V.
TAXPAYER’S SUIT On November 5, 2001, the Sangguniang
MANUEL N. MAMBA, RAYMUND P. GUZMAN
and LEONIDES N. FAUSTO, Petitioners,
vs.
EDGAR R. LARA, JENERWIN C. BACUYAG,
WILSON O. PUYAWAN, ALDEGUNDO Q.
CAYOSA, JR., NORMAN A. AGATEP,
ESTRELLA P. FERNANDEZ, VILMER V.
VILORIA, BAYLON A. CALAGUI, CECILIA
MAEVE T. LAYOS, PREFERRED VENTURES
CORP., ASSET BUILDERS CORP., RIZAL
COMMERCIAL BANKING CORPORATION,
MALAYAN INSURANCE CO., and LAND
BANK OF THE PHILIPPINES, Respondents.
DECISION
DEL CASTILLO, J.:
The decision to entertain a taxpayer’s suit is
discretionary upon the Court. It can choose to
strictly apply the rule or take a liberal stance
depending on the controversy involved.
Advocates for a strict application of the rule
believe that leniency would open floodgates to
numerous suits, which could hamper the
government from performing its job. Such
possibility, however, is not only remote but also
negligible compared to what is at stake - "the
lifeblood of the State". For this reason, when the
issue hinges on the illegal disbursement of
public funds, a liberal approach should be
preferred as it is more in keeping with truth and
justice.
This Petition for Review on Certiorari with prayer
for a Temporary Restraining Order/Writ of
Preliminary Injunction, under Rule 45 of the
Rules of Court, seeks to set aside the April 27,
2004 Order 1 of the Regional Trial Court (RTC),
Branch 5, Tuguegarao City, dismissing the
Petition for Annulment of Contracts and
Injunction with prayer for the issuance of a
Temporary Restraining Order/Writ of Preliminary
Injunction, 2 docketed as Civil Case No. 6283.
Likewise assailed in this Petition is the August
20, 2004 Resolution 3 of RTC, Branch 1,
Tuguegarao City denying the Motion for
Reconsideration of the dismissal.
Factual Antecedents
Panlalawigan of Cagayan passed Resolution
No. 2001-272 4 authorizing Governor Edgar R.
Lara (Gov. Lara) to engage the services of and
appoint Preferred Ventures Corporation as
financial advisor or consultant for the issuance
and flotation of bonds to fund the priority
projects of the governor without cost and
commitment.
On November 19, 2001, the Sangguniang
Panlalawigan, through Resolution No. 290-
2001, 5 ratified the Memorandum of Agreement
(MOA) 6 entered into by Gov. Lara and Preferred
Ventures Corporation. The MOA provided that
the provincial government of Cagayan shall pay
Preferred Ventures Corporation a one-time fee
of 3% of the amount of bonds floated.
On February 15, 2002, the Sangguniang
Panlalawigan approved Resolution No. 2002-
061-A 7 authorizing Gov. Lara to negotiate, sign
and execute contracts or agreements pertinent
to the flotation of the bonds of the provincial
government in an amount not to exceed ₱500
million for the construction and improvement of
priority projects to be approved by the
Sangguniang Panlalawigan.
On May 20, 2002, the majority of the members
of the Sangguniang Panlalawigan of Cagayan
approved Ordinance No. 19-2002, 8 authorizing
the bond flotation of the provincial government in
an amount not to exceed ₱500 million to fund
the construction and development of the new
Cagayan Town Center. The Resolution likewise
granted authority to Gov. Lara to negotiate, sign
and execute contracts and agreements
necessary and related to the bond flotation
subject to the approval and ratification by
the Sangguniang Panlalawigan.
On October 20, 2003, the Sangguniang
Panlalawigan approved Resolution No. 350-
2003 9 ratifying the Cagayan Provincial Bond
Agreements entered into by the provincial
government, represented by Gov. Lara, to wit:
a. Trust Indenture with the Rizal
Commercial Banking Corporation
(RCBC) – Trust and Investment Division
and Malayan Insurance Company, Inc.
(MICO).
 b. Deed of Assignment by way of
security with the RCBC and the Land
Bank of the Philippines (LBP).
c. Transfer and Paying Agency
Agreement with the RCBC – Trust and
Investment Division.
d. Guarantee Agreement with the RCBC
– Trust and Investment Division and
MICO.
e. Underwriting Agreement with RCBC
Capital Corporation.
On even date, the Sangguniang Panlalawigan
also approved Resolution No. 351-
2003, 10 ratifying the Agreement for the
Planning, Design, Construction, and Site
Development of the New Cagayan Town
Center 11 entered into by the provincial
government, represented by Gov. Lara and
Asset Builders Corporation, represented by its
President, Mr. Rogelio P. Centeno.
On May 20, 2003, Gov. Lara issued the Notice
of Award to Asset Builders Corporation, giving to
the latter the planning, design, construction and
site development of the town center project for a
fee of ₱213,795,732.39. 12
Proceedings before the Regional Trial Court
On December 12, 2003, petitioners Manuel N.
Mamba, Raymund P. Guzman and Leonides N.
Fausto filed a Petition for Annulment of
Contracts and Injunction with prayer for a
Temporary Restraining Order/Writ of Preliminary
Injunction 13 against Edgar R. Lara, Jenerwin C.
Bacuyag, Wilson O. Puyawan, Aldegundo Q.
Cayosa, Jr., Norman A. Agatep, Estrella P.
Fernandez, Vilmer V. Viloria, Baylon A. Calagui,
Cecilia Maeve T. Layos, Preferred Ventures
Corporation, Asset Builders Corporation, RCBC,
MICO and LBP.1avvphi1
At the time of the filing of the petition, Manuel N.
Mamba was the Representative of the 3rd
Congressional District of the province of
Cagayan 14 while Raymund P. Guzman and
Leonides N. Fausto were members of
the Sangguniang Panlalawigan of Cagayan. 15
Edgar R. Lara was sued in his capacity as
governor of Cagayan, 16 while Jenerwin C.
Bacuyag, Wilson O. Puyawan, Aldegundo Q.
Cayosa, Jr., Norman A. Agatep, Estrella P.
Fernandez, Vilmer V. Viloria, Baylon A. Calagui
and Cecilia Maeve T. Layos were sued as
members of the Sangguniang Panlalawigan of
Cagayan. 17 Respondents Preferred Ventures
Corporation, Asset Builders Corporation, RCBC,
MICO and LBP were all impleaded as
indispensable or necessary parties.
Respondent Preferred Ventures Corporation is
the financial advisor of the province of Cagayan
regarding the bond flotation undertaken by the
province. 18 Respondent Asset Builders
Corporation was awarded the right to plan,
design, construct and develop the proposed
town center. 19 Respondent RCBC, through its
Trust and Investment Division, is the trustee of
the seven-year bond flotation undertaken by the
province for the construction of the town
center, 20 while respondent MICO is the
guarantor. 21 Lastly, respondent LBP is the
official depositary bank of the province. 22
In response to the petition, public respondents
filed an Answer with Motion to Dismiss, 23 raising
the following defenses: a) petitioners are not the
proper parties or they lack locus standi in court;
b) the action is barred by the rule on state
immunity from suit and c) the issues raised are
not justiciable questions but purely political.
For its part, respondent Preferred Ventures
Corporation filed a Motion to Dismiss 24 on the
following grounds: a) petitioners have no cause
of action for injunction; b) failure to join an
indispensable party; c) lack of personality to sue
and d) lack of locus standi. Respondent MICO
likewise filed a Motion to Dismiss 25 raising the
grounds of lack of cause of action and legal
standing. Respondent RCBC similarly argued in
its Motion to Dismiss 26 that: a) petitioners are
not the real parties-in-interest or have no legal
standing to institute the petition; b) petitioners
have no cause of action as the flotation of the
bonds are within the right and power of both
respondent RCBC and the province of Cagayan
and c) the viability of the construction of a town
center is not a justiciable question but a political
question.
Respondent Asset Builders Corporation, on the
other hand, filed an Answer 27 interposing
special and affirmative defenses of lack of legal
standing and cause of action. Respondent LBP
also filed an Answer 28 alleging in the main that
petitioners have no cause of action against it as
it is not an indispensable party or a necessary
party to the case.
Two days after the filing of respondents’
respective memoranda on the issues raised
during the hearing of the special and/or
affirmative defenses, petitioners filed a Motion to
Admit Amended Petition 29 attaching thereto the
amended petition. 30 Public respondents
opposed the motion for the following reasons: 1)
the motion was belatedly filed; 2) the Amended
Petition is not sufficient in form and in
substance; 3) the motion is patently dilatory and
4) the Amended Petition was filed to cure the
defect in the original petition. 31
Petitioners also filed a Consolidated Opposition
to the Motion to Dismiss 32 followed by
supplemental pleadings 33in support of their
prayer for a writ of preliminary injunction.
On April 27, 2004, the RTC issued the assailed
Order denying the Motion to Admit Amended
Petition and dismissing the petition for lack of
cause of action. It ruled that:
The language of Secs. 2 & 3 of Rule 10 of the
1997 Rules of Civil Procedure dealing on the
filing of an amended pleading is quite clear. As
such, the Court rules that the motion was
belatedly filed. The granting of leave to file
amended pleadings is a matter peculiarly within
the sound discretion of the trial court. But the
rule allowing amendments to pleadings is
subject to the general but inflexible limitation that
the cause of action or defense shall not be
substantially changed or the theory of the case
altered to the prejudice of the other party
(Avecilla vs. Yatcvo, 103 Phil. 666).
On the assumption that the controversy presents
justiciable issues which this Court may take
cognizance of, petitioners in the present case
who presumably presented legitimate interests
in the controversy are not parties to the
questioned contract. Contracts produce effect as
between the parties who execute them. Only a
party to the contract can maintain an action to
enforce the obligations arising under said
contract (Young vs. CA, 169 SCRA 213). Since
a contract is binding only upon the parties
thereto, a third person cannot ask for its
rescission if it is in fraud of his rights. One who is
not a party to a contract has no rights under
such contract and even if the contrary may be
voidable, its nullity can be asserted only by one
who is a party thereto; a third person would have
absolutely no personality to ask for the
annulment (Wolfson vs. Estate of Martinez, 20
Phil. 340; Ibañez vs. Hongkong & Shanghai
Bank, 22 Phil. 572; Ayson vs. CA, G.R. Nos. L-
6501 & 6599, May 21, 1955).
It was, however, held that a person who is not a
party obliged principally or subsidiarily in a
contract may exercise an action for nullity of the
contract if he is prejudiced in his rights with
respect to one of the contracting parties and can
show the detriment which would positively result
to him from the contract in which he had no
intervention (Bañez vs. CA, 59 SCRA 15;
Anyong Hsan vs. CA, 59 SCRA 110, 112-113;
Leodovica vs. CA, 65 SCRA 154-155). In the
case at bar, petitioners failed to show that they
were prejudiced in their rights [or that a]
detriment x x x would positively result to them.
Hence, they lack locus standi in court.
xxxx
To the mind of the Court, procedural matters in
the present controversy may be dispensed with,
stressing that the instant case is a political
question, a question which the court cannot, in
any manner, take judicial cognizance. Courts will
not interfere with purely political questions
because of the principle of separation of powers
(Tañada vs. Cuenco, 103 Phil. 1051). Political
questions are those questions which, under the
Constitution, are to be decided by the people in
their sovereign capacity or in regard to which full
discretionary authority has been delegated to
the legislative or [to the] executive branch of the
government (Nuclear Free Phils. Coalition vs.
NPC, 141 SCRA 307 (1986); Torres vs.
Gonzales, 152 SCRA 272; Citizen’s Alliance for
Consumer Protection vs. Energy Regulatory
Board, G.R. No. 78888-90, June 23, 1988).
The citation made by the provincial government[,
to] which this Court is inclined to agree, is that
the matter falls under the discretion of another
department, hence the decision reached is in the
category of a political question and consequently
may not be the subject of judicial jurisdiction
(Cruz in Political Law, 1998 Ed., page 81) is
correct.
It is [a] well-recognized principle that purely
administrative and discretionary functions may
not be interfered with by the courts (Adm. Law
Test & Cases, 2001 Ed., De Leon, De Leon, Jr.).
The case therefore calls for the doctrine of
ripeness for judicial review. This determines the
point at which courts may review administrative
action. The basic principle of ripeness is that the
judicial machinery should be conserved for
problems which are real and present or
imminent and should not be squandered on
problems which are future, imaginary or remote.
This case is not ripe for judicial determination
since there is no imminently x x x substantial
injury to the petitioners.
In other words, the putting up of the New
Cagayan Town Center by the province over the
land fully owned by it and the concomitant
contracts entered into by the same is within the
bounds of its corporate power, an undertaking
which falls within the ambit of its discretion and
therefore a purely political issue which is beyond
the province of the court x x x. [Consequently,
the court cannot,] in any manner, take judicial
cognizance over it. The act of the provincial
government was in pursuance of the mandate of
the Local Government Code of 1991.
xxxx
Indeed, adjudication of the procedural issues
presented for resolution by the present action
would be a futile exercise in exegesis.
What defeats the plea of the petitioners for the
issuance of a writ of preliminary injunction is the
fact that their averments are merely speculative
and founded on conjectures. An injunction is not
intended to protect contingent or future rights
nor is it a remedy to enforce an abstract right
(Cerebo vs. Dictado, 160 SCRA 759; Ulang vs.
CA, 225 SCRA 637). An injunction, whether
preliminary or final, will not issue to protect a
right not in in esse and which may never arise,
or to restrain an act which does not give rise to a
cause of action. The complainant’s right on title,
moreover, must be clear and unquestioned
[since] equity, as a rule, will not take cognizance
of suits to establish title and will not lend its
preventive aid by injunction where the
complainant’s title or right is doubtful or
disputed. The possibility of irreparable damage,
without proof of violation of an actual existing
right, is no ground for injunction being a
mere damnum, absque injuria (Talisay-Silay
Milling Company, Inc. vs. CFI of Negros
Occidental, et. al. 42 SCRA 577, 582).
xxxx
For lack of cause of action, the case should be
dismissed.
The facts and allegations [necessarily] suggest
also that this court may dismiss the case for
want of jurisdiction.
The rule has to be so because it can motu
propio dismiss it as its only jurisdiction is to
dismiss it if it has no jurisdiction. This is in line
with the ruling in Andaya vs. Abadia, 46 SCAD
1036, G.R. No. 104033, Dec. 27, 1993 where
the court may dismiss a complaint even without
a motion to dismiss or answer.
Upon the foregoing considerations, the case is
hereby dismissed without costs.
Issue.WON the denied locus standi to
petitioners is valid;
The petition is partially meritorious.
Petitioners have legal standing to sue as
taxpayers
A taxpayer is allowed to sue where there is a
claim that public funds are illegally disbursed, or
that the public money is being deflected to any
improper purpose, or that there is wastage of
public funds through the enforcement of an
invalid or unconstitutional law. 39 A person suing
as a taxpayer, however, must show that the act
complained of directly involves the illegal
disbursement of public funds derived from
taxation. 40 He must also prove that he has
sufficient interest in preventing the illegal
expenditure of money raised by taxation and
that he will sustain a direct injury because of the
enforcement of the questioned statute or
contract. 41 In other words, for a taxpayer’s suit
to prosper, two requisites must be met: (1)
public funds derived from taxation are disbursed
Compensation to
by a political subdivision or instrumentality and ₱ 6,150,000.00
Preferred Ventures -
in doing so, a law is violated or some irregularity
is committed and (2) the petitioner is directly (3% of
affected by the alleged act. 42 P205M) 51 Resolutio
n No. 290-2001
In light of the foregoing, it is apparent that
contrary to the view of the RTC, Management and
3,075,000.00
Underwriting Fees -
a taxpayer need not be a party to the contract to (1.5% of P205M) 52
challenge its validity. 43 As long as taxes are
involved, people have a right to question Documentary Tax - 1,537,500.00
contracts entered into by the government.
(0.75% of P205M) 53
In this case, although the construction of the
Guarantee Fee 54 - 7,350,000.00
town center would be primarily sourced from the
proceeds of the bonds, which respondents insist Construction and
are not taxpayer’s money, a government support Design of town 213,795,732.39
in the amount of ₱187 million would still be center 55 -
spent for paying the interest of the bonds. 44 In
fact, a Deed of Assignment 45 was executed by ₱231,908,232.3
Total Cost -
the governor in favor of respondent RCBC over 9
the Internal Revenue Allotment (IRA) and other
revenues of the provincial government as
payment and/or security for the obligations of What is more, the provincial government would
the provincial government under the Trust be shelling out a total amount of ₱187 million for
Indenture Agreement dated September 17, the period of seven years by way of subsidy for
2003. Records also show that on March 4, 2004, the interest of the bonds. Without a doubt, the
the governor requested the Sangguniang resolution of the present petition is of paramount
Panlalawigan to appropriate an amount of ₱25 importance to the people of Cagayan who at the
million for the interest of the bond. 46 Clearly, the end of the day would bear the brunt of these
first requisite has been met. agreements.

