in the absence of positive proof to the contrary.[12]

Furthermore, the lack of a public hearing is a negative allegation


essential to petitioners cause of action in the present case. Hence, as
petitioner is the party asserting it, she has the burden of
proof.[13] Since petitioner failed to rebut the presumption of validity in
favor of the subject ordinances and to discharge the burden of proving
that no public hearings were conducted prior to the enactment thereof,
we are constrained to uphold their constitutionality or legality.

Publication and posting of schedule of fair market values

Petitioner is also right that publication or posting of the proposed


schedule of fair market values of the different classes of real property
in a local government unit is required pursuant to R.A. No. 7160, 212
which in part states:

. . . . The schedule of fair market values shall be published in a


newspaper of general circulation in the province, city, or municipality
concerned, or in the absence thereof, shall be posted in the provincial
capitol, city or municipal hall and in two other conspicuous public
places therein.
In Ty v. Trampe,[14] it was held that, if the local government unit is
part of Metro Manila, the abovequoted portion of 212 must be
understood to refer to the schedule of fair market values of the
different classes of real property in the district to which the city or
municipality belongs, as prepared jointly by the local assessors
concerned.
In addition, an ordinance imposing real property taxes (such as
Ordinance Nos. 119 and 135) must be posted or published as required
by R.A. No. 7160, 188 which provides:

Section 188. Publication of Tax Ordinances and Revenue


Measures. Within ten (10) days after their approval, certified true
copies of all provincial, city, and municipal tax ordinances or revenue
measures shall be published in full for three (3) consecutive days in a
newspaper of local circulation: Provided, however, That in provinces,
cities and municipalities where there are no newspapers of local
circulation, the same may be posted in at least two (2) conspicuous
and publicly accessible places.

Hence, after the proposed schedule of fair market values of the


different classes of real property in a local government unit within
Metro Manila, as prepared jointly by the local assessors of the district
to which the city or municipality belongs, has been published or posted
in accordance with 212 of R.A. No. 7160 and enacted into ordinances
by the sanggunians of the municipalities and cities concerned, the
ordinances containing the schedule of fair market values must
themselves be published or posted in the manner provided by 188 of
R.A. No. 7160.
With respect to ordinances which fix the assessment levels (such
as Ordinance No. 125), being in the nature of a tax ordinance, 188
likewise applies. Moreover, as Ordinance No. 125, 7 provides for a
penal sanction for violations thereof by means of a fine of not less
than P1,000.00 nor more than P5,000.00, or imprisonment of not less
than one (1) month nor more than six (6) months, or both, in the
discretion of the court, not only 188 but 511(a) also must be
observed:

Ordinances with penal sanctions shall be posted at prominent places in


the provincial capitol, city, municipal or barangay hall, as the case may
be, for a minimum period of three (3) consecutive weeks. Such
ordinances shall also be published in a newspaper of general
circulation, where available, within the territorial jurisdiction of the
local government unit concerned, except in the case of barangay
ordinances. Unless otherwise provided therein, said ordinances shall
take effect on the day following its publication, or at the end of the
period of posting, whichever occurs later.

In view of 188 and 511(a) of R.A. No. 7160, an ordinance fixing


the assessment levels applicable to the different classes of real
property in a local government unit and imposing penal sanctions for
violations thereof (such as Ordinance No. 125) should be published in
full for three (3) consecutive days in a newspaper of local circulation,
where available, within ten (10) days of its approval, and posted in at
least two (2) prominent places in the provincial capitol, city, municipal,
or barangay hall for a minimum of three (3) consecutive weeks.
Apart from her allegations, petitioner has not presented any
evidence to show that the subject ordinances were not disseminated in
accordance with these provisions of R.A. No. 7160. On the other hand,
the Municipality of Mandaluyong presented a certificate, dated
November 12, 1993, of Williard S. Wong, Sanggunian Secretary of the
Municipality of Mandaluyong that Ordinance No. 125, S-1993 . . . has
been posted in accordance with 59(b) of R.A. No. 7160, otherwise
known as the Local Government Code of 1991.[15] Thus, considering
the presumption of validity in favor of the ordinances and the failure of
petitioner to rebut such presumption, we are constrained to dismiss
the petition in this case.

Compliance with regulations issued by the Department of Finance

Also without merit is the contention of petitioner that Ordinance


No. 119 and Ordinance No. 135 are void for not having been enacted
in accordance with Local Assessment Regulation No. 1-92, dated
October 6, 1992, of the Department of Finance, which provides
guidelines for the preparation of proposed schedules of fair market
values of the different classes of real property in a local government
unit, such as time tables for obtaining information from owners of
affected lands and buildings regarding the value thereof. As in the case
of the procedural requirements for the enactment of tax ordinances
and revenue measures, however, petitioner has not shown that the
ordinances in this case were not enacted in accordance with the
applicable regulations of the Department of Finance. The Municipality
of Mandaluyong claims that, although the regulations are merely
directory, it has complied with them.[16] Hence, in the absence of proof
that the ordinances were not enacted in accordance with such
regulations, said ordinances must be presumed to have been enacted
in accordance with such regulations.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Bellosillo (Chairman), Puno, Quisumbing, and Buena, JJ., concur.

19. Tuazon v. CA, 212 SCRA 739, 745 (1992)


[G.R. No. 90107. August 21, 1992.]

DOMINGO A. TUZON and LOPE C. MAPAGU, Petitioners, v.


HONORABLE COURT OF APPEALS and SATURNINO T.
JURADO, Respondents.

Alfredo J . Donato and Orlando B. Consigna, for Petitioners.

Hermenegildo G. Rapanan for Private Respondent.

SYLLABUS

1. CIVIL LAW; DONATION; ACT OF LIBERALITY AND NEVER


OBLIGATORY; CASE AT BAR. While it would appear from the
wording of the resolution that the municipal government merely
intends to "solicit" the 1% contribution from the threshers, the
implementing agreement seems to make the donation obligatory and a
condition precedent to the issuance of the mayors permit. This goes
against the nature of a donation, which is an act of liberality and is
never obligatory.

2. ID.; HUMAN RELATIONS; ARTICLE 27 OF THE NEW CIVIL CODE;


PURPOSE; CASE AT BAR. The private respondent anchors his claim
for damages on Article 27 of the New Civil Code, which reads: Art. 27.
Any person suffering material or moral loss because a public servant
or employee refuses or neglects, without just cause, to perform his
official duty may file an action for damages and other relief against the
latter, without prejudice to any disciplinary administrative action that
may be taken. It has been remarked that one purpose of this article is
to end the "bribery system, where the public official, for some flimsy
excuse, delays or refuses the performance of his duty until he gets
some kind of pabagsak." Official inaction may also be due to plain
indolence or a cynical indifference to the responsibilities of public
service. According to Phil. Match Co. Ltd. v. City of Cebu, (81 SCRA
99) the provision presupposes that the refusal or omission of a public
official to perform his official duty is attributable to malice or
inexcusable negligence. In any event, the erring public functionary is
justly punishable under this article for whatever loss or damage the
complainant has sustained. In the present case, it has not even been
alleged that the Mayor Tuzons refusal to act on the private
respondents application was an attempt to compel him to resort to
bribery to obtain approval of his application. It cannot be said either
that the mayor and the municipal treasurer were motivated by
personal spite or were grossly negligent in refusing to issue the permit
and license to Jurado. It is no less significant that no evidence has
been offered to show that the petitioners singled out the private
respondent for persecution. Neither does it appear that the petitioners
stood to gain personally from refusing to issue to Jurado the mayors
permit and license he needed. The petitioners were not Jurados
business competitors nor has it been established that they intended to
favor his competitors. On the contrary, the record discloses that the
resolution was uniformly applied to all the threshers in the municipality
without discrimination or preference.

3. TAXATION; ENACTMENT OF TAX ORDINANCE WHERE TAX BASE OR


SUBJECT NOT SIMILAR OR COMPARABLE TO ANY OF THOSE
ENUMERATED IN LOCAL TAX CODE; REQUIREMENTS. If, on the
other hand, it is to be considered a tax ordinance, then it must be
shown in view of the challenge raised by the private respondents to
have been enacted in accordance with the requirements of the Local
Tax Code. These would include the holding of a public hearing on the
measure and its subsequent approval by the Secretary of Finance, in
addition to the usual requisites for publication of ordinances in general.

4. ADMINISTRATIVE LAW; PUBLIC OFFICERS; NOT PERSONALLY


LIABLE FOR INJURIES OCCASIONED BY PERFORMANCE OF OFFICIAL
DUTY WITHIN SCOPE OF OFFICIAL AUTHORITY; ERRONEOUS
INTERPRETATION OF ORDINANCE DOES NOT CONSTITUTE BAD
FAITH; CASE AT BAR. The Court is convinced that the petitioners
acted within the scope of their authority and in consonance with their
honest interpretation of the resolution in question. We agree that it
was not for them to rule on its validity. In the absence of a judicial
decision declaring it invalid, its legality would have to be presumed (in
fact, both the trial court and the appellate court said there was nothing
wrong with it). As executive officials of the municipality, they had the
duty to enforce it as long as it had not been repealed by the
Sangguniang Bayan or annulled by the courts. . . . As a rule, a public
officer, whether judicial, quasi-judicial or executive, is not personally
liable to one injured in consequence of an act performed within the
scope of his official authority, and in line of his official duty. . . . It has
been held that an erroneous interpretation of an ordinance does not
constitute nor does it amount to bad faith that would entitle an
aggrieved party to an award for damages. (Philippine Match Co. Ltd. v.
City of Cebu, 81 SCRA 99).

DECISION

CRUZ, J.:

The petitioners are questioning the decision of the respondent court


holding them liable in damages to the private respondent for refusing
to issue to him a mayors permit and license to operate his palay-
threshing business.

The case goes back to March 14, 1977, when the Sangguniang Bayan
of Camalaniugan, Cagayan, unanimously adopted Resolution No. 9,
reading pertinently as follows:jgc:chanrobles.com.ph

"WHEREAS, the municipality of Camalaniugan, Cagayan has embarked


in the construction of Sports and Nutrition Center, to provide the
proper center wherein the government program of Nutrition and
physical development of the people, especially the youth could be well
administered:jgc:chanrobles.com.ph

"WHEREAS, the available funds for the construction of the said project
is far (sic) being adequate to finance its completion;

"WHEREAS, the Sangguniang Bayan have (sic) thought of fund-raising


scheme, to help finance the construction of the project, by soliciting
1% donation from the thresher operators who will apply for a permit to
thresh within the jurisdiction of this municipality, of all the palay
threshed by them to help finance the continuation of the construction
of the Sports and Nutrition Center Building.chanrobles law library : red

RESOLVED, therefore, as it is hereby resolved, that the municipal


treasurer is hereby authorized to enter into an agreement to all
thresher operators, that will come to apply for a permit to thresh palay
within the jurisdiction of this municipality to donate 1% of all the palay
threshed by them.chanrobles virtual lawlibrary

To implement the above resolution, petitioner Lope C. Mapagu, then


incumbent municipal treasurer, prepared the following document for
signature of all thresher/owner/operators applying for a mayors
permit:chanrob1es virtual 1aw library

AGREEMENT

That I, _____________ thresher-owner-operator hereby voluntarily


agree to donate to the municipality of Camalaniugan, Cagayan, one
percent (1%) of all palay threshed by me within the jurisdiction of
Camalaniugan, Cagayan, to help finance the completion of the
construction of the sports and nutrition center building of
Camalaniugan per Resolution No. 9 dated March 14, 1977 of the
Sanggunian Bayan;

That I also agree to report weekly the total number of palay threshed
by me to the municipal treasurer and turn over the corresponding 1%
share of the municipality for the said project mentioned above.

Signed this day of __________, 1977.

____________________

Thresher/Owner/Operator

Soon thereafter, private respondent Saturnino T. Jurado sent his agent


to the municipal treasurers office to pay the license fee of P285.00 for
thresher operators. Mapagu refused to accept the payment and
required him to first secure a mayors permit. For his part, Mayor
Domingo Tuzon, the herein other petitioner, said that Jurado should
first comply with Resolution No. 9 and sign the agreement before the
permit could be issued. Jurado ignored the requirement. Instead, he
sent the P285.00 license fee by postal money order to the office of the
municipal treasurer who, however, returned the said amount. The
reason given was the failure of the respondent to comply with
Resolution No. 9.

On April 4, 1977, Jurado filed with the Court of First Instance of


Cagayan a special civil action for mandamus with actual and moral
damages to compel the issuance of the mayors permit and license. On
May 31, 1977, he filed another petition with the same court. this time
for declaratory judgment against the said resolution (and the
implementing agreement) for being illegal either as a donation or as a
tax measure. Named defendants were the same respondents and all
the members of the Sangguniang Bayan of Camalaniugan.

In a joint decision dated March 31, 1982, the trial court 1 upheld the
challenged measure. However, it dismissed the claims for damages of
both parties for lack of evidence.chanroblesvirtuallawlibrary

Jurado appealed to the Court of Appeals, which in it decision dated


August 31, 1989, 2 affirmed the validity of Resolution No. 9 and the
implementing agreement. Nevertheless, it found Tuzon and Mapagu to
have acted maliciously and in bad faith when they denied Jurados
application for the mayors permit and license. Consequently, they
were held liable thus:chanrob1es virtual 1aw library

WHEREFORE, in view of all the foregoing, the decision appealed from


is hereby MODIFIED in that appellees Mayor and Municipal Treasurer
are hereby ordered to pay jointly and severally the appellant the
following amounts: P20,000.00 as actual damages; P5,000.00 as
moral damages; and P3,000.00 as attorneys fees.

The petitioners now seek relief from this Court on the grounds
that:chanrob1es virtual 1aw library

1. Respondent Court gravely abused its discretion when it concluded


that the refusal on the part of the petitioners to issue a Mayors permit
and license to operate a thresher to the private respondent is
"unjustified and constitutes bad faith" on their part.chanrobles law
library : red

2. Respondent Court gravely abused its discretion when it concluded


that compliance with Resolution No. 9 and its implementing agreement
is not mandatory despite its own ruling and finding that Resolution No.
9 is valid because the same was passed in accordance with the
provisions of the 1973 Constitution and the Local Tax Code.

3. Respondent court likewise gravely abused its discretion when it


awarded damages to the private respondent, contrary to the findings
of facts of the trial court to the effect that petitioners were not guilty
of bad faith and malice and because from the records, there is no
proof or evidence to support such award.
The petitioners stress that they were acting in their official capacity
when they enforced the resolution, which was duly adopted by the
Sangguniang Bayan and later declared to be valid by both the trial and
the appellate courts. For so acting, they cannot be held personally
liable in damages, more so because their act was not tainted with bad
faith or malice. This was the factual finding of the trial court and the
respondent court was not justified in reversing it.

Commenting on the petition, the private respondent avers that the


signing of the implementing agreement was not a condition sine qua
non to the issuance of a permit and license. Hence the petitioners
unwarranted refusal to issue the permit and license despite his offer to
pay the required fee constituted bad faith on their part.

Jurado further assails Resolution No. 9 and the implementing


agreement for compelling the thresher to donate something which he
does not yet own. He also claims that the measure contravenes the
limitations on the taxing powers of local government units under
Section 5, of the Local Tax Code.

His conclusion is that he is entitled to actual and moral damages from


the petitioners under Article 27 of the Civil Code, and to the payment
of attorneys fees as well, for their refusal or neglect, without just
cause, to perform their official duties.

We need not concern ourselves at this time with the validity of


Resolution No. 9 and the implementing agreement because the issue
has not been raised in this petition as an assigned error of the
respondent court. The measures have been sustained in the
challenged decision, from which the respondent has not appealed. The
decision is final and binding as to him. It is true that he did question
the measures in his Comment, but only half-heartedly and obliquely,
to support his claim for damages. We may therefore defer examination
of these measures to a more appropriate case, where it may be
discussed more fully by the proper parties.chanroblesvirtual|awlibrary

We may merely observe at this time that in sustaining Resolution No.


9, the respondent court said no more than that:chanrob1es virtual
1aw library

It was passed by the Sangguniang Bayan of Camalaniugan in the


lawful exercise of its legislative powers in pursuance to Article XI,
Section 5 of the 1973 Constitution which provided that: "Each local
government unit shall have the power to create (sic) its own source of
revenue and to levy taxes, subject to such limitation as may be
provided by law." And under Article 4, Section 29 of Presidential
Decree No. 231 (Enacting a Local Tax Code for Provinces, Cities,
Municipalities and Barrios), it is provided that:jgc:chanrobles.com.ph

"Section 29. Contributions. In addition to the above specified taxing


and other revenue-raising powers, the barrio council may solicit
monies, materials, and other contributions from the following
sources:chanrob1es virtual 1aw library

x x x

"(c) Monies from private agencies and individuals."cralaw virtua1aw


library

That is an over simplification. The respondent court has not offered


any explanation for its conclusion that the challenged measures are
valid nor does it discuss its own concept of the nature of the
resolution.cralawnad

While it would appear from the wording of the resolution that the
municipal government merely intends to "solicit" the 1% contribution
from the threshers, the implementing agreement seems to make the
donation obligatory and a condition precedent to the issuance of the
mayors permit. This goes against the nature of a donation, which is
an act of liberality and is never obligatory. 3

If, on the other hand, it is to be considered a tax ordinance, then it


must be shown in view of the challenge raised by the private
respondents to have been enacted in accordance with the
requirements of the Local Tax Code. These would include the holding
of a public hearing on the measure 4 and its subsequent approval by
the Secretary of Finance, 5 in addition to the usual requisites for
publication of ordinances in general. 6

The only issue that has to be resolved in this case is whether or not
the petitioners are liable in damages to the private respondent for
having withheld from him the mayors permit and license because of
his refusal to comply with Resolution No. 9.cralawnad

The private respondent anchors his claim for damages on Article 27 of


the New Civil Code, which reads:chanrob1es virtual 1aw library
Art. 27. Any person suffering material or moral loss because a public
servant or employee refuses or neglects, without just cause, to
perform his official duty may file an action for damages and other
relief against the latter, without prejudice to any disciplinary
administrative action that may be taken.

It has been remarked that one purpose of this article is to end the
"bribery system, where the public official, for some flimsy excuse,
delays or refuses the performance of his duty until he gets some kind
of pabagsak." 7 Official inaction may also be due to plain indolence or
a cynical indifference to the responsibilities of public service. According
to Phil. Match Co. Ltd. v. City of Cebu, 8 the provision presupposes
that the refusal or omission of a public official to perform his official
duty is attributable to malice or inexcusable negligence. In any event,
the erring public functionary is justly punishable under this article for
whatever loss or damage the complainant has sustained.

In the present case, it has not even been alleged that the Mayor
Tuzons refusal to act on the private respondents application was an
attempt to compel him to resort to bribery to obtain approval of his
application. It cannot be said either that the mayor and the municipal
treasurer were motivated by personal spite or were grossly negligent
in refusing to issue the permit and license to Jurado.

It is no less significant that no evidence has been offered to show that


the petitioners singled out the private respondent for persecution.
Neither does it appear that the petitioners stood to gain personally
from refusing to issue to Jurado the mayors permit and license he
needed. The petitioners were not Jurados business competitors nor
has it been established that they intended to favor his competitors. On
the contrary, the record discloses that the resolution was uniformly
applied to all the threshers in the municipality without discrimination
or preference.chanrobles.com:cralaw:red

The Court is convinced that the petitioners acted within the scope of
their authority and in consonance with their honest interpretation of
the resolution in question. We agree that it was not for them to rule on
its validity. In the absence of a judicial decision declaring it invalid, its
legality would have to be presumed (in fact, both the trial court and
the appellate court said there was nothing wrong with it). As executive
officials of the municipality, they had the duty to enforce it as long as
it had not been repealed by the Sangguniang Bayan or annulled by the
courts. 9
. . . As a rule, a public officer, whether judicial, quasi-judicial or
executive, is not personally liable to one injured in consequence of an
act performed within the scope of his official authority, and in line of
his official duty.chanrobles virtual lawlibrary

. . . It has been held that an erroneous interpretation of an ordinance


does not constitute nor does it amount to bad faith that would entitle
an aggrieved party to an award for damages. (Philippine Match Co.
Ltd. v. City of Cebu, 81 SCRA 99).

The private respondent complains that as a result of the petitioners


acts, he was prevented from operating his business all this time and
earning substantial profit therefrom, as he had in previous years. But
as the petitioners correctly observed, he could have taken the prudent
course of signing the agreement under protest and later challenging it
in court to relieve him of the obligation to "donate." Pendente lite, he
could have continued to operate his threshing business and thus
avoided the lucro cesante that he now says was the consequence of
the petitioners wrongful act. He could have opted for the less
obstinate but still dissentient action, without loss of face, or principle,
or profit.

In view of the foregoing, We find that the petitioners, having acted in


good faith in the discharge of their official functions, should be
absolved from liability.

ACCORDINGLY, the appealed decision is reversed insofar as it holds


the petitioners liable in damages and attorneys fees to the
private Respondent. No costs.

SO ORDERED.

Grio-Aquino and Bellosillo, JJ., concur.

Medialdea, J., No part.

20. Coca-Cola Bottlers Phils., Inc. vs. City of Manila (June 27, 2006)

G.R. No. 156252 June 27, 2006

COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner,


vs.
CITY OF MANILA, LIBERTY M. TOLEDO City Treasurer and
JOSEPH SANTIAGO Chief, Licensing Division, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the


1997 Rules of Civil Procedure, assailing the Order1 of the Regional Trial
Court (RTC) of Manila, Branch 21, dated 8 May 2002, dismissing
petitioners Petition for Injunction, and the Order2 dated 5 December
2002, denying petitioners Motion for Reconsideration.

Petitioner Coca-Cola Bottlers Philippines, Inc. is a corporation engaged


in the business of manufacturing and selling beverages and maintains
a sales office located in the City of Manila.

On 25 February 2000, the City Mayor of Manila approved Tax


Ordinance No. 7988, otherwise known as "Revised Revenue Code of
the City of Manila" repealing Tax Ordinance No. 7794 entitled,
"Revenue Code of the City of Manila." Tax Ordinance No. 7988
amended certain sections of Tax Ordinance No. 7794 by increasing the
tax rates applicable to certain establishments operating within the
territorial jurisdiction of the City of Manila, including herein petitioner.

Aggrieved by said tax ordinance, petitioner filed a Petition3 before the


Department of Justice (DOJ), against the City of Manila and its
Sangguniang Panlungsod, invoking Section 1874 of the Local
Government Code of 1991 (Republic Act No. 7160). Said Petition
questions the constitutionality or legality of Section 21 of Tax
Ordinance No. 7988. According to petitioner:

Section 21 of the Old Revenue Code of the City of Manila (Ordinance


No. 7794, as amended) was reproduced verbatim as Section 21 under
the new Ordinance except for the last paragraph thereof which reads:
"PROVIDED, that all registered businesses in the City of Manila that
are already paying the aforementioned tax shall be exempted from
payment thereof", which was deleted; that said deletion would, in
effect, impose additional business tax on businesses, including herein
petitioner, that are already subject to business tax under the other
sections, specifically Sec. 14, of the New Revenue Code of the City of
Manila, which imposition, petitioner claims, "is beyond or exceeds the
limitation on the taxing power of the City of Manila under Sec. 143 (h)
of the LGC of 1991; and that deletion is a palpable and manifest
violation of the Local Government Code of 1991, and the clear
mandate of Article X, Sec. 5 of the 1987 Constitution, hence Section
21 is "illegal and unconstitutional."

On 17 August 2000, then DOJ Secretary Artemio G. Tuquero issued a


Resolution declaring Tax Ordinance No. 7988 null and void and without
legal effect, the pertinent portions of which read:

After a judicious scrutiny of the records of this case, in the light of the
pertinent provisions of the Local Government Code of 1991, this
Department finds for the petitioner.

The Local Government Code of 1991 provides:

"Section 188. Publication of Tax Ordinances and Revenue Measures.


Within ten (10) days after their approval, certified true copies of all
provincial, city and municipal tax ordinances or revenue measures
shall be published in full for three (3) consecutive days in a newspaper
of local circulation; Provided, however, that in provinces, cities, and
municipalities where there are no newspapers or local circulations the
same may be posted in at least two (2) conspicuous and publicly
accessible places." (R.A. No. 7160) (stress supplied)

Upon the other hand, the Rules and Regulations Implementing the
Local Government Code of 1991, insofar as pertinent, mandates:

"Art. 277. Publication of Tax Ordinances and Revenue Measures. (a)


within ten (10) days after their approval, certified true copies of all
provincial, city and municipal tax ordinances or revenue measures
shall be published in full for three (3) consecutive days in a newspaper
of local circulation provided that in provinces, cities and municipalities
where there are no newspapers of local circulation, the same may be
posted in at least two (2) conspicuous and publicly accessible places.

If the tax ordinances or revenue measure contains penal provisions as


authorized under Art. 279 of this Rule, the gist of such tax ordinance
or revenue measure shall be published in a newspaper of general
circulation within the province, posting of such ordinance or measure
shall be made in accessible and conspicuous public places in all
municipalities and cities of the province to which the sanggunian
enacting the ordinance or revenue measure belongs.

xxx xxx xxx."


(emphasis ours)

It is clear from the above-quoted provisions of R.A. No. 7160 and its
implementing rules that the requirement of publication is MANDATORY
and leaves no choice. The use of the word "shall" in both provisions is
imperative, operating to impose a duty that may be enforced (Soco v.
Militante, 123 SCRA 160, 167; Modern Coach Corp. v. Faver 173 SE 2d
497, 499).

Its essence is simply to inform the people and the entities who may
likely be affected, of the existence of the tax measure. It bears
emphasis, that, strict observance of the said procedural requirement is
the only safeguard against any unjust and unreasonable exercise of
the taxing powers by ensuring that the taxpayers are notified through
publication of the existence of the measure, and are therefore able to
voice out their views or objections to the said measure. For, after all,
taxes are obligatory exactions or enforced contributions corollary to
taking of property.

xxxx

In the case at bar, respondents, by its failure to file their comments


and present documentary evidence to show that the mandatory
requirement of law on publication, among other things, has been met,
may be deemed to have waived its right to controvert or dispute the
documentary evidence submitted by petitioner which indubitably show
that subject tax ordinance was published only once, i.e., on the May
22, 2000 issue of the Philippine Post. Clearly, therefore, herein
respondents failed to satisfy the requirement that said ordinance shall
be published for three (3) consecutive days as required by law.

xxxx

In view of the foregoing, we find it unnecessary to pass upon the other


issues raised by the petitioner.

