G.R. No.

166494 June 29, 2007

CARLOS SUPERDRUG CORP.,

vs.
DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD),

DECISION

AZCUNA, J.:

This is a petition1 for Prohibition with Prayer for Preliminary Injunction assailing the constitutionality of
Section 4(a) of Republic Act (R.A.) No. 9257,2 otherwise known as the "Expanded Senior Citizens Act of
2003."

Petitioners are domestic corporations and proprietors operating drugstores in the Philippines.

Public respondents, on the other hand, include the Department of Social Welfare and Development
(DSWD), the Department of Health (DOH), the Department of Finance (DOF), the Department of Justice
(DOJ), and the Department of Interior and Local Government (DILG) which have been specifically
tasked to monitor the drugstores compliance with the law; promulgate the implementing rules and
regulations for the effective implementation of the law; and prosecute and revoke the licenses of erring
drugstore establishments.

The antecedents are as follows:

On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,3 was signed into law by President Gloria
Macapagal-Arroyo and it became effective on March 21, 2004. Section 4(a) of the Act states:

SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of
services in hotels and similar lodging establishments, restaurants and recreation centers, and purchase of
medicines in all establishments for the exclusive use or enjoyment of senior citizens, including funeral
and burial services for the death of senior citizens;

...

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on
the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be
allowed as deduction from gross income for the same taxable year that the discount is granted. Provided,
further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to
the provisions of the National Internal Revenue Code, as amended.4

On May 28, 2004, the DSWD approved and adopted the Implementing Rules and Regulations of R.A.
No. 9257, Rule VI, Article 8 of which states:

Article 8. Tax Deduction of Establishments. The establishment may claim the discounts granted
under Rule V, Section 4 Discounts for Establishments;5 Section 9, Medical and Dental Services in
Private Facilities[,]6 and Sections 107 and 118 Air, Sea and Land Transportation as tax deduction based
on the net cost of the goods sold or services rendered. Provided, That the cost of the discount shall be
allowed as deduction from gross income for the same taxable year that the discount is granted; Provided,
further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to
the provisions of the National Internal Revenue Code, as amended; Provided, finally, that the
implementation of the tax deduction shall be subject to the Revenue Regulations to be issued by the
Bureau of Internal Revenue (BIR) and approved by the Department of Finance (DOF).9

On July 10, 2004, in reference to the query of the Drug Stores Association of the Philippines (DSAP)
concerning the meaning of a tax deduction under the Expanded Senior Citizens Act, the DOF, through
Director IV Ma. Lourdes B. Recente, clarified as follows:

1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax Deduction (under
the Expanded Senior Citizens Act).

1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants twenty percent
(20%) discount from all establishments relative to the utilization of transportation services, hotels and
similar lodging establishment, restaurants and recreation centers and purchase of medicines anywhere in
the country, the costs of which may be claimed by the private establishments concerned as tax credit.

Effectively, a tax credit is a peso-for-peso deduction from a taxpayers tax liability due to the
government of the amount of discounts such establishment has granted to a senior citizen. The
establishment recovers the full amount of discount given to a senior citizen and hence, the government
shoulders 100% of the discounts granted.

It must be noted, however, that conceptually, a tax credit scheme under the Philippine tax system,
necessitates that prior payments of taxes have been made and the taxpayer is attempting to recover this
tax payment from his/her income tax due. The tax credit scheme under R.A. No. 7432 is, therefore,
inapplicable since no tax payments have previously occurred.

1.2. The provision under R.A. No. 9257, on the other hand, provides that the establishment concerned
may claim the discounts under Section 4(a), (f), (g) and (h) as tax deduction from gross income, based on
the net cost of goods sold or services rendered.

Under this scheme, the establishment concerned is allowed to deduct from gross income, in computing for
its tax liability, the amount of discounts granted to senior citizens. Effectively, the government loses in
terms of foregone revenues an amount equivalent to the marginal tax rate the said establishment is liable
to pay the government. This will be an amount equivalent to 32% of the twenty percent (20%) discounts
so granted. The establishment shoulders the remaining portion of the granted discounts.

It may be necessary to note that while the burden on [the] government is slightly diminished in terms of
its percentage share on the discounts granted to senior citizens, the number of potential establishments
that may claim tax deductions, have however, been broadened. Aside from the establishments that may
claim tax credits under the old law, more establishments were added under the new law such as:
establishments providing medical and dental services, diagnostic and laboratory services, including
professional fees of attending doctors in all private hospitals and medical facilities, operators of domestic
air and sea transport services, public railways and skyways and bus transport services.

A simple illustration might help amplify the points discussed above, as follows:
Tax Deduction Tax Credit

Gross Sales x x x x x x x x x x x x

Less : Cost of goods sold x x x x x x x x x x

Net Sales x x x x x x x x x x x x

Less: Operating Expenses:

Tax Deduction on Discounts x x x x --

Other deductions: x x x x x x x x

Net Taxable Income x x x x x x x x x x

Tax Due x x x x x x

Less: Tax Credit -- ______x x

Net Tax Due -- x x

As shown above, under a tax deduction scheme, the tax deduction on discounts was subtracted from
Net Sales together with other deductions which are considered as operating expenses before the Tax Due
was computed based on the Net Taxable Income. On the other hand, under a tax credit scheme, the
amount of discounts which is the tax credit item, was deducted directly from the tax due amount.10

Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and Guidelines to
Implement the Relevant Provisions of Republic Act 9257, otherwise known as the "Expanded Senior
Citizens Act of 2003"11was issued by the DOH, providing the grant of twenty percent (20%) discount in
the purchase of unbranded generic medicines from all establishments dispensing medicines for the
exclusive use of the senior citizens.

On November 12, 2004, the DOH issued Administrative Order No 17712 amending A.O. No. 171. Under
A.O. No. 177, the twenty percent discount shall not be limited to the purchase of unbranded generic
medicines only, but shall extend to both prescription and non-prescription medicines whether branded or
generic. Thus, it stated that "[t]he grant of twenty percent (20%) discount shall be provided in the
purchase of medicines from all establishments dispensing medicines for the exclusive use of the senior
citizens."

Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act based on the
following grounds:13

1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which provides that
private property shall not be taken for public use without just compensation;

2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution which states that
"no person shall be deprived of life, liberty or property without due process of law, nor shall any person
be denied of the equal protection of the laws;" and
3) The 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11 that
makes "essential goods, health and other social services available to all people at affordable cost."14

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes deprivation of
private property. Compelling drugstore owners and establishments to grant the discount will result in a
loss of profit

and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines; and 2) the
law failed to provide a scheme whereby drugstores will be justly compensated for the discount.

Examining petitioners arguments, it is apparent that what petitioners are ultimately questioning is the
validity of the tax deduction scheme as a reimbursement mechanism for the twenty percent (20%)
discount that they extend to senior citizens.

Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for
the discount privilege accorded to senior citizens. This is because the discount is treated as a deduction, a
tax-deductible expense that is subtracted from the gross income and results in a lower taxable income.
Stated otherwise, it is an amount that is allowed by law15 to reduce the income prior to the application of
the tax rate to compute the amount of tax which is due.16 Being a tax deduction, the discount does not
reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed.

Theoretically, the treatment of the discount as a deduction reduces the net income of the private
establishments concerned. The discounts given would have entered the coffers and formed part of the
gross sales of the private establishments, were it not for R.A. No. 9257.

The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private
property for public use or benefit.17 This constitutes compensable taking for which petitioners would
ordinarily become entitled to a just compensation.

Just compensation is defined as the full and fair equivalent of the property taken from its owner by the
expropriator. The measure is not the takers gain but the owners loss. The word just is used to intensify
the meaning of the word compensation, and to convey the idea that the equivalent to be rendered for the
property to be taken shall be real, substantial, full and ample.18

A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not
meet the definition of just compensation.19

Having said that, this raises the question of whether the State, in promoting the health and welfare of a
special group of citizens, can impose upon private establishments the burden of partly subsidizing a
government program.

The Court believes so.

The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-
building, and to grant benefits and privileges to them for their improvement and well-being as the State
considers them an integral part of our society.20

The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself. Thus,
the Act provides:
SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:

SECTION 1. Declaration of Policies and Objectives. Pursuant to Article XV, Section 4 of the
Constitution, it is the duty of the family to take care of its elderly members while the State may design
programs of social security for them. In addition to this, Section 10 in the Declaration of Principles and
State Policies provides: "The State shall provide social justice in all phases of national development."
Further, Article XIII, Section 11, provides: "The State shall adopt an integrated and comprehensive
approach to health development which shall endeavor to make essential goods, health and other social
services available to all the people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women and children." Consonant with these constitutional
principles the following are the declared policies of this Act:

...

(f) To recognize the important role of the private sector in the improvement of the welfare of senior
citizens and to actively seek their partnership.21

To implement the above policy, the law grants a twenty percent discount to senior citizens for medical
and dental services, and diagnostic and laboratory fees; admission fees charged by theaters, concert halls,
circuses, carnivals, and other similar places of culture, leisure and amusement; fares for domestic land, air
and sea travel; utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers; and purchases of medicines for the exclusive use or enjoyment of senior citizens. As a
form of reimbursement, the law provides that business establishments extending the twenty percent
discount to senior citizens may claim the discount as a tax deduction.

The law is a legitimate exercise of police power which, similar to the power of eminent domain, has
general welfare for its object. Police power is not capable of an exact definition, but has been purposely
veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough
room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest
benefits. 22 Accordingly, it has been described as "the most essential, insistent and the least limitable of
powers, extending as it does to all the great public needs."23 It is "[t]he power vested in the legislature by
the constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for
the good and welfare of the commonwealth, and of the subjects of the same."24

For this reason, when the conditions so demand as determined by the legislature, property rights must
bow to the primacy of police power because property rights, though sheltered by due process, must yield
to general welfare.25

Police power as an attribute to promote the common good would be diluted considerably if on the mere
plea of petitioners that they will suffer loss of earnings and capital, the questioned provision is
invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of the
provision in question, there is no basis for its nullification in view of the presumption of validity which
every law has in its favor.26

Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly
oppressive to their business, because petitioners have not taken time to calculate correctly and come up
with a financial report, so that they have not been able to show properly whether or not the tax deduction
scheme really works greatly to their disadvantage.27
In treating the discount as a tax deduction, petitioners insist that they will incur losses because, referring
to the DOF Opinion, for every 1.00 senior citizen discount that petitioners would give, 0.68 will be
shouldered by them as only 0.32 will be refunded by the government by way of a tax deduction.

To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive maintenance
drug Norvasc as an example. According to the latter, it acquires Norvasc from the distributors at 37.57
per tablet, and retails it at 39.60 (or at a margin of 5%). If it grants a 20% discount to senior citizens or
an amount equivalent to 7.92, then it would have to sell Norvasc at 31.68 which translates to a loss
from capital of 5.89 per tablet. Even if the government will allow a tax deduction, only 2.53 per tablet
will be refunded and not the full amount of the discount which is 7.92. In short, only 32% of the 20%
discount will be reimbursed to the drugstores.28

Petitioners computation is flawed. For purposes of reimbursement, the law states that the cost of the
discount shall be deducted from gross income,29 the amount of income derived from all sources before
deducting allowable expenses, which will result in net income. Here, petitioners tried to show a loss on a
per transaction basis, which should not be the case. An income statement, showing an accounting of
petitioners sales, expenses, and net profit (or loss) for a given period could have accurately reflected the
effect of the discount on their income. Absent any financial statement, petitioners cannot substantiate their
claim that they will be operating at a loss should they give the discount. In addition, the computation was
erroneously based on the assumption that their customers consisted wholly of senior citizens. Lastly, the
32% tax rate is to be imposed on income, not on the amount of the discount.

Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices of their
medicines given the cutthroat nature of the players in the industry. It is a business decision on the part of
petitioners to peg the mark-up at 5%. Selling the medicines below acquisition cost, as alleged by
petitioners, is merely a result of this decision. Inasmuch as pricing is a property right, petitioners cannot
reproach the law for being oppressive, simply because they cannot afford to raise their prices for fear of
losing their customers to competition.

The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive pricing
component of the business. While the Constitution protects property rights, petitioners must accept the
realities of business and the State, in the exercise of police power, can intervene in the operations of a
business which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the Constitution provides
the precept for the protection of property, various laws and jurisprudence, particularly on agrarian reform
and the regulation of contracts and public utilities, continuously serve as a reminder that the right to
property can be relinquished upon the command of the State for the promotion of public good.30

Undeniably, the success of the senior citizens program rests largely on the support imparted by petitioners
and the other private establishments concerned. This being the case, the means employed in invoking the
active participation of the private sector, in order to achieve the purpose or objective of the law, is
reasonably and directly related. Without sufficient proof that Section 4(a) of R.A. No. 9257 is arbitrary,
and that the continued implementation of the same would be unconscionably detrimental to petitioners,
the Court will refrain from quashing a legislative act.31

WHEREFORE, the petition is DISMISSED for lack of merit.

No costs.
SO ORDERED.

G.R. No. 161107 March 12, 2013

HON. MA. LOURDES C. FERNANDO, in her capacity as City Mayor

vs.
ST. SCHOLASTICA'S COLLEGE and ST. SCHOLASTICA'S ACADEMY-MARIKINA,
INC., Respondents.

DECISION

MENDOZA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court, which seeks to
set aside the December 1, 2003 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 75691.

The Facts

Respondents St. Scholasticas College (SSC) and St. Scholasticas Academy-Marikina, Inc. (SSA-
Marikina) are educational institutions organized under the laws of the Republic of the Philippines, with
principal offices and business addresses at Leon Guinto Street, Malate, Manila, and at West Drive,
Marikina Heights, Marikina City, respectively.2

Respondent SSC is the owner of four (4) parcels of land measuring a total of 56,306.80 square meters,
located in Marikina Heights and covered by Transfer Certificate Title (TCT) No. 91537. Located within
the property are SSA-Marikina, the residence of the sisters of the Benedictine Order, the formation house
of the novices, and the retirement house for the elderly sisters. The property is enclosed by a tall concrete
perimeter fence built some thirty (30) years ago. Abutting the fence along the West Drive are buildings,
facilities, and other improvements.3

The petitioners are the officials of the City Government of Marikina. On September 30, 1994, the
Sangguniang Panlungsod of Marikina City enacted Ordinance No. 192,4 entitled "Regulating the
Construction of Fences and Walls in the Municipality of Marikina." In 1995 and 1998, Ordinance Nos.
2175 and 2006 were enacted to amend Sections 7 and 5, respectively. Ordinance No. 192, as amended, is
reproduced hereunder, as follows:

ORDINANCE No. 192

Series of 1994

ORDINANCE REGULATING THE CONSTRUCTION OF FENCES AND WALLS IN THE

MUNICIPALITY OF MARIKINA

WHEREAS, under Section 447.2 of Republic Act No. 7160 otherwise known as the Local Government
Code of 1991 empowers the Sangguniang Bayan as the local legislative body of the municipality to "x x x
Prescribe reasonable limits and restraints on the use of property within the jurisdiction of the
municipality, x x x";
WHEREAS the effort of the municipality to accelerate its economic and physical development, coupled
with urbanization and modernization, makes imperative the adoption of an ordinance which shall embody
up-to-date and modern technical design in the construction of fences of residential, commercial and
industrial buildings;

WHEREAS, Presidential Decree No. 1096, otherwise known as the National Building Code of the
Philippines, does not adequately provide technical guidelines for the construction of fences, in terms of
design, construction, and criteria;

WHEREAS, the adoption of such technical standards shall provide more efficient and effective
enforcement of laws on public safety and security;

WHEREAS, it has occurred in not just a few occasions that high fences or walls did not actually
discourage but, in fact, even protected burglars, robbers, and other lawless elements from the view of
outsiders once they have gained ingress into these walls, hence, fences not necessarily providing security,
but becomes itself a "security problem";

WHEREAS, to discourage, suppress or prevent the concealment of prohibited or unlawful acts earlier
enumerated, and as guardian of the people of Marikina, the municipal government seeks to enact and
implement rules and ordinances to protect and promote the health, safety and morals of its constituents;

WHEREAS, consistent too, with the "Clean and Green Program" of the government, lowering of fences
and walls shall encourage people to plant more trees and ornamental plants in their yards, and when
visible, such trees and ornamental plants are expected to create an aura of a clean, green and beautiful
environment for Marikeos;

WHEREAS, high fences are unsightly that, in the past, people planted on sidewalks to "beautify" the
faade of their residences but, however, become hazards and obstructions to pedestrians;

WHEREAS, high and solid walls as fences are considered "un-neighborly" preventing community
members to easily communicate and socialize and deemed to create "boxed-in" mentality among the
populace;

WHEREAS, to gather as wide-range of opinions and comments on this proposal, and as a requirement of
the Local Government Code of 1991 (R.A. 7160), the Sangguniang Bayan of Marikina invited presidents
or officers of homeowners associations, and commercial and industrial establishments in Marikina to two
public hearings held on July 28, 1994 and August 25, 1994;

WHEREAS, the rationale and mechanics of the proposed ordinance were fully presented to the attendees
and no vehement objection was presented to the municipal government;

NOW, THEREFORE, BE IT ORDAINED BY THE SANGGUINANG BAYAN OF MARIKINA IN

SESSION DULY ASSEMBLED:

Section 1. Coverage: This Ordinance regulates the construction of all fences, walls and gates on lots
classified or used for residential, commercial, industrial, or special purposes.

Section 2. Definition of Terms:

 a. Front Yard refers to the area of the lot fronting a street, alley or public thoroughfare.

b. Back Yard the part of the lot at the rear of the structure constructed therein.

c. Open fence type of fence which allows a view of "thru-see" of the inner yard and the
improvements therein. (Examples: wrought iron, wooden lattice, cyclone wire)

d. Front gate refers to the gate which serves as a passage of persons or vehicles fronting a street,
alley, or public thoroughfare.

Section 3. The standard height of fences or walls allowed under this ordinance are as follows:

(1) Fences on the front yard shall be no more than one (1) meter in height. Fences in excess of
one (1) meter shall be of an open fence type, at least eighty percent (80%) see-thru; and

(2) Fences on the side and back yard shall be in accordance with the provisions of P.D. 1096
otherwise known as the National Building Code.

Section 4. No fence of any kind shall be allowed in areas specifically reserved or classified as parks.

Section 5. In no case shall walls and fences be built within the five (5) meter parking area allowance
located between the front monument line and the building line of commercial and industrial
establishments and educational and religious institutions.7

Section 6. Exemption.

(1) The Ordinance does not cover perimeter walls of residential subdivisions.

(2) When public safety or public welfare requires, the Sangguniang Bayan may allow the
construction and/or maintenance of walls higher than as prescribed herein and shall issue a
special permit or exemption.

Section 7. Transitory Provision. Real property owners whose existing fences and walls do not conform to
the specifications herein are allowed adequate period of time from the passage of this Ordinance within
which to conform, as follows:

(1) Residential houses eight (8) years

(2) Commercial establishments five (5) years

(3) Industrial establishments three (3) years

(4) Educational institutions five (5) years8 (public and privately owned)

Section 8. Penalty. Walls found not conforming to the provisions of this Ordinance shall be demolished
by the municipal government at the expense of the owner of the lot or structure.
Section 9. The Municipal Engineering Office is tasked to strictly implement this ordinance, including the
issuance of the necessary implementing guidelines, issuance of building and fencing permits, and
demolition of non-conforming walls at the lapse of the grace period herein provided.

Section 10. Repealing Clause. All existing Ordinances and Resolutions, Rules and Regulations
inconsistent with the foregoing provisions are hereby repealed, amended or modified.

Section 11. Separability Clause. If for any reason or reasons, local executive orders, rules and regulations
or parts thereof in conflict with this Ordinance are hereby repealed and/or modified accordingly.

Section 12. Effectivity. This ordinance takes effect after publication.

APPROVED: September 30, 1994

(Emphases supplied)

On April 2, 2000, the City Government of Marikina sent a letter to the respondents ordering them to
demolish and replace the fence of their Marikina property to make it 80% see-thru, and, at the same time,
to move it back about six (6) meters to provide parking space for vehicles to park.9 On April 26, 2000, the
respondents requested for an extension of time to comply with the directive.10 In response, the petitioners,
through then City Mayor Bayani F. Fernando, insisted on the enforcement of the subject ordinance.

Not in conformity, the respondents filed a petition for prohibition with an application for a writ of
preliminary injunction and temporary restraining order before the Regional Trial Court, Marikina, Branch
273 (RTC), docketed as SCA Case No. 2000-381-MK.11

The respondents argued that the petitioners were acting in excess of jurisdiction in enforcing Ordinance
No. 192, asserting that such contravenes Section 1, Article III of the 1987 Constitution. That demolishing
their fence and constructing it six (6) meters back would result in the loss of at least 1,808.34 square
meters, worth about 9,041,700.00, along West Drive, and at least 1,954.02 square meters, worth roughly
9,770,100.00, along East Drive. It would also result in the destruction of the garbage house, covered
walk, electric house, storage house, comfort rooms, guards room, guards post, waiting area for visitors,
waiting area for students, Blessed Virgin Shrine, P.E. area, and the multi-purpose hall, resulting in the
permanent loss of their beneficial use. The respondents, thus, asserted that the implementation of the
ordinance on their property would be tantamount to an appropriation of property without due process of
law; and that the petitioners could only appropriate a portion of their property through eminent domain.
They also pointed out that the goal of the provisions to deter lawless elements and criminality did not
exist as the solid concrete walls of the school had served as sufficient protection for many years. 12

The petitioners, on the other hand, countered that the ordinance was a valid exercise of police power, by
virtue of which, they could restrain property rights for the protection of public safety, health, morals, or
the promotion of public convenience and general prosperity.13

On June 30, 2000, the RTC issued a writ of preliminary injunction, enjoining the petitioners from
implementing the demolition of the fence at SSCs Marikina property.14

Ruling of the RTC

On the merits, the RTC rendered a Decision,15 dated October 2, 2002, granting the petition and ordering
the issuance of a writ of prohibition commanding the petitioners to permanently desist from enforcing or
implementing Ordinance No. 192 on the respondents property.

The RTC agreed with the respondents that the order of the petitioners to demolish the fence at the SSC
property in Marikina and to move it back six (6) meters would amount to an appropriation of property
which could only be done through the exercise of eminent domain. It held that the petitioners could not
take the respondents property under the guise of police power to evade the payment of just
compensation.

It did not give weight to the petitioners contention that the parking space was for the benefit of the
students and patrons of SSA-Marikina, considering that the respondents were already providing for
sufficient parking in compliance with the standards under Rule XIX of the National Building Code.

It further found that the 80% see-thru fence requirement could run counter to the respondents right to
privacy, considering that the property also served as a residence of the Benedictine sisters, who were
entitled to some sense of privacy in their affairs. It also found that the respondents were able to prove that
the danger to security had no basis in their case. Moreover, it held that the purpose of beautification could
not be used to justify the exercise of police power.

It also observed that Section 7 of Ordinance No. 192, as amended, provided for retroactive application. It
held, however, that such retroactive effect should not impair the respondents vested substantive rights
over the perimeter walls, the six-meter strips of land along the walls, and the building, structures,
facilities, and improvements, which would be destroyed by the demolition of the walls and the seizure of
the strips of land.

The RTC also found untenable the petitioners argument that Ordinance No. 192 was a remedial or
curative statute intended to correct the defects of buildings and structures, which were brought about by
the absence or insufficiency of laws. It ruled that the assailed ordinance was neither remedial nor curative
in nature, considering that at the time the respondents perimeter wall was built, the same was valid and
legal, and the ordinance did not refer to any previous legislation that it sought to correct.

The RTC noted that the petitioners could still take action to expropriate the subject property through
eminent domain.

The RTC, thus, disposed:

WHEREFORE, the petition is GRANTED. The writ of prohibition is hereby issued commanding the
respondents to permanently desist from enforcing or implementing Ordinance No. 192, Series of 1994, as
amended, on petitioners property in question located at Marikina Heights, Marikina, Metro Manila.