As to the second requisite, the court, in recent
cases, has relaxed the stringent "direct injury
test" bearing in mind that locus standi is a
procedural technicality. 47 By invoking
"transcendental importance", "paramount public
interest", or "far-reaching implications", ordinary
citizens and taxpayers were allowed to sue even
if they failed to show direct injury. 48 In cases
where serious legal issues were raised or where
public expenditures of millions of pesos were
involved, the court did not hesitate to give
standing to taxpayers. 49
We find no reason to deviate from the
jurisprudential trend.
To begin with, the amount involved in this case
is substantial. Under the various agreements
entered into by the governor, which were ratified
by the Sangguniang Panlalawigan, the provincial
government of Cagayan would incur the
following costs: 50
Another point to consider is that local
government units now possess more powers,
authority and resources at their
disposal, 56 which in the hands of unscrupulous
officials may be abused and misused to the
detriment of the public. To protect the interest of
the people and to prevent taxes from being
squandered or wasted under the guise of
government projects, a liberal approach must
therefore be adopted in determining locus
standi in public suits.
In view of the foregoing, we are convinced that
petitioners have sufficient standing to file the
present suit. Accordingly, they should be given
the opportunity to present their case before the
RTC.
Having resolved the core issue, we shall now
proceed to the remaining issues.
LAND BANK OF THE
PHILIPPINES, Petitioner,
vs.
EDUARDO M. CACAYURAN, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this Petition for Review on
Certiorari1 is the March 26, 2010 Decision2 of
the Court of Appeals (CA) in CA-G.R. CV. No.
89732 which affirmed with modification the April
10, 2007 Decision3 of the Regional Trial Court
(RTC) of Agoo, La Union, Branch 31, declaring
inter alia the nullity of the loan agreements
entered into by petitioner Land Bank of the
Philippines (Land Bank) and the Municipality of
Agoo, La Union (Municipality).
The Facts
From 2005 to 2006, the Municipality’s
Sangguniang Bayan (SB) passed certain
resolutions to implement a multi-phased plan
(Redevelopment Plan) to redevelop the Agoo
Public Plaza (Agoo Plaza) where the Imelda
Garden and Jose Rizal Monument were
situated.
To finance phase 1 of the said plan, the SB
initially passed Resolution No. 68-20054 on April
19, 2005, authorizing then Mayor Eufranio
Eriguel (Mayor Eriguel) to obtain a loan from
Land Bank and incidental thereto, mortgage a
2,323.75 square meter lot situated at the
southeastern portion of the Agoo Plaza (Plaza
Lot) as collateral. To serve as additional
security, it further authorized the assignment of
a portion of its internal revenue allotment (IRA)
and the monthly income from the proposed
project in favor of Land Bank.5 The foregoing
terms were confirmed, approved and ratified on
October 4, 2005 through Resolution No. 139-
2005.6 Consequently, on November 21, 2005,
Land Bank extended a ₱4,000,000.00 loan in
favor of the Municipality (First Loan),7 the
proceeds of which were used to construct ten
(10) kiosks at the northern and southern portions
of the Imelda Garden. After completion, these
kiosks were rented out.8
On March 7, 2006, the SB passed Resolution
No. 58-2006,9 approving the construction of a
commercial center on the Plaza Lot as part of
phase II of the Redevelopment Plan. To finance
the project, Mayor Eriguel was again authorized
to obtain a loan from Land Bank, posting as well
the same securities as that of the First Loan. All
previous representations and warranties of
Mayor Eriguel related to the negotiation and
obtention of the new loan10were ratified on
September 5, 2006 through Resolution No. 128-
2006.11 In consequence, Land Bank granted a
second loan in favor of the Municipality on
October 20, 2006 in the principal amount of
₱28,000,000.00 (Second Loan).12
Unlike phase 1 of the Redevelopment Plan, the
construction of the commercial center at the
Agoo Plaza was vehemently objected to by
some residents of the Municipality. Led by
respondent Eduardo Cacayuran (Cacayuran),
these residents claimed that the conversion of
the Agoo Plaza into a commercial center, as
funded by the proceeds from the First and
Second Loans (Subject Loans), were "highly
irregular, violative of the law, and detrimental to
public interests, and will result to wanton
desecration of the said historical and public
park."13 The foregoing was embodied in a
Manifesto,14 launched through a signature
campaign conducted by the residents and
Cacayuran.
In addition, Cacayuran wrote a letter15 dated
December 8, 2006 addressed to Mayor Eriguel,
Vice Mayor Antonio Eslao (Vice Mayor Eslao),
and the members of the SB namely, Violeta
Laroya-Balbin, Jaime Boado, Jr., Rogelio De
Vera, James Dy, Crisogono Colubong, Ricardo
Fronda, Josephus Komiya, Erwina Eriguel,
Felizardo Villanueva, and Gerard Mamuyac
(Implicated Officers), expressing the growing
public clamor against the conversion of the Agoo
Plaza into a commercial center. He then
requested the foregoing officers to furnish him
certified copies of various documents related to
the aforementioned conversion including, among
others, the resolutions approving the
Redevelopment Plan as well as the loan
agreements for the sake of public information
and transparency.
Unable to get any response, Cacayuran,
invoking his right as a taxpayer, filed a
Complaint16 against the Implicated Officers and
Land Bank, assailing, among others, the validity
of the Subject Loans on the ground that the
Plaza Lot used as collateral thereof is property
of public dominion and therefore, beyond the
commerce of man.17
Upon denial of the Motion to Dismiss dated
December 27, 2006,18 the Implicated Officers
and Land Bank filed their respective Answers.
For its part, Land Bank claimed that it is not
privy to the Implicated Officers’ acts of
destroying the Agoo Plaza. It further asserted
that Cacayuran did not have a cause of action
against it since he was not privy to any of the
Subject Loans.19
During the pendency of the proceedings, the
construction of the commercial center was
completed and the said structure later became
known as the Agoo’s People Center (APC).
On May 8, 2007, the SB passed Municipal
Ordinance No. 02-2007,20 declaring the area
where the APC stood as patrimonial property of
the Municipality.
The Ruling of the RTC
In its Decision dated April 10, 2007,21 the RTC
ruled in favor of Cacayuran, declaring the nullity
of the Subject Loans.22 It found that the
resolutions approving the said loans were
passed in a highly irregular manner and thus,
ultra vires; as such, the Municipality is not bound
by the same.23 Moreover, it found that the Plaza
Lot is proscribed from collateralization given its
nature as property for public use.24
Aggrieved, Land Bank filed its Notice of Appeal
on April 23, 2007.25 On the other hand, the
Implicated Officers’ appeal was deemed
abandoned and dismissed for their failure to file
an appellants’ brief despite due notice.26 In this
regard, only Land Bank’s appeal was given due
course by the CA.
Ruling of the CA
In its Decision dated March 26, 2010,27 the CA
affirmed with modification the RTC’s ruling,
excluding Vice Mayor Eslao from any personal
liability arising from the Subject Loans.28
It held, among others, that: (1) Cacayuran had
locus standi to file his complaint, considering
that (a) he was born, raised and a bona fide
resident of the Municipality; and (b) the issue at
hand involved public interest of transcendental
importance;29 (2) Resolution Nos. 68-2005, 139-
2005, 58-2006, 128-2006 and all other related
resolutions (Subject Resolutions) were invalidly
passed due to the SB’s non-compliance with
certain sections of Republic Act No. 7160,
otherwise known as the "Local Government
Code of 1991" (LGC); (3) the Plaza Lot, which
served as collateral for the Subject Loans, is
property of public dominion and thus, cannot be
appropriated either by the State or by private
persons;30 and (4) the Subject Loans are ultra
vires because they were transacted without
proper authority and their collateralization
constituted improper disbursement of public
funds.
Dissatisfied, Land Bank filed the instant petition.
Issues Before the Court
The following issues have been raised for the
Court’s resolution: (1) whether Cacayuran has
standing to sue;
The petition lacks merit.
A. Cacayuran’s standing to sue
Land Bank claims that Cacayuran did not
have any standing to contest the construction
of the APC as it was funded through the
proceeds coming from the Subject Loans and
not from public funds. Besides, Cacayuran
was not even a party to any of the Subject
Loans and is thus, precluded from questioning
the same.
The argument is untenable.
It is hornbook principle that a taxpayer is
allowed to sue where there is a claim that
public funds are illegally disbursed, or that
public money is being deflected to any
improper purpose, or that there is wastage of
public funds through the enforcement of an
invalid or unconstitutional law. A person suing
as a taxpayer, however, must show that the
act complained of directly involves the illegal
disbursement of public funds derived from
taxation. In other words, for a taxpayer’s suit
to prosper, two requisites must be met
namely, (1) public funds derived from taxation
are disbursed by a political subdivision or
instrumentality and in doing so, a law is
violated or some irregularity is committed; and
(2) the petitioner is directly affected by the
alleged act.31
Records reveal that the foregoing requisites
are present in the instant case.
not be exploited for commercial purposes
through the APC’s construction. Moreover,
Cacayuran need not be privy to the Subject
Loans in order to proffer his objections
thereto. In Mamba v. Lara, it has been held
that a taxpayer need not be a party to the
contract to challenge its validity; as long as
taxes are involved, people have a right to
question contracts entered into by the
government.37