WHEREFORE, premises considered, Tax Ordinance No. 7988 of the City


of Manila is hereby declared NULL and VOID and WITHOUT LEGAL
EFFECT for having been enacted in contravention of the provisions of
the Local Government Code of 1991 and its implementing rules and
regulations.5

The City of Manila failed to file a Motion for Reconsideration nor lodge
an appeal of said Resolution, thus, said Resolution of the DOJ
Secretary declaring Tax Ordinance No. 7988 null and void has lapsed
into finality.

On 16 November 2000, Atty. Leonardo A. Aurelio wrote the Bureau of


Local Government Finance (BLGF) requesting in behalf of his client,
Singer Sewing Machine Company, an opinion on whether the Office of
the City Treasurer of Manila has the right to enforce Tax Ordinance No.
7988 despite the Resolution, dated 17 August 2000, of the DOJ
Secretary. Acting on said letter, the BLGF Executive Director issued an
Indorsement on 20 November 2000 ordering the City Treasurer of
Manila to "cease and desist" from enforcing Tax Ordinance No. 7988.
According to the BLGF:

In the attached Resolution dated August 17, 2000 of the Department


of Justice, it is stated that "x x x Ordinance No. 7988 of the City of
Manila is hereby declared NULL AND VOID AND WITHOUT LEGAL
EFFECT for having been enacted in contravention of the provisions of
the Local Government Code of 1991 and its implementing rules and
regulations."

xxxx

In view thereof, that Office is hereby instructed to cease and desist


from implementing the aforementioned Manila Tax Ordinance No.
7988, inviting attention to Section 190 of the Local Government Code
(LGC) of 1991, quoted hereunder:

"Section 190. Attempt to Enforce Void or Suspended Tax Ordinances


and Revenue Measures.- The enforcement of any tax ordinance or
revenue measures after due notice of the disapproval or suspension
thereof shall be sufficient ground to administrative disciplinary action
against the local officials and employees responsible therefore."

Be guided accordingly.6

Despite the Resolution of the DOJ declaring Tax Ordinance No. 7988
null and void and the directive of the BLGF that respondents cease and
desist from enforcing said tax ordinance, respondents continued to
assess petitioner business tax for the year 2001 based on the tax rates
prescribed under Tax Ordinance No. 7988. Thus, petitioner filed a
Complaint with the RTC of Manila, Branch 21, on 17 January 2001,
praying that respondents be enjoined from implementing the
aforementioned tax ordinance.
On 28 November 2001, the RTC of Manila, Branch 21, rendered a
Decision in favor of petitioner, the decretal portion of which states:

The defendants did not follow the procedure in the enactment of Tax
Ordinance No. 7988. The Court agrees with plaintiffs contention that
the ordinance should first be published for three (3) consecutive days
in a newspaper of local circulation aside from the posting of the same
in at least four (4) conspicuous public places.

xxxx

WHEREFORE, premises considered, judgment is hereby rendered


declaring the injunction permanent. Defendants are enjoined from
implementing Tax Ordinance No. 7988. The bond posted by the
plaintiff is hereby CANCELLED.7

During the pendency of the said case, the City Mayor of Manila
approved on 22 February 2001 Tax Ordinance No. 8011 entitled, "An
Ordinance Amending Certain Sections of Ordinance No. 7988." Said
tax ordinance was again challenged by petitioner before the DOJ
through a Petition questioning the legality of the aforementioned tax
ordinance on the grounds that (1) said tax ordinance amends a tax
ordinance previously declared null and void and without legal effect by
the DOJ; and (2) said tax ordinance was likewise not published upon
its approval in accordance with Section 188 of the Local Government
Code of 1991.

On 5 July 2001, then DOJ Secretary Hernando Perez issued a


Resolution declaring Tax Ordinance No. 8011 null and void and legally
not existing. According to the DOJ Secretary:

After a careful examination/evaluation of the records of this case and


applying the pertinent provisions of the Local Government Code of
1991, this Department finds the instant petition of Coca-Cola Bottlers,
Philippines, Inc. meritorious.

It bears stress, at the outset, that the subject ordinance was passed
and approved by the respondents principally to amend Ordinance No.
7988 which was earlier nullified by this Department in its Resolution
Dated August 17, 2000, also at the instance of the herein petitioner. x
xx

xxxx
x x x [T]he only logical conclusion, therefore, is that Ordinance No.
8011, subject herein, is also null and void, it being a mere amendatory
ordinance of Ordinance No. 7988 which, as earlier stated, had been
nullified by this Department. An invalid or unconstitutional law or
ordinance does not, in legal contemplation, exist (Manila Motors Co.,
Inc. vs. Flores, 99 Phil. 738). Where a statute which has been
amended is invalid, nothing, in effect, has been amended. As held in
People vs. Lim, 108 Phil. 1091:

"If an order or law sought to be amended is invalid, then it does not


legally exist. There would be no occasion or need to amend it; x x x"
(at p. 1097)

Instead of amending Ordinance No. 7988, herein respondent should


have enacted another tax measure which strictly complies with the
requirements of law, both procedural and substantive. The passage of
the assailed ordinance did not have the effect of curing the defects of
Ordinance No. 7988 which, any way, does not legally exist.

xxxx

WHEREFORE, premises considered, Tax Ordinance No. 8011 is hereby


declared NULL and VOID and LEGALLY NOT EXISTING.8

Respondents Motion for Reconsideration of the Resolution of the DOJ


was subsequently denied in a Resolution,9dated 12 March 2002.

The City of Manila appealed the DOJ Resolution, dated 12 March 2002,
denying its Motion for Reconsideration of the Resolution nullifying Tax
Ordinance No. 8011 before the RTC of Manila, Branch 17, but the
same was dismissed for lack of jurisdiction in an Order, dated 2
December 2002. According to the trial court:

From whatever angle the recourse of herein petitioners was viewed,


either from the standpoint of Section 1, Rule 43, or Section 1 and the
last sentence of the second paragraph of Section 4, Rule 65 of the
1997 Rules of Civil Procedure, the conclusion was inevitable that
petitioners remedial measure from dispositions of the Secretary of
Justice should have been ventilated before the next judicial plane. x x
x

Accordingly, by reason of the foregoing premises, Civil Case No. 02-


103372 for "Certiorari" is DISMISSED.
Consequently, respondents appealed the foregoing Order, dated 2
December 2002, via a Petition for Review on Certiorari to the Supreme
Court docketed as G.R. No. 157490. However, said appeal was
dismissed in our Resolution, dated 23 June 2003, the dispositive of
which reads:

Pursuant to Rule 45 and other related provisions of the 1997 Rules of


Civil Procedure as amended governing appeals by certiorari to the
Supreme Court, only petitions which are accompanied by or which
comply strictly with the requirements specified therein shall be
entertained. On the basis thereof, the Court resolves to DENY the
instant petition for review on certiorari of the orders of the Regional
Trial Court, Manila, Branch 17 dated December 2, 2002 and March 7,
2003 for the late filing as the petition was filed beyond the
reglementary period of fifteen (15) days fixed in Sec. 2, Rule 45 in
relation to Sec. 5(a), Rule 56.

The omnibus motion of petitioners for reconsideration of the resolution


of April 23, 2003 which denied the motion for an extension of time to
file a petition is DENIED for lack of merit.

Respondents Motion for Reconsideration was subsequently denied in a


Resolution, dated 11 August 2003, in which the Court resolved as
follows:

Acting on the motion of petitioners for reconsideration of the resolution


of June 23, 2003 which denied the petition for review on certiorari and
considering that there is no compelling reason to warrant a
modification of this Courts resolution, the Court resolves to DENY
reconsideration with FINALITY.

Meanwhile, on the basis of the enactment of Tax Ordinance No. 8011,


the City of Manila filed a Motion for Reconsideration with the RTC of
Manila, Branch 21, of its Decision, dated 28 November 2001, which the
court a quo granted in the herein assailed Order dated 8 May 2002,
the full text of which reads:

Considering that Ordinance No. 7988 (Amended Revenue Code of the


City of Manila) has already been amended by Ordinance No. 8011
entitled "An Ordinance Amending Certain Sections of Ordinance No.
7988" approved by the City Mayor of Manila on February 22, 2001, let
the above-entitled case be as it is hereby DISMISSED. Without
pronouncement as to costs."10
Petitioners Motion for Reconsideration of the abovequoted Order was
denied by the trial court in the second challenged Order, dated 5
December 2002; hence the instant Petition.

The case at bar revolves around the sole pivotal issue of whether or
not Tax Ordinance No. 7988 is null and void and of no legal effect.
However, respondents, in their Comment and Memorandum, raise the
procedural issue of whether or not the instant Petition has complied
with the requirements of the 1997 Rules on Civil Procedure; thus, the
Court resolves to first pass upon this issue before tackling the
substantial matters involved in this case.

Respondents insist that the instant Petition raises questions of fact


that are proscribed under Rule 45 of the 1997 Rules of Civil Procedure
which states that Petitions for Certiorari before the Supreme Court
shall raise only questions of law. We do not agree. There is a question
of fact when doubt or controversy arises as to the truth or falsity of
the alleged facts, when there is no dispute as to fact, the question of
whether or not the conclusion drawn therefrom is correct is a question
of law.11 A thorough reading of the Petition will reveal that petitioner
does not present an issue in which we are called to rule on the truth or
falsity of any fact alleged in the case. Furthermore, the resolution of
whether or not the court a quo erred in dismissing petitioners case in
light of the enactment of Tax Ordinance No. 8011, allegedly amending
Tax Ordinance No. 7988, does not necessitate an incursion into the
facts attending the case.

Contrarily, it is respondents who actually raise questions of fact before


us. While accusing petitioner of raising questions of fact, respondents,
in the same breath, proceeded to allege that the RTC of Manila, Branch
21, in its Decision, dated 28 November 2001, failed to take into
account the evidence presented by respondents allegedly proving that
Tax Ordinance No. 7988 was published for four times in a newspaper
of general circulation in accordance with the requirements of law. A
determination of whether or not the trial court erred in concluding that
Tax Ordinance No. 7988 was indeed published for four times in a
newspaper of general circulation would clearly involve a calibration of
the probative value of the evidence presented by respondents to prove
such allegation. Therefore, said issue is a question of fact which this
Court, not being a trier of facts, will decline to pass upon.

Respondents also point out that the Petition was not properly verified
and certified because Nelson Empalmado, the Vice President for Tax
and Financial Services of Coca-Cola Bottlers Philippines, Inc. who
verified the subject Petition was not duly authorized to file said
Petition. Respondents assert that nowhere in the attached Secretarys
Certificate can it be found the authority of Nelson Empalmado to
institute the instant Petition. Thus, there being a lack of proper
verification, respondents contend that the Petition must be treated as
a mere scrap of paper, which has no legal effect as declared in Section
4, Rule 7 of the 1997 Rules of Civil Procedure.

An inspection of the Secretarys Certificate attached to the petition will


show that Nelson Empalmado is not among those designated as
representative to prosecute claims in behalf of Coca-Cola Bottlers
Philippines, Inc. However, it would seem that the authority of Mr.
Empalmado to file the instant Petition emanated from a Special Power
of Attorney signed by Ramon V. Lapez, Jr., Associate Legal
Counsel/Assistant Corporate Secretary of Coca-Cola Bottlers
Philippines, Inc. and one of those named in the Secretarys Certificate
as authorized to file a Petition in behalf of the corporation. A careful
perusal of said Secretarys Certificate will further reveal that the
persons authorized therein to represent petitioner corporation in any
suit are also empowered to designate and appoint any individual as
attorney-in-fact of the corporation for the prosecution of any suit.
Accordingly, by virtue of the Special Power of Attorney executed by
Ramon V. Lapez, Jr. authorizing Nelson Emplamado to file a Petition
before the Supreme Court, the instant Petition has been properly
verified, in accordance with the 1997 Rules of Civil Procedure.

Having disposed of the procedural issues raised by respondents, We


now come to the pivotal issue in this petition.

It is undisputed from the facts of the case that Tax Ordinance No.
7988 has already been declared by the DOJ Secretary, in its Order,
dated 17 August 2000, as null and void and without legal effect due to
respondents failure to satisfy the requirement that said ordinance be
published for three consecutive days as required by law. Neither is
there quibbling on the fact that the said Order of the DOJ was never
appealed by the City of Manila, thus, it had attained finality after the
lapse of the period to appeal.

Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28


November 2001, reiterated the findings of the DOJ Secretary that
respondents failed to follow the procedure in the enactment of tax
measures as mandated by Section 188 of the Local Government Code
of 1991, in that they failed to publish Tax Ordinance No. 7988 for
three consecutive days in a newspaper of local circulation. From the
foregoing, it is evident that Tax Ordinance No. 7988 is null and void as
said ordinance was published only for one day in the 22 May 2000
issue of the Philippine Post in contravention of the unmistakable
directive of the Local Government Code of 1991.

Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the
assailed Order, dated 8 May 2002, went on to dismiss petitioners case
on the force of the enactment of Tax Ordinance No. 8011, amending
Tax Ordinance No. 7988. Significantly, said amending ordinance was
likewise declared null and void by the DOJ Secretary in a Resolution,
dated 5 July 2001, elucidating that "[I]nstead of amending Ordinance
No. 7988, [herein] respondent should have enacted another tax
measure which strictly complies with the requirements of law, both
procedural and substantive. The passage of the assailed ordinance did
not have the effect of curing the defects of Ordinance No. 7988 which,
any way, does not legally exist." Said Resolution of the DOJ Secretary
had, as well, attained finality by virtue of the dismissal with finality by
this Court of respondents Petition for Review on Certiorari in G.R. No.
157490 assailing the dismissal by the RTC of Manila, Branch 17, of its
appeal due to lack of jurisdiction in its Order, dated 11 August 2003.

Based on the foregoing, this Court must reverse the Order of the RTC
of Manila, Branch 21, dismissing petitioners case as there is no basis
in law for such dismissal. The amending law, having been declared as
null and void, in legal contemplation, therefore, does not exist.
Furthermore, even if Tax Ordinance No. 8011 was not declared null
and void, the trial court should not have dismissed the case on the
reason that said tax ordinance had already amended Tax Ordinance
No. 7988. As held by this Court in the case of People v. Lim,12 if an
order or law sought to be amended is invalid, then it does not legally
exist, there should be no occasion or need to amend it.13

WHEREFORE, premises considered, the instant Petition is hereby


GRANTED. The Orders of the RTC of Manila, Branch 21, dated 8 May
2002 and 5 December 2002, respectively, are hereby REVERSED and
SET ASIDE.

SO ORDERED.

21. Reyes, et. al. v. CA, G.R. No. 118233, Dec. 10, 1999
[G.R. No. 118233. December 10, 1999]

ANTONIO Z. REYES, ELISEO P. OCAMPO and EDITHA ARCIAGA-


SANTOS, petitioners, vs. COURT OF APPEALS, HON.
SECRETARY OF JUSTICE FRANKLIN DRILON and MAYOR
JINGGOY ESTRADA (JOSE EJERCITO) OF THE
MUNICIPALITY OF SAN JUAN, METRO
MANILA, respondents.

RESOLUTION
QUISUMBING, J.:

For review is the decision[1] of the Court of Appeals, dated August


3, 1994 and its resolution[2] dated December 8, 1994 in CA - G.R. SP
No. 32473. Said decision dismissed the prohibition case brought by the
petitioners against respondent officials of the Municipality of San Juan
to stop the enforcement of Tax Ordinance Nos. 87, 91, 95, 100 and
101.
The factual antecedents are as follows:
The Sangguniang Bayan of San Juan, Metro Manila implemented
several tax ordinances as follows:

Ordinance No. Title

87 An ordinance imposing a municipal tax of fifty percent


(50%) of one percent (1%) of the gross receipt
on business of printing and publication

91 An ordinance imposing a transfer tax equivalent to fifty


percent (50%) of one percent (1%) of the total
consideration on the sale, donation, barter or
any other mode of transferring ownership or
title of real property situated in San Juan,
Metro Manila, or its fair market value,
whichever is higher

95 An ordinance imposing fifty percent (50%) of one percent of


(1%) for social housing tax on the assessed
value of all real estate property in San Juan,
Metro Manila in excess of P50,000.00 value as
provided in the New Urban Land Reform Law,
also known as R.A. 7279.

100 An ordinance imposing new rates of business taxes of the


Municipality of San Juan Metro Manila

101 An ordinance levying an annual Ad Valorem tax on real


property and an additional tax accruing to the
special education fund (SEF)

On May 21, 1993, petitioners filed an appeal with the Department


of Justice assailing the constitutionality of these tax ordinances
allegedly because they were promulgated without previous public
hearings thereby constituting deprivation of property without due
process of law.
On June 10, 1993, respondent Secretary of Justice dismissed the
appeal for having been filed out of time. Citing Section 187, R.A. No.
7160, he said:

It appears that the tax ordinances in question took effect on


September 24, 1992, in the case of Tax Ordinance No. 87, until
October 22, 1992, in the case of Tax Ordinance Nos. 91 and 95, and
until October 29, 1992, in the case of Tax Ordinance Nos. 100 and
101, or more than thirty (30) days from the effectivity thereof when
the appeal was filed and received by this Department on May 21, 1993
and therefore not in accordance with the requirements provided for
under Section 187 of the Local Government Code of 1991.

WHEREFORE, the instant appeal, having been filed out of time, is


hereby DISMISSED.[3]

Undaunted, petitioners filed with the Court of Appeals a petition for


certiorari and prohibition (CA-G.R. SP No. 32473). But respondent
court affirmed the decision of the Secretary. On December 8, 1994,
the motion for reconsideration filed by the petitioners was denied for
lack of merit.
Hence, the present petition for review, raising the following
questions:
1. Whether or not the questioned tax ordinances are violative of
the Constitution, considering the undisputed fact that no
public hearings were ever held on the ordinances before they
were passed and approved as required by the Local
Government Code of 1991, thereby constituting as they do a
deprivation of property without due process;
2. Whether or not the wording of the law under Section 187 of
the Local Government Code of 1991 that any question on the
constitutionality x x x of tax ordinance x x x may be raised
on appeal within thirty (30) days from the effectivity thereof
x x x is a reductio ad absurdum, since if the tax ordinance is
found to be unconstitutional, it will be considered as never
having become effective at all from the very beginning, for
which reason the thirty-day appeal period cannot be
reckoned and cannot be enforced;
3. Whether or not the constitutionality of a tax ordinance, or
any law for that matter, can be questioned at any time
despite the prescription of a limited period within which to
question it, as in the case at bar; and
4. Whether or not the constitutionality of an ordinance or a law
may be questioned even if the question of constitutionality
may not have been originally or initially raised, or is not
the lis mota of the case, if it appears that a determination of
the question of constitutionality is necessary to a decision of
the case.[4]
In our view, the pertinent issues for our resolution now are:
1. Whether or not the Court of Appeals erred in affirming the
decision of the Secretary of Justice who dismissed the prohibition suit,
on the ground that it was filed out of time?
2. Whether or not lack of mandatory public hearings prior to
enacting Municipal Ordinance Nos. 87, 91, 95, 100 and 101 render
them void on the ground of deprivation of property without due
process?
3. Whether or not the constitutional validity of Sec. 187 of the
Local Government Code could be raised for the first time on appeal?
According to petitioners, respondent Secretary erred in declaring
that they failed to file their appeal on time. Also, they assail Municipal
Ordinance Nos. 87, 91, 95, 100 and 101, for alleged failure of the
Municipal Council of San Juan to conduct mandatory public
hearings. Because of this, they claim the ordinances are inoperative,
as though they were never passed. Consequently, no prescriptive
thirty-day period to question the validity of the ordinance could toll to
bar their appeal to the Department of Justice.
Sec. 187 of R.A. 7160, cited by respondent Secretary, provides as
follows:

Sec. 187-- Procedure for Approval and Effectivity of Tax Ordinances


and Revenue Measures; Mandatory Public Hearings. -- The procedure
for approval of local tax ordinances and revenue measures shall be in
accordance with the provisions of this Code: Provided, That public
hearings shall be conducted for the purpose prior to the enactment
thereof: Provided further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the
Secretary of Justice who shall render a decision within sixty (60) days
from the date of receipt of the appeal: Provided, however, That such
appeal shall not have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee, or charge
levied therein: Provided, finally , That within thirty (30) days after
receipt of the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved party may
file appropriate proceedings with a court of competent jurisdiction.

Clearly, the law requires that the dissatisfied taxpayer who


questions the validity or legality of a tax ordinance must file his appeal
to the Secretary of Justice, within 30 days from effectivity thereof. In
case the Secretary decides the appeal, a period also of 30 days is
allowed for an aggrieved party to go to court. But if the Secretary does
not act thereon, after the lapse of 60 days, a party could already
proceed to seek relief in court. These three separate periods are
clearly given for compliance as a prerequisite before seeking redress in
a competent court. Such statutory periods are set to prevent delays as
well as enhance the orderly and speedy discharge of judicial
functions.[5] For this reason the courts construe these provisions of
statutes as mandatory.[6]
A municipal tax ordinance empowers a local government unit to
impose taxes. The power to tax is the most effective instrument to
raise needed revenues to finance and support the myriad activities of
local government units for the delivery of basic services essential to
the promotion of the general welfare and enhancement of peace,
progress, and prosperity of the people.[7]Consequently, any delay in
implementing tax measures would be to the detriment of the public. It
is for this reason that protests over tax ordinances are required to be
done within certain time frames. In the instant case, it is our view that
the failure of petitioners to appeal to the Secretary of Justice within 30
days as required by Sec. 187 of R.A. 7160 is fatal to their cause.
On the second issue, petitioners allege that the Sangguniang
Bayan of San Juan did not comply with the prescribed procedure for
enacting an ordinance because they failed to conduct public hearings.
In Figuerres vs. Court of Appeals,[8] where the municipality failed
to conduct public hearings prior to enacting the revisions on the
schedule of fair market values and assessment level of classes of real
estate properties, the Court said:

Petitioner is right in contending that public hearings are required to be


conducted prior to the enactment of an ordinance imposing real
property taxes. R.A. No. 7160, Sec. 186, provides that an ordinance
levying taxes, fees, or charges shall not be enacted without any prior
public hearing conducted for the purpose.

However, it is noteworthy that apart from her bare assertions,


petitioner Figuerres has not presented any evidence to show that no
public hearings were conducted prior to the enactment of the
ordinances in question. On the other hand, the Municipality of
Mandaluyong claims that public hearings were indeed conducted
before the subject ordinances were adopted, although it likewise failed
to submit any evidence to establish this allegation. However, in
accordance with the presumption of validity in favor of an ordinance,
their constitutionality or legality should be upheld in the absence of
evidences showing that procedure prescribed by law was not observed
in their enactment. x x x

Furthermore, the lack of a public hearing is a negative allegation


essential to petitioners cause of action in the present case. Hence, as
petitioner is the party asserting it, she has the burden of proof.Since
petitioner failed to rebut the presumption of validity in favor of the
subject ordinances and to discharge the burden of proving that no
public hearings were conducted prior to the enactment thereof, we are
constrained to uphold their constitutionality or legality.[9]

We find Figuerres instructive. Petitioners have not proved in the


case before us that the Sangguniang Bayan of San Juan failed to
conduct the required public hearings before the enactment of
Ordinance Nos. 87, 91, 95, 100 and 101. Although the Sanggunian
had the control of records or the better means of proof regarding the
facts alleged, petitioners are not relieved from the burden of proving
their averments.[10] Proof that public hearings were not held falls on
petitioners shoulders. For failing to discharge that burden, their
petition was properly dismissed.
In any event, for the purpose of securing certainty where doubt
would be intolerable, it is a general rule that the regularity of the
enactment of an officially promulgated statute or ordinance may not
be impeached by parol evidence or oral testimony either of individual
officers and members, or of strangers who may be interested in
nullifying legislative action.[11] This rule supplements the presumption
in favor of the regularity of official conduct which we have upheld
repeatedly, absent a clear showing to the contrary.
Finally, on the validity of Section 187 of R.A. 7160, the Local
Government Code, we must stress that the constitutionality of an act
of Congress will not be passed upon by the Court unless at the first
opportunity that question is properly raised and presented in an
appropriate case, and is necessary to a determination of the case,
particularly where the issue of constitutionality is the verylis
mota presented.[12] The constitutional validity of a statutory provision
should not be entertained by the Court where it was not specifically
raised below, insisted upon, and adequately argued.[13] Moreover,
given the circumstances in this case, we find no genuine necessity to
dwell on the issue of constitutional invalidity of Section 187 in relation
to issue of valid enactment of the subject ordinances, as shown in the
foregoing discussion. Suffice it now to say that, having resolved the
first and second issues, we find no grave abuse of discretion nor
reversible error in the decision of the respondent appellate
court. Further constitutional scrutiny of Section 187 is unwarranted.
WHEREFORE, the present petition is DISMISSED for lack of merit
and the assailed decision of the Court of Appeals is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza,
Panganiban, Purisima, Pardo, Buena, Gonzaga-Reyes, Ynares-Santiago
and De Leon, Jr., JJ., concur.

22. Drilon v. Lim, G.R. No. 112497, Aug. 4, 1994

G.R. No. 112497 August 4, 1994

HON. FRANKLIN M. DRILON, in his capacity as SECRETARY OF


JUSTICE, petitioner,
vs.
MAYOR ALFREDO S. LIM, VICE-MAYOR JOSE L. ATIENZA, CITY
TREASURER ANTHONY ACEVEDO, SANGGUNIANG PANGLUNSOD
AND THE CITY OF MANILA, respondents.

The City Legal Officer for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for Caltex (Phils.).

Joseph Lopez for Sangguniang Panglunsod of Manila.

L.A. Maglaya for Petron Corporation.