No pronouncement as to costs.

SO ORDERED.16

Ruling of the CA

In its December 1, 2003 Decision, the CA dismissed the petitioners appeal and affirmed the RTC
decision.
The CA reasoned out that the objectives stated in Ordinance No. 192 did not justify the exercise of police
power, as it did not only seek to regulate, but also involved the taking of the respondents property
without due process of law. The respondents were bound to lose an unquantifiable sense of security, the
beneficial use of their structures, and a total of 3,762.36 square meters of property. It, thus, ruled that the
assailed ordinance could not be upheld as valid as it clearly invaded the personal and property rights of
the respondents and "[f]or being unreasonable, and undue restraint of trade."17

It noted that although the petitioners complied with procedural due process in enacting Ordinance No.
192, they failed to comply with substantive due process. Hence, the failure of the respondents to attend
the public hearings in order to raise objections did not amount to a waiver of their right to question the
validity of the ordinance.

The CA also shot down the argument that the five-meter setback provision for parking was a legal
easement, the use and ownership of which would remain with, and inure to, the benefit of the respondents
for whom the easement was primarily intended. It found that the real intent of the setback provision was
to make the parking space free for use by the public, considering that such would cease to be for the
exclusive use of the school and its students as it would be situated outside school premises and beyond
the school administrations control.

In affirming the RTC ruling that the ordinance was not a curative statute, the CA found that the petitioner
failed to point out any irregularity or invalidity in the provisions of the National Building Code that
required correction or cure. It noted that any correction in the Code should be properly undertaken by the
Congress and not by the City Council of Marikina through an ordinance.

The CA, thus, disposed:

WHEREFORE, all foregoing premises considered, the instant appeal is DENIED.1wphi1 The October 2,
2002 Decision and the January 13, 2003 Order of the Regional Trial Court (RTC) of Marikina City,
Branch 273, granting petitioners-appellees petition for Prohibition in SCA Case No. 2000-381-MK are
hereby AFFIRMED.

SO ORDERED.18

Aggrieved by the decision of the CA, the petitioners are now before this Court presenting the following

ASSIGNMENT OF ERRORS

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING

THAT CITY ORDINANCE NO. 192, SERIES OF 1994 IS NOT A VALID EXERCISE OF
POLICE POWER;

2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING

THAT THE AFOREMENTIONED ORDINANCE IS AN EXERCISE OF THE CITY OF THE
POWER OF EMINENT DOMAIN;

3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING

THAT THE CITY VIOLATED THE DUE PROCESS CLAUSE IN IMPLEMENTING
ORDINANCE NO. 192, SERIES OF 1994; AND
 4. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT THE ABOVE-MENTIONED ORDINANCE CANNOT BE GIVEN RETROACTIVE
APPLICATION.19

In this case, the petitioners admit that Section 5 of the assailed ordinance, pertaining to the five-meter
setback requirement is, as held by the lower courts, invalid.20 Nonetheless, the petitioners argue that such
invalidity was subsequently cured by Zoning Ordinance No. 303, series of 2000. They also contend that
Section 3, relating to the 80% see-thru fence requirement, must be complied with, as it remains to be
valid.

Ruling of the Court

The ultimate question before the Court is whether Sections 3.1 and 5 of Ordinance No. 192 are valid
exercises of police power by the City Government of Marikina.

"Police power is the plenary power vested in the legislature to make statutes and ordinances to promote
the health, morals, peace, education, good order or safety and general welfare of the people."21 The State,
through the legislature, has delegated the exercise of police power to local government units, as agencies
of the State. This delegation of police power is embodied in Section 1622 of the Local Government Code
of 1991 (R.A. No. 7160), known as the General Welfare Clause,23 which has two branches. "The first,
known as the general legislative power, authorizes the municipal council to enact ordinances and make
regulations not repugnant to law, as may be necessary to carry into effect and discharge the powers and
duties conferred upon the municipal council by law. The second, known as the police power proper,
authorizes the municipality to enact ordinances as may be necessary and proper for the health and safety,
prosperity, morals, peace, good order, comfort, and convenience of the municipality and its inhabitants,
and for the protection of their property."24

White Light Corporation v. City of Manila,25 discusses the test of a valid ordinance:

The test of a valid ordinance is well established. A long line of decisions including City of Manila has
held that for an ordinance to be valid, it must not only be within the corporate powers of the local
government unit to enact and pass according to the procedure prescribed by law, it must also conform to
the following substantive requirements: (1) must not contravene the

Constitution or any statute; (2) must not be unfair or oppressive; (3) must not be partial or discriminatory;
(4) must not prohibit but may regulate trade; (5) must be general and consistent with public policy; and
(6) must not be unreasonable.26

Ordinance No. 192 was passed by the City Council of Marikina in the apparent exercise of its police
power. To successfully invoke the exercise of police power as the rationale for the enactment of an
ordinance and to free it from the imputation of constitutional infirmity, two tests have been used by the
Court the rational relationship test and the strict scrutiny test:

We ourselves have often applied the rational basis test mainly in analysis of equal protection challenges.
Using the rational basis examination, laws or ordinances are upheld if they rationally further a legitimate
governmental interest. Under intermediate review, governmental interest is extensively examined and the
availability of less restrictive measures is considered. Applying strict scrutiny, the focus is on the
presence of compelling, rather than substantial, governmental interest and on the absence of less
restrictive means for achieving that interest.27
Even without going to a discussion of the strict scrutiny test, Ordinance No. 192, series of 1994 must be
struck down for not being reasonably necessary to accomplish the Citys purpose. More importantly, it is
oppressive of private rights.

Under the rational relationship test, an ordinance must pass the following requisites as discussed in Social
Justice Society (SJS) v. Atienza, Jr.:28

As with the State, local governments may be considered as having properly exercised their police power
only if the following requisites are met: (1) the interests of the public generally, as distinguished from
those of a particular class, require its exercise and (2) the means employed are reasonably necessary for
the accomplishment of the purpose and not unduly oppressive upon individuals. In short, there must be a
concurrence of a lawful subject and lawful method.29

Lacking a concurrence of these two requisites, the police power measure shall be struck down as an
arbitrary intrusion into private rights and a violation of the due process clause.30

Section 3.1 and 5 of the assailed ordinance are pertinent to the issue at hand, to wit:

Section 3. The standard height of fences of walls allowed under this ordinance are as follows:

(1) Fences on the front yard shall be no more than one (1) meter in height. Fences in excess of one (1)
meter shall be an open fence type, at least eighty percent (80%) see-thru;

xxx xxx xxx

Section 5. In no case shall walls and fences be built within the five (5) meter parking area allowance
located between the front monument line and the building line of commercial and industrial
establishments and educational and religious institutions.

The respondents, thus, sought to prohibit the petitioners from requiring them to (1) demolish their existing
concrete wall, (2) build a fence (in excess of one meter) which must be 80% see-thru, and (3) build the
said fence six meters back in order to provide a parking area.

Setback Requirement

The Court first turns its attention to Section 5 which requires the five-meter setback of the fence to
provide for a parking area. The petitioners initially argued that the ownership of the parking area to be
created would remain with the respondents as it would primarily be for the use of its students and faculty,
and that its use by the public on non-school days would only be incidental. In their Reply, however, the
petitioners admitted that Section 5 was, in fact, invalid for being repugnant to the Constitution.31

The Court agrees with the latter position.

The Court joins the CA in finding that the real intent of the setback requirement was to make the parking
space free for use by the public, considering that it would no longer be for the exclusive use of the
respondents as it would also be available for use by the general public. Section 9 of Article III of the 1987
Constitution, a provision on eminent domain, provides that private property shall not be taken for public
use without just compensation.
The petitioners cannot justify the setback by arguing that the ownership of the property will continue to
remain with the respondents. It is a settled rule that neither the acquisition of title nor the total destruction
of value is essential to taking. In fact, it is usually in cases where the title remains with the private owner
that inquiry should be made to determine whether the impairment of a property is merely regulated or
amounts to a compensable taking.32 The Court is of the view that the implementation of the setback
requirement would be tantamount to a taking of a total of 3,762.36 square meters of the respondents
private property for public use without just compensation, in contravention to the Constitution.

Anent the objectives of prevention of concealment of unlawful acts and "un-neighborliness," it is obvious
that providing for a parking area has no logical connection to, and is not reasonably necessary for, the
accomplishment of these goals.

Regarding the beautification purpose of the setback requirement, it has long been settled that the State
may not, under the guise of police power, permanently divest owners of the beneficial use of their
property solely to preserve or enhance the aesthetic appearance of the community.33 The Court, thus, finds
Section 5 to be unreasonable and oppressive as it will substantially divest the respondents of the
beneficial use of their property solely for aesthetic purposes. Accordingly, Section 5 of Ordinance No.
192 is invalid.

The petitioners, however, argue that the invalidity of Section 5 was properly cured by Zoning Ordinance
No. 303,34Series of 2000, which classified the respondents property to be within an institutional zone,
under which a five-meter setback has been required.

The petitioners are mistaken. Ordinance No. 303, Series of 2000, has no bearing to the case at hand.

The Court notes with displeasure that this argument was only raised for the first time on appeal in this
Court in the petitioners Reply. Considering that Ordinance No. 303 was enacted on December 20, 2000,
the petitioners could very well have raised it in their defense before the RTC in 2002. The settled rule in
this jurisdiction is that a party cannot change the legal theory of this case under which the controversy
was heard and decided in the trial court. It should be the same theory under which the review on appeal is
conducted. Points of law, theories, issues, and arguments not adequately brought to the attention of the
lower court will not be ordinarily considered by a reviewing court, inasmuch as they cannot be raised for
the first time on appeal. This will be offensive to the basic rules of fair play, justice, and due process.35

Furthermore, the two ordinances have completely different purposes and subjects. Ordinance No. 192
aims to regulate the construction of fences, while Ordinance No. 303 is a zoning ordinance which
classifies the city into specific land uses. In fact, the five-meter setback required by Ordinance No. 303
does not even appear to be for the purpose of providing a parking area.

By no stretch of the imagination, therefore, can Ordinance No. 303, "cure" Section 5 of Ordinance No.
192.

In any case, the clear subject of the petition for prohibition filed by the respondents is Ordinance No. 192
and, as such, the precise issue to be determined is whether the petitioners can be prohibited from
enforcing the said ordinance, and no other, against the respondents.

80% See-Thru Fence Requirement

The petitioners argue that while Section 5 of Ordinance No. 192 may be invalid, Section 3.1 limiting the
height of fences to one meter and requiring fences in excess of one meter to be at least 80% see-thru,
should remain valid and enforceable against the respondents.

The Court cannot accommodate the petitioner.

For Section 3.1 to pass the rational relationship test, the petitioners must show the reasonable relation
between the purpose of the police power measure and the means employed for its accomplishment, for
even under the guise of protecting the public interest, personal rights and those pertaining to private
property will not be permitted to be arbitrarily invaded.36

The principal purpose of Section 3.1 is "to discourage, suppress or prevent the concealment of prohibited
or unlawful acts." The ultimate goal of this objective is clearly the prevention of crime to ensure public
safety and security. The means employed by the petitioners, however, is not reasonably necessary for the
accomplishment of this purpose and is unduly oppressive to private rights. The petitioners have not
adequately shown, and it does not appear obvious to this Court, that an 80% see-thru fence would provide
better protection and a higher level of security, or serve as a more satisfactory criminal deterrent, than a
tall solid concrete wall. It may even be argued that such exposed premises could entice and tempt would-
be criminals to the property, and that a see-thru fence would be easier to bypass and breach. It also
appears that the respondents concrete wall has served as more than sufficient protection over the last 40
years. `

As to the beautification purpose of the assailed ordinance, as previously discussed, the State may not,
under the guise of police power, infringe on private rights solely for the sake of the aesthetic appearance
of the community. Similarly, the Court cannot perceive how a see-thru fence will foster "neighborliness"
between members of a community.

Compelling the respondents to construct their fence in accordance with the assailed ordinance is, thus, a
clear encroachment on their right to property, which necessarily includes their right to decide how best to
protect their property.

It also appears that requiring the exposure of their property via a see-thru fence is violative of their right
to privacy, considering that the residence of the Benedictine nuns is also located within the property. The
right to privacy has long been considered a fundamental right guaranteed by the Constitution that must be
protected from intrusion or constraint. The right to privacy is essentially the right to be let alone, 37 as
governmental powers should stop short of certain intrusions into the personal life of its citizens.38 It is
inherent in the concept of liberty, enshrined in the Bill of Rights (Article III) in Sections 1, 2, 3(1), 6, 8,
and 17, Article III of the 1987 Constitution.39

The enforcement of Section 3.1 would, therefore, result in an undue interference with the respondents
rights to property and privacy. Section 3.1 of Ordinance No. 192 is, thus, also invalid and cannot be
enforced against the respondents.

No Retroactivity

Ordinance No. 217 amended Section 7 of Ordinance No. 192 by including the regulation of educational
institutions which was unintentionally omitted, and giving said educational institutions five (5) years from
the passage of Ordinance No. 192 (and not Ordinance No. 217) to conform to its provisions.40 The
petitioners argued that the amendment could be retroactively applied because the assailed ordinance is a
curative statute which is retroactive in nature.
Considering that Sections 3.1 and 5 of Ordinance No. 192 cannot be enforced against the respondents, it
is no longer necessary to rule on the issue of retroactivity. The Court shall, nevertheless, pass upon the
issue for the sake of clarity.

"Curative statutes are enacted to cure defects in a prior law or to validate legal proceedings which would
otherwise be void for want of conformity with certain legal requirements. They are intended to supply
defects, abridge superfluities and curb certain evils. They are intended to enable persons to carry into
effect that which they have designed or intended, but has failed of expected legal consequence by reason
of some statutory disability or irregularity in their own action. They make valid that which, before the
enactment of the statute was invalid. Their purpose is to give validity to acts done that would have been
invalid under existing laws, as if existing laws have been complied with. Curative statutes, therefore, by
their very essence, are retroactive."41

The petitioners argue that Ordinance No. 192 is a curative statute as it aims to correct or cure a defect in
the National Building Code, namely, its failure to provide for adequate guidelines for the construction of
fences. They ultimately seek to remedy an insufficiency in the law. In aiming to cure this insufficiency,
the petitioners attempt to add lacking provisions to the National Building Code. This is not what is
contemplated by curative statutes, which intend to correct irregularities or invalidity in the law. The
petitioners fail to point out any irregular or invalid provision. As such, the assailed ordinance cannot
qualify as curative and retroactive in nature.

At any rate, there appears to be no insufficiency in the National Building Code with respect to parking
provisions in relation to the issue of the respondents. Paragraph 1.16.1, Rule XIX of the Rules and
Regulations of the said code requires an educational institution to provide one parking slot for every ten
classrooms. As found by the lower courts, the respondents provide a total of 76 parking slots for their 80
classrooms and, thus, had more than sufficiently complied with the law.

Ordinance No. 192, as amended, is, therefore, not a curative statute which may be applied retroactively.

Separability

Sections 3.1 and 5 of Ordinance No. 192, as amended, are, thus, invalid and cannot be enforced against
the respondents. Nonetheless, "the general rule is that where part of a statute is void as repugnant to the
Constitution, while another part is valid, the valid portion, if susceptible to being separated from the
invalid, may stand and be enforced."42 Thus, the other sections of the assailed ordinance remain valid and
enforceable.

Conclusion

Considering the invalidity of Sections 3.1 and 5, it is clear that the petitioners were acting in excess of
their jurisdiction in enforcing Ordinance No. 192 against the respondents. The CA was correct in
affirming the decision of the RTC in issuing the writ of prohibition. The petitioners must permanently
desist from enforcing Sections 3.1 and 5 of the assailed ordinance on the respondents' property in
Marikina City.

WHEREFORE, the petition is DENIED. The October 2, 2002 Decision of the Regional Trial Court in
SCA Case No. 2000-381-MK is AFFIRMED but MODIFIED to read as follows:

WHEREFORE, the petition is GRANTED. The writ of prohibition is hereby issued commanding the
respondents to permanently desist from enforcing or implementing Sections 3.1 and 5 of Ordinance No.
192, Series of 1994, as amended, on the petitioners' property in question located in Marikina Heights,
Marikina, Metro Manila.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 184203 November 26, 2014

CITY OF LAPU-LAPU, Petitioner,

vs.
PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.

The Philippine Economic Zone Authority is exempt from payment of real property taxes.

These are consolidated1 petitions for review on certiorari the City of Lapu-Lapu and the Province of
Bataan separately filed against the Philippine Economic Zone Authority (PEZA).

In G.R. No. 184203, the City of Lapu-Lapu (the City) assails the Court of Appeals decision2 dated
January 11, 2008 and resolution3 dated August 6, 2008, dismissing the Citys appeal for being the wrong
mode of appeal. The City appealed the Regional Trial Court,Branch 111, Pasay Citys decision finding
the PEZA exempt from payment of real property taxes.

In G.R. No. 187583, the Province of Bataan (the Province) assails the Court of Appeals decision4 dated
August 27, 2008 and resolution5 dated April 16, 2009, granting the PEZAs petition for certiorari. The
Court of Appeals ruled that the Regional Trial Court, Branch 115, Pasay City gravely abused its
discretion in finding the PEZA liable for real property taxes to the Province of Bataan.

Facts common to the consolidated petitions

In the exercise of his legislative powers,6 President Ferdinand E. Marcos issued Presidential Decree No.
66 in 1972, declaring as government policy the establishment of export processing zones in strategic
locations in the Philippines. Presidential Decree No. 66 aimed "to encourage and promote foreign
commerce as a means of making the Philippines a center of international trade, of strengthening our
export trade and foreign exchange position, of hastening industrialization,of reducing domestic
unemployment, and of accelerating the development of the country."7

To carry out this policy, the Export Processing Zone Authority (EPZA) was created to operate,
administer, and manage the export processing zones established in the Port of Mariveles, Bataan8 and
such other export processing zones that may be created by virtue of the decree.9

The decree declared the EPZA non-profit in character10 with all its revenues devoted to its development,
improvement, and maintenance.11 To maintain this non-profit character, the EPZA was declared exempt
from all taxes that may be due to the Republic of the Philippines, its provinces, cities, municipalities, and
other government agencies and instrumentalities.12 Specifically, Section 21 of Presidential Decree No. 66
declared the EPZA exempt from payment of real property taxes:
Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority shall be non-
profit and shall devote and use all its returns from its capital investment, as well as excess revenues from
its operations, for the development, improvement and maintenance and other related expenditures of the
Authority to pay its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section 1 of this Decree. In consonance therewith, the Authority is hereby declared
exempt:

....

(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and licenses to be paid
to the National Government, its provinces, cities, municipalities and other government agenciesand
instrumentalities[.]

In 1979, President Marcos issued Proclamation No. 1811, establishing the Mactan Export Processing
Zone. Certain parcels of land of the public domain located in the City of Lapu-Lapuin Mactan, Cebu were
reserved to serve as site of the Mactan Export Processing Zone.

In 1995, the PEZA was created by virtue of Republic Act No. 7916 or "the Special Economic Zone Act of
1995"13 to operate, administer, manage, and develop economic zones in the country.14 The PEZA was
granted the power to register, regulate, and supervise the enterprises located in the economic zones.15 By
virtue of the law, the export processing zone in Mariveles, Bataan became the Bataan Economic
Zone16 and the Mactan Export Processing Zone the Mactan Economic Zone.17

As for the EPZA, the law required it to "evolve into the PEZA in accordance with the guidelines and
regulations set forth in an executive order issued for [the] purpose."18

On October 30, 1995, President Fidel V. Ramos issued Executive Order No. 282, directing the PEZA to
assume and exercise all of the EPZAs powers, functions, and responsibilities "as provided in Presidential
Decree No. 66, as amended, insofar as they are not inconsistent with the powers, functions, and
responsibilities of the PEZA, as mandated under [the Special Economic Zone Act of 1995]."19 All of
EPZAs properties, equipment, and assets, among others, were ordered transferred to the PEZA.20

Facts of G.R. No. 184203

In the letter21 dated March 25, 1998, the City of Lapu-Lapu, through the Office of the Treasurer,
demanded from the PEZA 32,912,350.08 in real property taxes for the period from 1992 to 1998 on the
PEZAs properties located in the Mactan Economic Zone.

The City reiterated its demand in the letter22 dated May 21, 1998. It cited Sections 193 and 234 of the
Local Government Code of 1991 that withdrew the real property tax exemptions previously granted to or
presently enjoyed by all persons. The City pointed out that no provision in the Special Economic Zone
Act of 1995 specifically exempted the PEZA from payment of real property taxes, unlike Section 21 of
Presidential Decree No. 66 that explicitly provided for EPZAs exemption. Since no legal provision
explicitly exempted the PEZA from payment of real property taxes, the City argued that it can tax the
PEZA.

The City made subsequent demands23 on the PEZA. In its last reminder24 dated May 13, 2002, the City
assessed the PEZA 86,843,503.48 as real property taxes for the period from 1992 to 2002.
On September 11, 2002, the PEZAfiled a petition for declaratory Relief25 with the Regional Trial Court of
Pasay City, praying that the trial court declare it exempt from payment ofreal property taxes. The case
was raffled to Branch 111.

The City answered26 the petition, maintaining that the PEZA is liable for real property taxes. To support
its argument, the City cited a legal opinion dated September 6, 1999 issued by the Department of
Justice,27 which stated that the PEZA is not exempt from payment of real property taxes. The Department
of Justice based its opinion on Sections 193 and 234 of the Local Government Code that withdrew the tax
exemptions, including real property tax exemptions, previously granted to all persons.

A reply28 was filed by the PEZA to which the City filed a rejoinder.29

Pursuant to Rule 63, Section 3 of Rules of Court,30 the Office of the Solicitor General filed a
comment31 on the PEZAs petition for declaratory relief. It agreed that the PEZA is exempt from payment
of real property taxes, citing Sections 24 and 51 of the Special Economic Zone Act of 1995.

The trial court agreed with the Solicitor General. Section 24 of the Special Economic Zone Act of 1995
provides:

SEC. 24. Exemption from National and Local Taxes. Except for real property taxes on land owned by
developers, no taxes, local and national, shall be imposed on business establishments operating within the
ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises
within the ECOZONE shall be paid and remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurers office of the municipality or city where the enterprise is located.

Section 51 of the law, on the other hand, provides:

SEC. 51. Ipso-Facto Clause. All privileges, benefits, advantages or exemptions granted to special
economic zones under Republic Act No. 7227, shall ipso-facto be accorded to special economic zones
already created or to be created under this Act. The free port status shall not be vested upon new special
economic zones.

Based on Section 51, the trial court held that all privileges, benefits, advantages, or exemptions granted
tospecial economic zones created under the Bases Conversion and Development Act of 1992 apply to
special economic zones created under the Special Economic ZoneAct of 1995.

Since these benefits include exemption from payment of national or local taxes, these benefits apply to
special economic zones owned by the PEZA.

According to the trial court, the PEZA remained tax-exempt regardless of Section 24 of the Special
Economic Zone Act of 1995. It ruled that Section 24, which taxes real property owned by developers of
economic zones, only applies to private developers of economic zones, not to public developers like the
PEZA. The PEZA, therefore, is not liable for real property taxes on the land it owns.
Characterizing the PEZA as an agency of the National Government, the trial court ruled that the City had
no authority to tax the PEZA under Sections 133(o) and 234(a) of the Local Government Code of 1991.

In the resolution32 dated June 14, 2006, the trial court granted the PEZAs petition for declaratory relief
and declared it exempt from payment of real property taxes.

The City filed a motion for reconsideration,33 which the trial court denied in its resolution34 dated
September 26, 2006.

The City then appealed35 to the Court of Appeals.

The Court of Appeals noted the following issues the City raised in its appellants brief: (1) whether the
trial court had jurisdiction over the PEZAs petition for declaratory relief; (2) whether the PEZA is a
government agency performing governmental functions; and (3) whether the PEZA is exempt from
payment of real property taxes.