First, although the construction of the APC Therefore, as the above-stated requisites
would be primarily sourced from the proceeds obtain in this case, Cacayuran has standing to
of the Subject Loans, which Land Bank insists file the instant suit.
are not taxpayer’s money, there is no denying
that public funds derived from taxation are
bound to be expended as the Municipality
assigned a portion of its IRA as a security for
the foregoing loans. Needless to state, the
Municipality’s IRA, which serves as the local
government unit’s just share in the national
taxes,32 is in the nature of public funds derived
from taxation. The Court believes, however,
that although these funds may be posted as a
security, its collateralization should only be
deemed effective during the incumbency of
the public officers who approved the same,
else those who succeed them be effectively
deprived of its use.

In any event, it is observed that the proceeds

from the Subject Loans had already been
converted into public funds by the
Municipality’s receipt thereof. Funds coming
from private sources become impressed with
the characteristics of public funds when they
are under official custody.33

Accordingly, the first requisite has been

clearly met.

Second, as a resident-taxpayer of the

Municipality, Cacayuran is directly affected by
the conversion of the Agoo Plaza which was
funded by the proceeds of the Subject Loans.
It is well-settled that public plazas are
properties for public use34 and therefore,
belongs to the public dominion.35 As such, it
can be used by anybody and no one can
exercise over it the rights of a private
owner.36 In this light, Cacayuran had a direct
interest in ensuring that the Agoo Plaza would
VI. LAW VS REGULATION
LAND BANK OF THE
PHILIPPINES, Petitioner,
vs.
EDUARDO M. CACAYURAN, Respondent.
The Facts
From 2005 to 2006, the Municipality’s
Sangguniang Bayan (SB) passed certain
resolutions to implement a multi-phased plan
(Redevelopment Plan) to redevelop the Agoo
Public Plaza (Agoo Plaza) where the Imelda
Garden and Jose Rizal Monument were
situated.
To finance phase 1 of the said plan, the SB
initially passed Resolution No. 68-20054 on April
19, 2005, authorizing then Mayor Eufranio
Eriguel (Mayor Eriguel) to obtain a loan from
Land Bank and incidental thereto, mortgage a
2,323.75 square meter lot situated at the
southeastern portion of the Agoo Plaza (Plaza
Lot) as collateral. To serve as additional
security, it further authorized the assignment of
a portion of its internal revenue allotment (IRA)
and the monthly income from the proposed
project in favor of Land Bank.5 The foregoing
terms were confirmed, approved and ratified on
October 4, 2005 through Resolution No. 139-
2005.6 Consequently, on November 21, 2005,
Land Bank extended a ₱4,000,000.00 loan in
favor of the Municipality (First Loan),7 the
proceeds of which were used to construct ten
(10) kiosks at the northern and southern portions
of the Imelda Garden. After completion, these
kiosks were rented out.8
On March 7, 2006, the SB passed Resolution
No. 58-2006,9 approving the construction of a
commercial center on the Plaza Lot as part of
phase II of the Redevelopment Plan. To finance
the project, Mayor Eriguel was again authorized
to obtain a loan from Land Bank, posting as well
the same securities as that of the First Loan. All
previous representations and warranties of
Mayor Eriguel related to the negotiation and
obtention of the new loan10were ratified on
September 5, 2006 through Resolution No. 128-
2006.11 In consequence, Land Bank granted a
second loan in favor of the Municipality on
October 20, 2006 in the principal amount of
₱28,000,000.00 (Second Loan).12
Unlike phase 1 of the Redevelopment Plan, the
construction of the commercial center at the
Agoo Plaza was vehemently objected to by
some residents of the Municipality. Led by
respondent Eduardo Cacayuran (Cacayuran),
these residents claimed that the conversion of
the Agoo Plaza into a commercial center, as
funded by the proceeds from the First and
Second Loans (Subject Loans), were "highly
irregular, violative of the law, and detrimental to
public interests, and will result to wanton
desecration of the said historical and public
park."13 The foregoing was embodied in a
Manifesto,14 launched through a signature
campaign conducted by the residents and
Cacayuran.
In addition, Cacayuran wrote a letter15 dated
December 8, 2006 addressed to Mayor Eriguel,
Vice Mayor Antonio Eslao (Vice Mayor Eslao),
and the members of the SB namely, Violeta
Laroya-Balbin, Jaime Boado, Jr., Rogelio De
Vera, James Dy, Crisogono Colubong, Ricardo
Fronda, Josephus Komiya, Erwina Eriguel,
Felizardo Villanueva, and Gerard Mamuyac
(Implicated Officers), expressing the growing
public clamor against the conversion of the Agoo
Plaza into a commercial center. He then
requested the foregoing officers to furnish him
certified copies of various documents related to
the aforementioned conversion including, among
others, the resolutions approving the
Redevelopment Plan as well as the loan
agreements for the sake of public information
and transparency.
Unable to get any response, Cacayuran,
invoking his right as a taxpayer, filed a
Complaint16 against the Implicated Officers and
Land Bank, assailing, among others, the validity
of the Subject Loans on the ground that the
Plaza Lot used as collateral thereof is property
of public dominion and therefore, beyond the
commerce of man.17
Upon denial of the Motion to Dismiss dated
December 27, 2006,18 the Implicated Officers
and Land Bank filed their respective Answers.
For its part, Land Bank claimed that it is not
privy to the Implicated Officers’ acts of
destroying the Agoo Plaza. It further asserted
that Cacayuran did not have a cause of action
against it since he was not privy to any of the
Subject Loans.19
During the pendency of the proceedings, the
construction of the commercial center was
completed and the said structure later became
known as the Agoo’s People Center (APC).
On May 8, 2007, the SB passed Municipal
Ordinance No. 02-2007,20 declaring the area
where the APC stood as patrimonial property of
the Municipality.
The Ruling of the RTC
In its Decision dated April 10, 2007,21 the RTC
ruled in favor of Cacayuran, declaring the nullity
of the Subject Loans.22 It found that the
resolutions approving the said loans were
passed in a highly irregular manner and thus,
ultra vires; as such, the Municipality is not bound
by the same.23 Moreover, it found that the Plaza
Lot is proscribed from collateralization given its
nature as property for public use.24
Aggrieved, Land Bank filed its Notice of Appeal
on April 23, 2007.25 On the other hand, the
Implicated Officers’ appeal was deemed
abandoned and dismissed for their failure to file
an appellants’ brief despite due notice.26 In this
regard, only Land Bank’s appeal was given due
course by the CA.
Ruling of the CA
In its Decision dated March 26, 2010,27 the CA
affirmed with modification the RTC’s ruling,
excluding Vice Mayor Eslao from any personal
liability arising from the Subject Loans.28
It held, among others, that: (1) Cacayuran had
locus standi to file his complaint, considering
that (a) he was born, raised and a bona fide
resident of the Municipality; and (b) the issue at
hand involved public interest of transcendental
importance;29 (2) Resolution Nos. 68-2005, 139-
2005, 58-2006, 128-2006 and all other related
resolutions (Subject Resolutions) were invalidly
passed due to the SB’s non-compliance with
certain sections of Republic Act No. 7160,
otherwise known as the "Local Government
Code of 1991" (LGC); (3) the Plaza Lot, which
served as collateral for the Subject Loans, is
property of public dominion and thus, cannot be
appropriated either by the State or by private
persons;30 and (4) the Subject Loans are ultra
vires because they were transacted without
proper authority and their collateralization
constituted improper disbursement of public
funds.
Dissatisfied, Land Bank filed the instant petition.
Issues Before the Court
The following issues have been raised for the
Court’s resolution: (1) whether Cacayuran has
standing to sue; (2) whether the Subject
Resolutions were validly passed; and (3)
whether the Subject Loans are ultra vires.
The Court’s Ruling
The petition lacks merit.
A. Cacayuran’s standing to sue
Land Bank claims that Cacayuran did not have
any standing to contest the construction of the
APC as it was funded through the proceeds
coming from the Subject Loans and not from
public funds. Besides, Cacayuran was not even
a party to any of the Subject Loans and is thus,
precluded from questioning the same.
The argument is untenable.
It is hornbook principle that a taxpayer is allowed
to sue where there is a claim that public funds
are illegally disbursed, or that public money is
being deflected to any improper purpose, or that
there is wastage of public funds through the
enforcement of an invalid or unconstitutional
law. A person suing as a taxpayer, however,
must show that the act complained of directly
involves the illegal disbursement of public funds
derived from taxation. In other words, for a
taxpayer’s suit to prosper, two requisites must
be met namely, (1) public funds derived from
taxation are disbursed by a political subdivision
or instrumentality and in doing so, a law is
violated or some irregularity is committed; and
(2) the petitioner is directly affected by the
alleged act.31
Records reveal that the foregoing requisites are
present in the instant case.
First, although the construction of the APC
would be primarily sourced from the proceeds of
the Subject Loans, which Land Bank insists are
not taxpayer’s money, there is no denying that
public funds derived from taxation are bound to
be expended as the Municipality assigned a
portion of its IRA as a security for the foregoing
loans. Needless to state, the Municipality’s IRA,
which serves as the local government unit’s just
share in the national taxes,32 is in the nature of
public funds derived from taxation. The Court
believes, however, that although these funds
may be posted as a security, its collateralization
should only be deemed effective during the
incumbency of the public officers who approved
the same, else those who succeed them be
effectively deprived of its use.
In any event, it is observed that the proceeds
from the Subject Loans had already been
converted into public funds by the Municipality’s
receipt thereof. Funds coming from private
sources become impressed with the
characteristics of public funds when they are
under official custody.33
Accordingly, the first requisite has been clearly
met.
Second, as a resident-taxpayer of the
Municipality, Cacayuran is directly affected by
the conversion of the Agoo Plaza which was
funded by the proceeds of the Subject Loans. It
is well-settled that public plazas are properties
for public use34 and therefore, belongs to the
public dominion.35 As such, it can be used by
anybody and no one can exercise over it the
rights of a private owner.36 In this light,
Cacayuran had a direct interest in ensuring that
the Agoo Plaza would not be exploited for
commercial purposes through the APC’s
construction. Moreover, Cacayuran need not be
privy to the Subject Loans in order to proffer his
objections thereto. In Mamba v. Lara, it has
been held that a taxpayer need not be a party to
the contract to challenge its validity; as long as
taxes are involved, people have a right to
question contracts entered into by the
government.37
Therefore, as the above-stated requisites obtain
in this case, Cacayuran has standing to file the
instant suit.
B. Validity of the Subject Resolutions
Land Bank avers that the Subject Resolutions
provided ample authority for Mayor Eriguel to
contract the Subject Loans. It posits that Section
444(b)(1)(vi) of the LGC merely requires that the
municipal mayor be authorized by the SB
concerned and that such authorization need not
be embodied in an ordinance.38
A careful perusal of Section 444(b)(1)(vi) of the
LGC shows that while the authorization of the
municipal mayor need not be in the form of an
ordinance, the obligation which the said local
executive is authorized to enter into must be
made pursuant to a law or ordinance, viz:
Sec. 444. The Chief Executive: Powers, Duties,
Functions and Compensation. -
xxxx
(b) For efficient, effective and economical
governance the purpose of which is the general
welfare of the municipality and its inhabitants
pursuant to Section 16 of this Code, the
municipal mayor shall:
xxxx
(vi) Upon authorization by the sangguniang
bayan, represent the municipality in all its
business transactions and sign on its behalf all
bonds, contracts, and obligations, and such
other documents made pursuant to law or
ordinance; (Emphasis and underscoring
supplied)
In the present case, while Mayor Eriguel’s
authorization to contract the Subject Loans was
not contained – as it need not be contained – in
the form of an ordinance, the said loans and
even the Redevelopment Plan itself were not
approved pursuant to any law or ordinance but
through mere resolutions. The distinction
between ordinances and resolutions is well-
perceived. While ordinances are laws and
possess a general and permanent character,
resolutions are merely declarations of the
sentiment or opinion of a lawmaking body on a
specific matter and are temporary in nature.39 As
opposed to ordinances, "no rights can be
conferred by and be inferred from a
resolution."40 In this accord, it cannot be denied
that the SB violated Section 444(b)(1)(vi) of the
LGC altogether.
Noticeably, the passage of the Subject VI. INHERENT LIMITATIONS
Resolutions was also tainted with other
irregularities, such as (1) the SB’s failure to A. ENUMERATION
submit the Subject Resolutions to the B. DELEGATION TO LOCAL
Sangguniang Panlalawigan of La Union for its GOVERNMENT UNITS
review contrary to Section 56 of the LGC;41 and
(2) the lack of publication and posting in PEPSI-COLA BOTTLING COMPANY OF THE
contravention of Section 59 of the LGC.42
PHILIPPINES, INC., plaintiff-appellant,
vs.
In fine, Land Bank cannot rely on the Subject
Resolutions as basis to validate the Subject MUNICIPALITY OF TANAUAN, LEYTE, THE
Loans. MUNICIPAL MAYOR, ET AL., defendant
appellees.