CRUZ, J.:

The principal issue in this case is the constitutionality of Section 187 of


the Local Government Code reading as follows:

Procedure For Approval And Effectivity Of Tax Ordinances


And Revenue Measures; Mandatory Public Hearings. The
procedure for approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of this
Code: Provided, That public hearings shall be conducted
for the purpose prior to the enactment thereof; Provided,
further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be
raised on appeal within thirty (30) days from the effectivity
thereof to the Secretary of Justice who shall render a
decision within sixty (60) days from the date of receipt of
the appeal: Provided, however, That such appeal shall not
have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee, or
charge levied therein: Provided, finally, That within thirty
(30) days after receipt of the decision or the lapse of the
sixty-day period without the Secretary of Justice acting
upon the appeal, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.

Pursuant thereto, the Secretary of Justice had, on appeal to him of


four oil companies and a taxpayer, declared Ordinance No. 7794,
otherwise known as the Manila Revenue Code, null and void for non-
compliance with the prescribed procedure in the enactment of tax
ordinances and for containing certain provisions contrary to law and
public policy. 1
In a petition for certiorari filed by the City of Manila, the Regional Trial
Court of Manila revoked the Secretary's resolution and sustained the
ordinance, holding inter alia that the procedural requirements had
been observed. More importantly, it declared Section 187 of the Local
Government Code as unconstitutional because of its vesture in the
Secretary of Justice of the power of control over local governments in
violation of the policy of local autonomy mandated in the Constitution
and of the specific provision therein conferring on the President of the
Philippines only the power of supervision over local governments. 2

The present petition would have us reverse that decision. The


Secretary argues that the annulled Section 187 is constitutional and
that the procedural requirements for the enactment of tax ordinances
as specified in the Local Government Code had indeed not been
observed.

Parenthetically, this petition was originally dismissed by the Court for


non-compliance with Circular 1-88, the Solicitor General having failed
to submit a certified true copy of the challenged decision. 3 However,
on motion for reconsideration with the required certified true copy of
the decision attached, the petition was reinstated in view of the
importance of the issues raised therein.

We stress at the outset that the lower court had jurisdiction to


consider the constitutionality of Section 187, this authority being
embraced in the general definition of the judicial power to determine
what are the valid and binding laws by the criterion of their conformity
to the fundamental law. Specifically, BP 129 vests in the regional trial
courts jurisdiction over all civil cases in which the subject of the
litigation is incapable of pecuniary estimation,4 even as the accused in
a criminal action has the right to question in his defense the
constitutionality of a law he is charged with violating and of the
proceedings taken against him, particularly as they contravene the Bill
of Rights. Moreover, Article X, Section 5(2), of the Constitution vests
in the Supreme Court appellate jurisdiction over final judgments and
orders of lower courts in all cases in which the constitutionality or
validity of any treaty, international or executive agreement, law,
presidential decree, proclamation, order, instruction, ordinance, or
regulation is in question.

In the exercise of this jurisdiction, lower courts are advised to act with
the utmost circumspection, bearing in mind the consequences of a
declaration of unconstitutionality upon the stability of laws, no less
than on the doctrine of separation of powers. As the questioned act is
usually the handiwork of the legislative or the executive departments,
or both, it will be prudent for such courts, if only out of a becoming
modesty, to defer to the higher judgment of this Court in the
consideration of its validity, which is better determined after a
thorough deliberation by a collegiate body and with the concurrence of
the majority of those who participated in its discussion. 5

It is also emphasized that every court, including this Court, is charged


with the duty of a purposeful hesitation before declaring a law
unconstitutional, on the theory that the measure was first carefully
studied by the executive and the legislative departments and
determined by them to be in accordance with the fundamental law
before it was finally approved. To doubt is to sustain. The presumption
of constitutionality can be overcome only by the clearest showing that
there was indeed an infraction of the Constitution, and only when such
a conclusion is reached by the required majority may the Court
pronounce, in the discharge of the duty it cannot escape, that the
challenged act must be struck down.

In the case before us, Judge Rodolfo C. Palattao declared Section 187
of the Local Government Code unconstitutional insofar as it
empowered the Secretary of Justice to review tax ordinances and,
inferentially, to annul them. He cited the familiar distinction between
control and supervision, the first being "the power of an officer to alter
or modify or set aside what a subordinate officer had done in the
performance of his duties and to substitute the judgment of the former
for the latter," while the second is "the power of a superior officer to
see to it that lower officers perform their functions in accordance with
law." 6 His conclusion was that the challenged section gave to the
Secretary the power of control and not of supervision only as vested
by the Constitution in the President of the Philippines. This was, in his
view, a violation not only of Article X, specifically Section 4
thereof, 7 and of Section 5 on the taxing powers of local
governments, 8 and the policy of local autonomy in general.

We do not share that view. The lower court was rather hasty in
invalidating the provision.

Section 187 authorizes the Secretary of Justice to review only the


constitutionality or legality of the tax ordinance and, if warranted, to
revoke it on either or both of these grounds. When he alters or
modifies or sets aside a tax ordinance, he is not also permitted to
substitute his own judgment for the judgment of the local government
that enacted the measure. Secretary Drilon did set aside the Manila
Revenue Code, but he did not replace it with his own version of what
the Code should be. He did not pronounce the ordinance unwise or
unreasonable as a basis for its annulment. He did not say that in his
judgment it was a bad law. What he found only was that it was illegal.
All he did in reviewing the said measure was determine if the
petitioners were performing their functions in accordance with law,
that is, with the prescribed procedure for the enactment of tax
ordinances and the grant of powers to the city government under the
Local Government Code. As we see it, that was an act not of control
but of mere supervision.

An officer in control lays down the rules in the doing of an act. If they
are not followed, he may, in his discretion, order the act undone or re-
done by his subordinate or he may even decide to do it himself.
Supervision does not cover such authority. The supervisor or
superintendent merely sees to it that the rules are followed, but he
himself does not lay down such rules, nor does he have the discretion
to modify or replace them. If the rules are not observed, he may order
the work done or re-done but only to conform to the prescribed rules.
He may not prescribe his own manner for the doing of the act. He has
no judgment on this matter except to see to it that the rules are
followed. In the opinion of the Court, Secretary Drilon did precisely
this, and no more nor less than this, and so performed an act not of
control but of mere supervision.

The case of Taule v. Santos 9 cited in the decision has no application


here because the jurisdiction claimed by the Secretary of Local
Governments over election contests in the Katipunan ng Mga Barangay
was held to belong to the Commission on Elections by constitutional
provision. The conflict was over jurisdiction, not supervision or control.

Significantly, a rule similar to Section 187 appeared in the Local


Autonomy Act, which provided in its Section 2 as follows:

A tax ordinance shall go into effect on the fifteenth day


after its passage, unless the ordinance shall provide
otherwise: Provided, however, That the Secretary of
Finance shall have authority to suspend the effectivity of
any ordinance within one hundred and twenty days after
receipt by him of a copy thereof, if, in his opinion, the tax
or fee therein levied or imposed is unjust, excessive,
oppressive, or confiscatory, or when it is contrary to
declared national economy policy, and when the said
Secretary exercises this authority the effectivity of such
ordinance shall be suspended, either in part or as a whole,
for a period of thirty days within which period the local
legislative body may either modify the tax ordinance to
meet the objections thereto, or file an appeal with a court
of competent jurisdiction; otherwise, the tax ordinance or
the part or parts thereof declared suspended, shall be
considered as revoked. Thereafter, the local legislative
body may not reimpose the same tax or fee until such time
as the grounds for the suspension thereof shall have
ceased to exist.

That section allowed the Secretary of Finance to suspend the


effectivity of a tax ordinance if, in his opinion, the tax or fee levied
was unjust, excessive, oppressive or confiscatory. Determination of
these flaws would involve the exercise of judgment or discretion and
not merely an examination of whether or not the requirements or
limitations of the law had been observed; hence, it would smack of
control rather than mere supervision. That power was never
questioned before this Court but, at any rate, the Secretary of Justice
is not given the same latitude under Section 187. All he is permitted to
do is ascertain the constitutionality or legality of the tax measure,
without the right to declare that, in his opinion, it is unjust, excessive,
oppressive or confiscatory. He has no discretion on this matter. In fact,
Secretary Drilon set aside the Manila Revenue Code only on two
grounds, to with, the inclusion therein of certain ultra vires provisions
and non-compliance with the prescribed procedure in its enactment.
These grounds affected the legality, not
the wisdom or reasonableness, of the tax measure.

The issue of non-compliance with the prescribed procedure in the


enactment of the Manila Revenue Code is another matter.

In his resolution, Secretary Drilon declared that there were no written


notices of public hearings on the proposed Manila Revenue Code that
were sent to interested parties as required by Art. 276(b) of the
Implementing Rules of the Local Government Code nor were copies of
the proposed ordinance published in three successive issues of a
newspaper of general circulation pursuant to Art. 276(a). No minutes
were submitted to show that the obligatory public hearings had been
held. Neither were copies of the measure as approved posted in
prominent places in the city in accordance with Sec. 511(a) of the
Local Government Code. Finally, the Manila Revenue Code was not
translated into Pilipino or Tagalog and disseminated among the people
for their information and guidance, conformably to Sec. 59(b) of the
Code.

Judge Palattao found otherwise. He declared that all the procedural


requirements had been observed in the enactment of the Manila
Revenue Code and that the City of Manila had not been able to prove
such compliance before the Secretary only because he had given it
only five days within which to gather and present to him all the
evidence (consisting of 25 exhibits) later submitted to the trial court.

To get to the bottom of this question, the Court acceded to the motion
of the respondents and called for the elevation to it of the said
exhibits. We have carefully examined every one of these exhibits and
agree with the trial court that the procedural requirements have
indeed been observed. Notices of the public hearings were sent to
interested parties as evidenced by Exhibits G-1 to 17. The minutes of
the hearings are found in Exhibits M, M-1, M-2, and M-3. Exhibits B
and C show that the proposed ordinances were published in
the Balita and the Manila Standard on April 21 and 25, 1993,
respectively, and the approved ordinance was published in the July 3,
4, 5, 1993 issues of the Manila Standard and in the July 6, 1993 issue
of Balita, as shown by Exhibits Q, Q-1, Q-2, and Q-3.

The only exceptions are the posting of the ordinance as approved but
this omission does not affect its validity, considering that its
publication in three successive issues of a newspaper of general
circulation will satisfy due process. It has also not been shown that the
text of the ordinance has been translated and disseminated, but this
requirement applies to the approval of local development plans and
public investment programs of the local government unit and not to
tax ordinances.

We make no ruling on the substantive provisions of the Manila


Revenue Code as their validity has not been raised in issue in the
present petition.

WHEREFORE, the judgment is hereby rendered REVERSING the


challenged decision of the Regional Trial Court insofar as it declared
Section 187 of the Local Government Code unconstitutional but
AFFIRMING its finding that the procedural requirements in the
enactment of the Manila Revenue Code have been observed. No
pronouncement as to costs.

SO ORDERED.
Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Davide, Jr.,
Romero, Bellosillo, Melo, Quiason, Puno, Vitug, Kapunan and
Mendoza, JJ., concur.

23. Hagonoy Market Vendor Assoc. v. Mun. of Hagonoy, Bulacan, 376


SCRA 376
FIRST DIVISION

[G.R. No. 137621. February 6, 2002]

HAGONOY MARKET VENDOR ASSOCIATION, petitioner, vs.


MUNICIPALITY OF HAGONOY, BULACAN, respondent.

DECISION
PUNO, J.:

Laws are of two (2) kinds: substantive and procedural. Substantive


laws, insofar as their provisions are unambiguous, are rigorously
applied to resolve legal issues on the merits. In contrast, courts
generally frown upon an uncompromising application of procedural
laws so as not to subvert substantial justice. Nonetheless, it is not
totally uncommon for courts to decide cases based on a rigid
application of the so-called technical rules of procedure as these rules
exist for the orderly administration of justice. Interestingly, the case at
bar singularly illustrates both instances, i.e., when procedural rules are
unbendingly applied and when their rigid application may be relaxed.
This is a petition for review of the Resolution[1] of the Court of
Appeals, dated February 15, 1999, dismissing the appeal of petitioner
Hagonoy Market Vendor Association from the Resolutions of the
Secretary of Justice for being formally deficient.
The facts: On October 1, 1996, the Sangguniang Bayan of
Hagonoy, Bulacan, enacted an ordinance, Kautusan Blg. 28,[2] which
increased the stall rentals of the market vendors in Hagonoy. Article 3
provided that it shall take effect upon approval. The subject ordinance
was posted from November 4-25, 1996.[3]
In the last week of November, 1997, the petitioners members were
personally given copies of the approved Ordinance and were informed
that it shall be enforced in January, 1998. On December 8, 1997, the
petitioners President filed an appeal with the Secretary of Justice
assailing the constitutionality of the tax ordinance. Petitioner claimed it
was unaware of the posting of the ordinance.
Respondent opposed the appeal. It contended that the ordinance
took effect on October 6, 1996 and that the ordinance, as approved,
was posted as required by law. Hence, it was pointed out that
petitioners appeal, made over a year later, was already time-barred.
The Secretary of Justice dismissed the appeal on the ground that it
was filed out of time, i.e., beyond thirty (30) days from the effectivity
of the Ordinance on October 1, 1996, as prescribed under Section 187
of the 1991 Local Government Code. Citing the case of Taada vs.
Tuvera,[4] the Secretary of Justice held that the date of effectivity of
the subject ordinance retroacted to the date of its approval in October
1996, after the required publication or posting has been complied with,
pursuant to Section 3 of said ordinance.[5]
After its motion for reconsideration was denied, petitioner appealed
to the Court of Appeals. Petitioner did not assail the finding of the
Secretary of Justice that their appeal was filed beyond the
reglementary period. Instead, it urged that the Secretary of Justice
should have overlooked this mere technicality and ruled on its petition
on the merits. Unfortunately, its petition for review was dismissed by
the Court of Appeals for being formally deficient as it was not
accompanied by certified true copies of the assailed Resolutions of the
Secretary of Justice.[6]
Undaunted, the petitioner moved for reconsideration but it was
denied.[7]
Hence, this appeal, where petitioner contends that:
I

THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN


ITS STRICT, RIGID AND TECHNICAL ADHERENCE TO SECTION 6, RULE
43 OF THE 1997 RULES OF COURT AND THIS, IN EFFECT,
FRUSTRATED THE VALID LEGAL ISSUES RAISED BY THE PETITIONER
THAT ORDINANCE (KAUTUSAN) NO. 28 WAS NOT VALIDLY ENACTED,
IS CONTRARY TO LAW AND IS UNCONSTITUTIONAL, TANTAMOUNT TO
AN ILLEGAL EXACTION IF ENFORCED RETROACTIVELY FROM THE
DATE OF ITS APPROVAL ON OCTOBER 1, 1996.
II

THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN


DENYING THE MOTION FOR RECONSIDERATION NOTWITHSTANDING
PETITIONERS EXPLANATION THAT ITS FAILURE TO SECURE THE
CERTIFIED TRUE COPIES OF THE RESOLUTIONS OF THE DEPARTMENT
OF JUSTICE WAS DUE TO THE INTERVENTION OF AN ACT OF GOD
TYPHOON LOLENG, AND THAT THE ACTUAL COPIES RECEIVED BY THE
PETITIONER MAY BE CONSIDERED AS SUBSTANTIAL COMPLIANCE
WITH THE RULES.

III

PETITIONER WILL SUFFER IRREPARABLE DAMAGE IF


ORDINANCE/KAUTUSAN NO. 28 BE NOT DECLARED NULL AND VOID
AND IS ALLOWED TO BE ENFORCED RETROACTIVELY FROM OCTOBER
1, 1996, CONTRARY TO THE GENERAL RULE, ARTICLE 4 OF THE CIVIL
CODE, THAT NO LAW SHALL HAVE RETROACTIVE EFFECT.

The first and second assigned errors impugn the dismissal by the
Court of Appeals of its petition for review for petitioners failure to
attach certified true copies of the assailed Resolutions of the Secretary
of Justice. The petitioner insists that it had good reasons for its failure
to comply with the rule and the Court of Appeals erred in refusing to
accept its explanation.
We agree.
In its Motion for Reconsideration before the Court of Appeals,[8] the
petitioner satisfactorily explained the circumstances relative to its
failure to attach to its appeal certified true copies of the assailed
Resolutions of the Secretary of Justice, thus:

x x x (D)uring the preparation of the petition on October 21, 1998, it


was raining very hard due to (t)yphoon Loleng. When the petition was
completed, copy was served on the Department of Justice at about
(sic) past 4:00 p.m. of October 21, 1998, with (the) instruction to
have the Resolutions of the Department of Justice be stamped as
certified true copies. However, due to bad weather, the person in
charge (at the Department of Justice) was no longer available
to certify to (sic) the Resolutions.

The following day, October 22, 1998, was declared a non-


working holiday because of (t)yphoon Loleng. Thus, petitioner
was again unable to have the Resolutions of the Department of Justice
stamped certified true copies. In the morning of October 23, 1998, due
to time constraint(s), herein counsel served a copy by personal service
on (r)espondents lawyer at (sic) Malolos, Bulacan, despite the flooded
roads and heavy rains. However, as the herein counsel went back to
Manila, (official business in) government offices were suspended in the
afternoon and the personnel of the Department of Justice tasked with
issuing or stamping certified true copies of their Resolutions were no
longer available.

To avoid being time-barred in the filing of the (p)etition, the same was
filed with the Court of Appeals as is.

We find that the Court of Appeals erred in dismissing


petitioners appeal on the ground that it was formally
deficient. It is clear from the records that the petitioner exerted due
diligence to get the copies of its appealed Resolutions certified by the
Department of Justice, but failed to do so on account of typhoon
Loleng. Under the circumstances, respondent appellate court should
have tempered its strict application of procedural rules in view of the
fortuitous event considering that litigation is not a game of
technicalities.[9]
Nonetheless, we hold that the petition should be dismissed as the
appeal of the petitioner with the Secretary of Justice is already
time-barred. The applicable law is Section 187 of the 1991 Local
Government Code which provides:

SEC. 187. Procedure for Approval and Effectivity of Tax


Ordinances and Revenue Measures; Mandatory Public
Hearings. - The procedure for the approval of local tax ordinances
and revenue measures shall be in accordance with the provisions of
this Code: Provided, That public hearings shall be conducted for the
purpose prior to the enactment thereof: Provided, further, Thatany
question on the constitutionality or legality of tax ordinances or
revenue measures may be raised on appeal within thirty (30)
days from the effectivity thereof to the Secretary of Justice who
shall render a decision within sixty (60) days from the receipt of the
appeal: Provided, however, That such appeal shall not have the
effect of suspending the effectivity of the ordinance and accrual
and payment of the tax, fee or charge levied therein: Provided,
finally, That within thirty (30) days after receipt of the decision
or the lapse of the sixty-day period without the Secretary of
Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings.
The aforecited law requires that an appeal of a tax ordinance or
revenue measure should be made to the Secretary of
Justice within thirty (30) days from effectivity of the ordinance
and even during its pendency, the effectivity of the assailed
ordinance shall not be suspended. In the case at bar, Municipal
Ordinance No. 28 took effect in October 1996. Petitioner filed its
appeal only in December 1997, more than a year after the
effectivity of the ordinance in 1996. Clearly, the Secretary of
Justice correctly dismissed it for being time-barred. At this point,
it is apropos to state that the timeframe fixed by law for parties to
avail of their legal remedies before competent courts is not a mere
technicality that can be easily brushed aside. The periods stated in
Section 187 of the Local Government Code are
mandatory. [10] Ordinance No. 28 is a revenue measure adopted by
the municipality of Hagonoy to fix and collect public market stall
rentals. Being its lifeblood, collection of revenues by the government is
of paramount importance. The funds for the operation of its agencies
and provision of basic services to its inhabitants are largely derived
from its revenues and collections. Thus, it is essential that the
validity of revenue measures is not left uncertain for a
considerable length of time.[11] Hence, the law provided a time limit
for an aggrieved party to assail the legality of revenue measures and
tax ordinances.
In a last ditch effort to justify its failure to file a timely appeal with
the Secretary of Justice, the petitioner contends that its period to
appeal should be counted not from the time the ordinance took effect
in 1996 but from the time its members were personally given
copies of the approved ordinance in November 1997. It insists that it
was unaware of the approval and effectivity of the subject ordinance in
1996 on two (2) grounds: first, no public hearing was conducted prior
to the passage of the ordinance and, second, the approved ordinance
was not posted.
We do not agree.
Petitioners bold assertion that there was no public hearing
conducted prior to the passage of Kautusan Blg. 28 is belied by its
own evidence. In petitioners two (2) communications with the
Secretary of Justice,[12] it enumerated the various objections raised by
its members before the passage of the ordinance in several meetings
called by the Sanggunian for the purpose. These show beyond doubt
that petitioner was aware of the proposed increase and in fact
participated in the public hearings therefor. The respondent
municipality likewise submitted the Minutes and Report of the public
hearings conducted by the Sangguniang Bayans Committee on
Appropriations and Market on February 6, July 15 and August 19, all in
1996, for the proposed increase in the stall rentals.[13]
Petitioner cannot gripe that there was practically no public hearing
conducted as its objections to the proposed measure were not
considered by the Sangguniang Bayan. To be sure, public hearings are
conducted by legislative bodies to allow interested parties to ventilate
their views on a proposed law or ordinance. These views, however, are
not binding on the legislative body and it is not compelled by law to
adopt the same. Sanggunian members are elected by the people to
make laws that will promote the general interest of their
constituents. They are mandated to use their discretion and best
judgment in serving the people. Parties who participate in public
hearings to give their opinions on a proposed ordinance should not
expect that their views would be patronized by their lawmakers.
On the issue of publication or posting, Section 188 of the Local
Government Code provides:

Section 188. Publication of Tax Ordinance and Revenue


Measures. Within ten (10) days after their approval, certified true
copies of all provincial, city, and municipal tax ordinances or revenue
measures shall be published in full for three (3) consecutive days in a
newspaper of local circulation; Provided, however, That in provinces,
cities and municipalities where there are no newspapers of local
circulation, the same may be posted in at least two (2)
conspicuous and publicly accessible places. (emphasis supplied)

The records is bereft of any evidence to prove petitioners negative


allegation that the subject ordinance was not posted as required by
law. In contrast, the respondent Sangguniang Bayan of
the Municipality of Hagonoy, Bulacan, presented evidence
which clearly shows that the procedure for the enactment of
the assailed ordinance was complied with. Municipal Ordinance
No. 28 was enacted by the Sangguniang Bayan of Hagonoy on October
1, 1996. Then Acting Municipal Mayor Maria Garcia Santos approved
the Ordinance on October 7, 1996. After its approval, copies of the
Ordinance were given to the Municipal Treasurer on the same
day. On November 9, 1996, the Ordinance was approved by the
Sangguniang Panlalawigan. The Ordinance was posted during
the period from November 4 - 25, 1996 in three (3) public
places, viz: in front of the municipal building, at the bulletin board of
the Sta. Ana Parish Church and on the front door of the Office of the
Market Master in the public market.[14]Posting was validly made in
lieu of publication as there was no newspaper of local
circulation in the municipality of Hagonoy. This fact was known to
and admitted by petitioner. Thus, petitioners ambiguous and
unsupported claim that it was only sometime in November 1997 that
the Provincial Board approved Municipal Ordinance No. 28 and so the
posting could not have been made in November 1996[15] was
sufficiently disproved by the positive evidence of respondent
municipality. Given the foregoing circumstances, petitioner cannot
validly claim lack of knowledge of the approved ordinance. The filing of
its appeal a year after the effectivity of the subject ordinance is fatal to
its cause.
Finally, even on the substantive points raised, the petition must
fail. Section 6c.04 of the 1993 Municipal Revenue Code and Section
191 of the Local Government Code limiting the percentage of increase
that can be imposed apply to tax rates, not rentals. Neither can it be
said that the rates were not uniformly imposed or that the public
markets included in the Ordinance were unreasonably determined or
classified. To be sure, the Ordinance covered the three (3) concrete
public markets: the two-storey Bagong Palengke, the burnt but
reconstructed Lumang Palengke and the more recent Lumang
Palengke with wet market. However, the Palengkeng Bagong
Munisipyo or Gabaldon was excluded from the increase in rentals as it
is only a makeshift, dilapidated place, with no doors or protection for
security, intended for transient peddlers who used to sell their goods
along the sidewalk.[16]
IN VIEW WHEREOF, the petition is DISMISSED for lack of
merit. No pronouncement as to costs.
SO ORDERED.

24. California Mfg. Co., Inc. v. City of Las Pias, CTA AC No. 4, Sept.
28, 2005
CALIFORNIA MANUFACTURING G.R. No. 178461
COMPANY, INC.,
Petitioner,

Present:

YNARES-SANTIAGO, J.,
- versus - Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.
THE CITY OF LAS PIAS and the HON.
RIZAL Y. DEL ROSARIO, Promulgated:
CITY TREASURER,
Respondents. June 22, 2009

x---------------------------------------------------------------------------------
---x

RESOLUTION

NACHURA, J.:

For our consideration and approval is a Joint Petition[1] [Motion]


to Withdraw Petition for Review on Certiorari dated February 5, 2008.

Earlier, or on June 21, 2007, petitioner filed a Petition[2] for


Review on Certiorari questioning the assessments issued by the City
of Las Pias through the City Treasurer for local and real property taxes
in the amount of P73,043,634.47.

After filing of the required Comment[3] and Reply[4], we gave due


course to the Petition and directed both parties to submit their
respective memoranda[5].

During the pendency of this case, petitioner offered to


compromise the case by paying fifty percent (50%) of the amount
assessed. Since petitioners factory in Las Pias had already ceased
operations and in order to facilitate the issuance of the clearance for
the cessation of its business, the decision to enter into a compromise
was adopted by the respondents.
Through City Resolution No. 2385-08[6], the City Council of Las
Pias approved the compromise offer. The City Resolution reads

Republic of the Philippines


City of Las Pias
Office of the City Council

Sponsored by: Honorable Councilors Luis I. Bustamante,


Renato P. Dumlao, Danilo V. Hernandez, Eduardo P.
Lezarda, Dennis S. Aguilar, Alfredo L. Miranda, Ruben C.
Ramos, Rex H. Riguera, Oscar C. Pea, Leopoldo F.
Benedicto, Demetrio R. Cristobal, Filemon A. Aguilar, Jr.,
and Donna Kris R. Alfonso.