The issues presented by the City, according to the Court of Appeals, are pure questions of law which
should have been raised in a petition for review on certiorari directly filed before this court. Since the City
availed itself of the wrong mode of appeal, the Court of Appeals dismissed the Citys appeal in the
decision36 dated January 11, 2008.

The City filed a motion for extension of time to file a motion for reconsideration,37 which the Court of
Appeals denied in the resolution38 dated April 11, 2008.

Despite the denial of its motion for extension, the City filed a motion for reconsideration.39 In the
resolution40 dated August 6, 2008, the Court of Appeals denied that motion.

In its petition for review on certiorari with this court,41 the City argues that the Court of Appeals "hid
under the skirts of technical rules"42 in resolving its appeal. The City maintains that its appeal involved
mixed questions of fact and law. According to the City, whether the PEZA performed governmental
functions "cannot completely be addressed by law but [by] the factual and actual activities [the PEZA is]
carrying out."43

Even assuming that the petition involves pure questions of law, the City contends that the subject matter
of the case "is of extreme importance with [far-reaching] consequence that [its magnitude] would surely
shape and determine the course ofour nations future."44 The Court of Appeals, the City argues, should
have resolved the case on the merits.

The City insists that the trial court had no jurisdiction to hear the PEZAs petition for declaratory relief.
According to the City, the case involves real property located in the City of Lapu-Lapu. The petition for
declaratory relief should have been filed before the Regional Trial Court of the City of Lapu-Lapu.45

Moreover, the Province of Bataan, the City of Baguio, and the Province of Cavite allegedly demanded
real property taxes from the PEZA. The City argues that the PEZA should have likewise impleaded these
local government units as respondents in its petition for declaratory relief. For its failure to do so, the
PEZA violated Rule 63, Section 2 of the Rules of Court, and the trial court should have dismissed the
petition.46

This court ordered the PEZA to comment on the Citys petition for review on certiorari.47
At the outset of its comment, the PEZA argues that the Court of Appeals decision dated January 11, 2008
had become final and executory. After the Court of Appeals had denied the Citys appeal, the City filed a
motion for extension of time to file a motion for reconsideration. Arguing that the time to file a motion for
reconsideration is not extendible, the PEZA filed its motion for reconsideration out of time. The Cityhas
no more right to appeal to this court.48

The PEZA maintains that the City availed itself of the wrong mode of appeal before the Court of Appeals.
Since the City raised pure questions of law in its appeal, the PEZA argues that the proper remedy is a
petition for review on certiorari with this court, not an ordinary appeal before the appellate court. The
Court of Appeals, therefore, correctly dismissed outright the Citys appeal under Rule 50, Section 2 of the
Rules of Court.49

On the merits, the PEZA argues that it is an agency and instrumentality of the National Government. It is
therefore exempt from payment of real property taxes under Sections 133(o) and 234(a) of the Local
Government Code.50 It adds that the tax privileges under Sections 24 and 51 of the Special Economic
Zone Act of 1995 applied to it.51

Considering that the site of the Mactan Economic Zoneis a reserved land under Proclamation No. 1811,
the PEZA claims that the properties sought to be taxed are lands of public dominion exempt from real
property taxes.52

As to the jurisdiction issue, the PEZA counters that the Regional Trial Court of Pasay had jurisdiction to
hear its petition for declaratory relief under Rule 63, Section 1 of the Rules of Court.[53]] It also argued
that it need not implead the Province of Bataan, the City of Baguio, and the Province of Cavite as
respondents considering that their demands came after the PEZA had already filed the petition in court.54

Facts of G.R. No. 187583

After the City of Lapu-Lapu had demanded payment of real property taxes from the PEZA, the Province
of Bataan followed suit. In its letter55 dated May 29, 2003, the Province, through the Office of the
Provincial Treasurer, informed the PEZA that it would be sending a real property tax billing to the PEZA.
Arguing that the PEZA is a developer of economic zones, the Province claimed that the PEZA is liable
for real property taxes under Section 24 of the Special Economic Zone Act of 1995.

In its reply letter56 dated June 18, 2003, the PEZA requested the Province to suspend the service of the
real property tax billing. It cited its petition for declaratory relief against the City of Lapu-Lapu pending
before the Regional Trial Court, Branch 111, Pasay City as basis.

The Province argued that serving a real property tax billing on the PEZA "would not in any way affect
[its] petition for declaratory relief before [the Regional Trial Court] of Pasay City."57 Thus, in its
letter58 dated June 27, 2003, the Province notified the PEZAof its real property tax liabilities for June 1,
1995 to December 31, 2002 totalling 110,549,032.55.

After having been served a tax billing, the PEZA again requested the Province to suspend collecting its
alleged real property tax liabilities until the Regional Trial Court of Pasay Cityresolves its petition for
declaratory relief.59

The Province ignored the PEZAs request. On January 20, 2004, the Province served on the PEZA a
statement of unpaid real property tax for the period from June 1995 to December 2004.60
The PEZA again requested the Province to suspend collecting its alleged real property taxes. 61 The
Province denied the request in its letter62 dated January 29, 2004, then servedon the PEZA a warrant of
levy63 covering the PEZAs real properties located in Mariveles, Bataan.

The PEZAs subsequent requests64 for suspension of collection were all denied by the Province.65 The
Province then served on the PEZA a notice of delinquency in the payment of real property taxes66 and a
notice of sale of real property for unpaid real property tax.67 The Province finally sent the PEZA a notice
of public auction of the latters properties in Mariveles, Bataan.68

On June 14, 2004, the PEZA filed a petition for injunction69 with prayer for issuance of a temporary
restraining order and/or writ of preliminary injunction before the Regional Trial Court of Pasay City,
arguing that it is exempt from payment ofreal property taxes. It added that the notice of sale issued by the
Province was void because it was not published in a newspaper ofgeneral circulation asrequired by
Section 260 of the Local Government Code.70

The case was raffled to Branch 115.

In its order71 dated June 18, 2004, the trial court issued a temporary restraining order against the Province.
After the PEZA had filed a 100,000.00 bond,72 the trial court issued a writ of preliminary
injunction,73 enjoining the Province from selling the PEZAs real properties at public auction.

On March 3, 2006, the PEZA and Province both manifested that each would file a memorandum after
which the case would be deemed submitted for decision. The parties then filed their respective
memoranda.74

In the order75 dated January 31, 2007, the trial court denied the PEZAs petition for injunction. The trial
court ruled that the PEZA is not exempt from payment of real property taxes. According to the trial court,
Sections 193 and 234 of the Local Government Code had withdrawn the real property tax exemptions
previously granted to all persons, whether natural or juridical.76 As to the tax exemptions under Section
51 of the Special Economic Zone Act of 1995, the trial court ruled that the provision only applies to
businesses operating within the economic zones, not to the PEZA.77

The PEZA filed before the Court of Appeals a petition for certiorari78 with prayer for issuance of a
temporary restraining order.

The Court of Appeals issued a temporary restraining order, enjoining the Province and its Provincial
Treasurer from selling PEZA's properties at public auction scheduled on October 17, 2007.79 It also
ordered the Province to comment on the PEZAs petition.

In its comment,80 the Province alleged that it received a copy of the temporary restraining order only on
October 18, 2007 when it had already sold the PEZAs properties at public auction. Arguing that the act
sought to be enjoined was already fait accompli, the Province prayed for the dismissal of the petition for
certiorari.

The PEZA then filed a supplemental petition for certiorari, prohibition, and mandamus81 against the
Province, arguing that the Provincial Treasurer of Bataan acted with grave abuse of discretion in issuing
the notice of delinquency and notice of sale. It maintained that it is exempt from payment of real property
taxes because it is a government instrumentality. It added that its lands are property of public dominion
which cannot be sold at public auction.
The PEZA also filed a motion82 for issuance of an order affirming the temporary restraining order and a
writ of preliminary injunction to enjoin the Province from consolidating title over the PEZAs properties.

In its resolution83 dated January 16, 2008,the Court of Appeals admitted the supplemental petition for
certiorari, prohibition, and mandamus. It required the Province to comment on the supplemental petition
and to file a memorandum on the PEZAs prayer for issuance of temporary restraining order.

The Province commented84 on the PEZAs supplemental petition, to which the PEZA replied.85

The Province then filed a motion86 for leave to admit attached rejoinder with motion to dismiss. In the
rejoinder with motion to dismiss,87 the Province argued for the first time that the Court of Appeals had no
jurisdiction over the subject matter of the action.

According to the Province, the PEZA erred in filing a petition for certiorari. Arguing that the PEZA
sought to reverse a Regional Trial Court decision in a local tax case, the Province claimed that the court
with appellate jurisdiction over the action is the Court of Tax Appeals. The PEZA then prayed that the
Court of Appeals dismiss the petition for certiorari for lack of jurisdiction over the subject matter of the
action.

The Court of Appeals held that the issue before it was whether the trial court judge gravely abused his
discretion in dismissing the PEZAs petition for prohibition. This issue, according to the Court of
Appeals, is properly addressed in a petition for certiorari over which it has jurisdiction to resolve. It,
therefore, maintained jurisdiction to resolve the PEZAs petition for certiorari.88

Although it admitted that appeal, not certiorari, was the PEZAs proper remedy to reverse the trial courts
decision,89the Court of Appeals proceeded to decide the petition for certiorari in "the broader interest of
justice."90

The Court of Appeals ruled that the trial court judge gravely abused his discretion in dismissing the
PEZAs petition for prohibition. It held that Section 21 of Presidential Decree No. 66 and Section 51 of
the Special Economic Zone Act of 1995 granted the PEZA exemption from payment of real property
taxes.91 Based on the criteria set in Manila International Airport Authority v. Court of Appeals,92 the
Court of Appeals found that the PEZA is an instrumentality of the national government. No taxes,
therefore, could be levied on it by local government units.93

In the decision94 dated August 27, 2008, the Court of Appeals granted the PEZAs petition for certiorari.
It set aside the trial courts decision and nullified all the Provinces proceedings with respect to the
collection of real property taxes from the PEZA.

The Province filed a motion for reconsideration,95 which the Court of Appeals denied in the
resolution96 dated April 16, 2009 for lack of merit.

In its petition for review on certiorari with this court,97 the Province of Bataan insists that the Court of
Appeals had no jurisdiction to take cognizance of the PEZAs petition for certiorari. The Province
maintains that the Court of Tax Appeals had jurisdiction to hear the PEZAs petition since it involved a
local tax case decided by a Regional Trial Court.98

The Province reiterates that the PEZA is not exempt from payment of real property taxes. The Province
points out that the EPZA, the PEZAs predecessor, had to be categorically exempted from payment of real
property taxes. The EPZA, therefore, was not inherently exempt from payment of real property taxes and
so is the PEZA. Since Congress omitted from the Special Economic Zone Act of 1995 a provision
specifically exempting the PEZA from payment of real property taxes, the Province argues that the PEZA
is a taxable entity. It cited the rule in statutory construction that provisions omitted in revised statutes are
deemed repealed.99

With respect to Sections 24 and 51 of the Special Economic Zone Act of 1995 granting tax exemptions
and benefits, the Province argues that these provisions only apply to business establishments operating
within special economic zones,100 not to the PEZA.

This court ordered the PEZA tocomment on the Provinces petition for review on certiorari.101 In its
comment,102 the PEZA argues that the Court of Appeals had jurisdiction to hear its petition for certiorari
since the issue was whether the trial court committed grave abuse of discretion in denying its petition for
injunction. The PEZA maintains thatit is exempt from payment of real property taxes under Section 21 of
Presidential Decree No. 66 and Section 51 of the Special Economic Zone Act of 1995.

The Province filed its reply,103 reiterating its arguments in its petition for review on certiorari. On the
PEZAs motion,104 this court consolidated the petitions filed by the City of Lapu-Lapu and the Province
of Bataan.105

The issues for our resolution are the following:

I. Whether the Court of Appeals erred in dismissing the City of Lapu-Lapus appeal for raising
pure questions of law;

II. Whether the Regional Trial Court, Branch 111, Pasay City had jurisdiction to hear, try, and
decide the City of Lapu-Lapus petition for declaratory relief;

III. Whether the petition for injunction filed before the Regional Trial Court, Branch 115, Pasay
City, is a local tax case appealable to the Court of Tax Appeals; and

IV. Whether the PEZA is exempt from payment of real property taxes.

We deny the consolidated petitions.

I.

The Court of Appeals did not err in

dismissing the City of Lapu-Lapus
appeal for raising pure questions of law

Under the Rules of Court, there are three modes of appeal from Regional Trial Court decisions. The first
mode is through an ordinary appeal before the Court of Appeals where the decision assailed was rendered
in the exercise of the Regional Trial Courts original jurisdiction. Ordinary appeals are governed by Rule
41, Sections 3 to 13 of the Rules of Court. In ordinary appeals, questions of fact or mixed questions of
fact and law may be raised.106

The second mode is through a petition for review before the Court of Appeals where the decision assailed
was rendered by the Regional Trial Court in the exercise of its appellate jurisdiction. Rule 42 of the Rules
of Court governs petitions for review before the Court of Appeals. In petitions for review under Rule 42,
questions of fact, of law, or mixed questions of fact and law may be raised.107

The third mode is through an appealby certiorari before this court under Rule 45 where only questions of
law shall be raised.108

A question of fact exists when there is doubt as to the truth or falsity of the alleged facts.109 On the other
hand, there is a question of law if the appeal raises doubt as to the applicable law on a certain set of
facts.110

Under Rule 50, Section 2, an improper appeal before the Court of Appeals is dismissed outright and shall
not be referred to the proper court:

SEC. 2. Dismissal of improper appeal to the Court of Appeals. An appeal under Rule 41 taken from the
Regional Trial Court to the Court of Appeals raising only questions of law shall be dismissed, issues
purely of law not being reviewable by said court. Similarly, an appeal by notice of appeal instead of by
petition for review from the appellate judgment of a Regional Trial Court shall be dismissed.

An appeal erroneously taken to the Court of Appeals shall not be transferred to the appropriate court but
shall be dismissed outright.

Rule 50, Section 2 repealed Rule 50, Section 3 of the 1964 Rules of Court, which provided that improper
appeals to the Court of Appeals shall not be dismissed but shall be certified to the proper court for
resolution:

Sec. 3. Where appealed case erroneously, brought. Where the appealed case has been erroneously
brought to the Court of Appeals, it shall not dismiss the appeal, but shall certify the case to the proper
court, with a specific and clear statement of the grounds therefor.

With respect to appeals by certiorari directly filed before this court but which raise questions of fact,
paragraph 4(b) of Circular No. 2-90 dated March 9, 1990 states that this court "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." In
Indoyon, Jr. v. Court of Appeals,111 we said that this court "cannot tolerate ignorance of the law on
appeals."112 It is not this courts task to determine for litigants their proper remedies under the Rules. 113

We agree that the City availed itself of the wrong mode of appeal before the Court of Appeals. The City
raised pure questions of law in its appeal. The issue of whether the Regional Trial Court of Pasay had
jurisdiction over the PEZAs petition for declaratory relief is a question of law, jurisdiction being a matter
of law.114 The issue of whether the PEZA is a government instrumentality exempt from payment of real
property taxes is likewise a question of law since this question is resolved by examining the provisions of
the PEZAs charter as well as other laws relating to the PEZA.115

The Court of Appeals, therefore, did not err in dismissing the Citys appeal pursuant to Rule 50, Section 2
of the Rules of Court.

Nevertheless, considering the important questions involved in this case, we take cognizance of the Citys
petition for review on certiorari in the interest of justice.
In Municipality of Pateros v. The Honorable Court of Appeals,116 the Municipality of Pateros filed an
appeal under Rule 42 before the Court of Appeals, which the Court of Appeals denied outright for raising
pure questions of law. This court agreed that the Municipality of Pateros "committed a procedural
infraction"117 and should have directly filed a petition for review on certiorari before this court.
Nevertheless, "in the interest of justice and in order to write finisto [the] controversy,"118 this court
"opt[ed] to relax the rules"119 and proceeded to decide the case. This court said:

While it is true that rules of procedure are intended to promote rather than frustrate the ends of justice,
and while the swift unclogging of the dockets of the courts is a laudable objective, it nevertheless must
not be met at the expense of substantial justice.

The Court has allowed some meritorious cases to proceed despite inherent procedural defects and lapses.
Thisis in keeping with the principle that rules of procedure are mere tools designed to facilitate the
attainment of justice, and that strict and rigid application ofrules which should result in technicalities that
tend to frustrate rather than promote substantial justice must always be avoided. It is a far better and more
prudent cause of action for the court to excuse a technical lapse and afford the parties a review of the case
to attain the ends of justice, rather than dispose of the case on technicality and cause 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.120

Similar to Municipality of Pateros, we opt to relax the rules in this case. The PEZA operates or otherwise
administers special economic zones all over the country. Resolving the substantive issue of whether the
PEZA is taxable for real property taxes will clarify the taxing powers of all local government units where
special economic zones are operated. This case, therefore, should be decided on the merits.

II.

The Regional Trial Court of Pasay had no

jurisdiction to hear, try, and decide the
PEZAs petition for declaratory relief
against the City of Lapu-Lapu

Rule 63 of the Rules of Court governs actions for declaratory relief. Section 1 of Rule 63 provides:

SECTION 1. Who may file petition. Any person interested under a deed, will, contract or other written
instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or any other
governmental regulation may, before breach or violation, thereof, bring an action in the appropriate
Regional Trial Court to determine any question of construction or validity arising, and for a declaration of
his rights or duties, thereunder.

An action for reformation of an instrument, to quiet title to real property or remove clouds therefrom, or
to consolidate ownership under Article 1607 of the Civil Code, may be brought under this Rule.

The court with jurisdiction over petitions for declaratory relief is the Regional Trial Court, the subject
matter of litigation in an action for declaratory relief being incapable of pecuniary estimation. 121 Section
19 of the Judiciary Reorganization Act of 1980 provides:

SEC. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exercise exclusive original jurisdiction:

(1) In all civil actions in which the subject of litigation is incapable of pecuniary estimation[.]
Consistent with the law, the Rules state that a petition for declaratory relief is filed "in the appropriate
Regional Trial Court."122

A special civil action for declaratory relief is filed for a judicial determination of any question of
construction or validity arising from, and for a declaration of rights and duties, under any of the following
subject matters: a deed, will, contract or other written instrument, statute, executive order or regulation,
ordinance, orany other governmental regulation.123 However, a declaratory judgment may issue only if
there has been "no breach of the documents in question."124 If the contract or statute subject matter of the
action has already been breached, the appropriate ordinary civil action must be filed.125 If adequate relief
is available through another form of action or proceeding, the other action must be preferred over an
action for declaratory relief.126

In Ollada v. Central Bank of the Philippines,127 the Central Bank issued CB-IED Form No. 5 requiring
certified public accountants to submit an accreditation under oath before they were allowed to certify
financial statements submitted to the bank. Among those financial statements the Central Bank disallowed
were those certified by accountant Felipe B. Ollada.128 Claiming that the requirement "restrained the
legitimate pursuit of ones trade,"129

Ollada filed a petition for declaratory relief against the Central Bank.

This court ordered the dismissal of Olladas petition "without prejudice to [his] seeking relief in another
appropriate action."130 According to this court, Olladas right had already been violated when the Central
Bank refused to accept the financial statements he prepared. Since there was already a breach, a petition
for declaratory relief was not proper. Ollada must pursue the "appropriate ordinary civil action or
proceeding."131 This court explained:

Petitioner commenced this action as, and clearly intended it to be one for Declaratory Relief under the
provisions of Rule 66 of the Rules of Court. On the question of when a special civil action of this nature
would prosper, we have already held that the complaint for declaratory relief will not prosper if filed after
a contract, statute or right has been breached or violated. In the present case such is precisely the situation
arising from the facts alleged in the petition for declaratory relief. As vigorously claimed by petitioner
himself, respondent had already invaded or violated his right and caused him injury all these giving
him a complete cause of action enforceable in an appropriate ordinary civil action or proceeding. The
dismissal of the action was, therefore, proper in the lightof our ruling in De Borja vs. Villadolid, 47 O.G.
(5) p. 2315, and Samson vs. Andal, G.R. No. L-3439, July 31, 1951, where we held that an action for
declaratory relief should be filed before there has been a breach of a contract, statutes or right, and that it
is sufficient tobar such action, that there had been a breach which would constitute actionable
violation. The rule is that an action for Declaratory Relief is proper only if adequate relief is not available
through the means of other existing forms of action or proceeding (1 C.J.S. 1027-1028).132

It is also required that the parties to the action for declaratory relief be those whose rights or interests are
affected by the contract or statute in question.133 "There must be an actual justiciable controversy or the
ripening seeds of one"134 between the parties. The issue between the parties "must be ripe for judicial
determination."135 An action for declaratory relief based on theoreticalor hypothetical questions cannot be
filed for our courts are not advisory courts.136

In Republic v. Roque,137 this court dismissed respondents petition for declaratory relief for lack of
justiciable controversy. According to this court, "[the respondents] fear of prospective prosecution [under
the Human Security Act] was solely based on remarks of certain government officials which were
addressed to the general public."138
In Velarde v. Social Justice Society,139 this court refused to resolve the issue of "whether or not [a
religious leaders endorsement] of a candidate for elective office or in urging or requiring the members of
his flock to vote for a specific candidate is violative [of the separation clause]."140 According to the court,
there was no justiciable controversy and ordered the dismissal of the Social Justice Societys petition for
declaratory relief. This court explained: Indeed, SJS merely speculated or anticipated without factual
moorings that, as religious leaders, the petitioner and his co-respondents below had endorsed or
threatened to endorse a candidate or candidates for elective offices; and that such actual or threatened
endorsement "will enable [them] to elect men to public office who [would] in turn be forever beholden to
their leaders, enabling them to control the government"[;] and "pos[ing] a clear and present danger
ofserious erosion of the peoples faith in the electoral process[;] and reinforc[ing] their belief that
religious leaders determine the ultimate result of elections," which would then be violative of the
separation clause.

Such premise is highly speculative and merely theoretical, to say the least. Clearly, it does not suffice to
constitute a justiciable controversy. The Petition does not even allege any indication or manifest intent on
the part of any of the respondents below to champion an electoral candidate, or to urge their so-called
flock to vote for, or not to vote for, a particular candidate. It is a time-honored rule that sheer speculation
does not give rise to an actionable right.

Obviously, there is no factual allegation that SJS rights are being subjected to any threatened, imminent
and inevitable violation that should be prevented by the declaratory relief sought. The judicial power and
duty of the courts to settle actual controversies involving rights that are legally demandable and
enforceable cannot be exercised when there is no actual or threatened violation of a legal right.