This is an appeal from the decision of the Court

of First Instance of Leyte in its Civil Case No.
3294, which was certified to Us by the Court of
Appeals on October 6, 1969, as involving only
pure questions of law, challenging the power of
taxation delegated to municipalities under the
Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).

On February 14, 1963, the plaintiff-appellant,

Pepsi-Cola Bottling Company of the Philippines,
Inc., commenced a complaint with preliminary
injunction before the Court of First Instance of
Leyte for that court to declare Section 2 of
Republic Act No. 2264.1 otherwise known as the
Local Autonomy Act, unconstitutional as an
undue delegation of taxing authority as well as
to declare Ordinances Nos. 23 and 27, series of
1962, of the municipality of Tanauan, Leyte, null
and void.

On July 23, 1963, the parties entered into a

Stipulation of Facts, the material portions of
which state that, first, both Ordinances Nos. 23
and 27 embrace or cover the same subject
matter and the production tax rates imposed
therein are practically the same, and second,
that on January 17, 1963, the acting Municipal
Treasurer of Tanauan, Leyte, as per his letter
addressed to the Manager of the Pepsi-Cola
Bottling Plant in said municipality, sought to
enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of
1962.

Municipal Ordinance No. 23, of Tanauan, Leyte,

which was approved on September 25, 1962,
levies and collects "from soft drinks producers
and manufacturers a tai of one-sixteenth (1/16)
of a centavo for every bottle of soft drink
corked." 2 For the purpose of computing the
taxes due, the person, firm, company or
corporation producing soft drinks shall submit to
the Municipal Treasurer a monthly report, of the
total number of bottles produced and corked
during the month. 3
On the other hand, Municipal Ordinance No. 27,
which was approved on October 28, 1962, levies
and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of
this municipality a tax of ONE CENTAVO
(P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity." 4 For the purpose of
computing the taxes due, the person, fun
company, partnership, corporation or plant
producing soft drinks shall submit to the
Municipal Treasurer a monthly report of the total
number of gallons produced or manufactured
during the month. 5
The tax imposed in both Ordinances Nos. 23
and 27 is denominated as "municipal production
tax.'
On October 7, 1963, the Court of First Instance
of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of
[Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the
taxes due under the oft the said Ordinances;
and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola
Bottling Company appealed to the Court of
Appeals, which, in turn, elevated the case to Us
pursuant to Section 31 of the Judiciary Act of
1948, as amended.
There are three capital questions raised in this
appeal:
1. — Is Section 2, Republic Act
No. 2264 an undue delegation
of power, confiscatory and
oppressive?
2. — Do Ordinances Nos. 23
and 27 constitute double
taxation and impose percentage
or specific taxes?
3. — Are Ordinances Nos. 23
and 27 unjust and unfair?
1. The power of taxation is an essential and
inherent attribute of sovereignty, belonging as a
matter of right to every independent
government, without being expressly conferred
by the people. 6 It is a power that is purely
legislative and which the central legislative body
cannot delegate either to the executive or
judicial department of the government without
infringing upon the theory of separation of
powers. The exception, however, lies in the case
of municipal corporations, to which, said theory
does not apply. Legislative powers may be
delegated to local governments in respect of
matters of local concern. 7 This is sanctioned by
immemorial practice. 8 By necessary implication,
the legislative power to create political
corporations for purposes of local self-
government carries with it the power to confer
on such local governmental agencies the power
to tax. 9 Under the New Constitution, local
governments are granted the autonomous
authority to create their own sources of revenue
and to levy taxes. Section 5, Article XI provides:
"Each local government unit shall have the
power to create its sources of revenue and to
levy taxes, subject to such limitations as may be
provided by law." Withal, it cannot be said that
Section 2 of Republic Act No. 2264 emanated
from beyond the sphere of the legislative power
to enact and vest in local governments the
power of local taxation.
The plenary nature of the taxing power thus
delegated, contrary to plaintiff-appellant's
pretense, would not suffice to invalidate the said
law as confiscatory and oppressive. In
delegating the authority, the State is not limited
6 the exact measure of that which is exercised
by itself. When it is said that the taxing power
may be delegated to municipalities and the like,
it is meant that there may be delegated such
measure of power to impose and collect taxes
as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects
which for reasons of public policy the State has
not deemed wise to tax for more general
purposes. 10 This is not to say though that the
constitutional injunction against deprivation of
property without due process of law may be
passed over under the guise of the taxing
power, except when the taking of the property is
in the lawful exercise of the taxing power, as
when (1) the tax is for a public purpose; (2) the
rule on uniformity of taxation is observed; (3)
either the person or property taxed is within the
jurisdiction of the government levying the tax;
and (4) in the assessment and collection of
certain kinds of taxes notice and opportunity for
hearing are provided. 11 Due process is usually
violated where the tax imposed is for a private
as distinguished from a public purpose; a tax is
imposed on property outside the State, i.e.,
extraterritorial taxation; and arbitrary or
oppressive methods are used in assessing and
collecting taxes. But, a tax does not violate the
due process clause, as applied to a particular
taxpayer, although the purpose of the tax will
result in an injury rather than a benefit to such
taxpayer. Due process does not require that the
property subject to the tax or the amount of tax
to be raised should be determined by judicial
inquiry, and a notice and hearing as to the
amount of the tax and the manner in which it
shall be apportioned are generally not necessary
to due process of law. 12
There is no validity to the assertion that the
delegated authority can be declared
unconstitutional on the theory of double taxation.
It must be observed that the delegating authority
specifies the limitations and enumerates the
taxes over which local taxation may not be
exercised. 13 The reason is that the State has
exclusively reserved the same for its own
prerogative. Moreover, double taxation, in
general, is not forbidden by our fundamental
law, since We have not adopted as part thereof
the injunction against double taxation found in
the Constitution of the United States and some
states of the Union.14 Double taxation becomes
obnoxious only where the taxpayer is taxed
twice for the benefit of the same governmental
entity 15 or by the same jurisdiction for the same
purpose, 16 but not in a case where one tax is
imposed by the State and the other by the city or
municipality. 17
C. DELEGATION TO PRESIDENT
SECTION 28. (2) The Congress may, by law,
authorize the President to fix within specified
limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues,
and other duties or imposts within the framework
of the national development program of the
Government.
Sec. 1608. Flexible Clause
Flexible Clause. – (a) In the interest of general
welfare and national security, and subject to the
limitations prescribed under this Act, the
President, upon the recommendation of the
NEDA, is hereby empowered to:
(1) Increase, reduce, or remove existing rates of
import duty including any necessary change in
classification. The existing rates may be
increased or decreased to any level, in one or
several stages, but in no case shall the
increased rate of import duty be higher than a
maximum of one hundred percent (100%) ad
valorem;
(2) Establish import quotas or ban imports of any
commodity, as may be necessary; and
(3) Impose an additional duty on all imports not
exceeding ten percent (10%) ad
valorem whenever necessary: Provided, That
upon periodic investigations by the Commission
and recommendation of the NEDA, the
President may cause a gradual reduction of
rates of import duty granted in Section 1611 of
this Act, including those subsequently granted
pursuant to this section.
(b) Before any recommendation is submitted to
the President by the NEDA pursuant to the
provisions of this section, except in the
imposition of an additional duty not exceeding
ten percent (10%) ad valorem, the Commission
shall conduct an investigation and shall hold
public hearings wherein interested parties shall
be afforded reasonable opportunity to be
present, to produce evidence and to be heard.
The Commission shall also hear the views and
recommendations of any government office,
agency, or instrumentality. The Commission
shall submit its findings and recommendations to
the NEDA within thirty (30) days after the
termination of the public hearings.
(c) The power of the President to increase or
decrease rates of import duty within the limits
fixed in subsection (a) hereof shall include the
authority to modify the form of duty. In modifying
the form of duty, the corresponding ad
valorem or specific equivalents of the duty with
respect to imports from the principal competing
foreign country for the most recent
representative period shall be used as basis.
(d) Any order issued by the President pursuant
to the provisions of this section shall take effect rate to 12%, effective January 1, 2006, after
thirty (30) days after promulgation, except in the specified conditions have been satisfied.
imposition of additional duty not exceeding ten
percent (10%) ad valorem which shall take effect
at the discretion of the President.
Issues:
(e) The power delegated to the President as Whether or not there is a violation of Article VI,
provided for in this section shall be exercised
only when Congress is not in session. Section 24 of the Constitution.