CITY RESOLUTION NO. 2385-08


Series of 2008

A RESOLUTION APPROVING THE REQUEST OF


CALIFORNIA MANUFACTURING COMPANY, INC., FOR
THE SETTLEMENT OF ITS REAL PROPERTY AND
BUSINESS TAXES LIABILITIES AND AUTHORIZING
THE CITY MAYOR AND/OR CITY TREASURER TO
ACCEPT IN BEHALF OF THE CITY THE SETTLEMENT
OFFER.

WHEREAS, the Law Offices of Siguion Reyna, Montecillo &


Ongsiako, thru Atty. Jose Lis C. Leagogo, the lawyers of
California Manufacturing Company, Inc., (now owned by
Unilever Philippines, Inc.,) proposed for the settlement of
G.R. No. 178461 involving the said company and the City
Government pending before the Supreme Court of the
Philippines;

WHEREAS, accordingly, the company, without admitting


liability but solely for the purpose of buying peace and
preventing prolonged and contentious litigation, is
considering the compromise settlement of the above-
mentioned case;

WHEREAS, the proposal is mutually beneficial and


convenient to both parties, bringing not only much needed
immediate revenue to the City but also de-clogging the
Supreme Courts dockets and assisting and alleviating the
plight of investors who had undergone financial distress;

NOW, THEREFORE:

BE IT RESOLVED AS IT IS HEREBY RESOLVED by the


Sangguniang Panlungsod of Las Pias, in session
assembled, to approve, as it hereby approves the request
of California Manufacturing Company, Inc., (now owned by
Unilever Philippines, Inc.,) thru Atty. Jose Lis C. Leagogo
of Siguion Reyna, Montecillo & Ongsiako Law Offices, to
amicably settle its real property and business income taxes
liabilities.

RESOLVED, to authorize as it hereby authorizes the City


Mayor and/or City Treasurer to accept in behalf of the City
the settlement offer and enter into any compromise
agreement, as the case may be, to implement the
settlement.

RESOLVED, ALSO, to authorize the City Legal Officer, Atty.


Zardi Melito D. Abellera, to file the necessary pleading in
the Supreme Court of the Philippines in support of the
Compromise Agreement.

RESOLVED, FURTHER, that copies of this Resolution be


furnished the Honorable Mayor of the City of Las Pias, the
City Treasurer and the City Legal Officer for their
appropriate action.

This Resolution shall take effect immediately upon its


approval.

ADOPTED by the Sangguniang Panlungsod of Las Pias in its


regular session today, December 11, 2008.

(Signed)
HON. HENRY C. MEDINA
Vice-Mayor & Presiding Officer

ATTESTED:

(Signed)
ATTY. JERRY A. TANCHUAN
Sangguniang Secretary

APPROVED:

(Signed)
HON. VERGEL A. AGUILAR
City Mayor

Petitioner has already settled and paid the amount


of P36,522,817.24[7] in accordance with the compromised 50% of the
assessed amount.

Article 1306 of the Civil Code of the Philippines provides that


contracting parties may establish such stipulations, clauses, terms,
and conditions, as they may deem convenient, provided that they are
not contrary to law, morals, good customs, public order, or public
policy. A compromise agreement is a contract whereby the parties
make reciprocal concessions, avoid litigation, or put an end to one
already commenced.[8] It is an accepted, even desirable and
encouraged, practice in courts of law and administrative tribunals.[9]

A compromise agreement intended to resolve a matter already


under litigation is a judicial compromise. Having judicial mandate and
entered as its determination of the controversy, it has the force and
effect of a judgment. It transcends its identity as a mere contract
between the parties as it becomes a judgment that is subject to
execution in accordance with the Rules of Court. Thus, a compromise
agreement that has been made and duly approved by the court attains
the effect and authority ofres judicata, although no execution may be
issued unless the agreement receives the approval of the court where
the litigation is pending and compliance with the terms of the
agreement is decreed.[10]

Finding City Resolution No. 2385-08, Series of 2008 of the


Sangguniang Panlungsod of Las Pias to be validly executed and not
contrary to law, morals, good customs, public order or public policy,
we therefore, accept and approve the same.

WHEREFORE, the Joint Petition [Motion] to Withdraw Petition


for Review on Certiorari dated February 5, 2008
is GRANTED. Judgment is hereby rendered in accordance with City
Resolution No. 2385-08, Series of 2008 of the Sangguniang
Panlungsod of Las Pias. The instant case is DISMISSED. No
pronouncement as to costs.

SO ORDERED.

25. Palma Development Corp. vs. Zamboanga Del Sur (Oct. 16, 2003)

[G.R. No. 152492. October 16, 2003]

PALMA DEVELOPMENT CORPORATION, petitioner,


vs. MUNICIPALITY OF MALANGAS, ZAMBOANGA DEL
SUR, respondent.

DECISION
PANGANIBAN, J.:

In accordance with the Local Government Code of 1991, a


municipal ordinance imposing fees on goods that pass through the
issuing municipalitys territory is null and void.

The Case

The Petition for Review[1]before us assails the August 31,


2001 Decision[2]and the February 6, 2002 Resolution[3]of the Court of
Appeals (CA) in CA-GR CV No. 56477. Thedispositive portion of the
challenged Decision reads as follows:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the assailed
Decision is VACATED and SET ASIDE, and this case is
ordered REMANDED to the court a quo for the reception of evidence
of the parties on the matter or point delineated in the final sentence
above-stated.[4]

The assailed Resolution denied petitioners Motion for


Reconsideration.

The Facts

The facts are undisputed. Petitioner Palma Development


Corporation is engaged in milling and selling rice and corn to
wholesalers in Zamboanga City. It uses the
municipalport of Malangas, Zamboanga del Sur as transshipment point
for its goods. The port, as well as the surrounding roads leading to it,
belong to and are maintained by
theMunicipality of Malangas, Zamboanga del Sur.
On January 16, 1994, the municipality passed Municipal Revenue
Code No. 09, Series of 1993, which was subsequently approved by
the Sangguniang Panlalawigan ofZamboanga del Sur in Resolution No.
1330 dated August 4, 1994. Section 5G.01 of the ordinance reads:

Section 5G.01. Imposition of fees. There shall be collected service fee


for its use of the municipal road[s] or streets leading to the wharf and
to any point along the shorelines within the jurisdiction of the
municipality and for police surveillance on all goods and all equipment
harbored or sheltered in the premises of the wharf and other within
the jurisdiction of this municipality in the following schedule:

a) Vehicles and Equipment: rate of fee

1. Automatic per unit P10.00

2. Ford Fiera P10.00

3. Trucks P10.00

xxxxxxxxx

b) Other Goods, Construction Material products:


1. Bamboo craft P20.00

2. Bangus/Kilo 0.30

xxxxxxxxx

41. Rice and corn grits/sack 0.50[5]

Accordingly, the service fees imposed by Section 5G.01 of the


ordinance was paid by petitioner under protest. It contended that
under Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, municipal governments did not have the
authority to tax goods and vehicles that passed through their
jurisdictions. Thereafter, before the Regional Trial Court (RTC)
of Pagadian City, petitioner filed against
the Municipality of Malangas on November 20, 1995, an action for
declaratory relief assailing the validity of Section 5G.01 of the
municipal ordinance.
On the premise that the case involved the validity of a municipal
ordinance, the RTC directed respondent to secure the opinion of the
Office of the Solicitor General. The trial court likewise ordered that the
opinions of the Departments of Finance and of Justice be sought. As
these opinions were still unavailable as of October 17, 1996,
petitioners counsel filed, without objection from respondent, a
Manifestation seeking the submission of the case for the RTCs decision
on a pure question of law.
In due time, the trial court rendered its November 13,
1996 Decision declaring the entire Municipal Revenue Code No. 09
as ultra vires and, hence, null and void.

Ruling of the Court of Appeals

The CA held that local government units already had revenue-


raising powers as provided for under Sections 153 and 155 of RA No.
7160. It ruled as well that within the purview of these provisions --
and therefore valid -- is Section 5G.01, which provides for a service
fee for the use of the municipal road or streets leading to the wharf
and to any point along the shorelines within the jurisdiction of the
municipality and for police surveillance on all goods and all equipment
harbored or sheltered in the premises of the wharf and other within
the jurisdiction of this municipality.
However, since both parties had submitted the case to the trial
court for decision on a pure question of law without a full-blown trial
on the merits, the CA could not determine whether the facts of the
case were within the ambit of the aforecited sections of RA No.
7160. The appellate court ruled that petitioner still had to adduce
evidence to substantiate its allegations that the assailed ordinance had
imposed fees on the movement of goods within
the Municipality of Malangas in the guise of a toll fee for the use of
municipal roads and a service fee for police surveillance. Thus, the CA
held that the absence of such evidence necessitated the remand of the
case to the trial court.
Hence, this Petition.[6]

Issues

Petitioner raises the following issues for our consideration:


1. Whether or not the Court of Appeals erred when it ordered
that the extant case be remanded to the lower court for
reception of evidence.
2. Whether or not the Court of Appeals erred when it ruled that
a full blown trial on the merits is necessary and that plaintiff-
appellee, now petitioner, has to adduce evidence to
substantiate its thesis that the assailed municipal ordinance,
in fact, imposes fees on the movement of goods within the
jurisdiction of the defendant and that this imposition is
merely in the guise of a toll fee for the use of municipal roads
and service fee for police surveillance.
3. Whether or not the Court of Appeals erred when it did not
rule that the questioned municipal ordinance is contrary to
the provisions of R.A. No. 7160 or the Local Government
Code of thePhilippines.[7]
In brief, the issues boil down to the following: 1) whether Section
5G.01 of Municipal Revenue Code No. 09 is valid; and 2) whether the
remand of the case to the trial court is necessary.

The Courts Ruling

The Petition is meritorious.


First Issue:
Validity of the Imposed Fees

Petitioner argues that while respondent has the power to tax or


impose fees on vehicles using its roads, it cannot tax the goods that
are transported by the vehicles. The provision of the ordinance
imposing a service fee for police surveillance on goods is allegedly
contrary to Section 133(e) of RA No. 7160, which reads:

Section 133. Common Limitations on the Taxing Powers of Local


Government Units. Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities,
andbarangays shall not extend to the levy of the following:

xxxxxxxxx

e) Taxes, fees and charges and other impositions upon goods carried
into and out of, or passing through, the territorial jurisdictions of local
government units in the guise of charges for wharfage, tolls for bridges
or otherwise, or other taxes, fees or charges in any form whatsoever
upon such goods or merchandise;

On the other hand, respondent maintains that the subject fees are
intended for services rendered, the use of municipal roads and police
surveillance. The fees are supposedly not covered by the prohibited
impositions under Section 133(e) of RA No. 7160.[8] It further
contends that it was empowered by the express mandate of Sections
153 and 155 of RA No. 7160 to enact Section 5G.01 of the
ordinance. The pertinent provisions of this statute read as follows:

Section 153. Service Fees and Charges. -- Local government units may
impose and collect such reasonable fees and charges for services
rendered.

xxxxxxxxx

Section 155. Toll Fees or Charges. -- The sanggunian concerned may


prescribe the terms and conditions and fix the rates for the imposition
of toll fees or charges for the use of any public road, pier or wharf,
waterway, bridge, ferry or telecommunication system funded and
constructed by the local government unit concerned: Provided, That no
such toll fees or charges shall be collected from officers and enlisted
men of the Armed Forces of the Philippines and members of the
Philippine National Police on mission, post office personnel delivering
mail, physically-handicapped, and disabled citizens who are sixty-five
(65) years or older.

When public safety and welfare so requires, the sanggunian concerned


may discontinue the collection of the tolls, and thereafter the said
facility shall be free and open for public use.

Respondent claims that there is no proof that the P0.50 fee for
every sack of rice or corn is a fraudulent legislation enacted to subvert
the limitation imposed by Section 133(e) of RA No. 7160. Moreover, it
argues that allowing petitioner to use its roads without paying
the P0.50 fee for every sack of rice or corn would contravene the
principle of unjust enrichment.
By express language of Sections 153 and 155 of RA No. 7160, local
government units, through their Sanggunian, may prescribe the terms
and conditions for the imposition of toll fees or charges for the use of
any public road, pier or wharf funded and constructed by them. A
service fee imposed on vehicles using municipal roads leading to the
wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits
the imposition, in the guise of wharfage, of fees -- as well as all other
taxes or charges in any form whatsoever -- on goods or
merchandise. It is therefore irrelevant if the fees imposed are actually
for police surveillance on the goods, because any other form of
imposition on goods passing through the territorial jurisdiction of the
municipality is clearly prohibited by Section 133(e).
Under Section 131(y) of RA No. 7160, wharfage is defined as a fee
assessed against the cargo of a vessel engaged in foreign or domestic
trade based on quantity, weight, or measure received and/or
discharged by vessel. It is apparent that a wharfage does not lose its
basic character by being labeled as a service fee for police surveillance
on all goods.
Unpersuasive is the contention of respondent that petitioner would
unjustly be enriched at the formers expense. Though the rules thereon
apply equally well to the government,[9]for unjust enrichment to be
deemed present, two conditions must generally concur: (a) a person is
unjustly benefited, and (b) such benefit is derived at anothers expense
or damage.[10]
In the instant case, the benefits from the use of the municipal
roads and the wharf were not unjustly derived by petitioner. Those
benefits resulted from the infrastructure that the municipality was
mandated by law to provide.[11] There is no unjust enrichment where
the one receiving the benefit has a legal right or entitlement thereto,
or when there is no causal relation between ones enrichment and the
others impoverishment.[12]

Second Issue:
Remand of the Case

Petitioner asserts that the remand of the case to the trial court for
further reception of evidence is unnecessary, because the facts are
undisputed by both parties. It has already been clearly established,
without need for further evidence, that petitioner transports rice and
corn on board trucks that pass through the municipal roads leading to
the wharf. Under protest, it paid the service fees, a fact that
respondent has readily admitted without qualification.
Respondent, on the other hand, is silent on the issue of the
remand of the case to the trial court. The former merely defends the
validity of the ordinance, arguing neither for nor against the remand.
We rule against the remand. Not only is it frowned upon by the
Rules of Court;[13]it is also unnecessary on the basis of the facts
established by the admissions of the parties.Besides, the fact sought
to be established with the reception of additional evidence is irrelevant
to the due settlement of the case.
The pertinent portion of the assailed CA Decision reads:

To be stressed is the fact that local government units now have the
following common revenue raising powers under the Local Government
Code:

Section 153. Service Fees and Charges. -- Local government units may
impose and collect such reasonable fees and charges for services
rendered.

xxxxxxxxx

Section 155. Toll Fees or Charges. -- The Sanggunian concerned may


prescribe the terms and conditions and fix the rates for the imposition
of toll fees or charges for the use of any public road, pier or wharf,
waterway, bridge, ferry or telecommunication system funded and
constructed by the local government unit concerned: Provided, That no
such toll fees or charges shall be collected from officers and enlisted
men of the Armed Forces of the Philippines and members of the
Philippine National Police on mission, post office personnel delivering
mail, physically-handicapped, and disabled citizens who are sixty-five
(65) years or older.

When public safety and welfare so requires, the Sanggunian concerned


may discontinue the collection of the tolls, and thereafter the said
facility shall be free and open for public use. x x x

As we see it, the disputed municipal ordinance, which provides for


a service fee for the use of the municipal road or streets leading to the
wharf and to any point along the shorelines within the jurisdiction of
the municipality and for police surveillance on all goods and all
equipment harbored or sheltered in the premises of the wharf and
other within the jurisdiction of this municipality, seems to fall within
the compass of the above cited provisions of R.A. No. 7160. As
elsewhere indicated, the parties in this case, nonetheless, chose to
submit the issue to the Trial Court on a pure question of law, without a
full-blown trial on the merits: consequently, we are not prepared to
say, at this juncture, that the facts of the case inevitably call for the
application, and/or that these make out a clear-cut case within the
ambit and purview, of the aforecited section. The plaintiff, thus, has to
adduce evidence to substantiate its thesis that the assailed municipal
ordinance, in fact, imposes fees on the movement of goods within the
jurisdiction of the defendant, and that this imposition is merely in the
guise of a toll fee for the use of municipal roads and service fee for
police surveillance. Competent evidence upon this score must, thus, be
presented.[14]

We note that Section 5G.01 imposes two types of service fees: 1)


one for the use of the municipal roads and 2) another for police
surveillance on all goods and equipment sheltered in the premises of
the wharf. The amount of service fees, however, is based on the type
of vehicle that passes through the road and the type of goods being
transported.
While both parties admit that the service fees imposed are for the
use of the municipal roads, petitioner maintains that the service fee for
police surveillance on goods harbored on the wharf is in the guise of
a wharfage,[15]a prohibited imposition under Section 133(e) of RA No.
7160.
Thus, the CA held that the case should be remanded to the trial
court in order to resolve this factual dispute. The appellate court noted
that under Section 155 of RA No. 7160, municipalities apparently now
have the power to impose fees for the use of municipal roads.
Nevertheless, a remand is still unnecessary even if the service fee
charged against the goods are for police surveillance, because Section
133(e) of RA No. 7160 expressly prohibits the imposition of all other
taxes, fees or charges in any form whatsoever upon the merchandise
or goods that pass through the territorial jurisdiction of local
government units. It is therefore immaterial to the instant case
whether the service fee on the goods is for police surveillance or not,
since the subject provision of the revenue ordinance is
invalid. Reception of further evidence to establish this fact would not
legalize the imposition of such fee in any way.
Furthermore, neither party disputes any of the other material facts
of the case. From their respective Briefs before the CA and their
Memoranda before this Court, they do not dispute the fact that
petitioner, from its principal place of business, transports rice and corn
on board trucks bound for respondents wharf. The trucks traverse the
municipal roads en route to the wharf, where the sacks of rice and
corn are manually loaded into marine vessels bound
for Zamboanga City. Likewise undisputed is the fact that respondent
imposed and collected fees under the ordinance from petitioner. The
former admits that it has been collecting, in addition to the fees on
vehicles, P0.50 for every sack of rice or corn that the latter has been
shipping through the wharf.[16]
The foregoing allegations are formal judicial admissions that are
conclusive upon the parties making them. They require no further
proof in accordance with Section 4 of Rule 129 of the Rules of Court,
which reads:

SEC. 4. Judicial admissions. An admission, verbal or written, made by


a party in the course of the proceedings in the same case, does not
require proof. The admission may be contradicted only by showing that
it was made through palpable mistake or that no such admission was
made.

Judicial admissions made by parties in the pleadings, in the course


of the trial, or in other proceedings in the same case are
conclusive. No further evidence is required to prove them. Moreover,
they cannot be contradicted unless it is shown that they have been
made through palpable mistake, or that they have not been made at
all.[17]
WHEREFORE, the Petition is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are hereby SET ASIDE. The
imposition of a service fee for police surveillance on all goods harbored
or sheltered in the premises of the municipal port of Malangas under
Sec. 5G.01 of the Malangas Municipal Revenue Code No. 09, series of
1993, is declared NULL AND VOID for being violative of Republic Act
No. 7160.
SO ORDERED.

26. Jardine Davies Insurance Brokers vs. Aliposa (February 27, 2003)

[G.R. No. 118900. February 27, 2003]

JARDINE DAVIES INSURANCE BROKERS, INC., petitioner,


vs. HON. ERNA ALIPOSA, in her capacity as Presiding
Judge of Branch 150 of the Makati Regional Trial Court,
CITY (previously Municipality) OF MAKATI and ROLANDO
M. CARLOS, in his capacity as Acting Treasurer of
Makati, respondents.

DECISION
CALLEJO, SR., J.:

Pursuant to Republic Act No. 7160, otherwise known as the Local


Government Code of 1991, the then Sangguniang Bayan of Makati
enacted Municipal Ordinance No. 92-072, otherwise known as the
Makati Revenue Code, which provides, inter alia, for the schedule of
real estate, business and franchise taxes in the Municipality of Makati
at rates higher than those in the Metro Manila Revenue Code.
On May 10, 1993, the Philippine Racing Club, Inc. (PRCI for
brevity), a taxpayer of Makati, appealed to the Department of Justice
(DOJ for brevity) for the nullification of said ordinance, alleging that it
was approved without previous public hearings, in violation of the
Local Government Code and Article 276 of its Implementing Rules, and
that some of the ordinances provisions were unconstitutional:

(2) The in-lieu-of-all-taxes clause of the franchise of the Philippine


Racing Club, Inc. exempts it from payment of the real property tax,
annual business tax and other new taxes imposed by the ordinance
here in question. To withdraw the exemption would impair the
obligation of contract in violation of its constitutional right as franchise
holder.

(3) The imposition of the franchise tax is not within the scope of the
taxing powers of the Municipality of Makati (Sections 134, 137 and 142
of Republic Act No. 7160 and Articles 223, 226 and 231 of Rule XXX of
the Implementing Rules and Regulations of the Local Government
Code of 1991). and

(4) The Municipality of Makati already shares 5 of the 25% franchise


tax provided for in Section 8 of the franchise of the Philippine Racing
Club, Inc. To allow the said municipality to impose another franchise
tax and to base the tax on the gross annual receipts, as it does in the
ordinance, would certainly be unjust, excessive, oppressive or
confiscatory (Section 130 of Republic Act No. 7160 and Article 219 of
Rule XXX of the Implementing Rules and Regulations).[1]

Although required by the DOJ to comment on the appeal,


respondent Makati failed to do so.
On July 5, 1993, the DOJ came out with a resolution[2] declaring
null and void and without legal effect the said ordinance for having
been enacted in contravention of Section 187 of the Local Government
Code of 1991 and its implementing rules and regulations.[3]
On August 19, 1993, respondent Makati sought a reconsideration
of the ruling of the DOJ. Pending resolution of its motion, said
respondent filed a petition ad cautelam[4] with the Regional Trial Court
(RTC) of Makati, entitled Hon. Jejomar C. Binay and the Municipality of
Makati, Petitioners, v. Hon. Franklin M. Drilon, Department of Justice
and Philippine Racing Club, Inc., Respondents, and docketed as Case
No. 93-2844. The case was raffled to Branch 148 of the Makati RTC.
Respondent Makati alleged, inter alia,that public hearings were
conducted before the approval of the ordinance and hence the
ordinance was valid. It prayed that after due proceedings judgment be
rendered in its favor, thus:

WHEREFORE, petitioners respectfully pray that this Honorable Court


promulgate judgment:

(a) declaring null and void the DOJ Decision dated July 5, 1993; and

(b) allowing the full implementation of Makati Municipal Ordinance No.


92-072.
Petitioners pray for such further or other reliefs as this Honorable
Court may deem just and equitable.[5]

In the meantime, respondent Makati continued to implement the


ordinance. Petitioner Jardine Davies Insurance Brokers, Inc., a duly-
organized corporation with principal place of business at No. 222 Sen.
Gil J. Puyat Avenue, Makati, Metro Manila, was assessed and billed by
Makati the amount of P63,822.47 for taxes, fees and charges under
the ordinance for the second quarter of 1993. It was again billed by
respondent Makati the same amount for the third quarter of 1993 and
the same amount for the fourth quarter of 1993. Petitioner did not
protest the assessment for its quarterly business taxes for the second,
third and fourth quarters of 1993 based on said ordinance effective
April 1, 1993. Petitioner, in fact, paid the said amounts on April 26,
1993 (for the second quarter), July 12, 1993 (for the third quarter)
and October 19, 1993 (for the fourth quarter), respectively, without
any protest. Respondent Makati issued the corresponding receipts in
favor of petitioner.[6]
On January 30, 1994, petitioner wrote the municipal treasurer of
Makati requesting that respondent Makati compute its business tax
liabilities in accordance with the Metro Manila Revenue Code and not
under the ordinance considering that said ordinance was already
declared by the DOJ null and void. Petitioner likewise requested that
respondent Makati credit the overpayment in the total amount of
P27,854.91 for the second to fourth quarters of 1993 against its 1994
liabilities for 1994, or in the alternative, for Makati to refund the said
amount to petitioner.
In a Letter[7] dated February 4, 1994, respondent Makati, through
Maximo L. Paulino Jr., Acting Chief of its Municipal License Division,
denied the request of petitioner for tax credit/refund. Respondent
Makati insisted that the questioned ordinance code was valid and
enforceable pending the final outcome of its petition ad cautelam with
the Regional Trial Court of Makati.
In the meantime, on October 26, 1993, the RTC rendered
judgment in Case No. 93-2844 granting the petition of Makati and
declaring the ordinance valid. On November 9, 1993, the DOJ issued a
memorandum to the Chief State Counsel directing the latter to refrain
from accepting any appeal or to act on pending appeals on the
validity/constitutionality of the ordinance until the same shall have
been finally resolved by courts of competent jurisdiction.
When informed of the denial by respondent Makati of its letter-
request, petitioner filed a complaint on March 7, 1994 with the RTC of
Makati against respondents Makati and its Acting Municipal Treasurer.
The case was raffled to Branch 150 of said court. Petitioner alleged in
its complaint that in view of the resolution of the DOJ declaring the
Makati Revenue Code null and void and without legal effect, the
provisions of the Metro Manila Revenue Code continued to remain in
full force and effect; however, petitioner was assessed and billed by
respondent Makati for taxes, fees and charges for second, third and
fourth quarters for 1993 beginning on April 4, 1993 up to October 14,
1994 at rates fixed in the ordinance despite the nullity thereof.
Petitioner prayed that after due proceedings judgment be rendered as
follows:
1. Declaring as NULL AND VOID Municipal Ordinance No. 92-
072, (Makati Revenue Code) of the Municipality of Makati and
ordering Defendants to refund or issue as tax credit in favor
of Plaintiff the sum of P27,854.91 plus interest.
2. Assuming without admitting that the Municipal Ordinance No.
92-072 (Makati Revenue Code) is valid, declaring that the
rates imposed by said ordinance accrue only on July 1, 1993
and ordering Defendants to refund or issue as tax credit in
favor of Plaintiff the sum of P9,284.97.[8]
On May 18, 1994, respondents Makati and its Acting Municipal
Treasurer filed a motion to dismiss[9] the complaint on the ground of
prematurity. They argued that petitioners cause of action was
predicated on the appealed resolution of the DOJ, and unless and until
nullified by final judgment of a competent court, the ordinance
remained in full force and effect.
On May 26, 1994, petitioner opposed the motion to dismiss of
respondents, contending that its complaint was not predicated solely
on the invalidity and unconstitutionality of the ordinance but also on its
claim that the ordinance took effect only in July 1, 1993 but Makati
applied the ordinance effective April 1, 1993. Petitioner further averred
that under Section 166 of the Local Government Code, new taxes, fees
or charges or charges provided for in the ordinance shall accrue on the
first day of the quarter following the effectivity of the new ordinance.
Hence, assuming that the tax ordinance was valid, the same should
have been enforced only from the first (1st) day of the quarter
following next the effectivity of the ordinance imposing such new levies
or rates as provided for in Section 166 of the Local Government Code.
On August 29, 1994, the RTC issued an order granting the motion
to dismiss of respondent and ordering the dismissal of the complaint.
The trial court ruled that plaintiffs cause of action, if any, had
prescribed. Citing Sections 187 and 195 of the Local Government Code
of 1991, the trial court ratiocinated that petitioner failed to file an
opposition or protest to the written notice of assessment of Makati for
taxes, fees and charges at rates provided for in the ordinance within
60 days from the notice of said assessment as required by Section 195
of the Local Government Code. Hence, petitioner was barred from
demanding a refund of its payment or that it be credited for said
amounts.
Petitioner received a copy of said order on October 7, 1994. On
October 13, 1994, petitioner filed with the trial court a motion for
reconsideration[10] of the order of dismissal, arguing that the trial court
erred in applying Section 195 of the Local Government Code of 1991
as its complaint did not involve an assessment for deficiency taxes but
one for refund/tax credit. Petitioner further claimed that it was never
served with any notice of assessment from respondents and hence
there was no need for petitioner to protest. Petitioner argued that
what was applicable was Section 196 of the Local Government Code in
conjunction with Article 286 of its Implementing Rules and
Regulations, both of which simply require the filing of a written claim
for refund or tax credit within two years from the date of payment.
On December 28, 1994, the trial court issued an order [11] denying
the motion for reconsideration of petitioner, a copy of which was
served on petitioner on February 13, 1995. The trial court declared
that Section 195 of the Local Government Code covers all kinds of
assessments and not merely deficiency assessments for taxes, fees or
charges. The trial court further ruled that the issue of the validity and
constitutionality of the ordinance was still pending resolution by
Branch 148 of the RTC in Civil Case No. 93-2844 and until declared
null and void, otherwise by final judgment, the ordinance remained
valid.
Petitioner filed on February 20, 1995 a petition for review on
certiorari under Rule 45 of the Rules of Court, contending that:

RESPONDENT JUDGE ERRED IN HOLDING THAT THE INSTANT CASE IS


NOT A CLAIM FOR REFUND UNDER SECTION 196 OF THE LGC IN
RELATION TO ARTICLE 286 OF ITS IMPLEMENTING RULES, BUT A
DEFICIENCY ASSESSMENT THAT HAS TO BE PROTESTED UNDER
SECTION 195 OF THE SAME CODE.