All that the 5-page SJS Petition prayed for was "that the question raised in paragraph 9 hereof be
resolved." In other words, it merely sought an opinion of the trial court on whether the speculated acts of
religious leaders endorsing elective candidates for political offices violated the constitutional principle on
the separation of church and state. SJS did not ask for a declaration of its rights and duties; neither did it
pray for the stoppage of any threatened violation of its declared rights. Courts, however, are proscribed
from rendering an advisory opinion.141 In sum, a petition for declaratory relief must satisfy six requisites:

[F]irst, the subject matter of the controversy must be a deed, will, contract or other written instrument,
statute, executive order or regulation, or ordinance; second, the terms of said documents and the validity
thereof are doubtful and require judicial construction; third, there must have been no breach of the
documents in question; fourth, there must be an actual justiciable controversy or the "ripening seeds" of
one between persons whose interests are adverse; fifth, the issue must be ripe for judicial determination;
and sixth, adequate relief is not available through other means or other forms of action or
proceeding.142 (Emphases omitted)

We rule that the PEZA erred in availing itself of a petition for declaratory relief against the City. The City
had already issued demand letters and real property tax assessment against the PEZA, in violation of the
PEZAs alleged tax-exempt status under its charter. The Special Economic Zone Act of 1995, the subject
matter of PEZAs petition for declaratory relief, had already been breached. The trial court, therefore, had
no jurisdiction over the petition for declaratory relief. There are several aspects of
jurisdiction.143 Jurisdiction over the subject matter is "the power to hear and determine cases of the
general class to which the proceedings in question belong."144 It is conferred by law, which may either be
the Constitution or a statute.145 Jurisdiction over the subject matter means "the nature of the cause of
action and the relief sought."146 Thus, the cause of action and character of the relief sought as alleged in
the complaint are examinedto determine whether a court had jurisdiction over the subject matter.147 Any
decision rendered by a court without jurisdiction over the subjectmatter of the action is void.148
Another aspect of jurisdiction is jurisdiction over the person. It is "the power of [a] court to render a
personal judgment or to subject the parties in a particular action to the judgment and other rulings
rendered in the action."149A court automatically acquires jurisdiction over the person of the plaintiff upon
the filing of the initiatory pleading.150With respect to the defendant, voluntary appearance in court or a
valid service of summons vests the court with jurisdiction over the defendants person.151 Jurisdiction
over the person of the defendant is indispensable in actions in personamor those actions based on a
partys personal liability.152 The proceedings in an action in personamare void if the court had no
jurisdiction over the person of the defendant.153

Jurisdiction over the resor the thing under litigation is acquired either "by the seizure of the property
under legal process, whereby it is brought into actual custody of the law; or asa result of the institution of
legal proceedings, in which the power of the court is recognized and made effective."154 Jurisdiction over
the res is necessary in actions in remor those actions "directed against the thing or property or status of a
person and seek judgments with respect thereto as against the whole world."155 The proceedings in an
action in rem are void if the court had no jurisdiction over the thing under litigation.156

In the present case, the Regional Trial Court had no jurisdiction over the subject matter of the action,
specifically, over the remedy sought. As this court explained in Malana v. Tappa:157

. . . an action for declaratory relief presupposes that there has been no actual breach of the instruments
involved or of rights arising thereunder. Since the purpose of an action for declaratory relief is to secure
an authoritative statement of the rights and obligations of the parties under a statute, deed, or contract for
their guidance in the enforcement thereof, or compliance therewith, and not to settle issues arising from
an alleged breach thereof, it may be entertained only before the breach or violation of the statute, deed, or
contract to which it refers. A petition for declaratory relief gives a practical remedy for ending
controversies that have not reached the state where another relief is immediately available; and supplies
the need for a form of action that will set controversies at rest before they lead to a repudiation of
obligations, an invasion of rights, and a commission of wrongs.

Where the law or contract has already been contravened prior to the filing of an action for declaratory
relief, the courts can no longer assume jurisdiction over the action. In other words, a court has no more
jurisdiction over an action for declaratory relief if its subject has already been infringed or transgressed
before the institution of the action.158 (Emphasis supplied)

The trial court should have dismissed the PEZAs petition for declaratory relief for lack of jurisdiction.

Once an assessment has already been issued by the assessor, the proper remedy of a taxpayer depends on
whether the assessment was erroneous or illegal.

An erroneous assessment "presupposes that the taxpayer is subject to the tax but is disputing the
correctness of the amount assessed."159 With an erroneous assessment, the taxpayer claims that the local
assessor erred in determining any of the items for computing the real property tax, i.e., the value of the
real property or the portion thereof subject to tax and the proper assessment levels. In case of an
erroneous assessment, the taxpayer must exhaust the administrative remedies provided under the Local
Government Code before resorting to judicial action.

The taxpayer must first pay the realproperty tax under protest. Section 252 of the Local Government Code
provides:
SECTION 252. Payment Under Protest. -(a) No protest shall be entertained unless the taxpayer first
paysthe tax. There shall be annotated on the tax receipts the words "paid under protest". The protest in
writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the
protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paidunder protest, shall be held in trust by the treasurer
concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion
of the tax protested shall be refunded to the protestant, or applied as tax credit against his existing
or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in
subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title II,
Book II of this Code.

Should the taxpayer find the action on the protest unsatisfactory, the taxpayer may appeal with the Local
Board of Assessment Appeals within 60 days from receipt of the decision on the protest:

SECTION 226. Local Board of Assessment Appeals. - Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment
of his property may, within sixty (60) days from the date of receipt of the written notice of assessment,
appeal to the Board of Assessment Appeals of the provincial or city by filing a petition under oath in the
form prescribed for the purpose, together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.

Payment under protest and appeal to the Local Board of Assessment Appeals are "successive
administrative remedies to a taxpayer who questions the correctness of an assessment."160 The Local
Board Assessment Appeals shall not entertain an appeal "without the action of the local assessor" 161 on
the protest.

If the taxpayer is still unsatisfied after appealing with the Local Board of Assessment Appeals, the
taxpayer may appeal with the Central Board of Assessment Appeals within 30 days from receipt of the
Local Boards decision:

SECTION 229. Action by the Local Board of Assessment Appeals. - (a) The Board shall decide the
appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after
hearing, shall render its decision based on substantial evidence or such relevant evidence on record as a
reasonable mind might accept as adequate to support the conclusion. (b) In the exercise ofits appellate
jurisdiction, the Board shall have the power to summon witnesses, administer oaths, conduct ocular
inspection, take depositions, and issue subpoena and subpoena duces tecum. The proceedings of the
Board shall be conducted solely for the purpose of ascertaining the facts without necessarily adhering to
technical rules applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having legal interest
therein and the provincial or city assessor with a copy of the decision of the Board. In case the provincial
or city assessor concurs in the revision or the assessment, it shall be his duty to notify the owner of the
property or the person having legal interest therein of such factusing the form prescribed for the purpose.
The owner of the property or the person having legal interest therein or the assessor who is not satisfied
with the decision of the Board, may, within thirty (30) days after receipt of the decision of said Board,
appeal to the Central Board of Assessment Appeals, as herein provided. The decision of the Central Board
shall be final and executory. (Emphasis supplied)

On the other hand, an assessment is illegal if it was made without authority under the law.162 In case of an
illegal assessment, the taxpayer may directly resort to judicial action without paying under protest the
assessed tax and filing an appeal with the Local and Central Board of Assessment Appeals.

In Ty v. Trampe,163 the Municipal Assessor of Pasig sent Alejandro B. Ty a notice of assessment with
respect to Tys real properties in Pasig. Without resorting to the administrative remedies under the Local
Government Code, Ty filed before the Regional Trial Court a petition, praying that the trial court nullify
the notice of assessment. In assessing the real property taxes due, the Municipal Assessor used a schedule
of market values solely prepared by him. This, Ty argued, was void for being contrary to the Local
Government Code requiring that the schedule of market values be jointly prepared by the provincial, city,
and municipal assessors of the municipalities within the Metropolitan Manila Area.

This court ruled that the assessmentwas illegal for having been issued without authority of the Municipal
Assessor. Reconciling provisions of the Real Property Tax Code and the Local Government Code, this
court held that the schedule of market valuesmust be jointly prepared by the provincial, city, and
municipal assessors of the municipalities within the Metropolitan Manila Area.

As to the issue of exhaustion of administrative remedies, this court held that Ty did not err in directly
resorting to judicial action. According to this court, payment under protest is required only "where there is
a question as to the reasonableness of the amount assessed."164 As to appeals before the Local and Central
Board of Assessment Appeals, they are "fruitful only where questions of fact are involved."165

Ty raised the issue of the legality of the notice of assessment, an issue that did not go into the
reasonableness of the amount assessed. Neither did the issue involve a question of fact. Ty raised a
question of law and, therefore, need not resort to the administrative remedies provided under the Local
Government Code.

In the present case, the PEZA did not avail itself of any of the remedies against a notice of assessment. A
petition for declaratory relief is not the proper remedy once a notice of assessment was already issued.

Instead of a petition for declaratory relief, the PEZA should have directly resorted to a judicial action. The
PEZA should have filed a complaint for injunction, the "appropriate ordinary civil action" 166 to enjoin the
City from enforcing its demand and collecting the assessed taxes from the PEZA. After all, a declaratory
judgment as to the PEZAs tax-exempt status is useless unless the City isenjoined from enforcing its
demand.

Injunction "is a judicial writ, process or proceeding whereby a party is ordered to do or refrain from doing
a certain act."167 "It may be the main action or merely a provisional remedy for and as incident in the main
action."168 The essential requisites of a writ of injunction are: "(1) there must be a right in esseor the
existence of a right to be protected; and (2) the act against which the injunction is directed to constitute a
violation of such right."169

We note, however, that the City confused the concepts of jurisdiction and venue in contending that the
Regional Trial Court of Pasay had no jurisdiction because the real properties involved in this case are
located in the City of Lapu-Lapu.
On the one hand, jurisdiction is "the power to hear and determine cases of the general class to which the
proceedings in question belong."170 Jurisdiction is a matter of substantive law.171 Thus, an action may be
filed only with the court or tribunal where the Constitution or a statute says it can be
brought.172 Objections to jurisdiction cannot be waived and may be brought at any stage of the
proceedings, even on appeal.173 When a case is filed with a court which has no jurisdiction over the
action, the court shall motu propriodismiss the case.174

On the other hand, venue is "the place of trial or geographical location in which an action or proceeding
should be brought." 175 In civil cases, venue is a matter of procedural law.176 A partys objections to
venue must be brought at the earliest opportunity either in a motion to dismiss or in the answer; otherwise
the objection shall be deemed waived.177 When the venue of a civil action is improperly laid, the court
cannot motu propriodismiss the case.178

The venue of an action depends on whether the action is a real or personal action. Should the action affect
title to or possession of real property, or interest therein, it is a real action. The action should be filed in
the proper court which has jurisdiction over the area wherein the real property involved, or a portion
thereof, is situated.179 If the action is a personal action, the action shall be filed with the proper court
where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal
defendants resides, or in the case of a non-resident defendant where he may be found, at the election of
the plaintiff.180

The City was objecting to the venue of the action, not to the jurisdiction of the Regional Trial Court of
Pasay. In essence, the City was contending that the PEZAs petition is a real action as it affects title to or
possession of real property, and, therefore, the PEZA should have filed the petition with the Regional
Trial Court of Lapu-Lapu City where the real properties are located. However, whatever objections the
City has against the venue of the PEZAs action for declaratory relief are already deemed waived.
Objections to venue must be raised at the earliest possible opportunity.181 The City did not file a motion to
dismiss the petition on the ground that the venue was improperly laid. Neither did the City raise this
objection in its answer.

In any event, the law sought to be judicially interpreted in this case had already been breached. The
Regional Trial Court of Pasay, therefore, had no jurisdiction over the PEZAs petition for declaratory
relief against the City.

III.

The Court of Appeals had no jurisdiction

over the PEZAs petition for certiorari
against the Province of Bataan

Appeal is the remedy "to obtain a reversal or modification of a judgment on the merits."182 A judgment on
the merits is one which "determines the rights and liabilities of the parties based on the disclosed facts,
irrespective of the formal, technical or dilatory objections."183 It is not even necessary that the case
proceeded to trial.184 So long as the "judgment is general"185 and "the parties had a full legal opportunity
to be heard on their respective claims and contentions,"186 the judgment is on the merits.

On the other hand, certiorari is a special civil action filed to annul or modify a proceeding of a tribunal,
board, or officer exercising judicial or quasi-judicial functions.187 Certiorari, which in Latin means "to be
more fully informed,"188was originally a remedy in the common law. This court discussed the history of
the remedy of certiorari in Spouses Delos Santos v. Metropolitan Bank and Trust Company:189
In the common law, from which the remedy of certiorari evolved, the writ of certiorari was issued out of
Chancery, or the Kings Bench, commanding agents or officers of the inferior courts to return the record
of a cause pending before them, so as to give the party more sure and speedy justice, for the writ would
enable the superior court to determine froman inspection of the record whether the inferior courts
judgment was rendered without authority. The errors were of such a nature that, if allowed to stand, they
would result in a substantial injury to the petitioner to whom no other remedy was available. If the
inferior court acted without authority, the record was then revised and corrected in matters of law. The
writ of certiorari was limited to cases in which the inferior court was said to be exceeding its jurisdiction
or was not proceeding according to essential requirements of law and would lie only to review judicial or
quasi-judicial acts.190

In our jurisdiction, the term "certiorari" is used in two ways. An appeal before this court raising pure
questions of law is commenced by filing a petition for reviewon certiorari under Rule 45 of the Rules of
Court. An appeal by certiorari, which continues the proceedings commenced before the lower courts,191 is
filed to reverse or modify judgments or final orders.192 Under the Rules, an appeal by certiorarimust be
filed within 15 days from notice of the judgment or final order, or of the denial of the appellants motion
for new trial or reconsideration.193

A petition for certiorari under Rule 65, on the other hand, is an independent and original action filed to set
aside proceedings conducted without or in excess of jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction.194 Under the Rules, a petition for certiorari may only be filed
if there is no appeal or any plain, speedy, or adequate remedy in the ordinary course of law.195 The
petition must be filed within 60 days from notice of the judgment, order, or resolution.196

Because of the longer period to file a petition for certiorari, some litigants attempt to file petitions for
certiorari as substitutes for lost appeals by certiorari. However, Rule 65 is clear that a petition for
certiorari will not prosper if appeal is available. Appealis the proper remedy even if the error, or one of
the errors, raised is grave abuse of discretion on the part of the court rendering judgment.197 If appeal is
available, a petition for certiorari cannot be filed.

In this case, the trial courts decision dated January 31, 2007 is a judgment on the merits. Based on the
facts disclosed by the parties, the trial court declared the PEZA liable to the Province of Bataan for real
property taxes. The PEZAs proper remedy against the trial courts decision, therefore, is appeal.

Since the PEZA filed a petition for certiorari against the trial courts decision, it availed itself of the
wrong remedy. As the Province of Bataan contended, the trial courts decision dated January 31, 2007 "is
only an error of judgment appealable to the higher level court and may not be corrected by filing a
petition for certiorari."198 That the trial court judge allegedly committed grave abuse of discretion does not
make the petition for certiorari the correct remedy. The PEZA should haveraised this ground in an appeal
filed within 15 days from notice of the assailed resolution.

This court, "in the liberal spirit pervading the Rules of Court and in the interest of substantial
justice,"199 has treated petitions for certiorari as an appeal: "(1) if the petition for certiorari was filed
within the reglementary period within which to file a petition for review on certiorari; (2) when errors of
judgment are averred; and (3) when there is sufficient reason to justify the relaxation of the
rules."200 Considering that "the nature of an action is determined by the allegationsof the complaint or the
petition and the character of the relief sought,"201 a petition which "actually avers errors of judgment
rather than errors than that of jurisdiction"202 may be considered a petition for review.
However, suspending the application of the Rules has its disadvantages. Relaxing procedural rules may
reduce the "effective enforcement of substantive rights,"203 leading to "arbitrariness, caprice, despotism,
or whimsicality in the settlement of disputes."204 Therefore, for this court to suspend the application of the
Rules, the accomplishment of substantial justice must outweigh the importance of predictability of court
procedures.

The PEZAs petition for certiorari may be treated as an appeal. First, the petition for certiorari was filed
withinthe 15-day reglementary period for filing an appeal. The PEZA filed its petition for certiorari before
the Court of Appeals on October 15, 2007,205 which was 12 days from October 3, 2007206 when the PEZA
had notice of the trial courts order denying the motion for reconsideration.

Second, the petition for certiorari raised errors of judgment. The PEZA argued that the trial court erred in
ruling that it is not exempt from payment of real property taxes given Section 21 of Presidential Decree
No. 66 and Sections 11 and 51 of the Special Economic Zone Act of 1995.207

Third, there is sufficient reason to relax the rules given the importance of the substantive issue presented
in this case.

However, the PEZAs petition for certiorari was filed before the wrong court. The PEZA should have
filed its petition before the Court of Tax Appeals.

The Court of Tax Appeals has the exclusive appellate jurisdiction over local tax cases decided by
Regional Trial Courts. Section 7, paragraph (a)(3) of Republic Act No. 1125, as amended by Republic
Act No. 9282, provides:

Sec. 7. Jurisdiction. The [Court of Tax Appeals] shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

....

3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction[.]

The local tax cases referred to in Section 7, paragraph (a)(3) of Republic Act No. 1125, as amended,
include cases involving real property taxes. Real property taxation is governed by Book II of the Local
Government Code on "Local Taxation and Fiscal Matters." Real property taxes are collected by the Local
Treasurer,208 not by the Bureau of Internal Revenue in charge of collecting national internal revenue
taxes, fees, and charges.209

Section 7, paragraph (a)(5) of Republic Act No. 1125, as amended by Republic Act No. 9282, separately
provides for the exclusive appellate jurisdiction of the Court of Tax Appeals over decisions of the Central
Board of Assessment Appeals involving the assessment or collection of real property taxes:

Sec. 7. Jurisdiction. The [Court of Tax Appeals] shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

....
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city
board of assessment appeals[.]

This separate provision, nevertheless, does not bar the Court of Tax Appeals from taking cognizance of
trial court decisions involving the collection of real property tax cases. Sections 256210 and 266211 of the
Local Government Code expressly allow localgovernment units to file "in any court of competent
jurisdiction" civil actions to collect basic real property taxes. Should the trial court rule against them,
local government units cannot be barred from appealing before the Court of Tax Appeals the "highly
specialized body specifically created for the purpose of reviewing tax cases."212

We have also ruled that the Court of Tax Appeals, not the Court of Appeals, has the exclusive original
jurisdiction over petitions for certiorari assailing interlocutory orders issued by Regional Trial Courts in a
local tax case. We explained in The City of Manila v. Hon. Grecia-Cuerdo213 that while the Court of Tax
Appeals has no express grant of power to issue writs of certiorari under Republic Act No. 1125,214 as
amended, the tax courts judicial power as defined in the Constitution215 includes the power to determine
"whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the [Regional Trial Court] in issuing an interlocutory order of jurisdiction in cases falling within
the exclusive appellate jurisdiction of the tax court."216 We further elaborated:

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the
authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed
tax cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable
reason why the transfer should only be considered as partial, not total.

....

If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies with
the CA, this Court would be confirming the exercise by two judicial bodies, the CA and the CTA, of
jurisdiction over basically the same subject matter precisely the split-jurisdiction situation which is
anathema to the orderly administration of justice.The Court cannot accept that such was the legislative
motive, especially considering that the law expressly confers on the CTA, the tribunal with the
specialized competence over tax and tariff matters, the role of judicial review over local tax cases without
mention of any other court that may exercise such power. Thus, the Court agrees with the ruling of the
CA that since appellate jurisdiction over private respondents' complaint for tax refund is vested in the
CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the
said case should, likewise, be filed with the same court. To rule otherwise would lead to an absurd
situation where one court decides an appeal in the main case while another court rules on an incident in
the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split
jurisdiction to conclude that the intention of the law is to divide the authority over a local tax case filed
with the RTC by giving to the CA or this Court jurisdiction to issue a writ of certiorari against
interlocutory orders of the RTC but giving to the CTA the jurisdiction over the appeal from the decision
of the trial court in the same case. It is more in consonance with logic and legal soundness to conclude
that the grant of appellate jurisdiction to the CTA over tax cases filed in and decided by the RTC carries
withit the power to issue a writ of certiorari when necessary in aid of such appellate jurisdiction. The
supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate jurisdiction
should co-exist with, and be a complement to, its appellate jurisdiction to review, by appeal, the final
orders and decisionsof the RTC, in order to have complete supervision over the acts of the
latter.217 (Citations omitted)

In this case, the petition for injunction filed before the Regional Trial Court of Pasay was a local tax case
originally decided by the trial court in its original jurisdiction. Since the PEZA assailed a judgment, not
an interlocutory order, of the Regional Trial Court, the PEZAs proper remedy was an appeal to the Court
of Tax Appeals.

Considering that the appellate jurisdiction of the Court of Tax Appeals is to the exclusion of all other
courts, the Court of Appeals had no jurisdiction to take cognizance of the PEZAs petition. The Court of
Appeals acted without jurisdiction in rendering the decision in CA-G.R. SP No. 100984. Its decision in
CA-G.R. SP No. 100984 is void.218

The filing of appeal in the wrong court does not toll the period to appeal. Consequently, the decision of
the Regional Trial Court, Branch 115, Pasay City, became final and executory after the lapse of the 15th
day from the PEZAs receipt of the trial courts decision.219 The denial of the petition for injunction
became final and executory.

IV.

The remedy of a taxpayer depends on the

stage in which the local government unit
is enforcing its authority to impose real
property taxes

The proper remedy of a taxpayer depends on the stage in which the local government unit is enforcing its
authority to collect real property taxes. For the guidance of the members of the bench and the bar, we
reiterate the taxpayers remedies against the erroneous or illegal assessment of real property taxes.

Exhaustion of administrative remedies under the Local Government Code is necessary in cases of
erroneous assessments where the correctness of the amount assessed is assailed. The taxpayer must first
pay the tax then file a protest with the Local Treasurer within 30 days from date of payment of tax.220 If
protest is denied or upon the lapse of the 60-day period to decide the protest, the taxpayer may appeal to
the Local Board of Assessment Appeals within 60 days from the denial of the protest or the lapse of the
60-day period to decide the protest.221 The Local Board of Assessment Appeals has 120 days to decide the
appeal.222

If the taxpayer is unsatisfied withthe Local Boards decision, the taxpayer may appeal before the Central
Board of Assessment Appeals within 30 days from receipt of the Local Boards decision.223

The decision of the Central Board of Assessment Appeals is appealable before the Court of Tax Appeals
En Banc.224 The appeal before the Court of Tax Appeals shall be filed following the procedure under Rule
43 of the Rules of Court.225

The Court of Tax Appeals decision may then be appealed before this court through a petition for review
on certiorari under Rule 45 of the Rules of Court raising pure questions of law.226

In case of an illegal assessment where the assessment was issued without authority, exhaustion of
administrative remedies is not necessary and the taxpayer may directly resort to judicial action.227 The
taxpayer shall file a complaint for injunction before the Regional Trial Court 228 to enjoin the local
government unit from collecting real property taxes.

The party unsatisfied with the decision of the Regional Trial Court shall file an appeal, not a petition for
certiorari, before the Court of Tax Appeals, the complaint being a local tax case decided by the Regional
Trial Court.229 The appeal shall be filed within fifteen (15) days from notice of the trial courts decision.

The Court of Tax Appeals decision may then be appealed before this court through a petition for review
on certiorari under Rule 45 of the Rules of Court raising pure questions of law.230

In case the local government unit has issued a notice of delinquency, the taxpayer may file a complaint
for injunction to enjoin the impending sale of the real property at public auction. In case the local
government unit has already sold the property at public auction, the taxpayer must first deposit with the
court the amount for which the real property was sold, together with interest of 2% per month from the
date ofsale to the time of the institution of action. The taxpayer may then file a complaint to assail the
validity of the public auction.231 The decisions of the Regional Trial Court in these cases shall be
appealable before the Court of Tax Appeals,232 and the latters decisions appealable before this court
through a petition for review on certiorari under Rule 45 of the Rules of Court.233

V.

The PEZA is exempt from payment of

real property taxes

The jurisdictional errors in this case render these consolidated petitions moot. We do not review void
decisions rendered without jurisdiction.

However, the PEZA alleged that several local government units, including the City of Baguio and the
Province of Cavite, have issued their respective real property tax assessments against the PEZA. Other
local government units will likely follow suit, and either the PEZA or the local government units taxing
the PEZA may file their respective actions against each other.

In the interest of judicial economy234 and avoidance of conflicting decisions involving the same
issues,235 we resolve the substantive issue of whether the PEZA is exempt from payment of real property
taxes.

Real property taxes are annual taxes levied on real property such as lands, buildings, machinery, and other
improvements not otherwise specifically exempted under the Local Government Code.236 Real property
taxes are ad valorem, with the amount charged based on a fixed proportion of the value of the
property.237 Under the law, provinces, cities, and municipalities within the Metropolitan Manila Area have
the power to levy real property taxes within their respective territories.238

The general rule is that real properties are subject to real property taxes. This is true especially since the
Local Government Code has withdrawn exemptions from real property taxes of all persons, whether
natural or juridical:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of real
property tax:
 (a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,

nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly,
and exclusively used for religious, charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and

(e) Machinery and equipment usedfor pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property taxes previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including government-owned or -
controlled corporations are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)

The person liable for real property taxes is the "taxable person who had actual or beneficial use and
possession [of the real property for the taxable period,] whether or not [the person owned the property for
the period he or she is being taxed]."239

The exceptions to the rule are provided in the Local Government Code. Under Section 133(o), local
government units have no power to levy taxes of any kind on the national government, its agencies and
instrumentalities and local government units:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise
provided herein, the exercise of taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

....