(f) The power herein delegated may be

withdrawn or terminated by Congress through a Whether or not there is undue delegation of
joint resoution.
legislative power in violation of Article VI Sec
The NEDA shall promulgate rules and
regulations necessary to carry out the provisions 28(2) of the Constitution.
of this section.

Whether or not there is a violation of the due

ABAKADA Guro Party List vs. Ermita
process and equal protection of the Constitution.
G.R. No. 168056
September 1, 2005
Ruling:
No, the revenue bill exclusively originated in the
Facts:
House of Representatives, the Senate was
ABAKADA GURO Party List, et al., filed a
acting within its constitutional power to introduce
petition for prohibition o questioning the
amendments to the House bill when it included
constitutionality of Sections 4, 5 and 6 of R.A.
provisions in Senate Bill No. 1950 amending
No. 9337, amending Sections 106, 107 and 108,
corporate income taxes, percentage, and excise
respectively, of the National Internal Revenue
and franchise taxes.
Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods
No, there is no undue delegation of legislative
and properties;
power but only of the discretion as to the
Section 5 imposes a 10% VAT on importation of
execution of a law. This is constitutionally
goods; and
permissible. Congress does not abdicate its
Section 6 imposes a 10% VAT on sale of
functions or unduly delegate power when it
services and use or lease of properties;
describes what job must be done, who must do
it, and what is the scope of his authority; in our
These provisions contain a provision which
complex economy that is frequently the only way
authorizing the President, upon recommendation
in which the legislative process can go forward.
of the Secretary of Finance, to raise the VAT
In this case, it is not a delegation of legislative