RESPONDENT JUDGE ERRED IN DISMISSING THE CASE ON THE


GROUND OF PENDENCY OF ANOTHER ACTION CONTESTING THE
LEGALITY OR CONSTITUTIONALITY OF THE MAKATI REVENUE CODE IS
STILL BEING DETERMINED IN BRANCH 148 OF THE REGIONAL TRIAL
COURT OF MAKATI.[12]

Anent the first assignment of errors, petitioner avers that its action
in the RTC was one for a refund of its overpayments governed by
Article 196 of the Local Government Code implemented by Article 286
of the Implementing Rules and Regulations of the Code and not one
involving an assessment for deficiency taxes governed by Section 195
of the said Code. Petitioner contends that it was not mandated to first
file a protest with respondents before instituting its action for a refund
of its overpayments or for it to be credited for said overpayments. For
its part, respondent Makati avers that petitioner was proscribed from
filing its complaint with the RTC and for a refund of its alleged
overpayment, petitioner having paid without any protest the taxes due
to respondent Makati under the ordinance. It is further asserted by
respondent Makati that until declared null and void by a competent
court, the ordinance was valid and should be enforced.
The petition has no merit.
The Court agrees with petitioner that as a general precept, a
taxpayer may file a complaint assailing the validity of the ordinance
and praying for a refund of its perceived overpayments without first
filing a protest to the payment of taxes due under the ordinance. This
was our ruling in Ty v. Judge Trampe:[13]

. . . Hence, if a taxpayer disputes the reasonableness of an increase in


a real estate tax assessment, he is required to first pay the tax under
protest. Otherwise, the city or municipal treasurer will not act on his
protest. In the case at bench, however, the petitioners are questioning
the very authority and power of the assessor, acting solely and
independently, to impose the assessment and of the treasurer to
collect the tax. These are not questions merely of amounts of the
increase in the tax but attacks on the very validity of any increase.

In this case, petitioner, relying on the resolution of the Secretary of


Justice in The Philippine Racing Club, Inc. v. Municipality of
Makati case, posited in its complaint that the ordinance which was the
basis of respondent Makati for the collection of taxes from petitioner
was null and void. However, the Court agrees with the contention of
respondents that petitioner was proscribed from filing its complaint
with the RTC of Makati for the reason that petitioner failed to appeal to
the Secretary of Justice within 30 days from the effectivity date of the
ordinance as mandated by Section 187 of the Local Government Code
which reads:
Sec. 187-Procedure for Approval and Effectivity of Tax Ordinances and
Revenue Measures; Mandatory Public Hearings.- The procedure for
approval of local tax ordinances and revenue measures shall be in
accordance with the provisions of this Code: Provided, That public
hearings shall be conducted for the purpose prior to the enactment
thereof: Provided further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the
Secretary of Justice who shall render a decision within sixty (60) days
from the date of receipt of the appeal: Provided, however, That such
appeal shall not have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee, or charge
levied therein: Provided, finally, That within thirty (30) days after
receipt of the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved party may
file appropriate proceedings with a court of competent jurisdiction.

In Reyes v. Court of Appeals,[14] we ruled that failure of a taxpayer


to interpose the requisite appeal to the Secretary of Justice is fatal to
its complaint for a refund:

Clearly, the law requires that the dissatisfied taxpayer who questions
the validity or legality of a tax ordinance must file his appeal to the
Secretary of Justice, within 30 days from effectivity thereof. In case
the Secretary decides the appeal, a period also of 30 days is allowed
for an aggrieved party to go to court. But if the Secretary does not act
thereon, after the lapse of 60 days, a party could already proceed to
seek relief in court. These three separate periods are clearly given for
compliance as a prerequisite before seeking redress in a competent
court. Such statutory periods are set to prevent delays as well as
enhance the orderly and speedy discharge of judicial functions. For this
reason the courts construe these provisions of statutes as mandatory.

A municipal tax ordinance empowers a local government unit to


impose taxes. The power to tax is the most effective instrument to
raise needed revenues to finance and support the myriad activities of
local government units for the delivery of basic services essential to
the promotion of the general welfare and enhancement of peace,
progress, and prosperity of the people. Consequently, any delay in
implementing tax measures would be to the detriment of the public. It
is for this reason that protests over tax ordinances are required to be
done within certain time frames. In the instant case, it is our view that
the failure of petitioners to appeal to the Secretary of Justice within 30
days as required by Sec. 187 of R.A. 7160 is fatal to their cause.
Moreover, petitioner even paid without any protest the amounts of
taxes assessed by respondents Makati and Acting Treasurer as
provided for in the ordinance. Evidently, the complaint of petitioner
with the Regional Trial Court was merely an afterthought.
In view of our foregoing disquisitions, the Court no longer deems it
necessary to resolve other issues posed by petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
order of the Regional Trial Court dismissing the complaint of petitioner
is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez,
JJ., concur.

27. Quezon City vs. ABS-CBN Broadcasting Corp. (October 6, 2008)


QUEZON CITY and THE CITY G.R. No. 166408
TREASURER OF QUEZON CITY,
Petitioners,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

ABS-CBN BROADCASTING Promulgated:


CORPORATION,
Respondent. October 6, 2008

x-------------------------------------------
-------x

DECISION

REYES, R.T., J.:


CLAIMS for tax exemption must be based on language in law too plain
to be mistaken. It cannot be made out of inference or implication.

The principle is relevant in this petition for review on certiorari of the


Decision[1] of the Court of Appeals (CA) and that[2] of the Regional Trial
Court (RTC) ordering the refund and declaring invalid the imposition
and collection of local franchise tax by the City Treasurer of Quezon
City on ABS-CBN Broadcasting Corporation (ABS-CBN).

The Facts

Petitioner City Government of Quezon City is a local government unit


duly organized and existing by virtue of Republic Act (R.A.) No. 537,
otherwise known as the Revised Charter of Quezon
City. Petitioner City Treasurer of Quezon City is primarily responsible
for the imposition and collection of taxes within the territorial
jurisdiction of Quezon City.

Under Section 31, Article 13 of the Quezon City Revenue Code of


1993,[3] a franchise tax was imposed on businesses operating within
its jurisdiction. The provision states:

Section 31. Imposition of Tax. Any provision of


special laws or grant of tax exemption to the contrary
notwithstanding, any person, corporation, partnership or
association enjoying a franchise whether issued by the
national government or local government and, doing
business in Quezon City, shall pay a franchise tax at the
rate of ten percent (10%) of one percent (1%) for 1993-
1994, twenty percent (20%) of one percent (1%) for
1995, and thirty percent (30%) of one percent (1%) for
1996 and the succeeding years thereafter, of gross
receipts and sales derived from the operation of the
business in Quezon City during the preceding calendar
year.

On May 3, 1995, ABS-CBN was granted the franchise to install


and operate radio and television broadcasting stations in
the Philippines under R.A. No. 7966.[4]Section 8 of R.A. No. 7966
provides the tax liabilities of ABS-CBN which reads:

Section 8. Tax Provisions. The grantee, its


successors or assigns, shall be liable to pay the same taxes
on their real estate, buildings and personal property,
exclusive of this franchise, as other persons or
corporations are now hereafter may be required by law to
pay. In addition thereto, the grantee, its successors or
assigns, shall pay a franchise tax equivalent to three
percent (3%) of all gross receipts of the
radio/television business transacted under this
franchise by the grantee, its successors or assigns,
and the said percentage tax shall be in lieu of all
taxes on this franchise or earnings thereof; Provided
that the grantee, its successors or assigns shall continue to
be liable for income taxes under Title II of the National
Internal Revenue Code pursuant to Section 2 of Executive
No. 72 unless the latter enactment is amended or
repealed, in which case the amendment or repeal shall be
applicable thereto. (Emphasis added)

ABS-CBN had been paying local franchise tax imposed


by Quezon City. However, in view of the above provision in R.A. No.
9766 that it shall pay a franchise tax x x x in lieu of all taxes, the
corporation developed the opinion that it is not liable to pay the local
franchise tax imposed by Quezon City. Consequently, ABS-CBNpaid
under protest the local franchise tax imposed by Quezon City on the
dates, in the amounts and under the official receipts as follows:

O.R. No. Date Amount Paid


2464274 07-18-95 P 1,489,977.28
2484651 10-20-95 1,489,977.28
2536134 1-22-96 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
0067352 4-03-97 2,731,135.81
Total P19,944,672.66[5]
On January 29, 1997, ABS-CBN filed a written claim for refund for local
franchise tax paid to Quezon City for 1996 and for the first quarter of
1997 in the total amount of Fourteen Million Two Hundred Thirty-Three
Thousand Five Hundred Eighty-Two and 29/100 centavos
(P14,233,582.29) broken down as follows:

O.R. No Date Amount Paid


2536134 1-22-96 P 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
Total P14,233,582.29[6]

In a letter dated March 3, 1997 to the Quezon City Treasurer, ABS-


CBN reiterated its claim for refund of local franchise taxes paid.

On June 25, 1997, for failure to obtain any response from the
Quezon City Treasurer, ABS-CBN filed a complaint before
the RTC in Quezon City seeking the declaration of nullity of the
imposition of local franchise tax by the City Government of Quezon
City for being unconstitutional. It likewise prayed for the refund of
local franchise tax in the amount of Nineteen Million Nine Hundred
Forty-Four Thousand Six Hundred Seventy-Two and 66/100 centavos
(P19,944,672.66) broken down as follows:

O.R. No. Date Amount Paid


2464274 7-18-95 P 1,489,977.28
2484651 10-20-95 1,489,977.28
2536134 1-22-96 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
0067352 4-03-97 2,731,135.81
Total P19,944,672.66[7]

Quezon City argued that the in lieu of all taxes provision in R.A.
No. 9766 could not have been intended to prevail over a constitutional
mandate which ensures the viability and self-sufficiency of local
government units. Further, that taxes collectible by and payable to the
local government were distinct from taxes collectible by and payable to
the national government, considering that the Constitution specifically
declared that the taxes imposed by local government units shall accrue
exclusively to the local governments. Lastly, the City contended that
the exemption claimed by ABS-CBN under R.A. No. 7966 was
withdrawn by Congress when the Local Government Code (LGC) was
passed.[8] Section 193 of the LGC provides:

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. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the
effectivity of this Code. (Emphasis added)

On August 13, 1997, ABS-CBN filed a supplemental complaint adding


to its claim for refund the local franchise tax paid for the third quarter
of 1997 in the amount of Two Million Seven Hundred Thirty-One
Thousand One Hundred Thirty-Five and 81/100 centavos
(P2,731,135.81) and of other amounts of local franchise tax as may
have been and will be paid by ABS-CBN until the resolution of the
case.

Quezon City insisted that the claim for refund must fail because of the
absence of a prior written claim for it.

RTC and CA Dispositions

On January 20, 1999, the RTC rendered judgment declaring as invalid


the imposition on and collection from ABS-CBN of local franchise tax
paid pursuant to Quezon City Ordinance No. SP-91, S-93, after the
enactment of R.A. No. 7966, and ordered the refund of all payments
made. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered declaring
the imposition on and collection from plaintiff ABS-CBN
BROADCASTING CORPORATION of local franchise taxes
pursuant to Quezon City Ordinance No. SP-91, S-93 after
the enactment of Republic Act No. 7966 to be invalid, and,
accordingly, the Court hereby orders the defendants to
refund all its payments made after the effectivity of its
legislative franchise on May 3, 1995.

SO ORDERED.[9]

In its decision, the RTC ruled that the in lieu of all taxes provision
contained in Section 8 of R.A. No. 7966 absolutely excused ABS-
CBN from the payment of local franchise tax imposed under Quezon
City Ordinance No. SP-91, S-93. The intent of the legislature to
excuse ABS-CBN from payment of local franchise tax could be
discerned from the usage of the in lieu of all taxes provision and from
the absence of any qualification except income taxes. Had Congress
intended to exclude taxes imposed from the exemption, it would have
expressly mentioned so in a fashion similar to the proviso on income
taxes.

The RTC also based its ruling on the 1990 case of Province of Misamis
Oriental v. Cagayan Electric Power and Light Company, Inc.
(CEPALCO).[10] In said case, the exemption of respondent electric
company CEPALCO from payment of provincial franchise tax was
upheld on the ground that the franchise of CEPALCO was a special law,
while the Local Tax Code, on which the provincial ordinance imposing
the local franchise tax was based, was a general law. Further, it was
held that whenever there is a conflict between two laws, one special
and particular and the other general, the special law must be taken as
intended to constitute an exception to the general act.

The RTC noted that the legislative franchise of ABS-CBN was


granted years after the effectivity of the LGC. Thus, it was unavoidable
to conclude that Section 8 of R.A. No. 7966 was an exception since the
legislature ought to be presumed to have enacted it with the
knowledge and awareness of the existence and prior enactment of
Section 137[11] of the LGC.

In addition, the RTC, again citing the case of Province of Misamis


Oriental v. Cagayan Electric Power and Light Company, Inc.
(CEPALCO),[12] ruled that the imposition of the local franchise tax was
an impairment of ABS-CBNs contract with the government. The
imposition of another franchise on the corporation by the local
authority would constitute an impairment of the formers charter, which
is in the nature of a private contract between it and the government.

As to the amounts to be refunded, the RTC rejected Quezon Citys


position that a written claim for refund pursuant to Section 196 of the
LGC was a condition sine qua non before filing the case in
court. The RTC ruled that although Fourteen Million Two Hundred
Thirty-Three Thousand Five Hundred Eighty-Two and 29/100 centavos
(P14,233,582.29) was the only amount stated in the letter to the
Quezon City Treasurer claiming refund, ABS-CBN should nonetheless
be also refunded of all payments made after the effectivity of R.A. No.
7966. The inaction of the City Treasurer on the claim for refund
of ABS-CBN legally rendered any further claims for refund on the part
of plaintiff absurd and futile in relation to the succeeding payments.

The City of Quezon and its Treasurer filed a motion for reconsideration
which was subsequently denied by the RTC. Thus, appeal was made to
the CA. On September 1, 2004, the CA dismissed the petition
of Quezon City and its Treasurer. According to the appellate court, the
issues raised were purely legal questions cognizable only by the
Supreme Court. The CA ratiocinated:

For another, the issues which appellants submit for


this Courts consideration are more of legal query
necessitating a legal opinion rather than a call for
adjudication on the matter in dispute.

xxxx
The first issue has earlier been categorized
in Province of Misamis Oriental v. Cagayan Electric and
Power Co., Inc. to be a legal one. There is no more
argument to this.

The next issue although it may need the


reexamination of the pertinent provisions of the local
franchise and the legislative franchise given to appellee,
also needs no evaluation of facts. It suffices that there
may be a conflict which may need to be reconciled, without
regard to the factual backdrop of the case.

The last issue deals with a legal question, because


whether or not there is a prior written claim for refund is
no longer in dispute. Rather, the question revolves on
whether the said requirement may be dispensed with,
which obviously is not a factual issue.[13]

On September 23, 2004, petitioner moved for reconsideration. The


motion was, however, denied by the CA in its Resolution
dated December 16, 2004. Hence, the present recourse.

Issues

Petitioner submits the following issues for resolution:

I.
Whether or not the phrase in lieu of all taxes indicated in
the franchise of the respondent appellee (Section 8 of RA
7966) serves to exempt it from the payment of the local
franchise tax imposed by the petitioners-appellants.

II.
Whether or not the petitioners-appellants raised factual
and legal issues before the Honorable Court of Appeals.[14]

Our Ruling

The second issue, being procedural in nature, shall be dealt with


immediately. But there are other resultant issues linked to the first.
I. The dismissal by the CA of petitioners appeal is in order
because it raised purely legal issues, namely:

1) Whether appellee, whose franchise expressly provides


that its payment of franchise tax shall be in lieu of all
taxes in this franchise or earnings thereof, is absolutely
excused from paying the franchise tax imposed by
appellants;

2) Whether appellants imposition of local franchise tax is a


violation of appellees legislative franchise; and

3) Whether one can do away with the requirement on prior


written claim for refund.[15]

Obviously, these are purely legal questions, cognizable by this Court,


to the exclusion of all other courts. There is a question of law when the
doubt or difference arises as to what the law is pertaining to a certain
state of facts.[16]

Section 2, Rule 50 of the Rules of Court provides that an appeal


taken to the CA under Rule 41 raising only questions of law is
erroneous and shall be dismissed, issues of pure law not being within
its jurisdiction.[17] Consequently, the dismissal by the CA of petitioners
appeal was in order.

In the recent case of Sevilleno v. Carilo,[18] this Court ruled that


the dismissal of the appeal of petitioner was valid, considering the
issues raised there were pure questions of law, viz.:

Petitioners interposed an appeal to the Court of Appeals


but it was dismissed for being the wrong mode of
appeal. The appellate court held that since the issue being
raised is whether the RTC has jurisdiction over the subject
matter of the case, which is a question of law, the appeal
should have been elevated to the Supreme Court under
Rule 45 of the 1997 Rules of Civil Procedure, as
amended. Section 2, Rule 41 of the same Rules which
governs appeals from judgments and final orders of
the RTC to the Court of Appeals, provides:

SEC. 2. Modes of appeal.


(a) Ordinary appeal. The appeal to the Court of
Appeals in cases decided by the Regional
Trial Court in the exercise of its original
jurisdiction shall be taken by
filing a notice of appeal with the court
which rendered the judgment or final order
appealed from and serving a copy thereof
upon the adverse party. No record on
appeal shall be required except in special
proceedings and other cases of multiple or
separate appeals where the law or these
Rules so require. In such cases, the record
on appeal shall be filed and served in like
manner.

(b) Petition for review. The appeal to the Court


of Appeals in cases decided by the Regional
Trial Court in the exercise of its appellate
jurisdiction shall be by petition for review in
accordance with Rule 42.

(c) Appeal by certiorari. In all cases where only


questions of law are raised or involved, the
appeal shall be to the Supreme Court by
petition for review on certiorariin
accordance with Rule 45.

In Macawili Gold Mining and Development Co., Inc.


v. Court of Appeals, we summarized the rule on appeals as
follows:

(1) In all cases decided by the RTC in the


exercise of its original jurisdiction, appeal
may be made to the Court of Appeals by
mere notice of appeal where the appellant
raises questions of fact or mixed questions
of fact and law;

(2) In all cases decided by the RTC in the


exercise of its original jurisdiction where
the appellant raises only questions of law,
the appeal must be taken to the Supreme
Court on a petition for review on certiorari
under Rule 45;

(3) All appeals from judgments rendered by


the RTC in the exercise of its appellate
jurisdiction, regardless of whether the
appellant raises questions of fact, questions
of law, or mixed questions of fact and law,
shall be brought to the Court of Appeals by
filing a petition for review under Rule 42.

It is not disputed that the issue brought by


petitioners to the Court of Appeals involves the jurisdiction
of the RTC over the subject matter of the case. We have a
long standing rule that a courts jurisdiction over the
subject matter of an action is conferred only by the
Constitution or by statute. Otherwise put, jurisdiction of a
court over the subject matter of the action is a matter of
law. Consequently, issues which deal with the jurisdiction
of a court over the subject matter of a case are pure
questions of law. As petitioners appeal solely involves a
question of law, they should have directly taken their
appeal to this Court by filing a petition for review on
certiorari under Rule 45, not an ordinary appeal with the
Court of Appeals under Rule 41. Clearly, the appellate
court did not err in holding that petitioners pursued the
wrong mode of appeal.

Indeed, the Court of Appeals did not err in


dismissing petitioners appeal. Section 2, Rule 50 of the
same Rules provides that an appeal from the RTC to the
Court of Appeals raising only questions of law shall
be dismissed; and that an appeal erroneously taken to the
Court of Appeals shall be dismissed outright, x x
x.[19] (Emphasis added)

However, to serve the demands of substantial justice and equity,


the Court opts to relax procedural rules and rule upon on the merits of
the case. In Ong Lim Sing Jr. v. FEB Leasing and Finance
Corporation,[20] this Court stated:

Courts have the prerogative to relax procedural rules of


even the most mandatory character, mindful of the duty to
reconcile both the need to speedily put an end to litigation
and the parties right to due process. In numerous cases,
this Court has allowed liberal construction of the rules
when to do so would serve the demands of substantial
justice and equity. InAguam v. Court of Appeals, the Court
explained:
The court has the discretion to dismiss or
not to dismiss an appellants appeal. It is a
power conferred on the court, not a duty. The
discretion must be a sound one, to be
exercised in accordance with the tenets of
justice and fair play, having in mind the
circumstances obtaining in each
case. Technicalities, however, must be
avoided. The law abhors technicalities that
impede the cause of justice. The courts
primary duty is to render or dispense justice. A
litigation is not a game of
technicalities. Lawsuits unlike duels are not to
be won by a rapiers thrust. Technicality, when
it deserts its proper office as an aid to justice
and becomes its great hindrance and chief
enemy, deserves scant consideration from
courts. Litigations must be decided on their
merits and not on technicality. Every party
litigant must be afforded the amplest
opportunity for the proper and just
determination of his cause, free from the
unacceptable plea of technicalities. Thus,
dismissal of appeals purely on technical
grounds is frowned upon where the policy of
the court is to encourage hearings of appeals
on their merits and the rules of procedure
ought not to be applied in a very rigid,
technical sense; rules of procedure are used
only to help secure, not override substantial
justice. It is a far better and more prudent
course of action for the court to excuse a
technical lapse and afford the parties a review
of the case on appeal to attain the ends of
justice rather than dispose of the case on
technicality and cause a grave injustice to the
parties, giving a false impression of speedy
disposal of cases while actually resulting in
more delay, if not a miscarriage of justice.[21]
II. The in lieu of all taxes provision in its franchise does
not exempt ABS-CBN from payment of local franchise tax.

A. The present controversy essentially boils down to a dispute between


the inherent taxing power of Congress and the delegated authority to
tax of local governments under the 1987 Constitution and effected
under the LGC of 1991.

The power of the local government of Quezon City to impose franchise


tax is based on Section 151 in relation to Section 137 of the LGC, to
wit:

Section 137. Franchise Tax. Notwithstanding any


exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a
franchise, at the rate not exceeding fifty percent (50%) of
one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or
realized within its territorial jurisdiction. x x x

xxxx

Section 151. Scope of Taxing Powers. Except as


otherwise provided in this Code, the city may levy the
taxes, fees and charges which the province or municipality
may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and
component cities shall accrue to them and distributed in
accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed
the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except
the rates of professional and amusement taxes. (Emphasis
supplied)

Such taxing power by the local government, however, is limited


in the sense that Congress can enact legislation granting
exemptions. This principle was upheld in City Government of Quezon
City, et al. v. Bayan Telecommunications, Inc.[22] Said this Court:
This thus raises the question of whether or not the
Citys Revenue Code pursuant to which the city treasurer
of Quezon City levied real property taxes against Bayantels
real properties located within the City effectively withdrew
the tax exemption enjoyed by Bayantel under its franchise,
as amended.

Bayantel answers the poser in the negative arguing


that once again it is only liable to pay the same taxes, as
any other persons or corporations on all its real or personal
properties, exclusive of its franchise.