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and
local government units.

Specifically on real property taxes, Section 234 enumerates the persons and real property exempt from
real property taxes:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person;
 (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
nonprofitor religious cemeteries and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -
controlled corporations are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)

For persons granted tax exemptions or incentives before the effectivity of the Local Government Code,
Section 193 withdrew these tax exemption privileges. These persons consist of both natural and juridical
persons, including government-owned or controlled corporations:

SEC. 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 effectivity of this Code.

As discussed, Section 234 withdrew all tax privileges with respect to real property taxes. Nevertheless,
local government units may grant tax exemptions under such terms and conditions asthey may deem
necessary:

SEC. 192. Authority to Grant Tax Exemption Privileges. Local government units may, through
ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as
they may deem necessary.

In Mactan Cebu International Airport Authority v. Hon. Marcos,240 this court classified the exemptions
from real property taxes into ownership, character, and usage exemptions. Ownership exemptions are
exemptions based on the ownership of the real property. The exemptions of real property owned by the
Republic of the Philippines, provinces, cities, municipalities, barangays, and registered cooperatives fall
under this classification.241 Character exemptions are exemptions based on the character of the real
property. Thus, no real property taxes may be levied on charitable institutions, houses and temples of
prayer like churches, parsonages, or convents appurtenant thereto, mosques, and non profitor religious
cemeteries.242

Usage exemptions are exemptions based on the use of the real property. Thus, no real property taxes may
be levied on real property such as: (1) lands and buildings actually, directly, and exclusively used for
religious, charitable or educational purpose; (2) machineries and equipment actually, directly and
exclusively used by local water districts or by government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric power; and (3)
machinery and equipment used for pollution control and environmental protection.243
Persons may likewise be exempt from payment of real properties if their charters, which were enacted or
reenacted after the effectivity of the Local Government Code, exempt them payment of real property
taxes.244

V.

(A) The PEZA is an instrumentality of the national government

An instrumentality is "any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through a charter." 245

Examples of instrumentalities of the national government are the Manila International Airport
Authority,246 the Philippine Fisheries Development Authority,247 the Government Service Insurance
System,248 and the Philippine Reclamation Authority.249 These entities are not integrated within the
department framework but are nevertheless vested with special functions to carry out a declared policy of
the national government.

Similarly, the PEZA is an instrumentality of the national government. It is not integrated within the
department framework but is an agency attached to the Department of Trade and Industry.250 Book IV,
Chapter 7, Section 38(3)(a) of the Administrative Code of 1987 defines "attachment": SEC. 38. Definition
of Administrative Relationship. Unless otherwise expressly stated in the Code or in other laws defining
the special relationships of particular agencies, administrative relationships shall be categorized and
defined as follows:

....

(3) Attachment. (a) This refers to the lateral relationship between the department or its equivalent and
the attached agency or corporation for purposes of policy and program coordination. The coordination
may be accomplished by having the department represented in the governing board of the attached agency
or corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the
charter; having the attached corporation or agency comply with a system of periodic reporting which shall
reflect the progress of the programs and projects; and having the department or its equivalent provide
general policies through its representative in the board, which shall serve as the framework for the
internal policies of the attached corporation or agency[.]

Attachment, which enjoys "a larger measure of independence"251 compared with other administrative
relationships such as supervision and control, is further explained in Beja, Sr. v. Court of Appeals:252

An attached agency has a larger measure of independence from the Department to which it is attached
than one which is under departmental supervision and control or administrative supervision. This is borne
out by the "lateral relationship" between the Department and the attached agency. The attachment is
merely for "policy and program coordination." With respect to administrative matters, the independence
of an attached agency from Departmental control and supervision is further reinforced by the fact that
even an agency under a Departments administrative supervision is free from Departmental interference
with respect to appointments and other personnel actions "in accordance with the decentralization of
personnel functions" under the Administrative Code of 1987. Moreover, the Administrative Code
explicitly provides that Chapter 8 of Book IV on supervision and control shall not apply to chartered
institutions attached to a Department.253
With the PEZA as an attached agency to the Department of Trade and Industry, the 13-person PEZA
Board is chaired by the Department Secretary.254 Among the powers and functions of the PEZA is its
ability to coordinate with the Department of Trade and Industry for policy and program formulation and
implementation.255 In strategizing and prioritizing the development of special economic zones, the PEZA
coordinates with the Department of Trade and Industry.256

The PEZA also administers its own funds and operates autonomously, with the PEZA Board formulating
and approving the PEZAs annual budget.257 Appointments and other personnel actions in the PEZA are
also free from departmental interference, with the PEZA Board having the exclusive and final authority to
promote, transfer, assign and reassign officers of the PEZA.258

As an instrumentality of the national government, the PEZA is vested with special functions or
jurisdiction by law. Congress created the PEZA to operate, administer, manage and develop special
economic zones in the Philippines.259 Special economic zones are areas with highly developed or which
have the potential to be developed into agro-industrial, industrial tourist/recreational, commercial,
banking, investment and financial centers.260 By operating, administering, managing, and developing
special economic zones which attract investments and promote use of domestic labor, the PEZA carries
out the following policy of the Government: SECTION 2. Declaration of Policy. It is the declared
policy of the government to translate into practical realities the following State policies and mandates in
the 1987 Constitution, namely:

(a) "The State recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investments." (Sec. 20, Art. II)

(b) "The State shall promote the preferential use of Filipino labor, domestic materials and locally
produced goods, and adopt measures that help make them competitive." (Sec. 12, Art. XII) In
pursuance of these policies, the government shall actively encourage, promote, induce and
accelerate a sound and balanced industrial, economic and social development of the country in
order to provide jobs to the people especially those in the rural areas, increase their productivity
and their individual and family income, and thereby improve the level and quality of their living
condition through the establishment, among others, of special economic zones in suitable and
strategic locations in the country and through measures that shall effectively attract legitimate and
productive foreign investments.261

Being an instrumentality of the national government, the PEZA cannot be taxed by local government
units.

Although a body corporate vested with some corporate powers,262 the PEZA is not a government-owned
or controlled corporation taxable for real property taxes.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines the term
"government-owned or controlled corporation":

SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning:

....

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature,
and owned by the Government directly or through its instrumentalities either wholly, or, where applicable
as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock:
Provided, That government owned or controlled corporations may be further categorized by the
Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of
the exercise and discharge of their respective powers, functions and responsibilities with respect to such
corporations.

Government entities are created by law, specifically, by the Constitution or by statute. In the case of
government-owned or controlled corporations, they are incorporated by virtue of special charters263 to
participate in the market for special reasons which may be related to dysfunctions or inefficiencies of the
market structure. This is to adjust reality as against the concept of full competition where all market
players are price takers. Thus, under the Constitution, government-owned or controlled corporations are
created in the interest of the common good and should satisfy the test of economic viability.264 Article
XII, Section 16 of the Constitution provides:

Section 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability.

Economic viability is "the capacity to function efficiently in business."265 To be economically viable, the
entity "should not go into activities which the private sector can do better."266

To be considered a government-owned or controlled corporation, the entity must have been organized as a
stock or non-stock corporation.267

Government instrumentalities, on the other hand, are also created by law but partake of sovereign
functions. When a government entity performs sovereign functions, it need not meet the test of economic
viability. In Manila International Airport Authority v. Court of Appeals,268 this court explained:

In contrast, government instrumentalities vested with corporate powers and performing governmental
orpublic functions need not meet the test of economic viability. These instrumentalities perform essential
public services for the common good, services that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the government may even subsidize their entire
operations. These instrumentalities are not the "government-owned or controlled corporations" referred to
in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities
vested with corporate powers but performing essential governmental or public functions. Congress has
plenary authority to create government instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public services. However, when the
legislature creates through special charters corporations that perform economic or commercial activities,
such entities known as "government-owned or controlled corporations" must meetthe test of
economic viability because they compete in the market place.

....

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government corporation loses, then it makes its
claim upon the taxpayers' money through new equity infusions from the government and what is always
invoked is the common good. That is the reason why this year, out of a budget of 115 billion for the
entire government, about 28 billion of this will go into equity infusions to support a few government
financial institutions. And this is all taxpayers' money which could have been relocated to agrarian
reform, to social services like health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this
becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility
of meeting the market test so that they become viable. And so, Madam President, I reiterate, for the
committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the
insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the
common good.

....

Clearly, the test of economic viability does not apply to government entities vested with corporate powers
and performing essential public services. The State is obligated to render essential public services
regardless of the economic viability of providing such service. The noneconomic viability of rendering
such essential public service does not excuse the State from withholding such essential services from the
public.269 (Emphases and citations omitted)

The law created the PEZAs charter. Under the Special Economic Zone Act of 1995, the PEZA was
established primarily to perform the governmental function of operating,administering, managing, and
developing special economic zones to attract investments and provide opportunities for preferential use of
Filipino labor.

Under its charter, the PEZA was created a body corporate endowed with some corporate powers.
However, it was not organized as a stock270 or non-stock271 corporation. Nothing in the PEZAs charter
provides that the PEZAs capital is divided into shares.272 The PEZA also has no members who shall
share in the PEZAs profits.

The PEZA does not compete with other economic zone authorities in the country. The government may
even subsidize the PEZAs operations. Under Section 47 of the Special Economic Zone Act of 1995, "any
sum necessary to augment [the PEZAs] capital outlay shall be included in the General Appropriations
Act to be treated as an equity of the national government."273

The PEZA, therefore, need not be economically viable. It is not a government-owned or controlled
corporation liable for real property taxes.

V. (B)

The PEZA assumed the non-profit character, including the tax exempt status, of the EPZA

The PEZAs predecessor, the EPZA, was declared non-profit in character with all its revenues devoted for
its development, improvement, and maintenance. Consistent with this non-profit character, the EPZA was
explicitly declared exempt from real property taxes under its charter. Section 21 of Presidential Decree
No. 66 provides:

Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority shall be non-
profit and shall devote and use all its returns from its capital investment, as well as excess revenues from
its operations, for the development, improvement and maintenance and other related expenditures of the
Authority to pay its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section 1 of this Decree. In consonance therewith, the Authority is hereby declared
exempt:

....

(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and licenses to be paid
to the National Government, its provinces, cities, municipalities and other government agencies and
instrumentalities[.]

The Special Economic Zone Act of 1995, on the other hand, does not specifically exempt the PEZA from
payment of real property taxes.

Nevertheless, we rule that the PEZA is exempt from real property taxes by virtue of its charter. A
provision in the Special Economic Zone Act of 1995 explicitly exempting the PEZA is unnecessary. The
PEZA assumed the real property exemption of the EPZA under Presidential Decree No. 66.

Section 11 of the Special Economic Zone Act of 1995 mandated the EPZA "to evolve into the PEZA in
accordance with the guidelines and regulations set forth in an executive order issued for this purpose."
President Ramos then issued Executive Order No. 282 in 1995, ordering the PEZA to assume the EPZAs
powers, functions, and responsibilities under Presidential Decree No. 66 not inconsistent with the Special
Economic Zone Act of 1995:

SECTION 1. Assumption of EPZAs Powers and Functions by PEZA. All the powers, functions and
responsibilities of EPZA as provided under its Charter, Presidential Decree No. 66, as amended, insofar
as they are not inconsistent with the powers,functions and responsibilities of the PEZA, as mandated
under Republic Act No. 7916, shall hereafter be assumed and exercised by the PEZA. Henceforth, the
EPZA shall be referred to as the PEZA.

The following sections of the Special Economic Zone Act of 1995 provide for the PEZAs
powers,functions, and responsibilities:

SEC. 5. Establishment of ECOZONES. To ensure the viability and geographical dispersal of

ECOZONES through a system of prioritization, the following areas are initially identified as
ECOZONES, subject to the criteria specified in Section 6:

....

The metes and bounds of each ECOZONE are to be delineated and more particularly described in a
proclamation to be issued by the President of the Philippines, upon the recommendation of the Philippine
Economic Zone Authority (PEZA), which shall be established under this Act, in coordination with the
municipal and / or city council, National Land Use Coordinating Committee and / or the Regional Land
Use Committee.
SEC. 6. Criteria for the Establishment of Other ECOZONES. In addition to the ECOZONES identified
in Section 5 of this Act, other areas may be established as ECOZONES in a proclamation to be issued by
the President of the Philippines subject to the evaluation and recommendation of the PEZA, based on a
detailed feasibility and engineering study which must conform to the following criteria:

(a) The proposed area must be identified as a regional growth center in the Medium-Term
Philippine Development Plan or by the Regional Development Council;

(b) The existence of required infrastructure in the proposed ECOZONE, such as roads, railways,
telephones, ports, airports, etc., and the suitability and capacity of the proposed site to absorb
such improvements;

(c) The availability of water source and electric power supply for use of the ECOZONE;

(d) The extent of vacant lands available for industrial and commercial development and future
expansion of the ECOZONE as well as of lands adjacent to the ECOZONE available for
development of residential areas for the ECOZONE workers;

(e) The availability of skilled, semi-skilled and non-skilled trainable labor force in and around the
ECOZONE;

(f) The area must have a significant incremental advantage over the existing economic zones and
its potential profitability can be established;

(g) The area must be strategically located; and

(h) The area must be situated where controls can easily be established to curtail smuggling
activities.

Other areas which do not meet the foregoing criteria may be established as ECOZONES: Provided, That
the said area shall be developed only through local government and/or private sector initiative under any
of the schemes allowed in Republic Act No. 6957 (the build-operate-transfer law), and without any
financial exposure on the part of the national government: Provided, further, That the area can be easily
secured to curtail smuggling activities: Provided, finally, That after five (5) years the area must have
attained a substantial degree of development, the indicators of which shall be formulated by the PEZA.

SEC. 7. ECOZONE to be a Decentralized Agro-Industrial, Industrial, Commercial / Trading, Tourist,

Investment and Financial Community. - Within the framework of the Constitution, the interest of national
sovereignty and territorial integrity of the Republic, ECOZONE shall be developed, as much as possible,
into a decentralized, self-reliant and self-sustaining industrial, commercial/trading, agro-industrial, tourist,
banking, financial and investment center with minimum government intervention. Each ECOZONE shall
be provided with transportation, telecommunications, and other facilities needed to generate linkage with
industries and employment opportunitiesfor its own inhabitants and those of nearby towns and cities.

The ECOZONE shall administer itself on economic, financial, industrial, tourism development and such
other matters within the exclusive competence of the national government.
The ECOZONE may establish mutually beneficial economic relations with other entities within the
country, or, subject to the administrative guidance of the Department of Foreign Affairs and/or the
Department of Trade and Industry, with foreign entities or enterprises.

Foreign citizens and companies owned by non-Filipinos in whatever proportion may set up enterprises in
the ECOZONE, either by themselves or in joint venture with Filipinos in any sector of industry,
international trade and commerce within the ECOZONE. Their assets, profits and other legitimate
interests shall be protected: Provided, That the ECOZONE through the PEZA may require a minimum
investment for any ECOZONE enterprises in freely convertible currencies: Provided, further, That the
new investment shall fall under the priorities, thrusts and limits provided for in the Act.

SEC. 8. ECOZONE to be Operated and Managed as Separate Customs Territory. The ECOZONE shall
be managed and operated by the PEZA as separate customs territory.

The PEZA is hereby vested with the authority to issue certificate of origin for products manufactured or
processed in each ECOZONE in accordance with the prevailing rules or origin, and the pertinent
regulations of the Department of Trade and Industry and/or the Department of Finance.

SEC. 9. Defense and Security. The defense of the ECOZONE and the security of its perimeter fence
shall be the responsibility of the national government in coordination with the PEZA. Military forces sent
by the national government for the purpose of defense shall not interfere in the internal affairs of any of
the ECOZONE and expenditure for these military forces shall be borne by the national government. The
PEZA may provide and establish the ECOZONES internal security and firefighting forces.

SEC. 10. Immigration. Any investor within the ECOZONE whose initial investment shall not be less
than One Hundred Fifty Thousand Dollars ($150,000.00), his/her spouse and dependent children under
twenty-one (21) years of age shall be granted permanent resident status within the ECOZONE. They shall
have freedom of ingress and egress to and from the ECOZONE without any need of special authorization
from the Bureau of Immigration.

The PEZA shall issue working visas renewable every two (2) years to foreign executives and other aliens,
processing highly-technical skills which no Filipino within the ECOZONE possesses, as certified by the
Department of Labor and Employment. The names of aliens granted permanent resident status and
working visas by the PEZA shall be reported to the Bureau of Immigration within thirty (30) days after
issuance thereof.

SEC. 13. General Powers and Functions of the Authority. The PEZA shall have the following powers
and functions:

(a) To operate, administer, manage and develop the ECOZONE according to the principles and
provisions set forth in this Act;

(b) To register, regulate and supervise the enterprises in the ECOZONE in an efficient and
decentralized manner;

(c) To coordinate with local government units and exercise general supervision over the
development, plans, activities and operations of the ECOZONES, industrial estates, export
processing zones, free trade zones, and the like;
 (d) In coordination with local government units concerned and appropriate agencies, to
construct,acquire, own, lease, operate and maintain on its own or through contract, franchise,
license, bulk purchase from the private sector and build-operate-transfer scheme or joint venture,
adequate facilities and infrastructure, such as light and power systems, water supply and
distribution systems, telecommunication and transportation, buildings, structures, warehouses,
roads, bridges, ports and other facilities for the operation and development of the ECOZONE;

(e) To create, operate and/or contractto operate such agencies and functional units or offices of
the authority as it may deem necessary;

(f) To adopt, alter and use a corporate seal; make contracts, lease, own or otherwise dispose of
personal or real property; sue and be sued; and otherwise carry out its duties and functions as
provided for in this Act;

(g) To coordinate the formulation and preparation of the development plans of the different
entities mentioned above;

(h) To coordinate with the National Economic Development Authority (NEDA), the Department
of Trade and Industry (DTI), the Department of Science and Technology (DOST), and the local
government units and appropriate government agencies for policy and program formulation and
implementation; and

(i) To monitor and evaluate the development and requirements of entities in subsection (a) and
recommend to the local government units or other appropriate authorities the location, incentives,
basic services, utilities and infrastructure required or to be made available for said entities.

SEC. 17. Investigation and Inquiries. Upon a written formal complaint made under oath, which on its
face provides reasonable basis to believe that some anomaly or irregularity might have been committed,
the PEZA or the administrator of the ECOZONE concerned, shall have the power to inquire into the
conduct of firms or employees of the ECOZONE and to conduct investigations, and for that purpose may
subpoena witnesses, administer oaths, and compel the production of books, papers, and other evidences:
Provided, That to arrive at the truth, the investigator(s) may grant immunity from prosecution to any
person whose testimony or whose possessions of documents or other evidence is necessary or convenient
to determine the truth in any investigation conducted by him or under the authority of the PEZA or the
administrator of the ECOZONE concerned.

SEC. 21. Development Strategy of the ECOZONE. - The strategy and priority of development of each
ECOZONE established pursuant to this Act shall be formulated by the PEZA, in coordination with the
Department of Trade and Industry and the National Economic and Development Authority; Provided,
That such development strategy is consistent with the priorities of the national government as outlined in
the medium-term Philippine development plan. It shall be the policy of the government and the PEZA to
encourage and provide Incentives and facilitate private sector participation in the construction and
operation of public utilities and infrastructure in the ECOZONE, using any of the schemes allowed in
Republic Act No. 6957 (the build-operate-transfer law).

SEC. 22. Survey of Resources. The PEZA shall, in coordination with appropriate authorities and
neighboring cities and municipalities, immediately conduct a survey of the physical, natural assets and
potentialities of the ECOZONE areas under its jurisdiction.
SEC. 26. Domestic Sales. Goods manufactured by an ECOZONE enterprise shall be made available for
immediate retail sales in the domestic market, subject to payment of corresponding taxes on the raw
materials and other regulations that may be adopted by the Board of the PEZA. However, in order to
protect the domestic industry, there shall be a negative list of Industries that willbe drawn up by the
PEZA. Enterprises engaged in the industries included in the negative list shall not be allowed to sell their
products locally. Said negative list shall be regularly updated by the PEZA.

The PEZA, in coordination with the Department of Trade and Industry and the Bureau of Customs, shall
jointly issue the necessary implementing rules and guidelines for the effective Implementation of this
section.

SEC. 29. Eminent Domain. The areas comprising an ECOZONE may be expanded or reduced when
necessary. For this purpose, the government shall have the power to acquire, either by purchase,
negotiation or condemnation proceedings, any private lands within or adjacent to the ECOZONE for:

a. Consolidation of lands for zone development purposes;

b. Acquisition of right of way to the ECOZONE; and

c. The protection of watershed areas and natural assets valuable to the prosperity of the
ECOZONE.

If in the establishment of a publicly-owned ECOZONE, any person or group of persons who has been
occupying a parcel of land within the Zone has to be evicted, the PEZA shall provide the person or group
of persons concerned with proper disturbance compensation: Provided, however, That in the case of
displaced agrarian reform beneficiaries, they shall be entitled to the benefits under the Comprehensive
Agrarian Reform Law, including but not limited to Section 36 of Republic Act No. 3844, in addition to a
homelot in the relocation site and preferential employment in the project being undertaken.

SEC. 32. Shipping and Shipping Register. Private shipping and related business including private
container terminals may operate freely in the ECOZONE, subject only to such minimum reasonable
regulations of local application which the PEZA may prescribe.

The PEZA shall, in coordination with the Department of Transportation and Communications, maintain a
shipping register for each ECOZONE as a business register of convenience for ocean-going vessels and
issue related certification.

Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the ECOZONE, subject
only to such reasonable requirement as may be prescribed by the PEZA In coordination with the
appropriate agencies of the national government.

SEC. 33. Protection of Environment. - The PEZA, in coordination with the appropriate agencies, shall
take concrete and appropriate steps and enact the proper measure for the protection of the local
environment.

SEC. 34. Termination of Business. - Investors In the ECOZONE who desire to terminate business or
operations shall comply with such requirements and procedures which the PEZA shall set, particularly
those relating to the clearing of debts. The assets of the closed enterprise can be transferred and the funds
con be remitted out of the ECOZONE subject to the rules, guidelines and procedures prescribed jointly by
the Bangko Sentral ng Pilipinas, the Department of Finance and the PEZA.
SEC. 35. Registration of Business Enterprises. - Business enterprises within a designated ECOZONE
shall register with the PEZA to avail of all incentives and benefits provided for in this Act.

SEC. 36. One Stop Shop Center. - The PEZA shall establish a one stop shop center for the purpose of
facilitating the registration of new enterprises in the ECOZONE. Thus, all appropriate government
agencies that are Involved In registering, licensing or issuing permits to investors shall assign their
representatives to the ECOZONE to attend to Investors requirements.

SEC. 39. Master Employment Contracts. - The PEZA, in coordination with the Department of Tabor and
Employment, shall prescribe a master employment contract for all ECOZONE enterprise staff members
and workers, the terms of which provide salaries and benefits not less than those provided under this Act,
the Philippine Labor Code, as amended, and other relevant issuances of the national government.

SEC. 41. Migrant Worker. - The PEZA, in coordination with the Department of Labor and Employment,
shall promulgate appropriate measures and programs leading to the expansion of the services of the
ECOZONE to help the local governments of nearby areas meet the needs of the migrant workers.

SEC. 42. Incentive Scheme. - An additional deduction equivalent to one- half (1/2) of the value of
training expenses incurred in developing skilled or unskilled labor or for managerial or other management
development programs incurred by enterprises in the ECOZONE can be deducted from the national
government's share of three percent (3%) as provided In Section 24.