power but a delegation of ascertainment of facts
upon which enforcement and administration of
the increased rate under the law is contingent.
No, the power of the State to make reasonable
and natural classifications for the purposes of
taxation has long been established. Whether it
relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts
to be raised, the methods of assessment,
valuation and collection, the State’s power is
entitled to presumption of validity. As a rule, the
judiciary will not interfere with such power
absent a clear showing of unreasonableness,
discrimination, or arbitrariness.
VIII.CONSTITUTIONAL LIMITAIONS
ENUMERATION
DUE PROCESS AND EQUAL PROTECTION
PAGCOR VS BIR
PERALTA, J.:
For resolution of this Court is the Petition for
Certiorari and Prohibition1 with prayer for the
issuance of a Temporary Restraining Order
and/or Preliminary Injunction, dated April 17,
2006, of petitioner Philippine Amusement and
Gaming Corporation (PAGCOR), seeking the
declaration of nullity of Section 1 of Republic Act
(R.A.) No. 9337 insofar as it amends Section 27
(c) of the National Internal Revenue Code of
1997, by excluding petitioner from exemption
from corporate income tax for being repugnant
to Sections 1 and 10 of Article III of the
Constitution. Petitioner further seeks to prohibit
the implementation of Bureau of Internal
Revenue (BIR) Revenue Regulations No. 16-
2005 for being contrary to law.
The undisputed facts follow.
PAGCOR was created pursuant to Presidential
Decree (P.D.) No. 1067-A2 on January 1, 1977.
Simultaneous to its creation, P.D. No. 1067-
B3 (supplementing P.D. No. 1067-A) was issued
exempting PAGCOR from the payment of any
type of tax, except a franchise tax of five percent
(5%) of the gross revenue.4 Thereafter, on June
2, 1978, P.D. No. 1399 was issued expanding
the scope of PAGCOR's exemption.5
To consolidate the laws pertaining to the
franchise and powers of PAGCOR, P.D. No.
18696 was issued. Section 13 thereof reads as
follows:
Sec. 13. Exemptions. — x x x
(1) Customs Duties, taxes and other
imposts on importations. - All
importations of equipment, vehicles,
automobiles, boats, ships, barges,
aircraft and such other gambling
paraphernalia, including accessories or
related facilities, for the sole and
exclusive use of the casinos, the proper
and efficient management and
administration thereof and such other
clubs, recreation or amusement places
to be established under and by virtue of
this Franchise shall be exempt from the
payment of duties, taxes and other
imposts, including all kinds of fees,
levies, or charges of any kind or nature.
Vessels and/or accessory ferry boats
imported or to be imported by any
corporation having existing contractual
arrangements with the Corporation, for
the sole and exclusive use of the casino
or to be used to service the operations
and requirements of the casino, shall
likewise be totally exempt from the
payment of all customs duties, taxes
and other imposts, including all kinds of
fees, levies, assessments or charges of
any kind or nature, whether National or
Local.
(2) Income and other taxes. - (a)
Franchise Holder: No tax of any kind or
form, income or otherwise, as well as
fees, charges, or levies of whatever
nature, whether National or Local, shall
be assessed and collected under this
Franchise from the Corporation; nor
shall any form of tax or charge attach in
any way to the earnings of the
Corporation, except a Franchise Tax of
five percent (5%)of the gross revenue or
earnings derived by the Corporation
from its operation under this Franchise.
Such tax shall be due and payable
quarterly to the National Government
and shall be in lieu of all kinds of taxes,
levies, fees or assessments of any kind,
nature or description, levied,
established, or collected by any
municipal, provincial or national
government authority.
(b) Others: The exemption
herein granted for earnings
derived from the operations
conducted under the franchise,
specifically from the payment of
any tax, income or otherwise, as
well as any form of charges,
fees or levies, shall inure to the
benefit of and extend to
corporation(s), association(s),
agency(ies), or individual(s) with
whom the Corporation or
operator has any contractual
relationship in connection with
the operations of the casino(s)
authorized to be conducted
under this Franchise and to
those receiving compensation or
other remuneration from the
Corporation as a result of
essential facilities furnished
and/or technical services
rendered to the Corporation or
operator.
The fee or remuneration of foreign
entertainers contracted by the
Corporation or operator in pursuance of
this provision shall be free of any tax.
(3) Dividend Income. − Notwithstanding
any provision of law to the contrary, in
the event the Corporation should
declare a cash dividend income
corresponding to the participation of the
private sector shall, as an incentive to
the beneficiaries, be subject only to a
final flat income rate of ten percent
(10%) of the regular income tax rates.
The dividend income shall not in such
case be considered as part of the
beneficiaries' taxable income; provided,
however, that such dividend income
shall be totally exempted from income or
other form of taxes if invested within six
(6) months from the date the dividend
income is received in the following:
(a) operation of the casino(s) or
investments in any affiliate
activity that will ultimately
redound to the benefit of the
Corporation; or any other
corporation with whom the
Corporation has any existing
arrangements in connection with
or related to the operations of
the casino(s);
(b) Government bonds,
securities, treasury notes, or
government debentures; or
(c) BOI-registered or export-
oriented corporation(s).7
PAGCOR's tax exemption was removed in June
1984 through P.D. No. 1931, but it was later
restored by Letter of Instruction No. 1430, which
was issued in September 1984.
On January 1, 1998, R.A. No. 8424,8 otherwise
known as the National Internal Revenue Code of
1997, took effect. Section 27 (c) of R.A. No.
8424 provides that government-owned and
controlled corporations (GOCCs) shall pay
corporate income tax, except petitioner
PAGCOR, the Government Service and
Insurance Corporation, the Social Security
System, the Philippine Health Insurance
Corporation, and the Philippine Charity
Sweepstakes Office, thus:
(c) Government-owned or Controlled
Corporations, Agencies or Instrumentalities. -
The provisions of existing special general laws
to the contrary notwithstanding, all corporations,
agencies or instrumentalities owned and
controlled by the Government, except the
Government Service and Insurance Corporation
(GSIS), the Social Security System (SSS), the
Philippine Health Insurance Corporation (PHIC),
the Philippine Charity Sweepstakes Office
(PCSO), and the Philippine Amusement and
Gaming Corporation (PAGCOR), shall pay such
rate of tax upon their taxable income as are
imposed by this Section upon corporations or
associations engaged in similar business,
industry, or activity.9
With the enactment of R.A. No. 933710 on May
24, 2005, certain sections of the National
Internal Revenue Code of 1997 were amended.
The particular amendment that is at issue in this
case is Section 1 of R.A. No. 9337, which
amended Section 27 (c) of the National Internal
Revenue Code of 1997 by excluding PAGCOR
from the enumeration of GOCCs that are
exempt from payment of corporate income tax,
thus:
(c) Government-owned or Controlled
Corporations, Agencies or Instrumentalities. -
The provisions of existing special general laws
to the contrary notwithstanding, all corporations,
agencies, or instrumentalities owned and
controlled by the Government, except the
Government Service and Insurance Corporation
(GSIS), the Social Security System (SSS), the
Philippine Health Insurance Corporation (PHIC),
and the Philippine Charity Sweepstakes Office
(PCSO), shall pay such rate of tax upon their
taxable income as are imposed by this Section
upon corporations or associations engaged in
similar business, industry, or activity.
Different groups came to this Court via petitions
for certiorari and prohibition11 assailing the
validity and constitutionality of R.A. No. 9337, in
particular:
1) Section 4, which imposes a 10%
Value Added Tax (VAT) on sale of
goods and properties; Section 5, which
imposes a 10% VAT on importation of
goods; and Section 6, which imposes a
10% VAT on sale of services and use or
lease of properties, all contain a uniform
proviso authorizing the President, upon
the recommendation of the Secretary of
Finance, to raise the VAT rate to 12%.
The said provisions were alleged to be
violative of Section 28 (2), Article VI of
the Constitution, which section vests in
Congress the exclusive authority to fix
the rate of taxes, and of Section 1,
Article III of the Constitution on due
process, as well as of Section 26 (2),
Article VI of the Constitution, which
section provides for the "no amendment
rule" upon the last reading of a bill;
2) Sections 8 and 12 were alleged to be
violative of Section 1, Article III of the
Constitution, or the guarantee of equal
protection of the laws, and Section 28
(1), Article VI of the Constitution; and
3) other technical aspects of the
passage of the law, questioning the
manner it was passed.
On September 1, 2005, the Court dismissed all
the petitions and upheld the constitutionality of
R.A. No. 9337.12
On the same date, respondent BIR issued
Revenue Regulations (RR) No. 16--
2005,13 specifically identifying PAGCOR as one
of the franchisees subject to 10% VAT imposed
under Section 108 of the National Internal
Revenue Code of 1997, as amended by R.A.
No. 9337. The said revenue regulation, in part,
reads:
Sec. 4. 108-3. Definitions and Specific Rules on
Selected Services. —
xxxx
(h) x x x
Gross Receipts of all other franchisees, other
than those covered by Sec. 119 of the Tax
Code, regardless of how their franchisees may
have been granted, shall be subject to the 10%
VAT imposed under Sec.108 of the Tax Code.
This includes, among others, the Philippine
Amusement and Gaming Corporation
(PAGCOR), and its licensees or franchisees.
Hence, the present petition for certiorari.
PAGCOR raises the following issues:
I
WHETHER OR NOT RA 9337, SECTION 1 (C)
IS NULL AND VOID AB INITIO FOR BEING
REPUGNANT TO THE EQUAL PROTECTION
[CLAUSE] EMBODIED IN SECTION 1,
ARTICLE III OF THE 1987 CONSTITUTION.
Under Section 1 of R.A. No. 9337, amending
Section 27 (c) of the National Internal Revenue
Code of 1977, petitioner is no longer exempt
from corporate income tax as it has been
effectively omitted from the list of GOCCs that
are exempt from it. Petitioner argues that such
omission is unconstitutional, as it is violative of
its right to equal protection of the laws under
Section 1, Article III of the Constitution:
Sec. 1. No person shall be deprived of life,
liberty, or property without due process of law,
nor shall any person be denied the equal
protection of the laws.
In City of Manila v. Laguio, Jr.,17 this Court
expounded the meaning and scope of equal
protection, thus:
Equal protection requires that all persons or
things similarly situated should be treated alike,
both as to rights conferred and responsibilities
imposed. Similar subjects, in other words,
should not be treated differently, so as to give
undue favor to some and unjustly discriminate
against others. The guarantee means that no
person or class of persons shall be denied the
same protection of laws which is enjoyed by
other persons or other classes in like
circumstances. The "equal protection of the laws
is a pledge of the protection of equal laws." It
limits governmental discrimination. The equal
protection clause extends to artificial persons
but only insofar as their property is concerned.
xxxx
Legislative bodies are allowed to classify the
subjects of legislation. If the classification is
reasonable, the law may operate only on some
and not all of the people without violating the
equal protection clause. The classification must,
as an indispensable requisite, not be arbitrary.
To be valid, it must conform to the following
requirements:
1) It must be based on substantial
distinctions.
2) It must be germane to the purposes
of the law.
3) It must not be limited to existing
conditions only.
4) It must apply equally to all members
of the class.18
It is not contested that before the enactment of
R.A. No. 9337, petitioner was one of the five
GOCCs exempted from payment of corporate
income tax as shown in R.A. No. 8424, Section
27 (c) of which, reads:
(c) Government-owned or Controlled
Corporations, Agencies or Instrumentalities. -
The provisions of existing special or general
laws to the contrary notwithstanding, all
corporations, agencies or instrumentalities
owned and controlled by the Government,
except the Government Service and Insurance
Corporation (GSIS), the Social Security System
(SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity
Sweepstakes Office (PCSO), and the Philippine
Amusement and Gaming Corporation
(PAGCOR), shall pay such rate of tax upon their
taxable income as are imposed by this Section
upon corporations or associations engaged in
similar business, industry, or activity.19
Taxation is the rule and exemption is the
exception.23 The burden of proof rests upon the
party claiming exemption to prove that it is, in
fact, covered by the exemption so claimed.24 As
a rule, tax exemptions are construed strongly
against the claimant.25 Exemptions must be
shown to exist clearly and categorically, and
supported by clear legal provision.26
In this case, PAGCOR failed to prove that it is
still exempt from the payment of corporate
income tax, considering that Section 1 of R.A.
No. 9337 amended Section 27 (c) of the
National Internal Revenue Code of 1997 by
omitting PAGCOR from the exemption. The
legislative intent, as shown by the discussions in
the Bicameral Conference Meeting, is to require
PAGCOR to pay corporate income tax; hence,
the omission or removal of PAGCOR from
exemption from the payment of corporate
income tax. It is a basic precept of statutory
construction that the express mention of one
person, thing, act, or consequence excludes all
others as expressed in the familiar maxim
expressio unius est exclusio alterius.27 Thus, the
express mention of the GOCCs exempted from
payment of corporate income tax excludes all
others. Not being excepted, petitioner PAGCOR
must be regarded as coming within the purview
of the general rule that GOCCs shall pay
corporate income tax, expressed in the maxim:
exceptio firmat regulam in casibus non
exceptis.28
PAGCOR cannot find support in the equal
protection clause of the Constitution, as the
legislative records of the Bicameral Conference
Meeting dated October 27, 1997, of the
Committee on Ways and Means, show that
PAGCOR’s exemption from payment of
corporate income tax, as provided in Section 27
(c) of R.A. No. 8424, or the National Internal
Revenue Code of 1997, was not made pursuant
to a valid classification based on substantial
distinctions and the other requirements of a
reasonable classification by legislative bodies,
so that the law may operate only on some, and
not all, without violating the equal protection
clause. The legislative records show that the
basis of the grant of exemption to PAGCOR
from corporate income tax was PAGCOR’s own
request to be exempted.
NON IMPAIRMENT OF OBLIGATIONS AND
CONTRACTS
SECTION 10. No law impairing the obligation of
contracts shall be passed.
SECTION 11. No franchise, certificate, or any
other form of authorization for the operation of a
public utility shall be granted except to citizens
of the Philippines or to corporations or
associations organized under the laws of the
Philippines at least sixty per centum of whose
capital is owned by such citizens, nor shall such
franchise, certificate, or authorization be
exclusive in character or for a longer period than
fifty years. Neither shall any such franchise or
right be granted except under the condition that
it shall be subject to amendment, alteration, or
repeal by the Congress when the common good
so requires. The State shall encourage equity
participation in public utilities by the general
public. The participation of foreign investors in
the governing body of any public utility
enterprise shall be limited to their proportionate
share in its capital, and all the executive and
managing officers of such corporation or
association must be citizens of the Philippines.
Manila Electric Co, Inc. vs Province of
Laguna
G.R. No. 131359
Subject: Public Corporation
Doctrine: Power to generate revenues
Facts:
MERALCO was granted franchise for the supply
of electric light, heat and power by certain
municipalities of the Province of Laguna
including, Biñan, Sta Rosa, San Pedro, Luisiana,
Calauan and Cabuyao. On 19 January 1983,
MERALCO was likewise granted a franchise by
the National Electrification Administration to
operate an electric light and power service in the
Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160,
otherwise known as the “Local Government
Code of 1991,” was enacted to take effect on 01
January 1992 enjoining local government units
to create their own sources of revenue and to
levy taxes, fees and charges, subject to the
limitations expressed therein, consistent with the
basic policy of local autonomy. Pursuant to the
provisions of the Code, respondent province
enacted Laguna Provincial Ordinance providing
for franchise tax at a rate of 50% of 1% of the
gross annual receipts. Provincial Treasurer, then
sent a demand letter to MERALCO for the
corresponding tax payment.
Petitioner MERALCO paid the tax, which then
amounted to P19,520,628.42, under protest. A
formal claim for refund was thereafter sent by
MERALCO to the Provincial Treasurer of
Laguna claiming that the franchise tax it had
paid and continued to pay to the National
Government pursuant to P.D. 551 already
included the franchise tax imposed by the
Provincial Tax Ordinance. MERALCO
contended that the imposition of a franchise tax
under Section 2.09 of Laguna Provincial
Ordinance No. 01-92, insofar as it concerned
MERALCO, contravened the provisions of
Section 1 of P.D. 551 which provides “Any
provision of law or local ordinance to the
contrary notwithstanding, the franchise tax
payable by all grantees of franchises to
generate, distribute and sell electric current for
light, heat and power shall be two per cent (2%)
of their gross receipts received from the sale of
electric current and from transactions incident to
the generation, distribution and sale of electric
current… Such franchise tax shall be payable to
the Commissioner of Internal Revenue or his
duly authorized representative.”
On 28 August 1995, the claim for refund of
petitioner was denied in a letter signed by
Governor Jose D. Lina. In denying the claim,
respondents relied on a more recent law, i.e.,
Republic Act No. 7160 or the Local Government
Code of 1991, than the old decree invoked by
petitioner.
On 14 February 1996, petitioner MERALCO filed
with the RTC a complaint for refund against the
Province of Laguna and also Benito R. Balazo in
his capacity as the Provincial Treasurer of
Laguna. RTC dismissed the complaint holding
that the power to tax exercised by the province
of Laguna was valid.
ISSUE: Whether or not the power to tax was
validly exercised.
HELD:
Prefatorily, it might be well to recall that local
governments do not have the inherent power to
tax except to the extent that such power might
be delegated to them either by the basic law or
by statute. Presently, under Article X of the 1987
Constitution, a general delegation of that power
has been given in favor of local government
units.
Under the regime of the 1935 Constitution no
similar delegation of tax powers was provided,
and local government units instead derived their
tax powers under a limited statutory authority.
Whereas, then, the delegation of tax powers
granted at that time by statute to local
governments was confined and defined (outside
of which the power was deemed withheld), the