Bayantels posture is well-taken. While the system of


local government taxation has changed with the onset of
the 1987 Constitution, the power of local government units
to tax is still limited. As we explained in Mactan Cebu
International Airport Authority:
The power to tax is primarily vested in
the Congress; however, in our jurisdiction, it
may be exercised by local legislative bodies, no
longer merely be virtue of a valid delegation as
before, but pursuant to direct authority
conferred by Section 5, Article X of the
Constitution. Under the latter, the exercise of
the power may be subject to such guidelines
and limitations as the Congress may provide
which, however, must be consistent with the
basic policy of local autonomy. x x x

Clearly then, while a new slant on the subject of local


taxation now prevails in the sense that the former doctrine
of local government units delegated power to tax had been
effectively modified with Article X, Section 5 of the 1987
Constitution now in place, the basic doctrine on local
taxation remains essentially the same. For as the Court
stressed in Mactan, the power to tax is [still] primarily
vested in the Congress.

This new perspective is best articulated by Fr.


Joaquin G. Bernas, S.J., himself a Commissioner of the
1986 Constitutional Commission which crafted the 1987
Constitution, thus:

What is the effect of Section 5 on the


fiscal position of municipal
corporations? Section 5 does not change the
doctrine that municipal corporations do not
possess inherent powers of taxation. What it
does is to confer municipal corporations a
general power to levy taxes and otherwise
create sources of revenue. They no longer
have to wait for a statutory grant of these
powers. The power of the legislative authority
relative to the fiscal powers of local
governments has been reduced to the
authority to impose limitations on municipal
powers. Moreover, these limitations must be
consistent with the basic policy of local
autonomy. The important legal effect of
Section 5 is thus to reverse the principle that
doubts are resolved against municipal
corporations. Henceforth, in interpreting
statutory provisions on municipal fiscal powers,
doubts will be resolved in favor of municipal
corporations. It is understood, however, that
taxes imposed by local government must be
for a public purpose, uniform within a locality,
must not be confiscatory, and must be within
the jurisdiction of the local unit to pass.

In net effect, the controversy presently before the


Court involves, at bottom, a clash between the inherent
taxing power of the legislature, which necessarily includes
the power to exempt, and the local governments delegated
power to tax under the aegis of the 1987 Constitution.

Now to go back to the Quezon City Revenue Code


which imposed real estate taxes on all real properties
within the citys territory and removed exemptions
theretofore previously granted to, or presently enjoyed by
all persons, whether natural or juridical [x x x] there can
really be no dispute that the power of the Quezon City
Government to tax is limited by Section 232 of the
LGC which expressly provides that a province or city or
municipality within the Metropolitan Manila Area may levy
an annual ad valorem tax on real property such as land,
building, machinery, and other improvement not
hereinafter specifically exempted. Under this law, the
Legislature highlighted its power to thereafter exempt
certain realties from the taxing power of local government
units. An interpretation denying Congress such power to
exempt would reduce the phrase not hereinafter
specifically exempted as a pure jargon, without meaning
whatsoever. Needless to state, such absurd situation is
unacceptable.

For sure, in Philippine Long Distance Telephone


Company, Inc. (PLDT) vs. City of Davao, this Court has
upheld the power of Congress to grant exemptions over
the power of local government units to impose
taxes. There, the Court wrote:

Indeed, the grant of taxing powers to


local government units under the Constitution
and the LGC does not affect the power of
Congress to grant exemptions to certain
persons, pursuant to a declared national
policy. The legal effect of the constitutional
grant to local governments simply means that
in interpreting statutory provisions on
municipal taxing powers, doubts must be
resolved in favor of municipal
corporations. [23] (Emphasis supplied)

In the case under review, the Philippine Congress enacted R.A. No.
7966 on March 30, 1995, subsequent to the effectivity of the LGC
on January 1, 1992. Under it,ABS-CBN was granted the franchise to
install and operate radio and television broadcasting stations in
the Philippines. Likewise, Section 8 imposed on ABS-CBN the duty of
paying 3% franchise tax. It bears stressing, however, that payment of
the percentage franchise tax shall be in lieu of all taxes on the said
franchise.[24]

Congress has the inherent power to tax, which includes the power to
grant tax exemptions. On the other hand, the power of Quezon City to
tax is prescribed by Section 151 in relation to Section 137 of the LGC
which expressly provides that notwithstanding any exemption granted
by any law or other special law, the City may impose a franchise
tax. It must be noted that Section 137 of the LGC does not prohibit
grant of future exemptions. As earlier discussed, this Court in City
Government of Quezon City v. Bayan Telecommunications,
Inc.[25] sustained the power of Congress to grant tax exemptions over
and above the power of the local governments delegated power to tax.

B. The more pertinent issue now to consider is whether or not by


passing R.A. No. 7966, which contains the in lieu of all taxes provision,
Congress intended to exempt ABS-CBN from local franchise tax.

Petitioners argue that the in lieu of all taxes provision in ABS-CBNs


franchise does not expressly exempt it from payment of local franchise
tax. They contend that a tax exemption cannot be created by mere
implication and that one who claims tax exemptions must be able to
justify his claim by clearest grant of organic law or statute.

Taxes are what civilized people pay for civilized society. They are
the lifeblood of the nation. Thus, statutes granting tax exemptions are
construed stricissimi juris against the taxpayer and liberally in favor of
the taxing authority. A claim of tax exemption must be clearly shown
and based on language in law too plain to be mistaken. Otherwise
stated, taxation is the rule, exemption is the exception.[26] The burden
of proof rests upon the party claiming the exemption to prove that it is
in fact covered by the exemption so claimed.[27]

The basis for the rule on strict construction to statutory


provisions granting tax exemptions or deductions is to minimize
differential treatment and foster impartiality, fairness and equality of
treatment among taxpayers.[28] He who claims an exemption from his
share of common burden must justify his claim that the legislature
intended to exempt him by unmistakable terms. For exemptions from
taxation are not favored in law, nor are they presumed. They must be
expressed in the clearest and most unambiguous language and not left
to mere implications. It has been held that exemptions are never
presumed, the burden is on the claimant to establish clearly his right
to exemption and cannot be made out of inference or implications but
must be laid beyond reasonable doubt. In other words, since taxation
is the rule and exemption the exception, the intention to make an
exemption ought to be expressed in clear and unambiguous terms.[29]

Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax


equivalent to three (3) percent of all gross receipts of the
radio/television business transacted under the franchise and the
franchise tax shall be in lieu of all taxes on the franchise or earnings
thereof.

The in lieu of all taxes provision in the franchise of ABS-


CBN does not expressly provide what kind of taxes ABS-CBN is
exempted from. It is not clear whether the exemption would include
both local, whether municipal, city or provincial, and national
tax. What is clear is that ABS-CBN shall be liable to pay three (3)
percent franchise tax and income taxes under Title II of the NIRC. But
whether the in lieu of all taxes provision would include exemption from
local tax is not unequivocal.

As adverted to earlier, the right to exemption from local


franchise tax must be clearly established and cannot be made out of
inference or implications but must be laid beyond reasonable
doubt. Verily, the uncertainty in the in lieu of all taxes provision should
be construed against ABS-CBN. ABS-CBN has the burden to prove that
it is in fact covered by the exemption so claimed. ABS-CBN miserably
failed in this regard.

ABS-CBN cites the cases Carcar Electric & Ice Plant v. Collector
of Internal Revenue,[30] Manila Railroad v. Rafferty,[31] Philippine
Railway Co. v. Collector of Internal Revenue,[32] and Visayan Electric
Co. v. David[33] to support its claim that that the in lieu of all taxes
clause includes exemption from all taxes.
However, a review of the foregoing case law reveals that the
grantees respective franchises expressly exempt them from municipal
and provincial taxes. Said the Court in Manila Railroad v. Rafferty:[34]

On the 7th day of July 1906, by an Act of the


Philippine Legislature, a special charter was granted to the
Manila Railroad Company. Subsection 12 of Section 1 of
said Act (No. 1510) provides that:

In consideration of the premises and of


the granting of this concession or franchise,
there shall be paid by the grantee to the
Philippine Government, annually, for the period
of thirty (30) years from the date hereof, an
amount equal to one-half (1/2) of one per cent
of the gross earnings of the grantee in respect
of the lines covered hereby for the preceding
year; after said period of thirty (30) years, and
for the fifty (50) years thereafter, the amount
so to be paid annually shall be an amount
equal to one and one-half (1) per cent of such
gross earnings for the preceding year; and
after such period of eighty (80) years, the
percentage and amount so to be paid annually
by the grantee shall be fixed by the Philippine
Government.

Such annual payments, when promptly


and fully made by the grantee, shall be in lieu
of all taxes of every name and nature
municipal, provincial or centralupon its capital
stock, franchises, right of way, earnings, and
all other property owned or operated by the
grantee under this concession or
franchise. (Underscoring supplied)
[35]

In the case under review, ABS-CBNs franchise did not embody


an exemption similar to those in Carcar, Manila Railroad, Philippine
Railway, and Visayan Electric. Too, the franchise failed to specify the
taxing authority from whose jurisdiction the taxing power is withheld,
whether municipal, provincial, or national. In fine, since ABS-
CBN failed to justify its claim for exemption from local franchise tax,
by a grant expressed in terms too plain to be mistaken its claim for
exemption for local franchise tax must fail.

C. The in lieu of all taxes clause in the franchise of ABS-CBN has


become functus officio with the abolition of the franchise tax on
broadcasting companies with yearly gross receipts exceeding Ten
Million Pesos.

In its decision dated January 20, 1999, the RTC held that
pursuant to the in lieu of all taxes provision contained in Section 8 of
R.A. No. 7966, ABS-CBN is exempt from the payment of the local
franchise tax. The RTC further pronounced that ABS-CBN shall instead
be liable to pay a franchise tax of 3% of all gross receipts in lieu of all
other taxes.

On this score, the RTC ruling is flawed. In keeping with the laws
that have been passed since the grant of ABS-CBNs franchise, the
corporation should now be subject to VAT, instead of the 3% franchise
tax.

At the time of the enactment of its franchise on May 3,


1995, ABS-CBN was subject to 3% franchise tax under Section 117(b)
of the 1977 National Internal Revenue Code (NIRC), as amended, viz.:

SECTION 117. Tax on franchises. Any provision of


general or special laws to the contrary notwithstanding,
there shall be levied, assessed and collected in respect to
all franchise, upon the gross receipts from the business
covered by the law granting the franchise, a tax in
accordance with the schedule prescribed hereunder:

(a) On electric utilities, city gas, and water


supplies Two (2%) percent
(b) On telephone and/or telegraph systems,
radio and/or broadcasting stations Three
(3%) percent
(c) On other franchises Five (5%) percent.
(Emphasis supplied)
On January 1, 1996, R.A. No. 7716, otherwise known as the
Expanded Value Added Tax Law,[36] took effect and subjected to VAT
those services rendered by radio and/or broadcasting stations. Section
3 of R.A. No. 7716 provides:

Section 3. Section 102 of the National Internal


Revenue Code, as amended is hereby further amended to
read as follows:

SEC. 102. Value-added tax on sale of


services and use or lease of properties.
(a) Rate and base of tax. There shall be levied,
assessed and collected, as value-added tax
equivalent to 10% of gross receipts derived
from the sale or exchange of services,
including the use or lease of properties.

The phrase sale or exchange of services


means the performance of all kinds of services
in the Philippines, for others for a fee,
remuneration or consideration, including those
performed or rendered by construction and
service contractors; x x x services of franchise
grantees of telephone and telegraph, radio and
television broadcasting and all other franchise
grantees except those under Section 117 of
this Code; x x x (Emphasis supplied)

Notably, under the same law, telephone and/or telegraph


systems, broadcasting stations and other franchise grantees were
omitted from the list of entities subject to franchise tax. The
impression was that these entities were subject to 10% VAT but not to
franchise tax. Only the franchise tax on electric, gas and water utilities
remained. Section 12 of R.A. No. 7716 provides:
Section 12. Section 117 of the National Internal
Revenue Code, as amended, is hereby further amended to
read as follows:

SEC. 117. Tax on Franchises. Any


provision of general or special law to the
contrary notwithstanding there shall be levied,
assessed and collected in respect to all
franchises on electric, gas and water utilities a
tax of two percent (2%) on the gross
receipts derived from the business covered by
the law granting the franchise. (Emphasis
added)

Subsequently, R.A. No. 8241[37] took effect on January 1,


1997[38] containing more amendments to the NIRC. Radio and/or
television companies whose annual gross receipts do not
exceed P10,000,000.00 were granted the option to choose between
paying 3% national franchise tax or 10% VAT. Section 9 of R.A. No.
8241 provides:

SECTION 9. Section 12 of Republic Act No. 7716 is


hereby amended to read as follows:

Sec. 12. Section 117 of the National


Internal Revenue Code, as amended, is hereby
further amended to read as follows:

Sec. 117. Tax on franchise. Any provision


of general or special law to the contrary,
notwithstanding, there shall be levied,
assessed and collected in respect to
all franchises on radio and/or television
broadcasting companies whose annual gross
receipts of the preceding year does not
exceed Ten million pesos(P10,000,000.00),
subject to Section 107(d) of this Code, a tax of
three percent (3%) and on electric, gas and
water utilities, a tax of two percent (2%) on
the gross receipts derived from the business
covered by the law granting the franchise:
Provided, however, That radio and television
broadcasting companies referred to in this
section, shall have an option to be registered
as a value-added tax payer and pay the tax
due thereon: Provided, further, That once the
option is exercised, it shall not be
revoked. (Emphasis supplied)

On the other hand, radio and/or television companies with yearly gross
receipts exceeding P10,000,000.00 were subject to 10% VAT,
pursuant to Section 102 of the NIRC.

On January 1, 1998, R.A. No. 8424[39] was passed confirming the 10%
VAT liability of radio and/or television companies with yearly gross
receipts exceedingP10,000,000.00.

R.A. No. 9337 was subsequently enacted and became effective on July
1, 2005. The said law further amended the NIRC by increasing the rate
of VAT to 12%. The effectivity of the imposition of the 12% VAT was
later moved from January 1, 2006 to February 1, 2006.

In consonance with the above survey of pertinent laws on the


matter, ABS-CBN is subject to the payment of VAT. It does not have
the option to choose between the payment of franchise tax or VAT
since it is a broadcasting company with yearly gross receipts
exceeding Ten Million Pesos (P10,000,000.00).

VAT is a percentage tax imposed on any person whether or not a


franchise grantee, who in the course of trade or business, sells,
barters, exchanges, leases, goods or properties, renders services. It is
also levied on every importation of goods whether or not in the course
of trade or business. The tax base of the VAT is limited only to the
value added to such goods, properties, or services by the seller,
transferor or lessor. Further, the VAT is an indirect tax and can be
passed on to the buyer.
The franchise tax, on the other hand, is a percentage tax
imposed only on franchise holders. It is imposed under Section 119 of
the Tax Code and is a direct liability of the franchise grantee.

The clause in lieu of all taxes does not pertain to VAT or any
other tax. It cannot apply when what is paid is a tax other than a
franchise tax. Since the franchise tax on the broadcasting companies
with yearly gross receipts exceeding ten million pesos has been
abolished, the in lieu of all taxes clause has now become functus
officio, rendered inoperative.

In sum, ABS-CBNs claims for exemption must fail on twin


grounds. First, the in lieu of all taxes clause in its franchise failed to
specify the taxes the company is sought to be exempted from. Neither
did it particularize the jurisdiction from which the taxing power is
withheld. Second, the clause has become functus officio because as
the law now stands, ABS-CBN is no longer subject to a franchise tax. It
is now liable for VAT.

WHEREFORE, the petition is GRANTED and the appealed


Decision REVERSED AND SET ASIDE. The petition in the trial court
for refund of local franchise tax is DISMISSED.

SO ORDERED.

28. Smart Communications, Inc. vs. The City of Davao (September 16,
2008; MR on July 21, 2009)
SMART COMMUNICATIONS, INC., G.R. No. 155491
Petitioner,
Present:

YNARES-SANTIAGO, J.,
- versus - Chairperson,
CHICO-NAZARIO,
NACHURA,
LEONARDO-DE CASTRO,* and
BERSAMIN,** JJ.
THE CITY OF DAVAO,
represented herein by its
Mayor Hon. RODRIGO DUTERTE,
and the SANGGUNIANG Promulgated:
PANLUNSOD OF DAVAO CITY,
Respondents . July 21, 2009

x---------------------------------------------------------------------------------
---x

RESOLUTION

NACHURA, J.:

Before the Court is a Motion for Reconsideration[1] filed by Smart


Communications, Inc. (Smart) of the Decision[2] of the Court dated
September 16, 2008, denying its appeal of the Decision and Order of
the Regional Trial Court (RTC) of Davao City, dated July 19, 2002 and
September 26, 2002, respectively.
Briefly, the factual antecedents are as follows:

On February 18, 2002, Smart filed a special civil action for declaratory
relief[3] for the ascertainment of its rights and obligations under the
Tax Code of the City ofDavao, which imposes a franchise tax on
businesses enjoying a franchise within the territorial jurisdiction
of Davao. Smart avers that its telecenter in Davao City is exempt from
payment of franchise tax to the City.

On July 19, 2002, the RTC rendered a Decision denying the petition.
Smart filed a motion for reconsideration, which was denied by the trial
court in an Order dated September 26, 2002. Smart filed an appeal
before this Court, but the same was denied in a decision dated
September 16, 2008. Hence, the instant motion for reconsideration
raising the following grounds: (1) the in lieu of all taxes clause in
Smarts franchise, Republic Act No. 7294 (RA 7294), covers local
taxes; the rule of strict construction against tax exemptions is not
applicable; (2) the in lieu of all taxes clause is not rendered ineffective
by the Expanded VAT Law; (3) Section 23 of Republic Act No.
7925[4] (RA 7925) includes a tax exemption; and (4) the imposition of
a local franchise tax on Smart would violate the constitutional
prohibition against impairment of the obligation of contracts.

Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in


issue. Section 9 of Smarts legislative franchise contains the
contentious in lieu of all taxes clause. The Section reads:
Section 9. Tax provisions. The grantee, its successors or
assigns shall be liable to pay the same taxes on their real
estate buildings and personal property, exclusive of this
franchise, as other persons or corporations which are now
or hereafter may be required by law to pay. In addition
thereto, the grantee, its successors or assigns shall
pay a franchise tax equivalent to three percent (3%)
of all gross receipts of the business transacted under
this franchise by the grantee, its successors or
assigns and the said percentage shall be in lieu of all
taxes on this franchise or earnings thereof: Provided,
That the grantee, its successors or assigns shall continue
to be liable for income taxes payable under Title II of the
National Internal Revenue Code pursuant to Section 2 of
Executive Order No. 72 unless the latter enactment is
amended or repealed, in which case the amendment or
repeal shall be applicable thereto.

xxx[5]

Section 23 of RA 7925, otherwise known as the most favored


treatment clause or equality clause, contains the word exemption, viz.:
SEC. 23. Equality of Treatment in the
Telecommunications Industry Any advantage, favor,
privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto
become part of previously granted telecommunications
franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises:
Provided, however, That the foregoing shall neither apply
to nor affect provisions of telecommunications franchises
concerning territory covered by the franchise, the life span
of the franchise, or the type of the service authorized by
the franchise.[6]

A review of the recent decisions of the Court on the matter of


exemptions from local franchise tax and the interpretation of the word
exemption found in Section 23 of RA 7925 is imperative in order to
resolve this issue once and for all.
In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of
Pangasinan,[7] Digitel used as an argument the in lieu of all taxes
clauses/provisos found in the legislative franchises of Globe,[8] Smart
and Bell,[9] vis--vis Section 23 of RA 7925, in order to claim exemption
from the payment of local franchise tax. Digitel claimed, just like the
petitioner in this case, that it was exempt from the payment of any
other taxes except the national franchise and income taxes. Digitel
alleged that Smart was exempted from the payment of local franchise
tax.
However, it failed to substantiate its allegation, and, thus, the Court
denied Digitels claim for exemption from provincial franchise tax. Cited
was the ruling of the Court in PLDT v. City of Davao,[10] wherein the
Court, speaking through Mr. Justice Vicente V. Mendoza, held that in
approving Section 23 of RA No. 7925, Congress did not intend it to
operate as a blanket tax exemption to all telecommunications entities.
Section 23 cannot be considered as having amended PLDTs franchise
so as to entitle it to exemption from the imposition of local franchise
taxes. The Court further held that tax exemptions are highly
disfavored and that a tax exemption must be expressed in the statute
in clear language that leaves no doubt of the intention of the
legislature to grant such exemption. And, even in the instances when
it is granted, the exemption must be interpreted in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority.
The Court also clarified the meaning of the word exemption in Section
23 of RA 7925: that the word exemption as used in the statute refers
or pertains merely to an exemption from regulatory or reporting
requirements of the Department of Transportation and Communication
or the National Transmission Corporation and not to an exemption
from the grantees tax liability.

In Philippine Long Distance Telephone Company (PLDT) v. Province of


Laguna,[11] PLDT was a holder of a legislative franchise under Act No.
3436, as amended. On August 24, 1991, the terms and conditions of
its franchise were consolidated under Republic Act No. 7082, Section
12 of which embodies the so-called "in-lieu-of-all taxes" clause. Under
the said Section, PLDT shall pay a franchise tax equivalent to three
percent (3%) of all its gross receipts, which franchise tax shall be "in
lieu of all taxes." The issue that the Court had to resolve was whether
PLDT was liable to pay franchise tax to the Province of Laguna in view
of the in lieu of all taxes clause in its franchise and Section 23 of RA
7925.

Applying the rule of strict construction of laws granting tax


exemptions and the rule that doubts are resolved in favor of municipal
corporations in interpreting statutory provisions on municipal taxing
powers, the Court held that Section 23 of RA 7925 could not be
considered as having amended petitioner's franchise so as to entitle it
to exemption from the imposition of local franchise taxes.

In ruling against the claim of PLDT, the Court cited the previous
decisions in PLDT v. City of Davao[12] and PLDT v. City of
Bacolod,[13] in denying the claim for exemption from the payment of
local franchise tax.

In sum, the aforecited jurisprudence suggests that aside from


the national franchise tax, the franchisee is still liable to pay the local
franchise tax, unless it is expressly and unequivocally exempted from
the payment thereof under its legislative franchise. The in lieu of all
taxes clause in a legislative franchise should categorically state that
the exemption applies to both local and national taxes; otherwise, the
exemption claimed should be strictly construed against the taxpayer
and liberally in favor of the taxing authority.

Republic Act No. 7716, otherwise known as the Expanded VAT Law, did
not remove or abolish the payment of local franchise tax. It merely
replaced the national franchise tax that was previously paid by
telecommunications franchise holders and in its stead imposed a ten
percent (10%) VAT in accordance with Section 108 of the Tax Code.
VAT replaced the national franchise tax, but it did not prohibit nor
abolish the imposition of local franchise tax by cities or municipaties.
The power to tax by local government units emanates from
Section 5, Article X of the Constitution which empowers them to create
their own sources of revenues and to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may
provide. The imposition of local franchise tax is not inconsistent with
the advent of the VAT, which renders functus officio the franchise tax
paid to the national government. VAT inures to the benefit of the
national government, while a local franchise tax is a revenue of the
local government unit.
WHEREFORE, the motion for reconsideration is DENIED, and
this denial is final.

SO ORDERED.

29. First Philippine Industrial Corp. vs. CTA (December 29, 1998)

[G.R. No. 125948. December 29, 1998]

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,


vs. COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN,
BATANGAS CITY and ADORACION C. ARELLANO, in her
official capacity as City Treasurer of
Batangas, respondents.

DECISION
MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the


Court of Appeals dated November 29, 1995, in CA-G.R. SP No. 36801,
affirming the decision of the Regional Trial Court of Batangas City,
Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act
No. 387, as amended, to contract, install and operate oil pipelines. The
original pipeline concession was granted in 1967[1]and renewed by the
Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit
with the Office of the Mayor of Batangas City. However, before the
mayor's permit could be issued, the respondent City Treasurer
required petitioner to pay a local tax based on its gross receipts for the
fiscal year 1993 pursuant to the Local Government Code.[3] The
respondent City Treasurer assessed a business tax on the petitioner
amounting to P956,076.04 payable in four installments based on the
gross receipts for products pumped at GPS-1 for the fiscal year 1993
which amounted to P181,681,151.00. In order not to hamper its
operations, petitioner paid the tax under protest in the amount
of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to
the respondent City Treasurer, the pertinent portion of which reads:

"Please note that our Company (FPIC) is a pipeline operator with a


government concession granted under the Petroleum Act. It is
engaged in the business of transporting petroleum products from the
Batangas refineries, via pipeline, to Sucat and JTF Pandacan
Terminals. As such, our Company is exempt from paying tax on gross
receipts under Section 133 of the Local Government Code of 1991 x x
xx

"Moreover, Transportation contractors are not included in the


enumeration of contractors under Section 131, Paragraph (h) of the
Local Government Code. Therefore, the authority to impose tax 'on
contractors and other independent contractors' under Section 143,
Paragraph (e) of the Local Government Code does not include the
power to levy on transportation contractors.

"The imposition and assessment cannot be categorized as a mere fee


authorized under Section 147 of the Local Government Code. The said
section limits the imposition of fees and charges on business to such
amounts as may be commensurate to the cost of regulation,
inspection, and licensing. Hence, assuming arguendo that FPIC is liable
for the license fee, the imposition thereof based on gross receipts is
violative of the aforecited provision. The amount of P956,076.04
(P239,019.01 per quarter) is not commensurate to the cost
of regulation, inspection and licensing. The fee is already a revenue
raising measure, and not a mere regulatory imposition."[4]
On March 8, 1994, the respondent City Treasurer denied the
protest contending that petitioner cannot be considered engaged in
transportation business, thus it cannot claim exemption under Section
133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of
Batangas City a complaint[6] for tax refund with prayer for a writ of
preliminary injunction against respondents City of Batangas and
Adoracion Arellano in her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and collection of
the business tax on its gross receipts violates Section 133 of the Local
Government Code; (2) the authority of cities to impose and collect a
tax on the gross receipts of "contractors and independent contractors"
under Sec. 141 (e) and 151 does not include the authority to collect
such taxes on transportation contractors for, as defined under Sec.
131 (h), the term "contractors" excludes transportation contractors;
and, (3) the City Treasurer illegally and erroneously imposed and
collected the said tax, thus meriting the immediate refund of the tax
paid.[7]
Traversing the complaint, the respondents argued that petitioner
cannot be exempt from taxes under Section 133 (j) of the Local
Government Code as said exemption applies only to "transportation
contractors and persons engaged in the transportation by hire and
common carriers by air, land and water." Respondents assert that
pipelines are not included in the term "common carrier" which refers
solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under
the said code pertains to the mode or manner by which a product is
delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing
the complaint, ruling in this wise:

"xxx Plaintiff is either a contractor or other independent contractor.

xxx the exemption to tax claimed by the plaintiff has become


unclear. It is a rule that tax exemptions are to be strictly construed
against the taxpayer, taxes being the lifeblood of the
government.Exemption may therefore be granted only by clear and
unequivocal provisions of law.