The PEZA, the Department of Labor and Employment, and the Department of Finance shall jointly make
a review of the incentive scheme provided In this section every two (2) years or when circumstances so
warrant.

SEC. 43. Relationship with the Regional Development Council. - The PEZA shall determine the
development goals for the ECOZONE within the framework of national development plans, policies and
goals, and the administrator shall, upon approval by the PEZA Board, submit the ECOZONE plans,
programs and projects to the regional development council for inclusion in and as inputs to the overall
regional development plan.

SEC. 44. Relationship with the Local Government Units. - Except as herein provided, the local
government units comprising the ECOZONE shall retain their basic autonomy and identity. The cities
shall be governed by their respective charters and the municipalities shall operate and function In
accordance with Republic Act No. 7160, otherwise known as the Local Government Code of 1991.

SEC. 45. Relationship of PEZA to Privately-Owned Industrial Estates. Privately-owned industrial

estates shall retain their autonomy and independence and shall be monitored by the PEZA for the
implementation of incentives.

SEC. 46. Transfer of Resources. - The relevant functions of the Board of Investments over industrial
estates and agri-export processing estates shall be transferred to the PEZA. The resources of government
owned Industrial estates and similar bodies except the Bases Conversion Development Authority and
those areas identified under Republic Act No. 7227, are hereby transferred to the PEZA as the holding
agency. They are hereby detached from their mother agencies and attached to the PEZA for policy,
program and operational supervision.

The Boards of the affected government-owned industrial estates shall be phased out and only the
management level and an appropriate number of personnel shall be retained.
Government personnel whose services are not retained by the PEZA or any government office within the
ECOZONE shall be entitled to separation pay and such retirement and other benefits theyare entitled to
under the laws then in force at the time of their separation: Provided, That in no case shall the separation
pay be less than one and one-fourth (1 1/4) month of every year of service.

The non-profit character of the EPZA under Presidential Decree No. 66 is not inconsistent with any of the
powers, functions, and responsibilities of the PEZA. The EPZAs non-profit character, including the
EPZAs exemption from real property taxes, must be deemed assumed by the PEZA.

In addition, the Local Government Code exempting instrumentalities of the national government from
real property taxes was already in force274 when the PEZAs charter was enacted in 1995. It would have
been redundant to provide for the PEZAs exemption in its charter considering that the PEZA is already
exempt by virtue of Section 133(o) of the Local Government Code.

As for the EPZA, Commonwealth Act No. 470 or the Assessment Law was in force when the EPZAs
charter was enacted. Unlike the Local Government Code, Commonwealth Act No. 470 does not contain a
provision specifically exempting instrumentalities of the national government from payment of real
property taxes.275 It was necessary to put an exempting provision in the EPZAs charter.

Contrary to the PEZAs claim, however, Section 24 of the Special Economic Zone Act of 1995 is not a
basis for the PEZAs exemption. Section 24 of the Special Economic Zone Act of 1995 provides:

Sec. 24. Exemption from National and Local Taxes. Except for real property taxes on land owned by
developers, no taxes, local and national, shall be imposed on business establishments operating within the
ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises
within the ECOZONEshall be paid and remitted as follows:

(a) Three percent (3%) to the National Government;

(b) Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer's office of the municipality or city where the enterprise is located. (Emphasis supplied)

Tax exemptions provided under Section 24 apply only to business establishments operating within
economic zones. Considering that the PEZA is not a business establishment but an instrumentality
performing governmental functions, Section 24 is inapplicable to the PEZA. Also, contrary to the PEZAs
claim, developers ofeconomic zones, whether public or private developers, are liable for real property
taxes on lands they own. Section 24 does not distinguish between a public and private developer. Thus,
courts cannot distinguish.276 Unless the public developer is exempt under the Local Government Code or
under its charter enacted after the Local Government Codes effectivity, the public developer must pay
real property taxes on their land.

At any rate, the PEZA cannot be taxed for real property taxes even if it acts as a developer or operator of
special economic zones. The PEZA is an instrumentality of the national government exempt from
payment of real property taxes under Section 133(o) of the Local Government Code. As this court said in
Manila International Airport Authority, "there must be express language in the law empowering local
governments to tax national government instrumentalities. Any doubt whether such power exists is
resolved against local governments."277

V. (C)
Real properties under the PEZAs title are owned by the Republic of the Philippines

Under Section 234(a) of the LocalGovernment Code, real properties owned by the Republic of the
Philippines are exempt from real property taxes:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person[.]

Properties owned by the state are either property of public dominion or patrimonial property. Article 420
of the Civil Code of the Philippines enumerates property of public dominion:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without belonging for public use, and are intended for some
public service or for the development of the national wealth.

Properties of public dominion are outside the commerce of man. These properties are exempt from "levy,
encumbrance or disposition through public or private sale."278 As this court explained in Manila
International Airport Authority:

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition
through public or private sale. Any encumbrance, levy on execution or auction sale of any property of
public dominion is void for being contrary to public policy. Essential public services will stop if
properties of public dominion are subject to encumbrances, foreclosures and auction sale[.]279

On the other hand, all other properties of the state that are not intended for public use or are not intended
for some public service or for the development of the national wealth are patrimonial properties. Article
421 of the Civil Code of the Philippines provides:

Art. 421. All other property of the State, which is not of the character stated in the preceding article, is
patrimonial property.

Patrimonial properties are also properties of the state, but the state may dispose of its patrimonial property
similar to private persons disposing of their property. Patrimonial properties are within the commerce of
man and are susceptible to prescription, unless otherwise provided.280

In this case, the properties sought to be taxed are located in publicly owned economic zones. These
economic zones are property of public dominion. The City seeks to tax properties located within the
Mactan Economic Zone,281 the site of which was reserved by President Marcos under Proclamation No.
1811, Series of 1979. Reserved lands are lands of the public domain set aside for settlement or public use,
and for specific public purposes by virtue of a presidential proclamation.282 Reserved lands are inalienable
and outside the commerce of man,283 and remain property of the Republic until withdrawn from publicuse
either by law or presidential proclamation.284 Since no law or presidential proclamation has been issued
withdrawing the site of the Mactan Economic Zone from public use, the property remains reserved land.

As for the Bataan Economic Zone, the law consistently characterized the property as a port. Under
Republic Act No. 5490, Congress declared Mariveles, Bataan "a principal port of entry" 285 to serve as site
of a foreign trade zone where foreign and domestic merchandise may be brought in without being subject
to customs and internal revenue laws and regulations of the Philippines.286

Section 4 of Republic Act No. 5490 provided that the foreign trade zone in Mariveles, Bataan "shall at all
times remain to be owned by the Government":

SEC. 4. Powers and Duties. The Foreign Trade Zone Authority shall have the following powers and
duties:

a. To fix and delimit the site of the Zone which at all times remain to be owned by the Government, and
which shall have a contiguous and adequate area with well defined and policed boundaries, with adequate
enclosures to segregate the Zone from the customs territory for protection of revenues, together with
suitable provisions for ingress and egress of persons, conveyance, vessels and merchandise sufficient for
the purpose of this Act[.] (Emphasis supplied)

The port in Mariveles, Bataan then became the Bataan Economic Zone under the Special Economic Zone
Act of 1995.287 Republic Act No. 9728 then converted the Bataan Economic Zone into the Freeport Area
of Bataan.288

A port of entry, where imported goods are unloaded then introduced in the market for public
consumption, is considered property for public use. Thus, Article 420 of the Civil Code classifies a port
as property of public dominion. The Freeport Area of Bataan, where the government allows tax and duty-
free importation of goods,289 is considered property of public dominion. The Freeport Area of Bataan is
owned by the state and cannot be taxed under Section 234(a) of the Local Government Code.

Properties of public dominion, even if titled in the name of an instrumentality as in this case, remain
owned by the Republic of the Philippines. If property registered in the name of an instrumentality is
conveyed to another person,the property is considered conveyed on behalf of the Republic of the
Philippines. Book I, Chapter 12, Section 48 of the Administrative Code of 1987 provides:

SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the government is
authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government
by the following:

....

(2) For property belonging to the Republic of the Philippines, but titled in the name of any political
subdivision orof any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)

In Manila International Airport Authority, this court explained:

[The exemption under Section 234(a) of the Local Government Code] should be read in relation with
Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fess or
charges of any kind on the National Government, its agencies and instrumentalitiesx x x." The real
properties owned by the Republic are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government.The Administrative Code allows real property
owned by the Republic to be titled in the name of agencies or instrumentalities of the national
government. Such real properties remained owned by the Republic of the Philippines and continue to be
exempt from real estate tax.

The Republic may grant the beneficialuse of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption/ Section 234(a) of the Local Government Code states that real
property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person." . . .290 (Emphasis in the original; italics
supplied)

Even the PEZAs lands and buildings whose beneficial use have been granted to other persons may not be
taxed with real property taxes. The PEZA may only lease its lands and buildings to PEZA-registered
economic zone enterprises and entities.291 These PEZA-registered enterprises and entities, which operate
within economic zones, are not subject to real property taxes. Under Section 24 of the Special Economic
Zone Act of 1995, no taxes, whether local or national, shall be imposed on all business establishments
operating within the economic zones: SEC. 24. Exemption from National and Local Taxes. Except for
real property on land owned by developers, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income
earned by all business enterprises within the ECOZONE shall be paid and remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the treasurers
office of the municipality or city where the enterprise is located.292 (Emphasis supplied)

In lieu of revenues from real property taxes, the City of Lapu-Lapu collects two-fifths of 5% final tax on
gross income paid by all business establishments operating withinthe Mactan Economic Zone:

SEC. 24. Exemption from National and Local Taxes. Except for real property on land owned by
developers, no taxes, local and national, shall be imposed on business establishments operating within the
ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises
within the ECOZONE shall be paid and remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurers office of the municipality or city where the enterprise is located.293 (Emphasis
supplied)

For its part, the Province of Bataan collects a fifth of the 5% final tax on gross income paid by all
business establishments operating within the Freeport Area of Bataan:

Section 6. Imposition of a Tax Rate of Five Percent (5%) on Gross Income Earned. - No taxes, local and
national, shall be imposed on business establishments operating withinthe FAB. In lieu thereof, said
business establishments shall pay a five percent (5%) final tax on their gross income earned in the
following percentages:

(a) One per centum (1%) to the National Government;

(b) One per centum (1%) to the Province of Bataan;

(c) One per centum (1%) to the treasurer's office of the Municipality of Mariveles; and

(d) Two per centum (2%) to the Authority of the Freeport of Area of Bataan.294 (Emphasis
supplied)

Petitioners, therefore, are not deprived of revenues from the operations of economic zones within their
respective territorial jurisdictions.

The national government ensured that loeal government units comprising economic zones shall retain
their basic autonomy and identity.295

All told, the PEZA is an instrumentality of the national government.1wphi1 Furthermore, the lands
owned by the PEZA are real properties owned by the Republic of the Philippines. The City of Lapu-Lapu
and the Province of Bataan cannot collect real property taxes from the PEZA.

WHEREFORE, the consolidated petitions are DENIED.

SO ORDERED.

G.R. No. 158693 November 17, 2004

JENNY M. AGABON and VIRGILIO C. AGABON, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC),

This petition for review seeks to reverse the decision1 of the Court of Appeals dated January 23, 2003, in
CA-G.R. SP No. 63017, modifying the decision of National Labor Relations Commission (NLRC) in
NLRC-NCR Case No. 023442-00.

Private respondent Riviera Home Improvements, Inc. is engaged in the business of selling and installing
ornamental and construction materials. It employed petitioners Virgilio Agabon and Jenny Agabon as
gypsum board and cornice installers on January 2, 19922 until February 23, 1999 when they were
dismissed for abandonment of work.

Petitioners then filed a complaint for illegal dismissal and payment of money claims3 and on December
28, 1999, the Labor Arbiter rendered a decision declaring the dismissals illegal and ordered private
respondent to pay the monetary claims. The dispositive portion of the decision states:
 WHEREFORE, premises considered, We find the termination of the complainants illegal.
Accordingly, respondent is hereby ordered to pay them their backwages up to November 29, 1999
in the sum of:

1. Jenny M. Agabon - P56, 231.93

2. Virgilio C. Agabon - 56, 231.93

and, in lieu of reinstatement to pay them their separation pay of one (1) month for every year of
service from date of hiring up to November 29, 1999.

Respondent is further ordered to pay the complainants their holiday pay and service incentive
leave pay for the years 1996, 1997 and 1998 as well as their premium pay for holidays and rest
days and Virgilio Agabon's 13th month pay differential amounting to TWO THOUSAND ONE
HUNDRED FIFTY (P2,150.00) Pesos, or the aggregate amount of ONE HUNDRED TWENTY
ONE THOUSAND SIX HUNDRED SEVENTY EIGHT & 93/100 (P121,678.93) Pesos for
Jenny Agabon, and ONE HUNDRED TWENTY THREE THOUSAND EIGHT HUNDRED
TWENTY EIGHT & 93/100 (P123,828.93) Pesos for Virgilio Agabon, as per attached
computation of Julieta C. Nicolas, OIC, Research and Computation Unit, NCR.

SO ORDERED.4

On appeal, the NLRC reversed the Labor Arbiter because it found that the petitioners had abandoned their
work, and were not entitled to backwages and separation pay. The other money claims awarded by the
Labor Arbiter were also denied for lack of evidence.5

Upon denial of their motion for reconsideration, petitioners filed a petition for certiorari with the Court of
Appeals.

The Court of Appeals in turn ruled that the dismissal of the petitioners was not illegal because they had
abandoned their employment but ordered the payment of money claims. The dispositive portion of the
decision reads:

WHEREFORE, the decision of the National Labor Relations Commission is REVERSED only
insofar as it dismissed petitioner's money claims. Private respondents are ordered to pay
petitioners holiday pay for four (4) regular holidays in 1996, 1997, and 1998, as well as their
service incentive leave pay for said years, and to pay the balance of petitioner Virgilio Agabon's
13th month pay for 1998 in the amount of P2,150.00.

SO ORDERED.6

Hence, this petition for review on the sole issue of whether petitioners were illegally dismissed.7

Petitioners assert that they were dismissed because the private respondent refused to give them
assignments unless they agreed to work on a "pakyaw" basis when they reported for duty on February 23,
1999. They did not agree on this arrangement because it would mean losing benefits as Social Security
System (SSS) members. Petitioners also claim that private respondent did not comply with the twin
requirements of notice and hearing.8
Private respondent, on the other hand, maintained that petitioners were not dismissed but had abandoned
their work.9 In fact, private respondent sent two letters to the last known addresses of the petitioners
advising them to report for work. Private respondent's manager even talked to petitioner Virgilio Agabon
by telephone sometime in June 1999 to tell him about the new assignment at Pacific Plaza Towers
involving 40,000 square meters of cornice installation work. However, petitioners did not report for work
because they had subcontracted to perform installation work for another company. Petitioners also
demanded for an increase in their wage to P280.00 per day. When this was not granted, petitioners
stopped reporting for work and filed the illegal dismissal case.10

It is well-settled that findings of fact of quasi-judicial agencies like the NLRC are accorded not only
respect but even finality if the findings are supported by substantial evidence. This is especially so when
such findings were affirmed by the Court of Appeals.11 However, if the factual findings of the NLRC and
the Labor Arbiter are conflicting, as in this case, the reviewing court may delve into the records and
examine for itself the questioned findings.12

Accordingly, the Court of Appeals, after a careful review of the facts, ruled that petitioners' dismissal was
for a just cause. They had abandoned their employment and were already working for another employer.

To dismiss an employee, the law requires not only the existence of a just and valid cause but also enjoins
the employer to give the employee the opportunity to be heard and to defend himself.13 Article 282 of the
Labor Code enumerates the just causes for termination by the employer: (a) serious misconduct or willful
disobedience by the employee of the lawful orders of his employer or the latter's representative in
connection with the employee's work; (b) gross and habitual neglect by the employee of his duties; (c)
fraud or willful breach by the employee of the trust reposed in him by his employer or his duly authorized
representative; (d) commission of a crime or offense by the employee against the person of his employer
or any immediate member of his family or his duly authorized representative; and (e) other causes
analogous to the foregoing.

Abandonment is the deliberate and unjustified refusal of an employee to resume his employment.14 It is a
form of neglect of duty, hence, a just cause for termination of employment by the employer.15 For a valid
finding of abandonment, these two factors should be present: (1) the failure to report for work or absence
without valid or justifiable reason; and (2) a clear intention to sever employer-employee relationship, with
the second as the more determinative factor which is manifested by overt acts from which it may be
deduced that the employees has no more intention to work. The intent to discontinue the employment
must be shown by clear proof that it was deliberate and unjustified.16

In February 1999, petitioners were frequently absent having subcontracted for an installation work for
another company. Subcontracting for another company clearly showed the intention to sever the
employer-employee relationship with private respondent. This was not the first time they did this. In
January 1996, they did not report for work because they were working for another company. Private
respondent at that time warned petitioners that they would be dismissed if this happened again. Petitioners
disregarded the warning and exhibited a clear intention to sever their employer-employee relationship.
The record of an employee is a relevant consideration in determining the penalty that should be meted out
to him.17

In Sandoval Shipyard v. Clave,18 we held that an employee who deliberately absented from work without
leave or permission from his employer, for the purpose of looking for a job elsewhere, is considered to
have abandoned his job. We should apply that rule with more reason here where petitioners were absent
because they were already working in another company.
The law imposes many obligations on the employer such as providing just compensation to workers,
observance of the procedural requirements of notice and hearing in the termination of employment. On
the other hand, the law also recognizes the right of the employer to expect from its workers not only good
performance, adequate work and diligence, but also good conduct19 and loyalty. The employer may not be
compelled to continue to employ such persons whose continuance in the service will patently be inimical
to his interests.20

After establishing that the terminations were for a just and valid cause, we now determine if the
procedures for dismissal were observed.

The procedure for terminating an employee is found in Book VI, Rule I, Section 2(d) of the Omnibus
Rules Implementing the Labor Code:

Standards of due process: requirements of notice. In all cases of termination of employment,

the following standards of due process shall be substantially observed:

I. For termination of employment based on just causes as defined in Article 282 of the Code:

(a) A written notice served on the employee specifying the ground or grounds for termination,
and giving to said employee reasonable opportunity within which to explain his side;

(b) A hearing or conference during which the employee concerned, with the assistance of counsel
if the employee so desires, is given opportunity to respond to the charge, present his evidence or
rebut the evidence presented against him; and

(c) A written notice of termination served on the employee indicating that upon due consideration
of all the circumstances, grounds have been established to justify his termination.

In case of termination, the foregoing notices shall be served on the employee's last known
address.

Dismissals based on just causes contemplate acts or omissions attributable to the employee while
dismissals based on authorized causes involve grounds under the Labor Code which allow the employer
to terminate employees. A termination for an authorized cause requires payment of separation pay. When
the termination of employment is declared illegal, reinstatement and full backwages are mandated under
Article 279. If reinstatement is no longer possible where the dismissal was unjust, separation pay may be
granted.

Procedurally, (1) if the dismissal is based on a just cause under Article 282, the employer must give the
employee two written notices and a hearing or opportunity to be heard if requested by the employee
before terminating the employment: a notice specifying the grounds for which dismissal is sought a
hearing or an opportunity to be heard and after hearing or opportunity to be heard, a notice of the decision
to dismiss; and (2) if the dismissal is based on authorized causes under Articles 283 and 284, the
employer must give the employee and the Department of Labor and Employment written notices 30 days
prior to the effectivity of his separation.

From the foregoing rules four possible situations may be derived: (1) the dismissal is for a just cause
under Article 282 of the Labor Code, for an authorized cause under Article 283, or for health reasons
under Article 284, and due process was observed; (2) the dismissal is without just or authorized cause but
due process was observed; (3) the dismissal is without just or authorized cause and there was no due
process; and (4) the dismissal is for just or authorized cause but due process was not observed.

In the first situation, the dismissal is undoubtedly valid and the employer will not suffer any liability.

In the second and third situations where the dismissals are illegal, Article 279 mandates that the employee
is entitled to reinstatement without loss of seniority rights and other privileges and full backwages,
inclusive of allowances, and other benefits or their monetary equivalent computed from the time the
compensation was not paid up to the time of actual reinstatement.

In the fourth situation, the dismissal should be upheld. While the procedural infirmity cannot be cured, it
should not invalidate the dismissal. However, the employer should be held liable for non-compliance with
the procedural requirements of due process.

The present case squarely falls under the fourth situation. The dismissal should be upheld because it was
established that the petitioners abandoned their jobs to work for another company. Private respondent,
however, did not follow the notice requirements and instead argued that sending notices to the last known
addresses would have been useless because they did not reside there anymore. Unfortunately for the
private respondent, this is not a valid excuse because the law mandates the twin notice requirements to the
employee's last known address.21 Thus, it should be held liable for non-compliance with the procedural
requirements of due process.

A review and re-examination of the relevant legal principles is appropriate and timely to clarify the
various rulings on employment termination in the light of Serrano v. National Labor Relations
Commission.22

Prior to 1989, the rule was that a dismissal or termination is illegal if the employee was not given any
notice. In the 1989 case of Wenphil Corp. v. National Labor Relations Commission,23 we reversed this
long-standing rule and held that the dismissed employee, although not given any notice and hearing, was
not entitled to reinstatement and backwages because the dismissal was for grave misconduct and
insubordination, a just ground for termination under Article 282. The employee had a violent temper and
caused trouble during office hours, defying superiors who tried to pacify him. We concluded that
reinstating the employee and awarding backwages "may encourage him to do even worse and will render
a mockery of the rules of discipline that employees are required to observe."24 We further held that:

Under the circumstances, the dismissal of the private respondent for just cause should be
maintained. He has no right to return to his former employment.

However, the petitioner must nevertheless be held to account for failure to extend to private
respondent his right to an investigation before causing his dismissal. The rule is explicit as above
discussed. The dismissal of an employee must be for just or authorized cause and after due
process. Petitioner committed an infraction of the second requirement. Thus, it must be imposed a
sanction for its failure to give a formal notice and conduct an investigation as required by law
before dismissing petitioner from employment. Considering the circumstances of this case
petitioner must indemnify the private respondent the amount of P1,000.00. The measure of this
award depends on the facts of each case and the gravity of the omission committed by the
employer.25
The rule thus evolved: where the employer had a valid reason to dismiss an employee but did not follow
the due process requirement, the dismissal may be upheld but the employer will be penalized to pay an
indemnity to the employee. This became known as the Wenphil or Belated Due Process Rule.

On January 27, 2000, in Serrano, the rule on the extent of the sanction was changed. We held that the
violation by the employer of the notice requirement in termination for just or authorized causes was not a
denial of due process that will nullify the termination. However, the dismissal is ineffectual and the
employer must pay full backwages from the time of termination until it is judicially declared that the
dismissal was for a just or authorized cause.

The rationale for the re-examination of the Wenphil doctrine in Serrano was the significant number of
cases involving dismissals without requisite notices. We concluded that the imposition of penalty by way
of damages for violation of the notice requirement was not serving as a deterrent. Hence, we now required
payment of full backwages from the time of dismissal until the time the Court finds the dismissal was for
a just or authorized cause.

Serrano was confronting the practice of employers to "dismiss now and pay later" by imposing full
backwages.

We believe, however, that the ruling in Serrano did not consider the full meaning of Article 279 of the
Labor Code which states:

ART. 279. Security of Tenure. In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this Title. An
employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of
seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his
other benefits or their monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement.

This means that the termination is illegal only if it is not for any of the justified or authorized causes
provided by law. Payment of backwages and other benefits, including reinstatement, is justified only if
the employee was unjustly dismissed.

The fact that the Serrano ruling can cause unfairness and injustice which elicited strong dissent has
prompted us to revisit the doctrine.