present constitutional rule (starting with the 1973
Constitution), however, would broadly confer
such tax powers subject only to specific
exceptions that the law might prescribe.
Under the now prevailing Constitution, where
there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist
although Congress may provide statutory
limitations and guidelines. The basic rationale
for the current rule is to safeguard the viability
and self-sufficiency of local government units by
directly granting them general and broad tax
powers. Nevertheless, the fundamental law did
not intend the delegation to be absolute and
unconditional; the constitutional objective
obviously is to ensure that, while the local
government units are being strengthened and
made more autonomous,[6] the legislature must
still see to it that (a) the taxpayer will not be
over-burdened or saddled with multiple and
unreasonable impositions; (b) each local
government unit will have its fair share of
available resources; (c) the resources of the
national government will not be unduly
disturbed; and (d) local taxation will be fair,
uniform, and just. The 1991 Code explicitly
authorizes provincial governments,
notwithstanding “any exemption granted by any
law or other special law, x x x (to) impose a tax
on businesses enjoying a franchise.” Indicative
of the legislative intent to carry out the
Constitutional mandate of vesting broad tax
powers to local government units, the Local
Government Code has effectively withdrawn
under Section 193 thereof, tax exemptions or
incentives theretofore enjoyed by certain
entities. The Code, in addition, contains a
general repealing clause in its Section 534
which states that “All general and special laws,
acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or
part or parts thereof which are inconsistent with
any of the provisions of this Code are hereby
repealed or modified accordingly.”
WHEREFORE, the instant petition is hereby
DISMISSED. No costs.
SMART COMMUNICATIONS, INC., Petitioner,
vs.
THE CITY OF DAVAO, represented herein by
its Mayor Hon. RODRIGO DUTERTE, and the
SANGGUNIANG PANLUNSOD OF DAVAO
CITY, Respondents.
Before the Court is a Motion for
Reconsideration1 filed by Smart
Communications, Inc. (Smart) of the Decision2 of
the Court dated September 16, 2008, denying its
appeal of the Decision and Order of the
Regional Trial Court (RTC) of Davao City, dated
July 19, 2002 and September 26, 2002,
respectively.
Briefly, the factual antecedents are as follows:
On February 18, 2002, Smart filed a special civil
action for declaratory relief3 for the
ascertainment of its rights and obligations under
the Tax Code of the City of Davao, which
imposes a franchise tax on businesses enjoying
a franchise within the territorial jurisdiction of
Davao. Smart avers that its telecenter in Davao
City is exempt from payment of franchise tax to
the City.
On July 19, 2002, the RTC rendered a Decision
denying the petition. Smart filed a motion for
reconsideration, which was denied by the trial
court in an Order dated September 26, 2002.
Smart filed an appeal before this Court, but the
same was denied in a decision dated September
16, 2008. Hence, the instant motion for
reconsideration raising the following grounds: (1)
the "in lieu of all taxes" clause in Smart’s
franchise, Republic Act No. 7294 (RA 7294),
covers local taxes; the rule of strict construction
against tax exemptions is not applicable; (2) the
"in lieu of all taxes" clause is not rendered
ineffective by the Expanded VAT Law; (3)
Section 23 of Republic Act No. 79254 (RA 7925)
includes a tax exemption; and (4) the imposition
of a local franchise tax on Smart would violate
the constitutional prohibition against impairment
of the obligation of contracts.
Section 9 of RA 7294 and Section 23 of RA
7925 are once again put in issue. Section 9 of
Smart’s legislative franchise contains the
contentious "in lieu of all taxes" clause. The
Section reads:
Section 9. Tax provisions. — The grantee, its
successors or assigns shall be liable to pay the
same taxes on their real estate buildings and
personal property, exclusive of this franchise, as
other persons or corporations which are now or
hereafter may be required by law to pay. In
addition thereto, the grantee, its successors or
assigns shall pay a franchise tax equivalent to
three percent (3%) of all gross receipts of the
business transacted under this franchise by the
grantee, its successors or assigns and the said
percentage shall be in lieu of all taxes on this
franchise or earnings thereof: Provided, That the
grantee, its successors or assigns shall continue
to be liable for income taxes payable under Title
II of the National Internal Revenue Code
pursuant to Section 2 of Executive Order No. 72
unless the latter enactment is amended or
repealed, in which case the amendment or
repeal shall be applicable thereto.
xxx5
Section 23 of RA 7925, otherwise known as the
most favored treatment clause or equality
clause, contains the word "exemption," viz.:
SEC. 23. Equality of Treatment in the
Telecommunications Industry — Any advantage,
favor, privilege, exemption, or immunity granted
under existing franchises, or may hereafter be
granted, shall ipso facto become part of
previously granted telecommunications
franchises and shall be accorded immediately
and unconditionally to the grantees of such
franchises: Provided, however, That the
foregoing shall neither apply to nor affect
provisions of telecommunications franchises
concerning territory covered by the franchise,
the life span of the franchise, or the type of the
service authorized by the franchise.6
A review of the recent decisions of the Court on
the matter of exemptions from local franchise tax
and the interpretation of the word "exemption"
found in Section 23 of RA 7925 is imperative in
order to resolve this issue once and for all.
In Digital Telecommunications Philippines, Inc.
(Digitel) v. Province of Pangasinan,7 Digitel used
as an argument the "in lieu of all taxes"
clauses/provisos found in the legislative
franchises of Globe,8 Smart and Bell,9 vis-à-
vis Section 23 of RA 7925, in order to claim
exemption from the payment of local franchise
tax. Digitel claimed, just like the petitioner in this
case, that it was exempt from the payment of
any other taxes except the national franchise
and income taxes. Digitel alleged that Smart
was exempted from the payment of local
franchise tax.
However, it failed to substantiate its allegation,
and, thus, the Court denied Digitel’s claim for
exemption from provincial franchise tax. Cited
was the ruling of the Court in PLDT v. City of
Davao,10 wherein the Court, speaking through
Mr. Justice Vicente V. Mendoza, held that in
approving Section 23 of RA No. 7925, Congress
did not intend it to operate as a blanket tax
exemption to all telecommunications entities.
Section 23 cannot be considered as having
amended PLDT’s franchise so as to entitle it to
exemption from the imposition of local franchise
taxes. The Court further held that tax
exemptions are highly disfavored and that a tax
exemption must be expressed in the statute in
clear language that leaves no doubt of the
intention of the legislature to grant such
exemption. And, even in the instances when it is
granted, the exemption must be interpreted in
strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.
The Court also clarified the meaning of the word
"exemption" in Section 23 of RA 7925: that the
word "exemption" as used in the statute refers or
pertains merely to an exemption from regulatory
or reporting requirements of the Department of
Transportation and Communication or the
National Transmission Corporation and not to an
exemption from the grantee’s tax liability.
In Philippine Long Distance Telephone
Company (PLDT) v. Province of Laguna,11 PLDT
was a holder of a legislative franchise under Act
No. 3436, as amended. On August 24, 1991, the
terms and conditions of its franchise were
consolidated under Republic Act No. 7082,
Section 12 of which embodies the so-called "in-
lieu-of-all taxes" clause. Under the said Section,
PLDT shall pay a franchise tax equivalent to
three percent (3%) of all its gross receipts, which
franchise tax shall be "in lieu of all taxes." The
issue that the Court had to resolve was whether
PLDT was liable to pay franchise tax to the
Province of Laguna in view of the "in lieu of all
taxes" clause in its franchise and Section 23 of
RA 7925.lawph!l
Applying the rule of strict construction of laws
granting tax exemptions and the rule that doubts
are resolved in favor of municipal corporations in
interpreting statutory provisions on municipal
taxing powers, the Court held that Section 23 of
RA 7925 could not be considered as having
amended petitioner's franchise so as to entitle it
to exemption from the imposition of local
franchise taxes.
In ruling against the claim of PLDT, the Court
cited the previous decisions in PLDT v. City of
Davao12 and PLDT v. City of Bacolod,13 in
denying the claim for exemption from the
payment of local franchise tax.
In sum, the aforecited jurisprudence suggests
that aside from the national franchise tax, the
franchisee is still liable to pay the local franchise
tax, unless it is expressly and unequivocally
exempted from the payment thereof under its
· American Bible Society is a foreign, non-stock,
legislative franchise. The "in lieu of all taxes"
clause in a legislative franchise should
categorically state that the exemption applies to
both local and national taxes; otherwise, the
exemption claimed should be strictly construed
· City of Manila is a municipal corporation with
against the taxpayer and liberally in favor of the
taxing authority.
Republic Act No. 7716, otherwise known as the
"Expanded VAT Law," did not remove or abolish
the payment of local franchise tax. It merely
replaced the national franchise tax that was
previously paid by telecommunications franchise
holders and in its stead imposed a ten percent
(10%) VAT in accordance with Section 108 of
the Tax Code. VAT replaced the national
franchise tax, but it did not prohibit nor abolish
the imposition of local franchise tax by cities or
municipaties.
The power to tax by local government units
emanates from Section 5, Article X of the
Constitution which empowers them to create
their own sources of revenues and to levy taxes,
fees and charges subject to such guidelines and
limitations as the Congress may provide. The
imposition of local franchise tax is not
inconsistent with the advent of the VAT, which
renders functus officio the franchise tax paid to
the national government. VAT inures to the
benefit of the national government, while a local
franchise tax is a revenue of the local
government unit.
WHEREFORE, the motion for reconsideration is
DENIED, and this denial is final.
SO ORDERED.
INFRINGEMENT OF RELIGIOUS FREEDOM
SECTION 5. No law shall be made respecting
an establishment of religion, or prohibiting the
free exercise thereof. The free exercise and
enjoyment of religious profession and worship,
without discrimination or preference, shall
forever be allowed. No religious test shall be
required for the exercise of civil or political
rights.
American Bible Society vs. City of Manila
GR No. L-9637 | April 30, 1957
Facts:
non-profit, religious, missionary corporation duly
registered and doing business in the Philippines
through its Philippine agency established in
Manila in November, 1898
powers that are to be exercised in conformity
with the provisions of Republic Act No. 409,
 known as the Revised Charter of the City of
Manila
· American Bible Society has been distributing
and selling bibles and/or gospel portions
throughout the Philippines and translating the
same into several Philippine dialect
· City Treasurer of Manila informed American
Bible Society that it was violating several
Ordinances for operating without the necessary
permit and license, thereby requiring the
corporation to secure the permit and license
fees covering the period from 4Q 1945-2Q 1953
· To avoid closing of its business, American Bible
Society paid the City of Manila its permit and
license fees under protest
· American Bible filed a complaint, questioning
the constitutionality and legality of the
Ordinances 2529 and 3000, and prayed for a
refund of the payment made to the City of
Manila. They contended:
a. They had been in the Philippines since 1899
and were not required to pay any license fee or
sales tax
b. it never made any profit from the sale of its
bibles
· City of Manila prayed that the complaint be
dismissed, reiterating the constitutionality of the
Ordinances in question
· Trial Court dismissed the complaint
· American Bible Society appealed to the Court of
Appeals
Issue: WON American Bible Society liable to
pay sales tax for the distribution and sale of
bibles
Ruling: NO
· Under Sec. 1 of Ordinance 3000, one of the
ordinance in question, person or entity engaged
in any of the business, trades or occupation
enumerated under Sec. 3 must obtain a Mayor’s
permit and license from the City Treasurer.
American Bible Society’s business is not among
those enumerated
· However, item 79 of Sec. 3 of the Ordinance
provides that all other businesses, trade or
occupation not mentioned, except those upon
which the City is not empowered to license or to
tax P5.00
· Therefore, the necessity of the permit is made
to depend upon the power of the City to license
or tax said business, trade or occupation.
· 2 provisions of law that may have bearing on
this case:
a. Chapter 60 of the Revised Administrative
Code, the Municipal Board of the City of Manila
is empowered to tax and fix the license fees on
retail dealers engaged in the sale of books
b. Sec. 18(o) of RA 409: to tax and fix the license
fee on dealers in general merchandise, including
importers and indentors, except those dealers
who may be expressly subject to the payment of
some other municipal tax. Further, Dealers in
general merchandise shall be classified as (a)
wholesale dealers and (b) retail dealers. For
purposes of the tax on retail dealers, general
merchandise shall be classified into four main
classes: namely (1) luxury articles, (2) semi-
luxury articles, (3) essential commodities, and
(4) miscellaneous articles. A separate license
shall be prescribed for each class but where
commodities of different classes are sold in the
same establishment, it shall not be compulsory
for the owner to secure more than one license if
he pays the higher or highest rate of tax
prescribed by ordinance. Wholesale dealers
shall pay the license tax as such, as may be
provided by ordinance
· The only difference between the 2 provisions is
the limitation as to the amount of tax or license
fee that a retail dealer has to pay per annum
· As held in Murdock vs. Pennsylvania, The
power to impose a license tax on the exercise of
these freedoms provided for in the Bill of Rights,
is indeed as potent as the power of censorship
which this Court has repeatedly struck down. It
is not a nominal fee imposed as a regulatory
measure to defray the expenses of policing the
activities in question. It is in no way apportioned.
It is flat license tax levied and collected as a
condition to the pursuit of activities whose
enjoyment is guaranteed by the constitutional
liberties of press and religion and inevitably
tends to suppress their exercise. That is almost
uniformly recognized as the inherent vice and
evil of this flat license tax.
· Further, the case also mentioned that the power
to tax the exercise of a privilege is the power to
control or suppress its enjoyment. Those who
can tax the exercise of this religious practice can
make its exercise so costly as to deprive it of the
resources necessary for its maintenance. Those
who can tax the privilege of engaging in this
form of missionary evangelism can close all its
doors to all those who do not have a full purse
· Under Sec. 27(e) of Commonwealth Act No.
466 or the National Internal Revenue
Code,Corporations or associations organized
and operated exclusively for religious,
charitable, . . . or educational purposes, . . .:
Provided, however, That the income of whatever
kind and character from any of its properties,
 real or personal, or from any activity conducted
for profit, regardless of the disposition made of
such income, shall be liable to the tax imposed
under this Code shall not be taxed
· The price asked for the bibles and other
religious pamphlets was in some instances a
little bit higher than the actual cost of the same
but this cannot mean that American Bible
Society was engaged in the business or
occupation of selling said "merchandise" for
profit
· Therefore, the Ordinance cannot be applied for
in doing so it would impair American Bible
Society’s free exercise and enjoyment of its
religious profession and worship as well as its
rights of dissemination of religious beliefs.
Wherefore, and on the strength of the
foregoing considerations, We hereby reverse
the decision appealed from, sentencing
defendant return to plaintiff the sum of
P5,891.45 unduly collected from it
INFINGEMENT OF PRESS FREEDOM
SECTION 4. No law shall be passed abridging
the freedom of speech, of expression, or of the
press, or the right of the people peaceably to
assemble and petition the government for
redress of grievances.
Tolentino v. Secretary of Finance - 249 SCRA
635
FACTS:
Petitioners (Tolentino, Kilosbayan, Inc.,
Philippine Airlines, Roco, and Chamber of Real
Estate and Builders Association) seek
reconsideration of the Court’s previous ruling
dismissing the petitions filed for the declaration
of unconstitutionality of R.A. No. 7716, the
Expanded Value-Added Tax Law. Petitioners
contend that the R.A. did not “originate
exclusively” in the HoR as required by Article 6,
Section 24 of the Constitution. The Senate
allegedly did not pass it on second and third
readings, instead passing its own version.
Petitioners contend that it should have amended
the House bill by striking out the text of the bill
and substituting it with the text of its own bill, so
as to conform with the Constitution.
ISSUE:
W/N the R.A. is unconstitutional for having
“originated” from the Senate, and not the HoR.
HELD:
Petition is unmeritorious. The enactment of the
Senate bill has not been the first instance where
the Senate, in the exercise of its power to
propose amendments to bills (required to
originate in the House), passed its own version.
An amendment by substitution (striking out the
text and substituting it), as urged by petitioners,
concerns a mere matter of form, and considering
the petitioner has not shown what substantial
difference it would make if Senate applied such
substitution in the case, it cannot be applied to
the case at bar. While the aforementioned
Constitutional provision states that bills must
“originate exclusively in the HoR,” it also adds,
“but the Senate may propose or concur with
amendments.” The Senate may then propose an
entirely new bill as a substitute measure.
Petitioners erred in assuming the Senate version
to be an independent and distinct bill. Without
the House bill, Senate could not have enacted
the Senate bill, as the latter was a mere
amendment of the former. As such, it did not
have to pass the Senate on second and third
readings.
Petitioners question the signing of the President
on both bills, to support their contention that
such are separate and distinct. The President
certified the bills separately only because the
certification had to be made of the version of the
same revenue bill which AT THE MOMENT was
being considered.
Petitioners question the power of the
Conference Committee to insert new provisions.
The jurisdiction of the conference committee is
not limited to resolving differences between the
Senate and the House. It may propose an
entirely new provision, given that such are
germane to the subject of the conference, and
that the respective houses of Congress
subsequently approve its report.
Tolentino v Sec. of Finance
Facts:
- House of Rep. filed House Bill 11197 (An
Act Restructuring the VAT System to Widen its
Tax Base and Enhance its Admin., Amending for
these Purposes…)