"Plaintiff claims that it is a grantee of a pipeline concession under


Republic Act 387, (Exhibit A) whose concession was lately renewed by
the Energy Regulatory Board (Exhibit B). Yet neither said law nor the
deed of concession grant any tax exemption upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders
under Sec. 137 of the Local Tax Code. Such being the situation
obtained in this case (exemption being unclear and equivocal) resort
to distinctions or other considerations may be of help:

1. That the exemption granted under Sec. 133 (j)


encompasses only common carriers so as not to
overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a special
carrier extending its services and facilities to a single
specific or "special customer" under a "special
contract."

2. The Local Tax Code of 1992 was basically enacted to give


more and effective local autonomy to local
governments than the previous enactments, to make
them economically and financially viable to serve the
people and discharge their functions with a
concomitant obligation to accept certain devolution
of powers, x x x So, consistent with this policy even
franchise grantees are taxed (Sec. 137) and
contractors are also taxed under Sec. 143 (e) and
151 of the Code."[9]

Petitioner assailed the aforesaid decision before this Court via a


petition for review. On February 27, 1995, we referred the case to the
respondent Court of Appeals for consideration and adjudication. [10] On
November 29, 1995, the respondent court rendered a
decision[11] affirming the trial court's dismissal of petitioner's
complaint. Petitioner's motion for reconsideration was denied on July
18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in
a Resolution dated November 11, 1996.[13] Petitioner moved for a
reconsideration which was granted by this Court in a Resolution [14] of
January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in
holding that (1) the petitioner is not a common carrier or a
transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds
himself out to the public as engaged in the business of transporting
persons or property from place to place, for compensation, offering his
services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any
person, corporation, firm or association engaged in the business of
carrying or transporting passengers or goods or both, by land, water,
or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of
goods is:

1. He must be engaged in the business of carrying goods for


others as a public employment, and must hold himself out
as ready to engage in the transportation of goods for
person generally as a business and not as a casual
occupation;

2. He must undertake to carry goods of the kind to which his


business is confined;

3. He must undertake to carry by the method by which his


business is conducted and over his established roads; and

4. The transportation must be for hire.[15]

Based on the above definitions and requirements, there is no doubt


that petitioner is a common carrier. It is engaged in the business of
transporting or carrying goods, i.e. petroleum products, for hire as a
public employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services, and
transports the goods by land and for compensation.The fact that
petitioner has a limited clientele does not exclude it from the definition
of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled
that:

"The above article (Art. 1732, Civil Code) makes no distinction


between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an
ancillary activity (in local idiom, as a 'sideline'). Article 1732 x x
x avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the 'general public,'
i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the
general population. We think that Article 1877 deliberately
refrained from making such distinctions.

So understood, the concept of 'common carrier' under Article 1732


may be seen to coincide neatly with the notion of 'public service,'
under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, 'public service' includes:

'every person that now or hereafter may own, operate, manage, or


control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, railroad,
street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever
may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, ice-
refrigeration plant, canal, irrigation system gas, electric light heat and
power, water supply and power petroleum, sewerage system, wire
or wireless communications systems, wire or wireless broadcasting
stations and other similar public services.' "(Underscoring Supplied)

Also, respondent's argument that the term "common carrier" as


used in Section 133 (j) of the Local Government Code refers only to
common carriers transporting goods and passengers through moving
vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common
carriers" in the Civil Code makes no distinction as to the means of
transporting, as long as it is by land, water or air. It does not provide
that the transportation of the passengers or goods should be by motor
vehicle. In fact, in the United States, oil pipe line operators are
considered common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387),
petitioner is considered a "common carrier." Thus, Article 86 thereof
provides that:

"Art. 86. Pipe line concessionaire as a common carrier. - A pipe


line shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to utilize
the remaining transportation capacity pro rata for the transportation of
such other petroleum as may be offered by others for transport, and to
charge without discrimination such rates as may have been approved
by the Secretary of Agriculture and Natural Resources."

Republic Act 387 also regards petroleum operation as a public


utility. Pertinent portion of Article 7 thereof provides:

"that everything relating to the exploration for and exploitation of


petroleum x x and everything relating to the manufacture, refining,
storage, or transportation by special methods of petroleum,is
hereby declared to be a public utility." (Underscoring Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a


"common carrier." In BIR Ruling No. 069-83, it declared:

"x x x since [petitioner] is a pipeline concessionaire that is engaged


only in transporting petroleum products, it is considered a common
carrier under Republic Act No. 387 x x x. Such being the case, it is not
subject to withholding tax prescribed by Revenue Regulations No. 13-
78, as amended."

From the foregoing disquisition, there is no doubt that petitioner is


a "common carrier" and, therefore, exempt from the business tax as
provided for in Section 133 (j), of the Local Government Code, to wit:

"Section 133. Common Limitations on the Taxing Powers of Local


Government Units. - Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following :

xxxxxxxxx

(j) Taxes on the gross receipts of transportation contractors


and persons engaged in the transportation of passengers
or freight by hire and common carriers by air, land or
water, except as provided in this Code."

The deliberations conducted in the House of Representatives on the


Local Government Code of 1991 are illuminating:

"MR. AQUINO (A). Thank you, Mr. Speaker.


Mr. Speaker, we would like to proceed to page 95, line 1. It states :
"SEC.121 [now Sec. 131]. Common Limitations on the Taxing Powers
of Local Government Units." x x x

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business of


transportation. This appears to be one of those being deemed to be
exempted from the taxing powers of the local government units.May
we know the reason why the transportation business is being
excluded from the taxing powers of the local government
units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in


Section 121 (now Sec. 131), line 16, paragraph 5. It states that local
government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of


Book II, one can see there that provinces have the power to impose a
tax on business enjoying a franchise at the rate of not more than one-
half of 1 percent of the gross annual receipts. So, transportation
contractors who are enjoying a franchise would be subject to tax by
the province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the


imposition of taxes by local government units on the carrier
business. Local government units may impose taxes on top of what is
already being imposed by the National Internal Revenue Code which is
the so-called "common carriers tax." We do not want a duplication
of this tax, so we just provided for an exceptionunder Section
125 [now Sec. 137] that a province may impose this tax at a specific
rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x
x x[18]

It is clear that the legislative intent in excluding from the taxing


power of the local government unit the imposition of business tax
against common carriers is to prevent a duplication of the so-called
"common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's
tax on its gross sales/earnings under the National Internal Revenue
Code.[19] To tax petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose of the
Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the
respondent Court of Appeals dated November 29, 1995 in CA-G.R. SP
No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.
Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.

30. Petron Corporation vs. Tiangco (April 16, 2008)


PETRON CORPORATION, G.R. No. 158881
Petitioner,
Present:

- versus - QUISUMBING, J.,


Chairperson,
CARPIO MORALES,
TINGA,
MAYOR TOBIAS M. TIANGCO, VELASCO, JR, and
and MUNICIPAL TREASURER BRION, JJ.
MANUEL T. ENRIQUEZ of the
MUNICIPALITY OF NAVOTAS,
METRO MANILA,
Respondents.
Promulgated:
April 16, 2008

x----------------------------------------------------------------------------x

DECISION

TINGA, J.:

The novel but important issue before us is whether a local government


unit is empowered under the Local Government Code (the LGC) to
impose business taxes on persons or entities engaged in the sale of
petroleum products.
I.

The present Petition for Review on Certiorari under Rule 45 filed by


petitioner Petron Corporation (Petron) directly assails the Decision of
the Regional Trial Court (RTC) of Malabon, Branch 74, which dismissed
petitioners complaint for cancellation of assessment made by the then
municipality (now City) of Navotas (Navotas) for deficiency taxes, and
ordering the payment of P10,204,916.17 pesos in business taxes to
Navotas. As the issues raised are pure questions of law, we need not
dwell on the facts at length.

Petron maintains a depot or bulk plant at the Navotas Fishport


Complex in Navotas. Through that depot, it has engaged in the selling
of diesel fuels to vessels used in commercial fishing in and
around Manila Bay.[1] On 1 March 2002, Petron received a letter from
the office of Navotas Mayor, respondent Toby Tiangco, wherein the
corporation was assessed taxes relative to the figures covering sale of
diesel declared by your Navotas Terminal from 1997 to 2001.[2] The
stated total amount due wasP6,259,087.62, a figure derived from the
gross sales of the depot during the years in question. The computation
sheets[3] that were attached to the letter made reference to Ordinance
92-03, or the New Navotas Revenue Code (Navotas Revenue Code),
though such enactment was not cited in the letter itself.

Petron duly filed with Navotas a letter-protest to the notice of


assessment pursuant to Section 195 of the Code. It argued that it was
exempt from local business taxes in view of Art. 232(h) of the
Implementing Rules (IRR) of the Code, as well as a ruling of the
Bureau of Local Government Finance of the Department of Finance
dated31 July 1995, the latter stating that sales of petroleum fuels are
not subject to local taxation. The letter-protest was denied by the
Navotas Municipal Treasurer, respondent Manuel T. Enriquez, in a
letter dated 8 May 2002.[4] This was followed by a letter from the
Mayor dated 15 May 2002, captioned Final Demand to Pay, requiring
that Petron pay the assessed amount within five (5) days from receipt
thereof, with a threat of closure of Petrons operations within Navotas
should there be no payment.[5] Petron, through counsel, replied to the
Mayor by another letter posing objections to the threat of closure. The
Mayor did not respond to this last letter.[6]

Thus, on 20 May 2002, Petron filed with the Malabon RTC a


Complaint for Cancellation of Assessment for Deficiency Taxes with
Prayer for the Issuance of a Temporary Restraining Order (TRO)
and/or Preliminary Injunction. The quested TRO was not issued by the
Malabon RTC upon manifestation of respondents that they would not
proceed with the closure of Petrons Navotas bulk plant until after the
RTC shall have decided the case on the merits.[7] However, while the
case was pending decision, respondents refused to issue a business
permit to Petron, thus prompting Petron to file a Supplemental
Complaint with Prayer for Preliminary Mandatory Injunction against
respondents.[8]

On 5 May 2003, the Malabon RTC rendered its Decision


dismissing Petrons complaint and ordering the payment of the
assessed amount.[9] Eleven days later, Petron received a Closure Order
from the Mayor, directing Petron to cease and desist from operating
the bulk plant. Petron sought a TRO from the Malabon RTC, but this
was denied.[10] Petron also filed a motion for reconsideration of the
order of denial, but this was likewise denied.[11]

On 4 August 2003, this Court issued a TRO, enjoining the


respondents from closing Petrons Navotas bulk plant or otherwise
interfering in its operations.[12]

II.

As earlier stated, Petron has opted to assail the RTC Decision


directly before this Court since the matter at hand involves pure
questions of law, a characterization conceded by the RTC Decision
itself. Particularly, the controversy hinges on the correct interpretation
of Section 133(h) of the LGC, and the applicability of Article 232 (h) of
the IRR.

Section 133(h) of the LGC reads as follows:

Sec. 133. Common Limitations on the Taxing


Powers of Local Government Units. - Unless otherwise
provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and Barangays shall not
extend to the levy of the following:

xxx

(h) Excise taxes on articles enumerated under the


National Internal Revenue Code, as amended, and taxes,
fees or charges on petroleum products;

Evidently, Section 133 prescribes the limitations on the capacity


of local government units to exercise their taxing powers otherwise
granted to them under the LGC. Apparently, paragraph (h) of the
Section mentions two kinds of taxes which cannot be imposed by local
government units, namely: excise taxes on articles enumerated under
the National Internal Revenue Code [(NIRC)], as amended; and taxes,
fees or charges on petroleum products.

The power of a municipality to impose business taxes is provided


for in Section 143 of the LGC. Under the provision, a municipality is
authorized to impose business taxes on a whole host of business
activities. Suffice it to say, unless there is another provision of law
which states otherwise, Section 143, broad in scope as it is, would
undoubtedly cover the business of selling diesel fuels, or any other
petroleum product for that matter.
Nonetheless, Article 232 of the IRR defines with more
particularity the capacity of a municipality to impose taxes on
businesses. The enumeration that follows is generally a positive list of
businesses which may be subjected to business taxes, and paragraph
(h) of Article 232 does allow the imposition of local business taxes [o]n
any business not otherwise specified in the preceding paragraphs
which the sanggunian concerned may deem proper to tax, but subject
to this important qualification, thus:

xxx provided further, that in line with existing


national policy, any business engaged in the production,
manufacture, refining, distribution or sale of oil, gasoline
and other petroleum products shall not be subject to any
local tax imposed on this article.

Notably, the Malabon RTC declared Art. 232(h) of the IRR void
because the Code purportedly does not contain a provision prohibiting
the imposition of business taxes on petroleum products.[13] This
submission warrants close examination as well.

With all the relevant provisions of law laid out, we address the core
issues submitted by Petron, namely: first, is the challenged tax on sale
of the diesel fuels an excise tax on an article enumerated under the
NIRC, thusly prohibited under Section 133(h) of the Code?; second, is
the challenged tax prohibited by Section 133(h) under theproviso,
taxes, fees or charges on petroleum products? and; third, does Art.
232(h) of the IRR similarly prohibit the imposition of the challenged
tax?

III

As earlier observed, Section 133(h) provides two kinds of taxes


which cannot be imposed by local government units: excise taxes on
articles enumerated under the NIRC, as amended; and taxes, fees or
charges on petroleum products. There is no doubt that among the
excise taxes on articles enumerated under the NIRC are those levied
on petroleum products, per Section 148 of the NIRC.

We first consider Petrons argument that the business taxes on


its sale of diesel fuels partakes of an excise tax, which if true, could
invalidate the challenged tax solely on the basis of the phrase excise
taxes on articles enumerated under the [NIRC]. To support this
argument, it cites Cordero v. Conda,[14] Allied Thread Co. Inc. v. City
Mayor of Manila,[15] and Iloilo Bottlers, Inc. v. City of Iloilo,[16] as
having explained that an excise tax is a tax upon the performance,
carrying on, or the exercise of an activity.[17] Respondents, on the
other hand, argue that what the provision prohibits is the imposition of
excise taxes on petroleum products, but not the imposition of business
taxes on the same. They cite Philippine Petroleum Corporation v.
Municipality of Pililia,[18] where the Court had noted, [a] tax on
business is distinct from a tax on the article itself.[19]

Petrons argument is fraught with far-reaching implications, for if


it were sustained, it would mean that local government units are
barred from imposing business taxes on any of the articles subject to
excise taxes under the NIRC. These would include alcohol
products,[20] tobacco products,[21] mineral
products[22] automobiles,[23] and such non-essential goods as jewelry,
goods made of precious metals, perfumes, and yachts and other
vessels intended for pleasure or sports.[24]

Admittedly, the proffered definition of an excise tax as a tax


upon the performance, carrying on, or exercise of some right,
privilege, activity, calling or occupation derives from the
compendium American Jurisprudence, popularly referred to as Am
Jur,,[25] and has been cited in previous decisions of this Court,
including those cited by Petron itself. Such a definition would not have
been
inconsistent with previous incarnations of our Tax Code, such as the
NIRC of 1939,[26] as amended, or the NIRC of 1977[27] because in
those laws the term excise tax was not used at all. In contrast, the
nomenclature used in those prior laws in referring to taxes imposed on
specific articles was specific tax.[28] Yet beginning with the National
Internal Revenue Code of 1986, as amended, the term excise taxes
was used and defined as applicable to goods manufactured or
produced in the Philippinesand to things imported.[29] This definition
was carried over into the present NIRC of 1997.[30] Further, these two
latest codes categorize two different kinds of excise taxes: specific tax
which is imposed and based on weight or volume capacity or any other
physical unit of measurement; and ad valorem tax which is imposed
and based on the selling price or other specified value of the goods. In
other words, the meaning of excise tax has undergone a
transformation, morphing from the Am Jurdefinition to its current
signification which is a tax on certain specified goods or articles.
The change in perspective brought forth by the use of the term
excise tax in a different connotation was not lost on the departed
author Jose Nolledo as he accorded divergent treatments in his 1973
and 1994 commentaries on our tax laws. Writing in 1973, and
essentially alluding to the Am Jur definition of excise tax, Nolledo
observed:

Are specific taxes, taxes on property or excise taxes

In the case of Meralco v. Trinidad ([G.R.] 16738,


1925) it was held that specific taxes are property taxes, a
ruling which seems to be erroneous. Specific taxes are truly
excise taxes for the fact that the value of the property
taxed is taken into account will not change the nature of
the tax. It is correct to say that specific taxes are taxes on
the privilege to import, manufacture and remove from
storage certain articles specified by law.[31]

In contrast, after the tax code was amended to classify specific


taxes as a subset of excise taxes, Nolledo, in his 1994 commentaries,
wrote:

1. Excise taxes, as used in the Tax Code, refers to


taxes applicable to certain specified goods or articles
manufactured or produced in the Philippines for domestic
sale or consumption or for any other disposition and to
things imported into the Philippines. They are
either specific or ad valorem.

2. Nature of excise taxes. They are imposed directly


on certain specified goods. (infra) They are, therefore,
taxes on property. (see Medina vs. City of Baguio, 91 Phil.
854.)
A tax is not excise where it does not subject directly
the produce or goods to tax but indirectly as an incident
to, or in connection with, the business to be taxed.[32]

In their 2004 commentaries, De Leon and De Leon restate


the Am Jur definition of excise tax, and observe that the term is
synonymous with privilege tax and [both terms] are often used
interchangeably.[33] At the same time, they offer a caveat that [e]xcise
tax, as [defined by Am Jur], is not to be confused with excise tax
imposed [by the NIRC] on certain specified articles manufactured or
produced in, or imported into, the Philippines, for domestic sale or
consumption or for any other disposition.[34]

It is evident that Am Jur aside, the current definition of an excise


tax is that of a tax levied on a specific article, rather than one upon
the performance, carrying on, or the exercise of an activity. This
current definition was already in place when the Code was enacted in
1991, and we can only presume that it was what the Congress had
intended as it specified that local government units could not impose
excise taxes on articles enumerated under the [NIRC]. This prohibition
must pertain to the same kind of excise taxes as imposed by the NIRC,
and not those previously defined excise taxes which were not
integrated or denominated as such in our present tax law.

It is quite apparent, therefore, that our current body of taxation


law does not explicitly accommodate the traditional definition of excise
tax offered by Petron. In fact, absent any statutory adoption of the
traditional definition, it may be said that starting in 1986 excise taxes
in this jurisdiction refer exclusively to specific or ad valorem taxes
imposed under the NIRC. At the very least, it is this concept of excise
tax which we can reasonably assume that Congress had in mind and
actually adopted when it crafted the Code. The palpable absurdity that
ensues should the alternative interpretation prevail all but strengthens
this position.
Thus, Petrons argument concerning excise taxes is founded not
on what the NIRC or the Code actually provides, but on a non-
statutory definition sourced from a legal paradigm that is no longer
applicable in this jurisdiction. That such definition was referred to
again in our 1998 decision in Province of Bulacan v. Court of
Appeals[35] is ultimately of little consequence, and so is Petrons
reliance on such ruling. The Court therein had correctly nullified, on
the basis of Section 133(h) of the Code, a province-imposed tax of
10% of the fair market value in the locality per cubic meter of ordinary
stones, sand, gravel, earth and other quarry resources xxx extracted
from public lands, because it noted that under Section 151 of the
NIRC, all nonmetallic minerals and quarry resources were assessed
with excise taxes of two percent (2%) based on the actual market
value of the gross output thereof at the time of removal, in case of
those locally extracted or produced.[36] Additionally, the Court also
observed that the case had emanated from an attempt to impose the
said tax on quarry resources from private lands, despite the clear
language of the tax ordinance limiting the tax to such resources
extracted from public lands.[37] On that score alone, the case could
have been correctly decided.

It is true that the Court had additionally reasoned in Province of


Bulacan that [t]he tax imposed by the Province of Bulacan is an excise
tax, being a tax upon the performance, carrying on, or exercise of an
activity. As earlier noted, such definition of excise tax however was not
explicitly carried over into the NIRC and was even superseded
beginning with the 1986 amendments thereto. To insist on utilizing
this definition simply because it had been reiterated in Province of
Bulacan, unnecessary as such reiteration may have been to the
resolution of that case, would have the unfortunate effect of infusing
life into a concept that is diametrically inconsistent with the present
state of the law.

We thus can assert with clear comfort that excise taxes, as


imposed under the NIRC, do not pertain to the performance, carrying
on, or exercise of an activity, at least not to the extent of equating
excise with business taxes.

IV.

We next consider whether the clause taxes, fees or charges on


petroleum products in Section 133(h) precludes local government units
from imposing business taxes based on the sale of petroleum
products.

The power of a municipality to impose business taxes derives from


Section 143 of the Code that specifically enumerates several types of
business on which it may impose taxes, including manufacturers,
wholesalers, distributors, dealers of any article of commerce of
whatever nature;[38] those engaged in the export or commerce of
essential commodities;[39] retailers;[40] contractors and other
independent contractors;[41] banks and financial institutions;[42] and
peddlers engaged in the sale of any merchandise or article of
commerce.[43] This obviously broad power is further supplemented
by paragraph (h) of Section 143 which authorizes the sanggunian to
impose taxes on any other businesses not otherwise specified under
Section 143 which the sanggunian concerned may deem proper to
tax.[44]

This ability of local government units to impose business or other local


taxes is ultimately rooted in the 1987 Constitution. Section 5, Article X
assures that [e]ach local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees and
charges, though the power is subject to such guidelines and limitations
as the Congress may provide. There is no doubt that following the
1987 Constitution and the Code, the fiscal autonomy of local
government units has received greater affirmation than ever. Previous
decisions that have been skeptical of the viability, if not the wisdom of
reposing fiscal autonomy to local government units have fallen by the
wayside.

Respondents cite our declaration in City Government of San Pablo v.


Reyes[45] that following the 1987 Constitution the rule thenceforth in
interpreting statutory provisions on municipal fiscal powers, doubts will
have to be resolved in favor of municipal corporations.[46] Such policy
is also echoed in Section 5(a) of the Code, which states that [a]ny
provision on a power of a local government unit shall be liberally
interpreted in its favor, and in case of doubt, any question thereon
shall be resolved in favor of devolution of powers and of the lower local
government unit. But somewhat conversely, Section 5(b) then
proceeds to assert that [i]n case of doubt, any tax ordinance or
revenue measure shall be construed strictly against the local
government unit enacting it, and liberally in favor of the
taxpayer.[47] And this latter qualification has to be respected as a
constitutionally authorized limitation which Congress has seen fit to
provide. Evidently, local fiscal autonomy should not necessarily
translate into abject deference to the power of local government units
to impose taxes.

Congress has the constitutional authority to impose limitations on the


power to tax of local government units, and Section 133 of the Code is
one such limitation. Indeed, the provision is the explicit statutory
impediment to the enjoyment of absolute taxing power by local
government units, not to mention the reality that such power is a
delegated power. To cite one example, under Section 133(g), local
government units are disallowed from levying business taxes on
business enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of six (6) and (4) four years,
respectively from the date of registration.

Section 133(h) states that local government units shall not extend to
the levy of xxx taxes, fees or charges on petroleum products.
Respondents assert that the phrase taxes, fees or charges on
petroleum products pertains to the imposition of direct or excise taxes
on petroleum products, and not business taxes. If the phrase actually
pertains to excise taxes, then it would be an exercise in utter
redundancy, since the preceding phrase already prohibits the
imposition of excise taxes on articles already subject to such taxes
under the NIRC, such as petroleum products. There would be no sense
on the part of the legislature to twice emphasize in the same sentence
that excise taxes on petroleum products are beyond the pale of local
government taxation.

It appears that this argument of respondents was fashioned on the


basis of the pronouncement of the Court in Philippine Petroleum
Corporation v. Municipality of Pililla, thus:[48]

xxx [W]hile Section 2 of P.D. 436 prohibits the imposition


of local taxes on petroleum products, said decree did not
amend Sections 19 and 19 (a) of P.D. 231 as amended by
P.D. 426, wherein the municipality is granted the right to
levy taxes on business of manufacturers, importers,
producers of any article of commerce of whatever kind or
nature. A tax on business is distinct from a tax on the
article itself. Thus, if the imposition of tax on business of
manufacturers, etc. in petroleum products contravenes a
declared national policy, it should have been expressly
stated in P.D. No. 436.

The dicta that [a] tax on a business is distinct from a tax on the article
itself might at first blush somehow lend support to respondents
position, yet that dicta has not since been reprised by this Court. It is
likewise worth observing that Pililla did involve a tax ordinance that
imposed business taxes on an enterprise engaged in the manufacture
and storage of petroleum products.

Significantly, the legal milieu governing Pililla is vastly different from


that existing at bar, to the extent that the earlier case could not be
presently controlling.
At the time the taxes sought to be collected in Pililla were imposed,
there was no national law in place similar to Section 133(h) of the
Code that barred local taxes, fees or charges on petroleum products.
There were circulars to that effect issued by the Finance Department,
yet the Court could not validate such issuances since
under thetax laws then in place no exemptions were given to
manufacturers, wholesalers, retailers, or dealers in petroleum
products.[49] In fact, the Court tellingly observed that if the imposition
of tax on business of manufacturers, etc. in petroleum products
contravenes a declared national policy, it should have been expressly
stated in P.D. No. 436.[50] Such expressionconspiciously missing in
P.D. No. 436 is now found in Section 133(h).