To be sure, the Due Process Clause in Article III, Section 1 of the Constitution embodies a system of
rights based on moral principles so deeply imbedded in the traditions and feelings of our people as to be
deemed fundamental to a civilized society as conceived by our entire history. Due process is that which
comports with the deepest notions of what is fair and right and just.26 It is a constitutional restraint on the
legislative as well as on the executive and judicial powers of the government provided by the Bill of
Rights.

Due process under the Labor Code, like Constitutional due process, has two aspects: substantive, i.e., the
valid and authorized causes of employment termination under the Labor Code; and procedural, i.e., the
manner of dismissal. Procedural due process requirements for dismissal are found in the Implementing
Rules of P.D. 442, as amended, otherwise known as the Labor Code of the Philippines in Book VI, Rule I,
Sec. 2, as amended by Department Order Nos. 9 and 10.27 Breaches of these due process requirements
violate the Labor Code. Therefore statutory due process should be differentiated from failure to comply
with constitutional due process.
Constitutional due process protects the individual from the government and assures him of his rights in
criminal, civil or administrative proceedings; while statutory due process found in the Labor Code and
Implementing Rules protects employees from being unjustly terminated without just cause after notice
and hearing.

In Sebuguero v. National Labor Relations Commission,28 the dismissal was for a just and valid cause but
the employee was not accorded due process. The dismissal was upheld by the Court but the employer was
sanctioned. The sanction should be in the nature of indemnification or penalty, and depends on the facts
of each case and the gravity of the omission committed by the employer.

In Nath v. National Labor Relations Commission,29 it was ruled that even if the employee was not given
due process, the failure did not operate to eradicate the just causes for dismissal. The dismissal being for
just cause, albeitwithout due process, did not entitle the employee to reinstatement, backwages, damages
and attorney's fees.

Mr. Justice Jose C. Vitug, in his separate opinion in MGG Marine Services, Inc. v. National Labor
Relations Commission,30 which opinion he reiterated in Serrano, stated:

C. Where there is just cause for dismissal but due process has not been properly observed by an
employer, it would not be right to order either the reinstatement of the dismissed employee or the
payment of backwages to him. In failing, however, to comply with the procedure prescribed by
law in terminating the services of the employee, the employer must be deemed to have opted or,
in any case, should be made liable, for the payment of separation pay. It might be pointed out that
the notice to be given and the hearing to be conducted generally constitute the two-part due
process requirement of law to be accorded to the employee by the employer. Nevertheless,
peculiar circumstances might obtain in certain situations where to undertake the above steps
would be no more than a useless formality and where, accordingly, it would not be imprudent to
apply the res ipsa loquitur rule and award, in lieu of separation pay, nominal damages to the
employee. x x x.31

After carefully analyzing the consequences of the divergent doctrines in the law on employment
termination, we believe that in cases involving dismissals for cause but without observance of the twin
requirements of notice and hearing, the better rule is to abandon the Serrano doctrine and to
follow Wenphil by holding that the dismissal was for just cause but imposing sanctions on the employer.
Such sanctions, however, must be stiffer than that imposed in Wenphil. By doing so, this Court would be
able to achieve a fair result by dispensing justice not just to employees, but to employers as well.

The unfairness of declaring illegal or ineffectual dismissals for valid or authorized causes but not
complying with statutory due process may have far-reaching consequences.

This would encourage frivolous suits, where even the most notorious violators of company policy are
rewarded by invoking due process. This also creates absurd situations where there is a just or authorized
cause for dismissal but a procedural infirmity invalidates the termination. Let us take for example a case
where the employee is caught stealing or threatens the lives of his co-employees or has become a
criminal, who has fled and cannot be found, or where serious business losses demand that operations be
ceased in less than a month. Invalidating the dismissal would not serve public interest. It could also
discourage investments that can generate employment in the local economy.

The constitutional policy to provide full protection to labor is not meant to be a sword to oppress
employers. The commitment of this Court to the cause of labor does not prevent us from sustaining the
employer when it is in the right, as in this case.32 Certainly, an employer should not be compelled to pay
employees for work not actually performed and in fact abandoned.

The employer should not be compelled to continue employing a person who is admittedly guilty of
misfeasance or malfeasance and whose continued employment is patently inimical to the employer. The
law protecting the rights of the laborer authorizes neither oppression nor self-destruction of the
employer.33

It must be stressed that in the present case, the petitioners committed a grave offense, i.e., abandonment,
which, if the requirements of due process were complied with, would undoubtedly result in a valid
dismissal.

An employee who is clearly guilty of conduct violative of Article 282 should not be protected by the
Social Justice Clause of the Constitution. Social justice, as the term suggests, should be used only to
correct an injustice. As the eminent Justice Jose P. Laurel observed, social justice must be founded on the
recognition of the necessity of interdependence among diverse units of a society and of the protection that
should be equally and evenly extended to all groups as a combined force in our social and economic life,
consistent with the fundamental and paramount objective of the state of promoting the health, comfort,
and quiet of all persons, and of bringing about "the greatest good to the greatest number."34

This is not to say that the Court was wrong when it ruled the way it did in Wenphil, Serrano and related
cases. Social justice is not based on rigid formulas set in stone. It has to allow for changing times and
circumstances.

Justice Isagani Cruz strongly asserts the need to apply a balanced approach to labor-management relations
and dispense justice with an even hand in every case:

We have repeatedly stressed that social justice or any justice for that matter is for the
deserving, whether he be a millionaire in his mansion or a pauper in his hovel. It is true that, in
case of reasonable doubt, we are to tilt the balance in favor of the poor to whom the Constitution
fittingly extends its sympathy and compassion. But never is it justified to give preference to the
poor simply because they are poor, or reject the rich simply because they are rich, for justice must
always be served for the poor and the rich alike, according to the mandate of the law.35

Justice in every case should only be for the deserving party. It should not be presumed that every case of
illegal dismissal would automatically be decided in favor of labor, as management has rights that should
be fully respected and enforced by this Court. As interdependent and indispensable partners in nation-
building, labor and management need each other to foster productivity and economic growth; hence, the
need to weigh and balance the rights and welfare of both the employee and employer.

Where the dismissal is for a just cause, as in the instant case, the lack of statutory due process should not
nullify the dismissal, or render it illegal, or ineffectual. However, the employer should indemnify the
employee for the violation of his statutory rights, as ruled in Reta v. National Labor Relations
Commission.36 The indemnity to be imposed should be stiffer to discourage the abhorrent practice of
"dismiss now, pay later," which we sought to deter in the Serrano ruling. The sanction should be in the
nature of indemnification or penalty and should depend on the facts of each case, taking into special
consideration the gravity of the due process violation of the employer.
Under the Civil Code, nominal damages is adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.37

As enunciated by this Court in Viernes v. National Labor Relations Commissions,38 an employer is liable
to pay indemnity in the form of nominal damages to an employee who has been dismissed if, in effecting
such dismissal, the employer fails to comply with the requirements of due process. The Court, after
considering the circumstances therein, fixed the indemnity at P2,590.50, which was equivalent to the
employee's one month salary. This indemnity is intended not to penalize the employer but to vindicate or
recognize the employee's right to statutory due process which was violated by the employer.39

The violation of the petitioners' right to statutory due process by the private respondent warrants the
payment of indemnity in the form of nominal damages. The amount of such damages is addressed to the
sound discretion of the court, taking into account the relevant circumstances.40 Considering the prevailing
circumstances in the case at bar, we deem it proper to fix it at P30,000.00. We believe this form of
damages would serve to deter employers from future violations of the statutory due process rights of
employees. At the very least, it provides a vindication or recognition of this fundamental right granted to
the latter under the Labor Code and its Implementing Rules.

Private respondent claims that the Court of Appeals erred in holding that it failed to pay petitioners'
holiday pay, service incentive leave pay and 13th month pay.

We are not persuaded.

We affirm the ruling of the appellate court on petitioners' money claims. Private respondent is liable for
petitioners' holiday pay, service incentive leave pay and 13th month pay without deductions.

As a general rule, one who pleads payment has the burden of proving it. Even where the employee must
allege non-payment, the general rule is that the burden rests on the employer to prove payment, rather
than on the employee to prove non-payment. The reason for the rule is that the pertinent personnel files,
payrolls, records, remittances and other similar documents which will show that overtime, differentials,
service incentive leave and other claims of workers have been paid are not in the possession of the
worker but in the custody and absolute control of the employer.41

In the case at bar, if private respondent indeed paid petitioners' holiday pay and service incentive leave
pay, it could have easily presented documentary proofs of such monetary benefits to disprove the claims
of the petitioners. But it did not, except with respect to the 13th month pay wherein it presented cash
vouchers showing payments of the benefit in the years disputed.42 Allegations by private respondent that it
does not operate during holidays and that it allows its employees 10 days leave with pay, other than being
self-serving, do not constitute proof of payment. Consequently, it failed to discharge the onus
probandi thereby making it liable for such claims to the petitioners.

Anent the deduction of SSS loan and the value of the shoes from petitioner Virgilio Agabon's 13th month
pay, we find the same to be unauthorized. The evident intention of Presidential Decree No. 851 is to grant
an additional income in the form of the 13th month pay to employees not already receiving the same43 so
as "to further protect the level of real wages from the ravages of world-wide inflation."44 Clearly, as
additional income, the 13th month pay is included in the definition of wage under Article 97(f) of the
Labor Code, to wit:
 (f) "Wage" paid to any employee shall mean the remuneration or earnings, however designated,
capable of being expressed in terms of money whether fixed or ascertained on a time, task, piece ,
or commission basis, or other method of calculating the same, which is payable by an employer to
an employee under a written or unwritten contract of employment for work done or to be done, or
for services rendered or to be rendered and includes the fair and reasonable value, as determined
by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the
employer to the employee"

from which an employer is prohibited under Article 11345 of the same Code from making any deductions
without the employee's knowledge and consent. In the instant case, private respondent failed to show that
the deduction of the SSS loan and the value of the shoes from petitioner Virgilio Agabon's 13th month
pay was authorized by the latter. The lack of authority to deduct is further bolstered by the fact that
petitioner Virgilio Agabon included the same as one of his money claims against private respondent.

The Court of Appeals properly reinstated the monetary claims awarded by the Labor Arbiter ordering the
private respondent to pay each of the petitioners holiday pay for four regular holidays from 1996 to 1998,
in the amount of P6,520.00, service incentive leave pay for the same period in the amount of P3,255.00
and the balance of Virgilio Agabon's thirteenth month pay for 1998 in the amount of P2,150.00.

WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of Appeals
dated January 23, 2003, in CA-G.R. SP No. 63017, finding that petitioners' Jenny and Virgilio Agabon
abandoned their work, and ordering private respondent to pay each of the petitioners holiday pay for four
regular holidays from 1996 to 1998, in the amount of P6,520.00, service incentive leave pay for the same
period in the amount of P3,255.00 and the balance of Virgilio Agabon's thirteenth month pay for 1998 in
the amount of P2,150.00 is AFFIRMED with the MODIFICATION that private respondent Riviera
Home Improvements, Inc. is further ORDERED to pay each of the petitioners the amount of P30,000.00
as nominal damages for non-compliance with statutory due process.

No costs.

SO ORDERED.

G.R. No. 178552 October 5, 2010

SOUTHERN HEMISPHERE ENGAGEMENT NETWORK, INCvs.

ANTI-TERRORISM COUNCIL, x - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO MORALES, J.:

Before the Court are six petitions challenging the constitutionality of Republic Act No. 9372 (RA
9372), "An Act to Secure the State and Protect our People from Terrorism," otherwise known as the
Human Security Act of 2007,1signed into law on March 6, 2007.

Following the effectivity of RA 9372 on July 15, 2007,2 petitioner Southern Hemisphere Engagement
Network, Inc., a non-government organization, and Atty. Soliman Santos, Jr., a concerned citizen,
taxpayer and lawyer, filed a petition for certiorari and prohibition on July 16, 2007 docketed as G.R.
No. 178552. On even date, petitioners Kilusang Mayo Uno (KMU), National Federation of Labor
Unions-Kilusang Mayo Uno (NAFLU-KMU), and Center for Trade Union and Human Rights
(CTUHR), represented by their respective officers3 who are also bringing the action in their capacity
as citizens, filed a petition for certiorari and prohibition docketed as G.R. No. 178554.

The following day, July 17, 2007, organizations Bagong Alyansang Makabayan (BAYAN), General
Alliance Binding Women for Reforms, Integrity, Equality, Leadership and Action (GABRIELA),
Kilusang Magbubukid ng Pilipinas (KMP), Movement of Concerned Citizens for Civil Liberties
(MCCCL), Confederation for Unity, Recognition and Advancement of Government Employees
(COURAGE), Kalipunan ng Damayang Mahihirap (KADAMAY), Solidarity of Cavite Workers (SCW),
League of Filipino Students (LFS), Anakbayan, Pambansang Lakas ng Kilusang Mamamalakaya
(PAMALAKAYA), Alliance of Concerned Teachers (ACT), Migrante, Health Alliance for Democracy
(HEAD), and Agham, represented by their respective officers,4 and joined by concerned citizens and
taxpayers Teofisto Guingona, Jr., Dr. Bienvenido Lumbera, Renato Constantino, Jr., Sister Mary
John Manansan, OSB, Dean Consuelo Paz, Atty. Josefina Lichauco, Retired Col. Gerry Cunanan,
Carlitos Siguion-Reyna, Dr. Carolina Pagaduan-Araullo, Renato Reyes, Danilo Ramos,
Emerenciana de Jesus, Rita Baua and Rey Claro Casambre filed a petition for certiorari and
prohibition docketed as G.R. No. 178581.

On August 6, 2007, Karapatan and its alliance member organizations Hustisya, Desaparecidos,
Samahan ng mga Ex-Detainees Laban sa Detensyon at para sa Amnestiya (SELDA), Ecumenical
Movement for Justice and Peace (EMJP), and Promotion of Church Peoples Response (PCPR),
which were represented by their respective officers5who are also bringing action on their own behalf,
filed a petition for certiorari and prohibition docketed as G.R. No. 178890.

On August 29, 2007, the Integrated Bar of the Philippines (IBP), Counsels for the Defense of Liberty
(CODAL),6Senator Ma. Ana Consuelo A.S. Madrigal, Sergio Osmea III, and Wigberto E. Taada
filed a petition for certiorari and prohibition docketed as G.R. No. 179157.

Bagong Alyansang Makabayan-Southern Tagalog (BAYAN-ST), other regional chapters and

organizations mostly based in the Southern Tagalog Region,7 and individuals8 followed suit by filing
on September 19, 2007 a petition for certiorari and prohibition docketed as G.R. No. 179461 that
replicates the allegations raised in the BAYAN petition in G.R. No. 178581.

Impleaded as respondents in the various petitions are the Anti-Terrorism Council9 composed of, at
the time of the filing of the petitions, Executive Secretary Eduardo Ermita as Chairperson, Justice
Secretary Raul Gonzales as Vice Chairperson, and Foreign Affairs Secretary Alberto Romulo, Acting
Defense Secretary and National Security Adviser Norberto Gonzales, Interior and Local Government
Secretary Ronaldo Puno, and Finance Secretary Margarito Teves as members. All the petitions,
except that of the IBP, also impleaded Armed Forces of the Philippines (AFP) Chief of Staff Gen.
Hermogenes Esperon and Philippine National Police (PNP) Chief Gen. Oscar Calderon.

The Karapatan, BAYAN and BAYAN-ST petitions likewise impleaded President Gloria Macapagal-
Arroyo and the support agencies for the Anti-Terrorism Council like the National Intelligence
Coordinating Agency, National Bureau of Investigation, Bureau of Immigration, Office of Civil
Defense, Intelligence Service of the AFP, Anti-Money Laundering Center, Philippine Center on
Transnational Crime, and the PNP intelligence and investigative elements.

The petitions fail.

Petitioners resort to certiorari is improper

Preliminarily, certiorari does not lie against respondents who do not exercise judicial or quasi-judicial
functions. Section 1, Rule 65 of the Rules of Court is clear:
Section 1. Petition for certiorari.When any tribunal, board or officer exercising judicial or quasi-
judicial functionshas acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no appeal, nor any plain, speedy,
and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental
reliefs as law and justice may require. (Emphasis and underscoring supplied)

Parenthetically, petitioners do not even allege with any modicum of particularity how respondents
acted without or in excess of their respective jurisdictions, or with grave abuse of discretion
amounting to lack or excess of jurisdiction.

The impropriety of certiorari as a remedy aside, the petitions fail just the same.

In constitutional litigations, the power of judicial review is limited by four exacting requisites, viz: (a)
there must be an actual case or controversy; (b) petitioners must possess locus standi; (c) the
question of constitutionality must be raised at the earliest opportunity; and (d) the issue of
constitutionality must be the lis mota of the case.10

In the present case, the dismal absence of the first two requisites, which are the most essential,
renders the discussion of the last two superfluous.

Petitioners lack locus standi

Locus standi or legal standing requires a personal stake in the outcome of the controversy as to
assure that concrete adverseness which sharpens the presentation of issues upon which the court
so largely depends for illumination of difficult constitutional questions.11

Anak Mindanao Party-List Group v. The Executive Secretary12 summarized the rule on locus standi,
thus:

Locus standi or legal standing has been defined as a personal and substantial interest in a case
such that the party has sustained or will sustain direct injury as a result of the governmental act that
is being challenged. The gist of the question on standing is whether a party alleges such personal
stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court depends for illumination of difficult constitutional
questions.

[A] party who assails the constitutionality of a statute must have a direct and personal interest. It
must show not only that the law or any governmental act is invalid, but also that it sustained or is in
immediate danger of sustaining some direct injury as a result of its enforcement, and not merely that
it suffers thereby in some indefinite way. It must show that it has been or is about to be denied some
right or privilege to which it is lawfully entitled or that it is about to be subjected to some burdens or
penalties by reason of the statute or act complained of.

For a concerned party to be allowed to raise a constitutional question, it must show that (1) it
has personally suffered some actual or threatened injury as a result of the allegedly illegal conduct of
the government, (2) the injury is fairly traceable to the challenged action, and (3) the injury is likely to
be redressed by a favorable action. (emphasis and underscoring supplied.)
Petitioner-organizations assert locus standi on the basis of being suspected "communist fronts" by
the government, especially the military; whereas individual petitioners invariably invoke the
"transcendental importance" doctrine and their status as citizens and taxpayers.

While Chavez v. PCGG13 holds that transcendental public importance dispenses with the
requirement that petitioner has experienced or is in actual danger of suffering direct and personal
injury, cases involving the constitutionality of penal legislation belong to an altogether different genus
of constitutional litigation. Compelling State and societal interests in the proscription of harmful
conduct, as will later be elucidated, necessitate a closer judicial scrutiny of locus standi.

Petitioners have not presented any personal stake in the outcome of the controversy. None of them
faces any charge under RA 9372.

KARAPATAN, Hustisya, Desaparecidos, SELDA, EMJP and PCR, petitioners in G.R. No. 178890,
allege that they have been subjected to "close security surveillance by state security forces," their
members followed by "suspicious persons" and "vehicles with dark windshields," and their offices
monitored by "men with military build." They likewise claim that they have been branded as "enemies
of the [S]tate."14

Even conceding such gratuitous allegations, the Office of the Solicitor General (OSG) correctly
points out that petitioners have yet to show any connection between the
purported "surveillance" and the implementation of RA 9372.

BAYAN, GABRIELA, KMP, MCCCL, COURAGE, KADAMAY, SCW, LFS, Anakbayan,

PAMALAKAYA, ACT, Migrante, HEAD and Agham, petitioner-organizations in G.R. No. 178581,
would like the Court to take judicial notice of respondents alleged action of tagging them as militant
organizations fronting for the Communist Party of the Philippines (CPP) and its armed wing, the
National Peoples Army (NPA). The tagging, according to petitioners, is tantamount to the effects of
proscription without following the procedure under the law.15 The petition of BAYAN-ST, et al. in G.R.
No. 179461 pleads the same allegations.

The Court cannot take judicial notice of the alleged "tagging" of petitioners.

Generally speaking, matters of judicial notice have three material requisites: (1) the matter must be
one of common and general knowledge; (2) it must be well and authoritatively settled and not
doubtful or uncertain; and (3) it must be known to be within the limits of the jurisdiction of the court.
The principal guide in determining what facts may be assumed to be judicially known is that of
notoriety. Hence, it can be said that judicial notice is limited to facts evidenced by public records and
facts of general notoriety. Moreover, a judicially noticed fact must be one not subject to a reasonable
dispute in that it is either: (1) generally known within the territorial jurisdiction of the trial court; or (2)
capable of accurate and ready determination by resorting to sources whose accuracy cannot
reasonably be questionable.

Things of "common knowledge," of which courts take judicial matters coming to the knowledge of
men generally in the course of the ordinary experiences of life, or they may be matters which are
generally accepted by mankind as true and are capable of ready and unquestioned demonstration.
Thus, facts which are universally known, and which may be found in encyclopedias, dictionaries or
other publications, are judicially noticed, provided, they are of such universal notoriety and so
generally understood that they may be regarded as forming part of the common knowledge of every
person. As the common knowledge of man ranges far and wide, a wide variety of particular facts
have been judicially noticed as being matters of common knowledge. But a court cannot take judicial
notice of any fact which, in part, is dependent on the existence or non-existence of a fact of which
the court has no constructive knowledge.16 (emphasis and underscoring supplied.)

No ground was properly established by petitioners for the taking of judicial notice. Petitioners
apprehension is insufficient to substantiate their plea. That no specific charge or proscription under
RA 9372 has been filed against them, three years after its effectivity, belies any claim
of imminence of their perceived threat emanating from the so-called tagging.

The same is true with petitioners KMU, NAFLU and CTUHR in G.R. No. 178554, who merely harp
as well on their supposed "link" to the CPP and NPA. They fail to particularize how the
implementation of specific provisions of RA 9372 would result in direct injury to their organization
and members.

While in our jurisdiction there is still no judicially declared terrorist organization, the United States of
America17 (US) and the European Union18 (EU) have both classified the CPP, NPA and Abu Sayyaf
Group as foreign terrorist organizations. The Court takes note of the joint statement of Executive
Secretary Eduardo Ermita and Justice Secretary Raul Gonzales that the Arroyo Administration
would adopt the US and EU classification of the CPP and NPA as terrorist organizations.19 Such
statement notwithstanding, there is yet to be filed before the courts an application to declare the
CPP and NPA organizations as domestic terrorist or outlawed organizations under RA 9372. Again,
RA 9372 has been in effect for three years now. From July 2007 up to the present, petitioner-
organizations have conducted their activities fully and freely without any threat of, much less an
actual, prosecution or proscription under RA 9372.

Parenthetically, the Fourteenth Congress, in a resolution initiated by Party-list Representatives

Saturnino Ocampo, Teodoro Casio, Rafael Mariano and Luzviminda Ilagan,20 urged the
government to resume peace negotiations with the NDF by removing the impediments thereto, one
of which is the adoption of designation of the CPP and NPA by the US and EU as foreign terrorist
organizations. Considering the policy statement of the Aquino Administration21 of resuming peace
talks with the NDF, the government is not imminently disposed to ask for the judicial proscription of
the CPP-NPA consortium and its allied organizations.

More important, there are other parties not before the Court with direct and specific interests in the
questions being raised.22 Of recent development is the filing of the first case for proscription under
Section 1723 of RA 9372 by the Department of Justice before the Basilan Regional Trial Court
against the Abu Sayyaf Group.24 Petitioner-organizations do not in the least allege any link to the
Abu Sayyaf Group.

Some petitioners attempt, in vain though, to show the imminence of a prosecution under RA 9372 by
alluding to past rebellion charges against them.