- Upon receipt of Senate, Senate filed

another bill completely different from that of the
Petitioner PAL contends that the amendment of
House Bill
its franchise by the withdrawal of its exemption
from VAT is not expressed in the title of the law, - Senate finished debates on the bill and
thereby violating the Constitution. The Court had the 2nd and 3rd reading of the Bill on the
believes that the title of the R.A. satisfies the same day
Constitutional Requirement.
- Bill was deliberated upon in the
Conference Committee and become enrolled bill
which eventually became the EVAT law.
Petitioners claim that the R.A. violates their
press freedom and religious liberty, having
removed them from the exemption to pay VAT.
Suffice it to say that since the law granted the Procedural Issue:
press a privilege, the law could take back the
privilege anytime without offense to the (1) WoN RA 7716 originated exclusively from
Constitution. By granting exemptions, the State the House of Rep. in accordance with sec 24, art
does not forever waive the exercise of its 6 of Consti
sovereign prerogative.
(2) WoN the Senate bill violated the “three
readings on separate days” requirement of the
Consti
Lastly, petitioners contend that the R.A. violates
due process, equal protection and contract (3) WoN RA 7716 violated sec 26(1), art 6 -
clauses and the rule on taxation. Petitioners fail one subject, one title rule.
to take into consideration the fact that the VAT
NOTE: This case was filed by PAL because
was already provided for in E.O. No. 273 long
before the EVAT Law, they were exempt from
before the R.A. was enacted. The latter merely
taxes. After the passage of EVAT, they were
EXPANDS the base of the tax. Equality and
already included. PAL contended that neither
uniformity in taxation means that all taxable
the House or Senate bill provided for the
articles or kinds of property of the same class be
removal of the exemption from taxes of PAL
taxed at the same rate, the taxing power having
and that it was inly made after the meeting of the
authority to make reasonable and natural
Conference Committee w/c was not expressed
classifications for purposes of taxation. It is
in the title of RA 7166
enough that the statute applies equally to all
persons, forms and corporations placed in s
similar situation.
Held:
(1) YES! Court said that it is not the law which
should originate from the House of Rep, but the
revenue bill which was required to originate from
the House of Rep. The inititiative must ocme
from the Lower House because they are elected
in the district level – meaning they are expected
to be more sensitive to the needs of the locality.
Also, a bill originating from the Lower House
may undergo extensive changes while in the
Senate. Senate can introduce a separate and
distinct bill other than the one the Lower House
proposed. The Constitution does not prohibit
the filing in the Senate of a substitute bill in
anticipation of its receipt of the House bill, so
long as action by Senate is withheld pending the
receipt of the House bill.
(2) NO. The Pres. certified that the Senate bill
was urgent. Presidential certification dispensed
the requirement not only of printing but also
reading the bill in 3 separate days. In fact, the
Senate accepted the Pres. certification
(3) No. Court said that the title states that the
purpose of the statute is to expand the VAT
system and one way of doing this is to widen its
base by withdrawing some of the exemptions
granted before. It is also in the power of
Congress to amend, alter, repeal grant of
franchises for operation of public utility when the
common good so requires.
One subject rule is intended to prevent surprise
upon Congress members and inform people of
pending legislation. In the case of PAL, they did
not know of their situation not because of any
defect in title but because they might have not
noticed its publication until some event calls
attention to its existence.
TOLENTINO VS. THE SECRETARY OF
FINANCE Case Digest
ARTURO M. TOLENTINO VS. THE
SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE
1994 Aug 25
G.R. No. 115455
235 SCRA 630
FACTS: The valued-added tax (VAT) is levied
on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of
services. It is equivalent to 10% of the gross
selling price or gross value in money of goods or
properties sold, bartered or exchanged or of the
gross receipts from the sale or exchange of
services. Republic Act No. 7716 seeks to widen
the tax base of the existing VAT system and
enhance its administration by amending the
National Internal Revenue Code.
The Chamber of Real Estate and Builders
Association (CREBA) contends that the
imposition of VAT on sales and leases by virtue
of contracts entered into prior to the effectivity of
the law would violate the constitutional provision
of “non-impairment of contracts.”
ISSUE: Whether R.A. No. 7716 is
unconstitutional on ground that it violates the
contract clause under Art. III, sec 10 of the Bill of
Rights.
RULING: No. The Supreme Court the contention
of CREBA, that the imposition of the VAT on the
sales and leases of real estate by virtue of
contracts entered into prior to the effectivity of
the law would violate the constitutional provision
of non-impairment of contracts, is only slightly
less abstract but nonetheless hypothetical. It is
enough to say that the parties to a contract
cannot, through the exercise of prophetic
discernment, fetter the exercise of the taxing
power of the State. For not only are existing
laws read into contracts in order to fix
obligations as between parties, but the
reservation of essential attributes of sovereign
power is also read into contracts as a basic
postulate of the legal order. The policy of
protecting contracts against impairment
presupposes the maintenance of a government
which retains adequate authority to secure the
peace and good order of society. In truth, the
Contract Clause has never been thought as a
limitation on the exercise of the State's power of
taxation save only where a tax exemption has
been granted for a valid consideration.
Such is not the case of PAL in G.R. No. 115852,
and the Court does not understand it to make
this claim. Rather, its position, as discussed
above, is that the removal of its tax exemption
cannot be made by a general, but only by a
specific, law.
Further, the Supreme Court held the validity of
Republic Act No. 7716 in its formal and
substantive aspects as this has been raised in
the various cases before it. To sum up, the
Court holds:
(1) That the procedural requirements of the
Constitution have been complied with by
Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal
requirements for the enactment of statutes -
beyond those prescribed by the Constitution -
have been observed is precluded by the
principle of separation of powers;
(3) That the law does not abridge freedom of
speech, expression or the press, nor interfere
with the free exercise of religion, nor deny to any
of the parties the right to an education; and
(4) That, in view of the absence of a factual
foundation of record, claims that the law is
regressive, oppressive and confiscatory and that
it violates vested rights protected under the
Contract Clause are prematurely raised and do
not justify the grant of prospective relief by writ
of prohibition.
WHEREFORE, the petitions are DISMISSED.
Tolentino vs. Secretary of Finance G.R. No.
115455, August 25, 1994
Sunday, January 25, 2009 Posted
by Coffeeholic Writes
Labels: Case Digests, Political Law
Facts: The value-added tax (VAT) is levied on
the sale, barter or exchange of goods and
properties as well as on the sale or exchange of
services. RA 7716 seeks to widen the tax base
of the existing VAT system and enhance its
administration by amending the National Internal
Revenue Code. There are various suits
challenging the constitutionality of RA 7716 on
various grounds.
One contention is that RA 7716 did not originate
exclusively in the House of Representatives as
required by Art. VI, Sec. 24 of the Constitution,
because it is in fact the result of the
consolidation of 2 distinct bills, H. No. 11197 and
S. No. 1630. There is also a contention that S.
No. 1630 did not pass 3 readings as required by
the Constitution.
Issue: Whether or not RA 7716 violates Art. VI,
Secs. 24 and 26(2) of the Constitution
Held: The argument that RA 7716 did not
originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24
of the Constitution will not bear analysis. To
begin with, it is not the law but the revenue bill
which is required by the Constitution to originate
exclusively in the House of Representatives. To
insist that a revenue statute and not only the bill
which initiated the legislative process
culminating in the enactment of the law must
substantially be the same as the House bill
would be to deny the Senate’s power not only to
concur with amendments but also to propose
amendments. Indeed, what the Constitution
simply means is that the initiative for filing
revenue, tariff or tax bills, bills authorizing an
increase of the public debt, private bills and bills
of local application must come from the House
of Representatives on the theory that, elected as
they are from the districts, the members of the
House can be expected to be more sensitive to
the local needs and problems. Nor does the
Constitution prohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the
bill from the House, so long as action by the
Senate as a body is withheld pending receipt of
the House bill.
although its application to others, such those
selling goods, is valid, its application to the press
or to religious groups, such as the Jehovah's
Witnesses, in connection with the latter's sale of
religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put
it, "it is one thing to impose a tax on income or
property of a preacher. It is quite another thing
to exact a tax on him for delivering a sermon."

The next argument of the petitioners was that S.
No. 1630 did not pass 3 readings on separate
days as required by the Constitution because
the second and third readings were done on the
same day. But this was because the President
had certified S. No. 1630 as urgent. The
presidential certification dispensed with the
requirement not only of printing but also that of
reading the bill on separate days. That upon the
certification of a bill by the President the
requirement of 3 readings on separate days and
of printing and distribution can be dispensed
with is supported by the weight of legislative
practice.
The VAT is, however, different. It is not a license
tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on
the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services
and the lease of properties purely for revenue
purposes. To subject the press to its payment is
not to burden the exercise of its right any more
than to make the press pay income tax or
subject it to general regulation is not to violate its
freedom under the Constitution

*****

Tolentino vs. Secretary of Finance

Facts: These are motions seeking

reconsideration of our decision dismissing the
petitions filed in these cases for the declaration
of unconstitutionality of R.A. No. 7716, otherwise
known as the Expanded Value-Added Tax Law.
Now it is contended by the PPI that by removing
the exemption of the press from the VAT while
maintaining those granted to others, the law
discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is
unconstitutional."

Issue: Does sales tax on bible sales violative of

religious freedom?

Held: No. The Court was speaking in that case

of a license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the press
is unconstitutional because it lays a prior
restraint on the exercise of its right. Hence,