In view of the difference in statutory paradigm between this case


and Pililla, the latter case is severely diminished as applicable
precedent at bar. The Court then was correct in observing that a mere
administrative circular could not prohibit a local tax that is not
otherwise barred under a national statute, yet in this case that conflict
is not present since the Code explicitly prohibits the imposition of
several classes of local taxes, including those on petroleum products.
The final and only straw Pilillaprovides that respondents can still grasp
at is the bare statement that [a] tax on a business is distinct from a
tax on the article itself,[51] a sentence which could have been omitted
from that decision without any effect.

We can concede that a tax on a business is distinct from a tax on the


article itself, or for that matter, that a business tax is distinct from an
excise tax. However, such distinction is immaterial insofar as the latter
part of Section 133(h) is concerned, for the phrase taxes, fees or
charges on petroleum products does not qualify the kind of taxes, fees
or charges that could withstand the absolute prohibition imposed by
the provision. It would have been a different matter had Congress, in
crafting Section 133(h), barred excise taxes or direct taxes, or any
category of taxes only, for then it would be understood that only such
specified taxes on petroleum products could not be imposed under the
prohibition. The absence of such a qualification leads to the conclusion
that all sorts of taxes on petroleum products, including business taxes,
are prohibited by Section 133(h). Where the law does not distinguish,
we should not distinguish.

The language of Section 133(h) makes plain that the prohibition with
respect to petroleum products extends not only to excise taxes
thereon, but all taxes, fees and charges. The earlier reference in
paragraph (h) to excise taxes comprehends a wider range of subjects
of taxation: all articles already covered by excise taxation under the
NIRC, such as alcohol products, tobacco products, mineral products,
automobiles, and such non-essential goods as jewelry, goods made of
precious metals, perfumes, and yachts and other vessels intended for
pleasure or sports. In contrast, the later reference to taxes, fees and
charges pertains only to one class of articles of the many subjects of
excise taxes, specifically, petroleum products. While local government
units are authorized to burden all such other class of goods with taxes,
fees and charges, excepting excise taxes, a specific prohibition is
imposed barring the levying of any other type of taxes with respect to
petroleum products.

V.

We no longer need to dwell on the arguments centering on Article


232 of the IRR. As earlier stated, the provision explicitly stipulates that
in line with existing national policy, any business engaged in the
production, manufacture, refining, distribution or sale of oil, gasoline
and other petroleum products shall not be subject to any local tax
imposed on this article [on business taxes]. The RTC went as far as to
declare Article 232 as invalid on the premise that the prohibition was
not similarly warranted under the Code.

Assuming that the Code does not, in fact, prohibit the imposition
of business taxes on petroleum products, we would agree that the IRR
could not impose such a prohibition. With our ruling that Section
133(h) does indeed prohibit the imposition of local business taxes on
petroleum products, however, the RTC declaration that Article 232 was
invalid is, in turn, itself invalid. Even absent Article 232, local
government units cannot impose business taxes on petroleum
products. If anything, Article 232 merely reiterates what the Code
itself already provides, with the additional explanation that such
prohibition was in line with existing national policy.

VI.

We have said all that need be said for the resolution of this case, but
there is one more line of argument raised by respondents that
deserves a remark. Respondents argue, assuming... that the Oversight
Committee [that drafted the IRR] can legislate, that the existing
national policy referred to in Article 232 had been superseded by
Republic Act No. 8180, or the Oil Deregulation Law. Boiled down to its
essence, the argument is that since the oil industry is presently
deregulated the basis for exempting petroleum products from business
taxes no longer exists.

Of course, the starting premise for this argument, that the IRR can
establish a tax or an exemption, is false and has been flatly rejected
by this Court before.[52] The Code itself does not connect its prohibition
on taxation of petroleum products with any existing or future national
oil policy, so the change in such national policy with the regime of oil
deregulation is ultimately of no moment. Still, we can divine the
reasoning behind singling out petroleum products, among all other
commodities, as beyond the power of local government units to levy
local taxes.

Why the special concern over petroleum products? The answer is quite
evident to all sentient persons. In this age where unfortunately
dependence on petroleum as fuel has yet no equally feasible
alternative, the cost of petroleum products, though fully controlled by
private enterprise, remains an area of public concern. To be blunt
about it, there is an inevitable link between the fluctuation of oil prices
and the prices of every other commodity. The reality, indeed, is oil is a
political commodity. Such fact has received recognition from this
Court. [O]il [is] a commodity whose supply and price affect the ebb
and flow of the lifeblood of the nation. Its shortage of supply or a
slight, upward spiral in its price shakes our economic
foundation. Studies show that the areas most impacted by the
movement of oil are food manufacture, land transport, trade,
electricity and water.[53] [T]he upswing and downswing of our
economy materially depend on the oscillation of oil.[54] Fluctuations in
the supply and price of oil products have a dramatic effect on
economic development and public welfare.[55]

It can be reasonably presumed that if municipalities, cities and


provinces were authorized to impose business taxes on manufacturers
and retailers of petroleum products, the resulting losses to these
enterprises would be passed on to the consumers, triggering the chain
of increases that normally accompany the increase in oil prices. No
similarly massive trigger effect would ensue upon the imposition of
business taxes on other commodities, including those already subject
to excise taxation under the NIRC.

It may very well be that the policy of deregulation, which was


not yet in effect at the time of the enactment of the Local Government
Code, has changed the complexion of the issue, for unlike before, oil
companies are free at will to increase oil prices, thus mitigating the
similarly arbitrary consequences that could develop if petroleum
products were subject to local taxes. Still, it cannot be denied that
subjecting petroleum products to business taxes apart from the taxes
already imposed by Congress in this age of deregulation would lead to
the same result had they been so taxed during the era of oil regulation
the increase of oil prices. We do not discount the authority of Congress
to enact measures that facilitate the increase in oil prices; witness the
Oil Deregulation Law and the most recent Expanded VAT Law. Yet
these hard choices are presumably made by Congress with the
expectation that the negative effects of increased oil prices are offset
by the other economic benefits promised by those new laws (i.e., a
more vibrant oil industry; increased government revenue).

The Court defers to the other branches of government in the


formulation of oil policy, but when the choices are made through
legislation, the Court expects that the choices are deliberate,
considering that the stakes are virtually all-in. Herein, respondents
may be bolstered by the constitutional and statutory policy favoring
local fiscal autonomy, but it would be utter indolence to reflexively
affirm such policy when the inevitable effect is an increase in oil prices.
Any prudent adjudication should fully ascertain the mandate of local
government units to impose taxes on petroleum products, and such
mandate should be cast in so specific terms as to leave no dispute as
to the legislative intendment to extend such power in the name of local
autonomy. What we have found instead, from the plain letter of the
law is an explicit disinclination on the part of the legislature to impart
that particular taxing power to local government units.

While Section 133(h) does not generally bar the imposition of


business taxes on articles burdened by excise taxes under the NIRC, it
specifically prohibits local government units from extending the levy of
any kind of taxes, fees or charges on petroleum products. Accordingly,
the subject tax assessment is ultra vires and void.

WHEREFORE, the Petition is GRANTED. The Decision of


the Regional Trial Court of Malabon City in Civil Case No. 3380-
MN is REVERSED and SET ASIDE and the subject assessment for
deficiency taxes on petitioner is ordered CANCELLED. The Temporary
Restraining Order dated 4 August 2003 is hereby made PERMANENT.
No pronouncement as to costs.

SO ORDERED.
31. Pelizloy Realty Corp. vs. Province of Benguet (April 10, 2013)

G.R. No. 183137 April 10, 2013

PELIZLOY REALTY CORPORATION, represented herein by its


President, GREGORY K. LOY, Petitioner,
vs.
THE PROVINCE OF BENGUET, Respondent.

DECISION

LEONEN, J.:

The principal issue in this case is the scope of authority of a province


to impose an amusement tax.

This is a Petition for Review on Certiorari under Rule 45 of the Rules of


Court praying that the December 10, 2007 decision of the Regional
Trial Court,- Branch 62, La Trinidad, Benguet in Civil Case No. 06-CV-
2232 be reversed and set aside and a new one issued in which: ( 1)
respondent Province of Benguet is declared as having no authority to
levy amusement taxes on admission fees for resorts, swimming pools,
bath houses, hot springs, tourist spots, and other places for
recreation; (2) Section 59, Article X of the Benguet Provincial Revenue
Code of 2005 is declared null and void; and (3) the respondent
Province of Benguet is permanently enjoined from enforcing Section
59, Article X of the Benguet Provincial Revenue Code of 2005.

Petitioner Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove


Resort, which is designed for recreation and which has facilities like
swimming pools, a spa and function halls. It is located at Asin,
Angalisan, Municipality of Tuba, Province of Benguet.

On December 8, 2005, the Provincial Board of the Province of Benguet


approved Provincial Tax Ordinance No. 05-107, otherwise known as
the Benguet Revenue Code of 2005 ("Tax Ordinance"). Section 59,
Article X of the Tax Ordinance levied a ten percent (10%) amusement
tax on gross receipts from admissions to "resorts, swimming pools,
bath houses, hot springs and tourist spots." Specifically, it provides the
following:

Article Ten: Amusement Tax on Admission


Section 59. Imposition of Tax. There is hereby levied a tax to be
collected from the proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, cockpits, dancing halls, dancing
schools, night or day clubs, and other places of amusement at the rate
of thirty percent (30%) of the gross receipts from admission fees; and

A tax of ten percent (10%) of gross receipts from admission fees for
boxing, resorts, swimming pools, bath houses, hot springs, and tourist
spots is likewise levied. [Emphasis and underscoring supplied]

Section 162 of the Tax Ordinance provided that the Tax Ordinance
shall take effect on January 1, 2006.

It was Pelizloy's position that the Tax Ordinance's imposition of a 10%


amusement tax on gross receipts from admission fees for resorts,
swimming pools, bath houses, hot springs, and tourist spots is an ultra
vires act on the part of the Province of Benguet. Thus, it filed an
appeal/petition before the Secretary of Justice on January 27, 2006.

The appeal/petition was filed within the thirty (30)-day period from the
effectivity of a tax ordinance allowed by Section 187 of Republic Act
No. 7160, otherwise known as the Local Government Code (LGC).1 The
appeal/petition was docketed as MSO-OSJ Case No. 03-2006.

Under Section 187 of the LGC, the Secretary of Justice has sixty (60)
days from receipt of the appeal to render a decision. After the lapse of
which, the aggrieved party may file appropriate proceedings with a
court of competent jurisdiction.

Treating the Secretary of Justice's failure to decide on its


appeal/petition within the sixty (60) days provided by Section 187 of
the LGC as an implied denial of such appeal/petition, Pelizloy filed a
Petition for Declaratory Relief and Injunction before the Regional Trial
Court, Branch 62, La Trinidad, Benguet. The petition was docketed as
Civil Case No. 06-CV-2232.

Pelizloy argued that Section 59, Article X of the Tax Ordinance


imposed a percentage tax in violation of the limitation on the taxing
powers of local government units (LGUs) under Section 133 (i) of the
LGC. Thus, it was null and void ab initio. Section 133 (i) of the LGC
provides:

Section 133. Common Limitations on the Taxing Powers of Local


Government Units. - Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:

xxx

(i) Percentage or value-added tax (VAT) on sales, barters or


exchanges or similar transactions on goods or services except as
otherwise provided herein

The Province of Benguet assailed the Petition for Declaratory Relief and
Injunction as an improper remedy. It alleged that once a tax liability
has attached, the only remedy of a taxpayer is to pay the tax and to
sue for recovery after exhausting administrative remedies.2

On substantive grounds, the Province of Benguet argued that the


phrase other places of amusement in Section 140 (a) of the
LGC3 encompasses resorts, swimming pools, bath houses, hot springs,
and tourist spots since "Article 220 (b) (sic)" of the LGC defines
"amusement" as "pleasurable diversion and entertainment x x x
synonymous to relaxation, avocation, pastime, or fun."4 However, the
Province of Benguet erroneously cited Section 220 (b) of the LGC.
Section 220 of the LGC refers to valuation of real property for real
estate tax purposes. Section 131 (b) of the LGC, the provision which
actually defines "amusement", states:

Section 131. Definition of Terms. - When used in this Title, the term:

xxx

(b) "Amusement" is a pleasurable diversion and entertainment. It is


synonymous to relaxation, avocation, pastime, or fun On December
10, 2007, the RTC rendered the assailed Decision dismissing the
Petition for Declaratory Relief and Injunction for lack of merit.

Procedurally, the RTC ruled that Declaratory Relief was a proper


remedy. On the validity of Section 59, Article X of the Tax Ordinance,
the RTC noted that, while Section 59, Article X imposes a percentage
tax, Section 133 (i) of the LGC itself allowed for exceptions. It noted
that what the LGC prohibits is not the imposition by LGUs of
percentage taxes in general but the "imposition and levy of percentage
tax on sales, barters, etc., on goods and services only."5 It further
gave credence to the Province of Benguet's assertion that resorts,
swimming pools, bath houses, hot springs, and tourist spots are
encompassed by the phrase other places of amusement in Section
140 of the LGC.

On May 21, 2008, the RTC denied Pelizloys Motion for


Reconsideration.

Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure
questions of law. It assailed the legality of Section 59, Article X of the
Tax Ordinance as being a (supposedly) prohibited percentage tax per
Section 133 (i) of the LGC.

In its Comment, the Province of Benguet, erroneously citing Section 40


of the LGC, argued that Section 59, Article X of the Tax Ordinance
does not levy a percentage tax "because the imposition is not based
on the total gross receipts of services of the petitioner but solely and
actually limited on the gross receipts of the admission fees
collected."6 In addition, it argued that provinces can validly impose
amusement taxes on resorts, swimming pools, bath houses, hot
springs, and tourist spots, these being amusement places.

For resolution in this petition are the following issues:

1. Whether or not Section 59, Article X of Provincial Tax


Ordinance No. 05-107, otherwise known as the Benguet
Revenue Code of 2005, levies a percentage tax.

2. Whether or not provinces are authorized to impose


amusement taxes on admission fees to resorts, swimming pools,
bath houses, hot springs, and tourist spots for being
"amusement places" under the Local Government Code.

The power to tax "is an attribute of sovereignty,"7 and as such, inheres


in the State. Such, however, is not true for provinces, cities,
municipalities and barangays as they are not the sovereign;8 rather,
they are mere "territorial and political subdivisions of the Republic of
the Philippines".9

The rule governing the taxing power of provinces, cities, muncipalities


and barangays is summarized in Icard v. City Council of Baguio:10

It is settled that a municipal corporation unlike a sovereign state is


clothed with no inherent power of taxation. The charter or statute
must plainly show an intent to confer that power or the municipality,
cannot assume it. And the power when granted is to be construed in
strictissimi juris. Any doubt or ambiguity arising out of the term used
in granting that power must be resolved against the municipality.
Inferences, implications, deductions all these have no place in the
interpretation of the taxing power of a municipal
corporation.11 [Underscoring supplied]

Therefore, the power of a province to tax is limited to the extent that


such power is delegated to it either by the Constitution or by statute.
Section 5, Article X of the 1987 Constitution is clear on this point:

Section 5. Each local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the local
governments. [Underscoring supplied]

Per Section 5, Article X of the 1987 Constitution, "the power to tax is


no longer vested exclusively on Congress; local legislative bodies are
now given direct authority to levy taxes, fees and other
charges."12 Nevertheless, such authority is "subject to such guidelines
and limitations as the Congress may provide".13

In conformity with Section 3, Article X of the 1987


Constitution,14 Congress enacted Republic Act No. 7160, otherwise
known as the Local Government Code of 1991. Book II of the LGC
governs local taxation and fiscal matters.

Relevant provisions of Book II of the LGC establish the parameters of


the taxing powers of LGUS found below.

First, Section 130 provides for the following fundamental principles


governing the taxing powers of LGUs:

1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:

a. be equitable and based as far as practicable on the


taxpayer's ability to pay;

b. be levied and collected only for public purposes;

c. not be unjust, excessive, oppressive, or confiscatory;


d. not be contrary to law, public policy, national economic
policy, or in the restraint of trade.

3. The collection of local taxes, fees, charges and other


impositions shall in no case be let to any private person.

4. The revenue collected pursuant to the provisions of the LGC


shall inure solely to the benefit of, and be subject to the
disposition by, the LGU levying the tax, fee, charge or other
imposition unless otherwise specifically provided by the LGC.

5. Each LGU shall, as far as practicable, evolve a progressive


system of taxation.

Second, Section 133 provides for the common limitations on the taxing
powers of LGUs. Specifically, Section 133 (i) prohibits the levy by LGUs
of percentage or value-added tax (VAT) on sales, barters or exchanges
or similar transactions on goods or services except as otherwise
provided by the LGC.

As it is Pelizloys contention that Section 59, Article X of the Tax


Ordinance levies a prohibited percentage tax, it is crucial to
understand first the concept of a percentage tax.

In Commissioner of Internal Revenue v. Citytrust Investment Phils.


Inc.,15 the Supreme Court defined percentage tax as a "tax measured
by a certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross receipts or
earnings derived by any person engaged in the sale of services." Also,
Republic Act No. 8424, otherwise known as the National Internal
Revenue Code (NIRC), in Section 125, Title V,16 lists amusement taxes
as among the (other) percentage taxes which are levied regardless of
whether or not a taxpayer is already liable to pay value-added tax
(VAT).

Amusement taxes are fixed at a certain percentage of the gross


receipts incurred by certain specified establishments.

Thus, applying the definition in CIR v. Citytrust and drawing from the
treatment of amusement taxes by the NIRC, amusement taxes are
percentage taxes as correctly argued by Pelizloy.

However, provinces are not barred from levying amusement taxes


even if amusement taxes are a form of percentage taxes. Section 133
(i) of the LGC prohibits the levy of percentage taxes "except as
otherwise provided" by the LGC.

Section 140 of the LGC provides:

SECTION 140. Amusement Tax - (a) The province may levy an


amusement tax to be collected from the proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing stadia,
and other places of amusement at a rate of not more than thirty
percent (30%) of the gross receipts from admission fees.

(b) In the case of theaters of cinemas, the tax shall first be


deducted and withheld by their proprietors, lessees, or operators
and paid to the provincial treasurer before the gross receipts are
divided between said proprietors, lessees, or operators and the
distributors of the cinematographic films.

(c) The holding of operas, concerts, dramas, recitals, painting


and art exhibitions, flower shows, musical programs, literary and
oratorical presentations, except pop, rock, or similar concerts
shall be exempt from the payment of the tax herein imposed.

(d) The Sangguniang Panlalawigan may prescribe the time,


manner, terms and conditions for the payment of tax. In case of
fraud or failure to pay the tax, the Sangguniang Panlalawigan
may impose such surcharges, interests and penalties.

(e) The proceeds from the amusement tax shall be shared


equally by the province and the municipality where such
amusement places are located. [Underscoring supplied]

Evidently, Section 140 of the LGC carves a clear exception to the


general rule in Section 133 (i). Section 140 expressly allows for the
imposition by provinces of amusement taxes on "the proprietors,
lessees, or operators of theaters, cinemas, concert halls, circuses,
boxing stadia, and other places of amusement."

However, resorts, swimming pools, bath houses, hot springs, and


tourist spots are not among those places expressly mentioned by
Section 140 of the LGC as being subject to amusement taxes. Thus,
the determination of whether amusement taxes may be levied on
admissions to resorts, swimming pools, bath houses, hot springs, and
tourist spots hinges on whether the phrase other places of
amusement encompasses resorts, swimming pools, bath houses, hot
springs, and tourist spots.

Under the principle of ejusdem generis, "where a general word or


phrase follows an enumeration of particular and specific words of the
same class or where the latter follow the former, the general word or
phrase is to be construed to include, or to be restricted to persons,
things or cases akin to, resembling, or of the same kind or class as
those specifically mentioned."17

The purpose and rationale of the principle was explained by the Court
in National Power Corporation v. Angas18as follows:

The purpose of the rule on ejusdem generis is to give effect to both


the particular and general words, by treating the particular words as
indicating the class and the general words as including all that is
embraced in said class, although not specifically named by the
particular words. This is justified on the ground that if the lawmaking
body intended the general terms to be used in their unrestricted
sense, it would have not made an enumeration of particular subjects
but would have used only general terms. [2 Sutherland, Statutory
Construction, 3rd ed., pp. 395-400].19

In Philippine Basketball Association v. Court of Appeals,20 the Supreme


Court had an opportunity to interpret a starkly similar provision or the
counterpart provision of Section 140 of the LGC in the Local Tax Code
then in effect. Petitioner Philippine Basketball Association (PBA)
contended that it was subject to the imposition by LGUs of amusement
taxes (as opposed to amusement taxes imposed by the national
government).1wphi1 In support of its contentions, it cited Section 13
of Presidential Decree No. 231, otherwise known as the Local Tax Code
of 1973, (which is analogous to Section 140 of the LGC) providing the
following:

Section 13. Amusement tax on admission. - The province shall impose


a tax on admission to be collected from the proprietors, lessees, or
operators of theaters, cinematographs, concert halls, circuses and
other places of amusement xxx.

Applying the principle of ejusdem generis, the Supreme Court rejected


PBA's assertions and noted that:

In determining the meaning of the phrase 'other places of


amusement', one must refer to the prior enumeration of theaters,
cinematographs, concert halls and circuses with artistic expression as
their common characteristic. Professional basketball games do not fall
under the same category as theaters, cinematographs, concert halls
and circuses as the latter basically belong to artistic forms of
entertainment while the former caters to sports and
gaming.21 [Underscoring supplied]

However, even as the phrase other places of amusement was already


clarified in Philippine Basketball Association, Section 140 of the LGC
adds to the enumeration of 'places of amusement' which may properly
be subject to amusement tax. Section 140 specifically mentions
'boxing stadia' in addition to "theaters, cinematographs, concert halls
and circuses" which were already mentioned in PD No. 231. Also,
'artistic expression' as a characteristic does not pertain to 'boxing
stadia'.

In the present case, the Court need not embark on a laborious effort
at statutory construction. Section 131 (c) of the LGC already provides
a clear definition of amusement places:

Section 131. Definition of Terms. - When used in this Title, the term:

xxx

(c) "Amusement Places" include theaters, cinemas, concert halls,


circuses and other places of amusement where one seeks admission to
entertain oneself by seeing or viewing the show or performances
[Underscoring supplied]

Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia


are bound by a common typifying characteristic in that they are all
venues primarily for the staging of spectacles or the holding of public
shows, exhibitions, performances, and other events meant to be
viewed by an audience. Accordingly, other places of amusement must
be interpreted in light of the typifying characteristic of being venues
"where one seeks admission to entertain oneself by seeing or viewing
the show or performances" or being venues primarily used to stage
spectacles or hold public shows, exhibitions, performances, and other
events meant to be viewed by an audience.

As defined in The New Oxford American Dictionary,22 show means "a


spectacle or display of something, typically an impressive one";23 while
performance means "an act of staging or presenting a play, a concert,
or other form of entertainment."24 As such, the ordinary definitions of
the words show and performance denote not only visual engagement
(i.e., the seeing or viewing of things) but also active doing (e.g.,
displaying, staging or presenting) such that actions are manifested to,
and (correspondingly) perceived by an audience.

Considering these, it is clear that resorts, swimming pools, bath


houses, hot springs and tourist spots cannot be considered venues
primarily "where one seeks admission to entertain oneself by seeing or
viewing the show or performances". While it is true that they may be
venues where people are visually engaged, they are not primarily
venues for their proprietors or operators to actively display, stage or
present shows and/or performances.

Thus, resorts, swimming pools, bath houses, hot springs and tourist
spots do not belong to the same category or class as theaters,
cinemas, concert halls, circuses, and boxing stadia. It follows that they
cannot be considered as among the other places of amusement
contemplated by Section 140 of the LGC and which may properly be
subject to amusement taxes.

At this juncture, it is helpful to recall this Courts pronouncements in


Icard:

The power to tax when granted to a province is to be construed in


strictissimi juris. Any doubt or ambiguity arising out of the term used
in granting that power must be resolved against the province.
Inferences, implications, deductions all these have no place in the
interpretation of the taxing power of a province.25

In this case, the definition of' amusement places' in Section 131 (c) of
the LGC is a clear basis for determining what constitutes the 'other
places of amusement' which may properly be subject to amusement
tax impositions by provinces. There is no reason for going beyond such
basis. To do otherwise would be to countenance an arbitrary
interpretation/application of a tax law and to inflict an injustice on
unassuming taxpayers.

The previous pronouncements notwithstanding, it will be noted that it


is only the second paragraph of Section 59, Article X of the Tax
Ordinance which imposes amusement taxes on "resorts, swimming
pools, bath houses, hot springs, and tourist spots". The first paragraph
of Section 59, Article X of the Tax Ordinance refers to "theaters,
cinemas, concert halls, circuses, cockpits, dancing halls, dancing
schools, night or day clubs, and other places of
amusement".1wphi1 In any case, the issues raised by Pelizloy are
pertinent only with respect to the second paragraph of Section 59,
Article X of the Tax Ordinance. Thus, there is no reason to invalidate
the first paragraph of Section 59, Article X of the Tax Ordinance. Any
declaration as to the Province of Benguet's lack of authority to levy
amusement taxes must be limited to admission fees to resorts,
swimming pools, bath houses, hot springs and tourist spots.

Moreover, the second paragraph of Section 59, Article X of the Tax


Ordinance is not limited to resorts, swimming pools, bath houses, hot
springs, and tourist spots but also covers admission fees for boxing. As
Section 140 of the LGC allows for the imposition of amusement taxes
on gross receipts from admission fees to boxing stadia, Section 59,
Article X of the Tax Ordinance must be sustained with respect to
admission fees from boxing stadia.

WHEREFORE, the petition for review on certiorari is GRANTED. The


second paragraph of Section 59, Article X of the Benguet Provincial
Revenue Code of 2005, in so far as it imposes amusement taxes on
admission fees to resorts, swimming pools, bath houses, hot springs
and tourist spots, is declared null and void. Respondent Province of
Benguet is permanently enjoined from enforcing the second paragraph
of Section 59, Article X of the Benguet Provincial Revenue Code of
2005 with respect to resorts, swimming pools, bath houses, hot
springs and tourist spots.

SO ORDERED.