In Ladlad v. Velasco,25 the Court ordered the dismissal of rebellion charges filed in 2006 against then
Party-List Representatives Crispin Beltran and Rafael Mariano of Anakpawis, Liza Maza of
GABRIELA, and Joel Virador, Teodoro Casio and Saturnino Ocampo of Bayan Muna. Also named
in the dismissed rebellion charges were petitioners Rey Claro Casambre, Carolina Pagaduan-
Araullo, Renato Reyes, Rita Baua, Emerencia de Jesus and Danilo Ramos; and accused of being
front organizations for the Communist movement were petitioner-organizations KMU, BAYAN,
GABRIELA, PAMALAKAYA, KMP, KADAMAY, LFS and COURAGE.26

The dismissed rebellion charges, however, do not save the day for petitioners. For one, those
charges were filed in 2006, prior to the enactment of RA 9372, and dismissed by this Court. For
another, rebellion is defined and punished under the Revised Penal Code. Prosecution for rebellion
is not made more imminent by the enactment of RA 9372, nor does the enactment thereof make it
easier to charge a person with rebellion, its elements not having been altered.

Conversely, previously filed but dismissed rebellion charges bear no relation to prospective charges
under RA 9372. It cannot be overemphasized that three years after the enactment of RA 9372, none
of petitioners has been charged.

Petitioners IBP and CODAL in G.R. No. 179157 base their claim of locus standi on their sworn duty
to uphold the Constitution. The IBP zeroes in on Section 21 of RA 9372 directing it to render
assistance to those arrested or detained under the law.

The mere invocation of the duty to preserve the rule of law does not, however, suffice to clothe the
IBP or any of its members with standing.27 The IBP failed to sufficiently demonstrate how its mandate
under the assailed statute revolts against its constitutional rights and duties. Moreover, both the IBP
and CODAL have not pointed to even a single arrest or detention effected under RA 9372.

Former Senator Ma. Ana Consuelo Madrigal, who claims to have been the subject of "political
surveillance," also lacks locus standi. Prescinding from the veracity, let alone legal basis, of the
claim of "political surveillance," the Court finds that she has not shown even the slightest threat of
being charged under RA 9372. Similarly lacking in locus standi are former Senator Wigberto Taada
and Senator Sergio Osmea III, who cite their being respectively a human rights advocate and an
oppositor to the passage of RA 9372. Outside these gratuitous statements, no concrete injury to
them has been pinpointed.

Petitioners Southern Hemisphere Engagement Network and Atty. Soliman Santos Jr. in G.R. No.
178552 also conveniently state that the issues they raise are of transcendental importance, "which
must be settled early" and are of "far-reaching implications," without mention of any specific
provision of RA 9372 under which they have been charged, or may be charged. Mere invocation of
human rights advocacy has nowhere been held sufficient to clothe litigants with locus standi.
Petitioners must show an actual, or immediate danger of sustaining, direct injury as a result of the
laws enforcement. To rule otherwise would be to corrupt the settled doctrine of locus standi, as
every worthy cause is an interest shared by the general public.

Neither can locus standi be conferred upon individual petitioners as taxpayers and citizens. A
taxpayer suit is proper only when there is an exercise of the spending or taxing power of
Congress,28 whereas citizen standing must rest on direct and personal interest in the proceeding.29

RA 9372 is a penal statute and does not even provide for any appropriation from Congress for its
implementation, while none of the individual petitioner-citizens has alleged any direct and personal
interest in the implementation of the law.

It bears to stress that generalized interests, albeit accompanied by the assertion of a public right, do
not establish locus standi. Evidence of a direct and personal interest is key.

Petitioners fail to present an actual case or controversy

By constitutional fiat, judicial power operates only when there is an actual case or controversy.

Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may
be established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.30(emphasis and underscoring supplied.)

As early as Angara v. Electoral Commission,31 the Court ruled that the power of judicial review is
limited to actual cases or controversies to be exercised after full opportunity of argument by the
parties. Any attempt at abstraction could only lead to dialectics and barren legal questions and to
sterile conclusions unrelated to actualities.

An actual case or controversy means an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory, lest the decision of the court would amount to an
advisory opinion.32

Information Technology Foundation of the Philippines v. COMELEC33 cannot be more emphatic:

[C]ourts do not sit to adjudicate mere academic questions to satisfy scholarly interest, however
intellectually challenging. The controversy must be justiciabledefinite and concrete, touching on
the legal relations of parties having adverse legal interests. In other words, the pleadings must show
an active antagonistic assertion of a legal right, on the one hand, and a denial thereof on the other
hand; that is, it must concern a real and not merely a theoretical question or issue. There ought to
be an actual and substantial controversy admitting of specific relief through a decree conclusive in
nature, as distinguished from an opinion advising what the law would be upon a hypothetical state of
facts. (Emphasis and underscoring supplied)

Thus, a petition to declare unconstitutional a law converting the Municipality of Makati into a Highly
Urbanized City was held to be premature as it was tacked on uncertain, contingent
events.34 Similarly, a petition that fails to allege that an application for a license to operate a radio or
television station has been denied or granted by the authorities does not present a justiciable
controversy, and merely wheedles the Court to rule on a hypothetical problem.35

The Court dismissed the petition in Philippine Press Institute v. Commission on Elections36 for failure
to cite any specific affirmative action of the Commission on Elections to implement the assailed
resolution. It refused, in Abbas v. Commission on Elections,37 to rule on the religious freedom claim
of the therein petitioners based merely on a perceived potential conflict between the provisions of
the Muslim Code and those of the national law, there being no actual controversy between real
litigants.

The list of cases denying claims resting on purely hypothetical or anticipatory grounds goes on ad
infinitum.

The Court is not unaware that a reasonable certainty of the occurrence of a perceived threat to any
constitutional interest suffices to provide a basis for mounting a constitutional challenge. This,
however, is qualified by the requirement that there must be sufficient facts to enable the Court to
intelligently adjudicate the issues.38

Very recently, the US Supreme Court, in Holder v. Humanitarian Law Project,39 allowed the pre-
enforcement review of a criminal statute, challenged on vagueness grounds, since plaintiffs faced a
"credible threat of prosecution" and "should not be required to await and undergo a criminal
prosecution as the sole means of seeking relief."40 The plaintiffs therein filed an action before a
federal court to assail the constitutionality of the material support statute, 18 U.S.C. 2339B (a)
(1),41 proscribing the provision of material support to organizations declared by the Secretary of State
as foreign terrorist organizations. They claimed that they intended to provide support for the
humanitarian and political activities of two such organizations.

Prevailing American jurisprudence allows an adjudication on the merits when an anticipatory petition
clearly shows that the challenged prohibition forbids the conduct or activity that a petitioner seeks to
do, as there would then be a justiciable controversy.42

Unlike the plaintiffs in Holder, however, herein petitioners have failed to show that the challenged
provisions of RA 9372 forbid constitutionally protected conduct or activity that they seek to do. No
demonstrable threat has been established, much less a real and existing one.

Petitioners obscure allegations of sporadic "surveillance" and supposedly being tagged as

"communist fronts" in no way approximate a credible threat of prosecution. From these allegations,
the Court is being lured to render an advisory opinion, which is not its function.43

Without any justiciable controversy, the petitions have become pleas for declaratory relief, over
which the Court has no original jurisdiction. Then again, declaratory actions characterized by "double
contingency," where both the activity the petitioners intend to undertake and the anticipated reaction
to it of a public official are merely theorized, lie beyond judicial review for lack of ripeness.44

The possibility of abuse in the implementation of RA 9372 does not avail to take the present petitions
out of the realm of the surreal and merely imagined. Such possibility is not peculiar to RA 9372 since
the exercise of any power granted by law may be abused.45 Allegations of abuse must be anchored
on real events before courts may step in to settle actual controversies involving rights which are
legally demandable and enforceable.

A facial invalidation of a statute is allowed only in free speech cases, wherein certain rules of
constitutional litigation are rightly excepted

Petitioners assail for being intrinsically vague and impermissibly broad the definition of the crime of
terrorism46under RA 9372 in that terms like "widespread and extraordinary fear and panic among the
populace" and "coerce the government to give in to an unlawful demand" are nebulous, leaving law
enforcement agencies with no standard to measure the prohibited acts.

Respondents, through the OSG, counter that the doctrines of void-for-vagueness and overbreadth
find no application in the present case since these doctrines apply only to free speech cases; and
that RA 9372 regulates conduct, not speech.

For a jurisprudentially guided understanding of these doctrines, it is imperative to outline the schools
of thought on whether the void-for-vagueness and overbreadth doctrines are equally applicable
grounds to assail a penal statute.

Respondents interpret recent jurisprudence as slanting toward the idea of limiting the application of
the two doctrines to free speech cases. They particularly cite Romualdez v. Hon.
Sandiganbayan47 and Estrada v. Sandiganbayan.48

The Court clarifies.

At issue in Romualdez v. Sandiganbayan was whether the word "intervene" in Section 549 of the
Anti-Graft and Corrupt Practices Act was intrinsically vague and impermissibly broad. The Court
stated that "the overbreadth and the vagueness doctrines have special application only to free-
speech cases," and are "not appropriate for testing the validity of penal statutes."50 It added that, at
any rate, the challenged provision, under which the therein petitioner was charged, is not vague.51

While in the subsequent case of Romualdez v. Commission on Elections,52 the Court stated that a
facial invalidation of criminal statutes is not appropriate, it nonetheless proceeded to conduct a
vagueness analysis, and concluded that the therein subject election offense53 under the Voters
Registration Act of 1996, with which the therein petitioners were charged, is couched in precise
language.54

The two Romualdez cases rely heavily on the Separate Opinion55 of Justice Vicente V. Mendoza in
the Estradacase, where the Court found the Anti-Plunder Law (Republic Act No. 7080) clear and free
from ambiguity respecting the definition of the crime of plunder.

The position taken by Justice Mendoza in Estrada relates these two doctrines to the concept of a
"facial" invalidation as opposed to an "as-applied" challenge. He basically postulated that allegations
that a penal statute is vague and overbroad do not justify a facial review of its validity. The pertinent
portion of the Concurring Opinion of Justice Mendoza, which was quoted at length in the main
Estrada decision, reads:

A facial challenge is allowed to be made to a vague statute and to one which is overbroad because
of possible "chilling effect" upon protected speech. The theory is that "[w]hen statutes regulate or
proscribe speech and no readily apparent construction suggests itself as a vehicle for rehabilitating
the statutes in a single prosecution, the transcendent value to all society of constitutionally protected
expression is deemed to justify allowing attacks on overly broad statutes with no requirement that
the person making the attack demonstrate that his own conduct could not be regulated by a statute
drawn with narrow specificity." The possible harm to society in permitting some unprotected speech
to go unpunished is outweighed by the possibility that the protected speech of others may be
deterred and perceived grievances left to fester because of possible inhibitory effects of overly broad
statutes.

This rationale does not apply to penal statutes. Criminal statutes have general in terrorem effect
resulting from their very existence, and, if facial challenge is allowed for this reason alone, the State
may well be prevented from enacting laws against socially harmful conduct. In the area of criminal
law, the law cannot take chances as in the area of free speech.

The overbreadth and vagueness doctrines then have special application only to free speech cases.
They are inapt for testing the validity of penal statutes. As the U.S. Supreme Court put it, in an
opinion by Chief Justice Rehnquist, "we have not recognized an 'overbreadth' doctrine outside the
limited context of the First Amendment." In Broadrick v. Oklahoma, the Court ruled that "claims of
facial overbreadth have been entertained in cases involving statutes which, by their terms, seek to
regulate only spoken words" and, again, that "overbreadth claims, if entertained at all, have been
curtailed when invoked against ordinary criminal laws that are sought to be applied to protected
conduct." For this reason, it has been held that "a facial challenge to a legislative act is the most
difficult challenge to mount successfully, since the challenger must establish that no set of
circumstances exists under which the Act would be valid." As for the vagueness doctrine, it is said
that a litigant may challenge a statute on its face only if it is vague in all its possible applications. "A
plaintiff who engages in some conduct that is clearly proscribed cannot complain of the vagueness
of the law as applied to the conduct of others."

In sum, the doctrines of strict scrutiny, overbreadth, and vagueness are analytical tools developed
for testing "on their faces" statutes in free speech cases or, as they are called in American law, First
Amendment cases. They cannot be made to do service when what is involved is a criminal statute.
With respect to such statute, the established rule is that "one to whom application of a statute is
constitutional will not be heard to attack the statute on the ground that impliedly it might also be
taken as applying to other persons or other situations in which its application might be
unconstitutional." As has been pointed out, "vagueness challenges in the First Amendment context,
like overbreadth challenges typically produce facial invalidation, while statutes found vague as a
matter of due process typically are invalidated [only] 'as applied' to a particular defendant."
Consequently, there is no basis for petitioner's claim that this Court review the Anti-Plunder Law on
its face and in its entirety.

Indeed, "on its face" invalidation of statutes results in striking them down entirely on the ground that
they might be applied to parties not before the Court whose activities are constitutionally protected. It
constitutes a departure from the case and controversy requirement of the Constitution and permits
decisions to be made without concrete factual settings and in sterile abstract contexts. But, as the
U.S. Supreme Court pointed out in Younger v. Harris

[T]he task of analyzing a proposed statute, pinpointing its deficiencies, and requiring correction of
these deficiencies before the statute is put into effect, is rarely if ever an appropriate task for the
judiciary. The combination of the relative remoteness of the controversy, the impact on the legislative
process of the relief sought, and above all the speculative and amorphous nature of the required
line-by-line analysis of detailed statutes, . . . ordinarily results in a kind of case that is wholly
unsatisfactory for deciding constitutional questions, whichever way they might be decided.

For these reasons, "on its face" invalidation of statutes has been described as "manifestly strong
medicine," to be employed "sparingly and only as a last resort," and is generally disfavored. In
determining the constitutionality of a statute, therefore, its provisions which are alleged to have been
violated in a case must be examined in the light of the conduct with which the defendant is
charged.56 (Underscoring supplied.)

The confusion apparently stems from the interlocking relation of the overbreadth and vagueness
doctrines as grounds for a facial or as-applied challenge against a penal statute (under a claim of
violation of due process of law) or a speech regulation (under a claim of abridgement of the freedom
of speech and cognate rights).

To be sure, the doctrine of vagueness and the doctrine of overbreadth do not operate on the same
plane.

A statute or act suffers from the defect of vagueness when it lacks comprehensible standards that
men of common intelligence must necessarily guess at its meaning and differ as to its application. It
is repugnant to the Constitution in two respects: (1) it violates due process for failure to accord
persons, especially the parties targeted by it, fair notice of the conduct to avoid; and (2) it leaves law
enforcers unbridled discretion in carrying out its provisions and becomes an arbitrary flexing of the
Government muscle.57 The overbreadth doctrine, meanwhile, decrees that a governmental purpose
to control or prevent activities constitutionally subject to state regulations may not be achieved by
means which sweep unnecessarily broadly and thereby invade the area of protected freedoms.58

As distinguished from the vagueness doctrine, the overbreadth doctrine assumes that individuals will
understand what a statute prohibits and will accordingly refrain from that behavior, even though
some of it is protected.59

A "facial" challenge is likewise different from an "as-applied" challenge.

Distinguished from an as-applied challenge which considers only extant facts affecting real litigants,
a facialinvalidation is an examination of the entire law, pinpointing its flaws and defects, not only on
the basis of its actual operation to the parties, but also on the assumption or prediction that its very
existence may cause others not before the court to refrain from constitutionally protected speech or
activities.60

Justice Mendoza accurately phrased the subtitle61 in his concurring opinion that the vagueness and
overbreadth doctrines, as grounds for a facial challenge, are not applicable to penal laws. A litigant
cannot thus successfully mount a facial challenge against a criminal statute on either vagueness or
overbreadth grounds.

The allowance of a facial challenge in free speech cases is justified by the aim to avert the "chilling
effect" on protected speech, the exercise of which should not at all times be abridged.62 As reflected
earlier, this rationale is inapplicable to plain penal statutes that generally bear an "in terrorem effect"
in deterring socially harmful conduct. In fact, the legislature may even forbid and penalize acts
formerly considered innocent and lawful, so long as it refrains from diminishing or dissuading the
exercise of constitutionally protected rights.63

The Court reiterated that there are "critical limitations by which a criminal statute may be challenged"
and "underscored that an on-its-face invalidation of penal statutes x x x may not be allowed."64

[T]he rule established in our jurisdiction is, only statutes on free speech, religious freedom, and other
fundamental rights may be facially challenged. Under no case may ordinary penal statutes be
subjected to a facial challenge. The rationale is obvious. If a facial challenge to a penal statute is
permitted, the prosecution of crimes may be hampered. No prosecution would be possible. A strong
criticism against employing a facial challenge in the case of penal statutes, if the same is allowed,
would effectively go against the grain of the doctrinal requirement of an existing and concrete
controversy before judicial power may be appropriately exercised. A facial challenge against a penal
statute is, at best, amorphous and speculative. It would, essentially, force the court to consider third
parties who are not before it. As I have said in my opposition to the allowance of a facial challenge to
attack penal statutes, such a test will impair the States ability to deal with crime. If warranted, there
would be nothing that can hinder an accused from defeating the States power to prosecute on a
mere showing that, as applied to third parties, the penal statute is vague or overbroad,
notwithstanding that the law is clear as applied to him.65 (Emphasis and underscoring supplied)

It is settled, on the other hand, that the application of the overbreadth doctrine is limited to a
facial kind of challenge and, owing to the given rationale of a facial challenge, applicable only
to free speech cases.

By its nature, the overbreadth doctrine has to necessarily apply a facial type of invalidation in order
to plot areas of protected speech, inevitably almost always under situations not before the court, that
are impermissibly swept by the substantially overbroad regulation. Otherwise stated, a statute
cannot be properly analyzed for being substantially overbroad if the court confines itself only to facts
as applied to the litigants.

The most distinctive feature of the overbreadth technique is that it marks an exception to some of the
usual rules of constitutional litigation. Ordinarily, a particular litigant claims that a statute is
unconstitutional as applied to him or her; if the litigant prevails, the courts carve away the
unconstitutional aspects of the law by invalidating its improper applications on a case to case basis.
Moreover, challengers to a law are not permitted to raise the rights of third parties and can only
assert their own interests. In overbreadth analysis, those rules give way; challenges are permitted to
raise the rights of third parties; and the court invalidates the entire statute "on its face," not
merely "as applied for" so that the overbroad law becomes unenforceable until a properly authorized
court construes it more narrowly. The factor that motivates courts to depart from the normal
adjudicatory rules is the concern with the "chilling;" deterrent effect of the overbroad statute on third
parties not courageous enough to bring suit. The Court assumes that an overbroad laws "very
existence may cause others not before the court to refrain from constitutionally protected speech or
expression." An overbreadth ruling is designed to remove that deterrent effect on the speech of
those third parties.66 (Emphasis in the original omitted; underscoring supplied.)

In restricting the overbreadth doctrine to free speech claims, the Court, in at least two
cases,67 observed that the US Supreme Court has not recognized an overbreadth doctrine outside
the limited context of the First Amendment,68and that claims of facial overbreadth have been
entertained in cases involving statutes which, by their terms, seek to regulate only spoken
words.69 In Virginia v. Hicks,70 it was held that rarely, if ever, will an overbreadth challenge succeed
against a law or regulation that is not specifically addressed to speech or speech-related conduct.
Attacks on overly broad statutes are justified by the "transcendent value to all society of
constitutionally protected expression."71

Since a penal statute may only be assailed for being vague as applied to petitioners, a limited
vagueness analysis of the definition of "terrorism" in RA 9372 is legally impermissible absent
an actual or imminent chargeagainst them

While Estrada did not apply the overbreadth doctrine, it did not preclude the operation of the
vagueness test on the Anti-Plunder Law as applied to the therein petitioner, finding, however, that
there was no basis to review the law "on its face and in its entirety."72 It stressed that "statutes found
vague as a matter of due process typically are invalidated only 'as applied' to a particular
defendant."73

American jurisprudence74 instructs that "vagueness challenges that do not involve the First
Amendment must be examined in light of the specific facts of the case at hand and not with regard to
the statute's facial validity."

For more than 125 years, the US Supreme Court has evaluated defendants claims that criminal
statutes are unconstitutionally vague, developing a doctrine hailed as "among the most important
guarantees of liberty under law."75

In this jurisdiction, the void-for-vagueness doctrine asserted under the due process clause has been
utilized in examining the constitutionality of criminal statutes. In at least three cases,76 the Court
brought the doctrine into play in analyzing an ordinance penalizing the non-payment of municipal tax
on fishponds, the crime of illegal recruitment punishable under Article 132(b) of the Labor Code, and
the vagrancy provision under Article 202 (2) of the Revised Penal Code. Notably, the petitioners in
these three cases, similar to those in the two Romualdez and Estrada cases, were
actually charged with the therein assailed penal statute, unlike in the present case.

There is no merit in the claim that RA 9372 regulates speech so as to permit a facial analysis of its
validity

From the definition of the crime of terrorism in the earlier cited Section 3 of RA 9372, the following
elements may be culled: (1) the offender commits an act punishable under any of the cited
provisions of the Revised Penal Code, or under any of the enumerated special penal laws; (2) the
commission of the predicate crime sows and creates a condition of widespread and extraordinary
fear and panic among the populace; and (3) the offender is actuated by the desire to coerce the
government to give in to an unlawful demand.
In insisting on a facial challenge on the invocation that the law penalizes speech, petitioners contend
that the element of "unlawful demand" in the definition of terrorism77 must necessarily be transmitted
through some form of expression protected by the free speech clause.

The argument does not persuade. What the law seeks to penalize is conduct, not speech.

Before a charge for terrorism may be filed under RA 9372, there must first be a predicate crime
actually committed to trigger the operation of the key qualifying phrases in the other elements of the
crime, including the coercion of the government to accede to an "unlawful demand." Given the
presence of the first element, any attempt at singling out or highlighting the communicative
component of the prohibition cannot recategorize the unprotected conduct into a protected speech.

Petitioners notion on the transmission of message is entirely inaccurate, as it unduly focuses on just
one particle of an element of the crime. Almost every commission of a crime entails some mincing of
words on the part of the offender like in declaring to launch overt criminal acts against a victim, in
haggling on the amount of ransom or conditions, or in negotiating a deceitful transaction. An analogy
in one U.S. case78 illustrated that the fact that the prohibition on discrimination in hiring on the basis
of race will require an employer to take down a sign reading "White Applicants Only" hardly means
that the law should be analyzed as one regulating speech rather than conduct.

Utterances not elemental but inevitably incidental to the doing of the criminal conduct alter neither
the intent of the law to punish socially harmful conduct nor the essence of the whole act as conduct
and not speech. This holds true a fortiori in the present case where the expression figures only as an
inevitable incident of making the element of coercion perceptible.

[I]t is true that the agreements and course of conduct here were as in most instances brought about
through speaking or writing. But it has never been deemed an abridgement of freedom of speech or
press to make a course of conduct illegal merely because the conduct was, in part,
initiated, evidenced, or carried out by means of language, either spoken, written, or printed. Such an
expansive interpretation of the constitutional guaranties of speech and press would make it
practically impossible ever to enforce laws against agreements in restraint of trade as well as many
other agreements and conspiracies deemed injurious to society.79 (italics and underscoring supplied)

Certain kinds of speech have been treated as unprotected conduct, because they merely evidence a
prohibited conduct.80 Since speech is not involved here, the Court cannot heed the call for a facial
analysis.1avv phi 1

IN FINE, Estrada and the other cited authorities engaged in a vagueness analysis of the therein
subject penal statute as applied to the therein petitioners inasmuch as they were actually charged
with the pertinent crimes challenged on vagueness grounds. The Court in said cases, however,
found no basis to review the assailed penal statute on its face and in its entirety.

In Holder, on the other hand, the US Supreme Court allowed the pre-enforcement review of a
criminal statute, challenged on vagueness grounds, since the therein plaintiffs faced a "credible
threat of prosecution" and "should not be required to await and undergo a criminal prosecution as
the sole means of seeking relief."

As earlier reflected, petitioners have established neither an actual charge nor a credible threat of
prosecution under RA 9372. Even a limited vagueness analysis of the assailed definition of
"terrorism" is thus legally impermissible. The Court reminds litigants that judicial power neither
contemplates speculative counseling on a statutes future effect on hypothetical scenarios nor allows
the courts to be used as an extension of a failed legislative lobbying in Congress.
WHEREFORE, the petitions are DISMISSED.

SO ORDERED.